Labor Law Case 06.30

Castillo, Sharla Louisse A.
2014009444
Labor Standards
Labor Arbiter Augusto Villanueva
LABOR STANDARDS CASE LIST
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.
Rule-Making Power, Art. 5

[G.R. No. 138051. June 10, 2004]
JOSE Y. SONZA, petitioner, vs. ABS-CBN
BROADCASTING
CORPORATION,
respondent.
DECISION
CARPIO, J.:
Facts:
1. In May 1994, respondent ABS-CBN
Broadcasting Corporation (ABS-CBN)
signed an Agreement with the Mel and
Jay Management and Development
Corporation (MJMDC).
2. 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:
a. Co-host for Mel & Jay radio program,
8:00 to 10:00 a.m., Mondays to
Fridays;
b. Co-host for Mel & Jay television
program, 5:30 to 7:00 p.m., Sundays.
3. 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.
4. On 1 April 1996, SONZA wrote a letter
to ABS-CBNs President, Eugenio Lopez
III, which reads:
Dear Mr. Lopez,
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. Manager[4]
5. 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).

2014009444
6. 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.
7. 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.
8. The Labor Arbiter denied the motion to
dismiss and directed the parties to file
their respective position papers. The
Labor Arbiter ruled:
Labor Standards
9. On 11 March 1997, SONZA filed a
Reply to Respondents Position Paper
with Motion to Expunge the 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 broadcast industry
is to treat talents like SONZA as
independent contractors.
10.The Labor Arbiter dismissed
the
complaint for lack of jurisdiction.
[6]
11.NLRC rendered a Decision affirming
the Labor Arbiters decision.
12.SONZA
filed
a
motion
for
reconsideration, which the NLRC
denied
13.the Court of Appeals rendered a
Decision dismissing the case.
The Rulings of the NLRC and Court of Appeals
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 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 broadcast partner,
Mrs. Carmela C. Tiangco.
Clearly, the relations of principal and
agent
only
accrues
between
complainant Sonza and MJMDC, and not
between ABS-CBN and MJMDC. 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,
2

2014009444
Labor Standards
who himself signed the same in his capacity

as President.
such recovery of the other benefits under

said Agreement.
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 Agreement.
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
complainantappellant filed his complaint. Complainantappellants 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 vs. Villarama, 238 SCRA 267,
21 November 1994, an action for breach of
contractual obligation is intrinsically a civil
dispute.[9] (Emphasis supplied)
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 respondentappellee. 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.
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 ABSCBN, 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
The Court of Appeals ruled that the

existence of an employer-employee
relationship between SONZA and ABSCBN 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.
Issues: 1. W/N there exists an employeremployee relationship
2. W/N Policy Instruction No. 40 has a
force and effect of law (RULE MAKING
POWER)
Ruling:
3

2014009444
EMPLOYER-EMPLOYEE RELATIONSHIP;
ESTABLISHMENT OF THE JURSIDICTION
OF THE LABOR ARBITER OVER THE
PERSON
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.
The instant case involves big names in the
broadcast 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. Substantial
evidence means such relevant evidence as a
reasonable mind might accept as adequate
to support a conclusion. 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.
Labor Standards
***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]
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..
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, ABSCBN would not have entered into the
Agreement with SONZA but would have
hired
him
through
its
personnel
department
just
like
any
other
employee.
B. Payment of Wages
All the talent fees and benefits paid to
SONZA were the result of negotiations
that led to the Agreement. If SONZA were
4

2014009444
ABS-CBNs employee, there would be no need
for the parties to stipulate on benefits such
as SSS, Medicare, and 13th month pay[20]
which the law automatically incorporates into
every
employer-employee
contract.
Whatever benefits SONZA enjoyed
arose from contract and not because of
an employer-employee relationship.[22]
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 may terminate 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.
Even if it suffered severe business
losses, ABS-CBN could not retrench
Labor Standards
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 broadcasting his programs, ABSCBN 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]
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
5

2014009444
contractor. We quote the following findings of
the U.S. court:
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 imagerelated 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 x[28]
(Emphasis supplied)
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
Labor Standards
holds true as well the less control the
hirer exercises, the more likely the
worker is considered an independent
contractor.[30]
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 cohost 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. 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. 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.
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
broadcast his shows proves ABS-CBNs power
6

2014009444
Labor Standards
over the means and methods of the

performance of his work. Although ABSCBN did have the option not to
broadcast 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 broadcast
SONZAs show but ABS-CBN must still pay his
talent fees in full.[35]
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 ABSCBN did not supervise and control his
work. ABS-CBNs sole concern was for SONZA
to display his talent during the airing of the
programs.[39]
Clearly, ABS-CBNs right not to broadcast

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 broadcast the final product or not. In
either case, ABS-CBN must still pay SONZAs
talent fees in full until the expiry of the
Agreement.
***A radio broadcast 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.
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]
SONZA further contends that ABS-CBN

exercised control over his work by supplying
all equipment and crew. No doubt, ABSCBN supplied the equipment, crew and
airtime needed to broadcast the Mel &
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 talents[41] 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 Broadcaster sa
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2014009444
Pilipinas (KBP), which has been adopted
by the COMPANY (ABS-CBN) as its Code
of Ethics.[42] The KBP code applies to
broadcasters, not to employees of radio
and television stations. Broadcasters
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:
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. vs. 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]
The Vaughan case also held that one could

still be an independent contractor although
Labor Standards
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.
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 broadcast
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 broadcast station.
MJMDC as Agent of SONZA
The Labor Arbiter ruled that as a talent of
MJMDC, SONZA is not an employee of ABSCBN. SONZA insists that MJMDC is a laboronly 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 laboronly 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
8

2014009444
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 broadcast 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 broadcast and television industry.[49]
Policy Instruction No. 40 (RULE MAKING
POWER)
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 broadcast
industry. Under this policy, the types of
employees in the broadcast industry are
the station and program employees.
Labor Standards
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 broadcast industry. The classification
of workers in the broadcast 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.
Notes:
1. the case further discussed the
labor tenure granted under the
constitution and;
2. some tax discussions
CASE DIGEST
Facts: In May 1994, ABS-CBN signed an
agreement with the Mel and Jay Management
and Development Corporation (MJMDC). ABSCBN was represented by its corporate
officers while MJMDC was represented by
Sonza, as President and general manager,
and Tiangco as its 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.
On April 1996, Sonza wrote a letter to ABSCBN where he irrevocably resigned in view of
the recent events concerning his program
and career. After the said letter, Sonza filed
with the Department of Labor and
Employment a complaint alleging that ABSCBN did not pay his salaries, separation pay,
service incentive pay,13th month pay,
9

