Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 177592 June 9, 2014

AVELINO S. ALILIN, TEODORO CALESA, CHARLIE HINDANG, EUTIQUIO GINDANG, ALLAN SUNGAHID,
MAXIMO LEE, JOSE G. MORA TO, REX GABILAN, AND EUGEMA L. LAURENTE, Petitioners,
vs.
PETRON CORPORATION, Respondent.

DECISION

DEL CASTILLO, J.:

A contractor is presumed to be a labor-only contractor, unless it proves that it has the substantial capital,
investment, tools and the like. However, where the principal is the one claiming that the contractor is a
legitimate contractor, the burden of proving the supposed status of the contractor rests on the principal. 1

This Petition for Review on Certiorari assails the Decision dated May 10, 2006 of the Court of Appeals (CA) in
2 3

CA-G.R. SP No. 01291 which granted the Petition for Certiorari filed therewith, reversed and set aside the
February 18, 2005 Decision and August 24, 2005 Resolution of the National Labor Relations Commission
4 5

(NLRC) in NLRC Case No. V-000481-2003 and dismissed the Complaint for illegal dismissal filed by petitioners
Avelino Alilin (Alilin), Teodoro Calesa (Calesa), Charlie Hindang (Hindang), Eutiquio Gindang (Gindang), Allan
Sungahid (Sungahid), Maximo Lee (Lee), Jose G. Morato (Morato), Rex Gabilan (Gabilan) and Eugema L.
Laurente (Laurente) against respondent Petron Corporation (Petron). Also assailed in this Petition is the CA
Resolution dated March 30, 2007 which denied petitioners Motion for Reconsideration and Supplemental
6 7

Motion for Reconsideration. 8

Factual Antecedents

Petron is a domestic corporation engaged in the oil business. It owns several bulk plants in the country for
receiving, storing and distributing its petroleum products.

In 1968, Romualdo D. Gindang Contractor, which was owned and operated by Romualdo D. Gindang
(Romualdo), started recruiting laborers for fielding to Petrons Mandaue Bulk Plant. When Romualdo died
in1989, his son Romeo D. Gindang (Romeo), through Romeo D. Gindang Services(RDG), took over the
business and continued to provide manpower services to Petron. Petitioners were among those recruited by
Romualdo D. Gindang Contractor and RDG to work in the premises of the said bulk plant, with the
corresponding dates of hiring and work duties, to wit:

Employees Date of Hiring Duties

Eutiquio Gindang 1968 utility/tanker receiver/barge loader/warehouseman/mixer
Eugema L. Laurente June 1979 telephone operator/order taker
Teodoro Calesa August 1, 1981 utility/tanker receiver/barge loader/sounder/gauger
Rex Gabilan July 1, 1987 warehouseman/forklift driver/tanker receiver/barge loader
Charlie T. Hindang September 18, 1990 utility/tanker receiver/barge loader/sounder/gauger
Allan P. Sungahid September 18, 1990 filler/sealer/painter/tanker receiver/utility

1
Maximo S. Lee September 18, 1990 gasul filler/painter/utility
Avelino S. Alilin July 16, 1992 carpenter/driver
Jose Gerry M. Morato March 16, 1993 cylinder checker/tanker receiver/grass cutter/janitor/utility

On June 1, 2000, Petron and RDG entered into a Contract for Services for the period from June 1, 2000 to
9

May 31, 2002, whereby RDG undertook to provide Petron with janitorial, maintenance, tanker receiving,
packaging and other utility services in its Mandaue Bulk Plant. This contract was extended on July 31, 2002
and further extended until September 30, 2002. Upon expiration thereof, no further renewal of the service
contract was done.

Proceedings before the Labor Arbiter

Alleging that they were barred fromcontinuing their services on October 16, 2002, petitioners Alilin, Calesa,
Hindang, Gindang, Sungahid, Lee, Morato and Gabilan filed a Complaint for illegal dismissal, underpayment
10

of wages, damages and attorneys fees against Petron and RDG on November 12, 2002. Petitioner Laurente
filed another Complaint for illegal dismissal, underpayment of wages, non-payment of overtime pay, holiday
11

pay, premium pay for holiday, rest day, 13th month pay, service incentive leave pay, allowances, separation
pay, retirement benefits, damages and attorneys fees against Petron and RDG. The said complaints were later
consolidated.

Petitioners did not deny that RDG hired them and paid their salaries. They, however, claimed that the latter is a
labor-only contractor, which merely acted as an agent of Petron, their true employer. They asseverated that
their jobs, which are directly related to Petrons business, entailed them to work inside the premises of Petron
using the required equipment and tools furnished by it and that they were subject to Petrons supervision.
Claiming to be regular employees, petitioners thus asserted that their dismissal allegedly in view of the
expiration of the service contract between Petron and RDG is illegal.

RDG corroborated petitioners claim that they are regular employees of Petron. It alleged that Petron directly
supervised their activities; they performed jobs necessary and desirable to Petrons business; Petron provided
petitioners with supplies, tools and equipment used in their jobs; and that petitioners workplace since the start
of their employment was at Petrons bulk plant in Mandaue City. RDG denied liability over petitioners claim of
illegal dismissal and further argued that Petron cannot capitalize on the service contract to escape liability.

Petron, on the other hand, maintained that RDG is an independent contractor and the real employer of the
petitioners. It was RDG which hired and selected petitioners, paid their salaries and wages, and directly
supervised their work. Attesting to these were two former employees of RDG and Petrons Mandaue Terminal
Superintendent whose joint affidavit and affidavit, respectively, were submitted by Petron. Anent its allegation
12 13

that RDG is an independent contractor, Petron presented the following documents: (1) RDGs Certificate of
Registration issued by the Department of Labor and Employment (DOLE) on December 27, 2000; (2) RDGs 14

Certificate of Registration of Business Name issued by the Department of Trade and Industry (DTI) on August
18, 2000; (3) Contractors Pre-Qualification Statement; (4) Conflict of Interest Statement signed by Romeo
15 16

Gindang as manager of RDG; (5) RDGs Audited Financial Statements for the years 1998 1999 and
17 18 19

2000; (6) RDGs Mayors Permit for the years 2000 and 2001; (7) RDGs Certificate of Accreditation issued
20 21 22

by DTI in October 1991; (8) performance bond and insurance policy posted to insure against liabilities; (9)
23 24 25

Social Security System (SSS) Online Inquiry System Employee Contributions and Employee Static
Information; and, (10) Romeos affidavit stating that he had paid the salaries of his employees assigned to
26 27

Petron for the period of November 4, 2001 to December 31, 2001. Petron argued that with the expiration of the
service contract it entered with RDG, petitioners term of employment has concomitantly ended. And not being
the employer, Petron cannot be held liable for petitioners claim of illegal dismissal.

In a Decision dated June 12, 2003,the Labor Arbiter ruled that petitioners are regular employees of Petron. It
28

found that their jobs were directly related to Petrons business operations; they worked under the supervision of
Petrons foreman and supervisor; and they were using Petrons tools and equipment in the performance of their
works. The Labor Arbiter also found that Petron merely utilized RDG in its attempt to hide the existence of
employee-employer relationship between it and petitioners and avoid liability under labor laws. And there being

2
no showing that petitioners dismissal was for just or authorized cause, the Labor Arbiter declared them to have
been illegally dismissed. Petron was thus held solidarily liable with Romeo for the payment of petitioners
separation pay (in lieu of reinstatement due to strained relations with Petron) fixed at one month pay for every
year of service and backwages computed on the basis of the last salary rate at the time of dismissal. The
dispositive portion of the Decision reads: WHEREFORE, premises considered, judgment is hereby rendered
ordering the respondents Petron Corporation and Romeo Gindang to pay the complainants as follows:

1. Teodoro Calesa P 136,890.00

2. Eutiquio Gindang P 202,800.00
3. Charlie T. Gindang P 91,260.00
4. Allan P. Sungahid P 91,260.00
5. Jose Gerry Morato P 76,050.00
6. Avelino A. Alilin P 95,680.00
7. Rex S. Gabilan P 106,470.00
8. Maximo S. Lee P 91,260.00
9. Eugema Minao Laurente P 150,800.00
Total award P1,042,470.00

The other claims are dismissed for lack of merit.

SO ORDERED. 29

Proceedings before the National Labor Relations Commission

Petron continued to insist that there is no employer-employee relationship between it and petitioners. The
NLRC, however, was not convinced. In its Decision of February 18, 2005, the NLRC ruled that petitioners are
30

Petrons regular employees because they are performing job assignments which are germane to its main
business. Thus:

WHEREFORE, premises considered, the Decision of the Labor Arbiter is hereby affirmed. It is understood that
the grant of backwages shall be until finality of the Decision.

The appeal of respondent Petron Corporation is hereby DISMISSED for lack of merit.

SO ORDERED. 31

The NLRC also denied Petrons Motion for Reconsideration in its Resolution of August 24, 2005.
32

Proceedings before the Court of Appeals

Petron filed a Petition for Certiorari with prayer for the issuance of a temporary restraining order or writ of
injunction before the CA. The said court resolved to grant the injunction. Hence, a Writ of Preliminary
33

Injunction to restrain the implementation of the February 18, 2005 Decision and August 24, 2005 Resolution of
34

the NLRC was issued on March 3, 2006.

In a Decision dated May 10, 2006, the CA found no employer-employee relationship between the parties.
35

According to it, the records of the case do not show that petitioners were directly hired, selected or employed
by Petron; that their wages and other wage related benefits were paid by the said company; and that Petron

3
controlled the manner by which they carried out their tasks. On the other hand, RDG was shown to be
responsible for paying petitioners wages. In fact, SSS records show that RDG is their employer and actually
the one remitting their contributions thereto. Also, two former employees of RDG who were likewise assigned in
the Mandaue Bulk Plant confirmed by way of a joint affidavit that it was Romeo and his brother Alejandre
Gindang who supervised their work, not Petrons foreman or supervisor. This was even corroborated by the
Terminal Superintendent of the Mandaue Bulk Plant.

The CA also found RDG to be an independent labor contractor with sufficient capitalization and investment as
shown by its financial statement for year-end 2000. In addition, the works for which RDG was contracted to
provide were menial which were neither directly related nor sensitive and critical to Petrons principal business.
The CA disposed of the case as follows:

WHEREFORE, the Petition is GRANTED. The February 18, 2005 Decision and the August 24, 2005 Resolution
of the Fourth Division of the National Labor Relations Commission in NLRC Case No. V-000481-2003, entitled
"Teodoro Calesa et al. vs. Petron Corporation and R.D. Gindang Services", having been rendered with grave
abuse of discretion amounting to excess of jurisdiction, are hereby REVERSED and SET ASIDE and a NEW
ONE is entered DISMISSING private respondents complaint against petitioner. It is so ordered. 36

Petitioners filed a Motion for Reconsideration insisting that Petron illegally dismissed them; that RDG is a
37

labor-only contractor; and that they performed jobs which are sensitive to Petrons business operations. To
support these, they attached to their Supplemental Motion for Reconsideration Affidavits of former employees
38 39

of Petron attesting to the fact that their jobs were critical to Petrons business operations and that they were
carried out under the control of a Petron employee.

Petitioners motions were, however, denied by the CA in a Resolution dated March 30, 2007.
40

Hence, this Petition.

Issue

The primary issue to be resolved in this case is whether RDG is a legitimate job contractor. Upon such finding
hinges the determination of whether an employer-employee relationship exists between the parties as to make
Petron liable for petitioners dismissal.

Our Ruling

The Petition is impressed with merit. The conflicting findings of the Labor Arbiter and the NLRC on one hand,
and of the CA on the other, constrains the Court to review the factual issues involved in this case.

As a general rule, the Court does not review errors that raise factual questions. Nonetheless, while it is true
41

that the determination of whether an employer-employee relationship existed between the parties basically
involves a question of fact, the conflicting findings of the Labor Arbiter and the NLRC on one hand, and of the
CA on the other, constrains the Court to review and reevaluate such factual findings. 42

Labor-only contracting, distinguished

from permissible job contracting.

The prevailing rule on labor-only contracting at the time Petron and RDG entered into the Contract for Services
in June 2000 is DOLE Department Order No. 10, series of 1997, the pertinent provision of which reads:
43

Section 4. x x x

xxxx

4
(f) "Labor-only contracting" prohibited under this Rule is an arrangement where the contractor or subcontractor
merely recruits, supplies or places workers to perform a job, work or service for a principal and the following
elements are present:

(i) The contractor or subcontractor does not have substantial capital or investment to actually perform
the job, work or service under its own account and responsibility; and

(ii) The employees recruited, supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal.

xxxx

Section 6. Permissible contracting or subcontracting. - Subject to the conditions set forth in Section 3 (d) and
(e) and Section 5 hereof, the principal may engage the services of a contractor or subcontractor for the
performance of any of the following:

(a) Works or services temporarily or occasionally needed to meet abnormal increase in the demand of
products or services, provided that the normal production capacity or regular workforce of the principal
cannot reasonably cope with such demands;

(b) Works or services temporarily or occasionally needed by the principal for undertakings requiring
expert or highly technical personnel to improve the management or operations of an enterprise;

(c) Services temporarily needed for the introduction or promotion of new products, only for the duration
of the introductory or promotional period;

(d) Works or services not directly related or not integral to the main business or operation of the
principal, including casual work, janitorial, security, landscaping, and messengerial services, and work
not related to manufacturing processes in manufacturing establishments;

(e) Services involving the public display of manufacturers products which do not involve the act of
selling or issuance of receipts or invoices;

(f) Specialized works involving the use of some particular, unusual or peculiar skills, expertise, tools or
equipment the performance of which is beyond the competence of the regular workforce or production
capacity of the principal; and

(g) Unless a reliever system is in place among the regular workforce, substitute services for absent
regular employees, provided that the period of service shall be coextensive with the period of absence
and the same is made clear to the substitute employee at the time of engagement. The phrase "absent
regular employees" includes those who are serving suspensions or other disciplinary measures not
amounting to termination of employment meted out by the principal, but excludes those on strike
where all the formal requisites for the legality of the strike have been prima facie complied with based
on the records filed with the National Conciliation and Mediation Board.

"Permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to farm out
with a contractor or subcontractor the performance of a specific job, work, or service within a definite or
predetermined period, regardless of whether such job, work or, service is to be performed or completed within
or outside the premises of the principal. Under this arrangement, the following conditions must be met: (a) the
contractor carries on a distinct and independent business and undertakes the contract work on his 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 his work except as to the results thereof;
(b) the contractor has substantial capital or investment; and (c) the agreement between the principal and
contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety
and health standards, free exercise of the right to self-organization, security of tenure, and social welfare

5
benefits." Labor-only contracting, on the other hand, is a prohibited act, defined as "supplying workers to an
44

employer who 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." "[I]n distinguishing between prohibited
45

labor-only contracting and permissible job contracting, the totality of the facts and the surrounding
circumstances of the case shall be considered." Generally, the contractor is presumed to be a labor-only
46

contractor, unless such contractor overcomes the burden of proving that it has the substantial capital,
investment, tools and the like. However, where the principal is the one claiming that the contractor is a
legitimate contractor, as in the present case, said principal has the burden of proving that supposed status. It47

is thus incumbent upon Petron, and not upon petitioners as Petron insists, to prove that RDG is an
48

independent contractor.

Petron failed to discharge the burden of

proving that RDG is a legitimate
contractor. Hence, the presumption that
RDG is a labor-only contractor stands.

Here, the audited financial statements and other financial documents of RDG for the years 1999 to 2001
establish that it does have sufficient working capital to meet the requirements of its service contract. In fact, the
financial evaluation conducted by Petron of RDGs financial statements for years 1998-2000 showed RDG to
have a maximum financial capability of Php4.807 Million as of December 1998, and Php1.611 Million as of
49

December 2000. Petron was able to establish RDGs sufficient capitalization when it entered into the service
50

contract in 2000. The Court stresses though that this determination of RDGs status as an independent
contractor is only with respect to its financial capability for the period covered by the financial and other
documents presented. In other words, the evidence adduced merely proves that RDG was financially qualified
as a legitimate contractor but only with respect to its last service contract with Petron in the year 2000.

As may be recalled, petitioners have rendered work for Petron for a long period of time even before the service
contract was executed in 2000. The respective dates on which petitioners claim to have started working for
Petron, as well as the fact that they have rendered continuous service to it until October 16, 2002, when they
were prevented from entering the premises of Petrons Mandaue Bulk Plant, were not at all disputed by Petron.
In fact, Petron even recognized that some of the petitioners were initially fielded by Romualdo Gindang, the
father of Romeo, through RDGs precursor, Romualdo D.Gindang Contractor, while the others were provided
by Romeo himself when he took over the business of his father in 1989. Hence, while Petron was able to
1wphi1

establish that RDG was financially capable as a legitimate contractor at the time of the execution of the service
contract in 2000, it nevertheless failed to establish the financial capability of RDG at the time when petitioners
actually started to work for Petron in 1968, 1979, 1981, 1987, 1990,1992 and 1993.

Sections 8 and 9,Rule VIII, Book III of the implementing rules of the Labor Code, in force since 1976 and prior
51

to DOLE Department Order No. 10, series of 1997, provide that for job contracting to be permissible, one of
52

the conditions that has to be met is that the contractor must have substantial capital or investment. Petron
having failed to show that this condition was met by RDG, it can be concluded, on this score alone, that RDG is
a mere labor-only contractor. Otherwise stated, the presumption that RDG is a labor-only contractor stands due
to the failure of Petron to discharge the burden of proving the contrary.

The Court also finds, as will be discussed below, that the works performed by petitioners were directly related
to Petrons business, another factor which negates Petrons claim that RDG is an independent contractor.

Petrons power of control over

petitioners exists in this case.

"[A] finding that a contractor is a labor-only contractor is equivalent to declaring that there is an employer-
employee relationship between the principal and the employees of the supposed contractor." In this case, the
53

employer employee relationship between Petron and petitioners becomes all the more apparent due to the
presence of the power of control on the part of the former over the latter.

6
It was held in Orozco v. The Fifth Division of the Hon. Court of Appeals that:
54

This Court has constantly adhered to the "four-fold test" to determine whether there exists an employer-
employee relationship between the parties. The four elements of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
power to control the employees conduct.

Of these four elements, it is the power to control which is the most crucial and most determinative factor, so
important, in fact, that, the other elements may even be disregarded." (Emphasis supplied)

Hence, the facts that petitioners were hired by Romeo or his father and that their salaries were paid by them do
not detract from the conclusion that there exists an employer-employee relationship between the parties due to
Petrons power of control over the petitioners. One manifestation of the power of control is the power to transfer
employees from one work assignment to another. Here, Petron could order petitioners to do work outside of
55

their regular "maintenance/utility" job. Also, petitioners were required to report for work everyday at the bulk
plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule, and wear proper uniform and safety helmets as
prescribed by the safety and security measures being implemented within the bulk plant. All these imply control.
In an industry where safety is of paramount concern, control and supervision over sensitive operations, such as
those performed by the petitioners, are inevitable if not at all necessary. Indeed, Petron deals with commodities
that are highly volatile and flammable which, if mishandled or not properly attended to, may cause serious
injuries and damage to property and the environment. Naturally, supervision by Petron is essential in every
aspect of its product handling in order not to compromise the integrity, quality and safety of the products that it
distributes to the consuming public.

Petitioners already attained regular

status as employees of Petron.

Petitioners were given various work assignments such as tanker receiving, barge loading, sounding, gauging,
warehousing, mixing, painting, carpentry, driving, gasul filling and other utility works. Petron refers to these
work assignments as menial works which could be performed by any able-bodied individual. The Court finds,
however, that while the jobs performed by petitioners may be menial and mechanical, they are nevertheless
necessary and related to Petrons business operations. If not for these tasks, Petrons products will not reach
the consumers in their proper state. Indeed, petitioners roles were vital inasmuch as they involve the
preparation of the products that Petron will distribute to its consumers.

Furthermore, while it may be true that any able-bodied individual can perform the tasks assigned to petitioners,
the Court notes the undisputed fact that for many years, it was the same able-bodied individuals (petitioners)
who performed the tasks for Petron. The engagement of petitioners for the same works for a long period of time
is a strong indication that such works were indeed necessary to Petrons business. In view of these, and
considering further that petitioners length of service entitles them to become regular employees under the
Labor Code, petitioners are deemed by law to have already attained the status as Petrons regular employees.
As such, Petron could not terminate their services on the pretext that the service contract it entered with RDG
has already lapsed. For one, and as previously discussed, such regular status had already attached to them
even before the execution of the service contract in 2000. For another, the same does not constitute a just or
authorized cause for a valid dismissal of regular employees.

In sum, the Court finds that RDG is a labor-only contractor. As such, it is considered merely as an agent of
Petron. Consequently, the employer-employee relationship which the Court finds to exist in this case is
between petitioners as employees and Petron as their employer. Petron therefore, being the principal employer
and RDG, being the labor-only contractor, are solidarily liable for petitioners' illegal dismissal and monetary
claims.56

WHEREFORE, the Petition is GRANTED. The May 10, 2006 Decision and March 30, 2007 Resolution of the
Court of Appeals in CA-G.R. SP No. 01291 are REVERSED and SET ASIDE. The February 18, 2005 Decision
and August 24, 2005 Resolution of the National Labor Relations Commission in NLRC Case No. V-000481-
2003 are hereby REINSTATED and AFFIRMED.

7
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 160278 February 8, 2012

GARDEN OF MEMORIES PARK and LIFE PLAN, INC. and PAULINA T. REQUIO, Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, SECOND DIVISION, LABOR ARBITER FELIPE T.
GARDUQUE II and HILARIA CRUZ, Respondents.

DECISION

MENDOZA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking nullification of the June 11, 2003
Decision1 and October 16, 2003 Resolution2 of the Court of Appeals (CA), in CA-G.R. SP No. 64569, which
affirmed the December 29, 2000 Decision3 of the National Labor Relations Commission (NLRC). The NLRC
agreed with the Labor Arbiter (L.A.) in finding that petitioner Garden of Memories Memorial Park and Life Plan,
Inc.(Garden of Memories) was the employer of respondent Hilaria Cruz (Cruz), and that Garden of Memories
and petitioner Paulina Requio (Requio), were jointly and severally liable for the money claims of Cruz.

The Facts

Petitioner Garden of Memories is engaged in the business of operating a memorial park situated at Calsadang
Bago, Pateros, Metro-Manila and selling memorial Plan and services.

Respondent Cruz, on the other hand, worked at the Garden of Memories Memorial Park as a utility worker from
August 1991 until her termination in February 1998.

On March 13, 1998, Cruz filed a complaint4 for illegal dismissal, underpayment of wages, non-inclusion in the
Social Security Services, and non-payment of legal/special holiday, premium pay for rest day, 13th month pay
and service incentive leave pay against Garden of Memories before the Department of Labor and
Employment(DOLE).

Upon motion of Garden of Memories, Requio was impleaded as respondent on the alleged ground that she
was its service contractor and the employer of Cruz.

In her position paper,5 Cruz averred that she worked as a utility worker of Garden of Memories with a salary
ofP115.00 per day. As a utility worker, she was in charge, among others, of the cleaning and maintenance of
the ground facilities of the memorial park. Sometime in February 1998, she had a misunderstanding with a co-
worker named Adoracion Requio regarding the use of a garden water hose. When the misunderstanding
came to the knowledge of Requio, the latter instructed them to go home and not to return anymore. After three
(3) days, Cruz reported for work but she was told that she had been replaced by another worker. She
immediately reported the matter of her replacement to the personnel manager of Garden of Memories and
manifested her protest.

8
Cruz argued that as a regular employee of the Garden of Memories, she could not be terminated without just or
valid cause. Also, her dismissal was violative of due process as she was not afforded the opportunity to explain
her side before her employment was terminated.

Cruz further claimed that as a result of her illegal dismissal, she suffered sleepless nights, serious anxiety and
mental anguish.

In its Answer,6 Garden of Memories denied liability for the claims of Cruz and asserted that she was not its
employee but that of Requio, its independent service contractor, who maintained the park for a contract price.
It insisted that there was no employer-employee relationship between them because she was employed by its
service contractor, Victoriana Requio (Victoriana), who was later succeeded by her daughter, Paulina, when
she (Victoriana) got sick. Garden of Memories claimed that Requio was a service contractor who carried an
independent business and undertook the contract of work on her own account, under her own responsibility
and according to her own manner and method, except as to the results thereof.

