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1. Bernardo vs NLRC
THIRD DIVISION
[G.R. No. 122917. July 12, 1999]
MARITES BERNARDO, ELVIRA GO DIAMANTE, REBECCA E. DAVID, DAVID P. PASCUAL,
RAQUEL ESTILLER, ALBERT HALLARE, EDMUND M. CORTEZ, JOSELITO O. AGDON
GEORGE P. LIGUTAN JR., CELSO M. YAZAR, ALEX G. CORPUZ, RONALD M. DELFIN,
ROWENA M. TABAQUERO, CORAZON C. DELOS REYES, ROBERT G. NOORA, MILAGROS
O. LEQUIGAN, ADRIANA F. TATLONGHARI, IKE CABANDUCOS, COCOY NOBELLO,
DORENDA CANTIMBUHAN, ROBERT MARCELO, LILIBETH Q. MARMOLEJO, JOSE E.
SALES, ISABEL MAMAUAG, VIOLETA G. MONTES, ALBINO TECSON, MELODY V.
GRUELA, BERNADETH D. AGERO, CYNTHIA DE VERA, LANI R. CORTEZ, MA. ISABEL B.
CONCEPCION, DINDO VALERIO, ZENAIDA MATA, ARIEL DEL PILAR, MARGARET
CECILIA CANOZA, THELMA SEBASTIAN, MA. JEANETTE CERVANTES, JEANNIE RAMIL,
ROZAIDA PASCUAL, PINKY BALOLOA, ELIZABETH VENTURA, GRACE S. PARDO & RICO
TIMOSA, petitioners vs. NATIONAL LABOR RELATIONS COMMISSION & FAR EAST BANK
AND TRUST COMPANY, respondents.
DECISION
PANGANIBAN, J.:
The Magna Carta for Disabled Persons mandates that qualified disabled persons be
granted the same terms and conditions of employment as qualified able-bodied
employees. Once they have attained the status of regular workers, they should be
accorded all the benefits granted by law, notwithstanding written or verbal contracts to
the contrary. This treatment is rooted not merely on charity or accommodation, but on
justice for all.
The Case
Challenged in the Petition for Certiorari[1] before us is the June 20, 1995 Decision[2] of
the National Labor Relations Commission (NLRC),[3] which affirmed the August, 22
1994 ruling of Labor Arbiter Cornelio L. Linsangan. The labor arbiters Decision disposed
as follows:[4]
WHEREFORE, judgment is hereby rendered dismissing the above-mentioned complaint
for lack of merit.
Also assailed is the August 4, 1995 Resolution[5] of the NLRC, which denied the Motion
for Reconsideration.
The Facts
The facts were summarized by the NLRC in this wise:[6]
Complainants numbering 43 (p. 176, Records) are deaf-mutes who were hired on
various periods from 1988 to 1993 by respondent Far East Bank and Trust Co. as Money
Sorters and Counters through a uniformly worded agreement called Employment
Contract for Handicapped Workers. (pp. 68 & 69, Records) The full text of said
agreement is quoted below:

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EMPLOYMENT CONTRACT FOR HANDICAPPED WORKERS

This Contract, entered into by and between:
FAR EAST BANK AND TRUST COMPANY, a universal banking corporation duly organized
and existing under and by virtue of the laws of the Philippines, with business address at
FEBTC Building, Muralla, Intramuros, Manila, represented herein by its Assistant Vice
President, MR. FLORENDO G. MARANAN, (hereinafter referred to as the BANK);
- and ________________, ________________ years old, of legal age, _____________, and
residing at __________________ (hereinafter referred to as the (EMPLOYEE).
WITNESSETH: That
WHEREAS, the BANK, cognizant of its social responsibility, realizes that there is a need
to provide disabled and handicapped persons gainful employment and opportunities to
realize their potentials, uplift their socio-economic well being and welfare and make
them productive, self-reliant and useful citizens to enable them to fully integrate in the
mainstream of society;
WHEREAS, there are certain positions in the BANK which may be filled-up by disabled
and handicapped persons, particularly deaf-mutes, and the BANK ha[s] been
approached by some civic-minded citizens and authorized government agencies
[regarding] the possibility of hiring handicapped workers for these positions;
WHEREAS, the EMPLOYEE is one of those handicapped workers who [were]
recommended for possible employment with the BANK;
NOW, THEREFORE, for and in consideration of the foregoing premises and in
compliance with Article 80 of the Labor Code of the Philippines as amended, the BANK
and the EMPLOYEE have entered into this Employment Contract as follows:
1. The BANK agrees to employ and train the EMPLOYEE, and the EMPLOYEE agrees to
diligently and faithfully work with the BANK, as Money Sorter and Counter.
2. The EMPLOYEE shall perform among others, the following duties and responsibilities:
i Sort out bills according to color;
ii. Count each denomination per hundred, either manually or with the aid of a counting
machine;
iii. Wrap and label bills per hundred;
iv. Put the wrapped bills into bundles; and
v. Submit bundled bills to the bank teller for verification.
3. The EMPLOYEE shall undergo a training period of one (1) month, after which the
BANK shall determine whether or not he/she should be allowed to finish the remaining
term of this Contract.

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4. The EMPLOYEE shall be entitled to an initial compensation of P118.00 per day,

subject to adjustment in the sole judgment of the BANK, payable every 15th and end of
the month.
5. The regular work schedule of the EMPLOYEE shall be five (5) days per week, from
Mondays thru Fridays, at eight (8) hours a day. The EMPLOYEE may be required to
perform overtime work as circumstance may warrant, for which overtime work he/she
[shall] be paid an additional compensation of 125% of his daily rate if performed during
ordinary days and 130% if performed during Saturday or [a] rest day.
6. The EMPLOYEE shall likewise be entitled to the following benefits:
i. Proportionate 13th month pay based on his basic daily wage.
ii. Five (5) days incentive leave.
iii. SSS premium payment.
7. The EMPLOYEE binds himself/herself to abide [by] and comply with all the BANK
Rules and Regulations and Policies, and to conduct himself/herself in a manner
expected of all employees of the BANK.
8. The EMPLOYEE acknowledges the fact that he/she had been employed under a
special employment program of the BANK, for which reason the standard hiring
requirements of the BANK were not applied in his/her case. Consequently, the
EMPLOYEE acknowledges and accepts the fact that the terms and conditions of the
employment generally observed by the BANK with respect to the BANKs regular
employee are not applicable to the EMPLOYEE, and that therefore, the terms and
conditions of the EMPLOYEEs employment with the BANK shall be governed solely and
exclusively by this Contract and by the applicable rules and regulations that the
Department of Labor and Employment may issue in connection with the employment
of disabled and handicapped workers. More specifically, the EMPLOYEE hereby
acknowledges that the provisions of Book Six of the Labor Code of the Philippines as
amended, particularly on regulation of employment and separation pay are not
applicable to him/her.
9. The Employment Contract shall be for a period of six (6) months or from ____ to
____ unless earlier terminated by the BANK for any just or reasonable cause. Any
continuation or extension of this Contract shall be in writing and therefore this Contract
will automatically expire at the end of its terms unless renewed in writing by the BANK.
IN WITNESS WHEREOF, the parties, have hereunto affixed their signature[s] this ____
day of _________________, ____________ at Intramuros, Manila, Philippines.
In 1988, two (2) deaf-mutes were hired under this Agreement; in 1989 another two (2);
in 1990, nineteen (19); in 1991 six (6); in 1992, six (6) and in 1993, twenty-one (21).
Their employment[s] were renewed every six months such that by the time this case
arose, there were fifty-six (56) deaf-mutes who were employed by respondent under
the said employment agreement. The last one was Thelma Malindoy who was employed
in 1992 and whose contract expired on July 1993.
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Disclaiming that complainants were regular employees, respondent Far East Bank and
Trust Company maintained that complainants who are a special class of workers the
hearing impaired employees were hired temporarily under [a] special employment
arrangement which was a result of overtures made by some civic and political
personalities to the respondent Bank; that complainant[s] were hired due to pakiusap
which must be considered in the light of the context of the respondent Banks corporate
philosophy as well as its career and working environment which is to maintain and
strengthen a corps of professionals trained and qualified officers and regular employees
who are baccalaureate degree holders from excellent schools which is an unbending
policy in the hiring of regular employees; that in addition to this, training continues so
that the regular employee grows in the corporate ladder; that the idea of hiring
handicapped workers was acceptable to them only on a special arrangement basis; that
it adopted the special program to help tide over a group of handicapped workers such
as deaf-mutes like the complainants who could do manual work for the respondent
Bank; that the task of counting and sorting of bills which was being performed by tellers
could be assigned to deaf-mutes; that the counting and sorting of money are tellering
works which were always logically and naturally part and parcel of the tellers normal
functions; that from the beginning there have been no separate items in the respondent
Bank plantilla for sorters or counters; that the tellers themselves already did the sorting
and counting chore as a regular feature and integral part of their duties (p. 97,
Records); that through the pakiusap of Arturo Borjal, the tellers were relieved of this
task of counting and sorting bills in favor of deaf-mutes without creating new positions
as there is no position either in the respondent or in any other bank in the Philippines
which deals with purely counting and sorting of bills in banking operations.
Petitioners specified when each of them was hired and dismissed, viz:[7]
NAME OF PETITIONER WORKPLACE Date Hired Date Dismissed
1. MARITES BERNARDO Intramuros 12 NOV 90 17 NOV 93
2. ELVIRA GO DIAMANTE Intramuros 24 JAN 90 11 JAN 94
3. REBECCA E. DAVID Intramuros 16 APR 90 23 OCT 93
4. DAVID P. PASCUAL Bel-Air 15 OCT 88 21 NOV 94
5. RAQUEL ESTILLER Intramuros 2 JUL 92 4 JAN 94
6. ALBERT HALLARE West 4 JAN 91 9 JAN 94
7. EDMUND M. CORTEZ Bel-Air 15 JAN 91 3 DEC 93
8. JOSELITO O. AGDON Intramuros 5 NOV 90 17 NOV 93
9. GEORGE P. LIGUTAN, JR. Intramuros 6 SEPT 89 19 JAN 94
10. CELSO M. YAZAR Intramuros 8 FEB 93 8 AUG 93
11. ALEX G. CORPUZ Intramuros 15 FEB 93 15 AUG 93
12. RONALD M. DELFIN Intramuros 22 FEB 93 22 AUG 93
13. ROWENA M. TABAQUERO Intramuros 22 FEB 93 22 AUG 93

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14. CORAZON C. DELOS REYES Intramuros 8 FEB 93 8 AUG 93

15. ROBERT G. NOORA Intramuros 15 FEB 93 15 AUG 93
16. MILAGROS O. LEQUIGAN Intramuros 1 FEB 93 1 AUG 93
17. ADRIANA F. TATLONGHARI Intramuros 22 JAN 93 22 JUL 93
18. IKE CABANDUCOS Intramuros 24 FEB 93 24 AUG 93
19. COCOY NOBELLO Intramuros 22 FEB 93 22 AUG 93
20. DORENDA CATIMBUHAN Intramuros 15 FEB 93 15 AUG 93
21. ROBERT MARCELO West 31 JUL 93[8] 1 AUG 93
22. LILIBETH Q. MARMOLEJO West 15 JUN 90 21 NOV 93
23. JOSE E. SALES West 6 AUG 92 12 OCT 93
24. ISABEL MAMAUAG West 8 MAY 92 10 NOV 93
25. VIOLETA G. MONTES Intramuros 2 FEB 90 15 JAN 94
26. ALBINO TECSON Intramuros 7 NOV 91 10 NOV 93
27. MELODY V. GRUELA West 28 OCT 91 3 NOV 93
28. BERNADETH D. AGERO West 19 DEC 90 27 DEC 93
29. CYNTHIA DE VERA Bel-Air 26 JUN 90 3 DEC 93
30. LANI R. CORTEZ Bel-Air 15 OCT 88 10 DEC 93
31. MA. ISABEL B. CONCEPCION West 6 SEPT 90 6 FEB 94
32. DINDO VALERIO Intramuros 30 MAY 93 30 NOV 93
33. ZENAIDA MATA Intramuros 10 FEB 93 10 AUG 93
34. ARIEL DEL PILAR Intramuros 24 FEB 93 24 AUG 93
35. MARGARET CECILIA CANOZA Intramuros 27 JUL 90 4 FEB 94
36. THELMA SEBASTIAN Intramuros 12 NOV 90 17 NOV 93
37. MA. JEANETTE CERVANTES West 6 JUN 92 7 DEC 93
38. JEANNIE RAMIL Intramuros 23 APR 90 12 OCT 93
39. ROZAIDA PASCUAL Bel-Air 20 APR 89 29 OCT 93
40. PINKY BALOLOA West 3 JUN 91 2 DEC 93
41. ELIZABETH VENTURA West 12 MAR 90 FEB 94 [SIC]
42. GRACE S. PARDO West 4 APR 90 13 MAR 94
43. RICO TIMOSA Intramuros 28 APR 93 28 OCT 93

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As earlier noted, the labor arbiter and, on appeal, the NLRC ruled against herein
petitioners. Hence, this recourse to this Court.[9]
The Ruling of the NLRC
In affirming the ruling of the labor arbiter that herein petitioners could not be deemed
regular employees under Article 280 of the Labor Code, as amended, Respondent
Commission ratiocinated as follows:
We agree that Art. 280 is not controlling herein. We give due credence to the conclusion
that complainants were hired as an accommodation to [the] recommendation of civic
oriented personalities whose employment[s] were covered by xxx Employment
Contract[s] with special provisions on duration of contract as specified under Art.
80. Hence, as correctly held by the Labor Arbiter a quo, the terms of the contract shall
be the law between the parties.[10]
The NLRC also declared that the Magna Carta for Disabled Persons was not applicable,
considering the prevailing circumstances/milieu of the case.
Issues
In their Memorandum, petitioners cite the following grounds in support of their cause:
I. The Honorable Commission committed grave abuse of discretion in holding that the
petitioners - money sorters and counters working in a bank - were not regular
employees.
II. The Honorable Commission committed grave abuse of discretion in holding that the
employment contracts signed and renewed by the petitioners - which provide for a
period of six (6) months - were valid.
III. The Honorable Commission committed grave abuse of discretion in not applying the
provisions of the Magna Carta for the Disabled (Republic Act No. 7277), on proscription
against discrimination against disabled persons.[11]
In the main, the Court will resolve whether petitioners have become regular employees.
This Courts Ruling
The petition is meritorious. However, only the employees, who worked for more than six
months and whose contracts were renewed are deemed regular. Hence, their dismissal
from employment was illegal.
Preliminary Matter: Propriety of Certiorari
Respondent Far East Bank and Trust Company argues that a review of the findings of
facts of the NLRC is not allowed in a petition for certiorari. Specifically, it maintains that
the Court cannot pass upon the findings of public respondents that petitioners were not
regular employees.
True, the Court, as a rule, does not review the factual findings of public respondents in
a certiorari proceeding. In resolving whether the petitioners have become regular
employees, we shall not change the facts found by the public respondent. Our task is

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merely to determine whether the NLRC committed grave abuse of discretion in applying
the law to the established facts, as above-quoted from the assailed Decision.
Main Issue: Are Petitioners Regular Employees?
Petitioners maintain that they should be considered regular employees, because their
task as money sorters and counters was necessary and desirable to the business of
respondent bank. They further allege that their contracts served merely to preclude the
application of Article 280 and to bar them from becoming regular employees.
Private respondent, on the other hand, submits that petitioners were hired only as
special workers and should not in any way be considered as part of the regular
complement of the Bank.[12] Rather, they were special workers under Article 80 of the
Labor Code. Private respondent contends that it never solicited the services of
petitioners, whose employment was merely an accommodation in response to the
requests of government officials and civic-minded citizens. They were told from the
start, with the assistance of government representatives, that they could not become
regular employees because there were no plantilla positions for money sorters, whose
task used to be performed by tellers. Their contracts were renewed several times, not
because of need but merely for humanitarian reasons. Respondent submits that as of
the present, the special position that was created for the petitioners no longer exist[s]
in private respondent [bank], after the latter had decided not to renew anymore their
special employment contracts.
At the outset, let it be known that this Court appreciates the nobility of private
respondents effort to provide employment to physically impaired individuals and to
make them more productive members of society. However, we cannot allow it to elude
the legal consequences of that effort, simply because it now deems their employment
irrelevant. The facts, viewed in light of the Labor Code and the Magna Carta for
Disabled Persons, indubitably show that the petitioners, except sixteen of them, should
be deemed regular employees. As such, they have acquired legal rights that this Court
is duty-bound to protect and uphold, not as a matter of compassion but as a
consequence of law and justice.
The uniform employment contracts of the petitioners stipulated that they shall be
trained for a period of one month, after which the employer shall determine whether or
not they should be allowed to finish the 6-month term of the contract. Furthermore, the
employer may terminate the contract at any time for a just and reasonable
cause. Unless renewed in writing by the employer, the contract shall automatically
expire at the end of the term.
According to private respondent, the employment contracts were prepared in
accordance with Article 80 of the Labor Code, which provides:
ART. 80. Employment agreement. Any employer who employs handicapped workers
shall enter into an employment agreement with them, which agreement shall include:
(a) The names and addresses of the handicapped workers to be employed;
(b) The rate to be paid the handicapped workers which shall be not less than seventy
five (75%) per cent of the applicable legal minimum wage;

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(c) The duration of employment period; and

(d) The work to be performed by handicapped workers.
The employment agreement shall be subject to inspection by the Secretary of Labor or
his duly authorized representatives.
The stipulations in the employment contracts indubitably conform with the aforecited
provision. Succeeding events and the enactment of RA No. 7277 (the Magna Carta for
Disabled Persons),[13]however, justify the application of Article 280 of the Labor Code.
Respondent bank entered into the aforesaid contract with a total of 56 handicapped
workers and renewed the contracts of 37 of them. In fact, two of them worked from
1988 to 1993. Verily, the renewal of the contracts of the handicapped workers and the
hiring of others lead to the conclusion that their tasks were beneficial and necessary to
the bank. More important, these facts show that they were qualified to perform the
responsibilities of their positions. In other words, their disability did not render them
unqualified or unfit for the tasks assigned to them.
In this light, the Magna Carta for Disabled Persons mandates that a qualified disabled
employee should be given the same terms and conditions of employment as
a qualified able-bodied person. Section 5 of the Magna Carta provides:
Section 5. Equal Opportunity for Employment.No disabled person shall be denied access
to opportunities for suitable employment. A qualified disabled employee shall be subject
to the same terms and conditions of employment and the same compensation,
privileges, benefits, fringe benefits, incentives or allowances as a qualified able bodied
person.
The fact that the employees were qualified disabled persons necessarily removes the
employment contracts from the ambit of Article 80. Since the Magna Carta accords
them the rights of qualified able-bodied persons, they are thus covered by Article 280 of
the Labor Code, which provides:
ART. 280. Regular and Casual Employment. -- The provisions of written agreement to
the contrary notwithstanding and regardless of the oral agreement of the parties, an
employment shall be deemed to be regular where the employee has been engaged to
perform activities which are usually necessary or desirable in the usual business or
trade of the employer, except where the employment has been fixed for a specific
project or undertaking the completion or termination of which has been determined at
the time of the engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph: Provided, That, any employee who has rendered at least one year of
service, whether such service is continuous or broken, shall be considered as regular
employee with respect to the activity in which he is employed and his employment shall
continue while such activity exists.
The test of whether an employee is regular was laid down in De Leon v. NLRC,[14] in
which this Court held:

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The primary standard, therefore, of determining regular employment is the reasonable

connection between the particular activity performed by the employee in relation to the
usual trade or business of the employer. The test is whether the former is usually
necessary or desirable in the usual business or trade of the employer. The connection
can be determined by considering the nature of the work performed and its relation to
the scheme of the particular business or trade in its entirety. Also if the employee has
been performing the job for at least one year, even if the performance is not continuous
and merely intermittent, the law deems repeated and continuing need for its
performance as sufficient evidence of the necessity if not indispensability of that activity
to the business. Hence, the employment is considered regular, but only with respect to
such activity, and while such activity exists.
Without a doubt, the task of counting and sorting bills is necessary and desirable to the
business of respondent bank. With the exception of sixteen of them, petitioners
performed these tasks for more than six months. Thus, the following twenty-seven
petitioners should be deemed regular employees: Marites Bernardo, Elvira Go Diamante,
Rebecca E. David, David P. Pascual, Raquel Estiller, Albert Hallare, Edmund M. Cortez,
Joselito O. Agdon, George P. Ligutan Jr., Lilibeth Q. Marmolejo, Jose E. Sales, Isabel
Mamauag, Violeta G. Montes, Albino Tecson, Melody V. Gruela, Bernadeth D. Agero,
Cynthia de Vera, Lani R. Cortez, Ma. Isabel B. Concepcion, Margaret Cecilia Canoza,
Thelma Sebastian, Ma. Jeanette Cervantes, Jeannie Ramil, Rozaida Pascual, Pinky
Baloloa, Elizabeth Ventura and Grace S. Pardo.
As held by the Court, Articles 280 and 281 of the Labor Code put an end to the
pernicious practice of making permanent casuals of our lowly employees by the simple
expedient of extending to them probationary appointments, ad infinitum.[15] The
contract signed by petitioners is akin to a probationary employment, during which the
bank determined the employees fitness for the job. When the bank renewed the
contract after the lapse of the six-month probationary period, the employees thereby
became regular employees.[16] No employer is allowed to determine indefinitely the
fitness of its employees.
As regular employees, the twenty-seven petitioners are entitled to security of tenure;
that is, their services may be terminated only for a just or authorized cause. Because
respondent failed to show such cause,[17] these twenty-seven petitioners are deemed
illegally dismissed and therefore entitled to back wages and reinstatement without loss
of seniority rights and other privileges.[18] Considering the allegation of respondent
that the job of money sorting is no longer available because it has been assigned back
to the tellers to whom it originally belonged,[19] petitioners are hereby awarded
separation pay in lieu of reinstatement.[20]
Because the other sixteen worked only for six months, they are not deemed regular
employees and hence not entitled to the same benefits.
Applicability of the Brent Ruling
Respondent bank, citing Brent School v. Zamora[21] in which the Court upheld the
validity of an employment contract with a fixed term, argues that the parties entered
into the contract on equal footing. It adds that the petitioners had in fact an advantage,

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because they were backed by then DSWD Secretary Mita Pardo de Tavera and
Representative Arturo Borjal.
We are not persuaded. The term limit in the contract was premised on the fact that the
petitioners were disabled, and that the bank had to determine their fitness for the
position. Indeed, its validity is based on Article 80 of the Labor Code. But as noted
earlier, petitioners proved themselves to be qualified disabled persons who, under the
Magna Carta for Disabled Persons, are entitled to terms and conditions of employment
enjoyed by qualified able-bodied individuals; hence, Article 80 does not apply because
petitioners are qualified for their positions. The validation of the limit imposed on their
contracts, imposed by reason of their disability, was a glaring instance of the very
mischief sought to be addressed by the new law.
Moreover, it must be emphasized that a contract of employment is impressed with
public interest.[22] Provisions of applicable statutes are deemed written into the
contract, and the parties are not at liberty to insulate themselves and their relationships
from the impact of labor laws and regulations by simply contracting with each other.
[23] Clearly, the agreement of the parties regarding the period of employment cannot
prevail over the provisions of the Magna Carta for Disabled Persons, which mandate
that petitioners must be treated as qualified able-bodied employees.
Respondents reason for terminating the employment of petitioners is
instructive. Because the Bangko Sentral ng Pilipinas (BSP) required that cash in the
bank be turned over to the BSP during business hours from 8:00 a.m. to 5:00 p.m.,
respondent resorted to nighttime sorting and counting of money. Thus, it reasons that
this task could not be done by deaf mutes because of their physical limitations as it is
very risky for them to travel at night.[24] We find no basis for this argument. Travelling
at night involves risks to handicapped and able-bodied persons alike. This excuse
cannot justify the termination of their employment.
Other Grounds Cited by Respondent
Respondent argues that petitioners were merely accommodated employees. This fact
does not change the nature of their employment. As earlier noted, an employee is
regular because of the nature of work and the length of service, not because of the
mode or even the reason for hiring them.
Equally unavailing are private respondents arguments that it did not go out of its way to
recruit petitioners, and that its plantilla did not contain their positions. In L. T. Datu v.
NLRC,[25] the Court held that the determination of whether employment is casual or
regular does not depend on the will or word of the employer, and the procedure of
hiring x x x but on the nature of the activities performed by the employee, and to some
extent, the length of performance and its continued existence.
Private respondent argues that the petitioners were informed from the start that they
could not become regular employees. In fact, the bank adds, they agreed with the
stipulation in the contract regarding this point. Still, we are not persuaded. The wellsettled rule is that the character of employment is determined not by stipulations in the
contract, but by the nature of the work performed.[26] Otherwise, no employee can

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become regular by the simple expedient of incorporating this condition in the contract
of employment.
In this light, we iterate our ruling in Romares v. NLRC:[27]
Article 280 was emplaced in our statute books to prevent the circumvention of the
employees right to be secure in his tenure by indiscriminately and completely ruling out
all written and oral agreements inconsistent with the concept of regular employment
defined therein. Where an employee has been engaged to perform activities which are
usually necessary or desirable in the usual business of the employer, such employee is
deemed a regular employee and is entitled to security of tenure notwithstanding the
contrary provisions of his contract of employment.
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At this juncture, the leading case of Brent School, Inc. v. Zamora proves instructive. As
reaffirmed in subsequent cases, this Court has upheld the legality of fixed-term
employment. It ruled that the decisive determinant in term employment should not be
the activities that the employee is called upon to perform but the day certain agreed
upon the parties for the commencement and termination of their employment
relationship. But this Court went on to say that where from the circumstances it is
apparent that the periods have been imposed to preclude acquisition of tenurial security
by the employee, they should be struck down or disregarded as contrary to public policy
and morals.
In rendering this Decision, the Court emphasizes not only the constitutional bias in favor
of the working class, but also the concern of the State for the plight of the
disabled. The noble objectives of Magna Carta for Disabled Persons are not based
merely on charity or accommodation, but on justice and the equal treatment
of qualified persons, disabled or not. In the present case, the handicap of petitioners
(deaf-mutes) is not a hindrance to their work. The eloquent proof of this statement is
the repeated renewal of their employment contracts. Why then should they be
dismissed, simply because they are physically impaired? The Court believes, that, after
showing their fitness for the work assigned to them, they should be treated and granted
the same rights like any other regular employees.
In this light, we note the Office of the Solicitor Generals prayer joining the petitioners
cause.[28]
WHEREFORE, premises considered, the Petition is hereby GRANTED. The June 20, 1995
Decision
and
the
August
4,
1995
Resolution
of
the
NLRC
are REVERSED and SET ASIDE. Respondent Far East Bank and Trust Company is
hereby ORDERED to pay back wages and separation pay to each of the following
twenty-seven (27) petitioners, namely, Marites Bernardo, Elvira Go Diamante, Rebecca
E. David, David P. Pascual, Raquel Estiller, Albert Hallare, Edmund M. Cortez, Joselito O.
Agdon, George P. Ligutan Jr., Lilibeth Q. Marmolejo, Jose E. Sales, Isabel Mamauag,
Violeta G. Montes, Albino Tecson, Melody V. Gruela, Bernadeth D. Agero, Cynthia de
Vera, Lani R. Cortez, Ma. Isabel B. Concepcion, Margaret Cecilia Canoza, Thelma
Sebastian, Ma. Jeanette Cervantes, Jeannie Ramil, Rozaida Pascual, Pinky Baloloa,
Elizabeth Ventura and Grace S. Pardo. The NLRC is hereby directed to compute the

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exact amount due each of said employees, pursuant to existing laws and regulations,
within fifteen days from the finality of this Decision. No costs.
SO ORDERED.
Romero, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

2. Century vs. CA
SECOND DIVISION
CENTURY CANNING CORPORATION,
Petitioner,
- versus COURT OF APPEALS and
GLORIA C. PALAD,
Respondents.
G.R. No. 152894

Present:
QUISUMBING, J.,
Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
Promulgated: August 17, 2007

DECISION
CARPIO, J.:

The Case
This is a petition for review[1] of the Decision[2] dated 12 November 2001 and the
Resolution dated 5 April 2002 of the Court of Appeals in CA-G.R. SP No. 60379.

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The Facts
On 15 July 1997, Century Canning Corporation (petitioner) hired Gloria C. Palad (Palad)
as fish cleaner at petitioners tuna and sardines factory. Palad signed on 17 July 1997 an
apprenticeship agreement[3] with petitioner. Palad received an apprentice allowance
of P138.75 daily. On 25 July 1997, petitioner submitted its apprenticeship program for
approval to the Technical Education and Skills Development Authority (TESDA) of the
Department of Labor and Employment (DOLE). On 26 September 1997, the TESDA
approved petitioners apprenticeship program.[4]

According to petitioner, a performance evaluation was conducted on 15 November 1997,

where petitioner gave Palad a rating of N.I. or needs improvement since she scored
only27.75% based on a 100% performance indicator. Furthermore, according to the
performance evaluation, Palad incurred numerous tardiness and absences. As a
consequence, petitioner issued a termination notice[5] dated 22 November 1997 to
Palad, informing her of her termination effective at the close of business hours of 28
November 1997.

Palad then filed a complaint for illegal dismissal, underpayment of wages, and nonpayment of pro-rated 13th month pay for the year 1997.

On 25 February 1999, the Labor Arbiter dismissed the complaint for lack of merit but
ordered petitioner to pay Palad her last salary and her pro-rated 13th month pay. The
dispositive portion of the Labor Arbiters decision reads:

WHEREFORE, premises considered, judgment is hereby rendered declaring that the

complaint for illegal dismissal filed by the complainant against the respondents in the
above-entitled case should be, as it is hereby DISMISSED for lack of merit. However,
the respondents are hereby ordered to pay the complainant the amount of ONE
THOUSAND SIX HUNDRED THIRTY-TWO PESOS (P1,632.00), representing her last
salary and the amount of SEVEN THOUSAND TWO HUNDRED TWENTY EIGHT
(P7,228.00) PESOS representing her prorated 13th month pay.

All other issues are likewise dismissed.

SO ORDERED.[6]
On appeal, the National Labor Relations Commission (NLRC) affirmed with modification
the Labor Arbiters decision, thus:

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WHEREFORE, premises considered, the decision of the Arbiter dated 25 February 1999
is hereby MODIFIED in that, in addition, respondents are ordered to pay complainants
backwages for two (2) months in the amount of P7,176.00 (P138.75 x 26 x 2 mos.). All
other dispositions of the Arbiter as appearing in the dispositive portion of his decision
are AFFIRMED.

SO ORDERED.[7]

Upon denial of Palads motion for reconsideration, Palad filed a special civil action
for certiorari with the Court of Appeals. On 12 November 2001, the Court of Appeals
rendered a decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the questioned decision of the NLRC is hereby
SET ASIDE and a new one entered, to wit:

(a) finding the dismissal of petitioner to be illegal;

(b) ordering private respondent to pay petitioner her underpayment in wages;
(c) ordering private respondent to reinstate petitioner to her former position without
loss of seniority rights and to pay her full backwages computed from the time
compensation was withheld from her up to the time of her reinstatement;
(d) ordering private respondent to pay petitioner attorneys fees equivalent to ten (10%)
per cent of the monetary award herein; and
(e) ordering private respondent to pay the costs of the suit.