2014009444
signing bonus, travel allowance and amounts
under the Employees Stock Option Plan
(ESOP).
ABS-CBN
contended
that
no
employee-employer
relationship
existed
between the parties. However, ABS-CBN
continued to remit Sonzas monthly talent
fees but opened another account for the
same purpose.
The Labor Arbiter dismissed the complaint
and found that there is no employeeemployer relationship. NLRC affirmed the
decision of the Labor Arbiter. CA also
affirmed the decision of NLRC.
ISSUE: W/N Policy Instruction No. 40 has a
force and effect of law
HELD: 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 broadcast industry. The
classification of workers in the broadcast
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.
APPLICABILITY, ART. 6
G.R. No. L-69870 November 29, 1988
NATIONAL
SERVICE
CORPORATION
(NASECO) AND ARTURO L. PEREZ,
petitioners,
vs.
THE
HONORABLE
THIRD
DIVISION,
NATIONAL
LABOR
RELATIONS
COMMISSION, MINISTRY OF LABOR AND
Labor Standards
EMPLOYMENT, MANILA AND EUGENIA C.
CREDO, respondents.
G.R. No. 70295 November 29,1988
EUGENIA C. CREDO, petitioner,
vs.
NATIONAL
LABOR
RELATIONS
COMMISSION,
NATIONAL
SERVICES
CORPORATION AND ARTURO L. PEREZ,
respondents.
The Chief Legal Counsel for respondents
NASECO and Arturo L. Perez.
Melchor R. Flores for petitioner Eugenia
C. Credo.
PADILLA, J.:
1. Eugenia C. Credo was an employee of
the National Service Corporation
(NASECO), a domestic corporation
which provides security guards as well
as messengerial, janitorial and other
similar manpower services to the
Philippine National Bank (PNB) and its
agencies.
2. She was first employed with NASECO
as a lady guard on 18 July 1975.
Through the years, she was promoted
to Clerk Typist, then Personnel Clerk
until she became Chief of Property and
Records, on 10 March 1980.
3. Sometime before 7 November 1983,
Credo was administratively charged by
Sisinio S. Lloren, Manager of Finance
and Special Project and Evaluation
Department of NASECO, stemming
from her non-compliance with Lloren's
memorandum, dated 11 October
1983,
regarding
certain
entry
10

2014009444
4.
5.
6.
7.
8.
9.
procedures
in
the
company's
Statement of Billings Adjustment.
The latter alleged that Credo "did not
comply with the instructions to place
some corrections/additional remarks in
the Statement of Billings Adjustment;
and when [Credo] was called by Lloren
to his office to explain further the said
instructions,
[Credo]
showed
resentment
and
behaved
in
a
scandalous manner by shouting and
uttering remarks of disrespect in the
presence of her co-employees."
On 7 November 1983, Credo was
called to meet Arturo L. Perez, then
Acting General Manager of NASECO, to
explain her side before Perez and
NASECO's Committee on Personnel
Affairs
in
connection
with
the
administrative charges filed against
her.
After said meeting, on the same date,
Credo was placed on "Forced Leave"
status for 15 days, effective 8
November 1983.
Before the expiration of said 15-day
leave, or on 18 November 1983, Credo
filed a complaint, docketed as Case
No. 114944-83, with the Arbitration
Branch, National Capital Region,
Ministry of Labor and Employment,
Manila, against NASECO for placing
her on forced leave, without due
process.
Likewise, while Credo was on forced
leave, or on 22 November 1983,
NASECO's Committee on Personnel
Affairs deliberated and evaluated a
number of past acts of misconduct or
infractions attributed to her.
As a result of this deliberation, said
committee resolved:
1. That, respondent [Credo] committed the
following offenses in the Code of Discipline, viz:
OFFENSE vs. Company Interest & Policies
Labor Standards
No. 3 Any discourteous act to customer,
officer and employee of client company or
officer of the Corporation.
OFFENSE vs. Public Moral
No. 7 Exhibit marked discourtesy in the
course of official duties or use of profane or
insulting language to any superior officer.
OFFENSE vs. Authority
No. 3 Failure to comply with any lawful order
or any instructions of a superior officer.
2. That, Management has already given due
consideration
to
respondent's
[Credo]
scandalous actuations for several times in the
past. Records also show that she was
reprimanded for some offense and did not
question it. Management at this juncture, has
already met its maximum tolerance point so it
has decided to put an end to respondent's
[Credo] being an undesirable employee.
10.The committee recommended Credo's

termination, with forfeiture of benefits.
11.On 1 December 1983, Credo was called age
to the office of Perez to be informed that
she was being charged with certain
offenses.
12.In Perez's office, and in the presence of
NASECO's Committee on Personnel Affairs,
Credo was made to explain her side in
connection with the charges filed against
her; however, due to her failure to do so,
she was handed a Notice of Termination,
dated 24 November 1983, and made
effective 1 December 1983.
13.Hence, on 6 December 1983, Credo filed a
supplemental complaint for illegal dismissal
in Case No. 11-4944-83, alleging absence
of just or authorized cause for her dismissal
and lack of opportunity to be heard.
14.The labor arbiter rendered a decision: 1)
dismissing Credo's complaint, and 2)
directing NASECO to pay Credo separation
pay equivalent to one half month's pay for
every year of service.
11

2014009444
15.Both parties appealed to respondent
National Labor Relations Commission
(NLRC) which, on 28 November 1984,
rendered a decision: 1) directing NASECO
to reinstate Credo to her former position, or
substantially equivalent position, with six
(6) months' backwages and without loss of
seniority rights and other privileges
appertaining thereto, and 2) dismissing
Credo's claim for attorney's fees, moral and
exemplary damages.
16. As a consequence, both parties filed their
respective motions for reconsideration, 12
which the NLRC denied in a resolution of 16
January 1985.
ISSUES
RULINGS:
In G.R. No. 68970, petitioners challenge as
grave abuse of discretion the dispositive
portion of the 28 November 1984 decision
which ordered Credo's reinstatement with
backwages.
Petitioners contend that in arriving at said
questioned order, the NLRC acted with grave
abuse of discretion in finding that: 1)
petitioners
violated
the
requirements
mandated by law on termination, 2)
petitioners failed in the burden of proving
that the termination of Credo was for a valid
or authorized cause, 3) the alleged
infractions committed by Credo were not
proven or, even if proved, could be
considered to have been condoned by
petitioners, and 4) the termination of Credo
was not for a valid or authorized cause. 15
In G.R. No. 70295, petitioner Credo
challenges as grave abuse of discretion the
dispositive portion of the 28 November 1984
decision which dismissed her claim for
attorney's fees, moral and exemplary
Labor Standards
damages and limited her right to backwages
to only six (6) months. 16
Exercise of employers power to dismiss
As guidelines for employers in the exercise of
their power to dismiss employees for just
causes, the law provides that:
Section 2. Notice of dismissal. Any employer
who seeks to dismiss a worker shall furnish him a
written notice stating the particular acts or
omission constituting the grounds for his
dismissal.
Section 5. Answer and Hearing. The worker
may answer the allegations stated against him in
the notice of dismissal within a reasonable period
from receipt of such notice. The employer shall
afford the worker ample opportunity to be heard
and to defend himself with the assistance of his
representative, if he so desires.
Section 6. Decision to dismiss. The employer
shall immediately notify a worker in writing of a
decision to dismiss him stating clearly the
reasons therefor.
These guidelines mandate that the

employer furnish an employee sought
to be dismissed two (2) written notices
of dismissal before a termination of
employment can be legally effected.
These are the notice which apprises the
employee of the particular acts or omissions
for which his dismissal is sought and the
subsequent notice which informs the
employee of the employer's decision to
dismiss him.
Likewise, a reading of the guidelines in
consonance with the express provisions of
law
on
protection
to
labor
(which
encompasses the right to security of tenure)
and the broader dictates of procedural
due process necessarily mandate that
notice of the employer's decision to
dismiss an employee, with reasons
12

