FIRST DIVISION

[G.R. No. 110017. January 2, 1997]

RODOLFO FUENTES, RAINERIO DURON, JULIET VISTAL, ELENA DELLOMES, LEODEGARIO

BALHINON, ROGELIO MALINAO, LILY BASANEZ, MALIZA ELLO, VILMA NOQUERA, JESSICA
CASTILLO, ROGELIO TABLADILLO, REMELDA VISCAYA, MELANIA VISCAYA, CELIA LUBRICO,
EDITH LLACUNA, ELPIDIO FERRER, NORBERTO MIRANDA, FERNANDO MIRANDA, CORDIO
DUMAY, LEONARDO DELA VEGA, ISIDRO ALIDO, AQUINO MACABEHA, LEOPOLDO ABAA,
PAULINO ASIS, JR., REYNALDO BLANCO, MADILYN FABON, MARCIANA OSOK, BEBIANO OSOK,
FRANCISCO SEMULTA, MARCIA LLAMES, PRINCIPE DANIEL, MARIA BAYA, NENITA RASONABLY,
SORIANO PENALOSA, JOSE PENALOSA, RODOLFO VILLAR, REMEGIAS DEMINGOY, TEODORO
TUGOGON, DIONISIO APOLINARIO, EDYING DE LA CRUZ, RODOLFO BUTAUAN, CRISPIN
FABON, ARCADIO FABON, NENITA SARDINOLA, ALEX LICAYAN, MARIO DAL, BADON EDUARDO,
FELISA VILLAREL, EMILY GARAN, ROGELIO GARAN, RODOLFO COLITE, RODOLFO MENIANO,
ROMERO TERRY, ZOILO VALLEJOS, VIRGINIA BANDERA, BLANDINA LUNA, FLAXIANA CARLON,
CRESENCIO CARLON, NOTARTE LEONARDA, EFREN CANTERE, ROWENA CAGUMAY,
ALFONSO PARAJES, VIOLETA MONTECLAR, NESTOR ALLADO, JR., APOLONIO CULATAS,
LANNIE CAPARAS, ANGELICO NUNEZ, JR., NICOLAS CANAL, HERMOGENA TAGLOCOP, ALEJO
BAUMBAD, CARLITO DE LA PENA, AMANCIO ABOYLO, JERRY PARALES, LYDIA ALLADO,
AGAPITO ODAL, MAGNO BARIOS, FLORENDO MARIANO, SOLATORIO BONIFACIO, RENE
DEMINGOY, FELIMON ADORNO, VIRGILLO INOCENCIO, RUEL INOCENCIO, AVELINO LUNA,
ALLAN MARCELLANA, FELIX SANCHEZ, AVELINO PANDI, VILLA SORIO, NOEL LAS PENAS,
FRANCISCO GARDO, ROGELIO CULLABA, GEORGE RAGAR, CARMELITO CABRIADAS,
ANANIAS MELLORIA, ALFONSO ALLADO, MARLINO MARTINEZ, LINO MARTINEZ, ERNESTO
OLARAN, JOHNNY JOSAYAN, ANECITO SOBIONO, MARGARITO DUMALAGAN, FRANCISCO
CABALES, FELIX ROCERO, PABLITO DAPAR, FRANCISCA CABALHIN, FORTUNATA BAUMBAD,
CARMEN RADAY, NICOLAS TAMON, REYNALDO CANTORIA, ELMER NAPONE, ANTONIO
VALLAR, BERNADITH TOLOZA, EMETERIA FERRER, CLANICA CABALES, CLAUDIO OJUYLAN,
ERLINDA BLANCO, ROSITA DURON, FRANCISCA ADLAWON, CARDINAL MAGLISANG, JOVEN
ASIS, JOSE FLORES, ALICIA FLORES, JULIETO ADORNO, LORENZO CANINES, ISAAC
CELLASAY, ANDRES INDIABLE, ARSENIO DURON, NARCISA MALASPINA, ROQUE SUBAAN,
GRACE DURON, JAIME BALMORIA, PEDRO PECASALES, PRIMITORAGAS and GRACE
GOMA, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, 5TH DIVISION, CAGAYAN
DE ORO CITY, AGUSAN PLANTATION INC., AND/OR CHANG CHEE KONG, respondents.
DECISION
BELLOSILLO, J.:
The State is bound under the Constitution to afford full protection to labor and when conflicting interests of
labor and capital are to be weighed on the scales of social justice the heavier influence of the latter should be
counterbalanced with the sympathy and compassion the law accords the less privileged workingman. This is
only fair if the worker is to be given the opportunity and the right to assert and defend his cause not as a
subordinate but as part of management with which he can negotiate on even plane. Thus labor is not a mere
employee of capital but its active and equal partner.[1]
Petitioners, numbering seventy-five (75) in all, seek to set aside the decision of respondent National Labor
Relations Commission dated 27 November 1992 reversing that of the Labor Arbiter which granted their
claims, for having been rendered with grave abuse of discretion amounting to lack or excess of jurisdiction.
Petitioners were regular employees of private respondent Agusan Plantations, Inc., which was engaged in
the operation of a palm tree plantation in Trento, Agusan del Sur, since September 1982. Claiming that it was
suffering business losses which resulted in the decision of the head office in Singapore to undertake
retrenchment measures, private respondent sent notices of termination to petitioners and the Department of
Labor and Employment (DOLE).

On 31 October 1990 petitioners filed with the DOLE office in Cagayan de Oro City a complaint for illegal
dismissal with prayer for reinstatement, backwages and damages against private respondent Agusan
Plantation, Inc., and/or Chang Chee Kong. In their answer respondents denied the allegations of petitioners
and contended that upon receipt of instructions from the head office in Singapore to implement retrenchment,
private respondents conducted grievance conferences or meetings with petitioners' representative labor
organization, the Association of Trade Unions through its national president Jorge Alegarbes, its local
president and its board of directors. Private respondents also contended that the 30-day notices of termination
were duly sent to petitioners.
After both parties submitted their position papers articulating their respective theses, the Labor Arbiter
rendered a decision on 27 May 1992 in favor of petitioners ordering private respondents to pay the former
separation pay equivalent to fifteen (15) days pay for every year of service plus salary differentials and
attorney's fees.
On appeal by respondents to the National Labor Relations Commission, the decision of the Labor Arbiter
was reversed on 27 November 1992.
Petitioners elevated their plight to this Court on a special civil action for certiorari under Rule 65 of the
Rules of Court alleging that respondent NLRC gravely abused its discretion amounting to lack or excess of
jurisdiction in ruling that petitioners were legally terminated from their employment. They argued that their
dismissal or retrenchment did not comply with the requirements of Art. 283 of the Labor Code.
We sustain petitioners. The ruling of the Labor Arbiter that there was no valid retrenchment is correct.
Article 283 of the Labor Code clearly states:
Art 283. Closure of establishment and reduction of personnel. The employer may also terminate the
employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing
is for the purpose of circumventing the provisions of the title, by serving a written notice on the workers and
the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of
termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be
entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for
every year of service, whichever is higher. In case of retrenchment to prevent losses and in case of closure or
cessation of operations of establishment or undertaking not due to serious business losses or financial
reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for
every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1)
whole year.
Under Art. 283 therefore retrenchment may be valid only when the following requisites are met: (a) it is to
prevent losses; (b) written notices were served on the workers and the Department of Labor and Employment
(DOLE) at least one (1) month before the effective date of retrenchment; and, (c) separation pay is paid to the
affected workers.
The closure of a business establishment is a ground for the termination of the services of an employee
unless the closing is for the purpose of circumventing pertinent provisions of the Labor Code. But while
business reverses can be a just cause for terminating employees, they must be sufficiently proved by the
employer.[2]
In the case before us, private respondents merely alleged in their answer and position paper that after
their officials from the head office had visited the plantation respondent manager Chang Chee Kong received
a letter from the head office directing him to proceed immediately with the termination of redundant workers
and staff, and change the operations to contract system against direct employment. They also alleged that
after five (5) years of operations, the return of investments of respondent company was meager; that the coup
attempt in August 1987 as well as that of December 1989 aggravated the floundering financial state of
respondent company; that the financial losses due to lack of capital funding resulted in the non-payment of
long-overdue accounts; that the untimely cut in the supply of fertilizers and manuring materials and equipment
parts delayed the payment of salaries and the implementation of weekly job rotations by the workers. Except
for these allegations, private respondents did not present any other documentary proof of their alleged losses
which could have been easily proven in the financial statements which unfortunately were not shown.
There is no question that an employer may reduce its work force to prevent losses. However, these losses
must be serious, actual and real. [3] Otherwise, this ground for termination of employment would be susceptible

to abuse by scheming employers who might be merely feigning losses in their business ventures in order to
ease out employees.[4]
Indeed, private respondents failed to prove their claim of business losses. What they submitted to the
Labor Arbiter were mere self-serving documents and allegations. Private respondents never adduced
evidence which would show clearly the extent of losses they suffered as a result of lack of capital funding,
which failure is fatal to their cause.
As regards the requirement of notices of termination to the employees, it is undisputed that the Notice of
Retrenchment was submitted to the Department of Labor and Employment on 12 September 1990. [5] The
findings of both the Labor Arbiter and NLRC show that petitioners were terminated on the following dates in
1990 after they received their notices of termination, to wit:
Culled from the above data, the termination of petitioners could not have validly taken effect either on 25
or 30 September 1990. The one-month notice of retrenchment filed with the DOLE and served on the workers
before the intended date thereof is mandatory. Private respondents failed to comply with this requisite. The
earliest possible date of termination should be 12 October 1990 or one (1) month after notice was sent to
DOLE unless the notice of termination was sent to the workers later than the notice to DOLE on 12
September 1990, in which case, the date of termination should be at least one (1) month from the date of
notice to the workers. Petitioners were terminated less than a month after notice was sent to DOLE and to
each of the workers.
We agree with the conclusion of the Labor Arbiter that the termination of the services of petitioners was
illegal as there was no valid retrenchment. Respondent NLRC committed grave abuse of discretion in
reversing the findings of the Labor Arbiter and ruling that there was substantial compliance with the law. This
Court firmly holds that measures should be strictly implemented to ensure that such constitutional mandate on
protection to labor is not rendered meaningless by an erroneous interpretation of applicable laws.
We uphold the monetary award of the Labor Arbiter for: (a) the balance of the separation pay benefits of
petitioners equivalent to fifteen (15) days for every year of service after finding that reinstatement is no longer
feasible under the circumstances, and (b) the salary differentials for complainants who were relieved during
the pendency of the case before the Labor Arbiter and full back wages for the rest of the complainants. This is
in accord with Art. 279 of the Labor Code as amended by R.A. 6715 under which petitioners who were
unjustly dismissed from work shall be entitled to full back wages inclusive of allowances and other benefits or
their monetary equivalent computed from the time their compensation was withheld up to the date of this
decision.
WHEREFORE, the Petition is GRANTED. The decision of the Labor Arbiter of 27 March 1992 granting
petitioners their claim for the balance of their separation pay benefits equivalent to fifteen (15) days for every
year of service, and salary differentials for complainants who were relieved during the pendency of the case
before the Labor Arbiter, and full back wages for the rest of the complainants is REINSTATED. Consequently,
the decision of the National Labor Relations Commission dated 27 September 1992 is REVERSED and SET
ASIDE.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 110518 August 1, 1994

JOSE L. GARCIA, EDUARDO ALAS, NOEL APAYA, RICARDO, MARCOS AVEJERO, REYNALDO
BANTIGUE, ROMEO BORRAS, MARGARITO CABICUELAS, ROLANDO CAMUA, JOSE DENNIS
CASTILLO, DICOROSO CARBO, FELIPE COSCULLA, EDUARDO DE GUZMAN, SEVILLA DEMLO,
DIONALDO TEODOLFO, ADEMAR DUPINO, JOSE ESCOBAR, REYNALDO FLORES, DELFIN GARCIA,

FEDERICO GATDULA, FELOMINO GUTIERREZ, HILARIO EUGENIO, EUGENIO ILANO, JR., WILFREDO
JALLA, RAMON LASQUITE, CESARIANO LIM, AUGUSTO LUMBANG, SALVADOR MACARAEG,
ERNESTO MARQUEZ, LAURO MIRAVALLES, FRED ONIA, REYNALDO ORTIZ, LEONIZA PALALIMPA,
ALFREDO ROMEO, LECERIO ROSARIO, ARMANDO SABIDURIA, RONILO SACE, REGONDOLA
SANTOS, ERNESTO SALVATUS, ENRICO SANDOVAL, EUFEMIO SATURAY, VIRGILIO TINAMISAN,
MACARIO VALDEZ, JOSE VILLARICA, SANTOS VIRAY, FLORENDO LOPEZ, JOSE SEGISMUNDO, DIZON
GERONIMO, RUPERTO CLAVIO, JR., SEFARIN DYTIOCO, FIDEL TAGULAM, and EDITHA R.
JUAN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and NATIONAL SERVICE CORPORATION, respondents.
Samson S. Alcantara for petitioners.
Vidal Corpus & Associates for private respondent.

CRUZ, J.:
The main issue before the Court in this petition for certiorari is the validity of the retrenchment of the fifty-one
petitioners by private respondent National Service Corporation (NASECO) as upheld by the Labor Arbiter and
later by the National Labor Relations Commission.
NASECO is a government-owned or controlled corporation engaged in providing manpower services such as
security guards, radio operators, janitors and clerks, principally for the Philippine National Bank.
The petitioners were its employees who were either members of the NASECO Employees Union (NASECOEU) or of the Alliance of Concerned Workers of NASECO (ACW-NASECO). On November 19, 1988, they
were among those who staged a strike and picketed the premises of the PNB.
On November 21, 1988, the PNB filed a complaint for damages with preliminary injunction against the labor
unions with the Regional Trial Court of Manila. It was docketed as Civil Case No. 88-46938 in Branch 22. On
December 5, 1988, the court granted the application for a preliminary injunction and issued the writ ordering
the lifting of the picket.
NASECO also filed on November 21, 1988, a petition with the National Labor Relations Commission to
declare the strike illegal. This was docketed as NLRC Case No. 00-11-04766-88. On February 17, 1989, the
NLRC rendered its decision sustaining NASECO. 1 The union officers who knowingly and actively participated
in the strike, as well as the members of the respondent union who committed illegal acts in the course of the
strike, were deemed to have legally lost their employment status.
The rest of the striking members, including the herein fifty-one petitioners, were ordered to report for work
immediately.
The complaint of the labor union against the PNB for unfair labor practice and illegal lockout was dismissed
on the ground that there was no employer-employee relationship between the PNB and the labor unions. 2
On March 1, 1989, the petitioners reported for work at the NASECO office but they could not be given
assignments because the PNB had meanwhile contracted with another company to fill the positions formerly
held by the petitioners.
NASECO inquired from the PNB whether or not the petitioners could still be accepted to their former positions
in light of the Service Agreement between NASECO and the PNB giving the latter the right to reject or replace
any and all of NASECO's employees assigned to it, for inefficiency or other valid reasons.

In reply, the PNB manifested that it was no longer accepting the petitioners back to their former positions as
these were no longer vacant.
NASECO then sought new assignments for the petitioners with its other clients, but the petitioners insisted on
their reassignment to the PNB. In the meantime, starting April 1, 1989, NASECO paid the salaries and other
benefits of the petitioners although they were not actually working. 3
On October 13, 1989, the petitioners received notice of separation from NASECO, effective thirty days
thereafter. The reason given was the financial losses NASECO was incurring at that time due mainly to the
salaries being paid to the employees who could not be posted despite efforts to place them. 4
Conformably to Art. 283 of the Labor Code, the Department of Labor and Employment was likewise given a
30-day notice of the intended retrenchment.
The management of NASECO even offered a better separation package equivalent to three-fourths of the
estimated new basic monthly salary for every year of service, compared to the statutory requirement of only
1/2 month pay for every year of service. 5
The petitioners refused to acknowledge receipt of the notice and instead, on October 26, 1989, filed with
NLRC a complaint against NASECO for unfair labor practice, illegal dismissal, non-payment of wages and
damages. 6
On November 13, 1989, NASECO sent notice to the petitioners that their termination from the service would
take effect not on November 16, 1989, but on November 30, 1989, for humanitarian considerations. The
effective date was again extended to December 15, 1989, and finally to December 31, 1989.
On June 22, 1990, Labor Arbiter Potenciano Canizares Jr. rendered a decision finding that the petitioners had
been "fairly discharged by the respondent (NASECO) in a valid act of simple retrenchment." 7
On July 11, 1990, the petitioners appealed to the NLRC. On September 11, 1992, they filed a manifestation
that the private respondent had been hiring new personnel, but no proof was offered to support the charge.
On December 21, 1992, the NLRC issued a resolution affirming the decision of the labor arbiter. 8 A motion for
reconsideration filed by the petitioners on January 15, 1993, was denied by the NLRC on February 10, 1993. 9
It is now asserted in this petition that the NLRC gravely abused its discretion in holding that the petitioners
were validly dismissed on the ground of retrenchment; that NASECO is not guilty of unfair labor practice; and
that their monetary claims for increases under Republic Acts 6640 and 6727, as well as for moral and
exemplary damages and attorney's fees, should be denied.
On the first two issues, the petitioners fault the NLRC for completely disregarding the requisites of a valid
retrenchment as laid down in Lopez Sugar Corporation vs. Federation of Free Workers. 10
The requisites are: 1) the losses expected should be substantial and not merely de minimis in extent; 2) the
substantial losses apprehended must be reasonably imminent; 3) the retrenchment must be reasonably
necessary and likely to effectively prevent the expected losses; and 4) the alleged losses, if already incurred,
and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing
evidence.
The petitioners assert that NASECO failed to show with convincing evidence that the incurred losses, if any,
were substantial. The claimed losses were belied by the fact that NASECO hired new personnel before and
after the dismissal of the petitioners. NASECO also failed to pursue other measures to forestall losses, short
of dismissing the petitioners. It did not follow the "first in, last out" rule that in cases of retrenchment,
employees with long years of service with the company, like the petitioners, should not be the first to be

retrenched. They attribute their dismissal to their participation in the strike of November 19, 1988. Thus, their
dismissal was an act of unfair labor practice for being discriminatory and violative of their rights to selforganization and to engage in concerted activities.
We have to disagree.
The losses incurred by NASECO for the year 1989 amounted to P1,457,700.42 and were adequately proved
by it.11 These losses were directly caused by the salaries and other benefits paid to the petitioners during the
period from April 1 to December 31, 1989. The amount of these payments is not insubstantial in light of the
economic difficulties of the country during that year when several coups d' etat adversely affected the nation's
economic growth.
It is also not true that respondent NASECO did not look for other measures to cut back on its losses.
NASECO had in fact tried to place the petitioners with its other clients but it was the petitioners themselves
who refused reassignment.
The particular facts of this case preclude application of the "first in, last out" rule in the retrenchment of
employees. There was no discrimination against the petitioners. NASECO could not compel the PNB to take
the petitioners back to their former positions in view of its contractual right to reject any employee of NASECO
for inefficiency and other valid reasons. The PNB had already filled the vacated positions of the petitioners
during the strike, to ensure the continued operation of its business.
The monetary claim under RA 6640 and RA 6727 is another matter. RA 6640, which took effect on December
14, 1987, and RA 6727, which took effect on July 1, 1989, provide for P10.00 and a P25.00 increases
respectively in the minimum wage of laborers. The NLRC denied this claim on the ground that the petitioners
had failed to include it in their basic complaint. This contention is not acceptable because the claim was
clearly included and prayed for in their position paper.
The Revised Rules of the NLRC provide under Sec. 3, Rule V, that parties should not be allowed to allege
facts not referred to or included in the complaint, or position paper, affidavits and other documents. This would
mean that although not contained in the complaint, any claim can still be averred in the position paper, as was
done by the petitioners, or in an affidavit or other documents.
We also hold that the increases in the petitioners' minimum wage under RA 6640 and RA 6720 should be
granted since they became effective before the petitioners' retrenchment. Said increases should be
considered in the computation of their separation pay in accordance with Art. 283 of the Labor Code.
Moral damages are recoverable only where the dismissal of the employee was attended by bad faith or fraud
or constituted an act oppressive to labor or was done in a manner contrary to morals, good customs or public
policy.12 Exemplary damages may be awarded only if the dismissal was effected in a wanton, oppressive or
malevolent manner. 13None of these grounds has been proven. However, the Court will grant the claim for
attorney's fees in an amount equivalent to 10% of the total amount awarded to the petitioner as authorized by
the Labor Code. 14
The constitutional policy of providing full protection to labor is not intended to oppress or destroy
management. The employer cannot be compelled to retain employees it no longer needs, to be paid for work
unreasonably refused and not actually performed. NASECO bent over backward and exerted every effort to
help the petitioners look for other work, postponed the effective date of their separation, and offered them a
generous termination pay package. The unflagging commitment of this Court to the cause of labor will not
prevent us from sustaining the employer when it is in the right, as in this case.
WHEREFORE, the decision of the Labor Arbiter dated June 22, 1990, and the resolutions of the NLRC dated
December 21, 1992, and February 10, 1993, are AFFIRMED, with the modification that the monetary claim

under RA 6640 and RA 6720, and for attorney's fees, should be and is hereby granted. The award of moral
and exemplary damages is disallowed.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-53515 February 8, 1989
SAN MIGUEL BREWERY SALES FORCE UNION (PTGWO), petitioner,
vs.
HON. BLAS F. OPLE, as Minister of Labor and SAN MIGUEL CORPORATION, respondents.
Lorenzo F. Miravite for petitioner.
Isidro D. Amoroso for New San Miguel Corp. Sales Force Union.
Siguion Reyna, Montecillo & Ongsiako for private respondent.

GRIO-AQUINO, J.:
This is a petition for review of the Order dated February 28, 1980 of the Minister of Labor in Labor Case No.
AJML-069-79, approving the private respondent's marketing scheme, known as the "Complementary
Distribution System" (CDS) and dismissing the petitioner labor union's complaint for unfair labor practice.
On April 17, 1978, a collective bargaining agreement (effective on May 1, 1978 until January 31, 1981) was
entered into by petitioner San Miguel Corporation Sales Force Union (PTGWO), and the private respondent,
San Miguel Corporation, Section 1, of Article IV of which provided as follows:
Art. IV, Section 1. Employees within the appropriate bargaining unit shall be entitled to a basic
monthly compensation plus commission based on their respective sales. (p. 6, Annex A; p. 113,
Rollo.)
In September 1979, the company introduced a marketing scheme known as the "Complementary Distribution
System" (CDS) whereby its beer products were offered for sale directly to wholesalers through San Miguel's
sales offices.
The labor union (herein petitioner) filed a complaint for unfair labor practice in the Ministry of Labor, with a
notice of strike on the ground that the CDS was contrary to the existing marketing scheme whereby the Route
Salesmen were assigned specific territories within which to sell their stocks of beer, and wholesalers had to
buy beer products from them, not from the company. It was alleged that the new marketing scheme violates
Section 1, Article IV of the collective bargaining agreement because the introduction of the CDS would reduce
the take-home pay of the salesmen and their truck helpers for the company would be unfairly competing with
them.
The complaint filed by the petitioner against the respondent company raised two issues: (1) whether the CDS
violates the collective bargaining agreement, and (2) whether it is an indirect way of busting the union.

In its order of February 28, 1980, the Minister of Labor found:

... We see nothing in the record as to suggest that the unilateral action of the employer in
inaugurating the new sales scheme was designed to discourage union organization or diminish
its influence, but rather it is undisputable that the establishment of such scheme was part of its
overall plan to improve efficiency and economy and at the same time gain profit to the highest.
While it may be admitted that the introduction of new sales plan somewhat disturbed the present
set-up, the change however was too insignificant as to convince this Office to interpret that the
innovation interferred with the worker's right to self-organization.
Petitioner's conjecture that the new plan will sow dissatisfaction from its ranks is already a
prejudgment of the plan's viability and effectiveness. It is like saying that the plan will not work
out to the workers' [benefit] and therefore management must adopt a new system of marketing.
But what the petitioner failed to consider is the fact that corollary to the adoption of the assailed
marketing technique is the effort of the company to compensate whatever loss the workers may
suffer because of the new plan over and above than what has been provided in the collective
bargaining agreement. To us, this is one indication that the action of the management is devoid
of any anti-union hues. (pp. 24-25, Rollo.)
The dispositive part of the Minister's Order reads:
WHEREFORE, premises considered, the notice of strike filed by the petitioner, San Miguel
Brewery Sales Force Union-PTGWO is hereby dismissed. Management however is hereby
ordered to pay an additional three (3) months back adjustment commissions over and above the
adjusted commission under the complementary distribution system. (p. 26, Rollo.)
The petition has no merit.
Public respondent was correct in holding that the CDS is a valid exercise of management prerogatives:
Except as limited by special laws, an employer is free to regulate, according to his own
discretion and judgment, all aspects of employment, including hiring, work assignments, working
methods, time, place and manner of work, tools to be used, processes to be
followed, supervision of workers, working regulations, transfer of employees, work supervision,
lay-off of workers and the discipline, dismissal and recall of work. ... (NLU vs. Insular La Yebana
Co., 2 SCRA 924; Republic Savings Bank vs. CIR 21 SCRA 226, 235.) (Perfecto V. Hernandez,
Labor Relations Law, 1985 Ed., p. 44.) (Emphasis ours.)
Every business enterprise endeavors to increase its profits. In the process, it may adopt or devise means
designed towards that goal. In Abbott Laboratories vs. NLRC, 154 SCRA 713, We ruled:
... Even as the law is solicitous of the welfare of the employees, it must also protect the right of
an employer to exercise what are clearly management prerogatives. The free will of
management to conduct its own business affairs to achieve its purpose cannot be denied.
So long as a company's management prerogatives are exercised in good faith for the advancement of the
employer's interest and not for the purpose of defeating or circumventing the rights of the employees under
special laws or under valid agreements, this Court will uphold them (LVN Pictures Workers vs. LVN, 35 SCRA
147; Phil. American Embroideries vs. Embroidery and Garment Workers, 26 SCRA 634; Phil. Refining Co. vs.
Garcia, 18 SCRA 110). San Miguel Corporation's offer to compensate the members of its sales force who will
be adversely affected by the implementation of the CDS by paying them a so-called "back adjustment
commission" to make up for the commissions they might lose as a result of the CDS proves the company's
good faith and lack of intention to bust their union.

WHEREFORE, the petition for certiorari is dismissed for lack of merit.

SO ORDERED.
FIRST DIVISION
[G.R. No. 108855. February 28, 1996]
METROLAB INDUSTRIES, INC., petitioner, vs. HONORABLE MA. NIEVES ROLDAN-CONFESOR, in her
capacity as Secretary of the Department of Labor and Employment and METRO DRUG
CORPORATION EMPLOYEES ASSOCIATION-FEDERATION OF FREE WORKERS, respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF ADMINISTRATIVE AGENCIES; RULE; CASE AT
BAR. - We reaffirm the doctrine that considering their expertise in their respective fields, factual findings of
administrative agencies supported by substantial evidence are accorded great respect and binds this
Court. The Secretary of Labor ruled, thus: x x x Any act committed during the pendency of the dispute that
tends to give rise to further contentious issues or increase the tensions between the parties should be
considered an act of exacerbation. One must look at the act itself, not on speculative reactions. A
misplaced recourse is not needed to prove that a dispute has been exacerbated. For instance, the Union
could not be expected to file another notice of strike. For this would depart from its theory of the case that
the layoff is subsumed under the instant dispute, for which a notice of strike had already been filed. On
the other hand, to expect violent reactions, unruly behavior, and any other chaotic or drastic action from
the Union is to expect it to commit acts disruptive of public order or acts that may be illegal. Under a
regime of laws, legal remedies take the place of violent ones. x xx Protest against the subject layoffs need
not be in the form of violent action or any other drastic measure. In the instant case the Union registered
their dissent by swiftly filing a motion for a cease and desist order. Contrary to petitioners allegations, the
Union strongly condemned the layoffs and threatened mass action if the Secretary of Labor fails to timely
intervene: x x x 3. This unilateral action of management is a blatant violation of the injunction of this Office
against committing acts which would exacerbate the dispute. Unless such act is enjoined the Union will be
compelled to resort to its legal right to mass actions and concerted activities to protest and stop the said
management action. This mass layoff is clearly one which would result in a very serious dispute unless
this Office swiftly intervenes. x x x Metrolab and the Union were still in the process of resolving their CBA
deadlock when petitioner implemented the subject layoffs. As a result, motions and oppositions were filed
diverting the parties attention, delaying resolution of the bargaining deadlock and postponing the signing
of their new CBA, thereby aggravating the whole conflict.
2. LABOR AND SOCIAL LEGISLATION; TERMINATION OF EMPLOYMENT; EXERCISE OF MANAGEMENT
PREROGATIVES; NOT ABSOLUTE; SUBJECT TO EXCEPTIONS IMPOSED BY LAW. - This Court
recognizes the exercise of management prerogatives and often declines to interfere with the legitimate
business decisions of the employer. However, this privilege is not absolute but subject to limitations
imposed by law. In PAL vs. NLRC, (225 SCRA 301 [1993]), we issued this reminder: ... the exercise of
management prerogatives was never considered boundless. Thus, in Cruz vs. Medina (177
SCRA 565 [1989]), it was held that managements prerogatives must be without abuse of discretion ... All
this points to the conclusion that the exercise of managerial prerogatives is not unlimited. It is
circumscribed by limi(ations found in law, a collective bargaining agreement, or the general principles of
fair play and justice (University of Sto. Tomas v. NLRC, 190 SCRA 758 [1990]).
3. ID.; ID.; ID.; ID.; ID.; CASE AT BAR AN EXCEPTION. - The case at bench constitutes one of the
exceptions. The Secretary of Labor is expressly given the power under the Labor Code to assume
jurisdiction and resolve labor disputes involving industries indispensable to national interest. The disputed
injunction is subsumed under this special grant of authority. Art. 263 (g) of the Labor Code specifically

provides that: x x x (g) When, in his opinion, there exists a labor dispute causing or likely to cause a strike
or lockout in an industry indispensable to the national interest, the Secretary of Labor and Employment
may assume jurisdiction over the dispute and decide it or certify the same to the Commission for
compulsory arbitration. Such assumption or certification shall have the effect of automatically enjoining
the intended or impending strike or lockout as specified in the assumption or certification order. If one has
already taken place at the time of assumption or certification, all striking or locked out employees shall
immediately return to work and the employer shall immediately resume operations and readmit all workers
under the same terms and conditions prevailing before the strike or lockout. The Secretary of Labor and
Employment or the Commission may seek the assistance of law enforcement agencies to ensure
compliance with this provision as well as with such orders as he may issue to enforce the same. . . . That
Metrolabs business is of national interest is not disputed. Metrolab is one of the leading manufacturers
and suppliers of medical and pharmaceutical products to the country. Metrolabs management
prerogatives, therefore, are not being unjustly curtailed but duly balanced with and tempered by the
limitations set by law, taking into account its special character and the particular circumstances in the
case at bench.
4. ID.; LABOR RELATIONS; INELIGIBILITY OF MANAGERIAL EMPLOYEES TO JOIN, FORM AND ASSIST
ANY LABOR ORGANIZATION; PROHIBITION EXTENDED TO CONFIDENTIAL EMPLOYEES.
- Although Article 245 of the Labor Code limits the ineligibility to join, form and assist any labor
organization to managerial employees, jurisprudence has extended this prohibition to confidential
employees or those who by reason of their positions or nature of work are required to assist or act in a
fiduciary manner to managerial employees and hence, are likewise privy to sensitive and highly
confidential records.
5. ID.; ID.; EXCLUSION OF CONFIDENTIAL EMPLOYEES FROM THE RANK AND FILE BARGAINING
UNIT; NOT TANTAMOUNT TO DISCRIMINATION. - Confidential employees cannot be classified as rank
and file. As previously discussed, the nature of employment of confidential employees is quite distinct
from the rank and file, thus, warranting a separate category. Excluding confidential employees from the
rank and file bargaining unit, therefore, is not tantamount to discrimination.
APPEARANCES OF COUNSEL
Bautista Picazo Buyco Tan & Fider for petitioner.
The Solicitor General for public respondent.
Perfecto V. Fernandez, Jose P. Fernandez & Cristobal P. Fernandez for Metro Drug Corporation.
DECISION
KAPUNAN, J.:
This is a petition for certiorari under Rule 65 of the Revised Rules of Court seeking the annulment of the
Resolution and Omnibus Resolution of the Secretary of Labor and Employment dated 14 April 1992 and 25
January 1993, respectively, in OS-AJ-04491-11 (NCMB-NCR-NS-08-595-9 1; NCMB-NCR-NS-09-678-91) on
grounds that these were issued with grave abuse of discretion and in excess of jurisdiction.
Private respondent Metro Drug Corporation Employees Association-Federation of Free Workers
(hereinafter referred to as the Union) is a labor organization representing the rank and file employees of
petitioner Metrolab Industries, Inc. (hereinafter referred to as Metrolab/MII) and also of Metro Drug, Inc.
On 31 December 1990, the Collective Bargaining Agreement (CBA) between Metrolab and the Union
expired. The negotiations for a new CBA, however, ended in a deadlock.

Consequently, on 23 August 1991, the Union filed a notice of strike against Metrolab and Metro Drug
Inc. The parties failed to settle their dispute despite the conciliation efforts of the National Conciliation and
Mediation Board.
To contain the escalating dispute, the then Secretary of Labor and Employment, Ruben D. Torres, issued
an assumption order dated 20 September 1991, the dispositive portion of which reads, thus:
WHEREFORE, PREMISES CONSIDERED, and pursuant to Article 263 (g) of the Labor Code, as amended,
this Office hereby assumes jurisdiction over the entire labor dispute at Metro Drug, Inc. - Metro Drug
Distribution Division and Metrolab Industries Inc.
Accordingly, any strike or lockout is hereby strictly enjoined. The Companies and the Metro Drug Corp.
Employees Association - FFW are likewise directed to cease and desist from committing any and all acts that
might exacerbate the situation.
Finally, the parties are directed to submit their position papers and evidence on the aforequoted deadlocked
issues to this office within twenty (20) days from receipt hereof.
SO ORDERED.[1] (Italics ours.)
On 27 December 1991, then Labor Secretary Torres issued an order resolving all the disputed items in
the CBA and ordered the parties involved to execute a new CBA.
Thereafter, the Union filed a motion for reconsideration.
On 27 January 1992, during the pendency of the abovementioned motion for reconsideration, Metrolab
laid off 94 of its rank and file employees.
On the same date, the Union filed a motion for a cease and desist order to enjoin Metrolab from
implementing the mass layoff, alleging that such act violated the prohibition against committing acts that
would exacerbate the dispute as specifically directed in the assumption order.[2]
On the other hand, Metrolab contended that the layoff was temporary and in the exercise of its
management prerogative. It maintained that the company would suffer a yearly gross revenue loss of
approximately sixty-six (66) million pesos due to the withdrawal of its principals in the Toll and Contract
Manufacturing Department. Metrolab further asserted that with the automation of the manufacture of its
product Eskinol, the number of workers required its production is significantly reduced. [3]
Thereafter, on various dates, Metrolab recalled some of the laid off workers on a temporary basis due to
availability of work in the production lines.
On 14 April 1992, Acting Labor Secretary Nieves Confesor issued a resolution declaring the layoff of
Metrolabs 94 rank and file workers illegal and ordered their reinstatement with full backwages. The dispositive
portion reads as follows:
WHEREFORE, the Unions motion for reconsideration is granted in part, and our order of 28 December 1991
is affirmed subject to the modifications in allowances and in the close shop provision. The layoff of the 94
employees at MII is hereby declared illegal for the failure of the latter to comply with our injunction against
committing any act which may exacerbate the dispute and with the 30-day notice requirement. Accordingly,
MII is hereby ordered to reinstate the 94 employees, except those who have already been recalled, to their
former positions or substantially equivalent, positions with full backwages from the date they were illegally laid
off on 27 January 1992 until actually reinstated without loss of seniority rights and other benefits. Issues
relative to the CBA agreed upon by the parties and not embodied in our earlier order are hereby ordered
adopted for incorporation in the CBA. Further, the dispositions and directives contained in all previous orders

and resolutions relative to the instant dispute, insofar as not inconsistent herein, are reiterated. Finally, the
parties are enjoined to cease and desist from committing any act which may tend to circumvent this
resolution.
SO RESOLVED.[4]
On 6 March 1992, Metrolab filed a Partial Motion for Reconsideration alleging that the layoff did not
aggravate the dispute since no untoward incident occurred as a result thereof. It, likewise, filed a motion for
clarification regarding the constitution of the bargaining unit covered by the CBA.
On 29 June 1992, after exhaustive negotiations, the parties entered into a new CBA. The execution,
however, was without prejudice to the outcome of the issues raised in the reconsideration and clarification
motions submitted for decision to the Secretary of Labor.[5]
Pending the resolution of the aforestated motions, on 2 October 1992, Metrolab laid off 73 of its
employees on grounds of redundancy due to lack of work which the Union again promptly opposed
on 5 October 1992.
On 15 October 1992, Labor Secretary Confesor again issued a cease and desist order. Metrolab moved
for a reconsideration.[6]
On 25 January 1993, Labor Secretary Confesor issued the assailed Omnibus Resolution containing the
following orders:
xxx xxx xxx.
1. MIIs motion for partial reconsideration of our 14 April 1992 resolution specifically that portion thereof
assailing our ruling that the layoff of the 94 employees is illegal, is hereby denied. MII is hereby ordered to pay
such employees their full backwages computed from the time of actual layoff to the time of actual recall;
2. For the parties to incorporate in their respective collective bargaining agreements the clarifications herein
contained; and
3. MIIs motion for reconsideration with respect to the consequences of the second wave of layoff affecting 73
employees, to the extent of assailing our ruling that such layoff tended to exacerbate the dispute, is hereby
denied. But inasmuch as the legality of the layoff was not submitted for our resolution and no evidence had
been adduced upon which a categorical finding thereon can be based, the same is hereby referred to the
NLRC for its appropriate action.
Finally, all prohibitory injunctions issued as a result of our assumption of jurisdiction over this dispute are
hereby lifted.
SO RESOLVED.[7]
Labor Secretary Confesor also ruled that executive secretaries are excluded from the closed-shop
provision of the CBA, not from the bargaining unit.
On 4 February 1993, the Union filed a motion for execution. Metrolab opposed. Hence, the present
petition for certiorari with application for issuance of a Temporary Restraining Order.
On 4 March 1993, we issued a Temporary Restraining Order enjoining the Secretary of Labor from
enforcing and implementing the assailed Resolution and Omnibus Resolution dated 14 April 1992 and 25
January 1993, respectively.

In its petition, Metrolab assigns the following errors:

A
THE PUBLIC RESPONDENT HON. SECRETARY OF LABOR AND EMPLOYMENT COMMITTED GRAVE
ABUSE OF DISCRETION AND EXCEEDED HER JURISDICTION IN DECLARING THE TEMPORARY
LAYOFF ILLEGAL AND ORDERING THE REINSTATEMENT AND PAYMENT OF BACKWAGES TO THE
AFFECTED EMPLOYEES.*
B
THE PUBLIC RESPONDENT HON. SECRETARY OF LABOR AND EMPLOYMENT GRAVELY ABUSED HER
DISCRETION IN INCLUDING EXECUTIVE SECRETARIES AS PART OF THE BARGAINING UNIT OF RANK
AND FILE EMPLOYEES.[8]
Anent the first issue, we are asked to determine whether or not public respondent Labor Secretary
committed grave abuse of discretion and exceeded her jurisdiction in declaring the subject layoffs instituted by
Metrolab illegal on grounds that these unilateral actions aggravated the conflict between Metrolab and the
Union who were, then, locked in a stalemate in CBA negotiations.
Metrolab argues that the Labor Secretarys order enjoining the parties from committing any act that might
exacerbate the dispute is overly broad, sweeping and vague and should not be used to curtail the employers
right to manage his business and ensure its viability.
We cannot give credence to Metrolabs contention.
This Court recognizes the exercise of management prerogatives and often declines to interfere with the
legitimate business decisions of the employer. However, this privilege is not absolute but subject to limitations
imposed by law.[9]
In PAL v. NLRC,[10] we issued this reminder:
xxx xxx xxx
. . .the exercise of management prerogatives was never considered boundless. Thus, in Cruz vs.
Medina ( 177 SCRA 565 [1989]), it was held that managements prerogatives must be without abuse of
discretion....
xxx xxx xxx
All this points to the conclusion that the exercise of managerial prerogatives is not unlimited. It is
circumscribed by limitations found in law, a collective bargaining agreement, or the general principles of fair
play and justice (University of Sto. Tomas v. NLRC, 190 SCRA 758 [1990]). . . . (Italics ours.)
xxx xxx xxx.
The case at bench constitutes one of the exceptions. The Secretary of Labor is expressly given the power
under the Labor Code to assume jurisdiction and resolve labor disputes involving industries indispensable to
national interest. The disputed injunction is subsumed under this special grant of authority. Art. 263 (g) of the
Labor Code specifically provides that:
xxx xxx xxx

(g) When, in his opinion, there exists a labor dispute causing or likely to cause a strike or lockout in an
industry indispensable to the national interest, the Secretary of Labor and Employment may assume
jurisdiction over the dispute and decide it or certify the same to the Commission for compulsory arbitration.
Such assumption or certification shall have the effect of automatically enjoining the intended or impending
strike or lockout as specified in the assumption or certification order. If one has already taken place at the time
of assumption or certification, all striking or locked out employees shall immediately return to work and the
employer shall immediately resume operations and readmit all workers under the same terms and conditions
prevailing before the strike or lockout. The Secretary of Labor and Employment or the Commission may seek
the assistance of law enforcement agencies to ensure compliance with this provision as well as with such
orders as he may issue to enforce the same. . . (Italics ours.)
xxx xxx xxx.
That Metrolabs business is of national interest is not disputed. Metrolab is one of the leading
manufacturers and suppliers of medical and pharmaceutical products to the country.
Metro labs management prerogatives, therefore, are not being unjustly curtailed but duly balanced with
and tempered by the limitations set by law, taking into account its special character and the particular
circumstances in the case at bench.
As aptly declared by public respondent Secretary of Labor in its assailed resolution:
xxx xxx xxx.
MII is right to the extent that as a rule, we may not interfere with the legitimate exercise of management
prerogatives such as layoffs. But it may nevertheless be appropriate to mention here that one of the
substantive evils which Article 263 (g) of the Labor Code seeks to curb is the exacerbation of a labor dispute
to the further detriment of the national interest. When a labor dispute has in fact occurred and a general
injunction has been issued restraining the commission of disruptive acts, management prerogatives must
always be exercised consistently with the statutory objective. [11]
xxx xxx xxx.
Metrolab insists that the subject layoffs did not exacerbate their dispute with the Union since no untoward
incident occurred after the layoffs were implemented. There were no work disruptions or stoppages and no
mass actions were threatened or undertaken. Instead, petitioner asserts, the affected employees calmly
accepted their fate as this was a matter which they had been previously advised would be inevitable. [12]
After a judicious review of the record, we find no compelling reason to overturn the findings of the
Secretary of Labor.
We reaffirm the doctrine that considering their expertise in their respective fields, factual findings of
administrative agencies supported by substantial evidence are accorded great respect and binds this Court. [13]
The Secretary of Labor ruled, thus:
xxx xxx xxx.
Any act committed during the pendency of the dispute that tends to give rise to further contentious issues or
increase the tensions between the parties should be considered an act of exacerbation. One must look at the
act itself, not on speculative reactions. A misplaced recourse is not needed to prove that a dispute has been
exacerbated. For instance, the Union could not be expected to file another notice of strike. For this would
depart from its theory of the case that the layoff is subsumed under the instant dispute, for which a notice of
strike had already been filed. On the other hand, to expect violent reactions, unruly behavior, and any other

chaotic or drastic action from the Union is to expect it to commit acts disruptive of public order or acts that
may be illegal. Under a regime of laws, legal remedies take the place of violent ones. [14]
xxx xxx xxx.
Protest against the subject layoffs need not be in the form of violent action or any other drastic measure. In
the instant case the Union registered their dissent by swiftly filing a motion for a cease and desist
order. Contrary to petitioners allegations, the Union strongly condemned the layoffs and threatened mass
action if the Secretary of Labor fails to timely intervene:
xxx xxx xxx.
3. This unilateral action of management is a blatant violation of the injunction of this Office against committing
acts which would exacerbate the dispute. Unless such act is enjoined the Union will be compelled to resort to
its legal right to mass actions and concerted activities to protest and stop the said management action. This
mass layoff is clearly one which would result in a very serious labor dispute unless this Office swiftly
intervenes.[15]
xxx xxx xxx.
Metrolab and the Union were still in the process of resolving their CBA deadlock when petitioner
implemented the subject layoffs. As a result, motions and oppositions were filed diverting the parties attention,
delaying resolution of the bargaining deadlock and postponing the signing of their new CBA, thereby
aggravating the whole conflict.
We, likewise, find untenable Metrolabs contention that the layoff of the 94 rank-and-file employees was
temporary, despite the recall of some of the laid off workers.
If Metrolab intended the layoff of the 94 workers to be temporary, it should have plainly stated so in the
notices it sent to the affected employees and the Department of Labor and Employment. Consider the tenor of
the pertinent portions of the layoff notice to the affected employees:
xxx xxx xxx.
Dahil sa mga bagay na ito, napilitan ang ating kumpanya na magsagawa ng lay-off ng mga empleyado sa
Rank & File dahil nabawasan ang trabaho at puwesto para sa kanila. Marami sa atin ang kasama sa layoff dahil wala nang trabaho para sa kanila. Mahirap tanggapin ang mga bagay na ito subalit kailangan nating
gawin dahil hindi kaya ng kumpanya ang magbayad ng suweldo kung ang empleyado ay walang
trabaho. Kung tayo ay patuloy na magbabayad ng suweldo, mas hihina ang ating kumpanya at mas marami
ang maaring maapektuhan.
Sa pagpapatupad ng lay-off susundin natin ang LAST IN-FIRST OUT policy. Ang mga empleyadong may
pinakamaikling serbisyo sa kumpanya ang unang maaapektuhan. Ito ay batay na rin sa nakasaad sa ating
CBA na ang mga huling pumasok sa kumpanya ang unang masasama sa lay-off kapag nagkaroon ng
ganitong mga kalagayan.
Ang mga empleyado na kasama sa lay-off ay nakalista sa sulat na ito. Ang umpisa ng lay-off ay sa Lunes,
Enero 27. Hindi na muna sila papasok sa kumpanya. Makukuha nila ang suweldo nila sa Enero 30, 1992.
Hindi po natin matitiyak kung gaano katagal ang lay-off ngunit ang aming tingin ay matatagalan bago
magkaroon ng dagdag na trabaho. Dahil dito, sinimulan na namin ang isang Redundancy Program sa mga
supervisors. Nabawasan ang mga puwesto para sa kanila, kaya sila ay mawawalan ng trabaho at bibigyan na
ng redundancy pay.[16] (Italics ours.)

xxx xxx xxx.

We agree with the ruling of the Secretary of Labor, thus:
xxx xxx xxx.
. . .MII insists that the layoff in question is temporary not permanent. It then cites International Hardware, Inc.
vs. NLRC, 176 SCRA 256, in which the Supreme Court held that the 30-day notice required under Article 283
of the Labor Code need not be complied with if the employer has no intention to permanently severe (sic) the
employment relationship.
We are not convinced by this argument. International Hardware involves a case where there had been a
reduction of workload. Precisely to avoid laying off the employees, the employer therein opted to give them
work on a rotating basis. Though on a limited scale, work was available. This was the Supreme Courts basis
for holding that there was no intention to permanently severe (sic) the employment relationship.
Here, there is no circumstance at all from which we can infer an intention from MII not to sever the
employment relationship permanently. If there was such an intention, MII could have made it very clear in the
notices of layoff. But as it were, the notices are couched in a language so uncertain that the only conclusion
possible is the permanent termination, not the continuation, of the employment relationship.
MII also seeks to excuse itself from compliance with the 30-day notice with a tautology. While insisting that
there is really no best time to announce a bad news, (sic) it also claims that it broke the bad news only on 27
January 1992 because had it complied with the 30-day notice, it could have broken the bad news on 02
January 1992, the first working day of the year. If there is really no best time to announce a bad news (sic), it
wouldnt have mattered if the same was announced at the first working day of the year. That way, MII could
have at least complied with the requirement of the law.[17]
The second issue raised by petitioner merits our consideration.
In the assailed Omnibus Resolution, Labor Secretary Confesor clarified the CBA provisions on closedshop and the scope of the bargaining unit in this wise:
xxx xxx xxx.
Appropriateness of the bargaining unit.
xxx xxx xxx.
Exclusions. In our 14 April 1992 resolution, we ruled on the issue of exclusion as follows:
These aside, we reconsider our denial of the modifications which the Union proposes to introduce on the
close shop provision. While we note that the provision as presently worded has served the relationship of the
parties well under previous CBAs, the shift in constitutional policy toward expanding the right of all workers to
self-organization should now be formally recognized by the parties, subject to the following exclusions only:
1. Managerial employees; and
2. The executive secretaries of the President, Executive Vice-President, Vice-President, Vice President for
Sales, Personnel Manager, and Director for Corporate Planning who may have access to vital labor relations
information or who may otherwise act in a confidential capacity to persons who determine or formulate
management policies.

The provisions of Article I (b) and Attachment I of the 1988-1990 CBA shall thus be modified consistently with
the foregoing.
Article I (b) of the 1988-1990 CBA provides:
b)Close Shop. - All Qualified Employees must join the Association immediately upon regularization as a
condition for continued employment. This provision shall not apply to: (i) managerial employees who are
excluded from the scope of the bargaining unit; (ii) the auditors and executive secretaries of senior executive
officers, such as, the President, Executive Vice-President, Vice-President for Finance, Head of Legal, VicePresident for Sales, who are excluded from membership in the Association; and (iii) those employees who are
referred to in Attachment I hereof, subject, however, to the application of the provision of Article II, par. (b)
hereof. Consequently, the above-specified employees are not required to join the Association as a condition
for their continued employment.
On the other hand, Attachment I provides:
Exclusion from the Scope of the Close Shop Provision
The following positions in the Bargaining Unit are not covered by the Close Shop provision of the CBA
(Article I, par. b):
1. Executive Secretaries of Vice-Presidents, or equivalent positions.
2. Executive Secretary of the Personnel Manager, or equivalent positions.
3. Executive Secretary of the Director for Corporate Planning, or equivalent positions.
4. Some personnel in the Personnel Department, EDP Staff at Head Office, Payroll Staff at Head Office,
Accounting Department at Head Office, and Budget Staff, who because of the nature of their duties and
responsibilities need not join the Association as a condition for their employment.
5. Newly-hired secretaries of Branch Managers and Regional Managers.
Both MDD and MII read the exclusion of managerial employees and executive secretaries in our 14 April
1992 resolution as exclusion from the bargaining unit. They point out that managerial employees are lumped
under one classification with executive secretaries, so that since the former are excluded from the bargaining
unit, so must the latter be likewise excluded.
This reading is obviously contrary to the intent of our 14 April 1992 resolution. By recognizing the
expanded scope of the right to self-organization, our intent was to delimit the types of employees excluded
from the close shop provision, not from the bargaining unit, to executive secretaries only. Otherwise, the
conversion of the exclusionary provision to one that refers to the bargaining unit from one that merely refers to
the close shop provision would effectively curtail all the organizational rights of executive secretaries.
The exclusion of managerial employees, in accordance with law, must therefore still carry the qualifying
phrase from the bargaining unit in Article I (b)(i) of the 1988-1990 CBA. In the same manner, the exclusion of
executive secretaries should be read together with the qualifying phrase are excluded from membership in the
Association of the same Article and with the heading of Attachment I. The latter refers to Exclusions from
Scope of Close Shop Provision and provides that [t]he following positions in Bargaining Unit are not covered
by the close shop provision of the CBA.
The issue of exclusion has different dimension in the case of MII. In an earlier motion for clarification, MII
points out that it has done away with the positions of Executive Vice-President, Vice-President for Sales, and
Director for Corporate Planning. Thus, the foregoing group of exclusions is no longer appropriate in its present

organizational structure. Nevertheless, there remain MII officer positions for which there may be executive
secretaries. These include the General Manager and members of the Management Committee, specifically i)
the Quality Assurance Manager; ii) the Product Development Manager; iii) the Finance Director; iv) the
Management System Manager; v) the Human Resources Manager; vi) the Marketing Director; vii) the
Engineering Manager; viii) the Materials Manager; and ix) the Production Manager.
xxx xxx xxx
The basis for the questioned exclusions, it should be noted, is no other than the previous CBA between
MII and the Union. If MII had undergone an organizational restructuring since then, this is a fact to which we
have never been made privy. In any event, had this been otherwise the result would have been the same. To
repeat, we limited the exclusions to recognize the expanded scope of the right to self-organization as
embodied in the Constitution.[18]
Metrolab, however, maintains that executive secretaries of the General Manager and the executive
secretaries of the Quality Assurance Manager, Product Development Manager, Finance Director,
Management System Manager, Human Resources Manager, Marketing Director, Engineering Manager,
Materials Manager and Production Manager, who are all members of the companys Management Committee
should not only be exempted from the closed-shop provision but should be excluded from membership in the
bargaining unit of the rank and file employees as well on grounds that their executive secretaries are
confidential employees, having access to vital labor information. [19]
We concur with Metrolab.
Although Article 245 of the Labor Code [20] limits the ineligibility to join, form and assist any labor
organization to managerial employees, jurisprudence has extended this prohibition to confidential employees
or those who by reason of their positions or nature of work are required to assist or act in a fiduciary manner
to managerial employees and hence, are likewise privy to sensitive and highly confidential records.
The rationale behind the exclusion of confidential employees from the bargaining unit of the rank and file
employees and their disqualification to join any labor organization was succinctly discussed in Philips
Industrial Development v. NLRC:[21]
xxx xxx xxx.
On the main issue raised before Us, it is quite obvious that respondent NLRC committed grave abuse of
discretion in reversing the decision of the Executive Labor Arbiter and in decreeing that PIDIs Service
Engineers, Sales Force, division secretaries, all Staff of General Management, Personnel and Industrial
Relations Department, Secretaries of Audit, EDP and Financial Systems are included within the rank and file
bargaining unit.
In the first place, all these employees, with the exception of the service engineers and the sales force
personnel, are confidential employees. Their classification as such is not seriously disputed by PEO-FFW; the
five (5) previous CBAs between PIDI and PEO-FFW explicitly considered them as confidential employees. By
the very nature of their functions, they assist and act in a confidential capacity to, or have access to
confidential matters of, persons who exercise managerial functions in the field of labor relations. As such, the
rationale behind the ineligibility of managerial employees to form, assist or join a labor union equally applies to
them.
In Bulletin Publishing Co., Inc. vs. Hon. Augusto Sanchez, this Court elaborated on this rationale, thus:
x x x The rationale for this inhibition has been stated to be, because if these managerial employees would
belong to or be affiliated with a Union, the latter might not be assured of their loyalty to the Union in view of

evident conflict of interests. The Union can also become company-dominated with the presence of managerial
employees in Union membership.
In Golden Farms, Inc. vs. Ferrer-Calleja, this Court explicitly made this rationale applicable to confidential
employees:
This rationale holds true also for confidential employees such as accounting personnel, radio and telegraph
operators, who having access to confidential information, may become the source of undue advantage. Said
employee(s) may act as a spy or spies of either party to a collective bargaining agreement. This is specially
true in the present case where the petitioning Union is already the bargaining agent of the rank-and-file
employees in the establishment. To allow the confidential employees to join the existing Union of the rankand-file would be in violation of the terms of the Collective Bargaining Agreement wherein this kind of
employees by the nature of their functions/positions are expressly excluded.
xxx xxx xxx.
Similarly, in National Association of Trade Union - Republic Planters Bank Supervisors Chapter v.
Torres[22] we declared:
xxx xxx xxx.
. . . As regards the other claim of respondent Bank that Branch Managers/OICs, Cashiers and Controllers are
confidential employees, having control, custody and/ or access to confidential matters, e.g., the branchs cash
position, statements of financial condition, vault combination, cash codes for telegraphic transfers, demand
drafts and other negotiable instruments, pursuant to Sec. 1166.4 of the Central Bank Manual regarding joint
custody, this claim is not even disputed by petitioner. A confidential employee is one entrusted with confidence
on delicate matters, or with the custody, handling, or care and protection of the employers property. While Art.
245 of the Labor Code singles out managerial employees as ineligible to join, assist or form any labor
organization, under the doctrine of necessary, implication, confidential employees are similarly
disqualified. . . .
xxx xxx xxx.
. . .(I)n the collective bargaining process, managerial employees are supposed to be on the side of the
employer, to act as its representatives, and to see to it that its interest are well protected. The employer is not
assured of such protection if these employees themselves are union members. Collective bargaining in such
a situation can become one-sided. It is the same reason that impelled this Court to consider the position of
confidential employees as included in the disqualification found in Art. 245 as if the disqualification of
confidential employees were written in the provision. If confidential employees could unionize in order to
bargain for advantages for themselves, then they could be governed by their own motives rather than the
interest of the employers. Moreover, unionization of confidential employees for the purpose of collective
bargaining would mean the extension of the law to persons or individuals who are supposed to act in the
interest of the employers. It is not farfetched that in the course of collective bargaining, they might jeopardize
that interest which they are duty-bound to protect. . . .
xxx xxx xxx.
And in the latest case of Pier 8 Arrastre & Stevedoring Services, Inc. vs. Roldan-Confesor, [23] we ruled
that:
xxx xxx xxx.

Upon the other hand, legal secretaries are neither managers nor supervisors. Their work is basically routinary
and clerical. However, they should be differentiated from rank-and-file employees because they are tasked
with, among others, the typing of legal documents, memoranda and correspondence, the keeping of records
and files, the giving of and receiving notices, and such other duties as required by the legal personnel of the
corporation. Legal secretaries therefore fall under the category of confidential employees. . . .
xxx xxx xxx.
We thus hold that public respondent acted with grave abuse of discretion in not excluding the four foremen
and legal secretary from the bargaining unit composed of rank-and-file employees.
xxx xxx xxx.
In the case at bench, the Union does not disagree with petitioner that the executive secretaries are
confidential employees. It however, makes the following contentions:
xxx xxx xxx.
There would be no danger of company domination of the Union since the confidential employees would not be
members of and would not participate in the decision making processes of the Union.
Neither would there be a danger of espionage since the confidential employees would not have any conflict of
interest, not being members of the Union. In any case, there is always the danger that any employee would
leak management secrets to the Union out of sympathy for his fellow rank and filer even if he were not a
member of the union nor the bargaining unit.
Confidential employees are rank and file employees and they, like all the other rank and file employees,
should be granted the benefits of the Collective Bargaining Agreement. There is no valid basis for
discriminating against them. The mandate of the Constitution and the Labor Code, primarily of protection to
Labor, compels such conclusion.[24]
xxx xxx xxx.
The Unions assurances fail to convince. The dangers sought to be prevented, particularly the threat of
conflict of interest and espionage, are not eliminated by non-membership of Metrolabs executive secretaries
or confidential employees in the Union. Forming part of the bargaining unit, the executive secretaries stand to
benefit from any agreement executed between the Union and Metrolab. Such a scenario, thus, gives rise to a
potential conflict between personal interests and their duty as confidential employees to act for and in behalf
of Metrolab. They do not have to be union members to affect or influence either side.
Finally, confidential employees cannot be classified as rank and file. As previously discussed, the nature
of employment of confidential employees is quite distinct from the rank and file, thus, warranting a separate
category. Excluding confidential employees from the rank and file bargaining unit, therefore, is not tantamount
to discrimination.
WHEREFORE, premises considered, the petition is partially GRANTED. The resolutions of public
respondent Secretary of Labor dated 14 April 1992 and 25 January 1993 are hereby MODIFIED to the extent
that executive secretaries of petitioner Metrolabs General Manager and the executive secretaries of the
members of its Management Committee are excluded from the bargaining unit of petitioners rank and file
employees.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 89920 October 18, 1990
UNIVERSITY OF STO. TOMAS, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, UST FACULTY UNION, respondents.
Abad, Leao & Associates for petitioner.
Eduardo J. Mario, Jr. for private respondent.

GUTIERREZ, JR., J.:

May a university, pending resolution by the National Labor Relations Commission (NLRC) of its labor dispute
with its union, comply with a readmission order by granting substantially equivalent academic assignments, in
lieu of actual reinstatement, to dismissed faculty members?
On June 19, 1989, the University of Sto. Tomas (UST), through its Board of Trustees, terminated the
employment of all sixteen union officers and directors of respondent UST Faculty Union on the ground that "in
publishing or causing to be published in Strike Bulletin No. 5 dated August 4, 1987, the libelous and
defamatory attacks against the Father Rector, (each of them) has committed the offenses of grave
misconduct, serious disrespect to a superior and conduct unbecoming a faculty member." (Rollo p. 41)
As a result of the dismissal of said employees, some faculty members staged mass leaves of absence on
June 28, 1989 and several days thereafter, disrupting classes in all levels at the University. (Rollo, pp. 53, 92)
On July 5, 1989, the faculty union filed a complaint for illegal dismissal and unfair labor practice with the
Department of Labor and Employment. (Rollo, p. 42)
On July 7, 1989, the labor arbiter, on a prima facie showing that the termination was causing a serious labor
dispute, certified the matter to the Secretary of Labor and Employment for a possible suspension of the
effects of termination. (Rollo, p. 51)
Secretary Franklin Drilon subsequently issued an order dated July 11, 1989, the decretal portion of which
reads as follows:
WHEREFORE, ABOVE PREMISES CONSIDERED, and in the interest of industrial peace and
pursuant to Section 33 (b) of RA 6715, the effects of the termination of Ma. Melvyn Alamis,
Eduardo Marino, Jr., Urbano Agalabia, Anthony Cura, Norma Collantes, Fulvio Guerrero, Corinta
Barranco, Porfirio Jose Guico, Lily Matias, Rene Sison, Henedino Brondial, Myrna Hilario,
Ronaldo Asuncion, Nilda Redoblado, Zenaida Burgos, and Milagros Nino are hereby suspended
and management is likewise ordered to accept them back to work under the same terms and
conditions prevailing prior to their dismissal.

In furtherance of this Order, all faculty members are directed to immediately report back for work
and for management to accept them back under the same terms and conditions prevailing prior
to the strike.
Labor Arbiter Nieves de Castro is hereby directed to proceed with the case pending before her
and to expedite the resolution of the same.
Pending resolution, the parties are directed to cease and desist, from committing any and all
acts that might exacerbate the situation. (Rollo, p. 54)
Petitioner UST filed a motion for reconsideration on July 12, 1989 asking the Secretary of Labor and
Employment to either assume jurisdiction over the present case or certify it to the National Labor Relations
Commission (NLRC) for compulsory arbitration without suspending the effects of the termination of the 16
dismissed faculty members. (Rollo, pp. 55-64)
On July 18, 1989, Secretary Drilon, acting on said motion for reconsideration, issued another order modifying
his previous order. The dispositive portion of the new order is quoted below:
WHEREFORE, ABOVE PREMISES CONSIDERED, the Order dated 11 July 1989 is hereby
modified. Accordingly, this Office hereby certifies the labor dispute to the National Labor
Relations Commission for compulsory arbitration pursuant to Article 263(g) of the Labor Code,
as amended by Section 27 of RA 6715.
In accordance with the above, the University of Santo Tomas is hereby ordered to readmit all its
faculty members, including the sixteen (16) union officials, under the same terms and conditions
prevailing prior to the present dispute.
The NLRC is hereby instructed to immediately call the parties and expedite the resolution of the
dispute.
The directive to the parties to cease and desist from committing any act that will aggravate the
situation is hereby reiterated. (Rollo, p. 81)
The petitioner filed a motion for clarification dated July 20, 1989 which was subsequently withdrawn. (Rollo, p.
94)
On July 27, 1989, Secretary Drilon issued another order that contained the following dispositive portion:
WHEREFORE, ABOVE PREMISES CONSIDERED, the Order dated 18 July 1989 directing the
readmission of all faculty members, including the 16 union officials, under the same terms and
conditions prevailing prior to the instant dispute is hereby affirmed.
The NLRC is hereby ordered to immediately call the parties and ensure the implementation of
this Order.
No further motion of this and any nature shall be entertained. (Rollo, p. 103)
The NLRC subsequently caned the parties to a conference on August 11, 1989 before its Labor Arbiter
Romeo Go. (Rollo, p. 9)
On August 14, 1989, the respondent union filed before the NLRC a motion to implement the orders of the
Honorable Secretary of Labor and Employment dated July 11, 18 and 27, 1989 and to cite Atty. Joselito
Guianan Chan (the petitioner's in-house counsel) for contempt. (Rollo, p. 104) The petitioner, on August 25,
1989, filed its opposition to the private respondent's motion. (Rollo, p. 112)

On September 6, 1989, the NLRC issued a resolution, which is the subject of this petition for certiorari, set
forth below:
Certified Case No. 0531 IN RE: LABOR DISPUTE at the University of Santo Tomas. Acting
on the Motion to Implement the Orders of the Honorable Secretary of Labor and Employment
dated July 11, 18, and 27, 1989 and to cite Joselito Guianan Chan for Contempt dated August
14, 1989 and the Urgent Ex-parte Motion to Implement Certification Orders of the Honorable
Secretary of Labor and Employment dated July 18 and 17, (Sic) 1989 and the subsequent
Manifestation dated September 4, 1989, all filed by the UST Faculty Union; and considering the
Opposition to Union's Motion to Cite Atty. Joselito Guianan Chan for Contempt and Comments
on its Motion to Implement the Orders of the Honorable Secretary of Labor and Employment
dated July 11, 18 and 27, 1989 filed on August 25, 1989 by UST through its counsel, the
Commission, after deliberation, resolved, to wit:
a) The University is hereby directed to comply and faithfully abide with the July 11, 18 and 27,
1989 Orders of the Secretary of Labor and Employment by immediately reinstating or
readmitting the following faculty members under the same terms and conditions prevailing prior
to the present dispute or merely reinstate them in the payroll:
a) Ronaldo Asuncion
b) Lily Matias
c) Nilda Redoblado
d) Zenaida Burgos
e) Eduardo Marino, Jr.
f) Milagros Nino
g) Porfirio Guico
b) To fully reinstate, by giving him additional units or through payroll reinstatement, Prof. Urbano
Agalabia who was assigned only six (6) units;
c) To fully reinstate or reinstate through payroll, Prof. Fulvio Guerrero, who was assigned only
three (3) units;
d) The University is directed to pay the above-mentioned faculty members full backwages
starting from July 13, 1989, the date the faculty members presented themselves for
reinstatement up to the date of actual reinstatement or payroll reinstatement.
e) The payroll reinstatement of the above-named faculty members is hereby allowed only up to
the end of the First semester 1989; Next semester, the University is directed to actually reinstate
the faculty members by giving them their normal teaching loads;
f) The University is directed to cease and desist from offering the aforementioned faculty
members substantially equivalent academic assignments as this is not compliance in good faith
with the Orders of the Secretary of Labor and Employment. (Rollo, pp. 30-31)
Acting on an urgent motion for the issuance of a writ of preliminary injunction and/or restraining order, the
Court resolved to issue a temporary restraining order dated October 25, 1989 enjoining respondents from
enforcing or executing the assailed NLRC resolution. (Rollo, p. 160)

The petitioner assigns the following errors:

I
THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION (NLRC) GRAVELY ABUSED ITS
DISCRETION IN A MANNER AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ISSUED
THE ASSAILED RESOLUTION WHICH ORDERS THE ALTERNATIVE REMEDIES OF ACTUAL
REINSTATEMENT OR PAYROLL REINSTATEMENT OF THE DISMISSED FACULTY MEMBERS.
II
THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION GRAVELY ABUSED ITS DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DIRECTED THE UNIVERSITY TO PAY
SOME OF THE DISMISSED FACULTY MEMBERS ASSIGNED TO HANDLE SUBSTANTIALLY
EQUIVALENT ACADEMIC ASSIGNMENTS, 'FULL BACKWAGES STARTING FROM JULY 13, 1989, THE
DATE THE FACULTY MEMBERS PRESENTED THEMSELVES FOR REINSTATEMENT UP TO THE DATE
OF ACTUAL REINSTATEMENT OR PAYROLL REINSTATEMENT.
III
THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNT ING TO LACK OR EXCESS OF JURISDICTION WHEN IT CONSIDERED AS 'NOT
COMPLIANCE IN GOOD FAITH WITH THE ORDERS OF THE SECRETARY OF LABOR AND
EMPLOYMENT' THE UNIVERSITY'S ACT OF GRANTING TO SOME OF THE DISMISSED FACULTY
MEMBERS, SUBSTANTIALLY EQUIVALENT ACADEMIC ASSIGNMENTS.
IV
THE HONORABLE NLRC GRAVELY ABUSED ITS DISCRETION WHEN IT ARROGATED UPON ITSELF
THE EXERCISE OF THE RIGHT AND PREROGATIVES REPOSED BY LAW TO THE PETITIONER
UNIVERSITY IN THE LATTER'S CAPACITY AS EMPLOYER. (Rollo, pp. 9-10)
We shall deal with the first and third assignment of errors jointly because they are interrelated.
The petitioner states in its petition that: a) It has already actually reinstated six of the dismissed faculty
members, namely: Professors Alamis, Collantes, Hilario, Barranco, Brondial and Cura; b) As to Professors
Agalabia and Guerrero, whose teaching assignments were partially taken over by new faculty members, they
were given back their remaining teaching loads (not taken by new faculty members) but were likewise given
substantially equivalent academic assignments corresponding to their teachings loads already taken over by
new faculty members; c) The remaining seven faculty members, to wit: Professors Asuncion, Marino Jr.,
Matias, Redoblado, Burgos, Nino and Guico, were given substantially equivalent academic assignments in
lieu of actual teaching loads because all of their teaching loads originally assigned to them at the start of the
first semester of school year 1989-1990 were already taken over by new faculty members; d) One dismissed
faculty member Rene Sison, had been "absent without official leave" or AWOL as early as the start of the first
semester. (Rollo, pp. 11-12).
The petitioner advances the argument that its grant of substantially equivalent academic assignments to some
of the dismissed faculty members, instead of actual reinstatement, is well-supported by just and valid reasons.
It alleges that actual reinstatement of the dismissed faculty members whose teaching assignments were
previously taken over by new faculty members is not feasible nor practicable since this would compel the
petitioner university to violate and terminate its contracts with the faculty members who were assigned to and
had actually taken over the courses. The petitioner submits that it was never the intention of the Secretary of
Labor to force it to break employment contracts considering that those ordered temporarily reinstated could

very well be accommodated with substantially equivalent academic assignments without loss in rank, pay or
privilege. Likewise, it claims that to change the faculty member when the semester is about to end would
seriously impair and prejudice the welfare and interest of the students because dislocation, confusion and loss
in momentum, if not demoralization, will surely ensue once the change in faculty is effected. (Rollo, pp. 13-14)
The petitioner also avers that the faculty members who were given substantially equivalent academic
assignments were told by their respective deans to report to the Office of Academic Affairs and Research for
their academic assignments but the said faculty members failed to comply with these instructions. (Rollo, p.
118) Thus, the petitioner postulates, mere payroll reinstatement which would give rise to the obligation of the
University to pay these faculty members, even if the latter are not working, would squarely run counter to the
principle of "No Work, No Pay". (Rollo, p. 15)
The respondent UST Faculty Union, on the other hand, decries that the petitioner is using the supposed
substantially equivalent academic assignments as a vehicle to embarrass and degrade the union leaders and
that the refusal of the petitioner to comply with the return-to-work order is calculated to deter, impede and
discourage the union leaders from pursuing their union activities. (Rollo, pp. 246, 254)
It also claims that the dismissed faculty members were hired to perform teaching functions and, indeed, they
have rendered dedicated teaching service to the University students for periods ranging from 12 to 39 years.
Hence, they maintain, their qualifications are fitted for classroom activities and the assignment to them of nonteaching duties, such as (a) book analysis; (b) syllabi-making or revising; (c) test questions construction; (d)
writing of monographs and modules for students' use in learning "hard to understand" topics on the lectures;
(e) designing modules, transparencies, charts, diagrams for students' use as learning aids; and (f) other
related assignments, is oppressive. (Rollo, pp. 243-244)
In resolving the contentions of both parties, this Court refers to Article 263 (g), first paragraph, of the Labor
Code, as amended by Section 27 of Republic Act No. 6715, which provides:
(g) When, in his opinion, there exists a labor dispute causing or likely to cause a strike or lockout
in an industry indispensable to the national interest, the Secretary of Labor and Employment
may assume jurisdiction over the dispute and decide it or certify the same to the Commission for
compulsory arbitration. Such assumption or certification shall have the effect of automatically
enjoining the intended or impending strike or lockout as specified in the assumption or
certification order. If one has already taken place at the time of assumption or certification, all
striking or locked out employees shall immediately return to work and the employer shall
immediately resume operations and readmit all workers under the same terms and conditions
prevailing before the strike or lockout. The Secretary of Labor and Employment or the
Commission may seek the assistance of law enforcement agencies to ensure compliance with
this provision as well as with such orders as he may issue to enforce the same. (Emphasis
supplied.)
It was in compliance with the above provision that Secretary Drilon issued his July 18, 1989 order to "readmit
all its faculty members, including the sixteen (16) union officials, under the same terms and conditions
prevailing prior to the present dispute." (Rollo, p. 81) And rightly so, since the labor controversy which brought
about a temporary stoppage of classes in a university populated by approximately 40,000 students affected
national interest.
After the petitioner filed a motion for clarification which, however, was subsequently withdrawn, Secretary
Drilon issued another order dated July 27, 1989 affirming his July 18 order and directing the NLRC to
immediately call the parties and "ensure the implementation of this order" (Rollo, p. 103)
The NLRC was thereby charged with the task of implementing a valid return-to-work order of the Secretary of
Labor. As the implementing body, its authority did not include the power to amend the Secretary's order. Since

the Secretary's July 18 order specifically provided that the dismissed faculty members shall be readmitted
under the same terms and conditions prevailing prior to the present dispute, the NLRC should have directed
the actual reinstatement of the concerned faculty members. It therefore erred in granting the alternative
remedy of payroll reinstatement which, as it turned, only resulted in confusion. The remedy of payroll
reinstatement is nowhere to be found in the orders of the Secretary of Labor and hence it should not have
been imposed by the public respondent NLRC. There is no showing that the facts called for this type of
alternative remedy.
For the same reason, we rule that the grant of substantially equivalent academic assignments can not be
sustained. Clearly, the giving of substantially equivalent academic assignments, without actual teaching loads,
cannot be considered a reinstatement under the same terms and conditions prevailing before the strike.
Within the context of Article 263(g), the phrase "under the same terms and conditions" contemplates actual
reinstatement or the return of actual teaching loads to the dismissed faculty members. There are academic
assignments such as the research and writing of treatises for publication or full-time laboratory work leading to
exciting discoveries which professors yearn for as badges of honor and achievement. The assignments given
to the reinstated faculty members do not fall under such desirable categories.
Article 263(g) was devised to maintain the status quo between the workers and management in a labor
dispute causing or likely to cause a strike or lockout in an industry indispensable to the national
interest, pending adjudication of the controversy. This is precisely why the Secretary of Labor, in his July 11,
1989 order, stated that "Pending resolution, the parties are directed to cease and desist from committing any
and all acts that might exacerbate the situation." (Rollo, p. 54) And in his order of July 18, he decreed that
"The directive to the parties to cease and desist from committing any act that will aggravate the situation is
hereby reiterated." (Rollo, p. 81)
The grant of substantially equivalent academic assignments of the nature assigned by the petitioner would
evidently alter the existing status quo since the temporarily reinstated teachers will not be given their usual
teaching loads. In fact, the grant thereof aggravated the present dispute since the teachers who were
assigned substantially equivalent academic assignments refused to accept and handle what they felt were
degrading or unbecoming assignments, in turn prompting the petitioner University to withhold their salaries.
(Rollo, p. 109)
We therefore hold that the public respondent NLRC did not commit grave abuse of discretion when it ruled
that the petitioner should "cease and desist from offering the aforementioned faculty members substantially
equivalent academic assignments as this is not compliance in good faith with the order of the Secretary of
Labor and Employment."
It was error for the NLRC to order the alternative remedies of payroll reinstatement or actual reinstatement.
However, the order did not amount to grave abuse of discretion. Such error is merely an error of judgment
which is not correctible by a special civil action for certiorari. The NLRC was only trying its best to work out a
satisfactory ad hoc solution to a festering and serious problem. In the light of our rulings on the impropriety of
the substantially equivalent academic assignments and the need to defer the changes of teachers until the
end of the first semester, the payroll reinstatement will actually minimize the petitioners problems in the
payment of full backwages.
As to the second assignment of error, the petitioner contends that the NLRC committed grave abuse of
discretion in awarding backwages from July 13, 1989, the date the faculty members presented themselves for
work, up to the date of actual reinstatement, arguing that the motion for reconsideration seasonably filed by
the petitioner had effectively stayed the Secretary's order dated July 11, 1989.
The petitioner's stand is unmeritorious. A return-to-work order is immediately effective and executory despite
the filing of a motion for reconsideration by the petitioner. As pointed out by the Court in Philippine Air Lines
Employees Association (PALEA) v. Philippine Air Lines, Inc. (38 SCRA 372 [1971]):

The very nature of a return-to-work order issued in a certified case lends itself to no other
construction. The certification attests to the urgency of the matter affecting as it does an industry
indispensable to the national interest. The order is issued in the exercise of the court's
compulsory power of arbitration, and therefore must be obeyed until set aside. To say that its
effectivity must wait affirmance in a motion for reconsideration is not only to emasculate it but
indeed to defeat its import, for by then the deadline fixed for the return-to-work would, in the
ordinary course, have already passed and hence can no longer be affirmed insofar as the time
element is concerned.
Additionally, although the Secretary's order of July 11 was modified by the July 18 order, the return-to-work
portion of the earlier order which states that "the faculty members should be admitted under the same terms
and conditions prevailing prior to the dispute" was affirmed.
We likewise affirm the NLRC's finding that the dismissed teachers presented themselves for reinstatement on
July 13, 1989 since the factual findings of quasi-judicial agencies like the NLRC are generally accorded not
only respect but even finality if such findings are supported by substantial evidence. (Mamerto v. Inciong, 118
SCRA 265 [1982]; Baby Bus, Inc. v. Minister of Labor, 158 SCRA 221 [1988]; Packaging Products Corporation
v. National Labor Relations Commission, 152 SCRA 210 [1987]; Talisay Employees' and Laborers Association
(TELA) v. Court of Industrial Relations, 143 SCRA 213 [1986]). There is no showing that such substantial
evidence is not present.
The petitioner, however, stresses that since the faculty members who were given substantially equivalent
academic assignments did not perform their assigned tasks, then they are not entitled to backwages. (Rollo,
p. 19) The petitioner is wrong. The reinstated faculty members' refusal to assume their substantially
equivalent academic assignments does not contravene the Secretary's return-to-work order. They were
merely insisting on being given actual teaching loads, on the return-to-work order being followed. We find their
persistence justified as they are rightfully and legally entitled to actual reinstatement. Since the petitioner
University failed to comply with the Secretary's order of actual reinstatement, we adjudge that the NLRC's
award of backwages until actual reinstatement is correct.
With respect to the fourth assignment of error, the petitioner expostulates that as employer, it has the sole and
exclusive right and prerogative to determine the nature and kind of work of its employees and to control and
manage its own operations. Thus, it objects to the NLRC's act of substituting its judgment for that of the
petitioner in the conduct of its affairs and operations. (Rollo, pp. 23-24)
Again, we cannot sustain the petitioner's contention. The hiring, firing, transfer, demotion and promotion of
employees are traditionally Identified as management prerogatives. However, these are not absolute
prerogatives. They are subject to limitations found in law, a collective bargaining agreement, or general
principles of fair play and justice. (Abbott Laboratories [Phil.] Inc. v. NLRC, 154 SCRA 713 [1987])
Article 263(g) is one such limitation provided by law. To the extent that Art. 263(g) calls for the admission of all
workers under the same terms and conditions prevailing before the strike, the petitioner University is restricted
from exercising its generally unbounded right to transfer or reassign its employees. The public respondent
NLRC is not substituting its own judgment for that of the petitioner in the conduct of its own affairs and
operations; it is merely complying with the mandate of the law.
The petitioner manifests the fear that if the temporarily reinstated faculty members will be allowed to handle
actual teaching assignments in the classroom, the latter would take advantage of the situation by making the
classroom the forum not for the purpose of imparting knowledge to the students but for the purpose of
assailing and lambasting the administration. (Rollo, p. 330) There may be a basis for such a fear. We can
even state that such concern is not entirely unfounded nor farfetched. However, such a fear is speculative and
does not warrant a deviation from the principle that the dismissed faculty members must be actually reinstated
pending resolution of the labor dispute. Unpleasant situations are sometimes aftermaths of bitter labor

disputes. It is the function of Government to fairly apply the law and thereby minimize the dispute's harmful
effects. It is in this light that the return to work order should be viewed and obeyed.
One thing has not escaped this Court's attention. Professors Alamis, Cura, Collantes, Barranco, Brondial and
Hilario were already reinstated by the petitioner in compliance with the Secretary's return-to-work order.
Knowing this to be a fact, the NLRC, in its assailed resolution, dealt only with the fate of the remaining faculty
members who were given substantially equivalent academic assignments. The names of the aforementioned
faculty members appear nowhere in the disputed NLRC order. Inasmuch as these faculty members actually
reinstated were not covered by the NLRC resolution, then it follows that they were likewise not covered by the
Court's temporary restraining order enjoining respondents from enforcing or executing the NLRC resolution.
The effects of the temporary restraining order did not extend to them. Yet, after the Court issued the
temporary restraining order, the petitioner lost no time in recalling their actual teaching assignments and
giving them, together with the rest of the dismissed faculty members, substantially equivalent academic
assignments.
The petitioner's dogmatic insistence in issuing substantially equivalent academic assignments stems from the
fact that the teaching loads of the dismissed professors have already been assigned to other faculty
members. It wants us to accept this remedy as one resorted to in good faith. And yet, the petitioner's
employment of the temporary restraining order as a pretext to enable it to substitute substantially equivalent
academic assignmentseven for those who were earlier already reinstated to their actual teaching loads runs
counter to the dictates of fair play.
With respect to the private respondent's allegation of union busting by the petitioner, we do not at this time
pass upon this issue. Its determination falls within the competence of the NLRC, as compulsory arbitrator,
before whom the labor dispute is under consideration. We are merely called upon to decide the propriety of
the petitioner University's grant of substantially equivalent academic assignments pending resolution of the
complaint for unfair labor pratice and illegal dismissal filed by the private respondent.
Although we pronounce that the dismissed faculty members must be actually reinstated while the labor
dispute is being resolved, we have to take into account the fact that at this time, the first semester for
schoolyear 1990-1991 is about to end. To change the faculty members around the time of final examinations
would adversely affect and prejudice the students whose welfare and interest we consider to be of primordial
importance and for whom both the University and the faculty union must subordinate their claims and desires.
This Court therefore resolves that the actual reinstatement of the non-reinstated faculty members, pending
resolution of the labor controversy before the NLRC, may take effect at the start of the second semester of the
schoolyear 1990-1991 but not later. With this arrangement, the petitioner's reasoning that it will be violating
contracts with the faculty members who took over the dismissed professors' teaching loads becomes moot
considering that, as it alleges in its petition, it operates on a semestral basis.
Under the principle that no appointments can be made to fill items which are not yet lawfully vacant, the
contracts of new professors cannot prevail over the right to reinstatement of the dismissed personnel.
However, we apply equitable principles for the sake of the students and order actual reinstatement at the start
of the second semester.
WHEREFORE, the petition is hereby DISMISSED. However, the NLRC resolution dated September 6, 1989 is
MODIFIED and the petitioner University of Sto. Tomas is directed to temporarily reinstate, pending and
without prejudice to the outcome of the labor dispute before the National Labor Relations Commission, the
sixteen (16) dismissed faculty members to their actual teaching assignments, at the start of the second
semester of the schoolyear 1990-1991. Prior to their temporary reinstatement to their actual teaching loads,
the said faculty members shall be entitled to fall wages, backwages, and other benefits. The Temporary
Restraining Order dated October 25, 1989 is hereby LIFTED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-12582

January 28, 1961

LVN PICTURES, INC., petitioner-appellant,

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

January 28, 1961

SAMPAGUITA PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-appellees.
Nicanor S. Sison for petitioner-appellant.
Jaime E. Ilagan for respondent-appellee Court of Agrarian Relations.
Gerardo P. Cabo Chan for respondent-appellee Philippine Musicians Guild.
CONCEPCION, J.:
Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review by certiorari of an order of
the Court of Industrial Relations in Case No. 306-MC thereof, certifying the Philippine Musicians Guild (FFW),
petitioner therein and respondent herein, as the sole and exclusive bargaining agency of all musicians
working with said companies, as well as with the Premiere Productions, Inc., which has not appealed. The
appeal of LVN Pictures, Inc., has been docketed as G.R. No. L-12582, whereas G.R. No. L-12598 is the
appeal of Sampaguita Pictures, Inc. Involving as they do the same order, the two cases have been jointly
heard in this Court, and will similarly be disposed of.
In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter referred to as the Guild,
averred that it is a duly registered legitimate labor organization; that LVN Pictures, Inc., Sampaguita Pictures,
Inc., and Premiere Productions, Inc. are corporations, duly organized under the Philippine laws, engaged in
the making of motion pictures and in the processing and distribution thereof; that said companies employ
musicians for the purpose of making music recordings for title music, background music, musical numbers,
finale music and other incidental music, without which a motion picture is incomplete; that ninety-five (95%)
percent of all the musicians playing for the musical recordings of said companies are members of the Guild;
and that the same has no knowledge of the existence of any other legitimate labor organization representing
musicians in said companies. Premised upon these allegations, the Guild prayed that it be certified as the
sole and exclusive bargaining agency for all musicians working in the aforementioned companies. In their
respective answers, the latter denied that they have any musicians as employees, and alleged that the
musical numbers in the filing of the companies are furnished by independent contractors. The lower court,
however, rejected this pretense and sustained the theory of the Guild, with the result already adverted to. A
reconsideration of the order complained of having been denied by the Court en banc, LVN Pictures, inc., and
Sampaguita Pictures, Inc., filed these petitions for review forcertiorari.
Apart from impugning the conclusion of the lower court on the status of the Guild members as alleged
employees of the film companies, the LVN Pictures, Inc., maintains that a petition for certification cannot be
entertained when the existence of employer-employee relationship between the parties is contested.

