[G.R. No. 98107. August 18, 1997.

BENJAMIN C. JUCO, Petitioner, v. NATIONAL LABOR RELATIONS COMMISSION and NATIONAL

HOUSING CORPORATION, Respondents.

1. CONSTITUTIONAL LAW; 1973 CONSTITUTION; CONSTITUTIONAL COMMISSIONS; CIVIL SERVICE

COMMISSION; EMPLOYER IN GOVERNMENT-OWNED AND/OR CONTROLLED CORPORATIONS
EMBRACED WITHIN THE CIVIL SERVICE. — Under the laws then in force, employees of government-
owned and/or controlled corporations were governed by the Civil Service Law and not by the Labor
Code. Hence, Article 277 of the Labor Code (PD 442) then provided: "The terms and conditions of
employment of all government employees, including employees of government-owned and controlled
corporations shall be governed by the Civil Service Law rules and regulations. . . The 1973 Constitution,
Article II-B, Section 1(1), on the other hand provided: "The Civil Service embraces every branch, agency-
subdivision and instrumentality of the government, including government-owned or controlled
corporations.

2. ID.; 1987 CONSTITUTION; CONSTITUTIONAL COMMISSION; CIVIL SERVICE COMMISSION; ONLY

EMPLOYEES OF GOVERNMENT-OWNED AND/OR CONTROLLED CORPORATIONS WITH ORIGINAL
CHARTER, EMBRACED WITHIN THE CIVIL SERVICE. — Although we had earlier ruled in National Housing
Corporation v Juco, that employees of government-owned and/or controlled corporations, whether
created by special law or formed as subsidiaries under the general Corporation Law, are governed by the
Civil Service Law and not by the Labor Code, this ruling has been supplanted by the 1987 Constitution.
Thus, the said Constitution now provides: "The civil service embraces all branches, subdivisions,
instrumentalities and agencies of the Government, including government-owned or controlled
corporations with original charter." (Article IX-8, Section 2[1]).

3. ID.; ID.; ID.; ID.; ID.; "WITH ORIGINAL CHARTER," CONSTRUED. — We ruled that the new phrase
"with original charter" means that government-owned and controlled corporations refer to corporations
chartered by special law as distinguished from corporations organized under the Corporation Code.

4. REMEDIAL LAW; JURISDICTION; CONSTITUTION IN PLACE AT TIME OF DECISION DETERMINES

JURISDICTION OVER CASES INVOLVING EMPLOYEES IN GOVERNMENT-OWNED AND/OR CONTROLLED
CORPORATIONS. — In National Service Corporation (NASECO) v. National Labor Relations Commission,
we had the occasion to apply the present Constitution in deciding whether or not the employees of
NASECO are covered by the Civil Service Law or Labor Code notwithstanding that the case arose at the
time when the 1973 Constitution was still in effect. We ruled that the NLRC has jurisdiction over the
employees of NASECO on the ground that it is the 1987 Constitution that governs because it is the
Constitution in place at the time of the decision. Thus, NASECO which had been organized under the
general incorporation statute and a subsidiary of the National Investment Development Corporation,
which in turn was a subsidiary of the Philippine National Bank, is excluded from the purview of the Civil
Service Commission.

5. ID.; ID.; ID.; EMPLOYEES OF NHA INCORPORATED UNDER THE FORMER CORPORATION LAW,
SUBJECT TO THE PROVISIONS OF THE LABOR CODE. — We see no cogent reason to depart from the
ruling in the aforesaid case. In the case at bench, the National Housing Corporation is a government
owned corporation organized in 1959 in accordance with Executive Order No. 399, otherwise known as
the Uniform Charter of Government Corporation dated January 1, 1959. Its shares of stock are and have
been one hundred percent (100%) owned by the Government from its incorporation under Act 1459,
the former corporation law. The government entities that own it shares of stock are the Government
Service Insurance System, the Social Security System, the Development Bank of the Philippines, the
National Investment and Development Corporation and the People’s Homesite and Housing
Corporations. Considering the fact that the NHA had been in incorporated under Act 1459, the former
corporation law, it is but correct to say that it is a government-owned or controlled corporation whose
employee are subject to the provisions of the Labor Code. This observation is reiterated in the recent
case of Trade Union of the Philippines and Allied Services (TUPAS) v. National Housing Corporation,
where we held that the NHA is now within the jurisdiction of the Department of Labor and Employment,
it being a government-owned and/or controlled corporation without an original charter. Furthermore,
we also held that the workers or employees of the NHC (now NHA) undoubtedly have the right to form
unions or employee’s organization and that there is no impediment to the holding of a certification
election among them as they are covered by the Labor Code. Thus, the NLRC erred in dismissing
petitioner’s complaint for lack of jurisdiction because the rule now is that the Civil Service now covers
only government-owned or controlled corporations with original charters. Having been incorporated
under the Corporation Law, its relations with its personnel are governed by the Labor Code and come
under the jurisdiction of the National Labor Relations Commission.

DECISION

HERMOSISIMA, JR., J.:

This is a petition for certiorari to set aside the Decision of the National Labor Relations Commission
(NLRC) dated March 14, 1991, which reversed the Decision dated May 21, 1990 of Labor Arbiter Manuel
R Caday, on the ground of lack of jurisdiction.

Petitioner Benjamin C. Juco was hired as a project engineer of respondent National Housing Corporation
(NHC) from November 16, 1970 to May 14, 1975. On May 14, 1975, he was separated from the service
for having been implicated in a crime of theft and/or malversation of public funds.cralawnad

On March 25, 1977, petitioner filed a complaint for illegal dismissal against the NHC with the
Department of Labor.

On September 17, 1977, the Labor Arbiter rendered a decision dismissing the complaint on the ground
that the NLRC had no jurisdiction over the case. 1

Petitioner then elevated the case to the NLRC which rendered a decision on December 28, 1982,
reversing the decision of the Labor Arbiter. 2

Dissatisfied with the decision of the NLRC, respondent NHC appealed before this Court and on January
17, 1985, we rendered a decision, the dispositive portion thereof reads as follows:jgc:chanrobles.com.ph

"WHEREFORE, the petition is hereby GRANTED. The questioned decision of the respondent National
Labor Relations Commission is SET ASIDE. The decision of the Labor Arbiter dismissing the case before it
for lack of jurisdiction is REINSTATED." 3
On January 6, 1989, petitioner filed with the Civil Service Commission a complaint for illegal dismissal,
with preliminary mandatory injunction. 4

On February 6, 1989, respondent NHC moved for the dismissal of the complaint on the ground that the
Civil Service Commission has no jurisdiction over the case. 5

On April 11, 1989, the Civil Service Commission issued an order dismissing the complaint for lack of
jurisdiction. It ratiocinated that:jgc:chanrobles.com.ph

"The Board finds the comment and/or motion to dismiss meritorious. It was not disputed that NHC is a
government corporation without an original charter but organized/created under the Corporation Code.

Article IX, Section 2 (1) of the 1987 Constitution provides:chanrob1es virtual 1aw library

‘The civil service embraces all branches, subdivisions, instrumentalities and agencies of the Government,
including government owned and controlled corporations with original charters.’ (Emphasis supplied)

From the aforequoted constitutional provision, it is clear that respondent NHC is not within the scope of
the civil service and is therefore beyond the jurisdiction of this Board. Moreover, it is pertinent to state
that the 1987 Constitution was ratified and became effective on February 2, 1987.

WHEREFORE, for lack of jurisdiction, the instant complaint is hereby dismissed." 6

On April 28, 1989, petitioner filed with respondent NLRC a complaint for illegal dismissal with
preliminary mandatory injunction against respondent NHC. 7

On May 21, 1990, respondent NLRC thru Labor Arbiter Manuel R. Caday ruled that petitioner was
illegally dismissed from his employment by respondent as there was evidence in the record that the
criminal case against him was purely fabricated, prompting the trial court to dismiss the charges against
him. Hence, he concluded that the dismissal was illegal as it was devoid of basis, legal or factual.

He further ruled that the complaint is not barred by prescription considering that the period from which
to reckon the reglementary period of four years should be from the date of the receipt of the decision of
the Civil Service Commission promulgated on April 11, 1989. He also ratiocinated
that:jgc:chanrobles.com.ph

"It appears . . . complainant filed the complaint for illegal dismissal with the Civil Service Commission on
January 6, 1989 and the same was dismissed on April 11, 1989 after which on April 28, 1989, this case
was filed by the complainant. Prior to that, this case was ruled upon by the Supreme Court on January
17, 1985 which enjoined the complainant to go to the Civil Service Commission which in fact,
complainant did. Under the circumstances, there is merit on the contention that the running of the
reglementary period of four (4) years was suspended with the filing of the complaint with the said
Commission. Verily, it was not the fault of the respondent for failing to file the complaint as alleged by
the respondent but due to, in the words of the complainant, a ‘legal knot’ that has to be untangled." 8

Thereafter, the Labor Arbiter rendered a decision, the dispositive portion of which
reads:jgc:chanrobles.com.ph
"Premises considered, judgment is hereby rendered declaring the dismissal of the complainant as illegal
and ordering the respondent to immediately reinstate him to his former position without loss of
seniority rights with full back wages inclusive of allowance and to his other benefits or equivalent
computed from the time it is withheld from him when he was dismissed on March 27, 1977, until
actually reinstated." 9

On June 1, 1990, respondent NHC filed its appeal before the NLRC and on March 14, 1991, the NLRC
promulgated a decision which reversed the decision of Labor Arbiter Manuel R. Caday on the ground of
lack of jurisdiction. 10

The primordial issue that confronts us is whether or not public respondent committed grave abuse of
discretion in holding that petitioner is not governed by the Labor Code.

Under the laws then in force, employees of government-owned and/or controlled corporations were
governed by the Civil Service Law and not by the Labor Code. Hence,

Article 277 of the Labor Code (PD 442) then provided:jgc:chanrobles.com.ph

"The terms and conditions of employment of all government employees, including employees of
government-owned and controlled corporations shall be governed by the Civil Service Law, rules and
regulations . . ."cralaw virtua1aw library

The 1973 Constitution, Article II-B, Section 1(1), on the other hand provided:jgc:chanrobles.com.ph

"The Civil Service embraces every branch, agency, subdivision and instrumentality of the government,
including government-owned or controlled corporations."cralaw virtua1aw library

Although we had earlier ruled in National Housing Corporation v. Juco, 11 that employees of
government-owned and/or controlled corporations, whether created by special law or formed as
subsidiaries under the general Corporation Law, are governed by the Civil Service Law and not by the
Labor Code, this ruling has been supplanted by the 1987 Constitution. Thus, the said Constitution now
provides:jgc:chanrobles.com.ph

"The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the
Government, including government owned or controlled corporations with original charter." (Article IX-
B, Section 2[1])

In National Service Corporation (NASECO) v. National Labor Relations Commission, 12 we had the
occasion to apply the present Constitution in deciding whether or not the employees of NASECO are
covered by the Civil Service Law or the Labor Code notwithstanding that the case arose at the time when
the 1973 Constitution was still in effect. We ruled that the NLRC has jurisdiction over the employees of
NASECO on the ground that it is the 1987 Constitution that governs because it is the Constitution in
place at the time of the decision. Furthermore, we ruled that the new phrase "with original charter"
means that government-owned and controlled corporations refer to corporations chartered by special
law as distinguished from corporations organized under the Corporation Code. Thus, NASECO which had
been organized under the general incorporation statute and a subsidiary of the National Investment
Development Corporation, which in turn was a subsidiary of the Philippine National Bank, is excluded
from the purview of the Civil Service Commission.chanrobles virtual lawlibrary

We see no cogent reason to depart from the ruling in the aforesaid case.

In the case at bench, the National Housing Corporation is a government owned corporation organized in
1959 in accordance with Executive Order No. 399, otherwise known as the Uniform Charter of
Government Corporation, dated January 1, 1959. Its shares of stock are and have been one hundred
percent (100%) owned by the Government from its incorporation under Act 1459, the former
corporation law. The government entities that own its shares of stock are the Government Service
Insurance System, the Social Security System, the Development Bank of the Philippines, the National
Investment and Development Corporation and the People’s Homesite and Housing Corporation. 13
Considering the fact that the NHA had been incorporated under Act 1459, the former corporation law, it
is but correct to say that it is a government-owned or controlled corporation whose employees are
subject to the provisions of the Labor Code. This observation is reiterated in the recent case of Trade
Union of the Philippines and Allied Services (TUPAS) v. National Housing Corporation, 14 where we held
that the NHA is now within the jurisdiction of the Department of Labor and Employment, it being a
government-owned and/or controlled corporation without an original charter. Furthermore, we also
held that the workers or employees of the NHC (now NHA) undoubtedly have the right to form unions or
employee’s organization and that there is no impediment to the holding of a certification election
among them as they are covered by the Labor Code.

Thus, the NLRC erred in dismissing petitioner’s complaint for lack of jurisdiction because the rule now is
that the Civil Service now covers only government-owned or controlled corporations with original
charters. 15 Having been incorporated under the Corporation Law, its relations with its personnel are
governed by the Labor Code and come under the jurisdiction of the National Labor Relations
Commission.

One final point. Petitioners have been tossed from one forum to another for a simple illegal dismissal
case. It is but apt that we put an end to his dilemma in the interest of justice.

WHEREFORE, the decision of the NLRC in NLRC NCR-04-02036089 dated March 14, 1991 is hereby
REVERSED and the Decision of the Labor Arbiter dated May 21, 1990 is REINSTATED.chanrobles
virtuallawlibrary

SO ORDERED.
[G.R. No. 100947. May 31, 1993.]

PNOC ENERGY DEVELOPMENT CORPORATION AND MARCELINO TONGCO, Petitioners, v. NATIONAL

LABOR RELATIONS COMMISSION and MANUEL S. PINEDA, Respondents.

SYLLABUS

1. CONSTITUTIONAL LAW; CIVIL SERVICE; GOVERNMENT-OWNED OR CONTROLLED

CORPORATIONS WITHOUT ORIGINAL CHARTERS, NOT EMBRACED THEREIN. — Section 2 (1), Article IX of
the 1987 Constitution provides as follows: "The civil service embraces all branches, subdivisions,
instrumentalities, and agencies of the Government, including government-owned or controlled
corporations with original charters." Implicit in the provision is that government-owned or controlled
corporations without original charters — i.e., organized under the general law, the Corporation Code —
are not comprehended within the Civil Service, and their employees are not subject to Civil Service Law.
So has this Court construed the provision. (NASECO, et. al. v. NLRC, Et Al., 166 SCRA 122, Lumanta, et. al.
v. NLRC, Et Al., 170 SCRA 79, PNOC-EDC v. Leogardo, et. al., 175 SCRA 29).

2. ID.; OMNIBUS ELECTION CODE; CANDIDATES HOLDING APPOINTIVE OFFICE OR POSITION

CONSIDERED IPSO FACTO RESIGNED UPON FILING OF CERTIFICATE OF CANDIDACY; APPLIES TO
OFFICERS AND EMPLOYEES IN GOVERNMENT-OWNED AND CONTROLLED CORPORATION WITH OR
WITHOUT ORIGINAL CHARTERS. — When the Congress of the Philippines reviewed the Omnibus Election
Code of 1985, in connection with its deliberations on and subsequent enactment of related and
repealing legislation — i.e., Republic Acts Numbered 7166: "An Act Providing for Synchronized National
and Local Elections and for Electoral Reforms, Authorizing Appropriations Therefor, and for Other
Purposes" (effective November 26, 1991), 6646: "An Act Introducing Additional Reforms in the Electoral
System and for Other Purposes" (effective January 5, 1988) and 6636: "An Act Resetting the Local
Elections, etc." (effective November 6, 1987), it was no doubt aware that in light of Section 2(1), Article
IX of the 1987 Constitution: (a) government-owned or controlled corporations were of two (2)
categories — those with original charters, and those organized under the general law — and (b)
employees of these corporations were of two (2) kinds — those covered by the Civil Service Law, rules
and regulations because employed in corporations having original charters, and those not subject to
Civil Service Law but to the Labor Code because employed in said corporations organized under the
general law, or the Corporation Code. Yet Congress made no effort to distinguish between these two
classes of government-owned or controlled corporations or their employees in the Omnibus Election
Code or subsequent related statutes, particularly as regards the rule that an any employee "in
government-owned or controlled corporations, shall be considered ipso facto resigned from his office
upon the filing of his certificate of candidacy." What all this imports is that Section 66 of the Omnibus
Election Code applies to officers and employees in government-owned or controlled corporations, even
those organized under the general laws on incorporation and therefore not having an original or
legislative charter, and even if they do not fall under the Civil Service Law but under the Labor Code. In
other words, Section 66 constitutes just cause for termination of employment in addition to those set
forth in the Labor Code, as amended.

DECISION
NARVASA, C.J.:

The applicability to private respondent Manuel S. Pineda of Section 66 of the Election Code is what is
chiefly involved in the case at bar. Said section reads as follows:jgc:chanrobles.com.ph

"SECTION 66. Candidates holding appointive office or position. — Any person holding a public
appointive office or position, including active members of the Armed Forces of the Philippines, and
officers and employees in government-owned or controlled corporations, shall be considered ipso facto
resigned from his office upon the filing of his certificate of candidacy."cralaw virtua1aw library

Manuel S. Pineda was employed with the Philippine National Oil Co. - Energy Development Corp. (PNOC-
EDC), a subsidiary of the Philippine National Oil Co., from September 17, 1981, when he was hired as
clerk, to January 26, 1989, when his employment was terminated. The events leading to his dismissal
from his job are not disputed.chanroblesvirtuallawlibrary

In November, 1987, while holding the position of Geothermal Construction Secretary, Engineering and
Construction Department, at Tongonan Geothermal Project, Ormoc City, Pineda decided to run for
councilor of the Municipality of Kananga, Leyte, in the local elections scheduled in January, 1988, and
filed the corresponding certificate of candidacy for the position. Objection to Pineda’s being a candidate
while retaining his job in the PNOC-EDC was shortly thereafter registered by Mayor Arturo Cornejos of
Kananga, Leyte. The mayor communicated with the PNOC-EDC — thru Engr. Ernesto Patanao, Resident
Manager, Tongonan Geothermal Project — to express the view that Pineda could not actively
participate in politics unless he officially resigned from PNOC-EDC. 1 Nothing seems to have resulted
from this protest.

The local elections in Leyte, scheduled for January, 1988, were reset to and held on February 1, 1988.
Pineda was among the official candidates voted for, and eventually proclaimed elected to, the office of
councilor. Some vacillation appears to have been evinced by Pineda at about this time. On February 8,
1988, he wrote to the COMELEC Chairman, expressing his desire to withdraw from the political contest
on account of what he considered to be election irregularities; 2 and on March 19, 1988, he wrote to the
Secretary of Justice seeking legal opinion on the question, among others, of whether or not he was
"considered automatically resigned upon . . . filing of . . . (his) certificate of candidacy," and whether or
not, in case he was elected, he could "remain appointed to any corporate offspring of a government-
owned or controlled corporation." 3 Nevertheless, Pineda took his oath of office in June, 1988 as
councilor-elect of the Municipality of Kananga, Leyte. 4 And despite so qualifying as councilor, and
assuming his duties as such, he continued working for PNOC-EDC as the latter’s Geothermal
Construction Secretary, Engineering and Construction Department, at Tongonan Geothermal Project,
Ormoc City.

On June 7, 1988, Marcelino M. Tongco, Department Manager of the Engineering and Construction
Department, PNOC-EDC, addressed an inquiry to the latter’s Legal Department regarding the status of
Manuel S. Pineda as employee in view of his candidacy for the office of municipal councilor. 5 In
response, the Legal Department rendered an opinion to the effect that Manuel S. Pineda should be
considered ipso facto resigned upon the filing of his Certificate of Candidacy in November, 1987, in
accordance with Section 66 of the Omnibus Election Code. 6
Pineda appealed the PNOC-EDC Legal Department’s ruling to N.C. Vasquez, the Vice President of PNOC-
EDC, on July 14, 1988. In his letter of appeal, 7 he invoked a "court ruling in the case of Caagusan and
Donato v. PNOC-Exploration Corp. . . . (to the effect that) while the government-owned or controlled
corporations are covered by the Civil Service Law (as is taken to mean in Sec. 66 of the Omnibus Election
Code of 1985) (sic), the subsidiaries or corporate offsprings are not." In the same letter he declared his
wish to continue working with PNOC-EDC and his willingness to voluntarily resign from his position as
councilor/member of the Sangguniang Bayan.

He also wrote a letter dated October 17, 1988 to the Department of Local Government inquiring about
the status of his employment with PNOC-EDC in relation to his election as member of the Sangguniang
Bayan. He was advised by DLG Undersecretary Jacinto T. Rubillo Jr., by letter dated March 31, 1989, that
there was no legal impediment to his continuing in his employment with PNOC-EDC while holding at the
same time the elective position of municipal councilor. Cited as basis by Undersecretary Rubillo was
Section 2(1) Article IX-B of the 1987 Constitution and this Court’s ruling in NASECO VS. NLRC, 168 SCRA
122. Undersecretary Rubillo went on to say that Pineda could receive his per diems as municipal
councilor as well as the corresponding representation and transportation allowance (RATA) "provided
the PNOC-EDC charter does not provide otherwise and public service shall not be prejudiced." 8

The PNOC-EDC did not, however, share the Undersecretary’s views. On January 26, 1989, the PNOC-
EDC, through Marcelino Tongco (Manager, Engineering and Construction Department), notified Manuel
S. Pineda in writing (1) that after having given him "ample time" to make some major adjustments
before . . . separation from the company," his employment was being terminated pursuant to Section 66
of the Omnibus Election Code, effective upon receipt of notice, and (2) that he was entitled to "proper
compensation" for the services rendered by him from the time he filed his certificate of candidacy until
his actual separation from the service. 9

On October 16, 1989, Pineda lodged a complaint for illegal dismissal in the Regional Arbitration Branch
No. VIII, NLRC, Tacloban City. Impleaded as respondents were the PNOC-EDC and the Manager of its
Engineering and Construction Department, Marcelino M. Tongco. 10

After due proceedings, Labor Arbiter Araceli H. Maraya, to whom the case was assigned, rendered a
decision on December 28, 1990, 11 declaring Manuel S. Pineda’s dismissal from the service illegal, and
ordering his reinstatement to his former position without loss of seniority rights and payment of full
back wages corresponding to the period from his illegal dismissal up to the time of actual reinstatement.
The Arbiter pointed out that the ruling relied upon by PNOC-EDC to justify Pineda’s dismissal from the
service, i.e., NHA v. Juco, 12 had already been abandoned; and that "as early as November 29, 1988,"
the governing principle laid down by case law — in light of Section 2(1), Article IX-B of the 1987
Constitution 13 — has been that government-owned or controlled corporations incorporated under the
Corporation Code, the general law — as distinguished from those created by special charter — are not
deemed to be within the coverage of the Civil Service Law, and consequently their employees, like those
of the PNOC-EDC, are subject to the provisions of the Labor Code rather than the Civil Service Law. 14

The PNOC-EDC filed an appeal with the National Labor Relations Commission. The latter dismissed the
appeal for lack of merit in a decision dated April 24, 1991. 15 PNOC-EDC sought reconsideration; 16 its
motion was denied by the Commission in a Resolution dated June 21, 1991. 17
It is this Decision of April 24, 1991 and the Resolution of June 21, 1991 that the PNOC-EDC seeks to be
annulled and set aside in the special civil action for certiorari at bar. It contends that the respondent
Commission gravely abused its discretion:chanrob1es virtual 1aw library

1) when it ruled that Manuel S. Pineda was not covered by the Civil Service Rules when he filed his
candidacy for the 1988 local government elections in November 1987;

2) when it ruled that Pineda was not covered by the Omnibus Election Code at the time he filed his
certificate of candidacy for the 1988 local elections;

3) when it ruled that Pineda was illegally dismissed despite the fact that he was considered
automatically resigned pursuant to Section 66 of the Omnibus Election Code; and

4) when it ruled that Pineda could occupy a local government position and be simultaneously
employed in a government-owned or control corporation, a situation patently violative of the
constitutional prohibition on additional compensation.

Acting on the petition, this Court issued a temporary restraining order enjoining the respondent NLRC
from implementing or enforcing its decision and resolution dated April 24, 1991 and June 21, 1991,
respectively.chanroblesvirtualawlibrary

In the comment required of him by the Court, the Solicitor General expressed agreement with the
respondent Commission’s holding that Manuel Pineda had indeed been illegally separated from his
employment in the PNOC-EDC; in other words, that his running for public office and his election thereto
had no effect on his employment with the PNOC-EDC, a corporation not embraced within the Civil
Service.

Petitioner PNOC-EDC argues that at the time that Pineda filed his certificate of candidacy for municipal
councilor in November, 1987, the case law "applicable as far as coverage of government-owned or
controlled corporations are concerned . . . (was to the following effect): 18

‘As correctly pointed out by the Solicitor General, the issue of jurisdiction had been resolved in a string
of cases starting with the National Housing Authority v. Juco (134 SCRA 172) followed by Metropolitan
Waterworks and Sewerage System v. Hernandez (143 SCRA 602) and the comparatively recent case of
Quimpo v. Sandiganbayan (G.R. No. 72553, Dec. 2, 1986) in which this Court squarely ruled that PNOC
subsidiaries, whether or not originally created as government-owned or controlled corporations are
governed by the Civil Service Law.’"

This doctrine, petitioner further argues, was not "automatically reversed" by the 1987 Constitution
because not "amended or repealed by the Supreme Court or the Congress;" 19 and this Court’s decision
in November, 1988, in National Service Corporation v. NLRC, supra 20 — abandoning the Juco ruling —
"cannot be given retroactive effect . . . (in view of) the time-honored principle . . . that laws (judicial
decisions included) shall have no retroactive effect, unless the contrary is provided (Articles 4 and 8 of
the New Civil Code of the Philippines)."cralaw virtua1aw library

Section 2 (1), Article IX of the 1987 Constitution provides as follows:jgc:chanrobles.com.ph

"The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the
Government, including government-owned or controlled corporations with original charters."cralaw
virtua1aw library

Implicit in the provision is that government-owned or controlled corporations without original charters
— i.e., organized under the general law, the Corporation Code — are not comprehended within the Civil
Service, and their employees are not subject to Civil Service Law. So has this Court construed the
provision. 21

In National Service Corporation (NASECO), Et. Al. v. NLRC, Et Al., etc., 22 decided on November 29, 1988,
it was ruled that the 1987 Constitution "starkly varies" from the 1973 charter — upon which the Juco
doctrine rested — in that unlike the latter, the present constitution qualifies the term, "government-
owned or controlled corporations," by the phrase, "with original charter;" hence, the clear implication is
that the Civil Service no longer includes government-owned or controlled corporations without original
charters, i.e., those organized under the general corporation law. 23 NASECO further ruled that the Juco
ruling should not apply retroactively, considering that prior to its promulgation on January 17, 1985, this
Court had expressly recognized the applicability of the Labor Code to government-owned or controlled
corporations. 24

Lumanta, Et. Al. v. NLRC, Et Al., 25 decided on February 8, 1989, made the same pronouncement: that
Juco had been superseded by the 1987 Constitution for implicit in the language of Section 2(1), Article IX
thereof, is the proposition that government-owned or controlled corporations without original charter
do not fall under the Civil Service Law but under the Labor Code.

And in PNOC-EDC v. Leogardo, etc. Et. Al., 26 promulgated on July 5, 1989, this Court ruled that
conformably with the apparent intendment of the NASECO case, supra, since the PNOC-EDC, a
government-owned or controlled company had been incorporated under the general Corporation Law,
its employees are subject to the provisions of the Labor Code.

It is thus clear that the Juco doctrine prevailing at the time of the effectivity of the fundamental charter
in 1987 — i.e., that government-owned or controlled corporations were part of the Civil Service and its
employees subject to Civil Service laws and regulations, 27 regardless of the manner of the mode of
their organization or incorporation — is no longer good law, being at "stark variance," to paraphrase
NASECO, with the 1987 Constitution. In other words, and contrary to the petitioner’s view, as of the
effectivity of the 1987 Constitution, government-owned or controlled corporations without original
charters, or, as Mr. Justice Cruz insists in his concurring opinion in NASECO v. NLRC, 28 a legislative,
charter (i.e., those organized under the Corporation Code), ceased to pertain to the Civil Service and its
employees could no longer be considered as subject to Civil Service laws, rules or regulations.

The basic question is whether an employee in a government-owned or controlled corporations without

an original charter (and therefore not covered by Civil Service Law) nevertheless falls within the scope of
Section 66 of the Omnibus Election Code, viz.:jgc:chanrobles.com.ph

"SECTION 66. Candidates holding appointive office or position. — Any person holding a public
appointive office or position, including active members of the Armed Forces of the Philippines, and
officers and employees in government-owned or controlled corporations, shall be considered ipso facto
resigned from his office upon the filing of his certificate of candidacy."cralaw virtua1aw library
When the Congress of the Philippines reviewed the Omnibus Election Code of 1985, in connection with
its deliberations on and subsequent enactment of related and repealing legislation — i.e., Republic Acts
Numbered 7166: "An Act Providing for Synchronized National and Local Elections and for Electoral
Reforms, Authorizing Appropriations Therefor, and for Other Purposes" (effective November 26, 1991),
6646: "An Act Introducing Additional Reforms in the Electoral System and for Other Purposes" (effective
January 5, 1988) and 6636: "An Act Resetting the Local Elections, etc." (effective November 6, 1987), it
was no doubt aware that in light of Section 2(1), Article IX of the 1987 Constitution: (a) government-
owned or controlled corporations were of two (2) categories — those with original charters, and those
organized under the general law — and (b) employees of these corporations were of two (2) kinds —
those covered by the Civil Service Law, rules and regulations because employed in corporations having
original charters, and those not subject to Civil Service Law but to the Labor Code because employed in
said corporations organized under the general law, or the Corporation Code. Yet Congress made no
effort to distinguish between these two classes of government-owned or controlled corporations or
their employees in the Omnibus Election Code or subsequent related statutes, particularly as regards
the rule that an any employee "in government-owned or controlled corporations, shall be considered
ipso facto resigned from his office upon the filing of his certificate of candidacy." 29

Be this as it may, it seems obvious to the Court that a government-owned or controlled corporation
does not lose its character as such because not possessed of an original charter but organized under the
general law. If a corporation’s capital stock is owned by the Government, or it is operated and managed
by officers charged with the mission of fulfilling the public objectives for which it has been organized, it
is a government-owned or controlled corporation even if organized under the Corporation Code and not
under a special statute; and employees thereof, even if not covered by the Civil Service but by the Labor
Code, are nonetheless "employees in government-owned or controlled corporations," and come within
the letter of Section 66 of the Omnibus Election Code, declaring them "ipso facto resigned from . . .
office upon the filing of . . . (their) certificate of candidacy."cralaw virtua1aw library

What all this imports is that Section 66 of the Omnibus Election Code applies to officers and employees
in government-owned or controlled corporations, even those organized under the general laws on
incorporation and therefore not having an original or legislative charter, and even if they do not fall
under the Civil Service Law but under the Labor Code. In other words, Section 66 constitutes just cause
for termination of employment in addition to those set forth in the Labor Code, as amended.

The conclusions here reached make unnecessary discussion and resolution of the other issues raised in
this case.chanroblesvirtuallawlibrary

WHEREFORE, the petition is GRANTED; the decision of public respondent National Labor Relations
Commission dated April 24, 1991 and its Resolution dated June 21, 1991 are NULLIFIED AND SET ASIDE;
and the complaint of Manuel S. Pineda is DISMISSED. No costs.

SO ORDERED.
G.R. No. 87676 December 20, 1989

REPUBLIC OF THE PHILIPPINES, represented by the NATIONAL PARKS DEVELOPMENT COMMITTEE,

Petitioner, vs. THE HON. COURT OF APPEALS and THE NATIONAL PARKS DEVELOPMENT SUPERVISORY
ASSOCIATION & THEIR MEMBERS, Respondents.

Bienvenido D. Comia for respondents.

GRIÑO-AQUINO, J.:

The Regional Trial Court of Manila, Branch III, dismissed for lack of jurisdiction, the petitioner's
complaint in Civil Case No. 88- 44048 praying for a declaration of illegality of the strike of the private
respondents and to restrain the same. The Court of Appeals denied the petitioner's petition for
certiorari, hence, this petition for review.chanroblesvirtualawlibrary chanrobles virtual law library

The key issue in this case is whether the petitioner, National Parks Development Committee (NPDC), is a
government agency, or a private corporation, for on this issue depends the right of its employees to
strike.chanroblesvirtualawlibrary chanrobles virtual law library

This issue came about because although the NPDC was originally created in 1963 under Executive Order
No. 30, as the Executive Committee for the development of the Quezon Memorial, Luneta and other
national parks, and later renamed as the National Parks Development Committee under Executive Order
No. 68, on September 21, 1967, it was registered in the Securities and Exchange Commission (SEC) as a
non-stock and non-profit corporation, known as "The National Parks Development Committee, Inc."
chanrobles virtual law library

However, in August, 1987, the NPDC was ordered by the SEC to show cause why its Certificate of
Registration should not be suspended for: (a) failure to submit the General Information Sheet from 1981
to 1987; (b) failure to submit its Financial Statements from 1981 to 1986; (c) failure to register its
Corporate Books; and (d) failure to operate for a continuous period of at least five (5) years since
September 27, 1967.chanroblesvirtualawlibrary chanrobles virtual law library

On August 18, 1987, the NPDC Chairman, Amado Lansang, Jr., informed SEC that his Office had no
objection to the suspension, cancellation, or revocation of the Certificate of Registration of
NPDC.chanroblesvirtualawlibrarychanrobles virtual law library

By virtue of Executive Order No. 120 dated January 30, 1989, the NPDC was attached to the Ministry
(later Department) of Tourism and provided with a separate budget subject to audit by the Commission
on Audit.chanroblesvirtualawlibrary chanrobles virtual law library

On September 10, 1987, the Civil Service Commission notified NPDC that pursuant to Executive Order
No. 120, all appointments and other personnel actions shall be submitted through the
Commission.chanroblesvirtualawlibrarychanrobles virtual law library

Meanwhile, the Rizal Park Supervisory Employees Association, consisting of employees holding
supervisory positions in the different areas of the parks, was organized and it affiliated with the Trade
Union of the Philippines and Allied Services (TUPAS) under Certificate No.
1206.chanroblesvirtualawlibrary chanrobles virtual law library
On June 15, 1987, two collective bargaining agreements were entered into between NPDC and NPDCEA
(TUPAS local Chapter No. 967) and NPDC and NPDCSA (TUPAS Chapter No. 1206), for a period of two
years or until June 30, 1989.chanroblesvirtualawlibrary chanrobles virtual law library

On March 20, 1988, these unions staged a stake at the Rizal Park, Fort Santiago, Paco Park, and Pook ni
Mariang Makiling at Los Banos, Laguna, alleging unfair labor practices by
NPDC.chanroblesvirtualawlibrarychanrobles virtual law library

On March 21, 1988, NPDC filed in the Regional Trial Court in Manila, Branch III, a complaint against the
union to declare the strike illegal and to restrain it on the ground that the strikers, being government
employees, have no right to strike although they may form a union.chanroblesvirtualawlibrary
chanrobles virtual law library

On March 24, 1988, the lower court dismissed the complaint and lifted the restraining order for lack of
jurisdiction. It held that the case "properly falls under the jurisdiction of the Department of Labor,"
because "there exists an employer-employee relationship" between NPDC and the strikers, and "that
the acts complained of in the complaint, and which plaintiff seeks to enjoin in this action, fall under
paragraph 5 of Article 217 of the Labor Code, ..., in relation to Art. 265 of the same Code, hence,
jurisdiction over said acts does not belong to this Court but to the Labor Arbiters of the Department of
Labor." (p. 142, Rollo.).chanroblesvirtualawlibrarychanrobles virtual law library

Petitioner went to the Court of Appeals on certiorari (CA-G.R. SP No. 14204). On March 31, 1989, the
Court of appeals affirmed the order of the trial court, hence, this petition for review. The petitioner
alleges that the Court of Appeals erred:

1) in not holding that the NPDC employees are covered by the Civil Service Law; andchanrobles
virtual law library

2) in ruling that petitioner's labor dispute with its employees is cognizable by the Department of
Labor.

We have considered the petition filed by the Solicitor General on behalf of NPDC and the comments
thereto and are persuaded that it is meritorious.chanroblesvirtualawlibrarychanrobles virtual law library

In Jesus P. Perlas, Jr. vs. People of the Philippines, G.R. Nos. 84637-39, August 2, 1989, we ruled that the
NPDC is an agency of the government, not a government-owned or controlled corporation, hence, the
Sandiganbayan had jurisdiction over its acting director who committed estafa. We held thus:

The National Parks Development Committee was created originally as an Executive Committee on
January 14,1963, for the development of the Quezon Memorial, Luneta and other national parks
(Executive Order No. 30). It was later designated as the National Parks Development Committee (NPDC)
on February 7, 1974 (E.O. No. 69). On January 9, 1966, Mrs. Imelda R. Marcos and Teodoro F. Valencia
were designated Chairman and Vice- Chairman respectively (E.O. No. 3). Despite an attempt to transfer
it to the Bureau of Forest Development, Department of Natural Resources, on December 1, 1975 (Letter
of Implementation No. 39, issued pursuant to PD No. 830, dated November 27, 1975), the NPDC has
remained under the Office of the President (E.O. No. 709, dated July 27,
1981).chanroblesvirtualawlibrary chanrobles virtual law library
Since 1977 to 1981, the annual appropriations decrees listed NPDC as a regular government agency
under the Office of the President and allotments for its maintenance and operating expenses were
issued direct to NPDC (Exh. 10-A Perlas, Item No. 2, 3). (Italics ours.)

Since NPDC is a government agency, its employees are covered by civil service rules and regulations
(Sec. 2, Article IX, 1987 Constitution). Its employees are civil service employees (Sec. 14, Executive Order
No. 180).chanroblesvirtualawlibrary chanrobles virtual law library

While NPDC employees are allowed under the 1987 Constitution to organize and join unions of their
choice, there is as yet no law permitting them to strike. In case of a labor dispute between the
employees and the government, Section 15 of Executive Order No. 180 dated June 1, 1987 provides that
the Public Sector Labor- Management Council, not the Department of Labor and Employment, shall hear
the dispute. Clearly, the Court of Appeals and the lower court erred in holding that the labor dispute
between the NPDC and the members of the NPDSA is cognizable by the Department of Labor and
Employment.chanroblesvirtualawlibrary chanrobles virtual law library

WHEREFORE, the petition for review is granted. The decision of the Court of Appeals in CA-G.R. SP No.
14204 is hereby set aside. The private respondents' complaint should be filed in the Public Sector Labor-
Management Council as provided in Section 15 of Executive Order No. 180. Costs against the private
respondents.chanroblesvirtualawlibrarychanrobles virtual law library

SO ORDERED.
[G.R. Nos. 109095-109107. February 23, 1995.]

ELPEDIO LASCO, RODOLFO ELISAN, URBANO BERADOR, FLORENTINO ESTOBIO, MARCELINO

MATURAN, FRAEN BALIBAG, CARMELITO GAJOL, DEMOSTHENES MANTO, SATURNINO BACOL,
SATURNINO LASCO, RAMON LOYOLA, JOSENIANO B. ESPINA, all represented by MARIANO R. ESPINA,
and MARIANO R. ESPINA, Petitioners, v. UNITED NATIONS REVOLVING FUND FOR NATURAL
RESOURCES EXPLORATION (UNRFNRE) represented by its operations manager, DR. KYRIACOS LOUCA,
OSCAR N. ABELLA, LEON G. GONZAGA, JR., MUSIB M. BUAT, Commissioners of National Labor
Relations Commission (NLRC), Fifth Division, Cagayan de Oro City and IRVING PETILLA, Labor Arbiter of
Butuan City, Respondents.

SYLLABUS

1. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CERTIORARI; DOES NOT LIE UNLESS A MOTION FOR
RECONSIDERATION IS FIRST FILED. — Certiorari as a special civil action will not lie unless a motion for
reconsideration is first filed before the respondent tribunal, to allow it an opportunity to correct its
assigned errors.

2. POLITICAL LAW; DOCTRINE OF DIPLOMATIC IMMUNITY; EXTENDS TO INTERNATIONAL

ORGANIZATION, ITS OFFICIALS AND FUNCTIONARIES; PURPOSE THEREOF. — As a matter of state policy
as expressed in the Constitution, the Philippine Government adopts the generally accepted principles of
international law. Being a member of the United Nations and a party to the Convention on the Privileges
and Immunities of the Specialized Agencies of the United Nations, the Philippine Government adheres
to the doctrine of immunity granted to the United Nations and its specialized agencies. Both treaties
have the force and effect of law. In World Health Organization v. Aquino, 48 SCRA 242 (1972), we had
occasion to rule that: "It is a recognized principle of international law and under our system of
separation of powers that diplomatic immunity is essentially a political question and courts should
refuse to look beyond a determination by the executive branch of the government, and where the plea
of diplomatic immunity is recognized and affirmed by the executive branch of the government as in the
case at bar, it is then the duty of the courts to accept the claim of immunity upon appropriate
suggestion by the principal law officer of the government, the Solicitor General or other officer acting
under his direction. Hence, in adherence to the settled principle that courts may not so exercise their
jurisdiction by seizure and detention of property, as to embarrass the executive arm of the government
in conducting foreign relations, it is accepted doctrine that "in such cases the judicial department of
(this) government follows the action of the political branch and will not embarrass the latter by
assuming an antagonistic jurisdiction." We recognize the growth of international organizations
dedicated to specific universal endeavors, such as health, agriculture, science and technology and
environment. It is not surprising that their existence has evolved into the concept of international
immunities. The reason behind the grant of privileges and immunities to international organizations, its
officials and functionaries is to secure them legal and practical independence in fulfilling their duties.
Immunity is necessary to assure unimpeded performance of their functions. The purpose is "to shield to
affairs of international organizations, in accordance with international practice, from political pressure
or control by the host country to the prejudice of member States of the organization, and to ensure the
unhampered performance of their functions."cralaw virtua1aw library
3. ID.; ID.; ID.; DETERMINATION THEREOF, A POLITICAL QUESTION. — In the International Catholic
Migration Commission case, we held that there is no conflict between the constitutional duty of the
State to protect the rights of workers and to promote their welfare, and the grant of immunity to
international organizations. Clauses on jurisdictional immunity are now standard in the charters of
international organizations to guarantee the smooth discharge of their functions. The diplomatic
immunity of private respondent was sufficiently established by the letter of the Department of Foreign
Affairs, recognizing and confirming the immunity of UNRFNRE in accordance with the 1946 Convention
on Privileges and Immunities of the United Nations where the Philippine Government was a party. The
issue whether an international organization is entitled to diplomatic immunity is a "political question"
and such determination by the executive branch is conclusive on the court and quasi-judicial agencies.
Our courts can only assume jurisdiction over private respondent if it expressly waived its immunity,
which is not so in the case at bench.

DECISION

QUIASON, J.:

This is a petition for certiorari under Rule 65 of the Revised Rules of Court to set aside the Resolution
dated January 25, 1993 of the National Labor Relations Commission (NLRC), Fifth Division, Cagayan de
Oro City.chanroblesvirtuallawlibrary

We dismiss the petition.

Petitioners were dismissed from their employment with private respondent, the United Nations
Revolving Fund for Natural Resources Exploration (UNRFNRE), which is a special fund and subsidiary
organ of the United Nations. The UNRFNRE is involved in a joint project of the Philippine Government
and the United Nations for exploration work in Dinagat Island.

Petitioners are the complainants in NLRC Cases Nos. SRAB 10-03-00067-91 to 10-03-00078-91 and SRAB
10-07-00159-91 for illegal dismissal and damages.

In its Motion to Dismiss, private respondent alleged that respondent Labor Arbiter had no jurisdiction
over its personality since it enjoyed diplomatic immunity pursuant to the 1946 Convention on the
Privileges and Immunities of the United Nations. In support thereof, private respondent attached a
letter from the Department of Foreign Affairs dated August 26, 1991, which acknowledged its immunity
from suit. The letter confirmed that private respondent, being a special fund administered by the United
Nations, was covered by the 1946 Convention on the Privileges and Immunities of the United Nations of
which the Philippine Government was an original signatory (Rollo, p. 21).

On November 25, 1991, respondent Labor Arbiter issued an order dismissing the complaints on the
ground that private respondent was protected by diplomatic immunity. The dismissal was based on the
letter of the Foreign Office dated September 10, 1991.
Petitioner’s motion for reconsideration was denied. Thus, an appeal was filed with the NLRC, which
affirmed the dismissal of the complaints in its Resolution dated January 25,
1993.chanroblesvirtuallawlibrary

Petitioners filed the instant petition for certiorari without first seeking a reconsideration of the NLRC
resolution.

II

Article 223 of the Labor Code of the Philippines, as amended, provides that decisions of the NLRC are
final and executory. Thus, they may only be questioned through certiorari as a special civil action under
Rule 65 of the Revised Rules of Court.

Ordinarily, certiorari as a special civil action will not lie unless a motion for reconsideration is first filed
before the respondent tribunal, to allow it an opportunity to correct its assigned errors (Liberty
Insurance Corporation v. Court of Appeals, 222 SCRA 37 [1993]).chanroblesvirtualawlibrary

In the case at bench, petitioner’s failure to file a motion for reconsideration is fatal to the instant
petition. Moreover, the petition lacks any explanation for such omission, which may merit its being
considered as falling under the recognized exceptions to the necessity of filing such motion.

Notwithstanding, we deem it wise to give due course to the petition because of the implications of the
issue in our international relations.

Petitioners argued that the acts of mining exploration and exploitation are outside the official functions
of an international agency protected by diplomatic immunity. Even assuming that private respondent
was entitled to diplomatic immunity, petitioners insisted that private respondent waived it when it
engaged in exploration work and entered into a contract of employment with petitioners.

Petitioners, likewise, invoked the constitutional mandate that the State shall afford full protection to
labor and promote full employment and equality of employment opportunities for all (1987
Constitution, Art. XIII, Sec. 3).

The Office of the Solicitor General is of the view that private respondent is covered by the mantle of
diplomatic immunity. Private respondent is a specified agency of the United Nations. Under Article 105
of the Charter of the United Nations:chanroblesvirtuallawlibrary

"1. The Organization shall enjoy in the territory of its Members such privileges and immunities as
are necessary for the fulfillment of its purposes.

"2. Representatives of the Members of the United Nations and officials of the Organization shall
similarly enjoy such privileges and immunities as are necessary for the independent exercise of their
functions in connection with the Organization."cralaw virtua1aw library
Corollary to the cited article is the Convention on the Privileges and Immunities of the Specialized
Agencies of the United Nations, to which the Philippines was a signatory (Vol. 1, Philippine Treaty Series,
p. 621.) We quote Sections 4 and 5 of Article III thereof:jgc:chanrobles.com.ph

"Sec. 4. The specialized agencies, their property and assets, wherever located and by whomsoever held,
shall enjoy immunity from every form of legal process except insofar as in any particular case they have
expressly waived their immunity. It is, however, understood that no waiver of immunity shall extend to
any measure of execution (Emphasis supplied).

"Sec. 5. The premises of the specialized agencies shall be inviolable. The property and assets of the
specialized agencies, wherever located and by whomsoever held, shall be immune from search,
requisition, confiscation, expropriation and any other form of interference, whether by executive,
administrative, judicial or legislative action" (Emphasis supplied).

As a matter of state policy as expressed in the Constitution, the Philippine Government adopts the
generally accepted principles of international law (1987 Constitution, Art. II, Sec. 2). Being a member of
the United Nations and a party to the Convention on the Privileges and Immunities of the Specialized
Agencies of the United Nations, the Philippine Government adheres to the doctrine of immunity granted
to the United Nations and its specialized agencies. Both treaties have the force and effect of
law.chanroblesvirtuallawlibrary

In World Health Organization v. Aquino, 48 SCRA 242 (1972), we had occasion to rule
that:jgc:chanrobles.com.ph

"It is a recognized principle of international law and under our system of separation of powers that
diplomatic immunity is essentially a political question and courts should refuse to look beyond a
determination by the executive branch of the government, and where the plea of diplomatic immunity
is recognized and affirmed by the executive branch of the government as in the case at bar, it is then the
duty of the courts to accept the claim of immunity upon appropriate suggestion by the principal law
officer of the government, the Solicitor General or other officer acting under his direction. Hence, in
adherence to the settled principle that courts may not so exercise their jurisdiction by seizure and
detention of property, as to embarrass the executive arm of the government in conducting foreign
relations, it is accepted doctrine that “in such cases the judicial department of (this) government follows
the action of the political branch and will not embarrass the latter by assuming as antagonistic
jurisdiction" (Emphasis supplied).

international organizations to guarantee the smooth discharge of their functions.

The diplomatic immunity of private respondent was sufficiently established by the letter of the
Department of Foreign Affairs, recognizing and confirming the immunity of UNRFNRE in accordance with
the 1946 Convention on Privileges and Immunities of the United Nations where the Philippine
Government was a party. The issue whether an international organization is entitled to diplomatic
immunity is a "political question" and such determination by the executive branch is conclusive on the
courts and quasi-judicial agencies (The Holy See v. Hon. Eriberto U. Rosario, Jr., G.R. No. 101949, Dec. 1,
1994; International Catholic Migration Commission v. Calleja, supra).chanroblesvirtuallawlibrary
Our courts can only assume jurisdiction over private respondent if it expressly waived its immunity,
which is not so in the case at bench (Convention on the Privileges and Immunities of the Specialized
Agencies of the United Nations, Art. III, Sec. 4).

Private respondent is not engaged in a commercial venture in the Philippines. Its presence here is by
virtue of a joint project entered into by the Philippine Government and United Nations for mineral
exploration in Dinagat Island. Its mission is not to exploit our natural resources and gain pecuniarily
thereby but to help improve the quality of life of the people, including that of
petitioners.chanrobles.com : virtual law library

This is not to say that petitioners have no recourse. Section 31 of the Convention on the Privileges and
Immunities of the Specialized Agencies of the United Nations states that "each specialized agency shall
make a provision for appropriate modes of settlement of: (a) disputes arising out of contracts or other
disputes of private character to which the specialized agency is a party."cralaw virtua1aw library

WHEREFORE, the petition is DISMISSED.

SO ORDERED.
[G.R. NO. 167648 - January 28, 2008]

TELEVISION AND PRODUCTION EXPONENTS, INC. and/or ANTONIO P. TUVIERA, Petitioners, v.

ROBERTO C. SERVAÑA, Respondent.

DECISION

TINGA, J.:

This Petition for Review under Rule 45 assails the 21 December 2004 Decision1 and 8 April 2005
Resolution2 of the Court of Appeals declaring Roberto Servaña (respondent) a regular employee of
petitioner Television and Production Exponents, Inc. (TAPE). The appellate court likewise ordered TAPE
to pay nominal damages for its failure to observe statutory due process in the termination of
respondent's employment for authorized cause.

TAPE is a domestic corporation engaged in the production of television programs, such as the long-
running variety program, "Eat Bulaga!". Its president is Antonio P. Tuviera (Tuviera). Respondent
Roberto C. Servaña had served as a security guard for TAPE from March 1987 until he was terminated
on 3 March 2000.