SO ORDERED.[8]
The Ruling of the Court of Appeals

The Court of Appeals held that the apprenticeship agreement which Palad signed was
not valid and binding because it was executed more than two months before the TESDA
approved petitioners apprenticeship program. The Court of Appeals cited Nitto
Enterprises v. National Labor Relations Commission,[9] where it was held that prior
approval by the DOLE of the proposed apprenticeship program is a condition sine qua
non before an apprenticeship agreement can be validly entered into.

The Court of Appeals also held that petitioner illegally dismissed Palad. The Court of
Appeals ruled that petitioner failed to show that Palad was properly apprised of the
required standard of performance. The Court of Appeals likewise held that Palad was

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not afforded due process because petitioner did not comply with the twin requirements
of notice and hearing.

The Issues
Petitioner raises the following issues:

1.
WHETHER THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
HOLDING THAT PRIVATE RESPONDENT WAS NOT AN APPRENTICE; and

2.
WHETHER THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
HOLDING THAT PETITIONER HAD NOT ADEQUATELY PROVEN THE EXISTENCE OF A
VALID CAUSE IN TERMINATING THE SERVICE OF PRIVATE RESPONDENT.[10]

The Ruling of the Court

The petition is without merit.

Registration and Approval by the TESDA of Apprenticeship Program Required Before

Hiring of Apprentices

The Labor Code defines an apprentice as a worker who is covered by a written

apprenticeship agreement with an employer.[11] One of the objectives of Title II
(Training and Employment of Special Workers) of the Labor Code is to establish
apprenticeship standards for the protection of apprentices.[12] In line with this
objective, Articles 60 and 61 of the Labor Code provide:

ART. 60. Employment of apprentices. Only employers in the highly technical industries
may employ apprentices and only in apprenticeable occupations approved by the
Minister of Labor and Employment. (Emphasis supplied)

ART. 61. Contents of apprenticeship agreements. Apprenticeship agreements, including

the wage rates of apprentices, shall conform to the rules issued by the Minister of Labor
and Employment. The period of apprenticeship shall not exceed six
months. Apprenticeship agreements providing for wage rates below the legal minimum
wage, which in no case shall start below 75 percent of the applicable minimum wage,
may be entered into only in accordance with apprenticeship programs duly approved by

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the Minister of Labor and Employment. The Ministry shall develop standard model
programs of apprenticeship. (Emphasis supplied)

In Nitto Enterprises v. National Labor Relations Commission,[13] the Court cited Article
61 of the Labor Code and held that an apprenticeship program should first be approved
by the DOLE before an apprentice may be hired, otherwise the person hired will be
considered a regular employee. The Court held:
In the case at bench, the apprenticeship agreement between petitioner and private
respondent was executed on May 28, 1990 allegedly employing the latter as an
apprentice in the trade of care maker/molder. On the same date, an apprenticeship
program was prepared by petitioner and submitted to the Department of Labor and
Employment. However, the apprenticeship agreement was filed only on June 7, 1990.
Notwithstanding the absence of approval by the Department of Labor and Employment,
the apprenticeship agreement was enforced the day it was signed.
Based on the evidence before us, petitioner did not comply with the requirements of the
law. It is mandated that apprenticeship agreements entered into by the employer and
apprentice shall be entered only in accordance with the apprenticeship program duly
approved by the Minister of Labor and Employment.
Prior approval by the Department of Labor and Employment of the proposed
apprenticeship program is, therefore, a condition sine qua non before an apprenticeship
agreement can be validly entered into.
The act of filing the proposed apprenticeship program with the Department of Labor
and Employment is a preliminary step towards its final approval and does not
instantaneously give rise to an employer-apprentice relationship.
Article 57 of the Labor Code provides that the State aims to establish a national
apprenticeship program through the participation of employers, workers and
government and non-government agencies and to establish apprenticeship standards
for the protection of apprentices. To translate such objectives into existence, prior
approval of the DOLE to any apprenticeship program has to be secured as a
condition sine qua non before any such apprenticeship agreement can be fully enforced.
The role of the DOLE in apprenticeship programs and agreements cannot be debased.
Hence, since the apprenticeship agreement between petitioner and private respondent
has no force and effect in the absence of a valid apprenticeship program duly approved
by the DOLE, private respondents assertion that he was hired not as an apprentice but
as a delivery boy (kargador or pahinante) deserves credence. He should rightly be
considered as a regular employee of petitioner as defined by Article 280 of the Labor
Code x x x. (Emphasis supplied)[14]

Republic Act No. 7796[15] (RA 7796), which created the TESDA, has transferred the
authority over apprenticeship programs from the Bureau of Local Employment of the
DOLE to the TESDA.[16] RA 7796 emphasizes TESDAs approval of the apprenticeship

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program as a pre-requisite for the hiring of apprentices. Such intent is clear under
Section 4 of RA 7796:
SEC. 4. Definition of Terms. As used in this Act:

j) Apprenticeship training within employment with compulsory related theoretical

instructions involving a contract between an apprentice and an employer on an
approved apprenticeable occupation;

k) Apprentice is a person undergoing training for an approved apprenticeable

occupation during an established period assured by an apprenticeship agreement;

l) Apprentice Agreement is a contract wherein a prospective employer binds himself to

train the apprentice who in turn accepts the terms of training for a recognized
apprenticeable occupation emphasizing the rights, duties and responsibilities of each
party;

m) Apprenticeable Occupation is an occupation officially endorsed by a tripartite body

and approved for apprenticeship by the Authority [TESDA]; (Emphasis supplied)

In this case, the apprenticeship agreement was entered into between the parties before
petitioner filed its apprenticeship program with the TESDA for approval. Petitioner and
Palad executed the apprenticeship agreement on 17 July 1997 wherein it was stated
that the training would start on 17 July 1997 and would end approximately in December
1997.[17] On 25 July 1997, petitioner submitted for approval its apprenticeship
program, which the TESDA subsequently approved on 26 September 1997.[18] Clearly,
the apprenticeship agreement was enforced even before the TESDA approved
petitioners apprenticeship program. Thus, the apprenticeship agreement is void because
it lacked prior approval from the TESDA.

The TESDAs approval of the employers apprenticeship program is required before the
employer is allowed to hire apprentices. Prior approval from the TESDA is necessary to
ensure that only employers in the highly technical industries may employ apprentices
and only in apprenticeable occupations.[19] Thus, under RA 7796, employers can only
hire apprentices for apprenticeable occupations which must be officially endorsed by a
tripartite body and approved for apprenticeship by the TESDA. This is to ensure the
protection of apprentices and to obviate possible abuses by prospective employers who
may want to take advantage of the lower wage rates for apprentices and circumvent
the right of the employees to be secure in their employment.

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The requisite TESDA approval of the apprenticeship program prior to the hiring of
apprentices was further emphasized by the DOLE with the issuance of Department
Order No. 68-04 on 18 August 2004. Department Order No. 68-04, which provides the
guidelines in the implementation of the Apprenticeship and Employment Program of the
government, specifically states that no enterprise shall be allowed to hire apprentices
unless its apprenticeship program is registered and approved by TESDA.[20]

Since Palad is not considered an apprentice because the apprenticeship agreement was
enforced before the TESDAs approval of petitioners apprenticeship program, Palad is
deemed a regular employee performing the job of a fish cleaner. Clearly, the job of a
fish cleaner is necessary in petitioners business as a tuna and sardines factory. Under
Article 280[21] of the Labor Code, an employment is deemed regular where the
employee has been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer.

Illegal Termination of Palad

We shall now resolve whether petitioner illegally dismissed Palad.

Under Article 279[22] of the Labor Code, an employer may terminate the services of an
employee for just causes[23] or for authorized causes.[24] Furthermore, under Article
277(b)[25] of the Labor Code, the employer must send the employee who is about to
be terminated, a written notice stating the causes for termination and must give the
employee the opportunity to be heard and to defend himself. Thus, to constitute valid
dismissal from employment, two requisites must concur: (1) the dismissal must be for a
just or authorized cause; and (2) the employee must be afforded an opportunity to be
heard and to defend himself.[26]

In this case, the Labor Arbiter held that petitioner terminated Palad for habitual
absenteeism and poor efficiency of performance. Under Section 25, Rule VI, Book II of
the Implementing Rules of the Labor Code, habitual absenteeism and poor efficiency of
performance are among the valid causes for which the employer may terminate the
apprenticeship agreement after the probationary period.

However, the NLRC reversed the finding of the Labor Arbiter on the issue of the legality
of Palads termination:

As to the validity of complainants dismissal in her status as an apprentice, suffice to

state that the findings of the Arbiter that complainant was dismissed due to failure to
meet the standards is nebulous. What clearly appears is that complainant already
passed the probationary status of the apprenticeship agreement of 200 hours at the

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time she was terminated on 28 November 1997 which was already the fourth month of
the apprenticeship period of 1000 hours. As such, under the Code, she can only be
dismissed for cause, in this case, for poor efficiency of performance on the job or in the
classroom for a prolonged period despite warnings duly given to the apprentice.

We noted that no clear and sufficient evidence exist to warrant her dismissal as an
apprentice during the agreed period. Besides the absence of any written warnings given
to complainant reminding her of poor performance, respondents evidence in this
respect consisted of an indecipherable or unauthenticated xerox of the performance
evaluation allegedly conducted on complainant. This is of doubtful authenticity and/or
credibility, being not only incomplete in the sense that appearing thereon is a signature
(not that of complainant) side by side with a date indicated as 1/16/98. From the looks
of it, this signature is close to and appertains to the typewritten position of
Division/Department Head, which is below the signature of complainants immediate
superior who made the evaluation indicated as 11-15-97.

The only conclusion We can infer is that this evaluation was made belatedly, specifically,
after the filing of the case and during the progress thereof in the Arbitral level, as
shown that nothing thereon indicate that complainant was notified of the results. Its
authenticity therefor, is a big question mark, and hence lacks any credibility. Evidence,
to be admissible in administrative proceedings, must at least have a modicum of
authenticity. This, respondents failed to comply with. As such, complainant is entitled to
the payment of her wages for the remaining two (2) months of her apprenticeship
agreement.[27] (Emphasis supplied)

Indeed, it appears that the Labor Arbiters conclusion that petitioner validly terminated
Palad was based mainly on the performance evaluation allegedly conducted by
petitioner. However, Palad alleges that she had no knowledge of the performance
evaluation conducted and that she was not even informed of the result of the alleged
performance evaluation. Palad also claims she did not receive a notice of dismissal, nor
was she given the chance to explain. According to petitioner, Palad did not receive the
termination notice because Palad allegedly stopped reporting for work after being
informed of the result of the evaluation.

Under Article 227 of the Labor Code, the employer has the burden of proving that the
termination was for a valid or authorized cause.[28] Petitioner failed to substantiate its
claim that Palad was terminated for valid reasons. In fact, the NLRC found that
petitioner failed to prove the authenticity of the performance evaluation which petitioner
claims to have conducted on Palad, where Palad received a performance rating of only
27.75%. Petitioner merely relies on the performance evaluation to prove Palads
inefficiency. It was likewise not shown that petitioner ever apprised Palad of the
performance standards set by the company. When the alleged valid cause for the

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termination of employment is not clearly proven, as in this case, the law considers the
matter a case of illegal dismissal.[29]

Furthermore, Palad was not accorded due process. Even if petitioner did conduct a
performance evaluation on Palad, petitioner failed to warn Palad of her alleged poor
performance. In fact, Palad denies any knowledge of the performance evaluation
conducted and of the result thereof. Petitioner likewise admits that Palad did not receive
the notice of termination[30] because Palad allegedly stopped reporting for work. The
records are bereft of evidence to show that petitioner ever gave Palad the opportunity
to explain and defend herself. Clearly, the two requisites for a valid dismissal are lacking
in this case.

WHEREFORE, we AFFIRM the Decision dated 12 November 2001 and the Resolution
dated 5 April 2002 of the Court of Appeals in CA-G.R. SP No. 60379.

SO ORDERED.

Employer-Employee Relationship
1. Filamer vs IAC, 212 SCRA 637
G.R. No. 75112 August 17, 1992
FILAMER
CHRISTIAN
INSTITUTE, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT, HON. ENRIQUE P. SUPLICO, in his capacity as
Judge of the Regional Trial Court, Branch XIV, Roxas City and POTENCIANO KAPUNAN,
SR., respondents.

Bedona & Bedona Law Office for petitioner.

Rhodora G. Kapunan for private respondents.
GUTIERREZ, JR., J.:
The private respondents, heirs of the late Potenciano Kapunan, seek reconsideration of
the decision rendered by this Court on October 16, 1990 (Filamer Christian Institute v.
Court of Appeals, 190 SCRA 477) reviewing the appellate court's conclusion that there
exists an employer-employee relationship between the petitioner and its co-defendant
Funtecha. The Court ruled that the petitioner is not liable for the injuries caused by
Funtecha on the grounds that the latter was not an authorized driver for whose acts the
petitioner shall be directly and primarily answerable, and that Funtecha was merely a
working scholar who, under Section 14, Rule X, Book III of the Rules and Regulations
Implementing the Labor Code is not considered an employee of the petitioner.

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The private respondents assert that the circumstances obtaining in the present case call
for the application of Article 2180 of the Civil Code since Funtecha is no doubt an
employee of the petitioner. The private respondents maintain that under Article 2180 an
injured party shall have recourse against the servant as well as the petitioner for whom,
at the time of the incident, the servant was performing an act in furtherance of the
interest and for the benefit of the petitioner. Funtecha allegedly did not steal the school
jeep nor use it for a joy ride without the knowledge of the school authorities.
After a re-examination of the laws relevant to the facts found by the trial court and the
appellate court, the Court reconsiders its decision. We reinstate the Court of Appeals'
decision penned by the late Justice Desiderio Jurado and concurred in by Justices Jose
C. Campos, Jr. and Serafin E. Camilon. Applying Civil Code provisions, the appellate
court affirmed the trial court decision which ordered the payment of the P20,000.00
liability in the Zenith Insurance Corporation policy, P10,000.00 moral damages,
P4,000.00 litigation and actual expenses, and P3,000.00 attorney's fees.
It is undisputed that Funtecha was a working student, being a part-time janitor and a
scholar of petitioner Filamer. He was, in relation to the school, an employee even if he
was assigned to clean the school premises for only two (2) hours in the morning of
each school day.
Having a student driver's license, Funtecha requested the driver, Allan Masa, and was
allowed, to take over the vehicle while the latter was on his way home one late
afternoon. It is significant to note that the place where Allan lives is also the house of
his father, the school president, Agustin Masa. Moreover, it is also the house where
Funtecha was allowed free board while he was a student of Filamer Christian Institute.
Allan Masa turned over the vehicle to Funtecha only after driving down a road,
negotiating a sharp dangerous curb, and viewing that the road was clear. (TSN, April 4,
1983, pp. 78-79) According to Allan's testimony, a fast moving truck with glaring lights
nearly hit them so that they had to swerve to the right to avoid a collision. Upon
swerving, they heard a sound as if something had bumped against the vehicle, but they
did not stop to check. Actually, the Pinoy jeep swerved towards the pedestrian,
Potenciano Kapunan who was walking in his lane in the direction against vehicular
traffic, and hit him. Allan affirmed that Funtecha followed his advise to swerve to the
right. (Ibid., p. 79) At the time of the incident (6:30 P.M.) in Roxas City, the jeep had
only one functioning headlight.
Allan testified that he was the driver and at the same time a security guard of the
petitioner-school. He further said that there was no specific time for him to be off-duty
and that after driving the students home at 5:00 in the afternoon, he still had to go
back to school and then drive home using the same vehicle.
Driving the vehicle to and from the house of the school president where both Allan and
Funtecha reside is an act in furtherance of the interest of the petitioner-school. Allan's
job demands that he drive home the school jeep so he can use it to fetch students in
the morning of the next school day.
It is indubitable under the circumstances that the school president had knowledge that
the jeep was routinely driven home for the said purpose. Moreover, it is not improbable

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that the school president also had knowledge of Funtecha's possession of a student
driver's license and his desire to undergo driving lessons during the time that he was
not in his classrooms.
In learning how to drive while taking the vehicle home in the direction of Allan's house,
Funtecha definitely was not having a joy ride. Funtecha was not driving for the purpose
of his enjoyment or for a "frolic of his own" but ultimately, for the service for which the
jeep was intended by the petitioner school. (See L. Battistoni v. Thomas, Can SC 144, 1
D.L.R. 577, 80 ALR 722 [1932]; See also Association of Baptists for World Evangelism,
Inc. v. Fieldmen's Insurance Co., Inc. 124 SCRA 618 [1983]). Therefore, the Court is
constrained to conclude that the act of Funtecha in taking over the steering wheel was
one done for and in behalf of his employer for which act the petitioner-school cannot
deny any responsibility by arguing that it was done beyond the scope of his janitorial
duties. The clause "within the scope of their assigned tasks" for purposes of raising the
presumption of liability of an employer, includes any act done by an employee, in
furtherance of the interests of the employer or for the account of the employer at the
time of the infliction of the injury or damage. (Manuel Casada, 190 Va 906, 59 SE 2d 47
[1950]) Even if somehow, the employee driving the vehicle derived some benefit from
the act, the existence of a presumptive liability of the employer is determined by
answering the question of whether or not the servant was at the time of the accident
performing any act in furtherance of his master's business. (Kohlman v. Hyland, 210 NW
643, 50 ALR 1437 [1926]; Jameson v. Gavett, 71 P 2d 937 [1937])
Section 14, Rule X, Book III of the Rules implementing the Labor Code, on which the
petitioner anchors its defense, was promulgated by the Secretary of Labor and
Employment only for the purpose of administering and enforcing the provisions of the
Labor Code on conditions of employment. Particularly, Rule X of Book III provides
guidelines on the manner by which the powers of the Labor Secretary shall be
exercised; on what records should be kept; maintained and preserved; on payroll; and
on the exclusion of working scholars from, and inclusion of resident physicians in the
employment coverage as far as compliance with the substantive labor provisions on
working conditions, rest periods, and wages, is concerned.
In other words, Rule X is merely a guide to the enforcement of the substantive law on
labor. The Court, thus, makes the distinction and so holds that Section 14, Rule X, Book
III of the Rules is not the decisive law in a civil suit for damages instituted by an injured
person during a vehicular accident against a working student of a school and against
the school itself.
The present case does not deal with a labor dispute on conditions of employment
between an alleged employee and an alleged employer. It invokes a claim brought by
one for damages for injury caused by the patently negligent acts of a person, against
both doer-employee and his employer. Hence, the reliance on the implementing rule on
labor to disregard the primary liability of an employer under Article 2180 of the Civil
Code is misplaced. An implementing rule on labor cannot be used by an employer as a
shield to avoid liability under the substantive provisions of the Civil Code.
There is evidence to show that there exists in the present case an extra-contractual
obligation arising from the negligence or reckless imprudence of a person "whose acts

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or omissions are imputable, by a legal fiction, to other(s) who are in a position to

exercise an absolute or limited control over (him)." (Bahia v. Litonjua and Leynes, 30
Phil. 624 [1915])
Funtecha is an employee of petitioner Filamer. He need not have an official appointment
for a driver's position in order that the petitioner may be held responsible for his grossly
negligent act, it being sufficient that the act of driving at the time of the incident was
for the benefit of the petitioner. Hence, the fact that Funtecha was not the school driver
or was not acting within the scope of his janitorial duties does not relieve the petitioner
of the burden of rebutting the presumption juris tantum that there was negligence on
its part either in the selection of a servant or employee, or in the supervision over him.
The petitioner has failed to show proof of its having exercised the required diligence of
a good father of a family over its employees Funtecha and Allan.
The Court reiterates that supervision includes the formulation of suitable rules and
regulations for the guidance of its employees and the issuance of proper instructions
intended for the protection of the public and persons with whom the employer has
relations through his employees. (Bahia v. Litonjua and Leynes, supra, at p. 628;
Phoenix Construction, v. Intermediate Appellate Court, 148 SCRA 353 [1987])
An employer is expected to impose upon its employees the necessary discipline called
for in the performance of any act indispensable to the business and beneficial to their
employer.
In the present case, the petitioner has not shown that it has set forth such rules and
guidelines as would prohibit any one of its employees from taking control over its
vehicles if one is not the official driver or prohibiting the driver and son of the Filamer
president from authorizing another employee to drive the school vehicle. Furthermore,
the petitioner has failed to prove that it had imposed sanctions or warned its employees
against the use of its vehicles by persons other than the driver.
The petitioner, thus, has an obligation to pay damages for injury arising from the
unskilled manner by which Funtecha drove the vehicle. (Cangco v. Manila Railroad Co.,
38 Phil. 768, 772 [1918]). In the absence of evidence that the petitioner had exercised
the diligence of a good father of a family in the supervision of its employees, the law
imposes upon it the vicarious liability for acts or omissions of its employees. (Umali v.
Bacani, 69 SCRA 263 [1976]; Poblete v. Fabros, 93 SCRA 200 [1979]; Kapalaran Bus
Liner v. Coronado, 176 SCRA 792 [1989]; Franco v. Intermediate Appellate Court, 178
SCRA 331 [1989]; Pantranco North Express, Inc. v. Baesa, 179 SCRA 384 [1989]) The
liability of the employer is, under Article 2180, primary and solidary. However, the
employer shall have recourse against the negligent employee for whatever damages are
paid to the heirs of the plaintiff.
It is an admitted fact that the actual driver of the school jeep, Allan Masa, was not
made a party defendant in the civil case for damages. This is quite understandable
considering that as far as the injured pedestrian, plaintiff Potenciano Kapunan, was
concerned, it was Funtecha who was the one driving the vehicle and presumably was
one authorized by the school to drive. The plaintiff and his heirs should not now be left
to suffer without simultaneous recourse against the petitioner for the consequent injury

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caused by a janitor doing a driving chore for the petitioner even for a short while. For
the purpose of recovering damages under the prevailing circumstances, it is enough
that the plaintiff and the private respondent heirs were able to establish the existence
of employer-employee relationship between Funtecha and petitioner Filamer and the
fact that Funtecha was engaged in an act not for an independent purpose of his own
but in furtherance of the business of his employer. A position of responsibility on the
part of the petitioner has thus been satisfactorily demonstrated.
WHEREFORE, the motion for reconsideration of the decision dated October 16, 1990 is
hereby GRANTED. The decision of the respondent appellate court affirming the trial
court decision is REINSTATED.
SO ORDERED.
2. Republic vs AsiaPro, November 23, 2007
G.R. No. 172101
Republic of the Philippines vs. ASIAPRO
COOPERATIVE
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure seeking to annul and set aside the Decision [1] and
Resolution[2] of the Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006
and 20 March 2006, respectively, which annulled and set aside the Orders of the Social
Security Commission (SSC) in SSC Case No. 6-15507-03, dated 17 February 2004 [3] and
16 September 2004,[4]respectively, thereby dismissing the petition-complaint dated 12
June 2003 filed by herein petitioner Social Security System (SSS) against herein
respondent.
Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial
body authorized by law to resolve disputes arising under Republic Act No. 1161, as
amended by Republic Act No. 8282. [5] Petitioner SSS is a government corporation
created by virtue of Republic Act No. 1161, as amended.On the other hand, herein
respondent Asiapro Cooperative (Asiapro) is a multi-purpose cooperative created
pursuant to Republic Act No. 6938 [6] and duly registered with the Cooperative
Development Authority (CDA) on 23 November 1999 with Registration Certificate No. 0623-2460.[7]

The antecedents of this case are as follows:

Respondent Asiapro, as a cooperative, is composed of owners-members. Under its bylaws, owners-members are of two categories, to wit: (1) regular member, who is
entitled to all the rights and privileges of membership; and (2) associate member, who
has no right to vote and be voted upon and shall be entitled only to such rights and
privileges provided in its by-laws. [8] Its primary objectives are to provide savings and

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credit facilities and to develop other livelihood services for its owners-members. In the
discharge of the aforesaid primary objectives, respondent cooperative entered into
several Service Contracts[9] with Stanfilco - a division of DOLE Philippines, Inc. and a
company based in Bukidnon. The owners-members do not receive compensation or
wages from the respondent cooperative. Instead, they receive a share in the service
surplus[10] which the respondent cooperative earns from different areas of trade it
engages in, such as the income derived from the said Service Contracts with
Stanfilco. The owners-members get their income from the service surplus generated by
the quality and amount of services they rendered, which is determined by the Board of
Directors of the respondent cooperative.

In order to enjoy the benefits under the Social Security Law of 1997, the ownersmembers of the respondent cooperative, who were assigned to Stanfilco requested the
services of the latter to register them with petitioner SSS as self-employed and to remit
their contributions as such. Also, to comply with Section 19-A of Republic Act No. 1161,
as amended by Republic Act No. 8282, the SSS contributions of the said ownersmembers were equal to the share of both the employer and the employee.

On 26 September 2002, however, petitioner SSS through its Vice-President for

Mindanao Division, Atty. Eddie A. Jara, sent a letter [11] to the respondent cooperative,
addressed to its Chief Executive Officer (CEO) and General Manager Leo G. Parma,
informing the latter that based on the Service Contracts it executed with Stanfilco,
respondent cooperative is actually a manpower contractor supplying employees to
Stanfilco and for that reason, it is an employer of its owners-members working with
Stanfilco. Thus, respondent cooperative should register itself with petitioner SSS as an
employer and make the corresponding report and remittance of premium contributions
in accordance with the Social Security Law of 1997. On 9 October 2002,[12] respondent
cooperative, through its counsel, sent a reply to petitioner SSSs letter asserting that it is
not an employer because its owners-members are the cooperative itself; hence, it
cannot be its own employer. Again, on 21 October 2002,[13] petitioner SSS sent a letter
to respondent cooperative ordering the latter to register as an employer and report its
owners-members as employees for compulsory coverage with the petitioner
SSS. Respondent cooperative continuously ignored the demand of petitioner SSS.

Accordingly, petitioner SSS, on 12 June 2003, filed a Petition [14] before petitioner SSC
against the respondent cooperative and Stanfilco praying that the respondent
cooperative or, in the alternative, Stanfilco be directed to register as an employer and to
report respondent cooperatives owners-members as covered employees under the
compulsory coverage of SSS and to remit the necessary contributions in accordance
with the Social Security Law of 1997. The same was docketed as SSC Case No. 615507-03. Respondent cooperative filed its Answer with Motion to Dismiss alleging that
no employer-employee relationship exists between it and its owners-members, thus,

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petitioner SSC has no jurisdiction over the respondent cooperative. Stanfilco, on the
other hand, filed an Answer with Cross-claim against the respondent cooperative.

On 17 February 2004, petitioner SSC issued an Order denying the Motion to Dismiss
filed by the respondent cooperative. The respondent cooperative moved for the
reconsideration of the said Order, but it was likewise denied in another Order issued by
the SSC dated 16 September 2004.

Intending to appeal the above Orders, respondent cooperative filed a Motion for
Extension of Time to File a Petition for Review before the Court of
Appeals. Subsequently, respondent cooperative filed a Manifestation stating that it was
no longer filing a Petition for Review. In its place, respondent cooperative filed a Petition
for Certiorari before the Court of Appeals, docketed as CA-G.R. SP No. 87236, with the
following assignment of errors:

I.
The Orders dated 17 February 2004 and 16 September
2004 of [herein petitioner] SSC were issued with grave abuse of discretion amounting
to a (sic) lack or excess of jurisdiction in that:

A.
[Petitioner] SSC arbitrarily proceeded with the case as if it has jurisdiction
over the petition a quo, considering that it failed to first resolve the issue of the
existence of an employer-employee relationship between [respondent] cooperative and
its owners-members.
B.
While indeed, the [petitioner] SSC has jurisdiction over all disputes arising
under the SSS Law with respect to coverage, benefits, contributions, and related
matters, it is respectfully submitted that [petitioner] SSC may only assume jurisdiction
in cases where there is no dispute as to the existence of an employer-employee
relationship.
C.
Contrary to the holding of the [petitioner] SSC, the legal issue of
employer-employee relationship raised in [respondents] Motion to Dismiss can be
preliminarily resolved through summary hearings prior to the hearing on the
merits. However, any inquiry beyond a preliminary determination, as what [petitioner
SSC] wants to accomplish, would be to encroach on the jurisdiction of the National
Labor Relations Commission [NLRC], which is the more competent body clothed with
power to resolve issues relating to the existence of an employment relationship.

II.
At any rate, the [petitioner] SSC has no jurisdiction to
take cognizance of the petition a quo.

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A.
[Respondent] is not an employer within the contemplation of the Labor
Law but is a multi-purpose cooperative created pursuant to Republic Act No. 6938 and
composed of owners-members, not employees.
B.
The rights and obligations of the owners-members of [respondent]
cooperative are derived from their Membership Agreements, the Cooperatives By-Laws,
and Republic Act No. 6938, and not from any contract of employment or from the Labor
Laws. Moreover, said owners-members enjoy rights that are not consistent with being
mere employees of a company, such as the right to participate and vote in decisionmaking for the cooperative.
C.
As found by the Bureau of Internal Revenue [BIR], the owners-members
of [respondent] cooperative are not paid any compensation income. [15](Emphasis
supplied.)

On 5 January 2006, the Court of Appeals rendered a Decision granting the petition filed
by the respondent cooperative. The decretal portion of the Decision reads:

WHEREFORE, the petition is GRANTED. The assailed Orders dated [17 February 2004]
and [16 September 2004], are ANNULLED and SET ASIDE and a new one is
entered DISMISSING the petition-complaint dated [12 June 2003] of [herein petitioner]
Social Security System.[16]
Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it
was denied by the appellate court in its Resolution dated 20 March 2006.

Hence, this Petition.

In its Memorandum, petitioners raise the issue of whether or not the Court of Appeals
erred in not finding that the SSC has jurisdiction over the subject matter and it has a
valid basis in denying respondents Motion to Dismiss. The said issue is supported by the
following arguments:

I.
The [petitioner SSC] has jurisdiction over the petitioncomplaint filed before it by the [petitioner SSS] under R.A. No. 8282.

II.
Respondent [cooperative] is estopped from questioning
the jurisdiction of petitioner SSC after invoking its jurisdiction by filing an [A]nswer with
[M]otion to [D]ismiss before it.

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III.
The [petitioner SSC] did not act with grave abuse of
discretion in denying respondent [cooperatives] [M]otion to [D]ismiss.

IV.
The existence of an employer-employee relationship is a
question of fact where presentation of evidence is necessary.

V.
There is an employer-employee relationship between
[respondent cooperative] and its [owners-members].

Petitioners claim that SSC has jurisdiction over the petition-complaint filed before it by
petitioner SSS as it involved an issue of whether or not a worker is entitled to
compulsory coverage under the SSS Law. Petitioners avow that Section 5 of Republic
Act No. 1161, as amended by Republic Act No. 8282, expressly confers upon petitioner
SSC the power to settle disputes on compulsory coverage, benefits, contributions and
penalties thereon or any other matter related thereto. Likewise, Section 9 of the same
law clearly provides that SSS coverage is compulsory upon all employees. Thus, when
petitioner SSS filed a petition-complaint against the respondent cooperative and
Stanfilco before the petitioner SSC for the compulsory coverage of respondent
cooperatives owners-members as well as for collection of unpaid SSS contributions, it
was very obvious that the subject matter of the aforesaid petition-complaint was within
the expertise and jurisdiction of the SSC.