However, this claim is neither borne out by any legal provision nor supported by any authority. So long as,
after due hearing, the parties are found to bear said relationship, as in the case at bar, it is proper to pass
upon the merits of the petition for certification.
It is next urged that a certification is improper in the present case, because, "(a) the petition does not allege
and no evidence was presented that the alleged musicians-employees of the respondents constitute a proper
bargaining unit, and (b) said alleged musicians-employees represent a majority of the other numerous
employees of the film companies constituting a proper bargaining unit under section 12 (a) of Republic Act
No. 875."
The absence of an express allegation that the members of the Guild constitute a proper bargaining unit is fatal
proceeding, for the same is not a "litigation" in the sense in which this term is commonly understood, but a
mere investigation of a non-adversary, fact finding character, in which the investigating agency plays the part
of a disinterested investigator seeking merely to ascertain the desires of employees as to the matter of their
representation. In connection therewith, the court enjoys a wide discretion in determining the procedure
necessary to insure the fair and free choice of bargaining representatives by employees. 1 Moreover, it is
alleged in the petition that the Guild it a duly registered legitimate labor organization and that ninety-five (95%)
percent of the musicians playing for all the musical recordings of the film companies involved in these cases
are members of the Guild. Although, in its answer, the LVN Pictures, Inc. denied both allegations, it appears
that, at the hearing in the lower court it was merely the status of the musicians as its employees that the film
companies really contested. Besides, the substantial difference between the work performed by said
musicians and that of other persons who participate in the production of a film, and the peculiar circumstances
under which the services of that former are engaged and rendered, suffice to show that they constitute a
proper bargaining unit. At this juncture, it should be noted that the action of the lower court in deciding upon
an appropriate unit for collective bargaining purposes is discretionary (N.L.R.B. v. May Dept. Store Co., 66
Sup. Ct. 468. 90 L. ed. 145) and that its judgment in this respect is entitled to almost complete finality, unless
its action is arbitrary or capricious (Marshall Field & Co. v. N.L.R.B. [C.C.A. 19431, 135 F. 2d. 891), which is
far from being so in the cases at bar.
Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining agency for the musicians
working in the aforesaid film companies. It does not intend to represent the other employees therein. Hence, it
was not necessary for the Guild to allege that its members constitute a majority of all the employees of said
film companies, including those who are not musicians. The real issue in these cases, is whether or not the
musicians in question are employees of the film companies. In this connection the lower court had the
following to say:
As a normal and usual course of procedure employed by the companies when a picture is to be made,
the producer invariably chooses, from the musical directors, one who will furnish the musical
background for a film. A price is agreed upon verbally between the producer and musical director for
the cost of furnishing such musical background. Thus, the musical director may compose his own
music specially written for or adapted to the picture. He engages his own men and pays the
corresponding compensation of the musicians under him.
When the music is ready for recording, the musicians are summoned through 'call slips' in the name of
the film company (Exh 'D'), which show the name of the musician, his musical instrument, and the date,
time and place where he will be picked up by the truck of the film company. The film company provides
the studio for the use of the musicians for that particular recording. The musicians are also provided
transportation to and from the studio by the company. Similarly, the company furnishes them meals at
dinner time.
During the recording sessions, the motion picture director, who is an employee of the company,
supervises the recording of the musicians and tells what to do in every detail. He solely directs the
performance of the musicians before the camera as director, he supervises the performance of all the

action, including the musicians who appear in the scenes so that in the actual performance to be
shown on the screen, the musical director's intervention has stopped.
And even in the recording sessions and during the actual shooting of a scene, the technicians,
soundmen and other employees of the company assist in the operation. Hence, the work of the
musicians is an integral part of the entire motion picture since they not only furnish the music but are
also called upon to appear in the finished picture.
The question to be determined next is what legal relationship exits between the musicians and the
company in the light of the foregoing facts.
We are thus called upon to apply R.A. Act 875. which is substantially the same as and patterned after
the Wagner Act substantially the same as a Act and the Taft-Hartley Law of the United States. Hence,
reference to decisions of American Courts on these laws on the point-at-issue is called for.
Statutes are to be construed in the light of purposes achieved and the evils sought to be remedied.
(U.S. vs. American Tracking Association, 310 U.S. 534, 84 L. ed. 1345.) .
In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S. 111, the United States
Supreme Court said the Wagner Act was designed to avert the 'substantial obstruction to the free flow
of commerce which results from strikes and other forms of industrial unrest by eliminating the causes of
the unrest. Strikes and industrial unrest result from the refusal of employers' to bargain collectively and
the inability of workers to bargain successfully for improvement in their working conditions. Hence, the
purposes of the Act are to encourage collective bargaining and to remedy the workers' inability to
bargaining power, by protecting the exercise of full freedom of association and designation of
representatives of their own choosing, for the purpose of negotiating the terms and conditions of their
employment.'
The mischief at which the Act is aimed and the remedies it offers are not confined exclusively to
'employees' within the traditional legal distinctions, separating them from 'independent contractor'.
Myriad forms of service relationship, with infinite and subtle variations in the term of employment,
blanket the nation's economy. Some are within this Act, others beyond its coverage. Large numbers will
fall clearly on one side or on the other, by whatever test may be applied. Inequality of bargaining power
in controversies of their wages, hours and working conditions may characterize the status of one group
as of the other. The former, when acting alone may be as helpless in dealing with the employer as
dependent on his daily wage and as unable to resist arbitrary and unfair treatment as the latter.'
To eliminate the causes of labor dispute and industrial strike, Congress thought it necessary to create a
balance of forces in certain types of economic relationship. Congress recognized those economic
relationships cannot be fitted neatly into the containers designated as 'employee' and 'employer'.
Employers and employees not in proximate relationship may be drawn into common controversies by
economic forces and that the very dispute sought to be avoided might involve 'employees' who are at
times brought into an economic relationship with 'employers', who are not their 'employers'. In this light,
the language of the Act's definition of 'employee' or 'employer' should be determined broadly in doubtful
situations, by underlying economic facts rather than technically and exclusively established legal
classifications. (NLRB vs. Blount, 131 F [2d] 585.)
In other words, the scope of the term 'employee' must be understood with reference to the purposes of
the Act and the facts involved in the economic relationship. Where all the conditions of relation require
protection, protection ought to be given .
By declaring a worker an employee of the person for whom he works and by recognizing and
protecting his rights as such, we eliminate the cause of industrial unrest and consequently we promote

industrial peace, because we enable him to negotiate an agreement which will settle disputes
regarding conditions of employment, through the process of collective bargaining.
The statutory definition of the word 'employee' is of wide scope. As used in the Act, the term embraces
'any employee' that is all employees in the conventional as well in the legal sense expect those
excluded by express provision. (Connor Lumber Co., 11 NLRB 776.).
It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes of industrial unrest by
protecting the exercise of their right to self-organization for the purpose of collective bargaining. (b) To
promote sound stable industrial peace and the advancement of the general welfare, and the best
interests of employers and employees by the settlement of issues respecting terms and conditions of
employment through the process of collective bargaining between employers and representatives of
their employees.
The primary consideration is whether the declared policy and purpose of the Act can be effectuated by
securing for the individual worker the rights and protection guaranteed by the Act. The matter is not
conclusively determined by a contract which purports to establish the status of the worker, not as an
employee.
The work of the musical director and musicians is a functional and integral part of the enterprise
performed at the same studio substantially under the direction and control of the company.
In other words, to determine whether a person who performs work for another is the latter's employee
or an independent contractor, the National Labor Relations relies on 'the right to control' test. Under this
test an employer-employee relationship exist where the person for whom the services are performed
reserves the right to control not only the end to be achieved, but also the manner and means to be
used in reaching the end. (United Insurance Company, 108, NLRB No. 115.).
Thus, in said similar case of Connor Lumber Company, the Supreme Court said:.
'We find that the independent contractors and persons working under them are employees'
within the meaning of Section 2 (3) of its Act. However, we are of the opinion that the
independent contractors have sufficient authority over the persons working under their
immediate supervision to warrant their exclusion from the unit. We shall include in the unit the
employees working under the supervision of the independent contractors, but exclude the
contractors.'
'Notwithstanding that the employees are called independent contractors', the Board will hold them to be
employees under the Act where the extent of the employer's control over them indicates that the
relationship is in reality one of employment. (John Hancock Insurance Co., 2375-D, 1940, Teller, Labor
Dispute Collective Bargaining, Vol.).
The right of control of the film company over the musicians is shown (1) by calling the musicians
through 'call slips' in 'the name of the company; (2) by arranging schedules in its studio for recording
sessions; (3) by furnishing transportation and meals to musicians; and (4) by supervising and directing
in detail, through the motion picture director, the performance of the musicians before the camera, in
order to suit the music they are playing to the picture which is being flashed on the screen.
Thus, in the application of Philippine statutes and pertinent decisions of the United States Courts on
the matter to the facts established in this case, we cannot but conclude that to effectuate the policies of
the Act and by virtue of the 'right of control' test, the members of the Philippine Musicians Guild are
employees of the three film companies and, therefore, entitled to right of collective bargaining under
Republic Act No. 875.

In view of the fact that the three (3) film companies did not question the union's majority, the Philippine
Musicians Guild is hereby declared as the sole collective bargaining representative for all the
musicians employed by the film companies."
We are fully in agreement with the foregoing conclusion and the reasons given in support thereof. Both are
substantially in line with the spirit of our decision in Maligaya Ship Watchmen Agency vs. Associated
Watchmen and Security Union, L-12214-17 (May 28, 1958). In fact, the contention of the employers in
the Maligaya cases, to the effect that they had dealt with independent contractors, was stronger than that of
the film companies in these cases. The third parties with whom the management and the workers contracted
in the Maligaya cases were agencies registered with the Bureau of Commerce and duly licensed by the City
of Manila to engage in the business of supplying watchmen to steamship companies, with permits to engage
in said business issued by theCity Mayor and the Collector of Customs. In the cases at bar, the musical
directors with whom the film companies claim to have dealt with had nothing comparable to the business
standing of said watchmen agencies. In this respect, the status of said musical directors is analogous to that
of the alleged independent contractor in Caro vs. Rilloraza, L-9569 (September 30, 1957), with the
particularity that the Caro case involved the enforcement of the liability of an employer under the Workmen's
Compensation Act, whereas the cases before us are merely concerned with the right of the Guild
to represent the musicians as a collective bargaining unit. Hence, there is less reason to be legalistic and
technical in these cases, than in the Caro case.
Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe Coconut Product Co., Inc
vs. CIR (46 Off. Gaz., 5506, 5509), Philippine Manufacturing Co. vs. Santos Vda. de Geronimo, L-6968
(November 29, 1954), Viana vs. Al-Lagadan, L-8967 (May 31, 1956), and Josefa Vda. de Cruz vs. The Manila
Hotel Co. (53 Off. Gaz., 8540). Instead of favoring the theory of said petitioners-appellants, the case of
the Sunripe Coconut Product Co., Inc. is authority for herein respondents-appellees. It was held that, although
engaged as piece-workers, under the "pakiao" system, the "parers" and "shellers" in the case were, not
independent contractor, but employees of said company, because "the requirement imposed on the 'parers' to
the effect that 'the nuts are pared whole or that there is not much meat wasted,' in effect limits or controls the
means or details by which said workers are to accomplish their services" as in the cases before us.
The nature of the relation between the parties was not settled in the Viana case, the same having been
remanded to the Workmen's Compensation Commission for further evidence.
The case of the Philippine Manufacturing Co. involved a contract between said company and Eliano Garcia,
who undertook to paint a tank of the former. Garcia, in turn engaged the services of Arcadio Geronimo, a
laborer, who fell while painting the tank and died in consequence of the injuries thus sustained by him.
Inasmuch as the company was engaged in the manufacture of soap, vegetable lard, cooking oil and
margarine, it was held that the connection between its business and the painting aforementioned was
purely casual; that Eliano Garcia was an independent contractor; that Geronimo was not an employee of the
company; and that the latter was not bound, therefore, to pay the compensation provided in the Workmen's
Compensation Act. Unlike the Philippine Manufacturing case, the relation between the business of herein
petitioners-appellants and the work of the musicians is not casual. As held in the order appealed from which,
in this respect, is not contested by herein petitioners-appellants "the work of the musicians is an integral
part of the entire motion picture." Indeed, one can hardly find modern films without music therein. Hence, in
the Caro case (supra), the owner and operator of buildings for rent was held bound to pay the indemnity
prescribed in the Workmen's Compensation Act for the injury suffered by a carpenter while working as such in
one of said buildings even though his services had been allegedly engaged by a third party who had directly
contracted with said owner. In other words, the repair work had not merely a casual connection with the
business of said owner. It was a necessary incident thereof, just as music is in the production of motion
pictures.
The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957) differs materially from the
present cases. It involved the interpretation of Republic Act No. 660, which amends the law creating and

establishing the Government Service Insurance System. No labor law was sought to be construed in that
case. In act, the same was originally heard in the Court of First Instance of Manila, the decision of which was,
on appeal, affirmed by the Supreme Court. The meaning or scope if the term "employee," as used in the
Industrial Peace Act (Republic Act No. 875), was not touched therein. Moreover, the subject matter of said
case was a contract between the management of the Manila Hotel, on the one hand, and Tirso Cruz, on the
other, whereby the latter greed to furnish the former the services of his orchestra, consisting of 15 musicians,
including Tirso Cruz, "from 7:30 p.m. to closing time daily." In the language of this court in that case, "what
pieces the orchestra shall play, and how the music shall be arranged or directed, the intervals and other
details such are left to the leader'sdiscretion."
This is not situation obtaining in the case at bar. The musical directors above referred to have no such control
over the musicians involved in the present case. Said musical directors control neither the music to be played,
nor the musicians playing it. The film companies summon the musicians to work, through the musical
directors. The film companies, through the musical directors, fix the date, the time and the place of work. The
film companies, not the musical directors, provide the transportation to and from the studio. The film
companies furnish meal at dinner time.
What is more in the language of the order appealed from "during the recording sessions, the motion
picture director who is an employee of the company" not the musical director "supervises the recording
of the musicians and tells them what to do in every detail". The motion picture director not the musical
director "solely directs and performance of the musicians before the camera". The motion picture director
"supervises the performance of all the actors, including the musicians who appear in the scenes, so that in the
actual performance to be shown in the screen, the musical director's intervention has stopped." Or, as testified
to in the lower court, "the movie director tells the musical director what to do; tells the music to be cut or tells
additional music in this part or he eliminates the entire music he does not (want) or he may want more drums
or move violin or piano, as the case may be". The movie director "directly controls the activities of the
musicians." He "says he wants more drums and the drummer plays more" or "if he wants more violin or he
does not like that.".
It is well settled that "an employer-employee relationship exists . . .where the person for whom the services
are performed reserves a right to control not only the end to be achieved but also the means to be used in
reaching such end . . . ." (Alabama Highway Express Co., Express Co., v. Local 612, 108S. 2d. 350.) The
decisive nature of said control over the "means to be used", is illustrated in the case of Gilchrist Timber Co., et
al., Local No. 2530 (73 NLRB No. 210, pp. 1197, 1199-1201), in which, by reason of said control, the
employer-employee relationship was held to exist between the management and the workers, notwithstanding
the intervention of an alleged independent contractor, who had, and exercise, the power to hire and fire said
workers. The aforementioned control over the means to be used" in reading the desired end is possessed and
exercised by the film companies over the musicians in the cases before us.
WHEREFORE, the order appealed from is hereby affirmed, with costs against petitioners herein. It is so
ordered.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Paredes and Dizon,
JJ., concur.
Gutierrez David, J., took no part.
FIRST DIVISION
[G.R. No. 47800. December 2, 1940.]
MAXIMO CALALANG, Petitioner, v. A. D. WILLIAMS, ET AL., Respondents.
Maximo Calalang in his own behalf.

Solicitor General Ozaeta and Assistant Solicitor General Amparo for respondents Williams, Fragante and
Bayan
City Fiscal Mabanag for the other respondents.
SYLLABUS
1. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF COMMONWEALTH ACT No. 648; DELEGATION OF
LEGISLATIVE POWER; AUTHORITY OF DIRECTOR OF PUBLIC WORKS AND SECRETARY OF PUBLIC
WORKS AND COMMUNICATIONS TO PROMULGATE RULES AND REGULATIONS. The provisions of
section 1 of Commonwealth Act No. 648 do not confer legislative power upon the Director of Public Works
and the Secretary of Public Works and Communications. The authority therein conferred upon them and
under which they promulgated the rules and regulations now complained of is not to determine what public
policy demands but merely to carry out the legislative policy laid down by the National Assembly in said Act, to
wit, "to promote safe transit upon, and avoid obstructions on, roads and streets designated as national roads
by acts of the National Assembly or by executive orders of the President of the Philippines" and to close them
temporarily to any or all classes of traffic "whenever the condition of the road or the traffic thereon makes such
action necessary or advisable in the public convenience and interest." The delegated power, if at all,
therefore, is not the determination of what the law shall be, but merely the ascertainment of the facts and
circumstances upon which the application of said law is to be predicated. To promulgate rules and regulations
on the use of national roads and to determine when and how long a national road should be closed to traffic,
in view of the condition of the road or the traffic thereon and the requirements of public convenience and
interest, is an administrative function which cannot be directly discharged by the National Assembly. It must
depend on the discretion of some other government official to whom is confided the duty of determining
whether the proper occasion exists for executing the law. But it cannot be said that the exercise of such
discretion is the making of the law.
2. ID.; ID.; POLICE POWER; PERSONAL LIBERTY; GOVERNMENTAL AUTHORITY. Commonwealth Act
No. 548 was passed by the National Assembly in the exercise of the paramount police power of the state.
Said Act, by virtue of which the rules and regulations complained of were promulgated, aims to promote safe
transit upon and avoid obstructions on national roads, in the interest and convenience of the public. In
enacting said law, therefore, the National Assembly was prompted by considerations of public convenience
and welfare. It was inspired by a desire to relieve congestion of traffic, which is, to say the least, a menace to
public safety. Public welfare, then, lies at the bottom of the enactment of said law, and the state in order to
promote the general welfare may interfere with personal liberty, with property, and with business and
occupations. Persons and property may be subjected to all kinds of restraints and burdens, in order to secure
the general comfort, health, and prosperity of the state (U.S. v. Gomer Jesus, 31 Phil., 218). To this
fundamental aim of our Government the rights of the individual are subordinated. Liberty is a blessing without
which life is a misery, but liberty should not be made to prevail over authority because then society will fall into
anarchy. Neither should authority be made to prevail over liberty because then the individual will fall into
slavery. The citizen should achieve the required balance of liberty and authority in his mind through education
and, personal discipline, so that there may be established the resultant equilibrium, which means peace and
order and happiness for all. The moment greater authority is conferred upon the government, logically so
much is withdrawn from the residuum of liberty which resides in the people. The paradox lies in the fact that
the apparent curtailment of liberty is precisely the very means of insuring its preservation.
3. ID.; ID.; SOCIAL JUSTICE. Social justice is "neither communism, nor despotism, nor atomism, nor
anarchy," but the humanization of laws and the equalization of social and economic forces by the State so that
justice in its rational and objectively secular conception may at least be approximated. Social justice means
the promotion of the welfare of all the people, the adoption by the Government of measures calculated to
insure economic stability of all the competent elements of society, through the maintenance of a proper
economic and social equilibrium in the interrelations of the members of the community, constitutionally,
through the adoption of measures legally justifiable, or extra-constitutionally, through the exercise of powers
underlying the existence of all governments on the time-honored principle of salus populi est suprema lex.
Social justice, therefore, must be founded on the recognition of the necessity of interdependence among
divers and diverse units of a society and of the protection that should be equally and evenly extended to all
groups as a combined force in our social and economic life, consistent with the fundamental and paramount
objective of the state of promoting the health, comfort, and quiet of all persons, and of bringing about "the
greatest good to the greatest number."

DECISION
LAUREL, J.:
Maximo Calalang, in his capacity as a private citizen and as a taxpayer of Manila, brought before this court
this petition for a writ of prohibition against the respondents, A. D. Williams, as Chairman of the National
Traffic Commission; Vicente Fragante, as Director of Public Works; Sergio Bayan, as Acting Secretary of
Public Works and Communications; Eulogio Rodriguez, as Mayor of the City of Manila; and Juan Dominguez,
as Acting Chief of Police of Manila.
It is alleged in the petition that the National Traffic Commission, in its resolution of July 17, 1940, resolved to
recommend to the Director of Public Works and to the Secretary of Public Works and Communications that
animal-drawn vehicles be prohibited from passing along Rosario Street extending from Plaza Calderon de la
Barca to Dasmarias Street, from 7:30 a.m. to 12:30 p.m. and from 1:30 p.m. to 5:30 p.m.; and along Rizal
Avenue extending from the railroad crossing at Antipolo Street to Echague Street, from 7 a.m. to 11 p.m., from
a period of one year from the date of the opening of the Colgante Bridge to traffic; that the Chairman of the
National Traffic Commission, on July 18, 1940 recommended to the Director of Public Works the adoption of
the measure proposed in the resolution aforementioned, in pursuance of the provisions of Commonwealth Act
No. 548 which authorizes said Director of Public Works, with the approval of the Secretary of Public Works
and Communications, to promulgate rules and regulations to regulate and control the use of and traffic on
national roads; that on August 2, 1940, the Director of Public Works, in his first indorsement to the Secretary
of Public Works and Communications, recommended to the latter the approval of the recommendation made
by the Chairman of the National Traffic Commission as aforesaid, with the modification that the closing of
Rizal Avenue to traffic to animal-drawn vehicles be limited to the portion thereof extending from the railroad
crossing at Antipolo Street to Azcarraga Street; that on August 10, 1940, the Secretary of Public Works and
Communications, in his second indorsement addressed to the Director of Public Works, approved the
recommendation of the latter that Rosario Street and Rizal Avenue be closed to traffic of animal-drawn
vehicles, between the points and during the hours as above indicated, for a period of one year from the date
of the opening of the Colgante Bridge to traffic; that the Mayor of Manila and the Acting Chief of Police of
Manila have enforced and caused to be enforced the rules and regulations thus adopted; that as a
consequence of such enforcement, all animal-drawn vehicles are not allowed to pass and pick up passengers
in the places above-mentioned to the detriment not only of their owners but of the riding public as well.
It is contended by the petitioner that Commonwealth Act No. 548 by which the Director of Public Works, with
the approval of the Secretary of Public Works and Communications, is authorized to promulgate rules and
regulations for the regulation and control of the use of and traffic on national roads and streets is
unconstitutional because it constitutes an undue delegation of legislative power. This contention is untenable.
As was observed by this court in Rubi v. Provincial Board of Mindoro (39 Phil, 660, 700), "The rule has
nowhere been better stated than in the early Ohio case decided by Judge Ranney, and since followed in a
multitude of cases, namely: The true distinction therefore is between the delegation of power to make the law,
which necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its
execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid
objection can be made. (Cincinnati, W. & Z. R. Co. v. Commrs. Clinton County, 1 Ohio St., 88.) Discretion, as
held by Chief Justice Marshall in Wayman v. Southard (10 Wheat., 1) may be committed by the Legislature to
an executive department or official. The Legislature may make decisions of executive departments or
subordinate officials thereof, to whom it has committed the execution of certain acts, final on questions of fact.
(U.S. v. Kinkead, 248 Fed., 141.) The growing tendency in the decisions is to give prominence to the
necessity of the case."cralaw virtua1aw library
Section 1 of Commonwealth Act No. 548 reads as follows:jgc:chanrobles.com.ph
"SECTION 1. To promote safe transit upon, and avoid obstructions on, roads and streets designated as
national roads by acts of the National Assembly or by executive orders of the President of the Philippines, the
Director of Public Works, with the approval of the Secretary of Public Works and Communications, shall
promulgate the necessary rules and regulations to regulate and control the use of and traffic on such roads
and streets. Such rules and regulations, with the approval of the President, may contain provisions controlling

or regulating the construction of buildings or other structures within a reasonable distance from along the
national roads. Such roads may be temporarily closed to any or all classes of traffic by the Director of Public
Works and his duly authorized representatives whenever the condition of the road or the traffic thereon makes
such action necessary or advisable in the public convenience and interest, or for a specified period, with the
approval of the Secretary of Public Works and Communications."cralaw virtua1aw library
The above provisions of law do not confer legislative power upon the Director of Public Works and the
Secretary of Public Works and Communications. The authority therein conferred upon them and under which
they promulgated the rules and regulations now complained of is not to determine what public policy demands
but merely to carry out the legislative policy laid down by the National Assembly in said Act, to wit, "to promote
safe transit upon and avoid obstructions on, roads and streets designated as national roads by acts of the
National Assembly or by executive orders of the President of the Philippines" and to close them temporarily to
any or all classes of traffic "whenever the condition of the road or the traffic makes such action necessary or
advisable in the public convenience and interest." The delegated power, if at all, therefore, is not the
determination of what the law shall be, but merely the ascertainment of the facts and circumstances upon
which the application of said law is to be predicated. To promulgate rules and regulations on the use of
national roads and to determine when and how long a national road should be closed to traffic, in view of the
condition of the road or the traffic thereon and the requirements of public convenience and interest, is an
administrative function which cannot be directly discharged by the National Assembly. It must depend on the
discretion of some other government official to whom is confided the duty of determining whether the proper
occasion exists for executing the law. But it cannot be said that the exercise of such discretion is the making
of the law. As was said in Lockes Appeal (72 Pa. 491): "To assert that a law is less than a law, because it is
made to depend on a future event or act, is to rob the Legislature of the power to act wisely for the public
welfare whenever a law is passed relating to a state of affairs not yet developed, or to things future and
impossible to fully know." The proper distinction the court said was this: "The Legislature cannot delegate its
power to make the law; but it can make a law to delegate a power to determine some fact or state of things
upon which the law makes, or intends to make, its own action depend. To deny this would be to stop the
wheels of government. There are many things upon which wise and useful legislation must depend which
cannot be known to the law-making power, and, must, therefore, be a subject of inquiry and determination
outside of the halls of legislation." (Field v. Clark, 143 U. S. 649, 694; 36 L. Ed. 294.)
In the case of People v. Rosenthal and Osmea, G.R. Nos. 46076 and 46077, promulgated June 12, 1939,
and in Pangasinan Transportation v. The Public Service Commission, G.R. No. 47065, promulgated June 26,
1940, this Court had occasion to observe that the principle of separation of powers has been made to adapt
itself to the complexities of modern governments, giving rise to the adoption, within certain limits, of the
principle of "subordinate legislation," not only in the United States and England but in practically all modern
governments. Accordingly, with the growing complexity of modern life, the multiplication of the subjects of
governmental regulations, and the increased difficulty of administering the laws, the rigidity of the theory of
separation of governmental powers has, to a large extent, been relaxed by permitting the delegation of
greater powers by the legislative and vesting a larger amount of discretion in administrative and executive
officials, not only in the execution of the laws, but also in the promulgation of certain rules and regulations
calculated to promote public interest.
The petitioner further contends that the rules and regulations promulgated by the respondents pursuant to the
provisions of Commonwealth Act No. 548 constitute an unlawful interference with legitimate business or trade
and abridge the right to personal liberty and freedom of locomotion. Commonwealth Act No. 548 was passed
by the National Assembly in the exercise of the paramount police power of the state.
Said Act, by virtue of which the rules and regulations complained of were promulgated, aims to promote safe
transit upon and avoid obstructions on national roads, in the interest and convenience of the public. In
enacting said law, therefore, the National Assembly was prompted by considerations of public convenience
and welfare. It was inspired by a desire to relieve congestion of traffic. which is, to say the least, a menace to
public safety. Public welfare, then, lies at the bottom of the enactment of said law, and the state in order to
promote the general welfare may interfere with personal liberty, with property, and with business and
occupations. Persons and property may be subjected to all kinds of restraints and burdens, in order to secure
the general comfort, health, and prosperity of the state (U.S. v. Gomez Jesus, 31 Phil., 218). To this
fundamental aim of our Government the rights of the individual are subordinated. Liberty is a blessing without
which life is a misery, but liberty should not be made to prevail over authority because then society will fall into
anarchy. Neither should authority be made to prevail over liberty because then the individual will fall into
slavery. The citizen should achieve the required balance of liberty and authority in his mind through education

and personal discipline, so that there may be established the resultant equilibrium, which means peace and
order and happiness for all. The moment greater authority is conferred upon the government, logically so
much is withdrawn from the residuum of liberty which resides in the people. The paradox lies in the fact that
the apparent curtailment of liberty is precisely the very means of insuring its preservation.
The scope of police power keeps expanding as civilization advances. As was said in the case of Dobbins v.
Los Angeles (195 U.S. 223, 238; 49 L. ed. 169), "the right to exercise the police power is a continuing one,
and a business lawful today may in the future, because of the changed situation, the growth of population or
other causes, become a menace to the public health and welfare, and be required to yield to the public good."
And in People v. Pomar (46 Phil., 440), it was observed that "advancing civilization is bringing within the police
power of the state today things which were not thought of as being within such power yesterday. The
development of civilization, the rapidly increasing population, the growth of public opinion, with an increasing
desire on the part of the masses and of the government to look after and care for the interests of the
individuals of the state, have brought within the police power many questions for regulation which formerly
were not so considered."cralaw virtua1aw library
The petitioner finally avers that the rules and regulations complained of infringe upon the constitutional
precept regarding the promotion of social justice to insure the well-being and economic security of all the
people. The promotion of social justice, however, is to be achieved not through a mistaken sympathy towards
any given group. Social justice is "neither communism, nor despotism, nor atomism, nor anarchy," but the
humanization of laws and the equalization of social and economic forces by the State so that justice in its
rational and objectively secular conception may at least be approximated. Social justice means the promotion
of the welfare of all the people, the adoption by the Government of measures calculated to insure economic
stability of all the competent elements of society, through the maintenance of a proper economic and social
equilibrium in the interrelations of the members of the community, constitutionally, through the adoption of
measures legally justifiable, or extra-constitutionally, through the exercise of powers underlying the existence
of all governments on the time-honored principle of salus populi est suprema lex.
Social justice, therefore, must be founded on the recognition of the necessity of interdependence among
divers and diverse units of a society and of the protection that should be equally and evenly extended to all
groups as a combined force in our social and economic life, consistent with the fundamental and paramount
objective of the state of promoting the health, comfort, and quiet of all persons, and of bringing about "the
greatest good to the greatest number."cralaw virtua1aw library
In view of the foregoing, the writ of prohibition prayed for is hereby denied, with costs against the petitioner.
So ordered.
Avancea, C.J., Imperial, Diaz. and Horrilleno. JJ. concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-48926 December 14, 1987
MANUEL SOSITO, petitioner,
vs.
AGUINALDO DEVELOPMENT CORPORATION, respondent.

CRUZ, J.:

We gave due course to this petition and required the parties to file simultaneous memoranda on the sole
question of whether or not the petitioner is entitled to separation pay under the retrenchment program of the
private respondent.
The facts are as follows:
Petitioner Manuel Sosito was employed in 1964 by the private respondent, a logging company, and was in
charge of logging importation, with a monthly salary of P675.00, 1 when he went on indefinite leave with the
consent of the company on January 16, 1976. 2 On July 20, 1976, the private respondent, through its
president, announced a retrenchment program and offered separation pay to employees in the active service
as of June 30, 1976, who would tender their resignations not later than July 31, 1976. The petitioner decided
to accept this offer and so submitted his resignation on July 29, 1976, "to avail himself of the gratuity benefits"
promised. 3 However, his resignation was not acted upon and he was never given the separation pay he
expected. The petitioner complained to the Department of Labor, where he was sustained by the labor
arbiter. 4 The company was ordered to pay Sosito the sum of P 4,387.50, representing his salary for six and a
half months. On appeal to the National Labor Relations Commission, this decision was reversed and it was
held that the petitioner was not covered by the retrenchment program. 5 The petitioner then came to us.
For a better understanding of this case, the memorandum of the private respondent on its retrenchment
program is reproduced in full as follows:
J
u
l
y
2
0
,
1
9
7
6
Memorandum To: ALL EMPLOYEES
Re: RETRENCHMENT PROGRAM
As you are all aware, the operations of wood-based industries in the Philippines for the last two
(2) years were adversely affected by the worldwide decline in the demand for and prices of logs
and wood products. Our company was no exception to this general decline in the market, and
has suffered tremendous losses. In 1975 alone, such losses amounted to nearly
P20,000,000.00.
The company has made a general review of its operations and has come to the unhappy
decision of the need to make adjustments in its manpower strength if it is to survive. This is
indeed an unfortunate and painful decision to make, but it leaves the company no alternative but
to reduce its tremendous and excessive overhead expense in order to prevent an ultimate
closure.
Although the law allows the Company, in a situation such as this, to drastically reduce it
manpower strength without any obligation to pay separation benefits, we recognize the need to
provide our employees some financial assistance while they are looking for other jobs.

The Company therefore is adopting a retrenchment program whereby employees who are in the
active service as of June 30, 1976 will be paid separation benefits in an amount equivalent to
the employee's one-half (1/2) month's basic salary multiplied by his/her years of service with the
Company. Employees interested in availing of the separation benefits offered by the Company
must manifest such intention by submitting written letters of resignation to the Management not
later than July 31, 1976. Those whose resignations are accepted shall be informed accordingly
and shall be paid their separation benefits.
After July 31, 1976, this offer of payment of separation benefits will no longer be available.
Thereafter, the Company shall apply for a clearance to terminate the services of such number of
employees as may be necessary in order to reduce the manpower strength to such desired level
as to prevent further losses.
(SGD.) JOSE G.
RICAFORT
President
N.B.
For additional information
and/or resignation forms,
please see Mr. Vic Maceda
or Atty. Ben Aritao. 6
It is clear from the memorandum that the offer of separation pay was extended only to those who were in the
active service of the company as of June 30, 1976. It is equally clear that the petitioner was not eligible for the
promised gratuity as he was not actually working with the company as of the said date. Being on indefinite
leave, he was not in the active service of the private respondent although, if one were to be technical, he was
still in its employ. Even so, during the period of indefinite leave, he was not entitled to receive any salary or to
enjoy any other benefits available to those in the active service.
It seems to us that the petitioner wants to enjoy the best of two worlds at the expense of the private
respondent. He has insulated himself from the insecurities of the floundering firm but at the same time would
demand the benefits it offers. Being on indefinite leave from the company, he could seek and try other
employment and remain there if he should find it acceptable; but if not, he could go back to his former work
and argue that he still had the right to return as he was only on leave.
There is no claim that the petitioner was temporarily laid off or forced to go on leave; on the contrary, the
record shows that he voluntarily sought the indefinite leave which the private respondent granted. It is strange
that the company should agree to such an open-ended arrangement, which is obviously one-sided. The
company would not be free to replace the petitioner but the petitioner would have a right to resume his work
as and when he saw fit.
We note that under the law then in force the private respondent could have validly reduced its work force
because of its financial reverses without the obligation to grant separation pay. This was permitted under the
original Article 272(a), of the Labor Code, 7 which was in force at the time. To its credit, however, the company
voluntarily offered gratuities to those who would agree to be phased out pursuant to the terms and conditions
of its retrenchment program, in recognition of their loyalty and to tide them over their own financial difficulties.
The Court feels that such compassionate measure deserves commendation and support but at the same time

rules that it should be available only to those who are qualified therefore. We hold that the petitioner is not one
of them.
While the Constitution is committed to the policy of social justice and the protection of the working class, it
should not be supposed that every labor dispute will be automatically decided in favor of labor. Management
also has its own rights which, as such, are entitled to respect and enforcement in the interest of simple fair
play. Out of its concern for those with less privileges in life, this Court has inclined more often than not toward
the worker and upheld his cause in his conflicts with the employer. Such favoritism, however, has not blinded
us to the rule that justice is in every case for the deserving, to be dispensed in the light of the established
facts and the applicable law and doctrine.
WHEREFORE, the petition is DISMISSED and the challenged decision AFFIRMED, with costs against the
petitioner.
SO ORDERED.
Teehankee, C.J., Narvasa, Paras and Gancayco, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-21223

August 31, 1966

PHILIPPINE BLOOMING MILLS CO., INC. (As Employer) and FRANCISCO TONG (As Assistant General
Manager) and Attorney-in-Fact of SUSUMO SONODA, SENJI TANAKA, TAKASHIKO KUMAMOTO, HITOSHI
NAKAMURA, TETSUO KODU, (Employees), petitioners and appellants,
vs.
SOCIAL SECURITY SYSTEM, respondent and appellee.
Demetrio B. Salem for petitioners and appellants.
Office of the Solicitor General Edilberto Barot and Solicitor Camilo D. Quiason for respondent and appellee.
BARRERA, J.:
The facts of this case are not disputed:
The Philippine Blooming Mills Co., Inc., a domestic corporation since the start of its operations in 1957, has
been employing Japanese technicians under a pre-arranged contract of employment, the minimum period of
which employment is 6 months and the maximum is 24 months.
From April 28, 1957, to October 26, 1958, the corporation had in its employ 6 Japanese technicians. In
connection with the employment of these aliens, it sent an inquiry to the Social Security System (SSS)
whether these employees are subject to compulsory coverage under the System, which inquiry was answered
by the First Deputy Administrator of the SSS, under date of August 29, 1957, as follows:
SIR:
With reference to your letter of August 24, 1957, hereunder are our answers to your queries:
Aliens employed in the Philippines:

Aliens who are employed in the Philippines shall also be compulsorily covered. But aliens who
are employed temporarily shall, upon their departure from the Philippines, be entitled to a rebate
of a proportionate amount of their contributions; their employers shall be entitled to the same
proportionate rebate of their contributions in behalf of said aliens employed by them. (Rule I,
Sec. 3[d], Rules and Regulations.)
Starting September, 1957, and until the aforementioned Japanese employees left the Philippines on October
26, 1958, the corresponding premium contributions of the employer and the employees on the latter's
memberships in the SSS were as follows:

Name

SS Number

Monthly Salary

Amount of Premiums
Contributed
2.5%
(Employee)

3.5%
(Employer)

Total

Susumu Sonoda

03-075177

P520.00

P175.00

P245.00

P420.00

Senji Tanaka

03-075178

520.00

175.00

245.00

420.00

Kahei Tanaka

03-075179

500.00

175.00

245.00

420.00

Takashiko Kumamoto

03-075180

500.00

175.00

245.00

420.00

Hitoshi Nakamura

03-075181

500.00

175.00

245.00

420.00

Tetsuo Kudo

03-075182

500.00

175.00

245.00

420.00

Total

P1,050.00

P1,470.00

P2,520.00

On October 7, 1958, the Assistant General Manager of the corporation, on its behalf and as attorney-in-fact of
the Japanese technicians, filed a claim with the SSS for the refund of the premiums paid to the System, on
the ground of termination of the members' employment. As this claim was denied, they filed a petition with the
Social Security Commission for the return or refund of the premiums, in the total sum of P2,520.00, paid by
the employer corporation and the 6 Japanese employees, plus attorneys' fees. This claim was controverted by
the SSS, alleging that Rule IX of the Rules and Regulations of the System, as amended, requires
membership in the System for at least 2 years before a separated or resigned employee may be allowed a
return of his personal contributions. Under the same rule, the employer is not also entitled to a refund of the
premium contributions it had paid.
After hearing, the Commission denied the petition for the reason that, although under the original provisions of
Section 3 (d) of Rule I of the Rules and Regulations of the SSS, alien-employees (who are employed
temporarily) and their employers are entitled to a rebate of a proportionate amount of their respective
contributions upon the employees' departure from the Philippines, said rule was amended by eliminating that
portion granting a return of the premium contributions. This amendment became effective on January 14,
1958, or before the employment of the subject aliens terminated. The rights of covered employees who are
separated from employment, under the present Rules, are covered by Rule IX which allows a return of the
premiums only if they have been members for at least 2 years.
It is this resolution of the Commission that is the subject of the present appeal, appellants contending that the
amendment of the Rules and Regulations of the SSS, insofar as it eliminates the provision on the return of
premium contributions, originally embodied in Section 3(d) of Rule I, constituted an impairment of obligations
of contract. It is claimed, in effect, that when appellants-employees became members in September, 1957,
and paid the corresponding premiums to the System, it 1 is subject to the condition that upon their departure
from the Philippines, these employees, as well as their employer, are entitled to a rebate of a proportionate
amount of their respective contributions.
The contention cannot be sustained. Appellants' argument is based on the theory that the employees'
membership in the System established contractual relationship between the members and the System, in the
sense contemplated and protected by the constitutional prohibition against its impairment by law. But,
membership in this institution is not the result of a bilateral, consensual agreement where the rights and
obligations of the parties are defined by and subject to their will. Republic Act 1161 requires compulsory

coverage of employers and employees under the System. It is actually a legal imposition, on said employers
and employees, designed to provide social security to the workingmen. Membership in the SSS is, therefore,
in compliance with a lawful exercise of the police power of the State, to which the principle of non-impairment
of the obligation of contract is not a proper defense.
As pointed out by the Solicitor General, the issue that should be determined in this case is whether, in
implementing the SSS law and denying appellants' claim for refund of their premium contributions, due
process was observed.
The Rules and Regulations promulgated by the SSS, pursuant to the rule-making authority granted in Section
4(a) of Republic Act 1161, was duly approved by the President on July 18, 1957, and published in the Official
Gazette on September 15, 1957.2 These rules and regulations, among others, provide:
I
DETERMINATION OF COMPULSORY COVERAGE
3. The determination of whether an employer or an employee shall be compulsorily covered shall be vested in
the Commission. The following general principles shall guide the Commission in deciding each case:
xxx

xxx

xxx

(d) Aliens who are employed in the Philippines shall also be compulsorily covered. But aliens who ate
employed temporarily and whose visas are only for fixed terms shall, upon their departure from the
Philippines, be entitled to a rebate of a proportionate amount of their contributions; their employers shall be
entitled to the same proportionate rebate of their contributions in behalf of said aliens employed by them.
XI
AMENDMENTS AND EFFECTIVITY
1. The Commission may, by appropriate resolution, amend, repeal, revise and/or modify all or any part
or parts of these Rules and Regulations, as well as adopt any additional rule or rules, whenever the
need therefor should arise. Any amendment and/or additional rule, however, shall not take effect until
and after the corresponding resolution of the Commission has been submitted to and approved by the
President of the Philippines.
2. These Rules and Regulations, any amendment thereof, or any additional rule or rules subsequently
adopted by the Commission, shall take effect on the date they are approved by the President of the
Philippines.
Rule I Section 3 (d) and Rule IX, however, were later amended, which amendment was approved by the
President on January 14, 1958, to read as follows:
(d) Aliens who are employed in the Philippines shall also be compulsorily covered (Sec. 3, Rule I)
EFFECT OF SEPARATION FROM EMPLOYMENT
When an employee under compulsory coverage is separated from employment, his employer's
contribution on his account shall cease at the end of the month of separation; but such employee may
continue his membership in the System and receive the benefits of the Act, as amended, in accordance
with these rules. If he continues paying the 6 per cent monthly premiums representing his as well as
the employer's contribution, based on his monthly salary at the time of his separation; but if at the time
of his separation the covered employee has been a member of the System for at least two years, he
shall have the option to choose any one of the following adjustments of his membership in the System:
1. A refund of an amount equivalent to his total contributions of two and one-half per centum plus
interests at the rate of three per centum per annum, compounded annually;

xxx

xxx

x x x (Rule IX)

These amended Rules were published in the November 10, 1958 issue of the Official Gazette. 3
It is not here disputed that the Rules and Regulations of the SSS, having been promulgated in implementation
of a law, have the force and effect of a statute;" that the amendment thereto, although approved by the
President on January 14, 1958, was published in the Official Gazette in November, 1958, or after the
employment of the Japanese technicians had ceased and the corresponding claim for the refund of the
premium contributions was filed with the System. The question pertinent to this case now is whether or not
appellants are bound by the amended Rules requiring membership for two years before refund of the
premium contributions may be allowed.1wph1.t
These rules and regulations were promulgated to provide guidelines to be observed in the enforcement of the
law. As a matter of fact, Section 3 of Rule I is merely an enumeration of the "general principles to (shall) guide
the Commission" in the determination of the extent or scope of the compulsory coverage of the law. One of
these guiding principles is paragraph (d) relied upon by appellants, on the coverage of temporarily-employed
aliens. It is not here pretended, that the amendment of this Section 3(d) of Rule I, as to eliminate the provision
granting to these aliens the right to a refund of part of their premium contributions upon their departure from
the Philippines, is not in implementation of the law or beyond the authority of the Commission to do.
It may be argued, however, that while the amendment to the Rules may have been lawfully made by the
Commission and duly approved by the President on January 14, 1958, such amendment was only published
in the November 1958 issue of the Official Gazette, and after appellants' employment had already ceased.
Suffice it to say, in this regard, that under Article 2 of the Civil Code, 5 the date of publication of laws in the
Official Gazette is material for the purpose of determining their effectivity, only if the statutes themselves do
not so provide.
In the present case, the original Rules and Regulations of the SSS specifically provide that any amendment
thereto subsequently adopted by the Commission, shall take effect on the date of its approval by the
President. Consequently, the delayed publication of the amended rules in the Official Gazette did not affect
the date of their effectivity, which is January 14, 1958, when they were approved by the President. It follows
that when the Japanese technicians were separated from employment in October, 1958, the rule governing
refund of premiums is Rule IX of the amended Rules and Regulations, which requires membership for 2 years
before such refund of premiums may be allowed.
Wherefore, finding no error in the resolution of the Commission appealed from, the same is hereby affirmed,
with costs against the appellants. So ordered.
Concepcion, C.J., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
Reyes J.B.L., J., reserves his vote.
Regala, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-22008

November 3, 1924

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
JULIO POMAR, defendant-appellant.
Araneta and Zaragoza for appellant.
Attorney-General Villa-Real for appellee.

JOHNSON, J.:
The only question presented by this appeal is whether or not the provisions of sections 13 and 15 of Act No.
3071 are a reasonable and lawful exercise of the police power of the state.
It appears from the record that on the 26th day of October, 1923, the prosecuting attorney of the City of
Manila presented a complaint in the Court of First Instance, accusing the defendant of a violation of section 13
in connection with section 15 of Act No. 3071 of the Philippine Legislature. The complaint alleged:
That on or about the 27th day of August, 1923, and sometime prior thereto, in the City of Manila,
Philippine Islands, the said accused, being the manager and person in charge of La Flor de la Isabela,
a tobacco factory pertaining to La Campania General de Tabacos de Filipinas, a corporation duly
authorized to transact business in said city, and having, during the year 1923, in his employ and
service as cigar-maker in said factory, a woman by the name of Macaria Fajardo, whom he granted
vacation leave which began on the 16th day of July, 1923, by reason of her pregnancy, did then and
there willfully, unlawfully, and feloniously fail and refuse to pay to said woman the sum of eighty pesos
(P80), Philippine currency, to which she was entitled as her regular wages corresponding to thirty days
before and thirty days after her delivery and confinement which took place on the 12th day of August,
1923, despite and over the demands made by her, the said Macaria Fajardo, upon said accused, to do
so.
To said complaint, the defendant demurred, alleging that the facts therein contained did not constitute an
offense. The demurrer was overruled, whereupon the defendant answered and admitted at the trial all of the
allegations contained in the complaint, and contended that the provisions of said Act No. 3071, upon which
the complaint was based were illegal, unconstitutional and void.
Upon a consideration of the facts charged in the complaint and admitted by the defendant, the Honorable C.
A. Imperial, judge, found the defendant guilty of the alleged offense described in the complaint, and
sentenced him to pay a fine of P50, in accordance with the provisions of section 15 of said Act, to suffer
subsidiary imprisonment in case of insolvency, and to pay the costs.
From that sentence the defendant appealed, and now makes the following assignments of error: That the
court erred in overruling the demurrer; in convicting him of the crime charged in the information; and in not
declaring section 13 of Act No. 3071, unconstitutional:
Section 13 of Act No. 3071 is as follows:
Every person, firm or corporation owning or managing a factory, shop or place of labor of any
description shall be obliged to grant to any woman employed by it as laborer who may be pregnant,
thirty days vacation with pay before and another thirty days after confinement: Provided, That the
employer shall not discharge such laborer without just cause, under the penalty of being required to
pay to her wages equivalent to the total of two months counted from the day of her discharge.
Section 15 of the same Act is as follows:
Any person, firm or corporation violating any of the provisions of this Act shall be punished by a fine of
not less than fifty pesos nor more than two hundred and fifty, or by imprisonment for not less than ten
days nor more than six months, or both, in the discretion of the court.

In the case of firms or corporations, the presidents, directors or managers thereof or, in their default,
the persons acting in their stead, shall be criminally responsible for each violation of the provisions of
this Act.
Said section 13 was enacted by the Legislature of the Philippine Islands in the exercise of its supposed police
power, with the praiseworthy purpose of safeguarding the health of pregnant women laborers in "factory, shop
or place of labor of any description," and of insuring to them, to a certain extent, reasonable support for one
month before and one month after their delivery. The question presented for decision by the appeal is whether
said Act has been adopted in the reasonable and lawful exercise of the police power of the state.
In determining whether a particular law promulgated under the police power of the state is, in fact, within said
power, it becomes necessary first, to determine what that power is, its limits and scope. Literally hundreds of
decisions have been promulgated in which definitions of the police power have been attempted. An
examination of all of said decisions will show that the definitions are generally limited to particular cases and
examples, which are as varied as they are numerous.
By reason of the constant growth of public opinion in a developing civilization, the term "police power" has
never been, and we do not believe can be, clearly and definitely defined and circumscribed. One hundred
years ago, for example, it is doubtful whether the most eminent jurist, or court, or legislature would have for a
moment thought that, by any possibility, a law providing for the destruction of a building in which alcoholic
liquors were sold, was within a reasonable and lawful exercise of the police power. (Mugler vs. Kansas, 123
U. S., 623.) The development of civilization, the rapidly increasing population, the growth of public opinion,
with a desire on the part of the masses and of the government to look after and care for the interests of the
individuals of the state, have brought within the police power of the state many questions for regulation which
formerly were not so considered. In a republican form of government public sentiment wields a tremendous
influence upon what the state may or may not do, for the protection of the health and public morals of the
people. Yet, neither public sentiment, nor a desire to ameliorate the public morals of the people of the state
will justify the promulgation of a law which contravenes theexpress provisions of the fundamental law of the
people the constitutional of the state.
A definition of the police power of the state must depend upon the particular law and the particular facts to
which it is to be applied. The many definitions which have been given by the highest courts may be examined,
however, for the purpose of giving us a compass or guide to assist us in arriving at a correct conclusion in the
particular case before us. Sir William Blackstone, one of the greatest expounders of the common law, defines
the police power as "the due regulation and domestic order of the kingdom, whereby the inhabitants of a
state, like members of a well-governed family, are bound to conform their general behavior to the rules of
propriety, good neighborhood, and good manners, and to be decent, industrious, and inoffensive in their
respective stations." (4 Blackstone's Commentaries, 162.)
Mr. Jeremy Bentham, in his General View of Public Offenses, gives us the following definition: "Police is in
general a system of precaution, either for the prevention of crimes or of calamities. Its business may be
distributed into eight distinct branches: (1) Police for the prevention of offenses; (2) police for the prevention of
calamities; (3) police for the prevention of endemic diseased; (4) police of charity; (5) police of interior
communications; (6) police of public amusements; (7) police for recent intelligence; (8) police for registration."
Mr. Justice Cooley, perhaps the greatest expounder of the American Constitution, says: "The police power is
the power vested in the legislature by the constitution to make, ordain, and establish all manner of wholesome
and reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the
constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the subject of the
same. . . ." (Cooley's Constitutional Limitations, p. 830.)
In the case of Commonwealth of Massachusetts vs. Alger (7 Cushing, 53), we find a very comprehensive
definition of the police power of the state. In that case it appears that the colony of Massachusetts in 1647

adopted an Act to preserve the harbor of Boston and to prevent encroachments therein. The defendant
unlawfully erected, built, and established in said harbor, and extended beyond said lines and into and over the
tide water of the Commonwealth a certain superstructure, obstruction and encumbrance. Said Act provided a
penalty for its violation of a fine of not less than $1,000 nor more than $5,000 for every offense, and for the
destruction of said buildings, or structures, or obstructions as a public nuisance. Alger was arrested and
placed on trial for violation of said Act. His defense was that the Act of 1647 was illegal and void, because if
permitted the destruction of private property without compensation. Mr. Justice Shaw, speaking for the court in
that said, said: "We think it is a settled principle, growing out of the nature of well-ordered civil society, that
every holder of property, however absolute and unqualified may be his title, holds it under the implied liability
that his use of it may be so regulated, that it shall not be injurious to the equal environment of others having
an equal right to the enjoyment of their property nor injurious to the rights of the community. All property in this
commonwealth, as well that in the interior as that bordering on tide waters, is derived directly or indirectly from
the government and held subject to those general regulations, which are necessary to the common good and
general welfare. Rights of property, like all other social and conventional rights, are subject to such
reasonable limitations in their enjoyment, as shall prevent them from being injurious, and to such reasonable
restraints and regulations established by law, as the legislature, under the governing and controlling power
vested in them by the constitution, may think necessary and expedient." Mr. Justice Shaw further adds: ". . .
The power we allude to is rather the police power, the power vested in the legislature by the constitution, to
make, ordain and establish all manner of wholesome and reasonable laws, statutes and ordinances, either
with penalties or without, not repugnant to the constitution, as they shall judge to be for the good and welfare
of the commonwealth, and of the subjects of the same."
This court has, in the case of Case vs. Board of Health and Heiser (24 Phil., 250), in discussing the police
power of the state, had occasion to say: ". . . It is a well settled principle, growing out of the nature of wellordered and civilized society, that every holder of property, however absolute and unqualified may be his title,
holds it under the implied liability that his use of it shall not be injurious to the equal enjoyment of others
having an equal right to the enjoyment of their property, nor injurious to the rights of the community. All
property in the state is held subject to its general regulations, which are necessary to the common good and
general welfare. Rights of property, like all other social and conventional rights, are subject to such
reasonable limitations in their enjoyment as shall prevent them from being injurious, and to such reasonable
restraints and regulations, established by law, as the legislature, under the governing and controlling power
vested in them by the constitution, may think necessary and expedient. The state, under the police power is
possessed with plenary power to deal with all matters relating to the general health, morals, and safety of the
people, so long as it does not contravene any positive inhibition of the organic law and providing that such
power is not exercised in such a manner as to justify the interference of the courts to prevent positive wrong
and oppression."
Many other definitions have been given not only by the Supreme Court of the United States but by the
Supreme Court of every state of the Union. The foregoing definitions, however, cover the general field of all of
the definitions, found in jurisprudence. From all of the definitions we conclude that it is much easier to
perceive and realize the existence and sources of the police power than to exactly mark its boundaries, or
prescribe limits to its exercise by the legislative department of the government.
The most recent definition which has been called to our attention is that found in the case of
Adkins vs. Children's Hospital of the District of Columbia (261 U. S., 525). In that case the controversy arose
in this way: A children's hospital employed a number of women at various rates of wages, which were entirely
satisfactory to both the hospital and the employees. A hotel company employed a woman as elevator operator
at P35 per month and two meals a day under healthy and satisfactory conditions, and she did not risk to lose
her position as she could not earn so much anywhere else. Her wages were less than the minimum fixed by a
board created under a law for the purpose of fixing a minimum wage for women and children, with a penalty
providing a punishment for a failure or refusal to pay the minimum wage fixed. The wage paid by the hotel
company of P35 per month and two meals a day was less than the minimum wage fixed by said board. By

reason of the order of said board, the hotel company, was about to discharge her, as it was unwilling to pay
her more and could not give her employment at that salary without risking the penalty of a fine and
imprisonment under the law. She brought action to enjoin the hotel company from discharging her upon the
ground that the enforcement of the "Minimum Wage Act" would deprive her of her employment and wages
without due process of law, and that she could not get as good a position anywhere else. The constitutionality
of the Act was squarely presented to the Supreme Court of the United States for decision.
The Supreme Court of the United States held that said Act was void on the ground that the right to contract
about one's own affairs was a part of the liberty of the individual under the constitution, and that while there
was no such thing as absolute freedom of contract, and it was necessary subject to a great variety of
restraints, yet none of the exceptional circumstances, which at times justify a limitation upon one's right to
contract for his own services, applied in the particular case.
In the course of the decision in that case (Adkins vs. Children's Hospital of the District of Columbia, 261 U. S.,
525), Mr. Justice Sutherland, after a statement of the fact and making reference to the particular law, said:
The statute now under consideration is attacked upon the ground that it authorizes an unconstitutional
interference with the freedom of contract including within the guarantees of the due process clause of
the 5th Amendment. That the right to contract about one's affairs is a part of the liberty of the individual
protected by this clause is settled by the decision of this court, and is no longer open to question.
Within this liberty are contracts of employment of labor. In making such contracts, generally speaking,
the parties have an equal right to obtain from each other the best terms they can as the result of private
bargaining. (Allgeyer vs.Louisiana, 165 U. S., 578; 591; Adair vs. United States, 208 U. S., 161;
Muller vs. Oregon, 208 U. S., 412, 421.)
xxx

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xxx

The law takes account of the necessities of only one party to the contract. It ignores the necessities of
the employer by compelling him to pay not less than a certain sum, not only whether the employee is
capable of earning it, but irrespective of the ability of his business to sustain the burden, generously
leaving him, of course, the privilege of abandoning his business as an alternative for going on at a loss.
Within the limits of the minimum sum, he is precluded, under penalty of fine and imprisonment, from
adjusting compensation to the differing merits of his employees. It compels him to pay at least the sum
fixed in any event, because the employee needs it, but requires no service of equivalent value from the
employee. It (the law) therefore undertakes to solve but one-half of the problem. The other half is the
establishment of a corresponding standard of efficiency; and this forms no part of the policy of the
legislation, although in practice the former half without the latter must lead to ultimate failure, in
accordance with the inexorable law that no one can continue indefinitely to take out more than he puts
in without ultimately exhausting the supply. The law . . . takes no account of periods of distress and
business depression, or crippling losses, which may leave the employer himself without adequate
means of livelihood. To the extent that the sum fixed exceeds the fair value of the services rendered, it
amounts to a compulsory exaction from the employer for the support of a partially indigent person, for
whose condition there rests upon him no peculiar responsibility, and therefore, in effect, arbitrarily shifts
to his shoulders a burden which, if it belongs to anybody, belongs to society as a whole.
The failure of this state which, perhaps more than any other, puts upon it the stamp of invalidity is that it
exacts from the employer an arbitrary payment for a purpose and upon a basis having no casual
connection with his business, or the contract, or the work the employee engages to do. The declared
basis, as already pointed out, is not the value of the service rendered, but the extraneous
circumstances that the employee needs to get a prescribed sum of money to insure her subsistence,
health and morals. . . . The necessities of the employee are alone considered, and these arise outside
of the employment, are the same when there is no employment, and as great in one occupation as in
another. . . . In principle, there can be no difference between the case of selling labor and the case of

selling goods. If one goes to the butcher, the baker, or grocer to buy food, he is morally entitled to
obtain the worth of his money, but he is not entitle to more. If what he gets is worth what he pays, he is
not justified in demanding more simply because he needs more; and the shopkeeper, having dealt
fairly and honestly in that transaction, is not concerned in any peculiar sense with the question of his
customer's necessities. Should a statute undertake to vest in a commission power to determine the
quantity of food necessary for individual support, and require the shopkeeper, if he sell to the individual
at all, to furnish that quantity at not more than a fixed maximum, it would undoubtedly fall before the
constitutional test. The fallacy of any argument in support of the validity of such a statute would be
quickly exposed. The argument in support of that now being considered is equally fallacious, though
the weakness of it may not be so plain. . . .
It has been said that the particular statute before us is required in the interest of social justice for whose end
freedom of contract may lawfully be subjected to restraint. The liberty of the individual to do as he pleases,
even in innocent matters, is not absolute. That liberty must frequently yield to the common good, and the line
beyond which the power of interference may not be pressed is neither definite nor unalterable, may be made
to move, within limits not well defined, with changing needs and circumstances.
The late Mr. Justice Harlan, in the case of Adair vs. United States (208 U. S., 161, 174), said that the right of a
person to sell his labor upon such terms as he deems proper is, in its essence, the same as the right of the
purchaser of labor to prescribe the conditions upon which he will accept such labor from the person offering to
sell. In all such particulars the employer and the employee have equality of right, and any legislation that
disturbs that equality is an arbitrary interference with the liberty of contract, which no government can legally
justify in a free land, under a constitution which provides that no person shall be deprived of his liberty without
due process of law.
Mr. Justice Pitney, in the case of Coppage vs. Kansas (235 U. S., 1, 14), speaking for the Supreme Court of
the United States, said: ". . . Included in the right of personal liberty and the right of private property
partaking of the nature of each is the right to make contracts for the acquisition of property. Chief among
such contracts is that of personal employment, by which labor and other services are exchange for money or
other forms of property. If this right be struck down or arbitrarily interfered with, there is a substantial
impairment of liberty in the long established constitutional sense. The right is as essential to the laborer as to
the capitalist, to the poor as to the rich; for the vast majority of persons have no other honest way to begin to
acquire property, save by working for money."
The right to liberty includes the right to enter into contracts and to terminate contracts. In the case of
Gillespie vs.People (118 Ill., 176, 183-185) it was held that a statute making it unlawful to discharge an
employee because of his connection with any lawful labor organization, and providing a penalty therefor, is
void, since the right to terminate a contract, subject to liability to respond in a civil action for an unwarranted
termination, is within the protection of the state and Federal constitutions which guarantee that no person
shall be deprived of life, liberty or property without due process of law. The court said in part: ". . . One citizen
cannot be compelled to give employment to another citizen, nor can anyone be compelled to be employed
against his will. The Act of 1893, now under consideration, deprives the employer of the right to terminate his
contract with his employee. The right to terminate such a contract is guaranteed by the organic law of the
state. The legislature is forbidden to deprive the employer or employee of the exercise of that right. The
legislature has no authority to pronounce the performance of an innocent act criminal when the public health,
safety, comfort or welfare is not interfered with. The statute in question says that, if a man exercises his
constitutional right to terminate a contract with his employee, he shall, without a hearing, be punished as for
the commission of a crime.
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Liberty includes not only the right to labor, but to refuse to labor, and, consequently, the right to contract
to labor or for labor, and to terminate such contracts, and to refuse to make such contracts. The

legislature cannot prevent persons, who are sui juris, from laboring, or from making such contracts as
they may see fit to make relative to their own lawful labor; nor has it any power by penal laws to
prevent any person, with or without cause, from refusing to employ another or to terminate a contract
with him, subject only to the liability to respond in a civil action for an unwarranted refusal to do that
which has been agreed upon. Hence, we are of the opinion that this Act contravenes those provisions
of the state and Federal constitutions, which guarantee that no person shall be deprived of
life, liberty or property without due process of law.
The statute in question is exactly analogous to the "Minimum Wage Act" referred to above. In section 13 it will
be seen that no person, firm, or corporation owning or managing a factory shop, or place of labor of any
description, can make a contract with a woman without incurring the obligation, whatever the contract of
employment might be,unless he also promise to pay to such woman employed as a laborer, who may
become pregnant, her wages for thirty days before and thirty days after confinement. In other words, said
section creates a term or condition in every contract made by every person, firm, or corporation with any
woman who may, during the course of her employment, become pregnant, and a failure to include in said
contract the terms fixed to a fine and imprisonment. Clearly, therefore, the law has deprived, every person,
firm, or corporation owning or managing a factory, shop or place of labor of any description within the
Philippine Islands, of his right to enter into contracts of employment upon such terms as he and the employee
may agree upon. The law creates a term in every such contract, without the consent of the parties. Such
persons are, therefore, deprived of their liberty to contract. The constitution of the Philippine Islands
guarantees to every citizen his liberty and one of his liberties is the liberty to contract.
It is believed and confidently asserted that no case can be found, in civilized society and well-organized
governments, where individuals have been deprived of their property, under the police power of the state,
without compensation, except in cases where the property in question was used for the purpose of violating
some legally adopted, or constitutes a nuisance. Among such cases may be mentioned: Apparatus used in
counterfeiting the money of the state; firearms illegally possessed; opium possessed in violation of law;
apparatus used for gambling in violation of law; buildings and property used for the purpose of violating laws
prohibiting the manufacture and sale of intoxicating liquors; and all cases in which the property itself has
become a nuisance and dangerous and detrimental to the public health, morals and general welfare of the
state. In all of such cases, and in many more which might be cited, the destruction of the property is permitted
in the exercise of the police power of the state. But it must first be established that such property was used as
the instrument for the violation of a valid existing law. (Mugler vs. Kansas, 123 U. S., 623; Slaughter-House
Cases, 16 Wall., [U. S.], 36; Butchers' Union, etc., Co. vs.Crescent City, etc., Co., 111 U. S., 746 John Stuart
Mill "On Liberty," 28, 29.)
Without further attempting to define what are the peculiar subjects or limits of the police power, it may safely
be affirmed, that every law for the restraint and punishment of crimes, for the preservation of the public peace,
health, and morals, must come within this category. But the state, when providing by legislation for the
protection of the public health, the public morals, or the public safety, is subject to and is controlled by the
paramount authority of the constitution of the state, and will not be permitted to violate rights secured or
guaranteed by that instrument or interfere with the execution of the powers and rights guaranteed to the
people under their law the constitution. (Mugler vs. Kansas, 123 U. S., 623.)
The police power of the state is a growing and expanding power. As civilization develops and public
conscience becomes awakened, the police power may be extended, as has been demonstrated in the growth
of public sentiment with reference to the manufacture and sale of intoxicating liquors. But that power cannot
grow faster than the fundamental law of the state, nor transcend or violate the express inhibition of the
people's law the constitution. If the people desire to have the police power extended and applied to
conditions and things prohibited by the organic law, they must first amend that law.1awphil.net
It will also be noted from an examination of said section 13, that it takes no account of contracts for the
employment of women by the day nor by the piece. The law is equally applicable to each case. It will hardly

be contended that the person, firm or corporation owning or managing a factory, shop or place of labor, who
employs women by the day or by the piece, could be compelled under the law to pay for sixty days during
which no services were rendered.
It has been decided in a long line of decisions of the Supreme Court of the United States, that the right to
contract about one's affairs is a part of the liberty of the individual, protected by the "due process of law"
clause of the constitution. (Allgeyer vs. Louisiana, 165 U. S., 578, 591; New York Life Ins. Co. vs. Dodge, 246
U. S., 357, 373, 374; Coppage vs. Kansas, 236 U. S., 1, 10, 14; Adair vs. United States, 208 U. S., 161;
Lochner vs. New York, 198 U. S.; 45, 49; Muller vs. Oregon, 208 U. S., 412, 421.)
The rule in this jurisdiction is, that the contracting parties may establish any agreements, terms, and
conditions they may deem advisable, provided they are not contrary to law, morals or public policy. (Art. 1255,
Civil Code.)
For all of the foregoing reasons, we are fully persuaded, under the facts and the law, that the provisions of
section 13, of Act No. 3071 of the Philippine Legislature, are unconstitutional and void, in that they violate and
are contrary to the provisions of the first paragraph of section 3 of the Act of Congress of the United States of
August 29, 1916. (Vol. 12, Public Laws, p. 238.)
Therefore, the sentence of the lower court is hereby revoked, the complaint is hereby dismissed, and the
defendant is hereby discharged from the custody of the law, with costs de oficio. So ordered.
Street, Malcolm, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19124

November 18, 1967

INVESTMENT PLANNING CORPORATION OF THE PHILIPPINES, petitioner-appellant,

vs.
SOCIAL SECURITY SYSTEM, respondent-appellee.
MAKALINTAL, J.:
Petitioner is a domestic corporation engaged in business management and the sale of securities. It has two
classes of agents who sell its investment plans: (1) salaried employees who keep definite hours and work
under the control and supervision of the company; and (2) registered representatives who work on
commission basis.
On August 27, 1960 petitioner, through counsel, applied to respondent Social Security Commission for
exemption of its so-called registered representatives from the compulsory coverage of the Social Security Act.
The application was denied in a letter signed by the Secretary to the Commission on January 16, 1961. A
motion to reconsider was filed and also denied, after hearing, by the Commission itself in its resolution dated
September 8, 1961. The matter was thereafter elevated to this Court for review.
The issue submitted for decision here is whether petitioner's registered representatives are employees within
the meaning of the Social Security Act (R.A. No. 1161 as amended). Section 8 (d) thereof defines the term
"employee" for purposes of the Act as "any person who performs services for an 'employer' in which

either or both mental and physical efforts are used and who receives compensation for such services, where
there is, employer-employee relationship." (As amended by Sec.4, R.A. No. 2658). These representatives are
in reality commission agents. The uncontradicted testimony of petitioner's lone witness, who was its assistant
sales director, is that these agents are recruited and trained by him particularly for the job of selling "'Filipinos
Mutual Fund" shares, made to undergo a test after such training and, if successful, are given license to
practice by the Securities and Exchange Commission. They then execute an agreement with petitioner with
respect to the sale of FMF shares to the general public. Among the features of said agreement which
respondent Commission considered pertinent to the issue are: (a) an agent is paid compensation for services
in the form of commission; (b) in the event of death or resignation he or his legal representative shall be paid
the balance of the commission corresponding to him; (c) he is subject to a set of rules and regulations
governing the performance of his duties under the agreement; (d) he is required to put up a performance
bond; and (e) his services may be terminated for certain causes. At the same time the Commission found
from the evidence and so stated in its resolution that the agents "are not required to report (for work) at any
time; they do not have to devote their time exclusively to or work solely for petitioner; the time and the effort
they spend in their work depend entirely upon their own will and initiative; they are not required to account for
their time nor submit a record of their activities; they shoulder their own selling expenses as well as
transportation; and they are paid their commission based on a certain percentage of their sales." The record
also reveals that the commission earned by an agent on his sales is directly deducted by him from the amount
he receives from the investor and turns over to the company the amount invested after such deduction is
made. The majority of the agents are regularly employed elsewhere either in the government or in private
enterprises.
Of the three requirements under Section 8 (d) of the Social Security Act it is admitted that the first is present in
respect of the agents whose status is in question. They exert both mental and physical efforts in the
performance of their services. The compensation they receive, however, is not necessarily for those efforts
but rather for the results thereof, that is, for actual sales that they make. This point is relevant in the
determination of whether or not the third requisite is also present, namely, the existence of employeremployee relationship. Petitioner points out that in effect such compensation is paid not by it but by the
investor, as shown by the basis on which the amount of the commission is fixed and the manner in which it is
collected.
Petitioner submits that its commission agents, engaged under the terms and conditions already enumerated,
are not employees but independent contractors, as defined in Article 1713 of the Civil Code, which provides:
Art. 1713. By the contract for a piece of work the contractor binds himself to execute a piece of work for
the employer, in consideration of a certain price or compensation. The contractor may either employ
only his labor or skill, or also furnish the material.
We are convinced from the facts that the work of petitioner's agents or registered representatives more nearly
approximates that of an independent contractor than that of an employee. The latter is paid for the labor he
performs, that is, for the acts of which such labor consists; the former is paid for the result thereof. This Court
has recognized the distinction in Chartered Bank, et al. vs. Constantino, 56 Phil. 717, where it said:
On this point, the distinguished commentator Manresa in referring to Article 1588 of the (Spanish) Civil
Code has the following to say. . . .
The code does not begin by giving a general idea of the subject matter, but by fixing its two
distinguishing characteristics.
But such an idea was not absolutely necessary because the difference between the lease of work by
contract or for a fixed price and the lease of services of hired servants or laborers is sufficiently clear. In
the latter, the direct object of the contract is the lessor's labor; the acts in which such labor consists,
performed for the benefit of the lessee, are taken into account immediately. In work done by contract or

for a fixed price, the lessor's labor is indeed an important, a most important factor; but it is not the direct
object of the contract, nor is it immediately taken into account. The object which the parties consider,
which they bear in mind in order to determine the cause of the contract, and upon which they really
give their consent, is not the labor but its result, the complete and finished work, the aggregate of the
lessor's acts embodied in something material, which is the useful object of the contract. . . . (Manresa
Commentarios al Codigo Civil, Vol. X, ed., pp. 774-775.)
Even if an agent of petitioner should devote all of his time and effort trying to sell its investment plans would
not necessarily be entitled to compensation therefor. His right to compensation depends upon and is
measured by the tangible results he produces.
The specific question of when there is "employer-employee relationship" for purposes of the Social Security
Act has not yet been settled in this jurisdiction by any decision of this Court. But in other connections wherein
the term is used the test that has been generally applied is the so-called control test, that is, whether the
"employer" controls or has reserved the right to control the "employee" not only as to the result of the work to
be done but also as to the means and methods by which the same is to be accomplished.
Thus in Philippine Manufacturing Company vs. Geronimo, et al., L-6968, November 29, 1954, involving the
Workmen's Compensation Act, we read:
. . . Garcia, a painting contractor, had a contract undertaken to paint a water tank belonging to the
Company "in accordance with specifications and price stipulated," and with "the actual supervision of
the work (being) taken care of by" himself. Clearly, this made Garcia an independent contractor, for
while the company prescribed what should be done, the doing of it and the supervision thereof was left
entirely to him, all of which meant that he was free to do the job according to his own method without
being subject to the control of the company except as to the result.
Cruz, et al. vs. The Manila Hotel Company, L-9110, April 30, 1957, presented the issue of who were to be
considered employees of the defendant firm for purposes of separation gratuity. LVN Pictures, Inc. vs. Phil.
Musicians Guild, et al., L-12582, January 28, 1961, involved the status of certain musicians for purposes of
determining the appropriate bargaining representative of the employees. In both instances the "control" test
was followed. (See also Mansal vs. P.P. Gocheco Lumber Co., L-8017, April 30, 1955; and Viana vs.
Allagadan, et al., L-8967, May 31, 1956.)
In the United States, the Federal Social Security Act of 1935 set forth no definition of the term 'employee'
other than that it 'includes an officer of a corporation.' Under that Act the U.S. Supreme Court adopted for a
time and in several cases the so-called 'economic-reality' test instead of the 'control' test. (U.S. vs. Silk and
Harrison, 91 Law Ed. 1757; Bartels vs. Birmingham, Ibid, 1947, both decided in June 1947). In the Bartels
case the Court said:
In United States v. Silk, No. 312, 331 US 704, ante, 1957, 67 SCt 1463, supra, we held that the
relationship of employer-employee, which determines the liability for employment taxes under the
Social Security Act was not to be determined solely by the idea of control which an alleged employer
may or could exercise over the details of the service rendered to his business by the worker or
workers. Obviously control is characteristically associated with the employer-employee relationship, but
in the application of social legislation employees are those who as a matter of economic reality are
dependent upon the business to which they render service. In Silk, we pointed out that permanency of
the relation, the skill required, the investment in the facilities for work and opportunities for profit or less
from the activities were also factors that should enter into judicial determination as to the coverage of
the Social Security Act. It is the total situation that controls. The standards are as important in the
entertainment field as we have just said, in Silk, that they were in that of distribution and transportation.
(91 Law, Ed. 1947, 1953;)

However, the 'economic-reality' test was subsequently abandoned as not reflective of the intention of
Congress in the enactment of the original Security Act of 1935. The change was accomplished by means of
an amendatory Act passed in 1948, which was construed and applied in later cases. In Benson vs. Social
Security Board, 172 F. 2d. 682, the U.S. Supreme Court said:
After the decision by the Supreme Court in the Silk case, the Treasury Department revamped its
Regulation, 12 Fed. Reg. 7966, using the test set out in the Silk case for determining the existence of
an employer-employee relationship. Apparently this was not the concept of such a relationship that
Congress had in mind in the passage of such remedial acts as the one involved here because
thereafter on June 14, 1948, Congress enacted Public Law 642, 42 U.S C.A. Sec. 1301 (a) (6). Section
1101(a) (6) of the Social Security Act was amended to read as follows:
The term "employee" includes an officer of a corporation, but such term does not include (1) any
individual who, under the usual common-law rules applicable in determining the employeremployee relationship, has the status of an independent contractor or (2) any individual (except
an officer of a corporation) who is not an employee under such common law rules.
While it is not necessary to explore the full effect of this enactment in the determination of the existence
of employer-employee relationships arising in the future, we think it can fairly be said that the intent of
Congress was to say that in determining in a given case whether under the Social Security Act such a
relationship exists, the common-law elements of such a relationship, as recognized and applied by the
courts generally at the time of the passage of the Act, were the standard to be used . . . .
The common-law principles expressly adopted by the United States Congress are summarized in Corpus
Juris Secundum as follows:
Under the common-law principles as to tests of the independent contractor relationship, discussed in
Master and Servant, and applicable in determining coverage under the Social Security Act and related
taxing provisions, the significant factor in determining the relationship of the parties is the presence or
absence of a supervisory power to control the method and detail of performance of the service, and the
degree to which the principal may intervene to exercise such control, the presence of such power of
control being indicative of an employment relationship and the absence of such power being indicative
of the relationship of independent contractor. In other words, the test of existence of the relationship of
independent contractor, which relationship is not taxable under the Social Security Act and related
provisions, is whether the one who is claimed to be an independent contractor has contracted to do the
work according to his own methods and without being subject to the control of the employer except as
to the result of the work. (81 C.J.S. Sec. 5, pp. 24-25); See also Millard's Inc. vs. United States, 46 F.
Supp. 385; Schmidt vs. Ewing, 108 F. Supp. 505; Ramblin vs. Ewing, 106 F. Supp. 268.
In the case last cited (Rambin v. Ewing) the question presented was whether the plaintiff there, who was a
sales representative of a cosmetics firm working on a commission basis, was to be considered an employee.
Said the Court:
Plaintiff's only remuneration was her commission of 40%, plus $5 extra for every $250 of sales. Plaintiff
was not guaranteed any minimum compensation and she was not allowed a drawing account or
advance of any kind against unearned commissions. Plaintiff paid all of her traveling expenses and she
even had to pay the postage for sending orders to Avon.
The only office which Avon maintained in Shreveport was an office for the city manager. Plaintiff
worked from her own home and she was never furnished any leads. The relationship between plaintiff
and Avon was terminable at will . . .
xxx

xxx

xxx

. . . A long line of decisions holds that commission sales representatives are not employees within the
coverage of the Social Security Act. The underlying circumstances of the relationship between the
sales representatives and company often vary widely from case to case, but commission sales
representatives have uniformly been held to be outside the Social Security Act.
Considering the similarity between the definition of "employee" in the Federal Social Security Act (U.S.) as
amended and its definitions in our own Social Security Act, and considering further that the local statute is
admittedly patterned after that of the United States, the decisions of American courts on the matter before us
may well be accorded persuasive force. The logic of the situation indeed dictates that where the element of
control is absent; where a person who works for another does so more or less at his own pleasure and is not
subject to definite hours or conditions of work, and in turn is compensated according to the result of his efforts
and not the amount thereof, we should not find that the relationship of employer and employee exists.
We have examined the contract form between petitioner and its registered representatives and found nothing
therein which would indicate that the latter are under the control of the former in respect of the means and
methods they employ in the performance of their work. The fact that for certain specified causes the
relationship may be terminated (e.g., failure to meet the annual quota of sales, inability to make any sales
production during a six-month period, conduct detrimental to petitioner, etc.) does not mean that such control
exists, for the causes of termination thus specified have no relation to the means and methods of work that
are ordinarily required of or imposed upon employees.
In view of the foregoing considerations, the resolution of respondent Social Security Commission subject of
this appeal is reversed and set aside, without pronouncement as to costs.
Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Concepcion, C.J., took no part part.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-32245 May 25, 1979
DY KEH BENG, petitioner,
vs.
INTERNATIONAL LABOR and MARINE UNION OF THE PHILIPPINES, ET AL., respondents.
A. M Sikat for petitioner.
D. A. Hernandez for respondents.