Respondent filed a complaint for illegal dismissal and nonpayment of benefits against TAPE. He alleged
that he was first connected with Agro-Commercial Security Agency but was later on absorbed by TAPE
as a regular company guard. He was detailed at Broadway Centrum in Quezon City where "Eat Bulaga!"
regularly staged its productions. On 2 March 2000, respondent received a memorandum informing him
of his impending dismissal on account of TAPE's decision to contract the services of a professional
security agency. At the time of his termination, respondent was receiving a monthly salary of P6,000.00.
He claimed that the holiday pay, unpaid vacation and sick leave benefits and other monetary
considerations were withheld from him. He further contended that his dismissal was undertaken
without due process and violative of existing labor laws, aggravated by nonpayment of separation pay.3

In a motion to dismiss which was treated as its position paper, TAPE countered that the labor arbiter
had no jurisdiction over the case in the absence of an employer-employee relationship between the
parties. TAPE made the following assertions: (1) that respondent was initially employed as a security
guard for Radio Philippines Network (RPN-9); (2) that he was tasked to assist TAPE during its live
productions, specifically, to control the crowd; (3) that when RPN-9 severed its relationship with the
security agency, TAPE engaged respondent's services, as part of the support group and thus a talent, to
provide security service to production staff, stars and guests of "Eat Bulaga!" as well as to control the
audience during the one-and-a-half hour noontime program; (4) that it was agreed that complainant
would render his services until such time that respondent company shall have engaged the services of a
professional security agency; (5) that in 1995, when his contract with RPN-9 expired, respondent was
retained as a talent and a member of the support group, until such time that TAPE shall have engaged
the services of a professional security agency; (6) that respondent was not prevented from seeking other
employment, whether or not related to security services, before or after attending to his "Eat Bulaga!"
functions; (7) that sometime in late 1999, TAPE started negotiations for the engagement of a
professional security agency, the Sun Shield Security Agency; and (8) that on 2 March 2000, TAPE issued
memoranda to all talents, whose functions would be rendered redundant by the engagement of the
security agency, informing them of the management's decision to terminate their services.4
TAPE averred that respondent was an independent contractor falling under the talent group category
and was working under a special arrangement which is recognized in the industry.5

Respondent for his part insisted that he was a regular employee having been engaged to perform an
activity that is necessary and desirable to TAPE's business for thirteen (13) years.6

On 29 June 2001, Labor Arbiter Daisy G. Cauton-Barcelona declared respondent to be a regular

employee of TAPE. The Labor Arbiter relied on the nature of the work of respondent, which is securing
and maintaining order in the studio, as necessary and desirable in the usual business activity of TAPE.
The Labor Arbiter also ruled that the termination was valid on the ground of redundancy, and ordered
the payment of respondent's separation pay equivalent to one (1)-month pay for every year of service.
The dispositive portion of the decision reads:

WHEREFORE, complainant's position is hereby declared redundant. Accordingly, respondents are hereby
ordered to pay complainant his separation pay computed at the rate of one (1) month pay for every year
of service or in the total amount of P78,000.00.7

On appeal, the National Labor Relations Commission (NLRC) in a Decision8 dated 22 April 2002 reversed
the Labor Arbiter and considered respondent a mere program employee, thus:

We have scoured the records of this case and we find nothing to support the Labor Arbiter's conclusion
that complainant was a regular employee.

xxx

The primary standard to determine regularity of employment is the reasonable connection between the
particular activity performed by the employee in relation to the usual business or trade of the employer.
This connection can be determined by considering the nature and work performed and its relation to
the scheme of the particular business or trade in its entirety. x x x Respondent company is engaged in
the business of production of television shows. The records of this case also show that complainant was
employed by respondent company beginning 1995 after respondent company transferred from RPN-9
to GMA-7, a fact which complainant does not dispute. His last salary was P5,444.44 per month. In such
industry, security services may not be deemed necessary and desirable in the usual business of the
employer. Even without the performance of such services on a regular basis, respondent's company's
business will not grind to a halt.

xxx

Complainant was indubitably a program employee of respondent company. Unlike [a] regular employee,
he did not observe working hours x x x. He worked for other companies, such as M-Zet TV Production,
Inc. at the same time that he was working for respondent company. The foregoing indubitably shows
that complainant-appellee was a program employee. Otherwise, he would have two (2) employers at
the same time.9

Respondent filed a motion for reconsideration but it was denied in a Resolution10 dated 28 June 2002.

Respondent filed a petition for certiorari with the Court of Appeals contending that the NLRC acted with
grave abuse of discretion amounting to lack or excess of jurisdiction when it reversed the decision of the
Labor Arbiter. Respondent asserted that he was a regular employee considering the nature and length
of service rendered.11

Reversing the decision of the NLRC, the Court of Appeals found respondent to be a regular employee.
We quote the dispositive portion of the decision:

IN LIGHT OF THE FOREGOING, the petition is hereby GRANTED. The Decision dated 22 April 2002 of the
public respondent NLRC reversing the Decision of the Labor Arbiter and its Resolution dated 28 June
2002 denying petitioner's motion for reconsideration are REVERSED and SET ASIDE. The Decision dated
29 June 2001 of the Labor Arbiter is REINSTATED with MODIFICATION in that private respondents are
ordered to pay jointly and severally petitioner the amount of P10,000.00 as nominal damages for non-
compliance with the statutory due process.

SO ORDERED.12

Finding TAPE's motion for reconsideration without merit, the Court of Appeals issued a Resolution13
dated 8 April 2005 denying said motion.

TAPE filed the instant Petition for Review raising substantially the same grounds as those in its petition
for certiorari before the Court of Appeals. These matters may be summed up into one main issue:
whether an employer-employee relationship exists between TAPE and respondent.

On 27 September 2006, the Court gave due course to the petition and considered the case submitted for
decision.14

At the outset, it bears emphasis that the existence of employer-employee relationship is ultimately a
question of fact. Generally, only questions of law are entertained in appeals by certiorari to the Supreme
Court. This rule, however, is not absolute. Among the several recognized exceptions is when the findings
of the Court of Appeals and Labor Arbiters, on one hand, and that of the NLRC, on the other, are
conflicting,15 as obtaining in the case at bar.

Jurisprudence is abound with cases that recite the factors to be considered in determining the existence
of employer-employee relationship, namely: (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 method by which the work is to be accomplished.16 The most important
factor involves the control test. Under the control test, there is an employer-employee relationship
when the person for whom the services are performed reserves the right to control not only the end
achieved but also the manner and means used to achieve that end.17

In concluding that respondent was an employee of TAPE, the Court of Appeals applied the "four-fold
test" in this wise:

First. The selection and hiring of petitioner was done by private respondents. In fact, private
respondents themselves admitted having engaged the services of petitioner only in 1995 after TAPE
severed its relations with RPN Channel 9.

By informing petitioner through the Memorandum dated 2 March 2000, that his services will be
terminated as soon as the services of the newly hired security agency begins, private respondents in
effect acknowledged petitioner to be their employee. For the right to hire and fire is another important
element of the employer-employee relationship.

Second. Payment of wages is one of the four factors to be considered in determining the existence of
employer-employee relation. . . Payment as admitted by private respondents was given by them on a
monthly basis at a rate of P5,444.44.

Third. Of the four elements of the employer-employee relationship, the "control test" is the most
important. x x x

The bundy cards representing the time petitioner had reported for work are evident proofs of private
respondents' control over petitioner more particularly with the time he is required to report for work
during the noontime program of "Eat Bulaga!" If it were not so, petitioner would be free to report for
work anytime even not during the noontime program of "Eat Bulaga!" from 11:30 a.m. to 1:00 p.m. and
still gets his compensation for being a "talent." Precisely, he is being paid for being the security of "Eat
Bulaga!" during the above-mentioned period. The daily time cards of petitioner are not just for mere
record purposes as claimed by private respondents. It is a form of control by the management of private
respondent TAPE.18

TAPE asseverates that the Court of Appeals erred in applying the "four-fold test" in determining the
existence of employer-employee relationship between it and respondent. With respect to the elements
of selection, wages and dismissal, TAPE proffers the following arguments: that it never hired
respondent, instead it was the latter who offered his services as a talent to TAPE; that the Memorandum
dated 2 March 2000 served on respondent was for the discontinuance of the contract for security
services and not a termination letter; and that the talent fees given to respondent were the pre-agreed
consideration for the services rendered and should not be construed as wages. Anent the element of
control, TAPE insists that it had no control over respondent in that he was free to employ means and
methods by which he is to control and manage the live audiences, as well as the safety of TAPE's stars
and guests.19

The position of TAPE is untenable. Respondent was first connected with Agro-Commercial Security
Agency, which assigned him to assist TAPE in its live productions. When the security agency's contract
with RPN-9 expired in 1995, respondent was absorbed by TAPE or, in the latter's language, "retained as
talent."20 Clearly, respondent was hired by TAPE. Respondent presented his identification card21 to
prove that he is indeed an employee of TAPE. It has been in held that in a business establishment, an
identification card is usually provided not just as a security measure but to mainly identify the holder
thereof as a bona fide employee of the firm who issues it.22

Respondent claims to have been receiving P5,444.44 as his monthly salary while TAPE prefers to
designate such amount as talent fees. Wages, as defined in the Labor Code, are 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. It is beyond dispute that
respondent received a fixed amount as monthly compensation for the services he rendered to TAPE.

The Memorandum informing respondent of the discontinuance of his service proves that TAPE had the
power to dismiss respondent.
Control is manifested in the bundy cards submitted by respondent in evidence. He was required to
report daily and observe definite work hours. To negate the element of control, TAPE presented a
certification from M-Zet Productions to prove that respondent also worked as a studio security guard for
said company. Notably, the said certificate categorically stated that respondent reported for work on
Thursdays from 1992 to 1995. It can be recalled that during said period, respondent was still working for
RPN-9. As admitted by TAPE, it absorbed respondent in late 1995.23

TAPE further denies exercising control over respondent and maintains that the latter is an independent
contractor.24 Aside from possessing substantial capital or investment, a legitimate job contractor or
subcontractor carries on a distinct and independent business and undertakes to perform the job, work
or service on its own account and under its own responsibility according to its own manner and method,
and free from the control and direction of the principal in all matters connected with the performance
of the work except as to the results thereof.25 TAPE failed to establish that respondent is an
independent contractor. As found by the Court of Appeals:

We find the annexes submitted by the private respondents insufficient to prove that herein petitioner is
indeed an independent contractor. None of the above conditions exist in the case at bar. Private
respondents failed to show that petitioner has substantial capital or investment to be qualified as an
independent contractor. They likewise failed to present a written contract which specifies the
performance of a specified piece of work, the nature and extent of the work and the term and duration
of the relationship between herein petitioner and private respondent TAPE.26

TAPE relies on Policy Instruction No. 40, issued by the Department of Labor, in classifying respondent as
a program employee and equating him to be an independent contractor.

Policy Instruction No. 40 defines program employees as'

x x x those whose skills, talents or services are engaged by the station for a particular or specific program
or undertaking and who are not required to observe normal working hours such that on some days they
work for less than eight (8) hours and on other days beyond the normal work hours observed by station
employees and are allowed to enter into employment contracts with other persons, stations, advertising
agencies or sponsoring companies. The engagement of program employees, including those hired by
advertising or sponsoring companies, shall be under a written contract specifying, among other things,
the nature of the work to be performed, rates of pay and the programs in which they will work. The
contract shall be duly registered by the station with the Broast Media Council within three (3) days from
its consummation.27

TAPE failed to adduce any evidence to prove that it complied with the requirements laid down in the
policy instruction. It did not even present its contract with respondent. Neither did it comply with the
contract-registration requirement.

Even granting arguendo that respondent is a program employee, stills, classifying him as an independent
contractor is misplaced. The Court of Appeals had this to say:

We cannot subscribe to private respondents' conflicting theories. The theory of private respondents that
petitioner is an independent contractor runs counter to their very own allegation that petitioner is a
talent or a program employee. An independent contractor is not an employee of the employer, while a
talent or program employee is an employee. The only difference between a talent or program employee
and a regular employee is the fact that a regular employee is entitled to all the benefits that are being
prayed for. This is the reason why private respondents try to seek refuge under the concept of an
independent contractor theory. For if petitioner were indeed an independent contractor, private
respondents will not be liable to pay the benefits prayed for in petitioner's complaint.28

More importantly, respondent had been continuously under the employ of TAPE from 1995 until his
termination in March 2000, or for a span of 5 years. Regardless of whether or not respondent had been
performing work that is necessary or desirable to the usual business of TAPE, respondent is still
considered a regular employee under Article 280 of the Labor Code which provides:

Art. 280. Regular and Casual Employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to
be regular where the employee has been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer, except where the employment has been fixed
for a specific project or undertaking the completion or termination of which has been determined at the
time of engagement of the employee or where the work or service to be performed is seasonal in nature
and employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph. Provided,
that, any employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered a regular employee with respect to the activity in which he is employed and
his employment shall continue while such activity exists.

As a regular employee, respondent cannot be terminated except for just cause or when authorized by
law.29 It is clear from the tenor of the 2 March 2000 Memorandum that respondent's termination was
due to redundancy. Thus, the Court of Appeals correctly disposed of this issue, viz:

Article 283 of the Labor Code provides that the employer may also terminate the employment of any
employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or
the closing or cessation of operation of the establishment or undertaking unless the closing is for the
purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the
Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of
termination due to the installation of labor saving devices or redundancy, the worker affected thereby
shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1)
month pay for every year or service, whichever is higher.

xxx

We uphold the finding of the Labor Arbiter that "complainant [herein petitioner] was terminated upon
[the] management's option to professionalize the security services in its operations. x x x" However,
[we] find that although petitioner's services [sic] was for an authorized cause, i.e., redundancy, private
respondents failed to prove that it complied with service of written notice to the Department of Labor
and Employment at least one month prior to the intended date of retrenchment. It bears stressing that
although notice was served upon petitioner through a Memorandum dated 2 March 2000, the
effectivity of his dismissal is fifteen days from the start of the agency's take over which was on 3 March
2000. Petitioner's services with private respondents were severed less than the month requirement by
the law.
Under prevailing jurisprudence the termination for an authorized cause requires payment of separation
pay. Procedurally, if the dismissal is based on authorized causes under Articles 283 and 284, the
employer must give the employee and the Deparment of Labor and Employment written notice 30 days
prior to the effectivity of his separation. Where the dismissal is for an authorized cause but due process
was not observed, the dismissal should be upheld. While the procedural infirmity cannot be cured, it
should not invalidate the dismissal. However, the employer should be liable for non-compliance with
procedural requirements of due process.

xxx

Under recent jurisprudence, the Supreme Court fixed the amount of P30,000.00 as nominal damages.
The basis of the violation of petitioners' right to statutory due process by the private respondents
warrants the payment of indemnity in the form of nominal damages. The amount of such damages is
addressed to the sound discretion of the court, taking into account the relevant circumstances. We
believe this form of damages would serve to deter employer from future violations of the statutory due
process rights of the employees. At the very least, it provides a vindication or recognition of this
fundamental right granted to the latter under the Labor Code and its Implementing Rules. Considering
the circumstances in the case at bench, we deem it proper to fix it at P10,000.00.30

In sum, we find no reversible error committed by the Court of Appeals in its assailed decision.

However, with respect to the liability of petitioner Tuviera, president of TAPE, absent any showing that
he acted with malice or bad faith in terminating respondent, he cannot be held solidarily liable with
TAPE.31 Thus, the Court of Appeals ruling on this point has to be modified.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with
MODIFICATION in that only petitioner Television and Production Exponents, Inc. is liable to pay
respondent the amount of P10,000.00 as nominal damages for non-compliance with the statutory due
process and petitioner Antonio P. Tuviera is accordingly absolved from liability.

SO ORDERED.
FARLEY FULACHE, MANOLO JABONERO, DAVID CASTILLO, JEFFREY LAGUNZAD, MAGDALENA MALIG-
ON BIGNO, FRANCISCO CABAS, JR., HARVEY PONCE and ALAN C. ALMENDRAS, Petitioners, v. ABS-CBN
BROADCASTING CORPORATION, Respondent.

DECISION

BRION, J.:

The petition for review on certiorari1cralaw now before us seeks to set aside the decision2cralaw and
resolution3cralaw of the Court of Appeals, Nineteenth Division (CA) promulgated on March 25, 2008
and July 8, 2008, respectively, in CA- G.R. SP No. 01838.4cralaw

The Antecedents

The Regularization Case.

In June 2001, petitioners Farley Fulache, Manolo Jabonero, David Castillo, Jeffrey Lagunzad, Magdalena
Malig-on Bigno, Francisco Cabas, Jr., Harvey Ponce and Alan C. Almendras (petitioners) and Cresente
Atinen (Atinen) filed two separate complaints for regularization, unfair labor practice and several money
claims (regularization case) against ABS-CBN Broadcasting Corporation-Cebu (ABS-CBN). Fulache and
Castillo were drivers/cameramen; Atinen, Lagunzad and Jabonero were drivers; Ponce and Almendras
were cameramen/editors; Bigno was a PA/Teleprompter Operator-Editing, and Cabas was a VTR
man/editor. The complaints (RAB VII Case Nos. 06-1100-01 and 06-1176-01) were consolidated and
were assigned to Labor Arbiter Julie C. Rendoque.

The petitioners alleged that on December 17, 1999, ABS-CBN and the ABS-CBN Rank-and-File Employees
Union (Union) executed a collective bargaining agreement (CBA) effective December 11, 1999 to
December 10, 2002; they only became aware of the CBA when they obtained copies of the agreement;
they learned that they had been excluded from its coverage as ABS-CBN considered them temporary
and not regular employees, in violation of the Labor Code. They claimed they had already rendered
more than a year of service in the company and, therefore, should have been recognized as regular
employees entitled to security of tenure and to the privileges and benefits enjoyed by regular
employees. They asked that they be paid overtime, night shift differential, holiday, rest day and service
incentive leave pay. They also prayed for an award of moral damages and attorneys fees.

ABS-CBN explained the nature of the petitioners employment within the framework of its operations. It
claimed that: it operates in several divisions, one of which is the Regional Network Group (RNG). The
RNG exercises control and supervision over all the ABS-CBN local stations to ensure that ABS-CBN
programs are extended to the provinces. A local station, like the Cebu station, can resort to cost-
effective and cost-saving measures to remain viable; local stations produced shows and programs that
were constantly changing because of the competitive nature of the industry, the changing public
demand or preference, and the seasonal nature of media broadcasting programs. ABS-CBN claimed, too,
that the production of programs per se is not necessary or desirable in its business because it could
generate profits by selling airtime to block-timers or through advertising.

ABS-CBN further claimed that to cope with fluctuating business conditions, it contracts on a case-to-case
basis the services of persons who possess the necessary talent, skills, training, expertise or qualifications
to meet the requirements of its programs and productions. These contracted persons are called
"talents" and are considered independent contractors who offer their services to broadcasting
companies.

Instead of salaries, ABS-CBN pointed out that talents are paid a pre-arranged consideration called
"talent fee" taken from the budget of a particular program and subject to a ten percent (10%)
withholding tax. Talents do not undergo probation. Their services are engaged for a specific program or
production, or a segment thereof. Their contracts are terminated once the program, production or
segment is completed.

ABS-CBN alleged that the petitioners services were contracted on various dates by its Cebu station as
independent contractors/off camera talents, and they were not entitled to regularization in these
capacities.

On January 17, 2002, Labor Arbiter Rendoque rendered his decision5cralaw holding that the petitioners
were regular employees of ABS-CBN, not independent contractors, and are entitled to the benefits and
privileges of regular employees.

ABS-CBN appealed the ruling to the National Labor Relations Commission (NLRC) Fourth Division, mainly
contending that the petitioners were independent contractors, not regular employees.6

The Illegal Dismissal Case.

While the appeal of the regularization case was pending, ABS-CBN dismissed Fulache, Jabonero, Castillo,
Lagunzad and Atinen (all drivers) for their refusal to sign up contracts of employment with service
contractor Able Services. The four drivers and Atinen responded by filing a complaint for illegal dismissal
(illegal dismissal case). The case (RAB VII Case No. 07-1300-2002) was likewise handled by Labor Arbiter
Rendoque.

In defense, ABS-CBN alleged that even before the labor arbiter rendered his decision of January 17, 2002
in the regularization case, it had already undertaken a comprehensive review of its existing
organizational structure to address its operational requirements. It then decided to course through
legitimate service contractors all driving, messengerial, janitorial, utility, make-up, wardrobe and
security services for both the Metro Manila and provincial stations, to improve its operations and to
make them more economically viable. Fulache, Jabonero, Castillo, Lagunzad and Atinen were not singled
out for dismissal; as drivers, they were dismissed because they belonged to a job category that had
already been contracted out. It argued that even if the petitioners had been found to have been illegally
dismissed, their reinstatement had become a physical impossibility because their employer-employee
relationships had been strained and that Atinen had executed a quitclaim and release.

In her April 21, 2003 decision in the illegal dismissal case,7cralaw Labor Arbiter Rendoque upheld the
validity of ABS-CBN's contracting out of certain work or services in its operations. The labor arbiter
found that petitioners Fulache, Jabonero, Castillo, Lagunzad and Atinen had been dismissed due to
redundancy, an authorized cause under the law.8cralaw He awarded them separation pay of one (1)
months salary for every year of service.

Again, ABS-CBN appealed to the NLRC which rendered on December 15, 2004 a joint decision on the
regularization and illegal dismissal cases.9cralaw The NLRC ruled that there was an employer-employee
relationship between the petitioners and ABS-CBN as the company exercised control over the
petitioners in the performance of their work; the petitioners were regular employees because they were
engaged to perform activities usually necessary or desirable in ABS-CBN's trade or business; they cannot
be considered contractual employees since they were not paid for the result of their work, but on a
monthly basis and were required to do their work in accordance with the companys schedule. The NLRC
thus affirmed with modification the labor arbiter's regularization decision of January 17, 2002,
additionally granting the petitioners CBA benefits and privileges.

The NLRC reversed the labor arbiters ruling in the illegal dismissal case; it found that petitioners Fulache,
Jabonero, Castillo, Lagunzad and Atinen had been illegally dismissed and awarded them backwages and
separation pay in lieu of reinstatement. Under both cases, the petitioners were awarded CBA benefits
and privileges from the time they became regular employees up to the time of their dismissal.

The petitioners moved for reconsideration, contending that Fulache, Jabonero, Castillo and Lagunzad
are entitled to reinstatement and full backwages, salary increases and other CBA benefits as well as 13th
month pay, cash conversion of sick and vacation leaves, medical and dental allowances, educational
benefits and service awards. Atinen appeared to have been excluded from the motion and there was no
showing that he sought reconsideration on his own.

ABS-CBN likewise moved for the reconsideration of the decision, reiterating that Fulache, Jabonero,
Castillo and Lagunzad were independent contractors, whose services had been terminated due to
redundancy; thus, no backwages should have been awarded. It further argued that the petitioners were
not entitled to the CBA benefits because they never claimed these benefits in their position paper
before the labor arbiter while the NLRC failed to make a clear and positive finding that that they were
part of the bargaining unit; neither was there evidence to support this finding.

The NLRC resolved the motions for reconsideration on March 24, 200610cralaw by reinstating the two
separate decisions of the labor arbiter dated January 17, 2002,11cralaw and April 21, 2003,12cralaw
respectively. Thus, on the regularization issue, the NLRC stood by the ruling that the petitioners were
regular employees entitled to the benefits and privileges of regular employees. On the illegal dismissal
case, the petitioners, while recognized as regular employees, were declared dismissed due to
redundancy. The NLRC denied the petitioners second motion for reconsideration in its order of May 31,
2006 for being a prohibited pleading. 13cralaw

The CA Petition and Decision

The petitioners went to the CA through a petition for certiorari under Rule 65 of the Rules of
Court.14cralaw They charged the NLRC with grave abuse of discretion in: (1) denying them the benefits
under the CBA; (2) finding no evidence that they are part of the companys bargaining unit; (3) not
reinstating and awarding backwages to Fulache, Jabonero, Castillo and Lagunzad; and (4) ruling that
they are not entitled to damages and attorneys fees.

ABS-CBN, on the other hand, questioned the propriety of the petitioners use of a certiorari petition. It
argued that the proper remedy for the petitioners was an appeal from the reinstated decisions of the
labor arbiter.

In its decision of March 25, 2008,15cralaw the appellate court brushed aside ABS-CBNs procedural
question, holding that the petition was justified because there is no plain, speedy or adequate remedy
from a final decision, order or resolution of the NLRC; the reinstatement of the labor arbiters decisions
did not mean that the proceedings reverted back to the level of the arbiter. It likewise affirmed the
NLRC ruling that the petitioners second motion for reconsideration is a prohibited pleading under the
NLRC rules.16cräläwvirtualibräry

On the merits of the case, the CA ruled that the petitioners failed to prove their claim to CBA benefits
since they never raised the issue in the compulsory arbitration proceedings, and did not appeal the labor
arbiters decision which was silent on their entitlement to CBA benefits. The CA found that the
petitioners failed to show with specificity how Section 1 (Appropriate Bargaining Unit) and the other
provisions of the CBA applied to them.

On the illegal dismissal issue, the CA upheld the NLRC decision reinstating the labor arbiters April 21,
2003 ruling.17cralaw Thus, the drivers Fulache, Jabonero, Castillo and Lagunzad were not illegally
dismissed as their separation from the service was due to redundancy; they had not presented any
evidence that ABS-CBN abused its prerogative in contracting out the services of drivers. Except for
separation pay, the CA denied the petitioners claim for backwages, moral and exemplary damages, and
attorneys fees.

The petitioners moved for reconsideration, but the CA denied the motion in a resolution promulgated
on July 8, 2008.18cralaw Hence, the present petition.

The Petition

The petitioners challenge the CA ruling on both procedural and substantive grounds. As procedural
questions, they submit that the CA erred in: (1) affirming the NLRC resolution which reversed its own
decision; (2) sustaining the NLRC ruling that their second motion for reconsideration is a prohibited
pleading; (3) not ruling that ABS-CBN admitted in its position paper before the labor arbiter that they
were members of the bargaining unit as the matter was not raised in its appeal to the NLRC; and, (4) not
ruling that notwithstanding their failure to appeal from the first decision of the Labor Arbiter, they can
still participate in the appeal filed by ABS-CBN regarding their employment status.

On the substantive aspect, the petitioners contend that the CA gravely erred in: (1) not considering the
evidence submitted to the NLRC on appeal to bolster their claim that they were members of the
bargaining unit and therefore entitled to the CBA benefits; (2) not ordering ABS-CBN to pay the
petitioners salaries, allowances and CBA benefits after the NLRC has declared that they were regular
employees of ABS-CBN; (3) not ruling that under existing jurisprudence, the position of driver cannot be
declared redundant, and that the petitioners-drivers were illegally dismissed; and, (4) not ruling that the
petitioners were entitled to damages and attorneys fees.

The petitioners argue that the NLRC resolution of March 24, 200619cralaw which set aside its joint
decision of December 15, 200420cralaw and reinstated the twin decisions of the labor arbiter,21cralaw
had the effect of promulgating a new decision based on issues that were not raised in ABS-CBNs partial
appeal to the NLRC. They submit that the NLRC should have allowed their second motion for
reconsideration so that it may be able to equitably evaluate the parties "conflicting versions of the facts"
instead of denying the motion on a mere technicality.

On the question of their CBA coverage, the petitioners contend that the CA erred in not considering that
ABS-CBN admitted their membership in the bargaining unit, for nowhere in its partial appeal from the
labor arbiters decision in the regularization case did it allege that the petitioners failed to prove that
they are members of the bargaining unit; instead, the company stood by its position that the petitioners
were not entitled to the CBA benefits since they were independent contractors/program employees.

The petitioners submit that while they did not appeal the labor arbiters decision in the regularization
case, ABS-CBN raised the employment status issue in its own appeal to the NLRC; this appeal laid this
issue open for review. They argue that they could still participate in the appeal proceedings at the NLRC;
pursue their position on the issue; and introduce evidence as they did in their reply to the companys
appeal.22cralaw They bewail the appellate courts failure to consider the evidence they presented to the
NLRC (consisting of documents and sworn statements enumerating the activities they are performing)
clearly indicating that they are part of the rank-and-file bargaining unit at ABS-CBN.

The petitioners then proceeded to describe the work they render for the company. Collectively, they
claim that they work as assistants in the production of the Cebuano news program broadcast daily over
ABS-CBN Channel 3, as follows: Fulache, Jabonero, Castillo and Lagunzad as production assistants to
drive the news team; Ponce and Almendras, to shoot scenes and events with the use of cameras owned
by ABS-CBN; Malig-on Bigno, as studio production assistant and assistant editor/teleprompter operator;
and Cabas, Jr., as production assistant for video editing and operating the VTR machine recorder. As
production assistants, the petitioners submit that they are rank-and-file employees (citing in support of
their position the Courts ruling in ABS-CBN Broadcasting Corp. v. Nazareno23) who are entitled to salary
increases and other benefits under the CBA. Relying on the Courts ruling in New Pacific Timber and
Supply Company, Inc. v. NLRC,24cralaw they posit that to exclude them from the CBA "would constitute
undue discrimination and would deprive them of monetary benefits they would otherwise be entitled
to."

As their final point, the petitioners argue that even if they were not able to prove that they were
members of the bargaining unit, the CA should not have dismissed their petition. When the CA affirmed
the rulings of both the labor arbiter and the NLRC that they are regular employees, the CA should have
ordered ABS-CBN to recognize their regular employee status and to give them the salaries, allowances
and other benefits and privileges under the CBA.

On the dismissal of Fulache, Jabonero, Castillo and Lagunzad, the petitioners impute bad faith on ABS-
CBN when it abolished the positions of drivers claiming that the company failed to comply with the
requisites of a valid redundancy action. They maintain that ABS-CBN did not present any evidence on
the new staffing pattern as approved by the management of the company, and did not even bother to
show why it considered the positions of drivers superfluous and unnecessary; it is not true that the
positions of drivers no longer existed because these positions were contracted out to an agency that, in
turn, recruited four drivers to take the place of Fulache, Jabonero, Castillo and Lagunzad. As further
indication that the redundancy action against the four drivers was done in bad faith, the petitioners call
attention to ABS-CBNs abolition of the position of drivers after the labor arbiter rendered her decision
declaring Fulache, Jabonero, Castillo and Lagunzad regular company employees. The petitioners object
to the dismissal of the four drivers when they refused to sign resignation letters and join Able Services, a
contracting agency, contending that the four had no reason to resign after the labor arbiter declared
them regular company employees.

Since their dismissal was illegal and attended by bad faith, the petitioners insist that they should be
reinstated with backwages, and should likewise be awarded moral and exemplary damages, and
attorney's fees.
The Case for ABS-CBN

In its Comment filed on January 28, 2009,25cralaw ABS-CBN presents several grounds which may be
synthesized as follows:

1. The petition raises questions of fact and not of law.

2. The CA committed no error in affirming the resolution of the NLRC reinstating the decisions of the
labor arbiter.

ABS-CBN submits that the petition should be dismissed for having raised questions of fact and not of law
in violation of Rule 45 of the Rules of Court. It argues that the question of whether the petitioners were
covered by the CBA (and therefore entitled to the CBA benefits) and whether the petitioners were
illegally dismissed because of redundancy, are factual questions that cannot be reviewed on certiorari
because the Court is not a trier of facts.

ABS-CBN dismisses the petitioners issues and arguments as mere rehash of what they raised in their
pleadings with the CA and as grounds that do not warrant further consideration. It further contends that
because the petitioners did not appeal the labor arbiter decisions, these decisions had lapsed to finality
and could no longer be the subject of a petition for certiorari; the petitioners cannot obtain from the
appellate court affirmative relief other than those granted in the appealed decision. It also argues that
the NLRC did not commit any grave abuse of discretion in reinstating the twin decisions of the labor
arbiter, thereby affirming that no CBA benefits can be awarded to the petitioners; in the absence of any
illegal dismissal, the petitioners were not entitled to reinstatement, backwages, damages, and attorney's
fees.

The Court's Ruling

We first resolve the parties procedural questions.

ABS-CBN wants the petition to be dismissed outright for its alleged failure to comply with the
requirement of Rule 45 of the Rules of Court that the petition raises only questions of
law.26cräläwvirtualibräry

We find no impropriety in the petition from the standpoint of Rule 45. The petitioners do not question
the findings of facts of the assailed decisions. They question the misapplication of the law and
jurisprudence on the facts recognized by the decisions. For example, they question as contrary to law
their exclusion from the CBA after they were recognized as regular rank-and-file employees of ABS-CBN.
They also question the basis in law of the dismissal of the four drivers and the legal propriety of the
redundancy action taken against. To reiterate the established distinctions between questions of law and
questions of fact, we quote hereunder our ruling in New Rural Bank of Guimba (N.E.) Inc. v. Fermina S.
Abad and Rafael Susan:27cräläwvirtualibräry

We reiterate the distinction between a question of law and a question of fact. A question of law exists
when the doubt or controversy concerns the correct application of law or jurisprudence to a certain set
of facts; or when the issue does not call for an examination of the probative value of the evidence
presented, the truth or falsehood of the facts being admitted. A question of fact exists when a doubt or
difference arises as to the truth or falsehood of facts or when the query invites calibration of the whole
evidence considering mainly the credibility of the witnesses, the existence and relevancy of specific
surrounding circumstances, as well as their relation to each other and to the whole, and the probability
of the situation.

We also find no error in the CAs affirmation of the denial of the petitioners second motion for
reconsideration of the March 24, 2006 resolution of the NLRC reinstating the labor arbiters twin
decisions. The petitioners second motion for reconsideration was a prohibited pleading under the NLRC
rules of procedure.28cräläwvirtualibräry

The parties other procedural questions directly bear on the merits of their positions and are discussed
and resolved below, together with the core substantive issues of: (1) whether the petitioners, as regular
employees, are members of the bargaining unit entitled to CBA benefits; and (2) whether petitioners
Fulache, Jabonero, Castillo and Lagunzad were illegally dismissed.

The Claim for CBA Benefits

We find merit in the petitioners positions.

As regular employees, the petitioners fall within the coverage of the bargaining unit and are therefore
entitled to CBA benefits as a matter of law and contract. In the root decision (the labor arbiters decision
of January 17, 2002) that the NLRC and CA affirmed, the labor arbiter declared:

WHEREFORE, IN THE LIGHT OF THE FOREGOING, taking into account the factual scenario and the
evidence adduced by both parties, it is declared that complainants in these cases are REGULAR
EMPLOYEES of respondent ABS-CBN and not INDEPENDENT CONTRACTORS and thus henceforth they
are entitled to the benefits and privileges attached to regular status of their employment.

This declaration unequivocally settled the petitioners employment status: they are ABS-CBNs regular
employees entitled to the benefits and privileges of regular employees. These benefits and privileges
arise from entitlements under the law (specifically, the Labor Code and its related laws), and from their
employment contract as regular ABS-CBN employees, part of which is the CBA if they fall within the
coverage of this agreement. Thus, what only needs to be resolved as an issue for purposes of
implementation of the decision is whether the petitioners fall within CBA coverage.

The parties 1999-2002 CBA provided in its Article I (Scope of the Agreement) that:29cräläwvirtualibräry

Section 1. APPROPRIATE BARGAINING UNIT. The parties agree that the appropriate bargaining unit shall
be regular rank-and-file employees of ABS-CBN BROADCASTING CORPORATION but shall not include:

a) Personnel classified as Supervisor and Confidential employees;

b) Personnel who are on "casual" or "probationary" status as defined in Section 2 hereof;

c) Personnel who are on "contract" status or who are paid for specified units of work such as writer-
producers, talent-artists, and singers.

The inclusion or exclusion of new job classifications into the bargaining unit shall be subject of discussion
between the COMPANY and the UNION. [emphasis supplied]
Under these terms, the petitioners are members of the appropriate bargaining unit because they are
regular rank-and-file employees and do not belong to any of the excluded categories. Specifically,
nothing in the records shows that they are supervisory or confidential employees; neither are they
casual nor probationary employees. Most importantly, the labor arbiters decision of January 17, 2002
affirmed all the way up to the CA level ruled against ABS-CBNs submission that they are independent
contractors. Thus, as regular rank-and-file employees, they fall within CBA coverage under the CBAs
express terms and are entitled to its benefits.

We see no merit in ABS-CBNs arguments that the petitioners are not entitled to CBA benefits because:
(1) they did not claim these benefits in their position paper; (2) the NLRC did not categorically rule that
the petitioners were members of the bargaining unit; and (3) there was no evidence of this membership.
To further clarify what we stated above, CBA coverage is not only a question of fact, but of law and
contract. The factual issue is whether the petitioners are regular rank-and-file employees of ABS-CBN.
The tribunals below uniformly answered this question in the affirmative. From this factual finding flows
legal effects touching on the terms and conditions of the petitioners regular employment. This was what
the labor arbiter meant when he stated in his decision that "henceforth they are entitled to the benefits
and privileges attached to regular status of their employment." Significantly, ABS-CBN itself posited
before this Court that "the Court of Appeals did not gravely err nor gravely abuse its discretion when it
affirmed the resolution of the NLRC dated March 24, 2006 reinstating and adopting in toto the decision
of the Labor Arbiter dated January 17, 2002 x x x."30cralaw This representation alone fully resolves all
the objections procedural or otherwise ABS-CBN raised on the regularization issue.

The Dismissal of Fulache, Jabonero,

Castillo and Lagunzad

The termination of employment of the four drivers occurred under highly questionable circumstances
and with plain and unadulterated bad faith.

The records show that the regularization case was in fact the root of the resulting bad faith as this case
gave rise and led to the dismissal case. First, the regularization case was filed leading to the labor
arbiters decision31cralaw declaring the petitioners, including Fulache, Jabonero, Castillo and Lagunzad,
to be regular employees. ABS-CBN appealed the decision and maintained its position that the
petitioners were independent contractors.

In the course of this appeal, ABS-CBN took matters into its own hands and terminated the petitioners
services, clearly disregarding its own appeal then pending with the NLRC. Notably, this appeal posited
that the petitioners were not employees (whose services therefore could be terminated through
dismissal under the Labor Code); they were independent contractors whose services could be
terminated at will, subject only to the terms of their contracts. To justify the termination of service, the
company cited redundancy as its authorized cause but offered no justificatory supporting evidence. It
merely claimed that it was contracting out the petitioners activities in the exercise of its management
prerogative.

ABS-CBNs intent, of course, based on the records, was to transfer the petitioners and their activities to a
service contractor without paying any attention to the requirements of our labor laws; hence, ABS-CBN
dismissed the petitioners when they refused to sign up with the service contractor.32cralaw In this
manner, ABS-CBN fell into a downward spiral of irreconcilable legal positions, all undertaken in the hope
of saving itself from the decision declaring its "talents" to be regular employees.

By doing all these, ABS-CBN forgot labor law and its realities.

It forgot that by claiming redundancy as authorized cause for dismissal, it impliedly admitted that the
petitioners were regular employees whose services, by law, can only be terminated for the just and
authorized causes defined under the Labor Code.

Likewise ABS-CBN forgot that it had an existing CBA with a union, which agreement must be respected
in any move affecting the security of tenure of affected employees; otherwise, it ran the risk of
committing unfair labor practice both a criminal and an administrative offense.33cralaw It similarly
forgot that an exercise of management prerogative can be valid only if it is undertaken in good faith and
with no intent to defeat or circumvent the rights of its employees under the laws or under valid
agreements.34cralaw

Lastly, it forgot that there was a standing labor arbiters decision that, while not yet final because of its
own pending appeal, cannot simply be disregarded. By implementing the dismissal action at the time
the labor arbiters ruling was under review, the company unilaterally negated the effects of the labor
arbiters ruling while at the same time appealling the same ruling to the NLRC. This unilateral move is a
direct affront to the NLRCs authority and an abuse of the appeal process.

All these go to show that ABS-CBN acted with patent bad faith. A close parallel we can draw to
characterize this bad faith is the prohibition against forum-shopping under the Rules of Court. In forum-
shopping, the Rules characterize as bad faith the act of filing similar and repetitive actions for the same
cause with the intent of somehow finding a favorable ruling in one of the actions filed.35cralaw ABS-
CBNs actions in the two cases, as described above, are of the same character, since its obvious intent
was to defeat and render useless, in a roundabout way and other than through the appeal it had taken,
the labor arbiters decision in the regularization case. Forum-shopping is penalized by the dismissal of the
actions involved. The penalty against ABS-CBN for its bad faith in the present case should be no less.

The errors and omissions do not belong to ABS-CBN alone. The labor arbiter himself who handled both
cases did not see the totality of the companys actions for what they were. He appeared to have blindly
allowed what he granted the petitioners with his left hand, to be taken away with his right hand,
unmindful that the company already exhibited a badge of bad faith in seeking to terminate the services
of the petitioners whose regular status had just been recognized. He should have recognized the bad
faith from the timing alone of ABS-CBNs conscious and purposeful moves to secure the ultimate aim of
avoiding the regularization of its so-called "talents."

The NLRC, for its part, initially recognized the presence of bad faith when it originally ruled that:

While notice has been made to the employees whose positions were declared redundant, the element
of good faith in abolishing the positions of the complainants appear to be wanting. In fact, it remains
undisputed that herein complainants were terminated when they refused to sign an employment
contract with Able Services which would make them appear as employees of the agency and not of ABS-
CBN. Such act by itself clearly demonstrates bad faith on the part of the respondent in carrying out the
companys redundancy program x x x.36cräläwvirtualibräry
On motion for reconsideration by both parties, the NLRC reiterated its "pronouncement that
complainants were illegally terminated as extensively discussed in our Joint Decision dated December
15, 2004."37cralaw Yet, in an inexplicable turnaround, it reconsidered its joint decision and reinstated
not only the labor arbiters decision of January 17, 2002 in the regularization case, but also his illegal
dismissal decision of April 21, 2003.38cralaw Thus, the NLRC joined the labor arbiter in his error that we
cannot but characterize as grave abuse of discretion.

The Court cannot leave unchecked the labor tribunals patent grave abuse of discretion that resulted,
without doubt, in a grave injustice to the petitioners who were claiming regular employment status and
were unceremoniously deprived of their employment soon after their regular status was recognized.
Unfortunately, the CA failed to detect the labor tribunals gross errors in the disposition of the dismissal
issue. Thus, the CA itself joined the same errors the labor tribunals committed.

The injustice committed on the petitioners/drivers requires rectification. Their dismissal was not only
unjust and in bad faith as the above discussions abundantly show. The bad faith in ABS-CBNs move
toward its illegitimate goal was not even hidden; it dismissed the petitioners already recognized as
regular employees for refusing to sign up with its service contractor. Thus, from every perspective, the
petitioners were illegally dismissed.

By law,39cralaw illegally dismissed employees are entitled to reinstatement without loss of seniority
rights and other privileges and to full backwages, inclusive of allowances, and to other benefits or their
monetary equivalent from the time their compensation was withheld from them up to the time of their
actual reinstatement. The four dismissed drivers deserve no less.

Moreover, they are also entitled to moral damages since their dismissal was attended by bad
faith.40cralaw For having been compelled to litigate and to incur expenses to protect their rights and
interest, the petitioners are likewise entitled to attorneys fees.41cräläwvirtualibräry

WHEREFORE, premises considered, we hereby GRANT the petition. The decision dated March 25, 2008
and the resolution dated July 8, 2008 of the Court of Appeals in CA-G.R. SP No. 01838 are hereby
REVERSED and SET ASIDE. Accordingly, judgment is hereby rendered as follows:

1. Confirming that petitioners FARLEY FULACHE, MANOLO JABONERO, DAVID CASTILLO, JEFFREY
LAGUNZAD, MAGDALENA MALIG-ON BIGNO, FRANCISCO CABAS, JR., HARVEY PONCE and ALAN C.
ALMENDRAS are regularemployees of ABS-CBN BROADCASTING CORPORATION, and declaring them
entitled to all the rights, benefits and privileges, including CBA benefits, from the time they became
regular employees in accordance with existing company practice and the Labor Code;

2. Declaring illegal the dismissal of Fulache, Jabonero, Castillo and Lagunzad, and ordering ABS-CBN to
immediately reinstate them to their former positions without loss of seniority rights with full backwages
and all other monetary benefits, from the time they were dismissed up to the date of their actual
reinstatement;

3. Awarding moral damages of P100,000.00 each to Fulache, Jabonero, Castillo and Lagunzad; and,

4. Awarding attorneys fees of 10% of the total monetary award decreed in this Decision.

Costs against the respondent. SO ORDERED.

[G.R. NO. 164652 : June 8, 2007]

THELMA DUMPIT-MURILLO, Petitioner, v. COURT OF APPEALS, ASSOCIATED BROADCASTING

COMPANY, JOSE JAVIER AND EDWARD TAN, Respondents.

DECISION

QUISUMBING, J.:

This petition seeks to reverse and set aside both the Decision1 dated January 30, 2004 of the Court of
Appeals in CA-G.R. SP No. 63125 and its Resolution2 dated June 23, 2004 denying the motion for
reconsideration. The Court of Appeals had overturned the Resolution3 dated August 30, 2000 of the
National Labor Relations Commission (NLRC) ruling that petitioner was illegally dismissed.

The facts of the case are as follows:

On October 2, 1995, under Talent Contract No. NT95-1805,4 private respondent Associated Broasting
Company (ABC) hired petitioner Thelma Dumpit-Murillo as a newscaster and co-anchor for Balitang-
Balita, an early evening news program. The contract was for a period of three months. It was renewed
under Talent Contracts Nos. NT95-1915, NT96-3002, NT98-4984 and NT99-5649.5 In addition,
petitioner's services were engaged for the program "Live on Five." On September 30, 1999, after four
years of repeated renewals, petitioner's talent contract expired. Two weeks after the expiration of the
last contract, petitioner sent a letter to Mr. Jose Javier, Vice President for News and Public Affairs of
ABC, informing the latter that she was still interested in renewing her contract subject to a salary
increase. Thereafter, petitioner stopped reporting for work. On November 5, 1999, she wrote Mr. Javier
another letter,6 which we quote verbatim:

xxx

Dear Mr. Javier:

On October 20, 1999, I wrote you a letter in answer to your query by way of a marginal note "what
terms and conditions" in response to my first letter dated October 13, 1999. To date, or for more than
fifteen (15) days since then, I have not received any formal written reply. xxx

In view hereof, should I not receive any formal response from you until Monday, November 8, 1999, I
will deem it as a constructive dismissal of my services.

xxx

A month later, petitioner sent a demand letter7 to ABC, demanding: (a) reinstatement to her former
position; (b) payment of unpaid wages for services rendered from September 1 to October 20, 1999 and
full backwages; (c) payment of 13th month pay, vacation/sick/service incentive leaves and other
monetary benefits due to a regular employee starting March 31, 1996. ABC replied that a check covering
petitioner's talent fees for September 16 to October 20, 1999 had been processed and prepared, but
that the other claims of petitioner had no basis in fact or in law.
On December 20, 1999, petitioner filed a complaint8 against ABC, Mr. Javier and Mr. Edward Tan, for
illegal constructive dismissal, nonpayment of salaries, overtime pay, premium pay, separation pay,
holiday pay, service incentive leave pay, vacation/sick leaves and 13th month pay in NLRC-NCR Case No.
30-12-00985-99. She likewise demanded payment for moral, exemplary and actual damages, as well as
for attorney's fees.

The parties agreed to submit the case for resolution after settlement failed during the mandatory
conference/conciliation. On March 29, 2000, the Labor Arbiter dismissed the complaint.9

On appeal, the NLRC reversed the Labor Arbiter in a Resolution dated August 30, 2000. The NLRC held
that an employer-employee relationship existed between petitioner and ABC; that the subject talent
contract was void; that the petitioner was a regular employee illegally dismissed; and that she was
entitled to reinstatement and backwages or separation pay, aside from 13th month pay and service
incentive leave pay, moral and exemplary damages and attorney's fees. It held as follows:

WHEREFORE, the Decision of the Arbiter dated 29 March 2000 is hereby REVERSED/SET ASIDE and a
NEW ONE promulgated:

1) declaring respondents to have illegally dismissed complainant from her regular work therein and thus,
ordering them to reinstate her in her former position without loss of seniority right[s] and other
privileges and to pay her full backwages, inclusive of allowances and other benefits, including 13th
month pay based on her said latest rate of P28,000.00/mo. from the date of her illegal dismissal on 21
October 1999 up to finality hereof, or at complainant's option, to pay her separation pay of one (1)
month pay per year of service based on said latest monthly rate, reckoned from date of hire on 30
September 1995 until finality hereof;

2) to pay complainant's accrued SILP [Service Incentive Leave Pay] of 5 days pay per year and 13th
month pay for the years 1999, 1998 and 1997 of P19,236.00 and P84,000.00, respectively and her
accrued salary from 16 September 1999 to 20 October 1999 of P32,760.00 plus legal interest at 12%
from date of judicial demand on 20 December 1999 until finality hereof;

3) to pay complainant moral damages of P500,000.00, exemplary damages of P350,000.00 and 10% of
the total of the adjudged monetary awards as attorney's fees.

Other monetary claims of complainant are dismissed for lack of merit.

SO ORDERED.10

After its motion for reconsideration was denied, ABC elevated the case to the Court of Appeals in a
petition for certiorari under Rule 65. The petition was first dismissed for failure to attach particular
documents,11 but was reinstated on grounds of the higher interest of justice.12

Thereafter, the appellate court ruled that the NLRC committed grave abuse of discretion, and reversed
the decision of the NLRC.13 The appellate court reasoned that petitioner should not be allowed to
renege from the stipulations she had voluntarily and knowingly executed by invoking the security of
tenure under the Labor Code. According to the appellate court, petitioner was a fixed-term employee
and not a regular employee within the ambit of Article 28014 of the Labor Code because her job, as
anticipated and agreed upon, was only for a specified time.15
Aggrieved, petitioner now comes to this Court on a Petition for Review, raising issues as follows:

I.

THIS HONORABLE COURT CAN REVIEW THE FINDINGS OF THE HONORABLE COURT OF APPEALS, THE
DECISION OF WHICH IS NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT[;]

II.

THE PRO-FORMA TALENT CONTRACTS, AS CORRECTLY FOUND BY THE NLRC - FIRST DIVISION, ARE "ANTI-
REGULARIZATION DEVICES" WHICH MUST BE STRUCK DOWN FOR REASONS OF PUBLIC POLICY[;]

III.

BY REASON OF THE CONTINUOUS AND SUCCESSIVE RENEWALS OF THE THREE-MONTH TALENT

CONTRACTS, AN EMPLOYER-EMPLOYEE RELATIONSHIP WAS CREATED AS PROVIDED FOR UNDER
ARTICLE 280 OF THE LABOR CODE[;]

IV.

BY THE CONSTRUCTIVE DISMISSAL OF HEREIN PETITIONER, AS A REGULAR EMPLOYEE, THERE WAS A

DENIAL OF PETITIONER'S RIGHT TO DUE PROCESS THUS ENTITLING HER TO THE MONEY CLAIMS AS
STATED IN THE COMPLAINT[.]16

The issues for our disposition are: (1) whether or not this Court can review the findings of the Court of
Appeals; and (2) whether or not under Rule 45 of the Rules of Court the Court of Appeals committed a
reversible error in its Decision.

On the first issue, private respondents contend that the issues raised in the instant petition are mainly
factual and that there is no showing that the said issues have been resolved arbitrarily and without
basis. They add that the findings of the Court of Appeals are supported by overwhelming wealth of
evidence on record as well as prevailing jurisprudence on the matter.17

Petitioner however contends that this Court can review the findings of the Court of Appeals, since the
appellate court erred in deciding a question of substance in a way which is not in accord with law or with
applicable decisions of this Court.18

We agree with petitioner. Decisions, final orders or resolutions of the Court of Appeals in any case -
regardless of the nature of the action or proceeding involved - may be appealed to this Court through a
Petition for Review . This remedy is a continuation of the appellate process over the original case,19 and
considering there is no congruence in the findings of the NLRC and the Court of Appeals regarding the
status of employment of petitioner, an exception to the general rule that this Court is bound by the
findings of facts of the appellate court,20 we can review such findings.

On the second issue, private respondents contend that the Court of Appeals did not err when it upheld
the validity of the talent contracts voluntarily entered into by petitioner. It further stated that prevailing
jurisprudence has recognized and sustained the absence of employer-employee relationship between a
talent and the media entity which engaged the talent's services on a per talent contract basis, citing the
case of Sonza v. ABS-CBN Broasting Corporation.21

Petitioner avers however that an employer-employee relationship was created when the private
respondents started to merely renew the contracts repeatedly fifteen times or for four consecutive
years.22

Again, we agree with petitioner. The Court of Appeals committed reversible error when it held that
petitioner was a fixed-term employee. Petitioner was a regular employee under contemplation of law.
The practice of having fixed-term contracts in the industry does not automatically make all talent
contracts valid and compliant with labor law. The assertion that a talent contract exists does not
necessarily prevent a regular employment status.23

Further, the Sonza case is not applicable. In Sonza, the television station did not instruct Sonza how to
perform his job. How Sonza delivered his lines, appeared on television, and sounded on radio were
outside the television station's control. Sonza had a free hand on what to say or discuss in his shows
provided he did not attack the television station or its interests. Clearly, the television station did not
exercise control over the means and methods of the performance of Sonza's work.24 In the case at bar,
ABC had control over the performance of petitioner's work. Noteworthy too, is the comparatively low
P28,000 monthly pay of petitioner25 vis the P300,000 a month salary of Sonza,26 that all the more
bolsters the conclusion that petitioner was not in the same situation as Sonza.