2014009444
therefor, can only be issued after the
employer has afforded the employee
concerned ample opportunity to be
heard and to defend himself.
Ruling as to the Procedural Due Process
NASECO did not comply with these
guidelines in effecting Credo's dismissal.
Although she was apprised and "given the
chance to explain her side" of the charges
filed against her, this chance was given so
perfunctorily, thus rendering illusory Credo's
right to security of tenure. That Credo was
not given ample opportunity to be
heard and to defend herself is evident
from the fact that the compliance with
the injunction to apprise her of the
charges filed against her and to afford
her a chance to prepare for her defense
was dispensed in only a day.
The fact also that the Notice of
Termination of Credo's employment (or
the decision to dismiss her) was dated
24 November 1983 and made effective 1
December 1983 shows that NASECO was
already
bent
on
terminating
her
services when she was informed on 1
December 1983 of the charges against
her, and that any hearing which NASECO
thought of affording her after 24 November
1983 would merely be pro forma or an
exercise in futility.
Besides, Credo's mere non-compliance
with Lorens memorandum regarding the
entry procedures in the company's
Statement of Billings Adjustment did
not warrant the severe penalty of
dismissal of the NLRC correctly held that:
Let it be noted, however, that the Report did
not even describe how the so called "conduct
unbecoming" or "discourteous manner" was done
by complainant. Anent the "sarcastic" argument
Labor Standards
of complainant, the purported transcript 19 of the
meeting held on 7 November 1983 does not
indicate any sarcasm on the part of complainant.
At the most, complainant may have sounded
insistent or emphatic about her work being more
complete than the work of Ms. de Castro, yet, the
complaining officer signed the work of Ms. de
Castro and did not sign hers.
As to the charge of insubordination, it may be
conceded, albeit unclear, that complainant failed
to place same corrections/additional remarks in
the Statement of Billings Adjustments as
instructed. However, under the circumstances
obtaining, where complainant strongly felt that
she was being discriminated against by her
superior in relation to other employees, we are of
the considered view and so hold, that a
reprimand would have sufficed for the infraction,
but certainly not termination from services.
As this Court has ruled:

... where a penalty less punitive would
suffice, whatever missteps may be
committed by labor ought not to be
visited with a consequence so severe. It
is not only because of the law's concern
for the working man. There is, in
addition,
his
family
to
consider.
Unemployment brings untold hardships
and sorrows on those dependent on the
wage-earner. 21
Of course, in justifying Credo's termination of
employment, NASECO claims as additional
lawful causes for dismissal Credo's previous
and repeated acts of insubordination,
discourtesy and sarcasm towards her
superior officers, alleged to have been
committed from 1980 to July 1983.
If such acts of misconduct were indeed
committed by Credo, they are deemed
to have been condoned by NASECO. For
instance, sometime in 1980, when Credo
allegedly "reacted in a scandalous manner
13

2014009444
and raised her voice" in a discussion with
NASECO's Acting head of the Personnel
Administration no disciplinary measure was
taken or meted against her. Nor was she
even reprimanded when she allegedly talked
'in a shouting or yelling manner" with the
Acting Manager of NASECO's Building
Maintenance and Services Department in
1980 or when she allegedly "shouted" at
NASECO's Corporate Auditor "in front of his
subordinates displaying arrogance and
unruly behavior" in 1980, or when she
allegedly shouted at NASECO's Internal
Control Consultant in 1981. 25 But then, in
sharp contrast to NASECO's penchant for
ignoring the aforesaid acts of misconduct,
when Credo committed frequent tardiness in
August and September 1983, she was
reprimanded. 26
Even if the allegations of improper
conduct (discourtesy to superiors) were
satisfactorily
proven,
NASECO's
condonation thereof is gleaned from the
fact that on 4 October 1983, Credo was
given a salary adjustment for having
performed
in
the
job
"at
least
[satisfactorily]" 27 and she was then
rated "Very Satisfactory" 28as regards
job performance, particularly in terms
of quality of work, quantity of work,
dependability,
cooperation,
resourcefulness and attendance.
Considering that the acts or omissions for
which Credo's employment was sought to be
legally terminated were insufficiently proved,
as to justify dismissal, reinstatement is
proper. For "absent the reason which gave
rise to [the employee's] separation from
employment, there is no intention on the
part of the employer to dismiss the
employee concerned." 29 And, as a result of
having been wrongfully dismissed, Credo is
Labor Standards
entitled to three (3) years of backwages
without deduction and qualification. 30
However, while Credo's dismissal was
effected without procedural fairness, an
award of exemplary damages in her favor
can only be justified if her dismissal was
effected in a wanton, fraudulent, oppressive
or malevolent manner. 31 A judicious
examination of the record manifests no such
conduct on the part of management.
However, in view of the attendant
circumstances in the case, i.e., lack of due
process in effecting her dismissal, it is
reasonable to award her moral damages.
And, for having been compelled to litigate
because of the unlawful actuations of
NASECO, a reasonable award for attorney's
fees in her favor is in order.
NLRC JURISDICTION;
GOVERNMENT
(APPLICABILITY)
NASECO AS A
CORPORATION
In G.R. No. 70295, it is belatedly argued that

the NLRC has no jurisdiction to order Credo's
reinstatement. NASECO claims that, as a
government corporation (by virtue of its
being a subsidiary of the National
Investment
and
Development
Corporation (NIDC), a subsidiary wholly
owned by the Philippine National Bank
(PNB), which in turn is a government
owned corporation), the terms and
conditions
of
employment
of
its
employees are governed by the Civil
Service Law, rules and regulations. In
support of this argument, NASECO cites
National Housing Corporation vs. JUCO,
33 where this Court held that "There should
no longer be any question at this time
that employees of government-owned
or controlled corporations are governed
14

2014009444
Labor Standards
by the civil service law and civil service

rifles and regulations."
corporations
with
36(Emphasis supplied)
It would appear that, in the interest of

justice, the holding in said case should
not be given retroactive effect, that is, to
cases that arose before its promulgation on
17 January 1985. To do otherwise would
be oppressive to Credo and other
employees similarly situated, because
under the same 1973 Constitution, but
prior to the ruling in National Housing
Corporation vs. Juco, this Court had
recognized the applicability of the
Labor Code to, and the authority of the
NLRC to exercise jurisdiction over,
disputes involving terms and conditions
of employment in government owned or
controlled corporations, among them,
the
National
Service
Corporation
(NASECO
Thus, the situations sought to be avoided by

the 1973 Constitution and expressed by the
Court in the National Housing .
Furthermore, in the matter of coverage by

the civil service of government-owned or
controlled
corporations,
the
1987
Constitution starkly varies from the
1973 Constitution, upon which National
Housing Corporation vs. Juco is based.
Under the 1973 Constitution, it was
provided that:
The civil service embraces every
branch,
agency,
subdivision,
and
instrumentality of the Government,
including every government-owned or
controlled corporation. ... 35
On
the
other
hand,
Constitution provides that:
the
1987
The civil service embraces all branches,

subdivisions,
instrumentalities,
and
agencies of the Government, including
government-owned
or
controlled
original
charter.
Corporation case in the following manner