DE CASTRO, J.:
Petitioner Dy Keh Beng seeks a review by certiorari of the decision of the Court of Industrial Relations dated
March 23, 1970 in Case No. 3019-ULP and the Court's Resolution en banc of June 10, 1970 affirming said
decision. The Court of Industrial Relations in that case found Dy Keh Beng guilty of the unfair labor practice
acts alleged and order him to

reinstate Carlos Solano and Ricardo Tudla to their former jobs with backwages from their
respective dates of dismissal until fully reinstated without loss to their right of seniority and of
such other rights already acquired by them and/or allowed by law. 1
Now, Dy Keh Beng assigns the following errors 2 as having been committed by the Court of Industrial
Relations:
I
RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO AND TUDLA
WERE EMPLOYEES OF PETITIONERS.
II
RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO AND TUDLA
WERE DISMISSED FROM THEIR EMPLOYMENT BY PETITIONER.
III
RESPONDENT COURT ERRED IN FINDING THAT THE TESTIMONIES ADDUCED BY
COMPLAINANT ARE CONVINCING AND DISCLOSES (SIC) A PATTERN OF
DISCRIMINATION BY THE PETITIONER HEREIN.
IV
RESPONDENT COURT ERRED IN DECLARING PETITIONER GUILTY OF UNFAIR LABOR
PRACTICE ACTS AS ALLEGED AND DESCRIBED IN THE COMPLAINT.
V
RESPONDENT COURT ERRED IN PETITIONER TO REINSTATE RESPONDENTS TO THEIR
FORMER JOBS WITH BACKWAGES FROM THEIR RESPECTIVE DATES OF DISMISSALS
UNTIL FINALLY REINSTATED WITHOUT LOSS TO THEIR RIGHT OF SENIORITY AND OF
SUCH OTHER RIGHTS ALREADY ACQUIRED BY THEM AND/OR ALLOWED BY LAW.
The facts as found by the Hearing Examiner are as follows:
A charge of unfair labor practice was filed against Dy Keh Beng, proprietor of a basket factory, for
discriminatory acts within the meaning of Section 4(a), sub-paragraph (1) and (4). Republic Act No. 875, 3 by
dismissing on September 28 and 29, 1960, respectively, Carlos N. Solano and Ricardo Tudla for their union
activities. After preliminary investigation was conducted, a case was filed in the Court of Industrial Relations
for in behalf of the International Labor and Marine Union of the Philippines and two of its members, Solano
and Tudla In his answer, Dy Keh Beng contended that he did not know Tudla and that Solano was not his
employee because the latter came to the establishment only when there was work which he did
on pakiaw basis, each piece of work being done under a separate contract. Moreover, Dy Keh Beng
countered with a special defense of simple extortion committed by the head of the labor union, Bienvenido
Onayan.
After trial, the Hearing Examiner prepared a report which was subsequently adopted in toto by the Court of
Industrial Relations. An employee-employer relationship was found to have existed between Dy Keh Beng
and complainants Tudla and Solano, although Solano was admitted to have worked on piece basis. 4 The
issue therefore centered on whether there existed an employee employer relation between petitioner Dy Keh
Beng and the respondents Solano and Tudla .

According to the Hearing Examiner, the evidence for the complainant Union tended to show that Solano and
Tudla became employees of Dy Keh Beng from May 2, 1953 and July 15, 1955, 5 respectively, and that
except in the event of illness, their work with the establishment was continuous although their services were
compensated on piece basis. Evidence likewise showed that at times the establishment had eight (8) workers
and never less than five (5); including the complainants, and that complainants used to receive ?5.00 a day.
sometimes less. 6
According to Dy Keh Beng, however, Solano was not his employee for the following reasons:
(1) Solano never stayed long enought at Dy's establishment;
(2) Solano had to leave as soon as he was through with the
(3) order given him by Dy;
(4) When there were no orders needing his services there was nothing for him to do;
(5) When orders came to the shop that his regular workers could not fill it was then that Dy went
to his address in Caloocan and fetched him for these orders; and
(6) Solano's work with Dy's establishment was not continuous. ,

According to petitioner, these facts show that respondents Solano and Tudla are only piece workers, not
employees under Republic Act 875, where an employee 8 is referred to as
shall include any employee and shag not be limited to the employee of a particular employer
unless the Act explicitly states otherwise and shall include any individual whose work has
ceased as a consequence of, or in connection with any current labor dispute or because of any
unfair labor practice and who has not obtained any other substantially equivalent and regular
employment.
while an employer 9
includes any person acting in the interest of an employer, directly or indirectly but shall not
include any labor organization (otherwise than when acting as an employer) or anyone acting in
the capacity of officer or agent of such labor organization.
Petitioner really anchors his contention of the non-existence of employee-employer relationship on the control
test. He points to the case of Madrigal Shipping Co., Inc. v. Nieves Baens del Rosario, et al., L-13130,
October 31, 1959, where the Court ruled that:
The test ... of the existence of employee and employer relationship is whether there is an
understanding between the parties that one is to render personal services to or for the benefit of
the other and recognition by them of the right of one to order and control the other in the
performance of the work and to direct the manner and method of its performance.
Petitioner contends that the private respondents "did not meet the control test in the fight of the ... definition of
the terms employer and employee, because there was no evidence to show that petitioner had the right to
direct the manner and method of respondent's work. 10 Moreover, it is argued that petitioner's evidence
showed that "Solano worked on a pakiaw basis" and that he stayed in the establishment only when there was
work.
While this Court upholds the control test 11 under which an employer-employee relationship exists "where the
person for whom the services are performed reserves a right to control not only the end to be achieved but

also the means to be used in reaching such end, " it finds no merit with petitioner's arguments as stated
above. It should be borne in mind that the control test calls merely for the existence of the right to control the
manner of doing the work, not the actual exercise of the right. 12 Considering the finding by the Hearing
Examiner that the establishment of Dy Keh Beng is "engaged in the manufacture of baskets known
as kaing, 13 it is natural to expect that those working under Dy would have to observe, among others, Dy's
requirements of size and quality of the kaing. Some control would necessarily be exercised by Dy as the
making of the kaing would be subject to Dy's specifications. Parenthetically, since the work on the baskets is
done at Dy's establishments, it can be inferred that the proprietor Dy could easily exercise control on the men
he employed.
As to the contention that Solano was not an employee because he worked on piece basis, this Court agrees
with the Hearing Examiner that
circumstances must be construed to determine indeed if payment by the piece is just a method
of compensation and does not define the essence of the relation. Units of time ... and units of
work are in establishments like respondent (sic) just yardsticks whereby to determine rate of
compensation, to be applied whenever agreed upon. We cannot construe payment by the piece
where work is done in such an establishment so as to put the worker completely at liberty to turn
him out and take in another at pleasure.
At this juncture, it is worthy to note that Justice Perfecto, concurring with Chief Justice Ricardo Paras who
penned the decision in "Sunrise Coconut Products Co. v. Court of Industrial Relations" (83 Phil..518, 523),
opined that
judicial notice of the fact that the so-called "pakyaw" system mentioned in this case as generally
practiced in our country, is, in fact, a labor contract -between employers and employees,
between capitalists and laborers.
Insofar as the other assignments of errors are concerned, there is no showing that the Court of Industrial
Relations abused its discretion when it concluded that the findings of fact made by the Hearing Examiner
were supported by evidence on the record. Section 6, Republic Act 875 provides that in unfair labor practice
cases, the factual findings of the Court of Industrial Relations are conclusive on the Supreme Court, if
supported by substantial evidence. This provision has been put into effect in a long line of decisions where the
Supreme Court did not reverse the findings of fact of the Court of Industrial Relations when they were
supported by substantial evidence.14
Nevertheless, considering that about eighteen (18) years have already elapsed from the time the
complainants were dismissed, 15 and that the decision being appealed ordered the payment of backwages to
the employees from their respective dates of dismissal until finally reinstated, it is fitting to apply in this
connection the formula for backwages worked out by Justice Claudio Teehankee in "cases not terminated
sooner." 16 The formula cans for fixing the award of backwages without qualification and deduction to three
years, "subject to deduction where there are mitigating circumstances in favor of the employer but subject to
increase by way of exemplary damages where there are aggravating circumstances. 17Considering there are
no such circumstances in this case, there is no reason why the Court should not apply the abovementioned
formula in this instance.
WHEREFORE; the award of backwages granted by the Court of Industrial Relations is herein modified to an
award of backwages for three years without qualification and deduction at the respective rates of
compensation the employees concerned were receiving at the time of dismissal. The execution of this award
is entrusted to the National Labor Relations Commission. Costs against petitioner.
SO ORDERED.

SECOND DIVISION
[G.R. No. 118794. May 8, 1996]
PHILIPPINE REFINING COMPANY (now known as UNILEVER PHILIPPINES [PRC], INC.), petitioner,
vs. COURT OF APPEALS, COURT OF TAX APPEALS, and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF TAX APPEALS, GENERALLY
UPHELD ON APPEAL; CASE AT BENCH. The Court of Tax Appeals is a highly specialized body
specifically created for the purpose of reviewing tax cases. Through its expertise, it is undeniably
competent to determine the issue of whether or not the debt is deductible through the evidence presented
before it. Because of this recognized expertise, the findings of the CTA will not ordinarily be reviewed
absent a showing of gross error or abuse on its part. The findings of fact of the CTA are binding on this
Court and in the absence of strong reasons for this Court to delve into facts, only questions of law are
open for determination. Were it not, therefore, due to the desire of this Court to satisfy petitioners calls for
clarification and to use this case as a vehicle for exemplification, this appeal could very well have been
summarily dismissed.
2. TAXATION; NATIONAL INTERNAL REVENUE CODE; INCOME TAX; BAD DEBTS; REQUISITES FOR
DEDUCTION. For debts to be considered as worthless, and thereby qualify as bad debts making them
deductible, the taxpayer should show that (1) there is a valid and subsisting debt; (2) the debt must be
actually ascertained to be worthless and uncollectible during the taxable year; (3) the debt must be
charged off during the taxable year; and (4) the debt must arise from the business or trade of the
taxpayer. Additionally, before a debt can be considered worthless, the taxpayer must also show that it is
indeed uncollectible even in the future. Furthermore, there are steps outlined to be undertaken by the
taxpayer to prove that he exerted diligent efforts to collect the debts, viz: (1) sending of statement of
accounts; (2) sending of collection letters; (3) giving the account to a lawyer for collection; and (4) filing a
collection case in court.
3. ID.; ID.; ID.; DEFICIENCY TAX ASSESSMENT; FAILURE TO PAY WITHIN 30 DAYS RENDERS
TAXPAYER LIABLE FOR PAYMENT OF 25% SURCHARGE AND 20% INTEREST. As correctly pointed
out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the
demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30)
days from receipt thereof. By reason of petitioners default thereon, the delinquency penalties of 25%
surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the
assessment to the CTA and that the same was modified does not relieve petitioner of the penalties
incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of
P1,892,584.00.
4. ID.; TAX LAWS IMPOSING PENALTIES FOR DELINQUENCIES, INTENDED TO HASTEN PAYMENT OF
TAXES. Tax laws imposing penalties for delinquencies, so we have long held, are intended to hasten tax
payments by punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for
flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the
maintenance of the Government and its multifarious activities will be adversely affected.
5. ID.; NATIONAL INTERNAL REVENUE CODE; COLLECTION OF PENALTY AND INTEREST IN CASE OF
DELINQUENCY, MANDATORY. We have likewise explained that it is mandatory to collect penalty and
interest at the stated rate in case of delinquency. The intention of the law is to discourage delay in the
payment of taxes due the Government and, in this sense, the penalty and interest are not penal but

compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed
to have paid them to the Government.
APPEARANCES OF COUNSEL
Antonio H. Garces for petitioner.
The Solicitor General for respondents.
DECISION
REGALADO, J.:
This is an appeal by certiorari from the decision of respondent Court of Appeals 1 affirming the decision of
the Court of Tax Appeals which disallowed petitioners claim for deduction as bad debts of several accounts in
the total sum of P395,324.27, and imposing a 25% surcharge and 20% annual delinquency interest on the
alleged deficiency income tax liability of petitioner.
Petitioner Philippine Refining Company (PRC) was assessed by respondent Commissioner of Internal
Revenue (Commissioner) to pay a deficiency tax for the year 1985 in the amount of P1,892,584.00, computed
as follows:
Deficiency Income Tax
Net Income per investigation P197,502,568.00
Add: Disallowances
Bad Debts P 713,070.93
Interest Expense P2.666.545.49 P3.379.616.00
Net Taxable Income P200.882.184.00
Tax Due Thereon P 70,298,764.00
Less: Tax Paid P 69,115,899.00
Deficiency Income Tax P 1,182,865.00
Add: 20% Interest (60% max.) P 709.719.00
Total Amount Due and Collectible P 1.892.584.002
The assessment was timely protested by petitioner on April 26, 1989, on the ground that it was based on
the erroneous disallowances of bad debts and interest expense although the same are both allowable and
legal deductions. Respondent Commissioner, however, issued a warrant of garnishment against the deposits
of petitioner at a branch of City Trust Bank, inMakati, Metro Manila, which action the latter considered as a
denial of its protest.
Petitioner accordingly filed a petition for review with the Court of Tax Appeals (CTA) on the same
assignment of error, that is, that the bad debts and interest expense are legal and allowable deductions. In its
decision3 of February 3, 1993 in C.T.A. Case No. 4408, the CTA modified the findings of

the Commissioner by reducing the deficiency income tax assessment to P237,381.26, with surcharge and
interest incident to delinquency. In said decision, the Tax Court reversed and set aside the Commissioners
disallowance of the supposed interest expense of P2,666,545.19 but maintained the disallowance of the bad
debts of thirteen (13) debtors in the total sum of P395,324.27.
Petitioner then elevated the case to respondent Court of Appeals which, as earlier stated, denied due
course to the petition for review and dismissed the same on August 24, 1994 in CA-G.R. S.P. No. 31190,4 on
the following ratiocination:
We agree with respondent Court of Tax Appeals:
Out of the sixteen (16) accounts alleged as bad debts, We find that only three (3) accounts have met the
requirements of the worthlessness of the accounts, hence were properly written off as bad debts, namely:
1. Petronila Catap P29,098.30
(Pet Mini Grocery)
2. Esther Guinto 254,375.54
(Esther Sari-sari Store)
3. Manuel Orea 34,272.82
(Elman Gen. Mdsg.)
TOTAL P317,746.66
xxx xxx xxx
With regard to the other accounts, namely:
1. Remoblas Store P 11,961.00
2. Tomas Store 16,842.79
3. AFPCES 13,833.62
4. CM Variety Store 10,895.82
5. URen Mart Enterprise 10,487.08
6. Aboitiz Shipping Corp. 89,483.40
7. J. Ruiz Trucking 69,640.34
8. Renato Alejandro 13,550.00
9. Craig, Mostyn Pty. Ltd. 23,738.00
10. C. Itoh 19,272.22
11. Crocklaan B. V. 77,690.00
12. Enriched Food Corp. 24,158.00

13. Lucito Sta. Maria 13,772.00

TOTAL P395,324.27
We find that said accounts have not satisfied the requirements of the worthlessness of a debt. Mere
testimony of the Financial Accountant of the Petitioner explaining the worthlessness of said debts is seen by
this Court as nothing more than a self-serving exercise which lacks probative value. There was no iota of
documentary evidence (e. g., collection letters sent, report from investigating fieldmen, letter of referral to their
legal department, police report/affidavit that the owners were bankrupt due to fire that engulfed their stores or
that the owner has been murdered, etc.), to give support to the testimony of an employee of the Petitioner.
Mere allegations cannot prove the worthlessness of such debts in 1985. Hence, the claim for deduction of
these thirteen (13) debts should be rejected.5
1. This pronouncement of respondent Court of Appeals relied on the ruling of this Court in Collector vs.
Goodrich International Rubber Co.,6 which established the rule in determining the worthlessness of a debt. In
said case, we held that for debts to be considered as worthless, and thereby qualify as bad debts making
them deductible, the taxpayer should show that (1) there is a valid and subsisting debt; (2) the debt must be
actually ascertained to be worthless and uncollectible during the taxable year; (3) the debt must be charged
off during the taxable year; and (4) the debt must arise from the business or trade of the taxpayer. Additionally,
before a debt can be considered worthless, the taxpayer must also show that it is indeed uncollectible even in
the future.
Furthermore, there are steps outlined to be undertaken by the taxpayer to prove that he exerted diligent
efforts to collect the debts, viz: (1) sending of statement of accounts; (2) sending of collection letters; (3)
giving the account to a lawyer for collection; and (4) filing a collection case in court.
On the foregoing considerations, respondent Court of Appeals held that petitioner did not satisfy the
requirements of worthlessness of a debt as to the thirteen (13) accounts disallowed as deductions.
It appears that the only evidentiary support given by PRC for its aforesaid claimed deductions was the
explanation or justification posited by its financial adviser or accountant. Guia D. Masagana. Her allegations
were not supported by any documentary evidence, hence, both the Court of Appeals and the CTA ruled that
said contentions per se cannot prove that the debts were indeed uncollectible and can be considered as bad
debts as to make them deductible. That both lower courts are correct is shown by petitioners own submission
and the discussion thereof which we have taken time and patience to cull from the antecedent proceedings in
this case, albeit bordering on factual settings.
The accounts of Remoblas Store in the amount of P11,961.00 and CM Variety Store in the amount of
P10,895.82 are uncollectible, according to petitioner, since the stores were burned in November, 1984 and in
early 1985, respectively, and there are no assets belonging to the debtors that can be garnished by
PRC.7 However, PRC failed to show any documentary evidence for said allegations. Not a single document
was offered to show that the stores were burned, even just a police report or an affidavit attesting to such loss
by fire. In fact, petitioner did not send even a single demand letter to the owners of said stores.
The account of Tomas Store in the amount of P16,842.79 is uncollectible, claims petitioner PRC, since the
owner thereof was murdered and left no visible assets which could satisfy the debt. Withal, just like the
accounts of the two other stores just mentioned, petitioner again failed to present proof of the efforts exerted
to collect the debt, other than the aforestated asseverations of its financial adviser.
The accounts of Aboitiz Shipping Corporation and J. Ruiz Trucking in the amounts of P89,483.40 and
P69,640.34, respectively, both of which allegedly arose from the hijacking of their cargo and for which they
were given 30% rebates by PRC, are claimed to be uncollectible. Again, petitioner failed to present an iota of

proof, not even a copy of the supposed policy regulation of PRC that it gives rebates to clients in case of loss
arising from fortuitous events or force majeure, which rebates it now passes off as uncollectible debts.
As to the account of P13,550.00 representing the balance collectible from Renato Alejandro, a former
employee who failed to pay the judgment against him, it is petitioners theory that the same can no longer be
collected since his whereabouts are unknown and he has no known property which can be garnished or
levied upon. Once again, petitioner failed to prove the existence of the said case against that debtor or to
submit any documentation to show that Alejandro was indeed bound to pay any judgment obligation.
The amount of P13,772.00 corresponding to the debt of Lucito Sta. Maria is allegedly due to the loss of
his stocks through robbery and the account is uncollectible due to his insolvency. Petitioner likewise failed to
submit documentary evidence, not even the written reports of the alleged investigation conducted by its
agents as testified to by its aforenamed financial adviser. Regarding the accounts of C. Itoh in the amount of
P19,272.22, Crocklaan B.V. in the sum of P77,690.00, and Craig, Mostyn Pty. Ltd. with a balance of
P23,738.00, petitioner contends that these debtors being foreign corporations, it can sue them only in their
country of incorporation; and since this will entail expenses more than the amounts of the debts to be
collected, petitioner did not file any collection suit but opted to write them off as bad debts. Petitioner was
unable to show proof of its efforts to collect the debts, even by a single demand letter therefor. While it is not
required to file suit, it is at least expected by the law to produce reasonable proof that the debts are
uncollectible although diligent efforts were exerted to collect the same.
The account of Enriched Food Corporation in the amount of P24,158.00 remains unpaid, although
petitioner claims that it sent several letters. This is not sufficient to sustain its position, even if true, but even
smacks of insouciance on its part. On top of that, it was unable to show a single copy of the alleged demand
letters sent to the said corporation or any of its corporate officers.
With regard to the account of AFPCES for unpaid supplies in the amount of P13,833.62, petitioner asserts
that since the debtor is an agency of the government, PRC did not file a collection suit therefor. Yet, the mere
fact that AFPCES is a government agency does not preclude PRC from filing suit since said agency, while
discharging proprietary functions, does not enjoy immunity from suit. Such pretension of petitioner cannot
pass judicial muster.
No explanation is offered by petitioner as to why the unpaid account of URen Mart Enterprise in the
amount of P10,487.08 was written off as a bad debt. However, the decision of the CTA includes this debtor in
its findings on the lack of documentary evidence to justify the deductions claimed, since the worthlessness of
the debts involved are sought to be established by the mere self-serving testimony of its financial consultant.
The contentions of PRC that nobody is in a better position to determine when an obligation becomes a
bad debt than the creditor itself, and that its judgment should not be substituted by that of respondent court as
it is PRC which has the facilities in ascertaining the collectibility or uncollectibility of these debts, are
presumptuous and uncalled for. The Court of Tax Appeals is a highly specialized body specifically created for
the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to determine the issue of
whether or not the debt is deductible through the evidence presented before it. 8
Because of this recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a
showing of gross error or abuse on its part. 9 The findings of fact of the CTA are binding on this Court and in
the absence of strong reasons for this Court to delve into facts, only questions of law are open for
determination.10 Were it not, therefore, due to the desire of this Court to satisfy petitioners calls for clarification
and to use this case as a vehicle for exemplification, this appeal could very well have been summarily
dismissed.
The Court vehemently rejects the absurd thesis of petitioner that despite the supervening delay in the tax
payment, nothing is lost on the part of the Government because in the event that these debts are collected,

the same will be returned as taxes to it in the year of the recovery. This is an irresponsible statement which
deliberately ignores the fact that while the Government may eventually recover revenues under that
hypothesis, the delay caused by the non-payment of taxes under such a contingency will obviously have a
disastrous effect on the revenue collections necessary for governmental operations during the period
concerned.
2. We need not tarry at length on the second issue raised by petitioner. It argues that the imposition of the
25% surcharge and the 20% delinquency interest due to delay in its payment of the tax assessed is improper
and unwarranted, considering that the assessment of the Commissioner was modified by the CTA and the
decision of said court has not yet become final and executory.
Regarding the 25% surcharge penalty, Section 248 of the Tax Code provides:
SEC 248. Civil Penalties. (a) There shall be imposed, in addition to the tax required to be paid, a penalty
equivalent to twenty-five percent (25%) of the amount due, in the following cases:
xxx xxx xxx
(3) Failure to pay the tax within the time prescribed for its payment.
With respect to the penalty of 20% interest, the relevant provision is found in Section 249 of the same
Code, as follows:
SEC. 249. Interest. (a) In general. There shall be assessed and collected on any unpaid amount of tax,
interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by
regulations, from the date prescribed for payment until the amount is fully paid.
xxx xxx xxx
(c) Delinquency interest. In case of failure to pay:
(1) The amount of the tax due on any return required to be filed, or
(2) The amount of the tax due for which no return is required, or
3) A deficiency tax, or any surcharge or interest thereon, on the due date appearing in the notice and demand
of the Commissioner,
there shall be assessed and collected, on the unpaid amount, interest at the rate prescribed in paragraph (a)
hereof until the amount is fully paid, which interest shall form part of the tax. (Italics supplied)
xxx xxx xxx
As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was
the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid
within thirty (30) days from receipt thereof. By reason of petitioners default thereon, the delinquency penalties
of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the
assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to
delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00.
Our attention has also been called to two of our previous rulings and these we set out here for the benefit
of petitioner and whosoever may be minded to take the same stance it has adopted in this case. Tax laws
imposing penalties for delinquencies, so we have long held, are intended to hasten tax payments by
punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the

law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the
Government and its multifarious activities will be adversely affected. 11
We have likewise explained that it is mandatory to collect penalty and interest at the stated rate in case of
delinquency. The intention of the law is to discourage delay in the payment of taxes due the Government and,
in this sense, the penalty and interest are not penal but compensatory for the concomitant use of the funds by
the taxpayer beyond the date when he is supposed to have paid them to the Government. 12 Unquestionably,
petitioner chose to turn a deaf ear to these injunctions.
ACCORDINGLY, the petition at bar is DENIED and the judgment of respondent Court of Appeals is
hereby AFFIRMED, with treble costs against petitioner.
SO ORDERED.
Romero, Puno, Mendoza, and Torres, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-55764 February 16, 1982
SOCIAL SECURITY SYSTEM, petitioner,
vs.
COURT OF APPEALS and MANILA COSMOS AERATED WATER FACTORY, INC., respondents.

ABAD SANTOS, J:
This is a petition to review a decision of the Court of Appeals in Social Security System, et al. vs. Manila
Cosmos Aerated Water Factory, Inc., CA-G.R. No. SP 03296-R, adverse to the petitioner. The antecedent
facts consist of the following:
In a petition filed with the Social Security Commission SSC the Social Security System (SSS) together with
Jose Concepcion, Manuel Chan, Manuel Ong, Roberto Lai, Arturo Gonzales, William Co, Federico Marcial,
Santiago Mancuba, Jesus Crelencia, Alfredo So and Pedro Aquino, the individual petitioners were sought to
be declared employees of Manila Cosmos AerAted Water Factory, Inc. (Cosmos) and not independent
contractors under the following Agreement to Peddle Soft Drinks.
1. The MANUFACTURER shall provide the PEDDLER with a delivery truck to be used by the
latter, under his own responsibility, exclusively in the sales of the products of the former
purchased by the PEDDLER from the MANUFACTURER;
2. The PEDDLER himself shall carefully and in strict observance to traffic regulations, drive the
truck furnished him by the MANUFACTURER or should he employ a driver or helpers, such
driver or helpers shall be his employees under his direction and responsibility, and not that of the

MANUFACTURER, and their compensation including salaries, wages, overtime pay, separation
pay, bonus or other remunerations and privileges shall be for the PEDDLERS own account;
3. The PEDDLER shall be responsible for any damage to property, death or injuries to persons
or damage to the truck used by him caused by his own acts or that of his driver and helpers;
4. The PEDDLER shall secure at his own expense all necessary license and permits required by
law or ordinance, and shall bear any and all expenses which may be incurred by him in the
sales of the MANUFACTURER'S products, covered by this contract;
5. All goods soft drinks) purchased by the PEDDLER shall be charged to him at a factory price
of P0.86 per case of the 6.6 oz. size, ex-warehouse; PROVIDED, However, that, if the
PEDDLER purchases a total of not less than 200 cases of the 6.5 oz. size a day, he shall be
entitled to a dealer's discount of P7.30;
6. Upon the execution of this agreement, the PEDDLER shall give a cash bond in the amount of
P500.00 against which the MANUFACTURER shall charge the PEDDLER with any unpaid
account at the end of the day or with any damage to the truck or other account which is properly
chargeable to the PEDDLER; within 30 days after termination of this agreement, the cash bond,
after deducting proper charges, shall be returned to the PEDDLER;
7. The PEDDLER shall liquidate and pay his account at the end of each day, and his failure to
do so shall subject his cash bond or so much thereof as may be necessary to such set offs and
payments as shall be proper against the accounts in question;
8. This contract shall be effective only up to December 31, 1962 and supersedes any or all other
previous contracts that may have been entered into between the parties; However, either of the
parties may terminate the same upon seven (7) days prior notice to the other;
9. Upon the termination of this agreement, unless the same is renewed, the delivery truck and
such other equipment furnished by the MANUFACTURER to the PEDDLER shall be returned by
the latter in good order and workable condition, ordinary wear and tear excepted, and shall
promptly settle his outstanding account if any, with the manufacturer. (Rollo, pp. 24-25.)
The status of the individual petitioners was important because if they were employees of Cosmos and not
independent contractors, then Cosmos would have "to pay the employer's share of premium contributions
(employer's and employees' share) for and in behalf of the delivery helpers, as employees of respondent
corporation, plus the penalties thereon for late remittance of premium contributions, covering the period of
delinquency from the respective dates of their coverage up to the present" as prayed for in the petition.
After hearing, the SSC rendered a resolution in favor of the SSS and the peddlers holding that an employeremployee relationship existed between Cosmos and the peddlers. Cosmos appealed to the Court of Appeals
and in a decision promulgated on October 16, 1979, that Court affirmed the resolution of the SSC. However,
upon a motion for reconsideration, the Court of Appeals on October 13, 1980, set aside its previous decision
and reversed the resolution of the SSC. Hence, the instant appeal where the petitioner is the SSS alone; the
individual peddlers have not seen fit to appeal.
We could have dismissed the instant petition by minute resolution because precedents warrant such an
action. But to put an end to litigations of this sort and arrest what Cosmos calls judicial harassment, a decision
is in order.

In Mafinco Trading Corporation vs.Ople, et al. No. L-37790, March 25, 1976, 70 SCRA 139, the question was
whether there was an employer- employee relationship under the terms of a peddling contract in words almost
Identical to the one quoted above. This Court, thru Mr. Justice Aquino said:
A restatement of the provisions of the peddling contract is necessary in order to find out whether
under that instrument Repomanta and Moralde were independent contractors or mere
employees of Mafinco.
Under the peddling contract, Mafinco would provide the peddler with a delivery truck to be used
in the distribution of Cosmos soft drinks (Par. 1). Should the peddler employ a driver and
helpers, he would be responsible for their compensation and social security contributions and he
should comply with applicable labor laws "in relation to his employees" (Par. 2).
The peddler would be responsible for any damage to persons or property or to the truck caused
by his own acts or omissions or those of his driver and helpers (Par. 3). Mafinco would bear the
cost of gasoline and maintenance of the truck (Par. 4). The peddler would secure at his own
expense the necessary licenses and permits and bear the expenses to be incurred in the sale of
Cosmos products (Par. 5).
The soft drinks would be charged to the peddler at P2.52 per case of 24 bottles, ex-warehouse.
Should he purchase at least 250 cases a day, he would be entitled to a peddler's discount of
eleven pesos (Par. 6). The peddler would post a cash bond in the sum of P1,500 to answer for
his obligations to Mafinco (Par. 7) and another cash bond of P1,000 to answer for his obligations
to his employees (Par. 11). He should liquidate his accounts at the end of each day (Par. 8). The
contract would be effective up to May 31, 1973. Either party might terminate it upon five days
prior notice to the other (Par. 9).
We hold that under their peddling contracts of Repomanta and Moralde were not employees of
Mafinco but were independent contractors as found by the NLRC and its fact-finder and by the
committee appointed by the Secretary of labor to look into the status of Cosmos and Mafinco
peddlers. They were distributors of Cosmos soft drinks with their own capital and employees.
Ordinarily, an employee or a mere peddler does not execute a formal contract of employment.
He is simply hired and he works under the direction and control of the employer.
Repomanta and Moralde voluntarily executed with Mafinco formal peddling contracts which
indicate the manner in which they would sell Cosmos soft drinks. That circumstance signifies
that they were acting as independent businessmen. They were free to sign or not to sign that
contract. If they did not want to sell Cosmos products under the conditions defined in that
contract; they were free to reject it.
But having signed it, they were bound by its stipulations and the consequences thereof under
existing labor laws. One such stipulation is the right of the parties to terminate the contract upon
five days' prior notice (Par. 9). Whether the termination in this case was an unwarranted
dismissal of an employee, as contended by Repomanta and Moralde, is a point that cannot be
resolved without submission of evidence. Using the contract itself as the sole criterion, the
termination should perforce be characterized as simply the exercise of a right freely stipulated
upon by the parties.
In determining the existence of employer-employee relationship, the following elements are
generally considered, namely: (1) the selection and engagement of the employee; (2) the
payment of wages: (3) the power of dismissal: and (4) the power to control the employees'
conduct although the latter is flip, most important element (Viaa Al-Lagadan and Piga 99
Phil, 406, 411, Citing 35 Am. Jur. 445).

On the other hand, an independent contractor is "one who exercise independent employment
and contracts to do a piece of work according to his own methods and without being subject to
control of his employer except as to the result of the work" (Mansal vs. P.P. Gocheco Lumber
Co., 96 Phil. 941).
Among the factors to be considered are whether the contractor is carrying on an independent
business; whether the work is part of the employer's general business; the nature and extent of
the work; the skill required; the term and duration of the relationship; the right to assign the
performance of the work to another; the power to terminate the relationship; the existence of a
contract for the performance of a specified piece of work; the control and supervision of the
work; the employer's powers and duties with respect to the hiring, firing, and payment of the
contractor's servants; the control of the premises; the duty to supply the premises, tools,
appliances, material and labor; and the mode, manner, and terms of payment. (56 C.J.S. 46).
Those tests to determine the existence of an employer-employee relationship or whether the
person doing a particular work for another is an independent contractor cannot be satisfactorily
applied in the instant case. It should be obvious by now that the instant case is a penumbral, sui
generis case lying on the shadowy borderline that separates an employee from an independent
contractor.
In determining whether the relationship is that of employer and employee or whether one is an
independent contractor, "each case must be determined on its own facts and all the features of
the relationship are to be considered" (56 C.J.S. 45). We are convinced that on the basis of the
peddling contract, no employer-employee relationship was created. (At pp. 161-163, emphasis
supplied.)
We hold that conformably to Mafinco, the peddling contract involved in the instant petition makes the peddler
an independent contractor. Additionally, We have taken into account the fact that the individual petitioners
before the SSC who were the principal beneficiaries of the petition have become indifferent to their cause.
WHEREFORE, the judgment of the Court of Appeals is hereby affirmed. Costs against the petitioner.
SO ORDERED.
Barredo (Chairman), Aquino, Concepcion, Jr., De Castro, Ericta and Escolin, JJ., concur.

American Pres Lines vs. Clave

FACTS:
The Maritime Security Union through private respondent filed a complaint against petitioner for unfair labor
practice under
RA 875. They contended that the petitioner had refused to negotiate an agreement with them and
discriminated them regarding
their tenure of employment by dismissing them.
Petitioner entered into a contract with the Maritime Security Agency for the latter to guard the petitioner s
vessel. The term

of the contract is one year and may be terminated by either party upon 30 days notice.
The relationship between petitioner and Maritime Security Agency is that it was the latter who hired the guards
and the
guards were not known to petitioner. A lump sum would be paid by the petitioner to the agency wherein the
latter pays the
compensation to the guards. However, petitioner terminated the contract on its termination period with prior
notice. After its
termination, petitioner executed a contact with another agency. Respondents protested on this.
ISSUE: W/N an employer-employee relationship exists between petitioner and watchmen
HELD:
No. It is the agency that hires the work of its watchmen. Hence, a watchman cannot perform any security
service unless
the agency first accepts him. It is also the agency that pays the wages to a watchman. Neither does the
petitioner have any power
of dismissal, because such power lies in the hands of the agency. Since the petitioner has to deal with the
agency, petitioner does
not exercise any power over watchmens conduct. Thus, it is the agency that is answerable to the petitioner
for the conduct of its
guards. It follows that petitioner cannot be guilty of unfair labor practice because under RA 875 Sec. 13, an
unfair labor practice may
be committed only within the context of an employer-employee relationship.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50358 November 2, 1982
SHIPSIDE, INCORPORATED, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and TITA ABEJON, EDUARDO ALVIARNE, FELICIANO
ALVIARNE, LIBERATO AMITA, ANACLETO ANCHETA, RICARDO ANCHETA, MOISES ANCHETA, et
al.,respondents.
Sycip, Salazar, Feliciano, Hernandez and Castillo for petitioner.
Francisco T. Gualberto for private respondents.

DE CASTRO, J.:
Petition for certiorari with preliminary injunction to set aside the decision 1 of respondent National Labor
Relations Commission dated October 11, 1978, which affirmed the decision of the Labor Arbiter dated
November 22, 1977 issued in NLRC Case No. RB-1-38-78, entitled Tita Abejon, et al., versus La Union
Stevedores, Inc. and Shipside, Incorporated,declaring La Union Stevedores, Inc. and Shipside, Incorporated

jointly and severally liable to pay herein private respondents their separation pay and the equivalent of their
respective two-month salary as penalty for non-compliance with the clearance requirement of the Labor Code,
and the said respondent Commission's en banc resolution 2 of February 9, 1979 denying herein petitioner's
motion for reconsideration, as well as the Order 3 of the said Labor Arbiter dated April 6, 1979, directing the
immediate execution of the aforestated decision and/or resolution.
Briefly, the records show the following undisputed facts: Petitioner Shipside, Incorporated, hereinafter referred
to as SHIPSIDE, is a domestic corporation engaged in the handling in bulk of all kinds of materials, products
and supplies, and operates harbor and wharfage facilities capable of servicing ocean vessels of deep draft at
Barrio Poro, San Fernando, La Union.
On December 27, 1963, SHIPSIDE entered into a "Contract for Services" 4 with La Union Stevedores, Inc.,
hereinafter referred to as STEVEDORES, a stevedoring company, whereby the former shall give the exclusive
right to handle stevedoring services to the latter on all ships that may load or unload cargo at the piers and/or
wharves owned and/or controlled by the former in the Port of San Fernando, La Union. The terms and
conditions of the contract were as follows:
(1) Stevedoring work shall embrace the handling of cargo from the ship to the pier and/or from
the pier to the ship;
(2) STEVEDORES shall furnish all the labor needed for the stevedoring work;
(3) Charges for all stevedoring shall be billed through SHIPSIDE to the shipping company,
shipper or consignee, as the case may be. Stevedoring rate to be charged will be worked out by
both parties in accordance with standard stevedoring practice, with mutual consent of both
parties;
(4) STEVEDORES shall present its payroll to SHIPSIDE for payment after every operation, and
the former shag be responsible in paying its own men individually;
(5) The net balance from the stevedoring charges collected by SHIPSIDE from the shipping
company, shipper or consignee, as the case may be, after the payroll of STEVEDORES and
other operating expenses incurred by STEVEDORES and SHIPSIDE shall have been deducted,
will be equally divided between SHIPSIDE and STEVEDORES on a fifty-fifty basis;
(6) SHIPSIDE shall guarantee the exclusive right of STEVEDORES to do the stevedoring work
that may be contracted by the former; while STEVEDORES guarantees not to enter into any
contract with any other party or entity for any stevedoring work at the piers and/or wharves
owned and/or controlled by SHIPSIDE, without coursing the same to SHIPSIDE. STEVEDORES
further guarantees to supply all the labor required by SHIPSIDE at all times.
This contract shall take effect on January 1, 1964, and shall not be terminated by either party
unless a three-month termination notice in writing shall have been given to either party. Any
violation of the provisions of this contract by either party shall make the guilty party liable for
damages that may be suffered by the innocent party, in addition to attorney's fee and other
expenses if and when the same is ventilated in the courts of justice.
Pursuant to the above-quoted contract, Stevedores hired private respondents to constitute its labor force.
On August 28,1974, SHIPSIDE informed STEVEDORES that three (3) months after September 1, 1974, or
effective as of the close of business on November 30, following, the aforestated contract would be terminated
because of financial reverses. SHIPSIDE, however, proferred its readiness to absorb the operating personnel
of STEVEDORES from the lowest rank of stevedores up to the rank of foreman who desire to work under its

employ on a vessel to vessel basis, as it would thereafter undertake the stevedoring work independently b-,
itself. Thus, SHIP-SIDE requested STEVEDORES to submit a roster of its operating personnel as aforestated
who desires to work for the former. 5
The business relations between SHIPSIDE and STEVEDORES was finally terminated on November 30,1974,
and as a result thereof, several stevedores and office personnel found themselves out of job. Since the
dismissed employees, private respondents herein among them, received no separation benefits, said
respondents filed their complaint against SHIPSIDE and STEVEDORES sometime in February 1975 for
separation pay with the Ministry of Labor, subject of NLRC Case No. RB-1-38-78.
After due hearing, the Labor Arbiter assigned on the case rendered judgment on November 22, 1977,
declaring both SHIPSIDE and STEVEDORES the employers of private respondents by virtue of the
aforestated "Contract for Services", which said Arbiter construed to be either a "joint venture" or a
"partnership" and therefore, jointly and severally liable for the separation pay claimed by private respondents.
SHIPSIDE and STEVEDORES were also adjudged liable for an additional amount equivalent to two months
salary for each of the private respondents, as penalty for their failure to file or submit with the Ministry of Labor
the necessary clearance application or report of the termination of private respondents' employment as
required by the new Labor Code.
On separate appeal by SHIPSIDE and STEVEDORES, the above judgment of the Labor Arbiter was affirmed
by the respondent Commission in its decision of October 11, 1978, as earlier indicated. The motion for
reconsideration of SHIPSIDE was likewise denied by the respondent Commission, sitting en banc, in the
resolution of February 9, 1979. Hence, the present recourse. As prayed for, a temporary restraining order was
issued on May 7, 1979, restraining the respondent Commission, its agents or representatives, from enforcing
and/or carrying out the questioned decision, resolution and writ of execution dated October 11, 1978,
February 9, 1979 and April 6, 1979, respectively.
The crux of the present controversy hinges on the question of whether or not SHIPSIDE can be held liable for
the money benefits, claimed by private respondents herein, which in turn requires resolution of the more basic
and fundamental issue of existence of employer-employee relationship between SHIPSIDE and private
respondents, for in the absence of such relationship the latter have no cause of action against the former. 6
In determining the existence of employer-employee relationship, the following elements are generally
considered, namely; (1) the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employee's conduct-although the latter is the most
important element. 7
Tested from the foregoing criteria, in connection with the features of the relationship between the parties in
this case as may be shown hereunder, We fail to see how SHIPSIDE can be considered as the employer of
private respondents, who undisputedly were the employees of STEVEDORES. The records do not show any
participation on the part of SHIPSIDE with respect to the selection and engagement of the individual
stevedores who will constitute the labor force of STEVEDORES. Who the individual stevedores will be and
under what terms and conditions their services will be rendered are matters determined not by SHIPSIDE, but
by STEVEDORES. Neither is there any direct employment relationship between SHIPSIDE and private
respondents. The former has no separate individual contracts with the latter whose only possible connection
with SHIPSIDE is through STEVEDORES which contracted them and in whose favor their services were
rendered, thus enabling STEVEDORES to fulfill its contractual obligations with SHIPSIDE. Withal, the
individual stevedores, who were not known to SHIPSIDE which dealt only with STEVEDORES on matters
pertaining to the contracted task, cannot perform any stevedoring service for SHIPSIDE unless
STEVEDORES first accepts them as such.
Under the arrangement between SHIPSIDE and STEVEDORES, the former has no hand in deciding how
much salary is to be paid each of the individual stevedores. Payment of such salary is made not by

SHIPSIDE, but by STEVEDORES to the individual stevedores and said amount is beyond the power of
SHIPSIDE to determine, which merely paid STEVEDORES the aggregate amount as indicated in the payroll
of the latter presented after every operation to the former for payment, pursuant to their contract for services.
Neither does SHIPSIDE reserve the power to dismiss the individual stevedores, as We fail to see any
evidence on record that it wielded such power.
We likewise found nothing in the records which would indicate that private respondents were under the control
of SHIPSIDE in respect of the means and methods they employed in the performance of their work, to be
considered as the employees of the latter. 8 On the contrary, it is sufficiently established that STEVEDORES
exercised supervision and control over its labor force. If in the course of private respondents' work, SHIPSIDE
occasionally issued instructions to them, that alone does not in the least detract from the fact that only
STEVEDORES is the employer of private respondents, for in legal contemplation, such instruction carry no
more weight than mere requests, the privity of contract being between SHIPSIDE and STEVEDORES, not
between the former and the private respondents. Corollarily, such giving of instruction inevitably spring from
SHIPSIDE's right predicated on the "Contract for Services" entered into by it with STEVEDORES.
There are other considerations that militate against a finding of employer- employee relationship between
SHIPSIDE and private respondents. To start with, the contract between the former and STEVEDORES had
already expired or terminated in accordance with the last paragraph thereof, as earlier quoted. Indeed, after
the expiration of said contract, SHIPSIDE does the stevedoring work by itself and in fact had offered to absorb
the operating personnel of STEVEDORES from the lowest rank of stevedores up to the tank of foreman who
desire to work under its employ on a vessel to vessel basis, but for one reason or another, private
respondents rejected said offer, although some of the stevedores who found themselves out of job by reason
of the termination of said contract, had accepted the offer and were thereupon hired by SHIPSIDE. In other
words, to now hold private respondents as the employees of SHIPSIDE and therefore entitled to labor
benefits as such, would not only be unfair to the latter, but would likewise violate its exclusive prerogative to
determine whether it should enter into an employment contract or not.
As succinctly held in Allied Free Workers' Union v. Compania Maritima, 19 SCRA 258, 277:
Lastly, to uphold the court a quo's conclusion would be tantamount to the imposition of an
employer-employee relationship against the will of MARITIMA. This cannot be done, since it
would violate MARITIMA's exclusive prerogative to determine whether it should enter into an
employment contract or not, i.e., whether it should hire others or not. In Pampanga Bus Co. us.
Pambusco Employees' Union, We said:
... The general right to make a contract in relation to one's business is an essential
part of the liberty of the citizens protected by the due process clause of the
constitution. The right of a laborer to sell his labor to such person as he may
choose is, in its essence, the same as the right of an employer to purchase labor
from any person who it chooses. The employer and the employee have thus an
equality of right guaranteed by the constitution. If the employer can compel the
employee to work against the latter's will, this is servitude. If the employee can
compel the employer to give him work against the employer's will, this is
oppression.
What legal relationship existed between SHIPSIDE and STEVEDORES is a matter We cannot touch in this
present petition, the same being sub-judice, it appearing that prior to the institution of this suit sometime in
February 1975, STEVEDORES had filed a petition 9 against SHIPSIDE on December 2, 1974 in the Court of
First Instance of La Union, docketed as Civil Case No. 2624, for accounting, dissolution and winding up of
partnership, wherein the concomitant issue of whether a partnership and not simply a contract for services
existed between the parties therein is raised. Said case appears to be still pending before said court, of which
the labor arbiter was properly apprised when SHIPSIDE had filed a motion to dismiss the labor case, stating

among others, that said civil case constitutes a prejudicial question determinative of the validity of private
respondents' claim which is grounded on the theory that SHIPSIDE and STEVEDORES being then "joint
adventurers" or "partners" in the stevedoring business, were their employers and are therefore liable for their
claim. As such, said labor arbiter should have refrained from declaring the questioned contract for services as
a partnership or joint venture arrangement if only to give due deference to the well-settled rule, assuming that
the labor arbiter or respondent Commission has jurisdiction to resolve the issue concurrently with the Court of
First Instance, that when two or more courts have concurrent jurisdiction, the first validly acquiring jurisdiction
does so to the exclusion of all other courts. As the Court of First Instance had previously assumed jurisdiction
over the particular issue, it is unwarranted for the labor arbiter to pass upon tills issue and for the respondent
Commission to uphold such undue assumption of jurisdiction by the labor arbiter. Moreover, even assuming
that the contract for services could partake of the nature of a joint venture, or that of a partnership agreement,
that does not by itself justify the holding that SHIPSIDE may also be considered as the employer of the
employees of STEVEDORES absent a showing of the criteria above set forth.
Not being an employer of private respondents herein, SHIPSIDE has no duty to file or submit with the Ministry
of Labor the necessary clearance application or report of the termination of the services of private
respondents. In so far as SHIPSIDE is concerned, there is no termination of employment to speak of, but
merely a termination of its contract for services with STEVEDORES.
WHEREFORE, the petition is hereby granted. The questioned decision, resolution and order are hereby set
aside in so far as they hold petitioner liable to herein private respondents for the money claims therein stated.
The temporary restraining, order heretofore issued is hereby made permanent. No costs.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero and Escolin, JJ., concur.
Abad Santos, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-55674 July 25, 1983
LA SUERTE CIGAR AND CIGARETTE FACTORY, petitioner,
vs.
DIRECTOR OF THE BUREAU OF LABOR RELATIONS, THE LA SUERTE CIGAR AND CIGARETTE
FACTORY PROVINCIAL (Luzon) AND METRO MANILA SALES FORCE ASSOCIATION-NATU, and THE
NATIONAL ASSOCIATION OF TRADE UNIONS, respondents.
Angara, Abello, Concepcion, Regala & Cruz Law Office for petitioner.
The Solicitor General for respondents.
Marcelino Lontok, Jr. for respondent NATU.

GUERRERO, J.:

In the determination of the basic issue raised in the case at bar involving the status of some 14 members of
private respondent local union whether they are employees of petitioner company in which case they should
be included in the 30% jurisdictional requirement necessary to support the petition for certification election, or
independent contractors and hence, excluded therefrom, Our rulings in Mafinco Trading Corp. vs. Ople, 70
SCRA 139, where We reiterated the "control test" earlier laid down in Investment Planning Corp. vs. Social
Security System, 21 SCRA 924, and in Social Security System vs. Hon. Court of Appeals and Shriro (Phils.)
Inc., 37 SCRA 579 are authoritative and controlling.
In the Mafinco case, the Court, through Justice Aquino, said:
In a petition for certiorari, the issue of whether respondents are employees or independent
contractors should be resolved mainly in the light of their peddling contracts. Pro hac vice the
issue of whether Repomanta and Moralde were employees of Mafinco or were independent
contractors should be resolved mainly in the light of their peddling contracts. A different
approach would lead this Court astray into the field of factual controversy where its legal
pronouncements would not rest on solid grounds.
A contract whereby one engages to purchase and sell soft drinks on trucks supplied by the
manufacturer but providing that other party (peddler) shall have the right to employ his own
workers, shall post a bond to protect the manufacturer against losses, shall be responsible for
damages caused to third persons, shall obtain the necessary licenses and permits and bear the
expenses incurred in the sale of the soft drinks is not a contract of employment.-We hold that
under their peddling contracts Repomanta and Moralde were not employees of Mafinco but
were independent contractors as found by the NLRC and its factfinder and by the committee
appointed by the Secretary of Labor to look into the status of Cosmos and Mafinco peddlers.
They were distributors of Cosmos soft drinks with their own capital and employees. Ordinarily,
an employee or a mere peddler does not execute a formal contract of employment. He is simply
hired and he works under the direction and control of the employer. Repomanta and Moralde
voluntarily executed with Mafinco formal peddling contracts which indicate the manner in - which
they would se Cosmos soft drinks. That circumstance signifies that they were acting as
independent businessmen. They were free to sign or not to sign that contract. If they did not
want to sell Cosmos products under the conditions defined in that contract, they were free to
reject it. But having signed it, they were bound by its stipulations and the consequences thereof
under existing labor laws. One such stipulation is the right of the parties to terminate the contract
upon 5 days' prior notice. Whether the termination in this case was an unwarranted dismissal of
an employee, as contended by Repomanta and Moralde, is a point that cannot be resolved
without submission of evidence. Using the contract itself as the sole criterion, the termination
should perforce be characterized as simply the exercise of a right freely stipulated upon by the
parties.
Tests for determining the existence of employer-employee relationship.-In determining the
existence of employer-employee relationship, the following elements are generally considered,
namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employees' conduct-although the latter is
the most important element.
Factors to determine existence of independent contract relationship. An independent
contractor is one who exercises independent employment and contracts to do a piece of work
according to his own methods and without being subject to control of his employer except as to
the result of the work. 'Among the factors to be considered are whether the contractor is carrying
on an independent business; whether the work is part of the employer's general business; the
nature and extent of the work; the skill required; the term and duration of the relationship; the
right to assign the performance of the work to another; the power to terminate the relationship;

the existence of a contract for the performance of a specified piece of work; the control and
supervision of the work; the employer's powers and duties with respect to the hiring, firing, and
payment of the contractor's servants; the control of the premises; the duty to supply the
premises, tools, appliances, material and labor, and the mode, manner, and terms of payment.'
In the Shriro case, We held that the common law rule of determining the existence of employer-employee
relationship, principally the "control test", applies in its jurisdiction. Where the element of control is absent;
where a person who works for another does so more or less at his own pleasure and is not subject to definite
hours or conditions of work, and in turn is compensated according to the result of his efforts and not the
amount thereof, relationship of employer and employee does not exist.
And supplementing the above jurisprudence is Our ruling in Social Security System vs. The Hon. Court of
Appeals, Manila Jockey Club, Inc., Phil. Racing Club, 30 SCRA 210 wherein the Supreme Court, speaking
through then Associate Justice, now Chief Justice Fernando, held:
The question of when there is employer-employee relationship for purposes of the Social
Security Act has been settled in this jurisdiction in the case of Investment Planning Corp. vs.
Social Security System, 21 SCRA 924 which applied the so-called control test, that is, whether
the employer controls or has reserved the right to control the employee not only as to the result
of the work to be done but also as to the means and methods by which the same is to be
accomplished. In other words, where the element of control is absent; whether a person who
works for another does so more or less at his own pleasure and is not subject to definite hours
or conditions of work, and in turn is compensated according to the result of his efforts and not
the amount thereof, we should not find that the relationship of employer and employee exists.
This decision rejected the economic facts of the relation test.
The instant petition for certiorari seeks to reverse the resolution of the Director of the Bureau of Labor
Relations dated January 15, 1980 ordering that a certification election be conducted among the sales
personnel of La Suerte Cigar and Cigarette Factory, as well as his resolution dated November 18, 1980
denying the motion for reconsideration and directing that a certification election be conducted immediately.
The said resolutions reversed and set aside the order of dismissal dated August 29, 1979 of the Med-Arbiter.
The antecedent facts show that on April 7, 1979, the La Suerte Cigar and Cigarette Factory Provincial (Luzon)
and Metro Manila Sales Force Association (herein referred to as the local union) applied for and was granted
chapter status by the National Association of Trade Unions (hereinafter referred to as NATU).
On April 16, 1979, some thirty-one (31) local union members signed a joint letter withdrawing their
membership from NATU.
Nonetheless, on April 18, 1979, the local union and NATU filed a petition for direct certification or certification
election which alleged among others, that forty-eight of the sixty sales personnel of the Company were
members of the local union; that the petition is supported by no less than 75% of the sales force; that there is
no existing recognized labor union in the Company representing the said sales personnel; that there is
likewise no existing collecting bargaining agreement; and that there had been no certification election in the
last twelve months preceding the filing of the petition.
The Company then filed a motion to dismiss the petition on June 13, 1979 on the ground that it is not
supported by at least 30% of the members of the proposed bargaining unit because (a) of the alleged fortyeight (48) members of the local union, thirty-one (31) had withdrawn prior to the filing of the petition; and (b)
fourteen (14) of the alleged members of the union were not employees of the Company but were independent
contractors.

NATU and the local union opposed the Company's motion to dismiss alleging that the fourteen dealers are
actually employees of the Company because they are subject to its control and supervision.
On August 29, 1979, the Med-Arbiter issued an order dismissing the petition for lack of merit as the fourteen
dealers who joined the union should not be counted in determining the 30% consent requirement because
they are not employees but independent contractors and the withdrawal of the 31 salesmen from the union
prior to the filing of the petition for certification election was uncontroverted by the parties.
Thereafter, on September 24, 1979, the local union on its own signed only by the local union President, filed a
motion for reconsideration and/or appeal from the order of dismissal on the following grounds: (a) the findings
of facts of the med-arbiter as it appears on the order are contrary to facts and (b) in finding that no employeremployee relationship exists between the alleged dealers and respondent firm, the med-arbiter decided in a
manner not in accord with the factual circumstances attendant to the relationship.
Acting on the motion for reconsideration/appeal, the Director of the Bureau of Labor Relations, in the
Resolution dated January 15, 1980, reversed and set aside the order of dismissal, holding that the withdrawal
of the 31 signatories to the petition two days prior to the filing of the instant petition did not establish the fact
that the same was executed freely and voluntarily and that the records are replete with company documents
showing that the alleged dealers are in fact employees of the company.
The Company then filed a motion to set aside the resolution dated January 15, 1980 of the Director of the
Bureau of Labor Relations, contending that the appeal was never perfected or is jurisdictionally defective,
copy of the motion for reconsideration/appeal not having been served upon the Company, and that the
Resolution was based solely on the distorted and self-serving allegations of the union.
The local union opposed the Company's motion for reconsideration and submitted a memorandum on April
22, 1980 in amplification of its opposition.
At this juncture, the legal counsel of NATU filed a manifestation on May 15, 1980 stating that the act of the
local union of engaging another lawyer to handle the case amounts to disaffiliation, for which reason said
legal counsel was withdrawing from the case. The local union counter manifested that the local union had not
been officially notified of its expulsion from the NATU; that there was no valid ground for its expulsion; that the
National Executive Council of NATU had not approved such expulsion; and that it had no objection to the
withdrawal of Atty. Marcelino Lontok, Jr. as its counsel.
Then came a motion of NATU through its President and legal counsel withdrawing as petitioner and
contending that since the local union was no longer affiliated with it, it was no longer interested in the case.
Twelve members of the National Executive Council then came in and manifested that they constitute a
majority of the Executive Board of NATU and affirmed that the local union was still an affiliate of NATU.
There followed a counter-manifestation of Atty. Marcelino Lontok, Jr. on August 27, 1980 stating that six
signatories to the aforesaid manifestation had no authority to make the said foregoing statement as they had
resigned from the Executive Board en masse; that the acts of the President may not be reversed by the
Executive Council; and that the twelve signatories did not constitute a majority of the sixty (60) members of
the Executive Council.
The local union made its reply to the counter-manifestation stating that the power to expel an affiliate
exclusively belonged to the National Executive Council of NATU, under Section 2, Article V of the NATU
Constitution and By-Laws; that such power could only be wielded after due investigation and hearing; that
disaffiliation is effected only by voluntary act of the local union, which is not the case here, because it is the
President and legal counsel who are trying to expel the union.

Simultaneously with said reply, the local union filed an opposition to Atty. Lontok's motion to dismiss-withdraw
petition, stating that Atty. Lontok had no more personality to file the same inasmuch as he had previously
withdrawn as counsel in his manifestation dated May 7, 1980, and the local union has accepted the same in
its counter-manifestation dated May 16, 1980; that expulsion requires two-thirds vote of the members of the
National Executive Council, as well as investigation and hearing; that engaging another lawyer is not a ground
for expulsion of an affiliate; and that the local union was compelled to hire another lawyer because up to the
last day of the reglementary period, Atty. Lontok still had not filed an appeal from the decision of the MedArbiter.
On November 18, 1980, the Director of the Bureau of Labor Relations promulgated a resolution denying the
Company's motion for reconsideration and directing that the certification election be conducted immediately.
Hence, this petition.
In the apparently simple task of determining whether the Director of the Bureau of Labor Relations committed
grave abuse of discretion amounting to lack of jurisdiction in ordering the direct certification election, three
difficult issues must be resolved, namely:
I. Whether or not the 14 dealers are employees or independent contractors.
II. Whether or not the withdrawal of 31 union members from the NATU affected the petition for certification
election insofar as the thirty per cent requirement is concerned.
III. Whether or not the withdrawal of the petition for certification election by the NATU, through its President
and legal counsel, was valid and effective.
A basic factor underlying the exercise of rights under the Labor Code is status of employment. The question of
whether employer-employee relationship exists is a primordial consideration before extending labor benefits
under the workmen's compensation, social security, medicare, termination pay and labor relations law. It is
important in the determination of who shall be included in a proposed bargaining unit because it is the sine
qua non, the fundamental and essential condition that a bargaining unit be composed of employees. Failure to
establish this juridical relationship between the union members and the employer affects the legality of the
union itself. It means the ineligibility of the union members to present a petition for certification election as well
as to vote therein. Corollarily, when a petition for certification election is supported by 48 signatories in a
bargaining unit composed of 60 salesmen, but 14 of the 48 lacks employee status, the petition is vitiated
thereby. Herein lies the importance of resolving the status of the dealers in this case.
It is the contention of the company that the dealers in the sale of its tobacco products are independent
contractors. On the other hand, the Union contends that such dealers are actually employees entitled to the
coverage and benefits of labor relations laws.
According to the petitioner, to effectively market its products, the Company maintains a network of dealers all
over the country. These arrangements are covered by a dealership agreement signed between the Company
and a dealer in a particular area or territory. And attached to the petition is a representative copy of the said
dealership agreement which We quote below:
DEALERSHIP AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This DEALERSHIP AGREEMENT, executed at Pasay City, Philippines, this 8 day of March
1977, entered into by JOSE TEN SIU KEE, JR., of legal age, married and a resident of 178-E
San Ramon Street, Iloilo City, hereinafter referred to as DEALER, and TELENGTAN

BROTHERS & SONS, INC., doing business under the style of "LA SUERTE CIGAR &
CIGARETTE FACTORY", hereinafter referred to as FACTORY, bears witness that:
WHEREAS, JOSE TAN SIU KEE, JR. of 178-E San Ramon Street, Iloilo City, had applied to be
a DEALER of the FACTORY for the territories of ILOILO and/or such other territories that the
FACTORY may designate from time to time; and
WHEREAS, the FACTORY had accepted the application of JOSE TAN SIU KEE, JR., and
therefore, appointed him as one of its dealers in ILOILO and/or such other territories that the
FACTORY may designate from time to time, who is willing and able to do so as such for the
main purpose of extensively selling the products of the FACTORY in the said territories, under
the following express terms and conditions, to wit:
1. That the DEALER shall handle for sale and distribution of cigarette products of the factory
covering the territories of ILOILO and/or such other territories that the FACTORY may designate
from time to time, in accordance with existing laws and regulations of the government, without
however, incurring any expenses in doing so, without the previous written consent of the
FACTORY being first had and obtained;
2. That for the purpose of selling the cigarettes or products of the FACTORY, the DEALER shall
send his orders to the FACTORY plant in Paraaque, Metro Manila, either in cash or on credit;
Provided, however, that in cases of credit order the DEALER can only get or order the supply of
cigarettes up to the amount of not more than FIFTY THOUSAND PESOS (P50,000.00) only at
any given time during the existence of this Contract, unless allowed by the FACTORY to get
more;
3. That the FACTORY shall supply the DEALER with a truck or panel delivery and all expenses
shall be borne by the FACTORY; driver shall be borne by the DEALER;
4. That the DEALER shall not receive any commission from the FACTORY but the latter shall
give the DEALER a discount for all sales either on consignment or in cash, and said discount
shall be decided by the FACTORY from time to time;
5. That the FACTORY shall not be liable for any violation of any law, which the DEALER may
commit, and that the DEALER alone shall be responsible for any violation;
6. The geographical area (hereinafter referred to as "Territory") covered by this Agreement in
which the DEALER shall undertake the responsibilities provided herein is ILOILO. It is, however,
agreed and understood that the FACTORY may from time to time, upon written notice thereof
THE DEALER, change or subdivide the Territory as the business exigencies, and the policy of
the FACTORY with respect thereto will dictate.
7. The DEALER agrees that during the term of this Agreement:
(a) He will diligently, loyally and faithfully serve the FACTORY as its DEALER and
diligently canvass for buyers of the FACTORY's Products in the Territory;
(b) He shall not sell or distribute goods of a similar nature or such as would
compete and interfere with the sale of the Products of the FACTORY in the
Territory, either on his account or on behalf of any other person whatsoever;

(c) Furnish to the FACTORY every three (3) months a list of the buyers/customers
in the Territory, specifying the names and address of such customers as well as
their individual daily supply/stock requirements;
(d) He will faithfully and religiously abide by the FACTORY policy, rules and
regulations, particularly with respect to the pricing of all Products to be sold and
distributed by him;
(e) He will keep account of all his dealings hereunder and promptly liquidate his
account with the FACTORY with respect to the Products sold by him in the
Territory;
(f) He will not engage in any activity which will in any manner prejudice either the
business or name of the FACTORY, such as, but not limited to, "black- marketing"
operations;
(g) He will not withdraw cigarettes if the maximum volume allotted to him by the
FACTORY has been exceeded;
(8) That the DEALER shall sell the Products of the FACTORY at a price to be agreed upon
between both parties;
(9) That the DEALER shall hereby bind and obligate himself to furnish the FACTORY, within a
week from the date of this Contract with Surety or Cash Bond in the amount of not less than
FIFTY THOUSAND PESOS (P 50,000.00). The surety bond should be issued by one or several
bonding companies acceptable to and approved by the FACTORY to guarantee and secure
complete and faithful performance of the DEALER and his obligations herein enumerated,
particularly the payment of his financial obligations with the FACTORY. The bond may be
increased as required by the FACTORY;
10. In the event that the DEALER should become incapacitated to discharge his undertakings
and responsibilities under this Agreement, for any reason whatsoever, the FACTORY may
designated, for the duration of such incapacity, a substitute to handle the sale and distribution of
the Products in the Territory;
11. The FACTORY reserves its right to determine, from time to time, the amount of credit
granted or to be granted to the DEALER with respect to the Products to be sold and distributed
in the Territory;
12. This Agreement may be cancelled and/or terminated by the FACTORY should the DEALER
violate its undertaking under this Agreement especially with respect to Paragraph 7(f) hereof. It
is understood, however, that the failure of the FACTORY to enforce at any time or for any period
of time, any right, power or remedy accruing to the FACTORY upon default by the DEALER of
his undertakings under this Agreement shall not impair any such right, power or remedy or to be
construed to be a waver or an acquiescence in such default; nor shall the action of the
FACTORY in respect of any default, or any acquiescence by it in any default, affect or impair
any right, power or remedy of the FACTORY in respect of any other default.
13. That either party may terminate this Contract without cause by giving to the other party
fifteen (15) days notice in writing but without prejudice to any right or claim which as of that date
may have accrued to either of the parties hereunder, however, in the event of breach of this
Contract, the FACTORY may terminate this Contract without notice to the DEALER.

14. That it is hereby finally stipulated and agreed that in case of litigation arising out of or in
connection with this Contract, the Municipal Court of Paraaque or the Court of First Instance cf
Rizal, as the case may be, shall be the competent court wherein to file such action or actions.
15. That this Contract shall supersede any Contract which the DEALER may have with the
FACTORY.
IN WITNESS WHEREOF, these presents are signed at Pasay City, Philippines on this 8 day of March 1977.
TELENGTAN BROTHERS & SONS, INC.
(La Suerte Cigar & Cigarette Factory)
FACTORY
By:
(SGD.) LIM HAN ENG (SGD.) JOSE TAN SIU KEE, JR.
Assistant Manager Dealer
Sales Department TAN 5976-397-9
SIGNED IN THE PRESENCE OF:
(SGD.) ILLEGIBLE (SGD.) ILLEGIBLE"
(Acknowledgment omitted)
The records embody standard copies of the Dealership Supplementary Agreement which We also quote
hereunder:
DEALERSHIP SUPPLEMENTARY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Supplementary Agreement, made and entered into this 14th day of February, 1975
in Pasay City, Philippines, by and between:
TELENGTAN BROTHERS & SONS, INC., a corporation duly organized and
existing under the laws of the Philippines and doing business under the business
name and style of "LA SUERTE CIGAR & CIGARETTE FACTORY", with principal
place of business at Km. 14 South Super Highway, Paranaque, Rizal, represented
in this act by its duly authorizedManager, Mr. ROBERT UY, hereinafter referred to
as COMPANY;
and
MR. PURISIMO EMBING of legal age, married, Filipino and with postal address at
3047 Lawaan, UP II, Paranaque, Rizal hereinafter referred to as DEALER,
WITNESSETH: That

For and in consideration of the mutual covenants and agreements made herein, by one to the
other, the COMPANY and the DEALER, by these presents, enter into this Supplementary
Agreement whereby the COMPANY will avail of the services of the DEALER to handle the sale
and distribution of its cigarette products, consisting of MARLBORO REGULAR, MARLBORO
KING SIZE, MARLBORO 100'S; PHILIP MORRIS REGULAR, PHILIP MORRIS FILTER KING,
PHILIP MORRIS 100'S MENTHOL, PHILIP MORRIS 100'S REGULAR; ALPINE 100'S; MR.
SLIM 100'S REGULAR, MR. SLIM 100'S MENTHOL, subject to the following terms and
conditions:
1. The COMPANY hereby constitutes and appoints the DEALER as its authorized dealer for the
sale and distribution of the COMPANY's products as enumerated above, (hereinafter referred to
as "Products") and the DEALER hereby accepts such appointment, all upon the terms and
conditions herein contained.
2. The geographical area (hereinafter referred to as "Territory") covered by this Agreement in
which the DEALER shall undertake the responsibilities provided herein is GREATER MANILA
AND SUBURBS. It is, however, agreed and understood that the COMPANY may from time to
time, upon written notice thereof to the DEALER, change or subdivide the Territory as the
business exigencies, and the policy of the COMPANY with respect thereto will dictate.
3. The DEALER agrees that during the term of this Agreement:
(a) He will diligently, loyally and faithfully serve the COMPANY as its DEALER and
diligently canvass for buyers of the COMPANY's Products in the Territory;
(b) He shall not sell or distribute goods of a similar nature or such as would
compete and interfere with the sale or the Products of the COMPANY in the
Territory, either on this account or on behalf of any other person whatsoever;
(c) Furnish to the COMPANY every three (3) months a list of the buyers/customers
in the Territory, specifying the names and address of such customers as well as
their individual daily supply/stock requirements;
(d) He will faithfully and religiously abide by the COMPANY policy, rules and
regulations, particularly with respect to the pricing of all Products to be sold and
distributed by him;
(e) He will keep account of all his dealings hereunder and promptly liquidate his
account with the COMPANY with respect to the Products sold by him in the
Territory;
(f) He will not engage in any activity which will in any manner prejudice either the
business or name of the COMPANY, such as, but not limited to, "Black marketing"
operations;
(g) He will not withdraw cigarettes if the maximum volume allotted to him by the
COMPANY has been exceeded;
5. The DEALER shall put up a bond, or additional bond, with the COMPANY in such amount or
amounts, as in the judgment of the COMPANY, will be satisfactory. It is agreed that the
COMPANY can apply against said bond or additional bond, such damages as may be suffered
by the COMPANY by reason of breach on the part of the DEALER of any of the latter's
undertakings under this Agreement.

