DO 18-02 Cases 1
G.R. No. 146408 February 29, 2008
PHILIPPINE AIRLINES, INC., petitioner,
vs.
ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO
OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO
YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P.
CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO
BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE
PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON
TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, BENEDICTO
AUXTERO, EDUARDO MAGDADARAUG, NELSON M. DULCE, and
ALLAN BENTUZAL, respondents.
CARPIO MORALES, J.:
Petitioner Philippine Airlines as Owner, and Synergy Services
Corporation (Synergy) as Contractor, entered into an Agreement1 on
July 15, 1991 whereby Synergy undertook to "provide loading,
unloading, delivery of baggage and cargo and other related services to
and from [petitioner]'s aircraft at the Mactan Station."2
The Agreement specified the following "Scope of Services" of
Contractor Synergy:
1.2 CONTRACTOR shall furnish all the necessary capital,
workers, loading, unloading and delivery materials, facilities,
supplies, equipment and tools for the satisfactory
performance and execution of the following services (the
Work):
a. Loading and unloading of baggage and cargo to and from
the aircraft;
b. Delivering of baggage from the ramp to the baggage
claim area;
c. Picking up of baggage from the baggage sorting area to
the designated parked aircraft;
d. Delivering of cargo unloaded from the flight to cargo
terminal;
e. Other related jobs (but not janitorial functions) as may be
required and necessary;
CONTRACTOR shall perform and execute the
aforementioned Work at the following areas
located at Mactan Station, to wit:
a. Ramp Area
b. Baggage Claim Area
c. Cargo Terminal Area, and
d. Baggage Sorting Area3 (Underscoring supplied)
And it expressly provided that Synergy was "an independent contractor
and . . . that there w[ould] be no employer-employee relationship
between CONTRACTOR and/or its employees on the one hand, and
OWNER, on the other."4
On the duration of the Agreement, Section 10 thereof provided:
10. 1 Should at any time OWNER find the services herein
undertaken by CONTRACTOR to be unsatisfactory, it shall
notify CONTRACTOR who shall have fifteen (15) days from
such notice within which to improve the services. If
CONTRACTOR fails to improve the services under this
Agreement according to OWNER'S specifications and
standards, OWNER shall have the right to terminate this
Agreement immediately and without advance notice.
10.2 Should CONTRACTOR fail to improve the services within
the period stated above or should CONTRACTOR breach the
terms of this Agreement and fail or refuse to perform the
Work in such a manner as will be consistent with the
achievement of the result therein contracted for or in any
other way fail to comply strictly with any terms of this
Agreement, OWNER at its option, shall have the right to
terminate this Agreement and to make other arrangements
for having said Work performed and pursuant thereto shall
retain so much of the money held on the Agreement as is
necessary to cover the OWNER's costs and damages, without
prejudice to the right of OWNER to seek resort to the bond
furnished by CONTRACTOR should the money in OWNER's
possession be insufficient.
x x x x (Underscoring supplied)
Except for respondent Benedicto Auxtero (Auxtero), the rest of the
respondents, who appear to have been assigned by Synergy to
petitioner following the execution of the July 15, 1991 Agreement, filed
on March 3, 1992 complaints before the NLRC Regional Office VII at
Cebu City against petitioner, Synergy and their respective officials for
underpayment, non-payment of premium pay for holidays, premium
pay for rest days, service incentive leave pay, 13th month pay and
allowances, and for regularization of employment status with
petitioner, they claiming to be "performing duties for the benefit of
[petitioner] since their job is directly connected with [its] business x x
x."5
Respondent Auxtero had initially filed a complaint against petitioner
and Synergy and their respective officials for regularization of his
employment status. Later alleging that he was, without valid ground,
verbally dismissed, he filed a complaint against petitioner and Synergy
and their respective officials for illegal dismissal and reinstatement
with full backwages.6
The complaints of respondents were consolidated.
By Decision7 of August 29, 1994, Labor Arbiter Dominador Almirante
found Synergy an independent contractor and dismissed respondents'
complaint for regularization against petitioner, but granted their
money claims. The fallo of the decision reads:
WHEREFORE, foregoing premises considered, judgment is
hereby rendered as follows:
(1) Ordering respondents PAL and Synergy jointly and
severally to pay all the complainants herein their 13th month
pay and service incentive leave benefits;
xxxx
(3) Ordering respondent Synergy to pay complainant
Benedicto Auxtero a financial assistance in the amount of
P5,000.00.
The awards hereinabove enumerated in the aggregate total
amount of THREE HUNDRED TWENTY-TWO THOUSAND
THREE HUNDRED FIFTY NINE PESOS AND EIGHTY SEVEN
CENTAVOS (P322,359.87) are computed in detail by our
Fiscal Examiner which computation is hereto attached to
form part of this decision.
The rest of the claims are hereby ordered dismissed for lack
of merit.8 (Underscoring supplied)
On appeal by respondents, the NLRC, Fourth Division, Cebu City,
vacated and set aside the decision of the Labor Arbiter by Decision9 of
January 5, 1996, the fallo of which reads:
WHEREFORE, the Decision of the Labor Arbiter Dominador A.
Almirante, dated August 29, 1994, is hereby VACATED and
SET ASIDE and judgment is hereby rendered:
1. Declaring respondent Synergy Services Corporation to be
a 'labor-only' contractor;
2. Ordering respondent Philippine Airlines to accept, as its
regular employees, all the complainants, . . . and to give
each of them the salaries, allowances and other employment
benefits and privileges of a regular employee under the
Collective Bargaining Agreement subsisting during the
period of their employment;
xxxx
4. Declaring the dismissal of complainant Benedicto
Auxtero to be illegal and ordering his reinstatement as
helper or utility man with respondent Philippine Airlines, with
full backwages, allowances and other benefits and privileges
from the time of his dismissal up to his actual reinstatement;
and
5. Dismissing the appeal of respondent Synergy Services
Corporation, for lack of merit.10 (Emphasis and underscoring
supplied)

Only petitioner assailed the NLRC decision via petition for certiorari
before this Court.
By Resolution11 of January 25, 1999, this Court referred the case to the
Court of Appeals for appropriate action and disposition, conformably
with St. Martin Funeral Homes v. National Labor Relations Commission
which was promulgated on September 16, 1998.
The appellate court, by Decision of September 29, 2000, affirmed the
Decision of the NLRC.12 Petitioner's motion for reconsideration having
been denied by Resolution of December 21, 2000,13 the present
petition was filed, faulting the appellate court
I.
. . . IN UPHOLDING THE NATIONAL LABOR RELATIONS
COMMISSION DECISION WHICH IMPOSED THE RELATIONSHIP
OF EMPLOYER-EMPLOYEE BETWEEN PETITIONER AND THE
RESPONDENTS HEREIN.
II.
. . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR
RELATIONS COMMISSION ORDERING THE REINSTATEMENT
OF RESPONDENT AUXTERO DESPITE THE ABSENCE [OF] ANY
FACTUAL FINDING IN THE DECISION THAT PETITIONER
ILLEGALLY TERMINATED HIS EMPLOYMENT.
III.
. . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND GRAVE
ERROR IN UPHOLDING THE DECISION OF THE NATIONAL
LABOR RELATIONS COMMISSION WHICH COMPELLED THE
PETITIONER TO EMPLOY THE RESPONDENTS AS REGULAR
EMPLOYEES DESPITE THE FACT THAT THEIR SERVICES ARE IN
EXCESS OF PETITIONER COMPANY'S OPERATIONAL
REQUIREMENTS.14 (Underscoring supplied)
Petitioner argues that the law does not prohibit an employer from
engaging an independent contractor, like Synergy, which has
substantial capital in carrying on an independent business of
contracting, to perform specific jobs.
Petitioner further argues that its contracting out to Synergy various
services like janitorial, aircraft cleaning, baggage-handling, etc., which
are directly related to its business, does not make respondents its
employees.
Petitioner furthermore argues that none of the four (4) elements of an
employer-employee relationship between petitioner and respondents,
viz: selection and engagement of an employee, payment of wages,
power of dismissal, and the power to control employee's conduct, is
present in the case.15
Finally, petitioner avers that reinstatement of respondents had been
rendered impossible because it had reduced its personnel due to heavy
losses as it had in fact terminated its service agreement with Synergy
effective June 30, 199816 as a cost-saving measure.
The decision of the case hinges on a determination of whether Synergy
is a mere job-only contractor or a legitimate contractor. If Synergy is
found to be a mere job-only contractor, respondents could be
considered as regular employees of petitioner as Synergy would then
be a mere agent of petitioner in which case respondents would be
entitled to all the benefits granted to petitioner's regular employees;
otherwise, if Synergy is found to be a legitimate contractor,
respondents' claims against petitioner must fail as they would then be
considered employees of Synergy.
The statutory basis of legitimate contracting or subcontracting is
provided in Article 106 of the Labor Code which reads:
ART. 106. CONTRACTOR OR SUBCONTRACTOR. - Whenever
an employer enters into a contract with another person for
the performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same
manner and extent that he is liable to employees directly
employed by him.
DO 18-02 Cases 2
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. (Emphasis,
capitalization and underscoring supplied)
Legitimate contracting and labor-only contracting are defined in
Department Order (D.O.) No. 18-02, Series of 2002 (Rules
Implementing Articles 106 to 109 of the Labor Code, as amended) as
follows:
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 contractor or
subcontractor to accomplish the job, work or service.
(Emphasis and underscoring supplied)
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 [sic]
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. (Emphasis, underscoring and capitalization
supplied)
"Substantial capital or investment" and the "right to control" are
defined in the same Section 5 of the Department Order as follows:
"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. (Emphasis and underscoring supplied)

From the records of the case, it is gathered that the work performed by
almost all of the respondents - loading and unloading of baggage and
cargo of passengers - is directly related to the main business of
petitioner. And the equipment used by respondents as station loaders,
such as trailers and conveyors, are owned by petitioner.17
Petitioner asserts, however, that mere compliance with substantial
capital requirement suffices for Synergy to be considered a legitimate
contractor, citing Neri v. National Labor Relations Commission.18
Petitioner's reliance on said case is misplaced.
In Neri, the Labor Arbiter and the NLRC both determined that Building
Care Corporation had a capital stock of P1 million fully subscribed and
paid for.19 The corporation's status as independent contractor had in
fact been previously confirmed in an earlier case20 by this Court which
found it to be serving, among others, a university, an international
bank, a big local bank, a hospital center, government agencies, etc."
In stark contrast to the case at bar, while petitioner steadfastly
asserted before the Labor Arbiter and the NLRC that Synergy has a
substantial capital to engage in legitimate contracting, it failed to
present evidence thereon. As the NLRC held:
The decision of the Labor Arbiter merely mentioned on page
5 of his decision that respondent SYNERGY has substantial
capital, but there is no showing in the records as to how
much is that capital. Neither had respondents shown that
SYNERGY has such substantial capital. x x x21 (Underscoring
supplied)
It was only after the appellate court rendered its challenged Decision
of September 29, 2002 when petitioner, in its Motion for
Reconsideration of the decision, sought to prove, for the first time,
Synergy's substantial capitalization by attaching photocopies of
Synergy's financial statements, e.g., balance sheets, statements of
income and retained earnings, marked as "Annexes 'A' - 'A-4.'"22
More significantly, however, is that respondents worked alongside
petitioner's regular employees who were performing identical work.23
As San Miguel Corporation v. Aballa24 and Dole Philippines, Inc. v.
Esteva, et al.25 teach, such is an indicium of labor-only contracting.
For labor-only contracting to exist, Section 5 of D.O. No. 18-02 which
requires any of two elements to be present is, for convenience, re-
quoted:
(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. (Emphasis and CAPITALIZATION supplied)
Even if only one of the two elements is present then, there is labor-only
contracting.
The control test element under the immediately-quoted paragraph (ii),
which was not present in the old Implementing Rules (Department
Order No. 10, Series of 1997),26 echoes the prevailing jurisprudential
trend27 elevating such element as a primary determinant of employer-
employee relationship in job contracting agreements.
One who claims to be an independent contractor has to prove that he
contracted to do the work according to his own methods and without
being subject to the employer's control except only as to the results.28
While petitioner claimed that it was Synergy's supervisors who actually
supervised respondents, it failed to present evidence thereon. It did
not even identify who were the Synergy supervisors assigned at the
workplace.
Even the parties' Agreement does not lend support to petitioner's
claim, thus:
DO 18-02 Cases 3
Section 6. Qualified and Experienced Worker: Owner's Right
to Dismiss Workers.
CONTRACTOR shall employ capable and experienced
workers and foremen to carry out the loading, unloading and
delivery Work as well as provide all equipment, loading,
unloading and delivery equipment, materials, supplies and
tools necessary for the performance of the Work.
CONTRACTOR shall upon OWNER'S request furnish the latter
with information regarding the qualifications of the former's
workers, to prove their capability and experience.
Contractor shall require all its workers, employees,
suppliers and visitors to comply with OWNER'S rules,
regulations, procedures and directives relative to the
safety and security of OWNER'S premises, properties
and operations. For this purpose, CONTRACTOR shall
furnish its employees and workers identification cards
to be countersigned by OWNER and uniforms to be
approved by OWNER. OWNER may require
CONTRACTOR to dismiss immediately and prohibit
entry into OWNER'S premises of any person employed
therein by CONTRACTOR who in OWNER'S opinion is
incompetent or misconducts himself or does not
comply with OWNER'S reasonable instructions and
requests regarding security, safety and other matters and
such person shall not again be employed to perform the
services hereunder without OWNER'S permission.29
(Underscoring partly in the original and partly supplied;
emphasis supplied)
Petitioner in fact admitted that it fixes the work schedule of
respondents as their work was dependent on the frequency of plane
arrivals.30 And as the NLRC found, petitioner's managers and
supervisors approved respondents' weekly work assignments and
respondents and other regular PAL employees were all referred to as
"station attendants" of the cargo operation and airfreight services of
petitioner.31
Respondents having performed tasks which are usually necessary and
desirable in the air transportation business of petitioner, they should
be deemed its regular employees and Synergy as a labor-only
contractor.32
The express provision in the Agreement that Synergy was an
independent contractor and there would be "no employer-employee
relationship between [Synergy] and/or its employees on one hand, and
[petitioner] on the other hand" is not legally binding and conclusive as
contractual provisions are not valid determinants of the existence of
such relationship. For it is the totality of the facts and surrounding
circumstances of the case33 which is determinative of the parties'
relationship.
Respecting the dismissal on November 15, 199234 of Auxtero, a regular
employee of petitioner who had been working as utility man/helper
since November 1988, it is not legally justified for want of just or
authorized cause therefor and for non-compliance with procedural due
process. Petitioner's claim that he abandoned his work does not
persuade.35 The elements of abandonment being (1) the failure to
report for work or absence without valid or justifiable reason, and (2) a
clear intention to sever the employer-employee relationship
manifested by some overt acts,36 the onus probandi lies with petitioner
which, however, failed to discharge the same.
Auxtero, having been declared to be a regular employee of petitioner,
and found to be illegally dismissed from employment, should be
entitled to salary differential37 from the time he rendered one year of
service until his dismissal, reinstatement plus backwages until the
finality of this decision.38 In view, however, of the long period of time39
that had elapsed since his dismissal on November 15, 1992, it would
be appropriate to award separation pay of one (1) month salary for
each year of service, in lieu of reinstatement.40
As regards the remaining respondents, the Court affirms the ruling of
both the NLRC and the appellate court, ordering petitioner to accept
them as its regular employees and to give each of them the salaries,
allowances and other employment benefits and privileges of a regular
employee under the pertinent Collective Bargaining Agreement.
Petitioner claims, however, that it has become impossible for it to
comply with the orders of the NLRC and the Court of Appeals, for
during the pendency of this case, it was forced to reduce its personnel
due to heavy losses caused by economic crisis and the pilots' strike of