In her defense, Requio prayed for the dismissal of the complaint stating that it was Victoriana, her mother,
who hired Cruz, and she merely took over the supervision and management of the workers of the memorial
park when her mother got ill. She claimed that the ownership of the business was never transferred to her.

Requio further stated that Cruz was not dismissed from her employment but that she abandoned her work. 7

On October 27, 1999, the LA ruled that Requio was not an independent contractor but a labor-only contractor
and that her defense that Cruz abandoned her work was negated by the filing of the present case. 8 The LA
declared both Garden of Memories and Requio, jointly and severally, liable for the monetary claims of Cruz,
the dispositive portion of the decision reads:

WHEREFORE, premises considered, respondents Garden of Memories Memorial [P]ark and Life Plan, Inc.
and/or Paulina Requio are hereby ordered to jointly and severally pay within ten (10) days from receipt hereof,
the herein complainant Hilaria Cruz, the sums of P 72,072 (P 198 x 26 days x 14 months pay), representing her
eight (8) months separation pay and six (6) months backwages; P 42,138.46, as salary differential; P 2,475.00,
as service incentive leave pay; and P 12,870.00 as 13th month pay, for three (3) years, or a total sum
of P129,555.46, plus ten percent attorneys fee.

Complainants other claims including her prayer for damages are hereby denied for lack of concrete evidence.

SO ORDERED.9

Garden of Memories and Requio appealed the decision to the NLRC. In its December 29, 2000 Decision, the
NLRC affirmed the ruling of the LA, stating that Requio had no substantial capital or investments in the form of
tools, equipment, machineries, and work premises, among others, for her to qualify as an independent
contractor. It declared the dismissal of Cruz illegal reasoning out that there could be no abandonment of work
on her part since Garden of Memories and Requio failed to prove that there was a deliberate and unjustified
refusal on the part of the employee to go back to work and resume her employment.

Garden of Memories moved for a reconsideration of the NLRC decision but it was denied for lack of merit. 10

Consequently, Garden of Memories and Requio filed before the CA a petition for certiorari under Rule 65 of
the Rules of Court. In its June 11, 2003 Decision, the CA dismissed the petition and affirmed the NLRC
decision. Hence, this petition, where they asserted that:

9
The Public Respondents National Labor Relations Commission and Court of Appeals committed serious error,
gravely abused their discretion and acted in excess of jurisdiction when they failed to consider the provisions of
Section 6 (d) of Department Order No. 10, Series of 1997, by the Department of Labor and Employment, and
then rendered their respective erroneous rulings that:

PETITIONER PAULINA REQUIO IS ENGAGED IN LABOR-ONLY CONTRACTING.

II

THERE EXISTS AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN RESPONDENT CRUZ

AND PETITIONER GARDEN OF MEMORIES.

III

RESPONDENT HILARIA CRUZ DID NOT ABANDON HER WORK.

IV

THERE IS [NO] BASIS IN GRANTING THE MONETARY AWARDS IN FAVOR OF THE

RESPONDENT CRUZ DESPITE THE ABSENCE OF A CLEAR PRONOUNCEMENT REGARDING
THE LEGALITY OR ILLEGALITY OF HER DISMISSAL.11

The petitioners aver that Requio is the employer of Cruz as she (Requio) is a legitimate independent
contractor providing maintenance work in the memorial park such as sweeping, weeding and watering of the
lawns. They insist that there was no employer-employee relationship between Garden of Memories and Cruz.
They claim that there was a service contract between Garden of Memories and Requio for the latter to provide
maintenance work for the former and that the "power of control," the most important element in determining the
presence of such a relationship was missing. Furthermore, Garden of Memories alleges that it did not
participate in the selection or dismissal of Requios employees.

As to the issue of dismissal, the petitioners denied the same and insist that Cruz willfully and actually
abandoned her work. They argue that Cruzs utterances "HINDI KO KAILANGAN ANG TRABAHO" and "HINDI
KO KAILANGAN MAGTRABAHO AT HINDI KO KAILANGAN MAKI-USAP KAY PAULINA
REQUIO," manifested her belligerence and disinterest in her work and that her unexplained absences later
only showed that she had no intention of returning to work.

The Court finds no merit in the petition.

At the outset, it must be stressed that the jurisdiction of this Court in a petition for review on certiorari under
Rule 45 of the Rules of Court is limited to reviewing errors of law, not of fact. This is in line with the well-
entrenched doctrine that the Court is not a trier of facts, and this is strictly adhered to in labor cases. 12 Factual
findings of labor officials, who are deemed to have acquired expertise in matters within their respective
jurisdictions, are generally accorded not only respect but even finality, and bind the Court when supported by
substantial evidence. Particularly when passed upon and upheld by the CA, they are binding and conclusive
upon the Court and will not normally be disturbed. 13 This is because it is not the function of this Court to analyze
or weigh all over again the evidence already considered in the proceedings below; or reevaluate the credibility
of witnesses; or substitute the findings of fact of an administrative tribunal which has expertise in its special
field.14

10
In the present case, the LA, the NLRC, and the CA are one in declaring that petitioner Requio was not a
legitimate contractor. Echoing the decision of the LA and the NLRC, the CA reasoned out that Requio was not
a licensed contractor and had no substantial capital or investment in the form of tool, equipment and work
premises, among others.

Section 106 of the Labor Code on contracting and subcontracting provides:

Article 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 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 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.[Underscoring provided]

In the same vein, Sections 8 and 9, DOLE Department Order No. 10, Series of 1997, state that:

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

11
 (2) The workers recruited and placed by such persons 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."

On the matter of labor-only contracting, Section 5 of Rule VIII-A of the Omnibus Rules Implementing the Labor
Code, provides:

Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For
this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely
recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following
elements are present:

i) The contractor or subcontractor does not have substantial capital or investment which relates to the
job, work or service to be performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities related to the main business of the principal, or

ii) The contractor does not exercise the right to control over the performance of the work of the
contractual employee.

Xxxx

Thus, in determining the existence of an independent contractor relationship, several factors may be
considered, such as, but not necessarily confined to, 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 specified pieces of work; the control and
supervision of the work to another; the employers power with respect to the hiring, firing and payment
of the contractors workers; the control of the premises; the duty to supply premises, tools, appliances,
materials and labor; and the mode, manner and terms of payment. 15

On the other hand, 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.16

The Court finds no compelling reason to deviate from the findings of the tribunals below. Both the capitalization
requirement and the power of control on the part of Requio are wanting.

Generally, the presumption is that the contractor is a labor-only contracting unless such contractor overcomes
the burden of proving that it has the substantial capital, investment, tools and the like. 17 In the present case,

12
though Garden of Memories is not the contractor, it has the burden of proving that Requio has sufficient
capital or investment since it is claiming the supposed status of Requio as independent contractor. 18 Garden
of Memories, however, failed to adduce evidence purporting to show that Requio had sufficient capitalization.
Neither did it show that she invested in the form of tools, equipment, machineries, work premises and other
materials which are necessary in the completion of the service contract.

Furthermore, Requio was not a licensed contractor. Her explanation that her business was a mere livelihood
program akin to a cottage industry provided by Garden of Memories as part of its contribution to the upliftment
of the underprivileged residing near the memorial park proves that her capital investment was not substantial.
Substantial capital or investment refers to capital stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries, and work premises, actually and directly used by the
contractor or subcontractor in the performance or completion of the job, work or service contracted
out.19 Obviously, Requio is a labor-only contractor.

Another determinant factor that classifies petitioner Requio as a labor-only contractor was her failure to
exercise the right to control the performance of the work of Cruz. This can be gleaned from the Service
Contract Agreement20 between Garden of Memories and Requio, to wit:

xxxx

NOW THEREFORE, premises considered, the parties hereto have hereunto agreed on the following terms and
conditions:

1. That the Contractor shall undertake the maintenance of the above-mentioned works in strict
compliance with and subject to all the requirements and standards of GMMPLPI.

2. Likewise, the Contractor shall perform all other works that may from time to time be designated by
GMMPLPI thru its authorized representatives, which work is similar in nature to the responsibilities of a
regular employee with a similar function.

3. The contract price for the labor to be furnished or the service to be rendered shall be THIRTY-FIVE
THOUSAND (P 35,000.00) PESOS per calendar month, payable as follows:

(a) Eight Thousand Seven Hundred Fifty Thousand (P 8,750.00) Pesos payable on every 7th,
15th, 23rd and 30th of the month.

4. The period of this Contract shall be for Three (3) months from Feb 1, April 30, 1998 and renewable
at the option of the Management.

5. It is expressly recognized that this contract was forged for the purpose of supplying the necessary
maintenance work and in no way shall the same be interpreted to have created an employer-employee
relationship.

Xxxx [Underscoring supplied]

The requirement of the law in determining the existence of independent contractorship is that the contractor
should undertake the work on his own account, under his own responsibility, according to his own manner and
method, free from the control and direction of the employer except as to the results thereof. 21 In this case,
however, the Service Contract Agreement clearly indicates that Requio has no discretion to determine the

13
means and manner by which the work is performed. Rather, the work should be in strict compliance with, and
subject to, all requirements and standards of Garden of Memories.

Under these circumstances, there is no doubt that Requio is engaged in labor-only contracting, and is
considered merely an agent of Garden of Memories. As such, the workers she supplies should be considered
as employees of Garden of Memories. Consequently, the latter, as principal employer, is responsible to the
employees of the labor-only contractor as if such employees have been directly employed by it. 22

Notably, Cruz was hired as a utility worker tasked to clean, sweep and water the lawn of the memorial park.
She performed activities which were necessary or desirable to its principal trade or business. Thus, she was a
regular employee of Garden of Memories and cannot be dismissed except for just and authorized causes. 23

Moreover, the Court agrees with the findings of the tribunals below that respondent Cruz did not abandon her
work but was illegally dismissed.

As the employer, Garden of Memories has the burden of proof to show the employee's deliberate and
unjustified refusal to resume his employment without any intention of returning. 24 For abandonment to exist, two
factors must be present: (1) the failure to report for work or absence without valid or justifiable reason; and (2) a
clear intention to sever employer-employee relationship, with the second element as the more determinative
factor being manifested by some overt acts.25 It has been said that abandonment of position cannot be lightly
inferred, much less legally presumed from certain equivocal acts.26 Mere absence is not sufficient.27

In this case, no such intention to abandon her work can be discerned from the actuations of Cruz. Neither were
there overt acts which could be considered manifestations of her desire to truly abandon her work. On the
contrary, her reporting to the personnel manager that she had been replaced and the immediate filing of the
complaint before the DOLE demonstrated a desire on her part to continue her employment with Garden of
Memories. As correctly pointed out by the CA, the filing of the case for illegal dismissal negated the allegation
of abandonment.

WHEREFORE, the petition is DENIED. The June 11, 2003 Decision of the Court of Appeals in CA-G.R. SP No.
64569 and its October 16, 2003 Resolution are hereby AFFIRMED.

SO ORDERED.

14
RONNIE L. ABING, PETITIONER, VS. NATIONAL LABOR RELATIONS
COMMISSION, ALLIED BANKING CORPORATION, FACILITATORS
GENERAL SERVICES AND MARILAG BUSINESS AND INDUSTRIAL
MANAGEMENT SERVICES, INC., RESPONDENTS.
G.R. No. 185345 | 2014-09-10

THIRD DIVISION

RESOLUTION

REYES, J.:

On petition for review on certiorari 1 under Rule 45 of the Rules of Court are the Decision 2 of the
Court of Appeals (CA) dated July 16, 2008 in CA-G.R. SP No. 98993, and its Resolution 3 dated
November 11, 2008, upholding the Decision4 dated October 31, 2006 of the National Labor
Relations Commission (NLRC) in NLRC-NCR Case No. 00-11-12681-03, which reconsidered its

15
earlier Decision5 dated March 23, 2006 and ordered the reinstatement of the Labor Arbiter's (LA)
Decision6 dated January 14, 2005 dismissing the petitioner's complaint for illegal dismissal.

The Antecedent Facts

In December 1991, Ronnie L. Abing (petitioner) sought employment with respondent Allied
Banking Corporation (Allied Bank), and was instructed to go to respondent Marilag Business and
Industrial Management Services, Inc. (Marilag), which had a service contract with the said bank.
The petitioner filled out an application form with Marilag, passed the medical examination, and
was told to report at Allied Bank. Assigned at its legal department, the petitioner was
progressively assigned various tasks such as messenger, skip tracer, checker and verifier of
properties, and receiving clerk/vault keeper. He was issued an Allied Bank ID as its contractual
employee.7

On August 26, 2002, Allied Bank's service contract with Marilag was terminated, and Allied Bank
entered into a new service contract with respondent Facilitators General Services, Inc. (FGSI).
On September 3, 2002, the petitioner was instructed to report to FGSI, where he filled out an
application form. Thereafter, he resumed his work at Allied Bank. 8

In October 2003, Allied Bank terminated its contract with FGSI, and thus told the petitioner to
stop reporting at its main office by October 17, 2003. Claiming that he was an employee of the
said bank and that he was being illegally terminated without due process, the petitioner filed a
complaint against Allied Bank for illegal dismissal. He argued that its service contracts with FGSI
and Marilag were part of a scheme to keep him a contractual employee and prevent his
regularization, notwithstanding that he had served the bank continuously for many years and
performed duties which were usually necessary and desirable in its banking business. 9

Allied Bank denied that the petitioner was its employee, pointing out that it was Marilag and FGSI
which hired him to perform services for the bank under their service agreements. It could not
therefore have illegally dismissed the petitioner for he was never its employee, whereas his
termination was the direct result of the termination of the bank's service agreements with
Marilag and FGSI, respectively.10

FGSI for its part tried to show that it was an independent job contractor, employing the petitioner
as a bookkeeper/receiving clerk/messenger with a daily salary of P250.00 plus P30.00 ECOLA, as
evidenced by the Employment Agreement and Manifestation signed by the petitioner. It denied
illegally dismissing the petitioner, claiming that when its service contract with Allied Bank was
terminated, they re-assigned him to another workplace, such as Fortune Tobacco, Kenny Rogers,
or even to other branches of Allied Bank, but the petitioner refused to be re-assigned, and
insisted on continuing his work at the main office of Allied Bank. Realizing however that the said
assignment was no longer possible due to the termination of its service agreement with FGSI,
the petitioner executed a Quitclaim and Release on October 28, 2003 after he was paid his 13th
month pay and service incentive leave pay.11

For its part, Marilag manifested that on December 21, 2002, the petitioner also executed a
quitclaim in its favor, after its service contract with Allied Bank was terminated, and by then, the
petitioner had resumed his assignment at Allied Bank under FGSI's service contract. 12

16
On January 14, 2005, the LA dismissed the petitioner's complaint for illegal dismissal for failing
to prove that he was an employee of Allied Bank, finding that he was first employed by Marilag,
and later by FGSI, both job contractors of Allied Bank. 13 The LA held that his claim was also
negated by the quitclaims he executed in favor of Marilag and FSGI.

On appeal, the NLRC in its Decision14 dated March 23, 2006 reversed the LA, having found that
an employer-employee relationship existed between the petitioner and Allied Bank, in view of the
fact that his services were usually necessary and desirable to the business of the said bank.

On motions for reconsideration filed by Allied Bank and FGSI, however, the NLRC granted the
same. In the Decision15 dated October 31, 2006, the NLRC reinstated the decision of the LA,
finding that the petitioner was an employee of a legitimate job contractor, FGSI, which exercised
control and supervision over him. Moreover, the NLRC noted that he signed a release and
quitclaim in favor of FGSI.

On petition for certiorari under Rule 65, the CA upheld the NLRC, finding that FGSI is a legitimate
job contractor pursuant to Section 4(a) of Department Order No. 18-02 of the Department of
Labor and Employment (DOLE).

In the instant petition for review, the petitioner reiterates his insistence that Allied Bank is his
true employer, not FGSI, and that the said bank illegally dismissed him without valid cause and
without due process.

Ruling of the Court

The petition is devoid of merit.

It is settled that a review of the decision of the CA in a labor case under Rule 45 of the Rules of
Court is limited only to a review of errors of law imputed to the CA. We reiterate what was
elucidated in Bani Rural Bank, Inc. v. De Guzman16 that:

In a Rule 45 review, we consider the correctness of the assailed CA decision, in contrast with
the review for jurisdictional error that we undertake under Rule 65. Furthermore, Rule 45 limits
us to the review ofquestions of law raised against the assailed CA decision. In ruling for legal
correctness, we have to view the CA decision in the same context that the petition for certiorari it
ruled upon was presented to it; we have to examine the CA decision from the prism of
whether it correctly determined the presence or absence of grave abuse of discretion
in the NLRC decision before it, not on the basis of whether the NLRC decision on the
merits of the case was correct. In other words, we have to be keenly aware that the CA
undertook a Rule 65 review, not a review on appeal, of the NLRC decision challenged before it.
This is the approach that should be basic in a Rule 45 review of a CA ruling in a labor case. In
question form, the question to ask is: Did the CA correctly determine whether the NLRC
committed grave abuse of discretion in ruling on the case? 17 (Emphasis supplied)

In the instant case, the Court finds no reversible error with the decision of the CA in dismissing
the petition for certiorari filed before it. The CA correctly held that the respondent NLRC

17
committed no arbitrary and despotic exercise of its discretion amounting to lack or excess of
jurisdiction when it ruled that FGSI is an independent job contractor and that the petitioner is an
employee thereof. The LA, NLRC and the CA all found that FGSI is a legitimate job contractor and
that the petitioner was an employee of FGSI when he was terminated upon the expiration of its
service contract with Allied Bank. Section 4(a) of Department Order No. 18-02 issued by the
DOLE, cited by the CA, defines legitimate labor contracting or subcontracting "as an arrangement
whereby a principal agrees to put out or farm out with a contractor or subcontractor the
performance or completion of a specific job, work or service within a definite or predetermined
period, regardless of whether such job, work or service is to be performed or completed within or
outside the premises of the principal. Under such an arrangement, no employer-employee
relationship is created between the principal and the contractual worker, who is actually the
employee of the contractor."18

On the other hand, labor-only contracting as defined by Article 106 of the Labor Code occurs
when any of the following circumstances occurs: first, the contractor does not have substantial
capital or investment which relates to the job, work or service to be performed and the
employees recruited, supplied or placed by the contractor are performing activities which are
directly related to the principal business of the employer; or second, the contractor does not
exercise the right to control the performance of the work of the employee. Such an arrangement
is prohibited and consequently, the law deems the principal as the employer of the contractual
employee.19

Before FGSI entered into a service contract with Allied Bank in September 2002, it had been
doing business as a personnel and manpower agency for 20 years since its incorporation with the
Securities and Exchange Commission on April 17, 1980. Its service contract with Allied Bank
expressly provides that it shall provide Allied Bank's main office with janitorial and maintenance
personnel who shall remain as FGSI's employees. Moreover, FGSI serviced not only Allied Bank
but had similar service contracts with other companies, such as Asian Development Bank, Bank
of the Philippine Islands, United Coconut Planters Bank, Kenny Rogers and Fortune Tobacco. The
CA took note that it has its own investment in tools and equipment used to provide janitorial
services.20

Applying the four-fold test used in determining an employer-employee relationship, which are:
(1) the selection and engagement of employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct, 21 the LA, the NLRC and the CA
are all in agreement that these elements are possessed by FGSI.

As to the employer's power of selection and engagement, it was FGSI which hired the petitioner
and assigned him to work at Allied Bank. In his Employment Agreement and Manifestation dated
September 1, 2002, the petitioner explicitly acknowledged that he was hired by FGSI, and in his
position paper he also admitted that it was FGSI which instructed him to report to Allied Bank. 22

As to the payment of wages, the petitioner collected his pay and benefits from FGSI. In his
Quitclaim and Release dated October 28, 2003, he also acknowledged the release and payment
of all his monetary benefits by FGSI.23 In Lacuesta v. Ateneo de Manila University24 cited by the
CA, it was held that unless it is shown that the quitclaim or waiver was wangled from an
unsuspecting or gullible person, or the terms of the settlement are unconscionable in its face, the

18
courts shall not step in to annul the same. 25 The CA found the said circumstances are not at all
present in the instant case.

As to the power of dismissal, by signing the quitclaim, the petitioner acknowledged that it was
FGSI which hired him and had the power to terminate his services. Also in the petitioner's
employment agreement, he bound himself to inform FGSI if and when he was transferring to
another agency, even as he also acknowledged the right of FGSI to terminate him in case of any
violation of its rules and regulations.26

As to the power of control or supervision over the petitioner, FGSI through its Personnel Officer
Marysol Gongona regularly visited Allied Bank's premises for this very purpose. It also had the
power to reassign the petitioner to other clients. Apparently, the petitioner wanted to stay on
with Allied Bank which was no longer possible because of the termination of FGSFs service
contract with the bank. FGSI tried to reassign the petitioner to another client, but he opted
instead to end his employment with FGSI and thus collected his 13th month pay and service
incentive leave pay.27

Finally, Marilag and FGSI have been for decades in business as janitorial/messengerial service
and/or manpower recruitment companies. The petitioner in his petition mostly described his
tasks in Allied Bank as those of a messenger or runner, with clerical functions assigned to him
from time to time, such as "skip tracer, checker and verifier of properties, and receiving
clerk/vault keeper." But without a clear and full description of his actual tasks as well as his
alleged "promotions" in the bank's plantilla, we are unable to determine if, to the extent that he
performed these tasks, they are usually necessary or desirable in Allied Bank's banking business.
Evidently, the petitioner's other tasks were in relation to his general assignment in the legal
department of Allied Bank as messenger. All told, the petitioner is clearly not an employee of
Allied Bank and his complaint for illegal dismissal filed against the respondents has no merit.

WHEREFORE, premises considered, the instant petition is hereby DENIED.

SO ORDERED.

19
BITOY JAVIER (DANILO P. JAVIER), Petitioner, versus FLY ACE CORPORATION/
FLORDELYN CASTILLO, Respondents

G.R. No. 192558 | 2012-02-15

Tagged under keywords

A discussion citing this case or law is available.

Competent evidence to prove existence of employer-employee relationship

THIRD DIVISION

DECISION

MENDOZA, J.:

This is a petition under Rule 45 of the Rules of Civil Procedure assailing the March 18, 2010 Decision [1] of
the Court of Appeals (CA) and its June 7, 2010 Resolution,[2] in CA-G.R. SP No. 109975, which reversed
the May 28, 2009 Decision[3] of the National Labor Relations Commission (NLRC) in the case

20
entitled Bitoy Javier v. Fly Ace/Flordelyn Castillo, [4] holding that petitioner Bitoy Javier (Javier) was
illegally dismissed from employment and ordering Fly Ace Corporation (Fly Ace) to pay backwages and
separation pay in lieu of reinstatement.

Antecedent Facts

On May 23, 2008, Javier filed a complaint before the NLRC for underpayment of salaries and other labor
standard benefits. He alleged that he was an employee of Fly Ace since September 2007, performing
various tasks at the respondent's warehouse such as cleaning and arranging the canned items before
their delivery to certain locations, except in instances when he would be ordered to accompany the
company's delivery vehicles, as pahinante; that he reported for work from Monday to Saturday from 7:00
o'clock in the morning to 5:00 o'clock in the afternoon; that during his employment, he was not issued an
identification card and payslips by the company; that on May 6, 2008, he reported for work but he was no
longer allowed to enter the company premises by the security guard upon the instruction of Ruben
Ong (Mr. Ong), his superior; [5] that after several minutes of begging to the guard to allow him to enter, he
saw Ong whom he approached and asked why he was being barred from entering the premises; that Ong
replied by saying, "Tanungin mo anak mo;" [6] that he then went home and discussed the matter with his
family; that he discovered that Ong had been courting his daughter Annalyn after the two met at a fiesta
celebration in Malabon City; that Annalyn tried to talk to Ong and convince him to spare her father from
trouble but he refused to accede; that thereafter, Javier was terminated from his employment without
notice; and that he was neither given the opportunity to refute the cause/s of his dismissal from work.