6. In the event that the DEALER should become incapacitated to discharge his undertakings
and responsibilities under this Agreement, for any reason whatsoever, the COMPANY may
designate for the duration of such incapacity, a substitute to handle the sale and distribution of
the Products in the Territory;
7. The COMPANY reserves its right to determine, from time to time, the amount of credit granted
or to be granted to the DEALER with respect to the Products to be sold and distributed in the
Territory.
8. This Agreement may be cancelled and/or terminated by the COMPANY should the DEALER
violate its undertaking under this Agreement especially with respect to Paragraph 4(f) hereof. It
is understood. however, that the failure of the COMPANY to enforce at any time or for any period
of time, any right, power or remedy accruing to the COMPANY upon default by the DEALER of
his undertakings under this Agreement shall not impair any such right, power or remedy or be
construed to be a waiver or an acquiescence in such default; nor shall the action of the
COMPANY in respect of any default, or any acquiescence by it in any default, affect or impair
any right, power or remedy of the COMPANY in respect of any other default.
(9) In the appropriate cases, this Agreement shall constitute as a supplement, revision or
modification of any agreement between the company and the DEALER now existing. However,
should there be a conflict between the provisions of this Agreement and any such existing
agreement between the COMPANY and the DEALER, this Agreement shall prevail.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed at the
place and on the date hereinabove written.
TELENGTAN BROTHERS & SONS, INC.
(La Suerte Cigar & Cigarette Factory)
By:
(SGD.) ROBERT UY (SGD.) PURISIMO EMBING
Manager DEALER
(Signature of Witnesses & Acknowledgment Omitted)
Following the rule in the Mafinco case that in a petition for certiorari, the issue of whether respondents are
employees or independent contractors should be resolved mainly in the light of their peddling contracts, so
must We likewise resolve the status of the 14 members of the local union involved herein mainly on their
dealership agreements for verily, "a different approach would lead this Court astray into the field of factual
controversy where its legal pronouncements would not rest on solid grounds." We must stress the Supreme
Court is not a trier of facts.
Accordingly, after considering the terms and stipulations of the Dealership Contracts which are clear and
leave no doubt upon the intention of the contracting parties in establishing the relationship between the
dealers on one hand and the company on the other as that of buyer and seller, We find that the status thereby
created is one of independent contractorship, pursuant to the first rule in the interpretation of contracts that
the literal meaning of the stipulations shall control. (Article 1370, New Civil Code)
From the plain language of the Dealership Agreement, We find that the same is premised with the prefatory
statement "the factory has accepted the application of (name of applicant) and therefore has appointed him as
one of its dealers." Its terms and conditions include the following: that the dealer shall handle the products in

accordance with existing laws and regulations of the government (par. ); that the dealer shall send his orders
to the factory plant in cash in any amount or on credit up to the amount of not more than P10,000.00 only at
any given time (par. 2); that the factory shall supply the dealer with a truck or a panel delivery and all
expenses for repairs shall be borne by the factory (par. 3); and that the dealer shall not receive any
commission but shall be given a discount for all sales and said discount shall be decided by the factory from
time to time (par. 4).
It also provides that the dealer alone shall be responsible for any violation of any law (par. 5); that the dealer
shall be assigned to a particular territory which the factory may decide from time to time (par. 6); that the
dealer shall sell the products at the price to be agreed upon between the parties (par. 7); and that the dealer
shall post a surety bond of not less than P10,000.00 to guarantee and secure complete and faithful
performance (par. 8).
Either party may terminate the contract without cause by giving 15 days notice in writing; however, in the
event of breach or failure to comply with any of the conditions, the factory may terminate or rescind the
contract immediately (par. 9 and 10).
The Dealership Supplementary Agreement reiterates that the Company "hereby constitute and appoints the
DEALER as its authorized dealer for the sale and distribution of the COMPANY products" and "the DEALER
hereby accepts such appointment" (par. 1). It also provides that the geographical area in which the dealer
shall undertake his responsibilities is Greater Manila and Suburbs. However, the Company may change or
subdivide the territory as the business exigencies and the policy of the Company will dictate (par. 2).
Under said supplementary agreement, the dealer undertakes to: (a) diligently canvass for buyers of the
Company's products; (b) refrain from selling or distributing goods of similar nature; (c) furnish the Company
every 3 months a list of buyers/customers, specifying their addresses and individual daily supply; (d) abide by
the Company policy, particularly with respect to pricing; (e) keep account of all his dealings and promptly
liquidate his accounts; (f) refrain from engaging in any activity which will prejudice the Company from
withdrawing cigarettes beyond the maximum volume allotted to him (par. 3.)
In case of incapacity of the dealer, the Company may designate a substitute (par. 6). The Company also
reserves the right to determine, from time to time, the amount of credit granted or to be granted to the dealer
(par. 7).
It is likewise immediately noticeable that no such words as "to hire and employ" are present. The Dealership
Agreement uses the words "the factory has accepted the application of (name of applicant) and therefore has
appointed him as one of its dealers"; whereas the Dealership Supplementary Agreement is prefaced with the
statement: "For and in consideration of the mutual covenants and agreements made herein, by one to the
other, the COMPANY and the DEALER by these presents, enter into this Supplementary Agreement whereby
the COMPANY will avail of the services of the DEALER to handle the sale and distribution of the cigarette
products". Nothing in the terms and conditions likewise reveals that the dealers were engaged as employees.
Again, on the basis of the clear terms of the dealership agreements, no mention is made of the wages of the
dealers. In fact, it specifies that the dealer shall not receive any commission from the factory but the latter
shall give the dealer a discount for all sales either on consignment or in cash (par. 4).
Considering the matter of wages, the term "wages" as defined in Section 2 of the Minimum Wage Law (Rep.
Act No. 602) as amended, is as follows:
(g) 'Wage' paid to any employee shall mean the remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or ascertained on a time, task,
piece, commission basis, or other method of calculating the same, which is payable by an
employer 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 ...
Section 10(k) of the same law also provides:
(k) Notification of wage conditions. It shall be the duty of every employer to notify his employees
at the time of hiring of the wage conditions under which they are employed, which shall include
the following(1) The rate of wages payable;
(2) The method of calculation of wages;
(3) The periodicity of wage payment; the day, the hour and place of payment; and
(4) Any change with respect to any of the foregoing items."
then, par. (h) of Sec. 10 of said law provides that such "wages" must be paid to them periodically at least once
every two weeks or twice a month. Considering the foregoing, the dealer's discount lacks the foregoing
characteristics of the term "wage". Since it varies from month to month depending on the volume of the sales,
it lacks the characteristic of periodicity in the manner and procedure contemplated in the Minimum Wage Law.
Respondents, in effect, admit the clarity of the terms and conditions of the agreements which covenant that
the relationship between the dealers and the Company is one of buyer and seller of La Suerte products, and
therefore, one of an independent contractorship when they claimed that the dealership arrangement as
established under the Dealership Agreement and the Dealership Supplementary Agreement is essentially a
legal cover, cloak or disguise to hide the continuing Employer-Employee relationship established prior to
1964. (Respondents' Joint Memorandum, p. 34).
Precisely, there was need to change the contract of employment because of the change of relationship, from
an employee to that of an independent dealer or contractor. The employees were free to enter into the new
status, to sign or not to sign the new agreement. As in the Mafinco case, the respondents therein as in the
instant case, were free to reject the terms of the dealership but having signed it, they were bound by its
stipulations and the consequences thereof under existing labor laws. The fact that the 14 local union
members voluntarily executed with La Suerte formal dealership agreements which indicate the distribution
and sale of La Suerte cigarettes signifies that they were acting as independent businessmen.
We ruled earlier that the terms and stipulations of the dealership agreement leave no room for doubt that the
parties entered into a transaction for the distribution and sale of La Suerte products whereby the
distributor/sever or dealer assumes the status of an independent contractor. We note that the applicant who is
appointed dealer "is willing and able to do as such for the main purpose of extensively selling the products of
the FACTORY in the said territories under certain expressed terms and conditions" among them: "1. That the
DEALER shall handle for saleand distribution cigarette products of the factory ..."; "2. That for the purpose of
selling cigarettes or products of the factory, the dealer shall send his order to the factory plant in Paraaque,
Metro Manila either in cash or on credit ..."; "4. That the dealer shall not receive any commission from the
factory but the latter shall give the dealer a discount for all sales either on consignment or in cash ..."; "7. (b)
He shall not sell or distribute goods of a similar nature or such as would compete and interfere with the sale of
the products of the factory in the territory, either on his account or on behalf of any other person
whatsoever ..."; "8. That the dealer shall sell the products of the factory at a price to be agreed upon between
both parties."

It is not disputed that under the dealership agreement, the dealer purchases and sells the cigarettes
manufactured by the company under and for his own account. The dealer places his order for the purchase of
cigarettes to be sold by him in a particular territory by filling up an Issuance Slip. The Issuance Slip is
approved by the Sales Manager and after the sale is approved, a Sales Invoice is then issued to the dealer.
On the basis of the approved Issuance Slip and the Sales Invoice, the dealer secures the delivery of his order
from the warehouse of the company and upon delivery of the cigarettes from the warehouse, the dealer has
the 'obligation to pay whether the cigarettes are disposed or not. The dealer on his own account sells the
cigarettes in any manner he deems best without constraint as to time. The dealers do not devote their full time
in selling company products. They are likewise engaged in other livelihood and businesses while selling
cigarettes manufactured by the company.
The sales to the dealers are either on cash or credit basis. Where it is on cash basis, the amount is paid
immediately upon the delivery of the products from the company's warehouse. If it is on credit, the dealer
would usually settle his account within one week from the time the credit is extended to him. Upon payment of
the purchase price, a company official receipt is issued to him.
Private respondents contend that there are essential differences between the dealership agreement and that
in actual practice and operation, then proceeded to point them in the attempt to prove the control of La Suerte
over the sales effort of the dealers. They also contend that the dealership agreement, as stated earlier, is
essentially a legal cover, a cloak or disguise to hide the continuing employer-employee relationship
established prior to 1964.
We reject both contentions as being without merit.
In the first place, We cannot accept nor consider evidence varying the terms of the agreement other than the
contents of the writing itself pursuant to Section 7, Rule 130 of the Revised Rules of Court, which provides
that:
Section 7. Evidence of written agreements. When the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and, therefore, there can
be, between the parties and their successors in interest, no evidence of the terms of the
agreement other than the contents of the writing except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and
agreement of the parties, or the validity of the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
The term 'agreement' includes wills.
If there are changes by reason of actual practice and operation, certiorari is not the proper proceeding or
remedy therefor.
In the second place, petitioner's claim that respondent local union relies heavily on evidence dehors the
record or extraneous evidence found in cases other than the one at bar, as the testimony in the Limarez case,
NCR Case AB-3-4960-80 cited extensively (pp. 63, 64, 65-66, 66-67, 68-69, 70-72, 73-76, 77-83, 84-85, 8687, 89, 90-94, 97-98, 107, Comment of Local Union) and that practically all the appendages to the Comment
of Local Union constituting the main bulk thereof (Annexes 1 to 52) were evidence introduced in other cases
and not in the case at bar, is meritorious. We reject said evidence dehors the record and the appendages
raised for the first time on appeal as extrinsic, beyond the scope of this review.
Private respondents contend that under the dealership agreement, the totality of the powers expressly
reserved to the company, respecting essential aspects or facets of the sales operation of the dealers, clearly

establish company control over the manner and details of performance. And they cite the following: "(1) The
dealer shall be assigned to a particular territory which the factory shall decide from time to time (par. 6); (2)
The dealer shall handle for sale and distribution cigarette products of the company. . . without however
incurring any expense in doing so, without previous written consent of the factory being first had and obtained
(par. 1); (3) In cases of credit order, the dealer can only get or order the supply of cigarettes up to the amount
of not more than P 10,000.00 only at any given time during the existence of this contract, unless allowed by
the factory to get more (par. 2); (4) The company shall give the dealer a discount for all sales . . . and said
discount shall be decided by the factory from time to time (par. 4); (5) It is however agreed and understood
that the company may, from time to time, upon written notice thereof to the dealer, change or divide the
territory as the business exigencies and policy of the factory with respect thereto will dictate (par. 2, Annex
10); (6) Each dealer will faithfully and religiously abide by the company policy, rules and regulations,
particularly with respect to pricing of all products to be sold and distributed by him (par. 3, sub-par. (d), Annex
10); (7) The dealer shall put up a bond or additional bond with the company in such amounts as in the
judgment of the company may be satisfactory (par. 5, Annex 10); (8) In the event that the dealer should
become incapacitated for any reason whatsoever, the factory may designate for the duration of said
incapacity a substitute to handle the sale and distribution of the products in the territory (par. 6, Annex 10); (9)
The company reserves the right to determine, from time to time, the amount of credit granted or to be granted
the dealer (par. 7, Annex 10); (10) This agreement may be cancelled and/or terminated by the company
should the dealer violate its undertaking under this Agreement, especially par. 7(f) hereof (par. 8, Annex 10);
(11) That either party may terminate this contract without cause by giving to the other party 15 days notice in
writing (par. 9, Annex 9); and (12) In the event of breach of this contract, the company may terminate this
contract without notice to the dealer (proviso in par. 9, Annex 9). " 1
Disputing private respondents' above contention that the company exercises company control over the
manner and details of the sales operation of the dealers and not merely over the result of the work of each
dealer, petitioner maintains that:
1. The allocation of a definite territory to be assigned to a dealer or distributor is standard practice in
dealership agreements, whether international or domestic. Allocation of area responsibility and territorial and
customer restrictions are common features of dealership agreements. Thus, a company may be appointed
exclusive distributor or dealer of a product in the Philippines, the Asian region or in the Far East in the same
way that some Philippine manufacturers appoint exclusive dealers for the United States or Canada;
2. In the Shriro case, the expenses for handling and delivery of the goods to the customers are all for the
account of the company (See Social Security System vs. Hon. Court of Appeals & Shriro (Phil.) Inc., 37 SCRA
579) and there, the Supreme Court did not consider the facts as indicia of an employment relation;
3. In limiting a credit order for cigarettes up to the amount of P 10,000.00 only at any given time during the
existence of the contract, unless allowed by the factory to get more, the company merely controls the result of
the work of the dealer. The credit order is limited because in a dealership contract, the transaction is one of
buy and sell and once an order is made, specially a credit order, the risk of loss is passed on to the dealer;
4. In the Mafinco case, the peddlers are given also a discount and the Supreme Court held that the peddling
contract is not a contract of employment but signifies an independent contractor relationship.
5. The change or division of the territory to which a dealer is assigned as the business exigencies and policy
of the factory with respect thereto will dictate from time to time is no indicia of company control over the
means and methods for in the Mafinco case the peddlers are also assigned definite area routes or zones.
6. That the dealers shall abide with the company policies and rules, particularly in pricing of products is a
standard practice in dealership agreements and more so in franchising agreements. The fact that a person
has to conform with standards of conduct set by the company does not declassify such a person as an

independent contractor so long as he can determine his own day to day activities. In independent contracts,
there is always the element of control as to what shall be done as distinguished from how it should be done.
7. The posting of a surety bond under par. 8 of the Dealers Agreement is similar to the giving of a cash bond
under par. 7, Peddlers Contract in the Mafinco case wherein it is ruled that the Peddlers Contract involved
therein is not an employment agreement.
8. The right to designate a substitute dealer in the event of the incapacity of the regular dealer is no indication
of an employer-employee relationship. It is just business prudence to provide for substitute dealers in case of
the regular dealer's incapacity.
9. That the company may determine from time to time the amount of credit granted or to be granted the dealer
is more a control over the result rather than the means as in Shriro case where the company even reserves
the right to approve or reject a sales order, whether on cash or on credit basis.
10. The power to cancel or terminate should the dealer violate its undertaking under the agreement on the
basis of the company's opinion that the dealer must engage in any activity which will in any manner prejudice
either the business or name of the factory is a standard practice in dealership agreements.
We agree with the petitioner. We hold further that the terms and conditions for the termination of the contract
are the usual and common stipulations in independent contractorship agreements. In any event, the
contention that the totality of the powers expressly reserved to the company establish company control over
the manner and details of performance is merely speculative and conjectural.
There are indeed striking similarities between the Peddler's Contract in the Mafinco case and the Dealer's
Agreement and Supplementary Dealer's Agreement in the case at bar. Thus:
1. Use of company facilities La Suerte provides dealers with truck or panel delivery (par. 3, Dealer's
Agreement) whereas in Mafinco, the company also provides peddler with delivery truck (par. 1, Peddling
Contract);
2. Salary of drivers Dealer in this La Suerte case pays salary of driver (par. 3, Dealer's Agreement). In
Mafinco, the salary of drivers is for peddler's account (par. 2, Peddling Contract);
3. Expenses of operation and maintenance La Suerte pays for expenses and repair pertaining to the truck
or panel delivery (par. 3, Dealership Agreement). In Mafinco, the company furnishes gasoline and oil to run
trucks and bear costs of maintenance and repair (par. 4, Peddling Contract);
4. Profit Margin In instant La Suerte case, no commission given. Company gives a sales discount (par. 4,
Dealership Agreement). In Mafinco, no commission is also given. Peddler given a sales discount (par. 6,
Peddler's Contract);
5. Collateral Dealer in La Suerte gives a surety bond (par. 8, Dealer's Agreement). In Mafinco, peddler
gives a cash bond (par. 7), Peddler's Contract);
6. Payment Dealer required to promptly liquidate account (par. 3, (e), Supplementary Dealer's Contract). In
Mafinco, peddler liquidates everyday at the end of each day, otherwise his cash bond shall answer for
unliquidated account (par. 8, Peddler's Contract);
7. Termination In La Suerte case, no fixed period but either party may terminate after 15 days written notice
(par. 9, Dealer's Contract). In Mafinco, the contract is for one year but either party may terminate earlier upon
5-day written notice (par. 9, Peddler's Contract);

8. Government licenses Dealers secure own municipal license and Mayor's permit (Annexes 23 to 24,
Comment of Local Union). In Mafinco, peddler secure own licenses to peddle (Committee Report, 70 SCRA
157);
9. Working hours Dealers have to get quotas daily but no fixed time. In Mafinco, peddlers get their trucks in
the morning and have to report daily (Report of Committee, 70 SCRA 154-156). No fixed time;
10. Territory Dealer assigned a particular territory (par. 6, Dealer's Agreement). In Mafinco, peddlers have a
fixed territory in Manila, see whereas clause of Peddler's Contract, subject to prearranged routes, areas and
zones agreed upon by Peddler's Association (Committee Report, 70 SCRA 156);
11. Supervision Supervisors also for market analysis in La Suerte case. In Mafinco, Liaison Officer or
Supervisors for market analysis (Committee Report, 70 SCRA 156);
12. Basic Agreement In the instant La Suerte case, the dealer is "appointed" (not hired as in employment
contract) "to handle" products without commission but with sales discount through sales invoices which state
"sold to" dealer (Annex B, Petition; Annex D, Petition). Payments duly receipted (Annex E, Petition).
In Mafinco, the peddler is "desirous of buying and selling" (70 SCRA 143).
On the second issue-whether or not the withdrawal of 31 union members from NATU affected the petition for
certification election insofar as the 30% requirement is concerned, We reserve the Order of the respondent
Director of the Bureau of Labor Relations, it appearing undisputably that the 31 union members had
withdrawn their support to the petition before the filing of said petition. It would be otherwise if the withdrawal
was made after the filing of the petition for it would then be presumed that the withdrawal was not free and
voluntary. The presumption would arise that the withdrawal was procured through duress, coercion or for
valuable consideration. In other words, the distinction must be that withdrawals made before the filing of the
petition are presumed voluntary unless there is convincing proof to the contrary, whereas withdrawals made
after the filing of the petition are deemed involuntary.
The reason for such distinction is that if the withdrawal or retraction is made before the filing of the petition,
the names of employees supporting the petition are supposed to be held secret to the opposite party.
Logically, any such withdrawal or retraction shows voluntariness in the absence of proof to the contrary.
Moreover, it becomes apparent that such employees had not given consent to the filing of the petition, hence
the subscription requirement has not been met.
When the withdrawal or retraction is made after the petition is filed, the employees who are supporting the
petition become known to the opposite party since their names are attached to the petition at the time of filing.
Therefore, it would not be unexpected that the opposite party would use foul means for the subject employees
to withdrawal their support.
In recapitulation, We hold and rule that the 14 members of respondent local union are dealers or independent
contractors. They are not employees of petitioner company. With the withdrawal by 31 members of their
support to the petition prior to or before the filing thereof, making a total of 45, the remainder of 3 out of the 48
alleged to have supported the petition can hardly be said to represent the union. Hence, the dismissal of the
petition by the Med-Arbiter was correct and justified. Respondent Director committed grave abuse of
discretion in reversing the order of the Med- Arbiter.
With the above pronouncements, the resolution of the third issue raised herein is unnecessary.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the Resolution dated January 15, 1980 of respondent
Director of the Bureau of Labor Relations and the Resolution dated November 18,1980 are hereby
REVERSED and SET ASIDE, and the petition for certification election is ordered dismissed.

No costs.
SO ORDERED.
Makasiar (Chairman), Concepcion Jr., Abad Santos and Escolin JJ., concur.
Aquino, J, concurs in the result.
De Castro, J., is on leave.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-53590 July 31, 1984
ROSARIO BROTHERS INC. (MANILA COD DEPARTMENT STORE), petitioner,
vs.
HON. BLAS F. OPLE, THE NATIONAL LABOR RELATIONS COMMISSION, and LEONARDO LOVERIA,
MARIETTA GALUT, LINDA TAPICERIA, JESUS S. OLIVER, CLARITA SANGLE, RICARDO ROXAS,
ANTONIO MABUTOL, LUZ BAYNO, NESTOR SANCHEZ, TITO CASTALEDA, EDDIE RODRIGUEZ,
MANUEL MEJES, FRANCISCA TAPICERIA, EDITHA BAYNO, ET AL., respondents.
Bueno & Primicias Law Office for petitioner.
The Solicitor General for respondents.

RELOVA, J.:
The issue raised in this case is whether an employer-employee relationship exists between the petitioner and
the private respondents. It is the submission of petitioner that no such relationship exists or has been created
because the "series of memoranda" issued by petitioner to the private respondents from 1973 to 1977 would
reveal that it had no control and/or supervision over the work of the private respondents.
Private respondents are tailors, pressers, stitchers and similar workers hired by the petitioner in its tailoring
department (Modes Suburbia). Some had worked there since 1969 until their separation on January 2, 1978.
For their services, they were paid weekly wages on piece-work basis, minus the withholding tax per Bureau of
Internal Revenue (BIR) rules. Further, they were registered with the Social Security System (SSS) as
employees of petitioner and premiums were deducted from their wages; they were also members of the
Avenida-Cubao Manila COD Department Store Labor Union which has a Collective Bargaining Agreement
with the company and; they were required to report for work from Monday through Saturday and to stay in the
tailoring shop for no less than eight (8) hours a day, unless no job order was given them after waiting for two
to three hours, in which case, they may leave and may come back in the afternoon. Their attendance was
recorded through a bundy clock just like the other employees of petitioner. A master cutter distributes job
orders equally, supervises the work and sees to it that they were finished as soon as possible. Quoting from
the comment of the Solicitor General, petitioner, in its memorandum, said
Once the job orders and the corresponding materials were distributed to them, private
respondents were on their own. They were free to do their jobs either in the petitioner's shop or
elsewhere at their option, without observing the regular working time of the company provided

that they finished their work on time and in accordance with the specifications. As a matter of
fact, they were allowed to contract other persons to do the job for them; and also to accept
tailoring jobs from other establishments. (p. 202, Rollo)
On September 7, 1977, the private respondents filed with the Regional Office of the Department (now
Ministry) of Labor a complaint for violation of Presidential Decree 851 (13th month pay) and Presidential
Decree 525, as amended by Presidential Decree 1123 (Emergency Living Allowance) against herein
petitioner.
After petitioner had filed its answer, the case was certified for compulsory arbitration to the Labor Arbiter who,
after due hearing, rendered a decision on December 29, 1977 dismissing "private respondents" claims for
unpaid emergency living allowance and 13th month pay, for lack of merit, upon finding that the complainants
(herein private respondents) are not employees of the respondent (herein petitioner) within the meaning of
Article 267(b)of the Labor Code. As a consequence, the private respondents were dismissed on January 2,
1978 and this prompted them to file a complaint for illegal dismissal with the Ministry of Labor. Meanwhile, the
National Labor Relations Commission (NLRC) affirmed the decision of the Labor Arbiter and dismissed private
respondents' appeal for lack of merit. However, upon appeal to the Minister of Labor, the latter reversed the
resolution of the NLRC in a decision, dated March 27, 1979, holding that
The decision appealed from must be reversed. It is clearly erronious. Ccmplainants and
respondent are correct (sic) in considering their relationship as one between employees and
employer. The labor arbiter should not have made a different finding.
Complainants were employed as tailors, pressers, stitchers and coatmakers in the tailoring
department of the respondent. They are hired through a master cutter and the department head
and upon the approval of the personnel department and the management. They report to the
shop from Monday to Saturday and record their attendance with a bundy clock. They are
required to stay in the shop premises "for no less than 8 hours a day" unless no job is given
them "after waiting for two or three hours" in which case, they are "allowed to leave."
The employees (tailors, pressers and stitchers) are paid by piece per week according to the
rates established by the company. They are registered as employees with the Social Security
System for which premiums are deducted from their wages. Taxes are also witheld from their
wages pursuant to BIR rules. Moreover, they enjoy the benefits due to employees under their
collective agreement with the company.
The tailors are given deadlines on their assigned jobs. They are required to work on job orders
as soon as these are given to them. The master cutter is ordered "to watch out for tailors who
postponed their assigned job up to the last few days of the deadline" and to report violators "for
proper action." Tailors are also required to follow the company code of discipline and the rules
and regulations of the tailoring department. Outright dismissal is meted on anyone who brings
out company patterns.
Under these facts, the existence of the employment relations can not be disputed. The
respondent itself, in its very first position papers, accepts this fact. The labor arbiter certainly
erred in making a different finding.
However, respondent contends that the employees are excluded from the coverage of PD 525,
851 and 1123 because of the nature of their employment, there being 'no fixed number with
regards to entry and exit and no fixed number of days of work, with respect to said employees.
We have, however, examined carefully the decrees and find absolutely no indication therein that
the employees are indeed excluded. Nor are the rules implementing the decrees supportive of
the respondent's contention. On the contrary, the rules argue for the contrary view.

Section 2 of the rules implementing PD 525 provides: "The Decree shall apply to all employees
of covered employers, regardless of their position, designation or employment status, and
irrespective of the method by which their wages are paid, including temporary, casual,
probationary, and seasonal employees and workers." And Section 3, of the rules implementing
PD 851 provides that "all employees of covered employers shall be entitled to benefits provided
under the Decree ... regardless of their position, designation or employment status, and
irrespective of the method by which their wages are paid." Section 2 of the same rules explicitly
provides that the rules apply to "workers paid on piece-rate basis" or "those who are paid a
standard amount for every piece or unit of work produced that is more or less regularly
replicated, without regard to the time spent in producing the same."
WHEREFORE, respondent is hereby ordered to pay the emergency allowances under PD 525
and 1123 and the 13th month pay under PD 851 from the date of the effectivity of said decrees
but not earlier than September 7, 1974 to the following complainants: Leonardo Loveria, Editha
Bayno, Fe Bonita, Ricardo Roxas, Marietta Galut, Mercedes Oliver, Antonio Mabutol, Clarita
Sangle and Jesus Oliver; and the emergency allowances and 13th month pay under said
decrees from the date of the effectivity of said decrees but not earlier than the date of the date of
the start of their employment, as indicated in the parenthesis after their names, to the following
complainants: Linda Tapiceria (July 14, 1975), Luz Bayno, (September 22, 1975), Tito
Castaeda (October 20, 1976), Francisco Tapiceria (February 14, 1977), Manuel Mejes
(February 20, 1977), Eddie Rodriguez (July 4, 1977) and Nestor Sanchez (July 22, 1977). The
Socio-Economic Analyst of the National Labor Relations Commission is hereby directed to
compute the amount of the awards stated in this order and to submit a report thereon within 20
calendar days from receipt of this order. (pp. 37-40, Rollo)
Thereafter, private respondents filed a motion for issuance of a writ of execution of the aforesaid decision of
the Minister of Labor which was granted and, partially implemented.
On February 28, 1980, the Labor Arbiter, issued an order directing the Chief of the Research and Information
Department of the Commission to designate a Socio-Economic Analyst to compute the balance of private
respondents' claims for the 13th month pay and emergency living allowance in accordance with respondent
Minister's decision of March 27, 1979. Pursuant thereto, a report, dated March 4, 1980, was submitted
computing the balance of private respondents' claims for emergency living allowance and 13th month pay up
to February 29,1980 in the total amount of P71,131.14. A writ of execution was issued for the satisfaction of
said amount.
Hence, the filing of this petition for certiorari, praying, among others, to annul and set aside the decision of
public respondent Minister of Labor and to dismiss the claims of private respondents.
We cannot sustain the petition. It was filed on April 1, 1980 which was too late because the Labor Minister's
decision of March 27, 1979, subject of this judicial review, had already become final. And, not only that. The
questioned decision has already been partially implemented by the sheriff as shown by his return, dated July
17, 1979 (p. 96, Rollo). What is left for execution is the balance of private respondents' claim.
Further, the petition is devoid of merit. As held in Mafinco Trading Corporation vs. Ople, 70 SCRA 139, the
existence of employer-employee relationship is determined by the following elements, namely: (1) the
selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the
power to control employees' conduct although the latter is the most important element. On the other hand, an
independent contractor is one who exercises independent employment and contracts to do a piece of work
according to his own methods and without being subjected to control of his employer except as to the result of
his work.

1. In the case at bar, as found by the public respondent, the selection and hiring of private respondents were
done by the petitioner, through the master cutter of its tailoring department who was a regular employee. The
procedure was modified when the employment of personnel in the tailoring department was made by the
management itself after the applicants' qualifications had been passed upon by a committee of four. Later,
further approval by the Personnel Department was required.
2. Private respondents received their weekly wages from petitioner on piece-work basis which is within the
scope and meaning of the term "wage" as defined under Article 97(f) of the New Labor Code (PD 442), thus

(f) "Wage" paid to any employee shag mean the remuneration or earnings, however, designated,
capable of being expressed in terms of money, whether fixed or ascertained on a time, task,
piece, or commission basis, or other method of calculating the same, which is payable by an
employer to an employee under a written or unwritten contract of employment for work done or
to be done or for services rendered or to be rendered, and includes the fair and reasonable
value, as determined by the Secretary of Labor, of board, lodging or other facilities customarily
furnished by the employer to the employee. ...
3. Petitioner had the power to dismiss private respondents, as shown by the various memoranda issued for
strict compliance by private respondents, violations of which, in extreme cases, are grounds for outright
dismissal. In fact, they were dismissed on January 2, 1978, although, the dismissal was declared illegal by the
Labor Arbiter. The case is pending appeal with the National Labor Relations Commission.
4. Private respondents' conduct in the performance of their work was controlled by petitioner, such as: (1) they
were required to work from Monday through Saturday; (2) they worked on job orders without waiting for the
deadline; (3) they were to observe cleanliness in their place of work and were not allowed to bring out tailoring
shop patterns; and (4) they were subject to quality control by petitioner.
5. Private respondents were allowed to register with the Social Security System (SSS) as employees of
petitioner and premiums were deducted from their wages just like its other employees. And, withholding taxes
were also deducted from their wages for transmittal to the Bureau of Internal Revenue (BIR).
6. Well-established is the principle that "findings of administrative agencies which have acquired expertise
because their jurisdiction is confined to specific matters are generally accorded not only respect but even
finality. Judicial review by this Court on labor cases do not go so far as to evaluate the sufficiency of the
evidence upon which the Deputy Minister and the Regional Director based their determinations but are limited
to issues of jurisdiction or grave abuse of discretion (Special Events & Central Shipping Office Workers Union
vs. San Miguel Corporation, 122 SCRA 557)." In the case at bar, the questioned decision and order of
execution of public respondents are not tainted with unfairness or arbitrariness that would amount to abuse of
discretion or lack of jurisdiction and, therefore, this Court finds no necessity to disturb, much less, reverse the
same.
WHEREFORE, premises considered, the petition is dismissed for lack of merit.
SO ORDERED.
Melencio-Herrera, Plana, Gutierrez, Jr. and De la Fuente, JJ., concur.
SUPREME COURT
Manila
SECOND DIVISION

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

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

GUTIERREZ, JR., J.:

The elemental question in labor law of whether or not an employer-employee relationship exists between
petitioners-members of the "Brotherhood Labor Unit Movement of the Philippines" (BLUM) and respondent
San Miguel Corporation, is the main issue in this petition. The disputed decision of public respondent Ronaldo
Zamora, Presidential Assistant for legal Affairs, contains a brief summary of the facts involved:
1. The records disclose that on July 11, 1969, BLUM filed a complaint with the now defunct
Court of Industrial Relations, charging San Miguel Corporation, and the following officers:
Enrique Camahort, Federico Ofiate Feliciano Arceo, Melencio Eugenia Jr., Ernesto Villanueva,
Antonio Bocaling and Godofredo Cueto of unfair labor practice as set forth in Section 4 (a), subsections (1) and (4) of Republic Act No. 875 and of Legal dismissal. It was alleged that
respondents ordered the individual complainants to disaffiliate from the complainant union; and
that management dismissed the individual complainants when they insisted on their union
membership.
On their part, respondents moved for the dismissal of the complaint on the grounds that the
complainants are not and have never been employees of respondent company but employees
of the independent contractor; that respondent company has never had control over the means
and methods followed by the independent contractor who enjoyed full authority to hire and
control said employees; and that the individual complainants are barred by estoppel from
asserting that they are employees of respondent company.
While pending with the Court of Industrial Relations CIR pleadings and testimonial and
documentary evidences were duly presented, although the actual hearing was delayed by
several postponements. The dispute was taken over by the National Labor Relations
Commission (NLRC) with the decreed abolition of the CIR and the hearing of the case
intransferably commenced on September 8, 1975.
On February 9, 1976, Labor Arbiter Nestor C. Lim found for complainants which was concurred
in by the NLRC in a decision dated June 28, 1976. The amount of backwages awarded,
however, was reduced by NLRC to the equivalent of one (1) year salary.

On appeal, the Secretary in a decision dated June 1, 1977, set aside the NLRC ruling, stressing
the absence of an employer-mployee relationship as borne out by the records of the case. ...
The petitioners strongly argue that there exists an employer-employee relationship between them and the
respondent company and that they were dismissed for unionism, an act constituting unfair labor practice "for
which respondents must be made to answer."
Unrebutted evidence and testimony on record establish that the petitioners are workers who have been
employed at the San Miguel Parola Glass Factory since 1961, averaging about seven (7) years of service at
the time of their termination. They worked as "cargadores" or "pahinante" at the SMC Plant loading,
unloading, piling or palleting empty bottles and woosen shells to and from company trucks and warehouses.
At times, they accompanied the company trucks on their delivery routes.
The petitioners first reported for work to Superintendent-in-Charge Camahort. They were issued gate passes
signed by Camahort and were provided by the respondent company with the tools, equipment and
paraphernalia used in the loading, unloading, piling and hauling operation.
Job orders emanated from Camahort. The orders are then transmitted to an assistant-officer-in-charge. In
turn, the assistant informs the warehousemen and checkers regarding the same. The latter, thereafter, relays
said orders to the capatazes or group leaders who then give orders to the workers as to where, when and
what to load, unload, pile, pallet or clean.
Work in the glass factory was neither regular nor continuous, depending wholly on the volume of bottles
manufactured to be loaded and unloaded, as well as the business activity of the company. Work did not
necessarily mean a full eight (8) hour day for the petitioners. However, work,at times, exceeded the eight (8)
hour day and necessitated work on Sundays and holidays. For this, they were neither paid overtime nor
compensation for work on Sundays and holidays.
Petitioners were paid every ten (10) days on a piece rate basis, that is, according to the number of cartons
and wooden shells they were able to load, unload, or pile. The group leader notes down the number or
volume of work that each individual worker has accomplished. This is then made the basis of a report or
statement which is compared with the notes of the checker and warehousemen as to whether or not they tally.
Final approval of report is by officer-in-charge Camahort. The pay check is given to the group leaders for
encashment, distribution, and payment to the petitioners in accordance with payrolls prepared by said
leaders. From the total earnings of the group, the group leader gets a participation or share of ten (10%)
percent plus an additional amount from the earnings of each individual.
The petitioners worked exclusive at the SMC plant, never having been assigned to other companies or
departments of SMC plant, even when the volume of work was at its minimum. When any of the glass
furnaces suffered a breakdown, making a shutdown necessary, the petitioners work was temporarily
suspended. Thereafter, the petitioners would return to work at the glass plant.
Sometime in January, 1969, the petitioner workers numbering one hundred and forty (140) organized and
affiliated themselves with the petitioner union and engaged in union activities. Believing themselves entitled to
overtime and holiday pay, the petitioners pressed management, airing other grievances such as being paid
below the minimum wage law, inhuman treatment, being forced to borrow at usurious rates of interest and to
buy raffle tickets, coerced by withholding their salaries, and salary deductions made without their consent.
However, their gripes and grievances were not heeded by the respondents.
On February 6, 1969, the petitioner union filed a notice of strike with the Bureau of Labor Relations in
connection with the dismissal of some of its members who were allegedly castigated for their union
membership and warned that should they persist in continuing with their union activities they would be
dismissed from their jobs. Several conciliation conferences were scheduled in order to thresh out their

differences, On February 12, 1969, union member Rogelio Dipad was dismissed from work. At the scheduled
conference on February 19, 1969, the complainant union through its officers headed by National President
Artemio Portugal Sr., presented a letter to the respondent company containing proposals and/or labor
demands together with a request for recognition and collective bargaining.
San Miguel refused to bargain with the petitioner union alleging that the workers are not their employees.
On February 20, 1969, all the petitioners were dismissed from their jobs and, thereafter, denied entrance to
respondent company's glass factory despite their regularly reporting for work. A complaint for illegal dismissal
and unfair labor practice was filed by the petitioners.
The case reaches us now with the same issues to be resolved as when it had begun.
The question of whether an employer-employee relationship exists in a certain situation continues to bedevil
the courts. Some businessmen try to avoid the bringing about of an employer-employee relationship in their
enterprises because that judicial relation spawns obligations connected with workmen's compensation, social
security, medicare, minimum wage, termination pay, and unionism. (Mafinco Trading Corporation v. Ople, 70
SCRA 139).
In determining the existence of an employer-employee relationship, the elements that are generally
considered are the following: (a) the selection and engagement of the employee; (b) the payment of wages;
(c) the power of dismissal; and (d) the employer's power to control the employee with respect to the means
and methods by which the work is to be accomplished. It. is the called "control test" that is the most important
element (Investment Planning Corp. of the Phils. v. The Social Security System, 21 SCRA 924; Mafinco
Trading Corp. v. Ople, supra,and Rosario Brothers, Inc. v. Ople, 131 SCRA 72).
Applying the above criteria, the evidence strongly indicates the existence of an employer-employee
relationship between petitioner workers and respondent San Miguel Corporation. The respondent asserts that
the petitioners are employees of the Guaranteed Labor Contractor, an independent labor contracting firm.
The facts and evidence on record negate respondent SMC's claim.
The existence of an independent contractor relationship is generally established by the following criteria:
"whether or not the contractor is carrying on an independent business; the nature and extent of the work; the
skill required; the term and duration of the relationship; the right to assign the performance of a specified
piece of work; the control and supervision of the work to another; the employer's power with respect to the
hiring, firing and payment of the contractor's workers; the control of the premises; the duty to supply the
premises tools, appliances, materials and labor; and the mode, manner and terms of payment" (56 CJS
Master and Servant, Sec. 3(2), 46; See also 27 AM. Jur. Independent Contractor, Sec. 5, 485 and Annex 75
ALR 7260727)
None of the above criteria exists in the case at bar.
Highly unusual and suspect is the absence of a written contract to specify the performance of a specified
piece of work, the nature and extent of the work and the term and duration of the relationship. The records fail
to show that a large commercial outfit, such as the San Miguel Corporation, entered into mere oral
agreements of employment or labor contracting where the same would involve considerable expenses and
dealings with a large number of workers over a long period of time. Despite respondent company's allegations
not an iota of evidence was offered to prove the same or its particulars. Such failure makes respondent SMC's
stand subject to serious doubts.
Uncontroverted is the fact that for an average of seven (7) years, each of the petitioners had worked
continuously and exclusively for the respondent company's shipping and warehousing department.

Considering the length of time that the petitioners have worked with the respondent company, there is
justification to conclude that they were engaged to perform activities necessary or desirable in the usual
business or trade of the respondent, and the petitioners are, therefore regular employees (Phil. Fishing Boat
Officers and Engineers Union v. Court of Industrial Relations, 112 SCRA 159 and RJL Martinez Fishing
Corporation v. National Labor Relations Commission, 127 SCRA 454).
As we have found in RJL Martinez Fishing Corporation v. National Labor Relations Commission (supra):
... [T]he employer-employee relationship between the parties herein is not coterminous with
each loading and unloading job. As earlier shown, respondents are engaged in the business of
fishing. For this purpose, they have a fleet of fishing vessels. Under this situation, respondents'
activity of catching fish is a continuous process and could hardly be considered as seasonal in
nature. So that the activities performed by herein complainants, i.e. unloading the catch of tuna
fish from respondents' vessels and then loading the same to refrigerated vans, are necessary or
desirable in the business of respondents. This circumstance makes the employment of
complainants a regular one, in the sense that it does not depend on any specific project or
seasonable activity. (NLRC Decision, p. 94, Rollo).lwphl@it
so as it with petitioners in the case at bar. In fact, despite past shutdowns of the glass plant for repairs, the
petitioners, thereafter, promptly returned to their jobs, never having been replaced, or assigned elsewhere
until the present controversy arose. The term of the petitioners' employment appears indefinite. The continuity
and habituality of petitioners' work bolsters their claim of employee status vis-a-vis respondent company,
Even under the assumption that a contract of employment had indeed been executed between respondent
SMC and the alleged labor contractor, respondent's case will, nevertheless, fail.
Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code provides:
Job contracting. There is job contracting permissible under the Code if the following
conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on his
own account under his own responsibility according to his own manner and method, free from
the control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.
We find that Guaranteed and Reliable Labor contractors have neither substantial capital nor investment to
qualify as an independent contractor under the law. The premises, tools, equipment and paraphernalia used
by the petitioners in their jobs are admittedly all supplied by respondent company. It is only the manpower or
labor force which the alleged contractors supply, suggesting the existence of a "labor only" contracting
scheme prohibited by law (Article 106, 109 of the Labor Code; Section 9(b), Rule VIII, Book III, Implementing
Rules and Regulations of the Labor Code). In fact, even the alleged contractor's office, which consists of a
space at respondent company's warehouse, table, chair, typewriter and cabinet, are provided for by
respondent SMC. It is therefore clear that the alleged contractors have no capital outlay involved in the
conduct of its business, in the maintenance thereof or in the payment of its workers' salaries.
The payment of the workers' wages is a critical factor in determining the actuality of an employer-employee
relationship whether between respondent company and petitioners or between the alleged independent
contractor and petitioners. It is important to emphasize that in a truly independent contractor-contractee

relationship, the fees are paid directly to the manpower agency in lump sum without indicating or implying that
the basis of such lump sum is the salary per worker multiplied by the number of workers assigned to the
company. This is the rule in Social Security System v. Court of Appeals (39 SCRA 629, 635).
The alleged independent contractors in the case at bar were paid a lump sum representing only the salaries
the workers were entitled to, arrived at by adding the salaries of each worker which depend on the volume of
work they. had accomplished individually. These are based on payrolls, reports or statements prepared by the
workers' group leader, warehousemen and checkers, where they note down the number of cartons, wooden
shells and bottles each worker was able to load, unload, pile or pallet and see whether they tally. The amount
paid by respondent company to the alleged independent contractor considers no business expenses or
capital outlay of the latter. Nor is the profit or gain of the alleged contractor in the conduct of its business
provided for as an amount over and above the workers' wages. Instead, the alleged contractor receives a
percentage from the total earnings of all the workers plus an additional amount corresponding to a percentage
of the earnings of each individual worker, which, perhaps, accounts for the petitioners' charge of unauthorized
deductions from their salaries by the respondents.
Anent the argument that the petitioners are not employees as they worked on piece basis, we merely have to
cite our rulings in Dy Keh Beng v. International Labor and Marine Union of the Philippines (90 SCRA 161), as
follows:
"[C]ircumstances must be construed to determine indeed if payment by the piece is just a
method of compensation and does not define the essence of the relation. Units of time . . . and
units of work are in establishments like respondent (sic) just yardsticks whereby to determine
rate of compensation, to be applied whenever agreed upon. We cannot construe payment by
the piece where work is done in such an establishment so as to put the worker completely at
liberty to turn him out and take in another at pleasure."
Article 106 of the Labor Code provides the legal effect of a labor only contracting scheme, to wit:
... the person or intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were directly
employed by him.
Firmly establishing respondent SMC's role as employer is the control exercised by it over the petitioners that
is, control in the means and methods/manner by which petitioners are to go about their work, as well as in
disciplinary measures imposed by it.
Because of the nature of the petitioners' work as cargadores or pahinantes, supervision as to the means and
manner of performing the same is practically nil. For, how many ways are there to load and unload bottles and
wooden shells? The mere concern of both respondent SMC and the alleged contractor is that the job of
having the bottles and wooden shells brought to and from the warehouse be done. More evident and
pronounced is respondent company's right to control in the discipline of petitioners. Documentary evidence
presented by the petitioners establish respondent SMC's right to impose disciplinary measures for violations
or infractions of its rules and regulations as well as its right to recommend transfers and dismissals of the
piece workers. The inter-office memoranda submitted in evidence prove the company's control over the
petitioners. That respondent SMC has the power to recommend penalties or dismissal of the piece workers,
even as to Abner Bungay who is alleged by SMC to be a representative of the alleged labor contractor, is the
strongest indication of respondent company's right of control over the petitioners as direct employer. There is
no evidence to show that the alleged labor contractor had such right of control or much less had been there to
supervise or deal with the petitioners.
The petitioners were dismissed allegedly because of the shutdown of the glass manufacturing plant.
Respondent company would have us believe that this was a case of retrenchment due to the closure or

cessation of operations of the establishment or undertaking. But such is not the case here. The respondent's
shutdown was merely temporary, one of its furnaces needing repair. Operations continued after such repairs,
but the petitioners had already been refused entry to the premises and dismissed from respondent's service.
New workers manned their positions. It is apparent that the closure of respondent's warehouse was merely a
ploy to get rid of the petitioners, who were then agitating the respondent company for benefits, reforms and
collective bargaining as a union. There is no showing that petitioners had been remiss in their obligations and
inefficient in their jobs to warrant their separation.
As to the charge of unfair labor practice because of SMC's refusal to bargain with the petitioners, it is clear
that the respondent company had an existing collective bargaining agreement with the IBM union which is the
recognized collective bargaining representative at the respondent's glass plant.
There being a recognized bargaining representative of all employees at the company's glass plant, the
petitioners cannot merely form a union and demand bargaining. The Labor Code provides the proper
procedure for the recognition of unions as sole bargaining representatives. This must be followed.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The San Miguel Corporation is
hereby ordered to REINSTATE petitioners, with three (3) years backwages. However, where reinstatement is
no longer possible, the respondent SMC is ordered to pay the petitioners separation pay equivalent to one (1)
month pay for every year of service.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.
SECOND DIVISION
[G.R. No. 72409. December 29, 1986.]
MAMERTO S. BESA, doing business under the name and style of BESAS CUSTOMBUILT
SHOES,Petitioner, v. THE HONORABLE CRESENCIANO B. TRAJANO, DIRECTOR OF THE BUREAU OF
LABOR RELATIONS, MINISTRY OF LABOR AND EMPLOYMENT, AND KAISAHAN NG MANGGAGAWANG
PILIPINO (KAMPIL-KATIPUNAN), Respondents.
De Asis and Hernando Law Office for Petitioner.
Estebal M. Mendoza for Private Respondent.
DECISION
PARAS, J.:
This petition questions the decision of the Director of the Bureau of Labor Relations in BLR Case No. A-8-16585, which affirmed the appealed order of the Med-Arbiter, Labor Relations Division, NCR in NCR-LRD-M-1044-85, a certification election case. More specifically, petitioner seeks the resolution of the question as to
whether or not an employer-employee relationship exists between herein petitioner and the seventeen (11)
shoeshiners-members of the respondent union, who, if the relationship does exist, should be entitled to the
rights, privileges and benefits of an employee as provided in the Labor Code.
Sometime in January, 1985, private respondent Kaisahan ng Manggagawang Pilipino (KAMPIL, for short) a
legitimate labor union duly registered with the Ministry of Labor and Employment (MOLE, for short), filed a
Petition for Certification Election, docketed as NCR-LRD-M-1-044-85 in the National Labor Relations Division
of the National Capital Region. Petitioner opposed it alleging that

"1. There is no employer-employee relationship between Besas and the petitioners-signatories to the petition;
"2. The subject of the present petition had previously been decided by the defunct Court of Industrial
Relations, and is therefore barred under the principle of res judicata;
"3. The petition fails to comply with the mandatory formal requirements under Sec. 2, Book V, of the Omnibus
Rules Implementing the Labor Code; and
"4. This Hon. Commission has no jurisdiction over the subject matter and parties to the petition."cralaw
virtua1aw library
Acting on the Petition, the Opposition thereto, and the Reply to the Opposition, the Med-Arbiter on June 27,
1985, issued an order declaring that there was an employer-employee relationship between the parties and
directed that an election be conducted.
Petitioner appealed the order to the Director of BLR, citing among others the following reasons
"1. That the subject of the present petition has previously been decided by the defunct Court of Industrial
Relations, and is therefore barred under the principle of res judicata (CIR Case Nos. 2783, 2751 and 2949
ULP, December 21, 1965);
"2. That on May 28, 1985, Director Severo Pucan of the Ministry of Labor and Employment, in dismissing the
case for under-payment of commissions and non-payment of ECOLA, filed by the shoeshiners against Besas
Custombuilt Shoes, for lack of jurisdiction, declared that there was no employer-employee relationship
between the shoeshiners and petitioner Besas (Order in NCR-LSED-1-020-85);
"Director Pucans findings were based on a letter-opinion of the Director of the Bureau of Working Conditions
of the MOLE (Annex "B-2", Petition for Certiorari). The legal ground therein cited was res judicata.
x

x"

Appeal was dismissed by the Director of BLR as contained in his decision dated Sept. 27, 1985 upholding the
finding of the Med-Arbiter that supervisors were appointed to oversee the bootblacks performance. It declared
that such is a finding of fact that is entitled to respect and that res judicata does not lie as the parties and the
causes of action in the certification election case are different from the parties and causes of action in CIR
Cases Nos. 2783-ULP 2751-ULP and 2949 ULP.
Thus the Petition of the Union (KAMPIL) before the Med-Arbiter for the holding of the certification election was
granted. While the preelection conference was in progress, petitioner herein (BESAS) filed with Us with
petition for certiorari with Prohibition and simultaneously filed with the Med-Arbiter a motion to suspend the
pre-election conference. The petition filed before Us was dismissed for lack of merit but was reconsidered
upon Motion of petitioner. In its Motion for Reconsideration, petitioner raised the following
grounds:chanrob1es virtual 1aw library
I
THE INSTANT PETITION PRESENTS QUESTIONS OF LAW AND SUBSTANCE TO MERIT THE
CONSIDERATION OF THIS HONORABLE COURT.
II
THE QUESTIONED DECISION OF THE RESPONDENT DIRECTOR WAS NOT SUPPORTED BY
SUBSTANTIAL EVIDENCE AND THE SAME IS PURELY BASED ON SPECULATIONS, SURMISES AND
CONJECTURES.
III

THE QUESTIONED DECISION OF THE RESPONDENT DIRECTOR IS CONTRARY TO LAW AND

APPLICABLE DECISIONS OF THE SUPREME COURT ON THE MATTER.
IV
THE PETITION FOR CERTIFICATION ELECTION FILED BY RESPONDENT UNION WITH THE MINISTRY
OF LABOR AND EMPLOYMENT FAILED TO COMPLY WITH THE MANDATORY REQUIREMENTS UNDER
ARTICLE 258 OF THE LABOR CODE, AS AMENDED, AND ITS IMPLEMENTING RULES.
V
THE RESPONDENT DIRECTOR ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OF JURISDICTION IN DECIDING THAT THERE EXISTS AN EMPLOYER-EMPLOYEE RELATIONSHIP
BETWEEN THE PETITIONER AND THE SHOESHINER-MEMBERS OF THE RESPONDENT UNION.
VI
THE RESPONDENT DIRECTOR ACTED WITHOUT JURISDICTION IN TAKING COGNIZANCE OF THE
BASIC PETITION CONSIDERING THAT THE SUBJECT MATTER AND THE PARTIES THEREOF HAVE
BEEN DECIDED BY THE DEFUNCT COURT OF INDUSTRIAL RELATIONS AND IS THEREFORE BARRED
BY THE PRINCIPLE OF RES ADJUDICATA.
The main thrust of the instant petition is the question of employer-employee relationship between petitioner
BESAS and 17 of the members of the herein respondent Union who are designated as shoeshiners. During
the certification election held on Nov. 26, 1985 at BESAS, of the 53 eligible voters, 49 cast their votes. 33
voted for the union while 16 voted for no union. Among the 33 voters who opted for a union 17 persons are
shoeshiners while 16 persons are non-shoeshiners.
The question of employer-employee relationship became a primodial consideration in resolving whether or not
the subject shoeshiners have the juridical personality and standing to present a petition for certification
election as well as to vote therein. It is the position of petitioner that if the shoeshiners are not considered as
employees of Besas the basic petition for certification election must necessarily be dismissed for failure to
comply with the mandatory requirements of the Labor Code, as amended, that at least thirty (30%) percent of
the employees must support the petition for certification election and that in order to be certified as the sole
and exclusive bargaining agent, the union must be obtained a majority of the valid votes cast by eligible
voters. In the instant case, if the 17 shoeshiners are declared ineligible and their votes are consequently
nullified the result of the certification election would be 16 "Yes" votes (33 minus 17) and 16 "No" votes, which
is a tie. Since the respondent union did not obtain a clear majority for the "Yes" votes as required under Rule
IV Sec. 8(f), of the Omnibus Rules of the Labor Code, it necessarily follows that the respondent union cannot
be certified as the sole and exclusive bargaining agent of the workers of Besas.
The present petition merits Our consideration. The records of the case reveal that an employer-employee
relationship does not exist between the 17 shoeshiners and petitioner.
Be it noted that the defunct CIR in dismissing the cases for unfair labor practice filed by the shoeshiners
against herein petitioner BESA declared in its Decision dated December 21, 1965 that:jgc:chanrobles.com.ph
"The shoe shiner is distinct from a piece worker because while the latter is paid for work accomplished, he
does not, however, contribute anything to the capital of the employer other than his service. It is the employer
of the piece worker who pays his wages, while the shoe shiner in this instance is paid directly by his customer.
The piece worker is paid for work accomplished without regard or concern to the profit as derived by his
employer, but in the case of the shoe shiners, the proceeds derived from the trade are always divided share
and share alike with respondent Besa. The shoe shiner can take his share of the proceeds everyday if he
wanted to or weekly as is the practice of Besas. The employer of the piece worker supervises and controls
his work, but in the case of the shoe shiner, respondent Besa does not exercise any degree of control or
supervision over their person and their work. All these are not obtaining in the case of a piece worker as he is
in fact an employee in contemplation of law, distinct from the shoe shiner in this instance who, in relation to

respondent Mamerto B. Besa is a partner in the trade. Consequently, employer employee relationship
between members of the Petitioning union and respondent Mamerto B. Besa being absent, the latter could
not be held guilty of the unfair labor practice acts imputed against him." (p. 6, Annex "B-1," of said Decision).
Then too on Dec. 27, 1983, then Director Augusto Sanchez of the Bureau of Working Conditions, MOLE, in
response to a letter of petitioner relative to the implementation of wage Order No. 2 which provided for an
increase both in minimum wage and cost of living allowance, opined as follows:jgc:chanrobles.com.ph
"Entitlement of the minimum requirements of the law particularly on wages and allowances presupposes the
existence of employer-employee relationship which is determined by the concurrence of the following
conditions:chanrob1es virtual 1aw library
1. right to hire
2. payment of wages
3. right to fire; and
4. control and supervision
The most important condition to be considered is the exercise of control and supervision over the employees,
per our conversation, the persons concerned under your query are the shoe shiners and based on the
decision rendered by Associate Judge Emiliano Tabigne of the defunct Court of Industrial Relations, these
shoe shiners are not employees of the company, but are partners instead. This is due to the fact that the
owner/manager does not exercise control and supervision over the shoe shiners. That the shiners have their
own customers from whom they charge the fee and divide the proceeds equally with the owner, which make
the owner categorized them as on purely commission basis. The attendant circumstances clearly show that
there is no employer-employee relationship existing, and such the owner/manager is not by law, under
obligation to extend to those on purely commission basis the benefit of Wage Order No. 2. However, the law
does not preclude the employer in living such benefit to all its employees including those which may not be
covered by the mandate of the law."cralaw virtua1aw library
(Letter dated December 27, 1985 addressed to petitioner Annex "B-2," Petition)
The Office of the Solicitor General as counsel for public respondent agrees that in the present case, no
employer-employee relationship exists.
The Supreme Court in the Rosario Brothers case ruled that;
"A basic factor underlying the exercise of rights under the Labor Code is the status of employment. It is
important in the determination of who shall be included in a proposed bargaining unit because it is sine qua
non. The fundamental and essential condition that a bargaining unit be composed of employees. Failure to
establish this juridical relationship between the union members and the employer affects the legality of the
union itself. It means the eligibility of the union members to present a petition for certification election as well
as to vote therein.
"Existence of employer-employee relationship is determined by the following elements, namely, a] selection
and engagement of the employee; b] payment of wages; c] powers of dismissal; and d] power to control the
employees conduct although the latter is the most important element (Rosario Brothers Inc. v. Ople, 131
SCRA 72, 1984)"
WHEREFORE, judgment is hereby rendered giving due course to the Petition and declaring VOID the
decision of the Director of the Bureau of Labor Relations dated September 27, 1985. The Petition in BLR
Case No. A-8-165-85) (NCR-LRD-M-1-044-85) is therefore hereby DISMISSED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
G.R. No. L-66598 December 19, 1986
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, HONORABLE ARBITER TEODORICO L. DOGELIO
and RICARDO ORPIADA respondents.
Marcelino Lontok, Jr. for respondents.

FELICIANO, J.:
Petitioner Philippine Bank of Communications and the Corporate Executive Search Inc. (CESI) entered into a
letter agreement dated January 1976 under which (CESI) undertook to provide "Tempo[rary] Services" to
petitioner Consisting of the "temporary services" of eleven (11) messengers. The contract period is described
as being "from January 1976." The petitioner in truth undertook to pay a "daily service rate of P18, " on a
per person basis.
Attached to the letter agreement was a "List of Messengers assigned at Philippine Bank of Communications"
which list included, as item No. 5 thereof, the name of private respondent Ricardo Orpiada.
Ricardo Orpiada was thus assigned to work with the petitioner bank. As such, he rendered services to the
bank, within the premises of the bank and alongside other people also rendering services to the bank. There
was some question as to when Ricardo Orpiada commenced rendering services to the bank. As noted above,
the letter agreement was dated January 1976. However, the position paper submitted by (CESI) to the
National Labor Relations Commission stated that (CESI) hired Ricardo Orpiada on 25 June 1975 as a Tempo
Service employee, and assigned him to work with the petitioner bank "as evidenced by the appointment
memo issued to him on 25 June 1975. " Be that as it may, on or about October 1976, the petitioner requested
(CESI) to withdraw Orpiada's assignment because, in the allegation of the bank, Orpiada's services "were no
longer needed."
On 29 October 1976, Orpiada instituted a complaint in the Department of Labor (now Ministry of Labor and
Employment) against the petitioner for illegal dismissal and failure to pay the 13th month pay provided for in
Presidential Decree No. 851. This complaint was docketed as Case No. R04-1010184-76-E. After
investigation, the Office of the Regional Director, Regional Office No. IV of the Department of Labor, issued an
order dismissing Orpiada's complaint for failure of Mr. Orpiada to show the existence of an employeremployee relationship between the bank and himself.
Despite the foregoing order, Orpiada succeeded in having his complaint certified for compulsory arbitration in
Case No. RB-IV-11187-77 entitled "Ricardo Orpiada, complaint vs. Philippine Bank of Communications,
respondent." During the compulsory arbitration proceedings, CE SI was brought into the picture as an
additional respondent by the bank. Both the bank and (CESI) stoutly maintained that (CESI) (and not the
bank) was the employer of Orpiada.
On 12 September 1977, respondent Labor Arbiter Dogelio rendered a decision in Case No. RB-IV-11187-77,
the dispositive portion of which read as follows:

WHEREFORE, premises considered, respondent bank is hereby ordered to reinstate complainant to

the same or equivalent position with full back wages and to pay the latter's 13th month pay for the year
1976.
On 26 October 1977, the bank appealed the decision of the Labor Arbiter to the respondent NLRC. More than
six years laterand the record is silent on why the proceeding in the NLRC should have taken more than six
years to resolve the NLRC promulgated its decision affirming the award of the Labor Arbiter and stating as
follows:
WHEREFORE, except for the modification reducing the complainant's back wages to two (2) years
without qualification, the Decision appealed from is hereby AFFIRMED in an other respects.
Accordingly, on 2 April 1984, the bank filed the present petition for certiorari with this Court seeking to annul
and set aside (a) the decision of respondent Labor Arbiter Dogelio dated 12 September 1977 in Labor Case
No. RB-IV-1118-77 and (b) the decision of the NLRC promulgated on 29 December 1983 affirming with some
modifications the decision of the Labor Arbiter. This Court granted a temporary restraining order on 11 April
1984. The main issue as litigated by the parties in this case relates to whether or not an employer-employee
relationship existed between the petitioner bank and private respondent Ricardo Orpiada. The petitioner bank
maintains that no employer-employee relationship was established between itself and Ricardo Orpiada and
that Ricardo Orpiada was an employee of (CESI) and not of the bank. The bank documents its position by
pointing to the following provisions of its letter agreement with CE SI
1. The individual/s you i.e. (CESI) will assign to us i.e. petitioner) will be subject to our acceptance and
will observe work-days, hours, and methods of work (sic); on the other hand, they will not be asked to
perform job (sic) not normally related to the position/s for which Tempo Services were contracted.
2. Such individuals will nevertheless remain your own employees and you will therefore, retain all
liabilities arising from the new Labor Code as amended Social Security Act and other applicable
Governmental decrees, rules and regulations, provided that, on our part, we shaIl
a. Require your employers assigned to us to properly accomplish your daily time record, to
faithfully reflect all hours worked in our behalf whether such work be within or beyond eight
hours of any day.
b. Notify you of any change in the work assignment or contract period affecting any of your
employers assigned to us within 24 hours, after such change is made.
(Emphasis supplied)
The above language of the agreement between the bank and CE SI is of course relevant and important as
manifesting an intent to refrain from constituting an employer-employee relationship between the bank and
the persons assigned or seconded to the bank by (CESI) That extent to which the parties were successful in
realizing their intent is another matter, one that is dependent upon applicable law and not merely upon the
terms of their contract.
In the case of Viana vs. AI-Lagdan and Pica, 99 Phil. 408 (1956), this Court listed certain factors to be taken
into account in determining the existence of an employer-employee relationship. These factors are:
1) The selection and engagement of the putative employee;
2) The payment of wages;
3) The power of dismissal- and

4) The power to control the putative employees' conduct, although the latter is the most important
element. ... (99 Phil. at 411- 412; Emphasis supplied)
In the present case, Orpiada was not previously selected by the bank. Rather, Orpiada was assigned to work
in the bank by (CESI) Orpiada could not have found his way to the bank's offices had he not been first hired
by (CESI) and later assigned to work in the bank's offices. The selection of Orpiada by (CESI) was, however,
subject to the acceptance of the bank and the bank did accept him As will be seen shortly, (CESI) had hired
Orpiada from the outside world precisely for the purpose of assigning or seconding him to the bank.
With respect to the payment of Orpiada's wages, the bank remitted to CE SI amounts corresponding to the
"daily service rate" of Orpiada and the others similarly assigned by (CESI) to the bank, and (CESI) paid to
Orpiada and the others the wages pertaining to to them. It is not clear from the record whether the amounts
remitted to (CESI) included some factor for CESIs fees; it seems safe to assume that (CESI) had required
some amount in excess of the wages paid by (CESI) to Orpiada and the others to cover its own overhead
expenses and provide some contribution to profit. The bank alleged that Orpiada did not appear in its payroll
and this allegation was not denied by Orpiada. Indeed, the Labor Arbiter in Case No. R04-184-76-B found that
Orpiada was listed in the payroll of (CESI) with (CESI) deducting amounts representing his Medicare and
Social Security System premiums. A copy of the (CESI) payroll was presented, strangely enough, by Orpiada
himself to Regional Office No. IV.
In respect of the power of dismissal we note that the bank requested (CESI) to withdraw Orpiada's
assignment and that (CESI) did, in fact, withdraw such assignment. Upon such withdrawal from his
assignment with the bank, Orpiada was also terminated by (CESI) Indeed, it appears clear that Orpiada was
hired by (CESI) specifically for assignment with the bank and that upon his withdrawal from such assignment
upon request of the bank, Orpiada's employment with (CESI) was also severed, until some other client of
(CESI) showed up in the horizon to which Orpiada could once more be assigned. In the position paper dated
August 5, 1977 submitted by (CESI) before the NLRC, (CESI) explained the relationship between itself and
Orpiada in lucid terms:
5. That as Petitioner herein was very well aware of from the very beginning, he was hired by Corporate
Executive Search, Inc. as a temporary employee and as such, was being assigned to work with the
latter's client Respondent herein that the rationale behind his hiring was the existence of a service
contract between Corporate Executive Search Inc. and its client-company, the Philippine Bank of
Communications, the herein Respondent, and that when this service contract was 0terminated, then
the reason for his employment with Corporate Executive Search, Inc., ceased to exist and that
therefore Corporate Executive Search Inc. had no alternative but to discontinue his employment until
another opportune time for his hiring would present itself;
6. That Petitioner was not given his 13th-month pay under P.D. 851, because Corporate Executive
Search Inc. gave the 13th month pay for 1976 to its employees in December 1976, and since the
company had lost contact with the Petitioner by reason of his having ceased to be connected with it as
of 22 October 1976, he was not among those given the 13th-month pay. (Emphasis supplied)
Turning to the power to control Orpiada's conduct, it should be noted immediately that Orpiada performed his
sections within the bank's premises, and not within the office premises of (CESI) As such, Orpiada must have
been subject to at least the same control and supervision that the bank exercises over any other person
physically within its premises and rendering services to or for the bank, in other words, any employee or staff
member of the bank. It seems unreasonable to suppose that the bank would have allowed Orpiada and the
other persons assigned to the bank by CE SI to remain within the bank's premises and there render services
to the bank, without subjecting them to a substantial measure of control and supervision, whether in respect of
the manner in which they discharged their functions, or in respect of the end results of their functions or
activities, or both.

Application of the above factors in the specific context of this case appears to yield mixed results so far as
concerns the existence of an employer- employer relationship between the bank and Orpiada. The second
("payment of wages") and third ("power of dismissal") factors suggest that the relevant relationship was that
subsisting between (CESI) and Orpiada, a relationship conceded by (CESI) to be one between employer and
employee. Upon the other hand, the first ("selection and engagement") and fourth ("control of employee's
conduct") factors indicate that some direct relationship did exist between Orpiada and the bank and that such
relationship may be assimilated to employment. Perhaps the most important circumstance which emerges
from an examination of the facts of the tri-lateral relationship between the bank, (CESI) and Orpiada is that
the employer-employee relationship between (CESI) and Orpiada was established precisely in anticipation of,
and for the very purpose of making possible, the secondment of Orpiada to the bank. It is therefore necessary
to confront the task of determining the appropriate characterization of the relationship between the bank and
(CESI) was that relationship one of employer and job (independent) contractor or one of employer and "laboronly" contractor?
Articles 106 and 107 of the Labor Code of the Philippines (Presidential Decree No. 442, as amended)
provides as follows:
ART. 106. Contractor or sub-contractor.Whenever an employer enters into a contract with another
person for the performance of the former's work, the employees of the contractor and of the latter's
subcontractor, if any, shall be paid in accordance with the provisions in this Code.
In the event that the contractor or sub-contractor fails to pay the wages of his employees in accordance
with this Code, the employer shall be jointly and severally liable with his contractor or sub-contructor to
such employees to the extent of the work performed under the contract in the same manner and extent
that he is liable to employees directly employed by him
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor
to protect the rights of workers established under this Code. In so prohibiting or restricting, he may
make appropriate distinctions between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among the parties involved shall
be considered the employer for purposes of this Code, to prevent any violation or circumvention of any
provisions of this Code.
There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such person are performing activities which are
directly related to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly employed by him.
ART. 107. Indirect employer. The provisions of the immediately preceding Article shall likewise apply
to any person, part, nership association or corporation which, not being an employer, contracts with an
independent contractor for the performance of any work, task, job or project. (Emphasis supplied)
Under the general rule set out in the first and second paragraphs of Article 106, an employer who enters into a
contract with a contractor for the performance of work for the employer, does not thereby create an employeremployes relationship between himself and the employees of the contractor. Thus, the employees of the
contractor remain the contractor's employees and his alone. Nonetheless when a contractor fails to pay the
wages of his employees in accordance with the Labor Code, the employer who contracted out the job to the
contractor becomes jointly and severally liable with his contractor to the employees of the latter "to the extent
of the work performed under the contract" as such employer were the employer of the contractor's employees.
The law itself, in other words, establishes an employer-employee relationship between the employer and the

job contractor's employees for a limited purpose, i.e., in order to ensure that the latter get paid the wages due
to them.
A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor-i.e "the person or
intermediary" is considered "merely as an agent of the employer. " The employer is made by the statute
responsible to the employees of the "labor only" contractor as if such employees had been directly employed
by the employer. Thus, where "labor only" contracting exists in a given case, the statute itself implies or
establishes an employer-employee relationship between the employer (the owner of the project) and the
employees of the "labor only" contractor, this time for a comprehensive purpose: "employer for purposes
of this Code, to prevent any violation or circumvention of any provision of this Code. " The law in effect holds
both the employer and the "labor-only" contractor responsible to the latter's employees for the more effective
safeguarding of the employees' rights under the Labor Code.
Both the petitioner bank and (CESI) have insisted that (CESI) was not a "labor only" contractor. Section 9 of
Rule VIII of Book III entitled "Conditions of Employment," of the Omnibus Rules Implementing the Labor Code
provides as follows:
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an employer
shag be deemed to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries,
work premises and other materials; and
(2) The workers recruited and placed by such person are performing activities which are to the
principal business or operations of the c workers are habitually employed,
(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor
shall be considered merely as an agent or intermediary of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed by him
(c) For cases not file under this Article, the Secretary of Labor shall determine through appropriate
orders whether or not the contracting out of labor is permissible in the light of the circumstances of
each case and after considering the operating needs of the employer and the rights of the workers
involved. In such case, he may prescribe conditions and restrictions to insure the protection and
welfare of the workers. (Emphasis supplied)
In contrast, job contracting-contracting out a particular job to an independent contractor is defined by the
Implementing Rules as follows:
Sec. 8. Job contracting. There is job contracting permissible under the Code if the following
conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on his own
account under his own responsibility according to his own manner and method free from the control
and direction of his employer or principal in all matters connected with the performance of the
work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries,
work premises, and other materials which are necessary in the conduct of his business. (Emphasis
supplied)

The bank and (CESI) urge that (CESI) is not properly regarded as a "labor-only" contractor upon n the ground
that (CESI) is possessed of substantial capital or investment in the form of office equipment, tools and trained
service personnel.
We are unable to agree with the bank and (CESI) on this score. The definition of "labor-only" contracting in
Rule VIII, Book III of the Implementing Rules must be read in conjunction with the definition of job contracting
given in Section 8 of the same Rules. The undertaking given by CESI in favor of the bank was not the
performance of a specific job for instance, the carriage and delivery of documents and parcels to the
addresses thereof. There appear to be many companies today which perform this discrete service, companies
with their own personnel who pick up documents and packages from the offices of a client or customer, and
who deliver such materials utilizing their own delivery vans or motorcycles to the addresses. In the present
case, the undertaking of (CESI) was toprovide its client-thebank-with a certain number of persons able to
carry out the work of messengers. Such undertaking of CESI was complied with when the requisite number of
persons were assigned or seconded to the petitioner bank. Orpiada utilized the premises and office
equipment of the bank and not those of (CESI) Messengerial work-the delivery of documents to designated
persons whether within or without the bank premises is of course directly related to the day-to-day
operations of the bank. Section 9(2) quoted above does notrequire for its applicability that the petitioner must
be engaged in the delivery of items as a distinct and separate line of business.
Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and placement
corporation placing bodies, as it were, in d ifferent client companies for longer or shorter periods of time. It is
this factor that, to our mind, distinguishes this case from American President v. Clave et al, 114 SCRA 826
(1982) if indeed distinguishing way is needed.
The bank urged that the letter agreement entered into with CESI was designed to enable the bank to obtain
the temporary services of people necessary to enable the bank to cope with peak loads, to replace temporary
workers who were out on vacation or sick leave, and to handle specialized work. There is, of course, nothing
illegal about hiring persons to carry out "a specific project or undertaking the completion or termination of
which [was] determined at the time of the engagement of [the] employee, or where the work or service to be
performed is seasonal in nature and the employment is for the duration of the season" (Article 281, Labor
Code).<re||an1w> The letter agreement itself, however, merely required (CESI) to furnish the bank with
eleven 11) messengers for " a contract period from January 19, 1976 ." The eleven (11) messengers were
thus supposed to render "temporary" services for an indefinite or unstated period of time. Ricardo Orpiada
himself was assigned to the bank's offices from 25 June 1975 and rendered services to the bank until
sometime in October 1976, or a period of about sixteen months. Under the Labor Code, however, any
employee who has rendered at least one year of service, whether such service is continuous or not, shall be
considered a regular employee (Article 281, Second paragraph). Assuming, therefore, that Orpiada could
properly be regarded as a casual (as distinguished from a regular) employee of the bank, he became entitled
to be regarded as a regular employee of the bank as soon as he had completed one year of service to the
bank. Employers may not terminate the service of a regular employee except for a just cause or when
authorized under the Labor Code (Article 280, Labor Code). It is not difficult to see that to uphold the
contractual arrangement between the bank and (CESI) would in effect be to permit employers to avoid the
necessity of hiring regular or permanent employees and to enable them to keep their employees indefinitely
on a temporary or casual status, thus to deny them security of tenure in their jobs. Article 106 of the Labor
Code is precisely designed to prevent such a result.
We hold that, in the circumstances 'instances of this case, (CESI) was engaged in "labor-only" or attracting
vis-a-vis the petitioner and in respect c Ricardo Orpiada, and that consequently, the petitioner bank is liable to
Orpiada as if Orpiada had been directly, employed not only by (CESI) but also by the bank. It may well be that
the bank may in turn proceed against (CESI) to obtain reimbursement of, or some contribution to, the
amounts which the bank will have to pay to Orpiada; but this it is not necessary to determine here.

WHEREFORE, the petition for certiorari is DENIED and the decision promulgated on 29 December 1983 of
the National Labor Relations Commission is AFFIRMED. The Temporary Restraining Order issued by this
Court on 11 April 1984 is hereby lifted. Costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 78382 December 14, 1987
BROADWAY MOTORS, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and VICENTE APOLINARIO, respondents.