June 5, 1998.41 Hence, there are no available positions where
respondents could be placed.
And petitioner informs that "the employment contracts of all if not
most of the respondents . . . were terminated by Synergy effective 30
June 1998 when petitioner terminated its contract with Synergy."42
Other than its bare allegations, petitioner presented nothing to
substantiate its impossibility of compliance. In fact, petitioner waived
this defense by failing to raise it in its Memorandum filed on June 14,
1999 before the Court of Appeals.43 Further, the notice of termination
in 1998 was in disregard of a subsisting temporary restraining order44
to preserve the status quo, issued by this Court in 1996 before it
referred the case to the Court of Appeals in January 1999. So as to
thwart the attempt to subvert the implementation of the assailed
decision, respondents are deemed to be continuously employed by
petitioner, for purposes of computing the wages and benefits due
respondents.
Finally, it must be stressed that respondents, having been declared to
be regular employees of petitioner, Synergy being a mere agent of the
latter, had acquired security of tenure. As such, they could only be
dismissed by petitioner, the real employer, on the basis of just or
authorized cause, and with observance of procedural due process.
WHEREFORE, the Court of Appeals Decision of September 29, 2000 is
AFFIRMED with MODIFICATION.
Petitioner PHILIPPINE AIRLINES, INC. is ordered to:
(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN
PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL,
AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P.
CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO
BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL,
ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS,
ROLANDO TUNACAO, CHERRIE ALEGRES, EDUARDO MAGDADARAUG,
NELSON M. DULCE and ALLAN BENTUZAL as its regular employees in
their same or substantially equivalent positions, and pay the wages
and benefits due them as regular employees plus salary
differential corresponding to the difference between the wages and
benefits given them and those granted to petitioner's other regular
employees of the same rank; and
(b) pay respondent BENEDICTO AUXTERO salary differential;
backwages from the time of his dismissal until the finality of this
decision; and separation pay, in lieu of reinstatement, equivalent to
one (1) month pay for every year of service until the finality of this
decision.
There being no data from which this Court may determine the
monetary liabilities of petitioner, the case is REMANDED to the Labor
Arbiter solely for that purpose.
SO ORDERED.
G.R. No. 160798 June 8, 2005
JUANITO A. GARCIA and ALBERTO J. DUMAGO, petitioners,
vs.
PHILIPPINE AIRLINES, INC., respondent.
CALLEJO, SR., J.:
This is a petition for review of the Resolution1 of the Court of Appeals
(CA) in CA-G.R. SP No. 59826, dismissing the petition for certiorari of
the petitioners Juanito A. Garcia and Alberto J. Dumago, as well as the
Resolution2 denying the motion for reconsideration thereof.
The petition at bench stemmed from the following backdrop:
Garcia was employed by the Philippine Airlines, Inc. (PAL) on December
3, 1973. By 1995, he was already an inspector at the Aircraft
Inspection Division of the PAL Technical Center. Dumago, on the other
hand, was employed by PAL on April 18, 1983, and was, by 1995, a
DO 18-02 Cases 4
Lead Master "C" Upholsterer assigned at the Aircraft Furnishing Safety
Section of the Maintenance and Engineering Department.3
At 1:30 p.m. on July 24, 1995, the petitioners were at the PAL Technical
Center inside the Toolroom Section of the Plant Equipment and
Maintenance Division (PEMD). With them were their co-employees
Ronaldo Broas, Roberto Buan, Almario Titco and Rodrigo Arcenas, Jr.4
Momentarily, an incident ensued, thereafter to be the subject of
different versions: that of the petitioners; Carmelo Villacete, then
manager of the PAL Security and Investigation Division; and Field
Agents Antonio P. Ramos and Ramoncito Villar, also of the PAL Security
and Investigation Division. Rodrigo Arcenas, Jr. also gave his own
version of the incident.
According to Villacete, Ramos and Villar, they barged into the Toolroom
Section and caught the petitioners with Broas, Arcenas, Buan, and
Titco sniffing shabu. The security officers found and seized from them
several grams of the prohibited drug, including aluminum foil, a burner
and lighter. The security officers then searched the locker of Broas and
found more of the drug, and shabu paraphernalia, including
P23,000.00 in cash. All this was witnessed by Jose S. Herrera and
Remebito F. Gorospe, representatives of the Philippine Airlines
Employee’s Association (PALEA). Eliseo Maravillas of the Office of the
Vice-President for Maintenance and Engineering also witnessed the
search and seizure.5 Photographs were taken of the raid. Ramos made
an inventory of the items and substances that were found and seized
from Rack B747-400 at the PEMD Toolroom, as follows:
1. (one) 1 plastic sachet containing undetermined amount of
white substance suspected as shabu
2. (four) 4 aluminum foils containing U.A.S. suspected to be
shabu
3. (one) 1 aluminum foil strip (containing) with residue of
substance suspected to be shabu
4. (one) 1 improvised tooter with residue susp. to be shabu
5. (one) 1 plastic sachet containing residue of susp. shabu
6. (one) 1 strip (aluminum) containing granules + white
substances susp. to be shabu
7. (one) 1 PAL giveaway kit containing one plastic tube
8. (one) 1 improvised burner with extra needle
9. (four) 4 pcs. crumpled aluminum foils with residue susp. to
be shabu
10. (five) 5 pcs. aluminum strips
11. (six) 6 pcs. aluminum foil
12. (one) 1 plastic sachet containing undetermined quantity
of white substance susp. to be shabu placed inside
improvised metal container
13. (two) 2 plastic sachets cont. residue of white substances
susp. to be shabu
14. (one) 1 lighter (disposable)
15. (seventeen) 17 aluminum strips with residue of
substances susp. to be shabu
16. (two) 2 strips of aluminum foils.6
Ramos also prepared an inventory of the items found and seized in
Broas’ locker, to wit:
ITEM
DESCRIPTION
(QUANTITY)
1. (one) 1 Plastic sachet containing
undetermined amount of
white substance suspected
as shabu contained in a
blue cloth with a letter.
2. (one) 1 Plastic sachet containing
undetermined amount of
white substance suspected
as shabu.7
The security officers secured urine samples from the petitioners and
Arcenas, Broas and Titco, which they turned to the Forensic and
Chemistry Division of the National Bureau of Investigation (NBI). The
company, through Luis T. Castro, Jr., turned over/submitted to the NBI
the paraphernalia found in the locker of Broas.8 The men were,
likewise, turned over to the NBI for investigation.9 The security officers
also prepared and signed Security Report No. SFPSD95/07-453 dated
July 25, 1995.
Forensic Chemist Salud M. Rosales signed Dangerous Drugs Report No.
DD-95-1554 stating that the samples gave positive results for

methamphetamine hydrochloride.10 She also signed Toxicology Report
Nos. TDD-95-759 and 95-760 indicating that the urine samples given
by the petitioners tested positive for amphetamine, a metabolite of
methamphetamine which is a regulated drug.11 Rosales also signed
Toxicology Report No. TDD-95-75712 where she stated that the urine
sample of Rodrigo Arcenas yielded negative result for the presence of
amphetamine.
13
In the signed statement he gave to Villacete on July 25, 1995,
Arcenas alleged that he was on duty at the Toolroom Section of the
PEMD that fateful day of July 24, 1995. At about 1:30 p.m., he saw the
petitioners with Titco and Buan playing cards. Broas, who was beside
the B747-400 tool bin, then took a white substance from a small
cellophane sachet, placed the substance in a foil and lighted it with a
small burner. The other men then approached Broas as the latter
sniffed the substance twice and passed it around to the others who did
the same. Arcenas claimed that he did not sniff the white substance.
Momentarily, three persons barged into the toolroom and the men
tried to escape. Additional security then arrived and helped in the
inventory of the substances and materials found and seized from the
men.14
Petitioners Garcia and Dumago, for their part, admitted that they were
in the toolroom section of PEMD on the day in question. Garcia had
wanted to ask someone where he could take the Tracster’s wheel for
vulcanizing, while Dumago went there to request for an "Allen Wrench"
from Titco. Suddenly, a PAL security officer armed with a handgun
barged into the toolroom. He was accompanied by a video
cameraman. Buan, Broas, and Titco were then each subjected to a
body search and were forced to give urine specimen. Their lockers
were also searched.15
The petitioners denied that they used the prohibited drug, alleging that
the door to the toolroom was even open. They claimed that they were
in the toolroom because they were on duty, and that the NBI agents
only arrived at the scene after the security guards had already
confiscated the items and paraphernalia allegedly found in the
toolroom and in Broas’ locker.16
A criminal complaint against the petitioners, including Buan, Broas and
Titco, for violation of Section 16 of Republic Act No. 6425, as amended
by Rep. Act No. 7659 was then filed with the Department of Justice,
docketed as I.S. No. 95-492. Arcenas was not included in the charge.17
On July 26, 1995, the petitioners were charged with violation of Section
6, Article 46, and Section 6, Article 48 of Chapter II of the PAL Revised
Code of Discipline, as follows:
1. Violation of Law/Government Regulations-Chapter II, Section 6,
Article 46
"Any employee who by substantial evidence presented at an
administrative hearing is found to have violated or attempted to
violate existing laws, decrees, regulations, or orders issued by the
Philippine or other governments, and their agencies and
instrumentalities, which violation involves moral turpitude is work-
related, or which involves the safety, welfare, reputation, or standing
of the company in the community, shall be penalized as prescribed in
the schedule of penalties under Article 14 of this Code, depending
upon the gravity and/or frequency of the offense. Where such violation
constitutes serious misconduct or breach of trust, the penalty of
dismissal shall be imposed."
2. Prohibited Drugs-Chapter II, Section 6, Article 48
"Any employee who, while on Company premises or on duty, is found
in the possession of, or uses, or is under the influence of prohibited or
controlled drugs, or hallucinogenic substances or narcotics shall suffer
the penalty of dismissal."18
A formal investigation ensued during which Arcenas testified. On
October 9, 1995, the Grievance Committee rendered a Decision19
finding petitioners Garcia and Dumago guilty as charged; both of them
were meted the penalty of dismissal.
On October 30, 1997, the petitioners instituted separate complaints20
for illegal dismissal against private respondent PAL and its Vice-
President for Maintenance and Engineering, Jacinto F. Ortega, Jr.21 In its
reply to the position paper of the complainants, PAL declared that:
DO 18-02 Cases 5
(a) Complainants were caught by PAL personnel in flagrante
delicto in the act of sniffing shabu. This is attested to by the
Joint Affidavit of Messrs. Carmelo Villacete, Antonio Ramos
and Ramoncito Villar, the security personnel who caught
them in the act.
(b) An eyewitness, in the person of Rodrigo Arcenas, [Jr.]
confirmed that the complainants (together with three other
employees) indeed sniffed shabu inside the Toolroom of the
Plant Equipment [and] Maintenance Division.
(c) The National Bureau of Investigation confirmed that the
white crystalline substance found in the possession of the
apprehended employees was "Methamphetamine
Hydrochloride" or shabu, in ordinary parlance.
(d) Drug test conducted by the National Bureau of
Investigation revealed that the complainants were positive
for "AMPHETAMINE."22
On February 11, 1999, Labor Arbiter Ramon Valentin C. Reyes
rendered a Decision, finding that the private respondent was guilty of
illegal dismissal, thus:
WHEREFORE, conformably with the foregoing, judgment is hereby
rendered finding the respondents guilty of illegal suspension and illegal
dismissal and ordering them to reinstate complainants to their former
position without loss of seniority rights and other privileges.
Respondents are hereby further ordered to pay jointly and severally
unto the complainants the following:
Alberto J. Dumago - P409,500.00 backwages as of 1/10/99
P34,125.00 for 13th month pay
Juanito A. Garcia - P1,290,744.00 backwages as of 1/10/99
P107,562.00 for 13th month pay
The amounts of P100,000.00 and P50,000.00 to each complainant as
and by way of moral and exemplary damages; and
The sum equivalent to ten percent (10%) of the total award as and for
attorney’s fees.
Respondents are directed to immediately comply with the
reinstatement aspect of this Decision. However, in the event that
reinstatement is no longer feasible, respondents are hereby ordered, in
lieu thereof, to pay unto the complainants their separation pay
computed at one month for every year of service.
SO ORDERED.23
The Labor Arbiter ruled that the NBI Toxicology Report on the urine
samples of the complainants were not admissible in evidence. And
even if they were, being positive for amphetamine does not constitute
as a violation of the law.24 The private respondent appealed the
decision.
On January 31, 2000, the National Labor Relations Commission (NLRC)
reversed the decision of the Labor Arbiter and dismissed the case for
lack of merit.25 The NLRC ruled that the joint affidavit of the three PAL
security personnel, the joint affidavit of the four NBI Narcotics Division
personnel, the sworn statement of Arcenas, and the NBI toxicology
reports constituted substantial evidence that the petitioners had,
indeed, used shabu within the private respondent’s premises during
working hours. It held that the acts of the petitioners amounted to
serious misconduct that justified their dismissal from employment. The
petitioners moved for a reconsideration of the decision, on the ground
that the urine samples were obtained from them without the
assistance of counsel; hence the said samples and the Toxicology
Report of the NBI Field Agents Division were inadmissible in evidence.26
The NLRC denied the said motion for lack of merit.27
Dissatisfied, the petitioners filed a petition for certiorari with the CA
based on the following grounds:
6.1 The public respondent NLRC erred and committed grave
abuse of discretion amounting to lack of jurisdiction in:
(a) Reversing the decision of the labor arbiter;

(b) Concluding that the petitioners were caught
sniffing shabu;
(c) Disregarding the petitioners’ Constitutional
rights to counsel and due process of law.
6.2 The contradictory findings and conclusions of the labor
arbiter and the NLRC provide strong and compelling reasons
to warrant judicial review of the instant case to prevent a
miscarriage of justice.
6.3 There is no appeal or any other plain, speedy and
adequate remedy in the ordinary course of law.28
On August 10, 2000, the CA dismissed the petition for failure to append
copies of the material documents referred to therein, such as (a) the
petitioners’ complaint for illegal dismissal and damages; (b) the private
respondent’s position paper filed with the Labor Arbiter; and (c) the
Labor Arbiter’s Order dated June 16, 1998 submitting the case for
resolution.29 The petitioners received a copy of the resolution on
August 21, 2000 and filed on August 29, 2000 a motion for its
reconsideration, appending the pleadings and the order adverted to in
the CA resolution.30
On November 5, 2003, the CA denied the petitioners’ motion for
reconsideration for lack of merit, on the ground that the said motion
did not contain an affidavit of proof of service under Section 13 of Rule
13 of the Rules of Court. The appellate court also held that the
petitioners failed to give a valid justification for their failure to comply
with the rules.31
The petitioners received a copy of the said resolution, and forthwith
filed the instant petition for review on certiorari, where they raise the
following issues:
1. Whether or not the Honorable Court of Appeals decided
CA-G.R. SP No. 59826 in a way not in accord with the law or
the decisions of this Honorable Supreme Court, and the
Constitutional mandate of protection to labor, when it
dismissed the Petition for Certiorari on purely technical
grounds (i.e., failure to append 3 documents), and denied
the petitioners’ motion for reconsideration, despite the fact
that the petitioners already submitted the documents in
their motion for reconsideration.
2. Whether or not the Honorable Court of Appeals departed
from the accepted and usual course of judicial proceedings
in deciding CA-G.R. SP No. 59826, by not resolving the case
on the merits despite the conflicting findings and conclusions
of the Labor Arbiter and the NLRC.32
The petitioners argue that their failure to append the three documents
to their petition was not fatal because they had substantially complied
with all the formal requirements under Section 1, Rule 65 of the Rules
of Court, in relation to Section 3 of Rule 46. They aver that they
submitted certified true copies of the decision and the resolution
subject of the petition, copies of relevant pleadings, as well as the
documents necessary for a complete understanding of the issues
raised, and a certificate of non-forum shopping.33 They posit that
should the CA disagree on what they had considered relevant to their
petition, the petition should not have been dismissed outright; instead,
the CA should have required them to submit the requisite documents.34
The petitioners stress that the dismissal of the petition on a purely
technical ground is inconsistent with the constitutional mandate on
protection to labor. They maintain that in denying their motion for
reconsideration, the CA acted harshly and in complete disregard of the
law’s tenderness for the plight of labor. The petitioners point out that
even this Court has been lenient in more serious cases of non-
observance of procedural rules, such as the failure to perfect an appeal
within the reglementary period.35
The petitioners further posit that judicial review is warranted in this
case since the findings of the Labor Arbiter were reversed by the NLRC;
hence, the CA should have resolved the petition for certiorari on its
merits. They contend that the evidence shows that no drugs were
found in their possession and that as such, their dismissal could not
have been based on a valid cause. They claim that the NLRC erred in
giving credence to the joint affidavit of the private respondent’s
security personnel and the sworn statement of Arcenas.36
DO 18-02 Cases 6
For its part, the private respondent avers that the CA did not err in
dismissing the petition for the petitioners’ failure to append the
required pleadings and order. It asserts that the petitioners even failed
to give a justification for their failure to comply with the Rules of Court.
The private respondent further points out that the petitioners failed to
append an affidavit of proof of service under Section 13, Rule 13 of the
Rules of Court to their motion for reconsideration of the August 10,
2000 Resolution of the CA, and even failed to give a valid justification
for such failure. Thus, the private respondent avers, the ruling of the
CA is in accord with the Rules of Court.
The petition is meritorious.
The CA erred in dismissing the petition on the ground that the
petitioner failed to comply with the last paragraph of Section 1 of Rule
65 of the Rules of Court, which provides:
SECTION 1. Petition for certiorari. – When any tribunal, board or officer
exercising judicial or quasi-judicial functions has acted without or in
excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal, or
any plain, speedy, and adequate remedy in the ordinary course of law,
a person aggrieved thereby may file a verified petition in the proper
court, alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such tribunal,
board or officer, and granting such incidental reliefs as law and justice
may require.
The petition shall be accompanied by a certified true copy of the
judgment, order or resolution subject thereof, copies of all pleadings
and documents relevant and pertinent thereto, and a sworn
certification of non-forum shopping as provided in the third paragraph
of Section 3, Rule 46.
The provision mandates that the following documents should be
appended to the petition: a certified copy of the judgment, order or
resolution subject of the petition; copies of all pleadings and
documents relevant and pertinent thereto; and a sworn statement of
non-forum shopping as provided in the third paragraph of Section 3,
Rule 46, which reads:
SEC. 3. Contents and filing of petition, effect of non-compliance with
requirements. –
…
The petitioner shall also submit together with the petition a sworn
certification that he has not theretofore commenced any other action
involving the same issues in the Supreme Court, the Court of Appeals
or different divisions thereof, or any other tribunal or agency; if there is
such other action or proceeding, he must state the status of the same;
and if he should thereafter learn that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of
Appeals, or different divisions thereof, or any other tribunal or agency,
he undertakes to promptly inform the aforesaid courts and other
tribunal or agency thereof within five (5) days therefrom.
…
It is evident, therefore, that aside from the assailed decision, order or
resolution, not every pleading or document mentioned in the petition is
required to be submitted – only those that are pertinent and relevant
to the judgment, order or resolution subject of the petition. The initial
determination of what pleadings, documents or orders are relevant and
pertinent to the petition rests on the petitioner. If, upon its initial
review of the petition, the CA is of the view that additional pleadings,
documents or order should have been submitted and appended to the
petition, the following are its options: (a) dismiss the petition under the
last paragraph of Rule 46 of the Rules of Court; (b) order the petitioner
to submit the required additional pleadings, documents, or order within
a specific period of time; or (c) order the petitioner to file an amended
petition appending thereto the required pleadings, documents or order
within a fixed period.
If the CA opts to dismiss the petition outright and the petitioner files a
motion for the reconsideration of such dismissal, appending thereto
the requisite pleadings, documents or order/resolution with an
explanation for the failure to append the required documents to the
original petition, this would constitute substantial compliance with the
Rules of Court. In such case, then, the petition should be reinstated. As
this Court emphasized in Cusi-Hernandez v. Diaz:37
Under the circumstances, we hold that there was substantial
compliance with Section 2, Rule 42 of the Rules of Court. In dismissing