To support his allegations, Javier presented an affidavit of one Bengie Valenzuela who alleged that Javier
was a stevedore or pahinante of Fly Ace from September 2007 to January 2008. The said affidavit was
subscribed before the Labor Arbiter (LA).[7]

For its part, Fly Ace averred that it was engaged in the business of importation and sales of groceries.
Sometime in December 2007, Javier was contracted by its employee, Mr. Ong, as extra helper on
a pakyaw basis at an agreed rate of P300.00 per trip, which was later increased to P325.00 in January
2008. Mr. Ong contracted Javier roughly 5 to 6 times only in a month whenever the vehicle of its
contracted hauler, Milmar Hauling Services, was not available. On April 30, 2008, Fly Ace no longer
needed the services of Javier. Denying that he was their employee, Fly Ace insisted that there was no
illegal dismissal.[8] Fly Ace submitted a copy of its agreement with Milmar Hauling Services and copies of
acknowledgment receipts evidencing payment to Javier for his contracted services bearing the words,
"daily manpower (pakyaw/piece rate pay)" and the latter's signatures/initials.

Ruling of the Labor Arbiter

21
On November 28, 2008, the LA dismissed the complaint for lack of merit on the ground that Javier failed
to present proof that he was a regular employee of Fly Ace. He wrote:

Complainant has no employee ID showing his employment with the Respondent nor any
document showing that he received the benefits accorded to regular employees of the
Respondents. His contention that Respondent failed to give him said ID and payslips
implies that indeed he was not a regular employee of Fly Ace considering that
complainant was a helper and that Respondent company has contracted a regular
trucking for the delivery of its products.

Respondent Fly Ace is not engaged in trucking business but in the importation and sales
of groceries. Since there is a regular hauler to deliver its products, we give credence to
Respondents' claim that complainant was contracted on "pakiao" basis.

As to the claim for underpayment of salaries, the payroll presented by the Respondents
showing salaries of workers on "pakiao" basis has evidentiary weight because although
the signature of the complainant appearing thereon are not uniform, they appeared to be
his true signature.

xxxx

Hence, as complainant received the rightful salary as shown by the above described
payrolls, Respondents are not liable for salary differentials. [9]

Ruling of the NLRC

On appeal with the NLRC, Javier was favored. It ruled that the LA skirted the argument of Javier and
immediately concluded that he was not a regular employee simply because he failed to present proof. It
was of the view that a pakyaw-basis arrangement did not preclude the existence of employer-employee
relationship. "Payment by result x x x is a method of compensation and does not define the essence of
the relation. It is a mere method of computing compensation, not a basis for determining the existence or
absence of an employer-employee relationship. [10]? The NLRC further averred that it did not follow that a
worker was a job contractor and not an employee, just because the work he was doing was not directly
related to the employer's trade or business or the work may be considered as "extra" helper as in this
case; and that the relationship of an employer and an employee was determined by law and the same
would prevail whatever the parties may call it. In this case, the NLRC held that substantial evidence was
sufficient basis for judgment on the existence of the employer-employee relationship. Javier was a regular
employee of Fly Ace because there was reasonable connection between the particular activity performed
by the employee (as a "pahinante") in relation to the usual business or trade of the employer (importation,
sales and delivery of groceries). He may not be considered as an independent contractor because he
could not exercise any judgment in the delivery of company products. He was only engaged as a
"helper."

22
Finding Javier to be a regular employee, the NLRC ruled that he was entitled to a security of tenure. For
failing to present proof of a valid cause for his termination, Fly Ace was found to be liable for illegal
dismissal of Javier who was likewise entitled to backwages and separation pay in lieu of reinstatement.
The NLRC thus ordered:

WHEREFORE, premises considered, complainant's appeal is partially GRANTED. The

assailed Decision of the labor arbiter is VACATED and a new one is hereby entered
holding respondent FLY ACE CORPORATION guilty of illegal dismissal and non-
payment of 13th month pay. Consequently, it is hereby ordered to pay complainant
DANILO "Bitoy" JAVIER the following:

1. Backwages - P45,770.83

2. Separation pay, in lieu of reinstatement - 8,450.00

3. Unpaid 13th month pay (proportionate) - 5,633.33

TOTAL -P59,854.16

All other claims are dismissed for lack of merit.

SO ORDERED.[11]

Ruling of the Court of Appeals

On March 18, 2010, the CA annulled the NLRC findings that Javier was indeed a former employee of Fly
Ace and reinstated the dismissal of Javier's complaint as ordered by the LA. The CA exercised its
authority to make its own factual determination anent the issue of the existence of an employer-employee
relationship between the parties. According to the CA:

xxx

In an illegal dismissal case the onus probandi rests on the employer to prove that its
dismissal was for a valid cause. However, before a case for illegal dismissal can prosper,

23
 an employer-employee relationship must first be established. x x x it is incumbent upon
private respondent to prove the employee-employer relationship by substantial evidence.

xxx

It is incumbent upon private respondent to prove, by substantial evidence, that he is an

employee of petitioners, but he failed to discharge his burden. The non-issuance of a
company-issued identification card to private respondent supports petitioners' contention
that private respondent was not its employee.[12]

The CA likewise added that Javier's failure to present salary vouchers, payslips, or other pieces of
evidence to bolster his contention, pointed to the inescapable conclusion that he was not an employee of
Fly Ace. Further, it found that Javier's work was not necessary and desirable to the business or trade of
the company, as it was only when there were scheduled deliveries, which a regular hauling service could
not deliver, that Fly Ace would contract the services of Javier as an extra helper. Lastly, the CA declared
that the facts alleged by Javier did not pass the "control test."

He contracted work outside the company premises; he was not required to observe definite hours of
work; he was not required to report daily; and he was free to accept other work elsewhere as there was
no exclusivity of his contracted service to the company, the same being co-terminous with the trip only.
[13]
Since no substantial evidence was presented to establish an employer-employee relationship, the
case for illegal dismissal could not prosper.

The petitioners moved for reconsideration, but to no avail.

Hence, this appeal anchored on the following grounds:

I.

WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

THE PETITIONER WAS NOT A REGULAR EMPLOYEE OF FLY ACE.

II.

24
 WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THE PETITIONER IS NOT ENTITLED TO HIS MONETARY CLAIMS. [14]

The petitioner contends that other than its bare allegations and self-serving affidavits of the other
employees, Fly Ace has nothing to substantiate its claim that Javier was engaged on a pakyaw basis.
Assuming that Javier was indeed hired on a pakyaw basis, it does not preclude his regular employment
with the company. Even the acknowledgment receipts bearing his signature and the confirming receipt of
his salaries will not show the true nature of his employment as they do not reflect the necessary details of
the commissioned task. Besides, Javier's tasks as pahinante are related, necessary and desirable to the
line of business by Fly Ace which is engaged in the importation and sale of grocery items. "On days when
there were no scheduled deliveries, he worked in petitioners' warehouse, arranging and cleaning the
stored cans for delivery to clients." [15] More importantly, Javier was subject to the control and supervision
of the company, as he was made to report to the office from Monday to Saturday, from 7:00 o'clock in the
morning until 5:00 o'clock in the afternoon. The list of deliverable goods, together with the corresponding
clients and their respective purchases and addresses, would necessarily have been prepared by Fly Ace.
Clearly, he was subjected to compliance with company rules and regulations as regards working hours,
delivery schedule and output, and his other duties in the warehouse. [16]

The petitioner chiefly relied on Chavez v. NLRC,[17] where the Court ruled that payment to a worker on a
per trip basis is not significant because "this is merely a method of computing compensation and not a
basis for determining the existence of employer-employee relationship." Javier likewise invokes the rule
that, "in controversies between a laborer and his master, x x x doubts reasonably arising from the
evidence should be resolved in the former's favour. The policy is reflected is no less than the Constitution,
Labor Code and Civil Code."[18]

Claiming to be an employee of Fly Ace, petitioner asserts that he was illegally dismissed by the latter's
failure to observe substantive and procedural due process. Since his dismissal was not based on any of
the causes recognized by law, and was implemented without notice, Javier is entitled to separation pay
and backwages.

In its Comment,[19] Fly Ace insists that there was no substantial evidence to prove employer-employee
relationship. Having a service contract with Milmar Hauling Services for the purpose of transporting and
delivering company products to customers, Fly Ace contracted Javier as an extra helper or pahinante on a
mere "per trip basis." Javier, who was actually a loiterer in the area, only accompanied and assisted the
company driver when Milmar could not deliver or when the exigency of extra deliveries arises for roughly
five to six times a month. Before making a delivery, Fly Ace would turn over to the driver and Javier the
delivery vehicle with its loaded company products. With the vehicle and products in their custody, the
driver and Javier "would leave the company premises using their own means, method, best judgment and

25
discretion on how to deliver, time to deliver, where and [when] to start, and manner of delivering the
products."[20]

Fly Ace dismisses Javier' s

claims of employment as baseless assertions. Aside from his
bare allegations, he presented nothing to substantiate his status as an employee. ?It is
a basic rule of evidence that each party must prove his affirmative allegation. If he
claims a right granted by law, he must prove his claim by competent evidence, relying
on the strength of his own evidence and not upon the weakness of his opponent.?
[21]
Invoking the case of Lopez v. Bodega City,[22] Fly Ace insists that in an illegal
dismissal case, the burden of proof is upon the complainant who claims to be an
employee. It is essential that an employer-employee relationship be proved by
substantial evidence. Thus, it cites:

In an illegal dismissal case, the onus probandi rests on the employer to prove that its
dismissal of an employee was for a valid cause. However, before a case for illegal
dismissal can prosper, an employer-employee relationship must first be established.

Fly Ace points out that Javier merely offers factual assertions that he was an employee of Fly Ace, "which
are unfortunately not supported by proof, documentary or otherwise." [23] Javier simply assumed that he
was an employee of Fly Ace, absent any competent or relevant evidence to support it. "He performed his
contracted work outside the premises of the respondent; he was not even required to report to work at
regular hours; he was not made to register his time in and time out every time he was contracted to work;
he was not subjected to any disciplinary sanction imposed to other employees for company violations; he
was not issued a company I.D.; he was not accorded the same benefits given to other employees; he was
not registered with the Social Security System (SSS) as petitioner's employee; and, he was free to leave,
accept and engage in other means of livelihood as there is no exclusivity of his contracted services with
the petitioner, his services being co-terminus with the trip only. All these lead to the conclusion that
petitioner is not an employee of the respondents." [24]

Moreover, Fly Ace claims that it had "no right to control the result, means, manner and methods by which
Javier would perform his work or by which the same is to be accomplished." [25] In other words, Javier and
the company driver were given a free hand as to how they would perform their contracted services and
neither were they subjected to definite hours or condition of work.

26
Fly Ace likewise claims that Javier's function as a pahinante was not directly related or necessary to its
principal business of importation and sales of groceries. Even without Javier, the business could operate
its usual course as it did not involve the business of inland transportation. Lastly, the acknowledgment
receipts bearing Javier's signature and words "pakiao rate," referring to his earned salaries on a per trip
basis, have evidentiary weight that the LA correctly considered in arriving at the conclusion that Javier was
not an employee of the company.

The Court affirms the assailed CA decision.

It must be noted that the issue of Javier's alleged illegal dismissal is anchored on the existence of an
employer-employee relationship between him and Fly Ace. This is essentially a question of fact.
Generally, the Court does not review errors that raise factual questions. However, when there is conflict
among the factual findings of the antecedent deciding bodies like the LA, the NLRC and the CA, "it is
proper, in the exercise of Our equity jurisdiction, to review and re-evaluate the factual issues and to look
into the records of the case and re-examine the questioned findings." [26] In dealing with factual issues in
labor cases, "substantial evidence - that amount of relevant evidence which a reasonable mind might
accept as adequate to justify a conclusion - is sufficient." [27]

As the records bear out, the LA and the CA found Javier's claim of employment with Fly Ace as wanting
and deficient. The Court is constrained to agree. Although Section 10, Rule VII of the New Rules of
Procedure of the NLRC[28] allows a relaxation of the rules of procedure and evidence in labor cases, this
rule of liberality does not mean a complete dispensation of proof. Labor officials are enjoined to use
reasonable means to ascertain the facts speedily and objectively with little regard to technicalities or
formalities but nowhere in the rules are they provided a license to completely discount evidence, or the
lack of it. The quantum of proof required, however, must still be satisfied. Hence, "when confronted with
conflicting versions on factual matters, it is for them in the exercise of discretion to determine which party
deserves credence on the basis of evidence received, subject only to the requirement that their decision
must be supported by substantial evidence." [29] Accordingly, the petitioner needs to show by substantial
evidence that he was indeed an employee of the company against which he claims illegal dismissal.

Expectedly, opposing parties would stand poles apart and proffer allegations as different as chalk and
cheese. It is, therefore, incumbent upon the Court to determine whether the party on whom the burden to
prove lies was able to hurdle the same. "No particular form of evidence is required to prove the existence
of such employer-employee relationship. Any competent and relevant evidence to prove the relationship
may be admitted. Hence, while no particular form of evidence is required, a finding that such relationship
exists must still rest on some substantial evidence. Moreover, the substantiality of the evidence depends
on its quantitative as well as its qualitative aspects."[30] Although substantial evidence is not a function of
quantity but rather of quality, the x x x circumstances of the instant case demand that something more
should have been proffered. Had there been other proofs of employment, such as x x x inclusion in

27
petitioner's payroll, or a clear exercise of control, the Court would have affirmed the finding of employer-
employee relationship."[31]

In sum, the rule of thumb remains: the onus probandi falls on petitioner to establish or substantiate such
claim by the requisite quantum of evidence. [32] "Whoever claims entitlement to the benefits provided by
law should establish his or her right thereto x x x." [33] Sadly, Javier failed to adduce substantial evidence
as basis for the grant of relief.

In this case, the LA and the CA both concluded that Javier failed to establish his employment with Fly Ace.
By way of evidence on this point, all that Javier presented were his self-serving statements purportedly
showing his activities as an employee of Fly Ace. Clearly, Javier failed to pass the substantiality
requirement to support his claim. Hence, the Court sees no reason to depart from the findings of the CA.

While Javier remains firm in his position that as an employed stevedore of Fly Ace, he was made to work
in the company premises during weekdays arranging and cleaning grocery items for delivery to clients, no
other proof was submitted to fortify his claim. The lone affidavit executed by one Bengie Valenzuela was
unsuccessful in strengthening Javier's cause. In said document, all Valenzuela attested to was that he
would frequently see Javier at the workplace where the latter was also hired as stevedore. [34] Certainly, in
gauging the evidence presented by Javier, the Court cannot ignore the inescapable conclusion that his
mere presence at the workplace falls short in proving employment therein. The supporting affidavit could
have, to an extent, bolstered Javier's claim of being tasked to clean grocery items when there were no
scheduled delivery trips, but no information was offered in this subject simply because the witness had no
personal knowledge of Javier's employment status in the company. Verily, the Court cannot accept
Javier's statements, hook, line and sinker.

The Court is of the considerable view that on Javier lies the burden to pass the well-settled tests to
determine the existence of an employer-employee relationship, viz: (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. Of these elements, the most important criterion is 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 methods by which the result is to be accomplished. [35]

In this case, Javier was not able to persuade the Court that the above elements exist in his case. He
could not submit competent proof that Fly Ace engaged his services as a regular employee; that Fly Ace
paid his wages as an employee, or that Fly Ace could dictate what his conduct should be while at work. In

28
other words, Javier's allegations did not establish that his relationship with Fly Ace had the attributes of an
employer-employee relationship on the basis of the above-mentioned four-fold test. Worse, Javier was
not able to refute Fly Ace's assertion that it had an agreement with a hauling company to undertake the
delivery of its goods. It was also baffling to realize that Javier did not dispute Fly Ace's denial of his
services' exclusivity to the company. In short, all that Javier laid down were bare allegations without
corroborative proof.

Fly Ace does not dispute having contracted Javier and paid him on a "per trip" rate as a stevedore, albeit
on a pakyaw basis. The Court cannot fail to note that Fly Ace presented documentary proof that Javier
was indeed paid on a pakyaw basis per the acknowledgment receipts admitted as competent evidence by
the LA. Unfortunately for Javier, his mere denial of the signatures affixed therein cannot automatically
sway us to ignore the documents because "forgery cannot be presumed and must be proved by clear,
positive and convincing evidence and the burden of proof lies on the party alleging forgery." [36]

Considering the above findings, the Court does not see the necessity to resolve the second issue
presented.

One final note. The Court's decision does not contradict the settled rule that "payment by the piece is just
a method of compensation and does not define the essence of the relation." [37] Payment on a piece-rate
basis does not negate regular employment. "The term "wage" is broadly defined in Article 97 of the Labor
Code as remuneration or earnings, capable of being expressed in terms of money whether fixed or
ascertained on a time, task, piece or commission basis. Payment by the piece is just a method of
compensation and does not define the essence of the relations. Nor does the fact that the petitioner is not
covered by the SSS affect the employer-employee relationship. However, in determining whether the
relationship is that of employer and employee or one of an independent contractor, each case must be
determined on its own facts and all the features of the relationship are to be considered." [38] Unfortunately
for Javier, the attendant facts and circumstances of the instant case do not provide the Court with
sufficient reason to uphold his claimed status as employee of Fly Ace.

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 rights which are entitled to respect and enforcement in the interest of simple fair
play. Out of its concern for the less privileged in life, the Court has inclined, more often than not, toward
the worker and upheld his cause in his conflicts with the employer. Such favoritism, however, has not
blinded the Court to the rule that justice is in every case for the deserving, to be dispensed in the light of
the established facts and the applicable law and doctrine. [39]

29
WHEREFORE, the petition is DENIED. The March 18, 2010 Decision of the Court of Appeals and its June
7, 2010 Resolution, in CA-G.R. SP No. 109975, are hereby AFFIRMED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 172349 June 13, 2012

30
POLYFOAM-RGC INTERNATIONAL, CORPORATION and PRECILLA A. GRAMAJE, Petitioners,
vs.
EDGARDO CONCEPCION, Respondent.

DECISION

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioners Polyfoam-RGC
International Corporation (Polyfoam) and Precilla A. Gramaje (Gramaje) against respondent Edgardo
Concepcion assailing the Court of Appeals (CA) Decision 1 dated December 19, 2005 and Resolution 2 dated
April 25, 2006 in CA-G.R. SP No. 83696. The assailed decision reversed the National Labor Relations
Commissions (NLRCs) Decision3 dated May 7, 2003 in NLRC NCR CA No. 030622-02, while the assailed
resolution denied petitioners and respondents motions for reconsideration.

The factual and procedural antecedents follow:

On February 8, 2000, respondent filed a Complaint4 for illegal dismissal, non-payment of wages, premium pay
for rest day, separation pay, service incentive leave pay, 13th month pay, damages, and attorneys fees against
Polyfoam and Ms. Natividad Cheng (Cheng). Respondent alleged that he was hired by Polyfoam as an "all-
around" factory worker and served as such for almost six years. 5 On January 14, 2000, he allegedly discovered
that his time card was not in the rack and was later informed by the security guard that he could no longer
punch his time card.6 When he protested to his supervisor, the latter allegedly told him that the management
decided to dismiss him due to an infraction of a company rule. Cheng, the companys manager, also refused to
face him. Respondents counsel later wrote a letter 7 to Polyfoams manager requesting that respondent be re-
admitted to work, but the request remained unheeded prompting the latter to file the complaint for illegal
dismissal.8

On April 28, 2000, Gramaje filed a Motion for Intervention9 claiming to be the real employer of respondent. On
the other hand, Polyfoam and Cheng filed a Motion to Dismiss 10 on the grounds that the NLRC has no
jurisdiction over the case, because of the absence of employer-employee relationship between Polyfoam and
respondent and that the money claims had already prescribed. 11

On May 24, 2000, Labor Arbiter Adolfo Babiano issued an Order 12 granting Gramajes motion for intervention, it
appearing that she is an indispensable party and denying Polyfoam and Chengs motion to dismiss as the lack
of employer-employee relationship is only a matter of defense.

In their Position Paper,13 Polyfoam and Cheng insisted that the NLRC has no jurisdiction over the case,
because respondent was not their employee. They likewise contended that respondents money claims had
already prescribed. Finally, they fault respondent for including Cheng as a party-defendant, considering that
she is not even a director of the company.14

In her Position Paper,15 Gramaje claimed that P.A. Gramaje Employment Services (PAGES) is a legitimate job
contractor who provided some manpower needs of Polyfoam. It was alleged that respondent was hired as
"packer" and assigned to Polyfoam, charged with packing the latters finished foam products. She argued,
however, that respondent was not dismissed from employment, rather, he simply stopped reporting for work. 16

On December 14, 2001, Labor Arbiter (LA) Marita V. Padolina rendered a Decision finding respondent to have
been illegally dismissed from employment and holding Polyfoam and Gramaje/PAGES solidarily liable for
respondents money claims. The dispositive portion of the Decision is quoted below for easy reference:

WHEREFORE, premises considered, judgment is hereby rendered finding complainant to have been illegally
dismissed and respondents Polyfoam-RGC International Corporation, P.A. Gramaje Employment
Services/Precilla A. Gramaje are ordered to pay complainant jointly and severally the following:

31
 1). Separation Pay - P 52,000.00
2). Backwages - 157,041.38
3). 13th Month Pay - 17,407.00
4). Moral Damages - 5,000.00
5). Exemplary Damages - 5,000.00
6). Attorneys fees - 23,644.83

P 260,093.21

All other claims are denied for lack of factual basis.

SO ORDERED.17

The Labor Arbiter found respondent to have been illegally dismissed from employment and thus is entitled to
full backwages inclusive of allowances. In lieu of reinstatement, the LA awarded respondent separation pay of
one month salary for every year of service from April 21, 1994 until promulgation of the decision. 18 The LA
further held that petitioners are solidarily liable to respondent for the latters money claims, considering that
Gramaje (the contractor) was not enrolled as private employment agency in the registry of the Regional Office
of the Department of Labor and Employment (DOLE) and considering further that respondent performed a job
directly related to the main business of Polyfoam.19

On appeal by petitioners, the NLRC modified the LA decision by exonerating Polyfoam from liability for
respondents claim for separation pay and deleting the awards of backwages, 13th month pay, damages, and
attorneys fees. The dispositive portion of the decision reads:

WHEREFORE, the appealed decision is modified in that the complaint against respondent-appellant Polyfoam-
RGC International Corp. is dismissed. However, respondent-intervenor-appellant P.A. Gramaje Employment
Services is hereby ordered to pay complainant separation pay of one (1) month salary for every year of service
reckoned from April 21, 1996 up to the rendition of this decision, or the sum of P58,5000 (sic).

The awards of backwages, 13th month pay, damages, and attorneys fees are set aside.

SO ORDERED.20

The NLRC found Gramaje to be an independent contractor who contracted the packaging aspect of the
finished foam products of Polyfoam. Pursuant to said contract, Gramajes employees, including respondent,
were assigned to Polyfoam but remained under the control and supervision of Gramaje. It likewise concluded
that Gramaje had its own office equipment, tools, and substantial capital and, in fact, supplied the plastic
containers and carton boxes used by her employees in performing their duties. 21 The Commission also found
sufficient evidence to prove that Gramaje paid respondents wages and benefits and reported the latter to the
Social Security System (SSS) as a covered employee. 22 As to whether there was illegal dismissal, the NLRC
answered in the negative, since respondent was not notified that he had been dismissed nor was he prevented
from returning to his work. The NLRC found Gramaje liable for claiming that respondent abandoned his job.
Reinstatement, however, could not be decreed because of the strained relations between the parties; hence,
the award of separation pay. But the NLRC refused to award backwages. 23 The award of moral and exemplary
damages was likewise deleted for lack of evidence. 24

Aggrieved, respondent elevated the case to the CA in a special civil action for certiorari under Rule 65 of the
Rules of Court. On December 19, 2005, the appellate court rendered the assailed decision, 25 the dispositive
portion of which reads:

32
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed Decision of the
National Labor Relations Commission, First Division dated May 7, 2003 is REVERSED and the decision of
Labor Arbiter Marita Padolina, dated December 14, 2001, is hereby REINSTATED.