FELICIANO, J.:
By virtue of a written undated "Work Contract," 1 private respondent Vicente Apolinario, sometime in March
1967, began work as an auto painter in the premises of petitioner Broadway Motors, Inc. located at 1232
United Nations Avenue, Metro Manila. The contract was signed by Vicente Apolinario as "Contractor"and Mr.
Johnny L. Chieng, Parts and Service Operations Manager of petitioner Corporation. Apolinario worked as an
auto painter for a period of eighteen (18) years, until 23 January 1985 when he was barred from entering the
premises of the petitioner Corporation, and his alleged involvement in a fist-fight with the shop superintendent
of Broadway Motors the day before.
On 21 February 1985, Apolinario commenced an action for illegal dismissal with the National Capital Region
Arbitration Branch of the National Labor Relations Commission (NLRC). In his Complaint, which was
docketed as NLRC Case No. 2587-85, Apolinario sought recovery from petitioner Corporation of (1)
separation pay in the amount of P66,676.95, on the basis of an alleged monthly income of P7,408.55, (2)
moral damages of P50,000.00, and (3) attorney's fees of P10,000.00.
In a Decision dated 2 January 1986, the Labor Arbiter dismissed the complaint upon the ground that under the
Work Contract and an "Addendum to Work Contract" dated 28 April 1984, 3 Apolinario, having supplied the
workers himself included who performed the auto painting jobs for petitioner Corporation, was a mere
contractor and could not, therefore, be considered as the latter's employee. From this decision, Apolinario
interposed an appeal to the NLRC.
On 4 February 1987, public respondent NLRC rendered a Decision, 4 the dispositive portion of which reads:
WHEREFORE, the Decision appealed from is reversed and a new judgment entered ordering
the respondent to pay complainant separation pay in the sum of FORTY FIVE THOUSAND
(P45,000-00) PESOS plus 10% thereof as and for attorney's fees.
SO ORDERED.
In reversing the decision of the Labor Arbiter, public respondent NLRC found that a valid and binding
employer-employee relationship had existed between petitioner Corporation and Apolinario. Since Apolinario
was dismissed without any investigation having been previously conducted by petitioner Corporation to

ascertain his participation in the fistfight within company premises, his dismissal was, accordingly, declared
illegal by public respondent NLRC for non-compliance with the requirements of procedural due process.
After a careful scrutiny of the records of this case, the Court considers that petitioner Corporation has not
sufficiently shown that respondent NLRC had acted with grave abuse of discretion, or without or in excess of
jurisdiction in rendering its decision dated 4 February 1987.
Four factors are generally considered in determining the existence of an employer-employee relationship,
namely: (a) the manner of selection and engagement of the putative employee; (b) the mode of payment of
wages; (c) the presence or absence of a power of dismissal; and (d) the presence or absence of a power to
control the putative employee's conduct. It is this latter factor, the so-called "control test," which is the most
important criterion in such determination. 5 The record shows that Apolinario was hired directly by petitioner
Corporation to work in the latter's auto repair shop as an auto painter, which fact is evidenced by the undated
Work Contract executed between Apolinario and petitioner Corporation through its authorized representative.
That petitioner corporation reserved unto itself the power of dismissal is evident from the fact that petitioner
Corporation unilaterally undertook to terminate Apolinario's relationships with itself.
Upon the other hand, it appears that Apolinario and his men (designated in the Work Contract as "Contract
Workers") were compensated for the jobs they performed in lump sum payments described as "payment for
sub-contract painting" or other repair job, from which amounts an unexplained "three percent (3 %) of fifteen
percent (I 5 %) withholding tax " was deducted. It further appears that Apolinario invoiced, under the
designation of "VM Automotive Repair Service, " to petitioner Corporation the salaries of his "Contract
Workers" on which amounts, a three percent (3%) "sales tax" was added. The "Work Contract" also provided
that Broadway Motors would negotiate only with Apolinario on any work order, and would refrain from dealing
with any member of Apolinario's group of "Contract Workers. 6
Turning to the power to control Apolinario's conduct appears from the stipulations of the Work Contract that
Apolinario and his "Contract Workers" were required not only to keep regular working hours, but to render
overtime service as well, when such as necessitated either by the volume or immediacy of the work. 7 They
were not allowed to negotiate with customers regarding the performance of any additional work beyond that
which had been authorized by petitioner Corporation. 8 Any defect in the workmanship of their jobs was
subject to correction by petitioner Corporation's designated supervisors and inspectors even as the work was
still in progress, and not just after the same had already been completed. 9 Furthermore, Apolinario and his
men were expressly required to abide by petitioner Corporation's regulations and policies, "particularly on the
wearing of uniforms and Identification cards, " which Id cards had to be worn at all times while within the work
premises. Apolinario's "casual workers" were additionally required to deposit their Id cards with petitioner
Corporation's security guard at the end of the working day. 10 In other words, Apolinario and his "Contract
Workers" were under the direct control and supervision of the supervisors and managers of petitioner
Corporation from the very moment they entered the work premises at the beginning of the working day, all
throughout the performance of their duties for the day, until shop closing time.
Petitioner Corporation urges that Apolinario was not its own employee but, rather, an independent contractor
who conducted his own separate business under the trade name of "VM Automotive Repair Service" and had
his own "Contract Workers."
The indices of an owner-independent contractor relationship are set out in Section 8 of Rule VIII, Book Ill of
the Omnibus Rules Implementing the Labor Code. Section 8 provides:
Job contracting. There is job contracting permissible under the Code if the following
conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on his
own account under his own responsibility according to his own manner and method, free from

the control and direction of his employer or principal in all matters connected with the
performance of the workexcept as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business. (Emphasis supplied.)
"Job contracting" must be distinguished from "labor-only" contracting. "Labor-only" contracting is defined in
Section 9 of Rule VIII, Book Ill of the Omnibus Rules Implementing the Labor Code, in the following terms:
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an
employer shall be deemed to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries,
work premises and other materials; and
(2) The workers recruited and Placed by such person are performing activities which are directly
related to the principal business or operations of the employer in which workers are habitually
employed.
(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as
contractor shall be considered merely as an agent or intermediary of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were
xxx xxx xxx (Emphasis supplied.)
The legal effect of a finding that a contractor was not a true independent contractor or "job contractor" but,
rather, merely a "labor-only" contractor was explained in Philippine Bank of Communications v. National Labor
Relations Commission et al. 11
... The "labor-only" contractor i.e., "the person or intermediary is considered "merely as an agent
of the employer." The employer is made by the statute responsible to the employees of the
"labor only" contractor as if such employee had been directly employed by the employer. Thus,
where "labor only contracting exists in a given case, the statute itself implies or establishes an
employer-employee relationship between the employer (the owner of the project) and the
employees of the "labor only contractor, this time for a comprehensive purpose: "employer for
purposes of this Code, to prevent any violation or circumvention of any provision of this Code.
The law in effect holds both the employer and the "labor-only" contractor responsible to the
latter's employees for the more effective safeguarding of the employees' rights under the labor
Code. (Emphasis supplied.)
Thus, a finding that a contractor was a "labor-only" contractor is equivalent to a finding that an employeremployee relationship existed between the owner and the "labor-only" contractor including the latter"s
"Contract Workers," that relationship being attributed by the law itself. Petitioner Corporation"s defense thus
compels us to examine still further the relationship between itself and private respondent Apolinario in terms
of the above indices of contracting "job" or "labor-only. "
We note firstly that, under the Work Contract, Apolinario supplied only "labor and supervision (over his
"Contract Workers") in the performance of automotive body painting work which the company (i.e., Broadway
Motors) may from time to time, award to him under (the) contract." 12 Apolinario also undertook to "hire and
bring in additional workers as may be required by the company, to handle additional work load or to
accelerate or facilitate completion of work in process. 13 Petitioner Corporation supplied all the tools,
equipment, machinery and materials necessary for Apolinario to carry out his assigned painting jobs, which

painting jobs were executed by Apolinario and his men within the premises owned and maintained by
petitioner Corporation. The control and direction exercised by petitioner Corporation over the work done by
Apolinario and his "Contract Workers" was well- nigh complete, as indicated earlier. There was, furthermore,
no evidence adduced by petitioner Corporation to show that Apolinario had substantial capital investment in
"VM Automotive Repair Service" or that "VM Automotive Repair Service" carried on, in its own premises, a car
repair business operation separate and distinct from that engaged in by petitioner Corporation, an operation
the tools or equipment of which were owned by Apolinario and the customers of which were not customers of
Broadway Motors. What the evidence of record reveals is that the alleged "Contract Work" carried out by
Apolinario and his "Contract Workers," excepting overtime work, was performed during regular working hours
six (6) days in a week, which circumstance must have made it virtually impossible for them to carry on any
additional and independent auto painting business outside the premises of Broadway Motors. Finally,
Apolinario and his men were engaged in the performance of a line of work automobile painting which
was directly related to, if not an integral part altogether of the regular business operations of petitioner
Corporation i.e., that of an automotive repair shop.
We conclude that while there is present in the relationship between petitioner Corporation and private
respondent some factors suggestive of an owner- independent contractor relationship (e.g., the manner of
payment of compensation to Apolinario and his "Contract Workers"), many other factors are present which
demonstrate that that relationship is properly characterized as one of employer-employee. We conclude,
further, that the same factors indicate the existence of a "labor-only" contracting arrangement between
petitioner Corporation on the one hand as owner, and upon the other hand, Apolinario as "labor-only"
contractor and his "Contract Workers." Thus, an employer-employee relationship must be held to have existed
between petitioner Corporation and private respondent, whether considered as a result of the contractual
arrangements between them or as a result of the operation of the Labor Code (at least from 1974 onwards)
and its Implementing Rules. It follows, finally, that the ruling of public respondent NLRC that petitioner
Corporation and private respondent were employer and employee, respectively, cannot be regarded as
constituting a grave abuse of discretion or as rendered without or in excess of jurisdiction.
In respect of public respondent NLRC"s finding that Apolinario was dismissed without any opportunity to
present his side on the charge against him of participating in the fistfight with petitioner Corporation"s shop
superintendent, no compelling reason has been shown by the petitioner Corporation why we should overturn
such finding of fact.
WHEREFORE, the Petition for certiorari is DISMISSED. The decision of the public respondent National Labor
Relations Commission dated 4 February 1987 is hereby AFFIRMED. Costs against the petitioner.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Bidin and Cortes, JJ., concur.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA
NOGUERA, respondents-appellees.

SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The
facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into
on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist
World Service, Inc., represented by Mr. Eliseo Canilao as party of the second part, and
hereinafter referred to as appellants, the Tourist World Service, Inc. leased the premises
belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch
office. In the said contract the party of the third part held herself solidarily liable with the party of
the part for the prompt payment of the monthly rental agreed on. When the branch office was
opened, the same was run by the herein appellant Una 0. Sevilla payable to Tourist World
Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to
go to Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have
been informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau,
and, since the branch office was anyhow losing, the Tourist World Service considered closing
down its office. This was firmed up by two resolutions of the board of directors of Tourist World
Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the
manager and vice-president of the Tourist World Service, Inc., Ermita Branch, and the
second,authorizing the corporate secretary to receive the properties of the Tourist World Service
then located at the said branch office. It further appears that on Jan. 3, 1962, the contract with
the appellees for the use of the Branch Office premises was terminated and while the effectivity
thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of fact appellants used it
since Nov. 1961. Because of this, and to comply with the mandate of the Tourist World Service,
the corporate secretary Gabino Canilao went over to the branch office, and, finding the premises
locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to
protect the interests of the Tourist World Service. When neither the appellant Lina Sevilla nor
any of her employees could enter the locked premises, a complaint wall filed by the herein
appellants against the appellees with a prayer for the issuance of mandatory preliminary
injunction. Both appellees answered with counterclaims. For apparent lack of interest of the
parties therein, the trial court ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order dismissing her
counterclaim which the court a quo, in an order dated June 8, 1963, granted permitting her to
present evidence in support of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after
the issues were joined, the reinstated counterclaim of Segundina Noguera and the new
complaint of appellant Lina Sevilla were jointly heard following which the court a quo ordered
both cases dismiss for lack of merit, on the basis of which was elevated the instant appeal on
the following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFFAPPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S
ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY

OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID

ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O.
SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF
DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE
LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO
EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE
LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S
RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF
THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O.
SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch
office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not;
and
3. Whether or not the lessee to the office premises belonging to the appellee Noguera was
appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by
and between her and appellee TWS with offices at the Ermita branch office and that she was not
an employee of the TWS to the end that her relationship with TWS was one of a joint business
venture appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye,
ear and nose specialist as well as a imediately columnist had been in the travel
business prior to the establishment of the joint business venture with appellee
Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being
the godmother of one of his children, with her own clientele, coming mostly from
her own social circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October
1960 (Exh. 'A') covering the premises at A. Mabini St., she expressly warranting
and holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc.
for the prompt payment of the monthly rentals thereof to other appellee Mrs.
Noguera (pp. 14-15, tsn. Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World
Service, Inc., which had its own, separate office located at the Trade & Commerce
Building; nor was she an employee thereof, having no participation in nor
connection with said business at the Trade & Commerce Building (pp. 16-18 tsn
Id.).

4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own
bookings her own business (and not for any of the business of appellee Tourist
World Service, Inc.) obtained from the airline companies. She shared the 7%
commissions given by the airline companies giving appellee Tourist World Service,
Lic. 3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A.
Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and
other sundry expenses, aside from desicion the office furniture and supplying
some of fice furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World
Service, Inc. shouldering the rental and other expenses in consideration for the 3%
split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).
6. It was the understanding between them that appellant Mrs. Sevilla would be
given the title of branch manager for appearance's sake only (p. 31 tsn. Id.),
appellee Eliseo Canilao admit that it was just a title for dignity (p. 36 tsn. June 18,
1965- testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of
corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee
Tourist World Service, Inc. and as such was designated manager. 1
xxx xxx xxx
The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World
Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the
premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service,
Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of Appeal 5 rendered an
affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they
state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION
IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC.
WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT
NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING
COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT,
WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE
(ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY
SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD
SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND
ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION
IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP
PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE
WITHDRAWN." (ANNEX "A" P. 8)

III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION
IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION
FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION
IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS
IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH
AN INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST
WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and
Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its
opinion being "whether or not the padlocking of the premises by the Tourist World Service, Inc. without the
knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and
whether or not the evidence for the said appellant supports the contention that the appellee Tourist World
Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the
Ermita branch office of the appellee Tourist World Service, Inc. 7 Tourist World Service, Inc., insists, on the
other hand, that Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch" office
and that inferentially, she had no say on the lease executed with the private respondent, Segundina Noguera.
The petitioners contend, however, that relation between the between parties was one of joint venture, but
concede that "whatever might have been the true relationship between Sevilla and Tourist World Service," the
Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands, 8 in
reference to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service,
Inc., maintains, that the relation between the parties was in the character of employer and employee, the
courts would have been without jurisdiction to try the case, labor disputes being the exclusive domain of the
Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee
relation. In general, we have relied on the so-called right of control test, "where the person for whom the
services are performed reserves a right to control not only the end to be achieved but also the means to be
used in reaching such end." 10 Subsequently, however, we have considered, in addition to the standard of
right-of control, the existing economic conditions prevailing between the parties, like the inclusion of the
employee in the payrolls, in determining the existence of an employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent
Tourist World Service, Inc., either as to the result of the enterprise or as to the means used in connection
therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita office, she had
bound herself in solidumas and for rental payments, an arrangement that would be like claims of a masterservant relationship. True the respondent Court would later minimize her participation in the lease as one of
mere guaranty, 12 that does not make her an employee of Tourist World, since in any case, a true employee
cannot be made to part with his own money in pursuance of his employer's business, or otherwise, assume
any liability thereof. In that event, the parties must be bound by some other relation, but certainly not
employment.
In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same
was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any
fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these circumstances, it cannot be said that Sevilla

was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing the business,
obviously relied on her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in
commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, who
earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her booking
successes.
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's
employee. As we said, employment is determined by the right-of-control test and certain economic
parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina
Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership. And
apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of November 28,
1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch
office 14 in effect, accepting Tourist World Service, Inc.'s control over the manner in which the business was
run. A joint venture, including a partnership, presupposes generally a of standing between the joint coventurers or partners, in which each party has an equal proprietary interest in the capital or property
contributed 15 and where each party exercises equal rights in the conduct of the business. 16 furthermore, the
parties did not hold themselves out as partners, and the building itself was embellished with the electric sign
"Tourist World Service, Inc. 17in lieu of a distinct partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private
respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of
agency. It is the essence of this contract that the agent renders services "in representation or on behalf of
another. 18 In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal,
Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions.
And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's
authority as owner of the business undertaking. We are convinced, considering the circumstances and from
the respondent Court's recital of facts, that the ties had contemplated a principal agent relationship, rather
than a joint managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the
intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency
having been created for mutual interest, of the agent and the principal. 19 It appears that Lina Sevilla is a bona
fide travel agent herself, and as such, she had acquired an interest in the business entrusted to her.
Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily liable for
the payment of rentals. She continued the business, using her own name, after Tourist World had stopped
further operations. Her interest, obviously, is not to the commissions she earned as a result of her business
transactions, but one that extends to the very subject matter of the power of management delegated to her. It
is an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation
complained of should entitle the petitioner, Lina Sevilla, to damages.
As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection
and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is
'no evidence showing that the Tourist World Service, Inc. disconnected the telephone lines at the branch
office. 20 Yet, what cannot be denied is the fact that Tourist World Service, Inc. did not take pains to have them
reconnected. Assuming, therefore, that it had no hand in the disconnection now complained of, it had clearly
condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact
that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to

terminate that contract without notice to its actual occupant, and to padlock the premises in such fashion. As
this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and
necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract
having been explicitly named therein as a third party in charge of rental payments (solidarily with Tourist
World, Inc.). She could not be ousted from possession as summarily as one would eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the
petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be sure, the
respondent court speaks of alleged business losses to justify the closure '21 but there is no clear showing that
Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for
another company. What the evidence discloses, on the other hand, is that following such an information (that
Sevilla was working for another company), Tourist World's board of directors adopted two resolutions
abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to
effect the takeover of its branch office properties. On January 3, 1962, the private respondents ended the
lease over the branch office premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked,
personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of the
Tourist World Service. "22 It is strange indeed that Tourist World Service, Inc. did not find such a need when it
cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend that it sought to
locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not have
been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines,
paralyzing completely its business operations, and in the process, depriving Sevilla articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had
perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair play.
We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist
World Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages may be
awarded for "breaches of contract where the defendant acted ... in bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina
Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted to her on the
authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage. 24
ART. 2219. Moral damages 25 may be recovered in the following and analogous cases:
xxx xxx xxx
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same
damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown
that she had connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She
cannot therefore be held liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary
damages,25 and P5,000.00 as nominal 26 and/or temperate 27 damages, to be just, fair, and reasonable under
the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31,
1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent,
Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the
petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for
exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. L-72654-61 January 22, 1990

ALIPIO R. RUGA, JOSE PARMA, ELADIO CALDERON, LAURENTE BAUTU, JAIME BARBIN, NICANOR
FRANCISCO, PHILIP CERVANTES and ELEUTERIO BARBIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DE GUZMAN FISHING ENTERPRISES and/or
ARSENIO DE GUZMAN, respondents.
J.C. Espinas & Associates for petitioners.
Tomas A. Reyes for private respondent.

FERNAN, C.J.:
The issue to be resolved in the instant case is whether or not the fishermen-crew members of the trawl fishing
vessel 7/B Sandyman II are employees of its owner-operator, De Guzman Fishing Enterprises, and if so,
whether or not they were illegally dismissed from their employment.
Records show that the petitioners were the fishermen-crew members of 7/B Sandyman II, one of several
fishing vessels owned and operated by private respondent De Guzman Fishing Enterprises which is primarily
engaged in the fishing business with port and office at Camaligan, Camarines Sur. Petitioners rendered
service aboard said fishing vessel in various capacities, as follows: Alipio Ruga and Jose Parma patron/pilot;
Eladio Calderon, chief engineer; Laurente Bautu, second engineer; Jaime Barbin, master fisherman; Nicanor
Francisco, second fisherman; Philip Cervantes and Eleuterio Barbin, fishermen.
For services rendered in the conduct of private respondent's regular business of "trawl" fishing, petitioners
were paid on percentage commission basis in cash by one Mrs. Pilar de Guzman, cashier of private
respondent. As agreed upon, they received thirteen percent (13%) of the proceeds of the sale of the fish-catch
if the total proceeds exceeded the cost of crude oil consumed during the fishing trip, otherwise, they received
ten percent (10%) of the total proceeds of the sale. The patron/pilot, chief engineer and master fisherman

received a minimum income of P350.00 per week while the assistant engineer, second fisherman, and
fisherman-winchman received a minimum income of P260.00 per week. 1
On September 11, 1983 upon arrival at the fishing port, petitioners were told by Jorge de Guzman, president
of private respondent, to proceed to the police station at Camaligan, Camarines Sur, for investigation on the
report that they sold some of their fish-catch at midsea to the prejudice of private respondent. Petitioners
denied the charge claiming that the same was a countermove to their having formed a labor union and
becoming members of Defender of Industrial Agricultural Labor Organizations and General Workers Union
(DIALOGWU) on September 3, 1983.
During the investigation, no witnesses were presented to prove the charge against petitioners, and no criminal
charges were formally filed against them. Notwithstanding, private respondent refused to allow petitioners to
return to the fishing vessel to resume their work on the same day, September 11, 1983.
On September 22, 1983, petitioners individually filed their complaints for illegal dismissal and non-payment of
13th month pay, emergency cost of living allowance and service incentive pay, with the then Ministry (now
Department) of Labor and Employment, Regional Arbitration Branch No. V, Legaspi City, Albay, docketed as
Cases Nos. 1449-83 to 1456-83. 2 They uniformly contended that they were arbitrarily dismissed without
being given ample time to look for a new job.
On October 24, 1983, private respondent, thru its operations manager, Conrado S. de Guzman, submitted its
position paper denying the employer-employee relationship between private respondent and petitioners on
the theory that private respondent and petitioners were engaged in a joint venture. 3
After the parties failed to reach an amicable settlement, the Labor Arbiter scheduled the case for joint hearing
furnishing the parties with notice and summons. On December 27, 1983, after two (2) previously scheduled
joint hearings were postponed due to the absence of private respondent, one of the petitioners herein, Alipio
Ruga, the pilot/captain of the 7/B Sandyman II, testified, among others, on the manner the fishing operations
were conducted, mode of payment of compensation for services rendered by the fishermen-crew members,
and the circumstances leading to their dismissal. 4
On March 31, 1984, after the case was submitted for resolution, Labor Arbiter Asisclo S. Coralde rendered a
joint decision 5 dismissing all the complaints of petitioners on a finding that a "joint fishing venture" and not
one of employer-employee relationship existed between private respondent and petitioners.
From the adverse decision against them, petitioners appealed to the National Labor Relations Commission.
On May 30, 1985, the National Labor Relations Commission promulgated its resolution 6 affirming the
decision of the labor arbiter that a "joint fishing venture" relationship existed between private respondent and
petitioners.
Hence, the instant petition.
Petitioners assail the ruling of the public respondent NLRC that what exists between private respondent and
petitioners is a joint venture arrangement and not an employer-employee relationship. To stress that there is
an employer-employee relationship between them and private respondent, petitioners invite attention to the
following: that they were directly hired by private respondent through its general manager, Arsenio de
Guzman, and its operations manager, Conrado de Guzman; that, except for Laurente Bautu, they had been
employed by private respondent from 8 to 15 years in various capacities; that private respondent, through its
operations manager, supervised and controlled the conduct of their fishing operations as to the fixing of the
schedule of the fishing trips, the direction of the fishing vessel, the volume or number of tubes of the fish-catch
the time to return to the fishing port, which were communicated to the patron/pilot by radio (single side band);
that they were not allowed to join other outfits even the other vessels owned by private respondent without the

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

on July 10, 1984, or seven (7) days after receipt of the decision, their appeal with the NLRC through
registered mail.
We have consistently ruled that in determining the existence of an employer-employee relationship, the
elements that are generally considered are the following (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control the employee
with respect to the means and methods by which the work is to be accomplished. 8 The employment relation
arises from contract of hire, express or implied. 9 In the absence of hiring, no actual employer-employee
relation could exist.
From the four (4) elements mentioned, We have generally relied on the so-called right-of-control test 10 where
the person for whom the services are performed reserves a right to control not only the end to be achieved
but also the means to be used in reaching such end. The test calls merely for the existence of the right to
control the manner of doing the work, not the actual exercise of the right. 11
The case of Pajarillo vs. SSS, supra, invoked by the public respondent as authority for the ruling that a "joint
fishing venture" existed between private respondent and petitioners is not applicable in the instant case.
There is neither light of control nor actual exercise of such right on the part of the boat-owners in
the Pajarillo case, where the Court found that the pilots therein are not under the order of the boat-owners as
regards their employment; that they go out to sea not upon directions of the boat-owners, but upon their own
volition as to when, how long and where to go fishing; that the boat-owners do not in any way control the
crew-members with whom the former have no relationship whatsoever; that they simply join every trip for
which the pilots allow them, without any reference to the owners of the vessel; and that they only share in
their own catch produced by their own efforts.
The aforementioned circumstances obtaining in Pajarillo case do not exist in the instant case. The conduct of
the fishing operations was undisputably shown by the testimony of Alipio Ruga, the patron/pilot of 7/B
Sandyman II, to be under the control and supervision of private respondent's operations manager. Matters
dealing on the fixing of the schedule of the fishing trip and the time to return to the fishing port were shown to
be the prerogative of private respondent. 12 While performing the fishing operations, petitioners received
instructions via a single-side band radio from private respondent's operations manager who called the
patron/pilot in the morning. They are told to report their activities, their position, and the number of tubes of
fish-catch in one day. 13 Clearly thus, the conduct of the fishing operations was monitored by private
respondent thru the patron/pilot of 7/B Sandyman II who is responsible for disseminating the instructions to
the crew members.
The conclusion of public respondent that there had been no change in the situation of the parties since 1968
when De Guzman Fishing Enterprises, private respondent herein, obtained a favorable judgment in Case No.
708 exempting it from compulsory coverage of the SSS law is not supported by evidence on record. It was
erroneous for public respondent to apply the factual situation of the parties in the 1968 case to the instant
case in the light of the changes in the conditions of employment agreed upon by the private respondent and
petitioners as discussed earlier.
Records show that in the instant case, as distinguished from the Pajarillo case where the crew members are
under no obligation to remain in the outfit for any definite period as one can be the crew member of an outfit
for one day and be the member of the crew of another vessel the next day, the herein petitioners, on the other
hand, were directly hired by private respondent, through its general manager, Arsenio de Guzman, and its
operations manager, Conrado de Guzman and have been under the employ of private respondent for a period
of 8-15 years in various capacities, except for Laurente Bautu who was hired on August 3, 1983 as assistant
engineer. Petitioner Alipio Ruga was hired on September 29, 1974 as patron/captain of the fishing vessel;
Eladio Calderon started as a mechanic on April 16, 1968 until he was promoted as chief engineer of the
fishing vessel; Jose Parma was employed on September 29, 1974 as assistant engineer; Jaime Barbin
started as a pilot of the motor boat until he was transferred as a master fisherman to the fishing vessel 7/B

Sandyman II; Philip Cervantes was hired as winchman on August 1, 1972 while Eleuterio Barbin was hired as
winchman on April 15, 1976.
While tenure or length of employment is not considered as the test of employment, nevertheless the hiring of
petitioners to perform work which is necessary or desirable in the usual business or trade of private
respondent for a period of 8-15 years since 1968 qualify them as regular employees within the meaning of
Article 281 of the Labor Code as they were indeed engaged to perform activities usually necessary or
desirable in the usual fishing business or occupation of private respondent. 14
Aside from performing activities usually necessary and desirable in the business of private respondent, it must
be noted that petitioners received compensation on a percentage commission based on the gross sale of the
fish-catch i.e. 13% of the proceeds of the sale if the total proceeds exceeded the cost of the crude oil
consumed during the fishing trip, otherwise only 10% of the proceeds of the sale. Such compensation falls
within the scope and meaning of the term "wage" as defined under Article 97(f) of the Labor Code, thus:
(f) "Wage" paid to any employee shall mean the remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or ascertained on a time, task,
piece or commission basis, or other method of calculating the same, which is payable by an
employer to an employee under a written or unwritten contract of employment for work done or
to be done, or for services rendered or to be rendered, and included the fair and reasonable
value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily
furnished by the employer to the employee. . . .
The claim of private respondent, which was given credence by public respondent, that petitioners get paid in
the form of share in the fish-catch which the patron/pilot as head of the team distributes to his crew members
in accordance with their own understanding 15 is not supported by recorded evidence. Except that such claim
appears as an allegation in private respondent's position paper, there is nothing in the records showing such a
sharing scheme as preferred by private respondent.
Furthermore, the fact that on mere suspicion based on the reports that petitioners allegedly sold their fishcatch at midsea without the knowledge and consent of private respondent, petitioners were unjustifiably not
allowed to board the fishing vessel on September 11, 1983 to resume their activities without giving them the
opportunity to air their side on the accusation against them unmistakably reveals the disciplinary power
exercised by private respondent over them and the corresponding sanction imposed in case of violation of
any of its rules and regulations. The virtual dismissal of petitioners from their employment was characterized
by undue haste when less extreme measures consistent with the requirements of due process should have
been first exhausted. In that sense, the dismissal of petitioners was tainted with illegality.
Even on the assumption that petitioners indeed sold the fish-catch at midsea the act of private respondent
virtually resulting in their dismissal evidently contradicts private respondent's theory of "joint fishing venture"
between the parties herein. A joint venture, including partnership, presupposes generally a parity of
standing between the joint co-venturers or partners, in which each party has an equal proprietary interest in
the capital or property contributed16 and where each party exercises equal lights in the conduct of the
business. 17 It would be inconsistent with the principle of parity of standing between the joint co-venturers as
regards the conduct of business, if private respondent would outrightly exclude petitioners from the conduct of
the business without first resorting to other measures consistent with the nature of a joint venture undertaking,
Instead of arbitrary unilateral action, private respondent should have discussed with an open mind the
advantages and disadvantages of petitioners' action with its joint co-venturers if indeed there is a "joint fishing
venture" between the parties. But this was not done in the instant case. Petitioners were arbitrarily dismissed
notwithstanding that no criminal complaints were filed against them. The lame excuse of private respondent
that the non-filing of the criminal complaints against petitioners was for humanitarian reasons will not help its
cause either.

We have examined the jurisprudence on the matter and find the same to be supportive of petitioners' stand.
InNegre vs. WCC 135 SCRA 653 (1985), we held that fishermen crew members who were recruited by one
master fisherman locally known as "maestro" in charge of recruiting others to complete the crew members are
considered employees, not industrial partners, of the boat-owners. In an earlier case of Abong vs. WCC, 54
SCRA 379 (1973) where petitioner therein, Dr. Agustin Abong, owner of the fishing boat, claimed that he was
not the employer of the fishermen crew members because of an alleged partnership agreement between him,
as financier, and Simplicio Panganiban, as his team leader in charge of recruiting said fishermen to work for
him, we affirmed the finding of the WCC that there existed an employer-employee relationship between the
boat-owner and the fishermen crew members not only because they worked for and in the interest of the
business of the boat-owner but also because they were subject to the control, supervision and dismissal of
the boat-owner, thru its agent, Simplicio Panganiban, the alleged "partner" of Dr. Abong; that while these
fishermen crew members were paid in kind, or by "pakiao basis" still that fact did not alter the character of
their relationship with Dr. Abong as employees of the latter.
In Philippine Fishing Boat Officers and Engineers Union vs. Court of Industrial Relations, 112 SCRA 159
(1982), we held that the employer-employee relationship between the crew members and the owners of the
fishing vessels engaged in deep sea fishing is merely suspended during the time the vessels are drydocked
or undergoing repairs or being loaded with the necessary provisions for the next fishing trip. The said ruling is
premised on the principle that all these activities i.e., drydock, repairs, loading of necessary provisions, form
part of the regular operation of the company fishing business.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The questioned resolution of the National
Labor Relations Commission dated May 30,1985 is hereby REVERSED and SET ASIDE. Private respondent
is ordered to reinstate petitioners to their former positions or any equivalent positions with 3-year backwages
and other monetary benefits under the law. No pronouncement as to costs.
SO ORDERED.

FIRST DIVISION
[G.R. No. 86010. October 3, 1989.]
LEOPOLDO GUARIN AND ONE HUNDRED TWENTY (120) OTHERS, Petitioners, v. NATIONAL LABOR
RELATIONS COMMISSION, LIPERCON SERVICES, INC., and/or NOVELTY PHILIPPINES,
INC., Respondents.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates, for Petitioners.
Corazon R. Paulino for respondent LSI.
Ponce Enrile, Cayetano, Reyes & Manalastas for Novelty Philippines, Inc.
SYLLABUS
1. LABOR LAWS; EMPLOYER-EMPLOYEE RELATIONSHIP; "LABOR ONLY" CONTRACTOR; MERE
AGENT OF REAL EMPLOYER; CASE AT BAR. It is clear that under the "Contract of Services" between
Lipercon and Novelty, Lipercon was a "labor-only" contractor, hence, only an agent of Novelty to procure
workers for the latter, the real employer. The NLRCs finding that Lipercon was not a mere labor-only
contractor because it has substantial capital or investment in the form of tools, equipment, machineries, work
premises, is based on insubstantial evidence, as the NLRC pointed out, that "it (Lipercon) claims to be
possessed among others, of substantial capital and equipment essential to carry out its business as a general
independent contractor." The law casts the burden on the contractor to prove that he/it has substantial capital,

investment, tools, etc. The petitioners, on the other hand, need not prove the negative fact that the contractor
does not have substantial capital, investment, and tools to engage in job-contracting.
2. ID.; ID.; REGULAR EMPLOYEES; WORKERS WHOSE SERVICES DIRECTLY RELATED TO BUSINESS
OF EMPLOYER; CASE AT BAR. The jobs assigned to the petitioners as mechanics, janitors, gardeners,
firemen and grasscutters were directly related to the business of Novelty as a garment manufacturer. In the
case of Philippine Bank of Communications v. NLRC, 146 SCRA 347, we ruled that the work of a messenger
is directly related to a banks operations. In its Comment, Novelty contends that the services which are directly
related to manufacturing garments are sewing, textile cutting, designs, dying, quality control, personnel,
administration, accounting, finance, customs, delivery and similar other activities; and that allegedly," [i]t is
only by stretching the imagination that one may conclude that the services of janitors, janitresses, firemen,
grasscutters, mechanics and helpers are directly related to the business of manufacturing garments" (p. 78,
Rollo). Not so, for the work of gardeners in maintaining clean and well-kept grounds around the factory,
mechanics to keep the machines functioning properly, and firemen to look out for fires, are directly related to
the daily operations of a garment factory. That fact is confirmed by Noveltys rehiring the workers or renewing
the contract with Lipercon every year from 1983 to 1986, a period of three (3) years. As Lipercon was a "laboronly" contractor, the workers it supplied Novelty became regular employees of the latter.
DECISION
GRIO-AQUINO, J.:
The sole issue in this petition for certiorari is whether or not, as found by the National Labor Relations
Commission (or NLRC), respondent Lipercon Services, Inc. is an independent contractor and that petitioners
are its employees.
Novelty Philippines, Inc. is a domestic corporation that is engaged in the garment manufacturing business.
Lipercon Services, Inc. is also a domestic corporation which is engaged in business as a service contractor
providing workers for other companies.
On July 6, 1983, Novelty and Lipercon entered into a "Contract of Services" in which Lipercon, as the
"CONTRACTOR," and Novelty, as the "COMPANY," agreed as follows:jgc:chanrobles.com.ph
"1. The CONTRACTOR shall provide the COMPANY with Contractual Laborers/Helpers/Janitors as requested
by the COMPANY from time to time and such other activities that may be contracted out at the discretion of
the COMPANY.
"2. In consideration for the above undertakings of the CONTRACTOR, the COMPANY expressly agrees to
pay the CONTRACTOR a fee based on the rates as shown on Annex A of this agreement which is deemed
as incorporated herein. A three (3%) percent Contractors Tax shall be charged to the client which is made
part of the billing rate.
"3. The CONTRACTOR shall employ the necessary personnel to efficiently, fully and speedily accomplish the
work and services undertaken herein by the CONTRACTOR. The CONTRACTOR represents that its
personnel shall be in such number as will be sufficient to cope with the requirements of the services and work
herein undertaken and that such personnel shall be physically fit, with good moral character and has not been
convicted of any crime.
"4. The CONTRACTOR shall comply with all labor laws such as Minimum Wage Law, Eight Hour Labor Law,
Social Security System, Medicare, Maternity Contribution, ECC and other laws relating to employers and
employees. It is hereby expressly understood and agreed that the COMPANY shall not be liable in any
manner whatsoever for non-compliance with any requirements involving employer-employee relationship and
other matters relative to labor laws, and CONTRACTOR hereby renders the COMPANY free and harmless
from any responsibility whatsoever for non-compliance with any such requirements and for any violation of
any laws, rules and regulations.

"5. The CONTRACTOR shall be answerable for any claim for losses caused by its personnel assigned to the
COMPANY and for damages to property of the COMPANY, its employees, officers or agents or to third parties,
or for personal injury, including death which may arise from the work or services under this contract from
negligence of employees of the CONTRACTOR; provided, however that necessary investigation be made and
that the loss and/or damage sustained was a result of negligence of the contractors personnel.
"6. It is the essence of this contract which is hereby agreed and understood by both parties that there is no
employer-employee relationship between the COMPANY and employee assigned by the CONTRACTOR
under this agreement. Therefore, the CONTRACTOR obliges itself and its successors in interest, to pay
whatever salaries and wages may be due under this contract including any and all obligations, claims which
may arise as a result of the employer-employee relationship existing between the CONTRACTOR and its
employees assigned under this agreement and warrants to hold the COMPANY free and harmless of and
from any responsibility, liability or claim regarding employment.
"7. The CONTRACTOR shall have exclusive discretion in the selection, engagement and discharge of its
personnel, employees or agents or otherwise in the direction and control of the personnel, workers and
employees of the CONTRACTOR shall be within its full control.
"8. The COMPANY agrees to pay the amount due to the CONTRACTOR under this contract within seven (7)
days after presentation of bills. If payment is not made within thirty (30) days after due date, a one (1%)
percent interest per month shall be added to the unpaid balance.
"9. This contract shall remain in full force from July 6, 1983 to July 5, 1984 and is renewable at the option of
the COMPANY. Either party may terminate this contract upon giving thirty (30) days notice to the other party."
(pp. 17-18, Rollo.)
Petitioners were hired by Lipercon and assigned to Novelty as helpers, janitors, janitresses, firemen, and
mechanics under the above agreement. Petitioners worked for Novelty for some three years. On December
31, 1986, Novelty terminated its agreement with Lipercon, resulting in the dismissal of the petitioners.
On January 9, 1987, petitioners filed a complaint for illegal dismissal against both Lipercon and Novelty (Case
No. NLRC-NCR-1-107-87). Lipercon did not answer.
In a decision dated June 29, 1987, the Labor Arbiter ruled that the petitioners were regular employees of
Novelty and declared their dismissal illegal. Both employers appealed.
Lipercon Services, Inc., on appeal, alleged that the decision was contrary to the facts of the case and not in
conformity with the evidence on record and that the Executive Labor Arbiter gravely abused his discretion
when he ruled that Lipercon Services, Inc. merely acted as an agent of Novelty Philippines, Inc. in the hiring
and placement of the complainants.
On August 19, 1988, the NLRC rendered a decision holding that Lipercon was an independent contractor and
that the petitioners were its employees. The dispositive portion of the NLRCs decision reads as
follows:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, the appealed decision is hereby set aside and another judgment
entered, ordering respondent Lipercon Services, Inc. to reinstate herein complainants to their former positions
without loss of seniority rights and other related benefits granted by law with a limited backwages of one (1)
year without qualification or deduction. In case reinstatement is no longer feasible, respondent Lipercon
Services, Inc. is hereby ordered to grant complainants separation pay of one (1) month salary for every year
of service, a fraction of six (6) months considered as one (1) whole year in addition to the one year
backwages." (p. 26, Rollo.)
The petition is meritorious.
Articles 106 and 107 of the Labor Code of the Philippines provide:jgc:chanrobles.com.ph
"ART. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person
for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if
any, shall be paid in accordance with the provisions of this Code.

"In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with
this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such
employees to the extent of the work performed under the contract, in the same manner and extent that he is
liable to employees directly employed by him.
"The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to
protect the rights of workers established under this Code. In so prohibiting or restricting, he may make
appropriate distinctions between labor-only contracting and job contracting as well as differentiations within
these types of contracting and determine who among the parties involved shall be considered the employer
for purposes of this code, to prevent any violation or circumvention of any provision of this Code.
"There is labor-only contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among others,
and the workers recruited and placed by such person are performing activities which are directly related to the
principal business of such employer. In such cases, the person or intermediary shall be considered merely as
an agent of the employer who shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him."cralaw virtua1aw library
"ART. 107. Indirect Employer. The provisions of the immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not being an employer, contracts with an independent
contractor for the performance of any work, task, job or project."cralaw virtua1aw library
Sections 8 and 9, Rule VIII, Book I of the Omnibus Rules implementing the Labor Code defines "job"
contracting and "labor-only" contracting as follows:jgc:chanrobles.com.ph
"Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are
met:jgc:chanrobles.com.ph
"(1) The contractor carries on an independent business and undertakes the contract work on his own account
under his own responsibility according to his own manner and method, free from the control and direction of
his employer or principal in all matters connected with the performance of the work except as to the results
thereof; and
"(2) The contractor has substantial capital or investment in the form of tools, equipments, machineries, work
premises, and other materials which are necessary in the conduct of his business."cralaw virtua1aw library
"Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where such person:jgc:chanrobles.com.ph
"(1) Does not have substantial capital or investment in the form of tools, equipments, machineries, work
premises and other materials; and
"(2) The workers recruited and placed by such person are performing activities which are directly related to
the principal business or operations of the employer in which workers are habitually employed.
"(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly employed by him.
"(c) For cases not falling under this article, the Secretary of Labor shall determine through appropriate orders
whether or not the contracting out of labor is permissible in the light of the circumstances of each case and
after considering the operating needs of the employer and the rights of the workers involved. In such case, he
may prescribe conditions and restrictions to insure the protection and welfare of the workers."cralaw virtua1aw
library
It is clear from the foregoing definitions that under the "Contract of Services" between Lipercon and Novelty,
Lipercon was a "labor-only" contractor, hence, only an agent of Novelty to procure workers for the latter, the
real employer.

The NLRCs finding that Lipercon was not a mere labor-only contractor because it has substantial capital or
investment in the form of tools, equipment, machineries, work premises, is based on insubstantial evidence,
as the NLRC pointed out, that "it (Lipercon) claims to be possessed among others, of substantial capital and
equipment essential to carry out its business as a general independent contractor" (p. 25, Rollo).
The law casts the burden on the contractor to prove that he/it has substantial capital, investment, tools, etc.
The petitioners, on the other hand, need not prove the negative fact that the contractor does not have
substantial capital, investment, and tools to engage in job-contracting.
The jobs assigned to the petitioners as mechanics, janitors, gardeners, firemen and grasscutters were directly
related to the business of Novelty as a garment manufacturer. In the case of Philippine Bank of
Communications v. NLRC, 146 SCRA 347, we ruled that the work of a messenger is directly related to a
banks operations. In its Comment, Novelty contends that the services which are directly related to
manufacturing garments are sewing, textile cutting, designs, dying, quality control, personnel, administration,
accounting, finance, customs, delivery and similar other activities; and that allegedly," [i]t is only by stretching
the imagination that one may conclude that the services of janitors, janitresses, firemen, grasscutters,
mechanics and helpers are directly related to the business of manufacturing garments" (p. 78, Rollo). Not so,
for the work of gardeners in maintaining clean and well-kept grounds around the factory, mechanics to keep
the machines functioning properly, and firemen to look out for fires, are directly related to the daily operations
of a garment factory. That fact is confirmed by Noveltys rehiring the workers or renewing the contract with
Lipercon every year from 1983 to 1986, a period of three (3) years.
As Lipercon was a "labor-only" contractor, the workers it supplied Novelty became regular employees of the
latter.
WHEREFORE, the decision of the NLRC is set aside and that of the Labor Arbiter is reinstated. Novelty
Philippines, Inc. is ordered to reinstate the petitioners with backwages for one (1) year without qualification or
deduction. In case reinstatement is no longer feasible, respondent Novelty Philippines, Inc. is hereby ordered
to grant the complainants separation pay equivalent to one (1) month salary for every year of service, a
fraction of six (6) months to be considered as one (1) whole year, in addition to their backwages. Costs
against respondent Novelty Philippines, Inc.
SO ORDERED.
Narvasa, Cruz and Gancayco, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 84484 November 15, 1989
INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.
Tirol & Tirol for petitioner.
Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.

NARVASA, J.:
On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and Melecio T.
Basiao entered into a contract 1 by which:

1. Basiao was "authorized to solicit within the Philippines applications for insurance policies and
annuities in accordance with the existing rules and regulations" of the Company;
2. he would receive "compensation, in the form of commissions ... as provided in the Schedule
of Commissions" of the contract to "constitute a part of the consideration of ... (said) agreement;"
and
3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well as all its
circulars ... and those which may from time to time be promulgated by it, ..." were made part of
said contract.
The contract also contained, among others, provisions governing the relations of the parties, the duties of the
Agent, the acts prohibited to him, and the modes of termination of the agreement, viz.:
RELATION WITH THE COMPANY. The Agent shall be free to exercise his own judgment as to
time, place and means of soliciting insurance. Nothing herein contained shall therefore be
construed to create the relationship of employee and employer between the Agent and the
Company. However, the Agent shall observe and conform to all rules and regulations which the
Company may from time to time prescribe.
ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving, directly or
indirectly, rebates in any form, or from making any misrepresentation or over-selling, and, in
general, from doing or committing acts prohibited in the Agent's Manual and in circulars of the
Office of the Insurance Commissioner.
TERMINATION. The Company may terminate the contract at will, without any previous notice to
the Agent, for or on account of ... (explicitly specified causes). ...
Either party may terminate this contract by giving to the other notice in writing to that effect. It
shall become ipso facto cancelled if the Insurance Commissioner should revoke a Certificate of
Authority previously issued or should the Agent fail to renew his existing Certificate of Authority
upon its expiration. The Agent shall not have any right to any commission on renewal of
premiums that may be paid after the termination of this agreement for any cause whatsoever,
except when the termination is due to disability or death in line of service. As to commission
corresponding to any balance of the first year's premiums remaining unpaid at the termination of
this agreement, the Agent shall be entitled to it if the balance of the first year premium is paid,
less actual cost of collection, unless the termination is due to a violation of this contract,
involving criminal liability or breach of trust.
ASSIGNMENT. No Assignment of the Agency herein created or of commissions or other
compensations shall be valid without the prior consent in writing of the Company. ...
Some four years later, in April 1972, the parties entered into another contract an Agency Manager's
Contract and to implement his end of it Basiao organized an agency or office to which he gave the name
M. Basiao and Associates, while concurrently fulfilling his commitments under the first contract with the
Company. 2
In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking a
reconsideration, Basiao sued the Company in a civil action and this, he was later to claim, prompted the latter
to terminate also his engagement under the first contract and to stop payment of his commissions starting
April 1, 1980. 3

Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and its president.
Without contesting the termination of the first contract, the complaint sought to recover commissions allegedly
unpaid thereunder, plus attorney's fees. The respondents disputed the Ministry's jurisdiction over Basiao's
claim, asserting that he was not the Company's employee, but an independent contractor and that the
Company had no obligation to him for unpaid commissions under the terms and conditions of his contract. 5
The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting agreement
had established an employer-employee relationship between him and the Company, and this conferred
jurisdiction on the Ministry of Labor to adjudicate his claim. Said official's decision directed payment of his
unpaid commissions "... equivalent to the balance of the first year's premium remaining unpaid, at the time of
his termination, of all the insurance policies solicited by ... (him) in favor of the respondent company ..." plus
10% attorney's fees. 6
This decision was, on appeal by the Company, affirmed by the National Labor Relations
Commission. 7 Hence, the present petition for certiorari and prohibition.
The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the Company's
employee by virtue of the contract invoked by him, thereby placing his claim for unpaid commissions within
the original and exclusive jurisdiction of the Labor Arbiter under the provisions of Section 217 of the Labor
Code, 8 or, contrarily, as the Company would have it, that under said contract Basiao's status was that of an
independent contractor whose claim was thus cognizable, not by the Labor Arbiter in a labor case, but by the
regular courts in an ordinary civil action.
The Company's thesis, that no employer-employee relation in the legal and generally accepted sense existed
between it and Basiao, is drawn from the terms of the contract they had entered into, which, either expressly
or by necessary implication, made Basiao the master of his own time and selling methods, left to his judgment
the time, place and means of soliciting insurance, set no accomplishment quotas and compensated him on
the basis of results obtained. He was not bound to observe any schedule of working hours or report to any
regular station; he could seek and work on his prospects anywhere and at anytime he chose to, and was free
to adopt the selling methods he deemed most effective.
Without denying that the above were indeed the expressed implicit conditions of Basiao's contract with the
Company, the respondents contend that they do not constitute the decisive determinant of the nature of his
engagement, invoking precedents to the effect that the critical feature distinguishing the status of an
employee from that of an independent contractor is control, that is, whether or not the party who engages the
services of another has the power to control the latter's conduct in rendering such services. Pursuing the
argument, the respondents draw attention to the provisions of Basiao's contract obliging him to "... observe
and conform to all rules and regulations which the Company may from time to time prescribe ...," as well as to
the fact that the Company prescribed the qualifications of applicants for insurance, processed their
applications and determined the amounts of insurance cover to be issued as indicative of the control, which
made Basiao, in legal contemplation, an employee of the Company. 9
It is true that the "control test" expressed in the following pronouncement of the Court in the 1956 case
of Viana vs. Alejo Al-Lagadan 10
... In determining the existence of employer-employee relationship, the following elements are
generally considered, namely: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the power to control the employees'
conduct although the latter is the most important element (35 Am. Jur. 445). ...
has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a valid test of
the character of a contract or agreement to render service. It should, however, be obvious that not every form
of control that the hiring party reserves to himself over the conduct of the party hired in relation to the services

rendered may be accorded the effect of establishing an employer-employee relationship between them in the
legal or technical sense of the term. A line must be drawn somewhere, if the recognized distinction between
an employee and an individual contractor is not to vanish altogether. Realistically, it would be a rare contract
of service that gives untrammelled freedom to the party hired and eschews any intervention whatsoever in his
performance of the engagement.
Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of
the mutually desired result without dictating the means or methods to be employed in attaining it, and those
that control or fix the methodology and bind or restrict the party hired to the use of such means. The first,
which aim only to promote the result, create no employer-employee relationship unlike the second, which
address both the result and the means used to achieve it. The distinction acquires particular relevance in the
case of an enterprise affected with public interest, as is the business of insurance, and is on that account
subject to regulation by the State with respect, not only to the relations between insurer and insured but also
to the internal affairs of the insurance company. 12 Rules and regulations governing the conduct of the
business are provided for in the Insurance Code and enforced by the Insurance Commissioner. It is, therefore,
usual and expected for an insurance company to promulgate a set of rules to guide its commission agents in
selling its policies that they may not run afoul of the law and what it requires or prohibits. 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 agent's 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.
There is no dearth of authority holding persons similarly placed as respondent Basiao to be independent
contractors, instead of employees of the parties for whom they worked. In Mafinco Trading Corporation vs.
Ople, 13the Court ruled that a person engaged to sell soft drinks for another, using a truck supplied by the
latter, but with the right to employ his own workers, sell according to his own methods subject only to
prearranged routes, observing no working hours fixed by the other party and obliged to secure his own
licenses and defray his own selling expenses, all in consideration of a peddler's discount given by the other
party for at least 250 cases of soft drinks sold daily, was not an employee but an independent contractor.
In Investment Planning Corporation of the Philippines us. Social Security System 14 a case almost on all fours
with the present one, this Court held that there was no employer-employee relationship between a
commission agent and an investment company, but that the former was an independent contractor where said
agent and others similarly placed were: (a) paid compensation in the form of commissions based on
percentages of their sales, any balance of commissions earned being payable to their legal representatives in
the event of death or registration; (b) required to put up performance bonds; (c) subject to a set of rules and
regulations governing the performance of their duties under the agreement with the company and termination
of their services for certain causes; (d) not required to report for work at any time, nor to devote their time
exclusively to working for the company nor to submit a record of their activities, and who, finally, shouldered
their own selling and transportation expenses.
More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller to buy and sell
rice and palay without compensation except a certain percentage of what he was able to buy or sell, did work
at his own pleasure without any supervision or control on the part of his principal and relied on his own
resources in the performance of his work, was a plain commission agent, an independent contractor and not
an employee.
The respondents limit themselves to pointing out that Basiao's 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."
The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with the Company
for twenty-five years. Whatever this is meant to imply, the obvious reply would be that what is germane here is
Basiao's status under the contract of July 2, 1968, not the length of his relationship with the Company.
The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of the
petitioner, but a commission agent, an independent contractor whose claim for unpaid commissions should
have been litigated in an ordinary civil action. The Labor Arbiter erred in taking cognizance of, and
adjudicating, said claim, being without jurisdiction to do so, as did the respondent NLRC in affirming the
Arbiter's decision. This conclusion renders it unnecessary and premature to consider Basiao's claim for
commissions on its merits.
WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside, and that
complaint of private respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is dismissed. No
pronouncement as to costs.
SO ORDERED.
Cruz, Gancayco, Grio-Aquino, and Medialdea, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 83380-81 November 15, 1989
MAKATI HABERDASHERY, INC., JORGE LEDESMA and CECILIO G. INOCENCIO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, CEFERINA J. DIOSANA (Labor Arbiter, Department of Labor
and Employment, National Capital Region), SANDIGAN NG MANGGAGAWANG PILIPINO (SANDIGAN)TUCP and its members, JACINTO GARCIANO, ALFREDO C. BASCO, VICTORIO Y. LAURETO, ESTER
NARVAEZ, EUGENIO L. ROBLES, BELEN N. VISTA, ALEJANDRO A. ESTRABO, VEVENCIO TIRO,
CASIMIRO ZAPATA, GLORIA ESTRABO, LEONORA MENDOZA, MACARIA G. DIMPAS, MERILYN A.
VIRAY, LILY OPINA, JANET SANGDANG, JOSEFINA ALCOCEBA and MARIA ANGELES, respondents.
Ledesma, Saludo & Associates for petitioners.
Pablo S. Bernardo for private respondents.

FERNAN, C.J.:
This petition for certiorari involving two separate cases filed by private respondents against herein petitioners
assails the decision of respondent National Labor Relations Commission in NLRC CASE No. 7-2603-84
entitled "Sandigan Ng Manggagawang Pilipino (SANDIGAN)-TUCP etc., et al. v. Makati Haberdashery and/or
Toppers Makati, et al." and NLRC CASE No. 2-428-85 entitled "Sandigan Ng Manggagawang Pilipino
(SANDIGAN)-TUCP etc., et al. v. Toppers Makati, et al.", affirming the decision of the Labor Arbiter who jointly
heard and decided aforesaid cases, finding: (a) petitioners guilty of illegal dismissal and ordering them to

reinstate the dismissed workers and (b) the existence of employer-employee relationship and granting
respondent workers by reason thereof their various monetary claims.
The undisputed facts are as follows:
Individual complainants, private respondents herein, have been working for petitioner Makati Haberdashery,
Inc. as tailors, seamstress, sewers, basters (manlililip) and "plantsadoras". They are paid on a piece-rate
basis except Maria Angeles and Leonila Serafina who are paid on a monthly basis. In addition to their piecerate, they are given a daily allowance of three (P 3.00) pesos provided they report for work before 9:30 a.m.
everyday.
Private respondents are required to work from or before 9:30 a.m. up to 6:00 or 7:00 p.m. from Monday to
Saturday and during peak periods even on Sundays and holidays.
On July 20, 1984, the Sandigan ng Manggagawang Pilipino, a labor organization of the respondent workers,
filed a complaint docketed as NLRC NCR Case No. 7-2603-84 for (a) underpayment of the basic wage; (b)
underpayment of living allowance; (c) non-payment of overtime work; (d) non-payment of holiday pay; (e) nonpayment of service incentive pay; (f) 13th month pay; and (g) benefits provided for under Wage Orders Nos.
1, 2, 3, 4 and 5. 1
During the pendency of NLRC NCR Case No. 7-2603-84, private respondent Dioscoro Pelobello left with
Salvador Rivera, a salesman of petitioner Haberdashery, an open package which was discovered to contain a
"jusi" barong tagalog. When confronted, Pelobello replied that the same was ordered by respondent Casimiro
Zapata for his customer. Zapata allegedly admitted that he copied the design of petitioner Haberdashery. But
in the afternoon, when again questioned about said barong, Pelobello and Zapata denied ownership of the
same. Consequently a memorandum was issued to each of them to explain on or before February 4, 1985
why no action should be taken against them for accepting a job order which is prejudicial and in direct
competition with the business of the company. 2 Both respondents allegedly did not submit their explanation
and did not report for work. 3 Hence, they were dismissed by petitioners on February 4, 1985. They countered
by filing a complaint for illegal dismissal docketed as NLRC NCR Case No. 2-428-85 on February 5, 1985. 4
On June 10, 1986, Labor Arbiter Ceferina J. Diosana rendered judgment, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in NLRC NCR Case No. 2-428-85 finding
respondents guilty of illegal dismissal and ordering them to reinstate Dioscoro Pelobello and
Casimiro Zapata to their respective or similar positions without loss of seniority rights, with full
backwages from July 4, 1985 up to actual reinstatement. The charge of unfair labor practice is
dismissed for lack of merit.
In NLRC NCR Case No. 7-26030-84, the complainants' claims for underpayment re violation of
the minimum wage law is hereby ordered dismissed for lack of merit.
Respondents are hereby found to have violated the decrees on the cost of living allowance,
service incentive leave pay and the 13th Month Pay. In view thereof, the economic analyst of the
Commission is directed to compute the monetary awards due each complainant based on the
available records of the respondents retroactive as of three years prior to the filing of the instant
case.
SO ORDERED. 5

From the foregoing decision, petitioners appealed to the NLRC. The latter on March 30, 1988 affirmed said
decision but limited the backwages awarded the Dioscoro Pelobello and Casimiro Zapata to only one (1)
year. 6
After their motion for reconsideration was denied, petitioners filed the instant petition raising the following
issues:
I
THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT AN EMPLOYER-EMPLOYEE
RELATIONSHIP EXISTS BETWEEN PETITIONER HABERDASHERY AND RESPONDENTS WORKERS.
II
THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS WORKERS ARE
ENTITLED TO MONETARY CLAIMS DESPITE THE FINDING THAT THEY ARE NOT ENTITLED TO
MINIMUM WAGE.
III
THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS PELOBELLO AND
ZAPATA WERE ILLEGALLY DISMISSED. 7
The first issue which is the pivotal issue in this case is resolved in favor of private respondents. We have
repeatedly held in countless decisions that the test of employer-employee relationship is four-fold: (1) the
selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the
power to control the employee's conduct. It is the so called "control test" that is the most important
element. 8 This simply means the determination of whether the employer controls or has reserved the right to
control the employee not only as to the result of the work but also as to the means and method by which the
same is to be accomplished. 9
The facts at bar indubitably reveal that the most important requisite of control is present. As gleaned from the
operations of petitioner, when a customer enters into a contract with the haberdashery or its proprietor, the
latter directs an employee who may be a tailor, pattern maker, sewer or "plantsadora" to take the customer's
measurements, and to sew the pants, coat or shirt as specified by the customer. Supervision is actively
manifested in all these aspects the manner and quality of cutting, sewing and ironing.
Furthermore, the presence of control is immediately evident in this memorandum issued by Assistant
Manager Cecilio B. Inocencio, Jr. dated May 30, 1981 addressed to Topper's Makati Tailors which reads in
part:
4. Effective immediately, new procedures shall be followed:
A. To follow instruction and orders from the undersigned Roger Valderama, Ruben Delos Reyes
and Ofel Bautista. Other than this person (sic) must ask permission to the above mentioned
before giving orders or instructions to the tailors.
B. Before accepting the job orders tailors must check the materials, job orders, due dates and
other things to maximize the efficiency of our production. The materials should be checked (sic)
if it is matched (sic) with the sample, together with the number of the job order.
C. Effective immediately all job orders must be finished one day before the due date. This can
be done by proper scheduling of job order and if you will cooperate with your supervisors. If you

have many due dates for certain day, advise Ruben or Ofel at once so that they can make
necessary adjustment on due dates.
D. Alteration-Before accepting alteration person attending on customs (sic) must ask first or
must advise the tailors regarding the due dates so that we can eliminate what we call 'Bitin'.
E. If there is any problem regarding supervisors or co-tailor inside our shop, consult with me at
once settle the problem. Fighting inside the shop is strictly prohibited. Any tailor violating this
memorandum will be subject to disciplinary action.
For strict compliance. 10
From this memorandum alone, it is evident that petitioner has reserved the right to control its employees not
only as to the result but also the means and methods by which the same are to be accomplished. That private
respondents are regular employees is further proven by the fact that they have to report for work regularly
from 9:30 a.m. to 6:00 or 7:00 p.m. and are paid an additional allowance of P 3.00 daily if they report for work
before 9:30 a.m. and which is forfeited when they arrive at or after 9:30 a.m. 11
Since private respondents are regular employees, necessarily the argument that they are independent
contractors must fail. As established in the preceding paragraphs, private respondents did not exercise
independence in their own methods, but on the contrary were subject to the control of petitioners from the
beginning of their tasks to their completion. Unlike independent contractors who generally rely on their own
resources, the equipment, tools, accessories, and paraphernalia used by private respondents are supplied
and owned by petitioners. Private respondents are totally dependent on petitioners in all these aspects.
Coming now to the second issue, there is no dispute that private respondents are entitled to the Minimum
Wage as mandated by Section 2(g) of Letter of Instruction No. 829, Rules Implementing Presidential Decree
No. 1614 and reiterated in Section 3(f), Rules Implementing Presidential Decree 1713 which explicitly states
that, "All employees paid by the result shall receive not less than the applicable new minimum wage rates for
eight (8) hours work a day, except where a payment by result rate has been established by the Secretary of
Labor. ..." 12 No such rate has been established in this case.
But all these notwithstanding, the question as to whether or not there is in fact an underpayment of minimum
wages to private respondents has already been resolved in the decision of the Labor Arbiter where he stated:
"Hence, for lack of sufficient evidence to support the claims of the complainants for alleged violation of the
minimum wage, their claims for underpayment re violation of the Minimum Wage Law under Wage Orders
Nos. 1, 2, 3, 4, and 5 must perforce fall." 13
The records show that private respondents did not appeal the above ruling of the Labor Arbiter to the NLRC;
neither did they file any petition raising that issue in the Supreme Court. Accordingly, insofar as this case is
concerned, that issue has been laid to rest. As to private respondents, the judgment may be said to have
attained finality. For it is a well-settled rule in this jurisdiction that "an appellee who has not himself appealed
cannot obtain from the appellate court-, any affirmative relief other than the ones granted in the decision of the
court below. " 14
As a consequence of their status as regular employees of the petitioners, they can claim cost of living
allowance. This is apparent from the provision defining the employees entitled to said allowance, thus: "... All
workers in the private sector, regardless of their position, designation or status, and irrespective of the method
by which their wages are paid. " 15
Private respondents are also entitled to claim their 13th Month Pay under Section 3(e) of the Rules and
Regulations Implementing P.D. No. 851 which provides:

Section 3. Employers covered. The Decree shall apply to all employers except to:
xxx xxx xxx
(e) Employers of those who are paid on purely commission, boundary, or task basis, and those
who are paid a fixed amount for performing a specific work, irrespective of the time consumed in
the performance thereof, except where the workers are paid on piece-rate basis in which case
the employer shall be covered by this issuance insofar as such workers are
concerned. (Emphasis supplied.)
On the other hand, while private respondents are entitled to Minimum Wage, COLA and 13th Month Pay, they
are not entitled to service incentive leave pay because as piece-rate workers being paid at a fixed amount for
performing work irrespective of time consumed in the performance thereof, they fall under one of the
exceptions stated in Section 1(d), Rule V, Implementing Regulations, Book III, Labor Code. For the same
reason private respondents cannot also claim holiday pay (Section 1(e), Rule IV, Implementing Regulations,
Book III, Labor Code).
With respect to the last issue, it is apparent that public respondents have misread the evidence, for it does
show that a violation of the employer's rules has been committed and the evidence of such transgression, the
copied barong tagalog, was in the possession of Pelobello who pointed to Zapata as the owner. When
required by their employer to explain in a memorandum issued to each of them, they not only failed to do so
but instead went on AWOL (absence without official leave), waited for the period to explain to expire and for
petitioner to dismiss them. They thereafter filed an action for illegal dismissal on the far-fetched ground that
they were dismissed because of union activities. Assuming that such acts do not constitute abandonment of
their jobs as insisted by private respondents, their blatant disregard of their employer's memorandum is
undoubtedly an open defiance to the lawful orders of the latter, a justifiable ground for termination of
employment by the employer expressly provided for in Article 283(a) of the Labor Code as well as a clear
indication of guilt for the commission of acts inimical to the interests of the employer, another justifiable
ground for dismissal under the same Article of the Labor Code, paragraph (c). Well established in our
jurisprudence is the right of an employer to dismiss an employee whose continuance in the service is inimical
to the employer's interest. 16
In fact the Labor Arbiter himself to whom the explanation of private respondents was submitted gave no
credence to their version and found their excuses that said barong tagalog was the one they got from the
embroiderer for the Assistant Manager who was investigating them, unbelievable.
Under the circumstances, it is evident that there is no illegal dismissal of said employees. Thus, We have
ruled that:
No employer may rationally be expected to continue in employment a person whose lack of
morals, respect and loyalty to his employer, regard for his employer's rules, and appreciation of
the dignity and responsibility of his office, has so plainly and completely been bared.
That there should be concern, sympathy, and solicitude for the rights and welfare of the working
class, is meet and proper. That in controversies between a laborer and his master, doubts
reasonably arising from the evidence, or in the interpretation of agreements and writings should
be resolved in the former's favor, is not an unreasonable or unfair rule. But that disregard of the
employer's own rights and interests can be justified by that concern and solicitude is unjust and
unacceptable. (Stanford Microsystems, Inc. v. NLRC, 157 SCRA 414-415 [1988] ).
The law is protecting the rights of the laborer authorizes neither oppression nor self-destruction of the
employer. 17More importantly, while the Constitution is committed to the policy of social justice and the

protection of the working class, it should not be supposed that every labor dispute will automatically be
decided in favor of labor. 18
Finally, it has been established that the right to dismiss or otherwise impose discriplinary sanctions upon an
employee for just and valid cause, pertains in the first place to the employer, as well as the authority to
determine the existence of said cause in accordance with the norms of due process. 19
There is no evidence that the employer violated said norms. On the contrary, private respondents who
vigorously insist on the existence of employer-employee relationship, because of the supervision and control
of their employer over them, were the very ones who exhibited their lack of respect and regard for their
employer's rules.
Under the foregoing facts, it is evident that petitioner Haberdashery had valid grounds to terminate the
services of private respondents.
WHEREFORE, the decision of the National Labor Relations Commission dated March 30, 1988 and that of
the Labor Arbiter dated June 10, 1986 are hereby modified. The complaint filed by Pelobello and Zapata for
illegal dismissal docketed as NLRC NCR Case No. 2-428-85 is dismissed for lack of factual and legal bases.
Award of service incentive leave pay to private respondents is deleted.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-80680 January 26, 1989
DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R. ERISPE, JOEL
MADRIAGA, ARTHUR M. ESPINO, AMARO BONA, FERDINAND CRUZ, FEDERICO A. BELITA, ROBERTO
P. ISLES, ELMER ARMADA, EDUARDO UDOG, PETER TIANSING, MIGUELITA QUIAMBOA, NOMER
MATAGA, VIOLY ESTEBAN and LYDIA ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON, NATIONAL LABOR
RELATIONS COMMISSION, and HON. EMERSON C. TUMANON, respondents.
V.E. Del Rosario & Associates for respondent CMC.
The Solicitor General for public respondent.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.
Mildred A. Ramos for respondent Lily Victoria A. Azarcon.

SARMIENTO, J.:
On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the National Labor Relations
Commission for reinstatement and payment of various benefits, including minimum wage, overtime pay,

holiday pay, thirteen-month pay, and emergency cost of living allowance pay, against the respondent, the
California Manufacturing Company. 1
On October 7, 1986, after the cases had been consolidated, the California Manufacturing Company
(California) filed a motion to dismiss as well as a position paper denying the existence of an employeremployee relation between the petitioners and the company and, consequently, any liability for payment of
money claims. 2 On motion of the petitioners, Livi Manpower Services, Inc. was impleaded as a partyrespondent.
It appears that the petitioners were, prior to their stint with California, employees of Livi Manpower Services,
Inc. (Livi), which subsequently assigned them to work as "promotional merchandisers" 3 for the former firm
pursuant to a manpower supply agreement. Among other things, the agreement provided that California "has
no control or supervisions whatsoever over [Livi's] workers with respect to how they accomplish their work or
perform [Californias] obligation"; 4 the Livi "is an independent contractor and nothing herein contained shall be
construed as creating between [California] and [Livi] . . . the relationship of principal[-]agent or
employer[-]employee'; 5 that "it is hereby agreed that it is the sole responsibility of [Livi] to comply with all
existing as well as future laws, rules and regulations pertinent to employment of labor" 6 and that "[California]
is free and harmless from any liability arising from such laws or from any accident that may befall workers and
employees of [Livi] while in the performance of their duties for [California]. 7
It was further expressly stipulated that the assignment of workers to California shall be on a "seasonal and
contractual basis"; that "[c]ost of living allowance and the 10 legal holidays will be charged directly to
[California] at cost "; and that "[p]ayroll for the preceeding [sic] week [shall] be delivered by [Livi] at
[California's] premises." 8
The petitioners were then made to sign employment contracts with durations of six months, upon the
expiration of which they signed new agreements with the same period, and so on. Unlike regular California
employees, who received not less than P2,823.00 a month in addition to a host of fringe benefits and
bonuses, they received P38.56 plus P15.00 in allowance daily.
The petitioners now allege that they had become regular California employees and demand, as a
consequence whereof, similar benefits. They likewise claim that pending further proceedings below, they were
notified by California that they would not be rehired. As a result, they filed an amended complaint charging
California with illegal dismissal.
California admits having refused to accept the petitioners back to work but deny liability therefor for the reason
that it is not, to begin with, the petitioners' employer and that the "retrenchment" had been forced by business
losses as well as expiration of contracts. 9 It appears that thereafter, Livi re-absorbed them into its labor pool
on a "wait-in or standby" status. 10
Amid these factual antecedents, the Court finds the single most important issue to be: Whether the petitioners
are California's or Livi's employees.
The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the existence of any employeremployee relation between the petitioners and California ostensibly in the light of the manpower supply
contract, supra, and consequently, against the latter's liability as and for the money claims demanded. In the
same breath, however, the labor arbiter absolved Livi from any obligation because the "retrenchment" in
question was allegedly "beyond its control ." 13 He assessed against the firm, nevertheless, separation pay
and attorney's fees.
We reverse.

The existence of an employer-employees relation is a question of law and being such, it cannot be made the
subject of agreement. Hence, the fact that the manpower supply agreement between Livi and California had
specifically designated the former as the petitioners' employer and had absolved the latter from any liability as
an employer, will not erase either party's obligations as an employer, if an employer-employee relation
otherwise exists between the workers and either firm. At any rate, since the agreement was between Livi and
California, they alone are bound by it, and the petitioners cannot be made to suffer from its adverse
consequences.
This Court has consistently ruled that the determination of whether or not there is an employer-employee
relation depends upon four standards: (1) the manner of selection and engagement of the putative employee;
(2) the mode of payment of wages; (3) the presence or absence of a power of dismissal; and (4) the presence
or absence of a power to control the putative employee's conduct. 14 Of the four, the right-of-control test has
been held to be the decisive factor. 15
On the other hand, we have likewise held, based on Article 106 of the Labor Code, hereinbelow reproduced:
ART. 106. Contractor or sub-contractor. Whenever an employee enters into a contract with
another person for the performance of the former's work, the employees of the contractor and of
the latter's sub-contractor, if any, shall be paid in accordance with the provisions of this Code.
In the event that the contractor or sub-contractor fails to pay wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor
or sub-contractor to such employees to the extent of the work performed under the contract, in
the same manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of
labor to protect the rights of workers established under this Code. In so prohibiting or restricting,
he may make appropriate distinctions between labor-only contracting and job contracting as well
as differentiations within these types of contracting and determine who among the parties
involved shall be considered the employer for purposes of this Code, to prevent any violation or
circumvention of any provisions of this Code.
There is 'labor-only' contracting where the person supplying workers to an employer does not
have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him.
that notwithstanding the absence of a direct employer-employee relationship between the employer in whose
favor work had been contracted out by a "labor-only" contractor, and the employees, the former has the
responsibility, together with the "labor-only" contractor, for any valid labor claims, 16 by operation of law. The
reason, so we held, is that the "labor-only" contractor is considered "merely an agent of the employer," 17 and
liability must be shouldered by either one or shared by both. 18
There is no doubt that in the case at bar, Livi performs "manpower services", 19 meaning to say, it contracts
out labor in favor of clients. We hold that it is one notwithstanding its vehement claims to the contrary, and
notwithstanding the provision of the contract that it is "an independent contractor." 20 The nature of one's
business is not determined by self-serving appellations one attaches thereto but by the tests provided by
statute and prevailing case law. 21 The bare fact that Livi maintains a separate line of business does not
extinguish the equal fact that it has provided California with workers to pursue the latter's own business. In
this connection, we do not agree that the petitioners had been made to perform activities 'which are not

directly related to the general business of manufacturing," 22 California's purported "principal operation activity.
" 23 The petitioner's had been charged with "merchandizing [sic] promotion or sale of the products of
[California] in the different sales outlets in Metro Manila including task and occational [sic] price tagging," 24 an
activity that is doubtless, an integral part of the manufacturing business. It is not, then, as if Livi had served as
its (California's) promotions or sales arm or agent, or otherwise, rendered a piece of work it (California) could
not have itself done; Livi, as a placement agency, had simply supplied it with the manpower necessary to
carry out its (California's) merchandising activities, using its (California's) premises and equipment. 25
Neither Livi nor California can therefore escape liability, that is, assuming one exists.
The fact that the petitioners have allegedly admitted being Livi's "direct employees" 26 in their complaints is
nothing conclusive. For one thing, the fact that the petitioners were (are), will not absolve California since
liability has been imposed by legal operation. For another, and as we indicated, the relations of parties must
be judged from case to case and the decree of law, and not by declarations of parties.
The fact that the petitioners have been hired on a "temporary or seasonal" basis merely is no argument either.
As we held in Philippine Bank of Communications v. NLRC, 27 a temporary or casual employee, under Article
218 of the Labor Code, becomes regular after service of one year, unless he has been contracted for a
specific project. And we cannot say that merchandising is a specific project for the obvious reason that it is an
activity related to the day-to-day operations of California.
It would have been different, we believe, had Livi been discretely a promotions firm, and that California had
hired it to perform the latter's merchandising activities. For then, Livi would have been truly the employer of its
employees, and California, its client. The client, in that case, would have been a mere patron, and not an
employer. The employees would not in that event be unlike waiters, who, although at the service of
customers, are not the latter's employees, but of the restaurant. As we pointed out in the Philippine Bank of
Communications case:
xxx xxx xxx
... The undertaking given by CESI in favor of the bank was not the performance of a specific job
for instance, the carriage and delivery of documents and parcels to the addresses thereof. There
appear to be many companies today which perform this discrete service, companies with their
own personnel who pick up documents and packages from the offices of a client or customer,
and who deliver such materials utilizing their own delivery vans or motorcycles to the
addressees. In the present case, the undertaking of CESI was to provide its client the bank with
a certain number of persons able to carry out the work of messengers. Such undertaking of
CESI was complied with when the requisite number of persons were assigned or seconded to
the petitioner bank. Orpiada utilized the premises and office equipment of the bank and not
those of CESI. Messengerial work the delivery of documents to designated persons whether
within or without the bank premises-is of course directly related to the day-to-day operations of
the bank. Section 9(2) quoted above does not require for its applicability that the petitioner must
be engaged in the delivery of items as a distinct and separate line of business.
Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment
and placement corporation placing bodies, as it were, in different client companies for longer or
shorter periods of time, ... 28
In the case at bar, Livi is admittedly an "independent contractor providing temporary services of manpower to
its client. " 29 When it thus provided California with manpower, it supplied California with personnel, as if such
personnel had been directly hired by California. Hence, Article 106 of the Code applies.