the Petition before it, the appellate court clearly put a premium on
technicalities at the expense of a just resolution of the case.
We must stress that "cases should be determined on the merits after
full opportunity to all parties for ventilation of their causes and
defenses, rather than on technicality or some procedural
imperfections. In that way, the ends of justice would be served better."
Moreover, the Court has held:
"Dismissal of appeals purely on technical grounds is frowned upon and
the rules of procedure ought not to be applied in a very rigid, technical
sense, for they are adopted to help secure, not override, substantial
justice, and thereby defeat their very aims."
Rules of procedure are mere tools designed to expedite the decision or
resolution of cases and other matters pending in court. A strict and
rigid application of rules that would result in technicalities that tend to
frustrate rather than promote substantial justice must be avoided.38
In this case, the petitioners filed a motion for the reconsideration of the
August 10, 2000 CA Resolution, and appended thereto the required
pleadings and order; they likewise explained that they failed to append
the same to their original petition because they believed that the said
pleadings and order did not affect the substance of the petition filed
before the CA. Indeed, there is merit in their contention because the
substance of their complaint with the Labor Arbiter, as well as that of
the private respondent’s position paper, were already embodied in the
decisions of the Labor Arbiter and the NLRC, certified copies of which
were appended to the original petition. The petitioners thus believed in
good faith that the pleadings and order required by the CA were no
longer necessary.
It would be more in accord with substantial justice and equity to
overlook the procedural lapse, and allow the petition to be resolved on
its merits. It is well-settled that the application of technical rules of
procedure may be relaxed to serve the demands of substantial justice,
particularly in labor cases.39 Labor cases must be decided according to
justice and equity and the substantial merits of the controversy.40 As
the Court stressed in a recent case:41
The policy of our judicial system is to encourage full adjudication of the
merits of an appeal. In the exercise of its equity jurisdiction, this Court
may reverse the dismissal of appeals that are grounded merely on
technicalities. Moreover, procedural niceties should be avoided in labor
cases in which the provisions of the Rules of Court are applied only in
suppletory manner. Indeed, rules of procedure may be relaxed to
relieve a part of an injustice not commensurate with the degree of
noncompliance with the process required.42
The Court thus holds that the petitioners deserve to be heard on their
petition for certiorari, considering the conflicting findings and
conclusions of the Labor Arbiter and the NLRC based on their
calibration of the evidence on record. Moreover, the petitioners’ plea
that urine samples were extracted from them without the assistance of
counsel and that the Toxicology Reports of the NBI Forensic and
Chemistry Division are inadmissible in evidence must also be
considered. The joint affidavits of Villacete, Ramos, Villar and Arcenas
that the petitioners were caught sniffing methamphetamine
hydrochloride are contradicted by the NBI’s Toxicology Reports that
the urine samples provided by the petitioners were found positive for
amphetamine. There is thus a need for the CA to resolve the issues of
whether amphetamine is indeed a metabolite of methamphetamine
and whether the possession and use of such substance is a violation of
the law.
We note that the petitioners indeed failed to append to their motion for
reconsideration in the CA the affidavit required by Rule 13, Section 13
of the Rules of Court, to wit:
SEC. 13. Proof of service. – Proof of personal service shall consist of a
written admission of the party served, or the official return of the
server, or the affidavit of the party serving, containing a full statement
of the date, place and manner of service. If the service is by ordinary
mail, proof thereof shall consist of an affidavit of the person mailing of
facts showing compliance with Section 7 of this Rule. If service is made
by registered mail, proof shall be made by such affidavit and the
registry receipt issued by the mailing office. The registry return card
shall be filed immediately upon its receipt by the sender, or in lieu
thereof the unclaimed letter together with the certified or sworn copy
of the notice given by the postmaster to the addressee.
DO 18-02 Cases 7
Nonetheless, in the interest of substantial justice, taking into account
the fact that this is a labor case, the Court opts to overlook the
procedural lapse of the petitioners, conformably with the ruling of the
Court in ABD Overseas Manpower Corporation v. NLRC:43
Under the Rules of Court which were then in effect and applicable to
the case at bar, when MARS failed to file an answer to petitioner’s
cross-claim, it should have been declared in default with respect to
such claim. In labor cases, however, technical rules of procedure are
not applicable, but may apply only by analogy or in a suppletory
character, for instance, when there is a need to attain substantial
justice and an expeditious, practical and convenient solution to a labor
problem. Hence, when the POEA opted to overlook petitioner’s cross-
claim against MARS, petitioner was denied substantial justice.44
Indeed, technicalities should not be permitted to stand in the way of
equitably and completely resolving the rights and obligations of the
parties. The Court reiterates that where the ends of substantial justice
would be better served, the application of technical rules of procedure
may be relaxed.45
WHEREFORE, the Resolutions of the Court of Appeals dated August
10, 2000 and November 5, 2003 are SET ASIDE. The records of the
case are REMANDED to the Court of Appeals for further proceedings.
The appellate court is DIRECTED to REINSTATE CA-G.R. SP No. 59826 in
its docket and to require private respondent Philippine Airlines, Inc. to
file its Comment on the petition for certiorari. No costs.
SO ORDERED.
[G.R. No. 162868, July 14, 2008]
RODOLFO D. GARCIA, PETITIONER, VS. PHILIPPINE AIRLINES
AND/OR CRISTINA W. TRINIDAD, MANAGER, CATERING
OPERATIONS, RESPONDENTS.
REYES, R.T., J.:
WHO is the employer of petitioner - respondent Philippine Airlines or
the latter's contractor, Stellar Industrial Services, Inc.?
The question has been adjudged previously and is now barred from
being relitigated under the doctrine of res judicata, a rule which
pervades every well-regulated system of jurisprudence. It is founded
upon two (2) grounds, namely: (1) public policy and necessity which
makes it to the interest of the State that there should be an end to
litigation, interest reipublicae ut sit finis litumi (sa kapakanan ng
Estado ay kailangang magkaroon ng wakas ang kaso); and (2)
the hardship on the individual that he should be vexed twice for the
same cause, memo debet bis vexari et eadem causa (sinuman ay di
dapat bagabagin ng makalawa sa iisang dahilan).[1]
The doctrine finds application in this petition for review on certiorari of
the Decision[2] and Resolution[3] of the Court of Appeals (CA), absolving
private respondent Philippine Airlines (PAL) of any liability for petitioner
Rodolfo D. Garcia's dismissal.
The Facts
Stellar Industrial Services, Inc. (Stellar) had a standing agreement to
supply PAL with workers for janitorial and sanitation functions. On
August 2, 1976, petitioner was assigned by Stellar to PAL, where he
was tasked to perform janitorial services at the company's in-flight
kitchen until January 24, 1990.
During the course of his employment, petitioner received a warning
from Stellar for absences incurred. The Memorandum, dated April 28,
1987, pertinently reads:
TO : GARCIA, Rodolfo
NUEDA, Ferdinand
FROM : Vice President Comptroller
SUBJECT : LAST WARNING
DATED : 28 April 1987
Our attention was called by our client Philippine Airlines - Inflight
Kitchen regarding your failure to report for work last April 17, 1987.
Your absences has (sic) caused inconvenience in the operation of our
client. Let this serve as our last warning, any repetition or violation of
any
company rules and regulations will constrain us to terminate your

services with us.
(SGD.) CARLOS P. CALLANGA[4]
On January 25, 1990, petitioner was transferred to PAL's Catering
Operations as a kitchen busboy in the sanitizing section.
In a Memorandum dated March 21, 1990, PAL, through Cristina W.
Trinidad, then Manager of PAL's Catering Operations, requested Stellar
for a replacement for petitioner.
TO : Mr. Oscar Lluz
Operations Manager Stellar Industrial
Services
FROM : Manager-Catering Operations
SUBJECT : MR. RODOLFO GARCIA
We would like to request for the immediate replacement of Mr.
Rodolfo Garcia.
He has failed to meet the performance requirement of a helper
at Catering Operations.
Hereunder are the observations of his superiors from January 8
to the present.
Always late in completing assigned
01.
tasks.
Must be consistently prodded to
02.
meet deadlines.
Unable to identify and carry out work
03. priorities and needs assistance from
co-workers.
Worst of all, he was caught selling cigarettes while on duty.
We hope you will act on our request immediately.
(SGD.) CRISTINA W. TRINIDAD[5]
Consequently, in a letter dated March 28, 1990, Carlos P. Callanga, VP-
Operations/Comptroller of Stellar, demanded from petitioner a written
explanation why no disciplinary action should be taken against him, in
view of the following charges: (1) poor performance/negligence of
duty; and (2) selling of cigarettes while on duty.[6]
Petitioner, in a letter-reply dated April 2, 1990, rendered an
explanation in the following tenor:
April 2, 1990
Mr. Cesar Lluz
Operation Manager
Stellar Industrial Services
Cibeles Bldg., Ayala
Makati, Metro Manila
Dear Sir:
These are my answers to the charges against me as inscribed in a
letter of MS. Cristina W. Trinidad dated March 21, 1990.
As to the allegation that I was always late in completing assigned task,
this was not true because works in the Catering Service has (sic) no
ending due to the nature of PAL's business.
As to the allegation that I must constantly (be) prodded to meet
deadlines, (this) was not correct because of the above reasons.
As to the allegation that I was not able to identify and carry out work
priorities and needs assistance from co-workers was not also (sic)
correct because I always have a companion in the performance of my
job because the nature of the work calls for it.
And as to the last allegation that I was caught selling cigarettes while
on duty was not also tru (sic) because how can I sell cigarettes when I
was surrounded by heavy works and the mess in my hands while on
duty will make them spoiled. The cigarettes inside my pocket was (sic)
only for my personal consumptions (sic).
I hope these answers will enlighten my case and I am looking forward
that I will be given merit considering that I am connected with the
service for a period of fourteen (14) years without being
apprehended/complained of misconduct unbecoming.
DO 18-02 Cases 8
Yours truly,
(Sgd.)
RODOLFO GARCIA[7]
Dissatisfied with petitioner's explanation, Stellar subsequently
terminated his employment.
In 1992, petitioner filed a complaint for illegal dismissal against Stellar
and Lluz, as well as PAL and Trinidad. The case, docketed as NLRC
Case No. 00-11-06556-92, was assigned to Labor Arbiter Emerson C.
Tumanon.
It appears that sometime in 1988, Stellar employees assigned at PAL
filed complaints for regularization against the air carrier. One of the
complainants against PAL was petitioner. These complaints, docketed
as National Labor Relations Commission (NLRC) NCR Case Nos. 00-11-
04628-88, 00-12-05004-88, 00-01-00465-88, and 00-02-00828-89,
were consolidated and assigned to Labor Arbiter Jose De Vera of the
NLRC.[8]
On March 31, 1992, Labor Arbiter De Vera rendered judgment[9] in
favor of complainants, declaring the existence of an employer-
employee relationship between the Stellar employees and PAL. On
appeal, the NLRC affirmed in toto the findings of the Labor Arbiter.
PAL moved for reconsideration of the April 27, 1995 NLRC Decision.
Acting on PAL's motion, the NLRC, on September 25, 1996, reversed
and set aside its own earlier findings, and declared complainants
employees of Stellar, not of PAL.[10]
On February 6, 1998, the aggrieved complainants lodged an appeal
with this Court. However, via its Resolutions dated March 2, 1998[11]
and April 22, 1998,[12] this Court denied the same.
NLRC Ruling
On November 29, 1995, Labor Arbiter Tumanon rendered a decision[13]
in the illegal dismissal case in favor of petitioner, stating thus:
WHEREFORE, premises considered, judgment is hereby rendered
declaring the dismissal of complainant herein to be illegal and
unauthorized; consequently, ordering herein respondents jointly and
severally without loss of seniority rights and privileges and with full
backwages counted from the date of his dismissal until actual
reinstatement which up to the date of the promulgation of this
Decision has already amounted to TWO HUNDRED FORTY THOUSAND
FOUR HUNDRED SEVENTY-FIVE and 21/100 (P240,475.21) pesos,
broken down as follows:
Backwages in the sum of P218,810.02;
13th Month pay in the sum of P18,234.16;
Service Incentive Leave pay in the sum of P3,431.03;
subject to adjustment if payroll or physical reinstatement is denied.
It appearing that complainant has been represented by counsel in the
litigation of this case, said counsel is hereby awarded the sum of ten
(10%) percent of the total award as and for attorney's fees in the
amount of TWENTY-FOUR THOUSAND FORTY-SEVEN and 52/100
(P24,047.52) pesos, subject also for adjustment.
SO ORDERED.[14]
However, on appeal, the Third Division of the NLRC reversed Labor
Arbiter Tumanon, holding that petitioner was "guilty of gross and
habitual neglect and was consequently terminated for cause and with
due process."[15] The NLRC declared that:
x x x respondent Stellar appears to be an independent job contractor
and not merely a labor only contractor. Apart from the fact that it has
sufficient capitalization to the tune of more than a million pesos, its
workers perform work that are not necessary and desirable to the
business of PAL. Simply stated, it is a job contractor for PAL's
messengerial and janitorial needs no more no less. Hence, its
employees are not of PAL.
ACCORDINGLY, premises considered, the decision appealed from is
hereby SET ASIDE and this case DISMISSED for lack of merits (sic).
SO ORDERED.[16]
Petitioner's motion for reconsideration was denied by the NLRC in its
October 8, 2004 Resolution.[17]
CA Disposition
On certiorari, the CA "modified" both the NLRC and the Labor Arbiter
rulings, thus:
WHEREFORE, premises considered, the Petition is GRANTED and the
assailed 27 August 2001 Resolution of respondent Commission in NLRC
NCR CA No. 010218-96 and the 29 November 1995 Decision of Labor
Arbiter Emerson C. Tumanon in NLRC NCR No. 00-11-06556-92 are
hereby MODIFIED insofar as the pecuniary awards declared in the
Labor Arbiter's Decision are the sole responsibility of private
respondent Stellar, petitioner's direct employer.
 DO 18-02 Cases 9