Petitioners similarly assert that granting arguendo that there is a prior need to
determine the existence of an employer-employee relationship between the respondent
cooperative and its owners-members, said issue does not preclude petitioner SSC from
taking cognizance of the aforesaid petition-complaint.Considering that the principal
relief sought in the said petition-complaint has to be resolved by reference to the Social
Security Law and not to the Labor Code or other labor relations statutes, therefore,
jurisdiction over the same solely belongs to petitioner SSC.

Petitioners further claim that the denial of the respondent cooperatives Motion to
Dismiss grounded on the alleged lack of employer-employee relationship does not
constitute grave abuse of discretion on the part of petitioner SSC because the latter has
the authority and power to deny the same.Moreover, the existence of an employeremployee relationship is a question of fact where presentation of evidence is
necessary. Petitioners also maintain that the respondent cooperative is already estopped
from assailing the jurisdiction of the petitioner SSC because it has already filed its
Answer before it, thus, respondent cooperative has already submitted itself to the
jurisdiction of the petitioner SSC.

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Finally, petitioners contend that there is an employer-employee relationship between

the respondent cooperative and its owners-members. The respondent cooperative is the
employer of its owners-members considering that it undertook to provide services to
Stanfilco, the performance of which is under the full and sole control of the respondent
cooperative.

On the other hand, respondent cooperative alleges that its owners-members own the
cooperative, thus, no employer-employee relationship can arise between them. The
persons of the employer and the employee are merged in the owners-members
themselves. Likewise, respondent cooperatives owners-members even requested the
respondent cooperative to register them with the petitioner SSS as self-employed
individuals. Hence, petitioner SSC has no jurisdiction over the petition-complaint filed
before it by petitioner SSS.

Respondent cooperative further avers that the Court of Appeals correctly ruled that
petitioner SSC acted with grave abuse of discretion when it assumed jurisdiction over
the petition-complaint without determining first if there was an employer-employee
relationship between the respondent cooperative and its owners-members. Respondent
cooperative claims that the question of whether an employer-employee relationship
exists between it and its owners-members is a legal and not a factual issue as the facts
are undisputed and need only to be interpreted by the applicable law and
jurisprudence.

Lastly, respondent cooperative asserts that it cannot be considered estopped from

assailing the jurisdiction of petitioner SSC simply because it filed an Answer with Motion
to Dismiss, especially where the issue of jurisdiction is raised at the very first instance
and where the only relief being sought is the dismissal of the petition-complaint for lack
of jurisdiction.

From the foregoing arguments of the parties, the issues may be summarized into:

I.
Whether the petitioner SSC has jurisdiction over the
petition-complaint filed before it by petitioner SSS against the respondent cooperative.

II.
Whether the respondent cooperative is estopped from
assailing the jurisdiction of petitioner SSC since it had already filed an Answer with
Motion to Dismiss before the said body.
Petitioner SSCs jurisdiction is clearly stated in Section 5 of Republic Act No. 8282 as well
as in Section 1, Rule III of the 1997 SSS Revised Rules of Procedure.

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Section 5 of Republic Act No. 8282 provides:

SEC. 5. Settlement of Disputes. (a) Any dispute arising under this Act with respect to
coverage, benefits, contributions and penalties thereon or any other matter related
thereto, shall be cognizable by the Commission, x x x. (Emphasis supplied.)
Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states:

Section 1. Jurisdiction. Any dispute arising under the Social Security Act with respect to
coverage, entitlement of benefits, collection and settlement of contributions and
penalties thereon, or any other matter related thereto, shall be cognizable by the
Commission after the SSS through its President, Manager or Officer-in-charge of the
Department/Branch/Representative Office concerned had first taken action thereon in
writing. (Emphasis supplied.)

It is clear then from the aforesaid provisions that any issue regarding the compulsory
coverage of the SSS is well within the exclusive domain of the petitioner SSC. It is
important to note, though, that the mandatory coverage under the SSS Law is premised
on the existence of an employer-employee relationship [17] except in cases of compulsory
coverage of the self-employed.
It is axiomatic that the allegations in the complaint, not the defenses set up in the
Answer or in the Motion to Dismiss, determine which court has jurisdiction over an
action; otherwise, the question of jurisdiction would depend almost entirely upon the
defendant.[18] Moreover, it is well-settled that once jurisdiction is acquired by the court,
it remains with it until the full termination of the case. [19] The said principle may be
applied even to quasi-judicial bodies.

In this case, the petition-complaint filed by the petitioner SSS before the petitioner SSC
against the respondent cooperative and Stanfilco alleges that the owners-members of
the respondent cooperative are subject to the compulsory coverage of the SSS because
they are employees of the respondent cooperative. Consequently, the respondent
cooperative being the employer of its owners-members must register as employer and
report its owners-members as covered members of the SSS and remit the necessary
premium contributions in accordance with the Social Security Law of 1997. Accordingly,
based on the aforesaid allegations in the petition-complaint filed before the petitioner
SSC, the case clearly falls within its jurisdiction. Although the Answer with Motion to
Dismiss filed by the respondent cooperative challenged the jurisdiction of the petitioner
SSC on the alleged lack of employer-employee relationship between itself and its
owners-members, the same is not enough to deprive the petitioner SSC of its
jurisdiction over the petition-complaint filed before it. Thus, the petitioner SSC cannot
be faulted for initially assuming jurisdiction over the petition-complaint of the petitioner
SSS.

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Nonetheless, since the existence of an employer-employee relationship between the

respondent cooperative and its owners-members was put in issue and considering that
the compulsory coverage of the SSS Law is predicated on the existence of such
relationship, it behooves the petitioner SSC to determine if there is really an employeremployee relationship that exists between the respondent cooperative and its ownersmembers.
The question on the existence of an employer-employee relationship is not within the
exclusive jurisdiction of the National Labor Relations Commission (NLRC). Article 217 of
the Labor Code enumerating the jurisdiction of the Labor Arbiters and the NLRC
provides that:
ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. - (a) x x x.
xxxx
6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of
persons in domestic or household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.[20]

Although the aforesaid provision speaks merely of claims for Social Security, it would
necessarily include issues on the coverage thereof, because claims are undeniably
rooted in the coverage by the system. Hence, the question on the existence of an
employer-employee relationship for the purpose of determining the coverage of the
Social Security System is explicitly excluded from the jurisdiction of the NLRC and falls
within the jurisdiction of the SSC which is primarily charged with the duty of settling
disputes arising under the Social Security Law of 1997.

On the basis thereof, considering that the petition-complaint of the petitioner SSS
involved the issue of compulsory coverage of the owners-members of the respondent
cooperative, this Court agrees with the petitioner SSC when it declared in its Order
dated 17 February 2004 that as an incident to the issue of compulsory coverage, it may
inquire into the presence or absence of an employer-employee relationship without
need of waiting for a prior pronouncement or submitting the issue to the NLRC for prior
determination. Since both the petitioner SSC and the NLRC are independent bodies and
their jurisdiction are well-defined by the separate statutes creating them, petitioner SSC
has the authority to inquire into the relationship existing between the worker and the
person or entity to whom he renders service to determine if the employment, indeed, is
one that is excepted by the Social Security Law of 1997 from compulsory coverage.[21]

Even before the petitioner SSC could make a determination of the existence of an
employer-employee relationship, however, the respondent cooperative already elevated
the Order of the petitioner SSC, denying its Motion to Dismiss, to the Court of Appeals
by filing a Petition for Certiorari. As a consequence thereof, the petitioner SSC became a

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party to the said Petition for Certiorari pursuant to Section 5(b)[22] of Republic Act No.
8282. The appellate court ruled in favor of the respondent cooperative by declaring that
the petitioner SSC has no jurisdiction over the petition-complaint filed before it because
there was no employer-employee relationship between the respondent cooperative and
its owners-members. Resultantly, the petitioners SSS and SSC, representing the
Republic of the Philippines, filed a Petition for Review before this Court.

Although as a rule, in the exercise of the Supreme Courts power of review, the Court is
not a trier of facts and the findings of fact of the Court of Appeals are conclusive and
binding on the Court,[23] said rule is not without exceptions. There are several
recognized exceptions[24] in which factual issues may be resolved by this Court. One of
these exceptions finds application in this present case which is, when the findings of
fact are conflicting. There are, indeed, conflicting findings espoused by the petitioner
SSC and the appellate court relative to the existence of employer-employee relationship
between the respondent cooperative and its owners-members, which necessitates a
departure from the oft-repeated rule that factual issues may not be the subject of
appeals to this Court.

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

elements are considered: (1) the selection and engagement of the workers; (2) the
payment of wages by whatever means; (3) the power of dismissal; and (4) the power
to control the workers conduct, with the latter assuming primacy in the overall
consideration.[25] The most important element is the employers control of the employees
conduct, not only as to the result of the work to be done, but also as to the means and
methods to accomplish.[26] The power of control refers to the existence of the power
and not necessarily to the actual exercise thereof. It is not essential for the employer to
actually supervise the performance of duties of the employee; it is enough that the
employer has the right to wield that power. [27] All the aforesaid elements are present in
this case.

First. It is expressly provided in the Service Contracts that it is the respondent

cooperative which has the exclusive discretion in the selection and engagement of the
owners-members as well as its team leaders who will be assigned at Stanfilco.
[28]
Second. Wages are defined as remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or ascertained, on a time,
task, piece or commission basis, or other method of calculating the same, which
is payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to be rendered.
[29]
In this case, the weekly stipends or the so-called shares in the service surplus given
by the respondent cooperative to its owners-members were in reality wages, as the
same were equivalent to an amount not lower than that prescribed by existing labor
laws, rules and regulations, including the wage order applicable to the area and
industry; or the same shall not be lower than the prevailing rates of wages. [30] It cannot

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be doubted then that those stipends or shares in the service surplus are indeed wages,
because these are given to the owners-members as compensation in rendering services
to respondent cooperatives client, Stanfilco. Third. It is also stated in the abovementioned Service Contracts that it is the respondent cooperative which has the power
to investigate, discipline and remove the owners-members and its team leaders who
were rendering services at Stanfilco. [31] Fourth. As earlier opined, of the four elements
of the employer-employee relationship, the control test is the most important. In the
case at bar, it is the respondent cooperative which has the sole control over the manner
and means of performing the services under the Service Contracts with Stanfilco as well
as the means and methods of work.[32] Also, the respondent cooperative is solely and
entirely responsible for its owners-members, team leaders and other representatives at
Stanfilco.[33] All these clearly prove that, indeed, there is an employer-employee
relationship between the respondent cooperative and its owners-members.

It is true that the Service Contracts executed between the respondent cooperative and
Stanfilco expressly provide that there shall be no employer-employee relationship
between the respondent cooperative and its owners-members. [34] This Court, however,
cannot give the said provision force and effect.

As previously pointed out by this Court, an employee-employer relationship actually

exists between the respondent cooperative and its owners-members. The four elements
in the four-fold test for the existence of an employment relationship have been
complied with. The respondent cooperative must not be allowed to deny its
employment relationship with its owners-members by invoking the questionable Service
Contracts provision, when in actuality, it does exist. The existence of an employeremployee relationship cannot be negated by expressly repudiating it in a contract, when
the terms and surrounding circumstances show otherwise. The employment status of a
person is defined and prescribed by law and not by what the parties say it should be.[35]

It is settled that the contracting parties may establish such stipulations, clauses, terms
and conditions as they want, and their agreement would have the force of law between
them. However, the agreed terms and conditions must not be contrary to law, morals,
customs, public policy or public order.[36]The Service Contract provision in question must
be struck down for being contrary to law and public policy since it is apparently being
used by the respondent cooperative merely to circumvent the compulsory coverage of
its employees, who are also its owners-members, by the Social Security Law.

This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of
Davao City, Inc. v. Ferrer-Calleja[37] wherein it held that:
A cooperative, therefore, is by its nature different from an ordinary business concern,
being run either by persons, partnerships, or corporations. Its owners and/or members

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are the ones who run and operate the business while the others are its employees x x
x.

An employee therefore of such a cooperative who is a member and co-owner thereof

cannot invoke the right to collective bargaining for certainly an owner cannot bargain
with himself or his co-owners. In the opinion of August 14, 1981 of the Solicitor General
he correctly opined that employees of cooperatives who are themselves members of the
cooperative have no right to form or join labor organizations for purposes of collective
bargaining for being themselves co-owners of the cooperative.

However, in so far as it involves cooperatives with employees who are not members or
co-owners thereof, certainly such employees are entitled to exercise the rights of all
workers to organization, collective bargaining, negotiations and others as are enshrined
in the Constitution and existing laws of the country.

The situation in the aforesaid case is very much different from the present case. The
declaration made by the Court in the aforesaid case was made in the context of
whether an employee who is also an owner-member of a cooperative can exercise the
right to bargain collectively with the employer who is the cooperative wherein he is an
owner-member. Obviously, an owner-member cannot bargain collectively with the
cooperative of which he is also the owner because an owner cannot bargain with
himself. In the instant case, there is no issue regarding an owner-members right to
bargain collectively with the cooperative. The question involved here is whether an
employer-employee relationship can exist between the cooperative and an ownermember. In fact, a closer look at Cooperative Rural Bank of Davao City, Inc. will show
that it actually recognized that an owner-member of a cooperative can be its own
employee.

It bears stressing, too, that a cooperative acquires juridical personality upon its
registration with the Cooperative Development Authority. [38] It has its Board of Directors,
which directs and supervises its business; meaning, its Board of Directors is the one in
charge in the conduct and management of its affairs. [39] With that, a cooperative can be
likened to a corporation with a personality separate and distinct from its ownersmembers. Consequently, an owner-member of a cooperative can be an employee of the
latter and an employer-employee relationship can exist between them.

In the present case, it is not disputed that the respondent cooperative had registered
itself with the Cooperative Development Authority, as evidenced by its Certificate of
Registration No. 0-623-2460.[40] In its by-laws,[41] its Board of Directors directs, controls,
and supervises the business and manages the property of the respondent
cooperative. Clearly then, the management of the affairs of the respondent cooperative

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is vested in its Board of Directors and not in its owners-members as a whole. Therefore,
it is completely logical that the respondent cooperative, as a juridical person
represented by its Board of Directors, can enter into an employment with its ownersmembers.

In sum, having declared that there is an employer-employee relationship between the

respondent cooperative and its owners-member, we conclude that the petitioner SSC
has jurisdiction over the petition-complaint filed before it by the petitioner SSS. This
being our conclusion, it is no longer necessary to discuss the issue of whether the
respondent cooperative was estopped from assailing the jurisdiction of the petitioner
SSC when it filed its Answer with Motion to Dismiss.

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The

Decision and the Resolution of the Court of Appeals in CA-G.R. SP No. 87236, dated 5
January 2006 and 20 March 2006, respectively, are hereby REVERSED and SET
ASIDE. The Orders of the petitioner SSC dated 17 February 2004 and 16 September
2004 are hereby REINSTATED. The petitioner SSC is hereby DIRECTED to continue
hearing the petition-complaint filed before it by the petitioner SSS as regards the
compulsory coverage of the respondent cooperative and its owners-members. No costs.

SO ORDERED.

3. Felix vs Buenaseda, January 17, 1995

G.R. No. 109704 January 17, 1995
ALFREDO
B.
FELIX, petitioner,
vs.
DR. BRIGIDA BUENASEDA, in her capacity as Director, and ISABELO BAEZ, JR., in his
capacity as Administrator, both of the National Center for Mental Health, and the CIVIL
SERVICE COMMISSION,respondents.

KAPUNAN, J.:
Taking advantage of this Court's decisions involving the removal of various civil servants
pursuant to the general reorganization of the government after the EDSA Revolution,
petitioner assails his dismissal as Medical Specialist I of the National Center for Mental
Health (formerly the National Mental Hospital) as illegal and violative of the
constitutional provision on security of tenure allegedly because his removal was made
pursuant to an invalid reorganization.
In Mendoza vs. Quisumbing 1 and the consolidated cases involving the reorganization of
various government departments and agencies we held:

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We are constrained to set aside the reorganizations embodied in these consolidated

petitions because the heads of departments and agencies concerned have chosen to
rely on their own concepts of unlimited discretion and "progressive" ideas on
reorganization instead of showing that they have faithfully complied with the clear letter
and spirit of the two Constitutions and the statutes affecting reorganization. 2
In De Guzman vs. CSC 3, we upheld the principle, laid down by Justice J.B.L. Reyes
in Cruz vs. Primicias 4 that a valid abolition of an office neither results in a separation or
removal, likewise upholding the corollary principle that "if the abolition is void, the
incumbent is deemed never to have ceased to hold office," in sustaining therein
petitioner's right to the position she held prior to the reorganization.
The instant petition on its face turns on similar facts and issues, which is, that
petitioner's removal from a permanent position in the National Center for Mental Health
as a result of the reorganization of the Department of Health was void.
However, a closer look at the facts surrounding the instant petition leads us to a
different conclusion.
After passing the Physician's Licensure Examinations given by the Professional
Regulation Commission in June of 1979, petitioner, Dr. Alfredo B. Felix, joined the
National Center for Mental Health (then the National Mental Hospital) on May 26, 1980
as a Resident Physician with an annual salary of P15,264.00. 5 In August of 1983, he
was promoted to the position of Senior Resident Physician 6 a position he held until the
Ministry of Health reorganized the National Center for Mental Health (NCMH) in January
of 1988, pursuant to Executive Order No. 119.
Under the reorganization, petitioner was appointed to the position of Senior Resident
Physician in a temporary capacity immediately after he and other employees of the
NCMH allegedly tendered their courtesy resignations to the Secretary of Health. 7 In
August of 1988, petitioner was promoted to the position of Medical Specialist I
(Temporary Status), which position was renewed the following year. 8
In 1988, the Department of Health issued Department Order No. 347 which required
board certification as a prerequisite for renewal of specialist positions in various medical
centers, hospitals and agencies of the said department. Specifically, Department Order
No. 347 provided that specialists working in various hospitals and branches of the
Department of Health be recognized as "Fellows" of their respective specialty societies
and/or "Diplomates" of their specialty boards or both. The Order was issued for the
purpose of upgrading the quality of specialties in DOH hospitals by requiring them to
pass rigorous theoretical and clinical (bedside) examinations given by recognized
specialty boards, in keeping up with international standards of medical practice.
Upon representation of the Chiefs of Hospitals of various government hospitals and
medical centers, (then) Secretary of Health Alfredo Bengzon issued Department Order
No. 347 providing for an extension of appointments of Medical Specialist positions in
cases where the termination of medical specialist who failed to meet the requirement
for board certification might result in the disruption of hospital services. Department
Order No. 478 issued the following guidelines:

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1. As a general policy, the provision of Department Order No. 347, Sec. 4 shall apply
unless the Chief of Hospital requests for exemption, certifies that its application will
result in the disruption of the delivery service together with the steps taken to
implement Section 4, and submit a plan of action, lasting no more than 3-years, for the
eventual phase out of non-Board certified medical specialties.
2. Medical specialist recommended for extension of appointment shall meet the
following minimum criteria:
a. DOH medical specialist certified
b. Has been in the service of the Department at least three (3) years prior to December
1988.
c. Has applied or taken the specialty board examination.
3. Each recommendation for extension of appointment must be individually justified to
show not only the qualification of the recommendee, but also what steps he has taken
to be board certified.
4. Recommendation for extension of appointment shall be evaluated on a case to case
basis.
5. As amended, the other provisions of Department Order No. 34/s. 1988 stands.
Petitioner was one of the hundreds of government medical specialist who would have
been adversely affected by Department Order No. 347 since he was no yet accredited
by the Psychiatry Specialty Board. Under Department Order No. 478, extension of his
appointment remained subject to the guidelines set by the said department order. On
August 20, 1991, after reviewing petitioner's service record and performance, the
Medical Credentials Committee of the National Center for Mental Health recommended
non-renewal of his appointment as Medical Specialist I, informing him of its decision on
August 22, 1991. He was, however, allowed to continue in the service, and receive his
salary, allowances and other benefits even after being informed of the termination of his
appointment.
On November 25, 1991, an emergency meeting of the Chiefs of Service was held to
discuss, among other matters, the petitioner's case. In the said meeting Dr. Vismindo de
Grecia, petitioner's immediate supervisor, pointed out petitioner's poor performance,
frequent tardiness and inflexibility as among the factors responsible for the
recommendation not to renew his appointment. 9 With one exception, other department
heads present in the meeting expressed the same opinion, 10 and the overwhelming
concensus was for non-renewal. The matter was thereafter referred to the Civil Service
Commission, which on February 28, 1992 ruled that "the temporary appointment (of
petitioner) as Medical Specialist I can be terminated at any time . . ." and that "[a]ny
renewal of such appointment is within the discretion of the appointing
authority." 11 Consequently, in a memorandum dated March 25, 1992 petitioner was
advised by hospital authorities to vacate his cottage since he was no longer with said
memorandum petitioner filed a petition with the Merit System Protection Board (MSPB)
complaining about the alleged harassment by respondents and questioning the non-

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renewal of his appointment. In a Decision rendered on July 29, 1992, the (MSPB)
dismissed petitioner's complaint for lack of merit, finding that:
As an apparent incident of the power to appoint, the renewal of a temporary
appointment upon or after its expiration is a matter largely addressed to the sound
discretion of the appointing authority. In this case, there is no dispute that Complainant
was a temporary employee and his appointment expired on August 22, 1991. This being
the case, his re-appointment to his former position or the renewal of his temporary
appointment would be determined solely by the proper appointing authority who is the
Secretary, Department of Health upon the favorable recommendation of the Chief of
Hospital III, NCMH. The Supreme Court in the case of Central Bank vs. Civil Service
CommissionG.R. Nos. 80455-56 dated April 10, 1989, held as follows:
The power of appointment is essentially a political question involving considerations of
wisdom which only the appointing authority can decide.
In this light, Complainant therefore, has no basis in law to assail the non-renewal of his
expired temporary appointment much less invoke the aid of this Board cannot substitute
its judgment to that of the appointing authority nor direct the latter to issue an
appointment in the complainant's favor.
Regarding the alleged Department Order secured by the complainant from the
Department of Health (DOH), the Board finds the same inconsequential. Said
Department Order merely allowed the extension of tenure of Medical Specialist I for a
certain period but does not mandate the renewal of the expired appointment.
The Board likewise finds as baseless complainant's allegation of harassment. It should
be noted that the subsistence, quarters and laundry benefits provided to the
Complainant were in connection with his employment with the NCMH. Now that his
employment ties with the said agency are severed, he eventually loses his right to the
said benefits. Hence, the Hospital Management has the right to take steps to prevent
him from the continuous enjoyment thereof, including the occupancy of the said
cottage, after his cessation form office.
In sum, the actuations of Dr. Buenaseda and Lt. Col. Balez are not shown to have been
tainted with any legal infirmity, thus rendering as baseless, this instant complaint.
Said decision was appealed to the Civil Service Commission which dismissed the same
in its Resolution dated December 1, 1992. Motion for Reconsideration was denied in
CSC Resolution No. 93-677 dated February 3, 1993, hence this appeal, in which
petitioner interposes the following assignments of errors:
I
THE PUBLIC RESPONDENT CIVIL SERVICE COMMISSION ERRED IN HOLDING THAT BY
SUBMITTING HIS COURTESY RESIGNATION AND ACCEPTING HIS TEMPORARY
APPOINTMENT PETITIONER HAD EFFECTIVELY DIVESTED HIMSELF OF HIS SECURITY
OF TENURE, CONSIDERING THE CIRCUMSTANCES OF SUCH COURTESY RESIGNATION
AND ACCEPTANCE OF APPOINTMENT.

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II
THE RESPONDENT COMMISSION IN NOT DECLARING THAT THE CONVERSION OF THE
PERMANENT APPOINTMENT OF PETITIONER TO TEMPORARY WAS DONE IN BAD
FAITH IN THE GUISE OF REORGANIZATION AND THUS INVALID, BEING VIOLATIVE OF
THE PETITIONER'S RIGHT OF SECURITY OF TENURE.
Responding to the instant petition, 12 the Solicitor General contends that 1) the
petitioner's temporary appointment after the reorganization pursuant to E.O. No. 119
were valid and did not violate his constitutional right of security of tenure; 13 2)
petitioner is guilty of estoppel or laches, having acquiesced to such temporary
appointments from 1988 to 1991; 14 and 3) the respondent Commission did not act with
grave abuse of discretion in affirming the petitioner's non-renewal of his appointment at
the National Center for Mental Hospital. 15
We agree.
The patent absurdity of petitioner's posture is readily obvious. A residency or resident
physician position in a medical specialty is never a permanent one. Residency connotes
training and temporary status. It is the step taken by a physician right after postgraduate internship (and after hurdling the Medical Licensure Examinations) prior to his
recognition as a specialist or sub-specialist in a given field.
A physician who desires to specialize in Cardiology takes a required three-year
accredited residency in Internal Medicine (four years in DOH hospitals) and moves on to
a two or three-year fellowship or residency in Cardiology before he is allowed to take
the specialty examinations given by the appropriate accrediting college. In a similar
manner, the accredited Psychiatrist goes through the same stepladder process which
culminates in his recognition as a fellow or diplomate (or both) of the Psychiatry
Specialty Board. 16 This upward movement from residency to specialist rank,
institutionalized in the residency training process, guarantees minimum standards and
skills and ensures that the physician claiming to be a specialist will not be set loose on
the community without the basic knowledge and skills of his specialty. Because
acceptance and promotion requirements are stringent, competitive, and based on merit.
acceptance to a first year residency program is no guaranty that the physician will
complete the program. Attribution rates are high. Some programs are pyramidal.
Promotion to the next post-graduate year is based on merit and performance
determined by periodic evaluations and examinations of knowledge, skills and bedside
manner. 17 Under this system, residents, specialty those in university teaching
hospitals18 enjoy their right to security of tenure only to the extent that they periodically
make the grade, making the situation quite unique as far as physicians undergoing
post-graduate residencies and fellowships are concerned. While physicians (or
consultants) of specialist rank are not subject to the same stringent evaluation
procedures, 19 specialty societies require continuing education as a requirement for
accreditation for good standing, in addition to peer review processes based on
performance, mortality and morbidity audits, feedback from residents, interns and
medical students and research output. The nature of the contracts of resident
physicians meet traditional tests for determining employer-employee relationships, but
because the focus of residency is training, they are neither here nor there. Moreover,

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stringent standards and requirements for renewal of specialist-rank positions or for

promotion to the next post-graduate residency year are necessary because lives are
ultimately at stake.
Petitioner's insistence on being reverted back to the status quo prior to the
reorganizations made pursuant to Executive Order No. 119 would therefore be akin to a
college student asking to be sent back to high school and staying there. From the
position of senior resident physician, which he held at the time of the government
reorganization, the next logical step in the stepladder process was obviously
his promotion to the rank of Medical Specialist I, a position which he apparently
accepted not only because of the increase in salary and rank but because of the
prestige and status which the promotion conferred upon him in the medical community.
Such status, however, clearly carried with it certain professional responsibilities
including the responsibility of keeping up with the minimum requirements of specialty
rank, the responsibility of keeping abreast with current knowledge in his specialty rank,
the responsibility of completing board certification requirements within a reasonable
period of time. The evaluation made by the petitioner's peers and superiors clearly
showed that he was deficient in a lot of areas, in addition to the fact that at the time of
his non-renewal, he was not even board-certified.
It bears emphasis that at the time of petitioner's promotion to the position of Medical
Specialist I (temporary) in August of 1988, no objection was raised by him about the
change of position or the temporary nature of designation. The pretense of objecting to
the promotion to specialist rank apparently came only as an afterthought, three years
later, following the non-renewal of his position by the Department of Health.
We lay stress to the fact that petitioner made no attempt to oppose earlier renewals of
his temporary Specialist I contracts in 1989 and 1990, clearly demonstrating his
acquiescence to if not his unqualified acceptance of the promotion (albeit of a
temporary nature) made in 1988. Whatever objections petitioner had against the earlier
change from the status of permanent senior resident physician to temporary senior
physician were neither pursued nor mentioned at or after his designation as Medical
Specialist I (Temporary). He is therefore estopped from insisting upon a right or claim
which he had plainly abandoned when he, from all indications, enthusiastically accepted
the promotion. His negligence to assert his claim within a reasonable time, coupled with
his failure to repudiate his promotion to a temporary position, warrants a presumption,
in the words of this Court in Tijam vs. Sibonghanoy, 20 that he "either abandoned (his
claim) or declined to assert it."
There are weighty reasons of public policy and convenience which demand that any
claim to any position in the civil service, permanent, temporary of otherwise, or any
claim to a violation of the constitutional provision on security of tenure be made within
a reasonable period of time. An assurance of some degree of stability in the civil service
is necessary in order to avoid needless disruptions in the conduct of public business.
Delays in the statement of a right to any position are strongly discouraged. 21 In the
same token, the failure to assert a claim or the voluntary acceptance of another position
in government, obviously without reservation, leads to a presumption that the civil
servant has either given up his claim of has already settled into the new position. This is

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the essence of laches which is the failure or neglect, for an unreasonable and
unexplained length of time to do that which, by exercising due diligence, could or
should have been done earlier; it is the negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it. 22
In fine, this petition, on its surface, seems to be an ordinary challenge against the
validity of the conversion of petitioner's position from permanent resident physician
status to that of a temporary resident physician pursuant to the government
reorganization after the EDSA Revolution. What is unique to petitioner's averments is
the fact that he hardly attempts to question the validity of his removal from his position
of Medical Specialist I (Temporary) of the National Center for Mental Health, which is
plainly the pertinent issue in the case at bench. The reason for this is at once apparent,
for there is a deliberate and dishonest attempt to a skirt the fundamental issue first, by
falsely claiming that petitioner was forced to submit his courtesy resignation in 1987
when he actually did not; and second, by insisting on a right of claim clearly abandoned
by his acceptance of the position of Medical Specialist I (Temporary), which is hence
barred by laches.
The validity of the government reorganization of the Ministry of Health pursuant to E.O.
119 not being the real issue in the case at bench, we decline to make any further
pronouncements relating to petitioner's contentions relating to the effect on him of the
reorganization except to say that in the specific case of the change in designation from
permanent resident physician to temporary resident physician, a change was necessary,
overall, to rectify a ludicrous situation whereby some government resident physicians
were erroneously being classified as permanent resident physicians in spite of the
inherently temporary nature of the designation. The attempts by the Department of
Health not only to streamline these positions but to make them conform to current
standards of specialty practice is a step in a positive direction. The patient who consults
with a physician of specialist rank should at least be safe in the assumption that the
government physician of specialist rank: 1.) has completed all necessary requirements
at least assure the public at large that those in government centers who claim to be
specialists in specific areas of Medicine possess the minimum knowledge and skills
required to fulfill that first and foremost maxim, embodied in the Hippocratic Oath, that
they do their patients no harm. Primium non nocere.
Finally, it is crystal clear, from the facts of the case at bench, that the petitioner
accepted a temporary appointment (Medical Specialist I). As respondent Civil Service
Commission has correctly pointed out 23, the appointment was for a definite and
renewable period which, when it was not renewed, did not involve a dismissal but an
expiration of the petitioner's term.
ACCORDINGLY, the petition is hereby DISMISSED, for lack of merit.