The infirmity of the respondents' position lies
in its permitting a circumvention or
emasculation of Section 1, Article XII-B of the
constitution. It would be possible for a
regular ministry of government to create a
host of subsidiary corporations under the
Corporation Code funded by a willing
legislature.
A
government-owned
corporation
could
create
several
subsidiary
corporations.
These
subsidiary corporations would enjoy the
best of two worlds. Their officials and
employees
would
be
privileged
individuals,
free
from
the
strict
accountability required by the Civil
Service Decree and the regulations of
the Commission on Audit. Their incomes
would not be subject to the competitive
restrains of the open market nor to the terms
and conditions of civil service employment.
Conceivably, all government-owned or
controlled
corporations
could
be
created, no longer by special charters,
but through incorporations under the
general
law.
The
Constitutional
amendment including such corporations
in the embrace of the civil service
would cease to have application.
Certainly, such a situation cannot be
allowed to exist. 37
appear relegated to relative insignificance by
the 1987 Constitutional provision that the
Civil Service embraces government-owned or
controlled corporations with original charter;
and, therefore, by clear implication, the Civil
Service does not include government15

2014009444
owned or controlled corporations which
are
organized
as
subsidiaries
of
government-owned
or
controlled
corporations
under
the
general
corporation law.
Labor Standards
Corporation Law and a government-owned corporation
created by its own charter.
MR. ROMULO. I beg the indulgence of the Committee. I

was reading the wrong provision.
MR. FOZ. Yes, we recall the Supreme Court decision in

the case of NHA vs. Juco to the effect that all
government corporations irrespective of the manner of
creation, whether by special charter or by the private
Corporation Law, are deemed to be covered by the civil
service because of the wide-embracing definition made
in this section of the existing 1973 Constitution. But we
recall the response to the question of Commissioner
Ople that our intendment in this provision is just to
give a general description of the civil service. We are
not here to make any declaration as to whether
employees of government-owned or controlled
corporations are barred from the operation of laws,
such as the Labor Code of the Philippines.
I refer to Section 1, subparagraph I which reads:
MR. ROMULO. Yes.
The Civil Service embraces all branches, subdivisions,

instrumentalities, and agencies of the government,
including
government-owned
or
controlled
corporations.
MR. OPLE. May I be recognized, Mr. Presiding Officer,

since my name has been mentioned by both sides.
My query: Is Philippine Airlines covered by this

provision? MR. FOZ. Will the Commissioner please state
his previous question?
THE PRESIDING OFFICER (Mr.Trenas). Commissioner

Ople is recognized.
The
proceedings
in
the
1986
Constitutional
Commission also shed light on the Constitutional intent
and meaning in the use of the phrase "with original
charter." Thus
THE PRESIDING OFFICER (Mr. Trenas) Commissioner
Romulo is recognized.
MR. ROMULO. The phrase on line 4 of Section 1,

subparagraph 1, under the Civil Service Commission,
says: "including government-owned or controlled
corporations.' Does that include a corporation, like the
Philippine Airlines which is government-owned or
controlled?
MR. FOZ. I would like to throw a question to the
Commissioner. Is the Philippine Airlines controlled by
the government in the sense that the majority of
stocks are owned by the government?
MR. ROMULO. It is owned by the GSIS. So, this is what
we might call a tertiary corporation. The GSIS is owned
by the government. Would this be covered because the
provision says "including government-owned or
controlled corporations."
MR. FOZ. The Philippine Airlines was established as a
private corporation. Later on, the government, through
the GSIS, acquired the controlling stocks. Is that not
the correct situation?
MR. ROMULO. That is true as Commissioner Ople is
about to explain. There was apparently a Supreme
Court decision that destroyed that distinction between
a government-owned corporation created under the
MR. ROMULO. I yield part of my time.
MR. OPLE. In connection with the coverage of the Civil

Service Law in Section 1 (1), may I volunteer some
information that may be helpful both to the
interpellator and to the Committee. Following the
proclamation of martial law on September 21, 1972,
this issue of the coverage of the Labor Code of the
Philippines and of the Civil Service Law almost
immediately arose. I am, in particular, referring to the
period following the coming into force and effect of the
Constitution of 1973, where the Article on the Civil
Service was supposed to take immediate force and
effect. In the case of LUZTEVECO, there was a strike at
the time. This was a government-controlled and
government-owned corporation. I think it was owned
by the PNOC with just the minuscule private shares
left. So, the Secretary of Justice at that time, Secretary
Abad Santos, and myself sat down, and the result of
that meeting was an opinion of the Secretary of Justice
which 9 became binding immediately on the
government that government corporations with original
charters, such as the GSIS, were covered by the Civil
Service Law and corporations spun off from the GSIS,
which we called second generation corporations
functioning as private subsidiaries, were covered by
the Labor Code. Samples of such second generation
corporations were the Philippine Airlines, the Manila
16

2014009444
Labor Standards
Hotel and the Hyatt. And that demarcation worked very

well. In fact, all of these companies I have mentioned
as examples, except for the Manila Hotel, had
collective bargaining agreements. In the Philippine
Airlines, there were, in fact, three collective bargaining
agreements; one, for the ground people or the PALIA
one, for the flight attendants or the PASAC and one for
the pilots of the ALPAC How then could a corporation
like that be covered by the Civil Service law? But, as
the Chairman of the Committee pointed out, the
Supreme Court decision in the case of NHA vs. Juco
unrobed the whole thing. Accordingly, the Philippine
Airlines, the Manila Hotel and the Hyatt are now
considered under that decision covered by the Civil
Service Law. I also recall that in the emergency
meeting of the Cabinet convened for this purpose at
the initiative of the Chairman of the Reorganization
Commission, Armand Fabella, they agreed to allow the
CBA's to lapse before applying the full force and effect
of the Supreme Court decision. So, we were in the
awkward situation when the new government took
over. I can agree with Commissioner Romulo when he
said that this is a problem which I am not exactly sure
we should address in the deliberations on the Civil
Service Law or whether we should be content with
what the Chairman said that Section 1 (1) of the Article
on the Civil Service is just a general description of the
coverage of the Civil Service and no more.
general coverage but it does not preclude a distinction

of the rules between the two types of enterprises.
Thank you, Mr. Presiding Officer.
THE PRESIDING OFFICER (Mr. Trenas). What does the

Committee say?
MR. ROMULO. Mr. Presiding Officer, for the moment, I

would be satisfied if the Committee puts on records
that it is not their intent by this provision and the
phrase "including government-owned or controlled
corporations" to cover such companies as the
Philippine Airlines.
MR. FOZ. Personally, that is my view. As a matter of
fact, when this draft was made, my proposal was really
to eliminate, to drop from the provision, the phrase
"including
governmentowned
or
controlled
corporations."
MR. ROMULO. Would the Committee indicate that is the
intent of this provision?
MR. MONSOD. Mr. Presiding Officer, I do not think the
Committee can make such a statement in the face of
an absolute exclusion of government-owned or
controlled corporations. However, this does not
preclude the Civil Service Law to prescribe different
rules and procedures, including emoluments for
employees of proprietary corporations, taking into
consideration the nature of their operations. So, it is a
MR. FOZ. In other words, it is something that should be