an authorized capital stock of P1,000,000.00. SISI has a collective

SO ORDERED.[18] bargaining agreement (CBA) with its employees, including SEA's
In reality, however, the CA merely sustained the NLRC ruling that members, under which complainants obtained substantial benefits.
Stellar is an independent contractor. The CA observed:
However, it is only private respondent Stellar who is responsible to
xxxx
petitioner as the former is an independent contractor. The issue
whether or not Stellar is an independent contractor or merely engaged
We must remember that this case is principally for regularization and
in labor-only contracting was already addressed and settled by the
relies primarily on the premise that SISI is a "labor-only" contractor of
Highest Magistrate in a related case entitled Phil. Airlines vs. NLRC,
PAL. With respect to the issue of whether or not SISI is a legitimate
298 SCRA 430 [2000], to wit:
independent contractor, SEA admits that SISI provides its employees
"Aside from these stipulations in the service agreement, other pieces
with "soap, cleansers, mops, lawn mowers, brooms, dust pans," etc.
of evidence support the conclusion that STELLAR, not PAL, was the
More telling is SEA's admission that SISI has several clients other than
employer of the individual private respondents. A contract of
PAL. SEA tries to avoid the application of Neri, et al. vs. NRLC, et al.,
employment existed between STELLAR and the individual private
224 SCRA 717 (July 23, 1993), by distinguishing SISI's janitorial
respondents, proving that it was said corporation which hired them. It
operations from the other types of employees, like the station loaders.
was also STELLAR which dismissed them, as evidenced by Complainant
Parenas' termination letter, which was signed by Carlos P. Callanga,
This argument, however, falls flat on its face considering that SISI has
vice president for operations and comptroller of STELLAR. Likewise,
substantial authorized capital in the amount of P1.0 Million, since this
they worked under STELLAR's own supervisors, Rodel Pagsulingan,
not limited to its janitorial department. This is evidenced by SISI's
Napoleon Parungao, and Renato Topacio. STELLAR even had its own
Amended Articles of Incorporation which is a public document under
collective bargaining agreement with its employees, including the
the possession, supervision and control of the Securities and Exchange
individual private respondents. Moreover, PAL had no power of control
Commission and We can even take judicial notice of this fact, despite
and dismissal power them (sic)."[19]
SEA's declaration to the contrary.
Petitioner moved for partial reconsideration asking that PAL be made
solidarily liable with Stellar. However, the CA denied his motion in its
We are aware of the standards used to determine a "labor-only"
Resolution dated March 17, 2004. Hence, this petition.
contractor. As SEA itself has pointed out, one such gauge is the
absence of substantial capital, citing Art. 106 of the Labor Code and
Issues
Sec. 9, Rule VIII of its Implementing Rules. In view of SISI's possession
of substantial capital, it cannot be considered a "labor-only" contractor.
Petitioner submits the following assignment:
On the other hand, is SISI an independent contractor? We resolve this
I. is in the affirmative after re-thinking our earlier Resolution. Aside from
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION its capital, it also maintains an independent business as admittedly
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ABSOLVING PAL shown by its diversified clientele and the supervision and control as to
FROM LIABILITY CONSIDERING THAT IT IS THE EMPLOYER OF the means of work as provided by its own timekeepers, foremen, etc.
PETITIONER BECAUSE THE LATTER PERFORMED FUNCTIONS, DUTIES
AND RESPONSIBILITIES NECESSARY AND DESIRABLE TO ITS BUSINESS We cannot subscribe to the position by SEA that the absence of
OPERATIONS. premises, tools, equipment, etc. is anachronistic to SISI's being an
II. independent contractor. There is nothing novel about this since this
has been succinctly ruled upon by the Supreme Court in its Neri
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION decision, supra. There, the High Court refined the definition of an
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ABSOLVING PAL independent contractor in the sense that it need not possess both tools
FROM LIABILITY CONSIDERING THAT IT IS THE EMPLOYER OF and equipment, on one hand, and substantial capitalization, on the
PETITIONER BECAUSE IT IS PAL WHICH EXERCISED CONTROL OVER THE other hand. Otherwise, as observed by the Court, the legislator ought
MEANS AND METHODS (BY WHICH) PETITIONER PERFORMED HIS JOB to have used the conjunctive "and," instead of "or."
AT ITS CATERING DEPARTMENT.
III. Neither is the contention concerning the direct relation of
complainants' services to PAL's operations relevant to the ultimate
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION determination of this case. In Neri, the Supreme Court cited the
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ABSOLVING PAL "general practice," even of government institutions, of contracting out
FROM LIABILITY CONSIDERING THAT IT IS THE EMPLOYER OF certain services, and, with the finding that BCC, the contractor there,
PETITIONER BECAUSE IT IS PAL WHICH ADOPTED RULES, REGULATIONS was an independent one, also said -
AND POLICIES REGARDING DISCIPLINE TO BE FOLLOWED BY ITS
EMPLOYEES AT ITS CATERING DEPARTMENT.[20] (Underscoring supplied) x x x There is even no need for it to refute petitioner's contention that
the activities are directly related to the principal business of
Simply stated, the essential issue is whether PAL is petitioner's respondent bank.
employer and solidarily liable with Stellar for illegal dismissal. xxxx
Our Ruling
Viewed from a different standpoint, the workers have no contractual tie
to PAL because SISI, as a legitimate independent contractor, is their
Preliminarily, We note that the instant petition was filed beyond the
true employer. They applied and executed employment contracts with
requested extension period. Petitioner received a copy of the CA March
SISI, not PAL, although SEA argues that its members were made to sign
17, 2004 Resolution on March 26, 2004. He had until April 10, 2004 to
the application forms and employment contracts. What cannot be
file this petition. He asked the Court that he be allowed until April 25,
denied, however, is the brazen and undisputed fact that SISI has a CBA
2004 to file the same,[21] but failed to comply when he filed the petition
with its employees, including SEA's members. SISI's employees derived
only on April 26, 2004. Nevertheless, inasmuch as the delay is not
benefits under said CBA for the number of years it had been in force.
substantial, the greater interest of justice would be served if this
The CBA is a clear admission of an employment relationship with SISI.
petition is adjudicated on its merits. Sound policy dictates that it is far
It is now too late in the day for them to deny such relationship.
better to dispose of cases on the merits, rather than on a technicality
xxxx
as the latter approach may result in injustice.[22]
Because of the absence of a juridical tie with them, PAL's instructions
On its merits, however, We resolve to deny the petition.
cannot be considered control under the four-fold test of employment
relationship. Going back to the Neri case, "x x x in legal contemplation,
The CA correctly found that PAL is not petitioner's employer and
such instructions carry no more weight than mere requests x x x."
cannot thus be held solidarily liable with Stellar for illegal dismissal.
xxxx
The issue on the existence of an employer-employee relationship
All told, We hereby rule that SISI is a legitimate independent contractor
between petitioner and PAL has long been resolved in the case entitled
and is the true employer of the individual complainants, not PAL.[24]
Stellar Employees Association v. Philippine Airlines and Stellar
(Underscoring supplied)
Industrial Services, Inc.[23] In that case, petitioner joined other Stellar
Due to the failure to seasonably appeal or question the NLRC ruling,[25]
employees in filing complaints for regularization, money claims and
its factual and legal findings have attained finality. Consequently, the
damages against PAL before the NLRC. The NLRC declared, on
holding that PAL is not petitioner's employer constitutes res judicata on
September 25, 1996, that no employer-employee relationship exists
the same issue in this petition.
between PAL and the Stellar employees, finding that:
We have re-examined the record of this case and have found that SISI
Res judicata literally means "a matter adjudged; a thing judicially acted
assigned supervisors and timekeepers at PAL's premises where SEA's
upon or decided; a thing or matter settled by judgment."[26] Res
members performed their work. On the issue of SISI's capitalization, it
judicata is, in fine, a rule of preclusion to the end that facts or issues
cannot be denied that, per its Amended Articles of Incorporation, it has
 DO 18-02 Cases 10

settled by final judgment should not be tried anew.[27] controverted, on the determination of which the finding or judgment
was anchored.[37]
The principle of res judicata in actions in personam is found in Section
49(b) and (c), Rule 39 of the Rules of Court which provides: Where material facts or questions, which were in issue in a former
Sec. 49. Effects of judgments. - The effect of a judgment or final order action, were judicially determined, such facts are res judicata.[38] In
rendered by a court or judge of the Philippines, having jurisdiction to Stilianopulos v. City of Legaspi,[39] the Court held that "(w)hen a right or
pronounce the judgment or order, may be as follows: fact has been judicially tried and determined by a court of competent
jurisdiction or an opportunity for such trial has been given, the
judgment of the court, as long as it remains unreversed, should be
xxxx
conclusive upon the parties and those in privity with them. Clearly,
there should be an end to litigation by the same parties and their
(b) In other cases, the judgment or order is, with respect to the matter
privies over a subject, once it is fully and fairly adjudicated."
directly adjudged or as to any other matter that could have been
raised in relation thereto, conclusive between the parties and their
Res judicata requires that stability be accorded to judgments.
successors-in-interest by title subsequent to the commencement of the
Controversies once decided on the merits shall remain in repose for
action or special proceeding, litigating for the same thing and under
there should be an end to litigation which, without the doctrine, would
the same title and in the same capacity;
be endless.[40] As We declared in Camara v. Court of Appeals,[41] both
concepts of res judicata are:
(c) In any other litigation between the same parties or their successors-
x x x founded on the principle of estoppel, and are based on the
in-interest, that only is deemed to have been adjudged in a former
salutary policy against unnecessary multiplicity of suits. Like the
judgment which appears upon its face to have been so adjudged, or
splitting of causes of action, res judicata is in pursuance of such policy.
which was actually and necessarily included therein or necessary
Matters settled by a Court's final judgment should not be litigated upon
thereto.
or invoked again. Relitigation of issues already settled merely burdens
Res judicata has two (2) concepts. The first is "bar by prior judgment"
the Courts and the taxpayers, creates uneasiness and confusion, and
under Rule 39, Section 47(b). This rule dictates that the judgment or
wastes valuable time and energy that could be devoted to worthier
decree of a court of competent jurisdiction on the merits concludes the
causes. As the Roman maxim goes, Non bis in edem.[42]
parties and their privies to the litigation and constitutes a bar to a new
The regularization cases initiated and participated in by petitioner are
action or suit involving the same cause of action either before the
now final and executory, and the issues resolved in that case should no
same or any other tribunal.[28] Stated otherwise, the judgment rendered
longer be disturbed. Nothing is more settled in law than that when a
in the first case is an absolute bar to the subsequent action since said
judgmentbecomes final and executory it becomes immutable and
judgment is conclusive not only as to the matters offered and received
unalterable. The same may no longer be modified in any respect, even
to sustain that judgment but also as to any other matter which might
if the modification is meant to correct what is perceived to be an
have been offered for that purpose and which could have been
erroneous conclusion of fact or law, and whether made by the highest
adjudged therein.[29]
court of the land. The reason is grounded on the fundamental
considerations of public policy and sound practice that, at the risk of
The second rule of res judicata is embodied in Rule 39, Section 47(c),
occasional error, the judgments or orders of courts must be final at
and is known as "conclusiveness of judgment." It provides that any
some definite date fixed by law.[43]
right, fact, or matter in issue directly adjudicated or necessarily
involved in the determination of an action before a competent court in
Verily, res judicata now bars petitioner from reopening, by way of this
which a judgment or decree is rendered on the merits is conclusively
petition, the issue of the existence of an employer-employee
settled by the judgment therein and cannot again be litigated between
relationship between him and PAL. Otherwise, there will never be an
the parties and their privies whether or not the claim or demand,
end to litigation on the issue.
purpose, or subject matter of the two suits is the same. It refers to a
situation where the judgment in the prior action operates as an
Nevertheless, petitioner insists that We again resolve the issue by
estoppel only as to the matters actually determined or which were
looking at "evidentiary facts of employer-employee relationship."[44] At
necessarily included therein.[30]
the same time, he maintains that he raises questions of law.[45]
The other elements being virtually the same, the fundamental
Evidently, the issues raised by the petitioner pertain to factual matters.
difference between the rule of res judicata as a bar by former
If We were to determine these factual issues, We shall have to
judgment and as merely a rule on the conclusiveness of judgment is
examine the documentary and testimonial evidence, as well as the
that, in the first, there is an identity in the cause of action in both cases
factual allegations in the pleadings. In doing so, We shall have to
involved whereas, in the second, the cause of action in the first case is
consider the following elements to determine the existence of an
different from that in the second case.[31]
employment relationship: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and
In this petition, res judicata in the concept of conclusiveness of
(d) the employer's power to control the employee with respect to the
judgment obtains. The concept is applicable here as there is identity of
means and methods by which the work is to be accomplished. Of these
parties and subject matter but not of causes of action.
elements, the so-called "control test" is the most important.[46]
First, there is identity of parties between the two (2) cases. Petitioner
Obviously, an evaluation of the above-mentioned factual matters is
was one of complainants in the consolidated regularization cases and
embraced by the proscription found in Rule 45, Section 1 of the Rules
he is also the same party who initiated this action. His denial of
of Court, which states that an appeal by certiorari to the Supreme
participation in the regularization cases[32] is negated by the records, as
Court "shall raise only questions of law which must be distinctly set
he was awarded wage differentials and CBA benefits by the Labor
forth."
Arbiter in said cases.[33] In fact, records show that petitioner was
awarded the amount of P34,886.00.[34]
Petitioner asks Us to exempt him from the proscription considering the
contrasting findings of the Labor Arbiter, on one hand, and the NLRC
Second, there is identity of subject matter, defined as the matter or
and the CA on the other.
thing with respect to which the controversy has arisen, concerning
which a wrong has been done.[35] It is quite clear that the issue and
However, well-settled is the rule that conclusions and findings of fact
subject matter resolved in the consolidated regularization cases is the
by the lower courts or administrative bodies are entitled to great
existence of an
weight on appeal and will not be disturbed except for strong and
employer-employee relationship between petitioner and PAL. It is also
cogent reasons. The findings of the CA by itself, which are supported
the primordial issue for resolution in the instant petition.
by substantial evidence, are almost beyond the power of review by the
Supreme Court.[47]
However, identity of causes of action is absent between the two (2)
cases. Under the rules, a cause of action is defined as an act or
We find no cogent reason to disturb the NLRC and the CA findings as
omission by which a party violates a right of another.[36] In the
these are supported by substantial evidence. On the other hand, We
regularization cases, the cause of action is the deprivation of the status
cannot rely on the findings of the Labor Arbiter about the existence of
of a regular employee, while in this petition, the cause of action is the
an employer-employee relationship. His decision[48] fails to shed light
dismissal of an employee without just cause under our labor laws.
on what specific findings of fact convinced him that Stellar is a labor-
only contractor, and that PAL is an employer of petitioner.
Applying the rule on conclusiveness of judgment to this case, the
parties are now precluded from relitigating the same issue of the
Moreover, even if We relax the rule, We notice an abject failure of the
existence of an employment relationship between PAL and petitioner.
petitioner to attach to the petition and subsequent pleadings, proof of
these alleged facts of employment relationship. There is a patent
Although it does not have the same effect as bar by prior judgment
dearth of evidence in the records to convince Us that the following
which precludes subsequent actions, conclusiveness of judgment
material allegations exist, namely: that petitioner's duties were
operates as estoppel with respect to matters in issue or points
necessary and desirable to the business of PAL; that PAL exercised