The contract of employment of petitioner with ABC had the following stipulations:

xxx

1. SCOPE OF SERVICES - TALENT agrees to devote his/her talent, time, attention and best efforts in the
performance of his/her duties and responsibilities as Anchor/Program Host/Newscaster of the Program,
in accordance with the direction of ABC and/or its authorized representatives.

1.1. DUTIES AND RESPONSIBILITIES - TALENT shall:

A. Render his/her services as a newscaster on the Program;

b. Be involved in news-gathering operations by conducting interviews on - and off-the-air;

c. Participate in live remote coverages when called upon;

d. Be available for any other news assignment, such as writing, research or camera work;

e. Attend production meetings;

f. On assigned days, be at the studios at least one (1) hour before the live telecasts;

g. Be present promptly at the studios and/or other place of assignment at the time designated by ABC;

h. Keep abreast of the news;

i. Give his/her full cooperation to ABC and its duly authorized representatives in the production and
promotion of the Program; andcralawlibrary

j. Perform such other functions as may be assigned to him/her from time to time.

xxx

1.3 COMPLIANCE WITH STANDARDS, INSTRUCTIONS AND OTHER RULES AND REGULATIONS - TALENT
agrees that he/she will promptly and faithfully comply with the requests and instructions, as well as the
program standards, policies, rules and regulations of ABC, the KBP and the government or any of its
agencies and instrumentalities.27

xxx

In Manila Water Company, Inc. v. Pena,28 we said that the elements to determine the existence of an
employment relationship are: (a) the selection and engagement of the employee, (b) the payment of
wages, (c) the power of dismissal, and (d) the employer's power to control. The most important element
is the employer's control of the employee's conduct, not only as to the result of the work to be done,
but also as to the means and methods to accomplish it.29

The duties of petitioner as enumerated in her employment contract indicate that ABC had control over
the work of petitioner. Aside from control, ABC also dictated the work assignments and payment of
petitioner's wages. ABC also had power to dismiss her. All these being present, clearly, there existed an
employment relationship between petitioner and ABC.

Concerning regular employment, the law provides for two kinds of employees, namely: (1) those who
are engaged to perform activities which are usually necessary or desirable in the usual business or trade
of the employer; and (2) those who have rendered at least one year of service, whether continuous or
broken, with respect to the activity in which they are employed.30 In other words, regular status arises
from either the nature of work of the employee or the duration of his employment.31 In Benares v.
Pancho,32 we very succinctly said:

'[T]he primary standard for determining regular employment is the reasonable connection between the
particular activity performed by the employee vis - Ã -vis the usual trade or business of the employer.
This connection can be determined by considering the nature of the work performed and its relation to
the scheme of the particular business or trade in its entirety. If the employee has been performing the
job for at least a year, even if the performance is not continuous and merely intermittent, the law
deems repeated and continuing need for its performance as sufficient evidence of the necessity if not
indispensability of that activity to the business. Hence, the employment is considered regular, but only
with respect to such activity and while such activity exists.33

In our view, the requisites for regularity of employment have been met in the instant case. Gleaned
from the description of the scope of services aforementioned, petitioner's work was necessary or
desirable in the usual business or trade of the employer which includes, as a pre-condition for its
enfranchisement, its participation in the government's news and public information dissemination. In
addition, her work was continuous for a period of four years. This repeated engagement under contract
of hire is indicative of the necessity and desirability of the petitioner's work in private respondent ABC's
business.34

The contention of the appellate court that the contract was characterized by a valid fixed-period
employment is untenable. For such contract to be valid, it should be shown that the fixed period was
knowingly and voluntarily agreed upon by the parties. There should have been no force, duress or
improper pressure brought to bear upon the employee; neither should there be any other circumstance
that vitiates the employee's consent.35 It should satisfactorily appear that the employer and the
employee dealt with each other on more or less equal terms with no moral dominance being exercised
by the employer over the employee.36 Moreover, fixed-term employment will not be considered valid
where, from the circumstances, it is apparent that periods have been imposed to preclude acquisition of
tenurial security by the employee.37

In the case at bar, it does not appear that the employer and employee dealt with each other on equal
terms. Understandably, the petitioner could not object to the terms of her employment contract
because she did not want to lose the job that she loved and the workplace that she had grown
accustomed to,38 which is exactly what happened when she finally manifested her intention to
negotiate. Being one of the numerous newscasters/broasters of ABC and desiring to keep her job as a
broasting practitioner, petitioner was left with no choice but to affix her signature of conformity on each
renewal of her contract as already prepared by private respondents; otherwise, private respondents
would have simply refused to renew her contract. Patently, the petitioner occupied a position of
weakness vis - Ã -vis the employer. Moreover, private respondents' practice of repeatedly extending
petitioner's 3-month contract for four years is a circumvention of the acquisition of regular status.
Hence, there was no valid fixed-term employment between petitioner and private respondents.

While this Court has recognized the validity of fixed-term employment contracts in a number of cases, it
has consistently emphasized that when the circumstances of a case show that the periods were imposed
to block the acquisition of security of tenure, they should be struck down for being contrary to law,
morals, good customs, public order or public policy.39

As a regular employee, petitioner is entitled to security of tenure and can be dismissed only for just
cause and after due compliance with procedural due process. Since private respondents did not observe
due process in constructively dismissing the petitioner, we hold that there was an illegal dismissal.

WHEREFORE, the challenged Decision dated January 30, 2004 and Resolution dated June 23, 2004 of the
Court of Appeals in CA-G.R. SP No. 63125, which held that the petitioner was a fixed-term employee, are
REVERSED and SET ASIDE. The NLRC decision is AFFIRMED.

Costs against private respondents.

SO ORDERED.
G.R. No. 204944-45, December 03, 2014

FUJI TELEVISION NETWORK, INC., Petitioner, v. ARLENE S. ESPIRITU, Respondent.

DECISION

LEONEN, J.:

It is the burden of the employer to prove that a person whose services it pays for is an independent
contractor rather than a regular employee with or without a fixed term. That a person has a disease
does not per se entitle the employer to terminate his or her services. Termination is the last resort. At
the very least, a competent public health authority must certify that the disease cannot be cured within
six (6) months, even with appropriate treatment.

We decide this petition for review1 on certiorari filed by Fuji Television Network, Inc., seeking the
reversal of the Court of Appeals’ decision2 dated June 25, 2012, affirming with modification the
decision3 of the National Labor Relations Commission.

In 2005, Arlene S. Espiritu (“Arlene”) was engaged by Fuji Television Network, Inc. (“Fuji”) as a news
correspondent/producer4 “tasked to report Philippine news to Fuji through its Manila Bureau field
office.”5 Arlene’s employment contract initially provided for a term of one (1) year but was successively
renewed on a yearly basis with salary adjustment upon every renewal.6chanRoblesvirtualLawlibrary

Sometime in January 2009, Arlene was diagnosed with lung cancer.7 She informed Fuji about her
condition. In turn, the Chief of News Agency of Fuji, Yoshiki Aoki, informed Arlene “that the company
will have a problem renewing her contract”8 since it would be difficult for her to perform her job.9 She
“insisted that she was still fit to work as certified by her attending
physician.”10chanRoblesvirtualLawlibrary

After several verbal and written communications,11 Arlene and Fuji signed a non-renewal contract on
May 5, 2009 where it was stipulated that her contract would no longer be renewed after its expiration
on May 31, 2009. The contract also provided that the parties release each other from liabilities and
responsibilities under the employment contract.12chanRoblesvirtualLawlibrary

In consideration of the non-renewal contract, Arlene “acknowledged receipt of the total amount of
US$18,050.00 representing her monthly salary from March 2009 to May 2009, year-end bonus, mid-year
bonus, and separation pay.”13 However, Arlene affixed her signature on the non-renewal contract with
the initials “U.P.” for “under protest.”14chanRoblesvirtualLawlibrary

On May 6, 2009, the day after Arlene signed the non-renewal contract, she filed a complaint for illegal
dismissal and attorney’s fees with the National Capital Region Arbitration Branch of the National Labor
Relations Commission. She alleged that she was forced to sign the non-renewal contract when Fuji came
to know of her illness and that Fuji withheld her salaries and other benefits for March and April 2009
when she refused to sign.15chanRoblesvirtualLawlibrary

Arlene claimed that she was left with no other recourse but to sign the non-renewal contract, and it was
only upon signing that she was given her salaries and bonuses, in addition to separation pay equivalent
to four (4) years.16chanRoblesvirtualLawlibrary

In the decision17 dated September 10, 2009, Labor Arbiter Corazon C. Borbolla dismissed Arlene’s
complaint.18 Citing Sonza v. ABS-CBN19 and applying the four-fold test, the Labor Arbiter held that
Arlene was not Fuji’s employee but an independent contractor.20chanRoblesvirtualLawlibrary

Arlene appealed before the National Labor Relations Commission. In its decision dated March 5, 2010,
the National Labor Relations Commission reversed the Labor Arbiter’s decision.21 It held that Arlene
was a regular employee with respect to the activities for which she was employed since she
continuously rendered services that were deemed necessary and desirable to Fuji’s business.22 The
National Labor Relations Commission ordered Fuji to pay Arlene backwages, computed from the date of
her illegal dismissal.23 The dispositive portion of the decision reads:chanroblesvirtuallawlibrary

WHEREFORE, premises considered, judgment is hereby rendered GRANTING the instant appeal. The
Decision of the Labor Arbiter dated 19 September 2009 is hereby REVERSED and SET ASIDE, and a new
one is issued ordering respondents-appellees to pay complainant-appellant backwages computed from
the date of her illegal dismissal until finality of this Decision.

SO ORDERED.24

Arlene and Fuji filed separate motions for reconsideration.25 Both motions were denied by the National
Labor Relations Commission for lack of merit in the resolution dated April 26,
2010.26chanRoblesvirtualLawlibrary

From the decision of the National Labor Relations Commission, both parties filed separate petitions for
certiorari27 before the Court of Appeals. The Court of Appeals consolidated the petitions and
considered the following issues for resolution:chanroblesvirtuallawlibrary

1) Whether or not Espiritu is a regular employee or a fixed-term contractual employee;

2) Whether or not Espiritu was illegally dismissed; and

3) Whether or not Espiritu is entitled to damages and attorney’s fees.28

In the assailed decision, the Court of Appeals affirmed the National Labor Relations Commission with the
modification that Fuji immediately reinstate Arlene to her position as News Producer without loss of
seniority rights, and pay her backwages, 13th-month pay, mid-year and year-end bonuses, sick leave and
vacation leave with pay until reinstated, moral damages, exemplary damages, attorney’s fees, and legal
interest of 12% per annum of the total monetary awards.29chanRoblesvirtualLawlibrary

The Court of Appeals ruled that:chanroblesvirtuallawlibrary

WHEREFORE, for lack of merit, the petition of Fuji Television Network, Inc. and Yoshiki Aoki is DENIED
and the petition of Arlene S. Espiritu is GRANTED. Accordingly, the Decision dated March 5, 2010 of the
National Labor Relations Commission, 6th Division in NLRC NCR Case No. 05-06811-09 and its
subsequent Resolution dated April 26, 2010 are hereby AFFIRMED with MODIFICATIONS, as follows:

Fuji Television, Inc. is hereby ORDERED to immediately REINSTATE Arlene S. Espiritu to her position as
News Producer without loss of seniority rights and privileges and to pay her the
following:chanroblesvirtuallawlibrary

1. Backwages at the rate of $1,900.00 per month computed from May 5, 2009 (the date of dismissal),
until reinstated;

2. 13th Month Pay at the rate of $1,900.00 per annum from the date of dismissal, until reinstated;

3. One and a half (1½) months pay or $2,850.00 as midyear bonus per year from the date of dismissal,
until reinstated;

4. One and a half (1½) months pay or $2,850.00 as year-end bonus per year from the date of dismissal,
until reinstated;

5. Sick leave of 30 days with pay or $1,900.00 per year from the date of dismissal, until reinstated; and

6. Vacation leave with pay equivalent to 14 days or $1,425.00 per annum from date of dismissal, until
reinstated.

7. The amount of P100,000.00 as moral damages;

8. The amount of P50,000.00 as exemplary damages;

9. Attorney’s fees equivalent to 10% of the total monetary awards herein stated; and

10. Legal interest of twelve percent (12%) per annum of the total monetary awards computed from May
5, 2009, until their full satisfaction.

The Labor Arbiter is hereby DIRECTED to make another re-computation of the above monetary awards
consistent with the above directives.
SO ORDERED.30

In arriving at the decision, the Court of Appeals held that Arlene was a regular employee because she
was engaged to perform work that was necessary or desirable in the business of Fuji,31 and the
successive renewals of her fixed-term contract resulted in regular
employment.32chanRoblesvirtualLawlibrary

According to the Court of Appeals, Sonza does not apply in order to establish that Arlene was an
independent contractor because she was not contracted on account of any peculiar ability, special
talent, or skill.33 The fact that everything used by Arlene in her work was owned by Fuji negated the
idea of job contracting.34chanRoblesvirtualLawlibrary

The Court of Appeals also held that Arlene was illegally dismissed because Fuji failed to comply with the
requirements of substantive and procedural due process necessary for her dismissal since she was a
regular employee.35chanRoblesvirtualLawlibrary

The Court of Appeals found that Arlene did not sign the non-renewal contract voluntarily and that the
contract was a mere subterfuge by Fuji to secure its position that it was her choice not to renew her
contract. She was left with no choice since Fuji was decided on severing her
employment.36chanRoblesvirtualLawlibrary

Fuji filed a motion for reconsideration that was denied in the resolution37 dated December 7, 2012 for
failure to raise new matters.38chanRoblesvirtualLawlibrary

Aggrieved, Fuji filed this petition for review and argued that the Court of Appeals erred in affirming with
modification the National Labor Relations Commission’s decision, holding that Arlene was a regular
employee and that she was illegally dismissed. Fuji also questioned the award of monetary claims,
benefits, and damages.39chanRoblesvirtualLawlibrary

Fuji points out that Arlene was hired as a stringer, and it informed her that she would remain one.40 She
was hired as an independent contractor as defined in Sonza.41 Fuji had no control over her work.42 The
employment contracts were executed and renewed annually upon Arlene’s insistence to which Fuji
relented because she had skills that distinguished her from ordinary employees.43 Arlene and Fuji dealt
on equal terms when they negotiated and entered into the employment contracts.44 There was no
illegal dismissal because she freely agreed not to renew her fixed-term contract as evidenced by her e-
mail correspondences with Yoshiki Aoki.45 In fact, the signing of the non-renewal contract was not
necessary to terminate her employment since “such employment terminated upon expiration of her
contract.”46 Finally, Fuji had dealt with Arlene in good faith, thus, she should not have been awarded
damages.47chanRoblesvirtualLawlibrary

Fuji alleges that it did not need a permanent reporter since the news reported by Arlene could easily be
secured from other entities or from the internet.48 Fuji “never controlled the manner by which she
performed her functions.”49 It was Arlene who insisted that Fuji execute yearly fixed-term contracts so
that she could negotiate for annual increases in her pay.50chanRoblesvirtualLawlibrary

Fuji points out that Arlene reported for work for only five (5) days in February 2009, three (3) days in
March 2009, and one (1) day in April 2009.51 Despite the provision in her employment contract that sick
leaves in excess of 30 days shall not be paid, Fuji paid Arlene her entire salary for the months of March,
April, and May; four (4) months of separation pay; and a bonus for two and a half months for a total of
US$18,050.00.52 Despite having received the amount of US$18,050.00, Arlene still filed a case for illegal
dismissal.53chanRoblesvirtualLawlibrary

Fuji further argues that the circumstances would show that Arlene was not illegally dismissed. The
decision to not renew her contract was mutually agreed upon by the parties as indicated in Arlene’s e-
mail54 dated March 11, 2009 where she consented to the non-renewal of her contract but refused to
sign anything.55 Aoki informed Arlene in an e-mail56 dated March 12, 2009 that she did not need to
sign a resignation letter and that Fuji would pay Arlene’s salary and bonus until May 2009 as well as
separation pay.57chanRoblesvirtualLawlibrary

Arlene sent an e-mail dated March 18, 2009 with her version of the non-renewal agreement that she
agreed to sign this time.58 This attached version contained a provision that Fuji shall re-hire her if she
was still interested to work for Fuji.59 For Fuji, Arlene’s e-mail showed that she had the power to
bargain.60chanRoblesvirtualLawlibrary

Fuji then posits that the Court of Appeals erred when it held that the elements of an employer-
employee relationship are present, particularly that of control;61 that Arlene’s separation from
employment upon the expiration of her contract constitutes illegal dismissal;62 that Arlene is entitled to
reinstatement;63 and that Fuji is liable to Arlene for damages and attorney’s
fees.64chanRoblesvirtualLawlibrary

This petition for review on certiorari under Rule 45 was filed on February 8, 2013.65 On February 27,
2013, Arlene filed a manifestation66 stating that this court may not take jurisdiction over the case since
Fuji failed to authorize Corazon E. Acerden to sign the verification.67 Fuji filed a comment on the
manifestation68 on March 9, 2013.

Based on the arguments of the parties, there are procedural and substantive issues for resolution:

Whether the petition for review should be dismissed as Corazon E. Acerden, the signatory of the
verification and certification of non-forum shopping of the petition, had no authority to sign the
verification and certification on behalf of Fuji;

Whether the Court of Appeals correctly determined that no grave abuse of discretion was committed by
the National Labor Relations Commission when it ruled that Arlene was a regular employee, not an
independent contractor, and that she was illegally dismissed; and
Whether the Court of Appeals properly modified the National Labor Relations Commission’s decision by
awarding reinstatement, damages, and attorney’s fees.

The petition should be dismissed.

I
Validity of the verification and certification against forum shopping

In its comment on Arlene’s manifestation, Fuji alleges that Corazon was authorized to sign the
verification and certification of non-forum shopping because Mr. Shuji Yano was empowered under the
secretary’s certificate to delegate his authority to sign the necessary pleadings, including the verification
and certification against forum shopping.69chanRoblesvirtualLawlibrary

On the other hand, Arlene points out that the authority given to Mr. Shuji Yano and Mr. Jin Eto in the
secretary’s certificate is only for the petition for certiorari before the Court of Appeals.70 Fuji did not
attach any board resolution authorizing Corazon or any other person to file a petition for review on
certiorari with this court.71 Shuji Yano and Jin Eto could not re-delegate the power that was delegated
to them.72 In addition, the special power of attorney executed by Shuji Yano in favor of Corazon
indicated that she was empowered to sign on behalf of Shuji Yano, and not on behalf of
Fuji.73chanRoblesvirtualLawlibrary

The Rules of Court requires the

submission of verification and
certification against forum shopping

Rule 7, Section 4 of the 1997 Rules of Civil Procedure provides the requirement of verification, while
Section 5 of the same rule provides the requirement of certification against forum shopping. These
sections state:chanroblesvirtuallawlibrary

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

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

A pleading required to be verified which contains a verification based on “information and belief,” or
upon “knowledge, information and belief,” or lacks a proper verification, shall be treated as an unsigned
pleading.

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

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

Section 4(e) of Rule 4574 requires that petitions for review should “contain a sworn certification against
forum shopping as provided in the last paragraph of section 2, Rule 42.” Section 5 of the same rule
provides that failure to comply with any requirement in Section 4 is sufficient ground to dismiss the
petition.

Effects of non-compliance

Uy v. Landbank75 discussed the effect of non-compliance with regard to verification and stated
that:chanroblesvirtuallawlibrary

[t]he requirement regarding verification of a pleading is formal, not jurisdictional. Such requirement is
simply a condition affecting the form of pleading, the non-compliance of which does not necessarily
render the pleading fatally defective. Verification is simply intended to secure an assurance that the
allegations in the pleading are true and correct and not the product of the imagination or a matter of
speculation, and that the pleading is filed in good faith. The court may order the correction of the
pleading if the verification is lacking or act on the pleading although it is not verified, if the attending
circumstances are such that strict compliance with the rules may be dispensed with in order that the
ends of justice may thereby be served.76 (Citations omitted)

Shipside Incorporated v. Court of Appeals77 cited the discussion in Uy and differentiated its effect from
non-compliance with the requirement of certification against forum
shopping:chanroblesvirtuallawlibrary

On the other hand, the lack of certification against forum shopping is generally not curable by the
submission thereof after the filing of the petition. Section 5, Rule 45 of the 1997 Rules of Civil Procedure
provides that the failure of the petitioner to submit the required documents that should accompany the
petition, including the certification against forum shopping, shall be sufficient ground for the dismissal
thereof. The same rule applies to certifications against forum shopping signed by a person on behalf of a
corporation which are unaccompanied by proof that said signatory is authorized to file a petition on
behalf of the corporation.78 (Emphasis supplied)

Effects of substantial compliance

with the requirement of verification
and certification against forum shopping

Although the general rule is that failure to attach a verification and certification against forum shopping
is a ground for dismissal, there are cases where this court allowed substantial compliance.

In Loyola v. Court of Appeals,79 petitioner Alan Loyola submitted the required certification one day after
filing his electoral protest.80 This court considered the subsequent filing as substantial compliance since
the purpose of filing the certification is to curtail forum shopping.81chanRoblesvirtualLawlibrary

In LDP Marketing, Inc. v. Monter,82 Ma. Lourdes Dela Peña signed the verification and certification
against forum shopping but failed to attach the board resolution indicating her authority to sign.83 In a
motion for reconsideration, LDP Marketing attached the secretary’s certificate quoting the board
resolution that authorized Dela Peña.84 Citing Shipside, this court deemed the belated submission as
substantial compliance since LDP Marketing complied with the requirement; what it failed to do was to
attach proof of Dela Peña’s authority to sign.85chanRoblesvirtualLawlibrary

Havtor Management Phils., Inc. v. National Labor Relations Commission86 and General Milling
Corporation v. National Labor Relations Commission87 involved petitions that were dismissed for failure
to attach any document showing that the signatory on the verification and certification against forum-
shopping was authorized.88 In both cases, the secretary’s certificate was attached to the motion for
reconsideration.89 This court considered the subsequent submission of proof indicating authority to
sign as substantial compliance.90chanRoblesvirtualLawlibrary

Altres v. Empleo91 summarized the rules on verification and certification against forum shopping in this
manner:chanroblesvirtuallawlibrary

For the guidance of the bench and bar, the Court restates in capsule form the jurisprudential
pronouncements . . . respecting non-compliance with the requirement on, or submission of defective,
verification and certification against forum shopping:

1)
A distinction must be made between non-compliance with the requirement on or submission of
defective verification, and non-compliance with the requirement on or submission of defective
certification against forum shopping.
2)
As to verification, non-compliance therewith or a defect therein does not necessarily render the
pleading fatally defective. The court may order its submission or correction or act on the pleading if the
attending circumstances are such that strict compliance with the Rule may be dispensed with in order
that the ends of justice may be served thereby.
3)
Verification is deemed substantially complied with when one who has ample knowledge to swear to the
truth of the allegations in the complaint or petition signs the verifcation, and when matters alleged in
the petition have been made in good faith or are true and correct.
4)
As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in
verification, is generally not curable by its subsequent submission or correction thereof, unless there is a
need to relax the Rule on the ground of “substantial compliance” or presence of “special circumstances
or compelling reasons.”
5)
The certification against forum shopping must be signed by all the plaintiffs or petitioners in a case;
otherwise, those who did not sign will be dropped as parties to the case. Under reasonable or justifiable
circumstances, however, as when all the plaintiffs or petitioners share a common interest and invoke a
common cause of action or defense, the signature of only one of them in the certification against forum
shopping substantially complies with the Rule.
6)
Finally, the certification against forum shopping must be executed by the party-pleader, not by his
counsel. If, however, for reasonable or justifiable reasons, the party-pleader is unable to sign, he must
execute a Special Power of Attorney designating his counsel of record to sign on his behalf.92

There was substantial compliance

by Fuji Television Network, Inc.

Being a corporation, Fuji exercises its power to sue and be sued through its board of directors or duly
authorized officers and agents. Thus, the physical act of signing the verification and certification against
forum shopping can only be done by natural persons duly authorized either by the corporate by-laws or
a board resolution.93chanRoblesvirtualLawlibrary

In its petition for review on certiorari, Fuji attached Hideaki Ota’s secretary’s certificate,94 authorizing
Shuji Yano and Jin Eto to represent and sign for and on behalf of Fuji.95 The secretary’s certificate was
duly authenticated96 by Sulpicio Confiado, Consul-General of the Philippines in Japan. Likewise attached
to the petition is the special power of attorney executed by Shuji Yano, authorizing Corazon to sign on
his behalf.97 The verification and certification against forum shopping was signed by
Corazon.98chanRoblesvirtualLawlibrary

Arlene filed the manifestation dated February 27, 2013, arguing that the petition for review should be
dismissed because Corazon was not duly authorized to sign the verification and certification against
forum shopping.
Fuji filed a comment on Arlene’s manifestation, stating that Corazon was properly authorized to sign. On
the basis of the secretary’s certificate, Shuji Yano was empowered to delegate his authority.

Quoting the board resolution dated May 13, 2010, the secretary's certificate
states:chanroblesvirtuallawlibrary

(a) The Corporation shall file a Petition for Certiorari with the Court of Appeals, against Philippines’
National Labor Relations Commission (“NLRC”) and Arlene S. Espiritu, pertaining to NLRC-NCR Case No.
LAC 00-002697-09, RAB No. 05-06811-00 and entitled “Arlene S. Espiritu v. Fuji Television Network,
Inc./Yoshiki Aoki”, and participate in any other subsequent proceeding that may necessarily arise
therefrom, including but not limited to the filing of appeals in the appropriate venue;

(b) Mr. Shuji Yano and Mr. Jin Eto be authorized, as they are hereby authorized, to verify and execute
the certification against non-forum shopping which may be necessary or required to be attached to any
pleading to [sic] submitted to the Court of Appeals; and the authority to so verify and certify for the
Corporation in favor of the said persons shall subsist and remain effective until the termination of the
said case;

....

(d) Mr. Shuji Yano and Mr. Jin Eto be authorized, as they are hereby authorized, to represent and appear
on behalf the [sic] Corporation in all stages of the [sic] this case and in any other proceeding that may
necessarily arise thereform [sic], and to act in the Corporation’s name, place and stead to determine,
propose, agree, decide, do, and perform any and all of the following:
The possibility of amicable settlement or of submission to alternative mode of dispute resolution;
The simplification of the issue;
The necessity or desirability of amendments to the pleadings;
The possibility of obtaining stipulation or admission of facts and documents; and
Such other matters as may aid in the prompt disposition of the action.99 (Emphasis in the original; Italics
omitted)

Shuji Yano executed a special power of attorney appointing Ms. Ma. Corazon E. Acerden and Mr. Moises
A. Rollera as his attorneys-in-fact.100 The special power of attorney states:chanroblesvirtuallawlibrary

That I, SHUJI YANO, of legal age, Japanese national, with office address at 2-4-8 Daiba, Minato-Ku,
Tokyo, 137-8088 Japan, and being the representative of Fuji TV, INc., [sic] (evidenced by the attached
Secretary’s Certificate) one of the respondents in NLRC-NCR Case No. 05-06811-00 entitled “Arlene S.
Espiritu v. Fuji Television Network, Inc./Yoshiki Aoki”, and subsequently docketed before the Court of
Appeals as C.A. G.R. S.P. No. 114867 (Consolidated with SP No. 114889) do hereby make, constitute and
appoint Ms. Ma. Corazon E. Acerden and Mr. Moises A. Rollera as my true and lawful attorneys-in-fact
for me and my name, place and stead to act and represent me in the above-mentioned case, with
special power to make admission/s and stipulations and/or to make and submit as well as to accept and
approve compromise proposals upon such terms and conditions and under such covenants as my
attorney-in-fact may deem fit, and to engage the services of Villa Judan and Cruz Law Offices as the legal
counsel to represent the Company in the Supreme Court;

The said Attorneys-in-Fact are hereby further authorized to make, sign, execute and deliver such papers
or documents as may be necessary in furtherance of the power thus granted, particularly to sign and
execute the verification and certification of non-forum shopping needed to be filed.101 (Emphasis in the
original)

In its comment102 on Arlene’s manifestation, Fuji argues that Shuji Yano could further delegate his
authority because the board resolution empowered him to “act in the Corporation’s name, place and
stead to determine, propose, agree, decided [sic], do and perform any and all of the following: . . . such
other matters as may aid in the prompt disposition of the action.”103chanRoblesvirtualLawlibrary

To clarify, Fuji attached a verification and certification against forum shopping, but Arlene questions
Corazon’s authority to sign. Arlene argues that the secretary’s certificate empowered Shuji Yano to file a
petition for certiorari before the Court of Appeals, and not a petition for review before this court, and
that since Shuji Yano’s authority was delegated to him, he could not further delegate such power.
Moreover, Corazon was representing Shuji Yano in his personal capacity, and not in his capacity as
representative of Fuji.

A review of the board resolution quoted in the secretary’s certificate shows that Fuji shall “file a Petition
for Certiorari with the Court of Appeals”104 and “participate in any other subsequent proceeding that
may necessarily arise therefrom, including but not limited to the filing of appeals in the appropriate
venue,”105 and that Shuji Yano and Jin Eto are authorized to represent Fuji “in any other proceeding
that may necessarily arise thereform [sic].”106 As pointed out by Fuji, Shuji Yano and Jin Eto were also
authorized to “act in the Corporation’s name, place and stead to determine, propose, agree, decide, do,
and perform any and all of the following: . . . 5. Such other matters as may aid in the prompt disposition
of the action.”107chanRoblesvirtualLawlibrary

Considering that the subsequent proceeding that may arise from the petition for certiorari with the
Court of Appeals is the filing of a petition for review with this court, Fuji substantially complied with the
procedural requirement.

On the issue of whether Shuji Yano validly delegated his authority to Corazon, Article 1892 of the Civil
Code of the Philippines states:chanroblesvirtuallawlibrary

ART. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but
he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power, but without designating the person, and the person appointed was
notoriously incompetent or insolvent.

All acts of the substitute appointed against the prohibition of the principal shall be void.

The secretary’s certificate does not state that Shuji Yano is prohibited from appointing a substitute. In
fact, he is empowered to do acts that will aid in the resolution of this case.

This court has recognized that there are instances when officials or employees of a corporation can sign
the verification and certification against forum shopping without a board resolution. In Cagayan Valley
Drug Corporation v. CIR,108 it was held that:chanroblesvirtuallawlibrary

In sum, we have held that the following officials or employees of the company can sign the verification
and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2)
the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel
Officer, and (5) an Employment Specialist in a labor case.

While the above cases109 do not provide a complete listing of authorized signatories to the verification
and certification required by the rules, the determination of the sufficiency of the authority was done on
a case to case basis. The rationale applied in the foregoing cases is to justify the authority of corporate
officers or representatives of the corporation to sign the verification or certificate against forum
shopping, being ‘in a position to verify the truthfulness and correctness of the allegations in the
petition.’110

Corazon’s affidavit111 states that she is the “office manager and resident interpreter of the Manila
Bureau of Fuji Television Network, Inc.”112 and that she has “held the position for the last twenty-three
years.”113chanRoblesvirtualLawlibrary

As the office manager for 23 years, Corazon can be considered as having knowledge of all matters in
Fuji’s Manila Bureau Office and is in a position to verify “the truthfulness and the correctness of the
allegations in the Petition.”114chanRoblesvirtualLawlibrary

Thus, Fuji substantially complied with the requirements of verification and certification against forum
shopping.

Before resolving the substantive issues in this case, this court will discuss the procedural parameters of a
Rule 45 petition for review in labor cases.

II
Procedural parameters of petitions for review in labor cases
Article 223 of the Labor Code115 does not provide any mode of appeal for decisions of the National
Labor Relations Commission. It merely states that “[t]he decision of the Commission shall be final and
executory after ten (10) calendar days from receipt thereof by the parties.” Being final, it is no longer
appealable. However, the finality of the National Labor Relations Commission’s decisions does not mean
that there is no more recourse for the parties.

In St. Martin Funeral Home v. National Labor Relations Commission,116 this court cited several cases117
and rejected the notion that this court had no jurisdiction to review decisions of the National Labor
Relations Commission. It stated that this court had the power to review the acts of the National Labor
Relations Commission to see if it kept within its jurisdiction in deciding cases and also as a form of check
and balance.118 This court then clarified that judicial review of National Labor Relations Commission
decisions shall be by way of a petition for certiorari under Rule 65. Citing the doctrine of hierarchy of
courts, it further ruled that such petitions shall be filed before the Court of Appeals. From the Court of
Appeals, an aggrieved party may file a petition for review on certiorari under Rule 45.

A petition for certiorari under Rule 65 is an original action where the issue is limited to grave abuse of
discretion. As an original action, it cannot be considered as a continuation of the proceedings of the
labor tribunals.

On the other hand, a petition for review on certiorari under Rule 45 is a mode of appeal where the issue
is limited to questions of law. In labor cases, a Rule 45 petition is limited to reviewing whether the Court
of Appeals correctly determined the presence or absence of grave abuse of discretion and deciding
other jurisdictional errors of the National Labor Relations Commission.119chanRoblesvirtualLawlibrary

In Odango v. National Labor Relations Commission,120 this court explained that a petition for certiorari
is an extraordinary remedy that is “available only and restrictively in truly exceptional cases”121 and
that its sole office “is the correction of errors of jurisdiction including commission of grave abuse of
discretion amounting to lack or excess of jurisdiction.”122 A petition for certiorari does not include a
review of findings of fact since the findings of the National Labor Relations Commission are accorded
finality.123 In cases where the aggrieved party assails the National Labor Relations Commission’s
findings, he or she must be able to show that the Commission “acted capriciously and whimsically or in
total disregard of evidence material to the controversy.”124chanRoblesvirtualLawlibrary

When a decision of the Court of Appeals under a Rule 65 petition is brought to this court by way of a
petition for review under Rule 45, only questions of law may be decided upon. As held in Meralco
Industrial v. National Labor Relations Commission:125chanRoblesvirtualLawlibrary

This Court is not a trier of facts. Well-settled is the rule that the jurisdiction of this Court in a petition for
review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of
law, not of fact, unless the factual findings complained of are completely devoid of support from the
evidence on record, or the assailed judgment is based on a gross misapprehension of facts. Besides,
factual findings of quasi-judicial agencies like the NLRC, when affirmed by the Court of Appeals, are
conclusive upon the parties and binding on this Court.126

Career Philippines v. Serna,127 citing Montoya v. Transmed,128 is instructive on the parameters of

judicial review under Rule 45:chanroblesvirtuallawlibrary

As a rule, only questions of law may be raised in a Rule 45 petition. In one case, we discussed the
particular parameters of a Rule 45 appeal from the CA’s Rule 65 decision on a labor case, as
follows:ChanRoblesVirtualawlibrary
In a Rule 45 review, we consider the correctness of the assailed CA decision, in contrast with the review
for jurisdictional error that we undertake under Rule 65. Furthermore, Rule 45 limits us to the review of
questions of law raised against the assailed CA decision. In ruling for legal correctness, we have to view
the CA decision in the same context that the petition for certiorari it ruled upon was presented to it; we
have to examine the CA decision from the prism of whether it correctly determined the presence or
absence of grave abuse of discretion in the NLRC decision before it, not on the basis of whether the
NLRC decision on the merits of the case was correct. In other words, we have to be keenly aware that
the CA undertook a Rule 65 review, not a review on appeal, of the NLRC decision challenged before
it.129 (Emphasis in the original)

Justice Brion’s dissenting opinion in Abott Laboratories, PhiIippines v. AIcaraz130 discussed that in
petitions for review under Rule 45, “the Court simply determines whether the legal correctness of the
CA’s finding that the NLRC ruling . . . had basis in fact and in Iaw.”131 In this kind of petition, the proper
question to be raised is, “Did the CA correctly determine whether the NLRC committed grave abuse of
discretion in ruling on the case?”132chanRoblesvirtualLawlibrary

Justice Brion’s dissenting opinion also laid down the following guidelines:chanroblesvirtuallawlibrary

If the NLRC ruling has basis in the evidence and the applicable law and jurisprudence, then no grave
abuse of discretion exists and the CA should so declare and, accordingly, dismiss the petition. If grave
abuse of discretion exists, then the CA must grant the petition and nullify the NLRC ruling, entering at
the same time the ruling that is justified under the evidence and the governing law, rules and
jurisprudence. In our Rule 45 review, this Court must deny the petition if it finds that the CA correctly
acted.133 (Emphasis in the original)

These parameters shall be used in resolving the substantive issues in this petition.cralawred

III
Determination of employment status; burden of proof

In this case, there is no question that Arlene rendered services to Fuji. However, Fuji alleges that Arlene
was an independent contractor, while Arlene alleges that she was a regular employee. To resolve this
issue, we ascertain whether an employer-employee relationship existed between Fuji and Arlene.
This court has often used the four-fold test to determine the existence of an employer-employee
relationship. Under the four-fold test, the “control test” is the most important.134 As to how the
elements in the four-fold test are proven, this court has discussed that:chanroblesvirtuallawlibrary

[t]here 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.135

If the facts of this case vis-à-vis the four-fold test show that an employer-employee relationship existed,
we then determine the status of Arlene’s employment, i.e., whether she was a regular employee.
Relative to this, we shall analyze Arlene’s fixed-term contract and determine whether it supports her
argument that she was a regular employee, or the argument of Fuji that she was an independent
contractor. We shall scrutinize whether the nature of Arlene’s work was necessary and desirable to
Fuji’s business or whether Fuji only needed the output of her work. If the circumstances show that
Arlene’s work was necessary and desirable to Fuji, then she is presumed to be a regular employee. The
burden of proving that she was an independent contractor lies with Fuji.

In labor cases, the quantum of proof required is substantial evidence.136 “Substantial evidence” has
been defined as “such amount of relevant evidence which a reasonable mind might accept as adequate
to justify a conclusion.”137chanRoblesvirtualLawlibrary

If Arlene was a regular employee, we then determine whether she was illegally dismissed. In complaints
for illegal dismissal, the burden of proof is on the employee to prove the fact of dismissal.138 Once the
employee establishes the fact of dismissal, supported by substantial evidence, the burden of proof shifts
to the employer to show that there was a just or authorized cause for the dismissal and that due process
was observed.139chanRoblesvirtualLawlibrary

IV
Whether the Court of Appeals correctly affirmed the National Labor Relations Commission’s finding that
Arlene was a regular employee

Fuji alleges that Arlene was an independent contractor, citing Sonza v. ABS-CBN and relying on the
following facts: (1) she was hired because of her skills; (2) her salary was US$1,900.00, which is higher
than the normal rate; (3) she had the power to bargain with her employer; and (4) her contract was for a
fixed term. According to Fuji, the Court of Appeals erred when it ruled that Arlene was forced to sign the
non-renewal agreement, considering that she sent an email with another version of the non-renewal
agreement.140 Further, she is not entitled to moral damages and attorney’s fees because she acted in
bad faith when she filed a labor complaint against Fuji after receiving US$18,050.00 representing her
salary and other benefits.141chanRoblesvirtualLawlibrary
Arlene argues that she was a regular employee because Fuji had control and supervision over her work.
The news events that she covered were all based on the instructions of Fuji.142 She maintains that the
successive renewal of her employment contracts for four (4) years indicates that her work was
necessary and desirable.143 In addition, Fuji’s payment of separation pay equivalent to one (1) month’s
pay per year of service indicates that she was a regular employee.144 To further support her argument
that she was not an independent contractor, she states that Fuji owns the laptop computer and mini-
camera that she used for work.145chanRoblesvirtualLawlibrary

Arlene also argues that Sonza is not applicable because she was a plain reporter for Fuji, unlike Jay Sonza
who was a news anchor, talk show host, and who enjoyed a celebrity
status.146chanRoblesvirtualLawlibrary

On her illness, Arlene points out that it was not a ground for her dismissal because her attending
physician certified that she was fit to work.147chanRoblesvirtualLawlibrary

Arlene admits that she signed the non-renewal agreement with quitclaim, not because she agreed to its
terms, but because she was not in a position to reject the non-renewal agreement. Further, she badly
needed the salary withheld for her sustenance and medication.148 She posits that her acceptance of
separation pay does not bar filing of a complaint for illegal dismissal.149chanRoblesvirtualLawlibrary

Article 280 of the Labor Code provides that:chanroblesvirtuallawlibrary

Art. 280. Regular and casual employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to
be regular where the employee has been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer, except where the employment has been fixed
for a specific project or undertaking the completion or termination of which has been determined at the
time of the engagement of the employee or where the work or services to be performed is seasonal in
nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph; Provided,
That, any employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered a regular employee with respect to the activity in which he is employed and
his employment shall continue while such activity exist.

This provision classifies employees into regular, project, seasonal, and casual. It further classifies regular
employees into two kinds: (1) those “engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer”; and (2) casual employees who have “rendered
at least one year of service, whether such service is continuous or broken.”
Another classification of employees, i.e., employees with fixed-term contracts, was recognized in Brent
School, Inc. v. Zamora150 where this court discussed that:chanroblesvirtuallawlibrary

Logically, the decisive determinant in the term employment should not be the activities that the
employee is called upon to perform, but the day certain agreed upon by the parties for the
commencement and termination of their employment relationship, a day certain being understood to
be “that which must necessarily come, although it may not be known when.”151 (Emphasis in the
original)

This court further discussed that there are employment contracts where “a fixed term is an essential
and natural appurtenance”152 such as overseas employment contracts and officers in educational
institutions.153chanRoblesvirtualLawlibrary

Distinctions among fixed-term

employees, independent contractors,
and regular employees

GMA Network, Inc. v. Pabriga154 expounded the doctrine on fixed-term contracts laid down in Brent in
the following manner:chanroblesvirtuallawlibrary

Cognizant of the possibility of abuse in the utilization of fixed-term employment contracts, we

emphasized in Brent that where from the circumstances it is apparent that the periods have been
imposed to preclude acquisition of tenurial security by the employee, they should be struck down as
contrary to public policy or morals. We thus laid down indications or criteria under which “term
employment” cannot be said to be in circumvention of the law on security of tenure,
namely:chanroblesvirtuallawlibrary

1) The fixed period of employment was knowingly and voluntarily agreed upon by the parties without
any force, duress, or improper pressure being brought to bear upon the employee and absent any other
circumstances vitiating his consent; or

2) It satisfactorily appears that the employer and the employee dealt with each other on more or less
equal terms with no moral dominance exercised by the former or the latter.
These indications, which must be read together, make the Brent doctrine applicable only in a few special
cases wherein the employer and employee are on more or less in equal footing in entering into the
contract. The reason for this is evident: when a prospective employee, on account of special skills or
market forces, is in a position to make demands upon the prospective employer, such prospective
employee needs less protection than the ordinary worker. Lesser limitations on the parties’ freedom of
contract are thus required for the protection of the employee.155 (Citations omitted)

For as long as the guidelines laid down in Brent are satisfied, this court will recognize the validity of the
fixed-term contract.
In Labayog v. M.Y. San Biscuits, Inc.,156 this court upheld the fixed-term employment of petitioners
because from the time they were hired, they were informed that their engagement was for a specific
period. This court stated that:chanroblesvirtuallawlibrary

[s]imply put, petitioners were not regular employees. While their employment as mixers, packers and
machine operators was necessary and desirable in the usual business of respondent company, they
were employed temporarily only, during periods when there was heightened demand for production.
Consequently, there could have been no illegal dismissal when their services were terminated on
expiration of their contracts. There was even no need for notice of termination because they knew
exactly when their contracts would end. Contracts of employment for a fixed period terminate on their
own at the end of such period.

Contracts of employment for a fixed period are not unlawful. What is objectionable is the practice of
some scrupulous employers who try to circumvent the law protecting workers from the capricious
termination of employment.157 (Citation omitted)

Caparoso v. Court of Appeals158 upheld the validity of the fixed-term contract of employment.
Caparoso and Quindipan were hired as delivery men for three (3) months. At the end of the third
month, they were hired on a monthly basis. In total, they were hired for five (5) months. They filed a
complaint for illegal dismissal.159 This court ruled that there was no evidence indicating that they were
pressured into signing the fixed-term contracts. There was likewise no proof that their employer was
engaged in hiring workers for five (5) months only to prevent regularization. In the absence of these
facts, the fixed-term contracts were upheld as valid.160chanRoblesvirtualLawlibrary

On the other hand, an independent contractor is defined as:chanroblesvirtuallawlibrary

. . . one who carries on a distinct and independent business and undertakes to perform the job, work, or
service on its own account and under one’s own responsibility according to one’s own manner and
method, free from the control and direction of the principal in all matters connected with the
performance of the work except as to the results thereof.161

In view of the “distinct and independent business” of independent contractors, no employer-employee

relationship exists between independent contractors and their principals.

Independent contractors are recognized under Article 106 of the Labor Code:chanroblesvirtuallawlibrary

Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another
person for the performance of the former’s work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with the provisions of this Code.

....
The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the
contracting-out of labor to protect the rights of workers established under this Code. In so prohibiting or
restricting, he may make appropriate distinctions between labor-only contracting and job contracting as
well as differentiations within these types of contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of
any provision of this Code.

There is “labor-only” contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such person are performing activities which are directly
related to the principal business of such employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him.

In Department Order No. 18-A, Series of 2011, of the Department of Labor and Employment, a
contractor is defined as having:chanroblesvirtuallawlibrary

Section 3. . . .

....

(c) . . . an arrangement whereby a principal agrees to put out or farm out with a contractor the
performance or completion of a specific job, work or service within a definite or predetermined period,
regardless of whether such job, work or service is to be performed or completed within or outside the
premises of the principal.

This department order also states that there is a trilateral relationship in legitimate job contracting and
subcontracting arrangements among the principal, contractor, and employees of the contractor. There
is no employer-employee relationship between the contractor and principal who engages the
contractor’s services, but there is an employer-employee relationship between the contractor and
workers hired to accomplish the work for the principal.162chanRoblesvirtualLawlibrary

Jurisprudence has recognized another kind of independent contractor: individuals with unique skills and
talents that set them apart from ordinary employees. There is no trilateral relationship in this case
because the independent contractor himself or herself performs the work for the principal. In other
words, the relationship is bilateral.

In Orozco v. Court of Appeals,163 Wilhelmina Orozco was a columnist for the Philippine Daily Inquirer.
This court ruled that she was an independent contractor because of her “talent, skill, experience, and
her unique viewpoint as a feminist advocate.”164 In addition, the Philippine Daily Inquirer did not have
the power of control over Orozco, and she worked at her own pleasure.165chanRoblesvirtualLawlibrary
Semblante v. Court of Appeals166 involved a masiador167 and a sentenciador.168 This court ruled that
“petitioners performed their functions as masiador and sentenciador free from the direction and control
of respondents”169 and that the masiador and sentenciador “relied mainly on their ‘expertise that is
characteristic of the cockfight gambling.’”170 Hence, no employer-employee relationship existed.

Bernarte v. Philippine Basketball Association171 involved a basketball referee. This court ruled that “a
referee is an independent contractor, whose special skills and independent judgment are required
specifically for such position and cannot possibly be controlled by the hiring
party.”172chanRoblesvirtualLawlibrary

In these cases, the workers were found to be independent contractors because of their unique skills and
talents and the lack of control over the means and methods in the performance of their work.

In other words, there are different kinds of independent contractors: those engaged in legitimate job
contracting and those who have unique skills and talents that set them apart from ordinary employees.

Since no employer-employee relationship exists between independent contractors and their principals,
their contracts are governed by the Civil Code provisions on contracts and other applicable
laws.173chanRoblesvirtualLawlibrary

A contract is defined as “a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.”174 Parties are free to stipulate on
terms and conditions in contracts as long as these “are not contrary to law, morals, good customs, public
order, or public policy.”175 This presupposes that the parties to a contract are on equal footing. They
can bargain on terms and conditions until they are able to reach an agreement.

On the other hand, contracts of employment are different and have a higher level of regulation because
they are impressed with public interest. Article XIII, Section 3 of the 1987 Constitution provides full
protection to labor:chanroblesvirtuallawlibrary

Article XIII. Social Justice and Human Rights

....

Labor

Section 3. The State shall afford full protection to labor, local and overseas, organized and unorganized,
and promote full employment and equality of employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations,
and peaceful concerted activities, including the right to strike in accordance with law. They shall be
entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate
in policy and decision-making processes affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and employers and the
preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their
mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers, recognizing the right of labor to
its just share in the fruits of production and the right of enterprises to reasonable returns on
investments, and to expansion and growth.

Apart from the constitutional guarantee of protection to labor, Article 1700 of the Civil Code
states:chanroblesvirtuallawlibrary

ART. 1700. The relations between capital and labor are not merely contractual. They are so impressed
with public interest that labor contracts must yield to the common good. Therefore, such contracts are
subject to the special laws on labor unions, collective bargaining, strikes and lockouts, closed shop,
wages, working conditions, hours of labor and similar subjects.

In contracts of employment, the employer and the employee are not on equal footing. Thus, it is subject
to regulatory review by the labor tribunals and courts of law. The law serves to equalize the unequal.
The labor force is a special class that is constitutionally protected because of the inequality between
capital and labor.176 This presupposes that the labor force is weak.

However, the level of protection to labor should vary from case to case; otherwise, the state might
appear to be too paternalistic in affording protection to labor. As stated in GMA Network, Inc. v.
Pabriga, the ruling in Brent applies in cases where it appears that the employer and employee are on
equal footing.177 This recognizes the fact that not all workers are weak. To reiterate the discussion in
GMA Network v. Pabriga:chanroblesvirtuallawlibrary

The reason for this is evident: when a prospective employee, on account of special skills or market
forces, is in a position to make demands upon the prospective employer, such prospective employee
needs less protection than the ordinary worker. Lesser limitations on the parties’ freedom of contract
are thus required for the protection of the employee.178

The level of protection to labor must be determined on the basis of the nature of the work,
qualifications of the employee, and other relevant circumstances.

For example, a prospective employee with a bachelor’s degree cannot be said to be on equal footing
with a grocery bagger with a high school diploma. Employees who qualify for jobs requiring special
qualifications such as “[having] a Master’s degree” or “[having] passed the licensure exam” are different
from employees who qualify for jobs that require “[being a] high school graduate; with pleasing
personality.” In these situations, it is clear that those with special qualifications can bargain with the
employer on equal footing. Thus, the level of protection afforded to these employees should be
different.

Fuji’s argument that Arlene was an independent contractor under a fixed-term contract is contradictory.
Employees under fixed-term contracts cannot be independent contractors because in fixed-term
contracts, an employer-employee relationship exists. The test in this kind of contract is not the necessity
and desirability of the employee’s activities, “but the day certain agreed upon by the parties for the
commencement and termination of the employment relationship.”179 For regular employees, the
necessity and desirability of their work in the usual course of the employer’s business are the
determining factors. On the other hand, independent contractors do not have employer-employee
relationships with their principals.

Hence, before the status of employment can be determined, the existence of an employer-employee
relationship must be established.

The four-fold test180 can be used in determining whether an employer-employee relationship exists.
The elements of the four-fold test are the following: (1) the selection and engagement of the employee;
(2) the payment of wages; (3) the power of dismissal; and (4) the power of control, which is the most
important element.181chanRoblesvirtualLawlibrary

The “power of control” was explained by this court in Corporal, Sr. v. National Labor Relations
Commission:182chanRoblesvirtualLawlibrary

The power to control refers to the existence of the power and not necessarily to the actual exercise
thereof, nor is it essential for the employer to actually supervise the performance of duties of the
employee. It is enough that the employer has the right to wield that power.183 (Citation omitted)

Orozco v. Court of Appeals further elucidated the meaning of “power of control” and stated the
following:chanroblesvirtuallawlibrary

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed in
attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use
of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it. . . .184
(Citation omitted)

In Locsin, et al. v. Philippine Long Distance Telephone Company,185 the “power of control” was defined
as “[the] right to control not only the end to be achieved but also the means to be used in reaching such
end.” 186chanRoblesvirtualLawlibrary
Here, the Court of Appeals applied Sonza v. ABS-CBN and Dumpit-Murillo v. Court of Appeals187 in
determining whether Arlene was an independent contractor or a regular employee.

In deciding Sonza and Dumpit-Murillo, this court used the four-fold test. Both cases involved
newscasters and anchors. However, Sonza was held to be an independent contractor, while Dumpit-
Murillo was held to be a regular employee.