SO ORDERED.26

The CA agreed with the LAs conclusion that Gramaje is not a legitimate job contractor but only a "labor-only"
contractor because of the following: (1) Gramaje failed to present its Audited Financial Statement that would
have shown its financial standing and ownership of equipment, machineries, and tools necessary to run her
own business;27 (2) Gramaje failed to present a single copy of the purported contract with Polyfoam as to the
packaging aspect of the latters business; 28 (3) Gramajes licenses supposedly issued by the DOLE appeared to
be spurious.29 (4) Gramaje was not registered with DOLE as a private recruitment agency; 30 and (5) Gramaje
presented only one (1) SSS Quarterly Collection List whose authenticity is doubtful. 31 The CA noted that
petitioners are represented by only one law firm though they made it appear that they were represented by
different lawyers.32 These circumstances, says the CA, give rise to the suspicion that the creation or
establishment of Gramaje was just a scheme designed to evade the obligation inherent in an employer-
employee relationship.33 Thus, respondent was indeed Polyfoams employee. This relationship was specifically
shown by Polyfoams exercise of supervision over the work of respondent; 34 the furnishing of a copy of
Polyfoams "Mga Alituntunin at Karampatang Parusa" to serve as respondents guide in the performance of his
duty;35 the length of time that respondent had performed activities necessary for Polyfoams business; 36 and
Polyfoams act of directly firing respondent.37 Finally, the appellate court affirmed the LAs findings of illegal
dismissal as respondent was dismissed from the service without cause and due process. 38 Consequently,
separation pay in lieu of reinstatement was awarded. The CA quoted with approval the LA conclusions on the
award of respondents other money claims.39

Petitioners now come before the Court in this petition for review on certiorari based on the following assigned
errors:

I.

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE PETITION FOR CERTIORARI FILED
BY HEREIN RESPONDENT CONSIDERING THE FACT THAT IT WAS CLEARLY FILED OUT OF
TIME, HAVING BEEN FILED ON THE 77TH DAY FROM RECEIPT BY HEREIN RESPONDENT OF
THE RESOLUTION OF THE NLRC DENYING HIS MOTION FOR RECONSIDERATION.

II.

THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE DECISION OF THE NLRC AND ITS
FINDINGS THAT A) RESPONDENT CONCEPCION IS AN EMPLOYEE OF P.A. GRAMAJE
EMPLOYMENT SERVICES; B) P.A. GRAMAJE IS A LEGITIMATE JOB CONTRACTOR; C)
RESPONDENT CONCEPCION WAS NOT DISMISSED FROM HIS JOB, CONSIDERING THAT
THESE FINDINGS ARE FULLY SUPPORTED BY EVIDENCE.

III.

THE COURT OF APPEALS ERRED IN REINSTATING THE DECISION OF THE LABOR ARBITER
MARITA PADOLINA AWARDING RESPONDENT CONCEPCION BACKWAGES, MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES.40

There are three issues for resolution, to wit: (1) whether or not Gramaje is an independent job contractor; (2)
whether or not an employer-employee relationship exists between Polyfoam and respondent; and (3) whether
or not respondent was illegally dismissed from employment.

Gramaje is a Labor-Only Contractor

33
Article 106 of the Labor Code explains the relations which may arise between an employer, a contractor, and
the contractors employees, thus:

ART. 106. Contractor or subcontracting. 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 and Employment may, by appropriate regulations, restrict or prohibit the contracting out
of labor to protect the rights of workers established under the Code. In so prohibiting or restricting, he may
make appropriate distinctions between labor-only contracting and job contracting as well as differentiations
within these types of contracting and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code.

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

In Sasan, Sr. v. National Labor Relations Commission 4th Division, 41 the Court distinguished permissible job
contracting or subcontracting from "labor-only" contracting, to wit:

Permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or
farm out to a contractor or subcontractor the performance or completion of a specific job, work or service within
a definite or predetermined period, regardless of whether such job, work or service is to be performed or
completed within or outside the premises of the principal. A person is considered engaged in legitimate job
contracting or subcontracting if the following conditions concur:

(a) The contractor or subcontractor carries on a distinct and independent business and undertakes to perform
the job, work or service on its own account and under its own responsibility according to its own manner and
method, and free from the control and direction of the principal in all matters connected with the performance of
the work except as to the results thereof;

(b) The contractor or subcontractor has substantial capital or investment; and

(c) The agreement between the principal and contractor or subcontractor assures the contractual employees
entitlement to all labor and occupational safety and health standards, free exercise of the right to self-
organization, security of tenure, and social and welfare benefits.

In contrast, labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor
merely recruits, supplies or places workers to perform a job, work or service for a principal. In labor-only
contracting, the following elements are present:

(a) The contractor or subcontractor does not have substantial capital or investment to actually perform
the job, work or service under its own account and responsibility; and

(b) The employees recruited, supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal. 42

34
The test 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 results of the work." 43 In San Miguel Corporation v. Semillano,44 the Court laid
down the criteria in determining the existence of an independent and permissible contractor relationship, to wit:

x x x [W]hether 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 employers power with respect to the
hiring, firing and payment of the contractors 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. 45

Simply put, the totality of the facts and the surrounding circumstances of the case are to be considered. Each
case must be determined by its own facts and all the features of the relationship are to be considered. 46

Applying the foregoing tests, we agree with the CAs conclusion that Gramaje is not an independent job
contractor, but a "labor-only" contractor.

First, Gramaje has no substantial capital or investment. The presumption is that a contractor is a labor-only
contractor unless he overcomes the burden of proving that it has substantial capital, investment, tools, and the
like. The employee should not be expected to prove the negative fact that the contractor does not have
substantial capital, investment and tools to engage in job-contracting. 47

Gramaje claimed that it has substantial capital of its own as well as investment in its office, equipment and
tools. She pointed out that she furnished the plastic containers and carton boxes used in carrying out the
function of packing the mattresses of Polyfoam. She added that she had placed in Polyfoams workplace ten
(10) sealing machines, twenty (20) hand trucks, and two (2) forklifts to enable respondent and the other
employees of Gramaje assigned at Polyfoam to perform their job. Finally, she explained that she had her own
office with her own staff.48However, aside from her own bare statement, neither Gramaje nor Polyfoam
presented evidence showing Gramajes ownership of the equipment and machineries used in the performance
of the alleged contracted job. Considering that these machineries are found in Polyfoams premises, there can
be no other logical conclusion but that the tools and equipment utilized by Gramaje and her "employees" are
owned by Polyfoam. Neither did Polyfoam nor Gramaje show that the latter had clients other than the former.
Since petitioners failed to adduce evidence that Gramaje had any substantial capital, investment or assets to
perform the work contracted for, the presumption that Gramaje is a labor-only contractor stands. 49

Second, Gramaje did not carry on an independent business or undertake the performance of its service
contract according to its own manner and method, free from the control and supervision of its principal,
Polyfoam, its apparent role having been merely to recruit persons to work for Polyfoam. 50 It is undisputed that
respondent had performed his task of packing Polyfoams foam products in Polyfoams premises. As to the
recruitment of respondent, petitioners were able to establish only that respondents application was referred to
Gramaje, but that is all. Prior to his termination, respondent had been performing the same job in Polyfoams
business for almost six (6) years. He was even furnished a copy of Polyfoams "Mga Alituntunin at
Karampatang Parusa,"51 which embodied Polyfoams rules on attendance, the manner of performing the
employees duties, ethical standards, cleanliness, health, safety, peace and order. These rules carried with
them the corresponding penalties in case of violation.

While it is true that petitioners submitted the Affidavit of Polyfoams supervisor Victor Abadia, claiming that the
latter did not exercise supervision over respondent because the latter was not Polyfoams but Gramajes
employee, said Affidavit is insufficient to prove such claim. Petitioners should have presented the person who
they claim to have exercised supervision over respondent and their alleged other employees assigned to
Polyfoam. It was never established that Gramaje took entire charge, control and supervision of the work and
service agreed upon. And as aptly observed by the CA, "it is likewise highly unusual and suspect as to the
absence of a written contract specifying the performance of a specified service, the nature and extent of the
service or work to be done and the term and duration of the relationship." 52

An Employer-Employee Relationship Exists Between Respondent and Polyfoam

35
A finding that a contractor is a "labor-only" contractor, as opposed to permissible job contracting, is equivalent
to declaring that there is an employer-employee relationship between the principal and the employees of the
supposed contractor, and the "labor-only" contractor is considered as a mere agent of the principal, the real
employer.53 In this case, Polyfoam is the principal employer and Gramaje is the labor-only contractor. Polyfoam
and Gramaje are, therefore, solidarily liable for the rightful claims of respondent. 54

Respondent was Illegally Dismissed

From Employment

Respondent stated that on January 14, 2000, his time card was suddenly taken off the rack. His supervisor
1wphi1

later informed him that Polyfoams management decided to dismiss him due to infraction of company rule. In
short, respondent insisted that he was dismissed from employment without just or lawful cause and without due
process. Polyfoam did not offer any explanation of such dismissal. It, instead, explained that respondents real
employer is Gramaje. Gramaje, on the other hand, denied the claim of illegal dismissal. She shifted the blame
on respondent claiming that the latter in fact abandoned his work.

The LA gave credence to respondents narration of the circumstances of the case. Said conclusion was
affirmed by the CA. We find no reason to depart from such findings.

Abandonment cannot be inferred from the actuations of respondent. When he discovered that his time card
was off the rack, he immediately inquired from his supervisor. He later sought the assistance of his counsel,
who wrote a letter addressed to Polyfoam requesting that he be re-admitted to work. When said request was
not acted upon, he filed the instant illegal dismissal case. These circumstances clearly negate the intention to
abandon his work.

Petitioners failed to show any valid or authorized cause under the Labor Code which allowed it to terminate the
services of respondent. Neither was it shown that respondent was given ample opportunity to contest the
legality of his dismissal. No notice of termination was given to him. Clearly, respondent was not afforded due
process. Having failed to establish compliance with the requirements of termination of employment under the
Labor Code, the dismissal of respondent was tainted with illegality.55 Consequently, respondent is 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 up to the time of his actual reinstatement. However, if reinstatement is no longer feasible as in this
case, separation pay equivalent to one month salary for every year of service shall be awarded as an
alternative.56 Thus, the CA is correct in affirming the LAs award of separation pay with full backwages and other
monetary benefits.

WHEREFORE, premises considered, the petition is hereby DENIED. The Court of Appeals Decision dated
December 19, 2005 and Resolution dated April 25, 2006, in CA-G.R. SP No. 83696, are AFFIRMED.

SO ORDERED.

SAN MIGUEL CORPORATION, Petitioner, versus PROSPERO A. ABALLA, BONNY J.

ABARING, EDWIN M. ADLA-ON, ALVIN C. ALCALDE, CELANIO D. ARROLLADO, EDDIE
A. ARROLLADO, REYNALDO T. ASONG, RENE A. ASPERA, JOEL D. BALATERIA, JOSEPH
D. BALATERIA, JOSE JOLLEN BALLADOS, WILFREDO B. BASAS, EDWIN E. BEATINGO,
SONNY V. BERONDO, CHRISTOPHER D. BRIONES, MARLON D. BRIONES, JOEL C.

36
BOOC, ENRIQUE CABALIDA, DIOSCORO R. CAHINOD, ERNESTO P. CAHINOD,
RENANTE S. CAHINOD, RUDERICK R. CALIXTON, RONILO C. CALVEZ, PANCHO CA?
ETE, JUNNY CASTEL, JUDY S. CELESTE, ROMEO CHUA, DANILO COBRA, ARMANDO C.
DEDOYCO, JOEY R. DELA CRUZ, JOHN D. DELFIN, RENELITO P. DEON, ARNEL C. DE
PEDRO, ORLANDO DERDER, CLIFFORD A. DESPI, RAMIE A. DESPI, SR., VICTOR A.
DESPI, ROLANDO L. DINGLE, ANTONIO D. DOLORFINO, LARRY DUMA-OP, NOEL
DUMOL, CHITO L. DUNGOG, RODERICK C. DUQUEZA, ROMMEL ESTREBOR, RIC E.
GALPO, MANSUETO GILLE, MAXIMO L. HILA-US, GERARDO J. JIMENEZ, ROBERTLY Y.
HOFILE?A, ROBERTO HOFILE?A, VICENTE INDENCIO, JONATHAN T. INVENTOR, PETER
PAUL T. INVENTOR, JOEBERT G. LAGARTO, RENATO LAMINA, ALVIN LAS POBRES,
ALBERT LAS POBRES, LEONARD LEMONCHITO, JERRY LIM, JOSE COLLY S. LUCERO,
ROBERTO E. MARTIL, HERNANDO MATILLANO, VICENTE M. MATILLANO, TANNY C.
MENDOZA, WILLIAM P. NAVARRO, WILSON P. NAVARRO, LEO A. OLVIDO, ROBERTO G.
OTERO, BIENVENIDO C. PAROCHILIN, REYNALDO C. PAROCHILIN, RICKY PALANOG,
BERNIE O. PILLO, ALBERTO O. PILLO, JOE-MARIE S. PUGNA, EDWIN G. RIBON, RAUL A.
RUBIO, HENRY S. SAMILLANO, EDGAR SANTIAGO, ROLAND B. SANTILLANA, ROLDAN
V. SAYAM, JOSEPH S. SAYSON, RENE SUARNABA, ELMAR TABLIGAN, JERRY D. TALITE,
OSCAR TALITE, WINIFREDO TALITE, CAMILO N. TEMPOROSA, JOSE TEMPOROSA,
RANDY TINGALA, TRISTAN A. TINGSON, ROGELIO TOMESA, DIONISE A. TORMIS,
ADELINO C. UNTAL, FELIX T. UNTAL, RONILO E. VISTA, JOAN C. VIYO and JOSE JOFER
C. VIYO and the COURT OF APPEALS, Respondents.

G.R. No. 149011 | 2005-06-28

Tagged under keywords

A discussion citing this case or law is available.

Labor Law; Labor Standards; Dismissal from Employment; Authorized Causes

DECISION

CARPIO-MORALES, J.:

Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and Visayas
Area Manager for Aquaculture Operations Leopoldo S. Titular, and Sunflower Multi-Purpose
Cooperative (Sunflower), represented by the Chairman of its Board of Directors Roy G. Asong,

37
entered into a one-year Contract of Services [1] commencing on January 1, 1993, to be renewed
on a month to month basis until terminated by either party. The pertinent provisions of the
contract read:

1. The cooperative agrees and undertakes to perform and/or provide for the company, on a non-
exclusive basis for a period of one year the following services for the Bacolod Shrimp Processing
Plant:

A. Messengerial/Janitorial
B. Shrimp Harvesting/Receiving
C. Sanitation/Washing/Cold Storage[2]

2. To carry out the undertaking specified in the immediately preceding paragraph, the
cooperative shall employ the necessary personnel and provide adequate equipment, materials,
tools and apparatus, to efficiently, fully and speedily accomplish the work and services
undertaken by the cooperative. xxx

3. In consideration of the above undertaking the company expressly agrees to pay the
cooperative the following rates per activity:

A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand Five Hundred
Pesos Only (P19,500.00)

B. Harvesting/Shrimp Receiving. Piece rate of P0.34/kg. Or P100.00 minimum per

person/activity whichever is higher, with provisions as follows:

P25.00 Fixed Fee per person

Additional meal allowance P15.00 every meal time in case harvest duration exceeds one meal.

38
This will be pre-set every harvest based on harvest plan approved by the Senior Buyer.

C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts.

One-half of the payment for all services rendered shall be payable on the fifteenth and the other
half, on the end of each month. The cooperative shall pay taxes, fees, dues and other
impositions that shall become due as a result of this contract.

The cooperative shall have the entire charge, control and supervision of the work and
services herein agreed upon. xxx

4. There is no employer-employee relationship between the company and the cooperative, or

the cooperative and any of its members, or the company and any members of the cooperative.
The cooperative is an association of self-employed members, an independent contractor, and an
entrepreneur. It is subject to the control and direction of the company only as to the result to be
accomplished by the work or services herein specified, and not as to the work herein contracted.
The cooperative and its members recognize that it is taking a business risk in accepting a fixed
service fee to provide the services contracted for and its realization of profit or loss from its
undertaking, in relation to all its other undertakings, will depend on how efficiently it deploys and
fields its members and how they perform the work and manage its operations.

5. The cooperative shall, whenever possible, maintain and keep under its control the premises
where the work under this contract shall be performed.

6. The cooperative shall have exclusive discretion in the selection, engagement and discharge
of its member-workers or otherwise in the direction and control thereof. The determination of
the wages, salaries and compensation of the member-workers of the cooperative shall be within
its full control. It is further understood that the cooperative is an independent contractor, and as
such, the cooperative agrees to comply with all the requirements of all pertinent laws and
ordinances, rules and regulations. Although it is understood and agreed between the parties
hereto that the cooperative, in the performance of its obligations, is subject to the control or
direction of the company merely as a (sic) result to be accomplished by the work or services

39
herein specified, and not as to the means and methods of accomplishing such result, the
cooperative hereby warrants that it will perform such work or services in such manner as will be
consistent with the achievement of the result herein contracted for.

xxx

8. The cooperative undertakes to pay the wages or salaries of its member-workers, as well as all
benefits, premiums and protection in accordance with the provisions of the labor code,
cooperative code and other applicable laws and decrees and the rules and regulations
promulgated by competent authorities, assuming all responsibility therefor.

The cooperative further undertakes to submit to the company within the first ten (10) days of
every month, a statement made, signed and sworn to by its duly authorized representative
before a notary public or other officer authorized by law to administer oaths, to the effect that
the cooperative has paid all wages or salaries due to its employees or personnel for services
rendered by them during the month immediately preceding, including overtime, if any, and that
such payments were all in accordance with the requirements of law.

xxx

12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall be for a
period of one (1) year commencing on January 1, 1993. Thereafter, this Contract will be deemed
renewed on a month-to-month basis until terminated by either party by sending a written notice
to the other at least thirty (30) days prior to the intended date of termination.

xxx[3] (Underscoring supplied)

Pursuant to the contract, Sunflower engaged private respondents to, as they did, render services
at SMCs Bacolod Shrimp Processing Plant at Sta. Fe, Bacolod City. The contract was deemed
renewed by the parties every month after its expiration on January 1, 1994 and private
respondents continued to perform their tasks until September 11, 1995.

40
In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration Branch
No. VI, Bacolod City, praying to be declared as regular employees of SMC, with claims for
recovery of all benefits and privileges enjoyed by SMC rank and file employees.

Private respondents subsequently filed on September 25, 1995 an Amended Complaint [4] to
include illegal dismissal as additional cause of action following SMCs closure of its Bacolod
Shrimp Processing Plant on September 15, 1995 [5] which resulted in the termination of their
services.

SMC filed a Motion for Leave to File Attached Third Party Complaint [6] dated November 27, 1995
to implead Sunflower as Third Party Defendant which was, by Order [7] of December 11, 1995,
granted by Labor Arbiter Ray Alan T. Drilon.

In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo City of
the Department of Labor and Employment (DOLE) a Notice of Closure [8] of its aquaculture
operations effective on even date, citing serious business losses.

By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents
complaint for lack of merit, ratiocinating as follows:

We sustain the stand of the respondent SMC that it could properly exercise its management
prerogative to contract out the preparation and processing aspects of its aquaculture operations.
Judicial notice has already been taken regarding the general practice adopted in government and
private institutions and industries of hiring independent contractors to perform special services.
xxx

xxx

Indeed, the law allows job contracting. Job contracting is permissible under the Labor Code
under specific conditions and we do not see how this activity could not be legally undertaken by
an independent service cooperative like the third-party respondent herein.

There is no basis to the demand for regularization simply on the theory that complainants
performed activities which are necessary and desirable in the business of respondent. It has

41
been held that the definition of regular employees as those who perform activities which are
necessary and desirable for the business of the employer is not always determinative because
any agreement may provide for one (1) party to render services for and in behalf of another for
a consideration even without being hired as an employee.

The charge of the complainants that third-party respondent is a mere labor-only contractor is a
sweeping generalization and completely unsubstantiated. xxx In the absence of clear and
convincing evidence showing that third-party respondent acted merely as a labor only contractor,
we are firmly convinced of the legitimacy and the integrity of its service contract with respondent
SMC.

In the same vein, the closure of the Bacolod Shrimp Processing Plant was a management
decision purely dictated by economic factors which was (sic) mainly serious business losses. The
law recognizes the right of the employer to close his business or cease his operations for
bonafide reasons, as much as it recognizes the right of the employer to terminate the
employment of any employee due to closure or cessation of business operations, unless the
closing is for the purpose of circumventing the provisions of the law on security of tenure. The
decision of respondent SMC to close its Bacolod Shrimp Processing Plant, due to serious business
losses which has (sic) clearly been established, is a management prerogative which could hardly
be interfered with.

xxx The closure did affect the regular employees and workers of the Bacolod Processing Plant,
who were accordingly terminated following the legal requisites prescribed by law. The closure,
however, in so far as the complainants are concerned, resulted in the termination of SMCs
service contract with their cooperative xxx[9] (Underscoring supplied)

Private respondents appealed to the NLRC.

By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of merit, it finding
that third party respondent Sunflower was an independent contractor in light of its observation
that [i]n all the activities of private respondents, they were under the actual direction, control
and supervision of third party respondent Sunflower, as well as the payment of wages, and
power of dismissal.[10]

Private respondents Motion for Reconsideration[11] having been denied by the NLRC for lack of

42
merit by Resolution of September 10, 1999, they filed a petition for certiorari [12] before the Court
of Appeals (CA).

Before the CA, SMC filed a Motion to Dismiss [13] private respondents petition for non-compliance
with the Rules on Civil Procedure and failure to show grave abuse of discretion on the part of the
NLRC.

SMC subsequently filed its Comment[14] to the petition on March 30, 2000.

By Decision of February 7, 2001, the appellate court reversed the NLRC decision and
accordingly found for private respondents, disposing as follows:

WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby RENDERED: (1)

REVERSING and SETTING ASIDE both the 29 December 1998 decision and 10 September 1999
resolution of the National Labor Relations Commission (NLRC), Fourth Division, Cebu City in
NLRC Case No. V-0361-97 as well as the 23 September 1997 decision of the labor arbiter in RAB
Case No. 06-07-10316-95; (2) ORDERING the respondent, San Miguel Corporation, to GRANT
petitioners: (a) separation pay in accordance with the computation given to the regular SMC
employees working at its Bacolod Shrimp Processing Plant with full backwages, inclusive of
allowances and other benefits or their monetary equivalent, from 11 September 1995, the time
their actual compensation was withheld from them, up to the time of the finality of this decision;
(b) differentials pays (sic) effective as of and from the time petitioners acquired regular
employment status pursuant to the disquisition mentioned above, and all such other and further
benefits as provided by applicable collective bargaining agreement(s) or other relations, or by
law, beginning such time up to their termination from employment on 11 September 1995; and
ORDERING private respondent SMC to PAY unto the petitioners attorneys fees equivalent to ten
(10%) percent of the total award.

No pronouncement as to costs.

SO ORDERED.[15] (Underscoring supplied)

43
Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate court
reasoned:

Although the terms of the non-exclusive contract of service between SMC and [Sunflower]
showed a clear intent to abstain from establishing an employer-employee relationship between
SMC and [Sunflower] or the latters members,the extent to which the parties successfully
realized this intent in the light of the applicable law is the controlling factor in determining the
real and actual relationship between or among the parties.

xxx

With respect to the power to control petitioners conduct, it appears that petitioners were under
the direct control and supervision of SMC supervisors both as to the manner they performed
their functions and as to the end results thereof. It was only after petitioners lodged a complaint
to have their status declared as regular employees of SMC that certain members of [Sunflower]
began to countersign petitioners daily time records to make it appear that they (petitioners)
were under the control and supervision of [Sunflower] team leaders (rollo, pp. 523-527). xxx

Even without these instances indicative of control by SMC over the petitioners, it is safe
to assume that SMC would never have allowed the petitioners to work within its premises, using
its own facilities, equipment and tools, alongside SMC employees discharging similar or identical
activities unless it exercised a substantial degree of control and supervision over the
petitioners not only as to the manner they performed their functions but also as to the end
results of such functions.

xxx

xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent
contractors. [Sunflower] and the petitioners did not have substantial capital or investment in the
form of tools, equipment, implements, work premises, et cetera necessary to actually perform
the service under their own account, responsibility, and method. The only work premises
maintained by [Sunflower] was a small office within the confines of a small carinderia or

44
refreshment parlor owned by the mother of its chair, Roy Asong; the only equipment it owned
was a typewriter (rollo, pp. 525-525) and, the only assets it provided SMC were the bare bodies
of its members, the petitioners herein (rollo, p. 523).

In addition, as shown earlier, petitioners, who worked inside the premises of SMC, were under
the control and supervision of SMC both as to the manner and method in discharging their
functions and as to the results thereof.

Besides, it should be taken into account that the activities undertaken by the petitioners as
cleaners, janitors, messengers and shrimp harvesters, packers and handlers were directly related
to the aquaculture business of SMC(See Guarin vs. NLRC, 198 SCRA 267, 273). This is
confirmed by the renewal of the service contract from January 1993 to September 1995, a period
of close to three (3) years.