control over the means and methods of his performance at the in-flight
kitchen; and that it was PAL's responsibility to issue rules and
regulations regarding discipline to be followed by petitioner at that
department.
Instead, petitioner merely offered factual assertions which are
unfortunately not supported by proof, documentary or otherwise. We
cannot accept this as substantial evidence that is necessary to make a
finding of an employer-employee relationship. It is elementary that he
who alleges a fact must prove it, and a mere allegation is not evidence.
[49]
On the basis of the pleadings and evidence before Us, We cannot
accept the claim that petitioner was PAL's employee. Petitioner does
not deny that he was selected and engaged by Stellar when he was
assigned to PAL.[50] Moreover, while petitioner claims that the funds for
his salary came from PAL, he did not adduce proof to support his
allegation. In any event, he admits that it was Stellar that paid his
wages.[51] The evidence further shows that it was Stellar, not PAL, that
disciplined petitioner. It was Stellar that issued to petitioner various
memoranda asking for an explanation about his infractions,[52] and
petitioner explained himself to that company, not PAL.[53] In fine,
petitioner recognized the disciplinary authority of Stellar over him, and
not that of the air carrier.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.
Ynares-Santiago, (Chairperson), Quisumbing, Austria-Martinez, and
Nachura, JJ., concur.
[G.R. NO. 157647, October 15, 2007]
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS),
PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION,
LANTING SECURITY AND WATCHMAN AGENCY, TOMAS
LANTING, DANIEL FANILA,* HECTOR MORENO, ISAURO FERRER,**
RUBIN WILFREDO, JESUS DELIMA, JR., MARIA LEGASPI,
SANTIAGO NOTO, JR., AND VIRGILIO SORIANO, RESPONDENTS.
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari of the Decision[1]
dated July 25, 2002 of the Court of Appeals (CA) in CA-G.R. SP No.
61570 and the CA Resolution[2] dated March 19, 2003 which denied the
motion for reconsideration thereof.
The facts:
Tomas Lanting, doing business under the name and style of Lanting
Security and Watchman Agency (LSWA) entered into a Security Service
Contract to provide security guards to the properties of the
Government Service Insurance System (GSIS) at the contract rate of
P3,000.00 per guard per month.[3]
During the effectivity of the contract, LSWA requested the GSIS for an
upward adjustment of the contract rate in view of Section 7 of Wage
Order No. 1 and Section 3 of Wage Order No. 2, which were issued by
the Regional Tripartite Wages and Productivity Board-NCR pursuant to
Republic Act No. 6727, otherwise known as the Wage Rationalization
Act.
Acting on the request of LSWA, the GSIS, through its Board of Trustees
and under Board Resolution No. 207, dated May 24, 1991, approved
the upward adjustments of the contract price from P3,000.00 to
P3,716.07 per guard, per month effective November 1, 1990 to January
7, 1991, and P4,200.00 effective January 8, 1991 to May 31, 1991.[4]
LSWA assigned security guards Daniel Fanila, Hector Moreno, Isauro
Ferrer, Rubin Wilfredo, Jesus Delima, Jr., Maria Legaspi, Santiago Noto,
Jr., and Virgilio Soriano (hereafter complainants) to guard one of GSIS's
properties. The complainants have the following dates of employment
and compensation package with LSWA:
1. Daniel Fanila 3/28/91- P3,100/month
3/15/93
2. Virgilio Soriano 10/0/91- P3,100/month
3/15/93
3. Hector Moreno 1/04/89- P3,100/month
3/15/93
4. Isauro Torres 11/ /88- P3,100/month
3/15/93
5. Rubin Wilfredo 3/08/91- P3,100/month
3/15/93
DO 18-02 Cases 11
6. Jesus Delima, Jr. 3/28/91- P3,100/month
3/15/93
6. Jesus Delima, Jr. 3/28/91- P3,100/month
3/15/93
On March 15, 1993, GSIS terminated the Security Service Contract with
LSWA. All the complainants, except Virgilio Soriano, were absorbed by
the incoming security agency.
On March 7, 1994, complainants filed separate complaints against
LSWA for underpayment of wages and non-payment of labor standard
benefits from March 1991 to March 15, 1993. Virgilio Soriano also
complained of illegal dismissal.
In its Position Paper, LSWA alleged that complainants were estopped
from claiming that they were underpaid because they were informed
that the pay and benefits given to them were based on the contract
rate of P103.00 per eight hours of work or about P3,100.00 per month.
On August 9, 1994, LSWA filed a Third-Party Complaint[5] against GSIS
for underpayment of complainants' wages.
In its Position Paper,[6] GSIS alleged that the Third-Party Complaint
states no cause of action against it; that LSWA obligated itself in the
Security Service Contract to be solely liable for the enforcement of and
compliance with all existing labor laws, rules and regulations; that the
GSIS Board of Trustees approved the upward adjustment on a month-
to-month basis, at P4,200 per guard per month, effective January 8,
1991 to May 31, 1991, under Board Resolution No. 207 dated May 24,
1991, which was incorporated in the Security Service Contract; that
GSIS fully paid the services of the security guards as agreed upon in
the Security Service Contract.
On August 27, 1996, Labor Arbiter Renato Bugarin rendered a
Decision[7] in favor of complainants, the dispositive portion of which
reads:
WHEREFORE, premises considered judgment is hereby rendered:
1. Ordering respondents Lanting Security and Watchman
Agency and Tomas Lanting to reinstate complainant Virgilio
Soriano without loss of seniority rights and benefits and to
pay his backwages amounting to P161,400.47, computed up
to the promulgation of this decision. Failure to reinstate
complainant to his former position as hereby ordered, his
backwages shall continue to run but in no case shall exceed
three (3) years;
2. Ordering, respondents Lanting Security and Watchman
Agency and/or Thomas Lanting and the Government Service
Insurance System, jointly and severally liable to pay the
complainants, their salary differentials; cash equivalent of
their service incentive leaves and proportionate 13th month
pay covering the period from June 1, 1991 to March 15,
1993, hereto indicated as follows:
1.Daniel Fanila,Jr. - P18, 439.50
2. Hector Moreno - P18, 439.50
3. Isauro Torres - P18, 439.50
4. Rubin Wilfredo - P18, 439.50
5. Jesus Delima, Jr. - P18, 439.50
6. Maria Legaspi - P18, 439.50
7. Virgilio Soriano - P18, 439.50
3. All other claims are hereby dismissed for lack of merit.
SO ORDERED.[8]
The Labor Arbiter held LSWA and GSIS jointly and severally liable for
the payment of complainants' money claims, pursuant to Articles 106
and 107 of the Labor Code.
LSWA appealed to the NLRC. On April 14, 2000, the NLRC issued a
Resolution,[9] the dispositive portion of which reads:
WHEREFORE, premises considered, the Appeal is hereby GRANTED.
Accordingly, the Decision appealed from is SUSTAINED subject to the
modification that Complainant-Appellee Soriano was not illegally
dismissed and hence, is not entitled to reinstatement to his former
position and to payment of any backwages; that from the other
Complainants-Appellees' awarded salary differentials from 7 March
1991 to 1 June 1991 in the amount of (sic) each should be deducted
from their awarded total salary differentials in the sum of P10,917.00

each; and that the Third-Party Respondent GSIS is alone liable for
payment of their salary differentials.
SO ORDERED.[10]
The NLRC held the GSIS solely liable for payment of complainants'
money claims.
Dissatisfied, the GSIS filed on May 15, 2000 a Motion for
Reconsideration.[11] On August 20, 2000, the NLRC issued a
Resolution[12] denying GSIS's Motion for Reconsideration.
On November 6, 2000, the GSIS filed a Petition for Certiorari[13] with the
CA arguing that the NLRC gravely abused its discretion in holding GSIS
solely liable for complainants' money claims.
On July 25, 2002, the CA rendered a Decision,[14] the dispositive portion
of which reads:
WHEREFORE, the petition is GRANTED for being meritorious. The
questioned resolution dated 14 April 2000 of the NLRC is hereby
modified insofar as it holds petitioner GSIS solely liable for the salary
differentials of the complainants. Instead, We revert back to the ruling
of the Honorable Labor Arbiter and hold petitioner GSIS and
respondent Lanting Security and Watchman Agency and/or Tomas
Lanting jointly and severally liable for the payment of complainants'
salary differentials.
SO ORDERED. [15]
While finding that the GSIS complied with its obligations under Wage
Order Nos. 1 and 2 by incorporating the mandated increase in the
Security Service Contract, the CA held the GSIS jointly and severally
liable with LSWA for complainants' money claims pursuant to Articles
106 and 107 of the Labor Code.
On September 3, 2002, the GSIS filed a Motion for Reconsideration.[16]
In a Resolution[17] dated March 19, 2003, the CA denied the motion for
reconsideration.
Hence, the present petition anchored on the following assigned error:
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
IN HOLDING THAT PETITIONER GSIS IS SOLIDARILY LIABLE FOR
PAYMENT OF COMPLAINANTS-RESPONDNENTS' SALARY
DIFFERENTIALS.[18]
The GSIS avers that it cannot twice be held liable for complainants'
salary differentials since it fully paid complainants' salaries by
incorporating in the Security Service Contract the salary rate increases
mandated by Wage Order Nos. 1 and 2; otherwise, it would be unjust
enrichment on the part of complainants and/or LSWA at its expense. It
submits that Articles 106 and 107 of the Labor Code were not
contemplated by its framers to cover principals or clients of service
contractors who had already paid for the wages of the contractor or
subcontractor.
In its Comment,[19] LSWA maintains that the GSIS is jointly and
severally liable with LSWA because Articles 106 and 107 of the Labor
Code provide so and these provisions were intended to ensure that
employees are paid the wages due them in case of violation of the
Labor Code of either the contractor or the principal; that the GSIS
cannot claim that holding it jointly and severally liable with LSWA
would result in grave injustice since the law did not leave it without
recourse as the GSIS has the right of reimbursement from its co-debtor
under Article 1217[20] of the Civil Code.
In their Comment,[21] complainants argue that the GSIS is jointly and
severally liable with LSWA for complainants' money claims since LSWA
actually paid only the sum of P3,100.00 a month, even though the GSIS
incorporated in the Security Service Contract the mandated wage
increases in Wage Order Nos. 1 and 2; that although the Security
Service Contract provided that there shall be employer-employer
relationship between LSWA and/or its security guards and the GSIS,
Article 106 of the Labor Code establishes an employer-employee
relationship between the employer and the job contractor's employees
for a limited purpose, that is, in order to ensure that the latter get paid
the wages due them.
The Court gave due course to the petition and required the parties to
submit their respective memoranda.[22] Only the GSIS complied.[23] In
the interest of justice and speedy disposition of cases, the Court
resolved to dispense with the filing of the respective memoranda of
LSWA and the complainants and to decide the case based on the
pleadings filed.[24]
The petition is bereft of merit.
Articles 106 and 107 of the Labor Code provide:
ART. 106. Contractor or subcontractor.– Whenever an employer
enters into contract with another person for the performance of the
former’s work, the employees of the contractor and of the
latter’s subcontractor, if any, shall be paid in accordance with the
DO 18-02 Cases 12
provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wage of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent of
the work performed under the contract, in the same manner
and extent that he is liable to employees directly employed by
him.
xxx
ART. 107 Indirect employer.– The provisions of the immediately
preceding Article shall likewise apply to any person, partnership,
association or corporation which, not being an employer, contracts
with an independent contractor for the performance of any work, task,
job or project. (Emphasis supplied.)
In this case, the GSIS cannot evade liability by claiming that it had fully
paid complainants' salaries by incorporating in the Security Service
Contract the salary rate increases mandated by Wage Order Nos. 1
and 2 by increasing the contract price from P3,000.00 to P3,176.07 per
guard per month effective November 1, 1990 to January 7, 1991, and
P4,200.00 effective January 8, 1991 to May 31, 1991.
In Rosewood Processing, Inc. v. National Labor Relations Commission,
[25]
the Court explained the rationale for the joint and several liability of
the employer, thus:
The joint and several liability of the employer or principal was
enacted to ensure compliance with the provisions of the Code,
principally those on statutory minimum wage. The contractor or
subcontractor is made liable by virtue of his or her status as a direct
employer, and the principal as the indirect employer of the
contractor’s employees. This liability facilitates, if not
guarantees, payment of the workers’ compensation, thus,
giving the workers ample protection as mandated by the 1987
Constitution. This is not unduly burdensome to the employer.
Should the indirect employer be constrained to pay the
workers, it can recover whatever amount it had paid in
accordance with the terms of the service contract between
itself and the contractor.(Emphasis supplied)[26]
Thus, the Court does not agree with the GSIS's claim that a double
burden would be imposed upon the latter because it would be paying
twice for complainants' services. Such fears are unfounded. Under
Article 1217 of the Civil Code, if the GSIS should pay the money claims
of complainants, it has the right to recover from LSWA whatever
amount it has paid in accordance with the terms of the service contract
between the LSWA and the GSIS.
Joint and solidary liability is simply meant to assure aggrieved workers
of immediate and sufficient payment of what is due them. This is in
line with the policy of the State to protect and alleviate the plight of
the working class.
WHEREFORE, the petition is DENIED. The Decision dated July 25, 2002
and the Resolution dated March 19, 2003 of the Court of Appeals (CA)
in CA-G.R. SP No. 61570 are AFFIRMED with the MODIFICATION that
the joint and solidary liability of LSWA and the GSIS to pay
complainants' salary differentials shall be without prejudice to the
GSIS's right of reimbursement from LSWA.
SO ORDERED.
Ynares-Santiago, (Chairperson), Chico-Nazario, Nachura, and Reyes, JJ.,
concur.
[G.R. No. 145402, March 14, 2008]
MERALCO INDUSTRIAL ENGINEERING SERVICES CORPORATION,
Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION,
OFELIA P. LANDRITO GENERAL SERVICES and/or OFELIA P.
LANDRITO, Respondents.
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of
the 1997 Revised Rules of Civil Procedure seeking to reverse and set
aside (1) the Decision[1] of the Court of Appeals in CA-G.R. SP No.
50806, dated 24 April 2000, which modified the Decision[2] of the
National Labor Relations Commission (NLRC), dated 30 January 1996 in
NLRC NCR CA No. 001737-91 (NLRC NCR Case No. 00-09-04432-89),
and thereby held the petitioner solidarily liable with the private
respondents for the satisfaction of the separation pay of the latter’s
employees; and (2) the Resolution[3] of the appellate court, dated 27
September 2000, in the same case which denied the petitioner’s
Motion for Reconsideration.