Comparison of the Sonza and

Dumpit-Murillo cases using
the four-fold test

Sonza was engaged by ABS-CBN in view of his “unique skills, talent and celebrity status not possessed by
ordinary employees.”188 His work was for radio and television programs.189 On the other hand,
Dumpit-Murillo was hired by ABC as a newscaster and co-anchor.190chanRoblesvirtualLawlibrary

Sonza’s talent fee amounted to P317,000.00 per month, which this court found to be a substantial
amount that indicated he was an independent contractor rather than a regular employee.191
Meanwhile, Dumpit-Murillo’s monthly salary was P28,000.00, a very low amount compared to what
Sonza received.192chanRoblesvirtualLawlibrary

Sonza was unable to prove that ABS-CBN could terminate his services apart from breach of contract.
There was no indication that he could be terminated based on just or authorized causes under the Labor
Code. In addition, ABS-CBN continued to pay his talent fee under their agreement, even though his
programs were no longer broadcasted.193 Dumpit-Murillo was found to have been illegally dismissed by
her employer when they did not renew her contract on her fourth year with
ABC.194chanRoblesvirtualLawlibrary

In Sonza, this court ruled that ABS-CBN did not control how Sonza delivered his lines, how he appeared
on television, or how he sounded on radio.195 All that Sonza needed was his talent.196 Further, “ABS-
CBN could not terminate or discipline SONZA even if the means and methods of performance of his
work . . . did not meet ABS-CBN’s approval.”197 In Dumpit-Murillo, the duties and responsibilities
enumerated in her contract was a clear indication that ABC had control over her
work.198chanRoblesvirtualLawlibrary

Application of the four-fold test

The Court of Appeals did not err when it relied on the ruling in Dumpit-Murillo and affirmed the ruling of
the National Labor Relations Commission finding that Arlene was a regular employee. Arlene was hired
by Fuji as a news producer, but there was no showing that she was hired because of unique skills that
would distinguish her from ordinary employees. Neither was there any showing that she had a celebrity
status. Her monthly salary amounting to US$1,900.00 appears to be a substantial sum, especially if
compared to her salary when she was still connected with GMA.199 Indeed, wages may indicate
whether one is an independent contractor. Wages may also indicate that an employee is able to bargain
with the employer for better pay. However, wages should not be the conclusive factor in determining
whether one is an employee or an independent contractor.

Fuji had the power to dismiss Arlene, as provided for in paragraph 5 of her professional employment
contract.200 Her contract also indicated that Fuji had control over her work because she was required
to work for eight (8) hours from Monday to Friday, although on flexible time.201 Sonza was not required
to work for eight (8) hours, while Dumpit-Murillo had to be in ABC to do both on-air and off-air tasks.

On the power to control, Arlene alleged that Fuji gave her instructions on what to report.202 Even the
mode of transportation in carrying out her functions was controlled by Fuji. Paragraph 6 of her contract
states:chanroblesvirtuallawlibrary

During the travel to carry out work, if there is change of place or change of place of work, the train, bus,
or public transport shall be used for the trip. If the Employee uses the private car during the work and
there is an accident the Employer shall not be responsible for the damage, which may be caused to the
Employee.203

Thus, the Court of Appeals did not err when it upheld the findings of the National Labor Relations
Commission that Arlene was not an independent contractor.

Having established that an employer-employee relationship existed between Fuji and Arlene, the next
questions for resolution are the following: Did the Court of Appeals correctly affirm the National Labor
Relations Commission that Arlene had become a regular employee? Was the nature of Arlene’s work
necessary and desirable for Fuji’s usual course of business?

Arlene was a regular employee

with a fixed-term contract

The test for determining regular employment is whether there is a reasonable connection between the
employee’s activities and the usual business of the employer. Article 280 provides that the nature of
work must be “necessary or desirable in the usual business or trade of the employer” as the test for
determining regular employment. As stated in ABS-CBN Broadcasting Corporation v.
Nazareno:204chanRoblesvirtualLawlibrary

In determining whether an employment should be considered regular or non-regular, the applicable test
is the reasonable connection between the particular activity performed by the employee in relation to
the usual business or trade of the employer. The standard, supplied by the law itself, is whether the
work undertaken is necessary or desirable in the usual business or trade of the employer, a fact that can
be assessed by looking into the nature of the services rendered and its relation to the general scheme
under which the business or trade is pursued in the usual course. It is distinguished from a specific
undertaking that is divorced from the normal activities required in carrying on the particular business or
trade.205

However, there may be a situation where an employee’s work is necessary but is not always desirable in
the usual course of business of the employer. In this situation, there is no regular employment.

In San Miguel Corporation v. National Labor Relations Commission,206 Francisco de Guzman was hired
to repair furnaces at San Miguel Corporation’s Manila glass plant. He had a separate contract for every
furnace that he repaired. He filed a complaint for illegal dismissal three (3) years after the end of his last
contract.207 In ruling that de Guzman did not attain the status of a regular employee, this court
explained:chanroblesvirtuallawlibrary

Note that the plant where private respondent was employed for only seven months is engaged in the
manufacture of glass, an integral component of the packaging and manufacturing business of petitioner.
The process of manufacturing glass requires a furnace, which has a limited operating life. Petitioner
resorted to hiring project or fixed term employees in having said furnaces repaired since said activity is
not regularly performed. Said furnaces are to be repaired or overhauled only in case of need and after
being used continuously for a varying period of five (5) to ten (10) years.

In 1990, one of the furnaces of petitioner required repair and upgrading. This was an undertaking
distinct and separate from petitioner's business of manufacturing glass. For this purpose, petitioner
must hire workers to undertake the said repair and upgrading. . . .

....

Clearly, private respondent was hired for a specific project that was not within the regular business of
the corporation. For petitioner is not engaged in the business of repairing furnaces. Although the activity
was necessary to enable petitioner to continue manufacturing glass, the necessity therefor arose only
when a particular furnace reached the end of its life or operating cycle. Or, as in the second undertaking,
when a particular furnace required an emergency repair. In other words, the undertakings where private
respondent was hired primarily as helper/bricklayer have specified goals and purposes which are
fulfilled once the designated work was completed. Moreover, such undertakings were also identifiably
separate and distinct from the usual, ordinary or regular business operations of petitioner, which is glass
manufacturing. These undertakings, the duration and scope of which had been determined and made
known to private respondent at the time of his employment, clearly indicated the nature of his
employment as a project employee.208

Fuji is engaged in the business of broadcasting,209 including news programming.210 It is based in

Japan211 and has overseas offices to cover international news.212chanRoblesvirtualLawlibrary

Based on the record, Fuji’s Manila Bureau Office is a small unit213 and has a few employees.214 As
such, Arlene had to do all activities related to news gathering. Although Fuji insists that Arlene was a
stringer, it alleges that her designation was “News
Talent/Reporter/Producer.”215chanRoblesvirtualLawlibrary

A news producer “plans and supervises newscast . . . [and] work[s] with reporters in the field planning
and gathering information. . . .”216 Arlene’s tasks included “[m]onitoring and [g]etting [n]ews [s]tories,
[r]eporting interviewing subjects in front of a video camera,”217 “the timely submission of news and
current events reports pertaining to the Philippines[,] and traveling [sic] to [Fuji’s] regional office in
Thailand.”218 She also had to report for work in Fuji’s office in Manila from Mondays to Fridays, eight
(8) hours per day.219 She had no equipment and had to use the facilities of Fuji to accomplish her tasks.

The Court of Appeals affirmed the finding of the National Labor Relations Commission that the
successive renewals of Arlene’s contract indicated the necessity and desirability of her work in the usual
course of Fuji’s business. Because of this, Arlene had become a regular employee with the right to
security of tenure.220 The Court of Appeals ruled that:chanroblesvirtuallawlibrary

Here, Espiritu was engaged by Fuji as a stinger [sic] or news producer for its Manila Bureau. She was
hired for the primary purpose of news gathering and reporting to the television network’s headquarters.
Espiritu was not contracted on account of any peculiar ability or special talent and skill that she may
possess which the network desires to make use of. Parenthetically, if it were true that Espiritu is an
independent contractor, as claimed by Fuji, the fact that everything that she uses to perform her job is
owned by the company including the laptop computer and mini camera discounts the idea of job
contracting.221

Moreover, the Court of Appeals explained that Fuji’s argument that no employer-employee relationship
existed in view of the fixed-term contract does not persuade because fixed-term contracts of
employment are strictly construed.222 Further, the pieces of equipment Arlene used were all owned by
Fuji, showing that she was a regular employee and not an independent
contractor.223chanRoblesvirtualLawlibrary

The Court of Appeals likewise cited Dumpit-Murillo, which involved fixed-term contracts that were
successively renewed for four (4) years.224 This court held that “[t]his repeated engagement under
contract of hire is indicative of the necessity and desirability of the petitioner’s work in private
respondent ABC’s business.”225chanRoblesvirtualLawlibrary

With regard to Fuji’s argument that Arlene’s contract was for a fixed term, the Court of Appeals cited
Philips Semiconductors, Inc. v. Fadriquela226 and held that where an employee’s contract “had been
continuously extended or renewed to the same position, with the same duties and remained in the
employ without any interruption,”227 then such employee is a regular employee. The continuous
renewal is a scheme to prevent regularization. On this basis, the Court of Appeals ruled in favor of
Arlene.

As stated in Price, et al. v. Innodata Corp., et al.:228chanRoblesvirtualLawlibrary

The employment status of a person is defined and prescribed by law and not by what the parties say it
should be. Equally important to consider is that a contract of employment is impressed with public
interest such that labor contracts must yield to the common good. Thus, provisions of applicable
statutes are deemed written into the contract, and the parties are not at liberty to insulate themselves
and their relationships from the impact of labor laws and regulations by simply contracting with each
other.229 (Citations omitted)

Arlene’s contract indicating a fixed term did not automatically mean that she could never be a regular
employee. This is precisely what Article 280 seeks to avoid. The ruling in Brent remains as the exception
rather than the general rule.

Further, an employee can be a regular employee with a fixed-term contract. The law does not preclude
the possibility that a regular employee may opt to have a fixed-term contract for valid reasons. This was
recognized in Brent: For as long as it was the employee who requested, or bargained, that the contract
have a “definite date of termination,” or that the fixed-term contract be freely entered into by the
employer and the employee, then the validity of the fixed-term contract will be
upheld.230chanRoblesvirtualLawlibrary

V
Whether the Court of Appeals correctly affirmed
the National Labor Relations Commission’s finding of illegal dismissal

Fuji argues that the Court of Appeals erred when it held that Arlene was illegally dismissed, in view of
the non-renewal contract voluntarily executed by the parties. Fuji also argues that Arlene’s contract
merely expired; hence, she was not illegally dismissed.231chanRoblesvirtualLawlibrary

Arlene alleges that she had no choice but to sign the non-renewal contract because Fuji withheld her
salary and benefits.

With regard to this issue, the Court of Appeals held:chanroblesvirtuallawlibrary

We cannot subscribe to Fuji’s assertion that Espiritu’s contract merely expired and that she voluntarily
agreed not to renew the same. Even a cursory perusal of the subject Non-Renewal Contract readily
shows that the same was signed by Espiritu under protest. What is apparent is that the Non-Renewal
Contract was crafted merely as a subterfuge to secure Fuji’s position that it was Espiritu’s choice not to
renew her contract.232

As a regular employee, Arlene was entitled to security of tenure and could be dismissed only for just or
authorized causes and after the observance of due process.
The right to security of tenure is guaranteed under Article XIII, Section 3 of the 1987
Constitution:chanroblesvirtuallawlibrary

Article XIII. Social Justice and Human Rights

....

Labor

....

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations,
and peaceful concerted activities, including the right to strike in accordance with law. They shall be
entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate
in policy and decision-making processes affecting their rights and benefits as may be provided by law.

Article 279 of the Labor Code also provides for the right to security of tenure and states the
following:chanroblesvirtuallawlibrary

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 of 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.

Thus, on the right to security of tenure, no employee shall be dismissed, unless there are just or
authorized causes and only after compliance with procedural and substantive due process is conducted.

Even probationary employees are entitled to the right to security of tenure. This was explained in
Philippine Daily Inquirer, Inc. v. Magtibay, Jr.:233chanRoblesvirtualLawlibrary

Within the limited legal six-month probationary period, probationary employees are still entitled to
security of tenure. It is expressly provided in the afore-quoted Article 281 that a probationary employee
may be terminated only on two grounds: (a) for just cause, or (b) when he fails to qualify as a regular
employee in accordance with reasonable standards made known by the employer to the employee at
the time of his engagement.234 (Citation omitted)

The expiration of Arlene’s contract does not negate the finding of illegal dismissal by Fuji. The manner by
which Fuji informed Arlene that her contract would no longer be renewed is tantamount to constructive
dismissal. To make matters worse, Arlene was asked to sign a letter of resignation prepared by Fuji.235
The existence of a fixed-term contract should not mean that there can be no illegal dismissal. Due
process must still be observed in the pre-termination of fixed-term contracts of employment.

In addition, the Court of Appeals and the National Labor Relations Commission found that Arlene was
dismissed because of her health condition. In the non-renewal agreement executed by Fuji and Arlene,
it is stated that:chanroblesvirtuallawlibrary

WHEREAS, the SECOND PARTY is undergoing chemotherapy which prevents her from continuing to
effectively perform her functions under the said Contract such as the timely submission of news and
current events reports pertaining to the Philippines and travelling [sic] to the FIRST PARTY’s regional
office in Thailand.236 (Emphasis supplied)

Disease as a ground for termination is recognized under Article 284 of the Labor
Code:chanroblesvirtuallawlibrary

Art. 284. Disease as ground for termination. An employer may terminate the services of an employee
who has been found to be suffering from any disease and whose continued employment is prohibited by
law or is prejudicial to his health as well as to the health of his co-employees: Provided, That he is paid
separation pay equivalent to at least one (1) month salary or to one-half (1/2) month salary for every
year of service, whichever is greater, a fraction of at least six (6) months being considered as one (1)
whole year.

Book VI, Rule 1, Section 8 of the Omnibus Rules Implementing the Labor Code
provides:chanroblesvirtuallawlibrary

Sec. 8. Disease as a ground for dismissal. – Where the employee suffers from a disease and his
continued employment is prohibited by law or prejudicial to his health or to the health of his co-
employees, the employer shall not terminate his employment unless there is a certification by a
competent public health authority that the disease is of such nature or at such a stage that it cannot be
cured within a period of six (6) months even with proper medical treatment. If the disease or ailment
can be cured within the period, the employer shall not terminate the employee but shall ask the
employee to take a leave. The employer shall reinstate such employee to his former position
immediately upon the restoration of his normal health.

For dismissal under Article 284 to be valid, two requirements must be complied with: (1) the employee’s
disease cannot be cured within six (6) months and his “continued employment is prohibited by law or
prejudicial to his health as well as to the health of his co-employees”; and (2) certification issued by a
competent public health authority that even with proper medical treatment, the disease cannot be
cured within six (6) months.237 The burden of proving compliance with these requisites is on the
employer.238 Non-compliance leads to the conclusion that the dismissal was
illegal.239chanRoblesvirtualLawlibrary
There is no evidence showing that Arlene was accorded due process. After informing her employer of
her lung cancer, she was not given the chance to present medical certificates. Fuji immediately
concluded that Arlene could no longer perform her duties because of chemotherapy. It did not ask her
how her condition would affect her work. Neither did it suggest for her to take a leave, even though she
was entitled to sick leaves. Worse, it did not present any certificate from a competent public health
authority. What Fuji did was to inform her that her contract would no longer be renewed, and when she
did not agree, her salary was withheld. Thus, the Court of Appeals correctly upheld the finding of the
National Labor Relations Commission that for failure of Fuji to comply with due process, Arlene was
illegally dismissed.240chanRoblesvirtualLawlibrary

VI
Whether the Court of Appeals properly modified
the National Labor Relations Commission’s decision
when it awarded reinstatement, damages, and attorney’s fees

The National Labor Relations Commission awarded separation pay in lieu of reinstatement, on the
ground that the filing of the complaint for illegal dismissal may have seriously strained relations
between the parties. Backwages were also awarded, to be computed from date of dismissal until the
finality of the National Labor Relations Commission’s decision. However, only backwages were included
in the dispositive portion because the National Labor Relations Commission recognized that Arlene had
received separation pay in the amount of US$7,600.00.

The Court of Appeals affirmed the National Labor Relations Commission’s decision but modified it by
awarding moral and exemplary damages and attorney’s fees, and all other benefits Arlene was entitled
to under her contract with Fuji. The Court of Appeals also ordered reinstatement, reasoning that the
grounds when separation pay was awarded in lieu of reinstatement were not
proven.241chanRoblesvirtualLawlibrary

Article 279 of the Labor Code provides:chanroblesvirtuallawlibrary

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. (Emphasis supplied)

The Court of Appeals’ modification of the National Labor Relations Commission’s decision was proper
because the law itself provides that illegally dismissed employees are entitled to reinstatement,
backwages including allowances, and all other benefits.
On reinstatement, the National Labor Relations Commission ordered payment of separation pay in lieu
of reinstatement, reasoning “that the filing of the instant suit may have seriously abraded the
relationship of the parties so as to render reinstatement impractical.”242 The Court of Appeals reversed
this and ordered reinstatement on the ground that separation pay in lieu of reinstatement is allowed
only in several instances such as (1) when the employer has ceased operations; (2) when the employee’s
position is no longer available; (3) strained relations; and (4) a substantial period has lapsed from date of
filing to date of finality.243chanRoblesvirtualLawlibrary

On this matter, Quijano v. Mercury Drug Corp.244 is instructive:chanroblesvirtuallawlibrary

Well-entrenched is the rule that an illegally dismissed employee is entitled to reinstatement as a matter
of right. . . .

To protect labor’s security of tenure, we emphasize that the doctrine of “strained relations” should be
strictly applied so as not to deprive an illegally dismissed employee of his right to reinstatement. Every
labor dispute almost always results in “strained relations” and the phrase cannot be given an
overarching interpretation, otherwise, an unjustly dismissed employee can never be reinstated.245
(Citations omitted)

The Court of Appeals reasoned that strained relations are a question of fact that must be supported by
evidence.246 No evidence was presented by Fuji to prove that reinstatement was no longer feasible.
Fuji did not allege that it ceased operations or that Arlene’s position was no longer available. Nothing in
the records shows that Arlene’s reinstatement would cause an atmosphere of antagonism in the
workplace. Arlene filed her complaint in 2009. Five (5) years are not yet a substantial period247 to bar
reinstatement.

On the award of damages, Fuji argues that Arlene is not entitled to the award of damages and attorney’s
fees because the non-renewal agreement contained a quitclaim, which Arlene signed.

Quitclaims in labor cases do not bar illegally dismissed employees from filing labor complaints and
money claim. As explained by Arlene, she signed the non-renewal agreement out of necessity. In Land
and Housing Development Corporation v. Esquillo,248 this court explained:chanroblesvirtuallawlibrary

We have heretofore explained that the reason why quitclaims are commonly frowned upon as contrary
to public policy, and why they are held to be ineffective to bar claims for the full measure of the
workers’ legal rights, is the fact that the employer and the employee obviously do not stand on the same
footing. The employer drove the employee to the wall. The latter must have to get hold of money.
Because, out of a job, he had to face the harsh necessities of life. He thus found himself in no position to
resist money proffered. His, then, is a case of adherence, not of choice.249

With regard to the Court of Appeals’ award of moral and exemplary damages and attorney’s fees, this
court has recognized in several cases that moral damages are awarded “when the dismissal is attended
by bad faith or fraud or constitutes an act oppressive to labor, or is done in a manner contrary to good
morals, good customs or public policy.”250 On the other hand, exemplary damages may be awarded
when the dismissal was effected “in a wanton, oppressive or malevolent
manner.”251chanRoblesvirtualLawlibrary

The Court of Appeals and National Labor Relations Commission found that after Arlene had informed
Fuji of her cancer, she was informed that there would be problems in renewing her contract on account
of her condition. This information caused Arlene mental anguish, serious anxiety, and wounded feelings
that can be gleaned from the tenor of her email dated March 11, 2009. A portion of her email reads:

I WAS SO SURPRISED . . . that at a time when I am at my lowest, being sick and very weak, you suddenly
came to deliver to me the NEWS that you will no longer renew my contract. I knew this will come but I
never thought that you will be so ‘heartless’ and insensitive to deliver that news just a month after I
informed you that I am sick. I was asking for patience and understanding and your response was not to
RENEW my contract.252

Apart from Arlene’s illegal dismissal, the manner of her dismissal was effected in an oppressive
approach with her salary and other benefits being withheld until May 5, 2009, when she had no other
choice but to sign the non-renewal contract. Thus, there was legal basis for the Court of Appeals to
modify the National Labor Relations Commission’s decision.

However, Arlene received her salary for May 2009.253 Considering that the date of her illegal dismissal
was May 5, 2009,254 this amount may be subtracted from the total monetary award.

With regard to the award of attorney’s fees, Article 111 of the Labor Code states that “[i]n cases of
unlawful withholding of wages, the culpable party may be assessed attorney’s fees equivalent to ten
percent of the amount of wages recovered.” Likewise, this court has recognized that “in actions for
recovery of wages or where an employee was forced to litigate and, thus, incur expenses to protect his
rights and interest, the award of attorney’s fees is legally and morally justifiable.”255 Due to her illegal
dismissal, Arlene was forced to litigate.

In the dispositive portion of its decision, the Court of Appeals awarded legal interest at the rate of 12%
per annum.256 In view of this court’s ruling in Nacar v. Gallery Frames,257 the legal interest shall be
reducd to a rate of 6% per annum from July 1, 2013 until full satisfaction.chanrobleslaw

WHEREFORE, the petition is DENIED. The assailed Court of Appeals decision dated June 25, 2012 is
AFFIRMED with the modification that backwages shall be computed from June 2009. Legal interest shall
be computed at the rate of 6% per annum of the total monetary awards from May 5, 2009 until full
satisfaction.

SO ORDERED.
[G.R. NO. 138051 : June 10, 2004]

JOSE Y. SONZA, Petitioner, v. ABS-CBN BROADCASTING CORPORATION, Respondent.

DECISION

CARPIO, J.:

The Case

Before this Court is a Petition for Review on Certiorari 1 assailing the 26 March 1999 Decision2 of the
Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza (SONZA) .The
Court of Appeals affirmed the findings of the National Labor Relations Commission (NLRC), which
affirmed the Labor Arbiters dismissal of the case for lack of jurisdiction.

The Facts

In May 1994, respondent ABS-CBN Broasting Corporation (ABS-CBN) signed an Agreement (Agreement)
with the Mel and Jay Management and Development Corporation (MJMDC) .ABS-CBN was represented
by its corporate officers while MJMDC was represented by SONZA, as President and General Manager,
and Carmela Tiangco (TIANGCO), as EVP and Treasurer. Referred to in the Agreement as AGENT, MJMDC
agreed to provide SONZAs services exclusively to ABS-CBN as talent for radio and television.The
Agreement listed the services SONZA would render to ABS-CBN, as follows:chanroblesvirtua1awlibrary

A. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to
Fridays;chanroblesvirtuallawlibrary

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.3 cralawred

ABS-CBN agreed to pay for SONZAs services a monthly talent fee of P310,000 for the first year and
P317,000 for the second and third year of the Agreement.ABS-CBN would pay the talent fees on the
10th and 25th days of the month.

On 1 April 1996, SONZA wrote a letter to ABS-CBNs President, Eugenio Lopez III, which
reads:chanroblesvirtua1awlibrary

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered into by your goodself on
behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA.
As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning his programs
and career.We consider these acts of the station violative of the Agreement and the station as in breach
thereof.In this connection, we hereby serve notice of rescission of said Agreement at our instance
effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount stipulated in
paragraph 7 of the Agreement but reserves the right to seek recovery of the other benefits under said
Agreement.

Thank you for your attention.

Very truly yours,

(Sgd.)

JOSE Y. SONZA
President and Gen. Manager4 cralawred

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and
Employment, National Capital Region in Quezon City.SONZA complained that ABS-CBN did not pay his
salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel allowance
and amounts due under the Employees Stock Option Plan (ESOP).cralawlibrary

On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZAs monthly talent fees through his account at PCIBank,
Quezon Avenue Branch, Quezon City.In July 1996, ABS-CBN opened a new account with the same bank
where ABS-CBN deposited SONZAs talent fees and other payments due him under the Agreement.

In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to dismiss and directed the
parties to file their respective position papers.The Labor Arbiter ruled:chanroblesvirtua1awlibrary

In this instant case, complainant for having invoked a claim that he was an employee of respondent
company until April 15, 1996 and that he was not paid certain claims, it is sufficient enough as to confer
jurisdiction over the instant case in this Office.And as to whether or not such claim would entitle
complainant to recover upon the causes of action asserted is a matter to be resolved only after and as a
result of a hearing.Thus, the respondents plea of lack of employer-employee relationship may be
pleaded only as a matter of defense.It behooves upon it the duty to prove that there really is no
employer-employee relationship between it and the complainant.
The Labor Arbiter then considered the case submitted for resolution. The parties submitted their
position papers on 24 February 1997.

On 11 March 1997, SONZA filed a Reply to Respondents Position Paper with Motion to Expunge
Respondents Annex 4 and Annex 5 from the Records.Annexes 4 and 5 are affidavits of ABS-CBNs
witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the
prevailing practice in the television and broast industry is to treat talents like SONZA as independent
contractors.

The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of
jurisdiction.6 The pertinent parts of the decision read as follows:

xxx

While Philippine jurisprudence has not yet, with certainty, touched on the true nature of the contract of
a talent, it stands to reason that a talent as above-described cannot be considered as an employee by
reason of the peculiar circumstances surrounding the engagement of his services. cra

It must be noted that complainant was engaged by respondent by reason of his peculiar skills and talent
as a TV host and a radio broaster.Unlike an ordinary employee, he was free to perform the services he
undertook to render in accordance with his own style.The benefits conferred to complainant under the
May 1994 Agreement are certainly very much higher than those generally given to employees.For one,
complainant Sonzas monthly talent fees amount to a staggering P317,000.Moreover, his engagement as
a talent was covered by a specific contract.Likewise, he was not bound to render eight (8) hours of work
per day as he worked only for such number of hours as may be necessary.

The fact that per the May 1994 Agreement complainant was accorded some benefits normally given to
an employee is inconsequential.Whatever benefits complainant enjoyed arose from specific agreement
by the parties and not by reason of employer-employee relationship. As correctly put by the
respondent,All these benefits are merely talent fees and other contractual benefits and should not be
deemed as salaries, wages and/or other remuneration accorded to an employee, notwithstanding the
nomenclature appended to these benefits.Apropos to this is the rule that the term or nomenclature
given to a stipulated benefit is not controlling, but the intent of the parties to the Agreement conferring
such benefit.

The fact that complainant was made subject to respondents Rules and Regulations, likewise, does not
detract from the absence of employer-employee relationship.As held by the Supreme Court, The line
should be drawn between rules that merely serve as guidelines towards the achievement of the
mutually desired result without dictating the means or methods to be employed in attaining it, and
those that control or fix the methodology and bind or restrict the party hired to the use of such
means.The first, which aim only to promote the result, create no employer-employee relationship unlike
the second, which address both the result and the means to achieve it.(Insular Life Assurance Co., Ltd. v.
NLRC, et al., G.R. No. 84484, November 15, 1989).

x x x (Emphasis supplied)7 cralawred

SONZA appealed to the NLRC.On 24 February 1998, the NLRC rendered a Decision affirming the Labor
Arbiters decision.SONZA filed a motion for reconsideration, which the NLRC denied in its Resolution
dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals assailing
the decision and resolution of the NLRC.On 26 March 1999, the Court of Appeals rendered a Decision
dismissing the case.8 cralawred

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRCs finding that no employer-employee relationship existed
between SONZA and ABS-CBN. Adopting the NLRCs decision, the appellate court quoted the following
findings of the NLRC:chanroblesvirtua1awlibrary

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract merely as an
agent of complainant Sonza, the principal.By all indication and as the law puts it, the act of the agent is
the act of the principal itself.This fact is made particularly true in this case, as admittedly MJMDC is a
management company devoted exclusively to managing the careers of Mr. Sonza and his broast partner,
Mrs. Carmela C. Tiangco.(Opposition to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza and MJMDC, and
not between ABS-CBN and MJMDC.This is clear from the provisions of the May 1994 Agreement which
specifically referred to MJMDC as the AGENT.As a matter of fact, when complainant herein unilaterally
rescinded said May 1994 Agreement, it was MJMDC which issued the notice of rescission in behalf of
Mr. Sonza, who himself signed the same in his capacity as President.crvll

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that historically, the
parties to the said agreements are ABS-CBN and Mr. Sonza.And it is only in the May 1994 Agreement,
which is the latest Agreement executed between ABS-CBN and Mr. Sonza, that MJMDC figured in the
said Agreement as the agent of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere labor-only contractor of ABS-CBN such that there
exist[s] employer-employee relationship between the latter and Mr. Sonza.On the contrary, We find it
indubitable, that MJMDC is an agent, not of ABS-CBN, but of the talent/contractor Mr. Sonza, as
expressly admitted by the latter and MJMDC in the May 1994 Agreement.
It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to the regular
courts, the same being in the nature of an action for alleged breach of contractual obligation on the part
of respondent-appellee.As squarely apparent from complainant-appellants Position Paper, his claims for
compensation for services, 13th month pay, signing bonus and travel allowance against respondent-
appellee are not based on the Labor Code but rather on the provisions of the May 1994 Agreement,
while his claims for proceeds under Stock Purchase Agreement are based on the latter.A portion of the
Position Paper of complainant-appellant bears perusal:chanroblesvirtua1awlibrary

Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually bound itself to pay
complainant a signing bonus consisting of shares of stockswith FIVE HUNDRED THOUSAND PESOS
(P500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an amount not lower than
the amount he was receiving prior to effectivity of (the) Agreement.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a commutable travel
benefit amounting to at least One Hundred Fifty Thousand Pesos (P150,000.00) per year.

Thus, it is precisely because of complainant-appellants own recognition of the fact that his contractual
relations with ABS-CBN are founded on the New Civil Code, rather than the Labor Code, that instead of
merely resigning from ABS-CBN, complainant-appellant served upon the latter a notice of rescission of
Agreement with the station, per his letter dated April 1, 1996, which asserted that instead of referring to
unpaid employee benefits, he is waiving and renouncing recovery of the remaining amount stipulated in
paragraph 7 of the Agreement but reserves the right to such recovery of the other benefits under said
Agreement. (Annex 3 of the respondent ABS-CBNs Motion to Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or the Stock
Purchase Agreement by respondent-appellee that complainant-appellant filed his
complaint.Complainant-appellants claims being anchored on the alleged breach of contract on the part
of respondent-Appellee, the same can be resolved by reference to civil law and not to labor
law.Consequently, they are within the realm of civil law and, thus, lie with the regular courts.As held in
the case of Dai-Chi Electronics Manufacturing v. Villarama, 238 SCRA 267, 21 November 1994, an action
for breach of contractual obligation is intrinsically a civil dispute.9 (Emphasis supplied)cralawlibrary

The Court of Appeals ruled that the existence of an employer-employee relationship between SONZA
and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve.10 A special civil
action for certiorari extends only to issues of want or excess of jurisdiction of the NLRC.11 Such action
cannot cover an inquiry into the correctness of the evaluation of the evidence which served as basis of
the NLRCs conclusion.12 The Court of Appeals added that it could not re-examine the parties evidence
and substitute the factual findings of the NLRC with its own.13
The Issue

In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRCS DECISION AND REFUSING TO FIND
THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEEN SONZA AND ABS-CBN, DESPITE THE
WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING.14

The Courts Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming the
NLRC ruling which upheld the Labor Arbiters dismissal of the case for lack of jurisdiction.

The present controversy is one of first impression.Although Philippine labor laws and jurisprudence
define clearly the elements of an employer-employee relationship, this is the first time that the Court
will resolve the nature of the relationship between a television and radio station and one of its
talents.There is no case law stating that a radio and television program host is an employee of the
broast station.

The instant case involves big names in the broast industry, namely Jose Jay Sonza, a known television
and radio personality, and ABS-CBN, one of the biggest television and radio networks in the country.

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee of
ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because SONZA
was an independent contractor.

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact.Appellate courts accord the

factual findings of the Labor Arbiter and the NLRC not only respect but also finality when supported by
substantial evidence.15 Substantial evidence means such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion.16 A party cannot prove the absence of substantial evidence
by simply pointing out that there is contrary evidence on record, direct or circumstantial.The Court does
not substitute its own judgment for that of the tribunal in determining where the weight of evidence lies
or what evidence is credible.17 cralawred

SONZA maintains that all essential elements of an employer-employee relationship are present in this
case. Case law has consistently held that the elements of an employer-employee relationship are:(a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and
(d) the employers power to control the employee on the means and methods by which the work is
accomplished.18 The last element, the so-called control test, is the most important element.19
cralawred

A.Selection and Engagement of Employee

ABS-CBN engaged SONZAs services to co-host its television and radio programs because of SONZAs
peculiar skills, talent and celebrity status.SONZA contends that the discretion used by respondent in
specifically selecting and hiring complainant over other broasters of possibly similar experience and
qualification as complainant belies respondents claim of independent contractorship.crvl1

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

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

B.Payment of Wages

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

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the Agreement.
If SONZA were ABS-CBNs employee, there would be no need for the parties to stipulate on benefits such
as SSS, Medicare, x x x and 13th month pay20 which the law automatically incorporates into every
employer-employee contract.21 Whatever benefits SONZA enjoyed arose from contract and not
because of an employer-employee relationship.22 cralawred

SONZAs talent fees, amounting to P317,000 monthly in the second and third year, are so huge and out
of the ordinary that they indicate more an independent contractual relationship rather than an
employer-employee relationship.ABS-CBN agreed to pay SONZA such huge talent fees precisely because
of SONZAs unique skills, talent and celebrity status not possessed by ordinary employees. Obviously,
SONZA acting alone possessed enough bargaining power to demand and receive such huge talent fees
for his services.The power to bargain talent fees way above the salary scales of ordinary employees is a
circumstance indicative, but not conclusive, of an independent contractual relationship.
The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of SONZA as
an independent contractor. The parties expressly agreed on such mode of payment.Under the
Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over any talent fee
accruing under the Agreement.

C.Power of Dismissal

For violation of any provision of the Agreement, either party mayterminate their relationship.SONZA
failed to show that ABS-CBN could terminate his services on grounds other than breach of contract, such
as retrenchment to prevent losses as provided under labor laws.23 cralawred

During the life of the Agreement, ABS-CBN agreed to pay SONZAs talent fees as long as AGENT and Jay
Sonza shall faithfully and completely perform each condition of this Agreement.24 Even if it suffered
severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained obligated to pay
SONZAs talent fees during the life of the Agreement.This circumstance indicates an independent
contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broasting his programs, ABS-CBN still paid him his talent
fees.Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying SONZAs talent
fees during the remaining life of the Agreement even if ABS-CBN cancelled SONZAs programs through no
fault of SONZA.25 cralawred

SONZA assails the Labor Arbiters interpretation of his rescission of the Agreement as an admission that
he is not an employee of ABS-CBN.The Labor Arbiter stated that if it were true that complainant was
really an employee, he would merely resign, instead. SONZA did actually resign from ABS-CBN but he
also, as president of MJMDC, rescinded the Agreement.SONZAs letter clearly bears this out.26 However,
the manner by which SONZA terminated his relationship with ABS-CBN is immaterial.Whether SONZA
rescinded the Agreement or resigned from work does not determine his status as employee or
independent contractor.

D.Power of Control

Since there is no local precedent on whether a radio and television program host is an employee or an
independent contractor, we refer to foreign case law in analyzing the present case. The United States
Court of Appeals, First Circuit, recently held in Alberty-Vlez v. Corporacin De Puerto Rico Para La Difusin
Pblica (WIPR) 27 that a television program host is an independent contractor. We quote the following
findings of the U.S. court:chanroblesvirtua1awlibrary

Several factors favor classifying Alberty as an independent contractor.First, a television actress is a

skilled position requiring talent and training not available on-the-job. x x x In this regard, Alberty
possesses a masters degree in public communications and journalism; is trained in dance, singing, and
modeling; taught with the drama department at the University of Puerto Rico; and acted in several
theater and television productions prior to her affiliation with Desde Mi Pueblo.Second, Alberty
provided the tools and instrumentalities necessary for her to perform.Specifically, she provided, or
obtained sponsors to provide, the costumes, jewelry, and other image-related supplies and services
necessary for her appearance.Alberty disputes that this factor favors independent contractor status
because WIPR provided the equipment necessary to tape the show.Albertys argument is misplaced.The
equipment necessary for Alberty to conduct her job as host of Desde Mi Pueblo related to her
appearance on the show.Others provided equipment for filming and producing the show, but these
were not the primary tools that Alberty used to perform her particular function.If we accepted this
argument, independent contractors could never work on collaborative projects because other
individuals often provide the equipment required for different aspects of the collaboration. x x x

Third, WIPR could not assign Alberty work in addition to filming Desde Mi Pueblo.Albertys contracts with
WIPR specifically provided that WIPR hired her professional services as Hostess for the Program Desde
Mi Pueblo.There is no evidence that WIPR assigned Alberty tasks in addition to work related to these
tapings.x x x28 (Emphasis supplied)cralawlibrary

Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor.The control test is the most important test our courts apply in distinguishing an
employee from an independent contractor.29 This test is based on the extent of control the hirer
exercises over a worker.The greater the supervision and control the hirer exercises, the more likely the
worker is deemed an employee. The converse holds true as well the less control the hirer exercises, the
more likely the worker is considered an independent contractor.30 cralawred

First, SONZA contends that ABS-CBN exercised control over the means and methods of his work.

SONZAs argument is misplaced.ABS-CBN engaged SONZAs services specifically to co-host the Mel & Jay
programs. ABS-CBN did not assign any other work to SONZA.To perform his work, SONZA only needed
his skills and talent. How SONZA delivered his lines, appeared on television, and sounded on radio were
outside ABS-CBNs control.SONZA did not have to render eight hours of work per day.The Agreement
required SONZA to attend only rehearsals and tapings of the shows, as well as pre- and post-production
staff meetings.31 ABS-CBN could not dictate the contents of SONZAs script.However, the Agreement
prohibited SONZA from criticizing in his shows ABS-CBN or its interests.32 The clear implication is that
SONZA had a free hand on what to say or discuss in his shows provided he did not attack ABS-CBN or its
interests.

We find that ABS-CBN was not involved in the actual performance that produced the finished product of
SONZAs work.33 ABS-CBN did not instruct SONZA how to perform his job.ABS-CBN merely reserved the
right to modify the program format and airtime schedule for more effective programming.34 ABS-CBNs
sole concern was the quality of the shows and their standing in the ratings.Clearly, ABS-CBN did not
exercise control over the means and methods of performance of SONZAs work.
SONZA claims that ABS-CBNs power not to broast his shows proves ABS-CBNs power over the means
and methods of the performance of his work.Although ABS-CBN did have the option not to broast
SONZAs show, ABS-CBN was still obligated to pay SONZAs talent fees...Thus, even if ABS-CBN was
completely dissatisfied with the means and methods of SONZAs performance of his work, or even with
the quality or product of his work, ABS-CBN could not dismiss or even discipline SONZA.All that ABS-CBN
could do is not to broast SONZAs show but ABS-CBN must still pay his talent fees in full.35 cralawred

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

In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that vaudeville
performers were independent contractors although the management reserved the right to delete
objectionable features in their shows. Since the management did not have control over the manner of
performance of the skills of the artists, it could only control the result of the work by deleting
objectionable features.37 cralawred

SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment and
crew.No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broast the Mel & Jay
programs.However, the equipment, crew and airtime are not the tools and instrumentalities SONZA
needed to perform his job. What SONZA principally needed were his talent or skills and the costumes
necessary for his appearance.38 Even though ABS-CBN provided SONZA with the place of work and the
necessary equipment, SONZA was still an independent contractor since ABS-CBN did not supervise and
control hiswork. ABS-CBNs sole concern was for SONZA to display his talent during the airing of the
programs.39 cralawred

A radio broast specialist who works under minimal supervision is an independent contractor.40 SONZAs
work as television and radio program host required special skills and talent, which SONZA admittedly
possesses.The records do not show that ABS-CBN exercised any supervision and control over how
SONZA utilized his skills and talent in his shows.

Second, SONZA urges us to rule that he was ABS-CBNs employee because ABS-CBN subjected him to its
rules and standards of performance. SONZA claims that this indicates ABS-CBNs control not only [over]
his manner of work but also the quality of his work.

The Agreement stipulates that SONZA shall abide with the rules and standards of performance covering
talents41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules and standards
of performance prescribed for employees of ABS-CBN.The code of conduct imposed on SONZA under
the Agreement refers to the Television and Radio Code of the Kapisanan ng mga Broaster sa Pilipinas
(KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code of Ethics.42 The KBP code
applies to broasters, not to employees of radio and television stations.Broasters are not necessarily
employees of radio and television stations.Clearly, the rules and standards of performance referred to in
the Agreement are those applicable to talents and not to employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an
employee of the former.43 In this case, SONZA failed to show that these rules controlled his
performance. We find that these general rules are merely guidelines towards the achievement of the
mutually desired result, which are top-rating television and radio programs that comply with standards
of the industry.We have ruled that:chanroblesvirtua1awlibrary

Further, not every form of control that a party reserves to himself over the conduct of the other party in
relation to the services being rendered may be accorded the effect of establishing an employer-
employee relationship. The facts of this case fall squarely with the case of Insular Life Assurance Co., Ltd.
v. NLRC. In said case, we held that:

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed in
attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use
of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it.44
cralawred

The Vaughan case also held that one could still be an independent contractor although the hirer
reserved certain supervision to insure the attainment of the desired result.The hirer, however, must not
deprive the one hired from performing his services according to his own initiative.45 cralawred

Lastly, SONZA insists that the exclusivity clause in the Agreement is the most extreme form of control
which ABS-CBN exercised over him.

This argument is futile.Being an exclusive talent does not by itself mean that SONZA is an employee of
ABS-CBN. Even an independent contractor can validly provide his services exclusively to the hiring party.
In the broast industry, exclusivity is not necessarily the same as control.

The hiring of exclusive talents is a widespread and accepted practice in the entertainment industry.46
This practice is not designed to control the means and methods of work of the talent, but simply to
protect the investment of the broast station.The broast station normally spends substantial amounts of
money, time and effort in building up its talents as well as the programs they appear in and thus expects
that said talents remain exclusive with the station for a commensurate period of time.47 Normally, a
much higher fee is paid to talents who agree to work exclusively for a particular radio or television
station.In short, the huge talent fees partially compensates for exclusivity, as in the present case.
MJMDC as Agent of SONZA

SONZA protests the Labor Arbiters finding that he is a talent of MJMDC, which contracted out his
services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an employee of
ABS-CBN.SONZA insists that MJMDC is a labor-only contractor and ABS-CBN is his employer.

In a labor-only contract, there are three parties involved:(1) the labor-only contractor; (2) the employee
who is ostensibly under the employ of the labor-only contractor; and (3) the principal who is deemed
the real employer.Under this scheme, the labor-only contractor is the agent of the principal.The law
makes the principal responsible to the employees of the labor-only contractor as if the principal itself
directly hired or employed the employees.48 These circumstances are not present in this case.

There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-CBN.
MJMDC merely acted as SONZAs agent.The Agreement expressly states that MJMDC acted as the AGENT
of SONZA. The records do not show that MJMDC acted as ABS-CBNs agent.MJMDC, which stands for Mel
and Jay Management and Development Corporation, is a corporation organized and owned by SONZA
and TIANGCO.The President and General Manager of MJMDC is SONZA himself.It is absurd to hold that
MJMDC, which is owned, controlled, headed and managed by SONZA, acted as agent of ABS-CBN in
entering into the Agreement with SONZA, who himself is represented by MJMDC.That would make
MJMDC the agent of both ABS-CBN and SONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to managing the careers of
SONZA and his broast partner, TIANGCO.MJMDC is not engaged in any other business, not even job
contracting.MJMDC does not have any other function apart from acting as agent of SONZA or TIANGCO
to promote their careers in the broast and television industry.49 cralawred

Policy Instruction No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8 January
1979 finally settled the status of workers in the broast industry.Under this policy, the types of
employees in the broast industry are the station and program employees.

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of
law.There is no legal presumption that Policy Instruction No. 40 determines SONZAs status.A mere
executive issuance cannot exclude independent contractors from the class of service providers to the
broast industry.The classification of workers in the broast industry into only two groups under Policy
Instruction No. 40 is not binding on this Court, especially when the classification has no basis either in
law or in fact.

Affidavits of ABS-CBNs Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando Cruz
without giving his counsel the opportunity to cross-examine these witnesses.SONZA brands these
witnesses as incompetent to attest on the prevailing practice in the radio and television industry.SONZA
views the affidavits of these witnesses as misleading and irrelevant.

While SONZA failed to cross-examine ABS-CBNs witnesses, he was never prevented from denying or
refuting the allegations in the affidavits.The Labor Arbiter has the discretion whether to conduct a
formal (trial-type) hearing after the submission of the position papers of the parties,
thus:chanroblesvirtua1awlibrary

Section 3.Submission of Position Papers/Memorandum

xxx

These verified position papers shall cover only those claims and causes of action raised in the complaint
excluding those that may have been amicably settled, and shall be accompanied by all supporting
documents including the affidavits of their respective witnesses which shall take the place of the latters
direct testimony.x x x

Section 4.Determination of Necessity of Hearing. Immediately after the submission of the parties of their
position papers/memorandum, the Labor Arbiter shall motu propio determine whether there is need for
a formal trial or hearing.At this stage, he may, at his discretion and for the purpose of making such
determination, ask clarificatory questions to further elicit facts or information, including but not limited
to the subpoena of relevant documentary evidence, if any from any party or witness.50 cralawred

The Labor Arbiter can decide a case based solely on the position papers and the supporting documents
without a formal trial.51 The holding of a formal hearing or trial is something that the parties cannot
demand as a matter of right.52 If the Labor Arbiter is confident that he can rely on the documents
before him, he cannot be faulted for not conducting a formal trial, unless under the particular
circumstances of the case, the documents alone are insufficient.The proceedings before a Labor Arbiter
are non-litigious in nature.Subject to the requirements of due process, the technicalities of law and the
rules obtaining in the courts of law do not strictly apply in proceedings before a Labor Arbiter.

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broast and entertainment industries to treat
talents like SONZA as independent contractors. SONZA argues that if such practice exists, it is void for
violating the right of labor to security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution53 arises only if there is an
employer-employee relationship under labor laws.Not every performance of services for a fee creates
an employer-employee relationship.To hold that every person who renders services to another for a fee
is an employee - to give meaning to the security of tenure clause - will lead to absurd results.

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as
independent contractors.The right to life and livelihood guarantees this freedom to contract as
independent contractors.The right of labor to security of tenure cannot operate to deprive an individual,
possessed with special skills, expertise and talent, of his right to contract as an independent
contractor.An individual like an artist or talent has a right to render his services without any one
controlling the means and methods by which he performs his art or craft.This Court will not interpret
the right of labor to security of tenure to compel artists and talents to render their services only as
employees.If radio and television program hosts can render their services only as employees, the station
owners and managers can dictate to the radio and television hosts what they say in their shows.This is
not conducive to freedom of the press.

Different Tax Treatment of Talents and Broasters

The National Internal Revenue Code(NIRC)54 in relation to Republic Act No. 7716,55 as amended by
Republic Act No. 8241,56 treats talents, television and radio broasters differently. Under the NIRC, these
professionals are subject to the 10% value-added tax (VAT) on services they render.Exempted from the
VAT are those under an employer-employee relationship.57 This different tax treatment accorded to
talents and broasters bolters our conclusion that they are independent contractors, provided all the
basic elements of a contractual relationship are present as in this case.

Nature of SONZAs Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service
incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock Option
Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZAs claims are
all based on the May 1994 Agreement and stock option plan, and not on the Labor Code. Clearly, the
present case does not call for an application of the Labor Code provisions but an interpretation and
implementation of the May 1994 Agreement. In effect, SONZAs cause of action is for breach of contract
which is intrinsically a civil dispute cognizable by the regular courts.58 cralawred

WHEREFORE, we DENY the petition.The assailed Decision of the Court of Appeals dated 26 March 1999
in CA-G.R. SP No. 49190 is AFFIRMED.Costs against petitioner.

SO ORDERED.
[ G.R. No. 192084, September 14, 2011 ]

JOSE MEL BERNARTE, PETITIONER, VS. PHILIPPINE BASKETBALL ASSOCIATION (PBA), JOSE EMMANUEL
M. EALA, AND PERRY MARTINEZ, RESPONDENTS.

DECISION
CARPIO, J.:

The Case

This is a petition for review[1] of the 17 December 2009 Decision[2] and 5 April 2010 Resolution[3] of
the Court of Appeals in CA-G.R. SP No. 105406. The Court of Appeals set aside the decision of the
National Labor Relations Commission (NLRC), which affirmed the decision of the Labor Arbiter, and held
that petitioner Jose Mel Bernarte is an independent contractor, and not an employee of respondents
Philippine Basketball Association (PBA), Jose Emmanuel M. Eala, and Perry Martinez. The Court of
Appeals denied the motion for reconsideration.

The Facts

The facts, as summarized by the NLRC and quoted by the Court of Appeals, are as follows:

Complainants (Jose Mel Bernarte and Renato Guevarra) aver that they were invited to join the PBA as
referees. During the leadership of Commissioner Emilio Bernardino, they were made to sign contracts
on a year-to-year basis. During the term of Commissioner Eala, however, changes were made on the
terms of their employment.

Complainant Bernarte, for instance, was not made to sign a contract during the first conference of the
All-Filipino Cup which was from February 23, 2003 to June 2003. It was only during the second
conference when he was made to sign a one and a half month contract for the period July 1 to August 5,
2003.

On January 15, 2004, Bernarte received a letter from the Office of the Commissioner advising him that
his contract would not be renewed citing his unsatisfactory performance on and off the court. It was a
total shock for Bernarte who was awarded Referee of the year in 2003. He felt that the dismissal was
caused by his refusal to fix a game upon order of Ernie De Leon.

On the other hand, complainant Guevarra alleges that he was invited to join the PBA pool of referees in
February 2001. On March 1, 2001, he signed a contract as trainee. Beginning 2002, he signed a yearly
contract as Regular Class C referee. On May 6, 2003, respondent Martinez issued a memorandum to
Guevarra expressing dissatisfaction over his questioning on the assignment of referees officiating out-of-
town games. Beginning February 2004, he was no longer made to sign a contract.
Respondents aver, on the other hand, that complainants entered into two contracts of retainer with the
PBA in the year 2003. The first contract was for the period January 1, 2003 to July 15, 2003; and the
second was for September 1 to December 2003. After the lapse of the latter period, PBA decided not to
renew their contracts.

Complainants were not illegally dismissed because they were not employees of the PBA. Their
respective contracts of retainer were simply not renewed. PBA had the prerogative of whether or not to
renew their contracts, which they knew were fixed.[4]

In her 31 March 2005 Decision,[5] the Labor Arbiter[6] declared petitioner an employee whose dismissal
by respondents was illegal. Accordingly, the Labor Arbiter ordered the reinstatement of petitioner and
the payment of backwages, moral and exemplary damages and attorney's fees, to wit:

WHEREFORE, premises considered all respondents who are here found to have illegally dismissed
complainants are hereby ordered to (a) reinstate complainants within thirty (30) days from the date of
receipt of this decision and to solidarily pay complainants:

1. backwages from January 1, 2004 up to the finality of this Decision, which to date is

2. moral damages

3. exemplary damages JOSE MEL BERNARTE

P536,250.00 100,000.00 50,000.00 RENATO GUEVARRA

P211,250.00

100,000.00

50,000.00
4. 10% attorney's fees

TOTAL

or a total of P1,152,250.00 68,625.00

P754,875.00 36,125.00

P397,375.00
The rest of the claims are hereby dismissed for lack of merit or basis.
SO ORDERED.[7]

In its 28 January 2008 Decision,[8] the NLRC affirmed the Labor Arbiter's judgment. The dispositive
portion of the NLRC's decision reads:

WHEREFORE, the appeal is hereby DISMISSED. The Decision of Labor Arbiter Teresita D. Castillon-Lora
dated March 31, 2005 is AFFIRMED.