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4. Francisco vs NLRC, 500 SCRA 690

G.R. No. 170087
ANGELINA FRANCISCO,
Petitioner,
- versus NATIONAL LABOR RELATIONS
COMMISSION, KASEI CORPORATION,
SEIICHIRO TAKAHASHI, TIMOTEO
ACEDO, DELFIN LIZA, IRENE
BALLESTEROS, TRINIDAD LIZA and RAMON ESCUETA,
Respondents.
August 31, 2006

YNARES-SANTIAGO, J.:

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

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

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

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

For five years, petitioner performed the duties of Acting Manager. As of December 31,
2000 her salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in
the profit of Kasei Corporation.[8]

In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner

alleged that she was required to sign a prepared resolution for her replacement but she
was assured that she would still be connected with Kasei Corporation. Timoteo Acedo,
the designated Treasurer, convened a meeting of all employees of Kasei Corporation
and announced that nothing had changed and that petitioner was still connected with
Kasei Corporation as Technical Assistant to Seiji Kamura and in charge of all BIR
matters.[9]

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

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

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

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

Private respondents averred that petitioner is not an employee of Kasei

Corporation. They alleged that petitioner was hired in 1995 as one of its technical
consultants on accounting matters and act concurrently as Corporate Secretary. As
technical consultant, petitioner performed her work at her own discretion without
control and supervision of Kasei Corporation. Petitioner had no daily time record and
she came to the office any time she wanted. The company never interfered with her
work except that from time to time, the management would ask her opinion on matters

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relating to her profession.Petitioner did not go through the usual procedure of selection
of employees, but her services were engaged through a Board Resolution designating
her as technical consultant. The money received by petitioner from the corporation was
her professional fee subject to the 10% expanded withholding tax on professionals, and
that she was not one of those reported to the BIR or SSS as one of the companys
employees.[12]

Petitioners designation as technical consultant depended solely upon the will of

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

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

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

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. finding complainant an employee of respondent corporation;

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

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

(27,500 x 10 mos.)
b. Salary Differentials (01/2001 09/2001) 22,500.00
c. Housing Allowance (01/2001 07/2002) 57,000.00
d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei

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Corp. from 1996-2001 361,175.00

g. Moral and exemplary damages 100,000.00
h. 10% Attorneys fees 87,076.50
P957,742.50

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

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

SO ORDERED.[14]

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

PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:

1) Respondents are directed to pay complainant separation pay computed at one month
per year of service in addition to full backwages from October 2001 to July 31, 2002;

2) The awards representing moral and exemplary damages and 10% share in profit in
the respective accounts of P100,000.00 and P361,175.00 are deleted;

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

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

SO ORDERED.[15]

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

WHEREFORE, the instant petition is hereby GRANTED. The decision of the National
Labor Relations Commissions dated April 15, 2003 is hereby REVERSED and SET ASIDE

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and a new one is hereby rendered dismissing the complaint filed by private respondent
against Kasei Corporation, et al. for constructive dismissal.

SO ORDERED.[16]

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

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

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

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

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

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

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

The control test initially found application in the case of Viaa v. Al-Lagadan and Piga,
[19]
and lately in Leonardo v. Court of Appeals ,[20] where we held that there is an
employer-employee relationship when the person for whom the services are performed
reserves the right to control not only the end achieved but also the manner and means
used to achieve that end.

In Sevilla v. Court of Appeals,[21] we observed the need to consider the existing

economic conditions prevailing between the parties, in addition to the standard of rightof-control like the inclusion of the employee in the payrolls, to give a clearer picture in
determining the existence of an employer-employee relationship based on an analysis of
the totality of economic circumstances of the worker.

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

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

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

By applying the control test, there is no doubt that petitioner is an employee of Kasei
Corporation because she was under the direct control and supervision of Seiji Kamura,
the corporations Technical Consultant. She reported for work regularly and served in

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various capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager

and Corporate Secretary, with substantially the same job functions, that is, rendering
accounting and tax services to the company and performing functions necessary and
desirable for the proper operation of the corporation such as securing business permits
and other licenses over an indefinite period of engagement.
Under the broader economic reality test, the petitioner can likewise be said to be an
employee of respondent corporation because she had served the company for six years
before her dismissal, receiving check vouchers indicating her salaries/wages, benefits,
13th month pay, bonuses and allowances, as well as deductions and Social Security
contributions from August 1, 1999 to December 18, 2000. [26] When petitioner was
designated General Manager, respondent corporation made a report to the SSS signed
by Irene Ballesteros. Petitioners membership in the SSS as manifested by a copy of the
SSS specimen signature card which was signed by the President of Kasei Corporation
and the inclusion of her name in the on-line inquiry system of the SSS evinces the
existence of an employer-employee relationship between petitioner and respondent
corporation.[27]

It is therefore apparent that petitioner is economically dependent on respondent

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

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

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

We likewise ruled in Flores v. Nuestro[29] that a corporation who registers its workers
with the SSS is proof that the latter were the formers employees.The coverage of Social
Security Law is predicated on the existence of an employer-employee relationship.

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

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

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

Based on the foregoing, there can be no other conclusion that petitioner is an employee
of respondent Kasei Corporation. She was selected and engaged by the company for
compensation, and is economically dependent upon respondent for her continued
employment in that line of business. Her main job function involved accounting and tax
services rendered to respondent corporation on a regular basis over an indefinite period
of engagement. Respondent corporation hired and engaged petitioner for
compensation, with the power to dismiss her for cause. More importantly, respondent
corporation had the power to control petitioner with the means and methods by which
the work is to be accomplished.

The corporation constructively dismissed petitioner when it reduced her salary by

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

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the fragile relationship between employees and employers, we are mindful of the fact
that the policy of the law is to apply the Labor Code to a greater number of
employees. This would enable employees to avail of the benefits accorded to them by
law, in line with the constitutional mandate giving maximum aid and protection to labor,
promoting their welfare and reaffirming it as a primary social economic force in
furtherance of social justice and national development.

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

SO ORDERED.

5. Mcleod vs NLRC, 512 SCRA 222

G.R. No. 146667
JOHN F. MCLEOD, Petitioner, - versus - NATIONAL LABOR RELATIONS COMMISSION
(First Division), FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN
TEXTILE MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L.
LIM, and ERIC HU, Respondents. January 23, 2007
CARPIO, J.:
The Case
This is a petition for review [1] to set aside the Decision [2] dated 15 June 2000 and the
Resolution[3] dated 27 December 2000 of the Court of Appeals in CA-G.R. SP No.
55130. The Court of Appeals affirmed with modification the 29 December
1998 Decision[4] of the National Labor Relations Commission (NLRC) in NLRC NCR 0200949-95.
The Facts
The facts, as summarized by the Labor Arbiter and adopted by the NLRC and the Court
of Appeals, are as follows:
On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation
and sick leave benefits, non-payment of unused airline tickets, holiday
pay, underpayment of salary and 13th month pay, moral and exemplary damages,

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attorneys fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern
Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu.
In his Position Paper, complainant alleged that he is an expert in textile manufacturing
process; that as early as 1956 he was hired as the Assistant Spinning Manager of
Universal Textiles, Inc. (UTEX); that he was promoted to Senior Manager and worked
for UTEX till 1980 under its President, respondent Patricio Lim; that in 1978 Patricio Lim
formed Peggy Mills, Inc. with respondent Filsyn having controlling interest; that
complainant was absorbed by Peggy Mills as its Vice President and Plant Manager of the
plant at Sta. Rosa, Laguna; that at the time of his retirement complainant
was receiving P60,000.00 monthly with vacation and sick leave benefits; 13 th month
pay, holiday pay and two round trip business class tickets on a Manila-London-Manila
itinerary every three years which is convertible to cas[h] if unused; that in January
1986, respondents failed to pay vacation and leave credits and requested complainant
to wait as it was short of funds but the same remain unpaid at present; that
complainant is entitled to such benefit as per CBA provision (Annex A); that
respondents likewise failed to pay complainants holiday pay up to the present; that
complainant is entitled to such benefits as per CBA provision (Annex B); that in 1989
the plant union staged a strike and in 1993 was found guilty of staging an illegal strike;
that from 1989 to 1992 complainant was entitled to 4 round trip business class plane
tickets on a Manila-London-Manila itinerary but this benefit not (sic) its monetary
equivalent was not given; that on August 1990 the respondents reduced complainants
monthly salary of P60,000.00 by P9,900.00 till November 1993 or a period of 39
months; that in 1991 Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. as per
agreement (Annex D) and this was renamedas Sta. Rosa Textile with Patricio Lim as
Chairman and President; that complainant worked for Sta. Rosa until November 30 that
from time to time the owners of FarEastern consulted with complainant on technical
aspects of reoperation of the plant as per correspondence (Annexes D-1 and D-2);
that when complainant reached and applied retirement age at the end of 1993, he was
only given a reduced 13th month pay of P44,183.63, leaving a balance of P15,816.87;
that thereafter the owners of Far Eastern Textiles decided for cessation of operations of
Sta. Rosa Textiles; that on two occasions, complainant wrote letters (Annexes E-1 to E2) to Patricio Lim requesting for his retirement and other benefits; that in the last
quarter of 1994 respondents offered complainant compromise settlement of
only P300,000.00 whichcomplainant rejected; that again complainant wrote a letter
(Annex F) reiterating his demand for full payment of all benefits and to no avail, hence
this complaint; andthat he is entitled to all his money claims pursuant to law.

On the other hand, respondents in their Position Paper alleged that complainant was
the former Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in
June 1980 and Peggy Mills closed operations due to irreversible losses at the end of July
1992 but the corporation still exists at present; that its assets were acquired by Sta.
Rosa Textile Corporation which was established in April 1992 but still remains nonoperational at present; that complainant was hired as consultant by Sta. Rosa Textile in
November 1992 but he resigned on November 30, 1993; that Filsyn and Far Eastern
Textiles are separate legal entities and have no employer relationship with complainant;

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that respondent Patricio Lim is the President and Board Chairman of Sta. Rosa
Textile Corporation; that respondent Eric Hu is a Taiwanese and is Director of Sta. Rosa
Textiles, Inc.; that complainant has no cause of action against Filsyn, Far Eastern
Textile Ltd., Sta. Rosa Textile Corporation and Eric Hu; that Sta. Rosa only acquired the
assets and not the liabilities of Peggy Mills, Inc.; that Patricio Lim was only impleaded as
Board Chairman of Sta. Rosa Textile and not as private individual; that while
complainant was Vice President and Plant Manager of Peggy Mills, the union staged a
strike up to July 1992 resulting in closure of operations due to irreversible losses as per
Notice (Annex 1); that complainant was relied upon to settle the labor problem but due
to his lack of attention and absence the strike continued resulting in closure of the
company; and losses to Sta. Rosa which acquired its assets as per their financial
statements (Annexes 2 and 3); that the attendance records of complainant from April
1992 to November 1993 (Annexes 4 and 5) show that he was either absent or worked
at most two hours a day; that Sta. Rosa and Peggy Mills are interposing counterclaims
for damages in the total amount of P36,757.00 against complainant; that complainants
monthly salary at Peggy Mills was P50,495.00 and not P60,000.00; that Peggy Mills,
does not have a retirement program; that whatever amount complainant is entitled
should be offset with the counterclaims; that complainant worked only for 12 years
from 1980 to 1992; that complainant was only hired as a consultant and not an
employee by Sta. Rosa Textile; that complainants attendance record of absence and two
hours daily work during the period of the strike wipes out any vacation/sick leave he
may have accumulated; that there is no basis for complainants claim of two (2)
business class airline tickets; that complainants pay already included the holiday pay;
that he is entitled to holiday pay as consultant by Sta. Rosa; that he has waived this
benefit in his 12 years of work with Peggy Mills; that he is not entitled to 13 th month
pay as consultant; and that he is not entitled to moral and exemplary damages
and attorneys fees.

In his Reply, complainant alleged that all respondents being one and the same entities
are solidarily liable for all salaries and benefits and complainant is entitled to; that all
respondents have the same address at 12/F B.A. Lepanto Building, Makati City; that
their counsel holds office in the same address; that all respondents have the same
offices and key personnel such as Patricio Lim and Eric Hu; that respondents Position
Paper is verified by Marialen C. Corpuz who knows all the corporate officers of all
respondents; that the veil of corporate fiction may be pierced if it is used as a shield to
perpetuate fraud and confuse legitimate issues; that complainant never accepted the
change in his position from Vice-President and Plant Manger to consultant and it is
incumbent upon respondents to prove that he was only a consultant; that the Deed of
Dation in Payment with Lease (Annex C) proves that Sta. Rosa took over the assets of
Peggy Mills as early as June 15, 1992 and not 1995 as alleged by respondents; that
complainant never resigned from his job but applied for retirement as per letters
(Annexes E-1, E-2 and F); that documents G, H and I show that Eric Hu is a top official
of Peggy Mills that the closure of Peggy Mills cannot be the fault of complainant; that
the strike was staged on the issue of CBA negotiations which is not part of the usual
duties and responsibilities as Plant Manager; that complainant is a British national and is

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prohibited by law in engaging in union activities; that as per Resolution (Annex 3) of the
NLRC in the proper case, complainant testified in favor of management; that the alleged
attendance record of complainant was lifted from the logbook of a security agency and
is hearsay evidence; that in the other attendance record it shows that complainant was
reporting daily and even on Saturdays; that his limited hours was due to the strike and
cessation of operations; that as plant manager complainant was on call 24 hours a day;
that respondents must pay complainant the unpaid portion of his salaries and his
retirement benefits that cash voucher No. 17015 (Annex K) shows that
complainant drew the monthly salary of P60,000.00 which was reduced to P50,495.00
in August 1990 and therefore without the consent of complainant; that complainant was
assured that he will be paid the deduction as soon as the company improved its
financial standing but this assurance was never fulfilled; that Patricio Lim
promised complainant his retirement pay as per the latters letters (Annexes E-1, E2 and F); that the law itself provides for retirement benefits; that Patricio Lim by way of
Memorandum (Annex M) approved vacation and sick leave benefits of 22 days per year
effective 1986; that Peggy Mills required monthly paid employees to sign an
acknowledgement that their monthly compensation includes holiday pay; that
complainant was not made to sign this undertaking precisely because he is entitled to
holiday pay over and above his monthly pay; that the company paid for complainants
two (2) round trip tickets to London in 1983 and 1986 as reflected in the complainants
passport (Annex N); that respondents claim that complainant is not entitled to
13th month pay but paid in 1993 and all the past 13 years; that complainant is entitled
to moral and exemplary damages and attorneys fees; that all doubts must be resolved
in favor of complainant; and that complainant reserved the right to file perjury cases
against those concerned.

In their Reply, respondents alleged that except for Peggy Mills, the other respondents
are not proper persons in interest due to the lack of employer-employee relationship
between them and complainant; that undersigned counsel does not represent Peggy
Mills, Inc.

In a separate Position Paper, respondent Peggy Mills alleged that complainant was hired
on February 10, 1991 as per Board Minutes (Annex A); that on August 19, 1987, the
workers staged an illegal strike causing cessation of operations on July 21, 1992; that
respondent filed a Notice of Closure with the DOLE (Annex B); that all employees were
given separation pay except for complainant whose task was extended to December 31,
1992 to wind up the affairs of the company as per vouchers (Annexes C and C-1); that
respondent offered complainant his retirement benefits under RA 7641 but complainant
refused; that the regular salaries of complainant from closure up to December 31, 1992
have offset whatever vacation and sick leaves he accumulated; that his claim for
unused plane tickets from 1989 to 1992 has no policy basis, the companys formula of
employees monthly rate x 314 days over 12 months already included holiday pay; that
complainants unpaid portion of the 13 th month pay in 1993 has no basis because he

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was only an employee up to December 31, 1992; that the 13 th month pay was based
on his last salary; and that complainant is not entitled to damages.[5]

On 3 April 1998, the Labor Arbiter rendered his decision with the following dispositive
portion:

WHEREFORE, premises considered, We hold all respondents as jointly and solidarily

liable for complainants money claims as adjudicated above and computed below as
follows:

Retirement Benefits (one month salary

for every year of service)
6/80 - 11/30/93 = 14 years
P60,000 x 14.0 mos. P840,000.00

Vacation and Sick Leave (3 yrs.)

P2,000.00 x 22 days x 3 yrs. 132,000.00

Underpayment of Salaries (3 yrs.)

P60,000 - P50,495 = P9,505
P 9,505 x 36.0 mos. ... 342,180.00

Holiday Pay (3 yrs.)

P2,000 x 30 days . 60,000.00

Underpayment of 13th month pay (1993) ... 15,816.87

Moral Damages .. 3,000,000.00
Exemplary Damages .. 1,000,000.00

10% Attorneys Fees . 138,999.68

TOTAL P5,528,996.55

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Unused Airline Tickets (3 yrs.)

(To be converted in Peso upon payment)
$2,450.00 x 3.0 [yrs.].. $7,350.00

SO ORDERED.[6]

Filipinas Synthetic Fiber Corporation (Filsyn), Far Eastern Textile Mills, Inc. (FETMI), Sta.
Rosa Textiles, Inc. (SRTI), Patricio L. Lim (Patricio), and Eric Hu appealed to the
NLRC. The NLRC rendered its decision on 29 December 1998, thus:

WHEREFORE, the Decision dated 3 April 1998 is hereby REVERSED and SET ASIDE and
a new one is entered ORDERING respondent Peggy Mills, Inc. to pay complainant his
retirement pay equivalent to 22.5 days for every year of service for his twelve (12)
years of service from 1980 to 1992 based on a salary rate ofP50,495.00 a month.

All other claims are DISMISSED for lack of merit.

SO ORDERED.[7]

John F. McLeod (McLeod) filed a motion for reconsideration which the NLRC denied in
its Resolution of 30 June 1999.[8] McLeod thus filed a petition for certiorari before the
Court of Appeals assailing the decision and resolution of the NLRC.[9]

The Ruling of the Court of Appeals

On 15 June 2000, the Court of Appeals rendered judgment as follows:

WHEREFORE, the decision dated December 29, 1998 of the NLRC is hereby AFFIRMED
with the MODIFICATION that respondent Patricio Lim is jointly and solidarily liable with
Peggy Mills, Inc., to pay the following amounts to petitioner John F. McLeod:

1.
retirement pay equivalent to 22.5 days for every year of service for his twelve
(12) years of service from 1980 to 1992 based on a salary rate of P50,495, a month;

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2.

moral damages in the amount of one hundred thousand (P100,000.00) Pesos;

3.

exemplary damages in the amount of fifty thousand (P50,000.00) Pesos; and

4.

attorneys fees equivalent to 10% of the total award.

No costs is awarded.

SO ORDERED.[10]

The Court of Appeals rejected McLeods theory that all respondent corporations are the
same corporate entity which should be held solidarily liable for the payment of his
monetary claims.

The Court of Appeals ruled that the fact that (1) all respondent corporations have the
same address; (2) all were represented by the same counsel, Atty. Isidro S. Escano; (3)
Atty. Escano holds office at respondent corporations address; and (4) all respondent
corporations have common officers and key personnel, would not justify the application
of the doctrine of piercing the veil of corporate fiction.

The Court of Appeals held that there should be clear and convincing evidence that
SRTI, FETMI, and Filsyn were being used as alter ego, adjunct or business conduit for
the sole benefit of Peggy Mills, Inc. (PMI), otherwise, said corporations should be
treated as distinct and separate from each other.

The Court of Appeals pointed out that the Articles of Incorporation of PMI show that it
has six incorporators, namely, Patricio, Jose Yulo, Jr., Carlos Palanca, Jr., Cesar R.
Concio, Jr., E. A. Picasso, and Walter Euyang. On the other hand, the Articles of
Incorporation of Filsyn show that it has 10 incorporators, namely, Jesus Y. Yujuico,
Carlos Palanca, Jr., Patricio, Ang Beng Uh, Ramon A. Yulo, Honorio Poblador, Jr., Cipriano
Azada, Manuel Tomacruz, Ismael Maningas, and Benigno Zialcita, Jr.

The Court of Appeals pointed out that PMI and Filsyn have only two interlocking
incorporators and directors, namely, Patricio and Carlos Palanca, Jr.

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Reiterating the ruling of this Court in Laguio v. NLRC,[11] the Court of Appeals held that
mere substantial identity of the incorporators of two corporations does not necessarily
imply fraud, nor warrant the piercing of the veil of corporate fiction.

The Court of Appeals also pointed out that when SRTI and PMI executed the Dation in
Payment with Lease, it was clear that SRTI did not assume the liabilities PMI incurred
before the execution of the contract.

The Court of Appeals held that McLeod failed to substantiate his claim that
all respondent corporations should be treated as one corporate
entity. The Court of Appeals thus upheld the NLRCs finding that no employer-employee
relationship existed between McLeod and respondent corporations except PMI.

The Court of Appeals ruled that Eric Hu, as an officer of PMI, should be exonerated
from any liability, there being no proof of malice or bad faith on his part.The Court of
Appeals, however, ruled that McLeod was entitled to recover from PMI and Patricio, the
companys Chairman and President.

The Court of Appeals pointed out that Patricio deliberately and maliciously evaded PMIs
financial obligation to McLeod. The Court of Appeals stated that, on several occasions,
despite his approval, Patricio refused and ignored to pay McLeods retirement
benefits. The Court of Appeals stated that the delay lasted for one year prompting
McLeod to initiate legal action. The Court of Appeals stated that although PMI offered to
pay McLeod his retirement benefits, this offer for P300,000 was still below the floor
limits provided by law. The Court of Appeals held that an employee could demand
payment of retirement benefits as a matter of right.

The Court of Appeals stated that considering that PMI was no longer in operation, its
officer should be held liable for acting on behalf of the corporation.

The Court of Appeals also ruled that since PMI did not have a retirement program
providing for retirement benefits of its employees, Article 287 of the Labor Code must
be followed. The Court of Appeals thus upheld the NLRCs finding that McLeod was
entitled to retirement pay equivalent to 22.5 days for every year of service from 1980 to
1992 based on a salary rate of P50,495 a month.

The Court of Appeals held that McLeod was not entitled to payment of vacation, sick
leave and holiday pay because as Vice President and Plant Manager, McLeod is a

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managerial employee who, under Article 82 of the Labor Code, is not entitled to these
benefits.

The Court of Appeals stated that for McLeod to be entitled to payment of service
incentive leave and holidays, there must be an agreement to that effect between him
and his employer.

Moreover, the Court of Appeals rejected McLeods argument that since PMI paid for his
two round-trip tickets Manila-London in 1983 and 1986, he was also entitled to unused
airline tickets. The Court of Appeals stated that the fact that PMI granted McLeod free
transport to and from Manila and London for the year 1983 and 1986 does not ipso
facto characterize it as regular that would establish a prevailing company policy.

The Court of Appeals also denied McLeods claims for underpayment of salaries and his
13th month pay for the year 1994. The Court of Appeals upheld the NLRCs ruling that it
could be deduced from McLeods own narration of facts that he agreed to the reduction
of his compensation from P60,000 to P50,495 in August 1990 to November 1993.

The Court of Appeals found the award of moral damages for P50,000 in order because
of the stubborn refusal of PMI and Patricio to respect McLeods valid claims.

The Court of Appeals also ruled that attorneys fees equivalent to 10% of the total
award should be given to McLeod under Article 2208, paragraph 2 of the Civil Code. [12]

Hence, this petition.

The Issues

McLeod submits the following issues for our consideration:

1.
Whether the challenged Decision and Resolution of the 14 th Division of the Court
of Appeals promulgated on 15 June 2000 and 27 December 2000, respectively, in CAG.R. SP No. 55130 are in accord with law and jurisprudence;
2.
Whether an employer-employee relationship exists between the private
respondents and the petitioner for purposes of determining employer liability to the
petitioner;

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3.
Whether the private respondents may avoid their financial obligations to the
petitioner by invoking the veil of corporate fiction;

4.
Whether petitioner is entitled to the relief he seeks against the private
respondents;

5.
Whether the ruling of [this] Court in Special Police and Watchman Association
(PLUM) Federation v. National Labor Relations Commission cited by the Office of the
Solicitor General is applicable to the case of petitioner; and

6.
Whether the appeal taken by the private respondents from the Decision of the
labor arbiter meets the mandatory requirements recited in the Labor Code of the
Philippines, as amended.[13]

The Courts Ruling

The petition must fail.

McLeod asserts that the Court of Appeals should not have upheld the NLRCs findings
that he was a managerial employee of PMI from 20 June 1980 to 31 December 1992,
and then a consultant of SRTI up to 30 November 1993. McLeod asserts that if only for
this brazen assumption, the Court of Appeals should not have sustained the NLRCs
ruling that his cause of action was only against PMI.

These assertions do not deserve serious consideration.

Records disclose that McLeod was an employee only of PMI. [14] PMI hired McLeod as its
acting Vice President and General Manager on 20 June 1980. [15]PMI confirmed McLeods
appointment as Vice President/Plant Manager in the Special Meeting of its Board of
Directors on 10 February 1981.[16] McLeod himself testified during the hearing before
the Labor Arbiter that his regular employment was with PMI.[17]

When PMIs rank-and-file employees staged a strike on 19 August 1989 to July 1992,
PMI incurred serious business losses. [18] This prompted PMI to stop permanently plant
operations and to send a notice of closure to the Department of Labor and Employment
on 21 July 1992.[19]

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PMI informed its employees, including McLeod, of the closure. [20] PMI paid its
employees, including managerial employees, except McLeod, their unpaid wages, sick
leave, vacation leave, prorated 13 th month pay, and separation pay. Under the
compromise agreement between PMI and its employees, the employer-employee
relationship between them ended on 25 November 1992.[21]

Records also disclose that PMI extended McLeods service up to 31 December 1992 to
wind up some affairs of the company. [22] McLeod testified on cross-examination that he
received his last salary from PMI in December 1992.[23]

It is thus clear that McLeod was a managerial employee of PMI from 20 June
1980 to 31 December 1992.

However, McLeod claims that after FETMI purchased PMI in January 1993, he continued
to work at the same plant with the same responsibilities until30 November
1993. McLeod claims that FETMI merely renamed PMI as SRTI. McLeod asserts that it
was for this reason that when he reached the retirement age in 1993, he asked all the
respondents for the payment of his benefits.[24]

These assertions deserve scant consideration.

What took place between PMI and SRTI was dation in payment with lease. Pertinent
portions of the contract that PMI and SRTI executed on 15 June 1992 read:

WHEREAS, PMI is indebted to the Development Bank of the Philippines (DBP) and as
security for such debts (the Obligations) has mortgaged its real properties covered by
TCT Nos. T-38647, T-37136, and T-37135, together with all machineries and
improvements found thereat, a complete listing of which is hereto attached as Annex A
(the Assets);

WHEREAS, by virtue of an inter-governmental agency arrangement, DBP transferred the

Obligations, including the Assets, to the Asset Privatization Trust (APT) and the latter
has received payment for the Obligations from PMI, under APTs Direct Debt Buy-Out
(DDBO) program thereby causing APT to completely discharge and cancel the mortgage
in the Assets and to release the titles of the Assets back to PMI;
WHEREAS, PMI obtained cash advances from SRTC in the total amount of TWO
HUNDRED TEN MILLION PESOS (P210,000,000.00) (the Advances) to enable PMI to
consummate the DDBO with APT, with SRTC subrogating APT as PMIs creditor thereby;

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WHEREAS, in payment to SRTC for PMIs liability, PMI has agreed to transfer all its
rights, title and interests in the Assets by way of a dation in payment to SRTC, provided
that simultaneous with the dation in payment, SRTC shall grant unto PMI the right to
lease the Assets under terms and conditions stated hereunder;

NOW THEREFORE, for and in consideration of the foregoing premises, and of the terms
and conditions hereinafter set forth, the parties hereby agree as follows:

1. CESSION. In consideration of the amount of TWO HUNDRED TEN MILLION PESOS

(P210,000,000.00), PMI hereby cedes, conveys and transfers to SRTC all of its rights,
title and interest in and to the Assets by way of a dation in payment. [25] (Emphasis
supplied)

As a rule, a corporation that purchases the assets of another will not be liable for the
debts of the selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets, except when any of the following circumstances
is present: (1) where the purchaser expressly or impliedly agrees to assume the debts,
(2) where the transaction amounts to a consolidation or merger of the corporations, (3)
where the purchasing corporation is merely a continuation of the selling corporation,
and (4) where the selling corporation fraudulently enters into the transaction to escape
liability for those debts.[26]

None of the foregoing exceptions is present in this case.

Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum
of P210,000,000. We are not convinced that PMI fraudulently transferred these assets
to escape its liability for any of its debts. PMI had already paid its employees, except
McLeod, their money claims.

There was also no merger or consolidation of PMI and SRTI.

Consolidation is the union of two or more existing corporations to form a new

corporation called the consolidated corporation. It is a combination by agreement
between two or more corporations by which their rights, franchises, and property are
united and become those of a single, new corporation, composed generally, although
not necessarily, of the stockholders of the original corporations.

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Merger, on the other hand, is a union whereby one corporation absorbs one or more
existing corporations, and the absorbing corporation survives and continues the
combined business.

The parties to a merger or consolidation are called constituent corporations. In

consolidation, all the constituents are dissolved and absorbed by the new consolidated
enterprise. In merger, all constituents, except the surviving corporation, are
dissolved. In both cases, however, there is no liquidation of the assets of the dissolved
corporations, and the surviving or consolidated corporation acquires all their properties,
rights and franchises and their stockholders usually become its stockholders.

The surviving or consolidated corporation assumes automatically the liabilities of the

dissolved corporations, regardless of whether the creditors have consented or not to
such merger or consolidation.[27]

In the present case, there is no showing that the subject dation in payment involved
any corporate merger or consolidation. Neither is there any showing of those indicative
factors that SRTI is a mere instrumentality of PMI.

Moreover, SRTI did not expressly or impliedly agree to assume any of PMIs
debts. Pertinent portions of the subject Deed of Dation in Payment with Lease provide,
thus:

2. WARRANTIES AND REPRESENTATIONS. PMI hereby warrants and represents the

following:

(e) PMI shall warrant that it will hold SRTC or its assigns, free and harmless from any
liability for claims of PMIs creditors, laborers, and workers and for physical injury or
injury to property arising from PMIs custody, possession, care, repairs, maintenance,
use or operation of the Assets except ordinary wear and tear;[28] (Emphasis supplied)

Also, McLeod did not present any evidence to show the alleged renaming of Peggy Mills,
Inc. to Sta. Rosa Textiles, Inc.

Hence, it is not correct for McLeod to treat PMI and SRTI as the same entity.

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Respondent corporations assert that SRTI hired McLeod as consultant after PMI stopped
operations.[29] On the other hand, McLeod asserts that he was respondent corporations
employee from 1980 to 30 November 1993.[30] However, McLeod failed to present any
proof of employer-employee relationship between him and Filsyn, SRTI, or
FETMI. McLeod testified, thus:

ATTY. ESCANO:
Do you have any employment contract with Far Eastern Textile?