left to the legislature to decide. As I said before, this is
just a general description and we are not making any
declaration whatsoever.
MR. MONSOD. Perhaps if Commissioner Romulo would
like a definitive understanding of the coverage and the
Gentleman wants to exclude government-owned or
controlled corporations like Philippine Airlines, then the
recourse is to offer an amendment as to the coverage,
if the Commissioner does not accept the explanation
that there could be a distinction of the rules, including
salaries and emoluments.
MR. ROMULO. So as not to delay the proceedings, I will
reserve my right to submit such an amendment.
xxx xxx xxx
THE PRESIDING OFFICE (Mr. Trenas) Commissioner
Romulo is recognized.
MR. ROMULO. On page 2, line 5, I suggest the following
amendment after "corporations": Add a comma (,) and
the phrase EXCEPT THOSE EXERCISING PROPRIETARY
FUNCTIONS.
SUSPENSION OF SESSION
MR. MONSOD. May we have a suspension of the
session?
THE PRESIDING OFFICER (Mr. Trenas). The session is
suspended.
It was 7:16 p.m.
RESUMPTION OF SESSION
At 7:21 p.m., the session was resumed.
THE PRESIDING OFFICER (Mr. Trenas). The session is
resumed.
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending my
original proposed amendment to now read as follows:
"including
government-owned
or
controlled
corporations WITH ORIGINAL CHARTERS." The purpose
of this amendment is to indicate that government
17

2014009444
corporations such as the GSIS and SSS, which have
original charters, fall within the ambit of the civil
service. However, corporations which are subsidiaries
of these chartered agencies such as the Philippine
Airlines, Manila Hotel and Hyatt are excluded from the
coverage of the civil service.
THE PRESIDING OFFICER (Mr. Trenas). What does the
Committee say?
MR. FOZ. Just one question, Mr. Presiding Officer. By the
term "original charters," what exactly do we mean?
MR. ROMULO. We mean that they were created by law,
by an act of Congress, or by special law.
MR. FOZ. And not under the general corporation law.
MR. ROMULO. That is correct. Mr. Presiding Officer.
MR. FOZ. With that understanding and clarification, the
Committee accepts the amendment.
MR. NATIVIDAD. Mr. Presiding officer, so those created
by the general corporation law are out.
MR. ROMULO. That is correct: 38
On the premise that it is the 1987 Constitution that
governs the instant case because it is the Constitution
in place at the time of decision thereof, the NLRC has
jurisdiction to accord relief to the parties. As an
admitted subsidiary of the NIDC, in turn a subsidiary of
the PNB, the NASECO is a government-owned or
controlled corporation without original charter.
Dr. Jorge Bocobo, in his Cult of Legalism, cited by Mr.
Justice Perfecto in his concurring opinion in Gomez vs.
Government Insurance Board (L-602, March 31, 1947,
44 O.G. No. 8, pp. 2687, 2694; also published in 78
Phil. 221) on the effectivity of the principle of social
justice embodied in the 1935 Constitution, said:
Certainly, this principle of social justice in our

Constitution as generously conceived and so
tersely phrased, was not included in the
fundamental law as a mere popular gesture.
It was meant to (be) a vital, articulate,
compelling principle of public policy. It should
be observed in the interpretation not only of
future legislation, but also of all laws already
existing on November 15, 1935. It was
intended to change the spirit of our laws,
present and future. Thus, all the laws which
Labor Standards
on the great historic event when the
Commonwealth of the Philippines was born,
were susceptible of two interpretations strict
or liberal, against or in favor of social justice,
now have to be construed broadly in order to
promote and achieve social justice. This may
seem novel to our friends, the advocates of
legalism but it is the only way to give life and
significance to the above-quoted principle of
the Constitution. If it was not designed to
apply to these existing laws, then it would be
necessary to wait for generations until all our
codes and all our statutes shall have been
completely charred by removing every
provision inimical to social justice, before the
policy of social justice can become really
effective. That would be an absurd
conclusion. It is more reasonable to hold that
this constitutional principle applies to all
legislation in force on November 15, 1935,
and all laws thereafter passed.
WHEREFORE, in view of the foregoing, the
challenged decision of the NLRC is AFFIRMED
with modifications. Petitioners in G.R. No.
69870, who are the private respondents in
G.R. No. 70295, are ordered to: 1) reinstate
Eugenia C. Credo to her former position at
the time of her termination, or if such
reinstatement is not possible, to place her in
a substantially equivalent position, with
three (3) years backwages, from 1 December
1983, without qualification or deduction, and
without loss of seniority rights and other
privileges appertaining thereto, and 2) pay
Eugenia C. Credo P5,000.00 for moral
damages and P5,000.00 for attorney's fees.
If reinstatement in any event is no longer
possible because of supervening events,
petitioners in G.R. No. 69870, who are the
private respondents in G.R. No. 70295 are
ordered to pay Eugenia C. Credo, in addition
to her backwages and damages as above
described, separation pay equivalent to one18

2014009444
half month's salary for every year of service,
to be computed on her monthly salary at the
time of her termination on 1 December 1983.
SO ORDERED.
CASE DIGEST
Doctrine: The civil service does not include
Government owned or controlledcorporations
(GOCC) which are organized as subsidiaries
of GOCC under the general corporation law.
FACTS: Eugenio Credo was an employee of
the National Service Corporation. She claims
she was illegally dismissed. NLRC ruled
ordering her reinstatement. NASECO argues
that NLRC has no jurisdiction to order her
reinstatement. NASECO as a government
corporation by virtue of its being a subsidiary
of the NIDC, which is wholly owned by the
Phil. National Bank which is in turn a GOCC,
the terms and conditions of employment of
its employees are governed by the Civil
Service Law citing National Housing v Juco.
ISSUE: W/N employees of NASECO, a GOCC
without original charter, are governed by the
Civil Service Law.
HELD: NO. The holding in NHC v Juco should
not be given retroactive effect, that is to
cases that arose before its promulgation of
Jan 17, 1985. To do otherwise would be
oppressive to Credo and other employees
similarly situated because under the 1973
Constitution prior to the ruling in NHC v Juco,
this court recognized the applicability of the
Labor jurisdiction over disputes involving
terms and conditions of employment in
GOCC's, among them NASECO. In the matter
of coverage by the civil service of GOCC, the
1987 Constitution starkly differs from the
Labor Standards
1973 constitution where NHC v Juco was
based. It provides that the "civil service
embraces
all
branches,
subdivisions,
instrumentalities, and agencies of the
Government, including government owned or
controlled corporation with original charter."
Therefore by clear implication, the civil
service does not include GOCC which are
organized as subsidiaries of GOCC under the
general corporation law.
[G.R. No. 98107. August 18, 1997]

BENJAMIN C. JUCO, petitioner, vs.
NATIONAL
LABOR
RELATIONS
COMMISSION and NATIONAL HOUSING
CORPORATION, respondents.
DECISION
HERMOSISIMA, JR., J.:
1. Petitioner Benjamin C. Juco was hired as a
project engineer of respondent National
Housing
Corporation
(NHC)
from
November 16, 1970 to May 14, 1975.
2. 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.
3. On March 25, 1977, petitioner filed a
complaint for illegal dismissal against the
NHC with the Department of Labor.
4. 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.
5. Petitioner then elevated the case to the
NLRC which rendered a decision on
December 28, 1982, reversing the
decision of the Labor Arbiter
6. Dissatisfied with the decision of the NLRC,
respondent NHC appealed before this
Court and on January 17, 1985, we
19