SO ORDERED.[9]

Respondents filed a petition for certiorari with the Court of Appeals, which overturned the decisions of
the NLRC and Labor Arbiter. The dispositive portion of the Court of Appeals' decision reads:

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated January 28, 2008 and
Resolution dated August 26, 2008 of the National Labor Relations Commission are ANNULLED and SET
ASIDE. Private respondents' complaint before the Labor Arbiter is DISMISSED.

SO ORDERED.[10]

The Court of Appeals' Ruling

The Court of Appeals found petitioner an independent contractor since respondents did not exercise
any form of control over the means and methods by which petitioner performed his work as a basketball
referee. The Court of Appeals held:

While the NLRC agreed that the PBA has no control over the referees' acts of blowing the whistle and
making calls during basketball games, it, nevertheless, theorized that the said acts refer to the means
and methods employed by the referees in officiating basketball games for the illogical reason that said
acts refer only to the referees' skills. How could a skilled referee perform his job without blowing a
whistle and making calls? Worse, how can the PBA control the performance of work of a referee without
controlling his acts of blowing the whistle and making calls?

Moreover, this Court disagrees with the Labor Arbiter's finding (as affirmed by the NLRC) that the
Contracts of Retainer show that petitioners have control over private respondents.

xxxx

Neither do We agree with the NLRC's affirmance of the Labor Arbiter's conclusion that private
respondents' repeated hiring made them regular employees by operation of law.[11]
The Issues

The main issue in this case is whether petitioner is an employee of respondents, which in turn
determines whether petitioner was illegally dismissed.

Petitioner raises the procedural issue of whether the Labor Arbiter's decision has become final and
executory for failure of respondents to appeal with the NLRC within the reglementary period.

The Ruling of the Court

The petition is bereft of merit.

The Court shall first resolve the procedural issue posed by petitioner.

Petitioner contends that the Labor Arbiter's Decision of 31 March 2005 became final and executory for
failure of respondents to appeal with the NLRC within the prescribed period. Petitioner claims that the
Labor Arbiter's decision was constructively served on respondents as early as August 2005 while
respondents appealed the Arbiter's decision only on 31 March 2006, way beyond the reglementary
period to appeal. Petitioner points out that service of an unclaimed registered mail is deemed complete
five days from the date of first notice of the post master. In this case three notices were issued by the
post office, the last being on 1 August 2005. The unclaimed registered mail was consequently returned
to sender. Petitioner presents the Postmaster's Certification to prove constructive service of the Labor
Arbiter's decision on respondents. The Postmaster certified:

xxx

That upon receipt of said registered mail matter, our registry in charge, Vicente Asis, Jr., immediately
issued the first registry notice to claim on July 12, 2005 by the addressee. The second and third notices
were issued on July 21 and August 1, 2005, respectively.

That the subject registered letter was returned to the sender (RTS) because the addressee failed to
claim it after our one month retention period elapsed. Said registered letter was dispatched from this
office to Manila CPO (RTS) under bill #6, line 7, page1, column 1, on September 8, 2005.[12]

Section 10, Rule 13 of the Rules of Court provides:

SEC. 10. Completeness of service. - Personal service is complete upon actual delivery. Service by
ordinary mail is complete upon the expiration of ten (10) days after mailing, unless the court otherwise
provides. Service by registered mail is complete upon actual receipt by the addressee, or after five (5)
days from the date he received the first notice of the postmaster, whichever date is earlier.
The rule on service by registered mail contemplates two situations: (1) actual service the completeness
of which is determined upon receipt by the addressee of the registered mail; and (2) constructive
service the completeness of which is determined upon expiration of five days from the date the
addressee received the first notice of the postmaster.[13]

Insofar as constructive service is concerned, there must be conclusive proof that a first notice was duly
sent by the postmaster to the addressee.[14] Not only is it required that notice of the registered mail be
issued but that it should also be delivered to and received by the addressee.[15] Notably, the
presumption that official duty has been regularly performed is not applicable in this situation. It is
incumbent upon a party who relies on constructive service to prove that the notice was sent to, and
received by, the addressee.[16]

The best evidence to prove that notice was sent would be a certification from the postmaster, who
should certify not only that the notice was issued or sent but also as to how, when and to whom the
delivery and receipt was made. The mailman may also testify that the notice was actually delivered.[17]

In this case, petitioner failed to present any concrete proof as to how, when and to whom the delivery
and receipt of the three notices issued by the post office was made. There is no conclusive evidence
showing that the post office notices were actually received by respondents, negating petitioner's claim
of constructive service of the Labor Arbiter's decision on respondents. The Postmaster's Certification
does not sufficiently prove that the three notices were delivered to and received by respondents; it only
indicates that the post office issued the three notices. Simply put, the issuance of the notices by the post
office is not equivalent to delivery to and receipt by the addressee of the registered mail. Thus, there is
no proof of completed constructive service of the Labor Arbiter's decision on respondents.

At any rate, the NLRC declared the issue on the finality of the Labor Arbiter's decision moot as
respondents' appeal was considered in the interest of substantial justice. We agree with the NLRC. The
ends of justice will be better served if we resolve the instant case on the merits rather than allowing the
substantial issue of whether petitioner is an independent contractor or an employee linger and remain
unsettled due to procedural technicalities.

The existence of an employer-employee relationship is ultimately a question of fact. As a general rule,

factual issues are beyond the province of this Court. However, this rule admits of exceptions, one of
which is where there are conflicting findings of fact between the Court of Appeals, on one hand, and the
NLRC and Labor Arbiter, on the other, such as in the present case.[18]

To determine the existence of an employer-employee relationship, case law has consistently applied the
four-fold test, to wit: (a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer's power to control the employee on the means and
methods by which the work is accomplished. The so-called "control test" is the most important indicator
of the presence or absence of an employer-employee relationship.[19]
In this case, PBA admits repeatedly engaging petitioner's services, as shown in the retainer contracts.
PBA pays petitioner a retainer fee, exclusive of per diem or allowances, as stipulated in the retainer
contract. PBA can terminate the retainer contract for petitioner's violation of its terms and conditions.

However, respondents argue that the all-important element of control is lacking in this case, making
petitioner an independent contractor and not an employee of respondents.

Petitioner contends otherwise. Petitioner asserts that he is an employee of respondents since the latter
exercise control over the performance of his work. Petitioner cites the following stipulations in the
retainer contract which evidence control: (1) respondents classify or rate a referee; (2) respondents
require referees to attend all basketball games organized or authorized by the PBA, at least one hour
before the start of the first game of each day; (3) respondents assign petitioner to officiate ballgames, or
to act as alternate referee or substitute; (4) referee agrees to observe and comply with all the
requirements of the PBA governing the conduct of the referees whether on or off the court; (5) referee
agrees (a) to keep himself in good physical, mental, and emotional condition during the life of the
contract; (b) to give always his best effort and service, and loyalty to the PBA, and not to officiate as
referee in any basketball game outside of the PBA, without written prior consent of the Commissioner;
(c) always to conduct himself on and off the court according to the highest standards of honesty or
morality; and (6) imposition of various sanctions for violation of the terms and conditions of the
contract.

The foregoing stipulations hardly demonstrate control over the means and methods by which petitioner
performs his work as a referee officiating a PBA basketball game. The contractual stipulations do not
pertain to, much less dictate, how and when petitioner will blow the whistle and make calls. On the
contrary, they merely serve as rules of conduct or guidelines in order to maintain the integrity of the
professional basketball league. As correctly observed by the Court of Appeals, "how could a skilled
referee perform his job without blowing a whistle and making calls? x x x [H]ow can the PBA control the
performance of work of a referee without controlling his acts of blowing the whistle and making
calls?"[20]

In Sonza v. ABS-CBN Broadcasting Corporation,[21] which determined the relationship between a

television and radio station and one of its talents, the Court held that not all rules imposed by the hiring
party on the hired party indicate that the latter is an employee of the former. The Court held:

We find that these general rules are merely guidelines towards the achievement of the mutually desired
result, which are top-rating television and radio programs that comply with standards of the industry.
We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party in
relation to the services being rendered may be accorded the effect of establishing an employer-
employee relationship. The facts of this case fall squarely with the case of Insular Life Assurance Co., Ltd.
v. NLRC. In said case, we held that:
Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed in
attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use
of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it.[22]

We agree with respondents that once in the playing court, the referees exercise their own independent
judgment, based on the rules of the game, as to when and how a call or decision is to be made. The
referees decide whether an infraction was committed, and the PBA cannot overrule them once the
decision is made on the playing court. The referees are the only, absolute, and final authority on the
playing court. Respondents or any of the PBA officers cannot and do not determine which calls to make
or not to make and cannot control the referee when he blows the whistle because such authority
exclusively belongs to the referees. The very nature of petitioner's job of officiating a professional
basketball game undoubtedly calls for freedom of control by respondents.

Moreover, the following circumstances indicate that petitioner is an independent contractor: (1) the
referees are required to report for work only when PBA games are scheduled, which is three times a
week spread over an average of only 105 playing days a year, and they officiate games at an average of
two hours per game; and (2) the only deductions from the fees received by the referees are withholding
taxes.

In other words, unlike regular employees who ordinarily report for work eight hours per day for five
days a week, petitioner is required to report for work only when PBA games are scheduled or three
times a week at two hours per game. In addition, there are no deductions for contributions to the Social
Security System, Philhealth or Pag-Ibig, which are the usual deductions from employees' salaries. These
undisputed circumstances buttress the fact that petitioner is an independent contractor, and not an
employee of respondents.

Furthermore, the applicable foreign case law declares that a referee is an independent contractor,
whose special skills and independent judgment are required specifically for such position and cannot
possibly be controlled by the hiring party.

In Yonan v. United States Soccer Federation, Inc.,[23] the United States District Court of Illinois held that
plaintiff, a soccer referee, is an independent contractor, and not an employee of defendant which is the
statutory body that governs soccer in the United States. As such, plaintiff was not entitled to protection
by the Age Discrimination in Employment Act. The U.S. District Court ruled:

Generally, "if an employer has the right to control and direct the work of an individual, not only as to the
result to be achieved, but also as to details by which the result is achieved, an employer/employee
relationship is likely to exist." The Court must be careful to distinguish between "control[ling] the
conduct of another party contracting party by setting out in detail his obligations" consistent with the
freedom of contract, on the one hand, and "the discretionary control an employer daily exercises over
its employee's conduct" on the other.

Yonan asserts that the Federation "closely supervised" his performance at each soccer game he
officiated by giving him an assessor, discussing his performance, and controlling what clothes he wore
while on the field and traveling. Putting aside that the Federation did not, for the most part, control
what clothes he wore, the Federation did not supervise Yonan, but rather evaluated his performance
after matches. That the Federation evaluated Yonan as a referee does not mean that he was an
employee. There is no question that parties retaining independent contractors may judge the
performance of those contractors to determine if the contractual relationship should continue. x x x

It is undisputed that the Federation did not control the way Yonan refereed his games. He had full
discretion and authority, under the Laws of the Game, to call the game as he saw fit. x x x In a similar
vein, subjecting Yonan to qualification standards and procedures like the Federation's registration and
training requirements does not create an employer/employee relationship. x x x

A position that requires special skills and independent judgment weights in favor of independent
contractor status. x x x Unskilled work, on the other hand, suggests an employment relationship. x x x
Here, it is undisputed that soccer refereeing, especially at the professional and international level,
requires "a great deal of skill and natural ability." Yonan asserts that it was the Federation's training that
made him a top referee, and that suggests he was an employee. Though substantial training supports an
employment inference, that inference is dulled significantly or negated when the putative employer's
activity is the result of a statutory requirement, not the employer's choice. x x x

In McInturff v. Battle Ground Academy of Franklin,[24] it was held that the umpire was not an agent of
the Tennessee Secondary School Athletic Association (TSSAA), so the player's vicarious liability claim
against the association should be dismissed. In finding that the umpire is an independent contractor, the
Court of Appeals of Tennesse ruled: The TSSAA deals with umpires to achieve a result-uniform rules for
all baseball games played between TSSAA member schools. The TSSAA does not supervise regular
season games. It does not tell an official how to conduct the game beyond the framework established by
the rules. The TSSAA does not, in the vernacular of the case law, control the means and method by
which the umpires work.

In addition, the fact that PBA repeatedly hired petitioner does not by itself prove that petitioner is an
employee of the former. For a hired party to be considered an employee, the hiring party must have
control over the means and methods by which the hired party is to perform his work, which is absent in
this case. The continuous rehiring by PBA of petitioner simply signifies the renewal of the contract
between PBA and petitioner, and highlights the satisfactory services rendered by petitioner warranting
such contract renewal. Conversely, if PBA decides to discontinue petitioner's services at the end of the
term fixed in the contract, whether for unsatisfactory services, or violation of the terms and conditions
of the contract, or for whatever other reason, the same merely results in the non-renewal of the
contract, as in the present case. The non-renewal of the contract between the parties does not
constitute illegal dismissal of petitioner by respondents.

WHEREFORE, we DENY the petition and AFFIRM the assailed decision of the Court of Appeals.

SO ORDERED.
G.R. No. 159469 June 8, 2005

ZALDY G. ABELLA and the Members of the PLDT SECURITY PERSONNEL unioN LISTED IN ANNEX "D" OF
THIS PETITION, Petitioners, vs. PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT CO.) and
PEOPLE'S SECURITY INC. (PSI), Respondents.

RESOLUTION

CHICO-NAZARIO, J.:

This case stemmed from a complaint for regularization filed by petitioners1 against respondents before
the Arbitration Branch of the National Labor Relations Commission (NLRC). The petition for review at bar
assails the decision2 of the Court of Appeals, affirming the decision3 of the NLRC, sustaining the earlier
decision4 of the Labor Arbiter dismissing petitioners’ complaint against the Philippine Long Distance
Telephone Company (PLDT) and herein respondent People’s Security Incorporated (PSI).

The dispute arose from the following factual milieu:

Respondent PSI entered into an agreement with the PLDT to provide the latter with such number of
qualified uniformed and properly armed security guards for the purpose of guarding and protecting
PLDT’s installations and properties from theft, pilferage, intentional damage, trespass or other unlawful
acts. Under the agreement, it was expressly provided that there shall be no employer-employee
relationship between the PLDT and the security guards, which may be supplied to it by PSI, and that the
latter shall have the entire charge, control and supervision over the work and services of the supplied
security guards. It was likewise stipulated therein that PSI shall also have the exclusive authority to
select, engage, and discharge its security guards, with full control over their wages, salaries or
compensation.lawphil.net

Consequently, respondent PSI deployed security guards to the PLDT. PLDT’s Security Division
interviewed these security guards and asked them to fill out personal data sheets. Those who did not
meet the height requirements were sent back by PLDT to PSI.

On 05 June 1995, sixty-five (65) security guards supplied by respondent PSI filed a Complaint5 for
regularization against the PLDT with the Labor Arbiter. The Complaint alleged inter alia that petitioner
security guards have been employed by the company through the years commencing from 1982 and
that all of them served PLDT directly for more than 1 year. It was further alleged that PSI or other
agencies supply security to PLDT, which entity controls and supervises the complainants’ work through
its Security Department. Petitioners likewise alleged that PSI acted as the middleman in the payment of
the minimum pay to the security guards, but no premium for work rendered beyond eight hours was
paid to them nor were they paid their 13th month pay. In sum, the Complaint states that inasmuch as
the complainants are under the direct control and supervision of PLDT, they should be considered as
regular employees by the latter with compensation and benefits equivalent to ordinary rank-and-file
employees of the same job grade.

Forthwith, after filing the complaint, the security guards formed the PLDT Company Security Personnel
Union with petitioner Zaldy Abella as union president. A month later, PLDT allegedly ordered PSI to
terminate about 25 members of said union who participated in a protest picket in front of the PLDT
Office at the Ramon Cojuangco Building in Makati City.1avvphi1

The Labor Arbiter dismissed the complaint for lack of merit. On appeal, the NLRC affirmed in toto the
Labor Arbiter’s decision.

The Court of Appeals, in turn, affirmed the NLRC’s disquisition.6 According to the Court of Appeals,
evidence demonstrates that it is respondent PSI which is petitioners’ employer, not the PLDT inasmuch
as the power of selection over the guards lies with the former. The Court of Appeals also took
cognizance of the fact that petitioners have collected their wages from PSI.7

On 29 September 2003, this Court denied the petition for review filed by petitioners assailing the Court
of Appeals’ Decision for lack of verified statement of material date of receipt of the assailed judgment.
On 16 March 2005, the Court resolved to deny the motion for reconsideration for lack of merit and
sufficient showing that the Court of Appeals had committed any reversible error in the questioned
judgment to warrant the exercise by this Court of its discretionary appellate jurisdiction.

Undaunted, petitioners moved for reconsideration of our Resolution dated 16 March 2005. Petitioners
now urge this Court to ignore technicalities and brush aside the procedural requirements so this case
may be decided "on the merits."

On the postulate that dismissal of appeals based on mere technicalities is frowned upon, we take
another look at this petition for review to quell all doubts that the Court is impervious to petitioners’
cause. Cautious as we are against rendering a decision that may well be a "blow on the breadbasket of
our lowly employees,"8 we are hence rendering a complete adjudication of this case at bar.

Crucial to the resolution of this case is a determination whether or not an employer-employee

relationship exists between petitioners and respondent PLDT.

Philippine Airlines, Inc. v. National Labor Relations Commission9 provides the legal yardstick in
addressing this issue. In that case, Unicorn Security Services, Inc. (USSI) and Philippine Airlines, Inc. (PAL)
executed a security service agreement where USSI was designated therein as the contractor. In
determining which between PAL and USSI is the employer of the security guards, we considered the
following factors in considering the existence of an employer-employee relationship: (1) the selection
and engagement of the employee; (2) the payment of wages; (3) the power to dismiss; and (4) the
power to control the employee’s conduct. Considering these elements, we held in the said case that the
security guards of PAL were the employees of the security agency, not PAL. We explained why-
In the instant case, the security service agreement between PAL and USSI provides the key to such
consideration. A careful perusal thereof, especially the terms and conditions embodied in paragraphs 4,
6, 7, 8, 9, 10, 13 and 20 quoted earlier in this ponencia, demonstrates beyond doubt that USSI - and not
PAL – was the employer of the security guards. It was USSI which (a) selected, engaged or hired and
discharged the security guards; (b) assigned them to PAL according to the number agreed upon; (c)
provided, at its own expense, the security guards with firearms and ammunitions; (d) disciplined and
supervised them or controlled their conduct; (e) determined their wages, salaries, and compensation;
and (f) paid them salaries or wages. Even if we disregard the explicit covenant in said agreement that
"there exists no employer-employee relationship between CONTRACTOR and/or his guards on the one
hand, and PAL on the other" all other considerations confirm the fact that PAL was not the security
guards’ employer. (Emphasis supplied)

On the first factor, applying PAL v. NLRC as our guidepost in the case before us, the Labor Arbiter, the
NLRC and the Court of Appeals rendered a consistent finding based on the evidence adduced that it was
the PSI, the security provider of the PLDT, which selected, engaged or hired and discharged the security
guards. The Labor Arbiter was no less emphatic –

It is not disputed that complainants applied for work with PSI, submitted the necessary employment
documentary requirement with PSI and executed employment contracts with PSI. Complainants,
however, contend that their referral by the PSI to PLDT for further interview and evaluation falls under
the context of "selection and engagement" thereby making them employees of PLDT.

We are not convinced.

Testimonies during the trial reveal that interviews and evaluation were conducted by PLDT to ensure
that the standards it set are met by the security guards. In fact, PLDT rarely failed to accept security
guards referred to by PSI but on account of height deficiency. The referral is nothing but for possible
assignment in a designated client which has the inherent prerogative to accept and reject the assignee
for justifiable grounds or even arbitrarily. We are thus convinced that the employer-employee
relationship is deemed perfected even before the posting of the complainants with the PLDT, as
assignment only comes after employment.10

We hasten to add on this score that the Labor Arbiter as well as the NLRC and the Court of Appeals
found that PSI is a legitimate job contractor pursuant to Section 8, Rule VII, Book II of the Omnibus Rules
Implementing the Labor Code. It is a registered corporation duly licensed by the Philippine National
Police to engage in security business. It has substantial capital and investment in the form of guns,
ammunitions, communication equipments, vehicles, office equipments like computer, typewriters,
photocopying machines, etc., and above all, it is servicing clients other than PLDT like PCIBank, Crown
Triumph, and Philippine Cable, among others.11 Here, the security guards which PSI had assigned to
PLDT are already the former’s employees prior to assignment and if the assigned guards to PLDT are
rejected by PLDT for reasons germane to the security agreement, then the rejected or terminated guard
may still be assigned to other clients of PSI as in the case of Jonathan Daguno who was posted at PLDT
on 21 February 1996 but was subsequently relieved therefrom and assigned at PCIBank Makati Square
effective 10 May 1996.12 Therefore, the evidence as it stands is at odds with petitioners’ assertion that
PSI is an "in-house" agency of PLDT so as to call for a piercing of veil of corporate identity as what the
Court has done in De leon, et al. vs. NLRC and Fortune Tobacco Corporation, et al.13

On the second factor, the Labor Arbiter as well as the NLRC and the Court of Appeals are all in
agreement that it is PSI that determined and paid the petitioners’ wages, salaries, and compensation. As
elucidated by the Labor Arbiter, petitioners’ witness testified that his wages were collected and
withdrawn at the office of PSI and PLDT pays PSI for the security services on a lump-sum basis and that
the wages of complainants are only a portion of the total sum. The signature of the PLDT supervisor in
the Daily Time Records does not ipso facto make PLDT the employer of complainants inasmuch as the
Labor Arbiter had found that the record is replete with evidence showing that some of the Daily Time
Records do not bear the signature of a PLDT supervisor yet no complaint was lodged for nonpayment of
the guard’s wages evidencing that the signature of the PLDT’s supervisor is not a condition precedent for
the payment of wages of the guards. Notably, it was not disputed that complainants enjoy the benefits
and incentives of employees of PSI and that they are reported as employees of PSI with the SSS.14

Anent the third and fourth factors, petitioners capitalize on the delinquency reports prepared by PLDT
personnel against some of the security guards as well as certificates of participation in civil disturbance
course, certificates of attendance in first aid training, certificate of completion in fire brigade training
seminar and certificate of completion on restricted land mobile radio telephone operation to show that
the petitioners are under the direct control and supervision of PLDT and that the latter has, in fact, the
power to dismiss them.

The Labor Arbiter found from the evidence that the delinquency reports were nothing but reminders of
the infractions committed by the petitioners while on duty which serve as basis for PLDT to recommend
the termination of the concerned security guard from PLDT. As already adverted to earlier, termination
of services from PLDT did not ipso facto mean dismissal from PSI inasmuch as some of those pulled out
from PLDT were merely detailed at the other clients of PSI as in the case of Jonathan Daguno, who was
merely transferred to PCIBank Makati.

We are likewise in agreement with the Labor Arbiter’s reasoning that said delinquency reports merely
served as justifiable, not arbitrary, basis for PLDT to demand replacement of guards found to have
committed infractions while on their tours of duty at PLDT’s premises. In Citytrust Banking Corporation
v. NLRC,15 we upheld the validity of the contract between ADAMS and ESSI to provide security guards to
Citytrust and held that the security guards were the employees of the security agencies, not Citytrust.
Specifically we held as valid and controlling the stipulation that the bank has the option to ask for
replacement of the guards or personnel assigned to the bank who, in its judgment, are unsatisfactory,
wanting in the performance of their duties or for any reason at the discretion of the bank. Thus-
In substantially identical language, the contracts between CITYTRUST, on the one hand, and ADAMS and
ESSI, on the other, unequivocally declare that any person that may be assigned by the "CARRIER"
(agency) to carry out its obligation under the Agreement should in no sense be considered an employee
of the bank and shall always remain an employee of the CARRIER. The contracts moreover require the
CARRIER to give the bank a list of personnel assigned to render security services to the bank, and make
clear that:

1) the CARRIER shall maintain efficient and effective discipline, control and supervision over any and all
guards or personnel it may utilize in performing its obligations under the Agreement;

2) the BANK has the option to ask for the replacement of the CARRIER’s guards or personnel assigned to
the BANK who, in its judgment, are unsatisfactory, wanting in the performance of their duties or for any
reason at the discretion of the Bank;. . . .[16] (Emphasis supplied)

As regards the seminars, we defer to the findings of the Labor Arbiter as affirmed by the NLRC and the
Court of Appeals that while said seminars were conducted at the premises of PLDT, it also remains
uncontroverted that complainants’ participation was done with the approval and at the expense of
PSI.17 To be sure, it is not uncommon, specially for big aggressive corporations like PLDT, to align or
integrate their corporate visions and policies externally or with that of other entities they deal with such
as their suppliers, consultants, or contractors, for that matter. As a case in point, manufacturing
companies usually hold suppliers’ conferences to integrate their suppliers’ corporate goals and visions
with their own so that the manufacturing companies are ensured of the quality and timing of their
supplies of materials or services, as the case may be. It is therefore not surprising that PLDT would
demand that security guards assigned to its premises undergo seminars and trainings on certain areas of
concern which are unique to PLDT.

In the same way, it is in the ordinary course of things for big companies such as PLDT to assign their own
security personnel and supervisors to monitor the performance of the security guards as part of the
company’s internal check, monitoring and control system in order to rate whether the security agency it
hired is performing at par with PLDT’s set standards.

Furthermore, petitioners’ logic that the certificates of appreciation and/or commendations for good
performance issued by PLDT to select security guards are proof that the latter are under the control and
supervision of PLDT is indeed non sequitur. As the Labor Arbiter has found, similar certificates are also
issued as a matter of practice to non-PLDT personnel like members of the Philippine National Police
(PNP) and military officers who have rendered exemplary support and assistance to PLDT.18

The Labor Arbiter likewise rendered the distinct finding as regards petitioner Zaldy Abella that
documentary evidence belies his claim that PLDT directs and supervises him. These documents include
his application for employment with PSI, employment contract with PSI, Special Orders of assignment at
the different detachments of PLDT issued by a certain Joreim Aguilar of PSI, his request to PSI for sick
leaves and/or vacation leaves, authority to deduct from his salary death contributions pursuant to the
policy of PSI and Order of Relief from PLDT Marikina for AWOL issued by said Joreim Aguilar of PSI per
Special Order dated 12 June 1995.19 Similarly, as found by the Labor Arbiter in the case of petitioner
Roberto Basilides, his 201 file reflects PSI Orders on his assignment to PLDT installations and subsequent
reassignment to another PCIB client.20

All told, there being no showing that neither the Labor Arbiter nor the NLRC nor the Court of Appeals
gravely abused its discretion or otherwise acted without jurisdiction or in excess of the same,21 this
Court is bound by their findings of facts. Indeed, the records reveal that the questioned decision is duly
supported by evidence.22

In fine, 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. The partiality for labor has not in any way diminished our belief that justice is in every case for
the deserving, to be dispensed in the light of the established facts and the applicable law and
doctrine.23

WHEREFORE, petitioners’ motion for reconsideration of our Resolution dated 16 March 2005 is hereby
DENIED with Finality no compelling reason having been adduced by petitioners to warrant the reversal
thereof. Accordingly, the Decision dated 31 January 2003 and the

Resolution dated 06 August 2003 of the Court of Appeals are hereby AFFIRMED. Costs against
petitioners.

SO ORDERED.
G.R. No. 145443. March 18, 2005

RAQUEL P. CONSULTA, Petitioner, vs.COURT OF APPEALS, PAMANA PHILIPPINES, INC., RAZUL Z.

REQUESTO, and ALETA TOLENTINO, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 assailing the Decision of 28 April 2000 and Resolution of 9 October 2000
promulgated by the Court of Appeals ("appellate court")2 in CA-G.R. SP No. 50462. The appellate court
reversed the Resolution of the National Labor Relations Commission ("NLRC") which in turn affirmed the
Labor Arbiter’s Decision.

The Antecedent Facts

Pamana Philippines, Inc. ("Pamana") is engaged in health care business. Raquel P. Consulta ("Consulta")
was a Managing Associate of Pamana. Consulta’s appointment dated 1 December 1987 states:

We are pleased to formally confirm your appointment and confer upon you the authority as MANAGING
ASSOCIATE (MA) effective on December 1, 1987 up to January 2, 1988. Your area of operation shall be
within Metro Manila.

In this capacity, your principal responsibility is to organize, develop, manage, and maintain a sales
division and a full complement of agencies and Health Consultants (HealthCons) and to submit such
number of enrollments and revenue attainments as may be required of your position in accordance with
pertinent Company policies and guidelines. In pursuit of this objective, you are hereby tasked with the
responsibilities of recruiting, training and directing your Supervising Associates (SAs) and the Health
Consultants under their respective agencies, for the purpose of promoting our corporate Love Mission.

In the performance of such duties, you are expected to uphold and promote the Company’s interests
and good image and to abide by its principles and established norms of conduct necessary and
appropriate in the discharge of your functions. The authority as MA likewise vests upon you command
responsibility for the actions of your SAs and HealthCons; the Company therefore reserves the right to
debit your account for any accountabilities/financial obligations arising therefrom.

By your acceptance of this appointment, it is understood that you must represent the Company on an
exclusive basis, and must not engage directly or indirectly in activities, nor become affiliated in official or
unofficial capacity with companies or organizations which compete or have the same business as
Pamana. It is further understood that his [sic] self-inhibition shall be effective for a period of one year
from date of official termination with the Company arising from any cause whatsoever.

In consideration of your undertaking the assignment and the accompanying duties and responsibilities,
you shall be entitled to compensation computed as follows:

On Initial Membership Fee Entrance Fee 5%

Medical Fee 6%

On Subsequent Membership Fee 6%

You are likewise entitled to participate in sales contests and such other incentives that may be
implemented by the Company.

This appointment is on a non-employer-employee relationship basis, and shall be in accordance with the
Company Guidelines on Appointment, Reclassification and Transfer of Sales Associates.3

Sometime in 1987, Consulta negotiated with the Federation of Filipino Civilian Employees Association
("FFCEA") working at the United States Subic Naval Base for a Health Care Plan for the FFCEA members.
Pamana issued Consulta a Certification4 dated 23 November 1987, as follows:

This certifies that the Emerald Group under Ms. Raquel P. Consulta, as Managing Consultant, is duly
authorized to negotiate for and in behalf of PAMANA with the Federation of Filipino Civilian Employees
Association covering all U.S. facilities in the Philippines, the coverage of FFCEA members under the
Pamana Golden Care Health Plans.

Upon such negotiation and eventual execution of the contract agreements, entitlements of all benefits
due the Emerald Group in it’s [sic] entirely including it’s [sic] Supervising Consultants and Health
Consultants, by of commissions, over-rides and other package of benefits is hereby affirmed, obligated
and confirmed as long as the contracts negotiated and executed are in full force and effect, including
any and all renewals made. And provided further that the herein authorized consultants remain in active
status with the Pamana Golden Care sales group.5

On 4 March 1988, Pamana and the U.S. Naval Supply Depot signed the FFCEA account. Consulta,
claiming that Pamana did not pay her commission for the FFCEA account, filed a complaint for unpaid
wages or commission against Pamana, its President Razul Z. Requesto ("Requesto"), and its Executive
Vice-President Aleta Tolentino ("Tolentino").

The Rulings of the Labor Arbiter and the NLRC

In a Decision promulgated on 23 June 1993, Labor Arbiter Alex Arcadio Lopez ruled, as follows:
ACCORDINGLY, respondent is hereby ordered to pay complainant her unpaid commission to be
computed as against actual transactions between respondent PAMANA and the contracting Department
of U.S. Naval Supply Depot upon presentation of pertinent document.

Respondent is further ordered to pay ten (10%) percent attorney’s fees.

SO ORDERED.6

Pamana, Requesto and Tolentino ("Pamana et al.") appealed the Decision of the Labor Arbiter.

In a Resolution7 promulgated on 22 July 1994, the NLRC dismissed the appeal and affirmed the Decision
of the Labor Arbiter. In its Order promulgated on 3 October 1994, the NLRC denied the motion for
reconsideration of Pamana et al.

Pamana et al. filed a petition for certiorari before this Court. In compliance with this Court’s resolution
dated 6 February 1995, the Office of the Solicitor General submitted a Manifestation in Lieu of Comment
praying to grant the petition on the ground that Consulta was not an employee of Pamana. On 23
November 1998, this Court referred the case to the appellate court pursuant to St. Martin Funeral Home
v. NLRC.8

The Decision of the Appellate Court

In its Decision promulgated on 28 April 2000, the appellate court reversed the NLRC Decision. The
appellate court ruled that Consulta was a commission agent, not an employee of Pamana. The appellate
court also ruled that Consulta should have litigated her claim for unpaid commission in an ordinary civil
action.

Hence, Consulta’s recourse to this Court.

The Issues

The issues are:

1. Whether Consulta was an employee of Pamana.

2. Whether the Labor Arbiter had jurisdiction over Consulta’s claim for unpaid commission.

The Ruling of the Court

We affirm the Decision of the appellate court. Consulta was an independent agent and not an employee
of Pamana.
The Four-Fold Test

In Viaña v. Al-Lagadan,9 the Court first laid down the four-fold test to determine the existence of an
employer-employee relationship. The four elements of an employer-employee relationship, which have
since been adopted in subsequent jurisprudence,10 are (1) the power to hire; (2) the payment of wages;
(3) the power to dismiss; and (4) the power to control. The power to control is the most important of
the four elements.

In Insular Life Assurance Co., Ltd. v. NLRC,11 the Court explained the scope of the power to control,
thus:

x x x It should, however, be obvious that not every form of control that the hiring party reserves to
himself over the conduct of the party hired in relation to the services rendered may be accorded the
effect of establishing an employer-employee relationship between them in the legal or technical sense
of the term. A line must be drawn somewhere, if the recognized distinction between an employee and
an individual contractor is not to vanish altogether. Realistically, it would be a rare contract of service
that gives untrammelled freedom to the party hired and eschews any intervention whatsoever in his
performance of the engagement.

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed in
attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use
of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it.

In the present case, the power to control is missing. Pamana tasked Consulta to organize, develop,
manage, and maintain a sales division, submit a number of enrollments and revenue attainments in
accordance with company policies and guidelines, and to recruit, train and direct her Supervising
Associates and Health Consultants.12 However, the manner in which Consulta was to pursue these
activities was not subject to the control of Pamana. Consulta failed to show that she had to report for
work at definite hours. The amount of time she devoted to soliciting clients was left entirely to her
discretion. The means and methods of recruiting and training her sales associates, as well as the
development, management and maintenance of her sales division, were left to her sound judgment.

Consulta claims that the documents she submitted show that Pamana had control on the conduct of her
work and the means and methods to accomplish the work. However, the documents only prove the
absence of the power to control. The Minutes of the meeting on 31 May 1988 of the Managing
Associates with Fely Whitfield, Vice-President for Sales of Pamana, reflect the following:
At this point Mrs. Whitfield gave some pointers on recruitment and selling techniques and reminded the
group that the success of an agency is still people. The more recruits you have the better is your chance
to achieve your quota.

She also announced June be made a recruitment month, and told the MAs to remind their associates
that if you cannot sell to a prospect then recruit him or her.

She also discussed extensively the survey method of selling and recruitment and that the sales
associates should be more aggressive in their day to day sales activity. She reminded the MAs to fill up
their recruitment requirements to be able to participate in the monthly and quarterly contest.

xxx

4. Recruitment Campaign

In connection with the Recruitment Campaign for June, Mr. R. Canon13 requested for Management
support. He suggested that a recruitment Advertisement be placed in a leading Metropolitan daily
Newspaper. The cost of which was unanimously suggested by MAs that Management should share at
least 50%.

5. MAs agreed to pay in advance their share for the salary of the MAs Secretary.14 (Emphasis supplied)

The Minutes of the 7 June 1988 meeting reflect the following:

III. PRODUCTION & RECRUITMENT INCENTIVES

To help the MAs in their recruitment drive Mrs. Whitfield suggested some incentives to be undertaken
by the MAs like (1) cash incentives for associates that bring in a recruit, (2) cash incentives based on
production brought in by these new recruits.

She said that MAs, as businessm[e]n should invest time, effort & money to their work, because it will
redown [sic] to their own good anyway, that the success of their agency should not depend solely on
what management could give as incentives but also on incentives of MAs within their agencies. It should
be a concerted effort.

After a thorough discussion on the pros & cons of the suggestions it was agreed that a ₱10.00 per recruit
be given to the associate that will recruit and an additional cash prize based on production of these new
recruits.15

Clearly, the Managing Associates only received suggestions from Pamana on how to go about their
recruitment and sales activities. They could adopt the suggestions but the suggestions were not binding
on them. They could adopt other methods that they deemed more effective.
Further, the Managing Associates had to ask the Management of Pamana to shoulder half of the
advertisement cost for their recruitment campaign. They shelled out their own resources to bolster their
recruitment. They shared in the payment of the salaries of their secretaries. They gave cash incentives to
their sales associates from their own pocket. These circumstances show that the Managing Associates
were independent contractors, not employees, of Pamana.

Finally, Pamana paid Consulta not for labor she performed but only for the results of her labor.16
Without results, Consulta’s labor was her own burden and loss. Her right to compensation, or to
commission, depended on the tangible results of her work17 - whether she brought in paying recruits.
Consulta’s appointment paper provides:

In consideration of your undertaking the assignment and the accompanying duties and responsibilities,
you shall be entitled to compensation computed as follows:

On Initial Membership Fee Entrance Fee 5%

Medical Fee 6%

On Subsequent Membership Fee 6%

You are likewise entitled to participation in sales contests and such other incentives that may be
implemented by the Company.18

The Guidelines on Appointment of Associates show that a Managing Associate received the following
commissions and bonuses:

3. Compensation Package of Regular MAs

Regular MAs shall be entitled to the following compensation and benefits:

3.1 Compensation

a) Personal Production

Individual/Family Institutional Acct.

commission 30% 30%

bonus 40% -

b) Group Production
overriding commission 6% 6%

bonus 5% -

3.2 Benefits

Participation in all sales contests corresponding to the MA position plus any such other benefits as may
be provided for the MA on regular status.19

Aside from commissions, bonuses and other benefits that depended solely on actual sales, Pamana did
not pay Consulta any compensation for managing her sales division, or for recruiting and training her
sales consultants. As a Managing Associate, she was only entitled to commissions, bonuses and other
benefits, which depended solely on her sales and on the sales of her group.

The Exclusivity Provision

Consulta’s appointment had an exclusivity provision. The appointment provided that Consulta must
represent Pamana on an exclusive basis. She must not engage directly or indirectly in activities of other
companies that compete with the business of Pamana. However, the fact that the appointment required
Consulta to solicit business exclusively for Pamana did not mean that Pamana exercised control over the
means and methods of Consulta’s work as the term control is understood in labor jurisprudence.20
Neither did it make Consulta an employee of Pamana. Pamana did not prohibit Consulta from engaging
in any other business, or from being connected with any other company, for as long as the business or
company did not compete with Pamana’s business.

The prohibition applied for one year after the termination of the contract with Pamana. In one of their
meetings, one of the Managing Associates reported that he was transferring his sales force and account
from another company to Pamana.21 The exclusivity provision was a reasonable restriction designed to
prevent similar acts prejudicial to Pamana’s business interest. Article 1306 of the Civil Code provides
that "[t]he contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order, or
public policy."

Jurisdiction over Claim for Unpaid Commission

There being no employer-employee relationship between Pamana and Consulta, the Labor Arbiter and
the NLRC had no jurisdiction to entertain and rule on Consulta’s money claim.

Article 217 of the Labor Code provides:

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

1. Unfair labor practice cases;

2. Termination disputes;

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

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

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

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all
other claims, arising from employer-employee relations, including those of persons in domestic or
household service, involving an amount exceeding five thousand pesos (₱5,000.00) regardless of
whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

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

Consulta filed her action under Article 217(a)(6) of the Labor Code. However, since there was no
employer-employee relationship between Pamana and Consulta, the Labor Arbiter should have
dismissed Consulta’s claim for unpaid commission. Consulta’s remedy is to file an ordinary civil action to
litigate her claim.

WHEREFORE, the petition is DISMISSED and the Decision of the Court of Appeals in CA-G.R. SP No.
50462 is AFFIRMED in toto.

SO ORDERED.
G.R. No. 165881 April 19, 2006

OSCAR VILLAMARIA, JR. Petitioner, vs. COURT OF APPEALS and JERRY V. BUSTAMANTE, Respondents

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of Court assailing the
Decision1 and Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 78720 which set aside the
Resolution3 of the National Labor Relations Commission (NLRC) in NCR-30-08-03247-00, which in turn
affirmed the Decision4 of the Labor Arbiter dismissing the complaint filed by respondent Jerry V.
Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship engaged in
assembling passenger jeepneys with a public utility franchise to operate along the Baclaran-Sucat route.
By 1995, Villamaria stopped assembling jeepneys and retained only nine, four of which he operated by
employing drivers on a "boundary basis." One of those drivers was respondent Bustamante who drove
the jeepney with Plate No. PVU-660. Bustamante remitted P450.00 a day to Villamaria as boundary and
kept the residue of his daily earnings as compensation for driving the vehicle. In August 1997, Villamaria
verbally agreed to sell the jeepney to Bustamante under the "boundary-hulog scheme," where
Bustamante would remit to Villarama P550.00 a day for a period of four years; Bustamante would then
become the owner of the vehicle and continue to drive the same under Villamaria’s franchise. It was
also agreed that Bustamante would make a downpayment of P10,000.00.

On August 7, 1997, Villamaria executed a contract entitled "Kasunduan ng Bilihan ng Sasakyan sa

Pamamagitan ng Boundary-Hulog"5 over the passenger jeepney with Plate No. PVU-660, Chassis No.
EVER95-38168-C and Motor No. SL-26647. The parties agreed that if Bustamante failed to pay the
boundary-hulog for three days, Villamaria Motors would hold on to the vehicle until Bustamante paid his
arrears, including a penalty of P50.00 a day; in case Bustamante failed to remit the daily boundary-hulog
for a period of one week, the Kasunduan would cease to have legal effect and Bustamante would have
to return the vehicle to Villamaria Motors.

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

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

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

On July 24, 2000, Villamaria took back the jeepney driven by Bustamante and barred the latter from
driving the vehicle.

On August 15, 2000, Bustamante filed a Complaint7 for Illegal Dismissal against Villamaria and his wife
Teresita. In his Position Paper,8 Bustamante alleged that he was employed by Villamaria in July 1996
under the boundary system, where he was required to remit P450.00 a day. After one year of
continuously working for them, the spouses Villamaria presented the Kasunduan for his signature, with
the assurance that he (Bustamante) would own the jeepney by March 2001 after paying P550.00 in daily
installments and that he would thereafter continue driving the vehicle along the same route under the
same franchise. He further narrated that in July 2000, he informed the Villamaria spouses that the
surplus engine of the jeepney needed to be replaced, and was assured that it would be done. However,
he was later arrested and his driver’s license was confiscated because apparently, the replacement
engine that was installed was taken from a stolen vehicle. Due to negotiations with the apprehending
authorities, the jeepney was not impounded. The Villamaria spouses took the jeepney from him on July
24, 2000, and he was no longer allowed to drive the vehicle since then unless he paid them P70,000.00.

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

WHEREFORE, in the light of the foregoing, it is most respectfully prayed that judgment be rendered
ordering the respondents, jointly and severally, the following:

1. Reinstate complainant to his former position without loss of seniority rights and execute a Deed of
Sale in favor of the complainant relative to the PUJ with Plate No. PVU-660;
2. Ordering the respondents to pay backwages in the amount of P400.00 a day and other benefits
computed from July 24, 2000 up to the time of his actual reinstatement;

3. Ordering respondents to return the amount of P10,000.00 and P180,000.00 for the expenses incurred
by the complainant in the repair and maintenance of the subject jeep;

4. Ordering the respondents to refund the amount of One Hundred (P100.00) Pesos per day counted
from August 7, 1997 up to June 2000 or a total of P91,200.00;

5. To pay moral and exemplary damages of not less than P200,000.00;

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

Other just and equitable reliefs under the premises are also being prayed for.9

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

Citing the cases of Cathedral School of Technology v. NLRC11 and Canlubang Security Agency
Corporation v. NLRC,12 the spouses Villamaria argued that Bustamante was not illegally dismissed since
the Kasunduan executed on August 7, 1997 transformed the employer-employee relationship into that
of vendor-vendee. Hence, the spouses concluded, there was no legal basis to hold them liable for illegal
dismissal. They prayed that the case be dismissed for lack of jurisdiction and patent lack of merit.

In his Reply,13 Bustamante claimed that Villamaria exercised control and supervision over the conduct
of his employment. He maintained that the rulings of the Court in National Labor Union v. Dinglasan,14
Magboo v. Bernardo,15 and Citizen's League of Free Workers v. Abbas16 are germane to the issue as
they define the nature of the owner/operator-driver relationship under the boundary system. He further
reiterated that it was the Villamaria spouses who presented the Kasunduan to him and that he
conformed thereto only upon their representation that he would own the vehicle after four years.
Moreover, it appeared that the Paalala was duly received by him, as he, together with other drivers, was
made to affix his signature on a blank piece of paper purporting to be an "attendance sheet."
On March 15, 2002, the Labor Arbiter rendered judgment17 in favor of the spouses Villamaria and
ordered the complaint dismissed on the following ratiocination:

Respondents presented the contract of Boundary-Hulog, as well as the PAALALA, to prove their claim
that complainant violated the terms of their contract and afterwards abandoned the vehicle assigned to
him. As against the foregoing, [the] complaint’s (sic) mere allegations to the contrary cannot prevail.

Not having been illegally dismissed, complainant is not entitled to damages and attorney's fees.18

Bustamante appealed the decision to the NLRC,19 insisting that the Kasunduan did not extinguish the
employer-employee relationship between him and Villamaria. While he did not receive fixed wages, he
kept only the excess of the boundary-hulog which he was required to remit daily to Villamaria under the
agreement. Bustamante maintained that he remained an employee because he was engaged to perform
activities which were necessary or desirable to Villamaria’s trade or business.

The NLRC rendered judgment20 dismissing the appeal for lack of merit, thus:

WHEREFORE, premises considered, complainant's appeal is hereby DISMISSED for reasons not stated in
the Labor Arbiter's decision but mainly on a jurisdictional issue, there being none over the subject
matter of the controversy.21

The NLRC ruled that under the Kasunduan, the juridical relationship between Bustamante and Villamaria
was that of vendor and vendee, hence, the Labor Arbiter had no jurisdiction over the complaint.
Bustamante filed a Motion for Reconsideration, which the NLRC resolved to deny on May 30, 2003.22

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

IN DISMISSING PETITIONER’S APPEAL "FOR REASON NOT STATED IN THE LABOR ARBITER’S DECISION,
BUT MAINLY ON JURISDICTIONAL ISSUE;"

II

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

Bustamante insisted that despite the Kasunduan, the relationship between him and Villamaria
continued to be that of employer-employee and as such, the Labor Arbiter had jurisdiction over his
complaint. He further alleged that it is common knowledge that operators of passenger jeepneys
(including taxis) pay their drivers not on a regular monthly basis but on commission or boundary basis,
or even the boundary-hulog system. Bustamante asserted that he was dismissed from employment
without any lawful or just cause and without due notice.

For his part, Villamaria averred that Bustamante failed to adduce proof of their employer-employee
relationship. He further pointed out that the Dinglasan case pertains to the boundary system and not
the boundary-hulog system, hence inapplicable in the instant case. He argued that upon the execution
of the Kasunduan, the juridical tie between him and Bustamante was transformed into a vendor-vendee
relationship. Noting that he was engaged in the manufacture and sale of jeepneys and not in the
business of transporting passengers for consideration, Villamaria contended that the daily fees which
Bustmante paid were actually periodic installments for the the vehicle and were not the same fees as
understood in the boundary system. He added that the boundary-hulog plan was basically a scheme to
help the driver-buyer earn money and eventually pay for the unit in full, and for the owner to profit not
from the daily earnings of the driver-buyer but from the purchase price of the unit sold. Villamaria
further asserted that the apparently restrictive conditions in the Kasunduan did not mean that the
means and method of driver-buyer’s conduct was controlled, but were mere ways to preserve the
vehicle for the benefit of both parties: Villamaria would be able to collect the agreed purchase price,
while Bustamante would be assured that the vehicle would still be in good running condition even after
four years. Moreover, the right of vendor to impose certain conditions on the buyer should be respected
until full ownership of the property is vested on the latter. Villamaria insisted that the parallel
circumstances obtaining in Singer Sewing Machine Company v. Drilon24 has analogous application to
the instant issue.

In its Decision25 dated August 30, 2004, the CA reversed and set aside the NLRC decision. The fallo of
the decision reads:

UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned resolutions of the NLRC must be, as they
are hereby are, REVERSED AND SET ASIDE, and judgment entered in favor of petitioner:

1. Sentencing private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante separation pay
computed from the time of his employment up to the time of termination based on the prevailing
minimum wage at the time of termination; and,

2. Condemning private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante back wages
computed from the time of his dismissal up to March 2001 based on the prevailing minimum wage at
the time of his dismissal.

Without Costs.

SO ORDERED.26

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

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

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

Villamaria received a copy of the decision on September 8, 2004, and filed, on September 17, 2004, a
motion for reconsideration thereof. The CA denied the motion in a Resolution27 dated November 2,
2004, and Villamaria received a copy thereof on November 8, 2004.

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

In his Comment on the petition, respondent avers that the appropriate remedy of petitioner was an
appeal via a petition for review on certiorari under Rule 45 of the Rules of Court and not a special civil
action of certiorari under Rule 65. He argues that petitioner failed to establish that the CA committed
grave abuse of its discretion amounting to excess or lack of jurisdiction in its decision, as the said ruling
is in accord with law and the evidence on record.
Respondent further asserts that the Kasunduan presented to him by petitioner which provides for a
boundary-hulog scheme was a devious circumvention of the Labor Code of the Philippines. Respondent
insists that his juridical relationship with petitioner is that of employer-employee because he was
engaged to perform activities which were necessary or desirable in the usual business of petitioner, his
employer.

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

We agree with respondent’s contention that the remedy of petitioner from the CA decision was to file a
petition for review on certiorari under Rule 45 of the Rules of Court and not the independent action of
certiorari under Rule 65. Petitioner had 15 days from receipt of the CA resolution denying his motion for
the reconsideration within which to file the petition under Rule 45.28 But instead of doing so, he filed a
petition for certiorari under Rule 65 on November 22, 2004, which did not, however, suspend the
running of the 15-day reglementary period; consequently, the CA decision became final and executory
upon the lapse of the reglementary period for appeal. Thus, on this procedural lapse, the instant
petition stands to be dismissed.29

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

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

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

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

We resolve these issues in the affirmative.

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

Article 217 of the Labor Code, as amended, vests on the Labor Arbiter exclusive original jurisdiction only
over the following:

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

1. Unfair labor practice cases;

2. Termination disputes;

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

4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee
relations;
5. Cases arising from violation of Article 264 of this Code, including questions involving the legality of
strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all
other claims, arising from employer-employee relationship, including those of persons in domestic or
household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of
whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

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

In the foregoing cases, an employer-employee relationship is an indispensable jurisdictional requisite.36

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

We agree with the ruling of the CA that, under the boundary-hulog scheme incorporated in the
Kasunduan, a dual juridical relationship was created between petitioner and respondent: that of
employer-employee and vendor-vendee. The Kasunduan did not extinguish the employer-employee
relationship of the parties extant before the execution of said deed.

As early as 1956, the Court ruled in National Labor Union v. Dinglasan40 that the jeepney
owner/operator-driver relationship under the boundary system is that of employer-employee and not
lessor-lessee. This doctrine was affirmed, under similar factual settings, in Magboo v. Bernardo41 and
Lantaco, Sr. v. Llamas,42 and was analogously applied to govern the relationships between auto-calesa
owner/operator and driver,43 bus owner/operator and conductor,44 and taxi owner/operator and
driver.45

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

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

Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount which
represented the boundary of petitioner as well as respondent’s partial payment (hulog) of the purchase
price of the jeepney.

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

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

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

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng boundary hulog ay ang mga
sumusunod:

1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG PANIG ang sasakyan ipinagkatiwala sa

kanya ng TAUHAN NG UNANG PANIG.
2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG IKALAWANG PANIG sa
paghahanapbuhay bilang pampasada o pangangalakal sa malinis at maayos na pamamaraan.