WITNESS:
It is my belief up the present time.

ATTY. AVECILLA:
May I request that the witness be allowed to go through his Annexes, Your Honor.

ATTY. ESCANO:
Yes, but I want a precise answer to that question. If he has an employment contract
with Far Eastern Textile?

WITNESS:
Can I answer it this way, sir? There is not a valid contract but I was under the
impression taking into consideration that the closeness that I had at Far Eastern Textile
is enough during that period of time of the development of Peggy Mills to reorganize a
staff. I was under the basic impression that they might still retain my status as Vice
President and Plant Manager of the company.

ATTY. ESCANO:
But the answer is still, there is no employment contract in your possession appointing
you in any capacity by Far Eastern?

WITNESS:
There was no written contract, sir.

ATTY. ESCANO:

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So, there is proof that you were in fact really employed by Peggy Mills?

WITNESS:
Yes, sir.

ATTY. ESCANO:
Of course, my interest now is to whether or not there is a similar document to present
that you were employed by the other respondents like Filsyn Corporation?

WITNESS:
I have no document, sir.

ATTY. ESCANO:
What about Far Eastern Textile Mills?

WITNESS:
I have no document, sir.

ATTY. ESCANO:
And Sta. Rosa Textile Mills?

WITNESS:
There is no document, sir.[31]

ATTY. ESCANO:
Q Yes. Let me be more specific, Mr. McLeod. Do you have a contract of employment
from Far Eastern Textiles, Inc.?

A No, sir.

Q What about Sta. Rosa Textile Mills, do you have an employment contract from this
company?

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A No, sir.

Q And what about respondent Eric Hu. Have you had any contract of employment from
Mr. Eric Hu?

A Not a direct contract but I was taken in and I told to take over this from Mr. Eric
Hu. Automatically, it confirms that Mr. Eric Hu, in other words, was under the control of
Mr. Patricio Lim at that period of time.

Q No documents to show, Mr. McLeod?

A No. No documents, sir.[32]

McLeod could have presented evidence to support his allegation of employer-employee

relationship between him and any of Filsyn, SRTI, and FETMI, but he did
not. Appointment letters or employment contracts, payrolls, organization charts, SSS
registration, personnel list, as well as testimony of co-employees, may serve as
evidence of employee status.[33]
It is a basic rule in evidence that parties must prove their affirmative allegations. While
technical rules are not strictly followed in the NLRC, this does not mean that the rules
on proving allegations are entirely ignored. Bare allegations are not enough. They must
be supported by substantial evidence at the very least.[34]
However, McLeod claims that for purposes of determining employer liability, all private
respondents are one and the same employer because: (1) they have the same address;
(2) they are all engaged in the same business; and (3) they have interlocking directors
and officers.[35]

This assertion is untenable.

A corporation is an artificial being invested by law with a personality separate and

distinct from that of its stockholders and from that of other corporations to which it may
be connected.[36]

While a corporation may exist for any lawful purpose, the law will regard it as an
association of persons or, in case of two corporations, merge them into one, when its
corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of
piercing the veil of corporate fiction. The doctrine applies only when such corporate

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fiction is used to defeat public convenience, justify wrong, protect fraud, or defend
crime,[37] or when it is made as a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation. [38]

To disregard the separate juridical personality of a corporation, the wrongdoing must be

established clearly and convincingly. It cannot be presumed.[39]

Here, we do not find any of the evils sought to be prevented by the doctrine of piercing
the corporate veil.

Respondent corporations may be engaged in the same business as that of PMI, but this
fact alone is not enough reason to pierce the veil of corporate fiction. [40]

In Indophil Textile Mill Workers Union v. Calica,[41] the Court ruled, thus:

In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic,
alleging that the creation of the corporation is a devise to evade the application of the
CBA between petitioner Union and private respondent Company. While we do not
discount the possibility of the similarities of the businesses of private respondent and
Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting
the relief sought. The fact that the businesses of private respondent and Acrylic are
related, that some of the employees of the private respondent are the same persons
manning and providing for auxiliary services to the units of Acrylic, and that the physical
plants, offices and facilities are situated in the same compound, it is our considered
opinion that these facts are not sufficient to justify the piercing of the corporate veil of
Acrylic.[42] (Emphasis supplied)

Also, the fact that SRTI and PMI shared the same address, i.e., 11/F BA-Lepanto Bldg.,
Paseo de Roxas, Makati City,[43] can be explained by the two companies stipulation in
their Deed of Dation in Payment with Lease that simultaneous with the dation in
payment, SRTC shall grant unto PMI the right to lease the Assets under terms and
conditions stated hereunder.[44]

As for the addresses of Filsyn and FETMI, Filsyn held office at 12 th Floor, BA-Lepanto
Bldg., Paseo de Roxas, Makati City,[45] while FETMI held office at 18F, Tun Nan
Commercial Building, 333 Tun Hwa South Road, Sec. 2, Taipei, Taiwan, R.O.C. [46] Hence,
they did not have the same address as that of PMI.

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That respondent corporations have interlocking incorporators, directors, and officers is

of no moment.

The only interlocking incorporators of PMI and Filsyn were Patricio and Carlos Palanca,
Jr.[47] While Patricio was Director and Board Chairman of Filsyn, SRTI, and PMI, [48] he
was never an officer of FETMI.

Eric Hu, on the other hand, was Director of Filsyn and SRTI. [49] He was never an officer
of PMI.

Marialen C. Corpuz, Filsyns Finance Officer, [50] testified on cross-examination that (1)
among all of Filsyns officers, only she was the one involved in the management of PMI;
(2) only she and Patricio were the common officers between Filsyn and PMI; and (3)
Filsyn and PMI are two separate companies.[51]

Apolinario L. Posio, PMIs Chief Accountant, testified that SRTI is a different corporation
from PMI.[52]

At any rate, the existence of interlocking incorporators, directors, and officers is not
enough justification to pierce the veil of corporate fiction, in the absence of fraud or
other public policy considerations.[53]

In Del Rosario v. NLRC,[54] the Court ruled that substantial identity of the incorporators
of corporations does not necessarily imply fraud.

In light of the foregoing, and there being no proof of employer-employee relationship

between McLeod and respondent corporations and Eric Hu, McLeods cause of action is
only against his former employer, PMI.
On Patricios personal liability, it is settled that in the absence of malice, bad faith, or
specific provision of law, a stockholder or an officer of a corporation cannot be made
personally liable for corporate liabilities.[55]
To reiterate, a corporation is a juridical entity with legal personality separate and distinct
from those acting for and in its behalf and, in general, from the people comprising
it. The rule is that obligations incurred by the corporation, acting through its directors,
officers, and employees, are its sole liabilities.[56]
Personal liability of corporate directors, trustees or officers attaches only when (1) they
assent to a patently unlawful act of the corporation, or when they are guilty of bad faith
or gross negligence in directing its affairs, or when there is a conflict of interest

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resulting in damages to the corporation, its stockholders or other persons; (2) they
consent to the issuance of watered down stocks or when, having knowledge of such
issuance, do not forthwith file with the corporate secretary their written objection; (3)
they agree to hold themselves personally and solidarily liable with the corporation;
or (4) they are made by specific provision of law personally answerable for their
corporate action.[57]

Considering that McLeod failed to prove any of the foregoing exceptions in the present
case, McLeod cannot hold Patricio solidarily liable with PMI.

The records are bereft of any evidence that Patricio acted with malice or bad faith. Bad
faith is a question of fact and is evidentiary. Bad faith does not connote bad judgment
or negligence. It imports a dishonest purpose or some moral obliquity and conscious
wrongdoing. It means breach of a known duty through some ill motive or interest. It
partakes of the nature of fraud.[58]

In the present case, there is nothing substantial on record to show that Patricio acted in
bad faith in terminating McLeods services to warrant Patricios personal liability. PMI had
no other choice but to stop plant operations. The work stoppage therefore was by
necessity. The company could no longer continue with its plant operations because of
the serious business losses that it had suffered. The mere fact that Patricio was
president and director of PMI is not a ground to conclude that he should be held
solidarily liable with PMI for McLeods money claims.

The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,[59] which the Court of Appeals
cited, does not apply to this case. We quote pertinent portions of the ruling, thus:

(a) Article 265 of the Labor Code, in part, expressly provides:

Any worker whose employment has been terminated as a consequence of an unlawful

lockout shall be entitled to reinstatement with full backwages.
Article 273 of the Code provides that:
Any person violating any of the provisions of Article 265 of this Code shall be punished
by a fine of not exceeding five hundred pesos and/or imprisonment for not less than
one (1) day nor more than six (6) months.

(b) How can the foregoing provisions be implemented when the employer is a
corporation? The answer is found in Article 212 (c) of the Labor Code which provides:

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(c) Employer includes any person acting in the interest of an employer, directly or
indirectly. The term shall not include any labor organization or any of its officers or
agents except when acting as employer.
.
The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since
RANSOM is an artificial person, it must have an officer who can be presumed to be the
employer, being the person acting in the interest of (the) employer RANSOM. The
corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say
even criminally, liable for non-payment of back wages. That is the policy of the law.

(c) If the policy of the law were otherwise, the corporation employer can have devious
ways for evading payment of back wages. In the instant case, it would appear that
RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to
the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually
phased out if the 22 strikers win their case. RANSOM actually ceased operations on May
1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was
promulgated against RANSOM.[60] (Emphasis supplied)

Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to evade
payment of backwages to the 22 strikers. This situation, or anything similar showing
malice or bad faith on the part of Patricio, does not obtain in the present
case. In Santos v. NLRC,[61] the Court held, thus:
It is true, there were various cases when corporate officers were themselves held by
the Court to be personally accountable for the payment of wages and money claims to
its employees. In A.C. Ransom Labor Union-CCLU vs. NLRC , for instance, the Court
ruled that under the Minimum Wage Law, the responsible officer of an employer
corporation could be held personally liable for nonpayment of backwages for (i)f the
policy of the law were otherwise, the corporation employer (would) have devious ways
for evading payment of backwages. In the absence of a clear identification of the officer
directly responsible for failure to pay the backwages, the Court considered the President
of the corporation as such officer. The case was cited in Chua vs. NLRC in holding
personally liable the vice-president of the company, being the highest and most ranking
official of the corporation next to the President who was dismissed for the latters claim
for unpaid wages.
A review of the above exceptional cases would readily disclose the attendance of facts
and circumstances that could rightly sanction personal liability on the part of the
company officer. In A.C. Ransom, the corporate entity was a family corporation
and execution against it could not be implemented because of the disposition posthaste
of its leviable assets evidently in order to evade its just and due obligations. The

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doctrine of piercing the veil of corporate fiction was thus clearly

appropriate. Chua likewise involved another family corporation, and this time the
conflict was between two brothers occupying the highest ranking positions in the
company. There were incontrovertible facts which pointed to extreme personal
animosity that resulted, evidently in bad faith, in the easing out from the company of
one of the brothers by the other.

The basic rule is still that which can be deduced from the Courts pronouncement
in Sunio vs. National Labor Relations Commission; thus:

We come now to the personal liability of petitioner, Sunio, who was made jointly and
severally responsible with petitioner company and CIPI for the payment of the
backwages of private respondents. This is reversible error. The Assistant Regional
Directors Decision failed to disclose the reason why he was made personally
liable. Respondents, however, alleged as grounds thereof, his being the owner of onehalf () interest of said corporation, and his alleged arbitrary dismissal of private
respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of
petitioner corporation. There appears to be no evidence on record that he acted
maliciously or in bad faith in terminating the services of private respondents. His act,
therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to
which it may be related. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality. Petitioner Sunio,
therefore, should not have been made personally answerable for the payment of private
respondents back salaries.[62] (Emphasis supplied)

Thus, the rule is still that the doctrine of piercing the corporate veil applies only when
the corporate fiction is used to defeat public convenience, justify wrong, protect fraud,
or defend crime. In the absence of malice, bad faith, or a specific provision of law
making a corporate officer liable, such corporate officer cannot be made personally
liable for corporate liabilities. Neither Article 212(c) nor Article 273 (now 272) of the
Labor Code expressly makes any corporate officer personally liable for the debts of the
corporation. As this Court ruled in H.L. Carlos Construction, Inc. v. Marina Properties
Corporation:[63]

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We concur with the CA that these two respondents are not liable. Section 31 of the
Corporation Code (Batas Pambansa Blg. 68) provides:

Section 31. Liability of directors, trustees or officers . - Directors or trustees who willfully
and knowingly vote for or assent to patently unlawful acts of the corporation or who are
guilty of gross negligence or bad faith ... shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders and other
persons.

The personal liability of corporate officers validly attaches only when (a) they assent to
a patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross
negligence in directing its affairs; or (c) they incur conflict of interest, resulting in
damages to the corporation, its stockholders or other persons.

The records are bereft of any evidence that Typoco acted in bad faith with gross or
inexcusable negligence, or that he acted outside the scope of his authority as company
president. The unilateral termination of the Contract during the existence of the TRO
was indeed contemptible for which MPC should have merely been cited for contempt of
court at the most and a preliminary injunction would have then stopped work by the
second contractor. Besides, there is no showing that the unilateral termination of the
Contract was null and void.[64]

McLeod is not entitled to payment of vacation leave and sick leave as well as to holiday
pay. Article 82, Title I, Book Three of the Labor Code, on Working Conditions and Rest
Periods, provides:
Coverage. The provisions of this title shall apply to employees in all establishments
and
undertakings
whether
for
profit
or
not, but
not
to government
employees,managerial employees, field personnel, members of the family of the
employer who are dependent on him for support, domestic helpers, persons in the
personal service of another, and workers who are paid by results as determined by the
Secretary of Labor in appropriate regulations.

As used herein, managerial employees refer to those whose primary duty consists of
the management of the establishment in which they are employed or of a department
or subdivision thereof, and to other officers or members of the managerial staff.
(Emphasis supplied)
As Vice President/Plant Manager, McLeod is a managerial employee who is excluded
from the coverage of Title I, Book Three of the Labor Code. McLeod is entitled to
payment of vacation leave and sick leave only if he and PMI had agreed on it. The
payment of vacation leave and sick leave depends on the policy of the employer or the

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agreement between the employer and employee. [65] In the present case, there is no
showing that McLeod and PMI had an agreement concerning payment of these benefits.

McLeods assertion of underpayment of his 13 th month pay in December 1993 is

unavailing.[66] As already stated, PMI stopped plant operations in 1992.McLeod himself
testified that he received his last salary from PMI in December 1992. After the
termination of the employer-employee relationship between McLeod and PMI, SRTI
hired McLeod as consultant and not as employee. Since McLeod was no longer an
employee, he was not entitled to the 13th month pay.[67] Besides, there is no evidence
on record that McLeod indeed received his alleged reduced 13 th month pay
of P44,183.63 in December 1993.[68]

Also unavailing is McLeods claim that he was entitled to the unpaid monetary equivalent
of unused plane tickets for the period covering 1989 to 1992 in the amount
of P279,300.00.[69] PMI has no company policy granting its officers and employees
expenses for trips abroad.[70] That at one time PMI reimbursed McLeod for his and his
wifes plane tickets in a vacation to London [71] could not be deemed as an established
practice considering that it happened only once.To be considered a regular practice, the
giving of the benefits should have been done over a long period, and must be shown to
have been consistent and deliberate.[72]

In American Wire and Cable Daily Rated Employees Union v. American Wire and Cable
Co., Inc.,[73] the Court held that for a bonus to be enforceable, the employer must have
promised it, and the parties must have expressly agreed upon it, or it must have had a
fixed amount and had been a long and regular practice on the part of the employer.
In the present case, there is no showing that PMI ever promised McLeod that it would
continue to grant him the benefit in question. Neither is there any proof that PMI and
McLeod had expressly agreed upon the giving of that benefit.

McLeods reliance on Annex M[74] can hardly carry the day for him. Annex M, which is
McLeods letter addressed to Philip Lim, VP Administration, merely contains McLeods
proposals for the grant of some benefits to supervisory and confidential
employees. Contrary to McLeods allegation, Patricio did not sign the letter. Hence, the
letter does not embody any agreement between McLeod and the management that
would entitle McLeod to his money claims.

Neither can McLeods assertions find support in Annex U. [75] Annex U is the Agreement
which McLeod and Universal Textile Mills, Inc. executed in 1959.The Agreement merely
contains the renewal of the service agreement which the parties signed in 1956.

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McLeod cannot successfully pretend that his monthly salary of P60,000 was reduced
without his consent.

McLeod testified that in 1990, Philip Lim explained to him why his salary would have to
be reduced. McLeod said that Philip told him that they were short in finances; that it
would be repaid.[76] Were McLeod not amenable to that reduction in salary, he could
have immediately resigned from his work in PMI.

McLeod knew that PMI was then suffering from serious business losses. In fact, McLeod
testified that PMI was not able to operate from August 1989 to 1992 because of the
strike. Even before 1989, as Vice President of PMI, McLeod was aware that the
company had incurred huge loans from DBP. [77] As it happened, McLeod continued to
work with PMI. We find it pertinent to quote some portions of Apolinario Posios
testimony, to wit:

Q You also stated that before the period of the strike as shown by annex K of the reply
filed by the complainant which was I think a voucher, the salary of Mr. McLeod was
roughly P60,000.00 a month?

A Yes, sir.

Q And as shown by their annex L to their reply, that this was reduced to
roughly P50,000.00 a month?
A Yes, sir.

Q You stated that this was indeed upon the instruction by the Vice-President of Peggy
Mills at that time and that was Mr. Philip Lim, would you not?

A Yes, sir.
Q Of your own personal knowledge, can you say if this was, in fact, by agreement
between Mr. Philip Lim or any other officers of Peggy Mills and Mr. McLeod?

A If I recall it correctly, I assume it was an agreement, verbal agreement with, between

Mr. Philip Lim and Mr. McLeod, because the voucher that we prepared was actually
acknowledged by Mr. McLeod, the reduced amount was acknowledged by Mr. McLeod
thru the voucher that we prepared.

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Q In other words, Mr. Witness, you mean to tell us that Mr. McLeod continuously
received the reduced amount of P50,000.00 by signing the voucher and receiving the
amount in question?

A Yes, sir.

Q As far as you remember, Mr. Posio, was there any complaint by Mr. McLeod because
of this reduced amount of his salary at that time?

A I dont have any personal knowledge of any complaint, sir.

Q At least, that is in so far as you were concerned, he said nothing when he signed the
voucher in question?

A Yes, sir.

Q Now, you also stated that the reason for what appears to be an agreement between
Peggy Mills and Mr. McLeod in so far as the reduction of his salary fromP60,000.00
to P50,000.00 a month was because he would have a reduced number of working days
in view of the strike at Peggy Mills, is that right?
A Yes, sir.

Q And that this was so because on account of the strike, there was no work to be done
in the company?

A Yes, sir.[78]

xxxx

Q Now, you also stated if you remember during the first time that you testified that in
the beginning, the monthly salary of the complainant was P60,000.00, is that correct?

A Yes, sir.

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Q And because of the long period of the strike, when there was no work to be done, by
agreement with the complainant, his monthly salary was adjusted to only P50,495
because he would not have to report for work on Saturday. Do you remember having
made that explanation?

A Yes, sir.

Q You also stated that the complainant continuously received his monthly salary in the
adjusted amount of P50,495.00 monthly signing the necessary vouchers or pay slips for
that without complaining, is that not right, Mr. Posio?

A Yes, sir.[79]

Since the last salary that McLeod received from PMI was P50,495, that amount should
be the basis in computing his retirement benefits. McLeod must be credited only with
his service to PMI as it had a juridical personality separate and distinct from that of the
other respondent corporations.
Since PMI has no retirement plan, [80] we apply Section 5, Rule II of the Rules
Implementing the New Retirement Law which provides:
5.1
In the absence of an applicable agreement or retirement plan, an
employee who retires pursuant to the Act shall be entitled to retirement pay equivalent
to at least one-half (1/2) month salary for every year of service, a fraction of at least six
(6) months being considered as one whole year.

5.2 Components of One-half (1/2) Month Salary. For the purpose of determining the
minimum retirement pay due an employee under this Rule, the term one-half month
salary shall include all of the following:

(a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x

With McLeod having worked with PMI for 12 years, from 1980 to 1992, he is entitled to
a retirement pay equivalent to month salary for every year of service based on his latest
salary rate of P50,495 a month.

There is no basis for the award of moral damages.

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Moral damages are recoverable only if the defendant has acted fraudulently or in bad
faith, or is guilty of gross negligence amounting to bad faith, or in wanton disregard of
his contractual obligations. The breach must be wanton, reckless, malicious, or in bad
faith, oppressive or abusive.[81] From the records of the case, the Court finds no ultimate
facts to support a conclusion of bad faith on the part of PMI.

Records disclose that PMI had long offered to pay McLeod his money claims. In their
Comment, respondents assert that they offered to pay McLeod the sum of P840,000, as
separation benefits, and not P300,000, if only to buy peace and to forestall any
complaint that McLeod may initiate before the NLRC. McLeod admitted at the hearing
before the Labor Arbiter that PMI has made this offer

ATTY. ESCANO:
x x x According to your own statement in your Position Paper and I am referring to
page 8, your unpaid retirement benefit for fourteen (14) years of service atP60,000.00
per year is P840,000.00, is that correct?
WITNESS:
That is correct, sir.
ATTY. ESCANO:
And this amount is correct P840,000.00, according to your Position Paper?

WITNESS:
That is correct, sir.

ATTY. ESCANO:
The question I want to ask is, are you aware that this amount was offered to you
sometime last year through your own lawyer, my good friend, Atty. Avecilla, who is right
here with us?

WITNESS:
I was aware, sir.

ATTY. ESCANO:
So this was offered to you, is that correct?

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WITNESS:
I was told that a fixed sum of P840,000.00 was offered.

ATTY. ESCANO:
And , of course, the reason, if I may assume, that you declined this offer was that,
according to you, there are other claims which you would like to raise against the
Respondents which, by your impression, they were not willing to pay in addition to this
particular amount?

WITNESS:
Yes, sir.

ATTY. ESCANO:
The question now is, if the same amount is offered to you by way of retirement which is
exactly what you stated in your own Position Paper, would you accept it or not?

WITNESS:
Not on the concept without all the basic benefits due me, I will refuse.[82]

xxxx

ATTY. ROXAS:
Q You mentioned in the cross-examination of Atty. Escano that you were offered the
separation pay in 1994, is that correct, Mr. Witness?

WITNESS:
A I was offered a settlement of P300,000.00 for complete settlement and that was I
think in January or February 1994, sir.

ATTY. ESCANO:
No. What was mentioned was the amount of P840,000.00.

WITNESS:

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What did you say, Atty. Escano?

ATTY. ESCANO:
The amount that I mentioned was P840,000.00 corresponding to the . . . . . . .

WITNESS:
May I ask that the question be clarified, your Honor?

ATTY. ROXAS:
Q You mentioned that you were offered for the settlement of your claims in 1994
for P840,000.00, is that right, Mr. Witness?

A During that period in time, while the petition in this case was ongoing, we already
filed a case at that period of time, sir. There was a discussion. To the best of my
knowledge, they are willing to settle for P840,000.00 and based on what the Attorney
told me, I refused to accept because I believe that my position was not in anyway due
to a compromise situation to the benefits I am entitled to.[83]

Hence, the awards for exemplary damages and attorneys fees are not proper in the
present case.[84]

That respondent corporations, in their appeal to the NLRC, did not serve a copy of their
memorandum of appeal upon PMI is of no moment. Section 3(a), Rule VI of the NLRC
New Rules of Procedure provides:

Requisites for Perfection of Appeal. (a) The appeal shall be filed within the
reglementary period as provided in Section 1 of this Rule; shall be under oath with
proof of payment of the required appeal fee and the posting of a cash or surety bond as
provided in Section 5 of this Rule; shall be accompanied by a memorandum of appeal x
x x and proof of service on the other party of such appeal. (Emphasis supplied)

The other party mentioned in the Rule obviously refers to the adverse party, in this
case, McLeod. Besides, Section 3, Rule VI of the Rules which requires, among others,
proof of service of the memorandum of appeal on the other party, is merely a rundown
of the contents of the required memorandum of appeal to be submitted by the
appellant. These are not jurisdictional requirements.[85]

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WHEREFORE, we DENY the petition and AFFIRM the Decision of the Court of Appeals in
CA-G.R. SP No. 55130, with the followingMODIFICATIONS: (a) the retirement pay of
John F. McLeod should be computed at month salary for every year of service for 12
years based on his salary rate of P50,495 a month; (b) Patricio L. Lim is absolved from
personal liability; and (c) the awards for moral and exemplary damages and attorneys
fees are deleted. No pronouncement as to costs.

SO ORDERED.
6. Lopez vs Bodega City 532 SCRA 56
G.R. No. 155731

September 3, 2007

LOLITA
LOPEZ, petitioner,
vs.
BODEGA CITY (Video-Disco Kitchen of the Philippines) and/or ANDRES C. TORRESYAP, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the July 18, 2002 Decision 1 of the Court of Appeals (CA) in CA-G.R. SP
No. 66861, dismissing the petition for certiorari filed before it and affirming the Decision
of the National Labor Relations Commission (NLRC) in NLRC-NCR Case No. 00-0301729-95; and its Resolution dated October 16, 2002, 2 denying petitioner's Motion for
Reconsideration. The NLRC Decision set aside the Decision of the Labor Arbiter finding
that Lolita Lopez (petitioner) was illegally dismissed by Bodega City and/or Andres C.
Torres-Yap (respondents).
Respondent Bodega City (Bodega City) is a corporation duly registered and existing
under and by virtue of the laws of the Republic of the Philippines, while respondent
Andres C. Torres-Yap (Yap) is its owner/ manager. Petitioner was the "lady keeper" of
Bodega City tasked with manning its ladies' comfort room.
In a letter signed by Yap dated February 10, 1995, petitioner was made to explain why
the concessionaire agreement between her and respondents should not be terminated
or suspended in view of an incident that happened on February 3, 1995, wherein
petitioner was seen to have acted in a hostile manner against a lady customer of
Bodega City who informed the management that she saw petitioner sleeping while on
duty.
In a subsequent letter dated February 25, 1995, Yap informed petitioner that because
of the incident that happened on February 3, 1995, respondents had decided to
terminate the concessionaire agreement between them.
On March 1, 1995, petitioner filed with the Arbitration Branch of the NLRC, National
Capital Region, Quezon City, a complaint for illegal dismissal against respondents

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contending that she was dismissed from her employment without cause and due
process.
In their answer, respondents contended that no employer-employee relationship ever
existed between them and petitioner; that the latter's services rendered within the
premises of Bodega City was by virtue of a concessionaire agreement she entered into
with respondents.
The complaint was dismissed by the Labor Arbiter for lack of merit. However, on
the NLRC set aside the order of dismissal and remanded the case for
proceedings. Upon remand, the case was assigned to a different Labor
Thereafter, hearings were conducted and the parties were required to
memoranda and other supporting documents.

appeal,
further
Arbiter.
submit

On December 28, 1999, the Labor Arbiter rendered judgment finding that petitioner
was an employee of respondents and that the latter illegally dismissed her.3
Respondents filed an appeal with the NLRC. On March 22, 2001, the NLRC issued a
Resolution, the dispositive portion of which reads as follows:
WHEREFORE, premises duly considered, the Decision appealed from is hereby ordered
SET ASIDE and VACATED, and in its stead, a new one entered DISMISSING the aboveentitled case for lack of merit.4
Petitioner filed a motion for reconsideration of the above-quoted NLRC Resolution, but
the NLRC denied the same.
Aggrieved, petitioner filed a Petition for Certiorari with the CA. On July 18, 2002, the CA
promulgated the presently assailed Decision dismissing her special civil action
for certiorari. Petitioner moved for reconsideration but her motion was denied.
Hence, herein petition based on the following grounds:
1. WITH DUE RESPECT, PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION IN
RULING THAT THE NATIONAL LABOR RELATIONS COMMISSION DID NOT COMMIT
GRAVE ABUSE OF DISCRETION IN REVERSING THE DECISION OF THE LABOR ARBITER
FINDING PETITIONER TO HAVE BEEN ILLEGALLY DISMISSED BY PRIVATE
RESPONDENTS.
2. WITH DUE RESPECT, PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION IN
RULING THAT PETITIONER WAS NOT AN EMPLOYEE OF PRIVATE RESPONDENTS. 5
Petitioner contends that it was wrong for the CA to conclude that even if she did not
sign the document evidencing the concessionaire agreement, she impliedly accepted
and thus bound herself to the terms and conditions contained in the said agreement
when she continued to perform the task which was allegedly specified therein for a
considerable length of time. Petitioner claims that the concessionaire agreement was
only offered to her during her tenth year of service and after she organized a union and
filed a complaint against respondents. Prior to all these, petitioner asserts that her job
as a "lady keeper" was a task assigned to her as an employee of respondents.