Moreover, the petitioners here numbering ninety seven (97), by itself, is a considerable workforce
and raises the suspicion that the non-exclusive service contract between SMC and [Sunflower]
was designed to evade the obligations inherent in an employer-employee relationship
(See Rhone-Poulenc Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249, 259).

Equally suspicious is the fact that the notary public who signed the by-laws of [Sunflower] and its
[Sunflower] retained counsel are both partners of the local counsel of SMC (rollo, p. 9).

xxx

With these observations, no other logical conclusion can be reached except that [Sunflower]
acted as an agent of SMC, facilitating the manpower requirements of the latter, the real employer
of the petitioners. We simply cannot allow these two entities through the convenience of a non-
exclusive service contract to stipulate on the existence of employer-employee relation. Such
existence is a question of law which cannot be made the subject of agreement to the detriment
of the petitioners (Tabas vs. California Manufacturing, Inc., 169 SCRA 497, 500).

xxx

45
There being a finding of labor-only contracting, liability must be shouldered either by SMC or
[Sunflower] or shared by both (See Tabas vs. California Manufacturing, Inc., supra, p. 502).
SMC however should be held solely liable for [Sunflower] became non-existent with the
closure of the aquaculture business of SMC.

Furthermore, since the closure of the aquaculture operations of SMC appears to be valid,
reinstatement is no longer feasible. Consistent with the pronouncement in Bustamante, et al.,
vs. NLRC, G.R. No. 111651, 28 November 1996, petitioners are thus entitled to separation pay
(in the computation similar to those given to regular SMC employees at its Bacolod Shrimp
Processing Plant) with full backwages, inclusive of allowances and other benefits or their
monetary equivalent, from the time their actual compensation was withheld from them up to
the time of the finality of this decision. This is without prejudice to differentials pays (sic)
effective as of and from the time petitioners acquired regular employment status pursuant to the
discussion mentioned above, and all such other and further benefits as provided by applicable
collective bargaining agreement(s) or other relations, or by law, beginning such time up to their
termination from employment on 11 September 1995.[16] (Emphasis and underscoring supplied)

SMCs Motion for Reconsideration[17] having been denied for lack of merit by Resolution of July 11,
2001, it comes before this Court via the present petition for review on certiorari assigning to the
CA the following errors:

THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE COURSE AND GRANTING
RESPONDENTS PATENTLY DEFECTIVE PETITION FOR CERTIORARI. IN DOING SO, THE COURT
OF APPEALS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.

II

THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE RESPONDENTS AS

46
COMPLAINANTS IN THE CASE BEFORE THE LABOR ARBITER. IN DOING SO, THE COURT OF
APPEALS DECIDED THIS CASE IN A MANNER NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT.

III

THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE EMPLOYEES OF
SMC.

IV

THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic) THAT RESPONDENTS ARE NOT
ENTITLED TO ANY RELIEF. THE CLOSURE OF THE BACOLOD SHRIMP PROCESSING PLANT WAS
DUE TO SERIOUS BUSINESS LOSSES.[18] (Underscoring supplied)

SMC bewails the failure of the appellate court to outrightly dismiss the petition for certiorari as
only three out of the ninety seven named petitioners signed the verification and certification
against forum-shopping.

While the general rule is that the certificate of non-forum shopping must be signed by all the
plaintiffs or petitioners in a case and the signature of only one of them is insufficient, [19] this Court
has stressed that the rules on forum shopping, which were designed to promote and facilitate the
orderly administration of justice, should not be interpreted with such absolute literalness as to
subvert its own ultimate and legitimate objective. [20] Strict compliance with the provisions
regarding the certificate of non-forum shopping merely underscores its mandatory nature in that
the certification cannot be altogether dispensed with or its requirements completely disregarded.
[21]
It does not, however, thereby interdict substantial compliance with its provisions under
justifiable circumstances.[22]

Thus in the recent case of HLC Construction and Development Corporation v. Emily Homes
Subdivision Homeowners Association,[23] this Court held:

47
Respondents (who were plaintiffs in the trial court) filed the complaint against petitioners as a
group, represented by their homeowners association president who was likewise one of the
plaintiffs, Mr. Samaon M. Buat. Respondents raised one cause of action which was the breach of
contractual obligations and payment of damages. They shared a common interest in the subject
matter of the case, being the aggrieved residents of the poorly constructed and developed Emily
Homes Subdivision. Due to the collective nature of the case, there was no doubt that Mr.
Samaon M. Buat could validly sign the certificate of non-forum shopping in behalf of all his co-
plaintiffs. In cases therefore where it is highly impractical to require all the plaintiffs to sign the
certificate of non-forum shopping, it is sufficient, in order not to defeat the ends of justice, for
one of the plaintiffs, acting as representative, to sign the certificate provided that xxx
the plaintiffs share a common interest in the subject matter of the case or filed the
case as a collective, raising only one common cause of action or defense.[24] (Emphasis
and underscoring supplied)

Given the collective nature of the petition filed before the appellate court by herein private
respondents, raising one common cause of action against SMC, the execution by private
respondents Winifredo Talite, Renelito Deon and Jose Temporosa in behalf of all the other private
respondents of the certificate of non-forum shopping constitutes substantial compliance with the
Rules.[25] That the three indeed represented their co-petitioners before the appellate court is, as it
correctly found, subsequently proven to be true as shown by the signatures of the majority of
the petitioners appearing in their memorandum filed before Us.[26]

Additionally, the merits of the substantive aspects of the case may also be deemed as special
circumstance or compelling reason to take cognizance of a petition although the certification
against forum shopping was not executed and signed by all of the petitioners. [27]

SMC goes on to argue that the petition filed before the CA is fatally defective as it was not
accompanied by copies of all pleadings and documents relevant and pertinent thereto in
contravention of Section 1, Rule 65 of the Rules of Court. [28]

This Court is not persuaded. The records show that private respondents appended the following
documents to their petition before the appellate court: the September 23, 1997 Decision of the
Labor Arbiter,[29] their Notice of Appeal with Appeal Memorandum dated October 16, 1997 filed

48
before the NLRC,[30] the December 29, 1998 NLRC Decision,[31] their Motion for
Reconsideration dated March 26, 1999 filed with the NLRC [32]
and the September 10, 1999 NLRC
Resolution.[33]

It bears stressing at any rate that it is the appellate court which ultimately determines if the
supporting documents are sufficient to make out a prima facie case.[34] It discerns whether on the
basis of what have been submitted it could already judiciously determine the merits of the
petition.[35] In the case at bar, the CA found that the petition was adequately supported by
relevant and pertinent documents.

At all events, this Court has allowed a liberal construction of the rule on the accomplishment of a
certificate of non-forum shopping in the following cases: (1) where a rigid application will result
in manifest failure or miscarriage of justice; (2) where the interest of substantial justice will be
served; (3) where the resolution of the motion is addressed solely to the sound and judicious
discretion of the court; and (4) where the injustice to the adverse party is not commensurate
with the degree of his thoughtlessness in not complying with the procedure prescribed. [36]

Rules of procedure should indeed be viewed as 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 eschewed. [37]

SMC further argues that the appellate court exceeded its jurisdiction in reversing the decisions of
the labor arbiter and the NLRC as findings of facts of quasi-judicial bodies like the NLRC are
accorded great respect and finality, and that this principle acquires greater weight and
application in the case at bar as the labor arbiter and the NLRC have the same factual findings.

The general rule, no doubt, is that findings of facts of an administrative agency which has
acquired expertise in the particular field of its endeavor are accorded great weight on appeal.
[38]
The rule is not absolute and admits of certain well-recognized exceptions, however. Thus,
when the findings of fact of the labor arbiter and the NLRC are not supported by substantial
evidence or their judgment was based on a misapprehension of facts, the appellate court may
make an independent evaluation of the facts of the case. [39]

SMC further faults the appellate court in giving due course to private respondents petition
despite the fact that the complaint filed before the labor arbiter was signed and verified only by

49
private respondent Winifredo Talite; that private respondents position paper [40] was verified by
only six[41] out of the ninety seven complainants; and that their Joint-Affidavit [42] was executed
only by twelve[43] of the complainants.

Specifically with respect to the Joint-Affidavit of private respondents, SMC asserts that it should
not have been considered by the appellate court in establishing the claims of those who did not
sign the same, citing this Courts ruling in Southern Cotabato Development and Construction,
Inc. v. NLRC.[44]

SMCs position does not lie.

A perusal of the complaint shows that the ninety seven complainants were being represented by
their counsel of choice. Thus the first sentence of their complaint alleges: xxx complainants, by
counsel and unto this Honorable Office respectfully state xxx. And the complaint was signed by
Atty. Jose Max S. Ortiz as counsel for the complainants. Following Section 6, Rule III of the
1990 Rules of Procedure of the NLRC, now Section 7, Rule III of the 1999 NLRC Rules, Atty. Ortiz
is presumed to be properly authorized by private respondents in filing the complaint.

That the verification wherein it is manifested that private respondent Talite was one of the
complainants and was causing the preparation of the complaint with the authority of my co-
complainants indubitably shows that Talite was representing the rest of his co-complainants in
signing the verification in accordance with Section 7, Rule III of the 1990 NLRC Rules, now
Section 8, Rule 3 of the 1999 NLRC Rules, which states:

Section 7. Authority to bind party. Attorneys and other representatives of parties shall have
authority to bind their clients in all matters of procedure; but they cannot, without a special
power of attorney or express consent, enter into a compromise agreement with the opposing
party in full or partial discharge of a clients claim. (Underscoring supplied)

As regards private respondents position paper which bore the signatures of only six of them,
appended to it was an Authority/Confirmation of Authority[45] signed by the ninety one others
conferring authority to their counsel to file RAB Case No. 06-07-10316-95, entitled Winifredo
Talite et al. v. San Miguel Corporation presently pending before the sala of Labor Arbiter Ray Alan

50
Drilon at the NLRC Regional Arbitration Branch No. VI in Bacolod City and appointing him as
their retained counsel to represent them in the said case.

That there has been substantial compliance with the requirement on verification of position
papers under Section 3, Rule V of the 1990 NLRC Rules of Procedure [46] is not difficult to
appreciate in light of the provision of Section 7, Rule V of the 1990 NLRC Rules, now Section 9,
Rule V of the 1999 NLRC Rules which reads:

Section 7. Nature of Proceedings. The proceedings before a Labor Arbiter shall be non-litigious
in nature. Subject to the requirements of due process, the technicalities of law and procedure
and the rules obtaining in the courts of law shall not strictly apply thereto. The Labor Arbiter
may avail himself of all reasonable means to ascertain the facts of the controversy speedily,
including ocular inspection and examination of well-informed persons. (underscoring supplied)

As regards private respondents Joint-Affidavit which is being assailed in view of the failure of
some complainants to affix their signatures thereon, this Court quotes with approval the
appellate courts ratiocinations:

A perusal of the Southern Cotabato Development Case would reveal that movant did not quote
the whole text of paragraph 5 on page 865 of 280 SCRA. The whole paragraph reads:

Clearly then, as to those who opted to move for the dismissal of their complaints, or did not
submit their affidavits nor appear during trial and in whose favor no other independent evidence
was adduced, no award for back wages could have been validly and properly made for want of
factual basis. There is no showing at all that any of the affidavits of the thirty-four (34)
complainants were offered as evidence for those who did not submit their affidavits, or that such
affidavits had any bearing at all on the rights and interest of the latter. In the same vein, private
respondents position paper was not of any help to these delinquent complainants.

The implication is that as long as the affidavits of the complainants were offered as
evidence for those who did not submit theirs, or the affidavits were material and
relevant to the rights and interest of the latter, such affidavits may be sufficient to

51
establish the claims of those who did not give their affidavits.

Here, a reading of the joint affidavit signed by twelve (12) of the ninety-seven (97) complainants
(petitioners herein) would readily reveal that the affidavit was offered as evidence not only for
the signatories therein but for all of the complainants. (These ninety-seven (97) individuals were
previously identified during the mandatory conference as the only complainants in the
proceedings before the labor arbiter) Moreover, the affidavit touched on the common interest of
all of the complainants as it supported their claim of the existence of an employer-employee
relationship between them and respondent SMC. Thus, the said affidavit was enough to prove
the claims of the rest of the complainants.[47] (Emphasis supplied, underscoring in the original)

In any event, SMC is reminded that the rules of evidence prevailing in courts of law or equity do
not control proceedings before the Labor Arbiter. So Article 221 of the Labor Code enjoins:

ART. 221. Technical rules not binding and prior resort to amicable settlement. In any
proceeding before the Commission or any of the Labor Arbiters, the rules of evidence prevailing
in courts of law or equity shall not be controlling and it is the spirit and intention of this Code
that the Commission and its members and the Labor Arbiters shall use every and all reasonable
means to ascertain the facts in each case speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of due process. xxx

As such, their application may be relaxed to serve the demands of substantial justice. [48]

On the merits, the petition just the same fails.

SMC insists that private respondents are the employees of Sunflower, an independent contractor.
On the other hand, private respondents assert that Sunflower is a labor-only contractor.

Article 106 of the Labor Code provides:

52
ART. 106. Contractor or subcontracting. 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 the 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.

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18, distinguishes between legitimate and labor-only contracting:

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting,

there exists a trilateral relationship under which there is a contract for a specific job, work or
service between the principal and the contractor or subcontractor, and a contract of employment
between the contractor or subcontractor and its workers. Hence, there are three parties involved
in these arrangements, the principal which decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the capacity to independently undertake
the performance of the job, work or service, and the contractual workers engaged by the

53
contractor or subcontractor to accomplish the job, work or service.

Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis hereby

declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where
the contractor or subcontractor merely recruits, supplies or places workers to perform a job,
work or service for a principal, and any of the following elements are present:

i) The contractor or subcontractor does not have substantial capital or investment which relates
to the job, work or service to be performed and the employees recruited, supplied or placed by
such contractor or subcontractor are performing activities which are directly related to the main
business of the principal, or

ii) The contractor does not exercise the right to control over the performance of the work of the
contractual employee.

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the
Labor Code, as amended.

Substantial capital or investment refers to capital stocks and subscribed capitalization in the
case of corporations, tools, equipment, implements, machineries and work premises, actually
and directly used by the contractor or subcontractor in the performance or completion of the job,
work or service contracted out.

The right to control shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.

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 results of the work. [49]

In legitimate labor contracting, the law creates an employer-employee relationship for a limited
purpose, i.e., to ensure that the employees are paid their wages. The principal employer

54
becomes jointly and severally liable with the job contractor, only for the payment of the
employees wages whenever the contractor fails to pay the same. Other than that, the principal
employer is not responsible for any claim made by the employees. [50]

In labor-only contracting, the statute creates an employer-employee relationship for a

comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered
merely an agent of the principal employer and the latter is responsible to the employees of the
labor-only contractor as if such employees had been directly employed by the principal employer.
[51]

The Contract of Services between SMC and Sunflower shows that the parties clearly disavowed
the existence of an employer-employee relationship between SMC and private respondents. The
language of a contract is not, however, determinative of the parties relationship; rather it is the
totality of the facts and surrounding circumstances of the case. [52] A party cannot dictate, by the
mere expedient of a unilateral declaration in a contract, the character of its business,i.e.,
whether as labor-only contractor or job contractor, it being crucial that its character be measured
in terms of and determined by the criteria set by statute. [53]

SMC argues that Sunflower could not have been issued a certificate of registration as a
cooperative if it had no substantial capital.[54]

While indeed Sunflower was issued Certificate of Registration No. IL0-875 [55] on February 10,
1992 by the Cooperative Development Authority, this merely shows that it had at least
P2,000.00 in paid-up share capital as mandated by Section 5 of Article 14 [56] of Republic Act No.
6938, otherwise known as the Cooperative Code, which amount cannot be considered substantial
capitalization.

What appears is that Sunflower does not have substantial capitalization or investment in the
form of tools, equipment, machineries, work premises and other materials to qualify it as an
independent contractor.

On the other hand, it is gathered that the lot, building, machineries and all other working tools
utilized by private respondents in carrying out their tasks were owned and provided by SMC.
Consider the following uncontroverted allegations of private respondents in the Joint Affidavit:

55
[Sunflower], during the existence of its service contract with respondent SMC, did not own a
single machinery, equipment, or working tool used in the processing plant. Everything was
owned and provided by respondent SMC. The lot, the building, and working facilities are owned
by respondent SMC. The machineries and equipments (sic) like washer machine, oven or
cooking machine, sizer machine, freezer, storage, and chilling tanks, push carts, hydrolic (sic)
jack, tables, and chairs were all owned by respondent SMC. All the boxes, trays, molding pan
used in the processing are also owned by respondent SMC. The gloves and boots used by the
complainants were also owned by respondent SMC. Even the mops, electric floor cleaners,
brush, hoose (sic), soaps, floor waxes, chlorine, liquid stain removers, lysol and the like used by
the complainants assigned as cleaners were all owned and provided by respondent SMC.

Simply stated, third-party respondent did not own even a small capital in the form of tools,
machineries, or facilities used in said prawn processing

xxx

The alleged office of [Sunflower] is found within the confines of a small carinderia or
refreshment (sic) owned by the mother of the Cooperative Chairman Roy Asong.

xxx In said . . . office, the only equipment used and owned by [Sunflower] was a
typewriter. [57]And from the job description provided by SMC itself, the work assigned to private
respondents was directly related to the aquaculture operations of SMC. Undoubtedly, the nature
of the work performed by private respondents in shrimp harvesting, receiving and packing
formed an integral part of the shrimp processing operations of SMC. As for janitorial and
messengerial services, that they are considered directly related to the principal business of the
employer[58] has been jurisprudentially recognized.

Furthermore, Sunflower did not carry on an independent business or undertake the performance
of its service contract according to its own manner and method, free from the control and
supervision of its principal, SMC, its apparent role having been merely to recruit persons to work
for SMC.

56
Thus, it is gathered from the evidence adduced by private respondents before the labor arbiter
that their daily time records were signed by SMC supervisors Ike Puentebella, Joemel Haro,
Joemari Raca, Erwin Tumonong, Edison Arguello, and Stephen Palabrica, which fact shows that
SMC exercised the power of control and supervision over its employees. [59] And control of the
premises in which private respondents worked was by SMC. These tend to disprove the
independence of the contractor.[60]

More. Private respondents had been working in the aqua processing plant inside the SMC
compound alongside regular SMC shrimp processing workers performing identical jobs under the
same SMC supervisors.[61] This circumstance is another indicium of the existence of a labor-only
contractorship.[62]

And as private respondents alleged in their Joint Affidavit which did not escape the observation of
the CA, no showing to the contrary having been proffered by SMC, Sunflower did not cater to
clients other than SMC,[63] and with the closure of SMCs Bacolod Shrimp Processing Plant,
Sunflower likewise ceased to exist. This Courts ruling in San Miguel Corporation v. MAERC
Integrated Services, Inc.[64] is thus instructive.

xxx Nor do we believe MAERC to have an independent business. Not only was it set up to
specifically meet the pressing needs of SMC which was then having labor problems in its
segregation division, none of its workers was also ever assigned to any other establishment, thus
convincing us that it was created solely to service the needs of SMC. Naturally, with the
severance of relationship between MAERC and SMC followed MAERCs cessation of operations,the
loss of jobs for the whole MAERC workforce and the resulting actions instituted by the workers.
[65]
(Underscoring supplied)

All the foregoing considerations affirm by more than substantial evidence the existence of an
employer-employee relationship between SMC and private respondents.

Since private respondents who were engaged in shrimp processing performed tasks usually
necessary or desirable in the aquaculture business of SMC, they should be deemed regular
employees of the latter[66] and as such are entitled to all the benefits and rights appurtenant to
regular employment.[67] They should thus be awarded differential pay corresponding to the

57
difference between the wages and benefits given them and those accorded SMCs other regular
employees.

Respecting the private respondents who were tasked with janitorial and messengerial duties, this
Court quotes with approval the appellate courts ruling thereon:

Those performing janitorial and messengerial services however acquired regular status only after
rendering one-year service pursuant to Article 280 of the Labor Code. Although janitorial and
messengerial services are considered directly related to the aquaculture business of SMC, they
are deemed unnecessary in the conduct of its principal business; hence, the distinction
(See Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-137 and Philippine Bank of
Communications v. NLRC, supra, p. 359).[68]

The law of course provides for 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. [69]

As for those of private respondents who were engaged in janitorial and messengerial tasks, they
fall under the second category and are thus entitled to differential pay and benefits extended to
other SMC regular employees from the day immediately following their first year of service. [70]

Regarding the closure of SMCs aquaculture operations and the consequent termination of private
respondents, Article 283 of the Labor Code provides:

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 this Title, by serving a written notice on the workers and the Department 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

58
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 cases of closures 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 to 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.
(Underscoring supplied)

In the case at bar, a particular department under the SMC group of companies was closed
allegedly due to serious business reverses. This constitutes retrenchment by, and not closure of,
the enterprise or the company itself as SMC has not totally ceased operations but is still very
much an on-going and highly viable business concern. [71]

Retrenchment is a management prerogative consistently recognized and affirmed by this Court.

It is, however, subject to faithful compliance with the substantive and procedural requirements
laid down by law and jurisprudence.[72]

For retrenchment to be considered valid the following substantial requirements must be met: (a)
the losses expected should be substantial and not merely de minimis in extent; (b) the
substantial losses apprehended must be reasonably imminent such as can be perceived
objectively and in good faith by the employer; (c) the retrenchment must be reasonably
necessary and likely to effectively prevent the expected losses; and (d) the alleged losses, if
already incurred, and the expected imminent losses sought to be forestalled, must be proved by
sufficient and convincing evidence.[73]

In the discharge of these requirements, it is the employer who has the onus, being in the nature
of an affirmative defense.[74]

Normally, the condition of business losses is shown by audited financial documents like yearly
balance sheets, profit and loss statements and annual income tax returns. The financial
statements must be prepared and signed by independent auditors failing which they can be
assailed as self-serving documents. [75]

In the case at bar, company losses were duly established by financial documents audited by

59
Joaquin Cunanan & Co. showing that the aquaculture operations of SMCs Agribusiness Division
accumulated losses amounting to P145,848,172.00 in 1992 resulting in the closure of its
Calatrava Aquaculture Center in Negros Occidental, P11,393,071.00 in 1993 and P80,325,608.00
in 1994 which led to the closure of its San Fernando Shrimp Processing Plant in Pampanga and
the Bacolod Shrimp Processing Plant in 1995.

SMC has thus proven substantial business reverses justifying retrenchment of its employees.

For termination due to retrenchment to be valid, however, the law requires that written notices of
the intended retrenchment be served by the employer on the worker and on the DOLE at least
one (1) month before the actual date of the retrenchment, [76] in order to give employees some
time to prepare for the eventual loss of their jobs, as well as to give DOLE the opportunity to
ascertain the verity of the alleged cause of termination. [77]

Private respondents, however, were merely verbally informed on September 10, 1995 by SMC
Prawn Manager Ponciano Capay that effective the following day or on September 11, 1995, they
were no longer to report for work as SMC would be closing its operations. [78]

Where the dismissal is based on an authorized cause under Article 283 of the Labor Code but the
employer failed to comply with the notice requirement, the sanction should be stiff as the
dismissal process was initiated by the employers exercise of his management prerogative, as
opposed to a dismissal based on a just cause under Article 282 with the same procedural
infirmity where the sanction to be imposed upon the employer should be tempered as the
dismissal process was, in effect, initiated by an act imputable to the employee. [79]

In light of the factual circumstances of the case at bar, this Court awards P50,000.00 to each
private respondent as nominal damages.

The grant of separation pay as an incidence of termination of employment due to retrenchment

to prevent losses is a statutory obligation on the part of the employer and a demandable right on
the part of the employee. Private respondents should thus be awarded separation pay equivalent
to at least one (1) month pay or to at least one-half month pay for every year of service,
whichever is higher, as mandated by Article 283 of the Labor Code or the separation pay
awarded by SMC to other regular SMC employees that were terminated as a result of the
retrenchment, depending on which is most beneficial to private respondents.

60
Considering that private respondents were not illegally dismissed, however, no backwages need
be awarded. It is well settled that backwages may be granted only when there is a finding of
illegal dismissal.[80] The appellate court thus erred in awarding backwages to private respondents
upon the authority of Bustamante v. NLRC,[81] what was involved in that case being one of illegal
dismissal.