The Court need not therefore consider whether it is Livi or California which exercises control over the
petitioner vis-a-vis the four barometers referred to earlier, since by fiction of law, either or both shoulder
responsibility.
It is not that by dismissing the terms and conditions of the manpower supply agreement, we have, hence,
considered it illegal. Under the Labor Code, genuine job contracts are permissible, provided they are genuine
job contracts. But, as we held in Philippine Bank of Communications, supra, when such arrangements are
resorted to "in anticipation of, and for the very purpose of making possible, the secondment" 30 of the
employees from the true employer, the Court will be justified in expressing its concern. For then that would
compromise the rights of the workers, especially their right to security of tenure.
This brings us to the question: What is the liability of either Livi or California?
The records show that the petitioners bad been given an initial six-month contract, renewed for another six
months. Accordingly, under Article 281 of the Code, they had become regular employees-of-California-and
had acquired a secure tenure. Hence, they cannot be separated without due process of law.
California resists reinstatement on the ground, first, and as we Id, that the petitioners are not its employees,
and second, by reason of financial distress brought about by "unfavorable political and economic
atmosphere" 31"coupled by the February Revolution." 32 As to the first objection, we reiterate that the
petitioners are its employees and who, by virtue of the required one-year length-of-service, have acquired a
regular status. As to the second, we are not convinced that California has shown enough evidence, other than
its bare say so, that it had in fact suffered serious business reverses as a result alone of the prevailing political
and economic climate. We further find the attribution to the February Revolution as a cause for its alleged
losses to be gratuitous and without basis in fact.
California should be warned that retrenchment of workers, unless clearly warranted, has serious
consequences not only on the State's initiatives to maintain a stable employment record for the country, but
more so, on the workingman himself, amid an environment that is desperately scarce in jobs. And, the
National Labor Relations Commission should have known better than to fall for such unwarranted excuses
and nebulous claims.
WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): SETTING ASIDE the
decision, dated March 20, 1987, and the resolution, dated August 19, 1987; (2) ORDERING the respondent,
the California Manufacturing Company, to REINSTATE the petitioners with full status and rights of regular
employees; and (3) ORDERING the respondent, the California Manufacturing Company, and the
respondents, Livi Manpower Service, Inc. and/or Lily-Victoria Azarcon, to PAY, jointly and severally, unto the
petitioners: (a) backwages and differential pays effective as and from the time they had acquired a regular
status under the second paragraph, of Section 281, of the Labor Code, but not to exceed three (3) years, and
(b) all such other and further benefits as may be provided by existing collective bargaining agreement(s) or
other relations, or by law, beginning such time; and (4) ORDERING the private respondents to PAY unto the
petitioners attorney's fees equivalent to ten (10%) percent of all money claims hereby awarded, in addition to
those money claims. The private respondents are likewise ORDERED to PAY the costs of this suit.
IT IS SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 91307

January 24, 1991

SINGER SEWING MACHINE COMPANY, petitioner

vs.
HON. FRANKLIN M. DRILON, MED-ARBITER FELIX B. CHAGUILE, JR., and SINGER MACHINE
COLLECTORS UNION-BAGUIO (SIMACUB), respondents.
Misa, Castro, Villanueva, Oposa, Narvasa & Pesigan for petitioner.
Domogan, Lockey, Orate & Dao-ayan Law Office for private respondent.

GUTIERREZ, JR., J.:

This is a petition for certiorari assailing the order of Med-Arbiter Designate Felix B. Chaguile, Jr., the
resolution of then Labor Secretary Franklin M. Drilon affirming said order on appeal and the order denying the
motion for reconsideration in the case entitled "In Re: Petition for Direct Certification as the Sole and
Exclusive Collective Bargaining Agent of Collectors of Singer Sewing Machine Company-Singer Machine
Collectors Union-Baguio (SIMACUB)" docketed as OS-MA-A-7-119-89 (IRD Case No. 02-89 MED).
On February 15, 1989, the respondent union filed a petition for direct certification as the sole and exclusive
bargaining agent of all collectors of the Singer Sewing Machine Company, Baguio City branch (hereinafter
referred to as "the Company").
The Company opposed the petition mainly on the ground that the union members are actually not employees
but are independent contractors as evidenced by the collection agency agreement which they signed.
The respondent Med-Arbiter, finding that there exists an employer-employee relationship between the union
members and the Company, granted the petition for certification election. On appeal, Secretary of Labor
Franklin M. Drilon affirmed it. The motion for reconsideration of the Secretary's resolution was denied. Hence,
this petition in which the Company alleges that public respondents acted in excess of jurisdiction and/or
committed grave abuse of discretion in that:
a) the Department of Labor and Employment (DOLE) has no jurisdiction over the case since the
existence of employer-employee relationship is at issue;
b) the right of petitioner to due process was denied when the evidence of the union members' being
commission agents was disregarded by the Labor Secretary;
c) the public respondents patently erred in finding that there exists an employer-employee relationship;
d) the public respondents whimsically disregarded the well-settled rule that commission agents are not
employees but are independent contractors.
The respondents, on the other hand, insist that the provisions of the Collection Agency Agreement belie the
Company's position that the union members are independent contractors. To prove that union members are
employees, it is asserted that they "perform the most desirable and necessary activities for the continuous
and effective operations of the business of the petitioner Company" (citing Article 280 of the Labor Code).
They add that the termination of the agreement by the petitioner pending the resolution of the case before the
DOLE "only shows the weakness of petitioner's stand" and was "for the purpose of frustrating the
constitutionally mandated rights of the members of private respondent union to self-organization and
collective organization." They also contend that under Section 8, Rule 8, Book No. III of the Omnibus Rules
Implementing the Labor Code, which defines job-contracting, they cannot legally qualify as independent
contractors who must be free from control of the alleged employer, who carry independent businesses and
who have substantial capital or investment in the form of equipment, tools, and the like necessary in the
conduct of the business.
The present case mainly calls for the application of the control test, which if not satisfied, would lead us to
conclude that no employer-employee relationship exists. Hence, if the union members are not employees, no
right to organize for purposes of bargaining, nor to be certified as such bargaining agent can ever be
recognized. The following elements are generally considered in the determination of the employer-employee

relationship; "(1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct although the latter is the most important
element" (Mafinco Trading Corporation v. Ople, 70 SCRA 139 [1976]; Development Bank of the Philippines v.
National Labor Relations Commission, 175 SCRA 537 [1989]; Rosario Brothers, Inc. v. Ople, 131 SCRA 72
[1984]; Broadway Motors Inc. v. NLRC, 156 SCRA 522 [1987]; Brotherhood Labor Unity Movement in the
Philippines v. Zamora, 147 SCRA 49 [1986]).
The Collection Agency Agreement defines the relationship between the Company and each of the union
members who signed a contract. The petitioner relies on the following stipulations in the agreements: (a) a
collector is designated as a collecting agent" who is to be considered at all times as an independent
contractor and not employee of the Company; (b) collection of all payments on installment accounts are to be
made monthly or oftener; (c) an agent is paid his compensation for service in the form of a commission of 6%
of all collections made and turned over plus a bonus on said collections; (d) an agent is required to post a
cash bond of three thousand pesos (P3,000.00) to assure the faithful performance and observance of the
terms and conditions under the agreement; (e) he is subject to all the terms and conditions in the agreement;
(f) the agreement is effective for one year from the date of its execution and renewable on a yearly basis; and
(g) his services shall be terminated in case of failure to satisfy the minimum monthly collection performance
required, failure to post a cash bond, or cancellation of the agreement at the instance of either party unless
the agent has a pending obligation or indebtedness in favor of the Company.
Meanwhile, the respondents rely on other features to strengthen their position that the collectors are
employees. They quote paragraph 2 which states that an agent shall utilize only receipt forms authorized and
issued by the Company. They also note paragraph 3 which states that an agent has to submit and deliver at
least once a week or as often as required a report of all collections made using report forms furnished by the
Company. Paragraph 4 on the monthly collection quota required by the Company is deemed by respondents
as a control measure over the means by which an agent is to perform his services.
The nature of the relationship between a company and its collecting agents depends on the circumstances of
each particular relationship. Not all collecting agents are employees and neither are all collecting agents
independent contractors. The collectors could fall under either category depending on the facts of each case.
The Agreement confirms the status of the collecting agent in this case as an independent contractor not only
because he is explicitly described as such but also because the provisions permit him to perform collection
services for the company without being subject to the control of the latter except only as to the result of his
work. After a careful analysis of the contents of the agreement, we rule in favor of the petitioner.
The requirement that collection agents utilize only receipt forms and report forms issued by the Company and
that reports shall be submitted at least once a week is not necessarily an indication of control over the means
by which the job of collection is to be performed. The agreement itself specifically explains that receipt forms
shall be used for the purpose of avoiding a co-mingling of personal funds of the agent with the money
collected on behalf of the Company. Likewise, the use of standard report forms as well as the regular time
within which to submit a report of collection are intended to facilitate order in office procedures. Even if the
report requirements are to be called control measures, any control is only with respect to the end result of the
collection since the requirements regulate the things to be done after the performance of the collection job or
the rendition of the service.
The monthly collection quota is a normal requirement found in similar contractual agreements and is so
stipulated to encourage a collecting agent to report at least the minimum amount of proceeds. In fact,
paragraph 5, section b gives a bonus, aside from the regular commission every time the quota is reached. As
a requirement for the fulfillment of the contract, it is subject to agreement by both parties. Hence, if the other
contracting party does not accede to it, he can choose not to sign it. From the records, it is clear that the
Company and each collecting agent intended that the former take control only over the amount of collection,
which is a result of the job performed.
The respondents' contention that the union members are employees of the Company is based on selected
provisions of the Agreement but ignores the following circumstances which respondents never refuted either
in the trial proceedings before the labor officials nor in its pleadings filed before this Court.
1. The collection agents are not required to observe office hours or report to Singer's office everyday
except, naturally and necessarily, for the purpose of remitting their collections.

2. The collection agents do not have to devote their time exclusively for SINGER. There is no
prohibition on the part of the collection agents from working elsewhere. Nor are these agents required
to account for their time and submit a record of their activity.
3. The manner and method of effecting collections are left solely to the discretion of the collection
agents without any interference on the part of Singer.
4. The collection agents shoulder their transportation expenses incurred in the collections of the
accounts assigned to them.
5. The collection agents are paid strictly on commission basis. The amounts paid to them are based
solely on the amounts of collection each of them make. They do not receive any commission if they do
not effect any collection even if they put a lot of effort in collecting. They are paid commission on the
basis of actual collections.
6. The commissions earned by the collection agents are directly deducted by them from the amount of
collections they are able to effect. The net amount is what is then remitted to Singer." (Rollo, pp. 7-8)
If indeed the union members are controlled as to the manner by which they are supposed to perform their
collections, they should have explicitly said so in detail by specifically denying each of the facts asserted by
the petitioner. As there seems to be no objections on the part of the respondents, the Court finds that they
miserably failed to defend their position.
A thorough examination of the facts of the case leads us to the conclusion that the existence of an employeremployee relationship between the Company and the collection agents cannot be sustained.
The plain language of the agreement reveals that the designation as collection agent does not create an
employment relationship and that the applicant is to be considered at all times as an independent contractor.
This is consistent with the first rule of interpretation that the literal meaning of the stipulations in the contract
controls (Article 1370, Civil Code; La Suerte Cigar and Cigarette Factory v. Director of Bureau of Labor,
Relations, 123 SCRA 679 [1983]). No such words as "to hire and employ" are present. Moreover, the
agreement did not fix an amount for wages nor the required working hours. Compensation is earned only on
the basis of the tangible results produced, i.e., total collections made (Sarra v. Agarrado, 166 SCRA 625
[1988]). In Investment Planning Corp. of the Philippines v. Social Security System, 21 SCRA 924 [1967] which
involved commission agents, this Court had the occasion to rule, thus:
We are convinced from the facts that the work of petitioner's agents or registered representatives more
nearly approximates that of an independent contractor than that of an employee. The latter is paid for
the labor he performs, that is, for the acts of which such labor consists the former is paid for the result
thereof . . . .
xxx

xxx

xxx

Even if an agent of petitioner should devote all of his time and effort trying to sell its investment plans
he would not necessarily be entitled to compensation therefor. His right to compensation depends upon
and is measured by the tangible results he produces."
Moreover, the collection agent does his work "more or less at his own pleasure" without a regular daily time
frame imposed on him (Investment Planning Corporation of the Philippines v. Social Security
System, supra; See alsoSocial Security System v. Court of Appeals, 30 SCRA 210 [1969]).
The grounds specified in the contract for termination of the relationship do not support the view that control
exists "for the causes of termination thus specified have no relation to the means and methods of work that
are ordinarily required of or imposed upon employees." (Investment Planning Corp. of the Phil. v. Social
Security System, supra)
The last and most important element of the control test is not satisfied by the terms and conditions of the
contracts. There is nothing in the agreement which implies control by the Company not only over the end to
be achieved but also over the means and methods in achieving the end (LVN Pictures, Inc. v. Philippine
Musicians Guild, 1 SCRA 132 [1961]).

The Court finds the contention of the respondents that the union members are employees under Article 280 of
the Labor Code to have no basis. The definition that regular employees are those who perform activities
which are desirable and necessary for the business of the employer is not determinative in this case. Any
agreement may provide that one party shall render services for and in behalf of another for a consideration
(no matter how necessary for the latter's business) even without being hired as an employee. This is precisely
true in the case of an independent contractorship as well as in an agency agreement. The Court agrees with
the petitioner's argument that Article 280 is not the yardstick for determining the existence of an employment
relationship because it merely distinguishes between two kinds of employees, i.e., regular employees and
casual employees, for purposes of determining the right of an employee to certain benefits, to join or form a
union, or to security of tenure. Article 280 does not apply where the existence of an employment relationship
is in dispute.
Even Section 8, Rule 8, Book III of the Omnibus Rules Implementing the Labor Code does not apply to this
case.1wphi1Respondents assert that the said provision on job contracting requires that for one to be
considered an independent contractor, he must have "substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are necessary in the conduct of his
business." There is no showing that a collection agent needs tools and machineries. Moreover, the provision
must be viewed in relation to Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another
person for the performance of the former's work, the employees of the contractor and of the latter's
subcontractor, if any, shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance
with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to
such employees to the extent of the work performed under the contract, in the same manner and
extent that he is liable to employees directly employed by him.
xxx

xxx

xxx

There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing activities which are
directly related to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly employed by him." (p. 20)
It can readily be seen that Section 8, Rule 8, Book Ill and Article 106 are relevant in determining whether the
employer is solidarily liable to the employees of an alleged contractor and/or sub-contractor for unpaid wages
in case it is proven that there is a job-contracting situation.
The assumption of jurisdiction by the DOLE over the case is justified as the case was brought on appeal by
the petitioner itself which prayed for the reversal of the Order of the Med-Arbiter on the ground that the union
members are not its employees. Hence, the petitioner submitted itself as well as the issue of existence of an
employment relationship to the jurisdiction of the DOLE which was faced with a dispute on an application for
certification election.
The Court finds that since private respondents are not employees of the Company, they are not entitled to the
constitutional right to join or form a labor organization for purposes of collective bargaining. Accordingly, there
is no constitutional and legal basis for their "union" to be granted their petition for direct certification. This
Court made this pronouncement in La Suerte Cigar and Cigarette Factory v. Director of Bureau of Labor
Relations, supra:
. . . The question of whether employer-employee relationship exists is a primordial consideration before
extending labor benefits under the workmen's compensation, social security, medicare, termination pay
and labor relations law. It is important in the determination of who shall be included in a proposed
bargaining unit because, it is the sine qua non, the fundamental and essential condition that a
bargaining unit be composed of employees. Failure to establish this juridical relationship between the
union members and the employer affects the legality of the union itself. It means the ineligibility of the
union members to present a petition for certification election as well as to vote therein . . . . (At p. 689)

WHEREFORE, the Order dated June 14,1989 of Med-Arbiter Designate Felix B. Chaguile, Jr., the Resolution
and Order of Secretary Franklin M. Drilon dated November 2, 1989 and December 14, 1989, respectively are
hereby REVERSED and SET ASIDE. The petition for certification election is ordered dismissed and the
temporary restraining order issued by the Court on December 21, 1989 is made permanent.
SO ORDERED.
Fernan, C.J., Feliciano and Bidin, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. Nos. 102633-35 January 19, 1993

RHONE-POULENC AGROCHEMICALS PHILIPPINES, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, URCISIO A. ORAIN, and PAULINO G.
ROMAN, respondents.
Francis V. Sobrevinas and Divinagracia S. San Juan for petitioner.

GUTIERREZ, JR., J.:

Petitioner Rhone-Poulenc Agrochemicals Philippines, Inc. (Rhone-Poulenc for brevity) assails the finding by
the National Labor Relations Commission (NLRC) that Contemporary Services, Inc. (CSI), a supplier of
janitorial services, is a labor-only contractor.
The petitioner is a domestic corporation engaged in the manufacture of agro-chemicals. Its business
operations involve the formulation, production, distribution and sale in the local market of its agro-chemical
products.
On January 1, 1988, as a consequence of the sale by Union Carbide, Inc. of all its agricultural-chemical
divisions worldwide in favor of Rhone-Poulenc Agrochemie, France, the petitioner's mother corporation, the
petitioner acquired from Union Carbide Philippines Far East, Inc. (Union Carbide for short) the latter's agrochemical formulation plant in Namayan, Mandaluyong, Metro Manila.
Rhone-Poulenc and Union Carbide agreed on a three-month transition period for the turnover of the Namayan
plant to the former. Hence, from January 1 to March 31, 1988, both Union Carbide and Rhone-Poulenc
shared and operated the same facilities.
In 1987, prior to the sale, Union Carbide had entered into a contract with CSI for the latter's supply of janitorial
services. During the transition period, Union Carbide continued to avail itself of CSI's janitorial services. Thus,
petitioner Rhone-Poulenc found itself sharing the Namayan plant with Union Carbide while the factory was
being serviced and maintained by janitors supplied by CSI.
Midway through the transition period, Union Carbide instructed CSI to reduce the number of janitors working
at the plant from eight (8) to seven (7). Private respondent Paulino Roman, one of the janitors, was recalled

by CSI on February 15, l988 for reassignment. However, Roman refused to acknowledge receipt of the recall
memorandum.
On March 9, 1988, Union Carbide formally notified CSI of the termination of their janitorial service agreement,
effective April 1, 1988, citing as reason the global buy-out by Rhone-Poulenc, Agrochemie, France of Union
Carbides Inc.'s agro-chemical business. CSI thereafter issued a memorandum dated March 20, 1988 to the
seven remaining janitors assigned to the Namayan plant, including respondent Urcisio Orain, recalling and
advising them to report to the CSI office for reassignment. Like Roman, the janitors refused to acknowledge
receipt of the recall memorandum.
Meanwhile, in anticipation of the March 31, 1988 pull-out by Union Carbide, the petitioner started screening
proposals by prospective service contractors. Rhone-Poulenc likewise invited CSI to submit to its Bidding
Committee a cost quotation of its janitorial services. However, another contractor, the Marilag Business and
Industrial Services, Inc. passed the bidding committee's standards and obtained the janitorial services
contract.
On April 1, 1988, the eight janitors reported for work at the Namayan plant but were refused admission and
were told that another group of janitors had replaced them. These janitors then filed separate complaints for
illegal dismissal, payment of 13th month salary, service leave and overtime pay against Union Carbide,
Rhone-Poulenc and CSI. These cases were consolidated by order of Labor Arbiter Manuel Asuncion dated
May 23, 1988.
Trial on the merits ensued wherein the labor arbiter conducted full-blown hearings on factual issues. After the
cases were submitted for decision, six of the original complainants tendered their resignations to CSI in
consideration of the latter's settlement of all their claims. Hence, only the claims of respondents Roman and
Orain remained unsettled.
On November 8, 1989, Labor Arbiter Asuncion ruled that CSI is a legitimate service contractor and that
Roman and Orain were employees of CSI. The dispositive portion of the labor arbiter's decision is quoted
below:
WHEREFORE, the respondent CSI is ordered to pay the complainants Orain and Roman their
separation pays computed at one-half of their salaries for every year of service. The rest of the
claims are dismissed for lack of merit.
The respondents UCFEI and RPAPI were (sic) absolved from any liability it being shown that
they were not the employers of the complainants. (Rollo, p. 52).
Respondents Roman and Orain appealed the decision to the NLRC. In a resolution dated March 13, 1991, the
NLRC reversed the labor arbiter's ruling, found that CSI was a mere agent of Union Carbide and RhonePoulenc and held that Rhone-Poulenc was guilty of illegal dismissal. Respondent NLRC cited the case
of Guarin v. NLRC, 178 SCRA 267 (1987), which according to it "involves circumstances similar, if not
identical, to the circumstances obtaining in the case at bar."
In that case, Novelty Philippines, Inc., a domestic corporation engaged in garment manufacturing, entered into
a contract with Lipercon Services, Inc., a service contractor. The agreement provided, among others, that
there was no employer-employee relationship between Novelty and the workers assigned by Lipercon to the
former, and that Lipercon shall have exclusive discretion in the selection, engagement and discharge of its
employees and shall have full control over said employees. The one hundred twenty (120) petitioners
in Guarin were hired by Lipercon and assigned to Novelty as helpers, janitors, firemen and mechanics until
the termination by Novelty of the service agreement resulting in their dismissal. They sued both Novelty and
Lipercon for illegal dismissal.

The labor arbiter adjudged that the petitioners were regular employees of Novelty and declared their dismissal
illegal. The NLRC reversed this decision and declared that Lipercon was an independent contractor and that
the petitioners were its employees.
The Court, in a petition for certiorari, upheld the labor arbiter's decision and ruled:
The jobs assigned to the petitioners as mechanics, janitors, gardeners, firemen and grasscutters
were directly related to the business of Novelty as a garment manufacturer. In the case of
Philippine Bank of Communications v. NLRC, 146 SCRA 347, we ruled that the work of a
messenger is directly related to a bank's operations. In its Comment, Novelty contends that the
services which are directly related to manufacturing garments are sewing, textile cutting,
designs, dyeing, quality control, personnel, administration, accounting, finance, customs,
delivery and similar activities; and that allegedly, "[i]t is only by stretching the imagination that
one may conclude that the services of janitors, janitresses, firemen, grasscutters, mechanics
and helpers are directly related to the business of manufacturing garments" (p. 78, Rollo). Not
so, for the work of gardeners in maintaining clean and well-kept grounds around the factory,
mechanics to keep the machines functioning properly, and firemen to look out for fires, are
directly related to the daily operations of a garment factory. That fact is confirmed by Novelty's
rehiring the workers or renewing the contract with Lipercon every year from 1983 to 1986, a
period of three (3) years. (Guarin v. National Labor Relations Commission, 178 SCRA 267, at p.
273).
Applying the Guarin ruling to the case at bar, the NLRC pronounced:
It is in the light of the foregoing that we are constrained to rule, and so hold, that respondent CSI
is a mere agent of respondent UCFEI and RPAPI who, in the context of the aforecited
pronouncement of the Supreme Court, were the real employers of the complainants.
Consequently, respondent RPAPI's (the successor-in-interest by sale of respondent UCFEI)
refusal to take in the complainants (after admittedly absorbing or utilizing their services during
the transition period from 04 January to 31 March 1988) on the ground that it already had
engaged the services of another service contractor, constitutes an illegal dismissal plain and
simple.
For while it is true that there is no law requiring that a purchaser should absorb the employees of
the selling company (Central Azucarera del Davao v. CA, 137 SCRA 295); and unless expressly
assumed, labor contracts are not enforceable against a transferee of an enterprise (Fernando v.
Angat Labor Union, 5 SCRA 249; and Visayan Trans. Co. v. Java, 93 Phil. 962), it is equally true
that employees absorbed by the successor-employers enjoy continuity of employment status
(Cruz v. PAFLU, 42 SCRA 68; PAFLU v. CIR, 4 SCRA 457; Guerrero's Transport Services v.
Blaylocks , 30 June 1976, 71 SCRA 621; and Sumandi v. Leogardo, et al., G.R. No. 67635, 17
Jan. 1985).
As we have stated earlier, respondent RPAPI admits in its opposition to the appeal (p. 4) that it
made use of the services of the complainants during its transition period from 04 January to 31
March 1983. Said act of utilizing, temporarily though, the services of the complainants (which, in
a way, attests to the necessity or desirability of the complainants' service to the operation of the
respondent's business) constitutes an absorption that gave them the right to be retained. Its
refusal to readmit the complainants constitutes an illegal dismissal.
Under these conditions, the mandate to reinstate the complainants should, therefore, be
addressed to the respondent RPAPI and not to the respondent CSI, a "labor only" contractor, nor
to the UCFEI which had ceased to be the employer of the complainants because of the sale of
its business. (Rollo, pp. 39-40).

The NLRC then ordered the petitioner to reinstate respondents Roman and Orain and to pay one year
backwages, or to grant them separation pay if reinstatement was not feasible. As to the respondents' claim for
13th month pay, incentive leave and overtime pay, these were dismissed by the NLRC for lack of sufficient
factual basis.
Rhone-Poulenc filed a motion for reconsideration which was denied by the public respondent in its resolution
of September 11, 199l. Hence, this petition for certiorari.
On December 2, 1991, the Court resolved to issue a temporary restraining order enjoining the NLRC from
enforcing and/or carrying out its resolutions dated March 13, 1991 and September 11, 1991. (Rollo, pp. 54-56)
Petitioner Rhone-Poulenc maintains that it is CSI, and not Union Carbide and Rhone-Poulenc, as successor,
which is the actual employer of the respondent janitors. Rhone-Poulenc insists that, contrary to the NLRC's
findings, CSI is a legitimate independent contractor providing janitorial services to a wide range of clientele
including Union Carbide. Moreover, the petitioner avers that it was grave abuse of discretion on the part of the
public respondent to conclude that Rhone-Poutlenc absorbed Roman and Orain into its workforce.
The issues to be resolved in this petition are:
(1) Whether or not the janitors were employees of Union Carbide;
(2) Whether or not CSI is a labor-only contractor; and
(3) Whether or not petitioner Rhone-Poulenc absorbed the janitors into its workforce.
In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of employees (2) the payment of wages; (3) the power
of dismissal; and (4) the power to control the employee's conduct although the latter is the most important
element. (See Ecal V. NLRC, 195 SCRA 224 [1991]; Singer Sewing Machine Company v. Drilon, 193 SCRA
270 [1991]; Brotherhood Labor Unity Movement in the Philippines v. Zamora, 147 SCRA 49 [1986]; Social
Security System v. Court of Appeals, 39 SCRA 629 [1971]; Viaa v. Al-Lagadan and Piga, 99 Phil. 408
[1956]).
Where the employer-employee relationship has been ascertained, the employer becomes bound by the
statutory requirements pertaining, though not limited, to terms and conditions of employment, labor relations
and
post-employment. But the law has likewise provided for situations where, although the application of the
aforementioned four-fold test will not establish an employer-employee relationship, a person or employer who
contracts with another for the performance of the former's work or of any work, nevertheless becomes liable to
the employees of the contractor. Articles 106, 107 and 109 of the Labor Code provide:
Art. 106. Contractor or subcontractor Whenever an employer enters into a contract with
another person for the performance of the former's work, the employees of the contractor and of
the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor
or subcontractor to such employees to the extent of the work performed under the contract, in
the same manner and extent that he is liable to employees directly employed by him.
xxx xxx xxx
There is labor-only contracting where the person supplying workers to an employer does not
have substantial capital or investment, in the form of tools, equipment, machineries, work

premises, among others and the workers recruited and placed by such persons, are performing
activities which are directly related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him.
Art. 107. Indirect employer. The provisions of the immediately preceding Article shall likewise
apply to any person, partnership, association or corporation which, not being an employer,
contracts with an independent contractor for the performance of any work, task, job or project.
Art. 109. Solidary liability The provisions of existing laws to the contrary notwithstanding,
every employer or indirect employer shall be held responsible with his contractor or
subcontractor for any violation of any provision of this Code. For purposes of determining the
extent of their civil liability under this Chapter, they shall be considered as direct employers.
The import Of the foregoing provisions was enunciated in the case of Philippine Bank of Communications v.
National Labor Relations Commission, 146 SCRA 347 (1986):
Under the general rule set out in the first and second paragraphs of Article 106, an employer
who enter's into a contract with a contractor for the performance of work for the employer, does
not thereby create an employer-employee relationship between himself and the employees of
the contractor. Thus, the employees of the contractor remain the contractor's employees and his
alone. Nonetheless, when a contractor fails to pay the wages of his employees in accordance
with the Labor Code, the employer who contracted out the job to the contractor becomes jointly
and severally liable with his contractor to the employees of the latter "to the extent of work
performed under the contract" as if such employer were the employer of the contractor's
employees. The law itself, in other words, establishes an employer-employee relationship
between the employer and the job contractor's employees for a limited purpose, i.e., in order to
ensure that the latter get paid the wages due to them.
A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor
i.e."the person or intermediary" is considered "merely as an agent of the employer." The
employer is made by the statute responsible to the employees of the "labor only" contractor as if
such employees had been directly employed by the employer. Thus, where "labor only"
contracting exists in a given case, the statute itself implies or establishes an employer-employee
relationship between the employer (the owner of the project) and the employees of the "labor
only" contractor, this time for acomprehensive purpose: "employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code." The law in effect
holds both the employer and the "labor only" contractor responsible to the latter's employees for
the more effective safeguarding of the employees' rights under the Labor Code. (at p. 356;
emphasis supplied)
And in determining whether a contractor is engaged in labor-only contracting or in job contracting, reference
may be made to Sections 8 and 9 of the Implementing Rules, which provide:
Sec. 8. Job contracting. There is job contracting permissible under the Code if the following
conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on his
own account under his own responsibility according to his own manner and method, free from
the control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and

(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an
employer shall be deemed to be engaged in labor-only contracting where such person;
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries,
work premises and other materials; and
(2) The workers recruited and placed by such person are performing activities which are directly
related to the principal business or operations of the employer in which workers are habitually
employed.
(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as
contractor shall be considered merely as an agent or intermediary of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him.
xxx xxx xxx
Applying the foregoing principles to the case at bar, the Court is constrained to rule for the petitioner.
There is no employer-employee relationship between Union Carbide and the respondent janitors. The
respondents themselves admitted that they were selected and hired by CSI and were assigned to Union
Carbide. CSI likewise acknowledged that the two janitors were its employees. The janitors drew their salaries
from CSI and not from Union Carbide. CSI exercised control over these janitors through Richard Barroga, also
a CSI employee, who gave orders and instructions to CSI janitors assigned to the Namayan plant. Moreover,
CSI had the power to assign its janitors to various clients and to pull out, as it had done in a number of
occasions, any of its janitors working at Union Carbide.
As to whether CSI is engaged in labor-only contracting or in job contracting, applying the test prescribed by
the Labor Code and the implementing rules, we find sufficient basis from the records to conclude that CSI is
engaged in job contracting. As correctly declared by the labor arbiter:
Moreover, CSI is a legitimate service contractor. It is registered as one and doing business as
such with a number of known companies in the country. It has a contract with UCFEI to assign
janitorial and ground services to the latter for a fee. The complainants' work were basically
janitorial and gardening chores. The tools of their trade were supplied by CSI. Of course, we are
aware of the complainants' claim that they were made to do chores which are production jobs.
Yet, there is no showing of regularity or permanence of such assignment. Those occasional
errands cannot be considered as genuine control of UCFEI over the complainants. (Rollo, pp.
51-52)
Moreover, in Kimberly Independent Labor Union v. Drilon, 185 SCRA 190 [1990], the Court took judicial notice
of the general practice adopted in several government and private institutions and industries of hiring a
janitorial service on an independent contractor basis.
It must be stressed that the janitorial service agreement between Union Carbide and CSI binds only the two,
and not petitioner Rhone-Poulenc. As new owner, Rhone-Poulenc had every right to choose its own service
contractor.

Respondent NLRC relied heavily on the ruling in Guarin, supra, in deducing that CSI was a labor-only
contractor. The facts in Guarin, however, are different from those obtaining in the present case. In Guarin, the
contractor failed to prove that it had substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials. In the case at bar, it has been established that CSI, the
contractor, owns and maintains its own office; that it owns office equipment such as, but not limited to,
typewriters, calculators, xerox machines, mimeographing machines, airconditioning units and transportation
vehicles; and that it furnishes its janitors the cleaning equipment such as carpet vacuums and polishing
machines. Moreover, the petitioners in Guarin, who were assigned as helpers, janitors, firemen and
mechanics, numbered one hundred twenty (120) in all which, by itself, amounts to a considerable workforce
and gives rise to the suspicion that the service agreement between Novelty and Lipercon was designed to
evade the obligations inherent in an employer-employee relationship. In contrasts there were only eight (8)
janitors supplied by CSI to Union Carbide.
These two substantial differences, taken together, are sufficient to remove the present case from the ambit of
the Guarin ruling.
Even on the supposition that the janitors were, indeed, employees of Union Carbide or that CSI is a labor-only
contractor, thus making Union Carbide a direct employer of these janitors, petitioner Rhone-Poulenc, as
purchaser of Union Carbide's business is not compelled to absorb these janitors into its workforce. An
innocent transferee of a business establishment has no liability to the employees of the transferor to continue
employing them. (Central Azucarera del Davao v. Court of Appeals, 137 SCRA 295 [1985]).
The NLRC, however, concluded that since Rhone-Poulenc made use of the services of the janitors during the
three-month transition period, then said act of utilizing their services constitutes absorption of the janitors into
the petitioner's workforce which gives them the right to be retained. This ratiocination is not correct. The public
respondent failed to consider the fact that during the three-month transition period prior to Union Carbide's
turnover of the facilities, the service contract between Union Carbide and CSI was still in force. Whatever
benefit the petitioner derived from the continuous availment by Union Carbide of the services of CSI's janitors
was merely incidental. The NLRC also overlooked the fact that it was still Union Carbide who paid CSI for the
services of these janitors. Also, even prior to the expiration of the transition period, the petitioner, in
anticipation of the pullout of Union Carbide and its hired service agencies, started screening its own service
contractors. Under these circumstances, the petitioner may not be deemed to have absorbed the respondent
janitors as its own employees.
WHEREFORE, the resolutions of the respondent National Labor Relations Commission dated March 13, 1991
and September 11, 1991 are SET ASIDE. The decision of the labor arbiter dated November 8, 1989 is hereby
REINSTATED.
The temporary restraining order issued by this Court on December 2, 1991 is made PERMANENT.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 104658. April 7, 1993.

PILIPINAS SHELL PETROLEUM CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and CLARITA T. CAMACHO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Yolanda Quisumbing-Javellana & Associates for private respondent.
SYLLABUS
1. LABOR LAWS AND SOCIAL LEGISLATION; EMPLOYER-EMPLOYEE RELATIONSHIP; FACTORS
CONSIDERED IN DETERMINING EXISTENCE THEREOF; CASE AT BAR. It is firmly settled that the
existence or non-existence of the employer-employee relationship is commonly to be determined by
examination of certain factors or aspects of that relationship. These include: (a) the manner of selection and
engagement of the putative employee; (b) the mode of payment of wages; (c) the presence or absence of a
power to control the putative employee's conduct, although the latter is the most important element . . . As
aptly held by the trial court, petitioner did not exercise control and supervision over Feliciano with regard to
the manner in which he conducted the hydro-pressure test. All that petitioner did, through its Field Engineer,
Roberto Mitra, was relay to Feliciano the request of private respondent for a hydro-pressure test, to determine
any possible leakages in the storage tanks in her gasoline station. The mere hiring of Feliciano by petitioner
for that particular task is not the form of control and supervision contemplated by law which may be the basis
for establishing an employer-employee relationship between petitioner and Feliciano. The fact that there was
no such control is further amplified by the absence of any shell representative in the job site at the time when
the test was conducted. Roberto Mitra was never there. Only Feliciano and his men were. True, it was
petitioner who sent Feliciano to private respondent's gasoline station to conduct the hydro-pressure test as
per the request of private respondent herself. But this single act did not automatically make Feliciano an
employee of petitioner. As discussed earlier, more than mere hiring is required. It must further be established
that petitioner is the one who is paying Feliciano's salary on a regular basis; that it has the power to dismiss
said employee, and more importantly, that petitioner has control and supervision over the work of Feliciano.
The last requisite was sorely missing in the instant case.
2. ID.; JOB CONTRACTING; REQUISITES; HALLMARKS OF INDEPENDENT CONTRACTOR. Section 8
of Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code provides: "Sec. 8. Job contracting.
There is job contracting permissible under the Code if the following conditions are met: (1) The contractor
carries on an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of the work except as to the results thereof; and (2)
The contractor has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business." Feliciano is independently
maintaining a business under a duly registered business name, "JFS Repair and Maintenance Service," and
is duly registered with the Bureau of Domestic Trade. He does not enjoy a fixed salary but instead charges a
lump sum consideration for every piece of work he accomplishes. If he is not able to finish his work, he does
not get paid, as what happened in this case. Further, Feliciano utilizes his own tools and equipment and has a
complement of workers. Neither is he required to work on a regular basis. Instead, he merely awaits calls from
clients such as petitioner whenever repairs and maintenance services are requested. Moreover, Feliciano
does not exclusively service petitioner because he can accept other business but not from other oil
companies. All these are the hallmarks of an independent contractor.
3. CIVIL LAW; QUASI-DELICTS; INDEPENDENT CONTRACTOR RESPONSIBLE FOR HIS OWN ACTS
AND OMISSIONS. Being an independent contractor, Feliciano is responsible for his own acts and
omissions. As he alone was in control over the manner of how he was to undertake the hydro-pressure test,
he alone must bear the consequences of his negligence, if any, in the conduct of the same.
DECISION
CAMPOS, JR., J p:
Was the hydro-pressure test of the underground storage tank in private respondent Clarita T. Camacho's
gasoline station conducted by an independent contractor or not? A negative answer will make petitioner

Pilipinas Shell Petroleum Corporation (Shell, for brevity) liable for the said independent contractor's acts or
omissions; otherwise, no. This is the issue that this Court is called upon to resolve in this case.
The facts are as follows:
Private respondent Clarita T. Camacho (private respondent for short) was the operator of a gasoline station in
Naguilian Road, Baguio City, wherein she sells petitioner Shell's petroleum products. Sometime in April 1983,
private respondent requested petitioner to conduct a hydro-pressure test on the underground storage tanks of
the said station in order to determine whether or not the sales losses she was incurring for the past several
months were due to leakages therein. Petitioner acceded to the said request and on April 27, 1983, one Jesus
"Jessie" Feliciano together with other workers, came to private respondent's station with a Job Order from
petitioner to perform the hydro-pressure test.
On the same day, Feliciano and his men drained the underground storage tank which was to be tested of its
remaining gasoline. After which, they filled the tank with water through a water hose from the deposit tank of
private respondent. Then, after requesting one of private respondent's gasoline boys to shut off the water
when the tank was filled, Feliciano and his men left. At around 2:00 a.m. the following day, private respondent
saw that the water had reached the lip of the pipe of the underground storage tank and so, she shut off the
water faucet.
At around 5:30 a.m., private respondent's husband opened the station and started selling gasoline. But at
about 6:00 a.m., the customers who had bought gasoline returned to the station complaining that their
vehicles stalled because there was water in the gasoline that they bought. On account of this, private
respondent was constrained to replace the gasoline sold to the said customers. However, a certain Eduardo
Villanueva, one of the customers, filed a complaint with the police against private respondent for selling the
adulterated gasoline. In addition, he caused the incident to be published in two local newspapers.
Feliciano, who arrived later that morning, did not know what caused the water pollution of the gasoline in the
adjacent storage tank. So he called up Nick Manalo, Superintendent of Shell's Poro Point Installation at San
Fernando, La Union, and referred the matter to the latter. Manalo went up to Baguio in the afternoon to
investigate. Thereafter, he and Feliciano again filled with water the underground storage tank undergoing
hydro-pressure test whereat they noticed that the water was transferring to the other tanks from whence came
the gasoline being sold. Manalo asked permission from Shell's Manila Office to excavate the underground
pipes of the station. Upon being granted permission to do so, Feliciano and his men began excavating the
driveway of private respondent's station in order to expose the underground pipeline. The task was continued
by one Daniel "Danny" Pascua who replaced Feliciano, Pascua removed the corroded pipeline and installed
new independent vent pipe for each storage tank.
Meanwhile, petitioner undertook to settle the criminal complaint filed by Villanueva. Subsequently, Villanueva
filed an Affidavit of Desistance, 1 declaring, inter alia
"THAT, after careful evaluation of the surrounding circumstances, especially the explanation of the
representatives of SHELL Phils., that the gasoline tanks of Mrs. Camacho were subject to Hydro test, in such
a way that water was used for the said test, I believe that she may not have had anything to do with the filling
of water in the tank of my car;
xxx xxx xxx
THAT, said representatives of SHELL Phils. have interceded for and in behalf of Mrs. Camacho and have fully
satisfied my claim against her.
THAT, in view of all the foregoing I do not intend to prosecute the case and I am therefore asking for the
dismissal of the case against Mrs. Camacho."
Thereafter, private respondent demanded from petitioner the payment of damages in the amount of
P10,000.00. Petitioner, instead, offered private respondent additional credit line and other beneficial terms,
which offer was, however, rejected. cdrep
Subsequently, or on October 12, 1983, private respondent filed before the trial court a complaint for damages
against petitioner due to the latter's alleged negligence in the conduct of the hydro-pressure test in her

gasoline station. For its part, petitioner denied liability because, according to it, the hydro-pressure test on the
underground storage tanks was conducted by an independent contractor.
The trial court dismissed private respondent's complaint for damages for the reason that:
"The hydro-pressure test which brought about the incident was conducted by Jesus Feliciano, who was
neither an employee nor agent nor representative of the defendant. Jesus Feliciano is responsible for his own
acts and omissions. He alone was in control of the manner of how he is to undertake the hydro-pressure test.
Considering that the conduct of said hydro-pressure test was under the sole and exclusive control and
supervision of Jesus Feliciano, the overflow with water causing the same to sip into the adjoining tank cannot
be attributed to the fault or negligence of defendant. 2
From the adverse decision of the trial court, private respondent appealed to the Court of Appeals which court
reversed the decision of the trial court. Thus,
"PREMISES CONSIDERED, the decision being appealed from is hereby SET ASIDE and, in lieu thereof,
another rendered ordering defendant to pay plaintiff:
1. P100,000.00 as moral damages;
2. P2,639.25 and P15,000.00 representing the actual losses suffered by plaintiff as a result of the water
pollution of the gasoline.
No costs.
SO ORDERED." 3
Petitioner moved to have the above decision reconsidered but the same was denied in a Resolution dated
March 9, 1992. Hence, this recourse.
As stated at the very outset, the pivotal issue in this case is whether or not petitioner should be held
accountable for the damage to private respondent due to the hydro-pressure test conducted by Jesus
Feliciano.
It is a well-entrenched rule that an employer-employee relationship must exist before an employer may be
held liable for the negligence of his employee. It is likewise firmly settled that the existence or non-existence
of the employer-employee relationship is commonly to be determined by examination of certain factors or
aspects of that relationship. These include: (a) the manner of selection and engagement of the putative
employee; (b) the mode of payment of wages; (c) the presence or absence of a power to control the putative
employee's conduct, 4 although the latter is the most important element. 5
In this case, respondent Court of Appeals held petitioner liable for the damage caused to private respondent
as a result of the hydro-pressure test conducted by Jesus Feliciano due to the following circumstances: 6
1. Feliciano was hired by petitioner;
2. He received his instructions from the Field Engineer of petitioner, Mr. Roberto Mitra;
3. While he was at private respondent's service station, he also received instructions from Nick Manalo,
petitioner's Poro Point Depot Superintendent;
4. Instructions from petitioner's Manila Office were also relayed to him while he was at .the job site at Baguio
City;
5. His work was under the constant supervision of petitioner's engineer;
6. Before he could complete the work, he was instructed by Mr. Manalo, petitioner's Superintendent, to
discontinue the same and it was turned over to Daniel Pascua, who was likewise hired by petitioner.

Based on the foregoing, respondent Court of Appeals concluded that Feliciano was not an independent
contractor but was under the control and supervision of petitioner in the performance of the hydro-pressure
test, hence, it held petitioner liable for the former's acts and omissions.
We are not in accord with the above finding of respondent Court of Appeals. As aptly held by the trial court,
petitioner did not exercise control and supervision over Feliciano with regard to the manner in which he
conducted the hydro-pressure test. All that petitioner did, through its Field Engineer, Roberto Mitra, was relay
to Feliciano the request of private respondent for a hydro-pressure test, to determine any possible leakages in
the storage tanks in her gasoline station. The mere hiring of Feliciano by petitioner for that particular task is
not the form of control and supervision contemplated by may be the basis for establishing an employeremployee relationship between petitioner and Feliciano. The fact that there was no such control is further
amplified by the absence of any Shell representative in the job site time when the test was conducted.
Roberto Mitra was never there. Only Feliciano and his men were.
True, it was petitioner who sent Feliciano to private respondent's gasoline station in conduct the hydropressure test as per the request of private respondent herself. But this single act did not automatically make
Feliciano an employee of petitioner. As discussed earlier, more than mere hiring is required. It must further be
established that petitioner is the one who is paying Felicia's salary on a regular basis; that it has the power to
dismiss said employee, and more importantly, that petitioner has control and supervision over the work of
Feliciano. The last requisite was sorely missing in the instant case.
A careful perusal of the records will lead to the conclusion that Feliciano is an independent contractor. Section
8 of Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code provides:
"Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are
met:
(1) The contractor carries on an independent business and undertakes the contract work on his own account
under his own responsibility according to his own manner and method, free from the control and direction of
his employer or principal in all matters connected with the performance of the work except as to the results
thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business."
Feliciano is independently maintaining a business under a duly registered business name, "JFS Repair and
Maintenance Service," and is duly registered with the Bureau of Domestic Trade. 7 He does not enjoy a fixed
salary but instead charges a lump sum consideration for every piece of work he accomplishes. 8 If he is not
able to finish his work, he does not get paid, as what happened in this case. 9 Further, Feliciano utilizes his
own tools and equipment and has a complement of workers. Neither is he required to work on a regular basis.
Instead, he merely awaits calls from clients such as petitioner whenever repairs and maintenance services
are requested. Moreover, Feliciano does not exclusively service petitioner because he can accept other
business but not from other oil companies. 10 All these are the hallmarks of an independent contractor.
Being an independent contractor, Feliciano is responsible for his own acts and omissions. As he alone was in
control over the manner of how he was to undertake the hydro-pressure test, he alone must bear the
consequences of his negligence, if any, in the conduct of the same.
Anent the issue of damages, the same has been rendered moot by the failure of private respondent to
establish an employer-employee relationship between petitioner and Feliciano. Absent said relationship,
petitioner cannot be held liable for the acts and omissions of the independent contractor, Feliciano.
WHEREFORE, premises considered, the appealed decision of respondent Court of Appeals is hereby SET
ASIDE and the decision of the trial court REINSTATED. Without pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

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

VIRGINIA G. NERI and JOSE CABELIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK & TRUST COMPANY (FEBTC) and
BUILDING CARE CORPORATION, respondents.
R.L. Salcedo & Improso Law Office for petitioners.
Bengzon, Zarnaga, Narciso, Cudala, Pecson, Bengzon & Jimenez for Bldg. Care Corp.
Bautista, Picaso, Buyco, Tan & Fider for respondent FEBTC.

BELLOSILLO, J.:
Respondents are sued by two employees of Building Care Corporation, which provides janitorial and other
specific services to various firms, to compel Far Bast Bank and Trust Company to recognize them as its
regular employees and be paid the same wages which its employees receive.
Building Care Corporation (BCC, for brevity), in the proceedings below, established that it had substantial
capitalization of P1 Million or a stockholders equity of P1.5 Million. Thus the Labor Arbiter ruled that BCC was
only job contracting and that consequently its employees were not employees of Far East Bank and Trust
Company (FEBTC, for brevity). on appeal, this factual finding was affirmed by respondent National Labor
Relations Commission (NLRC, for brevity). Nevertheless, petitioners insist before us that BCC is engaged in
"labor-only" contracting hence, they conclude, they are employees of respondent FEBTC.
Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, and were hired by, respondent BCC, a
corporation engaged in providing technical, maintenance, engineering, housekeeping, security and other
specific services to its clientele. They were assigned to work in the Cagayan de Oro City Branch of
respondent FEBTC on 1 May 1979 and 1 August 1980, respectively, Neri an radio/telex operator and Cabelin
as janitor, before being promoted to messenger on 1 April 1989.
On 28 June 1989, petitioners instituted complaints against FEBTC and BCC before Regional Arbitration
Branch No. 10 of the Department of Labor and Employment to compel the bank to accept them as regular
employees and for it to pay the differential between the wages being paid them by BCC and those received by
FEBTC employees with similar length of service.
On 16 November 1989, the Labor Arbiter dismissed the complaint for lack of merit. 1 Respondent BCC was
considered an independent contractor because it proved it had substantial capital. Thus, petitioners were held
to be regular employees of BCC, not FEBTC. The dismissal was appealed to NLRC which on 28 September
1990 affirmed the decision on appeal. 2 On 22 October 1990, NLRC denied reconsideration of its
affirmance, 3 prompting petitioners to seek redress from this Court.

Petitioners vehemently contend that BCC in engaged in "labor-only" contracting because it failed to adduce
evidence purporting to show that it invested in the form of tools, equipment, machineries, work premises and
other materials which are necessary in the conduct of its business. Moreover, petitioners argue that they
perform duties which are directly related to the principal business or operation of FEBTC. If the definition of
"labor-only" contracting4 is to be read in conjunction with job contracting, 5 then the only logical conclusion is
that BCC is a "labor only" contractor. Consequently, they must be deemed employees of respondent bank by
operation of law since BCC is merely an agent of FEBTC following the doctrine laid down in Philippine Bank
of Communications v. National Labor Relations Commission 6where we ruled that where "labor-only"
contracting exists, the Labor Code itself establishes an employer-employee relationship between the
employer and the employees of the "labor-only" contractor; hence, FEBTC should be considered the
employer of petitioners who are deemed its employees through its agent, "labor-only" contractor BCC.
We cannot sustain the petition.
Respondent BCC need not prove that it made investments in the form of tools, equipment, machineries, work
premises, among others, because it has established that it has sufficient capitalization. The Labor Arbiter and
the NLRC both determined that BCC had a capital stock of P1 million fully subscribed and paid for. 7 BCC is
therefore a highly capitalized venture and cannot be deemed engaged in "labor-only" contracting.
It is well-settled that there is "labor-only" contracting where: (a) the person supplying workers to an employer
does not have substantial capital or investment in the form of tools, equipment, machineries, work premises,
among others; and, (b) the workers recruited and placed by such person are performing activities which are
directly related to the principal business of the employer. 8
Article 106 of the Labor Code defines "labor-only" contracting thus
Art. 106. Contractor or subcontractor. . . . . There is "labor-only" contracting where the person
supplying workers to an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the workers recruited by such
persons are performing activities which are directly related to the principal business of such
employer . . . . (emphasis supplied).
Based on the foregoing, BCC cannot be considered a "labor-only" contractor because it has substantial
capital. While there may be no evidence that it has investment in the form of tools, equipment, machineries,
work premises, among others, it is enough that it has substantial capital, as was established before the Labor
Arbiter as well as the NLRC. In other words, the law does not require both substantial capital and investment
in the form of tools, equipment, machineries, etc. This is clear from the use of the conjunction "or". If the
intention was to require the contractor to prove that he has both capital and the requisite investment, then the
conjunction "and" should have been used. But, having established that it has substantial capital, it was no
longer necessary for BCC to further adduce evidence to prove that it does not fall within the purview of "laboronly" contracting. There is even no need for it to refute petitioners' contention that the activities they perform
are directly related to the principal business of respondent bank.
Be that as it may, the Court has already taken judicial notice of the general practice adopted in several
government and private institutions and industries of hiring independent contractors to perform special
services. 9 These services range from janitorial, 10 security 11 and even technical or other specific services such
as those performed by petitioners Neri and Cabelin. While these services may be considered directly related
to the principal business of the employer, 12 nevertheless, they are not necessary in the conduct of the
principal business of the employer.
In fact, the status of BCC as an independent contractor was previously confirmed by this Court in Associated
Labor Unions-TUCP v. National Labor Relations Commission, 13 where we held thus

The public respondent ruled that the complainants are not employees of the bank but of the
company contracted to serve the bank. Building Care Corporation is a big firm which services,
among others, a university, an international bank, a big local bank, a hospital center,
government agencies, etc. It is a qualified independent contractor. The public respondent
correctly ruled against petitioner's contentions . . . . (Emphasis supplied).
Even assuming ex argumenti that petitioners were performing activities directly related to the principal
business of the bank, under the "right of control" test they must still be considered employees of BCC. In the
case of petitioner Neri, it is admitted that FEBTC issued a job description which detailed her functions as a
radio/telex operator. However, a cursory reading of the job description shows that what was sought to be
controlled by FEBTC was actually the end-result of the task, e.g., that the daily incoming and outgoing
telegraphic transfer of funds received and relayed by her, respectively, tallies with that of the register. The
guidelines were laid down merely to ensure that the desired end-result was achieved. It did not, however, tell
Neri how the radio/telex machine should be operated. In the Shipside case, 14 we ruled
. . . . If in the course of private respondents' work (referring to the workers), SHIPSIDE
occasionally issued instructions to them, that alone does not in the least detract from the fact
that only STEVEDORES is the employer of the private respondents, for in legal contemplation,
such instructions carry no more weight than mere requests, the privity of contract being between
SHIPSIDE and STEVEDORES . . . .
Besides, petitioners do not deny that they were selected and hired by BCC before being assigned to work in
the Cagayan de Oro Branch of FFBTC. BCC likewise acknowledges that petitioners are its employees. The
record is replete with evidence disclosing that BCC maintained supervision and control over petitioners
through its Housekeeping and Special Services Division: petitioners reported for work wearing the prescribed
uniform of BCC; leaves
of absence were filed directly with BCC; and, salaries were drawn only from BCC. 15
As a matter of fact, Neri even secured a certification from BCC on 16 May 1986 that she was employed by the
latter. On the other hand, on 24 May 1988, Cabelin filed a complaint for underpayment of wages, nonintegration of salary adjustments mandated by Wage Orders Nos. 5 & 6 and R.A. 6640 as well as for illegal
deduction 16against BCC alone which was provisionally dismissed on 19 August 1988 upon Cabelin's
manifestation that his money claim was negligible. 17
More importantly, under the terms and conditions of the contract, it was BCC alone which had the power to
reassign petitioners. Their deployment to FEBTC was not subject to the bank's acceptance. Cabelin was
promoted to messenger because the FEBTC branch manager promised BCC that two (2) additional janitors
would be hired from the company if the promotion was to be effected. 18 Furthermore, BCC was to be paid in
lump sum unlike in the situation in Philippine Bank of Communications 19 where the contractor, CESI, was to
be paid at a daily rate on a per person basis. And, the contract therein stipulated that the CESI was merely to
provide manpower that would render temporary services. In the case at bar, Neri and Cabelin were to perform
specific special services. Consequently, petitioners cannot be held to be employees of FEBTC as BCC
"carries an independent business" and undertaken the performance of its contract with various clients
according to its "own manner and method, free from the control and supervision" of its principals in all matters
"except as to the results thereof." 20
Indeed, the facts in Philippine Bank of Communications do not square with those of the instant case. Therein,
the Court ruled that CESI was a "labor-only" contractor because upholding the contract between the
contractor and the bank would in effect permit employers to avoid the necessity of hiring regular or permanent
employees and would enable them to keep their employees indefinitely on a temporary or casual basis, thus
denying them security of tenure in their jobs. This of course violates the Labor Code. BCC has not committed
any violation. Also, the former case was for illegal dismissal; this case, on the other hand, is for conversion of
employment status so that petitioners can receive the same salary being given to regular employees of

FEBTC. But, as herein determined, petitioners are not regular employees of FEBTC but of BCC. At any rate,
the finding that BCC in a qualified independent contractor precludes us from applying the Philippine Bank of
Communications doctrine to the instant petition.
The determination of employer-employee relationship involves factual findings. 21 Absent any grave abuse of
discretion, and we find none in the case before us, we are bound by the findings of the Labor Arbiter as
affirmed by respondent NLRC.
IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

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

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

FELICIANO, J.:
On 1 September 1986, petitioner Baguio Leisure Corporation (Hyatt Terraces Baguio) ("Hyatt Baguio") and
petitioner Vallum Security Services ("Vallum") entered into a contract for security services under the terms of
which Vallum agreed to protect the properties and premises of Hyatt Baguio by providing fifty (50) security
guards, on a 24-hour basis, a day.
On 1 June 1988, Heinrich L. Maulbecker, Hyatt Baguio's General Manager, wrote to Domingo A. Inocentes,
President of Vallum advising that effective 1 July 1988, the contract of security services would be terminated.
Vallum informed Mr. Maulbecker, on 22 June 1988, that it was agreeable to the termination of the contract.

On 30 June 1988, private respondents, who were security guards provided by Vallum to Hyatt Baguio, were
informed by Vallum's Personnel Officer that the contract between the two (2) had already expired. Private
respondents were directed to report to Vallum's head office at Sucat Road, in Muntinlupa, Metropolitan
Manila, not later than 15 July 1988 for re-assignment. They were also told that failure to report at Sucat would
be taken to mean that they were no longer interested in being re-assigned to some other client of Vallum.
None of the private respondents reported at Sucat for re-assignment. Instead, between July and September
1988, private respondents filed several complaints against petitioners in the National Labor Relations
Commission's Office ("NLRC") in Baguio City for illegal dismissal and unfair labor practices; for violation of
labor standards relating to underpayment of wages, premium holiday and restday pay, uniform allowances
and meal allowances. They prayed for reinstatement with full backwages. The several cases were
consolidated together.
On 19 May 1989, the Labor Arbiter rendered a decision dismissing the complaints. He found Vallum to be an
independent contractor and, consequently, declined to hold Hyatt Baguio liable for dismissal of private
respondents. He also held that the termination of services of private respondents by Vallum did not constitute
an unfair labor practice, considering that such termination had been brought about by lack of work.
Furthermore, the Labor Arbiter held that private respondents were not entitled to backwages or separation
pay, in line with the "no work, no pay" principle. Lastly, he found no violation of the labor standard provisions
on payment of wages and other employee benefits. 1
Private respondents appealed the Labor Arbiter's decision to the NLRC. On 31 July 1990, the NLRC
promulgated a resolution reversing the Labor Arbiter's decision, the dispositive portion of which resolution
reads as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and set aside and a new one
entered ordering the respondent Hyatt Terraces Baguio to reinstate the complainants to their
former positions with full backwages limited to one (1) year. In view of supervening event which
makes the reinstatement imposible, respondents Hyatt Terraces Baguio and Vallum Security
Services Corporation, are directed, jointly and severally to pay complainants, in lieu of
reinstatement, separation pay equal to one (1) month per year of service. Service of six month
shall be considered a year for the purpose of the same. 2
Petitioners moved for reconsideration, without success.
Vallum and Hyatt Baguio are hence before this Court on certiorari seeking to: (a) reverse and annul the
Resolutions of the NLRC of 31 July 1990 and 31 January 1991; and (b) reinstate the decision of the Labor
Arbiter dated 19 May 1989. Petitioners assert that the NLRC's finding that an employer-employee relationship
had existed between Hyatt Baguio and private respondents, is tainted with arbitrariness.
The main issue here presented and addressed below is whether or not private respondent security guards are
indeed employees of petitioner Hyatt Baguio.
In determining whether a given set of circumstances constitute or exhibit an employer-employee relationship,
the accepted rule is that the elements or circumstances relating to the following matters shall be examined
and considered:
1. the selection and engagement of the employee;.
2. the payment of wages;
3. the power of dismissal; and
4. the power to control the employees' conduct. 3

Of the above, control of the employees' conduct is commonly regarded as the most crucial and determinative
indicator of the presence or absence of an employer-employee relationship. 4 We examine below the
circumstances of the relationship between petitioners and private respondents under the above four (4)
rubrics.
In respect of the selection and engagement of the employees, the records here show that private respondents
filled up Hyatt employment application forms and submitted the executed forms directly to the Security
Department of Hyatt Baguio. 5 It appears that these executed application forms were returned to the
respective applicants; 6nonetheless, however, a few days after the applications to Hyatt Baguio were
submitted, Vallum sent letters of acceptance to private respondents. Petitioners do not deny that private
respondent had applied for employment at Hyatt's Security Department and that Security Department was
used to process the applications. Petitioners argue that because the premises to be secured were located in
Baguio, Vallum found it more advantageous to recruit security guards from the Baguio area. It would have
been most inconvenient for applicants from the Baguio area to have gone all the way to Sucat in Makati to file
and follow-up their applications; accordingly, Vallum was provided with its own office at Hyatt Baguio and
there the applications, with the assistance of Hyatt Baguio's Security Department, were
processed. 7 Petitioners' argument here, while understandable, does not negate the fact that the process of
selection and engagement of private respondents had been carried out in Hyatt Baguio and subject to the
scrutiny of officers and employees of Hyatt Baguio.
In respect of the mode or manner of payment of wages, private respondents submitted in evidence four
hundred twenty-three (423) pay slips (Exhibits "A" for complainants-private respondents), which bore Hyatt
Baguio's logo. 8These pay slips show that it was Hyatt Baguio which paid their wages directly and that Hyatt
Baguio deducted therefrom the necessary amounts for SSS premiums, internal revenue withholding taxes,
and medicare contributions. The Labor Arbiter had found that a separate payroll was maintained for Vallum by
Hyatt Baguio; the NLRC, however, held that this finding had no factual basis, and we are compelled to agree
with this finding. It is true that a subsequent agreement (10 September 1986) between Vallum and Hyatt
Baguio had provided:
1. That for the purposes of facilitating and prevention of delays in the distribution of payroll to all
Security guards assigned at the premises of the company and as embraced in the contract of
Security services, the [vallum] shall herewith authorize the [Hyatt Baguio] to undertake the
distribution of the payroll directly to the guards as mentioned herein. (Emphasis supplied)
2. That for purposes of the payroll distribution as stated above, the company shall devise ways
to ensure the efficient and prompt distribution to the guards of their respective
salaries. 9 (Emphasis supplied)
The fact that this agreement had stipulated for direct payment by Hyatt Baguio of private respondents' wages
did not, of course, dissolve the relevance of such direct payment as an indicator of an employer-employee
relationship between Hyatt Baguio and private respondents. Vallum did not even provide Hyatt Baguio with
Vallum's own pay slips or payroll vouchers for such direct payments. What clearly emerges is that Hyatt
Baguio discharged a function which was properly a function of the employer.
Turning to the matter of location of the power of dismissal, we note that the contract provided that upon loss of
confidence on the part of Hyatt Baguio vis-a-vis any security guard furnished by Vallum, such security guard
"maybe changed immediately upon the request to [Vallum] by [Hyatt Baguio]." Notwithstanding the terms of
the formal contract between petitioners, the NLRC found that, in operative fact, it was Hyatt Baguio's Chief
Security Officer
who exercised the power of enforcing disciplinary measures over the security guards. 10 In the matter of
termination of services of particular security guards, Hyatt Baguio had merely used Vallum as a channel to
implement its decisions, much as it had done in the process of selection and recruitment of the guards.

Coming then to the location of the power of control over the activities of the security guards, the following
factors lead us to the conclusion that power was effectively located in Hyatt Baguio rather than in Vallum:
(a) the assignments of particular security guards was subject to the approval of Hyatt Baguio's
Chief Security Officer; 11
(b) promotions of the security guards from casual to regular employees were approved or
ratified by the Chief Security Officer of Hyatt Baguio; 12
(c) Hyatt Baguio's Chief Security Officer decided who among the various security guards should
be an duty or on call, as well as who, in cases of disciplinary matters, should be suspended or
dismissed; 13
(d) the petitioners themselves admitted that Hyatt Baguio, through its Chief Security Officer,
awarded citations to individual security guards for meritorious services. 14
Petitioners contend that what existed between Vallum and Hyatt Baguio was simply close coordination and
dove-tailing of operations, rather than control and supervision by one over the operations of the other, and
that Hyatt Baguio's Chief Security Officer had acted as the conduit between Hyatt Baguio and Vallum in
respect of the implementation of the contract of security services. That is not, however, the characterization
given by the NLRC to the details of the factual relationships between Hyatt Baguio (acting through its Chief
Security Officer) and Vallum and private respondent security guards and it is clear to the Court that the
characterization reached by the NLRC is not without the support of substantial evidence of record. We agree
with the NLRC's characterization.
One final circumstance seems worthy of note: orders received by private respondent security guards were set
forth on paper bearing the letterheads of both Hyatt Baguio and Vallum. 15 It appears to us, therefore, that
Hyatt Baguio explicitly purported, at the very least, to share with Vallum the exercise of the power of control
and supervision with Vallum over the security guards, if indeed Vallum was not functioning merely as an alter
ego of Hyatt Baguio in respect of the operations of the security guards. In the ordinary course of business,
security guard agencies are engaged because of their specialized capabilities in the matter of physical
security. It is a security agency's business to know the most efficacious manner of protecting and securing a
particular place at a particular time. In the case at bar, the functions performed by Hyatt Baguio's Chief
Security Officer were precisely the duties which the head or senior officer of a legitimate security agency
would be exercising over its own employees.
Finally, we note that the contract for security services between Vallum and Hyatt Baguio contained the
following provisions:
xxx xxx xxx
3. The AGENCY shall exercise discipline, supervision, control and administration over the
security guard so assigned to the premises of the COMPANY in accordance with the Rules and
Regulations of the PCSUSIA, the Local Police Departments, the AGENCY and the COMPANY.
4. The AGENCY shall provide at its own expense all necessary, proper and duly licensed
firearms, ammunitions, nightsticks, and other paraphernalia for security purposes, to the guards
it assigns to the COMPANY and shall shoulder all taxes and licenses relating to the Security
Services referred to in this agreement.
5. It is expressly understood and mutually agreed by the parties hereto that the AGENCY shall
be held solely liable for any claim for security guards' wages and/or damages arising out of
personal injury including death caused, either by the AGENCY's guard upon a third party or by

the AGENCY'S guard or third party upon a guard assigned by the AGENCY to the COMPANY,
and should the COMPANY be held liable therefore, the AGENCY shall reimburse the COMPANY
for any and all amounts that it may have been called upon to pay.
xxx xxx xxx
7. The AGENCY shall always detail within the hours the period provided for and in the paragraph
1 of this contract, an authorized representative who shall handle for the AGENCY all matters
regarding security and enforcement which the COMPANY may wish to implement.
The thrust of the foregoing discussion, however, is that the relationship between Vallum and Hyatt Baguio as
actually conducted departed significantly from the formal written terms of their agreement. It is to us selfevident that the characterization in law of such relationship cannot conclusively be made in terms alone of the
written agreement which constitutes but one factor out of many that the Court must take into account but
must rest upon an examination of the detailed facts of such relationship in the world of time and space.
We find no basis for overturning the conclusions reached by the NLRC that Vallum, in the specific
circumstances of this case, was not an independent contractor but was, rather, a "labor-only" contracor.
Section 9 of Rule VII of Book III entitled "Conditions of Employment" of the Omnibus Rules Implementing the
Labor Code provides as follows:
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an employer
shall be deemed to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials; and
(2) The workers recruited and placed by such person are performing activities
which are directly related to the principal business or operations of the employer in
which workers are habitually employed.
(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as
contractor shall be considered merely as an agent or intermediary of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him.
xxx xxx xxx
Sec. 8. Job contracting. There is job contracting permissible under the Code if the following
conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on his
own account under his own responsibility according his own manner and method, free from the
control and direction of his employer or principal in all matters connected with the performance
of the work except as to results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.
In the case at bar, we noted that Vallum did not have a branch office in Baguio City and that Hyatt Baguio
provided Vallum with offices at Hyatt's own premises and allowed Vallum to use its Security Department in the
processing of applications. That was the reason too why Vallum had stipulated that Hyatt Baguio was to
distribute the salaries of the security guards directly to them and that Hyatt had used its own corporate forms

and pay slips in doing so. The security guards were clearly performing activities directly related to the
business operations of Hyatt Baguio, since the undertaking to safeguard the person and belongings of hotel
guests is one of the obligations of a hotel vis-a-vis its guests and the general public.
Where labor-only contracting exists in a given case, the law itself implies or establishes an employeremployee relationship between the employer (the owner of the project or establishment) (here, Hyatt Baguio)
and the employees of the labor-only contractor (here, Vallum) to prevent any violation or circumvention of
provisions of the Labor Code. 16
The issue of illegal dismissal need not detain us for long. It has not been alleged by petitioners that a just or
authorized cause for terminating private respondents' services had existed. And even if such lawful cause
existed, it is not alleged that private respondents' rights to procedural due process in that connection had
been appropriately observed.
We conclude that petitioners have not shown any grave abuse of discretion or any act without or any in
excess of jurisdiction on the part of the National Labor Relations Commission in rendering its Resolutions
dated 31 July 1990 and 31 January 1991.
WHEREFORE, premises considered, the Petition for Certiorari is hereby DISMISSED for lack of merit. Costs
against petitioners.
Bidin, Romero, Melo and Vitug, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-98368 December 15, 1993

OPULENCIA ICE PLANT AND STORAGE AND/OR DR. MELCHOR OPULENCIA, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), LABOR ARBITER NUMERIANO
VILLENA AND MANUEL P. ESITA, respondents.
Inocentes, De Leon, Leogardo, Atienza, Magnaye & Azucena (IDLAMA) Law Offices for petitioners.
Noli J. De los Santos for private respondent.

BELLOSILLO, J.:
MANUEL P. ESITA was for twenty (20) years a compressor operator of Tiongson Ice Plant in San Pablo City.
In 1980 he was hired as compressor operator-mechanic for the ice plants of petitioner Dr. Melchor Opulencia
located in Tanauan, Batangas, and Calamba, Laguna. Initially assigned at the ice plant in Tanauan, Esita
would work from seven o'clock in the morning to five o'clock in the afternoon receiving a daily wage of P35.00.
In 1986, Esita was transferred to the ice plant in Calamba, which was then undergoing overhauling, taking the
place of compressor operator Lorenzo Eseta, who was relieved because he was already old and weak. For
less than a month, Esita helped in the construction-remodeling of Dr. Opulencia's house.

On 6 February 1989, for demanding the correct amount of wages due him, Esita was dismissed from service.
Consequently, he filed with Sub-Regional Arbitration Branch IV, San Pablo City, a complaint for illegal
dismissal, underpayment, non-payment for overtime, legal holiday, premium for holiday and rest day, 13th
month, separation/retirement pay and allowances against petitioners.
Petitioners deny that Esita is an employee. They claim that Esita could not have been employed in 1980
because the Tanauan ice plant was not in operation due to low voltage of electricity and that Esita was merely
a helper/peonof one of the contractors they had engaged to do major repairs and renovation of the Tanauan
ice plant in 1986. Petitioners further allege that when they had the Calamba ice plant repaired and expanded,
Esita likewise rendered services in a similar capacity, and thus admitting that he worked as a helper/peon in
the repair or remodeling of Dr. Opulencia's residence in Tanauan.
Opulencia likewise maintains that while he refused the insistent pleas of Esita for employment in the ice plants
due to lack of vacancy, he nonetheless allowed him to stay in the premises of the ice plant for free and to
collect fees for crushing or loading ice of the customers and dealers of the ice plant. Opulencia claims that in
addition, Esita enjoyed free electricity and water, and was allowed to cultivate crops within the premises of the
ice plant to augment his income. Petitioners however admit that "following the tradition of 'pakikisama' and as
a token of gratitude of the part of the complainant (Esita), he helps in the cleaning of the ice plant premises
and engine room whenever he is requested to do so, and this happens only (at) twice a month."
On 8 December 1989, Labor Arbiter Nemeriano D. Villena rendered a decision 1 finding the existence of an
employer-employee relationship between petitioners and Esita and accordingly directed them to pay him
P33,518.02 representing separation pay, underpayment of wages, allowances, 13th month, holiday, premium
for holiday, and rest day pays. The claim for overtime pay was however dismissed for lack of basis, i.e., Esita
failed to prove that overtime services were actually rendered.
On 29 November 1990, the Third Division of the National Labor Relations Commission, in Case No. RAB-IV2-2206-89, affirmed the decision of Labor Arbiter Villena but reduced the monetary award to P28,344.60 as it
was not proven that Esita worked every day including rest days and on the days before the legal holidays. On
26 March 1991, petitioners' motion for reconsideration was denied.
In this present recourse, petitioners seek reversal of the ruling of public respondents Labor Arbiter and NLRC,
raising the following arguments: that public respondents have no jurisdiction over the instant case; that Esita's
work in the repair and construction of Dr. Opulencia's residence could not have ripened into a regular
employment; that petitioners' benevolence in allowing Esita to stay inside the company's premises free of
charge for humanitarian reason deserves commendation rather than imposition of undue penalty; that Esita's
name does not appear in the payrolls of the company which necessarily means that he was not an employee;
and, that Esita's statements are inconsistent and deserving of disbelief. On 13 May 1991, petitioners' prayer
for a temporary restraining order to prevent respondents from enforcing the assailed resolutions of NLRC was
granted.
The instant petition lacks merit, hence, must be dismissed.
Petitioners allege that there is no employer-employee relationship between them and Esita; consequently,
public respondents have no jurisdiction over the case. Petitioners even go to the extent of asserting that "in
case like the one at bar where employer-employee relationship has been questioned from the very start,
Labor Arbiters and the NLRC have no jurisdiction and should not assume jurisdiction therein."
While the Labor Arbiter and the NLRC may subsequently be found without jurisdiction over a case when it
would later appear that no employer-employee relationship existed between the contending parties, such is
not the situation in this case where the employer-employee relationship between the petitioners and Esita was
clearly established. If the argument of petitioners were to be allowed, then unscrupulous employers could

readily avoid the jurisdiction of the Labor Arbiters and NLRC, and may even elude compliance with labor laws
only on the bare assertion that an employer-employee relationship does not exist.
Petitioners further argue that "complainant miserably failed to present any documentary evidence to prove his
employment. There was no time sheet, pay slip and/or payroll/cash voucher to speak of. Absence of these
material documents are necessary fatal to complainant's cause."
We do not agree. No particular form of evidence is required to prove the existence of an employer-employee
relationship. Any competent and relevant evidence to prove the relationship may be admitted. For, if only
documentary evidence would be required to show that relationship, no scheming employer would ever be
brought before the bar of justice, as no employer would wish to come out with any trace of the illegality he has
authored considering that it should take much weightier proof to invalidate a written instrument. 2 Thus, as in
this case where the employer-employee relationship between petitioners and Esita was sufficiently proved by
testimonial evidence, the absence of time sheet, time record or payroll has become inconsequential.
The petitioners' reliance on Sevilla v. Court of Appeals 3 is misplaced. In that case, we did not consider the
inclusion of employer's name in the payroll as an independently crucial evidence to prove an employeremployee relation. Moreover, for a payroll to be utilized to disprove the employment of a person, it must
contain a true and complete list of the employees. But, in this case, the testimonies of petitioners' witnesses
admit that not all the names of the employees were reflected in the payroll.
In their Consolidated Reply, petitioners assert that "employees who were absent were naturally not included in
the weekly payrolls." 4 But this simply emphasizes the obvious. Petitioners' payrolls do not contain the
complete list of the employees, so that the payroll slips cannot be an accurate basis in determining who are
and are not their employees. In addition, as the Solicitor General observes: ". . . . the payroll slips submitted
by petitioners do not cover the entire period of nine years during which private respondent claims to have
been employed by them, but only the periods from November 2 to November 29, 1986 and April 26 to May 30,
1987 . . . . It should be noted that petitioners repeatedly failed or refused to submit all payroll slips covering
the period during which private respondent claims to have been employed by them despite repeated
directives from the Labor Arbiter . . . ." 5 In this regard, we can aptly apply the disputable presumption that
evidence willfully suppressed would be adverse if produced. 6
Petitioners further contend that the claim of Esita that he worked from seven o'clock in the morning to five
o'clock in the afternoon, which is presumed to be continuous, is hardly credible because otherwise he would
not have had the time to tend his crops. 7 As against this positive assertion of Esita, it behooves petitioners to
prove the contrary. It is not enough that they raise the issue of probability, nay, improbability, of the
conclusions of public respondents based on the facts bared before them, for in case of doubt, the factual
findings of the tribunal which had the opportunity to peruse the conflicting pieces of evidence should be
sustained.
The petitioners point out that even granting arguendo that Esita was indeed a mechanic, he could never be a
regular employee because his presence would be required only when there was a need for repair. We cannot
sustain this argument. This circumstance cannot affect the regular status of employment of Esita. An
employee who is required to remain on call in the employer's premises or so close thereto that he cannot use
the time effectively and gainfully for his own purpose shall be considered as working while on call. 8 In sum,
the determination of regular and casual employment 9 is not affected by the fact that the employee's regular
presence in the place of work is not required, the more significant consideration being that the work of the
employee is usually necessary or desirable in the business of the employer. More importantly, Esita worked
for 9 years and, under the Labor Code, "any employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be considered a regular employee with respect to that
activity in which he is employed . . . ." 10

The petitioners would give the impression that the repair of the ice plant and the renovation of the residence
of Dr. Opulencia were voluntarily extended by Esita because "[r]espondent did it on their (sic) own."
Unfortunately for petitioners, we cannot permit these baseless assertions to prevail against the factual
findings of public respondents which went through the sanitizing process of a public hearing. The same
observation may be made of the alleged inconsistencies in Esita's testimonies. Moreover, on the claim that
Esita's construction work could not ripen into a regular employment in the ice plant because the construction
work was only temporary and unrelated to the ice-making business, needless to say, the one month spent by
Esita in construction is insignificant compared to his nine-year service as compressor operator in determining
the status of his employment as such, and considering further that it was Dr. Opulencia who requested Esita
to work in the construction of his house.
In allowing Esita to stay in the premises of the ice plant and permitting him to cultivate crops to augment his
income, there is no doubt that petitioners should be commended; however, in view of the existence of an
employer-employee relationship as found by public respondents, we cannot treat humanitarian reasons as
justification for emasculating or taking away the rights and privileges of employees granted by law.
Benevolence, it is said, does not operate as a license to circumvent labor laws. If petitioners were genuinely
altruistic in extending to their employees privileges that are not even required by law, then there is no reason
why they should not be required to give their employees what they are entitled to receive. Moreover, as found
by public respondents, Esita was enjoying the same privileges granted to the other employees of petitioners,
so that in thus treating Esita, he cannot be considered any less than a legitimate employee of petitioners.
WHEREFORE, there being no grave abuse of discretion on the part of public respondents, the instant petition
is DISMISSED. Accordingly, the restraining order we issued on 13 May 1991 is LIFTED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 111870 June 30, 1994

AIR MATERIAL WING SAVINGS AND LOAN ASSOCIATION, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, et al., respondents.
Jerry D. Banares for petitioner.
Perdrelito Q. Aquino for private respondent.