2014009444
Labor Standards
rendered a decision, the dispositive

portion
thereof
reads
as
follows:
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.
7. On January 6, 1989, petitioner filed with
the Civil Service Commission a complaint
for illegal dismissal, with preliminary
mandatory injunction.
8. 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.
9. On April 11, 1989, the Civil Service
Commission issued an order dismissing
the complaint for lack of jurisdiction. It
ratiocinated that:
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 Corporate Code.
Article IX, Section 2
Constitution provides:
(1)
of
the
1987

subdivisions, instrumentalities and agencies
of the government, including government
owned and controlled corporations with
original charters. (underscoring 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.
10.WHEREFORE, for lack of jurisdiction, the

instant complaint is hereby dismissed.[6]
11.On April 28, 1989, petitioner filed with
respondent NLRC a complaint for illegal
dismissal with preliminary mandatory

injunction against respondent NHC.
12.
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:
It appears x x x 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.
13.Thereafter, the Labor Arbiter rendered

a decision, the dispositive portion of
which reads:
20

2014009444
"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.
14.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.
ISSUE: Whether or not that petitioner is
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:
"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 x
x x.
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 governmentowned or controlled corporations.
Labor Standards
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:
subdivision,
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 stature 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.
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
21

2014009444
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
Peoples
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
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 employees
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
petitioners
complaint
for
lack
of
jurisdiction because the rule now is that
the Civil Service now covers only
Labor Standards
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.
SO ORDERED.
CASE DIGEST
FACTS: Juco was hired as project engineer of
NHC from Nov16, 1970 to May 14, 75. On
May 14, he was separated from the service
for having been implicated in a crime of theft
and/or malversation of public funds. On
March25, 1977, Juco filed a complaint for
illegal dismissal against NHC with the
Department of Labor. Labor Arbiter rendered
a decision dismissing complaint on the
ground that NLRC had no jurisdiction over
thecase. Juco then elevated the case to NLRC
which rendered a decision reversing decision
of Labor Arbiter. NHC appealed before this
SC. On Jan6, 1989, Juco filed with CSC a
complaint for illegal dismissal. NHC moved
for dismissal of complaint on the ground that
CSC has no jurisdiction over case. So, having
no jurisdiction, CSC dismissed the case.
Subsequently Juco also filed with NLRC
complaint for illegal dismissal. Labor Arbiter
Caday rendered adecision declaring that
22

2014009444
Jucos dismissal was illegal. NHC appealed
before NLRC and later on, NLRC reversed the
decision of Labor Arbiter Caday on the
ground of lack of jurisdiction.
ISSUE: Whether NLRC or CSC has jurisdiction
over Jucos case
HELD: Although SC 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:
subdivision, instrumentalities, and agencies
of the Government, including government
owned or controlled corporations with
original charter. (Article IX-B, Section 2[1])
Reiterating the case of Trade Union of the
Philippines and Allied Services (TUPAS) v.
National Housing Corporation, the SC 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, it also held that the workers or
employees
of
the
NHC
(now
NHA)
undoubtedly have the right to form unions or
employees organization and that there is no
impediment to the holding of a certification
election among them as they are covered by
the Labor Code.
PASTOR
DIONISIO
V.
AUSTRIA,
petitioner, vs. HON. NATIONAL LABOR
RELATIONS
COMMISSION
(Fourth
Division), CEBU CITY, CENTRAL PHILIPPINE
Labor Standards
UNION MISSION CORPORATION OF THE
SEVENTH-DAY ADVENTIST, ELDER HECTOR V.
GAYARES, PASTORS REUBEN MORALDE,
OSCAR L. ALOLOR, WILLIAM U. DONATO, JOEL
WALES, ELY SACAY, GIDEON BUHAT, ISACHAR
GARSULA, ELISEO DOBLE, PROFIRIO BALACY,
DAVID RODRIGO, LORETO MAYPA, MR. RUFO
GASAPO, MR. EUFRONIO IBESATE, MRS.
TESSIE BALACY, MR. ZOSIMO KARA-AN, and
MR. ELEUTERIO LOBITANA, respondents.
KAPUNAN, J.:
1. Private Respondent Central Philippine
Union Mission Corporation of the SeventhDay Adventists (hereinafter referred to as
the SDA) is a religious corporation duly
organized and existing under Philippine
law and is represented in this case by the
other private respondents, officers of the
SDA. Petitioner, on the other hand, was a
Pastor of the SDA until 31 October 1991,
when his services were terminated.
2. Petitioner Pastor Dionisio V. Austria
worked with the SDA for twenty eight (28)
years from 1963 to 1991. He began his
work with the SDA on 15 July 1963 as a
literature evangelist, selling literature of
the SDA over the island of Negros. From
then on, petitioner worked his way
up the ladder and got promoted
several times.
3. In January, 1968, petitioner became the
Assistant Publishing Director in the West
Visayan Mission of the SDA. In July, 1972,
he was elevated to the position of Pastor
in the West Visayan Mission covering the
island of Panay, and the provinces of
Romblon and Guimaras. Petitioner held
the same position up to 1988. Finally, in
1989, petitioner was promoted as District
Pastor of the Negros Mission of the SDA
and was assigned at Sagay, Balintawak
and Toboso, Negros Occidental, with
23

2014009444
4.
5.
6.
7.
8.
9.
twelve
(12)
churches
under
his
jurisdiction.
In
January,
1991,
petitioner
was
transferred to Bacolod City. He held the
position of district pastor until his services
were terminated on 31 October 1991.
On various occasions from August up to
October, 1991, petitioner received several
communications
from
Mr.
Eufronio
Ibesate, the treasurer of the Negros
Mission
asking
him
to
admit
accountability and responsibility for the
church tithes and offerings collected by
his wife, Mrs. Thelma Austria, in his
district which amounted to P15,078.10,
and to remit the same to the Negros
Mission.
In his written explanation dated 11
October 1991, petitioner reasoned out
that he should not be made accountable
for the unremitted collections since it was
private respondents Pastor Gideon Buhat
and Mr. Eufronio Ibesate who authorized
his wife to collect the tithes and offerings
since he was very sick to do the collecting
at that time.
Thereafter, on 16 October 1991, at
around 7:30 a.m., petitioner went to the
office of Pastor Buhat, the president of
the Negros Mission. During said call,
petitioner tried to persuade Pastor Buhat
to convene the Executive Committee for
the purpose of settling the dispute
between him and the private respondent,
Pastor David Rodrigo.
The dispute between Pastor Rodrigo and
petitioner arose from an incident in which
petitioner assisted his friend, Danny
Diamada, to collect from Pastor Rodrigo
the unpaid balance for the repair of the
latters motor vehicle which he failed to
pay to Diamada.
Due to the assistance of petitioner in
collecting Pastor Rodrigos debt, the latter
harbored ill-feelings against petitioner.
Labor Standards
10.When news reached petitioner that Pastor
Rodrigo was about to file a complaint
against him with the Negros Mission, he
immediately proceeded to the office of
Pastor Buhat on the date abovementioned
and asked the latter to convene the
Executive Committee. Pastor Buhat
denied the request of petitioner since
some committee members were out of
town and there was no quorum.
11.Thereafter, the two exchanged heated
arguments. Petitioner then left the office
of Pastor Buhat. While on his way out,
petitioner overheard Pastor Buhat saying,
Pastor daw inisog na ina iya (Pastor you
are talking tough). Irked by such remark,
petitioner returned to the office of Pastor
Buhat, and tried to overturn the latters
table, though unsuccessfully, since it was
heavy.
12.Thereafter, petitioner banged the attache
case of Pastor Buhat on the table,
scattered the books in his office, and
threw the phone.[7] Fortunately, private
respondents Pastors Yonilo Leopoldo and
Claudio Montao were around and they
pacified both Pastor Buhat and petitioner.
13.On 17 October 1991, petitioner received a
letter inviting him and his wife to attend
the Executive Committee meeting at the
Negros Mission Conference Room on 21
October 1991, at nine in the morning. To
be discussed in the meeting were the
non-remittance of church collection and
the events that transpired on 16 October
1991.
14.A fact-finding committee was created to
investigate petitioner. For two (2) days,
from October 21 and 22, the fact-finding
committee conducted an investigation of
petitioner. Sensing that the result of the
investigation
might
be
one-sided,
petitioner immediately wrote Pastor
Rueben Moralde, president of the SDA
and
chairman
of
the
fact-finding
24