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Petitioner further argues that her receipt of a special allowance from respondents is a
clear evidence that she was an employee of the latter, as the amount she received was
equivalent to the minimum wage at that time.
Petitioner also contends that her identification card clearly shows that she was not a
concessionaire but an employee of respondents; that if respondents really intended the
ID card issued to her to be used simply for having access to the premises of Bodega
City, then respondents could have clearly indicated such intent on the said ID card.
Moreover, petitioner submits that the fact that she was required to follow rules and
regulations prescribing appropriate conduct while she was in the premises of Bodega
City is clear evidence of the existence of an employer-employee relationship between
her and petitioners.
On the other hand, respondents contend that the present petition was filed for the sole
purpose of delaying the proceedings of the case; the grounds relied upon in the instant
petition are matters that have been exhaustively discussed by the NLRC and the CA; the
present petition raises questions of fact which are not proper in a petition for review
on certiorari under Rule 45 of the Rules of Court; the respective decisions of the NLRC
and the CA are based on evidence presented by both parties; petitioner's compliance
with the terms and conditions of the proposed concessionaire contract for a period of
three years is evidence of her implied acceptance of such proposal; petitioner failed to
present evidence to prove her allegation that the subject concessionaire agreement was
only proposed to her in her 10th year of employment with respondent company and
after she organized a union and filed a labor complaint against respondents; petitioner
failed to present competent documentary and testimonial evidence to prove her
contention that she was an employee of respondents since 1985.
The main issue to be resolved in the present case is whether or not petitioner is an
employee of respondents.
The issue of whether or not an employer-employee relationship exists in a given case is
essentially a question of fact.6
While it is a settled rule that only errors of law are generally reviewed by this Court in
petitions for review oncertiorari of CA decisions,7 there are well-recognized exceptions
to this rule, as in this case, when the factual findings of the NLRC as affirmed by the CA
contradict those of the Labor Arbiter. 8 In that event, it is this Court's task, in the
exercise of its equity jurisdiction, to re-evaluate and review the factual issues by looking
into the records of the case and re-examining the questioned findings.9
It is a basic rule of evidence that each party must prove his affirmative allegation. 10 If
he claims a right granted by law, he must prove his claim by competent evidence,
relying on the strength of his own evidence and not upon the weakness of that of his
opponent.11
The test for determining on whom the burden of proof lies is found in the result of an
inquiry as to which party would be successful if no evidence of such matters were
given.12

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In an illegal dismissal case, the onus probandi rests on the employer to prove that its
dismissal of an employee was for a valid cause. 13 However, before a case for illegal
dismissal can prosper, an employer-employee relationship must first be established. 14
In filing a complaint before the Labor Arbiter for illegal dismissal based on the premise
that she was an employee of respondent, it is incumbent upon petitioner to prove the
employee-employer relationship by substantial evidence. 15
The NLRC and the CA found that petitioner failed to discharge this burden, and the
Court finds no cogent reason to depart from their findings.
The Court applies the four-fold test expounded in Abante v. Lamadrid Bearing and Parts
Corp.,16 to wit:
To ascertain the existence of an employer-employee relationship, jurisprudence has
invariably applied the four-fold test, namely: (1) the manner of selection and
engagement; (2) the payment of wages; (3) the presence or absence of the power of
dismissal; and (4) the presence or absence of the power of control. Of these four, the
last one is the most important. The so-called "control test" is commonly regarded as the
most crucial and determinative indicator of the presence or absence of an employeremployee relationship. Under the control test, an employer-employee relationship exists
where the person for whom the services are performed reserves the right to control not
only the end achieved, but also the manner and means to be used in reaching that
end.17
To prove the element of payment of wages, petitioner presented a petty cash voucher
showing that she received an allowance for five (5) days. 18 The CA did not err when it
held that a solitary petty cash voucher did not prove that petitioner had been receiving
salary from respondents or that she had been respondents' employee for 10 years.
Indeed, if petitioner was really an employee of respondents for that length of time, she
should have been able to present salary vouchers or pay slips and not just a single
petty cash voucher. The Court agrees with respondents that petitioner could have easily
shown other pieces of evidence such as a contract of employment, SSS or Medicare
forms, or certificates of withholding tax on compensation income; or she could have
presented witnesses to prove her contention that she was an employee of respondents.
Petitioner failed to do so.
Anent the element of control, petitioner's contention that she was an employee of
respondents because she was subject to their control does not hold water.
Petitioner failed to cite a single instance to prove that she was subject to the control of
respondents insofar as the manner in which she should perform her job as a "lady
keeper" was concerned.
It is true that petitioner was required to follow rules and regulations prescribing
appropriate conduct while within the premises of Bodega City. However, this was
imposed upon petitioner as part of the terms and conditions in the concessionaire
agreement embodied in a 1992 letter of Yap addressed to petitioner, to wit:
January 6, 1992

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Dear Ms. Lolita Lopez,

The new owners of Bodega City, 1121 Food Service Corporation offers to your goodself
the concessionaire/contract to provide independently, customer comfort services to
assist users of the ladies comfort room of the Club to further enhance its business,
under the following terms and conditions:
1. You will provide at your own expense, all toilet supplies, useful for the purpose, such
as toilet papers, soap, hair pins, safety pins and other related items or things which in
your opinion is beneficial to the services you will undertake;
2. For the entire duration of this concessionaire contract, and during the Club's
operating hours, you shall maintain the cleanliness of the ladies comfort room.
Provided, that general cleanliness, sanitation and physical maintenance of said comfort
rooms shall be undertaken by the owners of Bodega City;
3. You shall at all times ensure satisfaction and good services in the discharge of your
undertaking. More importantly, you shall always observe utmost courtesy in dealing with
the persons/individuals using said comfort room and shall refrain from doing acts that
may adversely affect the goodwill and business standing of Bodega City;
4. All remunerations, tips, donations given to you by individuals/persons utilizing said
comfort rooms and/or guests of Bodega City shall be waived by the latter to your
benefit provided however, that if concessionaire receives tips or donations per day in an
amount exceeding 200% the prevailing minimum wage, then, she shall remit fifty
percent (50%) of said amount to Bodega City by way of royalty or concession fees;
5. This contract shall be for a period of one year and shall be automatically renewed on
a yearly basis unless notice of termination is given thirty (30) days prior to expiration.
Any violation of the terms and conditions of this contract shall be a ground for its
immediate revocation and/or termination.
6. It is hereby understood that no employer-employee relationship exists between
Bodega City and/or 1121 FoodService Corporation and your goodself, as you are an
independent contractor who has represented to us that you possess the necessary
qualification as such including manpower compliment, equipment, facilities, etc. and
that any person you may engage or employ to work with or assist you in the discharge
of your undertaking shall be solely your own employees and/or agents.
1121 FoodService Corporation Bodega City
By:
(Sgd.) ANDRES C. TORRES-YAP
Conforme:
_______________
LOLITA LOPEZ19

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Petitioner does not dispute the existence of the letter; neither does she deny that
respondents offered her the subject concessionaire agreement. However, she contends
that she could not have entered into the said agreement with respondents because she
did not sign the document evidencing the same.
Settled is the rule that contracts are perfected by mere consent, upon the acceptance
by the offeree of the offer made by the offeror. 20 For a contract, to arise, the acceptance
must be made known to the offeror.21 Moreover, the acceptance of the thing and the
cause, which are to constitute a contract, may be express or implied as can be inferred
from the contemporaneous and subsequent acts of the contracting parties. 22 A contract
will be upheld as long as there is proof of consent, subject matter and cause; it is
generally obligatory in whatever form it may have been entered into.23
In the present case, the Court finds no cogent reason to disregard the findings of both
the CA and the NLRC that while petitioner did not affix her signature to the document
evidencing the subject concessionaire agreement, the fact that she performed the tasks
indicated in the said agreement for a period of three years without any complaint or
question only goes to show that she has given her implied acceptance of or consent to
the said agreement.
Petitioner is likewise estopped from denying the existence of the subject concessionaire
agreement. She should not, after enjoying the benefits of the concessionaire agreement
with respondents, be allowed to later disown the same through her allegation that she
was an employee of the respondents when the said agreement was terminated by
reason of her violation of the terms and conditions thereof.
The principle of estoppel in pais applies wherein -- by one's acts, representations or
admissions, or silence when one ought to speak out -- intentionally or through culpable
negligence, induces another to believe certain facts to exist and to rightfully rely and act
on such belief, so as to be prejudiced if the former is permitted to deny the existence of
those facts.24
Moreover, petitioner failed to dispute the contents of the affidavit 25 as well as the
testimony26 of Felimon Habitan (Habitan), the concessionaire of the men's comfort room
of Bodega City, that he had personal knowledge of the fact that petitioner was the
concessionaire of the ladies' comfort room of Bodega City.
Petitioner also claims that the concessionaire agreement was offered to her only in her
10th year of service, after she organized a union and filed a complaint against
respondents. However, petitioner's claim remains to be an allegation which is not
supported by any evidence. It is a basic rule in evidence that each party must prove his
affirmative allegation, 27 that mere allegation is not evidence.28
The Court is not persuaded by petitioner's contention that the Labor Arbiter was correct
in concluding that there existed an employer-employee relationship between
respondents and petitioner. A perusal of the Decision 29 of the Labor Arbiter shows that
his only basis for arriving at such a conclusion are the bare assertions of petitioner and
the fact that the latter did not sign the letter of Yap containing the proposed
concessionaire agreement. However, as earlier discussed, this Court finds no error in
the findings of the NLRC and the CA that petitioner is deemed as having given her

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consent to the said proposal when she continuously performed the tasks indicated
therein for a considerable length of time. For all intents and purposes, the
concessionaire agreement had been perfected.
Petitioner insists that her ID card is sufficient proof of her employment. In Domasig v.
National Labor Relations Commission ,30 this Court held that the complainant's ID card
and the cash vouchers covering his salaries for the months indicated therein were
substantial evidence that he was an employee of respondents, especially in light of the
fact that the latter failed to deny said evidence. This is not the situation in the present
case. The only evidence presented by petitioner as proof of her alleged employment are
her ID card and one petty cash voucher for a five-day allowance which were disputed
by respondents.
As to the ID card, it is true that the words "EMPLOYEE'S NAME" appear printed below
petitioner's name.31However, she failed to dispute respondents' evidence consisting of
Habitan's testimony,32 that he and the other "contractors" of Bodega City such as the
singers and band performers, were also issued the same ID cards for the purpose of
enabling them to enter the premises of Bodega City.
The Court quotes, with approval, the ruling of the CA on this matter, to wit:
Nor can petitioners identification card improve her cause any better. It is undisputed
that non-employees, such as Felimon Habitan, an admitted concessionaire, musicians,
singers and the like at Bodega City are also issued identification cards. Given this
premise, it appears clear to Us that petitioner's I.D. Card is incompetent proof of an
alleged employer-employee relationship between the herein parties. Viewed in the
context of this case, the card is at best a "passport" from management assuring the
holder thereof of his unmolested access to the premises of Bodega City.33
With respect to the petty cash voucher, petitioner failed to refute respondent's claim
that it was not given to her for services rendered or on a regular basis, but simply
granted as financial assistance to help her temporarily meet her family's needs.
Hence, going back to the element of control, the concessionaire agreement merely
stated that petitioner shall maintain the cleanliness of the ladies' comfort room and
observe courtesy guidelines that would help her obtain the results they wanted to
achieve. There is nothing in the agreement which specifies the methods by which
petitioner should achieve these results. Respondents did not indicate the manner in
which she should go about in maintaining the cleanliness of the ladies' comfort room.
Neither did respondents determine the means and methods by which petitioner could
ensure the satisfaction of respondent company's customers. In other words, petitioner
was given a free hand as to how she would perform her job as a "lady keeper." In fact,
the last paragraph of the concessionaire agreement even allowed petitioner to engage
persons to work with or assist her in the discharge of her functions.34
Moreover, petitioner was not subjected to definite hours or conditions of work. The fact
that she was expected to maintain the cleanliness of respondent company's ladies'
comfort room during Bodega City's operating hours does not indicate that her
performance of her job was subject to the control of respondents as to make her an
employee of the latter. Instead, the requirement that she had to render her services

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while Bodega City was open for business was dictated simply by the very nature of her
undertaking, which was to give assistance to the users of the ladies' comfort room.
In Consulta v. Court of Appeals,35 this Court held:
It should, however, be obvious that not every form of control that the hiring party
reserves to himself over the conduct of the party hired in relation to the services
rendered may be accorded the effect of establishing an employer-employee relationship
between them in the legal or technical sense of the term. A line must be drawn
somewhere, if the recognized distinction between an employee and an individual
contractor is not to vanish altogether. Realistically, it would be a rare contract of service
that gives untrammeled freedom to the party hired and eschews any intervention
whatsoever in his performance of the engagement.
Logically, the line should be drawn between rules that merely serve as guidelines
towards the achievement of the mutually desired result without dictating the means or
methods to be employed in attaining it, and those that control or fix the methodology
and bind or restrict the party hired to the use of such means. The first, which aim only
to promote the result, create no employer-employee relationship unlike the second,
which address both the result and the means used to achieve it.36
Lastly, the Court finds that the elements of selection and engagement as well as the
power of dismissal are not present in the instant case.
It has been established that there has been no employer-employee relationship
between respondents and petitioner. Their contractual relationship was governed by the
concessionaire agreement embodied in the 1992 letter. Thus, petitioner was not
dismissed by respondents. Instead, as shown by the letter of Yap to her dated February
15, 1995,37 their contractual relationship was terminated by reason of respondents'
termination of the subject concessionaire agreement, which was in accordance with the
provisions of the agreement in case of violation of its terms and conditions.
In fine, the CA did not err in dismissing the petition for certiorari filed before it by
petitioner.
WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of
the Court of Appeals areAFFIRMED. Costs against petitioner.
SO ORDERED.
7. Tan vs Lagrama, 387 SCRA 893
[G.R. No. 151228. August 15, 2002]
ROLANDO Y. TAN, petitioner, vs. LEOVIGILDO LAGRAMA and THE HONORABLE COURT
OF APPEALS, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision, [1] dated May 31, 2001, and the
resolution,[2] dated November 27, 2001, of the Court of Appeals in C.A.-G.R. SP. No.

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63160, annulling the resolutions of the National Labor Relations Commission (NLRC)
and reinstating the ruling of the Labor Arbiter which found petitioner Rolando Tan guilty
of illegally dismissing private respondent Leovigildo Lagrama and ordering him to pay
the latter the amount of P136,849.99 by way of separation pay, backwages, and
damages.
The following are the facts.
Petitioner Rolando Tan is the president of Supreme Theater Corporation and the general
manager of Crown and Empire Theaters in Butuan City. Private respondent Leovigildo
Lagrama is a painter, making ad billboards and murals for the motion pictures shown at
the Empress, Supreme, and Crown Theaters for more than 10 years, from September 1,
1988 to October 17, 1998.
On October 17, 1998, private respondent Lagrama was summoned by Tan and
upbraided: Nangihi na naman ka sulod sa imong drawinganan . (You again urinated
inside your work area.) When Lagrama asked what Tan was saying, Tan told him, Ayaw
daghang estorya. Dili ko gusto nga mo-drawing ka pa. Guikan karon, wala nay drawing.
Gawas. (Dont say anything further. I dont want you to draw anymore. From now on, no
more drawing. Get out.)
Lagrama denied the charge against him. He claimed that he was not the only one who
entered the drawing area and that, even if the charge was true, it was a minor
infraction to warrant his dismissal. However, everytime he spoke, Tan
shouted Gawas (Get out), leaving him with no other choice but to leave the premises.
Lagrama filed a complaint with the Sub-Regional Arbitration Branch No. X of the
National Labor Relations Commission (NLRC) in Butuan City. He alleged that he had
been illegally dismissed and sought reinvestigation and payment of 13th month pay,
service incentive leave pay, salary differential, and damages.
Petitioner Tan denied that Lagrama was his employee. He asserted that Lagrama was
an independent contractor who did his work according to his methods, while he
(petitioner) was only interested in the result thereof. He cited the admission of Lagrama
during the conferences before the Labor Arbiter that he was paid on a fixed piece-work
basis, i.e., that he was paid for every painting turned out as ad billboard or mural for
the pictures shown in the three theaters, on the basis of a no mural/billboard drawn, no
pay policy. He submitted the affidavits of other cinema owners, an amusement park
owner, and those supervising the construction of a church to prove that the services of
Lagrama were contracted by them. He denied having dismissed Lagrama and alleged
that it was the latter who refused to paint for him after he was scolded for his habits.
As no amicable settlement had been reached, Labor Arbiter Rogelio P. Legaspi directed
the parties to file their position papers. On June 17, 1999, he rendered a decision, the
dispositive portion of which reads:
WHEREFORE, premises considered judgment is hereby ordered:
1. Declaring complainants [Lagramas] dismissal illegal and
2. Ordering respondents [Tan] to pay complainant the following:

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A. Separation Pay - P 59,000.00

B. Backwages - 47,200.00
(from 17 October 1998 to 17 June 1999)
C. 13th month pay (3 years) - 17,700.00
D. Service Incentive Leave
Pay (3 years) - 2, 949.99
E. Damages - 10,000.00
TOTAL [P136,849.99]
Complainants other claims are dismissed for lack of merit.[3]
Petitioner Rolando Tan appealed to the NLRC Fifth Division, Cagayan de Oro City, which,
on June 30, 2000, rendered a decision [4] finding Lagrama to be an independent
contractor, and for this reason reversing the decision of the Labor Arbiter.
Respondent Lagrama filed a motion for reconsideration, but it was denied for lack of
merit by the NLRC in a resolution of September 29, 2000. He then filed a petition for
certiorari under Rule 65 before the Court of Appeals.
The Court of Appeals found that petitioner exercised control over Lagramas work by
dictating the time when Lagrama should submit his billboards and murals andsetting
rules on the use of the work area and rest room. Although it found that Lagrama did
work for other cinema owners, the appeals court held it to be a mere sideline
insufficient to prove that he was not an employee of Tan. The appeals court also found
no evidence of any intention on the part of Lagrama to leave his job or sever his
employment relationship with Tan. Accordingly, on May 31, 2001, the Court of Appeals
rendered a decision, the dispositive portion of which reads:
IN THE LIGHT OF ALL THE FOREGOING, the Petition is hereby GRANTED. The
Resolutions of the Public Respondent issued on June 30, 2000 and September 29, 2000
are ANNULLED. The Decision of the Honorable Labor Arbiter Rogelio P. Legaspi on June
17, 1999 is hereby REINSTATED.
Petitioner moved for a reconsideration, but the Court of Appeals found no reason to
reverse its decision and so denied his motion for lack of merit. [5] Hence, this petition for
review on certiorari based on the following assignments of errors:
I. With all due respect, the decision of respondent Court of Appeals in CA-G.R. SP NO.
63160 is bereft of any finding that Public Respondent NLRC, 5th Division, had no
jurisdiction or exceeded it or otherwise gravely abused its discretion in its Resolution of
30 June 2000 in NLRC CA-NO. M-004950-99.
II. With all due respect, respondent Court of Appeals, absent any positive finding on its
part that the Resolution of 30 June 2000 of the NLRC is not supported by substantial
evidence, is without authority to substitute its conclusion for that of said NLRC.

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III. With all due respect, respondent Court of Appeals discourse on freelance artists and
painters in the decision in question is misplaced or has no factual or legal basis in the
record.
IV. With all due respect, respondent Court of Appeals opening statement in its decision
as to employment, monthly salary of P1,475.00 and work schedule from Monday to
Saturday, from 8:00 oclock in the morning up to 5:00 oclock in the afternoon as facts is
not supported by the evidence on record.
V. With all due respect, the case of Lambo, et al., v. NLRC, et al ., 317 SCRA 420 [G.R.
No. 111042 October 26, 1999] relied upon by respondent Court of Appeals is not
applicable to the peculiar circumstances of this case. [6]
The issues raised boil down to whether or not an employer-employee relationship
existed between petitioner and private respondent, and whether petitioner is guilty of
illegally dismissing private respondent. We find the answers to these issues to be in the
affirmative.
I.
In determining whether there is an employer-employee relationship, we have applied a
four-fold test, to wit: (1) whether the alleged employer has the power of selection and
engagement of employees; (2) whether he has control of the employee with respect to
the means and methods by which work is to be accomplished; (3) whether he has the
power to dismiss; and (4) whether the employee was paid wages. [7] These elements of
the employer-employee relationship are present in this case.

First. The existence in this case of the first element is undisputed. It was petitioner who
engaged the services of Lagrama without the intervention of a third party. It is the
existence of the second element, the power of control, that requires discussion here.
Of the four elements of the employer-employee relationship, the control test is the most
important. Compared to an employee, an independent contractor is one who carries on
a distinct and independent business and undertakes to perform the job, work, or service
on its own account and under its own responsibility according to its own manner and
method, free from the control and direction of the principal in all matters connected
with the performance of the work except as to the results thereof. [8] Hence, while an
independent contractor enjoys independence and freedom from the control and
supervision of his principal, an employee is subject to the employers power to control
the means and methods by which the employees work is to be performed and
accomplished.
In the case at bar, albeit petitioner Tan claims that private respondent Lagrama was an
independent contractor and never his employee, the evidence shows that the latter
performed his work as painter under the supervision and control of petitioner. Lagrama
worked in a designated work area inside the Crown Theater of petitioner, for the use of
which petitioner prescribed rules. The rules included the observance of cleanliness and
hygiene and a prohibition against urinating in the work area and any place other than
the toilet or the rest rooms. [9] Petitioners control over Lagramas work extended not only

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to the use of the work area, but also to the result of Lagramas work, and the manner
and means by which the work was to be accomplished.
Moreover, it would appear that petitioner not only provided the workplace, but supplied
as well the materials used for the paintings, because he admitted that he paid Lagrama
only for the latters services.[10]
Private respondent Lagrama claimed that he worked daily, from 8 oclock in the morning
to 5 oclock in the afternoon. Petitioner disputed this allegation and maintained that he
paid Lagrama P1,475.00 per week for the murals for the three theaters which the latter
usually finished in 3 to 4 days in one week. [11] Even assuming this to be true, the fact
that Lagrama worked for at least 3 to 4 days a week proves regularity in his
employment by petitioner.

Second. That petitioner had the right to hire and fire was admitted by him in his
position paper submitted to the NLRC, the pertinent portions of which stated:
Complainant did not know how to use the available comfort rooms or toilets in and
about his work premises. He was urinating right at the place where he was
working when it was so easy for him, as everybody else did and had he only wanted to,
to go to the comfort rooms. But no, the complainant had to make a virtual urinal out of
his work place! The place then stunk to high heavens, naturally, to the consternation of
respondents and everyone who could smell the malodor.
...
Given such circumstances, the respondents had every right, nay all the compelling
reason, to fire him from his painting job upon discovery and his admission of such
acts. Nonetheless, though thoroughly scolded, he was not fired. It was he who stopped
to paint for respondents.[12]
By stating that he had the right to fire Lagrama, petitioner in effect acknowledged
Lagrama to be his employee. For the right to hire and fire is another important element
of the employer-employee relationship. [13] Indeed, the fact that, as petitioner himself
said, he waited for Lagrama to report for work but the latter simply stopped reporting
for work reinforces the conviction that Lagrama was indeed an employee of petitioner.
For only an employee can nurture such an expectancy, the frustration of which, unless
satisfactorily explained, can bring about some disciplinary action on the part of the
employer.

Third. Payment of wages is one of the four factors to be considered in determining the
existence of employer-employee relation. Wages are defined as remuneration or
earnings, however designated, capable of being expressed in terms of money, whether
fixed or ascertained on a time, task, piece, or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a written
or unwritten contract of employment for work done or to be done, or for services
rendered or to be rendered. [14] That Lagrama worked for Tan on a fixed piece-work
basis is of no moment. Payment by result is a method of compensation and does not
define the essence of the relation.[15] It is a method of computing compensation, not a
basis for determining the existence or absence of employer-employee relationship. One

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may be paid on the basis of results or time expended on the work, and may or may not
acquire an employment status, depending on whether the elements of an employeremployee relationship are present or not.[16]
The Rules Implementing the Labor Code require every employer to pay his employees
by means of payroll.[17] The payroll should show among other things, the employees
rate of pay, deductions made, and the amount actually paid to the employee. In the
case at bar, petitioner did not present the payroll to support his claim that Lagrama was
not his employee, raising speculations whether his failure to do so proves that its
presentation would be adverse to his case.[18]
The primary standard for determining regular employment is the reasonable connection
between the particular activity performed by the employee in relation to the usual trade
or business of the employer. [19] In this case, there is such a connection between the job
of Lagrama painting billboards and murals and the business of petitioner. To let the
people know what movie was to be shown in a movie theater requires
billboards. Petitioner in fact admits that the billboards are important to his business.[20]
The fact that Lagrama was not reported as an employee to the SSS is not conclusive on
the question of whether he was an employee of petitioner. [21] Otherwise, an employer
would be rewarded for his failure or even neglect to perform his obligation. [22]
Neither does the fact that Lagrama painted for other persons affect or alter his
employment relationship with petitioner. That he did so only during weekends has not
been denied by petitioner. On the other hand, Samuel Villalba, for whom Lagrama had
rendered service, admitted in a sworn statement that he was told by Lagrama that the
latter worked for petitioner.[23]
Lagrama had been employed by petitioner since 1988. Under the law, therefore, he is
deemed a regular employee and is thus entitled to security of tenure, as provided in
Art. 279 of Labor Code:
ART. 279. Security of Tenure. In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by
this Title. An employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other privileges and to his full
backwages, inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld from him up to the
time of his actual reinstatement.
This Court has held that if the employee has been performing the job for at least one
year, even if not continuously but intermittently, the repeated and continuing need for
its performance is sufficient evidence of the necessity, if not indispensability, of that
activity to the business of his employer. Hence, the employment is also considered
regular, although with respect only to such activity, and while such activity exists.[24]
It is claimed that Lagrama abandoned his work. There is no evidence to show this.
Abandonment requires two elements: (1) the failure to report for work or absence
without valid or justifiable reason, and (2) a clear intention to sever the employeremployee relationship, with the second element as the more determinative factor and

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being manifested by some overt acts.[25] Mere absence is not sufficient. What is more,
the burden is on the employer to show a deliberate and unjustified refusal on the part
of the employee to resume his employment without any intention of returning. [26] In the
case at bar, the Court of Appeals correctly ruled:
Neither do we agree that Petitioner abandoned his job. In order for abandonment to be
a just and valid ground for dismissal, the employer must show, by clear proof, the
intention of the employee to abandon his job. . . .
In the present recourse, the Private Respondent has not established clear proof of the
intention of the Petitioner to abandon his job or to sever the employment relationship
between him and the Private Respondent. On the contrary, it was Private Respondent
who told Petitioner that he did not want the latter to draw for him and thereafter
refused to give him work to do or any mural or billboard to paint or draw on.
More, after the repeated refusal of the Private Respondent to give Petitioner murals or
billboards to work on, the Petitioner filed, with the Sub-Regional Arbitration Branch No.
X of the National Labor Relations Commission, a Complaint for Illegal
Dismissal and Money Claims. Such act has, as the Supreme Court declared, negate any
intention to sever employment relationship. . . .[27]
II.
The second issue is whether private respondent Lagrama was illegally dismissed. To
begin, the employer has the burden of proving the lawfulness of his employees
dismissal.[28] The validity of the charge must be clearly established in a manner
consistent with due process. The Implementing Rules of the Labor Code [29]provide that
no worker shall be dismissed except for a just or authorized cause provided by law and
after due process. This provision has two aspects: (1) the legality of the act of
dismissal, that is, dismissal under the grounds provided for under Article 282 of the
Labor Code and (2) the legality in the manner of dismissal. The illegality of the act of
dismissal constitutes discharge without just cause, while illegality in the manner of
dismissal is dismissal without due process.[30]
In this case, by his refusal to give Lagrama work to do and ordering Lagrama to get out
of his sight as the latter tried to explain his side, petitioner made it plain that Lagrama
was dismissed. Urinating in a work place other than the one designated for the purpose
by the employer constitutes violation of reasonable regulations intended to promote a
healthy environment under Art. 282(1) of the Labor Code for purposes of terminating
employment, but the same must be shown by evidence.Here there is no evidence that
Lagrama did urinate in a place other than a rest room in the premises of his work.
Instead of ordering his reinstatement as provided in Art. 279 of the Labor Code, the
Labor Arbiter found that the relationship between the employer and the employee has
been so strained that the latters reinstatement would no longer serve any purpose. The
parties do not dispute this finding. Hence, the grant of separation pay in lieu of
reinstatement is appropriate. This is of course in addition to the payment of backwages
which, in accordance with the ruling in Bustamante v. NLRC,[31] should be computed
from the time of Lagramas dismissal up to the time of the finality of this decision,
without any deduction or qualification.

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The Bureau of Working Conditions[32] classifies workers paid by results into two groups,
namely; (1) those whose time and performance is supervised by the employer, and (2)
those whose time and performance is unsupervised by the employer. The first involves
an element of control and supervision over the manner the work is to be performed,
while the second does not. If a piece worker is supervised, there is an employeremployee relationship, as in this case. However, such an employee is not entitled to
service incentive leave pay since, as pointed out in Makati Haberdashery v.
NLRC[33] and Mark Roche International v. NLRC ,[34] he is paid a fixed amount for work
done, regardless of the time he spent in accomplishing such work.
WHEREFORE, based on the foregoing, the petition is DENIED for lack of showing that
the Court of Appeals committed any reversible error. The decision of the Court of
Appeals, reversing the decision of the National Labor Relations Commission and
reinstating the decision of the Labor Arbiter, is AFFIRMED with the MODIFICATION that
the backwages and other benefits awarded to private respondent Leovigildo Lagrama
should be computed from the time of his dismissal up to the time of the finality of this
decision, without any deduction and qualification. However, the service incentive leave
pay awarded to him is DELETED.
SO ORDERED.

8. Calamba Medical vs NLRC, 571 SCRA 585

G.R. No. 176484

November 25, 2008

CALAMBA
MEDICAL
CENTER,
vs.
NATIONAL LABOR RELATIONS COMMISSION, RONALDO
MERCEDITHA*LANZANAS, respondents.

INC., petitioner
LANZANAS

AND

DECISION
CARPIO MORALES, J.:
The Calamba Medical Center (petitioner), a privately-owned hospital, engaged the
services of medical doctors-spouses Ronaldo Lanzanas (Dr. Lanzanas) and Merceditha
Lanzanas (Dr. Merceditha) in March 1992 and August 1995, respectively, as part of its
team of resident physicians. Reporting at the hospital twice-a-week on twenty-four-hour
shifts, respondents were paid a monthly "retainer" of P4,800.00 each.1 It appears that
resident physicians were also given a percentage share out of fees charged for outpatient treatments, operating room assistance and discharge billings, in addition to their
fixed monthly retainer.2
The work schedules of the members of the team of resident physicians were fixed by
petitioner's medical director Dr. Raul Desipeda (Dr. Desipeda). And they were issued
identification cards3 by petitioner and were enrolled in the Social Security System
(SSS).4 Income taxes were withheld from them.5
On March 7, 1998, Dr. Meluz Trinidad (Dr. Trinidad), also a resident physician at the
hospital, inadvertently overheard a telephone conversation of respondent Dr. Lanzanas

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with a fellow employee, Diosdado Miscala, through an extension telephone line.