With respect to attorneys fees, in actions for recovery of wages or where an employee was
forced to litigate and thus incurred expenses to protect his rights and interests, [82] a maximum of
ten percent (10%) of the total monetary award[83] by way of attorneys fees is justifiable under
Article 111 of the Labor Code, [84] Section 8, Rule VIII, Book III of its Implementing Rules, [85] and
paragraph 7, Article 2208 of the Civil Code. [86] Although an express finding of facts and law is still
necessary to prove the merit of the award, there need not be any showing that the employer
acted maliciously or in bad faith when it withheld the wages. There need only be a showing that
the lawful wages were not paid accordingly, as in this case. [87]

Absent any evidence showing that Sunflower has been dissolved in accordance with law,
pursuant to Rule VIII-A, Section 19[88] of the Omnibus Rules Implementing the Labor Code,
Sunflower is held solidarily liable with SMC for all the rightful claims of private respondents.

WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001 and
Resolution dated July 11, 2001 of the Court of Appeals are AFFIRMED with MODIFICATION.

Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby ORDERED
to jointly and severally pay each private respondent differential pay from the time they became
regular employees up to the date of their termination; separation pay equivalent to at least one
(1) month pay or to at least one-half month pay for every year of service, whichever is higher, as
mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to other
regular SMC employees that were terminated as a result of the retrenchment, depending on
which is most beneficial to private respondents; and ten percent (10%) attorneys fees based on
the herein modified award.

Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the
amount of P50,000.00, representing nominal damages for non-compliance with statutory due
process.

61
The award of backwages is DELETED.

SO ORDERED.

JEROMIE D. ESCASINAS and EVAN RIGOR SINGCO, Petitioners, versus

SHANGRI-LA'S MACTAN ISLAND RESORT and DR. JESSICA J.R. PEPITO,
Respondents.
G.R. No. 178827 | 2009-03-04

Tagged under keywords

DECISION

62
CARPIO MORALES, J.:

Registered nurses Jeromie D. Escasinas and Evan Rigor Singco (petitioners) were engaged
in 1999 and 1996, respectively, by Dr. Jessica Joyce R. Pepito (respondent doctor) to work
in her clinic at respondent Shangri-la's Mactan Island Resort (Shangri-la) in Cebu of which
she was a retained physician.

In late 2002, petitioners filed with the National Labor Relations Commission (NLRC) Regional
Arbitration Branch No. VII (NLRC-RAB No. VII) a complaint[1] for regularization,
underpayment of wages, non-payment of holiday pay, night shift differential and 13th
month pay differential against respondents, claiming that they are regular employees of
Shangri-la. The case was docketed as RAB Case No. 07-11-2089-02.

Shangri-la claimed, however, that petitioners were not its employees but of respondent
doctor whom it retained via Memorandum of Agreement (MOA)[2] pursuant to Article 157 of
the Labor Code, as amended.

Respondent doctor for her part claimed that petitioners were already working for the
previous retained physicians of Shangri-la before she was retained by Shangri-la; and that
she maintained petitioners' services upon their request.

By Decision[3] of May 6, 2003, Labor Arbiter Ernesto F. Carreon declared petitioners to be

regular employees of Shangri-la. The Arbiter thus ordered Shangri-la to grant them the
wages and benefits due them as regular employees from the time their services were
engaged.

In finding petitioners to be regular employees of Shangri-la, the Arbiter noted that they
usually perform work which is necessary and desirable to Shangri-la's business; that they
observe clinic hours and render services only to Shangri-la's guests and employees; that
payment for their salaries were recommended to Shangri-la's Human Resource Department
(HRD); that respondent doctor was Shangri-la's "in-house" physician, hence, also an
employee; and that the MOA between Shangri-la and respondent doctor was an "insidious
mechanism in order to circumvent [the doctor's] tenurial security and that of the employees
under her."

Shangri-la and respondent doctor appealed to the NLRC. Petitioners appealed too, but only
with respect to the non-award to them of some of the benefits they were claiming.

By Decision[4] dated March 31, 2005, the NLRC granted Shangri-la's and respondent
doctor's appeal and dismissed petitioners' complaint for lack of merit, it finding that no
employer-employee relationship exists between petitioner and Shangri-la. In so deciding,
the NLRC held that the Arbiter erred in interpreting Article 157 in relation to Article 280 of
the Labor Code, as what is required under Article 157 is that the employer should provide
the services of medical personnel to its employees, but nowhere in said article is a provision
that nurses are required to be employed; that contrary to the finding of the Arbiter, even if
Article 280 states that if a worker performs work usually necessary or desirable in the
business of the employer, he cannot be automatically deemed a regular employee; and that

63
the MOA amply shows that respondent doctor was in fact engaged by Shangri-la on a
retainer basis, under which she could hire her own nurses and other clinic personnel.

Brushing aside petitioners' contention that since their application for employment was
addressed to Shangri-la, it was really Shangri-la which hired them and not respondent
doctor, the NLRC noted that the applications for employment were made by persons who are
not parties to the case and were not shown to have been actually hired by Shangri-la.

On the issue of payment of wages, the NLRC held that the fact that, for some months,
payment of petitioners' wages were recommended by Shangri-la's HRD did not prove that it
was Shangri-la which pays their wages. It thus credited respondent doctor's explanation
that the recommendations for payment were based on the billings she prepared for salaries
of additional nurses during Shangri-la's peak months of operation, in accordance with the
retainership agreement, the guests' payments for medical services having been paid directly
to Shanrgi-la.

Petitioners thereupon brought the case to the Court of Appeals which, by Decision[5] of May
22, 2007, affirmed the NLRC Decision that no employer-employee relationship exists
between Shangri-la and petitioners. The appellate court concluded that all aspects of the
employment of petitioners being under the supervision and control of respondent doctor and
since Shangri-la is not principally engaged in the business of providing medical or healthcare
services, petitioners could not be regarded as regular employees of Shangri-la.

Petitioners' motion for reconsideration having been denied by Resolution[6] of July 10,
2007, they interposed the present recourse.

Petitioners insist that under Article 157 of the Labor Code, Shangri-la is required to hire a
full-time registered nurse, apart from a physician, hence, their engagement should be
deemed as regular employment, the provisions of the MOA notwithstanding; and that the
MOA is contrary to public policy as it circumvents tenurial security and, therefore, should be
struck down as being void ab initio. At most, they argue, the MOA is a mere job contract.

And petitioners maintain that respondent doctor is a labor-only contractor for she has no
license or business permit and no business name registration, which is contrary to the
requirements under Sec. 19 and 20 of the Implementing Rules and Regulations of the Labor
Code on sub-contracting.

Petitioners add that respondent doctor cannot be a legitimate independent contractor,

lacking as she does in substantial capital, the clinic having been set-up and already
operational when she took over as retained physician; that respondent doctor has no control
over how the clinic is being run, as shown by the different orders issued by officers of
Shangri-la forbidding her from receiving cash payments and several purchase orders for
medicines and supplies which were coursed thru Shangri-la's Purchasing Manager,
circumstances indubitably showing that she is not an independent contractor but a mere
agent of Shangri-la.

64
In its Comment,[7] Shangri-la questions the Special Powers of Attorneys (SPAs) appended
to the petition for being inadequate. On the merits, it prays for the disallowance of the
petition, contending that it raises factual issues, such as the validity of the MOA, which were
never raised during the proceedings before the Arbiter, albeit passed upon by him in his
Decision; that Article 157 of the Labor Code does not make it mandatory for a covered
establishment to employ health personnel; that the services of nurses is not germane nor
indispensable to its operations; and that respondent doctor is a legitimate individual
independent contractor who has the power to hire, fire and supervise the work of the nurses
under her.

The resolution of the case hinges, in the main, on the correct interpretation of Art. 157 vis a
vis Art. 280 and the provisions on permissible job contracting of the Labor Code, as
amended.

The Court holds that, contrary to petitioners' postulation, Art. 157 does not require the
engagement of full-time nurses as regular employees of a company employing not less than
50 workers. Thus, the Article provides:

ART. 157. Emergency medical and dental services. - It shall be the duty of every employer
to furnish his employees in any locality with free medical and dental attendance and
facilities consisting of:

(a) The services of a full-time registered nurse when the number of employees exceeds fifty
(50) but not more than two hundred (200) except when the employer does not maintain
hazardous workplaces, in which case the services of a graduate first-aider shall be provided
for the protection of the workers, where no registered nurse is available. The Secretary of
Labor shall provide by appropriate regulations the services that shall be required where the
number of employees does not exceed fifty (50) and shall determine by appropriate order
hazardous workplaces for purposes of this Article;

(b) The services of a full-time registered nurse, a part-time physician and dentist, and an
emergency clinic, when the number of employees exceeds two hundred (200) but not more
than three hundred (300); and

(c) The services of a full-time physician, dentist and full-time registered nurse as well as a
dental clinic, and an infirmary or emergency hospital with one bed capacity for every one
hundred (100) employees when the number of employees exceeds three hundred (300).

In cases of hazardous workplaces, no employer shall engage the services of a physician or

dentist who cannot stay in the premises of the establishment for at least two (2) hours, in
the case of those engaged on part-time basis, and not less than eight (8) hours in the case
of those employed on full-time basis. Where the undertaking is nonhazardous in nature, the
physician and dentist may be engaged on retained basis, subject to such regulations as the
Secretary of Labor may prescribe to insure immediate availability of medical and dental
treatment and attendance in case of emergency. (Emphasis and underscoring supplied)

65
Under the foregoing provision, Shangri-la, which employs more than 200 workers, is
mandated to "furnish" its employees with the services of a full-time registered nurse, a part-
time physician and dentist, and an emergency clinic which means that it should provide or
make available such medical and allied services to its employees, not necessarily to hire or
employ a service provider. As held in Philippine Global Communications vs. De Vera:[8]

x x x while it is true that the provision requires employers to engage the services of medical
practitioners in certain establishments depending on the number of their employees, nothing
is there in the law which says that medical practitioners so engaged be actually hired as
employees, adding that the law, as written, only requires the employer "to retain", not
employ, a part-time physician who needed to stay in the premises of the non-hazardous
workplace for two (2) hours. (Emphasis and underscoring supplied)

The term "full-time" in Art. 157 cannot be construed as referring to the type of employment
of the person engaged to provide the services, for Article 157 must not be read alongside
Art. 280[9] in order to vest employer-employee relationship on the employer and the person
so engaged. So De Vera teaches:

x x x For, we take it that any agreement may provide that one party shall render services
for and in behalf of another, no matter how necessary for the latter's business, even without
being hired as an employee. This set-up is precisely true in the case of an independent
contractorship as well as in an agency agreement. Indeed, Article 280 of the Labor Code,
quoted by the appellate court, is not the yardstick for determining the existence of an
employment relationship. As it is, the provision merely distinguishes between two (2) kinds
of employees, i.e., regular and casual. x x x[10] (Emphasis and underscoring supplied)

The phrase "services of a full-time registered nurse" should thus be taken to refer to the
kind of services that the nurse will render in the company's premises and to its employees,
not the manner of his engagement.

As to whether respondent doctor can be considered a legitimate independent contractor, the

pertinent sections of DOLE Department Order No. 10, series of 1997, illuminate:

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:

66
(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 persons 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. (Emphasis supplied)

The existence of an independent and permissible contractor relationship is generally

established by considering the following determinants: whether 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.[11]

On the other hand, existence of an employer- employee relationship is established by the

presence of the following determinants: (1) the selection and engagement of the workers;
(2) power of dismissal; (3) the payment of wages by whatever means; and (4) the power to
control the worker's conduct, with the latter assuming primacy in the overall consideration.
[12]

Against the above-listed determinants, the Court holds that respondent doctor is a
legitimate independent contractor. That Shangri-la provides the clinic premises and medical
supplies for use of its employees and guests does not necessarily prove that respondent
doctor lacks substantial capital and investment. Besides, the maintenance of a clinic and
provision of medical services to its employees is required under Art. 157, which are not
directly related to Shangri-la's principal business - operation of hotels and restaurants.

As to payment of wages, respondent doctor is the one who underwrites the following:
salaries, SSS contributions and other benefits of the staff[13]; group life, group personal
accident insurance and life/death insurance[14] for the staff with minimum benefit payable
at 12 times the employee's last drawn salary, as well as value added taxes and withholding
taxes, sourced from her P60,000.00 monthly retainer fee and 70% share of the service
charges from Shangri-la's guests who avail of the clinic services. It is unlikely that

67
respondent doctor would report petitioners as workers, pay their SSS premium as well as
their wages if they were not indeed her employees.[15]

With respect to the supervision and control of the nurses and clinic staff, it is not disputed
that a document, "Clinic Policies and Employee Manual"[16] claimed to have been prepared
by respondent doctor exists, to which petitioners gave their conformity[17] and in which
they acknowledged their co-terminus employment status. It is thus presumed that said
document, and not the employee manual being followed by Shangri-la's regular workers,
governs how they perform their respective tasks and responsibilities.

Contrary to petitioners' contention, the various office directives issued by Shangri-la's

officers do not imply that it is Shangri-la's management and not respondent doctor who
exercises control over them or that Shangri-la has control over how the doctor and the
nurses perform their work. The letter[18] addressed to respondent doctor dated February 7,
2003 from a certain Tata L. Reyes giving instructions regarding the replenishment of
emergency kits is, at most, administrative in nature, related as it is to safety matters; while
the letter[19] dated May 17, 2004 from Shangri-la's Assistant Financial Controller, Lotlot
Dagat, forbidding the clinic from receiving cash payments from the resort's guests is a
matter of financial policy in order to ensure proper sharing of the proceeds, considering that
Shangri-la and respondent doctor share in the guests' payments for medical services
rendered. In fine, as Shangri-la does not control how the work should be performed by
petitioners, it is not petitioners' employer.

WHEREFORE, the petition is hereby DENIED. The Decision of the Court of Appeals dated May
22, 2007 and the Resolution dated July 10, 2007 are AFFIRMED.

SO ORDERED.

COCA COLA BOTTLERS (PHILS.), INC./ERIC MONTINOLA, Manager,

Petitioners, versus DR. DEAN N. CLIMACO, Respondent.
G.R. No. 146881 | 2007-02-05

Tagged under keywords

DECISION

68
AZCUNA, J.:

This is a petition for review on certiorari of the Decision of the Court of Appeals[1] promulgated
on July 7, 2000, and its Resolution promulgated on January 30, 2001, denying petitioner's
motion for reconsideration. The Court of Appeals ruled that an employer-employee relationship
exists between respondent Dr. Dean N. Climaco and petitioner Coca-Cola Bottlers Phils., Inc.
(Coca-Cola), and that respondent was illegally dismissed.

Respondent Dr. Dean N. Climaco is a medical doctor who was hired by petitioner Coca-Cola
Bottlers Phils., Inc. by virtue of a Retainer Agreement that stated:

WHEREAS, the COMPANY desires to engage on a retainer basis the services of a physician
and the said DOCTOR is accepting such engagement upon terms and conditions hereinafter
set forth;

NOW, THEREFORE, in consideration of the premises and the mutual agreement hereinafter
contained, the parties agree as follows:

1. This Agreement shall only be for a period of one (1) year beginning January 1, 1988 up
to December 31, 1988. The said term notwithstanding, either party may terminate the
contract upon giving a thirty (30)-day written notice to the other.

2. The compensation to be paid by the company for the services of the DOCTOR is hereby
fixed at PESOS:Three Thousand Eight Hundred (P3,800.00) per month. The DOCTOR may
charge professional fee for hospital services rendered in line with his specialization. All
payments in connection with the Retainer Agreement shall be subject to a withholding tax
of ten percent (10%) to be withheld by the COMPANY under the Expanded Withholding Tax
System. In the event the withholding tax rate shall be increased or decreased by
appropriate laws, then the rate herein stipulated shall accordingly be increased or
decreased pursuant to such laws.

3. That in consideration of the above mentioned retainer's fee, the DOCTOR agrees to
perform the duties and obligations enumerated in the COMPREHENSIVE MEDICAL PLAN,
hereto attached as Annex "A" and made an integral part of this Retainer Agreement.

4. That the applicable provisions in the Occupational Safety and Health Standards, Ministry
of Labor and Employment shall be followed.

5. That the DOCTOR shall be directly responsible to the employee concerned and their
dependents for any injury inflicted on, harm done against or damage caused upon the
employee of the COMPANY or their dependents during the course of his examination,
treatment or consultation, if such injury, harm or damage was committed through
professional negligence or incompetence or due to the other valid causes for action.

6. That the DOCTOR shall observe clinic hours at the COMPANY'S premises from Monday to
Saturday of a minimum of two (2) hours each day or a maximum of TWO (2) hours each
day or treatment from 7:30 a.m. to 8:30 a.m. and 3:00 p.m. to 4:00 p.m., respectively
unless such schedule is otherwise changed by the COMPANY as [the] situation so warrants,

69
 subject to the Labor Code provisions on Occupational Safety and Health Standards as the
COMPANY may determine. It is understood that the DOCTOR shall stay at least two (2)
hours a day in the COMPANY clinic and that such two (2) hours be devoted to the workshift
with the most number of employees. It is further understood that the DOCTOR shall be on
call at all times during the other workshifts to attend to emergency case[s];

7. That no employee-employer relationship shall exist between the COMPANY and the
DOCTOR whilst this contract is in effect, and in case of its termination, the DOCTOR shall
be entitled only to such retainer fee as may be due him at the time of termination.[2]

The Comprehensive Medical Plan,[3] which contains the duties and responsibilities of respondent,
adverted to in the Retainer Agreement, provided:

A. OBJECTIVE

These objectives have been set to give full consideration to [the] employees' and
dependents' health:

1. Prompt and adequate treatment of occupational and non-occupational injuries and

diseases.

2. To protect employees from any occupational health hazard by evaluating health

factors related to working conditions.

3. To encourage employees [to] maintain good personal health by setting up

employee orientation and education on health, hygiene and sanitation, nutrition,
physical fitness, first aid training, accident prevention and personnel safety.

4. To evaluate other matters relating to health such as absenteeism, leaves and

termination.

5. To give family planning motivations.

B. COVERAGE

1. All employees and their dependents are embraced by this program.

2. The health program shall cover pre-employment and annual p.e., hygiene and
sanitation, immunizations, family planning, physical fitness and athletic programs and
other activities such as group health education program, safety and first aid classes,
organization of health and safety committees.

3. Periodically, this program will be reviewed and adjusted based on employees'

needs.

C. ACTIVITIES

1. Annual Physical Examination.

2. Consultations, diagnosis and treatment of occupational and non-occupational

illnesses and injuries.

70
 3. Immunizations necessary for job conditions.

4. Periodic inspections for food services and rest rooms.

5. Conduct health education programs and present education materials.

6. Coordinate with Safety Committee in developing specific studies and program to

minimize environmental health hazards.

7. Give family planning motivations.

8. Coordinate with Personnel Department regarding physical fitness and athletic

programs.

9. Visiting and follow-up treatment of Company employees and their dependents

confined in the hospital.

The Retainer Agreement, which began on January 1, 1988, was renewed annually. The last one
expired on December 31, 1993. Despite the non-renewal of the Retainer Agreement, respondent
continued to perform his functions as company doctor to Coca-Cola until he received a letter[4]
dated March 9, 1995 from petitioner company concluding their retainership agreement effective
30 days from receipt thereof.

It is noted that as early as September 1992, petitioner was already making inquiries regarding
his status with petitioner company. First, he wrote a letter addressed to Dr. Willie Sy, the Acting
President and Chairperson of the Committee on Membership, Philippine College of Occupational
Medicine. In response, Dr. Sy wrote a letter[5] to the Personnel Officer of Coca-Cola Bottlers
Phils., Bacolod City, stating that respondent should be considered as a regular part-time
physician, having served the company continuously for four (4) years. He likewise stated that
respondent must receive all the benefits and privileges of an employee under Article 157 (b)[6]
of the Labor Code.

Petitioner company, however, did not take any action. Hence, respondent made another inquiry
directed to the Assistant Regional Director, Bacolod City District Office of the Department of
Labor and Employment (DOLE), who referred the inquiry to the Legal Service of the DOLE,
Manila. In his letter[7] dated May 18, 1993, Director Dennis P. Ancheta, Legal Service, DOLE,
stated that he believed that an employer-employee relationship existed between petitioner and
respondent based on the Retainer Agreement and the Comprehensive Medical Plan, and the
application of the "four-fold" test. However, Director Ancheta emphasized that the existence of
employer-employee relationship is a question of fact. Hence, termination disputes or money
claims arising from employer-employee relations exceeding P5,000 may be filed with the
National Labor Relations Commission (NLRC). He stated that their opinion is strictly advisory.

An inquiry was likewise addressed to the Social Security System (SSS). Thereafter, Mr. Romeo R.
Tupas, OIC-FID of SSS-Bacolod City, wrote a letter[8] to the Personnel Officer of Coca-Cola
Bottlers Phils., Inc. informing the latter that the legal staff of his office was of the opinion that
the services of respondent partake of the nature of work of a regular company doctor and that

71
he was, therefore, subject to social security coverage.

Respondent inquired from the management of petitioner company whether it was agreeable to
recognizing him as a regular employee. The management refused to do so.

On February 24, 1994, respondent filed a Complaint[9] before the NLRC, Bacolod City, seeking
recognition as a regular employee of petitioner company and prayed for the payment of all
benefits of a regular employee, including 13th Month Pay, Cost of Living Allowance, Holiday Pay,
Service Incentive Leave Pay, and Christmas Bonus. The case was docketed as RAB Case No. 06-
02-10138-94.

While the complaint was pending before the Labor Arbiter, respondent received a letter dated
March 9, 1995 from petitioner company concluding their retainership agreement effective thirty
(30) days from receipt thereof. This prompted respondent to file a complaint for illegal dismissal
against petitioner company with the NLRC, Bacolod City. The case was docketed as RAB Case No.
06-04-10177-95.

In a Decision[10] dated November 28, 1996, Labor Arbiter Jesus N. Rodriguez, Jr. found that
petitioner company lacked the power of control over respondent's performance of his duties, and
recognized as valid the Retainer Agreement between the parties. Thus, the Labor Arbiter
dismissed respondent's complaint in the first case, RAB Case No. 06-02-10138-94. The
dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the instant

complaint seeking recognition as a regular employee.

SO ORDERED.[11]

In a Decision[12] dated February 24, 1997, Labor Arbiter Benjamin Pelaez dismissed the case for
illegal dismissal (RAB Case No. 06-04-10177-95) in view of the previous finding of Labor Arbiter
Jesus N. Rodriguez, Jr. in RAB Case No. 06-02-10138-94 that complainant therein, Dr. Dean
Climaco, is not an employee of Coca-Cola Bottlers Phils., Inc.

Respondent appealed both decisions to the NLRC, Fourth Division, Cebu City.

In a Decision[13] promulgated on November 28, 1997, the NLRC dismissed the appeal in both
cases for lack of merit. It declared that no employer-employee relationship existed between
petitioner company and respondent based on the provisions of the Retainer Agreement which
contract governed respondent's employment.

Respondent's motion for reconsideration was denied by the NLRC in a Resolution[14]

promulgated on August 7, 1998.

Respondent filed a petition for review with the Court of Appeals.

In a Decision promulgated on July 7, 2000, the Court of Appeals ruled that an employer-
employee relationship existed between petitioner company and respondent after applying the
four-fold test: (1) the power to hire the employee; (2) the payment of wages; (3) the power of

72
dismissal; and (4) the employer's power to control the employee with respect to the means and
methods by which the work is to be accomplished.

The Court of Appeals held:

The Retainer Agreement executed by and between the parties, when read together with the
Comprehensive Medical Plan which was made an integral part of the retainer agreements,
coupled with the actual services rendered by the petitioner, would show that all the
elements of the above test are present.

First, the agreements provide that "the COMPANY desires to engage on a retainer basis the
services of a physician and the said DOCTOR is accepting such engagement x x x" (Rollo,
page 25). This clearly shows that Coca-Cola exercised its power to hire the services of
petitioner.

Secondly, paragraph (2) of the agreements showed that petitioner would be entitled to a
final compensation of Three Thousand Eight Hundred Pesos per month, which amount was
later raised to Seven Thousand Five Hundred on the latest contract. This would represent
the element of payment of wages.

Thirdly, it was provided in paragraph (1) of the agreements that the same shall be valid for
a period of one year. "The said term notwithstanding, either party may terminate the
contract upon giving a thirty (30) day written notice to the other." (Rollo, page 25). This
would show that Coca-Cola had the power of dismissing the petitioner, as it later on did,
and this could be done for no particular reason, the sole requirement being the former's
compliance with the 30-day notice requirement.