3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG IKALAWANG PANIG sa mga bagay na
makapagdudulot ng kahihiyan, kasiraan o pananagutan sa TAUHAN NG UNANG PANIG.

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

5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang maglagay ng ID Card sa harap ng

windshield upang sa pamamagitan nito ay madaliang malaman kung ang nagmamaneho ay awtorisado
ng VILLAMARIA MOTORS o hindi.

6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng] multa kung sakaling mahuli ang
sasakyang ito na hindi nakakabit ang ID card sa wastong lugar o anuman kasalanan o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang materyales o piyesa na papalitan ng nasira o
nawala ito dahil sa kanyang kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang hinuhulugan pa rin ng TAUHAN NG
IKALAWANG PANIG ang nasabing sasakyan.

9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang ipinagkaloob ng TAUHAN NG UNANG

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

10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa panahon ng pamamasada na ang

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

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang driver ay magpapakita ng
magandang asal sa mga pasaheros at hindi dapat magsasalita ng masama kung sakali man may
pasaherong pilosopo upang maiwasan ang anumang kaguluhan na maaaring kasangkutan.

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

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG sa loob
ng isang linggo ay nangangahulugan na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng
TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG.
14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa rehistro, comprehensive insurance taon-
taon at kahit anong uri ng aksidente habang ito ay hinuhulugan pa sa TAUHAN NG UNANG PANIG.

15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo sa pangkalahatang pagpupulong ng

VILLAMARIA MOTORS sa tuwing tatawag ang mga tagapangasiwa nito upang maipaabot ang anumang
mungkahi sa ikasusulong ng samahan.

16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng mga patakaran na magkakaroon ng
pagbabago o karagdagan sa mga darating na panahon at hindi magiging hadlang sa lahat ng mga balakin
ng VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at ikakatibay ng Samahan.

17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging buwaya sa pasahero upang hindi kainisan
ng kapwa driver at maiwasan ang pagkakasangkot sa anumang gulo.

18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang kalagayan lalo na sa umaga bago
pumasada, at sa hapon o gabi naman ay sisikapin mapanatili ang kalinisan nito.

19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng dalawa o higit pang araw sa
lalawigan ay dapat lamang na ipagbigay alam muna ito sa VILLAMARIA MOTORS upang maiwasan ang
mga anumang suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang pakikipag-unahan sa kaninumang sasakyan
upang maiwasan ang aksidente.

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

22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso kong sinasang-ayunan at buong sikap
na pangangalagaan ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan at gagamitin lamang ito
sa paghahanapbuhay at wala nang iba pa.51

The parties expressly agreed that petitioner, as vendor, and respondent, as vendee, entered into a
contract to sell the jeepney on a daily installment basis of P550.00 payable in four years and that
petitioner would thereafter become its owner. A contract is one of conditional sale, oftentimes referred
to as contract to sell, if the ownership or title over the

property sold is retained by the vendor, and is not passed to the vendee unless and until there is full
payment of the purchase price and/or upon faithful compliance with the other terms and conditions
that may lawfully be stipulated.52 Such payment or satisfaction of other preconditions, as the case may
be, is a positive suspensive condition, the failure of which is not a breach of contract, casual or serious,
but simply an event that would prevent the obligation of the vendor to convey title from acquiring
binding force.53 Stated differently, the efficacy or obligatory force of the vendor's obligation to transfer
title is subordinated to the happening of a future and uncertain event so that if the suspensive condition
does not take place, the parties would stand as if the conditional obligation had never existed.54 The
vendor may extrajudicially terminate the operation of the contract, refuse conveyance, and retain the
sums or installments already received, where such rights are expressly provided for.55

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

The juridical relationship of employer-employee between petitioner and respondent was not negated by
the foregoing stipulation in the Kasunduan, considering that petitioner retained control of respondent’s
conduct as driver of the vehicle. As correctly ruled by the CA:

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

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

Neither is such juridical relationship negated by petitioner’s claim that the terms and conditions in the
Kasunduan relative to respondent’s behavior and deportment as driver was for his and respondent’s
benefit: to insure that respondent would be able to pay the requisite daily installment of P550.00, and
that the vehicle would still be in good condition despite the lapse of four years. What is primordial is
that petitioner retained control over the conduct of the respondent as driver of the jeepney.
Indeed, petitioner, as the owner of the vehicle and the holder of the franchise, is entitled to exercise
supervision and control over the respondent, by seeing to it that the route provided in his franchise, and
the rules and regulations of the Land Transportation Regulatory Board are duly complied with.
Moreover, in a business establishment, an identification card is usually provided not just as a security
measure but to mainly identify the holder thereof as a bona fide employee of the firm who issues it.57

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

It is basic of course that termination of employment must be effected in accordance with law. The just
and authorized causes for termination of employment are enumerated under Articles 282, 283 and 284
of the Labor Code.

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

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG sa loob
ng isang linggo ay NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng
TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG na wala ng
paghahabol pa.

Moreover, well-settled is the rule that, the employer has the burden of proving that the dismissal of an
employee is for a just cause. The failure of the employer to discharge this burden means that the
dismissal is not justified and that the employee is entitled to reinstatement and back wages.

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

"Sa pamamagitan ng ‘BOUNDARY HULOG’

"Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular na ang paragrapo 13 na
nagsasaad na kung hindi kayo makapagbigay ng Boundary Hulog sa loob ng isang linggo ay kusa ninyong
ibabalik and nasabing sasakyan na inyong hinuhulugan ng wala ng paghahabol pa.

"Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong ipatutupad ang nasabing
Kasunduan kaya’t aking pinaaalala sa inyong lahat na tuparin natin ang nakalagay sa kasunduan upang
maiwasan natin ito.

"Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo makaabot pa sa korte
kung sakaling hindi ninyo isasauli ang inyong sasakyan na hinuhulugan na ang mga magagastos ay kayo
pa ang magbabayad sapagkat ang hindi ninyo pagtupad sa kasunduan ang naging dahilan ng pagsampa
ng kaso.

"Sumasainyo

"Attendance: 8/27/99

"(The Signatures appearing herein

include (sic) that of petitioner’s) (Sgd.)

OSCAR VILLAMARIA, JR."

If it were true that petitioner did not remit the boundary hulog for one week or more, why did private
respondent not forthwith take steps to recover the unit, and why did he have to wait for petitioner to
abandon it?1avvphil.net

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

Petitioner’s claim that he opted not to terminate the employment of respondent because of
magnanimity is negated by his (petitioner’s) own evidence that he took the jeepney from the
respondent only on July 24, 2000.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the Court of Appeals in CA-G.R.
SP No. 78720 is AFFIRMED. Costs against petitioner.SO ORDERED.
G.R. No. 172101 November 23, 2007

REPUBLIC OF THE PHILIPPINES, represented by the SOCIAL SECURITY COMMISSION and SOCIAL
SECURITY SYSTEM, Petitioners,
vs.
ASIAPRO COOPERATIVE, Respondent.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure seeking to annul and set aside the Decision1 and Resolution2 of the Court of Appeals in CA-
G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006, respectively, which annulled and set aside
the Orders of the Social Security Commission (SSC) in SSC Case No. 6-15507-03, dated 17 February
20043 and 16 September 2004,4 respectively, thereby dismissing the petition-complaint dated 12 June
2003 filed by herein petitioner Social Security System (SSS) against herein respondent.

Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial body authorized
by law to resolve disputes arising under Republic Act No. 1161, as amended by Republic Act No. 8282.5
Petitioner SSS is a government corporation created by virtue of Republic Act No. 1161, as amended. On
the other hand, herein respondent Asiapro Cooperative (Asiapro) is a multi-purpose cooperative created
pursuant to Republic Act No. 69386 and duly registered with the Cooperative Development Authority
(CDA) on 23 November 1999 with Registration Certificate No. 0-623-2460.7

The antecedents of this case are as follows:

Respondent Asiapro, as a cooperative, is composed of owners-members. Under its by-laws, owners-

members are of two categories, to wit: (1) regular member, who is entitled to all the rights and
privileges of membership; and (2) associate member, who has no right to vote and be voted upon and
shall be entitled only to such rights and privileges provided in its by-laws.8 Its primary objectives are to
provide savings and credit facilities and to develop other livelihood services for its owners-members. In
the discharge of the aforesaid primary objectives, respondent cooperative entered into several Service
Contracts9 with Stanfilco - a division of DOLE Philippines, Inc. and a company based in Bukidnon. The
owners-members do not receive compensation or wages from the respondent cooperative. Instead,
they receive a share in the service surplus10 which the respondent cooperative earns from different
areas of trade it engages in, such as the income derived from the said Service Contracts with Stanfilco.
The owners-members get their income from the service surplus generated by the quality and amount of
services they rendered, which is determined by the Board of Directors of the respondent cooperative.

In order to enjoy the benefits under the Social Security Law of 1997, the owners-members of the
respondent cooperative, who were assigned to Stanfilco requested the services of the latter to register
them with petitioner SSS as self-employed and to remit their contributions as such. Also, to comply with
Section 19-A of Republic Act No. 1161, as amended by Republic Act No. 8282, the SSS contributions of
the said owners-members were equal to the share of both the employer and the employee.

On 26 September 2002, however, petitioner SSS through its Vice-President for Mindanao Division, Atty.
Eddie A. Jara, sent a letter11 to the respondent cooperative, addressed to its Chief Executive Officer
(CEO) and General Manager Leo G. Parma, informing the latter that based on the Service Contracts it
executed with Stanfilco, respondent cooperative is actually a manpower contractor supplying
employees to Stanfilco and for that reason, it is an employer of its owners-members working with
Stanfilco. Thus, respondent cooperative should register itself with petitioner SSS as an employer and
make the corresponding report and remittance of premium contributions in accordance with the Social
Security Law of 1997. On 9 October 2002,12 respondent cooperative, through its counsel, sent a reply to
petitioner SSS’s letter asserting that it is not an employer because its owners-members are the
cooperative itself; hence, it cannot be its own employer. Again, on 21 October 2002,13 petitioner SSS
sent a letter to respondent cooperative ordering the latter to register as an employer and report its
owners-members as employees for compulsory coverage with the petitioner SSS. Respondent
cooperative continuously ignored the demand of petitioner SSS.

Accordingly, petitioner SSS, on 12 June 2003, filed a Petition14 before petitioner SSC against the
respondent cooperative and Stanfilco praying that the respondent cooperative or, in the alternative,
Stanfilco be directed to register as an employer and to report respondent cooperative’s owners-
members as covered employees under the compulsory coverage of SSS and to remit the necessary
contributions in accordance with the Social Security Law of 1997. The same was docketed as SSC Case
No. 6-15507-03. Respondent cooperative filed its Answer with Motion to Dismiss alleging that no
employer-employee relationship exists between it and its owners-members, thus, petitioner SSC has no
jurisdiction over the respondent cooperative. Stanfilco, on the other hand, filed an Answer with Cross-
claim against the respondent cooperative.

On 17 February 2004, petitioner SSC issued an Order denying the Motion to Dismiss filed by the
respondent cooperative. The respondent cooperative moved for the reconsideration of the said Order,
but it was likewise denied in another Order issued by the SSC dated 16 September 2004.

Intending to appeal the above Orders, respondent cooperative filed a Motion for Extension of Time to
File a Petition for Review before the Court of Appeals. Subsequently, respondent cooperative filed a
Manifestation stating that it was no longer filing a Petition for Review. In its place, respondent
cooperative filed a Petition for Certiorari before the Court of Appeals, docketed as CA-G.R. SP No.
87236, with the following assignment of errors:

I. The Orders dated 17 February 2004 and 16 September 2004 of [herein petitioner] SSC were issued
with grave abuse of discretion amounting to a (sic) lack or excess of jurisdiction in that:
A. [Petitioner] SSC arbitrarily proceeded with the case as if it has jurisdiction over the petition a quo,
considering that it failed to first resolve the issue of the existence of an employer-employee relationship
between [respondent] cooperative and its owners-members.

B. While indeed, the [petitioner] SSC has jurisdiction over all disputes arising under the SSS Law with
respect to coverage, benefits, contributions, and related matters, it is respectfully submitted that
[petitioner] SSC may only assume jurisdiction in cases where there is no dispute as to the existence of an
employer-employee relationship.

C. Contrary to the holding of the [petitioner] SSC, the legal issue of employer-employee relationship
raised in [respondent’s] Motion to Dismiss can be preliminarily resolved through summary hearings
prior to the hearing on the merits. However, any inquiry beyond a preliminary determination, as what
[petitioner SSC] wants to accomplish, would be to encroach on the jurisdiction of the National Labor
Relations Commission [NLRC], which is the more competent body clothed with power to resolve issues
relating to the existence of an employment relationship.

II. At any rate, the [petitioner] SSC has no jurisdiction to take cognizance of the petition a quo.

A. [Respondent] is not an employer within the contemplation of the Labor Law but is a multi-purpose
cooperative created pursuant to Republic Act No. 6938 and composed of owners-members, not
employees.

B. The rights and obligations of the owners-members of [respondent] cooperative are derived from their
Membership Agreements, the Cooperatives By-Laws, and Republic Act No. 6938, and not from any
contract of employment or from the Labor Laws. Moreover, said owners-members enjoy rights that are
not consistent with being mere employees of a company, such as the right to participate and vote in
decision-making for the cooperative.

C. As found by the Bureau of Internal Revenue [BIR], the owners-members of [respondent] cooperative
are not paid any compensation income.15 (Emphasis supplied.)

On 5 January 2006, the Court of Appeals rendered a Decision granting the petition filed by the
respondent cooperative. The decretal portion of the Decision reads:

WHEREFORE, the petition is GRANTED. The assailed Orders dated [17 February 2004] and [16 September
2004], are ANNULLED and SET ASIDE and a new one is entered DISMISSING the petition-complaint dated
[12 June 2003] of [herein petitioner] Social Security System.16

Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it was denied by
the appellate court in its Resolution dated 20 March 2006.

Hence, this Petition.

In its Memorandum, petitioners raise the issue of whether or not the Court of Appeals erred in not
finding that the SSC has jurisdiction over the subject matter and it has a valid basis in denying
respondent’s Motion to Dismiss. The said issue is supported by the following arguments:

I. The [petitioner SSC] has jurisdiction over the petition-complaint filed before it by the [petitioner SSS]
under R.A. No. 8282.

II. Respondent [cooperative] is estopped from questioning the jurisdiction of petitioner SSC after
invoking its jurisdiction by filing an [A]nswer with [M]otion to [D]ismiss before it.

III. The [petitioner SSC] did not act with grave abuse of discretion in denying respondent [cooperative’s]
[M]otion to [D]ismiss.

IV. The existence of an employer-employee relationship is a question of fact where presentation of

evidence is necessary.

V. There is an employer-employee relationship between [respondent cooperative] and its [owners-

members].

Petitioners claim that SSC has jurisdiction over the petition-complaint filed before it by petitioner SSS as
it involved an issue of whether or not a worker is entitled to compulsory coverage under the SSS Law.
Petitioners avow that Section 5 of Republic Act No. 1161, as amended by Republic Act No. 8282,
expressly confers upon petitioner SSC the power to settle disputes on compulsory coverage, benefits,
contributions and penalties thereon or any other matter related thereto. Likewise, Section 9 of the same
law clearly provides that SSS coverage is compulsory upon all employees. Thus, when petitioner SSS filed
a petition-complaint against the respondent cooperative and Stanfilco before the petitioner SSC for the
compulsory coverage of respondent cooperative’s owners-members as well as for collection of unpaid
SSS contributions, it was very obvious that the subject matter of the aforesaid petition-complaint was
within the expertise and jurisdiction of the SSC.

Petitioners similarly assert that granting arguendo that there is a prior need to determine the existence
of an employer-employee relationship between the respondent cooperative and its owners-members,
said issue does not preclude petitioner SSC from taking cognizance of the aforesaid petition-complaint.
Considering that the principal relief sought in the said petition-complaint has to be resolved by
reference to the Social Security Law and not to the Labor Code or other labor relations statutes,
therefore, jurisdiction over the same solely belongs to petitioner SSC.

Petitioners further claim that the denial of the respondent cooperative’s Motion to Dismiss grounded on
the alleged lack of employer-employee relationship does not constitute grave abuse of discretion on the
part of petitioner SSC because the latter has the authority and power to deny the same. Moreover, the
existence of an employer-employee relationship is a question of fact where presentation of evidence is
necessary. Petitioners also maintain that the respondent cooperative is already estopped from assailing
the jurisdiction of the petitioner SSC because it has already filed its Answer before it, thus, respondent
cooperative has already submitted itself to the jurisdiction of the petitioner SSC.

Finally, petitioners contend that there is an employer-employee relationship between the respondent
cooperative and its owners-members. The respondent cooperative is the employer of its owners-
members considering that it undertook to provide services to Stanfilco, the performance of which is
under the full and sole control of the respondent cooperative.

On the other hand, respondent cooperative alleges that its owners-members own the cooperative, thus,
no employer-employee relationship can arise between them. The persons of the employer and the
employee are merged in the owners-members themselves. Likewise, respondent cooperative’s owners-
members even requested the respondent cooperative to register them with the petitioner SSS as self-
employed individuals. Hence, petitioner SSC has no jurisdiction over the petition-complaint filed before
it by petitioner SSS.

Respondent cooperative further avers that the Court of Appeals correctly ruled that petitioner SSC acted
with grave abuse of discretion when it assumed jurisdiction over the petition-complaint without
determining first if there was an employer-employee relationship between the respondent cooperative
and its owners-members. Respondent cooperative claims that the question of whether an employer-
employee relationship exists between it and its owners-members is a legal and not a factual issue as the
facts are undisputed and need only to be interpreted by the applicable law and jurisprudence.

Lastly, respondent cooperative asserts that it cannot be considered estopped from assailing the
jurisdiction of petitioner SSC simply because it filed an Answer with Motion to Dismiss, especially where
the issue of jurisdiction is raised at the very first instance and where the only relief being sought is the
dismissal of the petition-complaint for lack of jurisdiction.

From the foregoing arguments of the parties, the issues may be summarized into:

I. Whether the petitioner SSC has jurisdiction over the petition-complaint filed before it by petitioner SSS
against the respondent cooperative.

II. Whether the respondent cooperative is estopped from assailing the jurisdiction of petitioner SSC
since it had already filed an Answer with Motion to Dismiss before the said body.

Petitioner SSC’s jurisdiction is clearly stated in Section 5 of Republic Act No. 8282 as well as in Section 1,
Rule III of the 1997 SSS Revised Rules of Procedure.

Section 5 of Republic Act No. 8282 provides:

SEC. 5. Settlement of Disputes. – (a) Any dispute arising under this Act with respect to coverage,
benefits, contributions and penalties thereon or any other matter related thereto, shall be cognizable by
the Commission, x x x. (Emphasis supplied.)

Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states:

Section 1. Jurisdiction. – Any dispute arising under the Social Security Act with respect to coverage,
entitlement of benefits, collection and settlement of contributions and penalties thereon, or any other
matter related thereto, shall be cognizable by the Commission after the SSS through its President,
Manager or Officer-in-charge of the Department/Branch/Representative Office concerned had first
taken action thereon in writing. (Emphasis supplied.)

It is clear then from the aforesaid provisions that any issue regarding the compulsory coverage of the
SSS is well within the exclusive domain of the petitioner SSC. It is important to note, though, that the
mandatory coverage under the SSS Law is premised on the existence of an employer-employee
relationship17 except in cases of compulsory coverage of the self-employed.

It is axiomatic that the allegations in the complaint, not the defenses set up in the Answer or in the
Motion to Dismiss, determine which court has jurisdiction over an action; otherwise, the question of
jurisdiction would depend almost entirely upon the defendant.18 Moreover, it is well-settled that once
jurisdiction is acquired by the court, it remains with it until the full termination of the case.19 The said
principle may be applied even to quasi-judicial bodies.

In this case, the petition-complaint filed by the petitioner SSS before the petitioner SSC against the
respondent cooperative and Stanfilco alleges that the owners-members of the respondent cooperative
are subject to the compulsory coverage of the SSS because they are employees of the respondent
cooperative. Consequently, the respondent cooperative being the employer of its owners-members
must register as employer and report its owners-members as covered members of the SSS and remit the
necessary premium contributions in accordance with the Social Security Law of 1997. Accordingly, based
on the aforesaid allegations in the petition-complaint filed before the petitioner SSC, the case clearly
falls within its jurisdiction. Although the Answer with Motion to Dismiss filed by the respondent
cooperative challenged the jurisdiction of the petitioner SSC on the alleged lack of employer-employee
relationship between itself and its owners-members, the same is not enough to deprive the petitioner
SSC of its jurisdiction over the petition-complaint filed before it. Thus, the petitioner SSC cannot be
faulted for initially assuming jurisdiction over the petition-complaint of the petitioner SSS.

Nonetheless, since the existence of an employer-employee relationship between the respondent

cooperative and its owners-members was put in issue and considering that the compulsory coverage of
the SSS Law is predicated on the existence of such relationship, it behooves the petitioner SSC to
determine if there is really an employer-employee relationship that exists between the respondent
cooperative and its owners-members.
The question on the existence of an employer-employee relationship is not within the exclusive
jurisdiction of the National Labor Relations Commission (NLRC). Article 217 of the Labor Code
enumerating the jurisdiction of the Labor Arbiters and the NLRC provides that:

ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. - (a) x x x.

xxxx

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all
other claims, arising from employer-employee relations, including those of persons in domestic or
household service, involving an amount exceeding five thousand pesos (₱5,000.00) regardless of
whether accompanied with a claim for reinstatement.20

Although the aforesaid provision speaks merely of claims for Social Security, it would necessarily include
issues on the coverage thereof, because claims are undeniably rooted in the coverage by the system.
Hence, the question on the existence of an employer-employee relationship for the purpose of
determining the coverage of the Social Security System is explicitly excluded from the jurisdiction of the
NLRC and falls within the jurisdiction of the SSC which is primarily charged with the duty of settling
disputes arising under the Social Security Law of 1997.

On the basis thereof, considering that the petition-complaint of the petitioner SSS involved the issue of
compulsory coverage of the owners-members of the respondent cooperative, this Court agrees with the
petitioner SSC when it declared in its Order dated 17 February 2004 that as an incident to the issue of
compulsory coverage, it may inquire into the presence or absence of an employer-employee
relationship without need of waiting for a prior pronouncement or submitting the issue to the NLRC for
prior determination. Since both the petitioner SSC and the NLRC are independent bodies and their
jurisdiction are well-defined by the separate statutes creating them, petitioner SSC has the authority to
inquire into the relationship existing between the worker and the person or entity to whom he renders
service to determine if the employment, indeed, is one that is excepted by the Social Security Law of
1997 from compulsory coverage.21

Even before the petitioner SSC could make a determination of the existence of an employer-employee
relationship, however, the respondent cooperative already elevated the Order of the petitioner SSC,
denying its Motion to Dismiss, to the Court of Appeals by filing a Petition for Certiorari. As a
consequence thereof, the petitioner SSC became a party to the said Petition for Certiorari pursuant to
Section 5(b)22 of Republic Act No. 8282. The appellate court ruled in favor of the respondent
cooperative by declaring that the petitioner SSC has no jurisdiction over the petition-complaint filed
before it because there was no employer-employee relationship between the respondent cooperative
and its owners-members. Resultantly, the petitioners SSS and SSC, representing the Republic of the
Philippines, filed a Petition for Review before this Court.
Although as a rule, in the exercise of the Supreme Court’s power of review, the Court is not a trier of
facts and the findings of fact of the Court of Appeals are conclusive and binding on the Court,23 said rule
is not without exceptions. There are several recognized exceptions24 in which factual issues may be
resolved by this Court. One of these exceptions finds application in this present case which is, when the
findings of fact are conflicting. There are, indeed, conflicting findings espoused by the petitioner SSC and
the appellate court relative to the existence of employer-employee relationship between the
respondent cooperative and its owners-members, which necessitates a departure from the oft-repeated
rule that factual issues may not be the subject of appeals to this Court.

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

considered: (1) the selection and engagement of the workers; (2) the payment of wages by whatever
means; (3) the power of dismissal; and (4) the power to control the worker’s conduct, with the latter
assuming primacy in the overall consideration.25 The most important element is the employer’s control
of the employee’s conduct, not only as to the result of the work to be done, but also as to the means
and methods to accomplish.26 The power of control refers to the existence of the power and not
necessarily to the actual exercise thereof. It is not essential for the employer to actually supervise the
performance of duties of the employee; it is enough that the employer has the right to wield that
power.27 All the aforesaid elements are present in this case.

First. It is expressly provided in the Service Contracts that it is the respondent cooperative which has the
exclusive discretion in the selection and engagement of the owners-members as well as its team leaders
who will be assigned at Stanfilco.28 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."29 In this case, the weekly stipends or the so-called shares in the
service surplus given by the respondent cooperative to its owners-members were in reality wages, as
the same were equivalent to an amount not lower than that prescribed by existing labor laws, rules and
regulations, including the wage order applicable to the area and industry; or the same shall not be lower
than the prevailing rates of wages.30 It cannot be doubted then that those stipends or shares in the
service surplus are indeed wages, because these are given to the owners-members as compensation in
rendering services to respondent cooperative’s client, Stanfilco. Third. It is also stated in the above-
mentioned Service Contracts that it is the respondent cooperative which has the power to investigate,
discipline and remove the owners-members and its team leaders who were rendering services at
Stanfilco.31 Fourth. As earlier opined, of the four elements of the employer-employee relationship, the
"control test" is the most important. In the case at bar, it is the respondent cooperative which has the
sole control over the manner and means of performing the services under the Service Contracts with
Stanfilco as well as the means and methods of work.32 Also, the respondent cooperative is solely and
entirely responsible for its owners-members, team leaders and other representatives at Stanfilco.33 All
these clearly prove that, indeed, there is an employer-employee relationship between the respondent
cooperative and its owners-members.
It is true that the Service Contracts executed between the respondent cooperative and Stanfilco
expressly provide that there shall be no employer-employee relationship between the respondent
cooperative and its owners-members.34 This Court, however, cannot give the said provision force and
effect.

As previously pointed out by this Court, an employee-employer relationship actually exists between the
respondent cooperative and its owners-members. The four elements in the four-fold test for the
existence of an employment relationship have been complied with. The respondent cooperative must
not be allowed to deny its employment relationship with its owners-members by invoking the
questionable Service Contracts provision, when in actuality, it does exist. The existence of an employer-
employee relationship cannot be negated by expressly repudiating it in a contract, when the terms and
surrounding circumstances show otherwise. The employment status of a person is defined and
prescribed by law and not by what the parties say it should be.35

It is settled that the contracting parties may establish such stipulations, clauses, terms and conditions as
they want, and their agreement would have the force of law between them. However, the agreed terms
and conditions must not be contrary to law, morals, customs, public policy or public order.36 The
Service Contract provision in question must be struck down for being contrary to law and public policy
since it is apparently being used by the respondent cooperative merely to circumvent the compulsory
coverage of its employees, who are also its owners-members, by the Social Security Law.

This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of Davao City, Inc.
v. Ferrer-Calleja37 wherein it held that:

A cooperative, therefore, is by its nature different from an ordinary business concern, being run either
by persons, partnerships, or corporations. Its owners and/or members are the ones who run and
operate the business while the others are its employees x x x.

An employee therefore of such a cooperative who is a member and co-owner thereof cannot invoke the
right to collective bargaining for certainly an owner cannot bargain with himself or his co-owners. In the
opinion of August 14, 1981 of the Solicitor General he correctly opined that employees of cooperatives
who are themselves members of the cooperative have no right to form or join labor organizations for
purposes of collective bargaining for being themselves co-owners of the cooperative.1awp++i1

However, in so far as it involves cooperatives with employees who are not members or co-owners
thereof, certainly such employees are entitled to exercise the rights of all workers to organization,
collective bargaining, negotiations and others as are enshrined in the Constitution and existing laws of
the country.

The situation in the aforesaid case is very much different from the present case. The declaration made
by the Court in the aforesaid case was made in the context of whether an employee who is also an
owner-member of a cooperative can exercise the right to bargain collectively with the employer who is
the cooperative wherein he is an owner-member. Obviously, an owner-member cannot bargain
collectively with the cooperative of which he is also the owner because an owner cannot bargain with
himself. In the instant case, there is no issue regarding an owner-member’s right to bargain collectively
with the cooperative. The question involved here is whether an employer-employee relationship can
exist between the cooperative and an owner-member. In fact, a closer look at Cooperative Rural Bank of
Davao City, Inc. will show that it actually recognized that an owner-member of a cooperative can be its
own employee.

It bears stressing, too, that a cooperative acquires juridical personality upon its registration with the
Cooperative Development Authority.38 It has its Board of Directors, which directs and supervises its
business; meaning, its Board of Directors is the one in charge in the conduct and management of its
affairs.39 With that, a cooperative can be likened to a corporation with a personality separate and
distinct from its owners-members. Consequently, an owner-member of a cooperative can be an
employee of the latter and an employer-employee relationship can exist between them.

In the present case, it is not disputed that the respondent cooperative had registered itself with the
Cooperative Development Authority, as evidenced by its Certificate of Registration No. 0-623-2460.40 In
its by-laws,41 its Board of Directors directs, controls, and supervises the business and manages the
property of the respondent cooperative. Clearly then, the management of the affairs of the respondent
cooperative is vested in its Board of Directors and not in its owners-members as a whole. Therefore, it is
completely logical that the respondent cooperative, as a juridical person represented by its Board of
Directors, can enter into an employment with its owners-members.

In sum, having declared that there is an employer-employee relationship between the respondent
cooperative and its owners-member, we conclude that the petitioner SSC has jurisdiction over the
petition-complaint filed before it by the petitioner SSS. This being our conclusion, it is no longer
necessary to discuss the issue of whether the respondent cooperative was estopped from assailing the
jurisdiction of the petitioner SSC when it filed its Answer with Motion to Dismiss.

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision and the
Resolution of the Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006,
respectively, are hereby REVERSED and SET ASIDE. The Orders of the petitioner SSC dated 17 February
2004 and 16 September 2004 are hereby REINSTATED. The petitioner SSC is hereby DIRECTED to
continue hearing the petition-complaint filed before it by the petitioner SSS as regards the compulsory
coverage of the respondent cooperative and its owners-members. No costs.

SO ORDERED.
G.R. No. 157214 June 7, 2005

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

DECISION

GARCIA, J.:

Before us is this appeal by way of a petition for review on certiorari from the 12 September 2002
Decision1 and the 13 February 2003 Resolution2 of the Court of Appeals in CA-G.R. SP No. 65178,
upholding the finding of illegal dismissal by the National Labor Relations Commission against petitioner.

As culled from the records, the pertinent facts are:

Petitioner Philippine Global Communications, Inc. (PhilCom), is a corporation engaged in the business of
communication services and allied activities, while respondent Ricardo De Vera is a physician by
profession whom petitioner enlisted to attend to the medical needs of its employees. At the crux of the
controversy is Dr. De Vera’s status vis a vis petitioner when the latter terminated his engagement.

It appears that on 15 May 1981, De Vera, via a letter dated 15 May 1981,3 offered his services to the
petitioner, therein proposing his plan of works required of a practitioner in industrial medicine, to
include the following:

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

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

3. Management and treatment of employees that may necessitate hospitalization including emergency
cases and accidents;

4. Conduct pre-employment physical check-up of prospective employees with no additional medical fee;

5. Conduct home visits whenever necessary;

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

The parties agreed and formalized respondent’s proposal in a document denominated as RETAINERSHIP
CONTRACT4 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
respondent’s "retainer fee" will be at P4,000.00 a month. Said contract was renewed yearly.5 The
retainership arrangement went on from 1981 to 1994 with changes in the retainer’s fee. However, for
the years 1995 and 1996, renewal of the contract was only made verbally.

The turning point in the parties’ relationship surfaced in December 1996 when Philcom, thru a letter6
bearing on the subject boldly written as "TERMINATION – RETAINERSHIP CONTRACT", informed De Vera
of its decision to discontinue the latter’s "retainer’s contract with the Company effective at the close of
business hours of December 31, 1996" because management has decided that it would be more
practical to provide medical services to its employees through accredited hospitals near the company
premises.

On 22 January 1997, De Vera filed a complaint for illegal dismissal before the National Labor Relations
Commission (NLRC), alleging that that he had been actually employed by Philcom as its company
physician since 1981 and was dismissed without due process. He averred that he was designated as a
"company physician on retainer basis" for reasons allegedly known only to Philcom. He likewise
professed that since he was not conversant with labor laws, he did not give much attention to the
designation as anyway he worked on a full-time basis and was paid a basic monthly salary plus fringe
benefits, like any other regular employees of Philcom.

On 21 December 1998, Labor Arbiter Ramon Valentin C. Reyes came out with a decision7 dismissing De
Vera’s complaint for lack of merit, on the rationale that as a "retained physician" under a valid contract
mutually agreed upon by the parties, De Vera was an "independent contractor" and that he "was not
dismissed but rather his contract with [PHILCOM] ended when said contract was not renewed after
December 31, 1996".

On De Vera’s appeal to the NLRC, the latter, in a decision8 dated 23 October 2000, reversed (the word
used is "modified") that of the Labor Arbiter, on a finding that De Vera is Philcom’s "regular employee"
and accordingly directed the company to reinstate him to his former position without loss of seniority
rights and privileges and with full backwages from the date of his dismissal until actual reinstatement.
We quote the dispositive portion of the decision:

WHEREFORE, the assailed decision is modified in that respondent is ordered to reinstate complainant to
his former position without loss of seniority rights and privileges with full backwages from the date of
his dismissal until his actual reinstatement computed as follows:

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

GRAND TOTAL
P1,935,363.75
The decision stands in other aspects.

SO ORDERED.

With its motion for reconsideration having been denied by the NLRC in its order of 27 February 2001,9
Philcom then went to the Court of Appeals on a petition for certiorari, thereat docketed as CA-G.R. SP
No. 65178, imputing grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
the NLRC when it reversed the findings of the labor arbiter and awarded thirteenth month pay and
traveling allowance to De Vera even as such award had no basis in fact and in law.

On 12 September 2002, the Court of Appeals rendered a decision,10 modifying that of the NLRC by
deleting the award of traveling allowance, and ordering payment of separation pay to De Vera in lieu of
reinstatement, thus:

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

SO ORDERED.

In time, Philcom filed a motion for reconsideration but was denied by the appellate court in its
resolution of 13 February 2003.11

Hence, Philcom’s 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 petitioner’s 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 fact13 well within the province of the NLRC. Nonetheless, given the reality that the
NLRC’s findings are at odds with those of the labor arbiter, the Court, consistent with its ruling in
Jimenez vs. National Labor Relations Commission,14 is constrained to look deeper into the attendant
circumstances obtaining in this case, as appearing on record.

In a long line of decisions,15 the Court, in determining the existence of an employer-employee

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

Applying the four-fold test to this case, we initially find that it was respondent himself who sets the
parameters of what his duties would be in offering his services to petitioner. This is borne by no less
than his 15 May 1981 letter16 which, in full, reads:

"May 15, 1981

Mrs. Adela L. Vicente

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

Madam:

I shall have the time and effort for the position of Company physician with your corporation if you
deemed it necessary. I have the necessary qualifications, training and experience required by such
position and I am confident that I can serve the best interests of your employees, medically.
My plan of works and targets shall cover the duties and responsibilities required of a practitioner in
industrial medicine which includes the following:

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

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

3. Management and treatment of employees that may necessitate hospitalization including emergency
cases and accidents;

4. Conduct pre-employment physical check-up of prospective employees with no additional medical fee;

5. Conduct home visits whenever necessary;

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

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

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

Very truly yours,

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

Significantly, the foregoing letter was substantially the basis of the labor arbiter’s 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
respondent’s 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 Respondent’s Position Paper), it clearly states that is a retainership contract. The
retainer fee is indicated thereon and the duration of the contract for one year is also clearly indicated in
paragraph 5 of the Retainership Contract. The complainant cannot claim that he was unaware that the
‘contract’ was good only for one year, as he signed the same without any objections. The complainant
also accepted its renewal every year thereafter until 1994. As a literate person and educated person, the
complainant cannot claim that he does not know what contract he signed and that it was renewed on a
year to year basis.17

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

"xxx xxx xxx After more than ten years of services to PHILCOM, the complainant would have noticed that
no SSS deductions were made on his remuneration or that the respondent was deducting the 10% tax
for his fees and he surely would have complained about them if he had considered himself an employee
of PHILCOM. But he never raised those issues. An ordinary employee would consider the SSS payments
important and thus make sure they would be paid. The complainant never bothered to ask the
respondent to remit his SSS contributions. This clearly shows that the complainant never considered
himself an employee of PHILCOM and thus, respondent need not remit anything to the SSS in favor of
the complainant."18
Clearly, the elements of an employer-employee relationship are wanting in this case. We may add that
the records are replete with evidence showing that respondent had to bill petitioner for his monthly
professional fees.19 It simply runs against the grain of common experience to imagine that an ordinary
employee has yet to bill his employer to receive his salary.

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

Finally, remarkably absent from the parties’ arrangement is the element of control, whereby the
employer has reserved the right to control the employee not only as to the result of the work done but
also as to the means and methods by which the same is to be accomplished.21

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

Yet, despite the foregoing, all of which are extant on record, both the NLRC and the Court of Appeals
ruled that respondent is petitioner’s 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 respondent’s 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 petitioner’s 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 court’s 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 latter’s business, even without being hired as an employee. This set-up is
precisely true in the case of an independent contractorship as well as in an agency agreement. Indeed,
Article 280 of the Labor Code, quoted by the appellate court, is not the yardstick for determining the
existence of an employment relationship. As it is, the provision merely distinguishes between two (2)
kinds of employees, i.e., regular and casual. It does not apply where, as here, the very existence of an
employment relationship is in dispute.23

Buttressing his contention that he is a regular employee of petitioner, respondent invokes Article 157 of
the Labor Code, and argues that he satisfies all the requirements thereunder. The provision relied upon
reads:

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

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

(b) The services of a full-time registered nurse, a part-time physician and dentist, and an emergency
clinic, when the number of employees exceeds two hundred (200) but not more than three hundred
(300); and

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

In cases of hazardous workplaces, no employer shall engage the services of a physician or dentist who
cannot stay in the premises of the establishment for at least two (2) hours, in the case of those engaged
on part-time basis, and not less than eight (8) hours in the case of those employed on full-time basis.
Where the undertaking is nonhazardous in nature, the physician and dentist may be engaged on
retained basis, subject to such regulations as the Secretary of Labor may prescribe to insure immediate
availability of medical and dental treatment and attendance in case of emergency.

Had only respondent read carefully the very statutory provision invoked by him, he would have noticed
that in non-hazardous workplaces, the employer may engage the services of a physician "on retained
basis." As correctly observed by the petitioner, while it is true that the provision requires employers to
engage the services of medical practitioners in certain establishments depending on the number of their
employees, nothing is there in the law which says that medical practitioners so engaged be actually
hired as employees,24 adding that the law, as written, only requires the employer "to retain", not
employ, a part-time physician who needed to stay in the premises of the non-hazardous workplace for
two (2) hours.25

Respondent takes no issue on the fact that petitioner’s business of telecommunications is not hazardous
in nature. As such, what applies here is the last paragraph of Article 157 which, to stress, provides that
the employer may engage the services of a physician and dentist "on retained basis", subject to such
regulations as the Secretary of Labor may prescribe. The successive "retainership" agreements of the
parties definitely hue to the very statutory provision relied upon by respondent.

Deeply embedded in our jurisprudence is the rule that courts may not construe a statute that is free
from doubt. Where the law is clear and unambiguous, it must be taken to mean exactly what it says, and
courts have no choice but to see to it that the mandate is obeyed.26 As it is, Article 157 of the Labor
Code clearly and unequivocally allows employers in non-hazardous establishments to engage "on
retained basis" the service of a dentist or physician. Nowhere does the law provide that the physician or
dentist so engaged thereby becomes a regular employee. The very phrase that they may be engaged "on
retained basis", revolts against the idea that this engagement gives rise to an employer-employee
relationship.
With the recognition of the fact that petitioner consistently engaged the services of respondent on a
retainer basis, as shown by their various "retainership contracts", so can petitioner put an end, with or
without cause, to their retainership agreement as therein provided.27

We note, however, that even as the contracts entered into by the parties invariably provide for a 60-day
notice requirement prior to termination, the same was not complied with by petitioner when it
terminated on 17 December 1996 the verbally-renewed retainership agreement, effective at the close of
business hours of 31 December 1996.

Be that as it may, the record shows, and this is admitted by both parties,28 that execution of the NLRC
decision had already been made at the NLRC despite the pendency of the present recourse. For sure,
accounts of petitioner had already been garnished and released to respondent despite the previous
Status Quo Order29 issued by this Court. To all intents and purposes, therefore, the 60-day notice
requirement has become moot and academic if not waived by the respondent himself.

WHEREFORE, the petition is GRANTED and the challenged decision of the Court of Appeals REVERSED
and SET ASIDE. The 21 December 1998 decision of the labor arbiter is REINSTATED.

No pronouncement as to costs.

SO ORDERED.
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 Resolution1 dated December 15, 2000 of
the Court of Appeals (CA) reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485. The
assailed resolution reinstated the Decision dated July 10, 1998 of the National Labor Relations
Commission (NLRC), dismissing the complaint for illegal dismissal filed by herein petitioner Pedro
Chavez. The said NLRC decision similarly reversed its earlier Decision dated January 27, 1998 which,
affirming that of the Labor Arbiter, ruled that the petitioner had been illegally dismissed by respondents
Supreme Packaging, Inc. and Mr. Alvin Lee.

The case stemmed from the following facts:

The respondent company, Supreme Packaging, Inc., is in the business of manufacturing cartons and
other packaging materials for export and distribution. It engaged the services of the petitioner, Pedro
Chavez, as truck driver on October 25, 1984. As such, the petitioner was tasked to deliver the
respondent company’s 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 petitioner’s
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 ₱350.00 per trip. This was later adjusted to ₱480.00 per trip and, at the time of his
alleged dismissal, the petitioner was receiving ₱900.00 per trip.

Sometime in 1992, the petitioner expressed to respondent Alvin Lee, respondent company’s plant
manager, his (the petitioner’s) desire to avail himself of the benefits that the regular employees were
receiving such as overtime pay, nightshift differential pay, and 13th month pay, among others. Although
he promised to extend these benefits to the petitioner, respondent Lee failed to actually do so.

On February 20, 1995, the petitioner filed a complaint for regularization with the Regional Arbitration
Branch No. III of the NLRC in San Fernando, Pampanga. Before the case could be heard, respondent
company terminated the services of the petitioner. Consequently, on May 25, 1995, the petitioner filed
an amended complaint against the respondents for illegal dismissal, unfair labor practice and non-
payment of overtime pay, nightshift differential pay, 13th month pay, among others. The case was
docketed as NLRC Case No. RAB-III-02-6181-95.
The respondents, for their part, denied the existence of an employer-employee relationship between
the respondent company and the petitioner. They averred that the petitioner was an independent
contractor as evidenced by the contract of service which he and the respondent company entered into.
The said contract provided as follows:

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

1. That the inland transport delivery/hauling activities to be performed by the contractor to the
principal, shall only cover travel route from Mariveles to Metro Manila. Otherwise, any change to this
travel route shall be subject to further agreement by the parties concerned.

2. That the payment to be made by the Principal for any hauling or delivery transport services fully
rendered by the Contractor shall be on a per trip basis depending on the size or classification of the
truck being used in the transport service, to wit:

a) If the hauling or delivery service shall require a truck of six wheeler, the payment on a per trip basis
from Mariveles to Metro Manila shall be THREE HUNDRED PESOS (₱300.00) 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 (₱350.00) 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 Contractor’s 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 latter’s 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 petitioner’s 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 Arbiter’s decision states:

WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring respondent SUPREME
PACKAGING, INC. and/or MR. ALVIN LEE, Plant Manager, with business address at BEPZ, Mariveles,
Bataan guilty of illegal dismissal, ordering said respondent to pay complainant his separation pay
equivalent to one (1) month pay per year of service based on the average monthly pay of ₱10,800.00 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 ………………….. ₱248,400.00

b) Separation Pay ………….…... ₱140,400.00

c) 13th month pay ………….……₱ 10,800.00

d) Service Incentive Leave Pay .. 2,040.00

TOTAL ₱401,640.00

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

SO ORDERED.3

The respondents seasonably interposed an appeal with the NLRC. However, the appeal was dismissed by
the NLRC in its Decision4 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
petitioner’s unfamiliarity with the English language and/or legal niceties, wanted to evade the effects
and implications of his becoming a regularized employee.5

The respondents sought reconsideration of the January 27, 1998 Decision of the NLRC. Acting thereon,
the NLRC rendered another Decision6 dated July 10, 1998, reversing its earlier decision and, this time,
holding that no employer-employee relationship existed between the respondent company and the
petitioner. In reconsidering its earlier decision, the NLRC stated that the respondents did not exercise
control over the means and methods by which the petitioner accomplished his delivery services. It
upheld the validity of the contract of service as it pointed out that said contract was silent as to the time
by which the petitioner was to make the deliveries and that the petitioner could hire his own helpers
whose wages would be paid from his own account. These factors indicated that the petitioner was an
independent contractor, not an employee of the respondent company.

The NLRC ruled that the contract of service was not intended to circumvent Article 280 of the Labor
Code on the regularization of employees. Said contract, including the fixed period of employment
contained therein, having been knowingly and voluntarily entered into by the parties thereto was
declared valid citing Brent School, Inc. v. Zamora.7 The NLRC, thus, dismissed the petitioner’s complaint
for illegal dismissal.

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

The appellate court rendered the Decision dated April 28, 2000, reversing the July 10, 1998 Decision of
the NLRC and reinstating the decision of the Labor Arbiter. In the said decision, the CA ruled that the
petitioner was a regular employee of the respondent company because as its truck driver, he performed
a service that was indispensable to the latter’s business. Further, he had been the respondent
company’s 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 petitioner’s 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
petitioner’s 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
employer’s power to control the employee’s conduct.11 The most important element is the employer’s
control of the employee’s conduct, not only as to the result of the work to be done, but also as to the
means and methods to accomplish it.12 All the four elements are present in this case.

First. Undeniably, it was the respondents who engaged the services of the petitioner without the
intervention of a third party.

Second. Wages are defined as "remuneration or earnings, however designated, capable of being
expressed in terms of money, whether fixed or ascertained on a time, task, piece or commission basis,
or other method of calculating the same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to be done, or for service rendered or to
be rendered."13 That the petitioner was paid on a per trip basis is not significant. This is merely a
method of computing compensation and not a basis for determining the existence or absence of
employer-employee relationship. One may be paid on the basis of results or time expended on the
work, and may or may not acquire an employment status, depending on whether the elements of an
employer-employee relationship are present or not.14 In this case, it cannot be gainsaid that the
petitioner received compensation from the respondent company for the services that he rendered to
the latter.
Moreover, under the Rules Implementing the Labor Code, every employer is required to pay his
employees by means of payroll.15 The payroll should show, among other things, the employee’s rate of
pay, deductions made, and the amount actually paid to the employee. Interestingly, the respondents did
not present the payroll to support their claim that the petitioner was not their employee, raising
speculations whether this omission proves that its presentation would be adverse to their case.16

Third. The respondents’ power to dismiss the petitioner was inherent in the fact that they engaged the
services of the petitioner as truck driver. They exercised this power by terminating the petitioner’s
services albeit in the guise of "severance of contractual relation" due allegedly to the latter’s breach of
his contractual obligation.

Fourth. As earlier opined, of the four elements of the employer-employee relationship, the "control
test" is the most important. Compared to an employee, an independent contractor is one who carries on
a distinct and independent business and undertakes to perform the job, work, or service on its own
account and under its own responsibility according to its own manner and method, free from the
control and direction of the principal in all matters connected with the performance of the work except
as to the results thereof.17 Hence, while an independent contractor enjoys independence and freedom
from the control and supervision of his principal, an employee is subject to the employer’s power to
control the means and methods by which the employee’s work is to be performed and accomplished.18

Although the respondents denied that they exercised control over the manner and methods by which
the petitioner accomplished his work, a careful review of the records shows that the latter performed
his work as truck driver under the respondents’ supervision and control. Their right of control was
manifested by the following attendant circumstances:

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

2. There was an express instruction from the respondents that the truck shall be used exclusively to
deliver respondent company’s 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 Osmeña Street, Makati City or at
BEPZ, Mariveles, Bataan;20 and

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

a. The routing slips indicated on the column REMARKS, the chronological order and priority of delivery
such as 1st drop, 2nd drop, 3rd drop, etc. This meant that the petitioner had to deliver the same
according to the order of priority indicated therein.
b. The routing slips, likewise, showed whether the goods were to be delivered urgently or not by the
word RUSH printed thereon.

c. The routing slips also indicated the exact time as to when the goods were to be delivered to the
customers as, for example, the words "tomorrow morning" was written on slip no. 2776.

These circumstances, to the Court’s mind, prove that the respondents exercised control over the means
and methods by which the petitioner accomplished his work as truck driver of the respondent company.
On the other hand, the Court is hard put to believe the respondents’ allegation that the petitioner was
an independent contractor engaged in providing delivery or hauling services when he did not even own
the truck used for such services. Evidently, he did not possess substantial capitalization or investment in
the form of tools, machinery and work premises. Moreover, the petitioner performed the delivery
services exclusively for the respondent company for a continuous and uninterrupted period of ten years.

The contract of service to the contrary notwithstanding, the factual circumstances earlier discussed
indubitably establish the existence of an employer-employee relationship between the respondent
company and the petitioner. It bears stressing that the existence of an employer-employee relationship
cannot be negated by expressly repudiating it in a contract and providing therein that the employee is
an independent contractor when, as in this case, the facts clearly show otherwise. Indeed, the
employment status of a person is defined and prescribed by law and not by what the parties say it
should be.22

Having established that there existed an employer-employee relationship between the respondent
company and the petitioner, the Court shall now determine whether the respondents validly dismissed
the petitioner.

As a rule, the employer bears the burden to prove that the dismissal was for a valid and just cause.23 In
this case, the respondents failed to prove any such cause for the petitioner’s dismissal. They insinuated
that the petitioner abandoned his job. To constitute abandonment, these two factors must concur: (1)
the failure to report for work or absence without valid or justifiable reason; and (2) a clear intention to
sever employer-employee relationship.24 Obviously, the petitioner did not intend to sever his
relationship with the respondent company for at the time that he allegedly abandoned his job, the
petitioner just filed a complaint for regularization, which was forthwith amended to one for illegal
dismissal. A charge of abandonment is totally inconsistent with the immediate filing of a complaint for
illegal dismissal, more so when it includes a prayer for reinstatement.25

Neither can the respondents’ claim that the petitioner was guilty of gross negligence in the proper
maintenance of the truck constitute a valid and just cause for his dismissal. Gross negligence implies a
want or absence of or failure to exercise slight care or diligence, or the entire absence of care. It evinces
a thoughtless disregard of consequences without exerting any effort to avoid them.26 The negligence,
to warrant removal from service, should not merely be gross but also habitual.27 The single and isolated
act of the petitioner’s negligence in the proper maintenance of the truck alleged by the respondents
does not amount to "gross and habitual neglect" warranting his dismissal.

The Court agrees with the following findings and conclusion of the Labor Arbiter:

… As against the gratuitous allegation of the respondent that complainant was not dismissed from the
service but due to complainant’s breach of their contractual relation, i.e., his violation of the terms and
conditions of the contract, we are very much inclined to believe complainant’s story that his dismissal
from the service was anchored on his insistent demand that he be considered a regular employee.
Because complainant in his right senses will not just abandon for that reason alone his work especially
so that it is only his job where he depends chiefly his existence and support for his family if he was not
aggrieved by the respondent when he was told that his services as driver will be terminated on February
23, 1995.28

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

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

SO ORDERED.
[G.R. No. 167622, June 29, 2010]

GREGORIO V. TONGKO, PETITIONER, VS. THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC.
AND RENATO A. VERGEL DE DIOS, RESPONDENTS.

RESOLUTION
BRION, J.:

This resolves the Motion for Reconsideration[1] dated December 3, 2008 filed by respondent The
Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of November 7, 2008.
In the assailed decision, we found that an employer-employee relationship existed between Manulife
and petitioner Gregorio Tongko and ordered Manulife to pay Tongko backwages and separation pay for
illegal dismissal.