Apparently, Dr. Lanzanas and Miscala were discussing the low "census" or admission of
patients to the hospital.6
Dr. Desipeda whose attention was called to the above-said telephone conversation
issued to Dr. Lanzanas a Memorandum of March 7, 1998 reading:
As a Licensed Resident Physician employed in Calamba Medical Center since several
years ago, the hospital management has committed upon you utmost confidence in the
performance of duties pursuant thereto. This is the reason why you were awarded the
privilege to practice in the hospital and were entrusted hospital functions to serve the
interest of both the hospital and our patients using your capability for independent
judgment.
Very recently though and unfortunately, you have committed acts inimical to the
interest of the hospital, the details of which are contained in the hereto attached
affidavit of witness.
You are therefore given 24 hours to explain why no disciplinary action should be taken
against you.
Pending investigation of your case, you are hereby placed under 30-days [sic]
preventive suspension effective upon receipt hereof.7 (Emphasis, italics and
underscoring supplied)
Inexplicably, petitioner did not give respondent Dr. Merceditha, who was not involved in
the said incident, any work schedule after sending her husband Dr. Lanzanas the
memorandum,8 nor inform her the reason therefor, albeit she was later informed by the
Human Resource Department (HRD) officer that that was part of petitioner's costcutting measures.9
Responding to the memorandum, Dr. Lanzanas, by letter of March 9, 1998, 10 admitted
that he spoke with Miscala over the phone but that their conversation was taken out of
context by Dr. Trinidad.
On March 14, 1998,11 the rank-and-file employees union of petitioner went on strike due
to unresolved grievances over terms and conditions of employment. 12
On March 20, 1998, Dr. Lanzanas filed a complaint for illegal suspension 13 before the
National Labor Relations Commission (NLRC)-Regional Arbitration Board (RAB) IV. Dr.
Merceditha subsequently filed a complaint for illegal dismissal. 14
In the meantime, then Sec. Cresenciano Trajano of the Department of Labor and
Employment (DOLE) certified the labor dispute to the NLRC for compulsory arbitration
and issued on April 21, 1998 return-to-work Order to the striking union officers and
employees of petitioner pending resolution of the labor dispute. 15
In a memorandum16 of April 22, 1998, Dr. Desipeda echoed the April 22, 1998 order of
the Secretary of Labor directing all union officers and members to return-to-work "on or
April 23, 1998, except those employees that were already terminated or are serving
disciplinary actions." Dr. Desipeda thus ordered the officers and members of the union

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to "report for work as soon as possible" to the hospital's personnel officer and
administrator for "work scheduling, assignments and/or re-assignments."
Petitioner later sent Dr. Lanzanas a notice of termination which he received on April 25,
1998, indicating as grounds therefor his failure to report back to work despite the DOLE
order and his supposed role in the striking union, thus:
On April 23, 1998, you still did not report for work despite memorandum issued by the
CMC Medical Director implementing the Labor Secretary's ORDER. The same is true on
April 24, 1998 and April 25, 1998,--you still did not report for work [sic].
You are likewise aware that you were observed (re: signatories [sic] to the Saligang
Batas of BMCMC-UWP) to be unlawfully participating as member in the rank-and-file
union's concerted activities despite knowledge that your position in the hospital
is managerial in nature (Nurses, Orderlies, and staff of the Emergency Room carry out
your orders using your independent judgment ) which participation is expressly
prohibited by the New Labor Code and which prohibition was sustained by the MedArbiter's ORDER dated February 24, 1998. (Emphasis and italics in the original;
underscoring partly in the original and partly supplied)
For these reasons as grounds for termination, you are hereby terminated for cause from
employment effective today, April 25, 1998 , without prejudice to further action for
revocation of your license before the Philippine [sic] Regulations [sic]
Commission.17 (Emphasis and underscoring supplied)
Dr. Lanzanas thus amended his original complaint to include illegal dismissal. 18 His and
Dr. Merceditha's complaints were consolidated and docketed as NLRC CASE NO. RAB-IV3-9879-98-L.
By Decision19 of March 23, 1999, Labor Arbiter Antonio R. Macam dismissed the
spouses' complaints for want of jurisdiction upon a finding that there was no employeremployee relationship between the parties, the fourth requisite or the "control test" in
the determination of an employment bond being absent.
On appeal, the NLRC, by Decision20 of May 3, 2002, reversed the Labor Arbiter's
findings, disposing as follows:
WHEREFORE, the assailed decision is set aside. The respondents are ordered to pay the
complainants their full backwages; separation pay of one month salary for every year of
service in lieu of reinstatement; moral damages of P500,000.00 each; exemplary
damages ofP250,000.00 each plus ten percent (10%) of the total award as attorney's
fees.
SO ORDERED.21
Petitioner's motion for reconsideration having been denied, it brought the case to the
Court of Appeals on certiorari.
The appellate court, by June 30, 2004 Decision, 22 initially granted petitioner's petition
and set aside the NLRC ruling. However, upon a subsequent motion for reconsideration
filed by respondents, itreinstated the NLRC decision in an Amended Decision 23 dated
September 26, 2006 but tempered the award to each of the spouses of moral and

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exemplary damages to P100,000.00 and P50,000.00, respectively and omitted the

award of attorney's fees.
In finding the existence of an employer-employee relationship between the parties, the
appellate court held:
x x x. While it may be true that the respondents are given the discretion to decide on
how to treat the petitioner's patients, the petitioner has not denied nor explained why
its Medical Director still has the direct supervision and control over the respondents .
The fact is the petitioner's Medical Director still has to approve the schedule of duties of
the respondents. The respondents stressed that the petitioner's Medical Director also
issues instructions or orders to the respondents relating to the means and methods of
performing their duties,i.e. admission of patients, manner of characterizing cases,
treatment of cases, etc., and may even overrule, review or revise the decisions of the
resident physicians. This was not controverted by the petitioner. The foregoing factors
taken together are sufficient to constitute the fourth element, i.e. control test, hence,
the existence of the employer-employee relationship. In denying that it had control over
the respondents, the petitioner alleged that the respondents were free to put up their
own clinics or to accept other retainership agreement with the other hospitals. But, the
petitioner failed to substantiate the allegation with substantial evidence. (Emphasis and
underscoring supplied)24
The appellate court thus declared that respondents were illegally dismissed.
x x x. The petitioner's ground for dismissing respondent Ronaldo Lanzanas was based
on his alleged participation in union activities, specifically in joining the strike and failing
to observe the return-to-work order issued by the Secretary of Labor. Yet, the petitioner
did not adduce any piece of evidence to show that respondent Ronaldo indeed
participated in the strike. x x x.
In the case of respondent Merceditha Lanzanas, the petitioner's explanation that "her
marriage to complainant Ronaldo has given rise to the presumption that her
sympat[hies] are likewise with her husband" as a ground for her dismissal is
unacceptable. Such is not one of the grounds to justify the termination of her
employment.25 (Underscoring supplied)
The fallo of the appellate court's decision reads:
WHEREFORE, the instant Motion for Reconsideration is GRANTED, and the Court's
decision dated June 30, 2004, is SET ASIDE. In lieu thereof, a new judgment is entered,
as follows:
WHEREFORE, the petition is DISMISSED. The assailed decision dated May 3, 2002 and
order dated September 24, 2002 of the NLRC in NLRC NCR CA No. 019823-99 are
AFFIRMED with the MODIFICATION that the moral and exemplary damages are reduced
to P100,000.00 each and P50,000.00 each, respectively.
SO ORDERED.26 (Emphasis and italics in the original; underscoring supplied)
Preliminarily, the present petition calls for a determination of whether there exists an
employer-employee relationship 27 between petitioner and the spouses-respondents.

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Denying the existence of such relationship, petitioner argues that the appellate court, as
well as the NLRC, overlooked its twice-a-week reporting arrangement with respondents
who are free to practice their profession elsewhere the rest of the week. And it invites
attention to the uncontroverted allegation that respondents, aside from their monthly
retainers, were entitled to one-half of all suturing, admitting, consultation, medico-legal
and operating room assistance fees. 28 These circumstances, it stresses, are clear badges
of the absence of any employment relationship between them.
This Court is unimpressed.
Under the "control test," an employment relationship exists between a physician and a
hospital if the hospital controls both the means and the details of the process by which
the physician is to accomplish his task.29
Where a person who works for another does so more or less at his own pleasure and is
not subject to definite hours or conditions of work, and is compensated according to the
result of his efforts and not the amount thereof, the element of control is absent.30
As priorly stated, private respondents maintained specific work-schedules, as
determined by petitioner through its medical director, which consisted of 24-hour shifts
totaling forty-eight hours each week and which were strictly to be observed under pain
of administrative sanctions.
That petitioner exercised control over respondents gains light from the undisputed fact
that in the emergency room, the operating room, or any department or ward for that
matter, respondents' work is monitored through its nursing supervisors, charge nurses
and orderlies. Without the approval or consent of petitioner or its medical director, no
operations can be undertaken in those areas. For control test to apply, it is not essential
for the employer to actually supervise the performance of duties of the employee, it
being enough that it has the right to wield the power. 31
With respect to respondents' sharing in some hospital fees, this scheme does not sever
the employment tie between them and petitioner as this merely mirrors additional form
or another form of compensation or incentive similar to what commission-based
employees receive as contemplated in Article 97 (f) of the Labor Code, thus:
"Wage" paid to any employee shall mean the remuneration or earning, however
designated, capable of being expressed in terms of money, whether fixed or ascertained
on a time, task, piece, or commission basis, or other method of calculating the same,
which is payable by an employer to an employee under a written or unwritten contract
of employment for work done or to be done, or for services rendered or to be rendered
and includes the fair and reasonable value, as determined by the Secretary of Labor, of
board, lodging, or other facilities customarily furnished by the employer to the
employee. x x x (Emphasis and underscoring supplied),
Respondents were in fact made subject to petitioner-hospital's Code of Ethics, 32 the
provisions of which cover administrative and disciplinary measures on negligence of
duties, personnel conduct and behavior, and offenses against persons, property and the
hospital's interest.

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More importantly, petitioner itself provided incontrovertible proof of the employment

status of respondents, namely, the identification cards it issued them, the payslips 33 and
BIR W-2 (now 2316) Forms which reflect their status as employees, and the
classification as "salary" of their remuneration. Moreover, it enrolled respondents in the
SSS and Medicare (Philhealth) program. It bears noting at this juncture that mandatory
coverage under the SSS Law 34 is premised on the existence of an employer-employee
relationship,35 except in cases of compulsory coverage of the self-employed. It would be
preposterous for an employer to report certain persons as employees and pay their SSS
premiums as well as their wages if they are not its employees.36
And if respondents were not petitioner's employees, how does it account for its
issuance of the earlier-quoted March 7, 1998 memorandum explicitly stating that
respondent is "employed" in it and of the subsequent termination letter indicating
respondent Lanzanas' employment status.
Finally, under Section 15, Rule X of Book III of the Implementing Rules of the Labor
Code, an employer-employee relationship exists between the resident physicians and
the training hospitals, unless there is a training agreement between them, and the
training program is duly accredited or approved by the appropriate government agency.
In respondents' case, they were not undergoing any specialization training. They were
considered non-training general practitioners,37 assigned at the emergency rooms and
ward sections.
Turning now to the issue of dismissal, the Court upholds the appellate court's conclusion
that private respondents were illegally dismissed.
Dr. Lanzanas was neither a managerial nor supervisory employee but part of the rankand-file. This is the import of the Secretary of Labor's Resolution of May 22, 1998 in OS
A-05-15-98 which reads:
xxxx
In the motion to dismiss it filed before the Med-Arbiter, the employer (CMC) alleged that
24 members of petitioner are supervisors, namely x x x Rolando Lanzonas [sic] x x x.
A close scrutiny of the job descriptions of the alleged supervisors narrated by the
employer only proves that except for the contention that these employees allegedly
supervise, they do not however recommend any managerial action. At most, their job is
merely routinary in nature and consequently, they cannot be considered supervisory
employees.
They are not therefore barred from membership in the union of rank[-]and[-]file, which
the petitioner [the union] is seeking to represent in the instant case. 38 (Emphasis and
underscoring supplied)
xxxx
Admittedly, Dr. Lanzanas was a union member in the hospital, which is considered
indispensable to the national interest. In labor disputes adversely affecting the
continued operation of a hospital, Article 263(g) of the Labor Code provides:
ART. 263. STRIKES, PICKETING, AND LOCKOUTS.

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xxxx
(g) x x x x
x x x x. In labor disputes adversely affecting the continued operation of such hospitals,
clinics or medical institutions, it shall be the duty of the striking union or locking-out
employer to provide and maintain an effective skeletal workforce of medical and other
health personnel, whose movement and services shall be unhampered and unrestricted,
as are necessary to insure the proper and adequate protection of the life and health of
its patients, most especially emergency cases, for the duration of the strike or
lockout. In such cases, the Secretary of Labor and Employment is mandated to
immediately assume, within twenty-four hours from knowledge of the occurrence of
such strike or lockout, jurisdiction over the same or certify to the Commission for
compulsory arbitration. For this purpose, the contending parties are strictly enjoined to
comply with such orders, prohibitions and/or injunctions as are issued by the Secretary
of Labor and Employment or the Commission, under pain of immediate disciplinary
action, including dismissal or loss of employment status or payment by the locking-out
employer of backwages, damages and other affirmative relief, even criminal prosecution
against either or both of them.
x x x x (Emphasis and underscoring supplied)
An assumption or certification order of the DOLE Secretary automatically results in a
return-to-work of all striking workers, whether a corresponding return-to-work order
had been issued.39 The DOLE Secretary in fact issued a return-to-work Order, failing to
comply with which is punishable by dismissal or loss of employment status.40
Participation in a strike and intransigence to a return-to-work order must, however, be
duly proved in order to justify immediate dismissal in a "national interest" case. As the
appellate court as well as the NLRC observed, however, there is nothing in the records
that would bear out Dr. Lanzanas' actual participation in the strike. And the medical
director's Memorandum41 of April 22, 1998 contains nothing more than a general
directive to all union officers and members to return-to-work. Mere membership in a
labor union does not ipso facto mean participation in a strike.
Dr. Lanzanas' claim that, after his 30-day preventive suspension ended on or before
April 9, 1998, he was never given any work schedule 42 was not refuted by petitioner.
Petitioner in fact never released any findings of its supposed investigation into Dr.
Lanzanas' alleged "inimical acts."
Petitioner thus failed to observe the two requirements,before dismissal can be effected
notice and hearing which constitute essential elements of the statutory process;
the first to apprise the employee of the particular acts or omissions for which his
dismissal is sought, and the second to inform the employee of the employer's decision
to dismiss him.43 Non-observance of these requirements runs afoul of the procedural
mandate.44
The termination notice sent to and received by Dr. Lanzanas on April 25, 1998 was the
first and only time that he was apprised of the reason for his dismissal. He was not
afforded, however, even the slightest opportunity to explain his side. His was a

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"termination upon receipt" situation. While he was priorly made to explain on his
telephone conversation with Miscala, 45 he was not with respect to his supposed
participation in the strike and failure to heed the return-to-work order.
As for the case of Dr. Merceditha, her dismissal was worse, it having been effected
without any just or authorized cause and without observance of due process. In fact,
petitioner never proferred any valid cause for her dismissal except its view that "her
marriage to [Dr. Lanzanas] has given rise to the presumption that her sympath[y] [is]
with her husband; [and that when [Dr. Lanzanas] declared that he was going to boycott
the scheduling of their workload by the medical doctor, he was presumed to be
speaking for himself [and] for his wife Merceditha."46
Petitioner's contention that Dr. Merceditha was a member of the union or was a
participant in the strike remained just that. Its termination of her employment on the
basis of her conjugal relationship is not analogous to
any of the causes enumerated in Article 282 47 of the Labor Code. Mere suspicion or
belief, no matter how strong, cannot substitute for factual findings carefully established
through orderly procedure.48
The Court even notes that after the proceedings at the NLRC, petitioner never even
mentioned Dr. Merceditha's case. There is thus no gainsaying that her dismissal was
both substantively and procedurally infirm.
Adding insult to injury was the circulation by petitioner of a "watchlist" or "watch out
list"49 including therein the names of respondents. Consider the following portions of Dr.
Merceditha's Memorandum of Appeal:
3. Moreover, to top it all, respondents have circulated a so called "Watch List" to other
hospitals, one of which [was] procured from Foothills Hospital in Sto. Tomas, Batangas
[that] contains her name. The object of the said list is precisely to harass Complainant
and malign her good name and reputation. This is not only unprofessional, but runs
smack of oppression as CMC is trying permanently deprived [sic] Complainant of her
livelihood by ensuring that she is barred from practicing in other hospitals.
4. Other co-professionals and brothers in the profession are fully aware of these "watch
out" lists and as such, her reputation was not only besmirched, but was damaged, and
she suffered social humiliation as it is of public knowledge that she was dismissed from
work. Complainant came from a reputable and respected family, her father being a
retired full Colonel in the Army, Col. Romeo A. Vente, and her brothers and sisters are
all professionals, her brothers, Arnold and Romeo Jr., being engineers. The Complainant
has a family protection [sic] to protect. She likewise has a professional reputation to
protect, being a licensed physician. Both her personal and professional reputation were
damaged as a result of the unlawful acts of the respondents.50
While petitioner does not deny the existence of such list, it pointed to the lack of any
board action on its part to initiate such listing and to circulate the same, viz:
20. x x x. The alleged watchlist or "watch out list," as termed by complainants, were
merely lists obtained by one Dr. Ernesto Naval of PAMANA Hospital. Said list was given
by a stockholder of respondent who was at the same time a stockholder of PAMAN[A]

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Hospital. The giving of the list was not a Board action. 51 (Emphasis and underscoring
supplied)
The circulation of such list containing names of alleged union members intended to
prevent employment of workers for union activities similarly constitutes unfair labor
practice, thereby giving a right of action for damages by the employees prejudiced. 52
A word on the appellate court's deletion of the award of attorney's fees. There being no
basis advanced in deleting it, as exemplary damages were correctly awarded, 53 the
award of attorney's fees should be reinstated.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. SP No. 75871
is AFFIRMED withMODIFICATION in that the award by the National Labor Relations
Commission of 10% of the total judgment award as attorney's fees is reinstated. In all
other aspects, the decision of the appellate court is affirmed.
SO ORDERED.

9. Dumpit-Murillo vs CA 524 SCRA 290

THELMA DUMPIT-MURILLO,

G.R. No. 164652

Petitioner,
Present:

QUISUMBING, J.,* Chairperson,

- versus -

CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

COURT OF APPEALS, ASSOCIATEDPromulgated:

BROADCASTING COMPANY, JOSE JAVIER
AND EDWARD TAN,
Respondents.
June 8, 2007

QUISUMBING, J.:
This petition seeks to reverse and set aside both the Decision [1] dated January 30,
2004 of the Court of Appeals in CA-G.R. SP No. 63125 and its Resolution [2] dated June
23, 2004 denying the motion for reconsideration. The Court of Appeals had overturned

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the Resolution[3] dated August 30, 2000 of the National Labor Relations Commission
(NLRC) ruling that petitioner was illegally dismissed.
The facts of the case are as follows:
On October 2, 1995, under Talent Contract No. NT95-1805, [4] private respondent
Associated Broadcasting Company (ABC) hired petitioner Thelma Dumpit-Murillo as a
newscaster and co-anchor for Balitang-Balita, an early evening news program. The
contract was for a period of three months. It was renewed under Talent Contracts Nos.
NT95-1915, NT96-3002, NT98-4984 and NT99-5649. [5] In addition, petitioners services
were engaged for the programLive on Five. On September 30, 1999, after four years of
repeated renewals, petitioners talent contract expired. Two weeks after the expiration of
the last contract, petitioner sent a letter to Mr. Jose Javier, Vice President for News and
Public Affairs of ABC, informing the latter that she was still interested in renewing her
contract subject to a salary increase. Thereafter, petitioner stopped reporting for
work. On November 5, 1999, she wrote Mr. Javier another letter, [6] which we quote
verbatim:
xxxx
Dear Mr. Javier:
On October 20, 1999, I wrote you a letter in answer to your query by way of a marginal
note what terms and conditions in response to my first letter dated October 13, 1999.
To date, or for more than fifteen (15) days since then, I have not received any formal
written reply. xxx
In view hereof, should I not receive any formal response from you until Monday,
November 8, 1999, I will deem it as a constructive dismissal of my services.
xxxx
A month later, petitioner sent a demand letter [7] to ABC, demanding: (a) reinstatement
to her former position; (b) payment of unpaid wages for services rendered from
September 1 to October 20, 1999 and full backwages; (c) payment of 13 th month pay,
vacation/sick/service incentive leaves and other monetary benefits due to a regular
employee starting March 31, 1996. ABC replied that a check covering petitioners talent
fees for September 16 to October 20, 1999 had been processed and prepared, but that
the other claims of petitioner had no basis in fact or in law.
On December 20, 1999, petitioner filed a complaint[8] against ABC, Mr. Javier and Mr.
Edward Tan, for illegal constructive dismissal, nonpayment of salaries, overtime pay,
premium pay, separation pay, holiday pay, service incentive leave pay, vacation/sick
leaves and 13th month pay in NLRC-NCR Case No. 30-12-00985-99. She likewise
demanded payment for moral, exemplary and actual damages, as well as for attorneys
fees.
The parties agreed to submit the case for resolution after settlement failed during the
mandatory conference/conciliation. On March 29, 2000, the Labor Arbiter dismissed the
complaint.[9]

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On appeal, the NLRC reversed the Labor Arbiter in a Resolution dated August 30,
2000. The NLRC held that an employer-employee relationship existed between petitioner
and ABC; that the subject talent contract was void; that the petitioner was a regular
employee illegally dismissed; and that she was entitled to reinstatement and backwages or
separation pay, aside from 13 th month pay and service incentive leave pay, moral and
exemplary damages and attorneys fees. It held as follows:
WHEREFORE,
the
Decision
of
the
Arbiter
dated 29
hereby REVERSED/SET ASIDE and a NEW ONE promulgated:

March

2000 is

1)
declaring respondents to have illegally dismissed complainant from her regular
work therein and thus, ordering them to reinstate her in her former position without
loss of seniority right[s] and other privileges and to pay her full backwages, inclusive of
allowances and other benefits, including 13 th month pay based on her said latest rate
of P28,000.00/mo. from the date of her illegal dismissal on 21 October 1999 up to
finality hereof, or at complainants option, to pay her separation pay of one (1) month
pay per year of service based on said latest monthly rate, reckoned from date of hire on
30 September 1995 until finality hereof;
2)
to pay complainants accrued SILP [Service Incentive Leave Pay] of 5 days pay
per year and 13th month pay for the years 1999, 1998 and 1997 of P19,236.00
and P84,000.00, respectively and her accrued salary from 16 September 1999 to 20
October 1999 of P32,760.00 plus legal interest at 12% from date of judicial demand on
20 December 1999 until finality hereof;
3)
to pay complainant moral damages of P500,000.00, exemplary damages
of P350,000.00 and 10% of the total of the adjudged monetary awards as attorneys
fees.
Other monetary claims of complainant are dismissed for lack of merit.
SO ORDERED.[10]
After its motion for reconsideration was denied, ABC elevated the case to the Court of
Appeals in a petition for certiorari under Rule 65. The petition was first dismissed for
failure to attach particular documents, [11] but was reinstated on grounds of the higher
interest of justice.[12]
Thereafter, the appellate court ruled that the NLRC committed grave abuse of
discretion, and reversed the decision of the NLRC. [13] The appellate court reasoned that
petitioner should not be allowed to renege from the stipulations she had voluntarily and
knowingly executed by invoking the security of tenure under the Labor Code. According
to the appellate court, petitioner was a fixed-term employee and not a regular
employee within the ambit of Article 280[14] of the Labor Code because her job, as
anticipated and agreed upon, was only for a specified time. [15]
Aggrieved, petitioner now comes to this Court on a petition for review, raising issues as
follows:

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I.
THIS HONORABLE COURT CAN REVIEW THE FINDINGS OF THE HONORABLE COURT
OF APPEALS, THE DECISION OF WHICH IS NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT[;]
II.
THE PRO-FORMA TALENT CONTRACTS, AS CORRECTLY FOUND BY THE NLRC FIRST
DIVISION, ARE ANTI-REGULARIZATION DEVICES WHICH MUST BE STRUCK DOWN
FOR REASONS OF PUBLIC POLICY[;]
III.
BY REASON OF THE CONTINUOUS AND SUCCESSIVE RENEWALS OF THE THREEMONTH TALENT CONTRACTS, AN EMPLOYER-EMPLOYEE RELATIONSHIP WAS CREATED
AS PROVIDED FOR UNDER ARTICLE 280 OF THE LABOR CODE[;]
IV.
BY THE CONSTRUCTIVE DISMISSAL OF HEREIN PETITIONER, AS A REGULAR
EMPLOYEE, THERE WAS A DENIAL OF PETITIONERS RIGHT TO DUE PROCESS THUS
ENTITLING HER TO THE MONEY CLAIMS AS STATED IN THE COMPLAINT[.][16]
The issues for our disposition are: (1) whether or not this Court can review the findings
of the Court of Appeals; and (2) whether or not under Rule 45 of the Rules of Court the
Court of Appeals committed a reversible error in its Decision.
On the first issue, private respondents contend that the issues raised in the instant
petition are mainly factual and that there is no showing that the said issues have been
resolved arbitrarily and without basis. They add that the findings of the Court of
Appeals are supported by overwhelming wealth of evidence on record as well as
prevailing jurisprudence on the matter.[17]
Petitioner however contends that this Court can review the findings of the Court of
Appeals, since the appellate court erred in deciding a question of substance in a way
which is not in accord with law or with applicable decisions of this Court.[18]
We agree with petitioner. Decisions, final orders or resolutions of the Court of Appeals in
any case regardless of the nature of the action or proceeding involved may be appealed
to this Court through a petition for review. This remedy is a continuation of the
appellate process over the original case, [19] and considering there is no congruence in
the findings of the NLRC and the Court of Appeals regarding the status of employment
of petitioner, an exception to the general rule that this Court is bound by the findings of
facts of the appellate court,[20] we can review such findings.
On the second issue, private respondents contend that the Court of Appeals did not err
when it upheld the validity of the talent contracts voluntarily entered into by petitioner.
It further stated that prevailing jurisprudence has recognized and sustained the absence
of employer-employee relationship between a talent and the media entity which
engaged the talents services on a per talent contract basis, citing the case of Sonza v.
ABS-CBN Broadcasting Corporation.[21]

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Petitioner avers however that an employer-employee relationship was created when the
private respondents started to merely renew the contracts repeatedly fifteen times or
for four consecutive years.[22]
Again, we agree with petitioner. The Court of Appeals committed reversible error when it
held that petitioner was a fixed-term employee. Petitioner was a regular employee under
contemplation of law. The practice of having fixed-term contracts in the industry does not
automatically make all talent contracts valid and compliant with labor law. The assertion
that a talent contract exists does not necessarily prevent a regular employment status.[23]
Further, the Sonza case is not applicable. In Sonza, the television station did not instruct
Sonza how to perform his job. How Sonza delivered his lines, appeared on television,
and sounded on radio were outside the television stations control. Sonza had a free
hand on what to say or discuss in his shows provided he did not attack the television
station or its interests. Clearly, the television station did not exercise control over the
means and methods of the performance of Sonzas work. [24] In the case at bar, ABC had
control over the performance of petitioners work. Noteworthy too, is the comparatively
lowP28,000 monthly pay of petitioner[25] vis the P300,000 a month salary of Sonza,
[26]
that all the more bolsters the conclusion that petitioner was not in the same
situation as Sonza.
The contract of employment of petitioner with ABC had the following stipulations:
xxxx
1. SCOPE OF SERVICES TALENT agrees to devote his/her talent, time, attention and best
efforts in the performance of his/her duties and responsibilities as Anchor/Program
Host/Newscaster of the Program, in accordance with the direction of ABC and/or its
authorized representatives.

1.1. DUTIES AND RESPONSIBILITIES TALENT shall:

a.

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

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

Participate in live remote coverages when called upon;

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

Attend production meetings;

f.
On assigned days, be at the studios at least one (1) hour before the live
telecasts;
g.
Be present promptly at the studios and/or other place of assignment at the time
designated by ABC;

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Keep abreast of the news;

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

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

xxxx
1.3 COMPLIANCE WITH STANDARDS, INSTRUCTIONS AND OTHER RULES AND
REGULATIONS TALENT agrees that he/she will promptly and faithfully comply with the
requests and instructions, as well as the program standards, policies, rules and
regulations of ABC, the KBP and the government or any of its agencies and
instrumentalities.[27]
xxxx
In Manila Water Company, Inc. v. Pena,[28] we said that the elements to determine the
existence of an employment relationship are: (a) the selection and engagement of the
employee, (b) the payment of wages, (c) the power of dismissal, and (d) the employers
power to control. The most important element is the employers control of the employees
conduct, not only as to the result of the work to be done, but also as to the means and
methods to accomplish it.[29]
The duties of petitioner as enumerated in her employment contract indicate that ABC
had control over the work of petitioner. Aside from control, ABC also dictated the work
assignments and payment of petitioners wages. ABC also had power to dismiss her. All
these being present, clearly, there existed an employment relationship between
petitioner and ABC.
Concerning regular employment, the law provides for two kinds of employees,
namely: (1) those who are engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer; and (2) those who have
rendered at least one year of service, whether continuous or broken, with respect to the
activity in which they are employed. [30] In other words, regular status arises from either
the nature of work of the employee or the duration of his employment. [31] In Benares v.
Pancho,[32] we very succinctly said:
[T]he primary standard for determining regular employment is the reasonable
connection between the particular activity performed by the employee vis--vis the usual
trade or business of the employer. This connection can be determined by considering
the nature of the work performed and its relation to the scheme of the particular
business or trade in its entirety. If the employee has been performing the job for at
least a year, even if the performance is not continuous and merely intermittent, the law
deems repeated and continuing need for its performance as sufficient evidence of the
necessity if not indispensability of that activity to the business. Hence, the employment
is considered regular, but only with respect to such activity and while such activity
exists.[33]
In our view, the requisites for regularity of employment have been met in the instant
case. Gleaned from the description of the scope of services aforementioned, petitioners

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work was necessary or desirable in the usual business or trade of the employer which
includes, as a pre-condition for its enfranchisement, its participation in the governments
news and public information dissemination. In addition, her work was continuous for a
period of four years. This repeated engagement under contract of hire is indicative of
the necessity and desirability of the petitioners work in private respondent ABCs
business.[34]
The contention of the appellate court that the contract was characterized by a valid fixedperiod employment is untenable. For such contract to be valid, it should be shown that the
fixed period was knowingly and voluntarily agreed upon by the parties. There should have
been no force, duress or improper pressure brought to bear upon the employee; neither
should there be any other circumstance that vitiates the employees consent. [35] It should
satisfactorily appear that the employer and the employee dealt with each other on more or
less equal terms with no moral dominance being exercised by the employer over the
employee.[36]Moreover, fixed-term employment will not be considered valid where, from the
circumstances, it is apparent that periods have been imposed to preclude acquisition of
tenurial security by the employee.[37]
In the case at bar, it does not appear that the employer and employee dealt with each other
on equal terms. Understandably, the petitioner could not object to the terms of her
employment contract because she did not want to lose the job that she loved and the
workplace that she had grown accustomed to,[38] which is exactly what happened when she
finally manifested her intention to negotiate. Being one of the numerous
newscasters/broadcasters of ABC and desiring to keep her job as a broadcasting practitioner,
petitioner was left with no choice but to affix her signature of conformity on each renewal of
her contract as already prepared by private respondents; otherwise, private respondents
would have simply refused to renew her contract. Patently, the petitioner occupied a position
of weakness vis--vis the employer. Moreover, private respondents practice of repeatedly
extending petitioners 3-month contract for four years is a circumvention of the acquisition of
regular status. Hence, there was no valid fixed-term employment between petitioner and
private respondents.
While this Court has recognized the validity of fixed-term employment contracts in a
number of cases, it has consistently emphasized that when the circumstances of a case
show that the periods were imposed to block the acquisition of security of tenure, they
should be struck down for being contrary to law, morals, good customs, public order or
public policy.[39]
As a regular employee, petitioner is entitled to security of tenure and can be dismissed only
for just cause and after due compliance with procedural due process.Since private
respondents did not observe due process in constructively dismissing the petitioner, we hold
that there was an illegal dismissal.
WHEREFORE, the challenged Decision dated January 30, 2004 and Resolution
dated June 23, 2004 of the Court of Appeals in CA-G.R. SP No. 63125, which held that
the petitioner was a fixed-term employee, are REVERSED and SET ASIDE. The NLRC
decision is AFFIRMED.
Costs against private respondents.

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SO ORDERED.

10. Tongko vs The Manufacturers Life, November 7, 2008

GREGORIO V. TONGKO, G.R. No. 167622
Petitioner,
- versus THE MANUFACTURERS LIFE
INSURANCE CO. (PHILS.), INC.
and RENATO A.
VERGEL DE DIOS,
Respondents.

VELASCO, JR., J.:

The Case
This Petition for Review on Certiorari under Rule 45 seeks the reversal of the March 29,
2005 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 88253, entitled The
Manufacturers Life Insurance Co. (Phils.), Inc. v. National Labor Relations Commission
and Gregorio V. Tongko. The assailed decision set aside the Decision dated September
27, 2004 and Resolution dated December 16, 2004 rendered by the National Labor
Relations Commission (NLRC) in NLRC NCR CA No. 040220-04.