CRUZ, J.:
Private respondent Luis S. Salas was appointed "notarial and legal counsel" for petitioner Air Material Wings
Savings and Loan Association (AMWSLAI) in 1980. The appointment was renewed for three years in an
implementing order dated January 23, 1987, reading as follows:
SUBJECT: Implementing Order on the Reappointment of the Legal Officer

TO: ATTY. LUIS S. SALAS

Per approval of the Board en banc in a regular meeting held on January 21, 1987, you are
hereby reappointed as Notarial and Legal Counsel of this association for a term of three (3)
years effective March 1, 1987, unless sooner terminated from office for cause or as may be
deemed necessary by the Board for the interest and protection of the association.
Aside from notarization of loan & other legal documents, your duties and responsibilities are
hereby enumerated in the attached sheet, per Articles IX, Section 1-d of the by-laws and those
approved by the Board en banc.
Your monthly compensation/retainer's fee remains the same.
This shall form part of your 201 file.
BY AUTHORITY OF THE BOARD:
LUVIN S. MANAY
President & Chief of the Board
On January 9, 1990, the petitioner issued another order reminding Salas of the approaching termination of his
legal services under their contract. This prompted Salas to lodge a complaint against AMWSLAI for separation
pay, vacation and sick leave benefits, cost of living allowances, refund of SSS premiums, moral and
exemplary damages, payment of notarial services rendered from February 1, 1980 to March 2, 1990, and
attorney's fees.
Instead of filing an answer, AMWSLAI moved to dismiss for lack of jurisdiction. It averred that there was no
employer-employee relationship between it and Salas and that his monetary claims properly fell within the
jurisdiction of the regular courts. Salas opposed the motion and presented documentary evidence to show
that he was indeed an employee of AMWSLAI.
The motion was denied and both parties were required to submit their position papers. AMWSLAI filed a
motion for reconsideration ad cautelam, which was also denied. The parties were again ordered to submit
their position papers but AMWSLAI did not comply. Nevertheless, most of Salas' claims were dismissed by the
labor arbiter in his decision dated November 21, 1991. 1
It was there held that Salas was not illegally dismissed and so not entitled to collect separation benefits. His
claims for vacation leave, sick leave, medical and dental allowances and refund of SSS premiums were
rejected on the ground that he was a managerial employee. He was also denied moral and exemplary
damages for lack of evidence of bad faith on the part of AMWSLAI. Neither was he allowed to collect his
notarial fees from 1980 up to 1986 because the claim therefor had already prescribed. However, the petitioner
was ordered to pay Salas his notarial fees from 1987 up to March 2, 1990, and attorney's fee equivalent to
10% of the judgment award.
On appeal, the decision was affirmed in toto by the respondent Commission, prompting the petitioner to seek
relief in this Court. 2
The threshold issue in this case is whether or not Salas can be considered an employee of the petitioner
company.
We have held in a long line of decisions that the elements of an employer-employee relationship are: (1)
selection and engagement of the employee; (2) payment of wages; (3) power of dismissal; and (4) employer's
own power to control employee's conduct. 3

The existence of such a relationship is essentially a factual question. The findings of the NLRC on this matter
are accorded great respect and even finality when the same are supported by substantial evidence. 4
The terms and conditions set out in the letter-contract entered into by the parties on January 23, 1987, clearly
show that Salas was an employee of the petitioner. His selection as the company counsel was done by the
board of directors in one of its regular meetings. The petitioner paid him a monthly compensation/retainer's
fee for his services. Though his appointment was for a fixed term of three years, the petitioner reserved its
power of dismissal for cause or as it might deem necessary for its interest and protection. No less importantly,
AMWSLAI also exercised its power of control over Salas by defining his duties and functions as its legal
counsel, to wit:
1. To act on all legal matters pertinent to his Office.
2. To seek remedies to effect collection of overdue accounts of members without prejudice to
initiating court action to protect the interest of the association.
3. To defend by all means all suit against the interest of the Association.

In the earlier case of Hydro Resources Contractors Corp. v.

Pagalilauan, 6 this Court observed that:
A lawyer, like any other professional, may very well be an employee of a private corporation or
even of the government. It is not unusual for a big corporation to hire a staff of lawyers as its inhouse counsel, pay them regular salaries, rank them in its table of organization, and otherwise
treat them like its other officers and employees. At the same time, it may also contract with a law
firm to act as outside counsel on a retainer basis. The two classes of lawyers often work closely
together but one group is made up of employees while the other is not. A similar arrangement
may exist as to doctors, nurses, dentists, public relations practitioners and other professionals.
We hold, therefore, that the public respondent committed no grave abuse of discretion in ruling that an
employer-employee relationship existed between the petitioner and the private respondent.
We must disagree with the NLRC, however, on Salas' claims for notarial fees.
The petitioner contends that the public respondents are not empowered to adjudicate claims for notarial fees.
On the other hand, the Solicitor General believes that the NLRC acted correctly when it took cognizance of
the claim because it arose out of Salas' employment contract with the petitioner which assigned him the duty
to notarize loan agreements and other legal documents. Moreover, Section 9 of Rule 141 of the Rules of
Court does not restrict or prevent the labor arbiter and the NLRC from determining claims for notarial fees.
Labor arbiters have the original and exclusive jurisdiction over money claims of workers when such claims
have some reasonable connection with the employer-employee relationship. The money claims of workers
referred to in paragraph 3 of Article 217 of the Labor Code are those arising out of or in connection with the
employer-employee relationship or some aspect or incident of such relationship.
Salas' claim for notarial fees is based on his employment as a notarial officer of the petitioner and thus comes
under the jurisdiction of the labor arbiter.
The public respondents agreed that Salas was entitled to collect notarial fees from 1987 to 1990 by virtue of
his having been assigned as notarial officer. We feel, however, that there is no substantial evidence to support
this finding.
The letter-contract of January 23, 1987, does not contain any stipulation for the separate payment of notarial
fees to Salas in addition to his basic salary. On the contrary, it would appear that his notarial services were

part of his regular functions and were thus already covered by his monthly compensation. It is true that the
notarial fees were paid by members-borrowers of the petitioner for its own account and not of Salas. However,
this is not a sufficient basis for his claim to such fees in the absence of any agreement to that effect.
ACCORDINGLY, the appealed judgment of the NLRC is AFFIRMED, with the modification that the award of
notarial fees and attorney's fees is disallowed. It is so ordered.
Davide, Jr., Bellosillo, Quiason and Kapunan, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 64948 September 27, 1994

MANILA GOLF & COUNTRY CLUB, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and FERMIN LLAMAR, respondents.
Bito, Misa & Lozada for petitioner.
Remberto Z. Evio for private respondent.

NARVASA, C.J.:
The question before the Court here is whether or not persons rendering caddying services for members of
golf clubs and their guests in said clubs' courses or premises are the employees of such clubs and therefore
within the compulsory coverage of the Social Security System (SSS).
That question appears to have been involved, either directly or peripherally, in three separate proceedings, all
initiated by or on behalf of herein private respondent and his fellow caddies. That which gave rise to the
present petition for review was originally filed with the Social Security Commission (SSC) via petition of
seventeen (17) persons who styled themselves "Caddies of Manila Golf and Country Club-PTCCEA" for
coverage and availment of benefits under the Social Security Act as amended, "PTCCEA" being
the acronym of a labor organization, the "Philippine Technical, Clerical, Commercial Employees Association,"
with which the petitioners claimed to be affiliated. The petition, docketed as SSC Case No. 5443, alleged in
essence that although the petitioners were employees of the Manila Golf and Country Club, a domestic
corporation, the latter had not registered them as such with the SSS.
At about the same time, two other proceedings bearing on the same question were filed or were pending;
these were:
(1) a certification election case filed with the Labor Relations Division of the Ministry of Labor by
the PTCCEA on behalf of the same caddies of the Manila Golf and Country Club, the case being
titled "Philippine Technical, Clerical, Commercial Association vs. Manila Golf and Country Club"
and docketed as Case No. R4-LRDX-M-10-504-78; it appears to have been resolved in favor of

the petitioners therein by Med-Arbiter Orlando S. Rojo who was thereafter upheld by Director
Carmelo S. Noriel, denying the Club's motion for reconsideration; 1
(2) a compulsory arbitration case initiated before the Arbitration Branch of the Ministry of Labor
by the same labor organization, titled "Philippine Technical, Clerical, Commercial Employees
Association (PTCCEA), Fermin Lamar and Raymundo Jomok vs. Manila Golf and Country Club,
Inc., Miguel Celdran, Henry Lim and Geronimo Alejo;" it was dismissed for lack of merit by Labor
Arbiter Cornelio T. Linsangan, a decision later affirmed on appeal by the National Labor
Relations Commission on the ground that there was no employer-employee relationship
between the petitioning caddies and the respondent Club. 2
In the case before the SSC, the respondent Club filed answer praying for the dismissal of the petition, alleging
in substance that the petitioners, caddies by occupation, were allowed into the Club premises to render
services as such to the individual members and guests playing the Club's golf course and who themselves
paid for such services; that as such caddies, the petitioners were not subject to the direction and control of the
Club as regards the manner in which they performed their work; and hence, they were not the Club's
employees.
Subsequently, all but two of the seventeen petitioners of their own accord withdrew their claim for social
security coverage, avowedly coming to realize that indeed there was no employment relationship between
them and the Club. The case continued, and was eventually adjudicated by the SSC after protracted
proceedings only as regards the two holdouts, Fermin Llamar and Raymundo Jomok. The Commission
dismissed the petition for lack of merit, 3 ruling:
. . . that the caddy's fees were paid by the golf players themselves and not by respondent club.
For instance, petitioner Raymundo Jomok averred that for their services as caddies a caddy's
Claim Stub (Exh. "1-A") is issued by a player who will in turn hand over to management the
other portion of the stub known as Caddy Ticket (Exh. "1") so that by this arrangement
management will know how much a caddy will be paid (TSN, p. 80, July 23, 1980). Likewise,
petitioner Fermin Llamar admitted that caddy works on his own in accordance with the rules and
regulations (TSN, p. 24, February 26, 1980) but petitioner Jomok could not state any policy of
respondent that directs the manner of caddying (TSN, pp. 76-77, July 23, 1980). While
respondent club promulgates rules and regulations on the assignment, deportment and conduct
of caddies (Exh. "C") the same are designed to impose personal discipline among the caddies
but not to direct or conduct their actual work. In fact, a golf player is at liberty to choose a caddy
of his preference regardless of the respondent club's group rotation system and has the
discretion on whether or not to pay a caddy. As testified to by petitioner Llamar that their income
depends on the number of players engaging their services and liberality of the latter (TSN, pp.
10-11, Feb. 26, 1980). This lends credence to respondent's assertion that the caddies are never
their employees in the absence of two elements, namely, (1) payment of wages and (2) control
or supervision over them. In this connection, our Supreme Court ruled that in the determination
of the existence of an employer-employee relationship, the "control test" shall be considered
decisive (Philippine Manufacturing Co. vs. Geronimo and Garcia, 96 Phil. 276; Mansal vs. P.P.
Coheco Lumber Co., 96 Phil. 941; Viana vs.
Al-lagadan, et al., 99 Phil. 408; Vda, de Ang, et al. vs. The Manila Hotel Co., 101 Phil. 358, LVN
Pictures Inc. vs. Phil. Musicians Guild, et al.,
L-12582, January 28, 1961, 1 SCRA 132. . . . (reference being made also to Investment
Planning Corporation Phil. vs. SSS 21 SCRA 925).
Records show the respondent club had reported for SS coverage Graciano Awit and Daniel
Quijano, as bat unloader and helper, respectively, including their ground men, house and
administrative personnel, a situation indicative of the latter's concern with the rights and welfare
of its employees under the SS law, as amended. The unrebutted testimony of Col. Generoso A.

Alejo (Ret.) that the ID cards issued to the caddies merely intended to identify the holders as
accredited caddies of the club and privilege(d) to ply their trade or occupation within its premises
which could be withdrawn anytime for loss of confidence. This gives us a reasonable ground to
state that the defense posture of respondent that petitioners were never its employees is well
taken. 4
From this Resolution appeal was taken to the Intermediate appellate Court by the union representing Llamar
and Jomok. After the appeal was docketed 5 and some months before decision thereon was reached and
promulgated, Raymundo Jomok's appeal was dismissed at his instance, leaving Fermin Llamar the lone
appellant. 6
The appeal ascribed two errors to the SSC:
(1) refusing to suspend the proceedings to await judgment by the Labor Relations Division of
National Capital Regional Office in the certification election case (R-4-LRD-M-10-504-78) supra,
on the precise issue of the existence of employer-employee relationship between the
respondent club and the appellants, it being contended that said issue was "a function of the
proper labor office"; and
(2) adjudicating that self same issue a manner contrary to the ruling of the Director of the
Bureau of Labor Relations, which "has not only become final but (has been) executed or
(become) res adjudicata." 7
The Intermediate Appellate Court gave short shirt to the first assigned error, dismissing it as of the least
importance. Nor, it would appear, did it find any greater merit in the second alleged error. Although said Court
reserved the appealed SSC decision and declared Fermin Llamar an employee of the Manila Gold and
Country Club, ordering that he be reported as such for social security coverage and paid any corresponding
benefits, 8 it conspicuously ignored the issue of res adjudicata raised in said second assignment. Instead, it
drew basis for the reversal from this Court's ruling in Investment Planning Corporation of the Philippines
vs. Social Security System, supra 9 and declared that upon the evidence, the questioned employer-employee
relationship between the Club and Fermin Llamar passed the so-called "control test," establishment in the
case i.e., "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," the Club's control over the caddies encompassing:
(a) the promulgation of no less than twenty-four (24) rules and regulations just about every
aspect of the conduct that the caddy must observe, or avoid, when serving as such, any
violation of any which could subject him to disciplinary action, which may include suspending or
cutting off his access to the club premises;
(b) the devising and enforcement of a group rotation system whereby a caddy is assigned a
number which designates his turn to serve a player;
(c) the club's "suggesting" the rate of fees payable to the caddies.
Deemed of title or no moment by the Appellate Court was the fact that the caddies were paid by the players,
not by the Club, that they observed no definite working hours and earned no fixed income. It quoted with
approval from an American decision 10 to the effect that: "whether the club paid the caddies and afterward
collected in the first instance, the caddies were still employees of the club." This, no matter that the case
which produced this ruling had a slightly different factual cast, apparently having involved a claim for
workmen's compensation made by a caddy who, about to leave the premises of the club where he worked,
was hit and injured by an automobile then negotiating the club's private driveway.

That same issue of res adjudicata, ignored by the IAC beyond bare mention thereof, as already pointed out, is
now among the mainways of the private respondent's defenses to the petition for review. Considered in the
perspective of the incidents just recounted, it illustrates as well as anything can, why the practice of forumshopping justly merits censure and punitive sanction. Because the same question of employer-employee
relationship has been dragged into three different fora, willy-nilly and in quick succession, it has birthed
controversy as to which of the resulting adjudications must now be recognized as decisive. On the one hand,
there is the certification case [R4-LRDX-M-10-504-78), where the decision of the Med-Arbiter found for the
existence of employer-employee relationship between the parties, was affirmed by Director Carmelo S. Noriel,
who ordered a certification election held, a disposition never thereafter appealed according to the private
respondent; on the other, the compulsory arbitration case (NCR Case No. AB-4-1771-79), instituted by or for
the same respondent at about the same time, which was dismissed for lack of merit by the Labor Arbiter,
which was afterwards affirmed by the NLRC itself on the ground that there existed no such relationship
between the Club and the private respondent. And, as if matters were not already complicated enough, the
same respondent, with the support and assistance of the PTCCEA, saw fit, also contemporaneously, to
initiate still a third proceeding for compulsory social security coverage with the Social Security Commission
(SSC Case No. 5443), with the result already mentioned.
Before this Court, the petitioner Club now contends that the decision of the Med-Arbiter in the certification
case had never become final, being in fact the subject of three pending and unresolved motions for
reconsideration, as well as of a later motion for early resolution. 11 Unfortunately, none of these motions is
incorporated or reproduced in the record before the Court. And, for his part, the private respondent contends,
not only that said decision had been appealed to and been affirmed by the Director of the BLR, but that a
certification election had in fact been held, which resulted in the PTCCEA being recognized as the sole
bargaining agent of the caddies of the Manila Golf and Country Club with respect to wages, hours of work,
terms of employment, etc. 12 Whatever the truth about these opposing contentions, which the record before
the Court does not adequately disclose, the more controlling consideration would seem to be that, however,
final it may become, the decision in a certification case, by the
very nature of that proceedings, is not such as to foreclose all further dispute between the parties as to the
existence, or non-existence, of employer-employee relationship between them.
It is well settled that for res adjudicata, or the principle of bar by prior judgment, to apply, the following
essential requisites must concur: (1) there must be a final judgment or order; (2) said judgment or order must
be on the merits; (3) the court rendering the same must have jurisdiction over the subject matter and the
parties; and (4) there must be between the two cases identity of parties, identity of subject matter and identity
of cause of action. 13
Clearly implicit in these requisites is that the action or proceedings in which is issued the "prior Judgment" that
would operate in bar of a subsequent action between the same parties for the same cause, be adversarial, or
contentious, "one having opposing parties; (is) contested, as distinguished from an ex parte hearing or
proceeding. . . . of which the party seeking relief has given legal notice to the other party and afforded the
latter an opportunity to contest it" 14 and a certification case is not such a proceeding, as this Court already
ruled:
A certification proceedings is not a "litigation" in the sense in which the term is commonly
understood, but mere investigation of a non-adversary, fact-finding character, in which the
investigating agency plays the part of a disinterested investigator seeking merely to ascertain
the desires of the employees as to the matter of their representation. The court enjoys a wide
discretion in determining the procedure necessary to insure the fair and free choice of
bargaining representatives by the employees. 15
Indeed, if any ruling or judgment can be said to operate as res adjudicata on the contested issue of employeremployee relationship between present petitioner and the private respondent, it would logically be that
rendered in the compulsory arbitration case (NCR Case No. AB-4-771-79, supra), petitioner having asserted,

without dispute from the private respondent, that said issue was there squarely raised and litigated, resulting
in a ruling of the Arbitration Branch (of the same Ministry of Labor) that such relationship did not exist, and
which ruling was thereafter affirmed by the National Labor Relations Commission in an appeal taken by said
respondent. 16
In any case, this Court is not inclined to allow private respondent the benefit of any doubt as to which of the
conflicting ruling just adverted to should be accorded primacy, given the fact that it was he who actively
sought them simultaneously, as it were, from separate fora, and even if the graver sanctions more lately
imposed by the Court for forum-shopping may not be applied to him retroactively.
Accordingly, the IAC is not to be faulted for ignoring private respondent's invocation of res adjudicata; on
contrary, it acted correctly in doing so.
Said Courts holding that upon the facts, there exists (or existed) a relationship of employer and employee
between petitioner and private respondent is, however, another matter. The Court does not agree that said
facts necessarily or logically point to such a relationship, and to the exclusion of any form of arrangements,
other than of employment, that would make the respondent's services available to the members and guest of
the petitioner.
As long as it is, the list made in the appealed decision detailing the various matters of conduct, dress,
language, etc. covered by the petitioner's regulations, does not, in the mind of the Court, so circumscribe the
actions or judgment of the caddies concerned as to leave them little or no freedom of choice whatsoever in
the manner of carrying out their services. In the very nature of things, caddies must submit to some
supervision of their conduct while enjoying the privilege of pursuing their occupation within the premises and
grounds of whatever club they do their work in. For all that is made to appear, they work for the club to which
they attach themselves on sufference but, on the other hand, also without having to observe any working
hours, free to leave anytime they please, to stay away for as long they like. It is not pretended that if found
remiss in the observance of said rules, any discipline may be meted them beyond barring them from the
premises which, it may be supposed, the Club may do in any case even absent any breach of the rules, and
without violating any right to work on their part. All these considerations clash frontally with the concept of
employment.
The IAC would point to the fact that the Club suggests the rate of fees payable by the players to the caddies
as still another indication of the latter's status as employees. It seems to the Court, however, that the
intendment of such fact is to the contrary, showing that the Club has not the measure of control over the
incidents of the caddies' work and compensation that an employer would possess.
The Court agrees with petitioner that the group rotation system so-called, is less a measure of employer
control than an assurance that the work is fairly distributed, a caddy who is absent when his turn number is
called simply losing his turn to serve and being assigned instead the last number for the day. 17
By and large, there appears nothing in the record to refute the petitioner's claim that:
(Petitioner) has no means of compelling the presence of a caddy. A caddy is not required to
exercise his occupation in the premises of petitioner. He may work with any other golf club or he
may seek employment a caddy or otherwise with any entity or individual without restriction by
petitioner. . . .
. . . In the final analysis, petitioner has no was of compelling the presence of the caddies as they
are not required to render a definite number of hours of work on a single day. Even the group
rotation of caddies is not absolute because a player is at liberty to choose a caddy of his
preference regardless of the caddy's order in the rotation.

It can happen that a caddy who has rendered services to a player on one day may still find
sufficient time to work elsewhere. Under such circumstances, he may then leave the premises of
petitioner and go to such other place of work that he wishes (sic). Or a caddy who is on call for a
particular day may deliberately absent himself if he has more profitable caddying, or another,
engagement in some other place. These are things beyond petitioner's control and for which it
imposes no direct sanctions on the caddies. . . . 18
WHEREFORE, the Decision of the Intermediate Appellant Court, review of which is sought, is reversed and
set aside, it being hereby declared that the private respondent, Fermin Llamar, is not an employee of
petitioner Manila Golf and Country Club and that petitioner is under no obligation to report him for compulsory
coverage to the Social Security System. No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 114787 June 2, 1995

MAM REALTY DEVELOPMENT CORPORATION and MANUEL CENTENO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and CELSO B. BALBASTRO respondents.

VITUG, J.:
A prime focus in the instant petition is the question of when to hold a director or officer of a corporation
solidarily obligated with the latter for a corporate liability.
The case originated from a complaint filed with the Labor Arbiter by private respondent Celso B. Balbastro
against herein petitioners, MAM Realty Development Corporation ("MAM") and its Vice President Manuel P.
Centeno, for wage differentials, "ECOLA," overtime pay, incentive leave pay, 13th month pay (for the years
1988 and 1989), holiday pay and rest day pay. Balbastro alleged that he was employed by MAM as a pump
operator in 1982 and had since performed such work at its Rancho Estate, Marikina, Metro Manila. He earned
a basic monthly salary of P1,590.00 for seven days of work a week that started from 6:00 a.m. to up until 6:00
p.m. daily.
MAM countered that Balbastro had previously been employed by Francisco Cacho and Co., Inc., the
developer of Rancho Estates. Sometime in May 1982, his services were contracted by MAM for the operation
of the Rancho Estates' water pump. He was engaged, however, not as an employee, but as a service
contractor, at an agreed fee of P1,590.00 a month. Similar arrangements were likewise entered into by MAM
with one Rodolfo Mercado and with a security guard of Rancho Estates III Homeowners' Association. Under
the agreement, Balbastro was merely made to open and close on a daily basis the water supply system of the
different phases of the subdivision in accordance with its water rationing scheme. He worked for only a
maximum period of three hours a day, and he made use of his free time by offering plumbing services to the
residents of the subdivision. He was not at all subject to the control or supervision of MAM for, in fact, his work
could so also be done either by Mercado or by the security guard. On 23 May 1990, prior to the filing of the

complaint, MAM executed a Deed of Transfer, 1 effective 01 July 1990, in favor of the Rancho Estates Phase
III Homeowners Association, Inc., conveying to the latter all its rights and interests over the water system in
the subdivision.
In a decision, dated 23 December 1991, the Labor Arbiter dismissed the complaint for lack of merit.
On appeal to it, respondent National Labor Relations Commission ("NLRC") rendered judgment (a) setting
aside the questioned decision of the Labor Arbiter and (b) referring the case, pursuant to Article 218(c) of the
Labor Code, to Arbiter Cristeta D. Tamayo for further hearing and submission of a report within 20 days from
receipt of the Order. 2 On 21 March 1994, respondent Commissioner, after considering the report of Labor
Arbiter Tamayo, ordered:
WHEREFORE, the respondents are hereby directed to pay jointly and severally complainant the
sum of P86,641.05 as above-computed. 3
The instant petition asseverates that respondent NLRC gravely abused its discretion, amounting to lack
or excess of jurisdiction, (1) in finding that an employer-employee relationship existed between
petitioners and private respondent and (2) in holding petitioners jointly and severally liable for the
money claims awarded to private respondent.
Once again, the matter of ascertaining the existence of an employer-employee relationship is raised.
Repeatedly, we have said that this factual issue is determined by:
(a) the selection and engagement of the employee;
(b) the payment of wages;
(c) the power of dismissal; and
(d) the employer's power to control the employee with respect to the result of the work to be
done and to the means and methods by which the work is to be accomplished.
We see no grave abuse of discretion on the part of NLRC in finding a full satisfaction, in the case at
bench, of the criteria to establish that employer-employee relationship. The power of control, the most
important feature of that relationship and, here, a point of controversy, refers merely to the existence of
the power and not 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 former has a right
to wield the power. 4 It is hard to accede to the contention of petitioners that private respondent should
be considered totally free from such control merely because the work could equally and easily be done
either by Mercado or by the subdivision's security guard. Not without any significance is that private
respondent's employment with MAM has been registered by petitioners with the Social Security
System. 5
It would seem that the money claims awarded to private respondent were computed from 06 March 1988 to
06 March 1991, 6 the latter being the date of the filing of the complaint. The NLRC might have missed the
transfer by MAM of the water system to the Homeowners Association on 01 July 1990, a matter that would
appear not to be in dispute. Accordingly, the period for the computation of the money claims should only be for
the period from 06 March 1988 to 01 July 1990 (when petitioner corporation could be deemed to have ceased
from the activity for which private respondent was employed), and petitioner corporation should, instead, be
made liable for the employee's separation pay equivalent to one-half (1/2) month pay for every year of
service. 7 While the transfer was allegedly due to MAM's financial constraints, unfortunately for petitioner
corporation, however, it failed to sufficiently establish that its business losses or financial reverses were
serious enough that possibly can warrant an exemption under the law. 8

We agree with petitioners, however, that the NLRC erred in holding Centeno jointly and severally liable with
MAM. A corporation, being a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of
the corporation they represent. True, solidary liabilities may at times be incurred but only when exceptional
circumstances warrant such as, generally, in the following cases: 9
1. When directors and trustees or, in appropriate cases, the officers of a corporation
(a) vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons. 10
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto. 11
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the Corporation. 12
4 When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action. 13
In labor cases, for instance, the Court has held corporate directors and officers solidarily liable with the
corporation for the termination of employment of employees done with malice or in bad faith. 14
In the case at Bench, there is nothing substantial on record that can justify, prescinding from the foregoing,
petitioner Centeno's solidary liability with the corporation.
An extra note. Private respondent avers that the questioned decision, having already become final and
executory, could no longer be reviewed by this Court. The petition before us has been filed under Rule 65 of
the Rules of Court, there being no appeal, or any other plain, speedy and adequate remedy in the ordinary
course of law from decisions of the National Labor Relations Commission; it is a relief that is open so long as
it is availed of within a reasonable time.
WHEREFORE, the order of 21 March 1994 is MODIFIED. The case is REMANDED to the NLRC for a recomputation of private respondent's monetary awards, which, conformably with this opinion, shall be paid
solely by petitioner MAM Realty Development Corporation. No special pronouncement on costs.
SO ORDERED.
SECOND DIVISION
[G.R. No. 87098. November 4, 1996]
ENCYCLOPAEDIA BRITANNICA (PHILIPPINES), INC., petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, HON. LABOR ARBITER TEODORICO L. DOGELIO and BENJAMIN
LIMJOCO, respondents.
DECISION
TORRES, JR., J.:

Encyclopaedia Britannica (Philippines), Inc. filed this petition for certiorari to annul and set aside the
resolution of the National Labor Relations Commission, Third Division, in NLRC Case No. RB IV-5158-76,
dated December 28, 1988, the dispositive portion of which reads:
WHEREFORE, in view of all the foregoing, the decision dated December 7, 1982 of then Labor Arbiter
Teodorico L. Dogelio is hereby AFFIRMED, and the instant appeal is hereby DISMISSED for lack of merit.
SO ORDERED.[1]
Private respondent Benjamin Limjoco was a Sales Division Manager of petitioner Encyclopaedia
Britannica and was in charge of selling petitioners products through some sales representatives. As
compensation, private respondent received commissions from the products sold by his agents. He was also
allowed to use petitioners name, goodwill and logo. It was, however, agreed upon that office expenses would
be deducted from private respondents commissions. Petitioner would also be informed about appointments,
promotions, and transfers of employees in private respondents district.
On June 14, 1974, private respondent Limjoco resigned from office to pursue his private business. Then
on October 30, 1975, he filed a complaint against petitioner Encyclopaedia Britannica with the Department of
Labor and Employment, claiming for non-payment of separation pay and other benefits, and also illegal
deduction from his sales commissions.
Petitioner Encyclopaedia Britannica alleged that complainant Benjamin Limjoco (Limjoco, for brevity) was
not its employee but an independent dealer authorized to promote and sell its products and in return, received
commissions therefrom. Limjoco did not have any salary and his income from the petitioner company was
dependent on the volume of sales accomplished.He also had his own separate office, financed the business
expenses, and maintained his own workforce. The salaries of his secretary, utility man, and sales
representatives were chargeable to his commissions. Thus, petitioner argued that it had no control and
supervision over the complainant as to the manner and means he conducted his business operations. The
latter did not even report to the office of the petitioner and did not observe fixed office hours. Consequently,
there was no employer-employee relationship.
Limjoco maintained otherwise. He alleged that he was hired by the petitioner in July 1970, was assigned
in the sales department, and was earning an average of P4,000.00 monthly as his sales commission. He was
under the supervision of the petitioners officials who issued to him and his other personnel, memoranda,
guidelines on company policies, instructions and other orders. He was, however, dismissed by the petitioner
when the Laurel-Langley Agreement expired. As a result thereof, Limjoco asserts that in accordance with the
established company practice and the provisions of the collective bargaining agreement, he was entitled to
termination pay equivalent to one month salary, the unpaid benefits (Christmas bonus, midyear bonus,
clothing allowance, vacation leave, and sick leave), and the amounts illegally deducted from his commissions
which were then used for the payments of office supplies, office space, and overhead expenses.
On December 7, 1982, Labor Arbiter Teodorico Dogelio, in a decision ruled that Limjoco was an employee
of the petitioner company. Petitioner had control over Limjoco since the latter was required to make periodic
reports of his sales activities to the company. All transactions were subject to the final approval of the
petitioner, an evidence that petitioner company had active control on the sales activities. There was therefore,
an employer-employee relationship and necessarily, Limjoco was entitled to his claims. The decision also
ordered petitioner company to pay the following:
1. To pay complainant his separation pay in the total amount of P16,000.00;
2. To pay complainant his unpaid Christmas bonus for three years or the amount of P12,000.00;

3. To pay complainant his unpaid mid-year bonus equivalent to one-half month pay or the total amount
of P6,000.00;
4. To pay complainant his accrued vacation leave equivalent to 15 days per year of service, or the total
amount of P6,000.00;
5. To pay complainant his unpaid clothing allowance in the total amount of P600.00; and
6. To pay complainant his accrued sick leave equivalent to 15 days per year of service or the total amount
of P6,000.00.[2]
On appeal, the Third Division of the National Labor Relations Commission affirmed the assailed
decision. The Commission opined that there was no evidence supporting the allegation that Limjoco was an
independent contractor or dealer. The petitioner still exercised control over Limjoco through its memoranda
and guidelines and even prohibitions on the sale of products other than those authorized by it. In short, the
petitioner company dictated how and where to sell its products. Aside from that fact, Limjoco passed the costs
to the petitioner chargeable against his future commissions. Such practice proved that he was not an
independent dealer or contractor for it is required by law that an independent contractor should have
substantial capital or investment.
Dissatisfied with the outcome of the case, petitioner Encyclopaedia Britannica now comes to us in this
petition for certiorari and injunction with prayer for preliminary injunction. On April 3, 1989, this Court issued a
temporary restraining order enjoining the enforcement of the decision dated December 7, 1982.
The following are the arguments raised by the petitioner:
I
The respondent NLRC gravely abused its discretion in holding that appellants contention that appellee was an
independent contractor is not supported by evidence on record.
II
Respondent NLRC committed grave abuse of discretion in not passing upon the validity of the
pronouncement of the respondent Labor Arbiter granting private respondents claim for payment of Christmas
bonus, Mid-year bonus, clothing allowance and the money equivalent of accrued and unused vacation and
sick leave.
The NLRC ruled that there existed an employer-employee relationship and petitioner failed to disprove
this finding. We do not agree.
In determining the existence of an employer-employee relationship the following elements must be
present: 1) selection and engagement of the employee; 2) payment of wages; 3) power of dismissal; and 4)
the power to control the employees conduct. Of the above, control of employees conduct is commonly
regarded as the most crucial and determinative indicator of the presence or absence of an employeremployee relationship.[3] Under the control test, an employer-employee relationship exists where the person
for whom the services are performed reserves the right to control not only the end to be achieved, but also the
manner and means to be used in reaching that end. [4]
The fact that petitioner issued memoranda to private respondents and to other division sales managers
did not prove that petitioner had actual control over them. The different memoranda were merely guidelines
on company policies which the sales managers follow and impose on their respective agents. It should be
noted that in petitioners business of selling encyclopedias and books, the marketing of these products was
done through dealership agreements. The sales operations were primarily conducted by independent

authorized agents who did not receive regular compensations but only commissions based on the sales of the
products. These independent agents hired their own sales representatives, financed their own office
expenses, and maintained their own staff. Thus, there was a need for the petitioner to issue memoranda to
private respondent so that the latter would be apprised of the company policies and procedures.
Nevertheless, private respondent Limjoco and the other agents were free to conduct and promote their sales
operations. The periodic reports to the petitioner by the agents were but necessary to update the company of
the latters performance and business income.
Private respondent was not an employee of the petitioner company. While it was true that the petitioner
had fixed the prices of the products for reason of uniformity and private respondent could not alter them, the
latter, nevertheless, had free rein in the means and methods for conducting the marketing operations. He
selected his own personnel and the only reason why he had to notify the petitioner about such appointments
was for purpose of deducting the employees salaries from his commissions. This he admitted in his
testimonies, thus:
Q. Yes, in other words you were on what is known as P&L basis or profit and loss basis?
A. That is right.
Q. If for an instance, just example your sales representative in any period did not produce any sales,
you would not get any money from Britannica, would you?
A. No, sir.
Q. In fact, Britannica by doing the accounting for you as division manager was merely making it easy
for you to concentrate all your effort in selling and you dont worry about accounting, isnt that so?
A. Yes, sir.
Q. In fact whenever you hire a secretary or trainer you merely hire that person and notify Britannica
so that Encyclopaedia Britannica will give the salaries and deduct it from your earnings, isnt that
so?
A. In certain cases I just hired people previously employed by Encyclopaedia Britannica.
xxx
Q. In this Exhibit 2 you were informing Encyclopaedia Britannica that you have hired a certain person
and you were telling Britannica how her salary was going to be taken cared of, is it not?
A. Yes, sir.
Q. You said here, please be informed that we have appointed Miss Luz Villan as division trainer
effective May 1, 1971 at P550.00 per month her salary will be chargeable to the Katipunan and
Bayanihan Districts, signed by yourself. What is the Katipunan and Bayanihan District?
A. Those were districts under my division.
Q. In effect you were telling Britannica that you have hired this person and you should charge her
salary to me, is that right?
A. Yes, sir.[5]

Private respondent was merely an agent or an independent dealer of the petitioner. He was free to
conduct his work and he was free to engage in other means of livelihood. At the time he was connected with
the petitioner company, private respondent was also a director and later the president of the Farmers Rural
Bank. Had he been an employee of the company, he could not be employed elsewhere and he would be
required to devote full time for petitioner. If private respondent was indeed an employee, it was rather unusual
for him to wait for more than a year from his separation from work before he decided to file his claims.
Significantly, when Limjoco tendered his resignation to petitioner on June 14, 1974, he stated, thus:
"Re: Resignation
I am resigning as manager of the EB Capitol Division effective 16 June 1974.
This decision was brought about by conflict with other interests which lately have increasingly required my
personal attention. I feel that in fairness to the company and to the people under my supervision I should
relinquish the position to someone who can devote full-time to the Division.
I wish to thank you for all the encouragement and assistance you have extended to me and to my group
during my long association with Britannica.
Evidently, Limjoco was aware of conflict with other interests which xxx have increasingly required my
personal attention (p. 118, Records). At the very least, it would indicate that petitioner has no effective control
over the personal activities of Limjoco, who as admitted by the latter had other conflict of interest requiring his
personal attention.
In ascertaining whether the relationship is that of employer-employee or one of independent contractor,
each case must be determined by its own facts and all features of the relationship are to be considered. [6] The
records of the case at bar showed that there was no such employer-employee relationship.
As stated earlier, the element of control is absent; where a person who works for another does so more or
less at his own pleasure and is not subject to definite hours or conditions of work, and in turn is compensated
according to the result of his efforts and not the amount thereof, we should not find that the relationship of
employer and employee exists.[7] In fine, there is nothing in the records to show or would indicate that
complainant was under the control of the petitioner in respect of the means and methods [8] in the performance
of complainants work.
Consequently, private respondent is not entitled to the benefits prayed for.
In view of the foregoing premises, the petition is hereby GRANTED, and the decision of the NLRC is
hereby REVERSED AND SET ASIDE.
SO ORDERED.
THIRD DIVISION
[G.R. No. 102199. January 28, 1997]
AFP MUTUAL BENEFIT ASSOCIATION, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION
and EUTIQUIO BUSTAMANTE, respondents.
DECISION
PANGANIBAN, J.:

The determination of the proper forum is crucial because the filing of the petition or complaint in the wrong
court or tribunal is fatal, even for a patently meritorious claim. More specifically, labor arbiters and the National
Labor Relations Commission have no jurisdiction to entertain and rule on money claims where no employeremployee relations is involved. Thus, any such award rendered without jurisdiction is a nullity.
This petition for certiorari under Rule 65, Rules of Court seeks to annul the Resolution [1] of the National
Labor Relations Commission, promulgated September 27, 1991, in NLRC-NCR Case No. 00-02-01196-90,
entitled "Eutiquio Bustamante vs. AFP Mutual Benefit Association, Inc.," affirming the decision of the labor
arbiter which ordered payment of the amount ofP319,796.00 as insurance commissions to private respondent.
The Antecedent Facts
The facts are simple. Private respondent Eutiquio Bustamante had been an insurance underwriter of
petitioner AFP Mutual Benefit Association, Inc. since 1975. The Sales Agent's Agreement between them
provided:[2]
"B. Duties and Obligations:
1. During the lifetime of this Agreement, the SALES AGENT (private respondent) shall solicit exclusively for
AFPMBAI (petitioner), and shall be bound by the latter's policies, memo circulars, rules and regulations which
it may from time to time, revise, modify or cancel to serve its business interests.
2. The SALES AGENT shall confine his business activities for AFPMBAI while inside any military camp,
installation or residence of military personnel. He is free to solicit in the area for which he/she is licensed and
as authorized, provided however, that AFPMBAI may from time to time, assign him a specific area of
responsibility and a production quota on a case to case basis.
xxxxxxxxx
C. Commission
1. The SALES AGENT shall be entitled to the commission due for all premiums actually due and received by
AFPMBAI out of life insurance policies solicited and obtained by the SALES AGENT at the rates set forth in
the applicant's commission schedules hereto attached.
xxxxxxxxx
D. General Provisions
1. There shall be no employer-employee relationship between the parties, the SALES AGENT being hereby
deemed an independent contractor."
As compensation, he received commissions based on the following percentages of the premiums paid: [3]
"30% of premium paid within the first year;
10% of premium paid with the second year;
5% of the premium paid during the third year;
3% of the premium paid during the fourth year; and
1% of the premium paid during the fifth year up-to the tenth year.

On July 5, 1989, petitioner dismissed private respondent for misrepresentation and for simultaneously
selling insurance for another life insurance company in violation of said agreement.
At the time of his dismissal, private respondent was entitled to accrued commissions equivalent to twenty
four (24) months per the Sales Agent Agreement and as stated in the account summary dated July 5, 1989,
approved by Retired Brig. Gen. Rosalino Alquiza, president of petitioner-company. Said summary showed that
private respondent had a total commission receivable of P438,835.00, of which only P78,039.89 had been
paid to him.
Private respondent wrote petitioner seeking the release of his commissions for said 24 months. Petitioner,
through Marketing Manager Juan Concepcion, replied that he was entitled to only P75,000.00
to P100,000.00. Hence, believing Concepcion's computations, private respondent signed a quitclaim in favor
of petitioner.
Sometime in October 1989, private respondent was informed that his check was ready for release. In
collecting his check, he discovered from a document (account summary) attached to said check that his total
commissions for the 24 months actually amounted to P354,796.09. Said document stated:[4]
"6. The total receivable for Mr. Bustamante out of the renewals and old business generated since 1983
grosses P438,835.00 less his outstanding obligation in the amount of P78,039.89 as of June 30, 1989, total
expected commission would amount to P354,796.09. From that figure at a 15% compromise settlement this
would mean P53,219.41 due him to settle his claim."
Private respondent, however, was paid only the amount of P35,000.00.
On November 23, 1989, private respondent filed a complaint with the Office of the Insurance
Commissioner praying for the payment of the correct amount of his commission. Atty. German C. Alejandria,
Chief of the Public Assistance and Information Division, Office of the Insurance Commissioner, advised
private respondent that it was the Department of Labor and Employment that had jurisdiction over his
complaint.
On February 26, 1990, private respondent filed his complaint with the Department of Labor claiming: (1)
commission for 2 years from termination of employment equivalent to 30% of premiums remitted during
employment; (2) P354,796.00 as commission earned from renewals and old business generated since 1983;
(3) P100,000.00 as moral damages; and (4)P100,000.00 as exemplary damages.
After submission of position papers, Labor Arbiter Jose G. de Vera rendered his decision, dated August
24, 1990, the dispositive portion of which reads: [5]
"WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered declaring the
dismissal of the complainant as just and valid, and consequently, his claim for separation pay is denied. On
his money claim, the respondent company is hereby ordered to pay complainant the sum of P319,796.00 plus
attorney's fees in the amount of P31,976.60.
All other claims of the complainant are dismissed for want of merit."
The labor arbiter relied on the Sales Agent's Agreement proviso that petitioner could assign private
respondent a specific area of responsibility and a production quota, and read it as signaling the existence of
employer-employee relationship between petitioner and private respondent.
On appeal, the Second Division[6] of the respondent Commission affirmed the decision of the Labor
Arbiter. In the assailed Resolution, respondent Commission found no reason to disturb said ruling of the labor
arbiter and ruled:[7]

"WHEREFORE, in view of the foregoing considerations, the subject appeal should be as it is hereby, denied
and the decision appealed from affirmed.
SO ORDERED."
Hence, this petition.
The Issue
Petitioner contends that respondent Commission committed grave abuse of discretion in ruling that the
labor arbiter had jurisdiction over this case. At the heart of the controversy is the issue of whether there
existed an employer-employee relationship between petitioner and private respondent.
Petitioner argues that, despite provisions B(1) and (2) of the Sales Agent's Agreement, there is no
employer-employee relationship between private respondent and itself. Hence, respondent commission
gravely abused its discretion when it held that the labor arbiter had jurisdiction over the case.
The Court's Ruling
The petition is meritorious.
First Issue: Not All That Glitters Is Control
Well-settled is the doctrine that the existence of an employer-employee relationship is ultimately a
question of fact and that the findings thereon by the labor arbiter and the National Labor Relations
Commission shall be accorded not only respect but even finality when supported by substantial evidence.
[8]
The determinative factor in such finality is the presence of substantial evidence to support said finding,
otherwise, such factual findings cannot bind this Court.
Respondent Commission concurred with the labor arbiter's findings that: [9]
"x x x The complainant's job as sales insurance agent is usually necessary and desirable in the usual
business of the respondent company. Under the Sales Agents Agreement, the complainant was required to
solicit exclusively for the respondent company, 'and he was bound by the company policies, memo circulars,
rules and regulations which were issued from time to time. By such requirement to follow strictly management
policies, orders, circulars, rules and regulations, it only shows that the respondent had control or reserved the
right to control the complainant's work as solicitor. Complainant was not an independent contractor as he did
not carry on an independent business other than that of the company's x x x."
To this, respondent Commission added that the Sales Agent's Agreement specifically provided that
petitioner may assign private respondent a specific area of responsibility and a production quota. From there,
it concluded that apparently there is that exercise of control by the employer which is the most important
element in determining employer-employee relationship. [10]
We hold, however, that respondent Commission misappreciated the facts of the case. Time and again,
the Court has applied the "four-fold" test in determining the existence of employer-employee relationship. This
test considers the following elements: (1) the power to hire; (2) the payment of wages; (3) the power to
dismiss; and (4) the power to control, the last being the most important element. [11]
The difficulty lies in correctly assessing if certain factors or elements properly indicate the presence of
control. Anent the issue of exclusivity in the case at bar, the fact that private respondent was required to solicit
business exclusively for petitioner could hardly be considered as control in labor jurisprudence. Under Memo
Circulars No. 2-81[12] and 2-85, dated December 17, 1981 and August 7, 1985, respectively, issued by the
Insurance Commissioner, insurance agents are barred from serving more than one insurance company, in

order to protect the public and to enable insurance companies to exercise exclusive supervision over their
agents in their solicitation work. Thus, the exclusivity restriction clearly springs from a regulation issued by the
Insurance Commission, and not from an intention by petitioner to establish control over the method and
manner by which private respondent shall accomplish his work. This feature is not meant to change the
nature of the relationship between the parties, nor does it necessarily imbue such relationship with the quality
of control envisioned by the law.
So too, the fact that private respondent was bound by company policies, memo/circulars, rules and
regulations issued from time to time is also not indicative of control. In its Reply to Complainant's Position
Paper,[13] petitioner alleges that the policies, memo/circulars, and rules and regulations referred to in provision
B(1) of the Sales Agent's Agreement are only those pertaining to payment of agents' accountabilities,
availment by sales agents of cash advances for sorties, circulars on incentives and awards to be given based
on production, and other matters concerning the selling of insurance, in accordance with the rules
promulgated by the Insurance Commission. According to the petitioner, insurance solicitors are never affected
or covered by the rules and regulations concerning employee conduct and penalties for violations thereof,
work standards, performance appraisals, merit increases, promotions, absenteeism/attendance, leaves of
absence, management-union matters, employee benefits and the like. Since private respondent failed to rebut
these allegations, the same are deemed admitted, or at least proven, thereby leaving nothing to support the
respondent Commission's conclusion that the foregoing elements signified an employment relationship
between the parties.
In regard to the territorial assignments given to sales agents, this too cannot be held as indicative of the
exercise of control over an employee. First of all, the place of work in the business of soliciting insurance does
not figure prominently in the equation. And more significantly, private respondent failed to rebut petitioner's
allegation that it had never issued him any territorial assignment at all. Obviously, this Court cannot draw the
same inference from this feature as did the respondent Commission.
To restate, the significant factor in determining the relationship of the parties is the presence or absence
of supervisory authority to control the method and the details of performance of the service being rendered,
and the degree to which the principal may intervene to exercise such control. The presence of such power of
control is indicative of an employment relationship, while absence thereof is indicative of independent
contractorship. In other words, the test to determine the existence of independent contractorship is whether
one claiming to be an independent contractor has contracted to do the work according to his own methods
and without being subject to the control of the employer except only as to the result of the work. [14] Such is
exactly the nature of the relationship between petitioner and private respondent.
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. The distinction acquires particular relevance in the
case of an enterprise affected with public interest, as is the business of insurance, and is on that account
subject to regulation by the State with respect, not only to the relations between insurer and insured but also
to the internal affairs of the insurance company. Rules and regulations governing the conduct of the business
are provided for in the Insurance Code and enforced by the Insurance Commissioner. It is, therefore, usual
and expected for an insurance company to promulgate a set of rules to guide its commission agents in selling
its policies that they may not run afoul of the law and what it requires or prohibits. xxxx None of these really
invades the agent's 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."[15]
Private respondent's contention that he was petitioner's employee is belied by the fact that he was free to
sell insurance at any time as he was not subject to definite hours or conditions of work and in turn was
compensated according to the result of his efforts. By the nature of the business of soliciting insurance,
agents are normally left free to devise ways and means of persuading people to take out insurance. There is
no prohibition, as contended by petitioner, for private respondent to work for as long as he does not violate the
Insurance Code. As petitioner explains:
"(Private respondent) was free to solicit life insurance anywhere he wanted and he had free and unfettered
time to pursue his business. He did not have to punch in and punch out the bundy clock as he was not
required to report to the (petitioner's) office regularly. He was not covered by any employee policies or
regulations and not subject to the disciplinary action of management on the basis of the Employee Code of
Conduct. He could go out and sell insurance at his own chosen time. He was entirely left to his own choices of
areas or territories, with no definite, much less supervised, time schedule.
(Private respondent) had complete control over his occupation and (petitioner) did not exercise any right of
Control and Supervision over his performance except as to the payment of commission the amount of which
entirely depends on the sole efforts of (private respondent). He was free to engage in other occupation or
practice other profession for as long as he did not commit any violation of the ethical standards prescribed in
the Sales Agent's Agreement."[16]
Although petitioner could have, theoretically, disapproved any of private respondent's transactions, what
could be disapproved was only the result of the work, and not the means by which it was accomplished.
The "control" which the above factors indicate did not sum up to the power to control private respondent's
conduct in and mode of soliciting insurance. On the contrary, they clearly indicate that the juridical element of
control had been absent in this situation. Thus, the Court is constrained to rule that no employment
relationship had ever existed between the parties.
Second Issue: Jurisdiction of Respondent Commission & Labor Arbiter
Under the contract invoked, private respondent had never been petitioner's employee, but only its
commission agent. As an independent contractor, his claim for unpaid commission should have been litigated
in an ordinary civil action.[17]
The jurisdiction of labor arbiters and respondent Commission is set forth in Article 217 of the Labor Code.
The unifying element running through paragraphs (1) - (6) of said provision is the consistent reference to
cases or disputes arising out of or in connection with an employer-employee relationship. Prior to its
amendment by Batas Pambansa Blg. 227 on June 1, 1982, this point was clear as the article included "all
other cases arising from employer-employee relation unless expressly excluded by this Code." [19] Without this
critical element of employment relationship, the labor arbiter and respondent Commission can never acquire
jurisdiction over a dispute. As in the case at bar. It was serious error on the part of the labor arbiter to have
assumed jurisdiction and adjudicated the claim. Likewise, the respondent Commission's affirmance thereof.
[18]

Such lack of jurisdiction of a court or tribunal may be raised at any stage of the proceedings, even on
appeal. The doctrine of estoppel cannot be properly invoked by respondent Commission to cure this fatal
defect as it cannot confer jurisdiction upon a tribunal that to begin with, was bereft of jurisdiction over a cause
of action.[20] Moreover, in the proceedings below, petitioner consistently challenged the jurisdiction of the labor
arbiter [21] and respondent Commission.[22]

It remains a basic fact in law that the choice of the proper forum is crucial as the decision of a court or
tribunal without jurisdiction is a total nullity.[23] A void judgment for want of jurisdiction is no judgment at all. It
cannot be the source of any right nor the creator of any obligation. All acts performed pursuant to it and all
claims emanating from it have no legal effect. Hence, it can never become final. "x x x (I)t may be said to be a
lawless thing which can be treated as an outlaw and slain at sight, or ignored wherever and whenever it
exhibits its head."[24]
The way things stand, it becomes unnecessary to consider the merits of private respondent's claim for
unpaid commission. Be that as it may, this ruling is without prejudice to private respondent's right to file a suit
for collection of unpaid commissions against petitioner with the proper forum and within the proper period.
WHEREFORE, the petition is hereby GRANTED, and the assailed Resolution is hereby SET ASIDE.
SO ORDERED.
No. 114733. January 2, 1997]
AURORA LAND PROJECTS CORP. Doing business under the name "AURORA PLAZA" and TERESITA T.
QUAZON, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and HONORIO
DAGUI, respondents.
DECISION
HERMOSISIMA, JR., J.:
The question as to whether an employer-employee relationship exists in a certain situation continues to
bedevil the courts. Some businessmen try to avoid the bringing about of an employer-employee relationship in
their enterprises because that judicial relation spawns obligations connected with workmen's compensation,
social security, medicare, minimum wage, termination pay, and unionism. [1] In light of this observation, it
behooves this Court to be ever vigilant in checking the unscrupulous efforts of some of our entrepreneurs,
primarily aimed at maximizing their return on investments at the expense of the lowly workingman.
This petition for certiorari seeks the reversal of the Resolution [2] of public respondent National Labor
Relations Commission dated March 16, 1994 affirming with modification the decision of the Labor Arbiter,
dated May 25, 1992, finding petitioners liable to pay private respondent the total amount of P195,624.00 as
separation pay and attorney's fees.
The relevant antecedents:
Private respondent Honorio Dagui was hired by Doa Aurora Suntay Tanjangco in 1953 to take charge of the
maintenance and repair of the Tanjangco apartments and residential buildings. He was to perform carpentry,
plumbing, electrical and masonry work. Upon the death of Doa Aurora Tanjangco in 1982, her daughter,
petitioner Teresita Tanjangco Quazon, took over the administration of all the Tanjangco properties. On June 8,
1991, private respondent Dagui received the shock of his life when Mrs. Quazon suddenly told him: "Wala ka
nang trabaho mula ngayon,"[3] on the alleged ground that his work was unsatisfactory. On August 29, 1991,
private respondent, who was then already sixty-two (62) years old, filed a complaint for illegal dismissal with
the Labor Arbiter.
On May 25, 1992, Labor Arbiter Ricardo C. Nora rendered judgment, the decretal portion of which reads:
"IN VIEW OF ALL THE FOREGOING, respondents Aurora Plaza and/or Teresita Tanjangco Quazon are
hereby ordered to pay the complainant the total amount of ONE HUNDRED NINETY FIVE THOUSAND SIX
HUNDRED TWENTY FOUR PESOS (P195,624.00) representing complainant's separation pay and the ten
(10%) percent attorney's fees within ten (10) days from receipt of this Decision.

All other issues are dismissed for lack of merit." [4]

Aggrieved, petitioners Aurora Land Projects Corporation and Teresita T. Quazon appealed to the National
Labor Relations Commission. The Commission affirmed, with modification, the Labor Arbiter's decision in a
Resolution promulgated on March 16, 1994, in the following manner:
"WHEREFORE, in view of the above considerations, let the appealed decision be as it is hereby AFFIRMED
with (the) MODIFICATION that complainant must be paid separation pay in the amount of P88,920.00 instead
of P177,840.00. The award of attorney's fees is hereby deleted." [5]
As a last recourse, petitioners filed the instant petition based on grounds not otherwise succinctly and
distinctly ascribed, viz:
I
"RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN AFFIRMING THE LABOR ARBITER'S DECISION SOLELY ON THE BASIS
OF ITS STATEMENT THAT WE FAIL TO FIND ANY REASON OR JUSTIFICATION TO DISAGREE WITH
THE LABOR ARBITER IN HIS FINDING THAT HONORIO DAGUI WAS DISMISSED BY THE
RESPONDENT' (p. 7, RESOLUTION), DESPITE AND WITHOUT EVEN BOTHERING TO CONSIDER THE
GROUNDS STATED IN PETITIONERS' APPEAL MEMORANDUM WHICH ARE PLAINLY MERITORIOUS.
II
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN FINDING THAT COMPLAINANT WAS EMPLOYED BY THE
RESPONDENTS MORE SO 'FROM 1953 TO 1991' (p. 3, RESOLUTION).
III
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN AWARDING SEPARATION PAY IN FAVOR OF PRIVATE RESPONDENT
MORE SO FOR THE EQUIVALENT OF 38 YEARS OF ALLEGED SERVICE.
IV
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN HOLDING BOTH PETITIONERS LIABLE FOR SEPARATION PAY." [6]
It is our impression that the crux of this petition rests on two elemental issues: (1) Whether or not private
respondent Honorio Dagui was an employee of petitioners; and (2) If he were, whether or not he was illegally
dismissed.
Petitioners insist that private respondent had never been their employee. Since the establishment of
Aurora Plaza, Dagui served therein only as a job contractor. Dagui had control and supervision of whoever he
would take to perform a contracted job. On occasion, Dagui was hired only as a "tubero" or plumber as the
need arises in order to unclog sewerage pipes. Every time his services were needed, he was paid
accordingly. It was understood that his job was limited to the specific undertaking of unclogging the pipes. In
effect, petitioners would like us to believe that private respondent Dagui was an independent contractor,
particularly a job contractor, and not an employee of Aurora Plaza.
We are not persuaded.

Section 8, Rule VIII, Book III of the Implementing Rules and Regulations of the Labor Code provides in
part:
"There is job contracting permissible under the Code if the following conditions are met:
xxx xxx xxx
(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business."
Honorio Dagui earns a measly sum of P180.00 a day (latest salary). [7] Ostensibly, and by no stretch of the
imagination can Dagui qualify as a job contractor. No proof was adduced by the petitioners to show that Dagui
was merely a job contractor, and it is absurd to expect that private respondent, with such humble resources,
would have substantial capital or investment in the form of tools, equipment, and machineries, with which to
conduct the business of supplying Aurora Plaza with manpower and services for the exclusive purpose of
maintaining the apartment houses owned by the petitioners herein.
The bare allegation of petitioners, without more, that private respondent Dagui is a job contractor has
been disbelieved by the Labor Arbiter and the public respondent NLRC. Dagui, by the findings of both
tribunals, was an employee of the petitioners. We are not inclined to set aside these findings. The issue
whether or not an employer-employee relationship exists in a given case is essentially a question of fact. [8] As
a rule, repetitious though it has become to state, this Court does not review supposed errors in the decision of
the NLRC which raise factual issues, because factual findings of agencies exercising quasi-judicial functions
[like public respondent NLRC] are accorded not only respect but even finality, aside from the consideration
that this Court is essentially not a trier of facts.[9]
However, we deem it wise to discuss this issue full-length if only to bolster the conclusions reached by the
labor tribunals, to which we fully concur.
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 employer's power to control the employee's
conduct.[10] It is the so-called "control test," and 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, [11] which constitute the most important index of the existence of the
employer-employee relationship. 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. [12]
All these elements are present in the case at bar. Private respondent was hired in 1953 by Doa Aurora
Suntay Tanjangco (mother of Teresita Tanjangco-Quazon), who was then the one in charge of the
administration of the Tanjangco's various apartments and other properties. He was employed as a stay-in
worker performing carpentry, plumbing, electrical and necessary work (sic) needed in the repairs of
Tanjangco's properties.[13] Upon the demise of Doa Aurora in 1982 petitioner Teresita Tanjangco-Quazon took
over the administration of these properties and continued to employ the private respondent, until his
unceremonious dismissal o0n June 8, 1991. [14]
Dagui was not compensated in terms of profits for his labor or services like an independent contractor.
Rather, he was paid on a daily wage basis at the rate of P180.00. [15] Employees are those who are
compensated for their labor or services by wages rather than by profits. [16] Clearly, Dagui fits under this
classification.

Doa Aurora and later her daughter petitioner Teresita Quazon evidently had the power of dismissal for
cause over the private respondent.[17]
Finally, the records unmistakably show that the most important requisite of control is likewise extant in this
case. It should be borne in mind that the power of control refers merely to the existence of the power and not
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 former has a right to wield the power. [18] The establishment of
petitioners is engaged in the leasing of residential and apartment buildings. Naturally, private respondent's
work therein as a maintenance man had to be performed within the premises of herein petitioners. In fact,
petitioners do not dispute the fact that Dagui reports for work from 7:00 o'clock in the morning until 4:00
o'clock in the afternoon. It is not far-fetched to expect, therefore, that Dagui had to observe the instructions
and specifications given by then Doa Aurora and later by Mrs. Teresita Quazon as to how his work had to be
performed. Parenthetically, since the job of a maintenance crew is necessarily done within company
premises, it can be inferred that both Doa Aurora and Mrs. Quazon could easily exercise control on private
respondent whenever they please.
The employment relationship established, the next question would have to be: What kind of an employee
is the private respondent regular, casual or probationary?
We find private respondent to be a regular employee, for Article 280 of the Labor Code provides:
"Regular and Casual employment. The provisions of written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the
employee has been engaged to perform activities which are usually necessary or desirable in the usual
business or trade of the employer, except where the employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time of the engagement of the
employee or where the work or services to be performed is seasonal in nature and the employment is for the
duration of the season..
An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That,
any employee who has rendered at least one year of service, whether such service is continuous or broken,
shall be considered a regular employee with respect to the activity in which he is employed and his
employment shall continue while such actually exists."
As can be gleaned from this provision, there are two kinds of regular employees, namely: (1) those who
are engaged to perform activities which are usually necessary or desirable in the usual business or trade of
the employer; and (2) those who have rendered at least one year of service, whether continuous or broken,
with respect to the activity in which they are employed. [19]
Whichever standard is applied, private respondent qualifies as a regular employee. As aptly ruled by the
Labor Arbiter:
"xxx As owner of many residential and apartment buildings in Metro Manila, the necessity of maintaining and
employing a permanent stay-in worker to perform carpentry, plumbing, electrical and necessary work needed
in the repairs of Tanjangco's properties is readily apparent and is in fact needed. So much so that upon the
demise of Doa Aurora Tanjangco, respondent's daughter Teresita Tanjangco-Quazon apparently took over the
administration of the properties and continued to employ complainant until his outright dismissal on June 8,
1991 xxx xxx.[20]
The jobs assigned to private respondent as maintenance man, carpenter, plumber, electrician and mason
were directly related to the business of petitioners as lessors of residential and apartment buildings. Moreover,
such a continuing need for his services by herein petitioners is sufficient evidence of the necessity and
indispensability of his services to petitioners' business or trade.

Private respondent Dagui should likewise be considered a regular employee by the mere fact that he
rendered service for the Tanjangcos for more than one year, that is, beginning 1953 until 1982, under Doa
Aurora; and then from 1982 up to June 8, 1991 under the petitioners, for a total of twenty-nine (29) and nine
(9) years respectively. Owing to private respondent's length of service, he became a regular employee, by
operation of law, one year after he was employed in 1953 and subsequently in 1982. In Baguio Country Club
Corp. v. NLRC,[21] we decided that it is more in consonance with the intent and spirit of the law to rule that the
status of regular employment attaches to the casual employee on the day immediately after the end of his first
year of service. To rule otherwise is to impose a burden on the employee which is not sanctioned by law.
Thus, the law does not provide the qualification that the employee must first be issued a regular appointment
or must first be formally declared as such before he can acquire a regular status.
Petitioners argue, however, that even assuming arguendo that private respondent can be considered an
employee, he cannot be classified as a regular employee. He was merely a project employee whose services
were hired only with respect to a specific job and only while the same exists, [22] thus falling under the
exception of Article 280, paragraph 1 of the Labor Code. Hence, it is claimed that he is not entitled to the
benefits prayed for and subsequently awarded by the Labor Arbiter as modified by public respondent NLRC.
The circumstances of this case in light of settled case law do not, at all, support this averment. Consonant
with a string of cases beginning with Ochoco v. NLRC,[23] followed by Philippine National Construction
Corporation v. NLRC,[24] Magante v. NLRC,[25] and Capitol Industrial Construction Corporation v. NLRC,[26] if
truly, private respondent was employed as a "project employee, " petitioners should have submitted a report
of termination to the nearest public employment office everytime his employment is terminated due to
completion of each project, as required by Policy Instruction No. 20, which provides:
"Project employees are not entitled to termination pay if they are terminated as a result of the completion of
the project or any phase thereof in which they are employed, regardless of the number of project in which they
have been employed by a particular construction company. Moreover, the company is not required to obtain a
clearance from the Secretary of Labor in connection with such termination. What is required of the company is
a report to the nearest Public Employment Office for statistical purposes."
Throughout the duration of private respondent's employment as maintenance man, there should have
been filed as many reports of termination as there were projects actually finished, if it were true that private
respondent was only a project worker. Failure of the petitioners to comply with this simple, but nonetheless
compulsory, requirement is proof that Dagui is not a project employee. [27]
Coming now to the second issue as to whether or not private respondent Dagui was illegally dismissed,
we rule in the affirmative.
Jurisprudence abound as to the rule that the twin requirements of due process, substantive and
procedural, must be complied with, before a valid dismissal exists. [28] Without which the dismissal becomes
void.[29]
The twin requirements of notice and hearing constitute the essential elements of due process. This simply
means that the employer shall afford the worker ample opportunity to be heard and to defend himself with the
assistance of his representative, if he so desires.[30] As held in the case of Pepsi Cola Bottling Co. v. NLRC:[31]
"The law requires that the employer must furnish the worker sought to be dismissed with two written notices
before termination of employee can be legally effected: (1) notice which apprises the employee of the
particular acts or omissions for which his dismissal is sought; and (2) the subsequent notice which informs the
employee of the employer's decision to dismiss him (Section 13, BP 130; Sections 2-6, Rule XIV, Book V
Rules and Regulations Implementing the Labor Code as amended). Failure to comply with the requirements
taints the dismissal with illegality. This procedure is mandatory; in the absence of which, any judgment

reached by management is void and inexistent. (Tingson, Jr. v. NLRC, 185 SCRA 498 [1990]; National
Service Corporation v. NLRC, 168 SCRA 122 [1988]; Ruffy v. NLRC, 182 SCRA 365 [1990]."
These mandatory requirements were undeniably absent in the case at bar. Petitioner Quazon dismissed
private respondent on June 8, 1991, without giving him any written notice informing the worker herein of the
cause for his termination. Neither was there any hearing conducted in order to give Dagui the opportunity to
be heard and defend himself. He was simply told: "Wala ka nang trabaho mula ngayon," allegedly because of
poor workmanship on a previous job.[32] The undignified manner by which private respondent's services were
terminated smacks of absolute denial of the employee's right to due process and betrays petitioner Quazon's
utter lack of respect for labor. Such an attitude indeed deserves condemnation.
The Court, however, is bewildered why only an award for separation pay in lieu of reinstatement was
made by both the Labor Arbiter and the NLRC. No backwages were awarded. It must be remembered that
backwages and reinstatement are two reliefs that should be given to an illegally dismissed employee. They
are separate and distinct from each other. In the event that reinstatement is no longer possible, as in this
case,[33] separation pay is awarded to the employee. The award of separation pay is in lieu of reinstatement
and not of backwages. In other words, an illegally dismissed employee is entitled to (1) either reinstatement, if
viable, or separation pay if reinstatement is no longer viable, and (2) backwages. [34] Payment of backwages is
specifically designed to restore an employee's income that was lost because of his unjust dismissal. [35] On the
other hand, payment of separation pay is intended to provide the employee money during the period in which
he will be looking for another employment. [36]
Considering, however, that the termination of private respondent Dagui was made on June 8, 1991 or
after the effectivity of the amendatory provision of Republic Act No. 6715 on March 21, 1989, private
respondent's backwages should be computed on the basis of said law.
It is true that private respondent did not appeal the award of the Labor Arbiter awarding separation pay
sans backwages. While as a general rule a party who has not appealed is not entitled to affirmative relief
other than the ones granted in the decision of the court below,[37] law and jurisprudence authorize a tribunal to
consider errors, although unassigned, if they involve (1) errors affecting the lower court's jurisdiction over the
subject matter, (2) plain errors not specified, and (3) clerical errors. [38] In this case, the failure of the Labor
Arbiter and the public respondent NLRC to award backwages to the private respondent, who is legally entitled
thereto having been illegally dismissed, amounts to a "plain error" which we may rectify in this petition,
although private respondent Dagui did not bring any appeal regarding the matter, in the interest of substantial
justice. The Supreme Court is clothed with ample authority to review matters, even if they are not assigned as
errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of the case.
[39]
Rules of procedure are mere tools designed to facilitate the attainment of justice. Their strict and rigid
application, which would result in technicalities that tend to frustrate rather than promote substantial justice,
must always be avoided.[40] Thus, substantive rights like the award of backwages resulting from illegal
dismissal must not be prejudiced by a rigid and technical application of the rules. [41]
Petitioner Quazon argues that, granting the petitioner corporation should be held liable for the claims of
private respondent, she cannot be made jointly and severally liable with the corporation, notwithstanding the
fact that she is the highest ranking officer of the company, since Aurora Plaza has a separate juridical
personality.
We disagree.
In the cases of Maglutac v. National Labor Relations Commission, [42] Chua v. National Labor Relations
Commission,[43] and A.C Ransom Labor Union-CCLU v. National Labor Relations Commission[44] we were
consistent in holding that the highest and most ranking officer of the corporation, which in this case is
petitioner Teresita Quazon as manager of Aurora Land Projects Corporation, can be held jointly and severally
liable with the corporation for the payment of the unpaid money claims of its employees who were illegally

dismissed. In this case, not only was Teresita Quazon the most ranking officer of Aurora Plaza at the time of
the termination of the private respondent, but worse, she had a direct hand in the private respondent's illegal
dismissal. A corporate officer is not personally liable for the money claims of discharged corporate employees
unless he acted with evident malice and bad faith in terminating their employment. [45] Here, the failure of
petitioner Quazon to observe the mandatory requirements of due process in terminating the services of Dagui
evinced malice and bad faith on her part, thus making her liable.
Finally, we must address one last point. Petitioners aver that, assuming that private respondent can be
considered an employee of Aurora Plaza, petitioners cannot be held liable for separation pay for the duration
of his employment with Doa Aurora Tanjangco from 1953 up to 1982. If petitioners should be held liable as
employers, their liability for separation pay should only be counted from the time Dagui was rehired by the
petitioners in 1982 as a maintenance man.
We agree.
Petitioners' liability for separation pay ought to be reckoned from 1982 when petitioner Teresita Quazon,
as manager of Aurora Plaza, continued to employ private respondent. From 1953 up to the death of Doa
Aurora sometime in 1982, private respondent's claim for separation pay should have been filed in the testate
or intestate proceedings of Doa Aurora. This is because the demand for separation pay covered by the years
1953-1982 is actually a money claim against the estate of Doa Aurora, which claim did not survive the death
of the old woman. Thus, it must be filed against her estate in accordance with Section 5, Rule 86 of the
Revised Rules of Court, to wit:
"Section 5. Claims which must be filed under the notice. If not ,filed barred; exceptions. All claims for money
against the decedent, arising from contract, express or implied, whether the same be due, not due, or
contingent, all claims for funeral expenses for the last sickness of the decedent, and judgment for money
against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever,
except that they may be set forth as counterclaims in any action that the executor or administrator may bring
against the claimants.xxx xxx."
WHEREFORE, the instant petition is partly GRANTED and the Resolution of the public respondent
National Labor Relations Commission dated March 16, 1994 is hereby MODIFIED in that the award of
separation pay against the petitioners shall be reckoned from the date private respondent was re-employed
by the petitioners in 1982, until June 8, 1991. In addition to separation pay, full backwages are likewise
awarded to private respondent, inclusive of allowances, and other benefits or their monetary equivalent
pursuant to Article 279[46] of the Labor Code, as amended by Section 34 of Republic Act No. 6715, computed
from the time he was dismissed on June 8, 1991 up to the finality of this decision, without deducting therefrom
the earnings derived by private respondent elsewhere during the period of his illegal dismissal, pursuant to
our ruling in Osmalik Bustamante, et. al. v. National Labor Relations Commission. [47]
No costs.
SO ORDERED.
Padilla, Bellosillo, Vitug, and Kapunan, JJ., concur.
I.