2014009444
committee,
requesting
that
certain
members of the fact-finding committee
be excluded in the investigation and
resolution of the case. Out of the six (6)
members requested to inhibit themselves
from the investigation and decisionmaking, only two (2) were actually
excluded, namely: Pastor Buhat and
Pastor Rodrigo.
15.Subsequently, on 29 October 1991,
petitioner received a letter of dismissal
citing misappropriation of denominational
funds, willful breach of trust, serious
misconduct, gross and habitual neglect of
duties, and commission of an offense
against the person of employers duly
authorized representative, as grounds for
the termination of his services.
16.Reacting against the adverse decision of
the SDA, petitioner filed a complaint[11]
on 14 November 1991, before the Labor
Arbiter for illegal dismissal against the
SDA and its officers and prayed for
reinstatement
with
backwages
and
benefits, moral and exemplary damages
and other labor law benefits.
17.On 15 February 1993, Labor Arbiter Cesar
D. Sideo rendered a decision in favor of
petitioner (petitioner reinstated)
18.The SDA, through its officers, appealed
the decision of the Labor Arbiter to the
National Labor Relations Commission,
Fourth Division, Cebu City.
19.In a decision, dated 26 August 1994, the
NLRC vacated the findings of the Labor
Arbiter which favored the SDA
20.Petitioner
filed
a
motion
for
reconsideration of the above-named
decision. On 18 July 1995, the NLRC
issued a Resolution reversing its original
decision.
21.In view of the reversal of the original
decision of the NLRC, the SDA filed a
motion for reconsideration of the above
resolution
Labor Standards
22.The NLRC granted the instant motion for
reconsideration and held that the case is
hereby DISMISSED for lack of jurisdiction.
ISSUES:
1) Whether or not the Labor Arbiter/NLRC has
jurisdiction to try and decide the complaint
filed by petitioner against the SDA;
2) Whether or not the termination of the
services of petitioner is an ecclesiastical
affair, and, as such, involves the separation
of church and state; and
3) Whether or not such termination is valid.
The first two issues shall be resolved jointly,
since they are related.
Private respondents contend that by virtue of
the doctrine of separation of church and
state, the Labor Arbiter and the NLRC have
no jurisdiction to entertain the complaint
filed by petitioner. Since the matter at bar
allegedly involves the discipline of a religious
minister, it is to be considered a purely
ecclesiastical affair to which the State has no
right to interfere.
The principle of separation of church
and state finds no application in this
case.
The rationale of the principle of the
separation of church and state is
summed up in the familiar saying,
Strong fences make good neighbors.
The idea advocated by this principle is to
delineate the boundaries between the two
institutions and thus avoid encroachments
by one against the other because of a
misunderstanding of the limits of their
respective
exclusive
jurisdictions.
The
demarcation line calls on the entities to
render therefore unto Ceasar the things that
25

2014009444
are Ceasars and unto God the things that are
Gods.[19] While the State is prohibited
from interfering in purely ecclesiastical
affairs, the Church is likewise barred
from
meddling
in
purely
secular
matters.[20]
The case at bar does not concern an
ecclesiastical or purely religious affair
as to bar the State from taking
cognizance
of
the
same.
An
ecclesiastical affair is one that concerns
doctrine, creed, or form or worship of
the church, or the adoption and
enforcement
within
a
religious
association
of
needful
laws
and
regulations for the government of the
membership,
and
the
power
of
excluding from such associations those
deemed unworthy of membership.
Based on this definition, an ecclesiastical
affair involves the relationship between
the church and its members and relate
to matters of faith, religious doctrines,
worship
and
governance
of
the
congregation. To be concrete, examples
of this so-called ecclesiastical affairs to
which the State cannot meddle are
proceedings
for
excommunication,
ordinations
of
religious
ministers,
administration of sacraments and other
activities with which attached religious
significance. The case at bar does not
even remotely concern any of the
abovecited examples. While the matter
at hand relates to the church and its
religious minister it does not ipso facto
give the case a religious significance.
Simply stated, what is involved here is the
relationship of the church as an employer
and the minister as an employee. It is
purely secular and has no relation
whatsoever with the practice of faith,
worship or doctrines of the church. In
Labor Standards
this
case,
petitioner
was
not
excommunicated or expelled from the
membership of the SDA but was
terminated from employment. Indeed,
the matter of terminating an employee,
which is purely secular in nature, is
different from the ecclesiastical act of
expelling a member from the religious
congregation.
As pointed out by the OSG in its
memorandum, the grounds invoked for
petitioners
dismissal,
namely:
misappropriation of denominational funds,
willful breach of trust, serious misconduct,
gross and habitual neglect of duties and
commission of an offense against the person
of
his
employers
duly
authorize
representative, are all based on Article 282
of the Labor Code which enumerates the just
causes for termination of employment.[22]
By this alone, it is palpable that the
reason for petitioners dismissal from
the service is not religious in nature.
Coupled with this is the act of the SDA
in furnishing NLRC with a copy of
petitioners letter of termination. As
aptly stated by the OSG, this again is an
eloquent
admission
by
private
respondents that NLRC has jurisdiction
over the case. Aside from these, SDA
admitted in a certification[23] issued by
its officer, Mr. Ibesate, that petitioner
has been its employee for twenty-eight
(28)
years.
SDA
even
registered
petitioner with the Social Security
System (SSS) as its employee. As a
matter of fact, the workers records of
petitioner have been submitted by
private respondents as part of their
exhibits. From all of these it is clear
that when the SDA terminated the
services of petitioner, it was merely
exercising its management prerogative
to fire an employee which it believes to
26