The Facts
Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) is a domestic corporation
engaged in life insurance business. Renato A. Vergel De Dios was, during the period
material, its President and Chief Executive Officer. Gregorio V. Tongko started his
professional relationship with Manulife on July 1, 1977by virtue of a Career Agents
Agreement[2] (Agreement) he executed with Manulife.

In the Agreement, it is provided that:

It is understood and agreed that the Agent is an independent contractor and nothing
contained herein shall be construed or interpreted as creating an employer-employee
relationship between the Company and the Agent.

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xxxx

a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies
and other products offered by the Company, and collect, in exchange for provisional
receipts issued by the Agent, money due or to become due to the Company in respect
of applications or policies obtained by or through the Agent or from policyholders
allotted by the Company to the Agent for servicing, subject to subsequent confirmation
of receipt of payment by the Company as evidenced by an Official Receipt issued by the
Company directly to the policyholder.

xxxx

The Company may terminate this Agreement for any breach or violation of any of the
provisions hereof by the Agent by giving written notice to the Agent within fifteen (15)
days from the time of the discovery of the breach. No waiver, extinguishment,
abandonment, withdrawal or cancellation of the right to terminate this Agreement by
the Company shall be construed for any previous failure to exercise its right under any
provision of this Agreement.

Either of the parties hereto may likewise terminate his Agreement at any time without
cause, by giving to the other party fifteen (15) days notice in writing. x x x

In 1983, Tongko was named as a Unit Manager in Manulifes Sales Agency

Organization. In 1990, he became a Branch Manager. As the CA found, Tongkos gross
earnings from his work at Manulife, consisting of commissions, persistency income, and
management overrides, may be summarized as follows:

January to December 10, 2002 - P 865,096.07

2001 - 6,214,737.11
2000 - 8,003,180.38
1999 - 6,797,814.05
1998 - 4,805,166.34
1997 - 2,822,620.00[3]

The problem started sometime in 2001, when Manulife instituted manpower

development programs in the regional sales management level. Relative thereto, De

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Dios addressed a letter dated November 6, 2001[4] to Tongko regarding an October 18,
2001 Metro North Sales Managers Meeting. In the letter, De Dios stated:

The first step to transforming Manulife into a big league player has been very clear to
increase the number of agents to at least 1,000 strong for a start. This may seem
diametrically opposed to the way Manulife was run when you first joined the
organization. Since then, however, substantial changes have taken place in the
organization, as these have been influenced by developments both from within and
without the company.

xxxx

The issues around agent recruiting are central to the intended objectives hence the
need for a Senior Managers meeting earlier last month when Kevin OConnor, SVP
Agency, took to the floor to determine from our senior agency leaders what more could
be done to bolster manpower development. At earlier meetings, Kevin had presented
information where evidently, your Region was the lowest performer (on a per Manager
basis) in terms of recruiting in 2000 and, as of today, continues to remain one of the
laggards in this area.

While discussions, in general, were positive other than for certain comments from your
end which were perceived to be uncalled for, it became clear that a one-on-one meeting
with you was necessary to ensure that you and management, were on the same plane.
As gleaned from some of your previous comments in prior meetings (both in group and
one-on-one), it was not clear that we were proceeding in the same direction.
Kevin held subsequent series of meetings with you as a result, one of which I joined
briefly. In those subsequent meetings you reiterated certain views, the validity of which
we challenged and subsequently found as having no basis.

With such views coming from you, I was a bit concerned that the rest of the Metro
North Managers may be a bit confused as to the directions the company was taking. For
this reason, I sought a meeting with everyone in your management team, including
you, to clear the air, so to speak.

This note is intended to confirm the items that were discussed at the said Metro North
Regions Sales Managers meeting held at the 7/F Conference room last 18 October.

xxxx

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Issue # 2: Some Managers are unhappy with their earnings and would want to revert to
the position of agents.

This is an often repeated issue you have raised with me and with Kevin. For this reason,
I placed the issue on the table before the rest of your Regions Sales Managers to verify
its validity. As you must have noted, no Sales Manager came forward on their own to
confirm your statement and it took you to name Malou Samson as a source of the
same, an allegation that Malou herself denied at our meeting and in your very
presence.

This only confirms, Greg, that those prior comments have no solid basis at all. I now
believe what I had thought all along, that these allegations were simply meant to
muddle the issues surrounding the inability of your Region to meet its agency
development objectives!

Issue # 3: Sales Managers are doing what the company asks them to do but, in the
process, they earn less.

All the above notwithstanding, we had your own records checked and we found that
you made a lot more money in the Year 2000 versus 1999. In addition, you also
volunteered the information to Kevin when you said that you probably will make more
money in the Year 2001 compared to Year 2000. Obviously, your above statement about
making less money did not refer to you but the way you argued this point had us
almost believing that you were spouting the gospel of truth when you were not. x x x
xxxx
All of a sudden, Greg, I have become much more worried about your ability to lead this
group towards the new direction that we have been discussing these past few weeks,
i.e., Manulifes goal to become a major agency-led distribution company in
the Philippines. While as you claim, you have not stopped anyone from recruiting, I
have never heard you proactively push for greater agency recruiting. You have not been
proactive all these years when it comes to agency growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental goals next year
and so, we are making the following changes in the interim:

1.
You will hire at your expense a competent assistant who can unload you of much
of the routine tasks which can be easily delegated. This assistant should be so chosen
as to complement your skills and help you in the areas where you feel may not be your
cup of tea.

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You have stated, if not implied, that your work as Regional Manager may be too taxing
for you and for your health. The above could solve this problem.
xxxx
2.
Effective immediately, Kevin and the rest of the Agency Operations will deal with
the North Star Branch (NSB) in autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control and allow you
to concentrate more fully on overseeing the remaining groups under Metro North, your
Central Unit and the rest of the Sales Managers in Metro North. I will hold you solely
responsible for meeting the objectives of these remaining groups.
xxxx
The above changes can end at this point and they need not go any further. This,
however, is entirely dependent upon you. But you have to understand that meeting
corporate objectives by everyone is primary and will not be compromised. We are
meeting tough challenges next year and I would want everybody on board. Any
resistance or holding back by anyone will be dealt with accordingly.

Subsequently, De Dios wrote Tongko another letter dated December 18, 2001,
[5]
terminating Tongkos services, thus:

It would appear, however, that despite the series of meetings and communications,
both one-on-one meetings between yourself and SVP Kevin OConnor, some of them
with me, as well as group meetings with your Sales Managers, all these efforts have
failed in helping you align your directions with Managements avowed agency growth
policy.
xxxx
On account thereof, Management is exercising its prerogative under Section 14 of your
Agents Contract as we are now issuing this notice of termination of your Agency
Agreement with us effective fifteen days from the date of this letter.

Therefrom, Tongko filed a Complaint dated November 25, 2002 with the NLRC against
Manulife for illegal dismissal. The case, docketed as NLRC NCR Case No. 11-10330-02,
was raffled to Labor Arbiter Marita V. Padolina.

In the Complaint, Tongko, in a bid to establish an employer-employee relationship,

alleged that De Dios gave him specific directives on how to manage his area of
responsibility in the latters letter dated November 6, 2001. He further claimed that
Manulife exercised control over him as follows:

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Such control was certainly exercised by respondents over the herein complainant. It
was Manulife who hired, promoted and gave various assignments to him. It was the
company who set objectives as regards productions, recruitment, training programs and
all activities pertaining to its business. Manulife prescribed a Code of Conduct which
would govern in minute detail all aspects of the work to be undertaken by employees,
including the sales process, the underwriting process, signatures, handling of money,
policyholder service, confidentiality, legal and regulatory requirements and grounds for
termination of employment. The letter of Mr. De Dios dated 06 November 2001 left no
doubt as to who was in control. The subsequent termination letter dated 18 December
2001 again established in no uncertain terms the authority of the herein respondents to
control the employees of Manulife. Plainly, the respondents wielded control not only as
to the ends to be achieved but the ways and means of attaining such ends.[6]

Tongko bolstered his argument by citing Insular Life Assurance Co., Ltd. v. NLRC
(4th Division)[7] and Great Pacific Life Assurance Corporation v. NLRC ,[8] which Tongko
claimed to be similar to the instant case.

Tongko further claimed that his dismissal was without basis and that he was not
afforded due process. He also cited the Manulife Code of Conduct by which his actions
were controlled by the company.
Manulife then filed a Position Paper with Motion to Dismiss dated February 27, 2003,
[9]
in which it alleged that Tongko is not its employee, and that it did not exercise control
over him. Thus, Manulife claimed that the NLRC has no jurisdiction over the case.

In a Decision dated April 15, 2004, Labor Arbiter Marita V. Padolina dismissed the
complaint for lack of an employer-employee relationship. Padolina found that applying
the four-fold test in determining the existence of an employer-employee relationship,
none was found in the instant case. The dispositive portion thereof states:

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the

instant complaint for lack of jurisdiction, there being no employer-employee relationship
between the parties.

SO ORDERED.

Tongko appealed the arbiters Decision to the NLRC which reversed the same and
rendered a Decision dated September 27, 2004 finding Tongko to have been illegally
dismissed.

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The NLRCs First Division, while finding an employer-employee relationship between

Manulife and Tongko applying the four-fold test, held Manulife liable for illegal dismissal.
It further stated that Manulife exercised control over Tongko as evidenced by the letter
dated November 6, 2001 of De Dios and wrote:

The above-mentioned letter shows the extent to which respondents controlled

complainants manner and means of doing his work and achieving the goals set by
respondents. The letter shows how respondents concerned themselves with the manner
complainant managed the Metro North Region as Regional Sales Manager, to the point
that respondents even had a say on how complainant interacted with other individuals
in the Metro North Region. The letter is in fact replete with comments and criticisms on
how complainant carried out his functions as Regional Sales Manager.
More importantly, the letter contains an abundance of directives or orders that are
intended to directly affect complainants authority and manner of carrying out his
functions as Regional Sales Manager.[10] x x x

Additionally, the First Division also ruled that:

Further evidence of [respondents] control over complainant can be found in the records
of the case. [These] are the different codes of conduct such as the Agent Code of
Conduct, the Manulife Financial Code of Conduct, and the Manulife Financial Code of
Conduct Agreement, which serve as the foundations of the power of control wielded by
respondents over complainant that is further manifested in the different administrative
and other tasks that he is required to perform. These codes of conduct corroborate and
reinforce the display of respondents power of control in their 06 November 2001 Letter
to complainant.[11]

The fallo of the September 27, 2004 Decision reads:

WHEREFORE, premises considered, the appealed Decision is hereby reversed and set
aside. We find complainant to be a regular employee of respondent Manulife and that
he was illegally dismissed from employment by respondents.

In lieu of reinstatement, respondent Manulife is hereby ordered to pay complainant

separation pay as above set forth. Respondent Manulife is further ordered to pay
complainant backwages from the time he was dismissed on 02 January 2002 up to the
finality of this decision also as indicated above.
xxxx
All other claims are hereby dismissed for utter lack of merit.

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From this Decision, Manulife filed a motion for reconsideration which was denied by the
NLRC First Division in a Resolution dated December 16, 2004.[12]

Thus, Manulife filed an appeal with the CA docketed as CA-G.R. SP No. 88253.
Thereafter, the CA issued the assailed Decision dated March 29, 2005, finding the
absence of an employer-employee relationship between the parties and deeming the
NLRC with no jurisdiction over the case. The CA arrived at this conclusion while again
applying the four-fold test. The CA found that Manulife did not exercise control over
Tongko that would render the latter an employee of Manulife. The dispositive portion
reads:

WHEREFORE, premises considered, the present petition is hereby GRANTED and the
writ prayed for accordingly GRANTED. The assailed Decision dated September 27, 2004
and Resolution dated December 16, 2004 of the National Labor Relations Commission in
NLRC NCR Case No. 00-11-10330-2002 (NLRC NCR CA No. 040220-04) are hereby
ANNULLED and SET ASIDE. The Decision dated April 15, 2004 of Labor Arbiter Marita V.
Padolina is hereby REINSTATED.

Hence, Tongko filed this petition and presented the following issues:

A
The Court of Appeals committed grave abuse of discretion in granting respondents
petition for certiorari.

B
The Court of Appeals committed grave abuse of discretion in annulling and setting aside
the Decision dated September 27, 2004 and Resolution dated December 16, 2004 in
finding that there is no employer-employee relationship between petitioner and
respondent.

C
The Court of Appeals committed grave abuse of discretion in annulling and setting aside
the Decision dated September 27, 2004 and Resolution dated December 16, 2004 which
found petitioner to have been illegally dismissed and ordered his reinstatement with
payment of backwages.[13]

Restated, the issues are: (1) Was there an employer-employee relationship between
Manulife and Tongko? and (2) If yes, was Manulife guilty of illegal dismissal?

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The Courts Ruling

This petition is meritorious.

Tongko Was An Employee of Manulife

The basic issue of whether or not the NLRC has jurisdiction over the case resolves itself
into the question of whether an employer-employee relationship existed between
Manulife and Tongko. If no employer-employee relationship existed between the two
parties, then jurisdiction over the case properly lies with the Regional Trial Court.

In the determination of whether an employer-employee relationship exists between two

parties, this Court applies the four-fold test to determine the existence of the elements
of such relationship. In Pacific Consultants International Asia, Inc. v. Schonfeld , the
Court set out the elements of an employer-employee relationship, thus:

Jurisprudence is firmly settled that whenever the existence of an employment

relationship is in dispute, four elements constitute the reliable yardstick: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power
of dismissal; and (d) the employers power to control the employees conduct. It is the
so-called control test which constitutes the most important index of the existence of the
employer-employee relationship that is, whether the employer controls or has reserved
the right to control the employee not only as to the result of the work to be done but
also as to the means and methods by which the same is to be accomplished. Stated
otherwise, an employer-employee relationship exists where the person for whom the
services are performed reserves the right to control not only the end to be achieved but
also the means to be used in reaching such end.[14]

The NLRC, for its part, applied the four-fold test and found the existence of all the
elements and declared Tongko an employee of Manulife. The CA, on the other hand,
found that the element of control as an indicator of the existence of an employeremployee relationship was lacking in this case. The NLRC and the CA based their rulings
on the same findings of fact but differed in their interpretations.

The NLRC arrived at its conclusion, first, on the basis of the letter dated November 6,
2001 addressed by De Dios to Tongko. According to the NLRC, the letter contained an
abundance of directives or orders that are intended to directly affect complainants
authority and manner of carrying out his functions as Regional Sales Manager. It
enumerated these directives or orders as follows:

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1.
You will hire at your expense a competent assistant who can unload you
of much of the routine tasks which can be easily delegated. x x x
xxxx
This assistant should be hired immediately.

2.
Effective immediately, Kevin and the rest of the Agency Operations will
deal with the North Star Branch (NSB) in autonomous fashion x x x.
xxxx
I have decided to make this change so as to reduce your span of control and allow you
to concentrate more fully on overseeing the remaining groups under Metro North, your
Central Unit and the rest of the Sales Managers in Metro North. x x x

3.

Any resistance or holding back by anyone will be dealt with accordingly.

4.
I have been straightforward in this my letter and I know that we can
continue to work together but it will have to be on my terms. Anything else is
unacceptable!

The NLRC further ruled that the different codes of conduct that were applicable to
Tongko served as the foundations of the power of control wielded by Manulife over
Tongko that is further manifested in the different administrative and other tasks that he
was required to perform.

The NLRC also found that Tongko was required to render exclusive service to Manulife,
further bolstering the existence of an employer-employee relationship.

Finally, the NLRC ruled that Tongko was integrated into a management structure over
which Manulife exercised control, including the actions of its officers. The NLRC held
that such integration added to the fact that Tongko did not have his own agency belied
Manulifes claim that Tongko was an independent contractor.

The CA, however, considered the finding of the existence of an employer-employee

relationship by the NLRC as far too sweeping having as its only basis the letter dated
November 6, 2001 of De Dios. The CA did not concur with the NLRCs ruling that the
elements of control as pointed out by the NLRC are sufficient indicia of control that
negates independent contractorship and conclusively establish an employer-employee

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relationship between[15] Tongko and Manulife. The CA ruled that there is no employeremployee relationship between Tongko and Manulife.

An impasse appears to have been reached between the CA and the NLRC on the sole
issue of control over an employees conduct. It bears clarifying that such control not
only applies to the work or goal to be done but also to the means and methods to
accomplish it.[16] In Sonza v. ABS-CBN Broadcasting Corporation , we explained that not
all forms of control would establish an employer-employee relationship, to wit:

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.[17] (Emphasis supplied.)
We ruled in Insular Life Assurance Co., Ltd. v. NLRC (Insular) that:

It is, therefore, usual and expected for an insurance company to promulgate a set of
rules to guide its commission agents in selling its policies that they may not run afoul of
the law and what it requires or prohibits. Of such a character are the rules which
prescribe the qualifications of persons who may be insured, subject insurance
applications to processing and approval by the Company, and also reserve to the
Company the determination of the premiums to be paid and the schedules of payment.
None of these really invades the agents contractual prerogative to adopt his own selling
methods or to sell insurance at his own time and convenience, hence cannot justifiably
be said to establish an employer-employee relationship between him and the company.
[18]

Hence, we ruled in Insular that no employer-employee relationship existed therein.

However, such ruling was tempered with the qualification that had there been evidence
that the company promulgated rules or regulations that effectively controlled or
restricted an insurance agents choice of methods or the methods themselves in selling
insurance, an employer-employee relationship would have existed. In other words, the
Court in Insular in no way definitively held that insurance agents are not employees of
insurance companies, but rather made the same a case-to-case basis. We held:

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The respondents limit themselves to pointing out that Basiaos contract with the
Company bound him to observe and conform to such rules and regulations as the latter
might from time to time prescribe. No showing has been made that any such rules or
regulations were in fact promulgated, much less that any rules existed or were issued
which effectively controlled or restricted his choice of methods or the methods
themselves of selling insurance. Absent such showing, the Court will not speculate that
any exceptions or qualifications were imposed on the express provision of the contract
leaving Basiao ... free to exercise his own judgment as to the time, place and means of
soliciting insurance.[19] (Emphasis supplied.)

There is no conflict between our rulings in Insular and in Great Pacific Life Assurance
Corporation. We said in the latter case:

[I]t cannot be gainsaid that Grepalife had control over private respondents performance
as well as the result of their efforts. A cursory reading of their respective functions as
enumerated in their contracts reveals that the company practically dictates the manner
by which their jobs are to be carried out. For instance, the District Manager must
properly account, record and document the companys funds spot-check and audit the
work of the zone supervisors, conserve the companys business in the district through
reinstatements, follow up the submission of weekly remittance reports of the debit
agents and zone supervisors, preserve company property in good condition, train
understudies for the position of district manager, and maintain his quota of sales (the
failure of which is a ground for termination). On the other hand, a zone supervisor must
direct and supervise the sales activities of the debit agents under him, conserve
company property through reinstatements, undertake and discharge the functions of
absentee debit agents, spot-check the records of debit agents, and insure proper
documentation of sales and collections by the debit agents.[20] (Emphasis supplied.)

Based on the foregoing cases, if the specific rules and regulations that are enforced
against insurance agents or managers are such that would directly affect the means
and methods by which such agents or managers would achieve the objectives set by
the insurance company, they are employees of the insurance company.

In the instant case, Manulife had the power of control over Tongko that would make
him its employee. Several factors contribute to this conclusion.

In the Agreement dated July 1, 1977 executed between Tongko and Manulife, it is
provided that:
The Agent hereby agrees to comply with all regulations and requirements of the
Company as herein provided as well as maintain a standard of knowledge and
competency in the sale of the Companys products which satisfies those set by the

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Company and sufficiently meets the volume of new business required of Production
Club membership.[21]
Under this provision, an agent of Manulife must comply with three (3) requirements: (1)
compliance with the regulations and requirements of the company; (2) maintenance of
a level of knowledge of the companys products that is satisfactory to the company; and
(3) compliance with a quota of new businesses.

Among the company regulations of Manulife are the different codes of conduct such as
the Agent Code of Conduct, Manulife Financial Code of Conduct, and Manulife Financial
Code of Conduct Agreement, which demonstrate the power of control exercised by the
company over Tongko. The fact that Tongko was obliged to obey and comply with the
codes of conduct was not disowned by respondents.

Thus, with the company regulations and requirements alone, the fact that Tongko was
an employee of Manulife may already be established. Certainly, these requirements
controlled the means and methods by which Tongko was to achieve the companys
goals.

More importantly, Manulifes evidence establishes the fact that Tongko was tasked to
perform administrative duties that establishes his employment with Manulife.

In its Comment (Re: Petition for Review dated 15 April 2005) dated August 5, 2005,
Manulife attached affidavits of its agents purportedly to support its claim that Tongko,
as a Regional Sales Manager, did not perform any administrative functions. An
examination of these affidavits would, however, prove the opposite.

In an Affidavit dated April 28, 2003,[22] John D. Chua, a Regional Sales Manager of
Manulife, stated:

4. On September 1, 1996, my services were engaged by Manulife as an Agency

Regional Sales Manager (RSM) for Metro South Region pursuant to an Agency Contract.
As such RSM, I have the following functions:

1.

Refer and recommend prospective agents to Manulife

2.

Coach agents to become productive

3.
region.

Regularly meet with, and coordinate activities of agents affiliated to my

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While Amada Toledo, a Branch Manager of Manulife, stated in her Affidavit dated April
29, 2003[23] that:

3. In January 1997, I was assigned as a Branch Manager (BM) of Manulife for the Metro
North Sector;

4. As such BM, I render the following services:

a. Refer and recommend prospective agents to Manulife;

b. Train and coordinate activities of other commission agents;
c. Coordinate activities of Agency Managers who, in turn, train and coordinate activites
of other commission agents;
d. Achieve agreed production objectives in terms of Net Annualized Commissions and
Case Count and recruitment goals; and
e. Sell the various products of Manulife to my personal clients.

While Ma. Lourdes Samson, a Unit Manager of Manulife, stated in her Affidavit
dated April 28, 2003[24] that:

3. In 1977, I was assigned as a Unit Manager (UM) of North Peaks Unit, North Star
Branch, Metro North Region;

4. As such UM, I render the following services:

a. To render or recommend prospective agents to be licensed, trained and contracted to

sell Manulife products and who will be part of my Unit;
b. To coordinate activities of the agents under my Unit in their daily, weekly and
monthly selling activities, making sure that their respective sales targets are met;
c. To conduct periodic training sessions for my agents to further enhance their sales
skills.
d. To assist my agents with their sales activities by way of joint fieldwork, consultations
and one-on- one evaluation and analysis of particular accounts.
e. To provide opportunities to motivate my agents to succeed like conducting promos to
increase sales activities and encouraging them to be involved incompany and industry
activities.

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f. To provide opportunities for professional growth to my agents by encouraging them to

be a member of the LUCAP (Life Underwriters Association of the Philippines).

A comparison of the above functions and those contained in the Agreement with those
cited in Great Pacific Life Assurance Corporation[25] reveals a striking similarity that
would more than support a similar finding as in that case. Thus, there was an employeremployee relationship between the parties.

Additionally, it must be pointed out that the fact that Tongko was tasked with recruiting
a certain number of agents, in addition to his other administrative functions, leads to no
other conclusion that he was an employee of Manulife.

In his letter dated November 6, 2001, De Dios harped on the direction of Manulife of
becoming a major agency-led distribution company whereby greater agency recruitment
is required of the managers, including Tongko. De Dios made it clear that agent
recruitment has become the primary means by which Manulife intends to sell more
policies. More importantly, it is Tongkos alleged failure to follow this principle of
recruitment that led to the termination of his employment with Manulife. With this, it is
inescapable that Tongko was an employee of Manulife.

Tongko Was Illegally Dismissed

In its Petition for Certiorari dated January 7, 2005[26] filed before the CA, Manulife
argued that even if Tongko is considered as its employee, his employment was validly
terminated on the ground of gross and habitual neglect of duties, inefficiency, as well as
willful disobedience of the lawful orders of Manulife. Manulife stated:

In the instant case, private respondent, despite the written reminder from Mr. De Dios
refused to shape up and altogether disregarded the latters advice resulting in his
laggard performance clearly indicative of his willful disobedience of the lawful orders of
his superior. x x x
xxxx
As private respondent has patently failed to perform a very fundamental duty, and that
is to yield obedience to all reasonable rules, orders and instructions of the Company, as
well as gross failure to reach at least minimum quota, the termination of his
engagement from Manulife is highly warranted and therefore, there is no illegal
dismissal to speak of.

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It is readily evident from the above-quoted portions of Manulifes petition that it failed to
cite a single iota of evidence to support its claims. Manulife did not even point out
which order or rule that Tongko disobeyed. More importantly, Manulife did not point out
the specific acts that Tongko was guilty of that would constitute gross and habitual
neglect of duty or disobedience. Manulife merely cited Tongkos alleged laggard
performance, without substantiating such claim, and equated the same to disobedience
and neglect of duty.

We cannot, therefore, accept Manulifes position.

In Quebec, Sr. v. National Labor Relations Commission, we ruled that:

When there is no showing of a clear, valid and legal cause for the termination of
employment, the law considers the matter a case of illegal dismissal and the burden is
on the employer to prove that the termination was for a valid or authorized cause. This
burden of proof appropriately lies on the shoulders of the employer and not on the
employee because a workers job has some of the characteristics of property rights and
is therefore within the constitutional mantle of protection. No person shall be deprived
of life, liberty or property without due process of law, nor shall any person be denied
the equal protection of the laws.

Apropos thereto, Art. 277, par. (b), of the Labor Code mandates in explicit terms that
the burden of proving the validity of the termination of employment rests on the
employer. Failure to discharge this evidential burden would necessarily mean that the
dismissal was not justified, and, therefore, illegal.[27]
We again ruled in Times Transportation Co., Inc. v. National Labor Relations
Commission that:

The law mandates that the burden of proving the validity of the termination of
employment rests with the employer. Failure to discharge this evidentiary burden would
necessarily mean that the dismissal was not justified, and, therefore, illegal.
Unsubstantiated suspicions, accusations and conclusions of employers do not provide
for legal justification for dismissing employees. In case of doubt, such cases should be
resolved in favor of labor, pursuant to the social justice policy of our labor laws and
Constitution.[28]

This burden of proof was clarified in Community Rural Bank of San Isidro (N.E.), Inc. v.
Paez to mean substantial evidence, to wit:

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The Labor Code provides that an employer may terminate the services of an employee
for just cause and this must be supported by substantial evidence. The settled rule in
administrative and quasi-judicial proceedings is that proof beyond reasonable doubt is
not required in determining the legality of an employers dismissal of an employee, and
not even a preponderance of evidence is necessary as substantial evidence is
considered sufficient. Substantial evidence is more than a mere scintilla of evidence or
relevant evidence as a reasonable mind might accept as adequate to support a
conclusion, even if other minds, equally reasonable, might conceivably opine otherwise.
[29]

Here, Manulife failed to overcome such burden of proof. It must be reiterated that
Manulife even failed to identify the specific acts by which Tongkos employment was
terminated much less support the same with substantial evidence. To repeat, mere
conjectures cannot work to deprive employees of their means of livelihood. Thus, it
must be concluded that Tongko was illegally dismissed.

Moreover, as to Manulifes failure to comply with the twin notice rule, it reasons that
Tongko not being its employee is not entitled to such notices. Since we have ruled that
Tongko is its employee, however, Manulife clearly failed to afford Tongko said notices.
Thus, on this ground too, Manulife is guilty of illegal dismissal. In Quebec, Sr., we also
stated:

Furthermore, not only does our legal system dictate that the reasons for dismissing a
worker must be pertinently substantiated, it also mandates that the manner of
dismissal must be properly done, otherwise, the termination itself is gravely defective
and may be declared unlawful.[30]

For breach of the due process requirements, Manulife is liable to Tongko in the amount
of PhP 30,000 as indemnity in the form of nominal damages.[31]

Finally, Manulife raises the issue of the correctness of the computation of the award to
Tongko made by the NLRC by claiming that Songco v. National Labor Relations
Commission[32] is inapplicable to the instant case, considering that Songco was
dismissed on the ground of retrenchment.

An examination of Songco reveals that it may be applied to the present case. In that
case, Jose Songco was a salesman of F.E. Zuellig (M), Inc. which terminated the
services of Songco on the ground of retrenchment due to financial losses. The issue
raised to the Court, however, was whether commissions are considered as part of
wages in order to determine separation pay. Thus, the fact that Songco was dismissed
due to retrenchment does not hamper the application thereof to the instant case. What

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is pivotal is that we ruled in Songco that commissions are part of wages for the
determination of separation pay.

Article 279 of the Labor Code on security of tenure pertinently provides that:

In cases of regular employment the employer shall not terminate the services of an
employee except for a just cause or when authorized by this Title. An employee who is
unjustly dismissed from work shall be entitled to reinstatement without loss of seniority
rights and other privileges and to his full backwages, inclusive of allowances, and to his
other benefits or their monetary equivalent computed from the time his compensation
was withheld from him up to the time of his actual reinstatement.

In Triad Security & Allied Services, Inc. v. Ortega, Jr. (Triad), we thus stated that an
illegally dismissed employee shall be entitled to backwages and separation pay, if
reinstatement is no longer viable:

As the law now stands, an illegally dismissed employee is entitled to two reliefs,
namely: backwages and reinstatement. These are separate and distinct from each
other. However, separation pay is granted where reinstatement is no longer feasible
because of strained relations between the employee and the employer. In effect, an
illegally dismissed employee is entitled to either reinstatement, if viable, or separation
pay if reinstatement is no longer viable and backwages.[33]

Taking into consideration the cases of Songco and Triad, we find correct the
computation of the NLRC that the monthly gross wage of Tongko in 2001 was PhP
518,144.76. For having been illegally dismissed, Tongko is entitled to reinstatement with
full backwages under Art. 279 of the Labor Code. Due to the strained relationship
between Manulife and Tongko, reinstatement, however, is no longer advisable. Thus,
Tongko will be entitled to backwages fromJanuary 2, 2002 (date of dismissal) up to the
finality of this decision. Moreover, Manulife will pay Tongko separation pay of one (1)
month salary for every year of service that is from 1977 to 2001 amounting to PhP
12,435,474.24, considering that reinstatement is not feasible. Tongko shall also be
entitled to an award of attorneys fees in the amount of ten percent (10%) of the
aggregate amount of the above awards.

WHEREFORE, the petition is hereby GRANTED. The assailed March 29, 2005 Decision of
the CA in CA-G.R. SP No. 88253 is REVERSED andSET ASIDE. The Decision
dated September 27, 2004 of the NLRC is REINSTATED with the following modifications:

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Manulife shall pay Tongko the following:

(1) Full backwages, inclusive of allowances and other benefits or their monetary
equivalent from January 2, 2002 up to the finality of this Decision;

(2) Separation pay of one (1) month salary for every year of service from 1977 up to
2001 amounting to PhP 12,435,474.24;

(3) Nominal damages of PhP 30,000 as indemnity for violation of the due process
requirements; and

(4) Attorneys fees equivalent to ten percent (10%) of the aforementioned backwages
and separation pay.

Costs against respondent Manulife.

SO ORDERED.