Title of the Case

Stipulation Against Marriage
Claudine de Castro Zialcita vs. Philippine Airlines (PAL)
II. View Point
Claudine de Castro Zialcita complained against Philippine Airlines (PAL) for dismissing her from her
job by reason of her contracting marriage. Upon dismissing her the respondent of Philippine Airlines

(PAL) invoked their policy which states that flight attendant applicants must be single and will be
automatically separated from employment in the event that they subsequently get married. The
complainant argued that the policy is a discrimination against married women, she mentioned about
her co-workers that are married too and are not dismissed from their job by reason that they lied
about their relationship status because of fear of losing their job. She also mentioned that the policy
of PAL is illegal and unreasonable because of discrimination against women by having a marriage
ban for women but not men. III. Time Context
Philippine Airlines (PAL) began life with a noble mission: to serve as a partner in nation-building.
With this in mind, PAL took to the skies on 15 March 1941, using a Beech Model 18 aircraft amid
the specter of a global war. It became Asia's first airline. Philippine Airlines (PAL) has been the
dominant air carrier in the Philippines since its creation in 1941. Operating both internationally and
within the 7,100 islands that make up the country, PAL has been something of a curiosity and
scandal among the world's major airlines. Case No. RO4-3-3398-76 dated February 20, 1977
stated that complainant Claudine de Castro Zialcita, an international flight stewardess of PAL, was
discharged last September 1975 from the service on account of her marriage. In separating Zialcita,
PAL invoked its policy which stated that flight attendants must be single, and shall be automatically
separated from employment in the event they subsequently get married. They claimed that this
policy was in accordance with Article 132 of the Labor Code. On the other hand, Zialcita questioned
her termination on account of her marriage, invoking Article 136 of the same law. IV.
SECOND DIVISION
[G.R. No. 118978. May 23, 1997]
PHILIPPINE TELEGRAPH AND TELEPHONE COMPANY,* petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION and GRACE DE GUZMAN,respondents.
DECISION
REGALADO, J.:
Seeking relief through the extraordinary writ of certiorari, petitioner Philippine Telegraph and Telephone
Company (hereafter, PT&T) invokes the alleged concealment of civil status and defalcation of company
funds as grounds to terminate the services of an employee. That employee, herein private respondent
Grace de Guzman, contrarily argues that what really motivated PT&T to terminate her services was her
having contracted marriage during her employment, which is prohibited by petitioner in its company
policies. She thus claims that she was discriminated against in gross violation of law, such a proscription
by an employer being outlawed by Article 136 of the Labor Code.
Grace de Guzman was initially hired by petitioner as a reliever, specifically as a Supernumerary Project
Worker, for a fixed period from November 21, 1990 until April 20, 1991 vice one C.F. Tenorio who went on
maternity leave.[1] Under the Reliever Agreement which she signed with petitioner company, her
employment was to be immediately terminated upon expiration of the agreed period. Thereafter, from June
10, 1991 to July 1, 1991, and from July 19, 1991 to August 8, 1991, private respondents services as
reliever were again engaged by petitioner, this time in replacement of one Erlinda F. Dizon who went on
leave during both periods.[2] After August 8, 1991, and pursuant to their Reliever Agreement, her services
were terminated.
On September 2, 1991, private respondent was once more asked to join petitioner company as a
probationary employee, the probationary period to cover 150 days. In the job application form that was
furnished her to be filled up for the purpose, she indicated in the portion for civil status therein that she was
single although she had contracted marriage a few months earlier, that is, on May 26, 1991. [3]

It now appears that private respondent had made the same representation in the two successive reliever
agreements which she signed on June 10, 1991 and July 8, 1991. When petitioner supposedly learned
about the same later, its branch supervisor in Baguio City, Delia M. Oficial, sent to private respondent a
memorandum dated January 15, 1992 requiring her to explain the discrepancy. In that memorandum, she
was reminded about the companys policy of not accepting married women for employment. [4]
In her reply letter dated January 17, 1992, private respondent stated that she was not aware of PT&Ts
policy regarding married women at the time, and that all along she had not deliberately hidden her true
civil status.[5] Petitioner nonetheless remained unconvinced by her explanations. Private respondent was
dismissed from the company effective January 29, 1992, [6] which she readily contested by initiating a
complaint for illegal dismissal, coupled with a claim for non-payment of cost of living allowances (COLA),
before the Regional Arbitration Branch of the National Labor Relations Commission in Baguio City.
At the preliminary conference conducted in connection therewith, private respondent volunteered the
information, and this was incorporated in the stipulation of facts between the parties, that she had failed to
remit the amount of P2,380.75 of her collections. She then executed a promissory note for that amount in
favor of petitioner.[7] All of these took place in a formal proceeding and with the agreement of the parties
and/or their counsel.
On November 23, 1993, Labor Arbiter Irenarco R. Rimando handed down a decision declaring that private
respondent, who had already gained the status of a regular employee, was illegally dismissed by
petitioner. Her reinstatement, plus payment of the corresponding back wages and COLA, was
correspondingly ordered, the labor arbiter being of the firmly expressed view that the ground relied upon
by petitioner in dismissing private respondent was clearly insufficient, and that it was apparent that she
had been discriminated against on account of her having contracted marriage in violation of company
rules.
On appeal to the National Labor Relations Commission (NLRC), said public respondent upheld the labor
arbiter and, in its decision dated April 29, 1994, it ruled that private respondent had indeed been the
subject of an unjust and unlawful discrimination by her employer, PT&T. However, the decision of the labor
arbiter was modified with the qualification that Grace de Guzman deserved to be suspended for three
months in view of the dishonest nature of her acts which should not be condoned. In all other respects, the
NLRC affirmed the decision of the labor arbiter, including the order for the reinstatement of private
respondent in her employment with PT&T.
The subsequent motion for reconsideration filed by petitioner was rebuffed by respondent NLRC in its
resolution of November 9, 1994, hence this special civil action assailing the aforestated decisions of the
labor arbiter and respondent NLRC, as well as the denial resolution of the latter.
1. Decreed in the Bible itself is the universal norm that women should be regarded with love and respect
but, through the ages, men have responded to that injunction with indifference, on the hubristic conceit
that women constitute the inferior sex. Nowhere has that prejudice against womankind been so pervasive
as in the field of labor, especially on the matter of equal employment opportunities and standards. In the
Philippine setting, women have traditionally been considered as falling within the vulnerable groups or
types of workers who must be safeguarded with preventive and remedial social legislation against
discriminatory and exploitative practices in hiring, training, benefits, promotion and retention.
The Constitution, cognizant of the disparity in rights between men and women in almost all phases of
social and political life, provides a gamut of protective provisions. To cite a few of the primordial ones,
Section 14, Article II[8] on the Declaration of Principles and State Policies, expressly recognizes the role of
women in nation-building and commands the State to ensure, at all times, the fundamental equality before
the law of women and men. Corollary thereto, Section 3 of Article XIII [9] (the progenitor whereof dates back
to both the 1935 and 1973 Constitution) pointedly requires the State to afford full protection to labor and to

promote full employment and equality of employment opportunities for all, including an assurance of
entitlement to tenurial security of all workers. Similarly, Section 14 of Article XIII[10] mandates that the State
shall protect working women through provisions for opportunities that would enable them to reach their full
potential.
2. Corrective labor and social laws on gender inequality have emerged with more frequency in the years
since the Labor Code was enacted on May 1, 1974 as Presidential Decree No. 442, largely due to our
countrys commitment as a signatory to the United Nations Convention on the Elimination of All Forms of
Discrimination Against Women (CEDAW).[11]
Principal among these laws are Republic Act No. 6727 [12] which explicitly prohibits discrimination against
women with respect to terms and conditions of employment, promotion, and training opportunities;
Republic Act No. 6955[13] which bans the mail-order-bride practice for a fee and the export of female labor
to countries that cannot guarantee protection to the rights of women workers; Republic Act No. 7192,
[14]
also known as the Women in Development and Nation Building Act, which affords women equal
opportunities with men to act and to enter into contracts, and for appointment, admission, training,
graduation, and commissioning in all military or similar schools of the Armed Forces of the Philippines and
the Philippine National Police; Republic Act No. 7322 [15] increasing the maternity benefits granted to
women in the private sector; Republic Act No. 7877 [16] which outlaws and punishes sexual harassment in
the workplace and in the education and training environment; and Republic Act No. 8042, [17] or the Migrant
Workers and Overseas Filipinos Act of 1995, which prescribes as a matter of policy,inter alia, the
deployment of migrant workers, with emphasis on women, only in countries where their rights are
secure. Likewise, it would not be amiss to point out that in the Family Code, [18] womens rights in the field of
civil law have been greatly enhanced and expanded.
In the Labor Code, provisions governing the rights of women workers are found in Articles 130 to 138
thereof. Article 130 involves the right against particular kinds of night work while Article 132 ensures the
right of women to be provided with facilities and standards which the Secretary of Labor may establish to
ensure their health and safety. For purposes of labor and social legislation, a woman working in a
nightclub, cocktail lounge, massage clinic, bar or other similar establishments shall be considered as an
employee under Article 138. Article 135, on the other hand, recognizes a womans right against
discrimination with respect to terms and conditions of employment on account simply of sex. Finally, and
this brings us to the issue at hand, Article 136 explicitly prohibits discrimination merely by reason of the
marriage of a female employee.
3. Acknowledged as paramount in the due process scheme is the constitutional guarantee of protection to
labor and security of tenure. Thus, an employer is required, as a conditionsine qua non prior to severance
of the employment ties of an individual under his employ, to convincingly establish, through substantial
evidence, the existence of a valid and just cause in dispensing with the services of such employee, ones
labor being regarded as constitutionally protected property.
On the other hand, it is recognized that regulation of manpower by the company falls within the so-called
management prerogatives, which prescriptions encompass the matter of hiring, supervision of workers,
work assignments, working methods and assignments, as well as regulations on the transfer of
employees, lay-off of workers, and the discipline, dismissal, and recall of employees. [19] As put in a case,
an employer is free to regulate, according to his discretion and best business judgment, all aspects of
employment, from hiring to firing, except in cases of unlawful discrimination or those which may be
provided by law.[20]
In the case at bar, petitioners policy of not accepting or considering as disqualified from work any woman
worker who contracts marriage runs afoul of the test of, and the right against, discrimination, afforded all
women workers by our labor laws and by no less than the Constitution. Contrary to petitioners assertion
that it dismissed private respondent from employment on account of her dishonesty, the record discloses

clearly that her ties with the company were dissolved principally because of the companys policy that
married women are not qualified for employment in PT&T, and not merely because of her supposed acts of
dishonesty.
That it was so can easily be seen from the memorandum sent to private respondent by Delia M. Oficial,
the branch supervisor of the company, with the reminder, in the words of the latter, that youre fully aware
that the company is not accepting married women employee (sic), as it was verbally instructed to you.
[21]
Again, in the termination notice sent to her by the same branch supervisor, private respondent was
made to understand that her severance from the service was not only by reason of her concealment of her
married status but, over and on top of that, was her violation of the companys policy against marriage (and
even told you that married women employees are not applicable [sic] or accepted in our company.)
[22]
Parenthetically, this seems to be the curious reason why it was made to appear in the initiatory
pleadings that petitioner was represented in this case only by its said supervisor and not by its highest
ranking officers who would otherwise be solidarily liable with the corporation. [23]
Verily, private respondents act of concealing the true nature of her status from PT&T could not be properly
characterized as willful or in bad faith as she was moved to act the way she did mainly because she
wanted to retain a permanent job in a stable company. In other words, she was practically forced by that
very same illegal company policy into misrepresenting her civil status for fear of being disqualified from
work. While loss of confidence is a just cause for termination of employment, it should not be simulated.
[24]
It must rest on an actual breach of duty committed by the employee and not on the employers caprices.
[25]
Furthermore, it should never be used as a subterfuge for causes which are improper, illegal, or
unjustified.[26]
In the present controversy, petitioners expostulations that it dismissed private respondent, not because the
latter got married but because she concealed that fact, does have a hollow ring. Her concealment, so it is
claimed, bespeaks dishonesty hence the consequent loss of confidence in her which justified her
dismissal. Petitioner would asseverate, therefore, that while it has nothing against marriage, it nonetheless
takes umbrage over the concealment of that fact. This improbable reasoning, with interstitial distinctions,
perturbs the Court since private respondent may well be minded to claim that the imputation of dishonesty
should be the other way around.
Petitioner would have the Court believe that although private respondent defied its policy against its
female employees contracting marriage, what could be an act of insubordination was
inconsequential. What it submits as unforgivable is her concealment of that marriage yet, at the same
time, declaring that marriage as a trivial matter to which it supposedly has no objection. In other words,
PT&T says it gives its blessings to its female employees contracting marriage, despite the maternity
leaves and other benefits it would consequently respond for and which obviously it would have wanted to
avoid. If that employee confesses such fact of marriage, there will be no sanction; but if such employee
conceals the same instead of proceeding to the confessional, she will be dismissed. This line of reasoning
does not impress us as reflecting its true management policy or that we are being regaled with responsible
advocacy.
This Court should be spared the ennui of strained reasoning and the tedium of propositions which confuse
through less than candid arguments. Indeed, petitioner glosses over the fact that it was its unlawful policy
against married women, both on the aspects of qualification and retention, which compelled private
respondent to conceal her supervenient marriage. It was, however, that very policy alone which was the
cause of private respondents secretive conduct now complained of. It is then apropos to recall the familiar
saying that he who is the cause of the cause is the cause of the evil caused.
Finally, petitioners collateral insistence on the admission of private respondent that she supposedly
misappropriated company funds, as an additional ground to dismiss her from employment, is somewhat
insincere and self-serving. Concededly, private respondent admitted in the course of the proceedings that

she failed to remit some of her collections, but that is an altogether different story. The fact is that she was
dismissed solely because of her concealment of her marital status, and not on the basis of that supposed
defalcation of company funds.That the labor arbiter would thus consider petitioners submissions on this
supposed dishonesty as a mere afterthought, just to bolster its case for dismissal, is a perceptive
conclusion born of experience in labor cases. For, there was no showing that private respondent
deliberately misappropriated the amount or whether her failure to remit the same was through negligence
and, if so, whether the negligence was in nature simple or grave. In fact, it was merely agreed that private
respondent execute a promissory note to refund the same, which she did, and the matter was deemed
settled as a peripheral issue in the labor case.
Private respondent, it must be observed, had gained regular status at the time of her dismissal. When she
was served her walking papers on January 29, 1992, she was about to complete the probationary period
of 150 days as she was contracted as a probationary employee on September 2, 1991. That her dismissal
would be effected just when her probationary period was winding down clearly raises the plausible
conclusion that it was done in order to prevent her from earning security of tenure. [27] On the other hand,
her earlier stints with the company as reliever were undoubtedly those of a regular employee, even if the
same were for fixed periods, as she performed activities which were essential or necessary in the usual
trade and business of PT&T.[28] The primary standard of determining regular employment is the reasonable
connection between the activity performed by the employee in relation to the business or trade of the
employer.[29]
As an employee who had therefore gained regular status, and as she had been dismissed without just
cause, she is entitled to reinstatement without loss of seniority rights and other privileges and to full back
wages, inclusive of allowances and other benefits or their monetary equivalent. [30] However, as she had
undeniably committed an act of dishonesty in concealing her status, albeit under the compulsion of an
unlawful imposition of petitioner, the three-month suspension imposed by respondent NLRC must be
upheld to obviate the impression or inference that such act should be condoned. It would be unfair to the
employer if she were to return to its fold without any sanction whatsoever for her act which was not totally
justified.Thus, her entitlement to back wages, which shall be computed from the time her compensation
was withheld up to the time of her actual reinstatement, shall be reduced by deducting therefrom the
amount corresponding to her three months suspension.
4. The government, to repeat, abhors any stipulation or policy in the nature of that adopted by petitioner
PT&T. The Labor Code states, in no uncertain terms, as follows:
ART. 136. Stipulation against marriage. - It shall be unlawful for an employer to require as a condition of
employment or continuation of employment that a woman shall not get married, or to stipulate expressly or
tacitly that upon getting married, a woman employee shall be deemed resigned or separated, or to actually
dismiss, discharge, discriminate or otherwise prejudice a woman employee merely by reason of marriage.
This provision had a studied history for its origin can be traced to Section 8 of Presidential Decree No.
148,[31] better known as the Women and Child Labor Law, which amended paragraph (c), Section 12 of
Republic Act No. 679,[32] entitled An Act to Regulate the Employment of Women and Children, to Provide
Penalties for Violations Thereof, and for Other Purposes. The forerunner to Republic Act No. 679, on the
other hand, was Act No. 3071 which became law on March 16, 1923 and which regulated the employment
of women and children in shops, factories, industrial, agricultural, and mercantile establishments and other
places of labor in the then Philippine Islands.
It would be worthwhile to reflect upon and adopt here the rationalization in Zialcita, et al. vs. Philippine Air
Lines,[33] a decision that emanated from the Office of the President. There, a policy of Philippine Air Lines
requiring that prospective flight attendants must be single and that they will be automatically separated
from the service once they marry was declared void, it being violative of the clear mandate in Article 136 of
the Labor Code with regard to discrimination against married women. Thus:

Of first impression is the incompatibility of the respondents policy or regulation with the codal provision of
law. Respondent is resolute in its contention that Article 136 of the Labor Code applies only to women
employed in ordinary occupations and that the prohibition against marriage of women engaged in
extraordinary occupations, like flight attendants, is fair and reasonable, considering the pecularities of their
chosen profession.
We cannot subscribe to the line of reasoning pursued by respondent. All along, it knew that the
controverted policy has already met its doom as early as March 13, 1973 when Presidential Decree No.
148, otherwise known as the Women and Child Labor Law, was promulgated. But for the timidity of those
affected or their labor unions in challenging the validity of the policy, the same was able to obtain a
momentary reprieve. A close look at Section 8 of said decree, which amended paragraph (c) of Section 12
of Republic Act No. 679, reveals that it is exactly the same provision reproduced verbatim in Article 136 of
the Labor Code, which was promulgated on May 1, 1974 to take effect six (6) months later, or on
November 1, 1974.
It cannot be gainsaid that, with the reiteration of the same provision in the new Labor Code, all policies and
acts against it are deemed illegal and therefore abrogated. True, Article 132 enjoins the Secretary of Labor
to establish standards that will ensure the safety and health of women employees and in appropriate
cases shall by regulation require employers to determine appropriate minimum standards for termination in
special occupations, such as those of flight attendants, but that is precisely the factor that militates against
the policy of respondent. The standards have not yet been established as set forth in the first paragraph,
nor has the Secretary of Labor issued any regulation affecting flight attendants.
It is logical to presume that, in the absence of said standards or regulations which are as yet to be
established, the policy of respondent against marriage is patently illegal. This finds support in Section 9 of
the New Constitution, which provides:
Sec. 9. The State shall afford protection to labor, promote full employment and equality in employment,
ensure equal work opportunities regardless of sex, race, or creed, and regulate the relations between
workers and employees. The State shall assure the rights of workers to self-organization, collective
bargaining, security of tenure, and just and humane conditions of work x x x.
Moreover, we cannot agree to the respondents proposition that termination from employment of flight
attendants on account of marriage is a fair and reasonable standard designed for their own health, safety,
protection and welfare, as no basis has been laid therefor. Actually, respondent claims that its concern is
not so much against the continued employment of the flight attendant merely by reason of marriage as
observed by the Secretary of Labor, but rather on the consequence of marriage-pregnancy. Respondent
discussed at length in the instant appeal the supposed ill effects of pregnancy on flight attendants in the
course of their employment. We feel that this needs no further discussion as it had been adequately
explained by the Secretary of Labor in his decision of May 2, 1976.
In a vain attempt to give meaning to its position, respondent went as far as invoking the provisions of
Articles 52 and 216 of the New Civil Code on the preservation of marriage as an inviolable social institution
and the family as a basic social institution, respectively, as bases for its policy of non-marriage. In both
instances, respondent predicates absence of a flight attendant from her home for long periods of time as
contributory to an unhappy married life. This is pure conjecture not based on actual conditions, considering
that, in this modern world, sophisticated technology has narrowed the distance from one place to
another. Moreover, respondent overlooked the fact that married flight attendants can program their lives to
adapt to prevailing circumstances and events.
Article 136 is not intended to apply only to women employed in ordinary occupations, or it should have
categorically expressed so. The sweeping intendment of the law, be it on special or ordinary occupations,

is reflected in the whole text and supported by Article 135 that speaks of non-discrimination on the
employment of women.
The judgment of the Court of Appeals in Gualberto, et al. vs. Marinduque Mining & Industrial
Corporation[34] considered as void a policy of the same nature. In said case, respondent, in dismissing from
the service the complainant, invoked a policy of the firm to consider female employees in the project it was
undertaking as separated the moment they get married due to lack of facilities for married
women. Respondent further claimed that complainant was employed in the project with an oral
understanding that her services would be terminated when she gets married. Branding the policy of the
employer as an example of discriminatory chauvinism tantamount to denying equal employment
opportunities to women simply on account of their sex, the appellate court struck down said employer
policy as unlawful in view of its repugnance to the Civil Code, Presidential Decree No. 148 and the
Constitution.
Under American jurisprudence, job requirements which establish employer preference or conditions
relating to the marital status of an employee are categorized as a sex-plus discrimination where it is
imposed on one sex and not on the other. Further, the same should be evenly applied and must not inflict
adverse effects on a racial or sexual group which is protected by federal job discrimination
laws. Employment rules that forbid or restrict the employment of married women, but do not apply to
married men, have been held to violate Title VII of the United States Civil Rights Act of 1964, the main
federal statute prohibiting job discrimination against employees and applicants on the basis of, among
other things, sex.[35]
Further, it is not relevant that the rule is not directed against all women but just against married
women. And, where the employer discriminates against married women, but not against married men, the
variable is sex and the discrimination is unlawful. [36] Upon the other hand, a requirement that a woman
employee must remain unmarried could be justified as a bona fide occupational qualification, or BFOQ,
where the particular requirements of the job would justify the same, but not on the ground of a general
principle, such as the desirability of spreading work in the workplace. A requirement of that nature would
be valid provided it reflects an inherent quality reasonably necessary for satisfactory job
performance. Thus, in one case, a no-marriage rule applicable to both male and female flight attendants,
was regarded as unlawful since the restriction was not related to the job performance of the flight
attendants.[37]
5. Petitioners policy is not only in derogation of the provisions of Article 136 of the Labor Code on the right
of a woman to be free from any kind of stipulation against marriage in connection with her employment,
but it likewise assaults good morals and public policy, tending as it does to deprive a woman of the
freedom to choose her status, a privilege that by all accounts inheres in the individual as an intangible and
inalienable right.[38] Hence, while it is true that the parties to a contract may establish any agreements,
terms, and conditions that they may deem convenient, the same should not be contrary to law, morals,
good customs, public order, or public policy.[39] Carried to its logical consequences, it may even be said
that petitioners policy against legitimate marital bonds would encourage illicit or common-law relations and
subvert the sacrament of marriage.
Parenthetically, the Civil Code provisions on the contract of labor state that the relations between the
parties, that is, of capital and labor, are not merely contractual, impressed as they are with so much public
interest that the same should yield to the common good. [40] It goes on to intone that neither capital nor
labor should visit acts of oppression against the other, nor impair the interest or convenience of the public.
[41]
In the final reckoning, the danger of just such a policy against marriage followed by petitioner PT&T is
that it strikes at the very essence, ideals and purpose of marriage as an inviolable social institution and,
ultimately, of the family as the foundation of the nation. [42] That it must be effectively interdicted here in all
its indirect, disguised or dissembled forms as discriminatory conduct derogatory of the laws of the land is
not only in order but imperatively required.

ON THE FOREGOING PREMISES, the petition of Philippine Telegraph and Telephone Company is hereby
DISMISSED for lack of merit, with double costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 162994

September 17, 2004

DUNCAN ASSOCIATION OF DETAILMAN-PTGWO and PEDRO A. TECSON, petitioners,

vs.
GLAXO WELLCOME PHILIPPINES, INC., Respondent.
RESOLUTION
TINGA, J.:
Confronting the Court in this petition is a novel question, with constitutional overtones, involving the validity of
the policy of a pharmaceutical company prohibiting its employees from marrying employees of any competitor
company.
This is a Petition for Review on Certiorari assailing the Decision1 dated May 19, 2003 and
the Resolution dated March 26, 2004 of the Court of Appeals in CA-G.R. SP No. 62434. 2
Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome Philippines, Inc. (Glaxo) as
medical representative on October 24, 1995, after Tecson had undergone training and orientation.
Thereafter, Tecson signed a contract of employment which stipulates, among others, that he agrees to study
and abide by existing company rules; to disclose to management any existing or future relationship by
consanguinity or affinity with co-employees or employees of competing drug companies and should
management find that such relationship poses a possible conflict of interest, to resign from the company.
The Employee Code of Conduct of Glaxo similarly provides that an employee is expected to inform
management of any existing or future relationship by consanguinity or affinity with co-employees or
employees of competing drug companies. If management perceives a conflict of interest or a potential conflict
between such relationship and the employees employment with the company, the management and the
employee will explore the possibility of a "transfer to another department in a non-counterchecking position" or
preparation for employment outside the company after six months.
Tecson was initially assigned to market Glaxos products in the Camarines Sur-Camarines Norte sales area.
Subsequently, Tecson entered into a romantic relationship with Bettsy, an employee of Astra
Pharmaceuticals3(Astra), a competitor of Glaxo. Bettsy was Astras Branch Coordinator in Albay. She
supervised the district managers and medical representatives of her company and prepared marketing
strategies for Astra in that area.
Even before they got married, Tecson received several reminders from his District Manager regarding the
conflict of interest which his relationship with Bettsy might engender. Still, love prevailed, and Tecson married
Bettsy in September 1998.

In January 1999, Tecsons superiors informed him that his marriage to Bettsy gave rise to a conflict of interest.
Tecsons superiors reminded him that he and Bettsy should decide which one of them would resign from their
jobs, although they told him that they wanted to retain him as much as possible because he was performing
his job well.
Tecson requested for time to comply with the company policy against entering into a relationship with an
employee of a competitor company. He explained that Astra, Bettsys employer, was planning to merge with
Zeneca, another drug company; and Bettsy was planning to avail of the redundancy package to be offered by
Astra. With Bettsys separation from her company, the potential conflict of interest would be eliminated. At the
same time, they would be able to avail of the attractive redundancy package from Astra.
In August 1999, Tecson again requested for more time resolve the problem. In September 1999, Tecson
applied for a transfer in Glaxos milk division, thinking that since Astra did not have a milk division, the
potential conflict of interest would be eliminated. His application was denied in view of Glaxos "leastmovement-possible" policy.
In November 1999, Glaxo transferred Tecson to the Butuan City-Surigao City-Agusan del Sur sales area.
Tecson asked Glaxo to reconsider its decision, but his request was denied.
Tecson sought Glaxos reconsideration regarding his transfer and brought the matter to Glaxos Grievance
Committee. Glaxo, however, remained firm in its decision and gave Tescon until February 7, 2000 to comply
with the transfer order. Tecson defied the transfer order and continued acting as medical representative in the
Camarines Sur-Camarines Norte sales area.
During the pendency of the grievance proceedings, Tecson was paid his salary, but was not issued samples of
products which were competing with similar products manufactured by Astra. He was also not included in
product conferences regarding such products.
Because the parties failed to resolve the issue at the grievance machinery level, they submitted the matter for
voluntary arbitration. Glaxo offered Tecson a separation pay of one-half () month pay for every year of
service, or a total of P50,000.00 but he declined the offer. On November 15, 2000, the National Conciliation
and Mediation Board (NCMB) rendered its Decision declaring as valid Glaxos policy on relationships between
its employees and persons employed with competitor companies, and affirming Glaxos right to transfer
Tecson to another sales territory.
Aggrieved, Tecson filed a Petition for Review with the Court of Appeals assailing the NCMB Decision.
On May 19, 2003, the Court of Appeals promulgated its Decision denying the Petition for Review on the
ground that the NCMB did not err in rendering its Decision. The appellate court held that Glaxos policy
prohibiting its employees from having personal relationships with employees of competitor companies is a
valid exercise of its management prerogatives. 4
Tecson filed a Motion for Reconsideration of the appellate courts Decision, but the motion was denied by the
appellate court in its Resolution dated March 26, 2004.5
Petitioners filed the instant petition, arguing therein that (i) the Court of Appeals erred in affirming the NCMBs
finding that the Glaxos policy prohibiting its employees from marrying an employee of a competitor company
is valid; and (ii) the Court of Appeals also erred in not finding that Tecson was constructively dismissed when
he was transferred to a new sales territory, and deprived of the opportunity to attend products seminars and
training sessions.6

Petitioners contend that Glaxos policy against employees marrying employees of competitor companies
violates the equal protection clause of the Constitution because it creates invalid distinctions among
employees on account only of marriage. They claim that the policy restricts the employees right to marry. 7
They also argue that Tecson was constructively dismissed as shown by the following circumstances: (1) he
was transferred from the Camarines Sur-Camarines Norte sales area to the Butuan-Surigao-Agusan sales
area, (2) he suffered a diminution in pay, (3) he was excluded from attending seminars and training sessions
for medical representatives, and (4) he was prohibited from promoting respondents products which were
competing with Astras products.8
In its Comment on the petition, Glaxo argues that the company policy prohibiting its employees from having a
relationship with and/or marrying an employee of a competitor company is a valid exercise of its management
prerogatives and does not violate the equal protection clause; and that Tecsons reassignment from the
Camarines Norte-Camarines Sur sales area to the Butuan City-Surigao City and Agusan del Sur sales area
does not amount to constructive dismissal.9
Glaxo insists that as a company engaged in the promotion and sale of pharmaceutical products, it has a
genuine interest in ensuring that its employees avoid any activity, relationship or interest that may conflict with
their responsibilities to the company. Thus, it expects its employees to avoid having personal or family
interests in any competitor company which may influence their actions and decisions and consequently
deprive Glaxo of legitimate profits. The policy is also aimed at preventing a competitor company from gaining
access to its secrets, procedures and policies.10
It likewise asserts that the policy does not prohibit marriage per se but only proscribes existing or future
relationships with employees of competitor companies, and is therefore not violative of the equal protection
clause. It maintains that considering the nature of its business, the prohibition is based on valid grounds. 11
According to Glaxo, Tecsons marriage to Bettsy, an employee of Astra, posed a real and potential conflict of
interest. Astras products were in direct competition with 67% of the products sold by Glaxo. Hence, Glaxos
enforcement of the foregoing policy in Tecsons case was a valid exercise of its management
prerogatives.12 In any case, Tecson was given several months to remedy the situation, and was even
encouraged not to resign but to ask his wife to resign form Astra instead. 13
Glaxo also points out that Tecson can no longer question the assailed company policy because when he
signed his contract of employment, he was aware that such policy was stipulated therein. In said contract, he
also agreed to resign from respondent if the management finds that his relationship with an employee of a
competitor company would be detrimental to the interests of Glaxo. 14
Glaxo likewise insists that Tecsons reassignment to another sales area and his exclusion from seminars
regarding respondents new products did not amount to constructive dismissal.
It claims that in view of Tecsons refusal to resign, he was relocated from the Camarines Sur-Camarines Norte
sales area to the Butuan City-Surigao City and Agusan del Sur sales area. Glaxo asserts that in effecting the
reassignment, it also considered the welfare of Tecsons family. Since Tecsons hometown was in Agusan del
Sur and his wife traces her roots to Butuan City, Glaxo assumed that his transfer from the Bicol region to the
Butuan City sales area would be favorable to him and his family as he would be relocating to a familiar
territory and minimizing his travel expenses. 15
In addition, Glaxo avers that Tecsons exclusion from the seminar concerning the new anti-asthma drug was
due to the fact that said product was in direct competition with a drug which was soon to be sold by Astra, and
hence, would pose a potential conflict of interest for him. Lastly, the delay in Tecsons receipt of his sales
paraphernalia was due to the mix-up created by his refusal to transfer to the Butuan City sales area (his

paraphernalia was delivered to his new sales area instead of Naga City because the supplier thought he
already transferred to Butuan).16
The Court is tasked to resolve the following issues: (1) Whether the Court of Appeals erred in ruling that
Glaxos policy against its employees marrying employees from competitor companies is valid, and in not
holding that said policy violates the equal protection clause of the Constitution; (2) Whether Tecson was
constructively dismissed.
The Court finds no merit in the petition.
The stipulation in Tecsons contract of employment with Glaxo being questioned by petitioners provides:

10. You agree to disclose to management any existing or future relationship you may have, either by
consanguinity or affinity with co-employees or employees of competing drug companies. Should it pose
a possible conflict of interest in management discretion, you agree to resign voluntarily from the
Company as a matter of Company policy.
17
The same contract also stipulates that Tescon agrees to abide by the existing company rules of Glaxo, and to
study and become acquainted with such policies. 18 In this regard, the Employee Handbook of Glaxo expressly
informs its employees of its rules regarding conflict of interest:
1. Conflict of Interest
Employees should avoid any activity, investment relationship, or interest that may run counter to the
responsibilities which they owe Glaxo Wellcome.
Specifically, this means that employees are expected:
a. To avoid having personal or family interest, financial or otherwise, in any competitor supplier
or other businesses which may consciously or unconsciously influence their actions or decisions
and thus deprive Glaxo Wellcome of legitimate profit.
b. To refrain from using their position in Glaxo Wellcome or knowledge of Company plans to
advance their outside personal interests, that of their relatives, friends and other businesses.
c. To avoid outside employment or other interests for income which would impair their effective
job performance.
d. To consult with Management on such activities or relationships that may lead to conflict of
interest.
1.1. Employee Relationships
Employees with existing or future relationships either by consanguinity or affinity with co-employees of
competing drug companies are expected to disclose such relationship to the Management. If
management perceives a conflict or potential conflict of interest, every effort shall be made, together by
management and the employee, to arrive at a solution within six (6) months, either by transfer to
another department in a non-counter checking position, or by career preparation toward outside
employment after Glaxo Wellcome. Employees must be prepared for possible resignation within six (6)
months, if no other solution is feasible.19

No reversible error can be ascribed to the Court of Appeals when it ruled that Glaxos policy prohibiting an
employee from having a relationship with an employee of a competitor company is a valid exercise of
management prerogative.
Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing strategies and other
confidential programs and information from competitors, especially so that it and Astra are rival companies in
the highly competitive pharmaceutical industry.
The prohibition against personal or marital relationships with employees of competitor companies upon
Glaxos employees is reasonable under the circumstances because relationships of that nature might
compromise the interests of the company. In laying down the assailed company policy, Glaxo only aims to
protect its interests against the possibility that a competitor company will gain access to its secrets and
procedures.
That Glaxo possesses the right to protect its economic interests cannot be denied. No less than the
Constitution recognizes the right of enterprises to adopt and enforce such a policy to protect its right to
reasonable returns on investments and to expansion and growth. 20 Indeed, while our laws endeavor to give
life to the constitutional policy on social justice and the protection of labor, it does not mean that every labor
dispute will be decided in favor of the workers. The law also recognizes that management has rights which
are also entitled to respect and enforcement in the interest of fair play.21
As held in a Georgia, U.S.A case,22 it is a legitimate business practice to guard business confidentiality and
protect a competitive position by even-handedly disqualifying from jobs male and female applicants or
employees who are married to a competitor. Consequently, the court ruled than an employer that discharged
an employee who was married to an employee of an active competitor did not violate Title VII of the Civil
Rights Act of 1964.23 The Court pointed out that the policy was applied to men and women equally, and noted
that the employers business was highly competitive and that gaining inside information would constitute a
competitive advantage.
The challenged company policy does not violate the equal protection clause of the Constitution as petitioners
erroneously suggest. It is a settled principle that the commands of the equal protection clause are addressed
only to the state or those acting under color of its authority.24 Corollarily, it has been held in a long array of
U.S. Supreme Court decisions that the equal protection clause erects no shield against merely private
conduct, however, discriminatory or wrongful.25 The only exception occurs when the state29 in any of its
manifestations or actions has been found to have become entwined or involved in the wrongful private
conduct.27 Obviously, however, the exception is not present in this case. Significantly, the company actually
enforced the policy after repeated requests to the employee to comply with the policy. Indeed, the application
of the policy was made in an impartial and even-handed manner, with due regard for the lot of the employee.
In any event, from the wordings of the contractual provision and the policy in its employee handbook, it is
clear that Glaxo does not impose an absolute prohibition against relationships between its employees and
those of competitor companies. Its employees are free to cultivate relationships with and marry persons of
their own choosing. What the company merely seeks to avoid is a conflict of interest between the employee
and the company that may arise out of such relationships. As succinctly explained by the appellate court,
thus:
The policy being questioned is not a policy against marriage. An employee of the company remains
free to marry anyone of his or her choosing. The policy is not aimed at restricting a personal
prerogative that belongs only to the individual. However, an employees personal decision does not
detract the employer from exercising management prerogatives to ensure maximum profit and
business success. . .28

The Court of Appeals also correctly noted that the assailed company policy which forms part of respondents
Employee Code of Conduct and of its contracts with its employees, such as that signed by Tescon, was made
known to him prior to his employment. Tecson, therefore, was aware of that restriction when he signed his
employment contract and when he entered into a relationship with Bettsy. Since Tecson knowingly and
voluntarily entered into a contract of employment with Glaxo, the stipulations therein have the force of law
between them and, thus, should be complied with in good faith." 29 He is therefore estopped from questioning
said policy.
The Court finds no merit in petitioners contention that Tescon was constructively dismissed when he was
transferred from the Camarines Norte-Camarines Sur sales area to the Butuan City-Surigao City-Agusan del
Sur sales area, and when he was excluded from attending the companys seminar on new products which
were directly competing with similar products manufactured by Astra. Constructive dismissal is defined as a
quitting, an involuntary resignation resorted to when continued employment becomes impossible,
unreasonable, or unlikely; when there is a demotion in rank or diminution in pay; or when a clear
discrimination, insensibility or disdain by an employer becomes unbearable to the employee. 30 None of these
conditions are present in the instant case. The record does not show that Tescon was demoted or unduly
discriminated upon by reason of such transfer. As found by the appellate court, Glaxo properly exercised its
management prerogative in reassigning Tecson to the Butuan City sales area:
. . . In this case, petitioners transfer to another place of assignment was merely in keeping with the
policy of the company in avoidance of conflict of interest, and thus validNote that [Tecsons] wife
holds a sensitive supervisory position as Branch Coordinator in her employer-company which requires
her to work in close coordination with District Managers and Medical Representatives. Her duties
include monitoring sales of Astra products, conducting sales drives, establishing and furthering
relationship with customers, collection, monitoring and managing Astras inventoryshe therefore
takes an active participation in the market war characterized as it is by stiff competition among
pharmaceutical companies. Moreover, and this is significant, petitioners sales territory covers
Camarines Sur and Camarines Norte while his wife is supervising a branch of her employer in Albay.
The proximity of their areas of responsibility, all in the same Bicol Region, renders the conflict of
interest not only possible, but actual, as learning by one spouse of the others market strategies in the
region would be inevitable. [Managements] appreciation of a conflict of interest is therefore not merely
illusory and wanting in factual basis31
In Abbott Laboratories (Phils.), Inc. v. National Labor Relations Commission, 32 which involved a complaint filed
by a medical representative against his employer drug company for illegal dismissal for allegedly terminating
his employment when he refused to accept his reassignment to a new area, the Court upheld the right of the
drug company to transfer or reassign its employee in accordance with its operational demands and
requirements. The ruling of the Court therein, quoted hereunder, also finds application in the instant case:
By the very nature of his employment, a drug salesman or medical representative is expected to travel.
He should anticipate reassignment according to the demands of their business. It would be a poor drug
corporation which cannot even assign its representatives or detail men to new markets calling for
opening or expansion or to areas where the need for pushing its products is great. More so if such
reassignments are part of the employment contract. 33
As noted earlier, the challenged policy has been implemented by Glaxo impartially and disinterestedly for a
long period of time. In the case at bar, the record shows that Glaxo gave Tecson several chances to eliminate
the conflict of interest brought about by his relationship with Bettsy. When their relationship was still in its
initial stage, Tecsons supervisors at Glaxo constantly reminded him about its effects on his employment with
the company and on the companys interests. After Tecson married Bettsy, Glaxo gave him time to resolve the
conflict by either resigning from the company or asking his wife to resign from Astra. Glaxo even expressed its
desire to retain Tecson in its employ because of his satisfactory performance and suggested that he ask
Bettsy to resign from her company instead. Glaxo likewise acceded to his repeated requests for more time to

resolve the conflict of interest. When the problem could not be resolved after several years of waiting, Glaxo
was constrained to reassign Tecson to a sales area different from that handled by his wife for Astra. Notably,
the Court did not terminate Tecson from employment but only reassigned him to another area where his home
province, Agusan del Sur, was included. In effecting Tecsons transfer, Glaxo even considered the welfare of
Tecsons family. Clearly, the foregoing dispels any suspicion of unfairness and bad faith on the part of Glaxo. 34
WHEREFORE, the Petition is DENIED for lack of merit. Costs against petitioners.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION
ARMANDO G. YRASUEGUI, G.R. No. 168081
Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:
PHILIPPINE AIRLINES, INC.,
Respondent. October 17, 2008
x--------------------------------------------------x
DECISION
REYES, R.T., J.:

THIS case portrays the peculiar story of an international flight steward who was dismissed because of
his failure to adhere to the weight standards of the airline company.

He is now before this Court via a petition for review on certiorari claiming that he was illegally
dismissed. To buttress his stance, he argues that (1) his dismissal does not fall under 282(e) of the Labor
Code; (2) continuing adherence to the weight standards of the company is not a bona fide occupational
qualification;

and

(3)

he

was

discriminated

because other overweight employees were promoted instead of being disciplined.

against

After a meticulous consideration of all arguments pro and con, We uphold the legality of dismissal. Separation
pay, however, should be awarded in favor of the employee as an act of social justice or based on equity. This
is so because his dismissal is not for serious misconduct. Neither is it reflective of his moral character.

The Facts

Petitioner Armando G. Yrasuegui was a former international flight steward of Philippine Airlines, Inc.
(PAL). He stands five feet and eight inches (58) with a large body frame. The proper weight for a man of his
height and body structure is from 147 to 166 pounds, the ideal weight being 166 pounds, as mandated by the
Cabin and Crew Administration Manual[1] of PAL.

The weight problem of petitioner dates back to 1984. Back then, PAL advised him to go on an
extended

vacation

leave

concerns. Apparently,

from December

petitioner

29,

1984 to March

failed

to

4,

meet

1985 to
the

address

his

weight

companys

weight

standards, prompting another leave without pay from March 5, 1985 to November 1985.

After meeting the required weight, petitioner was allowed to return to work. But petitioners weight
problem recurred. He again went on leave without pay from October 17, 1988 to February 1989.

On April 26, 1989, petitioner weighed 209 pounds, 43 pounds over his ideal weight. In line with
company policy, he was removed from flight duty effective May 6, 1989to July 3, 1989. He was formally
requested

to

trim

down

to

his

ideal

weight

and

report

for

weight

checks

on

several

dates. He was also told that he may avail of the services of the company physician should he wish to do
so. He was advised that his case will be evaluated on July 3, 1989.[2]

On February 25, 1989, petitioner underwent weight check. It was discovered that he gained, instead of
losing, weight. He was overweight at 215 pounds, which is 49 pounds beyond the limit. Consequently, his offduty status was retained.

On October 17, 1989, PAL Line Administrator Gloria Dizon personally visited petitioner at his residence
to check on the progress of his effort to lose weight. Petitioner weighed 217 pounds, gaining 2 pounds from
his previous weight. After the visit, petitioner made a commitment [3] to reduce weight in a letter addressed to
Cabin Crew Group Manager Augusto Barrios. The letter, in full, reads:
Dear Sir:
I would like to guaranty my commitment towards a weight loss from 217 pounds to 200
pounds from today until 31 Dec. 1989.

From thereon, I promise to continue reducing at a reasonable percentage until such time
that my ideal weight is achieved.
Likewise, I promise to personally report to your office at the designated time schedule you
will set for my weight check.
Respectfully Yours,
F/S Armando Yrasuegui[4]

Despite the lapse of a ninety-day period given him to reach his ideal weight, petitioner remained
overweight. On January 3, 1990, he was informed of the PAL decision for him to remain grounded until such
time that he satisfactorily complies with the weight standards. Again, he was directed to report every two
weeks for weight checks.

Petitioner failed to report for weight checks. Despite that, he was given one more month to comply with
the weight requirement. As usual, he was asked to report for weight check on different dates. He was
reminded that his grounding would continue pending satisfactory compliance with the weight standards. [5]

Again, petitioner failed to report for weight checks, although he was seen submitting his passport for
processing at the PAL Staff Service Division.

On April 17, 1990, petitioner was formally warned that a repeated refusal to report for weight check
would be dealt with accordingly. He was given another set of weight check dates. [6] Again, petitioner ignored
the directive and did not report for weight checks. On June 26, 1990, petitioner was required to explain his
refusal to undergo weight checks.[7]

When petitioner tipped the scale on July 30, 1990, he weighed at 212 pounds. Clearly, he was still way
over his ideal weight of 166 pounds.

From then on, nothing was heard from petitioner until he followed up his case requesting for leniency
on the latter part of 1992. He weighed at 219 pounds on August 20, 1992 and 205 pounds on November 5,
1992.

On November 13, 1992, PAL finally served petitioner a Notice of Administrative Charge for violation of
company standards on weight requirements. He was given ten (10) days from receipt of the charge within
which to file his answer and submit controverting evidence.[8]

On December 7, 1992, petitioner submitted his Answer.[9] Notably, he did not deny being
overweight. What he claimed, instead, is that his violation, if any, had already been condoned by PAL since no
action has been taken by the company regarding his case since 1988. He also claimed that PAL discriminated
against him because the company has not been fair in treating the cabin crew members who are similarly
situated.

On December 8, 1992, a clarificatory hearing was held where petitioner manifested that he was
undergoing a weight reduction program to lose at least two (2) pounds per week so as to attain his ideal
weight.[10]

On June 15, 1993, petitioner was formally informed by PAL that due to his inability to attain his ideal
weight, and considering the utmost leniency extended to him which spanned a period covering a total of
almost five (5) years, his services were considered terminated effective immediately.[11]

His motion for reconsideration having been denied, [12] petitioner filed a complaint for illegal dismissal
against PAL.

Labor Arbiter, NLRC and CA Dispositions

On November 18, 1998, Labor Arbiter Valentin C. Reyes ruled[13] that petitioner was illegally
dismissed. The dispositive part of the Arbiter ruling runs as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered, declaring the
complainants dismissal illegal, and ordering the respondent to reinstate him to his former
position or substantially equivalent one, and to pay him:
a. Backwages of Php10,500.00 per month from his dismissal on June 15, 1993 until
reinstated, which for purposes of appeal is hereby set from June 15, 1993 up to August 15,
1998 atP651,000.00;
b. Attorneys fees of five percent (5%) of the total award.
SO ORDERED.[14]

The Labor Arbiter held that the weight standards of PAL are reasonable in view of the nature of the job
of petitioner.[15] However, the weight standards need not be complied with under pain of dismissal since his
weight did not hamper the performance of his duties. [16] Assuming that it did, petitioner could be transferred to
other positions where his weight would not be a negative factor. [17] Notably, other overweight employees, i.e.,
Mr. Palacios, Mr. Cui, and Mr. Barrios, were promoted instead of being disciplined. [18]

Both parties appealed to the National Labor Relations Commission (NLRC). [19]

On October 8, 1999, the Labor Arbiter issued a writ of execution directing the reinstatement of
petitioner without loss of seniority rights and other benefits. [20]

On February 1, 2000, the Labor Arbiter denied [21] the Motion to Quash Writ of Execution[22] of PAL.

On March 6, 2000, PAL appealed the denial of its motion to quash to the NLRC. [23]

On June 23, 2000, the NLRC rendered judgment[24] in the following tenor:
WHEREFORE, premises considered[,] the Decision of the Arbiter dated 18 November
1998 as modified by our findings herein, is hereby AFFIRMED and that part of the dispositive
portion of said decision concerning complainants entitlement to backwages shall be deemed to
refer to complainants entitlement to his full backwages, inclusive of allowances and to his other
benefits or their monetary equivalent instead of simply backwages, from date of dismissal until
his actual reinstatement or finality hereof. Respondent is enjoined to manifests (sic) its choice of
the form of the reinstatement of complainant, whether physical or through payroll within ten (10)
days from notice failing which, the same shall be deemed as complainants reinstatement
through payroll and execution in case of non-payment shall accordingly be issued by the
Arbiter. Both appeals of respondent thus, are DISMISSED for utter lack of merit.[25]

According to the NLRC, obesity, or the tendency to gain weight uncontrollably regardless of the amount
of food intake, is a disease in itself. [26] As a consequence, there can be no intentional defiance or serious
misconduct by petitioner to the lawful order of PAL for him to lose weight.[27]

Like the Labor Arbiter, the NLRC found the weight standards of PAL to be reasonable. However, it
found as unnecessary the Labor Arbiter holding that petitioner was not remiss in the performance of his duties
as flight steward despite being overweight. According to the NLRC, the Labor Arbiter should have
limited himself to the issue of whether the failure of petitioner to attain his ideal weight constituted willful
defiance of the weight standards of PAL.[28]

PAL moved for reconsideration to no avail. [29] Thus, PAL elevated the matter to the Court of Appeals
(CA) via a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure. [30]

By Decision dated August 31, 2004, the CA reversed[31] the NLRC:

WHEREFORE, premises considered, we hereby GRANT the petition. The assailed NLRC
decision is declared NULL and VOID and is hereby SET ASIDE. The private respondents
complaint is hereby DISMISSED. No costs.
SO ORDERED.[32]

The CA opined that there was grave abuse of discretion on the part of the NLRC because it looked at
wrong and irrelevant considerations [33] in evaluating the evidence ofthe parties. Contrary to the NLRC ruling,
the weight standards of PAL are meant to be a continuing qualification for an employees position.[34] The
failure to adhere to the weight standards is an analogous cause for the dismissal of an employee under Article
282(e) of the Labor Code in relation to Article 282(a). It is not willful disobedience as the NLRC seemed to
suggest.[35] Said the CA, the element of willfulness that the NLRC decision cites is an irrelevant consideration
in arriving at a conclusion on whether the dismissal is legally proper.[36] In other words, the relevant question to
ask is not one of willfulness but one of reasonableness of the standard and whether or not the employee
qualifies or continues to qualify under this standard. [37]

Just like the Labor Arbiter and the NLRC, the CA held that the weight standards of PAL are reasonable.
[38]

Thus, petitioner was legally dismissed because he repeatedly failed to meet the prescribed weight

standards.[39] It is obvious that the issue of discrimination was only invoked by petitioner for purposes of
escaping the result of his dismissal for being overweight. [40]

On May 10, 2005, the CA denied petitioners motion for reconsideration. [41] Elaborating on its earlier
ruling, the CA held that the weight standards of PAL are a bona fide occupational qualification which, in case
of violation, justifies an employees separation from the service. [42]

Issues

In this Rule 45 petition for review, the following issues are posed for resolution:
I.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT PETITIONERS OBESITY CAN BE A GROUND FOR DISMISSAL UNDER PARAGRAPH
(e) OF ARTICLE 282 OF THE LABOR CODE OF THE PHILIPPINES;
II.

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING

THAT PETITIONERS DISMISSAL FOR OBESITY CAN BE PREDICATED ON THE BONA FIDE
OCCUPATIONAL QUALIFICATION (BFOQ) DEFENSE;
III.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT PETITIONER WAS NOT UNDULY DISCRIMINATED AGAINST WHEN HE WAS
DISMISSED WHILE OTHER OVERWEIGHT CABIN ATTENDANTS WERE EITHER GIVEN
FLYING DUTIES OR PROMOTED;
IV.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT
BRUSHED ASIDE PETITIONERS CLAIMS FOR REINSTATEMENT [AND] WAGES
ALLEGEDLY FOR BEING MOOT AND ACADEMIC.[43] (Underscoring supplied)

Our Ruling

I. The obesity of petitioner is a ground for dismissal under Article 282(e) [44] of the Labor Code.

A reading of the weight standards of PAL would lead to no other conclusion than that they constitute a
continuing qualification of an employee in order to keep the job. Tersely put, an employee may be dismissed
the moment he is unable to comply with his ideal weight as prescribed by the weight standards. The dismissal
of the employee would thus fall under Article 282(e) of the Labor Code. As explained by the CA:
x x x [T]he standards violated in this case were not mere orders of the employer; they were the
prescribed weights that a cabin crew must maintain in order to qualify for and keep his or her
position in the company. In other words, they were standards that establish continuing
qualifications for an employees position. In this sense, the failure to maintain these standards
does not fall under Article 282(a) whose express terms require the element of willfulness in order
to be a ground for dismissal. The failure to meet the employers qualifying standards is in fact a
ground that does not squarely fall under grounds (a) to (d) and is therefore one that falls under
Article 282(e) the other causes analogous to the foregoing.
By its nature, these qualifying standards are norms that apply prior to and after an employee is
hired. They apply prior to employment because these are the standards a job applicant must
initially meet in order to be hired. They apply after hiring because an employee must continue to
meet these standards while on the job in order to keep his job. Under this perspective, a
violation is not one of the faults for which an employee can be dismissed pursuant to pars. (a) to
(d) of Article 282; the employee can be dismissed simply because he no longer qualifies for his
job irrespective of whether or not the failure to qualify was willful or intentional. x x x[45]

Petitioner, though, advances a very interesting argument. He claims that obesity is a physical abnormality
and/or illness.[46] Relying on Nadura v. Benguet Consolidated, Inc.,[47] he says his dismissal is illegal:
Conscious of the fact that Naduras case cannot be made to fall squarely within the specific
causes enumerated in subparagraphs 1(a) to (e), Benguet invokes the provisions of
subparagraph 1(f) and says that Naduras illness occasional attacks of asthma is a cause
analogous to them.

Even a cursory reading of the legal provision under consideration is sufficient to convince
anyone that, as the trial court said, illness cannot be included as an analogous cause by any
stretch of imagination.
It is clear that, except the just cause mentioned in sub-paragraph 1(a), all the others expressly
enumerated in the law are due to the voluntary and/or willful act of the
employee. How Nadurasillness could be considered as analogous to any of them is beyond our
understanding, there being no claim or pretense that the same was contracted through his own
voluntary act.[48]

The reliance on Nadura is off-tangent. The factual milieu in Nadura is substantially different from the case at
bar. First, Nadura was not decided under the Labor Code. The law applied in that case was Republic Act (RA)
No. 1787. Second, the issue of flight safety is absent in Nadura, thus, the rationale there cannot apply
here. Third, in Nadura, the employee who was a miner, was laid off from work because of illness, i.e.,
asthma. Here, petitioner was dismissed for his failure to meet the weight standards of PAL. He was not
dismissed due to illness. Fourth, the issue in Nadura is whether or not the dismissed employee is entitled to
separation pay and damages. Here, the issue centers on the propriety of the dismissal of petitioner for his
failure to meet the weight standards of PAL. Fifth, in Nadura, the employee was not accorded due process.
Here, petitioner was accorded utmost leniency. He was given more than four (4) years to comply with the
weight standards of PAL.

In the case at bar, the evidence on record militates against petitioners claims that obesity is a
disease. That he was able to reduce his weight from 1984 to 1992 clearly shows that it is possible for him to
lose weight given the proper attitude, determination, and self-discipline. Indeed, during
the clarificatory hearing on December 8, 1992, petitioner himself claimed that [t]he issue is could I bring my
weight down to ideal weight which is 172, then the answer is yes. I can do it now. [49]

True, petitioner claims that reducing weight is costing him a lot of expenses. [50] However, petitioner has
only himself to blame. He could have easily availed the assistance of the company physician, per the advice
of PAL.[51] He chose to ignore the suggestion. In fact, he repeatedly failed to report when required to undergo
weight checks, without offering a valid explanation. Thus, his fluctuating weight indicates absence of willpower
rather than an illness.

Petitioner cites Bonnie Cook v. State of Rhode Island, Department of Mental Health, Retardation and
Hospitals,[52] decided by the United States Court of Appeals (First Circuit). In that case, Cook worked from
1978 to 1980 and from 1981 to 1986 as an institutional attendant for the mentally retarded at the Ladd Center
that was being operated by respondent. She twice resigned voluntarily with an unblemished record. Even
respondent admitted that her performance met the Centers legitimate expectations. In 1988, Cook re-applied
for a similar position. At that time, she stood 52 tall and weighed over 320 pounds. Respondent claimed that

the morbid obesity of plaintiff compromised her ability to evacuate patients in case of emergency and it also
put her at greater risk of serious diseases.

Cook contended that the action of respondent amounted to discrimination on the basis of a
handicap. This was in direct violation of Section 504(a) of the Rehabilitation Act of 1973, [53] which incorporates
the remedies contained in Title VI of the Civil Rights Act of 1964. Respondent claimed, however, that morbid
obesity could never constitute a handicap within the purview of the Rehabilitation Act. Among others, obesity
is a mutable condition, thus plaintiff could simply lose weight and rid herself of concomitant disability.

The appellate Court disagreed and held that morbid obesity is a disability under the Rehabilitation Act
and that respondent discriminated against Cook based on perceived disability. The evidence included expert
testimony that morbid obesity is a physiological disorder. It involves a dysfunction of both the metabolic
system and the neurological appetite suppressing signal system, which is capable of causing adverse effects
within the musculoskeletal, respiratory, and cardiovascular systems. Notably, the Court stated that mutability
is relevant only in determining the substantiality of the limitation flowing from a given impairment, thus
mutability only precludes those conditions that an individual can easily and quickly reverse by behavioral
alteration.

Unlike Cook, however, petitioner is not morbidly obese. In the words of the District Court for the District
of Rhode Island, Cook was sometime before 1978 at least one hundred pounds more than what is considered
appropriate of her height. According to the Circuit Judge, Cook weighed over 320 pounds in 1988. Clearly,
that is not the case here.At his heaviest, petitioner was only less than 50 pounds over his ideal weight.

In fine, We hold that the obesity of petitioner, when placed in the context of his work as flight attendant,
becomes an analogous cause under Article 282(e) of the Labor Code that justifies his dismissal from the
service. His obesity may not be unintended, but is nonetheless voluntary. As the CA correctly puts it,
[v]oluntariness basically means that the just cause is solely attributable to the employee without any external
force influencing or controlling his actions. This element runs through all just causes under Article 282,
whether they be in the nature of a wrongful action or omission. Gross and habitual neglect, a recognized just
cause, is considered voluntary although it lacks the element of intent found in Article 282(a), (c), and (d). [54]

II. The dismissal of petitioner can be predicated on the bona fide occupational qualification defense.

Employment in particular jobs may not be limited to persons of a particular sex, religion, or national origin
unless the employer can show that sex, religion, or national origin is an actual qualification for performing the

job. The qualification is called a bona fide occupational qualification (BFOQ). [55] In the United States, there are
a few federal and many state job discrimination laws that contain an exception allowing an employer to
engage in an otherwise unlawful form of prohibited discrimination when the action is based on a BFOQ
necessary to the normal operation of a business or enterprise. [56]
Petitioner contends that BFOQ is a statutory defense. It does not exist if there is no statute providing
for it.[57] Further, there is no existing BFOQ statute that could justify his dismissal. [58]
Both arguments must fail.

First, the Constitution,[59] the Labor Code,[60] and RA No. 7277[61] or the Magna Carta for Disabled
Persons[62] contain provisions similar to BFOQ.

Second, in British Columbia Public Service Employee Commission (BSPSERC) v. The British Columbia
Government and Service Employees Union (BCGSEU),[63] the Supreme Court of Canada adopted the socalled Meiorin Test in determining whether an employment policy is justified. Under this test, (1) the employer
must show that it adopted the standard for a purpose rationally connected to the performance of the job; [64] (2)
the employer must establish that the standard is reasonably necessary [65] to the accomplishment of that workrelated purpose; and (3) the employer must establish that the standard is reasonably necessary in order to
accomplish the legitimate work-related purpose. Similarly, in Star Paper Corporation v. Simbol,[66] this Court
held that in order to justify a BFOQ, the employer must prove that (1) the employment qualification is
reasonably related to the essential operation of the job involved; and (2) that there is factual basis for
believing that all or substantially all persons meeting the qualification would be unable to properly perform the
duties of the job.[67]

In short, the test of reasonableness of the company policy is used because it is parallel to BFOQ.
[68]

BFOQ is valid provided it reflects an inherent quality reasonably necessary for satisfactory job

performance.[69]

In Duncan Association of Detailman-PTGWTO v. Glaxo Wellcome Philippines, Inc.,[70] the Court did not
hesitate to pass upon the validity of a company policy which prohibits its employees from marrying employees
of a rival company. It was held that the company policy is reasonable considering that its purpose is the
protection of the interests of the company against possible competitor infiltration on its trade secrets and
procedures.

Verily, there is no merit to the argument that BFOQ cannot be applied if it has no supporting
statute. Too, the Labor Arbiter,[71] NLRC,[72] and CA[73] are one in holding that the weight standards of PAL are
reasonable. A common carrier, from the nature of its business and for reasons of public policy, is bound to

observe extraordinary diligence for the safety of the passengers it transports. [74] It is bound to carry its
passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances.[75]

The law leaves no room for mistake or oversight on the part of a common carrier. Thus, it is only logical
to hold that the weight standards of PAL show its effort to comply with the exacting obligations imposed upon
it by law by virtue of being a common carrier.
The business of PAL is air transportation. As such, it has committed itself to safely transport its
passengers. In order to achieve this, it must necessarily rely on its employees, most particularly the cabin
flight deck crew who are on board the aircraft. The weight standards of PAL should be viewed as imposing
strict norms of discipline upon its employees.

In other words, the primary objective of PAL in the imposition of the weight standards for cabin crew
is flight safety. It cannot be gainsaid that cabin attendants must maintain agility at all times in order to inspire
passenger confidence on their ability to care for the passengers when something goes wrong. It is not
farfetched to say that airline companies, just like all common carriers, thrive due to public confidence on their
safety records. People, especially the riding public, expect no less than that airline companiestransport their
passengers to their respective destinations safely and soundly. A lesser performance is unacceptable.

The task of a cabin crew or flight attendant is not limited to serving meals or attending to the whims and
caprices of the passengers. The most important activity of the cabin crew is to care for the safety of
passengers and the evacuation of the aircraft when an emergency occurs. Passenger safety goes to the core
of the job of a cabin attendant.Truly, airlines need cabin attendants who have the necessary strength to open
emergency doors, the agility to attend to passengers in cramped working conditions, and the stamina to
withstand grueling flight schedules.

On board an aircraft, the body weight and size of a cabin attendant are important factors to consider in
case of emergency. Aircrafts have constricted cabin space, and narrow aisles and exit doors. Thus, the
arguments of respondent that [w]hether the airlines flight attendants are overweight or not has no direct
relation to its mission of transporting passengers to their destination; and that the weight standards has
nothing to do with airworthiness of respondents airlines, must fail.

The rationale in Western Air Lines v. Criswell[76] relied upon by petitioner cannot apply to his case. What
was involved there were two (2) airline pilots who were denied reassignment as flight engineers upon
reaching the age of 60, and a flight engineer who was forced to retire at age 60. They sued the airline
company, alleging that the age-60 retirement for flight engineers violated the Age Discrimination in

Employment Act of 1967. Age-based BFOQ and being overweight are not the same. The case of overweight
cabin attendants is another matter. Given the cramped cabin space and narrow aisles and emergency exit
doors of the airplane, any overweight cabin attendant would certainly have difficulty navigating the cramped
cabin area.

In short, there is no need to individually evaluate their ability to perform their task. That an obese cabin
attendant occupies more space than a slim one is an unquestionable fact which courts can judicially
recognize without introduction of evidence.[77] It would also be absurd to require airline companies to
reconfigure the aircraft in order to widen the aisles and exit doors just to accommodate overweight cabin
attendants like petitioner.

The biggest problem with an overweight cabin attendant is the possibility of impeding passengers from
evacuating the aircraft, should the occasion call for it. The job of a cabin attendant during emergencies is to
speedily get the passengers out of the aircraft safely. Being overweight necessarily impedes
mobility. Indeed, in an emergency situation, seconds are what cabin attendants are dealing with, not
minutes. Three lost seconds can translate into three lost lives. Evacuation might slow down just because a
wide-bodied cabin attendant is blocking the narrow aisles. These possibilities are not remote.

Petitioner is also in estoppel. He does not dispute that the weight standards of PAL were made known
to him prior to his employment. He is presumed to know the weight limit that he must maintain at all times.
[78]

In fact, never did he question the authority of PAL when he was repeatedly asked to trim down his

weight. Bona fides exigit ut quodconvenit fiat. Good faith demands that what is agreed upon shall be
done. Kung ang tao ay tapat kanyang tutuparin ang napagkasunduan.

Too, the weight standards of PAL provide for separate weight limitations based on height and body
frame for both male and female cabin attendants. A progressive discipline is imposed to allow non-compliant
cabin attendants sufficient opportunity to meet the weight standards. Thus, the clear-cut rules obviate any
possibility for thecommission of abuse or arbitrary action on the part of PAL.

III. Petitioner failed to substantiate his claim that he was discriminated against by PAL.

Petitioner next claims that PAL is using passenger safety as a convenient excuse to discriminate
against him.[79] We are constrained, however, to hold otherwise. We agree with the CA that [t]he element of
discrimination came into play in this case as a secondary position for the private respondent in order to

escape the consequence of dismissal that being overweight entailed. It is a confession-and-avoidance

position that impliedly admitted the cause of dismissal, including the reasonableness of the applicable
standard and the private respondents failure to comply.[80] It is a basic rule in evidence that each party must
prove his affirmative allegation.[81]
Since the burden of evidence lies with the party who asserts an affirmative allegation, petitioner has to
prove his allegation with particularity. There is nothing on the records which could support the finding of
discriminatory treatment. Petitioner cannot establish discrimination by simply naming the supposed cabin
attendants who are allegedly similarly situated with him. Substantial proof must be shown as to how and why
they are similarly situated and the differential treatment petitioner got from PAL despite the similarity of his
situation with other employees.

Indeed, except for pointing out the names of the supposed overweight cabin attendants, petitioner miserably
failed to indicate their respective ideal weights; weights over their ideal weights; the periods they were allowed
to fly despite their being overweight; the particular flights assigned to them; the discriminating treatment they
got from PAL; and other relevant data that could have adequately established a case of discriminatory
treatment by PAL. In the words of the CA, PAL really had no substantial case of discrimination to meet. [82]

We are not unmindful that findings of facts of administrative agencies, like the Labor Arbiter and the
NLRC, are accorded respect, even finality.[83] The reason is simple: administrative agencies are experts in
matters within their specific and specialized jurisdiction. [84] But the principle is not a hard and fast rule. It only
applies if the findings of facts are duly supported by substantial evidence. If it can be shown that
administrative bodies grossly misappreciated evidence of such nature so as to compel a conclusion to the
contrary, their findings of facts must necessarily be reversed. Factual findings of administrative agencies do
not have infallibility and must be set aside when they fail the test of arbitrariness. [85]

Here, the Labor Arbiter and the NLRC inexplicably misappreciated evidence. We thus annul their
findings.

To make his claim more believable, petitioner invokes the equal protection clause guaranty [86] of the
Constitution. However, in the absence of governmental interference, the liberties guaranteed by the
Constitution cannot be invoked.[87] Put differently, the Bill of Rights is not meant to be invoked against acts of
private individuals.[88] Indeed, the United States Supreme Court, in interpreting the Fourteenth Amendment,
[89]

which is the source of our equal protection guarantee, is consistent in saying that

the equalprotection erects no shield against private conduct, however discriminatory or wrongful.[90] Private
actions, no matter how egregious, cannot violate the equal protection guarantee. [91]

IV. The claims of petitioner for reinstatement and wages are moot.

As his last contention, petitioner avers that his claims for reinstatement and wages have not been mooted. He
is entitled to reinstatement and his full backwages, from the time he was illegally dismissed up to the time that
the NLRC was reversed by the CA.[92]

At this point, Article 223 of the Labor Code finds relevance:

In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee,
insofar as the reinstatement aspect is concerned, shall immediately be executory, even pending
appeal. The employee shall either be admitted back to work under the same terms and
conditions prevailing prior to his dismissal or separation or, at the option of the employer, merely
reinstated in the payroll. The posting of a bond by the employer shall not stay the execution for
reinstatement provided herein.

The law is very clear. Although an award or order of reinstatement is self-executory and does not
require a writ of execution,[93] the option to exercise actual reinstatement or payroll reinstatement belongs to
the employer. It does not belong to the employee, to the labor tribunals, or even to the courts.

Contrary to the allegation of petitioner that PAL did everything under the sun to frustrate his immediate
return to his previous position,[94] there is evidence that PAL opted to physically reinstate him to a substantially
equivalent position in accordance with the order of the Labor
Arbiter.[95] In fact, petitioner duly received the return to work notice on February 23, 2001, as shown by his
signature.[96]

Petitioner cannot take refuge in the pronouncements of the Court in a case [97] that [t]he unjustified
refusal of the employer to reinstate the dismissed employee entitles him to payment of his salaries effective
from the time the employer failed to reinstate him despite the issuance of a writ of execution [98] and even if the
order of reinstatement of the Labor Arbiter is reversed on appeal, it is obligatory on the part of the employer to
reinstate and pay the wages of the employee during the period of appeal until reversal by the higher court.
[99]

He failed to prove that he complied with the return to work order of PAL. Neither does it

appear on record that he actually rendered services for PAL from the moment he was dismissed, in order to
insist on the payment of his full backwages.

In insisting that he be reinstated to his actual position despite being overweight, petitioner in effect
wants to render the issues in the present case moot. He asks PAL to comply with the impossible. Time and
again, the Court ruled that the law does not exact compliance with the impossible. [100]

V. Petitioner is entitled to separation pay.

Be that as it may, all is not lost for petitioner.

Normally, a legally dismissed employee is not entitled to separation pay. This may be deduced from the
language of Article 279 of the Labor Code that [a]n 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. Luckily for petitioner, this is
not an ironclad rule.

Exceptionally, separation pay is granted to a legally dismissed employee as an act social justice, [101] or
based on equity.[102] In both instances, it is required that the dismissal (1) was not for serious misconduct; and
(2) does not reflect on the moral character of the employee. [103]

Here, We grant petitioner separation pay equivalent to one-half (1/2) months pay for every year of
service.[104] It should include regular allowances which he might have been receiving. [105] We are not blind to
the fact that he was not dismissed for any serious misconduct or to any act which would reflect on his moral
character. We also recognize that his employment with PAL lasted for more or less a decade.

WHEREFORE, the appealed Decision of the Court of Appeals is AFFIRMED but MODIFIED in that
petitioner Armando G. Yrasuegui is entitled to separation pay in an amount equivalent to one-half (1/2)
months pay for every year of service, which should include his regular allowances.

SO ORDERED.
SECOND DIVISION
[G.R. No. 131750. November 16, 1998]
FRANCISCO GUICO, JR., doing business under the name and style of COPYLANDIA SERVICES &
TRADING, petitioner, vs. THE HON. SECRETARY OF LABOR & EMPLOYMENT LEONARDO A.
QUISUMBING, THE OFFICE OF REGIONAL DIRECTOR OF REGION I, DEP'T OF LABOR &
EMPLOYMENT, ROSALINA CARRERA, ET. AL., respondents.

DECISION
PUNO, J.:
This is a petition for certiorari seeking review of two (2) Orders[1] issued by the respondent Secretary of
Labor and Employment dismissing petitioner's appeal.
The case started when the Office of the Regional Director, Department of Labor and Employment (DOLE),
Region I, San Fernando, La Union, received a letter-complaint dated April 25, 1995, requesting for an
investigation of petitioner's establishment, Copylandia Services & Trading, for violation of labor standards
laws. Pursuant to the visitorial and enforcement powers of the Secretary of Labor and Employment or his duly
authorized representative under Article 128 of the Labor Code, as amended, inspections were conducted at
Copylandia's outlets on April 27 and May 2, 1995. The inspections yielded the following violations involving
twenty-one (21) employees who are copier operators: (1) underpayment of wages; (2) underpayment of 13th
month pay; and (3) no service incentive leave with pay.[2]
The first hearing of the case was held on June 14, 1995, where petitioner was represented by Joseph
Botea, Officer-in-Charge of the Dagupan City outlets, while the 21 employees were represented by Leilani
Barrozo, Gemma Gales, Majestina Raymundo and Laureta Clauna. It was established that a copier operator
was receiving a daily salary ranging from P35.00 to P60.00 plus commission of P20.00 perP500.00 worth of
photocopying. There was also incentive pay of P20.00 per P250.00 worth of photocopying in excess of the
first P500.00.[3]
On July 13, 1995, petitioner's representative submitted a Joint Affidavit signed and executed by the 21
employees expressing their disinterest in prosecuting the case and their waiver and release of petitioner from
his liabilities arising from non-payment and underpayment of their salaries and other benefits. Individually
signed documents dated December 21, 1994, purporting to be the employees' Receipt, Waiver and Quitclaim
were also submitted.[4]
In the investigation conducted by Hearing Officer Adonis Peralta on July 21, 1995, the 21 employees
claimed that they signed the Joint Affidavit for fear of losing their jobs. They added that their daily salary was
increased to P92.00 effective July 1, 1995, but the incentive and commission schemes were discontinued.
They alleged that they did not waive the unpaid benefits due to them. [5]
On October 30, 1995, Regional Director Guerrero N. Cirilo issued an Order [6] favorable to the 21
employees. First, he ruled that the purported Receipt, Waiver and Quitclaim dated December 21 and 22,
1994, could not cause the dismissal of the labor standards case against the petitioner since the same were
executed before the filing of the said case. Moreover, the employees repudiated said waiver and quitclaim.
Second, he held that despite the salary increase granted by the petitioner, the daily salary of the employees
was still below the minimum daily wage rate of P119.00 under Wage Order No. RB-I-03. Thirdly, he held that
the removal of the commission and incentive schemes during the pendency of the case violated the
prohibition against elimination or diminution of benefits under Article 100 of the Labor Code, as amended. The
dispositive portion of the Order states:
"WHEREFORE, premises considered and pursuant to the Rules on the Disposition of Labor Standards Cases
in the Regional Offices issued by the Secretary of Labor and Employment on 16 September 1987,respondent
Copylandia Services and Trading thru its owner/manager Mr. Francisco Guico, is hereby ORDERED to pay
the employees the amount of ONE MILLION EIGHTY ONE THOUSAND SEVEN HUNDRED FIFTY SIX
PESOS AND SEVENTY CENTAVOS (P1,081,756.70) representing their backwages, distributed as follows:
1. Rosalina Carrera - P68,010.91
2. Joanna Ventura - 28,568.10

3. Mercelita Paredes - 68,010.91

4. Aida Licuanan - 68,010.91
5. Gemma Gales - 68,010.91
6. Clotilda Zarata - 27,808.33
7. Consolacion Miguel - 65,708.28
8. Gemma Macalalay - 68,010.91
9. Wandy Aquino - 19,559.58
10. Laureta Clauna - 68,010.91
11. Josephine Valdez - 27,808.33
12. Leilani Berrozo - 27,808.33
13. Majestina Raymundo - 68,010.91
14. Theresa Rosario - 68,010.91
15. Edelyn Maramba - 68,010.91
16. Yolly Dimabayao - 40,380.60
17. Vilma Calaguin - 68,010.91
18. Maila Balolong - 40,380.60
19. Clarissa Villena - 27,808.33
20. Maryann Galinato - 68,010.91
21. Desiree Cabasag - 27,808.33
Total P1,081,756.70
and to submit proof of payment to this Office within seven (7) days from receipt hereof. Otherwise, a
Writ of Execution will be issued to enforce this Order.
"SO ORDERED."[7]
Petitioner received a copy of the Order on November 10, 1995. On November 15, 1995, petitioner filed a
Notice of Appeal.[8] The next day, he filed a Memorandum of Appeal accompanied by a Motion to Reduce
Amount of Appeal Bond and a Manifestation of an Appeal Bond.
In his appeal memorandum,[9] petitioner questioned the jurisdiction of the Regional Director citing Article
129 of the Labor Code, as amended, [10] and Section 1, Rule IX of the Implementing Rules of Republic Act No.
6715.[11] He argued that the Regional Director has no jurisdiction over the complaint of the 21 employees since
their individual monetary claims exceed the P5,000.00 limit. He alleged that the Regional Director should have
indorsed the case to the Labor Arbiter for proper adjudication and for a more formal proceeding where there is
ample opportunity for him to present evidence to contest the claims of the employees. He further alleged that

the Regional Director erred in computing the monetary award since it was done without regard to the actual
number of days and time worked by the employees. He also faulted the Regional Director for not giving
credence to the Receipt, Waiver and Quitclaim of the employees.
In the Motion to Reduce Amount of Appeal Bond, [12] petitioner claimed he was having difficulty in raising
the monetary award which he denounced as exorbitant. Pending resolution of the motion, he posted an
appeal bond in the amount of P105,000.00 insisting that the jurisdiction of the Regional Director is limited to
claims of P5,000.00 per employee and there were 21 employees involved in the case.
On November 22, 1995, petitioner also filed a request to hold in abeyance any action relative to the case
for a possible amicable settlement with the employees. [13]
On January 10, 1996, District Labor Officer Adonis Peralta forwarded a Report showing that the petitioner
and most of the 21 employees had reached a compromise agreement. The Release, Waiver and Quitclaim
was signed by the following employees and show the following amounts they received, viz:
1. Aida Licuanan - P3,000.00
2. Clarissa Villena - 3,000.00
3. Gemma Gales - 3,000.00
4. Desiree Cabansag - 3,000.00
5. Clotilda Zarata - 3,000.00
6. Consolacion Miguel - 5,000.00
7. Josephine Valdez - 3,000.00
8. Maryann Galinato - 5,000.00
9. Theresa Rosario - 3,000.00
10.Yolly Dimabayao - 3,000.00
11.Vilma Calaguin - 3,000.00
12.Gemma Macalalay - 3,000.00
13.Edelyn Maramba - 5,000.00
14.Charito Gonzales - 3,000.00
15.Joanna Ventura - 3,000.00
Four (4) employees did not sign in the compromise agreement. They insisted that they be paid what is due to
them according to the Order of the Regional Director in the total amount of P231,841.06. They were Laureta
Clauna, Majestina Raymundo, Leilani Barrozo and Rosalina Carrera. [14]
In a letter[15] dated February 23, 1996, the Regional Director informed petitioner that he could not give due
course to his appeal since the appeal bond of P105,000.00 fell short of the amount due to the 4 employees
who did not participate in the settlement of the case. In the same letter, he directed petitioner to post, within

ten (10) days from receipt of the letter, the amount of P126,841.06 or the difference between the monetary
award due to the 4 employees and the appeal bond previously posted.
On March 13, 1996, petitioner filed a Motion for Reconsideration to Reduce Amount of Appeal Bond. [16] He
manifested that he has closed down his business operations due to severe financial losses and implored the
Regional Director to accept the appeal bond already filed for reasons of justice and equity.
In an Order dated December 3, 1996, the respondent Secretary denied the foregoing Motion for
Reconsideration on the ground that the directive from the Regional Director to post an additional surety bond
is contained in a "mere letter" which cannot be the proper subject for a Motion for Reconsideration and/or
Appeal before his office. He added that for failure of the petitioner to post the correct amount of surety or cash
bond, his appeal was not perfected following Article 128 (b) of the Labor Code, as amended. Despite the nonperfection of the appeal, respondent Secretary looked into the Receipt, Waiver and Quitclaim signed by the
employees and rejected it on the ground that the consideration was unconscionably inadequate. He ruled,
nonetheless, that the amount received by the said employees should be deducted from the judgment award
and the difference should be paid by the petitioner.
On December 26, 1996, petitioner filed a Motion for Reconsideration. On February 13, 1997, he filed a
Motion to Admit Additional Bond and posted the amount of P126,841.06 in compliance with the order of the
Regional Director in his letter dated February 13, 1996. [17]
On October 24, 1997, the respondent Secretary denied the Motion for Reconsideration. He ruled that the
Regional Director has jurisdiction over the case citing Article 128 (b) of the Labor Code, as amended. He
pointed out that Republic Act No. 7730 repealed the jurisdictional limitations imposed by Article 129 on the
visitorial and enforcement powers of the Secretary of Labor and Employment or his duly authorized
representatives. In addition, he held that petitioner is now estopped from questioning the computation made
by the Regional Director as a result of the compromise agreement he entered into with the employees. Lastly,
he reiterated his ruling that the Receipt, Waiver and Quitclaim signed by the employees was not valid.
Petitioner is now before this Court raising the following issues:
I
Whether or not Public Respondent acted with grave abuse of discretion amounting to lack or in excess of
jurisdiction when he set aside the Release and Quitclaim executed by the seventeen (sic) complainants
before the Office of the Regional Director when Public Respondent himself ruled that the Appeal of the
Petitioner was not perfected and, therefore, Public Respondent did not acquire jurisdiction over the case.
II
Whether or not Public Respondent acted with grave abuse of discretion amounting to lack or in excess of
jurisdiction when in complete disregard of Article 227 of the Labor Code, Public Respondent set aside and
nullified the Release and Quitclaim executed by the seventeen (sic) complainants.
III
Whether or not Public Respondent acted with grave abuse of discretion amounting to lack or in excess of
jurisdiction when he affirmed the Order of the Regional Director who, in complete disregard of the due
process requirements of law, computed the monetary award given to the private respondents without notice to
petitioner and without benefit of hearing.
IV

Whether or not petitioner is deemed estopped from appealing the decision of the Regional Director when it
(sic) entered into a compromise settlement with complainants/private respondents.
The threshold issues that need to be settled in this case are: (1) whether or not the Regional Director has
jurisdiction over the instant labor standards case, and (2) whether or not petitioner perfected his appeal.
With regard to the issue of jurisdiction, petitioner alleged that the Regional Director has no jurisdiction
over the instant case since the individual monetary claims of the 21 employees exceed P5,000.00.He further
argued that following Article 129 of the Labor Code, as amended, and Section 1, Rule IX of the Implementing
Rules of Republic Act No. 6715, the jurisdiction over this case belongs to the Labor Arbiter, and the Regional
Director should have indorsed it to the appropriate regional branch of the National Labor Relations
Commission (NLRC). On the other hand, the respondent Secretary held that the jurisdictional limitation
imposed by Article 129 on his visitorial and enforcement power under Article 128 (b) of the Labor Code, as
amended, has been repealed by Republic Act No. 7730. [18] He pointed out that the amendment
"[n]otwithstanding the provisions of Article 129 and 217 of the Labor Code to the contrary" erased all doubts
as to the amendatory nature of the new law, and in effect, overturned this Court's ruling in the case
of Servando's Inc. v. Secretary of Labor and Employment.[19]
We sustain the jurisdiction of the respondent Secretary. As the respondent correctly pointed out, this
Court's ruling in Servando --- that the visitorial power of the Secretary of Labor to order and enforce
compliance with labor standard laws cannot be exercised where the individual claim exceeds P5,000.00, can
no longer be applied in view of the enactment of R.A. No. 7730 amending Article 128 (b) of the Labor Code,
viz:
Article 128 (b) - Notwithstanding the provisions of Articles 129 and 217 of this Code to the Contrary, and in
cases where the relationship of employer-employee still exists, the Secretary of Labor and Employment or his
duly authorized representatives shall have the power to issue compliance orders to give effect to the labor
standards provisions of the Code and other labor legislation based on the findings of the labor employment
and enforcement officers or industrial safety engineers made in the course of inspection. The Secretary or his
duly authorized representatives shall issue writs of execution to the appropriate authority for the enforcement
of their orders, except in cases where the employer contests the findings of the labor employment and
enforcement officer and raises issues supported by documentary proofs which were not considered in the
course of inspection.
An order issued by the duly authorized representative of the Secretary of Labor and Employment under this
article may be appealed to the latter. In case said order involves a monetary award, an appeal by the
employer may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding
company duly accredited by the Secretary of Labor and Employment in the amount equivalent to the
monetary award in order appealed from. (Italics supplied.)
The records of the House of Representatives [20] show that Congressmen Alberto S. Veloso and Eriberto V.
Loreto sponsored the law. In his sponsorship speech, Congressman Veloso categorically declared that "this
bill seeks to do away with the jurisdictional limitations imposed through said ruling (referring to Servando) and
to finally settle any lingering doubts on the visitorial and enforcement powers of the Secretary of Labor and
Employment."[21] Petitioner's reliance on Servando is thus untenable.
The next issue is whether petitioner was able to perfect his appeal to the Secretary of Labor and
Employment. Article 128 (b) of the Labor Code clearly provides that the appeal bond must be "in the amount
equivalent to the monetary award in the order appealed from." The records show that petitioner failed to post
the required amount of the appeal bond. His appeal was therefore not perfected.
IN VIEW WHEREOF, the petition for certiorari is dismissed. No pronouncement as to costs.

SO ORDERED.
Melo (Acting Chairman) and Mendoza, JJ., concur.
Martinez, J., on leave.