The following facts have been stated in our Decision of November 7, 2008, now under reconsideration,
but are repeated, simply for purposes of clarity.

The contractual relationship between Tongko and Manulife had two basic phases. The first or initial
phase began on July 1, 1977, under a Career Agent's Agreement (Agreement) that provided:

It is understood and agreed that the Agent is an independent contractor and nothing contained herein
shall be construed or interpreted as creating an employer-employee relationship between the Company
and the Agent.

x x x x

a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other
products offered by the Company, and collect, in exchange for provisional receipts issued by the Agent,
money due to or become due to the Company in respect of applications or policies obtained by or
through the Agent or from policyholders allotted by the Company to the Agent for servicing, subject to
subsequent confirmation of receipt of payment by the Company as evidenced by an Official Receipt
issued by the Company directly to the policyholder.

x x x x

The Company may terminate this Agreement for any breach or violation of any of the provisions hereof
by the Agent by giving written notice to the Agent within fifteen (15) days from the time of the discovery
of the breach. No waiver, extinguishment, abandonment, withdrawal or cancellation of the right to
terminate this Agreement by the Company shall be construed for any previous failure to exercise its
right under any provision of this Agreement.
Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving
to the other party fifteen (15) days notice in writing.[2]

Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and (2) to
maintain a standard of knowledge and competency in the sale of Manulife's products, satisfactory to
Manulife and sufficient to meet the volume of the new business, required by his Production Club
membership.[3]

The second phase started in 1983 when Tongko was named Unit Manager in Manulife's Sales Agency
Organization. In 1990, he became a Branch Manager. Six years later (or in 1996), Tongko became a
Regional Sales Manager.[4]

Tongko's gross earnings consisted of commissions, persistency income, and management overrides.
Since the beginning, Tongko consistently declared himself self-employed in his income tax returns. Thus,
under oath, he declared his gross business income and deducted his business expenses to arrive at his
taxable business income. Manulife withheld the corresponding 10% tax on Tongko's earnings.[5]

In 2001, Manulife instituted manpower development programs at the regional sales management level.
Respondent Renato Vergel de Dios wrote Tongko a letter dated November 6, 2001 on concerns that
were brought up during the October 18, 2001 Metro North Sales Managers Meeting. De Dios wrote:

The first step to transforming Manulife into a big league player has been very clear - to increase the
number of agents to at least 1,000 strong for a start. This may seem diametrically opposed to the way
Manulife was run when you first joined the organization. Since then, however, substantial changes have
taken place in the organization, as these have been influenced by developments both from within and
without the company.

x x x x

The issues around agent recruiting are central to the intended objectives hence the need for a Senior
Managers' meeting earlier last month when Kevin O'Connor, SVP-Agency, took to the floor to determine
from our senior agency leaders what more could be done to bolster manpower development. At earlier
meetings, Kevin had presented information where evidently, your Region was the lowest performer (on
a per Manager basis) in terms of recruiting in 2000 and, as of today, continues to remain one of the
laggards in this area.

While discussions, in general, were positive other than for certain comments from your end which were
perceived to be uncalled for, it became clear that a one-on-one meeting with you was necessary to
ensure that you and management, were on the same plane. As gleaned from some of your previous
comments in prior meetings (both in group and one-on-one), it was not clear that we were proceeding
in the same direction.
Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those
subsequent meetings you reiterated certain views, the validity of which we challenged and subsequently
found as having no basis.

With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may
be a bit confused as to the directions the company was taking. For this reason, I sought a meeting with
everyone in your management team, including you, to clear the air, so to speak.

This note is intended to confirm the items that were discussed at the said Metro North Region's Sales
Managers meeting held at the 7/F Conference room last 18 October.

x x x x

Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the position of
agents."

This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the
issue on the table before the rest of your Region's Sales Managers to verify its validity. As you must have
noted, no Sales Manager came forward on their own to confirm your statement and it took you to name
Malou Samson as a source of the same, an allegation that Malou herself denied at our meeting and in
your very presence.

This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had
thought all along, that these allegations were simply meant to muddle the issues surrounding the
inability of your Region to meet its agency development objectives!

Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process, they earn
less."

x x x x

All the above notwithstanding, we had your own records checked and we found that you made a lot
more money in the Year 2000 versus 1999. In addition, you also volunteered the information to Kevin
when you said that you probably will make more money in the Year 2001 compared to Year 2000.
Obviously, your above statement about making "less money" did not refer to you but the way you
argued this point had us almost believing that you were spouting the gospel of truth when you were not.
x x x

x x x x

All of a sudden, Greg, I have become much more worried about your ability to lead this group towards
the new direction that we have been discussing these past few weeks, i.e., Manulife's goal to become a
major agency-led distribution company in the Philippines. While as you claim, you have not stopped
anyone from recruiting, I have never heard you proactively push for greater agency recruiting. You have
not been proactive all these years when it comes to agency growth.

x x x x

I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are
making the following changes in the interim:

1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks
which can be easily delegated. This assistant should be so chosen as to complement your skills and help
you in the areas where you feel "may not be your cup of tea."

You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for
your health. The above could solve this problem.

x x x x

2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star
Branch (NSB) in autonomous fashion. x x x

I have decided to make this change so as to reduce your span of control and allow you to concentrate
more fully on overseeing the remaining groups under Metro North, your Central Unit and the rest of the
Sales Managers in Metro North. I will hold you solely responsible for meeting the objectives of these
remaining groups.

x x x x
The above changes can end at this point and they need not go any further. This, however, is entirely
dependent upon you. But you have to understand that meeting corporate objectives by everyone is
primary and will not be compromised. We are meeting tough challenges next year, and I would want
everybody on board. Any resistance or holding back by anyone will be dealt with accordingly.[6]

Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating Tongko's
services:

It would appear, however, that despite the series of meetings and communications, both one-on-one
meetings between yourself and SVP Kevin O'Connor, some of them with me, as well as group meetings
with your Sales Managers, all these efforts have failed in helping you align your directions with
Management's avowed agency growth policy.

x x x x
On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract
as we are now issuing this notice of termination of your Agency Agreement with us effective fifteen days
from the date of this letter.[7]

Tongko responded by filing an illegal dismissal complaint with the National Labor Relations Commission
(NLRC) Arbitration Branch. He essentially alleged - despite the clear terms of the letter terminating his
Agency Agreement - that he was Manulife's employee before he was illegally dismissed.[8]

Thus, the threshold issue is the existence of an employment relationship. A finding that none exists
renders the question of illegal dismissal moot; a finding that an employment relationship exists, on the
other hand, necessarily leads to the need to determine the validity of the termination of the
relationship.

A. Tongko's Case for Employment Relationship

Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding P50,000.00,
regardless of production levels attained and exclusive of commissions and bonuses. He also claimed
that as Regional Sales Manager, he was given a travel and entertainment allowance of P36,000.00 per
year in addition to his overriding commissions; he was tasked with numerous administrative functions
and supervisory authority over Manulife's employees, aside from merely selling policies and recruiting
agents for Manulife; and he recommended and recruited insurance agents subject to vetting and
approval by Manulife. He further alleges that he was assigned a definite place in the Manulife offices
when he was not in the field - at the 3rd Floor, Manulife Center, 108 Tordesillas corner Gallardo Sts.,
Salcedo Village, Makati City - for which he never paid any rental. Manulife provided the office
equipment he used, including tables, chairs, computers and printers (and even office stationery), and
paid for the electricity, water and telephone bills. As Regional Sales Manager, Tongko additionally
asserts that he was required to follow at least three codes of conduct.[9]

B. Manulife's Case - Agency Relationship with Tongko

Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was paid
commissions of varying amounts, computed based on the premium paid in full and actually received by
Manulife on policies obtained through an agent. As sales manager, Tongko was paid overriding sales
commission derived from sales made by agents under his unit/structure/branch/region. Manulife also
points out that it deducted and withheld a 10% tax from all commissions Tongko received; Tongko even
declared himself to be self-employed and consistently paid taxes as such--i.e., he availed of tax
deductions such as ordinary and necessary trade, business and professional expenses to which a
business is entitled.

Manulife asserts that the labor tribunals have no jurisdiction over Tongko's claim as he was not its
employee as characterized in the four-fold test and our ruling in Carungcong v. National Labor Relations
Commission.[10]
The Conflicting Rulings of the Lower Tribunals

The labor arbiter decreed that no employer-employee relationship existed between the parties.
However, the NLRC reversed the labor arbiter's decision on appeal; it found the existence of an
employer-employee relationship and concluded that Tongko had been illegally dismissed. In the
petition for certiorari with the Court of Appeals (CA), the appellate court found that the NLRC gravely
abused its discretion in its ruling and reverted to the labor arbiter's decision that no employer-employee
relationship existed between Tongko and Manulife.

Our Decision of November 7, 2008

In our Decision of November 7, 2008, we reversed the CA ruling and found that an employment
relationship existed between Tongko and Manulife. We concluded that Tongko is Manulife's employee
for the following reasons:
Our ruling in the first Insular[11] case did not foreclose the possibility of an insurance agent becoming an
employee of an insurance company; if evidence exists showing that the company promulgated rules or
regulations that effectively controlled or restricted an insurance agent's choice of methods or the
methods themselves in selling insurance, an employer-employee relationship would be present. The
determination of the existence of an employer-employee relationship is thus on a case-to-case basis
depending on the evidence on record.
Manulife had the power of control over Tongko, sufficient to characterize him as an employee, as shown
by the following indicators:

2.1 Tongko undertook to comply with Manulife's rules, regulations and other requirements, i.e., the
different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of Conduct,
and the Financial Code of Conduct Agreement;

2.2 The various affidavits of Manulife's insurance agents and managers, who occupied similar positions
as Tongko, showed that they performed administrative duties that established employment with
Manulife;[12] and

2.3 Tongko was tasked to recruit some agents in addition to his other administrative functions. De Dios'
letter harped on the direction Manulife intended to take, viz., greater agency recruitment as the primary
means to sell more policies; Tongko's alleged failure to follow this directive led to the termination of his
employment with Manulife.

The Motion for Reconsideration

Manulife disagreed with our Decision and filed the present motion for reconsideration on the following
GROUNDS:
1. The November 7[, 2008] Decision violates Manulife's right to due process by: (a) confining the review
only to the issue of "control" and utterly disregarding all the other issues that had been joined in this
case; (b) mischaracterizing the divergence of conclusions between the CA and the NLRC decisions as
confined only to that on "control"; (c) grossly failing to consider the findings and conclusions of the CA
on the majority of the material evidence, especially [Tongko's] declaration in his income tax returns that
he was a "business person" or "self-employed"; and (d) allowing [Tongko] to repudiate his sworn
statement in a public document.

2. The November 7[, 2008] Decision contravenes settled rules in contract law and agency, distorts not
only the legal relationships of agencies to sell but also distributorship and franchising, and ignores the
constitutional and policy context of contract law vis-ו-vis labor law.

3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements of the four-fold
test other than the "control" test, reverses well-settled doctrines of law on employer-employee
relationships, and grossly misapplies the "control test," by selecting, without basis, a few items of
evidence to the exclusion of more material evidence to support its conclusion that there is "control."

4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by Articles 8 and
9 of the Civil Code, beyond the powers granted to this Court under Article VIII, Section 1 of the
Constitution and contravenes through judicial legislation, the constitutional prohibition against
impairment of contracts under Article III, Section 10 of the Constitution.

5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and reversible errors,
which should be corrected, in concluding that Respondent Manulife and Petitioner had an employer-
employee relationship, that Respondent Manulife illegally dismissed Petitioner, and for consequently
ordering Respondent Manulife to pay Petitioner backwages, separation pay, nominal damages and
attorney's fees.[13]

THE COURT'S RULING

A. The Insurance and the Civil Codes;

the Parties' Intent and Established
Industry Practices

We cannot consider the present case purely from a labor law perspective, oblivious that the factual
antecedents were set in the insurance industry so that the Insurance Code primarily governs. Chapter IV,
Title 1 of this Code is wholly devoted to "Insurance Agents and Brokers" and specifically defines the
agents and brokers relationship with the insurance company and how they are governed by the Code
and regulated by the Insurance Commission.
The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as agency is a
civil law matter governed by the Civil Code. Thus, at the very least, three sets of laws - namely, the
Insurance Code, the Labor Code and the Civil Code - have to be considered in looking at the present
case. Not to be forgotten, too, is the Agreement (partly reproduced on page 2 of this Dissent and which
no one disputes) that the parties adopted to govern their relationship for purposes of selling the
insurance the company offers. To forget these other laws is to take a myopic view of the present case
and to add to the uncertainties that now exist in considering the legal relationship between the
insurance company and its "agents."

The main issue of whether an agency or an employment relationship exists depends on the incidents of
the relationship. The Labor Code concept of "control" has to be compared and distinguished with the
"control" that must necessarily exist in a principal-agent relationship. The principal cannot but also have
his or her say in directing the course of the principal-agent relationship, especially in cases where the
company-representative relationship in the insurance industry is an agency.

a. The laws on insurance and agency

The business of insurance is a highly regulated commercial activity in the country, in terms particularly
of who can be in the insurance business, who can act for and in behalf of an insurer, and how these
parties shall conduct themselves in the insurance business. Section 186 of the Insurance Code provides
that "No person, partnership, or association of persons shall transact any insurance business in the
Philippines except as agent of a person or corporation authorized to do the business of insurance in the
Philippines." Sections 299 and 300 of the Insurance Code on Insurance Agents and Brokers, among other
provisions, provide:

Section 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay
any commission or other compensation to any person for services in obtaining insurance, unless such
person shall have first procured from the Commissioner a license to act as an insurance agent of such
company or as an insurance broker as hereinafter provided.

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the Commissioner x x x The Commissioner shall satisfy
himself as to the competence and trustworthiness of the applicant and shall have the right to refuse to
issue or renew and to suspend or revoke any such license in his discretion.

Section 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance
company or transmits for a person other than himself an application for a policy or contract of insurance
to or from such company or offers or assumes to act in the negotiating of such insurance shall be an
insurance agent within the intent of this section and shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an insurance agent is subject.
The application for an insurance agent's license requires a written examination, and the applicant must
be of good moral character and must not have been convicted of a crime involving moral turpitude.[14]
The insurance agent who collects premiums from an insured person for remittance to the insurance
company does so in a fiduciary capacity, and an insurance company which delivers an insurance policy
or contract to an authorized agent is deemed to have authorized the agent to receive payment on the
company's behalf.[15] Section 361 further prohibits the offer, negotiation, or collection of any amount
other than that specified in the policy and this covers any rebate from the premium or any special favor
or advantage in the dividends or benefit accruing from the policy.

Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and must also
act within the parameters of the authority granted under the license and under the contract with the
principal. Other than the need for a license, the agent is limited in the way he offers and negotiates for
the sale of the company's insurance products, in his collection activities, and in the delivery of the
insurance contract or policy. Rules regarding the desired results (e.g., the required volume to continue
to qualify as a company agent, rules to check on the parameters on the authority given to the agent, and
rules to ensure that industry, legal and ethical rules are followed) are built-in elements of control
specific to an insurance agency and should not and cannot be read as elements of control that attend an
employment relationship governed by the Labor Code.

On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render some
service or to do something in representation or on behalf of another, with the consent or authority of
the latter."[16] While this is a very broad definition that on its face may even encompass an
employment relationship, the distinctions between agency and employment are sufficiently established
by law and jurisprudence.

Generally, the determinative element is the control exercised over the one rendering service. The
employer controls the employee both in the results and in the means and manner of achieving this
result. The principal in an agency relationship, on the other hand, also has the prerogative to exercise
control over the agent in undertaking the assigned task based on the parameters outlined in the
pertinent laws.

Under the general law on agency as applied to insurance, an agency must be express in light of the need
for a license and for the designation by the insurance company. In the present case, the Agreement fully
serves as grant of authority to Tongko as Manulife's insurance agent.[17] This agreement is
supplemented by the company's agency practices and usages, duly accepted by the agent in carrying out
the agency.[18] By authority of the Insurance Code, an insurance agency is for compensation,[19] a
matter the Civil Code Rules on Agency presumes in the absence of proof to the contrary.[20] Other than
the compensation, the principal is bound to advance to, or to reimburse, the agent the agreed sums
necessary for the execution of the agency.[21] By implication at least under Article 1994 of the Civil
Code, the principal can appoint two or more agents to carry out the same assigned tasks,[22] based
necessarily on the specific instructions and directives given to them.
With particular relevance to the present case is the provision that "In the execution of the agency, the
agent shall act in accordance with the instructions of the principal."[23] This provision is pertinent for
purposes of the necessary control that the principal exercises over the agent in undertaking the assigned
task, and is an area where the instructions can intrude into the labor law concept of control so that
minute consideration of the facts is necessary. A related article is Article 1891 of the Civil Code which
binds the agent to render an account of his transactions to the principal.

B. The Cited Case

The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish that the
company rules and regulations that an agent has to comply with are indicative of an employer-employee
relationship.[24] The Dissenting Opinions of Justice Presbitero Velasco, Jr. and Justice Conchita Carpio
Morales also cite Insular Life Assurance Co. v. National Labor Relations Commission (second Insular
case)[25] to support the view that Tongko is Manulife's employee. On the other hand, Manulife cites
the Carungcong case and AFP Mutual Benefit Association, Inc. v. National Labor Relations Commission
(AFPMBAI case)[26] to support its allegation that Tongko was not its employee.

A caveat has been given above with respect to the use of the rulings in the cited cases because none of
them is on all fours with the present case; the uniqueness of the factual situation of the present case
prevents it from being directly and readily cast in the mold of the cited cases. These cited cases are
themselves different from one another; this difference underscores the need to read and quote them in
the context of their own factual situations.

The present case at first glance appears aligned with the facts in the Carungcong, the Grepalife, and the
second Insular Life cases. A critical difference, however, exists as these cited cases dealt with the proper
legal characterization of a subsequent management contract that superseded the original agency
contract between the insurance company and its agent. Carungcong dealt with a subsequent
Agreement making Carungcong a New Business Manager that clearly superseded the Agreement
designating Carungcong as an agent empowered to solicit applications for insurance. The Grepalife
case, on the other hand, dealt with the proper legal characterization of the appointment of the Ruiz
brothers to positions higher than their original position as insurance agents. Thus, after analyzing the
duties and functions of the Ruiz brothers, as these were enumerated in their contracts, we concluded
that the company practically dictated the manner by which the Ruiz brothers were to carry out their
jobs. Finally, the second Insular Life case dealt with the implications of de los Reyes' appointment as
acting unit manager which, like the subsequent contracts in the Carungcong and the Grepalife cases,
was clearly defined under a subsequent contract. In all these cited cases, a determination of the
presence of the Labor Code element of control was made on the basis of the stipulations of the
subsequent contracts.

In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the only contract
or document extant and submitted as evidence in the present case is the Agreement - a pure agency
agreement in the Civil Code context similar to the original contract in the first Insular Life case and the
contract in the AFPMBAI case. And while Tongko was later on designated unit manager in 1983, Branch
Manager in 1990, and Regional Sales Manager in 1996, no formal contract regarding these undertakings
appears in the records of the case. Any such contract or agreement, had there been any, could have at
the very least provided the bases for properly ascertaining the juridical relationship established between
the parties.

These critical differences, particularly between the present case and the Grepalife and the second
Insular Life cases, should therefore immediately drive us to be more prudent and cautious in applying
the rulings in these cases.

C. Analysis of the Evidence

c.1. The Agreement

The primary evidence in the present case is the July 1, 1977 Agreement that governed and defined the
parties' relations until the Agreement's termination in 2001. This Agreement stood for more than two
decades and, based on the records of the case, was never modified or novated. It assumes primacy
because it directly dealt with the nature of the parties' relationship up to the very end; moreover, both
parties never disputed its authenticity or the accuracy of its terms.

By the Agreement's express terms, Tongko served as an "insurance agent" for Manulife, not as an
employee. To be sure, the Agreement's legal characterization of the nature of the relationship cannot
be conclusive and binding on the courts; as the dissent clearly stated, the characterization of the
juridical relationship the Agreement embodied is a matter of law that is for the courts to determine. At
the same time, though, the characterization the parties gave to their relationship in the Agreement
cannot simply be brushed aside because it embodies their intent at the time they entered the
Agreement, and they were governed by this understanding throughout their relationship. At the very
least, the provision on the absence of employer-employee relationship between the parties can be an
aid in considering the Agreement and its implementation, and in appreciating the other evidence on
record.

The parties' legal characterization of their intent, although not conclusive, is critical in this case because
this intent is not illegal or outside the contemplation of law, particularly of the Insurance and the Civil
Codes. From this perspective, the provisions of the Insurance Code cannot be disregarded as this Code
(as heretofore already noted) expressly envisions a principal-agent relationship between the insurance
company and the insurance agent in the sale of insurance to the public. For this reason, we can take
judicial notice that as a matter of Insurance Code-based business practice, an agency relationship
prevails in the insurance industry for the purpose of selling insurance. The Agreement, by its express
terms, is in accordance with the Insurance Code model when it provided for a principal-agent
relationship, and thus cannot lightly be set aside nor simply be considered as an agreement that does
not reflect the parties' true intent. This intent, incidentally, is reinforced by the system of compensation
the Agreement provides, which likewise is in accordance with the production-based sales commissions
the Insurance Code provides.

Significantly, evidence shows that Tongko's role as an insurance agent never changed during his
relationship with Manulife. If changes occurred at all, the changes did not appear to be in the nature of
their core relationship. Tongko essentially remained an agent, but moved up in this role through
Manulife's recognition that he could use other agents approved by Manulife, but operating under his
guidance and in whose commissions he had a share. For want of a better term, Tongko perhaps could be
labeled as a "lead agent" who guided under his wing other Manulife agents similarly tasked with the
selling of Manulife insurance.

Like Tongko, the evidence suggests that these other agents operated under their own agency
agreements. Thus, if Tongko's compensation scheme changed at all during his relationship with
Manulife, the change was solely for purposes of crediting him with his share in the commissions the
agents under his wing generated. As an agent who was recruiting and guiding other insurance agents,
Tongko likewise moved up in terms of the reimbursement of expenses he incurred in the course of his
lead agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil Code. Thus, Tongko received
greater reimbursements for his expenses and was even allowed to use Manulife facilities in his
interactions with the agents, all of whom were, in the strict sense, Manulife agents approved and
certified as such by Manulife with the Insurance Commission.

That Tongko assumed a leadership role but nevertheless wholly remained an agent is the inevitable
conclusion that results from the reading of the Agreement (the only agreement on record in this case)
and his continuing role thereunder as sales agent, from the perspective of the Insurance and the Civil
Codes and in light of what Tongko himself attested to as his role as Regional Sales Manager. To be sure,
this interpretation could have been contradicted if other agreements had been submitted as evidence of
the relationship between Manulife and Tongko on the latter's expanded undertakings. In the absence of
any such evidence, however, this reading - based on the available evidence and the applicable insurance
and civil law provisions - must stand, subject only to objective and evidentiary Labor Code tests on the
existence of an employer-employee relationship.

In applying such Labor Code tests, however, the enforcement of the Agreement during the course of the
parties' relationship should be noted. From 1977 until the termination of the Agreement, Tongko's
occupation was to sell Manulife's insurance policies and products. Both parties acquiesced with the
terms and conditions of the Agreement. Tongko, for his part, accepted all the benefits flowing from the
Agreement, particularly the generous commissions.

Evidence indicates that Tongko consistently clung to the view that he was an independent agent selling
Manulife insurance products since he invariably declared himself a business or self-employed person in
his income tax returns. This consistency with, and action made pursuant to the Agreement were pieces
of evidence that were never mentioned nor considered in our Decision of November 7, 2008. Had they
been considered, they could, at the very least, serve as Tongko's admissions against his interest. Strictly
speaking, Tongko's tax returns cannot but be legally significant because he certified under oath the
amount he earned as gross business income, claimed business deductions, leading to his net taxable
income. This should be evidence of the first order that cannot be brushed aside by a mere denial. Even
on a layman's view that is devoid of legal considerations, the extent of his annual income alone renders
his claimed employment status doubtful.[27]

Hand in hand with the concept of admission against interest in considering the tax returns, the concept
of estoppel - a legal and equitable concept[28] - necessarily must come into play. Tongko's previous
admissions in several years of tax returns as an independent agent, as against his belated claim that he
was all along an employee, are too diametrically opposed to be simply dismissed or ignored.
Interestingly, Justice Velasco's dissenting opinion states that Tongko was forced to declare himself a
business or self-employed person by Manulife's persistent refusal to recognize him as its employee.[29]
Regrettably, the dissent has shown no basis for this conclusion, an understandable omission since no
evidence in fact exists on this point in the records of the case. In fact, what the evidence shows is
Tongko's full conformity with, and action as, an independent agent until his relationship with Manulife
took a bad turn.

Another interesting point the dissent raised with respect to the Agreement is its conclusion that the
Agreement negated any employment relationship between Tongko and Manulife so that the
commissions he earned as a sales agent should not be considered in the determination of the
backwages and separation pay that should be given to him. This part of the dissent is correct although it
went on to twist this conclusion by asserting that Tongko had dual roles in his relationship with
Manulife; he was an agent, not an employee, in so far as he sold insurance for Manulife, but was an
employee in his capacity as a manager. Thus, the dissent concluded that Tongko's backwages should
only be with respect to his role as Manulife's manager.

The conclusion with respect to Tongko's employment as a manager is, of course, unacceptable for the
legal, factual and practical reasons discussed in this Resolution. In brief, the factual reason is grounded
on the lack of evidentiary support of the conclusion that Manulife exercised control over Tongko in the
sense understood in the Labor Code. The legal reason, partly based on the lack of factual basis, is the
erroneous legal conclusion that Manulife controlled Tongko and was thus its employee. The practical
reason, on the other hand, is the havoc that the dissent's unwarranted conclusion would cause the
insurance industry that, by the law's own design, operated along the lines of principal-agent relationship
in the sale of insurance.

c.2. Other Evidence of Alleged Control

A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing that Manulife
ever exercised means-and-manner control, even to a limited extent, over Tongko during his ascent in
Manulife's sales ladder. In 1983, Tongko was appointed unit manager. Inexplicably, Tongko never
bothered to present any evidence at all on what this designation meant. This also holds true for
Tongko's appointment as branch manager in 1990, and as Regional Sales Manager in 1996. The best
evidence of control - the agreement or directive relating to Tongko's duties and responsibilities - was
never introduced as part of the records of the case. The reality is, prior to de Dios' letter, Manulife had
practically left Tongko alone not only in doing the business of selling insurance, but also in guiding the
agents under his wing. As discussed below, the alleged directives covered by de Dios' letter, heretofore
quoted in full, were policy directions and targeted results that the company wanted Tongko and the
other sales groups to realign with in their own selling activities. This is the reality that the parties'
presented evidence consistently tells us.

What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife imposes
on its agents in the sale of insurance. The mere presentation of codes or of rules and regulations,
however, is not per se indicative of labor law control as the law and jurisprudence teach us.

As already recited above, the Insurance Code imposes obligations on both the insurance company and
its agents in the performance of their respective obligations under the Code, particularly on licenses and
their renewals, on the representations to be made to potential customers, the collection of premiums,
on the delivery of insurance policies, on the matter of compensation, and on measures to ensure ethical
business practice in the industry.

The general law on agency, on the other hand, expressly allows the principal an element of control over
the agent in a manner consistent with an agency relationship. In this sense, these control measures
cannot be read as indicative of labor law control. Foremost among these are the directives that the
principal may impose on the agent to achieve the assigned tasks, to the extent that they do not involve
the means and manner of undertaking these tasks. The law likewise obligates the agent to render an
account; in this sense, the principal may impose on the agent specific instructions on how an account
shall be made, particularly on the matter of expenses and reimbursements. To these extents, control
can be imposed through rules and regulations without intruding into the labor law concept of control for
purposes of employment.

From jurisprudence, an important lesson that the first Insular Life case teaches us is that a commitment
to abide by the rules and regulations of an insurance company does not ipso facto make the insurance
agent an employee. Neither do guidelines somehow restrictive of the insurance agent's conduct
necessarily indicate "control" as this term is defined in jurisprudence. Guidelines indicative of labor law
"control," as the first Insular Life case tells us, should not merely relate to the mutually desirable result
intended by the contractual relationship; they must have the nature of dictating the means or methods
to be employed in attaining the result, or of fixing the methodology and of binding or restricting the
party hired to the use of these means. In fact, results-wise, the principal can impose production quotas
and can determine how many agents, with specific territories, ought to be employed to achieve the
company's objectives. These are management policy decisions that the labor law element of control
cannot reach. Our ruling in these respects in the first Insular Life case was practically reiterated in
Carungcong. Thus, as will be shown more fully below, Manulife's codes of conduct,[30] all of which do
not intrude into the insurance agents' means and manner of conducting their sales and only control
them as to the desired results and Insurance Code norms, cannot be used as basis for a finding that the
labor law concept of control existed between Manulife and Tongko.

The dissent considers the imposition of administrative and managerial functions on Tongko as indicative
of labor law control; thus, Tongko as manager, but not as insurance agent, became Manulife's
employee. It drew this conclusion from what the other Manulife managers disclosed in their affidavits
(i.e., their enumerated administrative and managerial functions) and after comparing these statements
with the managers in Grepalife. The dissent compared the control exercised by Manulife over its
managers in the present case with the control the managers in the Grepalife case exercised over their
employees by presenting the following matrix:[31]

Duties of Manulife's Manager

Duties of Grepalife's Managers/Supervisors
- to render or recommend prospective agents to be licensed, trained and contracted to sell Manulife
products and who will be part of my Unit
- train understudies for the position of district manager
- to coordinate activities of the agents under [the managers'] Unit in [the agents'] daily, weekly and
monthly selling activities, making sure that their respective sales targets are met; - to conduct periodic
training sessions for [the] agents to further enhance their sales skill; and - to assist [the] agents with
their sales activities by way of joint fieldwork, consultations and one-on-one evaluation and analysis of
particular accounts
- properly account, record and document the company's funds, spot-check and audit the work of the
zone supervisors, x x x follow up the submission of weekly remittance reports of the debit agents and
zone supervisors - direct and supervise the sales activities of the debit agents under him, x x x undertake
and discharge the functions of absentee debit agents, spot-check the record of debit agents, and insure
proper documentation of sales and collections of debit agents.

Aside from these affidavits however, no other evidence exists regarding the effects of Tongko's
additional roles in Manulife's sales operations on the contractual relationship between them.

To the dissent, Tongko's administrative functions as recruiter, trainer, or supervisor of other sales agents
constituted a substantive alteration of Manulife's authority over Tongko and the performance of his end
of the relationship with Manulife. We could not deny though that Tongko remained, first and foremost,
an insurance agent, and that his additional role as Branch Manager did not lessen his main and
dominant role as insurance agent; this role continued to dominate the relations between Tongko and
Manulife even after Tongko assumed his leadership role among agents. This conclusion cannot be
denied because it proceeds from the undisputed fact that Tongko and Manulife never altered their July
1, 1977 Agreement, a distinction the present case has with the contractual changes made in the second
Insular Life case. Tongko's results-based commissions, too, attest to the primacy he gave to his role as
insurance sales agent.
The dissent apparently did not also properly analyze and appreciate the great qualitative difference that
exists between:

· the Manulife managers' role is to coordinate activities of the agents under the managers' Unit in the
agents' daily, weekly, and monthly selling activities, making sure that their respective sales targets are
met.

· the District Manager's duty in Grepalife is to properly account, record, and document the company's
funds, spot-check and audit the work of the zone supervisors, conserve the company's business in the
district through "reinstatements," follow up the submission of weekly remittance reports of the debit
agents and zone supervisors, preserve company property in good condition, train understudies for the
position of district managers, and maintain his quota of sales (the failure of which is a ground for
termination).

· the Zone Supervisor's (also in Grepalife) has the duty to direct and supervise the sales activities of the
debit agents under him, conserve company property through "reinstatements," undertake and
discharge the functions of absentee debit agents, spot-check the records of debit agents, and insure
proper documentation of sales and collections by the debit agents.

These job contents are worlds apart in terms of "control." In Grepalife, the details of how to do the job
are specified and pre-determined; in the present case, the operative words are the "sales target," the
methodology being left undefined except to the extent of being "coordinative." To be sure, a
"coordinative" standard for a manager cannot be indicative of control; the standard only essentially
describes what a Branch Manager is - the person in the lead who orchestrates activities within the
group. To "coordinate," and thereby to lead and to orchestrate, is not so much a matter of control by
Manulife; it is simply a statement of a branch manager's role in relation with his agents from the point
of view of Manulife whose business Tongko's sales group carries.

A disturbing note, with respect to the presented affidavits and Tongko's alleged administrative
functions, is the selective citation of the portions supportive of an employment relationship and the
consequent omission of portions leading to the contrary conclusion. For example, the following
portions of the affidavit of Regional Sales Manager John Chua, with counterparts in the other affidavits,
were not brought out in the Decision of November 7, 2008, while the other portions suggesting labor
law control were highlighted. Specifically, the following portions of the affidavits were not brought
out:[32]

1.a. I have no fixed wages or salary since my services are compensated by way of commissions based on
the computed premiums paid in full on the policies obtained thereat;

1.b. I have no fixed working hours and employ my own method in soliticing insurance at a time and
place I see fit;
1.c. I have my own assistant and messenger who handle my daily work load;

1.d. I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance;

x x x x

6. I have my own staff that handles the day to day operations of my office;

7. My staff are my own employees and received salaries from me;

x x x x

9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as income by
a self-employed individual or professional with a ten (10) percent creditable withholding tax. I also
remit monthly for professionals.

These statements, read with the above comparative analysis of the Manulife and the Grepalife cases,
would have readily yielded the conclusion that no employer-employee relationship existed between
Manulife and Tongko.

Even de Dios' letter is not determinative of control as it indicates the least amount of intrusion into
Tongko's exercise of his role as manager in guiding the sales agents. Strictly viewed, de Dios' directives
are merely operational guidelines on how Tongko could align his operations with Manulife's re-directed
goal of being a "big league player." The method is to expand coverage through the use of more agents.
This requirement for the recruitment of more agents is not a means-and-method control as it relates,
more than anything else, and is directly relevant, to Manulife's objective of expanded business
operations through the use of a bigger sales force whose members are all on a principal-agent
relationship. An important point to note here is that Tongko was not supervising regular full-time
employees of Manulife engaged in the running of the insurance business; Tongko was effectively guiding
his corps of sales agents, who are bound to Manulife through the same Agreement that he had with
Manulife, all the while sharing in these agents' commissions through his overrides. This is the lead agent
concept mentioned above for want of a more appropriate term, since the title of Branch Manager used
by the parties is really a misnomer given that what is involved is not a specific regular branch of the
company but a corps of non-employed agents, defined in terms of covered territory, through which the
company sells insurance. Still another point to consider is that Tongko was not even setting policies in
the way a regular company manager does; company aims and objectives were simply relayed to him
with suggestions on how these objectives can be reached through the expansion of a non-employee
sales force.

Interestingly, a large part of de Dios' letter focused on income, which Manulife demonstrated, in
Tongko's case, to be unaffected by the new goal and direction the company had set. Income in
insurance agency, of course, is dependent on results, not on the means and manner of selling - a matter
for Tongko and his agents to determine and an area into which Manulife had not waded. Undeniably, de
Dios' letter contained a directive to secure a competent assistant at Tongko's own expense. While
couched in terms of a directive, it cannot strictly be understood as an intrusion into Tongko's method of
operating and supervising the group of agents within his delineated territory. More than anything else,
the "directive" was a signal to Tongko that his results were unsatisfactory, and was a suggestion on how
Tongko's perceived weakness in delivering results could be remedied. It was a solution, with an eye on
results, for a consistently underperforming group; its obvious intent was to save Tongko from the result
that he then failed to grasp - that he could lose even his own status as an agent, as he in fact eventually
did.

The present case must be distinguished from the second Insular Life case that showed the hallmarks of
an employer-employee relationship in the management system established. These were: exclusivity of
service, control of assignments and removal of agents under the private respondent's unit, and
furnishing of company facilities and materials as well as capital described as Unit Development Fund. All
these are obviously absent in the present case. If there is a commonality in these cases, it is in the
collection of premiums which is a basic authority that can be delegated to agents under the Insurance
Code.

As previously discussed, what simply happened in Tongko's case was the grant of an expanded sales
agency role that recognized him as leader amongst agents in an area that Manulife defined. Whether
this consequently resulted in the establishment of an employment relationship can be answered by
concrete evidence that corresponds to the following questions:

· as lead agent, what were Tongko's specific functions and the terms of his additional engagement;

· was he paid additional compensation as a so-called Area Sales Manager, apart from the commissions
he received from the insurance sales he generated;

· what can be Manulife's basis to terminate his status as lead agent;

· can Manulife terminate his role as lead agent separately from his agency contract; and

· to what extent does Manulife control the means and methods of Tongko's role as lead agent?

The answers to these questions may, to some extent, be deduced from the evidence at hand, as partly
discussed above. But strictly speaking, the questions cannot definitively and concretely be answered
through the evidence on record. The concrete evidence required to settle these questions is simply not
there, since only the Agreement and the anecdotal affidavits have been marked and submitted as
evidence.
Given this anemic state of the evidence, particularly on the requisite confluence of the factors
determinative of the existence of employer-employee relationship, the Court cannot conclusively find
that the relationship exists in the present case, even if such relationship only refers to Tongko's
additional functions. While a rough deduction can be made, the answer will not be fully supported by
the substantial evidence needed.

Under this legal situation, the only conclusion that can be made is that the absence of evidence showing
Manulife's control over Tongko's contractual duties points to the absence of any employer-employee
relationship between Tongko and Manulife. In the context of the established evidence, Tongko
remained an agent all along; although his subsequent duties made him a lead agent with leadership
role, he was nevertheless only an agent whose basic contract yields no evidence of means-and-manner
control.

This conclusion renders unnecessary any further discussion of the question of whether an agent may
simultaneously assume conflicting dual personalities. But to set the record straight, the concept of a
single person having the dual role of agent and employee while doing the same task is a novel one in our
jurisprudence, which must be viewed with caution especially when it is devoid of any jurisprudential
support or precedent. The quoted portions in Justice Carpio-Morales' dissent,[33] borrowed from both
the Grepalife and the second Insular Life cases, to support the duality approach of the Decision of
November 7, 2008, are regrettably far removed from their context - i.e., the cases' factual situations, the
issues they decided and the totality of the rulings in these cases - and cannot yield the conclusions that
the dissenting opinions drew.

The Grepalife case dealt with the sole issue of whether the Ruiz brothers' appointment as zone
supervisor and district manager made them employees of Grepalife. Indeed, because of the presence of
the element of control in their contract of engagements, they were considered Grepalife's employees.
This did not mean, however, that they were simultaneously considered agents as well as employees of
Grepalife; the Court's ruling never implied that this situation existed insofar as the Ruiz brothers were
concerned. The Court's statement - the Insurance Code may govern the licensing requirements and
other particular duties of insurance agents, but it does not bar the application of the Labor Code with
regard to labor standards and labor relations - simply means that when an insurance company has
exercised control over its agents so as to make them their employees, the relationship between the
parties, which was otherwise one for agency governed by the Civil Code and the Insurance Code, will
now be governed by the Labor Code. The reason for this is simple - the contract of agency has been
transformed into an employer-employee relationship.

The second Insular Life case, on the other hand, involved the issue of whether the labor bodies have
jurisdiction over an illegal termination dispute involving parties who had two contracts - first, an original
contract (agency contract), which was undoubtedly one for agency, and another subsequent contract
that in turn designated the agent acting unit manager (a management contract). Both the Insular Life
and the labor arbiter were one in the position that both were agency contracts. The Court disagreed
with this conclusion and held that insofar as the management contract is concerned, the labor arbiter
has jurisdiction. It is in this light that we remanded the case to the labor arbiter for further proceedings.
We never said in this case though that the insurance agent had effectively assumed dual personalities
for the simple reason that the agency contract has been effectively superseded by the management
contract. The management contract provided that if the appointment was terminated for any reason
other than for cause, the acting unit manager would be reverted to agent status and assigned to any
unit.

The dissent pointed out, as an argument to support its employment relationship conclusion, that any
doubt in the existence of an employer-employee relationship should be resolved in favor of the
existence of the relationship.[34] This observation, apparently drawn from Article 4 of the Labor Code,
is misplaced, as Article 4 applies only when a doubt exists in the "implementation and application" of
the Labor Code and its implementing rules; it does not apply where no doubt exists as in a situation
where the claimant clearly failed to substantiate his claim of employment relationship by the quantum
of evidence the Labor Code requires.

On the dissent's last point regarding the lack of jurisprudential value of our November 7, 2008 Decision,
suffice it to state that, as discussed above, the Decision was not supported by the evidence adduced and
was not in accordance with controlling jurisprudence. It should, therefore, be reconsidered and
abandoned, but not in the manner the dissent suggests as the dissenting opinions are as factually and as
legally erroneous as the Decision under reconsideration.

In light of these conclusions, the sufficiency of Tongko's failure to comply with the guidelines of de Dios'
letter, as a ground for termination of Tongko's agency, is a matter that the labor tribunals cannot rule
upon in the absence of an employer-employee relationship. Jurisdiction over the matter belongs to the
courts applying the laws of insurance, agency and contracts.

WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November 7, 2008,
GRANT Manulife's motion for reconsideration and, accordingly, DISMISS Tongko's petition. No costs.

SO ORDERED.

GREGORIO V. TONGKO v. THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A.
VERGEL DE DIOS (2011)

FACTS: Taking from the November 2008 decision, the facts are as follows:

Manufacturers Life Insurance, Co. is a domestic corporation engaged in life insurance business. De Dios
was its President and Chief Executive Officer. Petitioner Tongko started his relationship with Manulife in
1977 by virtue of a Career Agent's Agreement.

Pertinent provisions of the agreement state that:

It is understood and agreed that the Agent is an independent contractor and nothing contained herein
shall be construed or interpreted as creating an employer-employee relationship between the Company
and the Agent.

a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other
products offered by the Company, and collect, in exchange for provisional receipts issued by the Agent,
money due or to become due to the Company in respect of applications or policies obtained by or
through the Agent or from policyholders allotted by the Company to the Agent for servicing, subject to
subsequent confirmation of receipt of payment by the Company as evidenced by an Official Receipt
issued by the Company directly to the policyholder.

b) The Company may terminate this Agreement for any breach or violation of any of the provisions
hereof by the Agent by giving written notice to the Agent within fifteen (15) days from the time of the
discovery of the breach. No waiver, extinguishment, abandonment, withdrawal or cancellation of the
right to terminate this Agreement by the Company shall be construed for any previous failure to
exercise its right under any provision of this Agreement.

c) Either of the parties hereto may likewise terminate his Agreement at any time without cause, by
giving to the other party fifteen (15) days notice in writing.

Sometime in 2001, De Dios addressed a letter to Tongko, then one of the Metro North Managers,
regarding meetings wherein De Dios found Tongko's views and comments to be unaligned with the
directions the company was taking. De Dios also expressed his concern regarding the Metro North
Managers' interpretation of the company's goals. He maintains that Tongko's allegations are unfounded.
Some allegations state that some Managers are unhappy with their earnings, that they're earning less
than what they deserve and that these are the reasons why Tonko's division is unable to meet agency
development objectives. However, not a single Manager came forth to confirm these allegations. Finally,
De Dios related his worries about Tongko's inability to push for company development and growth.

De Dios subsequently sent Tongko a letter of termination in accordance with Tongko's Agents Contract.
Tongko filed a complaint with the NLRC against Manulife for illegal dismissal, alleging that he had an
employer-employee relationship with De Dios instead of a revocable agency by pointing out that the
latter exercised control over him through directives regarding how to manage his area of responsibility
and setting objectives for him relating to the business. Tongko also claimed that his dismissal was
without basis and he was not afforded due process. The NLRC ruled that there was an employer-
employee relationship as evidenced by De Dios's letter which contained the manner and means by
which Tongko should do his work. The NLRC ruled in favor of Tongko, affirming the existence of the
employer-employee relationship.

The Court of Appeals, however, set aside the NLRC's ruling. It applied the four-fold test for determining
control and found the elements in this case to be lacking, basing its decision on the same facts used by
the NLRC. It found that Manulife did not exert control over Tongko, there was no employer-employee
relationship and thus the NLRC did not have jurisdiction over the case.

The Supreme Court reversed the ruling of the Court of Appeals and ruled in favor of Tongko. However,
the Supreme Court issued another Resolution dated June 29, 2010, reversing its decision. Tongko filed a
motion for reconsideration, which is now the subject of the instant case.

ISSUE: Did the Supreme Court err in issuing the June 29, 2010 resolution, reversing its earlier decision
that an employer-employee relationship existed?

Saturday, May 27, 2017

TONGKO V. THE MANUFACTURERS LIFE (G.R. NO. 167622; JANUARY 25, 2011)
CASE DIGEST: GREGORIO V. TONGKO v. THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and
RENATO A. VERGEL DE DIOS

FACTS: Taking from the November 2008 decision, the facts are as follows:

Manufacturers Life Insurance, Co. is a domestic corporation engaged in life insurance business. De Dios
was its President and Chief Executive Officer. Petitioner Tongko started his relationship with Manulife in
1977 by virtue of a Career Agent's Agreement.

Pertinent provisions of the agreement state that:

It is understood and agreed that the Agent is an independent contractor and nothing contained herein
shall be construed or interpreted as creating an employer-employee relationship between the Company
and the Agent.

a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other
products offered by the Company, and collect, in exchange for provisional receipts issued by the Agent,
money due or to become due to the Company in respect of applications or policies obtained by or
through the Agent or from policyholders allotted by the Company to the Agent for servicing, subject to
subsequent confirmation of receipt of payment by the Company as evidenced by an Official Receipt
issued by the Company directly to the policyholder.

b) The Company may terminate this Agreement for any breach or violation of any of the provisions
hereof by the Agent by giving written notice to the Agent within fifteen (15) days from the time of the
discovery of the breach. No waiver, extinguishment, abandonment, withdrawal or cancellation of the
right to terminate this Agreement by the Company shall be construed for any previous failure to
exercise its right under any provision of this Agreement.
c) Either of the parties hereto may likewise terminate his Agreement at any time without cause, by
giving to the other party fifteen (15) days notice in writing.

Sometime in 2001, De Dios addressed a letter to Tongko, then one of the Metro North Managers,
regarding meetings wherein De Dios found Tongko's views and comments to be unaligned with the
directions the company was taking. De Dios also expressed his concern regarding the Metro North
Managers' interpretation of the company's goals. He maintains that Tongko's allegations are unfounded.
Some allegations state that some Managers are unhappy with their earnings, that they're earning less
than what they deserve and that these are the reasons why Tonko's division is unable to meet agency
development objectives. However, not a single Manager came forth to confirm these allegations. Finally,
De Dios related his worries about Tongko's inability to push for company development and growth.

De Dios subsequently sent Tongko a letter of termination in accordance with Tongko's Agents Contract.
Tongko filed a complaint with the NLRC against Manulife for illegal dismissal, alleging that he had an
employer-employee relationship with De Dios instead of a revocable agency by pointing out that the
latter exercised control over him through directives regarding how to manage his area of responsibility
and setting objectives for him relating to the business. Tongko also claimed that his dismissal was
without basis and he was not afforded due process. The NLRC ruled that there was an employer-
employee relationship as evidenced by De Dios's letter which contained the manner and means by
which Tongko should do his work. The NLRC ruled in favor of Tongko, affirming the existence of the
employer-employee relationship.

The Court of Appeals, however, set aside the NLRC's ruling. It applied the four-fold test for determining
control and found the elements in this case to be lacking, basing its decision on the same facts used by
the NLRC. It found that Manulife did not exert control over Tongko, there was no employer-employee
relationship and thus the NLRC did not have jurisdiction over the case.

The Supreme Court reversed the ruling of the Court of Appeals and ruled in favor of Tongko. However,
the Supreme Court issued another Resolution dated June 29, 2010, reversing its decision. Tongko filed a
motion for reconsideration, which is now the subject of the instant case.

ISSUE: Did the Supreme Court err in issuing the June 29, 2010 resolution, reversing its earlier decision
that an employer-employee relationship existed?

HELD: The Supreme Court finds no reason to reverse the June 29, 2010 decision. Control over the
performance of the task of one providing service both with respect to the means and manner, and the
results of the service is the primary element in determining whether an employment relationship exists.
The Supreme Court ruled petitioners Motion against his favor since he failed to show that the control
Manulife exercised over him was the control required to exist in an employer-employee relationship;
Manulifes control fell short of this norm and carried only the characteristic of the relationship between
an insurance company and its agents, as defined by the Insurance Code and by the law of agency under
the Civil Code.

In the Supreme Courts June 29, 2010 Resolution, they noted that there are built-in elements of control
specific to an insurance agency, which do not amount to the elements of control that characterize an
employment relationship governed by the Labor Code.The Insurance Code provides definite parameters
in the way an agent negotiates for the sale of the companys insurance products, his collection activities
and his delivery of the insurance contract or policy. They do not reach the level of control into the
means and manner of doing an assigned task that invariably characterizes an employment relationship
as defined by labor law.

To reiterate, guidelines indicative of labor law "control" do not merely relate to the mutually desirable
result intended by the contractual relationship; they must have the nature of dictating the means and
methods to be employed in attaining the result. Tested by this norm, Manulifes instructions regarding
the objectives and sales targets, in connection with the training and engagement of other agents, are
among the directives that the principal may impose on the agent to achieve the assigned tasks.They are
targeted results that Manulife wishes to attain through its agents. Manulifes codes of conduct, likewise,
do not necessarily intrude into the insurance agents means and manner of conducting their sales. Codes
of conduct are norms or standards of behavior rather than employer directives into how specific tasks
are to be done.

In sum, the Supreme Court found absolutely no evidence of labor law control. DENIED.
G.R. No. 157802 October 13, 2010

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER, CATHERINE

SPENCER, AND ALEX MANCILLA, Petitioners, vs.RICARDO R. COROS, Respondent.

DECISION

BERSAMIN, J.:

This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is cognizable
by the Labor Arbiter (LA) or by the Regional Trial Court (RTC). The determination of whether the
dismissed officer was a regular employee or a corporate officer unravels the conundrum. In the case of
the regular employee, the LA has jurisdiction; otherwise, the RTC exercises the legal authority to
adjudicate.

In this appeal via petition for review on certiorari, the petitioners challenge the decision dated
September 13, 20021 and the resolution dated April 2, 2003,2 both promulgated in C.A.-G.R. SP No.
65714 entitled Matling Industrial and Commercial Corporation, et al. v. Ricardo R. Coros and National
Labor Relations Commission, whereby by the Court of Appeals (CA) sustained the ruling of the National
Labor Relations Commission (NLRC) to the effect that the LA had jurisdiction because the respondent
was not a corporate officer of petitioner Matling Industrial and Commercial Corporation (Matling).

Antecedents

After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed
on August 10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and some of
its corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City.3

The petitioners moved to dismiss the complaint,4 raising the ground, among others, that the complaint
pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due to the controversy
being intra-corporate inasmuch as the respondent was a member of Matling’s Board of Directors aside
from being its Vice-President for Finance and Administration prior to his termination.

The respondent opposed the petitioners’ motion to dismiss,5 insisting that his status as a member of
Matling’s Board of Directors was doubtful, considering that he had not been formally elected as such;
that he did not own a single share of stock in Matling, considering that he had been made to sign in
blank an undated indorsement of the certificate of stock he had been given in 1992; that Matling had
taken back and retained the certificate of stock in its custody; and that even assuming that he had been
a Director of Matling, he had been removed as the Vice President for Finance and Administration, not as
a Director, a fact that the notice of his termination dated April 10, 2000 showed.
On October 16, 2000, the LA granted the petitioners’ motion to dismiss,6 ruling that the respondent was
a corporate officer because he was occupying the position of Vice President for Finance and
Administration and at the same time was a Member of the Board of Directors of Matling; and that,
consequently, his removal was a corporate act of Matling and the controversy resulting from such
removal was under the jurisdiction of the SEC, pursuant to Section 5, paragraph (c) of Presidential
Decree No. 902.

Ruling of the NLRC

The respondent appealed to the NLRC,7 urging that:

THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING APPELLEE’S
MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE HIS OPPOSITION
THERETO THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE PROCESS.

II

THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE FOR LACK OF
JURISDICTION.