2014009444
be unfit for the job. As such, the State,
through the Labor Arbiter and the
NLRC, has the right to take cognizance
of the case and to determine whether
the
SDA,
as
employer,
rightfully
exercised its management prerogative
to dismiss an employee. This is in
consonance with the mandate of the
Constitution to afford full protection to
labor.
Under the Labor Code, the provision which
governs the dismissal of employees, is
comprehensive enough to include religious
corporations, such as the SDA, in its
coverage. Article 278 of the Labor Code
on post-employment states that the
provisions of this Title shall apply to all
establishments
or
undertakings,
whether for profit or not. Obviously, the
cited article does not make any
exception in favor of a religious
corporation. This is made more evident
by the fact that the Rules Implementing
the Labor Code, particularly, Section 1,
Rule 1, Book VI on the Termination of
Employment
and
Retirement,
categorically
includes
religious
institutions in the coverage of the law,
to wit:
Section 1. Coverage. This Rule shall
apply
to
all
establishments
and
undertakings, whether operated for
profit or not, including educational,
medical,
charitable
and
religious
institutions and organizations, in cases
of
regular
employment
with
the
exception of the Government and its
political
subdivisions
including
government-owned
or
controlled
corporations.[24]
With this clear mandate, the SDA
cannot hide behind the mantle of
Labor Standards
protection of the doctrine of separation
of church and state to avoid its
responsibilities as an employer under
the Labor Code.
Notes:
1. The court further decided
procedural matters and;
2. The legality of dismissal
on
CASE DIGEST
Facts: The Seventh Day Adventists(SDA) is a
religious corporation under Philippine law.
The petitioner was a pastor of the SDA for 28
years from 1963 until 1991, when his
services were terminated.
On various occasions from August to October
1991,
Austria
received
several
communications form Ibesate, the treasurer
of the Negros Mission, asking him to admit
accountability and responsibility for the
church tithes and offerings collected by his
wife, Thelma Austria, in his district and to
remit the same to the Negros Mission.
The petitioner answered saying that he
should not be made accountable since it was
Pastor Buhat and Ibesate who authorized his
wife to collect the tithes and offerings since
he was very ill to be able to do the collecting.
A fact-finding committee was created to
investigate. The petitioner received a letter
of dismissal citing:
1) Misappropriation of denominational funds;
2) Willful breach of trust;
3) Serious misconduct;
4) Gross and habitual neglect of duties; and
5) Commission of an offense against the person of
employer's duly authorized representative as grounds
for the termination of his services.
27

2014009444
Petitioner filed a complaint with the Labor
Arbiter for illegal dismissal, and sued the
SDA for reinstatement and backwages plus
damages. Decision was rendered in favor of
petitioner.
SDA appealed to the NLRC. Decision was
rendered in favor of respondent.
ISSUE: W/N the NLRC has no jurisdiction over
the case in view of the constitutional
provision regarding the separation of the
Church and State
HELD:
An
ecclesiastical
affair
involves
the
relationship between the church and its
members and relate to matters of faith,
religious doctrines, worship and governance
of the congregation. To be concrete,
examples of this so-called ecclesiastical
affairs to which the State cannot meddle are
proceedings
for
excommunication,
ordinations
of
religious
ministers,
administration of sacraments and other
activities with which attached religious
significance. The case does not even
remotely concern any of the above cited
examples. While the matter at hand relates
to the church and its religious minister it
does not ipso facto give the case a religious
significance.
In
this
case,
petitioner
was
not
excommunicated or expelled from the
membership of the SDA but was terminated
from employment. Indeed, the matter of
terminating an employee, which is purely
secular in nature, is different from the
ecclesiastical act of expelling a member from
the religious congregation.
Furthermore,
SDA
admitted
in
a
certification[23] issued by its officer, Mr.
Ibesate, that petitioner has been its
Labor Standards
employee for twenty-eight (28) years. SDA
even registered petitioner with the Social
Security System (SSS) as its employee. As a
matter of fact, the workers records of
petitioner have been submitted by private
respondents as part of their exhibits. From all
of these it is clear that when the SDA
terminated the services of petitioner, it was
merely
exercising
its
management
prerogative to fire an employee which it
believes to be unfit for the job. As such, the
State, through the Labor Arbiter and the
NLRC, has the right to take cognizance of the
case and to determine whether the SDA, as
employer,
rightfully
exercised
its
management prerogative to dismiss an
employee. This is in consonance with the
mandate of the Constitution to afford full
protection to labor.
More so, Article 278 of the Labor Code on
post-employment states that the provisions
of this Title shall apply to all establishments
or undertakings, whether for profit or not.
Obviously, the cited article does not make
any exception in favor of a religious
corporation. This is made more evident by
the fact that the Rules Implementing the
Labor Code, particularly, Section 1, Rule 1,
Book VI on the Termination of Employment
and
Retirement,
categorically
includes
religious institutions in the coverage of the
law, to wit:
Section 1. Coverage. This Rule shall apply to
all
establishments
and
undertakings,
whether operated for profit or not, including
educational, medical, charitable and religious
institutions and organizations, in cases of
regular employment with the exception of
the Government and its political subdivisions
including government-owned or controlled
corporations.[24]
28

2014009444
With this clear mandate, the SDA cannot hide
behind the mantle of protection of the
doctrine of separation of church and state to
Labor Standards
avoid its responsibilities as an employer
under the Labor Code.
29

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Castillo, Sharla Louisse A.

LABOR STANDARDS CASE LIST

We would like to call your attention to

Rule-Making Power, Art. 5

As you are well aware, Mr. Sonza

Castillo, Sharla Louisse A.

In this instant case, complainant for

The May 1994 Agreement will readily reveal

Castillo, Sharla Louisse A.

who himself signed the same in his capacity

such recovery of the other benefits under

We find it erroneous to assert that

Evidently, it is precisely by reason of the

It may not be amiss to state that

The Court of Appeals ruled that the

Castillo, Sharla Louisse A.

Castillo, Sharla Louisse A.

Castillo, Sharla Louisse A.

Applying the control test to the present

Castillo, Sharla Louisse A.

over the means and methods of the

Jay programs. However, the equipment,

Clearly, ABS-CBNs right not to broadcast

***A radio broadcast specialist who

In Vaughan, et al. v. Warner, et al.,[36] the United

SONZA further contends that ABS-CBN

Second, SONZA urges us to rule that he was

Castillo, Sharla Louisse A.

The Vaughan case also held that one could

Castillo, Sharla Louisse A.

Castillo, Sharla Louisse A.

Castillo, Sharla Louisse A.

10.The committee recommended Credo's

Castillo, Sharla Louisse A.

These guidelines mandate that the

Castillo, Sharla Louisse A.

As this Court has ruled:

Castillo, Sharla Louisse A.

In G.R. No. 70295, it is belatedly argued that

Castillo, Sharla Louisse A.

by the civil service law and civil service

It would appear that, in the interest of

Thus, the situations sought to be avoided by

Furthermore, in the matter of coverage by

The civil service embraces all branches,

Corporation case in the following manner

Castillo, Sharla Louisse A.

MR. ROMULO. I beg the indulgence of the Committee. I

MR. FOZ. Yes, we recall the Supreme Court decision in

I refer to Section 1, subparagraph I which reads:

MR. ROMULO. Yes.

The Civil Service embraces all branches, subdivisions,

MR. OPLE. May I be recognized, Mr. Presiding Officer,

My query: Is Philippine Airlines covered by this

THE PRESIDING OFFICER (Mr.Trenas). Commissioner

MR. ROMULO. The phrase on line 4 of Section 1,

MR. ROMULO. I yield part of my time.

MR. OPLE. In connection with the coverage of the Civil

Castillo, Sharla Louisse A.

Hotel and the Hyatt. And that demarcation worked very

general coverage but it does not preclude a distinction

Thank you, Mr. Presiding Officer.

THE PRESIDING OFFICER (Mr. Trenas). What does the

MR. ROMULO. Mr. Presiding Officer, for the moment, I