Petitioner Meralco Industrial Engineering Services Corporation
(MIESCOR) is a corporation duly organized and existing under the laws
of the Republic of the Philippines and a client of private respondents.
Private respondent Ofelia P. Landrito General Services (OPLGS) is a
business firm engaged in providing and rendering general services,
such as janitorial and maintenance work to its clients, while private
respondent Ofelia P. Landrito is the Proprietor and General Manager of
OPLGS.
The factual milieu of the present case is as follows:
On 7 November 1984, petitioner and private respondents executed
Contract Order No. 166-84,[4] whereby the latter would supply the
petitioner janitorial services, which include labor, materials, tools and
equipment, as well as supervision of its assigned employees, at
petitioner’s Rockwell Thermal Plant in Makati City. Pursuant thereto,
private respondents assigned their 49 employees as janitors to
petitioner’s Rockwell Thermal Plant with a daily wage of P51.50 per
employee.
On 20 September 1989, however, the aforesaid 49 employees
(complainants) lodged a Complaint for illegal deduction,
underpayment, non-payment of overtime pay, legal holiday pay,
premium pay for holiday and rest day and night differentials[5] against
the private respondents before the Labor Arbiter. The case was
docketed as NLRC NCR Case No. 00-09-04432-89.
In view of the enactment of Republic Act No. 6727,[6] the contract
between the petitioner and the private respondents was amended[7] for
the 10th time on 3 November 1989 to increase the minimum daily
wage per employee from P63.55 to P89.00 or P2,670.00 per month.
Two months thereafter, or on 2 January 1990,[8] petitioner sent a letter
to private respondents informing them that effective at the close of
business hours on 31 January 1990, petitioner was terminating
Contract Order No. 166-84. Accordingly, at the end of the business
hours on 31 January 1990, the complainants were pulled out from their
work at the petitioner’s Rockwell Thermal Plant. Thus, on 27 February
1990, complainants amended their Complaint to include the charge of
illegal dismissal and to implead the petitioner as a party respondent
therein.
Since the parties failed to settle amicably before the Labor Arbiter,
they submitted their respective position papers and other pleadings
together with their documentary evidence. Thereafter, a Decision was
rendered by the Labor Arbiter on 26 March 1991, dismissing the
Complaint against the petitioner for lack of merit, but ordering the
private respondents to pay the complainants the total amount of
P487,287.07 representing unpaid wages, separation pay and overtime
pay; as well as attorney’s fees in an amount equivalent to 10% of the
award or P48,728.70. All other claims of the complainants against the
private respondents were dismissed. [9]
Feeling aggrieved, private respondents appealed the aforesaid
Decision to the NLRC. Private respondents alleged, among other
things, that: (1) 48 of the 49 complainants had executed affidavits of
desistance and they had never attended any hearing nor given any
authority to anyone to file a case on their behalf; (2) the Labor Arbiter
erred in not conducting a full-blown hearing on the case; (3) there is
only one complainant in that case who submitted a position paper on
his own; (4) the complainants were not constructively dismissed when
they were not given assignments within a period of six months, but
had abandoned their jobs when they failed to report to another place
of assignment; and (5) the petitioner, being the principal, was
solidarily liable with the private respondents for failure to
make an adjustment on the wages of the complainants.[10] On 28
May 1993, the NLRC issued a Resolution[11] affirming the Decision of
the Labor Arbiter dated 26 March 1991 with the modification that
the petitioner was solidarily liable with the private
respondents, ratiocinating thus:
We, however, disagree with the dismissal of the case against
[herein petitioner]. Under Art. 107[12] of the Labor Code of the
Philippines, [herein petitioner] is considered an indirect
employer and can be held solidarily liable with [private
respondents] as an independent contractor. Under Art. 109,[13]
for purposes of determining the extent of its liability, [herein
petitioner] is considered a direct employer, hence, it is
solidarily liable for complainant’s (sic) wage differentials and
unpaid overtime. We find this situation obtaining in this case in view
of the failure of [private respondents] to pay in full the labor standard
benefits of complainants, in which case liability is limited thereto and
does not extend to the establishment of employer-employee relations.
[14]
[Emphasis supplied].
Both private respondents and petitioner separately moved for
reconsideration of the aforesaid Resolution of the NLRC. In their Motion
for Reconsideration, private respondents reiterated that the
complainants abandoned their work, so that private respondents
should not be liable for separation pay; and that petitioner, not private
respondents, should be liable for complainants’ other monetary claims,
DO 18-02 Cases 13
i.e., for wage differentials and unpaid overtime. The petitioner, in its
own Motion for Reconsideration, asked that it be excluded from
liability. It averred that private respondents should be solely
responsible for their acts as it sufficiently paid private respondents all
the benefits due the complainants.
On 30 July 1993, the NLRC issued an Order[15] noting that based on
the records of the case, the judgment award in the amount of
P487,287.07 was secured by a surety bond posted by the
private respondents;[16] hence, there was no longer any impediment
to the satisfaction of the complainants’ claims. Resultantly, the NLRC
denied the private respondents’ Motion for Reconsideration. The NLRC
likewise directed the Labor Arbiter to enforce the monetary award
against the private respondents’ surety bond and to determine who
should finally shoulder the liability therefor.[17]
Alleging grave abuse of discretion of the NLRC in its issuance of the
Resolution and Order dated 28 May 1993 and 30 July 1993,
respectively, private respondents filed before this Court a Petition for
Certiorari with prayer for the issuance of a writ of preliminary
injunction. The same was docketed as G.R. No. 111506 entitled Ofelia
Landrito General Services v. National Labor Relations Commission. The
said Petition suspended the proceedings before the Labor Arbiter.
On 23 May 1994, however, this Court issued a Resolution [18] dismissing
G.R. No. 111506 for failure of private respondents to sufficiently show
that the NLRC had committed grave abuse of discretion in rendering its
questioned judgment. This Court’s Resolution in G.R. No. 111506
became final and executory on 25 July 1994.[19]
As a consequence thereof, the proceedings before the Labor Arbiter
resumed with respect to the determination of who should finally
shoulder the liability for the monetary awards granted to the
complainants, in accordance with the NLRC Order dated 30 July 1993.
On 5 October 1994, the Labor Arbiter issued an Order,[20] which reads:
As can be gleaned from the Resolution dated [28 May 1993], there is
that necessity of clarifying the respective liabilities of [herein
petitioner] and [herein private respondents] insofar as the judgment
award in the total sum of P487, 287.07 is concerned.
The judgment award in the total sum of P487,287.07 as
contained in the Decision dated [26 March 1991] consists of three
(3) parts, as follows: First, the judgment award on the underpayment;
Second, the judgment award on separation pay; and Third, the
judgment award on the overtime pay.
The question now is: Which of these awards is [petitioner]
solidarily liable with [private respondents]?
An examination of the record elicits the finding that
[petitioner] is solidarily liable with [private respondents] on
the judgment awards on the underpayment and on the non-
payment of the overtime pay. xxx. This joint and several
liability of the contractor [private respondents] and the
principal [petitioner] is mandated by the Labor Code to assure
compliance of the provisions therein, including the statutory minimum
wage (Art. 99,[21] Labor Code). The contractor-agency is made liable by
virtue of his status as direct employer. The principal, on the other
hand, is made the indirect employer of the contractor-agency’s
employees for purposes of paying the employees their wages
should the contractor-agency be unable to pay them. This joint
and several liability facilitates, if not guarantees, payment of
the workers performance of any work, task, job or project, thus
giving the workers ample protection as mandated by the 1987
Constitution.
In sum, the complainants may enforce the judgment award on
underpayment and the non-payment of overtime pay against either
[private respondents] and/or [petitioner].
However, in view of the finding in the Decision that [petitioner] had
adjusted its contract price for the janitorial services it contracted with
[private respondents] conforming to the provisions of Republic Act No.
6727, should the complainants enforce the judgment on the
underpayment and on the non-payment of the overtime pay against
(sic) [petitioner], the latter can seek reimbursement from the former
[meaning (private respondents)], but should the judgment award on
the underpayment and on the non-payment of the overtime pay be
enforced against [private respondents], the latter cannot seek
reimbursement against [petitioner].
The judgment award on separation pay is the sole liability of [private
respondents].
WHEREFORE, [petitioner] is jointly and severally liable with
[private respondents] in the judgment award on underpayment
and on the non-payment of overtime pay. Should the

complainants enforce the above judgment award against
[petitioner], the latter can seek reimbursement against
[private respondents], but should the aforementioned
judgment award be enforced against [private respondents],
the latter cannot seek reimbursement from the [petitioner].
The judgment award on the payment of separation pay is the
sole liability of [private respondents].
Let an alias writ of execution be issued. [Emphasis supplied].
Again, both the private respondents and the petitioner appealed the
afore-quoted Order of the Labor Arbiter to the NLRC. On 25 April 1995,
the NLRC issued a Resolution [22] affirming the Order dated 5 October
1994 of the Labor Arbiter and dismissing both appeals for non-posting
of the appeal or surety bond and/or for utter lack of merit.[23] When the
private respondents and the petitioner moved for reconsideration,
however, it was granted by the NLRC in its Order[24] dated 27 July 1995.
The NLRC thus set aside its Resolution dated 25 April 1995, and
directed the private respondents and the petitioner to each post an
appeal bond in the amount of P487,287.62 to perfect their respective
appeals.[25] Both parties complied.[26]
On 30 January 1996, the NLRC rendered a Decision modifying the
Order of the Labor Arbiter dated 5 October 1994, the dispositive
portion of which reads:
WHEREFORE, the [21 November 1994] appeal of [herein petitioner] is
hereby granted. The [5 October 1994] Order of Labor Arbiter Donato G.
Quinto, Jr., is modified to the extent that it still held [petitioner] as
jointly and severally liable with [herein private respondents] in the
judgment award on underpayment and on the non-payment of
overtime pay, our directive being that the Arbiter should now satisfy
said labor-standards award, as well as that of the separation pay,
exclusively through the surety bond posted by [private respondents].
[27]
[Emphasis supplied].
Dissatisfied, private respondents moved for the reconsideration of the
foregoing Decision, but it was denied by the NLRC in an Order [28] dated
30 October 1996. This NLRC Order dated 30 October 1996 became
final and executory on 29 November 1996.
On 4 December 1996, private respondents filed a Petition for Certiorari
[29]
before this Court assailing the Decision and the Order of the NLRC
dated 30 January 1996 and 30 October 1996, respectively. On 9
December 1998, this Court issued a Resolution [30] referring the case to
the Court of Appeals conformably with its ruling in St. Martin Funeral
Home v. National Labor Relations Commission.[31] The case was
docketed before the appellate court as CA-G.R. SP No. 50806.
The Petition made a sole assignment of error, to wit:
THE HONORABLE COMMISSION GRAVELY ERRED AND GRAVELY
ABUSED ITS DISCRETION IN FINDING THAT THE ULTIMATE LIABILITY
SHOULD FALL ON THE [HEREIN PRIVATE RESPONDENTS] ALONE,
WITHOUT REIMBURSEMENT FROM THE [HEREIN PETITIONER], IN
ORDER TO SATISFY THE MONETARY AWARDS OF THE [THEREIN
COMPLAINANTS].[32]
After due proceedings, the Court of Appeals rendered the assailed
Decision on 24 April 2000, modifying the Decision of the NLRC
dated 30 January 1996 and holding the petitioner solidarily
liable with the private respondents for the satisfaction of the
laborers’ separation pay. According to the Court of Appeals:
The [NLRC] adjudged the payment of separation pay to be the sole
responsibility of [herein private respondents] because (1) there is no
employer-employee relationship between [herein petitioner] and the
forty-nine (49) [therein complainants]; (2) the payment of separation
pay is not a labor standard benefit. We disagree.
Again, We quote Article 109 of the Labor Code, as amended, viz:
The provisions of existing laws to the contrary notwithstanding, every
employer or indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any provision of this
Code
The abovementioned statute speaks of any violation of any provision of
this Code. Thus, the existence or non-existence of employer-employee
relationship and whether or not the violation is one of labor standards
is immaterial because said provision of law does not make any
distinction at all and, therefore, this Court should also refrain from
making any distinction. Concomitantly, [herein petitioner] should be
jointly and severally liable with [private respondents] for the payment
of wage differentials, overtime pay and separation pay of the [therein
complainants]. The joint and several liability imposed to [petitioner] is,
again, without prejudice to a claim for reimbursement by [petitioner]
against [private respondents] for reasons already discusses (sic).
WHEREFORE, premises studiedly considered, the assailed 30 January
1996 decision of [the NLRC] is hereby modified insofar as
[petitioner] should be held solidarily liable with [the private
DO 18-02 Cases 14
respondents] for the satisfaction of the laborers’ separation
pay. No pronouncement as to costs.[33] [Emphasis supplied].
The petitioner filed a Motion for Reconsideration of the aforesaid
Decision but it was denied by the Court of Appeals in a Resolution
dated 27 September 2000.
Petitioner now comes before this Court via a Petition for Review on
Certiorari, docketed as G.R. No. 145402, raising the sole issue of
whether or not the Honorable Court of Appeals palpably erred when it
went beyond the issues of the case as it modified the factual findings
of the Labor Arbiter which attained finality after it was affirmed by
Public Respondent NLRC and by the Supreme Court which can no
longer be disturbed as it became the law of the case.[34]
Petitioner argues that in the assailed Decision dated 24 April 2000, the
Court of Appeals found that the sole issue for its resolution was
whether the ultimate liability to pay the monetary awards in favor of
the 49 employees falls on the private respondents without
reimbursement from the petitioner. Hence, the appellate court should
have limited itself to determining the right of private respondents to
still seek reimbursement from petitioner for the monetary awards on
the unpaid wages and overtime pay of the complainants.
According to petitioner, the NLRC, in its Resolution dated 28 May 1993,
already found that petitioner had fully complied with its salary
obligations to the complainants. Petitioner invokes the same NLRC
Resolution to support its claim that it was not liable to share with the
private respondents in the payment of separation pay to complainants.
When private respondents questioned the said NLRC Resolution in a
Petition for Certiorari with this Court, docketed as G.R. No. 111506, this
Court found that the NLRC did not commit grave abuse of discretion in
the issuance thereof and accordingly dismissed private respondents
Petition. Said NLRC Resolution, therefore, has since become final and
executory and can no longer be disturbed for it now constitutes the law
of the case.
Assuming for the sake of argument that the Court of Appeals can still
take cognizance of the issue of petitioners liability for complainants
separation pay, petitioner asserts that the appellate court seriously
erred in concluding that it is jointly and solidarily liable with private
respondents for the payment thereof. The payment of separation pay
should be the sole responsibility of the private respondents because
there was no employer-employee relationship between the petitioner
and the complainants, and the payment of separation pay is not a
labor standards benefit.
Law of the case has been defined as the opinion delivered on a former
appeal. It is a term applied to an established rule that when an
appellate court passes on a question and remands the case to the
lower court for further proceedings, the question there settled
becomes the law of the case upon subsequent appeal. It means
that whatever is once irrevocably established as the controlling legal
rule or decision between the same parties in the same case continues
to be the law of the case, whether correct on general principles or not,
so long as the facts on which such decision was predicated continue to
be the facts of the case before the court.[35] Indeed, courts must adhere
thereto, whether the legal principles laid down were correct on general
principles or not or whether the question is right or wrong because
public policy, judicial orderliness and economy require such stability in
the final judgments of courts or tribunals of competent jurisdiction.[36]
Petitioners application of the law of the case principle to the case at
bar as regards its liability for payment of separation pay is misplaced.
The only matters settled in the 23 May 1994 Resolution of this Court in
G.R. No. 111506, which can be regarded as the law of the case, were
(1) both the petitioner and the private respondents were jointly and
solidarily liable for the judgment awards due the complainants; and (2)
the said judgment awards shall be enforced against the surety bond
posted by the private respondents. However, the issue as regards the
liability of the petitioner for payment of separation pay was yet to be
resolved because precisely, the NLRC, in its Order dated 30 July 1993,
still directed the Labor Arbiter to make a determination on who should
finally shoulder the monetary awards granted to the complainants. And
it was only after G.R. No. 111506 was dismissed by this Court that the
Labor Arbiter promulgated his Decision dated 5 October 1994, wherein
he clarified the respective liabilities of the petitioner and the private
respondents for the judgment awards. In his 5 October 1994 Decision,
the Labor Arbiter explained that the solidary liability of the petitioner
was limited to the monetary awards for wage underpayment and non-
payment of overtime pay due the complainants, and it did not, in any
way, extend to the payment of separation pay as the same was the
sole liability of the private respondents.
Nonetheless, this Court finds the present Petition meritorious.
The Court of Appeals indeed erred when it ruled that the petitioner was