Lastly, paragraphs (3) and (6) of the agreements reveal that Coca-Cola exercised the most
important element of all, that is, control, over the conduct of petitioner in the latter's
performance of his duties as a doctor for the company.

It was stated in paragraph (3) that the doctor agrees to perform the duties and obligations
enumerated in the Comprehensive Medical Plan referred to above. In paragraph (6), the
fixed and definite hours during which the petitioner must render service to the company is
laid down.

We say that there exists Coca-Cola's power to control petitioner because the particular
objectives and activities to be observed and accomplished by the latter are fixed and set
under the Comprehensive Medical Plan which was made an integral part of the retainer
agreement. Moreover, the times for accomplishing these objectives and activities are
likewise controlled and determined by the company. Petitioner is subject to definite hours of
work, and due to this, he performs his duties to Coca-Cola not at his own pleasure but
according to the schedule dictated by the company.

In addition, petitioner was designated by Coca-Cola to be a member of its Bacolod Plant's

Safety Committee. The minutes of the meeting of the said committee dated February 16,
1994 included the name of petitioner, as plant physician, as among those comprising the
committee.

73
 It was averred by Coca-Cola in its comment that they exercised no control over petitioner
for the reason that the latter was not directed as to the procedure and manner of
performing his assigned tasks. It went as far as saying that "petitioner was not told how to
immunize, inject, treat or diagnose the employees of the respondent (Rollo, page 228).
We believe that if the "control test" would be interpreted this strictly, it would result in an
absurd and ridiculous situation wherein we could declare that an entity exercises control
over another's activities only in instances where the latter is directed by the former on each
and every stage of performance of the particular activity. Anything less than that would be
tantamount to no control at all.

To our minds, it is sufficient if the task or activity, as well as the means of accomplishing it,
is dictated, as in this case where the objectives and activities were laid out, and the specific
time for performing them was fixed by the controlling party.[15]

Moreover, the Court of Appeals declared that respondent should be classified as a regular
employee having rendered six years of service as plant physician by virtue of several renewed
retainer agreements. It underscored the provision in Article 280[16] of the Labor Code stating
that "any employee who has rendered at least one year of service, whether such service is
continuous or broken, shall be considered a regular employee with respect to the activity in
which he is employed, and his employment shall continue while such activity exists." Further, it
held that the termination of respondent's services without any just or authorized cause
constituted illegal dismissal.

In addition, the Court of Appeals found that respondent's dismissal was an act oppressive to
labor and was effected in a wanton, oppressive or malevolent manner which entitled respondent
to moral and exemplary damages.

The dispositive portion of the Decision reads:

WHEREFORE, in view of the foregoing, the Decision of the National Labor Relations
Commission dated November 28, 1997 and its Resolution dated August 7, 1998 are found
to have been issued with grave abuse of discretion in applying the law to the established
facts, and are hereby REVERSED and SET ASIDE, and private respondent Coca-Cola
Bottlers, Phils.. Inc. is hereby ordered to:

1. Reinstate the petitioner with full backwages without loss of seniority rights from the time
his compensation was withheld up to the time he is actually reinstated; however, if
reinstatement is no longer possible, to pay the petitioner separation pay equivalent to one
(1) month's salary for every year of service rendered, computed at the rate of his salary at
the time he was dismissed, plus backwages.

2. Pay petitioner moral damages in the amount of P50,000.00.

3. Pay petitioner exemplary damages in the amount of P50,000.00.

4. Give to petitioner all other benefits to which a regular employee of Coca-Cola is entitled
from the time petitioner became a regular employee (one year from effectivity date of
employment) until the time of actual payment.

74
 SO ORDERED.[17]

Petitioner company filed a motion for reconsideration of the Decision of the Court of Appeals.

In a Resolution promulgated on January 30, 2001, the Court of Appeals stated that petitioner
company noted that its Decision failed to mention whether respondent was a full-time or part-
time regular employee. It also questioned how the benefits under their Collective Bargaining
Agreement which the Court awarded to respondent could be given to him considering that such
benefits were given only to regular employees who render a full day's work of not less that eight
hours. It was admitted that respondent is only required to work for two hours per day.

The Court of Appeals clarified that respondent was a "regular part-time employee and should be
accorded all the proportionate benefits due to this category of employees of [petitioner]
Corporation under the CBA." It sustained its decision on all other matters sought to be
reconsidered.

Hence, this petition filed by Coca-Cola Bottlers Phils., Inc.

The issues are:

1. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR, BASED

ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF THE LABOR
ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, CONTRARY TO THE
DECISIONS OF THE HONORABLE SUPREME COURT ON THE MATTER.

2. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR, BASED

ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF THE LABOR
ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND HOLDING INSTEAD
THAT THE WORK OF A PHYSICIAN IS NECESSARY AND DESIRABLE TO THE BUSINESS OF
SOFTDRINKS MANUFACTURING, CONTRARY TO THE RULINGS OF THE SUPREME COURT IN
ANALOGOUS CASES.

3. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR, BASED

ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF THE LABOR
ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND HOLDING INSTEAD
THAT THE PETITIONERS EXERCISED CONTROL OVER THE WORK OF THE RESPONDENT.

4. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR, BASED

ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF THE LABOR
ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND FINDING THAT
THERE IS EMPLOYER-EMPLOYEE RELATIONSHIP PURSUANT TO ARTICLE 280 OF THE LABOR
CODE.

5. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR, BASED

ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF THE LABOR
ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND FINDING THAT
THERE EXISTED ILLEGAL DISMISSAL WHEN THE EMPLOYENT OF THE RESPONDENT WAS

75
 TERMINATED WITHOUT JUST CAUSE.

6. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR, BASED

ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF THE LABOR
ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND FINDING THAT THE
RESPONDENT IS A REGULAR PART TIME EMPLOYEE WHO IS ENTITLED TO PROPORTIONATE
BENEFITS AS A REGULAR PART TIME EMPLOYEE ACCORDING TO THE PETITIONERS' CBA.

7. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR, BASED

ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF THE LABOR
ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND FINDING THAT THE
RESPONDENT IS ENTITLED TO MORAL AND EXEMPLARY DAMAGES.

The main issue in this case is whether or not there exists an employer-employee relationship
between the parties. The resolution of the main issue will determine whether the termination of
respondent's employment is illegal.

The Court, in determining the existence of an employer-employee relationship, has invariably

adhered to the four-fold test: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the power to control the employee's
conduct, or the so-called "control test," considered to be the most important element.[18]

The Court agrees with the finding of the Labor Arbiter and the NLRC that the circumstances of
this case show that no employer-employee relationship exists between the parties. The Labor
Arbiter and the NLRC correctly found that petitioner company lacked the power of control over
the performance by respondent of his duties. The Labor Arbiter reasoned that the
Comprehensive Medical Plan, which contains the respondent's objectives, duties and obligations,
does not tell respondent "how to conduct his physical examination, how to immunize, or how to
diagnose and treat his patients, employees of [petitioner] company, in each case." He likened
this case to that ofNeri v. National Labor Relations Commission,[19] which held:

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 effect, the Labor Arbiter held that petitioner company, through the Comprehensive Medical
Plan, provided guidelines merely to ensure that the end result was achieved, but did not control
the means and methods by which respondent performed his assigned tasks.

The NLRC affirmed the findings of the Labor Arbiter and stated that it is precisely because the
company lacks the power of control that the contract provides that respondent shall be directly
responsible to the employee concerned and their dependents for any injury, harm or damage
caused through professional negligence, incompetence or other valid causes of action.

The Labor Arbiter also correctly found that the provision in the Retainer Agreement that

76
respondent was on call during emergency cases did not make him a regular employee. He
explained, thus:

Likewise, the allegation of complainant that since he is on call at anytime of the day and
night makes him a regular employee is off-tangent. Complainant does not dispute the fact
that outside of the two (2) hours that he is required to be at respondent company's
premises, he is not at all further required to just sit around in the premises and wait for an
emergency to occur so as to enable him from using such hours for his own benefit and
advantage. In fact, complainant maintains his own private clinic attending to his private
practice in the city, where he services his patients, bills them accordingly -- and if it is an
employee of respondent company who is attended to by him for special treatment that
needs hospitalization or operation, this is subject to a special billing. More often than not,
an employee is required to stay in the employer's workplace or proximately close thereto
that he cannot utilize his time effectively and gainfully for his own purpose. Such is not the
prevailing situation here.

In addition, the Court finds that the schedule of work and the requirement to be on call for
emergency cases do not amount to such control, but are necessary incidents to the Retainership
Agreement.

The Court also notes that the Retainership Agreement granted to both parties the power to
terminate their relationship upon giving a 30-day notice. Hence, petitioner company did not wield
the sole power of dismissal or termination.

The Court agrees with the Labor Arbiter and the NLRC that there is nothing wrong with the
employment of respondent as a retained physician of petitioner company and upholds the validity
of the Retainership Agreement which clearly stated that no employer-employee relationship
existed between the parties. The Agreement also stated that it was only for a period of 1 year
beginning January 1, 1988 to December 31, 1998, but it was renewed on a yearly basis.

Considering that there is no employer-employee relationship between the parties, the

termination of the Retainership Agreement, which is in accordance with the provisions of the
Agreement, does not constitute illegal dismissal of respondent. Consequently, there is no basis
for the moral and exemplary damages granted by the Court of Appeals to respondent due to his
alleged illegal dismissal.

WHEREFORE, the petition is GRANTED and the Decision and Resolution of the Court of Appeals
are REVERSEDand SET ASIDE. The Decision and Resolution dated November 28, 1997 and
August 7, 1998, respectively, of the National Labor Relations Commission are REINSTATED.

No costs.

SO ORDERED.

77
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 149748 November 16, 2006

JANG LIM, WILFREDO MARIGA, AMIL MAULANA, ROLANDO SANTOS, MARCIANO VICTORIANO, JR.,
SHERILYN TAUPAN, BADO DELASANTOS, CELSO ARANETA, FELIX BAGUIO, ANECETO LAS PIAS,
VICENTE ESCALICAS, NESTOR VARONA, RAZEL TAUPAN, VICENTE WONG, CARLOS BABIGA,
BENJAMIN ESTRELLADO, ZALDYVAR JUAINI, ROGER MOSTERO, FLORANTE AMIS, AUGUSTO
REYES, JR., VICTORIA GOMEZ, MURSIDE HADJIROL, SANDRA SINGAY, MINDA LATIP, HAN AMMANG,
EDISON SINKAY, TITING ARASAD, OMAR BAYAN, MARITESS VERDON, ABRAHAM BAYAN, RODELYN
DEL ROSARIO, JEFFERSON SINGAY, SAGGA SALIAN, CHERRY EMMANG, BANNING ELIAS, TESSIE

78
BAIT-IT, ELECIO PARADAZ, JR., MOID SAHIRON, EDDIE ELIAS, ESMERALDA DOBLE, ADAYAN
SUKARNO, MYLA MOSTERO, ALLAN PABLAN, MAHADUM MOHAMMAD, JUN SALCEDO, BRANDO
DIAZ, ROLANDO MONTEJO, ABS TAPSI, JAKARTA SUBA, WENCESLAO ALAYAN, CONSTANCIO
CATIVIDA, RESTIA GOMEZ, NUKKIYA SERVANDI, SANDY SINCAY, JAHIRIN MAULANA, MARIAM DARIS,
ALCY SAJIIN, NURSIDA LAHAMAN, RAHIM BAYAN, SALSON IBBOH, BARJANA SALIAN, JIMMYLITO
AYCO, MARIBETH LIMBA, TATAH DE LA CRUZ, JALSUM IBBOH, ENDANG TONDO, NURALYN YARTE,
TATAH SOLOMON, LACAYA AGUTAN, CHELTON EMMANG, BOY SAHIPA, EDDIE CADION, ARMANDO
DE LA CRUZ, SUSAN ARABEHO TATAH JOSE, AMELIA DEGARBIS, JOHN OKOY, LUDITHA TALBOBO,
DARWESA SALCEDO, HUSSEIN AMMANG, IBRAHIM ELIAS, MARRY SADJAIL, KEMELDE OKOY, ELIZA
PARAGAS, MAULAY TAUPAN, RUDY SERVANDI, NURMINE SALAPUDDIN, RODRIGUEZ ITURALDE,
RAMON ITURALDE, HENRY ITURALDE, SONNY BOY DELLERA, SATURNINO ITURALDE, SAMMY
ABDURAJIK, USAY SAHIPA and KALBI BAYAN, Petitioners,
vs.
THE COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION (FIFTH DIVISION), TIMEX
SAWMILL AND/OR COTABATO TIMBERLAND CO., INC., with MELCHOR BORBON, in his capacity as
Administrative Manager, and M&S COMPANY, INC., with VICTOR A. CONSUNJI, as Director and
Operations Manager,Respondents.

DECISION

PUNO, J.:

The petition at bar involves the execution of our Decision dated February 19, 1999 in G.R. No. 124630 which
reinstated the May 17, 1995 Decision of Executive Labor Arbiter Rhett Julius J. Plagata of the National Labor
Relations Commission (NLRC) Regional Arbitration Branch (RAB) No. 9 of Zamboanga City in NLRC Case No.
RAB-09-1-0-0028494, holding private respondent Cotabato Timberland Company, Inc. (CTCI) liable for
separation pay, indemnity, unpaid wages, wage differentials, night shift differentials, service incentive leave pay,
13th month pay, cost of litigation and attorney's fees.

Records show that upon motion of the petitioners, Executive Labor Arbiter Plagata issued a Writ of
Execution1 to enforce his reinstated May 17, 1995 Decision. Sheriff Danilo Tejada, Branch Sheriff of RAB No. 9,
enforced said writ by levying the parcels of land where private respondent CTCI's plywood plant is situated in
Recodo, Zamboanga City. These parcels of land are covered by Transfer Certificates of Title (TCT) Nos. T-
145,544, T-145,547, T-145,545, T-145,546, T-145,550, and T-107,201 in the name of private respondent M&S
Company, Inc. (M&S). It appears that TCT Nos. T-145,544, T-145,547, T-145,545, T-145,546, and T-145,550
replaced TCT Nos. T-110,125, T-119,331, T-115,222, T-119,032, and T-126,661, respectively, registered in the
name of private respondent CTCI. The transfers were made based on absolute deeds of sale dated March 23,
1999 between private respondent CTCI, as seller, and private respondent M&S, as buyer.

On December 13, 1999, private respondent M&S filed its motion: a) to suspend the execution proceedings; b)
after the suspension, for the Executive Labor Arbiter to conduct a hearing for the purpose of determining
ownership of the subject parcels of land; c) after the hearing, to confirm the title of private respondent M&S
over the subject parcels of land; and d) to lift the Notice of Levy dated December 6, 1999. 2 After hearing and
after the parties have filed their respective pleadings, the Executive Labor Arbiter issued an Order dated March
31, 20003denying the motion of private respondent CTCI to lift the levy made by the sheriff on the subject
parcels of land. He held that the sales of the subject lots by private respondent CTCI, as seller, to private
respondent M&S, as buyer, were null and void for being simulated, fictitious and in fraud of the petitioners. He
based his conclusion on the following circumstances: a) the sales took place about a month after this Court
promulgated its decision which is now the subject of execution; and b) private respondent M&S has been out of
business for seven (7) years prior to the alleged sales and hence, its purchase of the subject properties soon
after the promulgation of this Court's decision in the instant case "stirs grave doubt." The Executive Labor

79
Arbiter likewise found that private respondent M&S is a mere alter ego of private respondent CTCI "in
connection with the enforcement of complainants' claims in this case" as the identities, operations and officers
of both companies were "so intertwined or so meshed together as to make each company indistinguishable
from the other." Thus, he ordered the sheriff to proceed with the execution proceedings.

On April 26, 2000, private respondent M&S filed a Memorandum on Appeal 4 with the NLRC pursuant to Section
2, Rule VI of the NLRC Manual on Execution of Judgment (Sheriffs Manual). Private respondent M&S likewise
filed a petition for injunction with an application for a temporary restraining order (TRO) with the NLRC, which
application for TRO was granted pending resolution of its appeal.

On June 6, 2000, the NLRC issued its assailed resolution, the dispositive portion of which states:

Prescinding from the foregoing premises, the Executive Labor Arbiter's March 31, 2000 Order is hereby SET
ASIDE and Sheriff Danilo Tejada and all persons acting for and in his behalf are ordered to desist from
enforcing said Order and from proceeding with the auction sale of subject real properties covered by TCT Nos.
T-145,545, T-145,550, T-145,544, T-145,547 and T-107,201. 5

The Temporary Restraining Order issued by this Commission on April 17, 2000 is hereby made permanent and
Sheriff Danilo Tejada is ordered to immediately proceed to execute the Supreme Court's decision in this case
against the properties of Cotabato Timberland Co., Inc. in accordance with the provisions of the NLRC Manual
on Execution.

SO ORDERED.6

The NLRC held that its power to execute extends only to properties "unquestionably belonging to the judgment
debtor." The Executive Labor Arbiter's conclusion that the deeds of sale over the subject properties were null
and void for being simulated was held to be "at best, speculative." It held that good faith is presumed and the
party who alleges bad faith has the burden of proving it. The Labor Arbiter was held to be without power to
determine the issue of ownership over the real properties since the same are covered by certificates of Torrens
title and at the time of the levy, the subject properties were already registered in the name of private respondent
M&S which is not a party to the case. It held that "[i]n the absence of evidence of fraud, not just an arbitrary
speculation or conjecture of fraud, one corporation duly organized and registered under the law should be
treated as distinct and separate from another and to pierce this veil of corporate fiction[,] mere subjective
conclusions do not suffice."

It appears that in spite of the TRO, the execution of the properties proceeded as scheduled on April 24, 2000.
Hence, private respondent M&S filed a motion to set aside the sheriff's auction sale and to cite the sheriff in
contempt. Petitioners likewise filed a motion for reconsideration.

On December 11, 2000, the NLRC issued a resolution7 denying petitioners' motion for reconsideration and
granting private respondent M&S's motion to cancel and set aside the sheriff's auction sale on April 24, 2000
over the real properties covered by TCT Nos. T-145,545, T-145,550, T-145-544, T-145,547 and T-107,201. The
motion to cite the sheriff in contempt was denied.

On February 22, 2001, petitioners filed a petition for certiorari under Rule 65 with the Court of Appeals
(CA).8 Said petition was dismissed outright in the CA's assailed Resolution dated March 19, 2001, based on the
following grounds:

80
 (1) The Verification and Certification of Non-Forum Shopping are signed by counsel and not by the
petitioner[s] which is in violation of the Supreme Court [r]uling in Escorpizo v. University of Baguio (306
SCRA 497);

(2) Petitioner[s'] counsel, in the Verification as to Material Dates, only alleged the date of receipt of the
December 11, 2000 NLRC Resolution denying the motion for reconsideration but failed to allege the
date of receipt of the June 6, 2000 NLRC Resolution;

(3) The IBP Official Receipt Number as well as the date of its issuance to petitioner[s'] counsel are not
current, in violation of the SC En Banc Resolution dated September 26, 2000 in Bar Matter No. 287;
and

(4) The petition does not contain a written explanation on the mode of service as required under
Section 11, Rule 13 of the 1997 Rules of Civil Procedure.9

Petitioners filed their Motion for Reconsideration on May 10, 2001 10 which was likewise denied for being filed
out of time.11

Hence, this petition for certiorari under Rule 65 of the Rules of Court in which petitioners raise the issue, viz:

[WHETHER] THE [CA's] QUESTIONED RESOLUTION DATED MARCH 19, 2001, AS AFFIRMED ON JUNE
25, 2001 DISMISSING PETITIONER[S'] SPECIAL CIVIL ACTION FOR CERTIORARI ON GROUNDS OF
TECHNICALITY IS VALID AND TENABLE IN LIGHT OF THE SUBSTANTIVE RIGHTS OF PETITIONERS AS
HELD BY THE SUPREME COURT IN G.R. NO. 124630, DATED FEBRUARY 19, 1999, OVER THE CASE. 12

Petitioners contend that their petition for certiorari with the CA was clearly meritorious and was filed on time. It
was allegedly the CA which "chose to be immovable on the side of technicality," disregarding the overriding
goal of the courts to render justice where justice is due 13 and "allowing the substantial rights of petitioner[s] to
be sacrificed at the altar of technicalities to the consequent impairment of the sacred principles of
justice."14 Petitioners contend that their petition for certiorari with the CA being clearly meritorious, that
fraudulent means having been employed by the private respondents to frustrate the due execution of the
judgment rendered by the Supreme Court, and considering the number of working men involved who are
awaiting the realization of their case, the CA committed grave abuse of discretion in dismissing the same on
grounds of technicality. Petitioners contend that the NLRC disregarded the fact that the sales of the subject
properties were made on March 23, 1999 or more than one month after the promulgation of the decision of this
Court. Moreover, the following facts bolster the claim of fraud: a) the transfer of the subject properties was
facilitated by CTCI's counsel in the arbitration level; b) private respondent M&S had not been operating for
seven (7) years prior to the alleged sales; and c) M&S is a mere alter ego of CTCI, their stockholders, directors
and officers being practically the same and their operations identical, making them indistinguishable from each
other. Petitioners likewise point out that in private respondent CTCI's Surety Bond Contract with the
Presidential Guarantee and Assurance, Inc. at the time private respondent CTCI appealed the instant case to
the NLRC, the person who represented to be a director of private respondent CTCI turned out to be the
secretary of private respondent M&S also. Said pieces of evidence allegedly show that private respondent M&S
was a buyer in bad faith when the subject properties were sold to it by private respondent CTCI. The sales
were allegedly executed in fraud of petitioners for the purpose of evading private respondent CTCI's liabilities
to petitioners.

The issues to be resolved in this case are: a) whether the instant case should be given due course; and b) in
the affirmative, whether the petition is meritorious.

81
Private respondents belabor the fact that petitioners filed their petition for certiorari with the CA: a) with its
verification and certification of non-forum shopping signed by counsel instead of the parties; b) without a
statement of the date of receipt of the June 6, 2000 NLRC Resolution; c) with their counsel's IBP Official
Receipt Number being outdated; and d) without a written explanation on the mode of service as required under
Section 11, Rule 13 of the 1997 Rules of Civil Procedure. Private respondents point out that petitioners' motion
for reconsideration with the CA was filed twenty-seven (27) days after the last day for filing the same. Private
respondent M&S also questions petitioners' resort to a petition for certiorari under Rule 65 of the Rules of Court
with this Court. It contends that the proper remedy with this Court from the resolution of the CA is an appeal by
certiorari under Rule 45.

We resolved to give due course to the instant petition in our Resolution dated January 16, 2002.

Section 5(5), Article VIII of the Constitution gives this Court the power to "[p]romulgate rules concerning the
protection and enforcement of constitutional rights, pleading, practice and procedure in all courts." It is within
the inherent power of the Court to suspend its own rules in particular cases in order to do justice. 15 In Kathy-O
Enterprises v. NLRC,16 the Court found the reason for the 3-day delay in the filing of the appeal with the NLRC
justifiable, having been caused by "inadvertence amounting to excusable negligence." The Court observed that
due to the presence of an upward stroke, the "5" in "25 January" appeared to be and could have been mistaken
as an "8," thus leading KATHY-O's counsel to misread "25 January," the date of receipt stamped by his
receiving clerk on the copy of the decision intended for said counsel, as "28 January." We held:

When proper, no serious impediment bars the allowance of tardy appeals under the Rules of Court, in
recognition of this Court's inherent power to suspend adjective rules. It is a different matter, however, when the
period to appeal is provided by statute, as in labor cases. For obvious reasons, this Court cannot ordinarily
suspend the statute's operation. x x x Nevertheless, if only to be able to dispense substantial justice, strict
observance of the period to appeal may not be exacted. Thus, in Firestone Tire and Rubber Co. of the
Philippines v. Lariosa,17 an appeal in a labor dispute was given due course despite the lapse of fourteen (14)
days from notice of the decision, due to the fact that the Notice of Decision received by Lariosa's lawyer
advised the parties that the appeal could be taken to the NLRC within ten (10) "working" days not calendar
days from notice of the decision. For the same reason was the appeal in Chong Guan Trading v.
NLRC18 allowed. While in City Fair Corporation v. NLRC,19 we ruled that the NLRC did not commit grave abuse
of discretion when it entertained an appeal filed one (1) day late considering that the "facts and circumstances
of the case warrant liberality considering the amount and the issue involved."