On March 13, 2001, the NLRC set aside the dismissal, concluding that the respondent’s complaint for
illegal dismissal was properly cognizable by the LA, not by the SEC, because he was not a corporate
officer by virtue of his position in Matling, albeit high ranking and managerial, not being among the
positions listed in Matling’s Constitution and By-Laws.8 The NLRC disposed thuswise:

WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and holding that the
case at bench does not involve any intracorporate matter. Hence, jurisdiction to hear and act on said
case is vested with the Labor Arbiter, not the SEC, considering that the position of Vice-President for
Finance and Administration being held by complainant-appellant is not listed as among respondent's
corporate officers.

Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in order that
the Labor Arbiter below could act on the case at bench, hear both parties, receive their respective
evidence and position papers fully observing the requirements of due process, and resolve the same
with reasonable dispatch.

SO ORDERED.

The petitioners sought reconsideration,9 reiterating that the respondent, being a member of the Board
of Directors, was a corporate officer whose removal was not within the LA’s jurisdiction.
The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified
machine copies of Matling’s Amended Articles of Incorporation and By Laws to prove that the President
of Matling was thereby granted "full power to create new offices and appoint the officers thereto, and
the minutes of special meeting held on June 7, 1999 by Matling’s Board of Directors to prove that the
respondent was, indeed, a Member of the Board of Directors.10

Nonetheless, on April 30, 2001, the NLRC denied the petitioners’ motion for reconsideration.11

Ruling of the CA

The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R. No. SP
65714, contending that the NLRC committed grave abuse of discretion amounting to lack of jurisdiction
in reversing the correct decision of the LA.

In its assailed decision promulgated on September 13, 2002,12 the CA dismissed the petition for
certiorari, explaining:

For a position to be considered as a corporate office, or, for that matter, for one to be considered as a
corporate officer, the position must, if not listed in the by-laws, have been created by the corporation's
board of directors, and the occupant thereof appointed or elected by the same board of directors or
stockholders. This is the implication of the ruling in Tabang v. National Labor Relations Commission,
which reads:

"The president, vice president, secretary and treasurer are commonly regarded as the principal or
executive officers of a corporation, and modern corporation statutes usually designate them as the
officers of the corporation. However, other offices are sometimes created by the charter or by-laws of a
corporation, or the board of directors may be empowered under the by-laws of a corporation to create
additional offices as may be necessary.

It has been held that an 'office' is created by the charter of the corporation and the officer is elected by
the directors or stockholders. On the other hand, an 'employee' usually occupies no office and generally
is employed not by action of the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid to such employee."

This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations Commission
and De Rossi v. National Labor Relations Commission.

The position of vice-president for administration and finance, which Coros used to hold in the
corporation, was not created by the corporation’s board of directors but only by its president or
executive vice-president pursuant to the by-laws of the corporation. Moreover, Coros’ appointment to
said position was not made through any act of the board of directors or stockholders of the corporation.
Consequently, the position to which Coros was appointed and later on removed from, is not a corporate
office despite its nomenclature, but an ordinary office in the corporation.

Coros’ alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor arbiter.

WHEREFORE, the petition for certiorari is hereby DISMISSED.

SO ORDERED.

The CA denied the petitioners’ motion for reconsideration on April 2, 2003.13

Issue

Thus, the petitioners are now before the Court for a review on certiorari, positing that the respondent
was a stockholder/member of the Matling’s Board of Directors as well as its Vice President for Finance
and Administration; and that the CA consequently erred in holding that the LA had jurisdiction.

The decisive issue is whether the respondent was a corporate officer of Matling or not. The resolution of
the issue determines whether the LA or the RTC had jurisdiction over his complaint for illegal dismissal.

Ruling

The appeal fails.

The Law on Jurisdiction in Dismissal Cases

As a rule, the illegal dismissal of an officer or other employee of a private employer is properly
cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which provides
as follows:

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

1. Unfair labor practice cases;

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

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

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

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all
other claims arising from employer-employee relations, including those of persons in domestic or
household service, involving an amount exceeding five thousand pesos (₱5,000.00) regardless of
whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining agreements and
those arising from the interpretation or enforcement of company personnel policies shall be disposed of
by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may
be provided in said agreements. (As amended by Section 9, Republic Act No. 6715, March 21, 1989).

Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls
under the jurisdiction of the Securities and Exchange Commission (SEC), because the controversy arises
out of intra-corporate or partnership relations between and among stockholders, members, or
associates, or between any or all of them and the corporation, partnership, or association of which they
are stockholders, members, or associates, respectively; and between such corporation, partnership, or
association and the State insofar as the controversy concerns their individual franchise or right to exist
as such entity; or because the controversy involves the election or appointment of a director, trustee,
officer, or manager of such corporation, partnership, or association.14 Such controversy, among others,
is known as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No. 8799,15 otherwise known as The
Securities Regulation Code, the SEC’s jurisdiction over all intra-corporate disputes was transferred to the
RTC, pursuant to Section 5.2 of RA No. 8799, to wit:

5.2. The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court:
Provided, that the Supreme Court in the exercise of its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes submitted for final resolution which should be resolved
within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.
Considering that the respondent’s complaint for illegal dismissal was commenced on August 10, 2000, it
might come under the coverage of Section 5.2 of RA No. 8799, supra, should it turn out that the
respondent was a corporate, not a regular, officer of Matling.

II

Was the Respondent’s Position of Vice President

for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondent’s position as Vice President for Finance and
Administration was a corporate office. If it was, his dismissal by the Board of Directors rendered the
matter an intra-corporate dispute cognizable by the RTC pursuant to RA No. 8799.

The petitioners contend that the position of Vice President for Finance and Administration was a
corporate office, having been created by Matling’s President pursuant to By-Law No. V, as amended,16
to wit:

BY LAW NO. V
Officers

The President shall be the executive head of the corporation; shall preside over the meetings of the
stockholders and directors; shall countersign all certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors; shall have full power to hire and discharge any or
all employees of the corporation; shall have full power to create new offices and to appoint the officers
thereto as he may deem proper and necessary in the operations of the corporation and as the progress
of the business and welfare of the corporation may demand; shall make reports to the directors and
stockholders and perform all such other duties and functions as are incident to his office or are properly
required of him by the Board of Directors. In case of the absence or disability of the President, the
Executive Vice President shall have the power to exercise his functions.

The petitioners argue that the power to create corporate offices and to appoint the individuals to
assume the offices was delegated by Matling’s Board of Directors to its President through By-Law No. V,
as amended; and that any office the President created, like the position of the respondent, was as valid
and effective a creation as that made by the Board of Directors, making the office a corporate office. In
justification, they cite Tabang v. National Labor Relations Commission,17 which held that "other offices
are sometimes created by the charter or by-laws of a corporation, or the board of directors may be
empowered under the by-laws of a corporation to create additional officers as may be necessary."

The respondent counters that Matling’s By-Laws did not list his position as Vice President for Finance
and Administration as one of the corporate offices; that Matling’s By-Law No. III listed only four
corporate officers, namely: President, Executive Vice President, Secretary, and Treasurer; 18 that the
corporate offices contemplated in the phrase "and such other officers as may be provided for in the by-
laws" found in Section 25 of the Corporation Code should be clearly and expressly stated in the By-Laws;
that the fact that Matling’s By-Law No. III dealt with Directors & Officers while its By-Law No. V dealt
with Officers proved that there was a differentiation between the officers mentioned in the two
provisions, with those classified under By-Law No. V being ordinary or non-corporate officers; and that
the officer, to be considered as a corporate officer, must be elected by the Board of Directors or the
stockholders, for the President could only appoint an employee to a position pursuant to By-Law No. V.

We agree with respondent.

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a corporation
must formally organize by the election of a president, who shall be a director, a treasurer who may or
may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other
officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently
by the same person, except that no one shall act as president and secretary or as president and
treasurer at the same time.

The directors or trustees and officers to be elected shall perform the duties enjoined on them by law
and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a
greater majority, a majority of the number of directors or trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate business, and every decision of
at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be
valid as a corporate act, except for the election of officers which shall require the vote of a majority of
all the members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be
considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling
provision is not enough to make a position a corporate office. Guerrea v. Lezama,19 the first ruling on
the matter, held that the only officers of a corporation were those given that character either by the
Corporation Code or by the By-Laws; the rest of the corporate officers could be considered only as
employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc. v. King:20

An "office" is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and generally is employed not by the
action of the directors or stockholders but by the managing officer of the corporation who also
determines the compensation to be paid to such employee.
In this case, respondent was appointed vice president for nationwide expansion by Malonzo,
petitioner’'s general manager, not by the board of directors of petitioner. It was also Malonzo who
determined the compensation package of respondent. Thus, respondent was an employee, not a
"corporate officer." The CA was therefore correct in ruling that jurisdiction over the case was properly
with the NLRC, not the SEC (now the RTC).

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states
that the corporate officers are the President, Secretary, Treasurer and such other officers as may be
provided for in the By-Laws. Accordingly, the corporate officers in the context of PD No. 902-A are
exclusively those who are given that character either by the Corporation Code or by the corporation’s
By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the
constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By-
Laws of an enabling clause on the creation of just any corporate officer position.

It is relevant to state in this connection that the SEC, the primary agency administering the Corporation
Code, adopted a similar interpretation of Section 25 of the Corporation Code in its Opinion dated
November 25, 1993,21 to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate
officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no
power to create other Offices without amending first the corporate By-laws. However, the Board may
create appointive positions other than the positions of corporate Officers, but the persons occupying
such positions are not considered as corporate officers within the meaning of Section 25 of the
Corporation Code and are not empowered to exercise the functions of the corporate Officers, except
those functions lawfully delegated to them. Their functions and duties are to be determined by the
Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate
office to the President, in light of Section 25 of the Corporation Code requiring the Board of Directors
itself to elect the corporate officers. Verily, the power to elect the corporate officers was a discretionary
power that the law exclusively vested in the Board of Directors, and could not be delegated to
subordinate officers or agents.22 The office of Vice President for Finance and Administration created by
Matling’s President pursuant to By Law No. V was an ordinary, not a corporate, office.

To emphasize, the power to create new offices and the power to appoint the officers to occupy them
vested by By-Law No. V merely allowed Matling’s President to create non-corporate offices to be
occupied by ordinary employees of Matling. Such powers were incidental to the President’s duties as
the executive head of Matling to assist him in the daily operations of the business.
The petitioners’ reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that
offices not expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling
provision were also considered corporate offices, was plainly obiter dictum due to the position subject
of the controversy being mentioned in the By-Laws. Thus, the Court held therein that the position was a
corporate office, and that the determination of the rights and liabilities arising from the ouster from the
position was an intra-corporate controversy within the SEC’s jurisdiction.

In Nacpil v. Intercontinental Broadcasting Corporation,23 which may be the more appropriate ruling, the
position subject of the controversy was not expressly mentioned in the By-Laws, but was created
pursuant to a By-Law enabling provision authorizing the Board of Directors to create other offices that
the Board of Directors might see fit to create. The Court held there that the position was a corporate
office, relying on the obiter dictum in Tabang.

Considering that the observations earlier made herein show that the soundness of their dicta is not
unassailable, Tabang and Nacpil should no longer be controlling.

III

Did Respondent’s Status as Director and

Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and
relying on Paguio v. National Labor Relations Commission24 and Ongkingko v. National Labor Relations
Commission,25 the NLRC had no jurisdiction over his complaint, considering that any case for illegal
dismissal brought by a stockholder/officer against the corporation was an intra-corporate matter that
must fall under the jurisdiction of the SEC conformably with the context of PD No. 902-A.

The petitioners’ insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings, the complainants
were undeniably corporate officers due to their positions being expressly mentioned in the By-Laws,
aside from the fact that both of them had been duly elected by the respective Boards of Directors. But
the herein respondent’s position of Vice President for Finance and Administration was not expressly
mentioned in the By-Laws; neither was the position of Vice President for Finance and Administration
created by Matling’s Board of Directors. Lastly, the President, not the Board of Directors, appointed him.

True it is that the Court pronounced in Tabang as follows:

Also, an intra-corporate controversy is one which arises between a stockholder and the corporation.
There is no distinction, qualification or any exemption whatsoever. The provision is broad and covers all
kinds of controversies between stockholders and corporations.26
However, the Tabang pronouncement is not controlling because it is too sweeping and does not accord
with reason, justice, and fair play. In order to determine whether a dispute constitutes an intra-
corporate controversy or not, the Court considers two elements instead, namely: (a) the status or
relationship of the parties; and (b) the nature of the question that is the subject of their controversy.
This was our thrust in Viray v. Court of Appeals:27

The establishment of any of the relationships mentioned above will not necessarily always confer
jurisdiction over the dispute on the SEC to the exclusion of regular courts. The statement made in one
case that the rule admits of no exceptions or distinctions is not that absolute. The better policy in
determining which body has jurisdiction over a case would be to consider not only the status or
relationship of the parties but also the nature of the question that is the subject of their controversy.

Not every conflict between a corporation and its stockholders involves corporate matters that only the
SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. If, for example, a person
leases an apartment owned by a corporation of which he is a stockholder, there should be no question
that a complaint for his ejectment for non-payment of rentals would still come under the jurisdiction of
the regular courts and not of the SEC. By the same token, if one person injures another in a vehicular
accident, the complaint for damages filed by the victim will not come under the jurisdiction of the SEC
simply because of the happenstance that both parties are stockholders of the same corporation. A
contrary interpretation would dissipate the powers of the regular courts and distort the meaning and
intent of PD No. 902-A.

In another case, Mainland Construction Co., Inc. v. Movilla,28 the Court reiterated these determinants
thuswise:

In order that the SEC (now the regular courts) can take cognizance of a case, the controversy must
pertain to any of the following relationships:

a) between the corporation, partnership or association and the public;

b) between the corporation, partnership or association and its stockholders, partners, members or
officers;

c) between the corporation, partnership or association and the State as far as its franchise, permit or
license to operate is concerned; and

d) among the stockholders, partners or associates themselves.

The fact that the parties involved in the controversy are all stockholders or that the parties involved are
the stockholders and the corporation does not necessarily place the dispute within the ambit of the
jurisdiction of SEC. The better policy to be followed in determining jurisdiction over a case should be to
consider concurrent factors such as the status or relationship of the parties or the nature of the
question that is the subject of their controversy. In the absence of any one of these factors, the SEC will
not have jurisdiction. Furthermore, it does not necessarily follow that every conflict between the
corporation and its stockholders would involve such corporate matters as only the SEC can resolve in the
exercise of its adjudicatory or quasi-judicial powers.29

The criteria for distinguishing between corporate officers who may be ousted from office at will, on one
hand, and ordinary corporate employees who may only be terminated for just cause, on the other hand,
do not depend on the nature of the services performed, but on the manner of creation of the office. In
the respondent’s case, he was supposedly at once an employee, a stockholder, and a Director of
Matling. The circumstances surrounding his appointment to office must be fully considered to
determine whether the dismissal constituted an intra-corporate controversy or a labor termination
dispute. We must also consider whether his status as Director and stockholder had any relation at all to
his appointment and subsequent dismissal as Vice President for Finance and Administration.

Obviously enough, the respondent was not appointed as Vice President for Finance and Administration
because of his being a stockholder or Director of Matling. He had started working for Matling on
September 8, 1966, and had been employed continuously for 33 years until his termination on April 17,
2000, first as a bookkeeper, and his climb in 1987 to his last position as Vice President for Finance and
Administration had been gradual but steady, as the following sequence indicates:

1966 – Bookkeeper

1968 – Senior Accountant

1969 – Chief Accountant

1972 – Office Supervisor

1973 – Assistant Treasurer

1978 – Special Assistant for Finance

1980 – Assistant Comptroller

1983 – Finance and Administrative Manager

1985 – Asst. Vice President for Finance and Administration

1987 to April 17, 2000 – Vice President for Finance and Administration
Even though he might have become a stockholder of Matling in 1992, his promotion to the position of
Vice President for Finance and Administration in 1987 was by virtue of the length of quality service he
had rendered as an employee of Matling. His subsequent acquisition of the status of
Director/stockholder had no relation to his promotion. Besides, his status of Director/stockholder was
unaffected by his dismissal from employment as Vice President for Finance and Administration.1avvphi1

In Prudential Bank and Trust Company v. Reyes,30 a case involving a lady bank manager who had risen
from the ranks but was dismissed, the Court held that her complaint for illegal dismissal was correctly
brought to the NLRC, because she was deemed a regular employee of the bank. The Court observed
thus:

It appears that private respondent was appointed Accounting Clerk by the Bank on July 14, 1963. From
that position she rose to become supervisor. Then in 1982, she was appointed Assistant Vice-President
which she occupied until her illegal dismissal on July 19, 1991. The bank’s contention that she merely
holds an elective position and that in effect she is not a regular employee is belied by the nature of her
work and her length of service with the Bank. As earlier stated, she rose from the ranks and has been
employed with the Bank since 1963 until the termination of her employment in 1991. As Assistant Vice
President of the Foreign Department of the Bank, she is tasked, among others, to collect checks drawn
against overseas banks payable in foreign currency and to ensure the collection of foreign bills or checks
purchased, including the signing of transmittal letters covering the same. It has been stated that "the
primary standard of determining regular employment is the reasonable connection between the
particular activity performed by the employee in relation to the usual trade or business of the employer.
Additionally, "an employee is regular because of the nature of work and the length of service, not
because of the mode or even the reason for hiring them." As Assistant Vice-President of the Foreign
Department of the Bank she performs tasks integral to the operations of the bank and her length of
service with the bank totaling 28 years speaks volumes of her status as a regular employee of the bank.
In fine, as a regular employee, she is entitled to security of tenure; that is, her services may be
terminated only for a just or authorized cause. This being in truth a case of illegal dismissal, it is no
wonder then that the Bank endeavored to the very end to establish loss of trust and confidence and
serious misconduct on the part of private respondent but, as will be discussed later, to no avail.

WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the Court of
Appeals.

Costs of suit to be paid by the petitioners.

SO ORDERED.
RAUL C. COSARE, Petitioner, v. BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.

FACTS: In 1993, Cosare was employed as a salesman by Arevalo, who was then in the business of selling
broadcast equipment needed by television networks and production houses. In December 2000, Arevalo
set up the company Broadcom, still to continue the business of trading communication and broadcast
equipment. Cosare was named an incorporator of Broadcom, having been assigned 100 shares of stock
with par value of P1.00 per share. In October 2001, Cosare was promoted to the position of Assistant
Vice President for Sales (AVP for Sales) and Head of the Technical Coordination.

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcoms Vice President for Sales and thus,
became Cosares immediate superior. Cosare sent a confidential memo to Arevalo to inform him of the
anomalies which were allegedly being committed by Abiog against the company. Cosare ended his
memo by clarifying that he was not interested in Abiogs position, but only wanted Arevalo to know of
the irregularities for the corporations sake.

Apparently, Arevalo failed to act on Cosares accusations. Cosare claimed that he was instead called for a
meeting by Arevalo on March 25, 2009, wherein he was asked to tender his resignation in exchange for
"financial assistance" in the amount ofP300,000.00.Cosare refused to comply with the directive, as
signified in a letter which he sent to Arevalo.

Cosare received from Roselyn Villareal (Villareal), Broadcoms Manager for Finance and Administration, a
memosigned by Arevalo, charging him of serious misconduct and willful breach of trust. He was given
forty-eight (48) hours from the date of the memo within which to present his explanation on the
charges. He was also "suspended from having access to any and all company files/records and use of
company assets effective immediately."Thus, Cosare claimed that he was precluded from reporting for
work and was instead instructed to wait at the offices receiving section. Upon the specific instructions of
Arevalo, he was also prevented by Villareal from retrieving even his personal belongings from the office
until he was totally barred from entering the company premises.

Cosare filed a labor complaint, claiming that he was constructively dismissed from employment by the
respondents. He further argued that he was illegally suspended, as he placed no serious and imminent
threat to the life or property of his employer and co-employees.

In refuting Cosares complaint, the respondents argued that Cosare was neither illegally suspended nor
dismissed from employment. They also contended that Cosare committed the following acts inimical to
the interests of Broadcom.Furthermore, they contended that Cosare abandoned his job by continually
failing to report for work beginning April 1, 2009, prompting them to issue on April 14, 2009 a
memorandumaccusing Cosare of absence without leave beginning April 1, 2009.

The Labor Arbiter dismissed the complaint on the ground of Cosares failure to establish that he was
constructively dismissed.
Cosare appealed the LA decision to the NLRC. It reversed the LA decision.

The respondents motion for reconsideration was denied.Dissatisfied, they filed a petition for certiorari
with the CA on the issues of constructive dismissal and intra-corporate controversy which was within the
jurisdiction of the RTC, instead of the LA. They argued that the case involved a complaint against a
corporation filed by a stockholder, who, at the same time, was a corporate officer.

The CAgranted the respondents petition. It agreed with the respondents contention that the case
involved an intra-corporate controversy which, pursuant to Presidential Decree No. 902-A, as amended,
was within the exclusive jurisdiction of the RTC. Hence, this petition filed by Cosare.

ISSUES:

Was the case instituted by Cosare an intra-corporate dispute that was within the original jurisdiction of
the RTC, and not of the LAs?

Was Cosare constructively and illegally dismissed from employment by the respondents?

HELD: An intra-corporate controversy, which falls within the jurisdiction of regular courts, has been
regarded in its broad sense to pertain to disputes that involve any of the following relationships: (1)
between the corporation, partnership or association and the public; (2) between the corporation,
partnership or association and the state in so far as its franchise, permit or license to operate is
concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates, themselves.Settled
jurisprudence, however, qualifies that when the dispute involves a charge of illegal dismissal, the action
may fall under the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls termination disputes
and claims for damages arising from employer-employee relations as provided in Article 217 of the
Labor Code. Consistent with this jurisprudence, the mere fact that Cosare was a stockholder and an
officer of Broadcom at the time the subject controversy developed failed to necessarily make the case
an intra-corporate dispute.

In Matling Industrial and Commercial Corporation v. Coros,the Court distinguished between a "regular
employee" and a "corporate officer" for purposes of establishing the true nature of a dispute or
complaint for illegal dismissal and determining which body has jurisdiction over it. Succinctly, it was
explained that "[t]he determination of whether the dismissed officer was a regular employee or
corporate officer unravels the conundrum" of whether a complaint for illegal dismissal is cognizable by
the LA or by the RTC. "In case of the regular employee, the LA has jurisdiction; otherwise, the RTC
exercises the legal authority to adjudicate.

Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for
illegal dismissal because Cosare, although an officer of Broadcom for being its AVP for Sales, was not a
"corporate officer" as the term is defined by law.
***

There are three specific officers whom a corporation must have under Section 25 of the Corporation
Code. These are the president, secretary and the treasurer. The number of officers is not limited to
these three. A corporation may have such other officers as may be provided for by its by-laws like, but
not limited to, the vice-president, cashier, auditor or general manager. The number of corporate officers
is thus limited by law and by the corporations by-laws.

In Tabang v. NLRC, the Court also made the following pronouncement on the nature of corporate
offices: there are two circumstances which must concur in order for an individual to be considered a
corporate officer, as against an ordinary employee or officer, namely: (1) the creation of the position is
under the corporations charter or by-laws; and (2) the election of the officer is by the directors or
stockholders. It is only when the officer claiming to have been illegally dismissed is classified as such
corporate officer that the issue is deemed an intra-corporate dispute which falls within the jurisdiction
of the trial courts.

The Court disagrees with the respondents and the CA. The only officers who are specifically listed, and
thus with offices that are created under Broadcoms by-laws are the following: the President, Vice-
President, Treasurer and Secretary. Although a blanket authority provides for the Boards appointment
of such other officers as it may deem necessary and proper, the respondents failed to sufficiently
establish that the position of AVP for Sales was created by virtue of an act of Broadcoms board, and that
Cosare was specifically elected or appointed to such position by the directors. No board resolutions to
establish such facts form part of the case records.

The CAs heavy reliance on the contents of the General Information Sheets, which were submitted by the
respondents during the appeal proceedings and which plainly provided that Cosare was an "officer" of
Broadcom, was clearly misplaced. The said documents could neither govern nor establish the nature of
the office held by Cosare and his appointment thereto.

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the cases filing did not
necessarily make the action an intra-corporate controversy. Not all conflicts between the stockholders
and the corporation are classified as intra-corporate. There are other facts to consider in determining
whether the dispute involves corporate matters as to consider them as intra-corporate controversies.

***

Constructive dismissal occurs when there is cessation of work because continued employment is
rendered impossible, unreasonable, or unlikely as when there is a demotion in rank or diminution in pay
or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to the
employee leaving the latter with no other option but to quit.
The Court emphasized in King of Kings Transport, Inc. v. Mamac 553 Phil. 108 the standards to be
observed by employers in complying with the service of notices prior to termination:

The first written notice to be served on the employees should contain the specific causes or grounds for
termination against them, and a directive that the employees are given the opportunity to submit their
written explanation within a reasonable period. "Reasonable opportunity" under the Omnibus Rules
means every kind of assistance that management must accord to the employees to enable them to
prepare adequately for their defense. This should be construed as a period of at least five (5) calendar
days from receipt of the notice to give the employees an opportunity to study the accusation against
them, consult a union official or lawyer, gather data and evidence, and decide on the defenses they will
raise against the complaint. Moreover, in order to enable the employees to intelligently prepare their
explanation and defenses, the notice should contain a detailed narration of the facts and circumstances
that will serve as basis for the charge against the employees. A general description of the charge will not
suffice. Lastly, the notice should specifically mention which company rules, if any, are violated and/or
which among the grounds under Art. 282 is being charged against the employees.

In sum, the respondents were already resolute on a severance of their working relationship with Cosare,
notwithstanding the facts which could have been established by his explanations and the respondents
full investigation on the matter. In addition to this, the fact that no further investigation and final
disposition appeared to have been made by the respondents on Cosares case only negated the claim
that they actually intended to first look into the matter before making a final determination as to the
guilt or innocence of their employee. This also manifested from the fact that even before Cosare was
required to present his side on the charges of serious misconduct and willful breach of trust, he was
summoned to Arevalos office and was asked to tender his immediate resignation in exchange for
financial assistance.

The charge of abandonment was inconsistent with this imposed suspension. "Abandonment is the
deliberate and unjustified refusal of an employee to resume his employment. To constitute
abandonment of work, two elements must concur: (1) the employee must have failed to report for work
or must have been absent without valid or justifiable reason; and (2) there must have been a clear
intention on the part of the employee to sever the employer-employee relationship manifested by some
overt act."Cosares failure to report to work beginning April 1, 2009 was neither voluntary nor indicative
of an intention to sever his employment with Broadcom. It was illogical to be requiring him to report for
work, and imputing fault when he failed to do so after he was specifically denied access to all of the
company's assets. Hence, the Court held Petitioner was constructively dismissed by respondent.
***
Court reiterated that an illegally or constructively dismissed employee is entitled to: (1) either
reinstatement, if viable, or separation pay, if reinstatement is no longer viable; and (2) backwages.The
award of exemplary damages was also justified given the NLRC's finding that the respondents acted in
bad faith and in a wanton, oppressive and malevolent manner when they dismissed Cosare. It is also by
reason of such bad faith that Arevalo was correctly declared solidarily liable for the monetary awards.
G.R. No. 201298 February 5, 2014

RAUL C. COSARE, Petitioner,

vs.
BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.

DECISION

REYES, J.:

Before the Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which assails
the Decision2 dated November 24, 2011 and Resolution3 dated March 26, 2012 of the Court of Appeals
(CA) in CA-G.R. SP. No. 117356, wherein the CA ruled that the Regional Trial Court (RTC), and not the
Labor Arbiter (LA), had the jurisdiction over petitioner Raul C. Cosare's (Cosare) complaint for illegal
dismissal against Broadcom Asia, Inc. (Broadcom) and Dante Arevalo (Arevalo), the President of
Broadcom (respondents).

The Antecedents

The case stems from a complaint4 for constructive dismissal, illegal suspension and monetary claims
filed with the National Capital Region Arbitration Branch of the National Labor Relations Commission
(NLRC) by Cosare against the respondents.

Cosare claimed that sometime in April 1993, he was employed as a salesman by Arevalo, who was then
in the business of selling broadcast equipment needed by television networks and production houses. In
December 2000, Arevalo set up the company Broadcom, still to continue the business of trading
communication and broadcast equipment. Cosare was named an incorporator of Broadcom, having
been assigned 100 shares of stock with par value of ₱1.00 per share.5 In October 2001, Cosare was
promoted to the position of Assistant Vice President for Sales (AVP for Sales) and Head of the Technical
Coordination, having a monthly basic net salary and average commissions of ₱18,000.00 and
₱37,000.00, respectively.6

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice President for Sales and thus,
became Cosare’s immediate superior. On March 23, 2009, Cosare sent a confidential memo7 to Arevalo
to inform him of the following anomalies which were allegedly being committed by Abiog against the
company: (a) he failed to report to work on time, and would immediately leave the office on the pretext
of client visits; (b) he advised the clients of Broadcom to purchase camera units from its competitors,
and received commissions therefor; (c) he shared in the "under the-table dealings" or "confidential
commissions" which Broadcom extended to its clients’ personnel and engineers; and (d) he expressed
his complaints and disgust over Broadcom’s uncompetitive salaries and wages and delay in the payment
of other benefits, even in the presence of office staff. Cosare ended his memo by clarifying that he was
not interested in Abiog’s position, but only wanted Arevalo to know of the irregularities for the
corporation’s sake.

Apparently, Arevalo failed to act on Cosare’s accusations. Cosare claimed that he was instead called for
a meeting by Arevalo on March 25, 2009, wherein he was asked to tender his resignation in exchange
for "financial assistance" in the amount of ₱300,000.00.8 Cosare refused to comply with the directive, as
signified in a letter9 dated March 26, 2009 which he sent to Arevalo.

On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcom’s Manager for Finance
and Administration, a memo10 signed by Arevalo, charging him of serious misconduct and willful breach
of trust, and providing in part:

1. A confidential memo was received from the VP for Sales informing me that you had directed, or at the
very least tried to persuade, a customer to purchase a camera from another supplier. Clearly, this action
is a gross and willful violation of the trust and confidence this company has given to you being its AVP
for Sales and is an attempt to deprive the company of income from which you, along with the other
employees of this company, derive your salaries and other benefits. x x x.

2. A company vehicle assigned to you with plate no. UNV 402 was found abandoned in another place
outside of the office without proper turnover from you to this office which had assigned said vehicle to
you. The vehicle was found to be inoperable and in very bad condition, which required that the vehicle
be towed to a nearby auto repair shop for extensive repairs.

3. You have repeatedly failed to submit regular sales reports informing the company of your activities
within and outside of company premises despite repeated reminders. However, it has been observed
that you have been both frequently absent and/or tardy without proper information to this office or
your direct supervisor, the VP for Sales Mr. Alex Abiog, of your whereabouts.

4. You have been remiss in the performance of your duties as a Sales officer as evidenced by the fact
that you have not recorded any sales for the past immediate twelve (12) months. This was inspite of the
fact that my office decided to relieve you of your duties as technical coordinator between Engineering
and Sales since June last year so that you could focus and concentrate [on] your activities in sales.11

Cosare was given forty-eight (48) hours from the date of the memo within which to present his
explanation on the charges. He was also "suspended from having access to any and all company
files/records and use of company assets effective immediately."12 Thus, Cosare claimed that he was
precluded from reporting for work on March 31, 2009, and was instead instructed to wait at the office’s
receiving section. Upon the specific instructions of Arevalo, he was also prevented by Villareal from
retrieving even his personal belongings from the office.

On April 1, 2009, Cosare was totally barred from entering the company premises, and was told to merely
wait outside the office building for further instructions. When no such instructions were given by 8:00
p.m., Cosare was impelled to seek the assistance of the officials of Barangay San Antonio, Pasig City, and
had the incident reported in the barangay blotter.13

On April 2, 2009, Cosare attempted to furnish the company with a Memo14 by which he addressed and
denied the accusations cited in Arevalo’s memo dated March 30, 2009. The respondents refused to
receive the memo on the ground of late filing, prompting Cosare to serve a copy thereof by registered
mail. The following day, April 3, 2009, Cosare filed the subject labor complaint, claiming that he was
constructively dismissed from employment by the respondents. He further argued that he was illegally
suspended, as he placed no serious and imminent threat to the life or property of his employer and co-
employees.15

In refuting Cosare’s complaint, the respondents argued that Cosare was neither illegally suspended nor
dismissed from employment. They also contended that Cosare committed the following acts inimical to
the interests of Broadcom: (a) he failed to sell any broadcast equipment since the year 2007; (b) he
attempted to sell a Panasonic HMC 150 Camera which was to be sourced from a competitor; and (c) he
made an unauthorized request in Broadcom’s name for its principal, Panasonic USA, to issue an
invitation for Cosare’s friend, one Alex Paredes, to attend the National Association of Broadcasters’
Conference in Las Vegas, USA.16 Furthermore, they contended that Cosare abandoned his job17 by
continually failing to report for work beginning April 1, 2009, prompting them to issue on April 14, 2009
a memorandum18 accusing Cosare of absence without leave beginning April 1, 2009.

The Ruling of the LA

On January 6, 2010, LA Napoleon M. Menese (LA Menese) rendered his Decision19 dismissing the
complaint on the ground of Cosare’s failure to establish that he was dismissed, constructively or
otherwise, from his employment. For the LA, what transpired on March 30, 2009 was merely the
respondents’ issuance to Cosare of a show-cause memo, giving him a chance to present his side on the
charges against him. He explained:

It is obvious that [Cosare] DID NOT wait for respondents’ action regarding the charges leveled against
him in the show-cause memo. What he did was to pre-empt that action by filing this complaint just a
day after he submitted his written explanation. Moreover, by specifically seeking payment of
"Separation Pay" instead of reinstatement, [Cosare’s] motive for filing this case becomes more
evident.20

It was also held that Cosare failed to substantiate by documentary evidence his allegations of illegal
suspension and non-payment of allowances and commissions.

Unyielding, Cosare appealed the LA decision to the NLRC.

The Ruling of the NLRC

On August 24, 2010, the NLRC rendered its Decision21 reversing the Decision of LA Menese. The
dispositive portion of the NLRC Decision reads:

WHEREFORE, premises considered, the DECISION is REVERSED and the Respondents are found guilty of
Illegal Constructive Dismissal. Respondents BROADCOM ASIA, INC. and Dante Arevalo are ordered to pay
[Cosare’s] backwages, and separation pay, as well as damages, in the total amount of ₱1,915,458.33, per
attached Computation.

SO ORDERED.22

In ruling in favor of Cosare, the NLRC explained that "due weight and credence is accorded to [Cosare’s]
contention that he was constructively dismissed by Respondent Arevalo when he was asked to resign
from his employment."23 The fact that Cosare was suspended from using the assets of Broadcom was
also inconsistent with the respondents’ claim that Cosare opted to abandon his employment.

Exemplary damages in the amount of ₱100,000.00 was awarded, given the NLRC’s finding that the
termination of Cosare’s employment was effected by the respondents in bad faith and in a wanton,
oppressive and malevolent manner. The claim for unpaid commissions was denied on the ground of the
failure to include it in the prayer of pleadings filed with the LA and in the appeal.

The respondents’ motion for reconsideration was denied.24 Dissatisfied, they filed a petition for
certiorari with the CA founded on the following arguments: (1) the respondents did not have to prove
just cause for terminating the employment of Cosare because the latter’s complaint was based on an
alleged constructive dismissal; (2) Cosare resigned and was thus not dismissed from employment; (3)
the respondents should not be declared liable for the payment of Cosare’s monetary claims; and (4)
Arevalo should not be held solidarily liable for the judgment award.

In a manifestation filed by the respondents during the pendency of the CA appeal, they raised a new
argument, i.e., the case involved an intra-corporate controversy which was within the jurisdiction of the
RTC, instead of the LA.25 They argued that the case involved a complaint against a corporation filed by a
stockholder, who, at the same time, was a corporate officer.

The Ruling of the CA

On November 24, 2011, the CA rendered the assailed Decision26 granting the respondents’ petition. It
agreed with the respondents’ contention that the case involved an intra-corporate controversy which,
pursuant to Presidential Decree No. 902-A, as amended, was within the exclusive jurisdiction of the RTC.
It reasoned:

Record shows that [Cosare] was indeed a stockholder of [Broadcom], and that he was listed as one of its
directors. Moreover, he held the position of [AVP] for Sales which is listed as a corporate office.
Generally, the president, vice-president, secretary or treasurer are commonly regarded as the principal
or executive officers of a corporation, and modern corporation statutes usually designate them as the
officers of the corporation. However, it bears mentioning that under Section 25 of the Corporation
Code, the Board of Directors of [Broadcom] is allowed to appoint such other officers as it may deem
necessary. Indeed, [Broadcom’s] By-Laws provides:

Article IV
Officer

Section 1. Election / Appointment – Immediately after their election, the Board of Directors shall
formally organize by electing the President, the Vice-President, the Treasurer, and the Secretary at said
meeting.

The Board, may, from time to time, appoint such other officers as it may determine to be necessary or
proper. x x x

We hold that [the respondents] were able to present substantial evidence that [Cosare] indeed held a
corporate office, as evidenced by the General Information Sheet which was submitted to the Securities
and Exchange Commission (SEC) on October 22, 2009.27 (Citations omitted and emphasis supplied)

Thus, the CA reversed the NLRC decision and resolution, and then entered a new one dismissing the
labor complaint on the ground of lack of jurisdiction, finding it unnecessary to resolve the main issues
that were raised in the petition. Cosare filed a motion for reconsideration, but this was denied by the CA
via the Resolution28 dated March 26, 2012. Hence, this petition.

The Present Petition

The pivotal issues for the petition’s full resolution are as follows: (1) whether or not the case instituted
by Cosare was an intra-corporate dispute that was within the original jurisdiction of the RTC, and not of
the LAs; and (2) whether or not Cosare was constructively and illegally dismissed from employment by
the respondents.

The Court’s Ruling

The petition is impressed with merit.

Jurisdiction over the controversy

As regards the issue of jurisdiction, the Court has determined that contrary to the ruling of the CA, it is
the LA, and not the regular courts, which has the original jurisdiction over the subject controversy. An
intra-corporate controversy, which falls within the jurisdiction of regular courts, has been regarded in its
broad sense to pertain to disputes that involve any of the following relationships: (1) between the
corporation, partnership or association and the public; (2) between the corporation, partnership or
association and the state in so far as its franchise, permit or license to operate is concerned; (3) between
the corporation, partnership or association and its stockholders, partners, members or officers; and (4)
among the stockholders, partners or associates, themselves.29 Settled jurisprudence, however, qualifies
that when the dispute involves a charge of illegal dismissal, the action may fall under the jurisdiction of
the LAs upon whose jurisdiction, as a rule, falls termination disputes and claims for damages arising
from employer-employee relations as provided in Article 217 of the Labor Code. Consistent with this
jurisprudence, the mere fact that Cosare was a stockholder and an officer of Broadcom at the time the
subject controversy developed failed to necessarily make the case an intra-corporate dispute.

In Matling Industrial and Commercial Corporation v. Coros,30 the Court distinguished between a
"regular employee" and a "corporate officer" for purposes of establishing the true nature of a dispute or
complaint for illegal dismissal and determining which body has jurisdiction over it. Succinctly, it was
explained that "[t]he determination of whether the dismissed officer was a regular employee or
corporate officer unravels the conundrum" of whether a complaint for illegal dismissal is cognizable by
the LA or by the RTC. "In case of the regular employee, the LA has jurisdiction; otherwise, the RTC
exercises the legal authority to adjudicate.31

Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for
illegal dismissal because Cosare, although an officer of Broadcom for being its AVP for Sales, was not a
"corporate officer" as the term is defined by law. We emphasized in Real v. Sangu Philippines, Inc.32 the
definition of corporate officers for the purpose of identifying an intra-corporate controversy. Citing
Garcia v. Eastern Telecommunications Philippines, Inc.,33 we held:

" ‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the Corporation Code or by the corporation’s by-laws.
There are three specific officers whom a corporation must have under Section 25 of the Corporation
Code. These are the president, secretary and the treasurer. The number of officers is not limited to
these three. A corporation may have such other officers as may be provided for by its by-laws like, but
not limited to, the vice-president, cashier, auditor or general manager. The number of corporate officers
is thus limited by law and by the corporation’s by-laws."34 (Emphasis ours)

In Tabang v. NLRC,35 the Court also made the following pronouncement on the nature of corporate
offices:

It has been held that an "office" is created by the charter of the corporation and the officer is elected by
the directors and stockholders. On the other hand, an "employee" usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid to such employee.36 (Citations omitted)

As may be deduced from the foregoing, there are two circumstances which must concur in order for an
individual to be considered a corporate officer, as against an ordinary employee or officer, namely: (1)
the creation of the position is under the corporation’s charter or by-laws; and (2) the election of the
officer is by the directors or stockholders. It is only when the officer claiming to have been illegally
dismissed is classified as such corporate officer that the issue is deemed an intra-corporate dispute
which falls within the jurisdiction of the trial courts.

To support their argument that Cosare was a corporate officer, the respondents referred to Section 1,
Article IV of Broadcom’s by-laws, which reads:

ARTICLE IV
OFFICER

Section 1. Election / Appointment – Immediately after their election, the Board of Directors shall
formally organize by electing the President, the Vice-President, the Treasurer, and the Secretary at said
meeting.

The Board may, from time to time, appoint such other officers as it may determine to be necessary or
proper. Any two (2) or more compatible positions may be held concurrently by the same person, except
that no one shall act as President and Treasurer or Secretary at the same time.37 (Emphasis ours)

This was also the CA’s main basis in ruling that the matter was an intra-corporate dispute that was
within the trial courts’ jurisdiction.

The Court disagrees with the respondents and the CA. As may be gleaned from the aforequoted
provision, the only officers who are specifically listed, and thus with offices that are created under
Broadcom’s by-laws are the following: the President, Vice-President, Treasurer and Secretary. Although
a blanket authority provides for the Board’s appointment of such other officers as it may deem
necessary and proper, the respondents failed to sufficiently establish that the position of AVP for Sales
was created by virtue of an act of Broadcom’s board, and that Cosare was specifically elected or
appointed to such position by the directors. No board resolutions to establish such facts form part of the
case records. Further, it was held in Marc II Marketing, Inc. v. Joson38 that an enabling clause in a
corporation’s by-laws empowering its board of directors to create additional officers, even with the
subsequent passage of a board resolution to that effect, cannot make such position a corporate office.
The board of directors has no power to create other corporate offices without first amending the
corporate by-laws so as to include therein the newly created corporate office.39 "To allow the creation
of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause
empowering the board of directors to do so can result in the circumvention of that constitutionally well-
protected right [of every employee to security of tenure]."40

The CA’s heavy reliance on the contents of the General Information Sheets41, which were submitted by
the respondents during the appeal proceedings and which plainly provided that Cosare was an "officer"
of Broadcom, was clearly misplaced. The said documents could neither govern nor establish the nature
of the office held by Cosare and his appointment thereto. Furthermore, although Cosare could indeed
be classified as an officer as provided in the General Information Sheets, his position could only be
deemed a regular office, and not a corporate office as it is defined under the Corporation Code.
Incidentally, the Court noticed that although the Corporate Secretary of Broadcom, Atty. Efren L.
Cordero, declared under oath the truth of the matters set forth in the General Information Sheets, the
respondents failed to explain why the General Information Sheet officially filed with the Securities and
Exchange Commission in 2011 and submitted to the CA by the respondents still indicated Cosare as an
AVP for Sales, when among their defenses in the charge of illegal dismissal, they asserted that Cosare
had severed his relationship with the corporation since the year 2009.

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the case’s filing did not
necessarily make the action an intra- corporate controversy. "Not all conflicts between the stockholders
and the corporation are classified as intra-corporate. There are other facts to consider in determining
whether the dispute involves corporate matters as to consider them as intra-corporate
controversies."42 Time and again, the Court has ruled that in determining the existence of an intra-
corporate dispute, the status or relationship of the parties and the nature of the question that is the
subject of the controversy must be taken into account.43 Considering that the pending dispute
particularly relates to Cosare’s rights and obligations as a regular officer of Broadcom, instead of as a
stockholder of the corporation, the controversy cannot be deemed intra-corporate. This is consistent
with the "controversy test" explained by the Court in Reyes v. Hon. RTC, Br. 142,44 to wit:

Under the nature of the controversy test, the incidents of that relationship must also be considered for
the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not
only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the
enforcement of the parties’ correlative rights and obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are
merely incidental to the controversy or if there will still be conflict even if the relationship does not
exist, then no intra-corporate controversy exists.45 (Citation omitted)

It bears mentioning that even the CA’s finding46 that Cosare was a director of Broadcom when the
dispute commenced was unsupported by the case records, as even the General Information Sheet of
2009 referred to in the CA decision to support such finding failed to provide such detail.

All told, it is then evident that the CA erred in reversing the NLRC’s ruling that favored Cosare solely on
the ground that the dispute was an intra-corporate controversy within the jurisdiction of the regular
courts.

The charge of constructive dismissal

Towards a full resolution of the instant case, the Court finds it appropriate to rule on the correctness of
the NLRC’s ruling finding Cosare to have been illegally dismissed from employment.

In filing his labor complaint, Cosare maintained that he was constructively dismissed, citing among other
circumstances the charges that were hurled and the suspension that was imposed against him via
Arevalo’s memo dated March 30, 2009. Even prior to such charge, he claimed to have been subjected to
mental torture, having been locked out of his files and records and disallowed use of his office computer
and access to personal belongings.47 While Cosare attempted to furnish the respondents with his reply
to the charges, the latter refused to accept the same on the ground that it was filed beyond the 48-hour
period which they provided in the memo.

Cosare further referred to the circumstances that allegedly transpired subsequent to the service of the
memo, particularly the continued refusal of the respondents to allow Cosare’s entry into the company’s
premises. These incidents were cited in the CA decision as follows:

On March 31, 2009, [Cosare] reported back to work again. He asked Villareal if he could retrieve his
personal belongings, but the latter said that x x x Arevalo directed her to deny his request, so [Cosare]
again waited at the receiving section of the office. On April 1, 2009, [Cosare] was not allowed to enter
the office premises. He was asked to just wait outside of the Tektite (PSE) Towers, where [Broadcom]
had its offices, for further instructions on how and when he could get his personal belongings. [Cosare]
waited until 8 p.m. for instructions but none were given. Thus, [Cosare] sought the assistance of the
officials of Barangay San Antonio, Pasig who advised him to file a labor or replevin case to recover his
personal belongings. x x x.48 (Citation omitted)

It is also worth mentioning that a few days before the issuance of the memo dated March 30, 2009,
Cosare was allegedly summoned to Arevalo’s office and was asked to tender his immediate resignation
from the company, in exchange for a financial assistance of ₱300,000.00.49 The directive was said to be
founded on Arevalo’s choice to retain Abiog’s employment with the company.50 The respondents failed
to refute these claims.

Given the circumstances, the Court agrees with Cosare’s claim of constructive and illegal dismissal.
"[C]onstructive dismissal occurs when there is cessation of work because continued employment is
rendered impossible, unreasonable, or unlikely as when there is a demotion in rank or diminution in pay
or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to the
employee leaving the latter with no other option but to quit."51 In Dimagan v. Dacworks United,
Incorporated,52 it was explained:

The test of constructive dismissal is whether a reasonable person in the employee’s position would have
felt compelled to give up his position under the circumstances. It is an act amounting to dismissal but is
made to appear as if it were not. Constructive dismissal is therefore a dismissal in disguise. The law
recognizes and resolves this situation in favor of employees in order to protect their rights and interests
from the coercive acts of the employer.53 (Citation omitted)

It is clear from the cited circumstances that the respondents already rejected Cosare’s continued
involvement with the company. Even their refusal to accept the explanation which Cosare tried to
tender on April 2, 2009 further evidenced the resolve to deny Cosare of the opportunity to be heard
prior to any decision on the termination of his employment. The respondents allegedly refused
acceptance of the explanation as it was filed beyond the mere 48-hour period which they granted to
Cosare under the memo dated March 30, 2009. However, even this limitation was a flaw in the memo or
notice to explain which only further signified the respondents’ discrimination, disdain and insensibility
towards Cosare, apparently resorted to by the respondents in order to deny their employee of the
opportunity to fully explain his defenses and ultimately, retain his employment. The Court emphasized
in King of Kings Transport, Inc. v. Mamac54 the standards to be observed by employers in complying
with the service of notices prior to termination:

[T]he first written notice to be served on the employees should contain the specific causes or grounds
for termination against them, and a directive that the employees are given the opportunity to submit
their written explanation within a reasonable period. "Reasonable opportunity" under the Omnibus
Rules means every kind of assistance that management must accord to the employees to enable them
to prepare adequately for their defense. This should be construed as a period of at least five (5) calendar
days from receipt of the notice to give the employees an opportunity to study the accusation against
them, consult a union official or lawyer, gather data and evidence, and decide on the defenses they will
raise against the complaint. Moreover, in order to enable the employees to intelligently prepare their
explanation and defenses, the notice should contain a detailed narration of the facts and circumstances
that will serve as basis for the charge against the employees. A general description of the charge will not
suffice. Lastly, the notice should specifically mention which company rules, if any, are violated and/or
which among the grounds under Art. 282 is being charged against the employees.55 (Citation omitted,
underscoring ours, and emphasis supplied)

In sum, the respondents were already resolute on a severance of their working relationship with Cosare,
notwithstanding the facts which could have been established by his explanations and the respondents’
full investigation on the matter. In addition to this, the fact that no further investigation and final
disposition appeared to have been made by the respondents on Cosare’s case only negated the claim
that they actually intended to first look into the matter before making a final determination as to the
guilt or innocence of their employee. This also manifested from the fact that even before Cosare was
required to present his side on the charges of serious misconduct and willful breach of trust, he was
summoned to Arevalo’s office and was asked to tender his immediate resignation in exchange for
financial assistance.

The clear intent of the respondents to find fault in Cosare was also manifested by their persistent
accusation that Cosare abandoned his post, allegedly signified by his failure to report to work or file a
leave of absence beginning April 1, 2009. This was even the subject of a memo56 issued by Arevalo to
Cosare on April 14, 2009, asking him to explain his absence within 48 hours from the date of the memo.
As the records clearly indicated, however, Arevalo placed Cosare under suspension beginning March 30,
2009. The suspension covered access to any and all company files/records and the use of the assets of
the company, with warning that his failure to comply with the memo would be dealt with drastic
management action. The charge of abandonment was inconsistent with this imposed suspension.
"Abandonment is the deliberate and unjustified refusal of an employee to resume his employment. To
constitute abandonment of work, two elements must concur: ‘(1) the employee must have failed to
report for work or must have been absent without valid or justifiable reason; and (2) there must have
been a clear intention on the part of the employee to sever the employer- employee relationship
manifested by some overt act.’"57 Cosare’s failure to report to work beginning April 1, 2009 was neither
voluntary nor indicative of an intention to sever his employment with Broadcom. It was illogical to be
requiring him to report for work, and imputing fault when he failed to do so after he was specifically
denied access to all of the company’s assets. As correctly observed by the NLRC:

[T]he Respondent[s] had charged [Cosare] of abandoning his employment beginning on April 1, 2009.
However[,] the show-cause letter dated March 3[0], 2009 (Annex "F", ibid) suspended [Cosare] from
using not only the equipment but the "assets" of Respondent [Broadcom]. This insults rational thinking
because the Respondents tried to mislead us and make [it appear] that [Cosare] failed to report for work
when they had in fact had [sic] placed him on suspension. x x x.58

Following a finding of constructive dismissal, the Court finds no cogent reason to modify the NLRC's
monetary awards in Cosare's favor. In Robinsons Galleria/Robinsons Supermarket Corporation v.
Ranchez,59 the Court reiterated that an illegally or constructively dismissed employee is entitled to: (1)
either reinstatement, if viable, or separation pay, if reinstatement is no longer viable; and (2)
backwages.60 The award of exemplary damages was also justified given the NLRC's finding that the
respondents acted in bad faith and in a wanton, oppressive and malevolent manner when they
dismissed Cosare. It is also by reason of such bad faith that Arevalo was correctly declared solidarily
liable for the monetary awards.

WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011 and Resolution dated
March 26, 2012 of the Court of Appeals in CA-G.R. SP. No. 117356 are SET ASIDE. The Decision dated
August 24, 2010 of the National Labor Relations Commission in favor of petitioner Raul C. Cosare is
AFFIRMED.

SO ORDERED.