jointly and solidarily liable with the private respondents as regards the
payment of separation pay.
The appellate court used as basis Article 109 of the Labor Code, as
amended, in holding the petitioner solidarily liable with the private
respondents for the payment of separation pay:
ART. 109. Solidary Liability. - The provisions of existing laws to the
contrary notwithstanding, every employer or indirect employer shall be
held responsible with his contractor or subcontractor for any
violation of any provision of this Code. For purposes of
determining the extent of their civil liability under this Chapter, they
shall be considered as direct employers. [Emphasis supplied].
However, the afore-quoted provision must be read in conjunction with
Articles 106 and 107 of the Labor Code, as amended.
Article 107 of the Labor Code, as amended, defines an indirect
employer as any person, partnership, association or corporation which,
not being an employer, contracts with an independent contractor for
the performance of any work, task, job or project. To ensure that the
contractor’s employees are paid their appropriate wages, Article 106 of
the Labor Code, as amended, provides:
ART. 106. CONTRACTOR OR SUBCONTRACTOR.“ x x x.
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. [Emphasis supplied].
Taken together, an indirect employer (as defined by Article 107) can
only be held solidarily liable with the independent contractor or
subcontractor (as provided under Article 109) in the event that the
latter fails to pay the wages of its employees (as described in Article
106).
Hence, while it is true that the petitioner was the indirect employer of
the complainants, it cannot be held liable in the same way as the
employer in every respect. The petitioner may be considered an
indirect employer only for purposes of unpaid wages. As this Court
succinctly explained in Philippine Airlines, Inc. v. National Labor
Relations Commission [37]:
While USSI is an independent contractor under the security service
agreement and PAL may be considered an indirect employer, that
status did not make PAL the employer of the security guards in every
respect. As correctly posited by the Office of the Solicitor General, PAL
may be considered an indirect employer only for purposes of unpaid
wages since Article 106, which is applicable to the situation
contemplated in Section 107, speaks of wages. The concept of indirect
employer only relates or refers to the liability for unpaid wages. Read
together, Articles 106 and 109 simply mean that the party with whom
an independent contractor deals is solidarily liable with the latter for
unpaid wages, and only to that extent and for that purpose that the
latter is considered a direct employer. The term wage is defined in
Article 97(f) of the Labor Code as the remuneration of earnings,
however designated, capable of being expressed in terms of money,
whether fixed or ascertained on a time, task, piece, or commission
basis, or other method of calculating the unwritten contract of
employment for work done or to be done, or for services rendered or to
be rendered and includes the fair and reasonable value, as determined
by the Secretary of Labor, of board, lodging, or other facilities
customarily furnished by the employer to the employee.
Further, there is no question that private respondents are operating as
an independent contractor and that the complainants were their
employees. There was no employer-employee relationship that existed
between the petitioner and the complainants and, thus, the former
could not have dismissed the latter from employment. Only private
respondents, as the complainants employer, can terminate their
services, and should it be done illegally, be held liable therefor. The
only instance when the principal can also be held liable with the
independent contractor or subcontractor for the backwages and
separation pay of the latter’s employees is when there is proof that the
principal conspired with the independent contractor or subcontractor in
the illegal dismissal of the employees, thus:
The liability arising from an illegal dismissal is unlike an order to pay
the statutory minimum wage, because the workers right to such wage
is derived from law. The proposition that payment of back wages and
separation pay should be covered by Article 109, which holds an
indirect employer solidarily responsible with his contractor or
subcontractor for any violation of any provision of this Code, would
have been tenable if there were proof - there was none in this case -
that the principal/employer had conspired with the contractor in the
acts giving rise to the illegal dismissal. [38]
It is the established fact of conspiracy that will tie the principal or
indirect employer to the illegal dismissal of the contractor or
subcontractor’s employees. In the present case, there is no allegation,
much less proof presented, that the petitioner conspired with private
DO 18-02 Cases 15
respondents in the illegal dismissal of the latter’s employees; hence, it
cannot be held liable for the same.
Neither can the liability for the separation pay of the complainants be
extended to the petitioner based on contract. Contract Order No. 166-
84 executed between the petitioner and the private respondents
contains no provision for separation pay in the event that the
petitioner terminates the same. It is basic that a contract is the law
between the parties and the stipulations therein, provided that they
are not contrary to law, morals, good customs, public order or public
policy, shall be binding as between the parties.[39] Hence, if the
contract does not provide for such a liability, this Court cannot just
read the same into the contract without possibly violating the intention
of the parties.
It is also worth noting that although the issue in CA-G.R. SP No. 50806
pertains to private respondent’s right to reimbursement from petitioner
for the monetary awards in favor of the complainants, they limited
their arguments to the monetary awards for underpayment of wages
and non-payment of overtime pay, and were conspicuously silent on
the monetary award for separation pay. Thus, private respondents sole
liability for the separation pay of their employees should have been
deemed settled and already beyond the power of the Court of Appeals
to resolve, since it was an issue never raised before it.[40]
Although petitioner is not liable for complainants separation pay, the
Court conforms to the consistent findings in the proceedings below
that the petitioner is solidarily liable with the private respondents for
the judgment awards for underpayment of wages and non-payment of
overtime pay.
In this case, however, private respondents had already posted a surety
bond in an amount sufficient to cover all the judgment awards due the
complainants, including those for underpayment of wages and non-
payment of overtime pay. The joint and several liability of the principal
with the contractor and subcontractor were enacted to ensure
compliance with the provisions of the Labor Code, principally those on
statutory minimum wage. This liability facilitates, if not guarantees,
payment of the workers compensation, thus, giving the workers ample
protection as mandated by the 1987 Constitution.[41] With private
respondents surety bond, it can therefore be said that the purpose of
the Labor Code provision on the solidary liability of the indirect
employer is already accomplished since the interest of the
complainants are already adequately protected. Consequently, it will
be futile to continuously hold the petitioner jointly and solidarily liable
with the private respondents for the judgment awards for
underpayment of wages and non-payment of overtime pay.
But while this Court had previously ruled that the indirect employer
can recover whatever amount it had paid to the employees in
accordance with the terms of the service contract between itself and
the contractor,[42] the said ruling cannot be applied in reverse to this
case as to allow the private respondents (the independent contractor),
who paid for the judgment awards in full, to recover from the petitioner
(the indirect employer).
Private respondents have nothing more to recover from petitioner.
Petitioner had already handed over to private respondent the wages
and other benefits of the complainants. Records reveal that it had
complied with complainant’s salary increases in accordance with the
minimum wage set by Republic Act No. 6727 by faithfully adjusting the
contract price for the janitorial services it contracted with private
respondents. [43] This is a finding of fact made by the Labor Arbiter,[44]
untouched by the NLRC[45] and explicitly affirmed by the Court of
Appeals,[46] and which should already bind this Court.
This Court is not a trier of facts. Well-settled is the rule that the
jurisdiction of this Court in a petition for review on certiorari under Rule
45 of the Revised Rules of Court is limited to reviewing only errors of
law, not of fact, unless the factual findings complained of are
completely devoid of support from the evidence on record, or the
assailed judgment is based on a gross misapprehension of facts.
Besides, factual findings of quasi-judicial agencies like the NLRC, when
affirmed by the Court of Appeals, are conclusive upon the parties and
binding on this Court.[47]
Having already received from petitioner the correct amount of wages
and benefits, but having failed to turn them over to the complainants,
private respondents should now solely bear the liability for the
underpayment of wages and non-payment of the overtime pay.
WHEREFORE, premises considered, the instant Petition is hereby
GRANTED. The Decision and Resolution of the Court of Appeals dated
24 April 2000 and 27 September 2000, respectively, in CA-G.R. SP No.
50806, are hereby REVERSED AND SET ASIDE. The Decision dated
30 January 1996 of the National Labor Relations Commission in NLRC
NCR CA No. 001737-91 (NLRC NCR Case No. 00-09-04432-89) is hereby

REINSTATED. No costs.
SO ORDERED.
Ynares-Santiago, (Chairperson) Austria-Martinez, Nachura, and Reyes,
JJ., concur.
G.R. No. 178827 March 4, 2009
JEROMIE D. ESCASINAS and EVAN RIGOR SINGCO, Petitioners,
vs.
SHANGRI-LA'S MACTAN ISLAND RESORT and DR. JESSICA J.R.
PEPITO, Respondents.
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 complaint1 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 Decision3 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 Decision4 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 the MOA amply
shows that respondent doctor was in fact engaged by Shangri-la on a
DO 18-02 Cases 16
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 facts 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 Decision5 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
Resolution6 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.
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)
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. 2809 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 x10 (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:
DO 18-02 Cases 17
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
own responsibility according to his own manner and method,
free from the control and direction of his employer or
principal in all matters connected with the performance of
the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in
the form of tools, equipment, machineries, work premises,
and other materials which are necessary in the conduct of
his business.
Sec. 9. Labor-only contracting. – (a) Any person who undertakes to
supply workers to an employer shall be deemed to be engaged in
labor-only contracting where such person:
(1) Does not have substantial capital or investment in
the form of tools, equipment, machineries, work
premises and other materials; and
(2) The workers recruited and placed by such 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
staff13; group life, group personal accident insurance and life/death
insurance14 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 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 conformity17 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 letter18 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 letter19 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.
G.R. No. 158956 April 24, 2009
ILIGAN CEMENT CORPORATION Petitioner,
vs.
ILIASCOR EMPLOYEES AND WORKERS UNION - SOUTHERN
PHILIPPINES FEDERATION OF LABOR (IEWU-SPFL), AND ITS
OFFICERS AND MEMBERS, HEADED BY CLEMENTINO DENSING,
PRESIDENT, ANTONIO ACASO, FIDEL BADILLO, JR., BONIFACIO
BANSAG, FELIPE BARDILAS, ALFREDO BERNALDEZ, ROMEO
CARANYAGAN, MIGUEL CLAUDEL, VENERANDO DEL MONTE,
ROMY DUMA-OG, JAIME DUMA-OG, EUSTIQUIO EBABIOSA,
PEDRO EBABIOSA, VIRGINITO EBABIOSA, DOLIO EPAT, VIRGILIO
FABRICANTE, ANACLETO JUNTILLA, JR., ROBERTO MILIJON,
PACIFICO NACA, EDGARDO PACULBA, DAMACINO PANCHO,
RODULFO QUARTEROS, EDGARDO RICO, GIL SECULA, SILVANO
VEGA, EMEGDIO AMISTOSO, RODOLFO BABATIDO, CRISOLOGO
BAGOY, PRUDENCIO BALABA, JR., ROMEO BALLANCA,
PERFECTO BOHOL, JASUS BUGTAY, FRANCISCO CABALLA,
ROMULO CABALUNA, ROLANDO CAGULA, RONALD CASTRO,
DOMINADOR CATIAN, LUCRESIO CUNADO, PABLO DAYDAY,
BERNABE DELA PENA, DISOCORO DIOSMANOS, SIXTO DUMAOG,
ANASTACIO FLORIN, JOSELITO FULLIDO, LEONARDO GALLETO,
APOLINARIO GUINITA, EMELIANO GUINITA, FELIX HERMOSO,
RODOLFO HERMOSO, DOMINGO JAGONAL, AVELINO JORZA,
ANTONIO JURADO, ISIDRO LAHOY-LAHOY, JR., SALVADOR
LAURE, JIMMY MALIKSI, DEMOCRTO MAGHINAY, MANUELITO
MAGSAYO, EDUARDO MALONHAO, JUANITO MANGGAS,
LUCIANO MANGGAS, DIONESIO MANTALABA, FERNANDO
MARIQUIT, JOSE MATA, NELSON MIANO, PERDO MIANO, JR.,
ALFREDO MICABALO, ELISAR MONTEJO, FELIX NAMOC,
EDMUNDO NOTORIO, LUIS OGUIMAS, SILVINO OLANDAG,
NARCISO OLLOVES, MARIO OLPOC, SANTIAGO MONDANG, RAUL
PANILAGAO, JOLLY PESARAS, ANTONIO RAGANAS, DIOSCORO
RICO, FELIPE RICO, CASEMERO RASARIO, ISIDRO RUBIO,
BUENAVENTURA RUIZ, IRENIO SABINAY, JR., GILBERT SAYSON,
ELESIO SANTINIAMAN, NIEVES SECULA, BALBINO SILLE,
NORBERTO SUMILE, REMEGIO TAMPUS, WILFREDO TANUDRA,
ANTONIO TEJANO, PABLITO TOLEDO, JOHNAN OVALO, ET AL.,
Respondents.
LEONARDO-DE CASTRO, J.:
Before us is a petition for review on certiorari under Rule 45 of the
1997 Rules of Court assailing the twin Resolutions of the Court of
DO 18-02 Cases 18
Appeals in CA-G.R. SP No. 72267 dated October 17, 20021 , and July 3,
20032 which dismissed the petition for certiorari and denied
petitioner’s motion for reconsideration respectively.
Petitioner Iligan Cement Corporation, is a corporation duly organized
and existing under the laws of the Philippines with plant offices at
Kiwalan, Iligan City.
Iligan Industrial and Agency Services Corporation (ILIASCOR), is the
accredited job contractor of petitioner which provided stevedoring and
arrastre services to the latter since its operations in the 1970s at its
private pier in Kiwalan, Iligan City.
Respondent ILIASCOR Employees and Workers Union- Southern
Philippines Federation of Labor (IEWU-SPFL) is the certified bargaining
representative of ILIASCOR’s arrastre and stevedoring workers,
including herein individual respondents, from August 1, 1995 to August
1, 2000.3
Vedali General Services (Vedali) is an accredited service agency which
provided general services to petitioner’s various departments.
On November 11, 1999, Blue Circle Philippines, Inc. took over the
management of petitioner’s business,4 and decided to bid5 out the
services at petitioner’s private pier. Before the actual bidding,
respondent requested that the employment of ILIASCOR’s workers be
continued.6 In a letter dated November 26, 1999, Peter Brinkley,
petitioner’s Vice-President for Operations denied respondent’s request
as the contract with ILIASCOR had already expired.7
ILIASCOR lost the bidding to Luzon Visayas Mindanao Arrastre and
Stevedoring, Inc. (LVMASI). Consequently, ILIASCOR paid the individual
respondents their separation pay of half-month (1/2) pay for every year
of service8 , contrary to the stipulation in the Collective Bargaining
Agreement (CBA), which is one-month pay for every year of service.9
The contract between petitioner and LVMASI was not perfected when it
was discovered that LVMASI was a dormant corporation which was
neither a stevedoring company nor possessed with sufficient capital to
engage in the stevedoring and arrastre works.10
To ensure that its operations would not be hampered, petitioner issued
a service order to Vedali.11 On August 2, 2000 Vedali fielded
stevedores, including herein respondents. Petitioner’s Packhouse
Manager Alex Sagario readily engaged stevedores.12 On October 12,
2000, Vedali issued Charge Invoice No. 0275 to petitioner in the
amount of 534,404.93 for the stevedores assigned at Packhouse from
September 16-30, 200013
On October 23, 2000, individual respondents filed a complaint14 with
the National Labor Relations Commission (NLRC) Sub-Regional
Arbitration Branch XII against petitioner. Pursuant to Article 109 of the
Labor Code respondents demanded for the declaration of their status
as regular employees and for the payment of the half of their
separation pay which ILIASCOR previously withheld.
On October 25, 2000, Vedali sent a Bill/ Demand Letter15 to petitioner,
demanding payment in the amount of P533, 666.11 for the services of
its stevedores assigned at Packhouse from October 1-15, 2000.
On November 15, 2000, petitioner entered into a stevedoring and
arrastre contract with Northern Mindanao Industrial and Port Services
Corporation (NMIPSC). Thereafter, NMIPSC took over the stevedoring
duties of individual respondents.16
Hence, on December 14, 2000, individual respondents filed a
Supplemental Complaint17 with the NLRC Sub-Regional Arbitration
Branch XII for violation of Article 246 of the Labor Code, illegal
dismissal, with prayer for preliminary injunction, damages and
attorney’s fees.
On March 30, 2001, Labor Arbiter Guardson A. Siao rendered a
Decision18 dismissing the complaint for lack of merit, thus:
x x x, this office believes that respondent ICC is not liable to pay the
unpaid portion of complainant’s separation pay representing
differentials since respondent is not the employer of the former.
Besides, in the case of PCI Automation Center, Inc. v. NLRC, G.R. No.