In the same case, the Court likewise explained that the underlying purpose behind the principle that the
perfection of an appeal within the statutory or reglementary period is not only mandatory, but jurisdictional, and
failure to do so renders the questioned decision final and executory is to prevent needless delay -- a
circumstance which would allow the employer to wear out the efforts and meager resources of the worker to
the point that the latter is constrained to settle for less than what is due him. 20

In the case at bar, applying the Rules strictly would result in the pernicious delay sought to be avoided. At stake
is the protection of the rights of almost a hundred employees to the satisfaction of a judgment that has become
final and executory in a decision rendered by us more than seven (7) years ago. A scheme to thwart the
execution of our final and executory decision is extant in the records. Moreover, barring the instant petition on
technical grounds would leave the workers without recourse since the subject real properties were levied due to
the insufficiency of judgment debtor CTCI's money and personal properties to satisfy the decision sought to be
executed.

Petitioners' resort to a petition for certiorari under Rule 65 is proper considering that petitioners are assailing
the resolutions of the CA dismissing their petition outright. Ordinarily, the proper recourse of an aggrieved party
from a decision of the CA is a petition for review on certiorari under Rule 45 of the Rules of Court. However, if

82
the error alleged is one of jurisdiction, or the act complained of was perpetrated by a court with grave abuse of
discretion amounting to lack or excess of jurisdiction, the proper remedy available to the aggrieved party is a
petition for certiorari under Rule 65 of the said Rules. 21

Be that as it may, in view of the pendency of this case for more than a decade and the delay in its execution for
more than seven (7) years, we shall treat the instant case as an appeal under Rule 45 and resolve the petition
on the merits considering that the entire records of the case have been elevated to us.

Private respondents contend that Executive Labor Arbiter Plagata had no authority to determine the issue of
ownership of the subject properties in the case at bar. Private respondent M&S contends that Article 217 of the
Labor Code which sets out the jurisdiction of the Labor Arbiter does not confer him the jurisdiction to resolve
actions which involve title to, or possession of, real property, or any interest therein. The original and exclusive
jurisdiction over this class of cases is allegedly with the regional trial courts under Section 19(2) of Batas
Pambansa Blg. 129. Both private respondents further contend that the subject properties in the name of private
respondent M&S could not be validly levied upon by Sheriff Tejada as it (private respondent M&S) was never a
party to the labor dispute between the judgment debtor CTCI and petitioners.

We find the petition partly meritorious.

The power of the sheriff to rule on the issue of ownership is settled. The Sheriffs Manual was promulgated
pursuant to the provision of Article 218(a) of the Labor Code, as amended, in relation to Section 4, Rule VIII of
the New Rules of Procedure of the NLRC. The Sheriffs Manual recognizes a situation wherein the real
properties to be levied may not be registered in the name of the party against which the levy is being issued.
Section 3(b), Rule 5 of the Sheriffs Manual states:

Levy on real property. -- Real property or any interest therein may be levied in the following manner: x x x

(b) Real property, or growing crops thereon or any interest therein, belonging to the party against whom levy is
issued, and held by any other person or standing on the records of the register of deeds in the name of any
other person, by filing with the register of deeds a copy of the decision, order or award, together with a
description of the property, and a notice that such real property, and any interest therein on said property, held
by or standing, in the name of such other person, naming him are levied by leaving with the occupant of the
property, if any, and with such other persons, or his agents, if found within the province or city or at the
residence of either, if within the province or city a copy of such decision, order or award, description and notice.

Rule VI of the Sheriffs Manual also provides for the procedure in case of a third-party claim or "a claim
whereby a person, not a party to the case, asserts title to or right to the possession of the property levied
upon."22 It outlines the following procedure:

Section 2. Proceedings.-- If property levied upon be claimed by any person other than the losing party or his
agent, such person shall make an affidavit of his title thereto or right to the possession thereof, stating the
grounds of such right or title and shall file the same with the sheriff and copies thereof served upon the Labor
Arbiter or proper officer issuing the writ shall conduct a hearing with due notice to all parties concerned and
resolve the validity of the claim within ten (10) working days from receipt thereof and his decision is appealable
to the Commission within ten (10) working days from notice, and the Commission shall resolve the appeal
within the same period.

However, should the prevailing party put up an indemnity bond in a sum not less than the value of the property
levied, the execution shall proceed. In case of disagreement as to such value, the same shall be determined by
the Commission or Labor Arbiter who issued the writ.

83
Section 3. Resolution of the Third Party Claim, Effect.-- In the event the third party claim is declared to be valid,
the sheriff shall immediately release the property to the third party claimant, his agent or representative and the
levy on execution shall immediately be lifted or discharged. However, should the third party claim be found to
be without factual or legal basis, the sheriff must proceed with the execution of the property levied upon as if no
third party claim had been filed.

Thus, in Tanongan v. Samson,23 we upheld the dismissal by the Labor Arbiter of a third-party claim over a motor
tanker that was levied to satisfy the final and executory decision of the NLRC making employer CAYCO and its
owner Olizon liable. We held:

The Labor Code grants the National Labor Relations Commission (NLRC) sufficient authority and power to
execute final judgments and awards. Thus, a third-party claim of ownership on a levied property should not
necessarily prevent execution, particularly where -- as in the present case -- the surrounding circumstances
point to a fraudulent claim. In fact, the disputed contract of sale here is not merely rescissible; it is simulated or
fictitious and, hence, void ab initio.

In Tanongan, we found that the third-party claimant was a buyer in bad faith as: a) the sale of the levied tanker
was made only 5 days after the writ of execution was issued by the labor arbiter; b) there is a presumption
under Article 1387 of the Civil Code that alienations by onerous title are presumed to be fraudulent when done
by persons against whom some judgment has been rendered or some writ of attachment issued in any
instance; and c) the third-party claimant's apparent failure to inquire whether Olizon had other unsettled
obligations and encumbrances that could burden the subject property in light of the principle that "[a]ny person
engaged in business would be wary of buying from a company that is closing shop, because it may be
dissipating its assets to defraud its creditors."

Similarly, in De Belen v. Collector of Customs and Sheriff of Manila, 24 we held:

A simulated transfer of property made without consideration and with intent to hinder, delay, or defraud the
creditors of the grantor constitutes no obstacle to the levy of legal process of any sort directed against the
grantor. In such case no independent action to rescind or annul the transfer is necessary. A simulated contract
lacks some of the elements necessary to make any contract whatever and may be treated as non-existent for
all purposes.

In the case at bar, five (5) out of the six (6) subject lots were registered in the name of private respondent M&S
pursuant to absolute deeds of sale dated March 23, 1999 executed between private respondent CTCI, as
seller, and private respondent M&S, as buyer. These five lots are covered by TCT Nos. T-145,544, T-145,547,
T-145,545, T-145,546, and T-145,550. With respect to these five lots, we hold that the levy made by the sheriff
was proper.

The Executive Labor Arbiter's finding that the subject deeds of absolute sale were simulated and fictitious is
supported by the evidence on record, viz:

The simulation and fictitiousness of the sales in question from CTCI to M&S showing fraud to defeat the
rights/awards of the complainants, is manifested by the following circumstances:

1. CTCIs titles to the lands in question were under TCTs T-115,222, T-126,661, T-119,032, T-110,125 and T-
119,331, aside from T-107,201.

As annotated therein, the sales thereof from CTCI to M&S were all made on 23 March 1999, or merely about a
month after the Supreme Court rendered its decision in "Jang Lim, et al. vs. Cotabato Timberland Company,

84
Inc., et al.," G.R. No. 124630, on 19 February 1999 (which decision is now the subject of execution
proceedings in this case). The undue haste by which CTCI sold its said properties to M&S after the rendition of
the aforementioned decision, strongly engender doubt as to the [genuineness] of such sales from the former to
the latter.

2. M&S had last been in business in Zamboanga City on 21 January 1992, and it is thus incomprehensible why
it would buy CTCIs lands at the snap of ones fingers, so to speak, so soon after the rendition by the Supreme
Court of its decision in G.R. No. 124630 on 19 February 1999, and after having been apparently out of
business for seven (7) years (Complainants Supplemental Opposition to M&S Co. Inc.s Motion and
Supplemental Rejoinder, Annexes F to F-5, with sub-markings; Sheriffs Notice of Levy). This, too, stirs up
grave doubt as to the veracity of the sales of land to M&S from CTCI.

To the mind of the undersigned, the sales in question were made in fraud of the complainants, to thwart
enforcement of CTCIs obligations to them, not to mention that such sales are simulated or fictitious.
Consequently, said sales are null and void, more so, as the same are contrary to public policy.25

In reversing the ruling of the Executive Labor Arbiter, the NLRC erroneously held that the Executive Labor
Arbiter had no power to rule on the issue of ownership over the real properties. It likewise held that good faith is
presumed and the findings of the Executive Labor Arbiter were "speculative," without going through the
evidence cited by the latter. Notably, both the NLRC and private respondents conveniently left out the detail
that the sales took place a month after the promulgation of this Court's decision in the main case (G.R. No.
124630). This omission is not of little significance. Under Article 1387 of the New Civil Code, alienations by
onerous title are "presumed fraudulent when made by persons against whom some judgment has been
rendered in any instance or some writ of attachment has been issued. The decision or attachment need not
refer to the property alienated, and need not have been obtained by the party seeking the rescission." The
effect of this presumption is to shift the burden to private respondents to prove that the sales were not
fraudulently made. The records do not show that private respondents were able to discharge this burden.

As to the remaining lot covered by TCT No. T-107,201, we agree with the NLRC that the same cannot be a
proper subject of execution in this case. It appears that the basis for the levy on this property is the Executive
Labor Arbiter Plagata's finding that private respondent M&S is a mere alter ego of CTCI, to wit:

On the other hand, that M&S is a mere alter ego of CTCI, and that their corporate identities, with respect to
complainants employments, were so intertwined and meshed together, is brought out by the following
circumstances:

1. The stockholders of both CTCI and M&S are practically the same, as can be easily gleaned from
their respective articles of incorporation. Those of M&S are Dacon Corporation, Cristina Gotianun, Ma.
Edwina Laperal, Rebecca Lock, Jesus Ferrer, Jorge Consunji, Victor Consunji, Ruperto Consunji,
Isidro Consunji, and Antonio Bernas (ibid., Annex D-1); while those of CTCI are among those named
above Isidro Consunji, Victor Consunji, Jorge Consunji, Edwina Laperal, and Antonio Bernas (ibid.,
Annex E).

xxx xxx xxx

2. Then, the directors and officers of both companies are practically the same. The president of both in
any event is Isidro Consunji, while they have the same treasurer in the person of Ma. Edwina Laperal
(ibid.). Victor Consunji is also an officer of both CTCI an M&S (ibid.).

85
 The other officers of M&S are Jesus Ferrer and Antonio Bernas; they are not named as officers of
CTCI. On the other hand, Mario Irabagon, named as secretary of CTCI, is not an officer of M&S (ibid.).

3. Nevertheless, it is significant that Antonio Bernas represented himself as a director of CTCI when he
entered into the Surety Bond contract with Prudential Guarantee and Assurance, Inc. at the time CTCI
appealed this case to the Commission's Fifth Division on 22 May 1995. He is also secretary of M&S.

In themselves, the foregoing circumstances do not justify piercing the veil of corporate fiction. At this point, the
most that can be said about CTCI and M&S is that they are sister companies, having as they do practically the
same stockholders, directors and officers.

But where in the course of complainants' employments, both companies acted as if they were the employers of
the former, or where the officers of one acted for or in behalf of the other company, then, there is ample reason
to lift the veil of corporate fiction, or look behind it, to determine the owners thereof and those to be held liable
for obligations due to third parties, such as the herein complainants. That the identities, operations, and officers
of CTCI and M&S were so intertwined or so meshed together as to make each company indistinguishable from
the other-- or, in other words, practically merge the personalities of both companies into one-- is shown by the
following documents attached to complainants' Admission of Additional Evidence, dated 06 March 2000:

1. Annex K- a certification in the stationery of M&S, dated 12 February 1991, that Teddy Arabi, the
alleged contractor-employer of the complainants herein who were held to be workers of CTCI, was
connected with M&S, too, as a contractor of M&S for fuel hauling and supply;

2. Annex K-1- a document entitled "Proposed Rates Quotation for the Below Activities" dated 07
September 1989, submitted by the same Teddy Arabi to M&S, and which was approved by Victor
Consunji for M&S as its president, the same Victor Consunji who is named as operations and general
manager of CTCI;

3. Annex K-2- a memorandum dated 25 October 1994, addressed to the same Teddy Arabi by CTCI's
Administative Manager, showing that the former was treated by CTCI as its contractor, too[;]

4. Annexes K-3, K-4 and K-5- personnel requisition forms of M&S, showing that the same Teddy Arabi
was its contractor for various personnel needs in its sawmill operations.

All these show that the complainants, through Teddy Arabi, were employed by CTCI and/or M&S, at the whim
and pleasure of said companies. It is only therefore fair and proper to hold any or both of them- CTCI and M&S-
liable for the employment-based claims of the complainants in this case. To reiterate, M&S is a mere alter ego
of CTCI with respect to such claims.

We do not find these pieces of evidence sufficient to justify piercing the corporate veil of private respondent
M&S.

Our February 19, 1999 Decision in G.R. No. 124630 which is the subject of execution in the case at bar
recognized the separate legal personalities of private respondents M&S and CTCI in its statement of facts, to
wit:

Petitioners are regular workers of private respondent [CTCI] who were initially hired to perform milling and
pilling [sic] works [sic] at EX-ARANETA by M&S Company, a sister company of CTCI. 1wphi1

86
Thereafter, EX-ARANETA was closed and the sawmill operation of M&S Company was transferred to private
respondent TIMEX SAWMILL, a subsidiary of respondent CTCI where Melchor Borbon is the Administrative
Manager. The transfer was done sometime in July 1989.26

While the Executive Labor Arbiter cited certain pieces of documentary evidence showing that Teddy Arabi also
subcontracted for private respondent M&S, it was not proven that the latter utilized the same people
(petitioners) to do the work for private respondent M&S. As indeed, there was no factual finding in the main
case that petitioners worked for private respondent M&S. They were merely found to have "continued working
as workers/laborers at TIMEX SAWMILL and were working under the full control and supervision of CTCI's
personnel as [c]heckers, [y]ard [m]asters, [c]lerk[s], [a]uditors, [f]lormen (sic) and [s]upervisors." 27

It is noteworthy that the parcel of land covered by TCT No. T-107,201 has been registered in the name of
private respondent M&S since March 16, 1993 which is prior to the institution of the instant case on October 17,
1994. Since it was not sufficiently proven that private respondent M&S is a mere alter ego of private respondent
CTCI and there being no proof to show that this particular property was fraudulently transferred to private
respondent M&S by private respondent CTCI, there is no basis to make said parcel of lot covered by TCT No.
T-107,201 the subject of execution in the case at bar.

IN VIEW WHEREOF, the petition is PARTIALLY GRANTED. The March 19 and June 25, 2001 Resolutions of
the CA, dismissing petitioners' petition, are reversed and set aside. The Order of the Executive Labor Arbiter
dated March 31, 2000 is partially reinstated with respect to the parcels of land covered by TCT Nos. T-145,544,
T-145,547, T-145,545, T-145,546, and T-145,550.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 162833 June 15, 2007

LAKAS SA INDUSTRIYA NG KAPATIRANG HALIGI NG ALYANSA-PINAGBUKLOD NG MANGGAGAWANG

PROMO NG BURLINGAME, petitioner,
vs.
BURLINGAME CORPORATION, respondent.

DECISION

QUISUMBING, J.:

87
This is an appeal to reverse and set aside both the Decision 1 dated August 29, 2003 of the Court of Appeals
and its Resolution2 dated March 15, 2004 in CA-G.R. SP No. 69639. The appellate court had reversed the
decision3dated December 29, 2000 of the Secretary of Labor and Employment which ordered the holding of a
certification election among the rank-and-file promo employees of respondent Burlingame Corporation.

The facts are undisputed.

On January 17, 2000, the petitioner Lakas sa Industriya ng Kapatirang Haligi ng Alyansa-Pinagbuklod ng
Manggagawang Promo ng Burlingame (LIKHA-PMPB) filed a petition for certification election before the
Department of Labor and Employment (DOLE). LIKHA-PMPB sought to represent all rank-and-file promo
employees of respondent numbering about 70 in all. The petitioner claimed that there was no existing union in
the aforementioned establishment representing the regular rank-and-file promo employees. It prayed that it be
voluntarily recognized by the respondent to be the collective bargaining agent, or, in the alternative, that a
certification/consent election be held among said regular rank-and-file promo employees.

The respondent filed a motion to dismiss the petition. It argued that there exists no employer-employee
relationship between it and the petitioners members. It further alleged that the petitioners members are
actually employees of F. Garil Manpower Services (F. Garil), a duly licensed local employment agency. To prove
such contention, respondent presented a copy of its contract for manpower services with F. Garil.

On June 29, 2000, Med-Arbiter Renato D. Parungo dismissed 4 the petition for lack of employer-employee
relationship, prompting the petitioner to file an appeal5 before the Secretary of Labor and Employment.

On December 29, 2000, the Secretary of Labor and Employment ordered the immediate conduct of a
certification election.6

A motion for reconsideration of the said decision was filed by the respondent on January 19, 2001, but the
same was denied in the Resolution7 of February 19, 2002 of the Secretary of Labor and Employment.

Respondent then filed a complaint with the Court of Appeals, which then reversed 8 the decision of the
Secretary. The petitioner then filed a motion for reconsideration,9 which the Court of Appeals denied10 on March
15, 2004.

Hence the instant petition for review on certiorari.

The issue raised in the petition is:

WHETHER THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN DECLARING THAT

THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN PETITIONERS MEMBERS
AND BURLINGAME BECAUSE F. GARIL MANPOWER SERVICES IS AN INDEPENDENT
CONTRACTOR.11

Respondent contends that there is no employer-employee relationship between the parties. 12 Petitioner, on the
other hand, insists that there is.13

The resolution of this issue boils down to a determination of the true status of F. Garil, i.e., whether it is an
independent contractor or a labor-only contractor.

The case of De Los Santos v. NLRC14 succinctly enunciates the statutory criteria:

88
 Job contracting is permissible only 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 the business. 15

According to Section 5 of DOLE Department Order No. 18-02, Series of 2002: 16

Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared

prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor
or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a
principal, and any of the following elements are [is] present:

i) The contractor or sub-contractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing activities which are directly related
to the main business of the principal; or

ii) The contractor does not exercise the right to control over the performance of the work of the
contractual employee.

The foregoing provisions shall be without prejudice to the application of Article 248(C) of the Labor
Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries and work premises, actually and directly used
by the contractor or subcontractor in the performance or completion of the job, work or service
contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the manner
and means to be used in reaching that end.

Given the above criteria, we agree with the Secretary that F. Garil is not an independent contractor.

First, F. Garil does not have substantial capitalization or investment in the form of tools, equipment,
machineries, work premises, and other materials, to qualify as an independent contractor. No proof was
adduced to show F. Garils capitalization.

Second, the work of the promo-girls was directly related to the principal business or operation of Burlingame.
Marketing and selling of products is an essential activity to the main business of the principal.

Lastly, F. Garil did not carry on an independent business or undertake the performance of its service contract
according to its own manner and method, free from the control and supervision of its principal, Burlingame.

The "four-fold test" will show that respondent is the employer of petitioners members. The elements to
determine the existence of an employment relationship are: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the employees

89
conduct. The most important element is the employers control of the employees conduct, not only as to the
result of the work to be done, but also as to the means and methods to accomplish it. 17

A perusal of the contractual stipulations between Burlingame and F. Garil shows the following:

1. The AGENCY shall provide Burlingame Corporation or the CLIENT, with sufficient number of
screened, tested and pre-selected personnel (professionals, highly-skilled, skilled, semi-skilled and
unskilled) who will be deployed in establishment selling products manufactured by the CLIENT.

2. The AGENCY shall be responsible in paying its workers under this contract in accordance with the
new minimum wage including the daily living allowances and shall pay them overtime or remuneration
that which is authorized by law.

3. It is expressly understood and agreed that the worker(s) supplied shall be considered or treated as
employee(s) of the AGENCY. Consequently, there shall be no employer-employee relationship
between the worker(s) and the CLIENT and as such, the AGENCY shall be responsible to the benefits
mandated by law.

4. For and in consideration of the service to be rendered by the AGENCY to the CLIENT, the latter
shall during the terms of agreement pay to the AGENCY the sum of Seven Thousand Five Hundred
Pesos Only (P7,500.00) per month per worker on the basis of Eight (8) hours work payable up-to-date,
semi-monthly, every 15th and 30th of each calendar month. However, these rates may be subject to
change proportionately in the event that there will be revisions in the Minimum Wage Law or any law
related to salaries and wages.

5. The CLIENT shall report to the AGENCY any of its personnel assigned to it if those personnel are
found to be inefficient, troublesome, uncooperative and not observing the rules and regulations set
forth by the CLIENT. It is understood and agreed that the CLIENT may request any time the immediate
replacement of any personnel(s) assigned to them.18

It is patent that the involvement of F. Garil in the hiring process was only with respect to the recruitment
aspect, i.e. the screening, testing and pre-selection of the personnel it provided to Burlingame. The actual
hiring itself was done through the deployment of personnel to establishments by Burlingame.

The contract states that Burlingame would pay the workers through F. Garil, stipulating that Burlingame shall
pay F. Garil a certain sum per worker on the basis of eight-hour work every 15 th and 30th of each calendar
month. This evinces the fact that F. Garil merely served as conduit in the payment of wages to the deployed
personnel. The interpretation would have been different if the payment was for the job, project, or services
rendered during the month and not on a per worker basis. In Vinoya v. National Labor Relations
Commission,19 we held:

The Court takes judicial notice of the practice of employers who, in order to evade the liabilities under
the Labor Code, do not issue payslips directly to their employees. Under the current practice, a third
person, usually the purported contractor (service or manpower placement agency), assumes the act of
paying the wage. For this reason, the lowly worker is unable to show proof that it was directly paid by
the true employer. Nevertheless, for the workers, it is enough that they actually receive their pay,
oblivious of the need for payslips, unaware of its legal implications. Applying this principle to the case
at bar, even though the wages were coursed through PMCI, we note that the funds actually came from
the pockets of RFC. Thus, in the end, RFC is still the one who paid the wages of petitioner albeit
indirectly.20

90
The contract also provides that "any personnel found to be inefficient, troublesome, uncooperative and not
observing the rules and regulations set forth by Burlingame shall be reported to F. Garil and may be replaced
upon request." Corollary to this circumstance would be the exercise of control and supervision by Burlingame
over workers supplied by F. Garil in order to establish the inefficient, troublesome, and uncooperative nature of
undesirable personnel. Also implied in the provision on replacement of personnel carried upon request by
Burlingame is the power to fire personnel.

These are indications that F. Garil was not left alone in the supervision and control of its alleged employees.
Consequently, it can be concluded that F. Garil was not an independent contractor since it did not carry a
distinct business free from the control and supervision of Burlingame.

It goes without saying that the contractual stipulation on the nonexistence of an employer-employee
relationship between Burlingame and the personnel provided by F. Garil has no legal effect. While the parties
may freely stipulate terms and conditions of a contract, such contractual stipulations should not be contrary to
law, morals, good customs, public order or public policy. A contractual stipulation to the contrary cannot
override factual circumstances firmly establishing the legal existence of an employer-employee relationship.

Under this circumstance, there is no doubt that F. Garil was engaged in labor-only contracting, and as such, is
considered merely an agent of Burlingame. In labor-only contracting, the law creates an employer-employee
relationship to prevent a circumvention of labor laws. The contractor is considered merely an agent of the
principal employer and the latter is responsible to the employees of the labor-only contractor as if such
employees had been directly employed by the principal employer.21 Since F. Garil is a labor-only contractor, the
workers it supplied should be considered as employees of Burlingame in the eyes of the law.

WHEREFORE, the challenged Decision of the Court of Appeals dated August 29, 2003 and the Resolution
dated March 15, 2004 denying the motion for reconsideration are REVERSED and SET ASIDE. The decision
of the Secretary of Labor and Employment ordering the holding of a certification election among the rank-and-
file promo employees of Burlingame is reinstated.

Costs against respondent.

SO ORDERED.

91
92