145920, 29 January 1996, citing Phil. Bank of Commerce v. NLRC, 146
SCRA 347 (1986), the Hon. Supreme Court opines, viz:
Other than the payment of wages, the principal employer is not
responsible for any claim made by the employee.
As can be gleaned from the above-discussion, herein respondent ICC is
merely the principal in the contract with ILIASCOR, an independent
contractor, the employer of individual complainants.
xxx
Another point worth discussing is that, the separation pay is based on
the collective bargaining agreement entered into between the
individual complainants and the complaining union, ILIASCOR IEWU-
SPFL. Respondent ICC is not a privy to that CBA, thus the former
cannot be held liable or be demanded upon to pay the same to the
complainants.
xxx
WHEREFORE, premises considered, the instant case is hereby ordered
DISMISSED for lack of merit.
All other issues not discussed above and inconsistent with the above
discussions are likewise ordered dismissed for lack of merit.
SO ORDERED.
On appeal, the National Labor Relations Commission (NLRC), Fifth
Division, issued a Resolution19 dated April 19, 2002, reversing the
Decision of the Labor Arbiter and declaring, among others, that
respondents are regular employees of petitioner, thus:
The contention of complainants that they were directly employed with
respondent ICC during the period August 2 to November 15, 2000,
stressing that they were in fact hired by its Packhouse Manager, Alex
Sagario, is found credible. Not only has respondent failed to deny
having the said Alex Sagario under its ranks, it has not given us any
plausible reason why complainants would wrongfully drag the name of
Sagario in this case. Complainants could not be faulted for failing to
adduce evidence about their hiring by respondent. The workers’
employment papers, their payrolls and other vouchers are naturally in
the possession of the employers given the mandate of the law for them
to keep the same. Thus, having claimed that complainants were
otherwise employed with Vedali General Services, respondent ICC is
burdened to produce the employment papers of the former with the
latter, but none is offered so far.
Besides, we note that respondent has avowed Vedali was a legitimate
contractor which it could and in fact contracted with to provide
stevedoring services, though it was only on temporary basis. However,
the status of Vedali has been challenged by complainants declaring
that it was actually a labor-only contractor. With "labor-only"
contracting being strictly prohibited in this jurisdiction, necessity
dictates for respondent to confront the charge and lay bare the records
of Vedali for our scrutiny. This, it should do. After all, we have already
been aptly convinced by complainants on the matter of respondent
having earlier contracted the services of an unqualified contractor,
Luzon Visayas Mindanao Arrastre and Stevedoring, Inc. The
documentary evidence (Vol. I pp. 35-40) submitted by complainants
clearly suggest that LVMASI was incorporated for the primary purpose
of engaging, operating, conducting and maintaining the business of
manufacturing, exporting, importing, buying or selling white cement,
its by-products and other cement products, despite its corporate name;
that it only had a paid-up capital of only Php 625,000.00 while the
arrastre and stevedoring works up for bidding required the use of two
(2) cranes and eight (8) forklifts; and, that, amazingly it was not
engaged in any singular business as of October, 1999. Truly, the
replacement of LVMASI with Vedali validated complainants’ submission
in this regard.
For us to gloss over the aforecited matters will be tantamount to our
abandonment of the constitutional mandate affording protection to
labor.
Hired by respondent’s representative and working at its premises as
stevedores and piers, services which were undoubtedly necessary in its
business, complainants are thereby declared regular employees of
respondent ICC during the period claimed. That, by the take-over of
their jobs by the workforce of the Northern Mindanao Industrial and
Port Services Corporation (NMIPSC) on November 15, 2000,
complainants were evidently dismissed as a result. Bereft of any cause
DO 18-02 Cases 19
nor notice other than the actual take-over by another corporation of
their jobs, the dismissal of complainants is clearly illegal.
This being the case, complainants are entitled to the reliefs of
reinstatement with full backwages pursuant to Art. 279 of the Labor
Code. However, the reinstatement of complainants to their previous
positions is rendered impossible by the takeover of NMIPSC manpower.
Thus, in lieu of thereof, the payment of separation pay proportionate to
their length of service with respondent ICC is warranted.
Going to their claim for separation pay differential, the submission of
complainants that respondent ICC should be held liable therefore is
misplaced. Respondent ICC, as indirect employer of complainants, may
only be held liable, "(I)n the event that the contractor or subcontractor
fails to pay the wages of his employees in accordance with this Code"
(Art. 106 Labor Code). Wage and salary, as differentiated from
separation pay, refer to one and the same meaning, that is, a reward
or recompense for services performed. Meanwhile, separation pay is
that what is paid by the employer to an employee on account of the
severance of their employment relations for any of the causes
authorized by law.
Thus, as this case involved the severance of the employment of
complainants, only their undisputed employer, ILIASCOR, may be held
answerable for the benefit sought. More so that the differential being
asked is essentially a contractual obligation of ILIASCOR arising out of
a specific stipulation in the collective bargaining agreement between
them. Correspondingly, since respondent ICC was not privy to the CBA,
it has no responsibility to comply therewith.
The claim of complainants for damage is likewise dismissed for lack of
merit, but they are awarded attorney’s fees equivalent to 10% of the
total money award as they were compelled to litigate this case for
reliefs.
WHEREFORE, premises considered, the decision on appeal is hereby
VACATED and a new one entered:
1. Declaring complainants regular employees of respondent
ICC for the period August 2, 2000 to November 15, 2000;
2. Declaring their dismissal from employment illegal; and
3. Awarding complainants full backwages, separation pay
and attorney’s fees in the amounts to be computed by the
branch of origin.
SO ORDERED.20
Petitioner elevated the case to the Court of Appeals (CA) through a
petition for certiorari21 under Rule 65.
On October 17, 2002, the CA issued the assailed Resolution22
dismissing the petition, thus:
The Court resolves to DISMISS the petition based on the following legal
infirmities:
1. The verification and certification of non-forum-shopping
was signed by Renato C. Sunico, however, petitioner failed to
attach a copy of the board resolution authorizing him to sign
the same in behalf of the corporation as required in Digital
Microwave Corp. v. Court of Appeals (328 SCRA 286 [2001]);
and
2. Petitioner failed to explain why service was done through
mail as required by Section 3, Rule 13 of the 1997 Rules of
Civil Procedure.
SO ORDERED.
Petitioner’s subsequent Motion for Reconsideration was denied in the
other assailed Resolution23 dated July 3, 2003:
The Court has gone over the said Motion for Reconsideration and the
grounds raised therein but finds no cogent reason to reverse the
aforesaid Resolution particularly because the SPA granted to Renato C.
Sunico on August 9, 2002 (See: Secretary’s Certificate, Records, p.
317) referred to a case filed before the NLRC.

Hence, the present petition seeking resolution as to whether the CA
erred in denying the petition based merely on procedural infirmities.
We note that petitioner subsequently made up for its earlier lapse
when it submitted a Secretary’s Certificate24 attesting that on August
9, 2002, the Board of Directors of the Corporation authorized Mr.
Sunico "to sign the verification and/or certification of non-forum
shopping of pleadings that may be filed by the corporation in the
above mentioned case and in subsequent proceedings." While the
authorization was submitted to the CA only after the issuance of the
Resolution dismissing the petition, in view of the peculiar
circumstances of the case and in the interest of substantial justice, the
initial procedural lapse may be excused.25 It is well settled that the
application of technical rules of procedure may be relaxed in labor
cases to serve the demand of substantial justice.26
The CA’s second ground for dismissal of the petition, that petitioner
failed to explain why service was done through mail, was not passed
upon by the CA in its second Resolution.27 The CA must have found the
explanation of petitioner in its motion for reconsideration acceptable.
Counsel for petitioner admitted that the non-inclusion of an
explanation on non-personal service was due to an oversight, but he
explained that personal service was not feasible considering the
geographical distance between counsel’s office in Makati City and the
address of the other parties in Iligan City. He added that there was
never any intention not to comply with the rules as shown by his
subsequent compliance with all the other technical requirements.28 The
Court also finds this explanation satisfactory.
Moreover, petitioner’s argument that the failure to file an explanation
on non-personal service of the petition should not automatically result
to the outright dismissal of the petition, is meritorious. Section 11, Rule
13 reads:
Section 11. Priorities in modes of service and filing. Whenever
practicable, the service and filing of pleadings and other papers shall
be done personally. Except with respect to papers emanating from the
court, a resort to other modes must be accompanied by a written
explanation why the service or filing was not done personally. A
violation of this Rule may be cause to consider the paper as not filed.
(emphasis ours)
The use of "may," in the above quoted section signifies permissiveness
and gives the court discretion whether or not to consider a pleading as
not filed. While it is true that procedural rules are necessary to secure
an orderly and speedy administration of justice, in this case, the rigid
application of Section 11, Rule 13 may be relaxed in the interest of
substantial justice.29
The procedural lapses having been cured, the CA should have
reconsidered its Resolution dated October 17, 2002 and Order dated
July 3, 2003 and gave due course to the petition for certiorari.
Pertinently, Section 9 of Batas Pambansa 129 (B.P. 129), known as the
Judiciary Reorganization Act provides:
SEC. 9. Jurisdiction.- The Court of Appeals shall exercise:
(1) Original jurisdiction to issue writs of mandamus, prohibition,
certiorari, habeas corpus, and quo warranto, and auxiliary writs or
processes, whether or not in aid of its appellate jurisdiction;
xxx
The Court of Appeals shall have the power to try cases and conduct
hearings, receive evidence and perform any and all acts necessary to
resolve factual issues raised in cases falling within its original and
appellate jurisdiction, including the power to grant and conduct new
trials or further proceedings. Trials or hearings in the Court of Appeals
must be continuous and must be completed within three (3) months,
unless extend[ed] by the Chief Justice.
Clearly, the CA can resolve factual issues in special civil actions for
certiorari from decisions and resolutions of the NLRC. However, the
remand of the case to the CA would only result in further delay.
Pursuant to established precedents, we deem it expedient in the
interest of speedy justice, to rule on the merits of petitioner’s claims
based on the records of the case including the pleadings and the
evidence submitted by the parties.30
DO 18-02 Cases 20
We now go to the merits of the case by re-examining the contradicting
findings of the Labor Arbiter and the NLRC in order to resolve the
following substantial issues: (1) whether petitioner is the employer of
individual respondents, and; (2) whether individual respondents were
illegally dismissed.
Petitioner maintains that it never employed the individual respondents
and that it contracted Vedali to render services at its pier as a stop-gap
measure so as not to hamper its activities while it was negotiating with
another contractor. Petitioner claims that the elements of employer-
employee relationship were not present as it did not hire, fire, pay nor
exercise control over the work of individual respondents. Petitioner
further argues that the allegation that it was petitioner’s Packhouse
Manager Alex Sagario who hired individual respondents should not be
given credence for lack of evidence.
Individual respondents, on the other hand, counter that there is no
proof that petitioner and Vedali entered into a service contract to
provide stevedoring services at petitioner’s pier from August 2, 2000 to
November 15, 2000. In the absence of such contract, Vedali was
merely utilized by petitioner as a purported contractor. With regard to
their hiring by Alex Sagario, individual respondents contend that they
cannot be faulted for failing to adduce evidence. Their employment
papers, payrolls and other vouchers are naturally in the possession of
petitioner. Thus, petitioner is burdened to produce the same. Since
petitioner offered nothing to prove their contrary claim, the NLRC
Decision should be upheld.
We rule for the individual respondents.
In determining the true status of Vedali viz-a-viz the petitioner, it is
important to ascertain first whether Vedali is a labor-only contractor or
an independent contractor.
Labor-only contracting,31 which is prohibited, 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.
On the other hand, permissible job contracting or
subcontracting32 refers to 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. 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.33
Taking into account the above mentioned elements and the facts
obtaining in the present case, we are not convinced that Vedali is an
independent contractor. Petitioner failed to present any service
contract with Vedali in the proceedings with the Labor Arbiter. There is
nothing on record that Vedali has a substantial capital or investment to
actually perform the service under its own account and responsibility.

Petitioner only attached to its petition with the CA Vedali’s Certificate
of Registration and Business permit, which merely pertain to the
registration of Vedali with the SEC as engaged in Construction and
General Services.34 The Charge Invoices, billing statements and
certificate of payment and inspection,35 instead of strengthening
petitioner’s argument, weakened its defense and bolstered the claims
of individual respondents. The Charge Invoices, billing statements and
certificates of payments only show that the wages of individual
respondents were paid by petitioner.
The evidence not having adequately shown that Vedali is an
independent contractor, can it be considered as a labor-only
contractor? We answer in the affirmative. Petitioner is a mere labor-
only contractor because it only supplied workers to petitioner to work
at its pier.
In a labor-only contract, there are three parties involved: (1) the "labor-
only" contractor; (2) the employee who is ostensibly under the employ
of the "labor-only" contractor; and (3) the principal who is deemed the
real employer. Under this scheme, the "labor-only" contractor is the
agent of the principal. Here, Vedali is the "labor-only" contractor;
individual respondents are the employees and petitioner is the
principal. The law makes the principal responsible to the employees of
the "labor-only contractor" as if the principal itself directly hired or
employed the employees.36
Taking into consideration the factual milieu of this case, the Court
agrees with the conclusion of the NLRC that petitioner and not Vedali,
is the employer of individual respondents and the latter are employees
of petitioner. Individual respondent’s work as stock-pilers, arrastre and
stevedores were undoubtedly directly related to and in pursuit of the
cement manufacturing and sales business of petitioner. Petitioner’s
packing plant operations would have been hampered were it not for
the work rendered by individual respondents.1awphi1.zw+
Having determined the real employer of respondents, we now proceed
to ascertain the legality of their dismissal from employment.
Under the Labor Code, as amended, the requirements for the lawful
dismissal of an employee are two-fold, the substantive and the
procedural.37 Not only must the dismissal be for a valid or authorized
cause,38 the rudimentary requirements of due process - notice and
hearing – must, likewise, be observed before an employee may be
dismissed.39 One does not suffice; without their concurrence, the
termination would, in the eyes of the law, be illegal.40
As the employer, petitioner has the burden of proving that the
dismissal of petitioner was for a cause allowed under the law and that
petitioner was afforded procedural due process. Petitioner failed to
discharge this burden. Indeed, it failed to show any valid or authorized
cause under the Labor Code which allowed it to terminate the services
of individual respondents. Neither did petitioner show that individual
respondents were given ample opportunity to contest the legality of
their dismissal. No notice of such impending termination was ever
given to them. Individual respondents were definitely denied due
process. Having failed to establish compliance with the requirements
on termination of employment under the Labor Code, the dismissal of
individual respondents was tainted with illegality.
Even if the assailed resolutions of the CA were set aside, the petition
must still fail considering that we find no reversible error was
committed by the NLRC in rendering its April 19, 2002 Resolution.
WHEREFORE, the petition is hereby DENIED. The Resolution of the
National Labor Relations Commission dated April 19, 2002 is
AFFIRMED.
Costs against petitioner. SO ORDERED.
G.R. No. 119121 August 14, 1998
NATIONAL POWER CORPORATION, petitioner,
vs.
DO 18-02 Cases 21
COURT OF APPEALS, Fifteenth Division and PHESCO
INCORPORATED, respondents.
ROMERO, J.:
On July 22, 1979, a convoy of four (4) dump trucks owned by the
National Power Corporation (NPC) left Marawi city bound for Iligan city.
Unfortunately, enroute to its destination, one of the trucks with plate
no RFT-9-6-673 driven by a certain Gavino Ilumba figured in a head-on-
collision with a Toyota Tamaraw. The incident resulted in the death of
three (3) persons riding in the Toyota Tamaraw, as well as physical
injuries to seventeen other passengers.
On June 10, 1980, the heirs of the victims filed a complaint for
damages against National Power Corporation (NPC) and PHESCO
Incorporated (PHESCO) before the then Court of First Instance of Lanao
del Norte, Marawi City. When defendant PHESCO filed its answer to the
complaint it contended that it was not the owner of the dump truck
which collided with the Toyota Tamaraw but NPC. Moreover, it asserted
that it was merely a contractor of NPC with the main duty of supplying
workers and technicians for the latter's projects. On the other hand,
NPC denied any liability and countered that the driver of the dump
truck was the employee of PHESCO.
After trial on the merits, the trial court rendered a decision dated July
25, 1988 absolving NPC of any liability. The dispositive portion reads:
Consequently, in view of the foregoing consideration,
judgment is hereby rendered ordering PHESCO, Inc. and
Gavino Ilumba upon receipt hereof:
1. To pay jointly and severally the plaintiffs thru the
Dansalan College the sum of P954,154.55 representing the
actual or compensatory damages incurred by the plaintiffs;
and
2. To pay the sum of P50,000.00 representing Attorney's
fees.
SO ORDERED.
Dissatisfied, PHESCO appealed to the Court of Appeals, which on
November 10, 1994 reversed the trial court's judgment. We quote the
pertinent portion of the decision:
A "labor only" contractor is considered merely as an agent of
the employer (Deferia vs. National Labor Relations
Commission, 194 SCRA 525). A finding that a contractor is a
"labor only" contractor is equivalent to a finding that there is
an employer-employee relationship between the owner of
the project and the employees of the "labor only" contractor
(Industrial Timer Corporation vs. National Labor Relations
Commission, 202 SCRA 465). So, even if Phesco hired driver
Gavino Ilumba, as Phesco is admittedly a "labor only"
contractor of Napocor the statute itself establishes an
employer-employee relationship between the employer
(Napocor) and the employee (driver Ilumba) of the labor only
contractor (Phesco). (Ecal vs. National Labor Relations
Commission, 195 SCRA 224).
Consequently, we hold Phesco not liable for the tort of driver
Gavino Ilumba, as there was no employment relationship
between Phesco and driver Gavino Ilumba. Under Article
2180 of the Civil Code, to hold the employer liable for torts
committed by his employees within the scope of their
assigned task, there must exist an employer-employee
relationship. (Martin vs. Court of Appeals, 205 SCRA 591).
WHEREFORE, we REVERSE the appealed decision. In lieu
thereof, the Court renders judgment sentencing defendant
National Power Corporation to pay plaintiffs the sum of
P174,889.20 plus P20,000.00 as attorney's fees and costs.
SO ORDERED.
Chagrined by the sudden turnaround, NPC filed a motion for
reconsideration of said decision which was, however, denied on
February 9, 1995. 1 Hence, this petition.

The principal query to be resolved is, as between NPC and PHESCO,
who is the employer of Ilumba, driver of the dumptruck which figured
in the accident and which should, therefore, would be liable for
damages to the victims. Specifically, NPC assigns the sole error that:
THE COURT OF APPEALS DECISION FINDING THAT
PETITIONER NPC AS THE EMPLOYER OF THE DRIVER GAVINO
ILUMBA, AND CONSEQUENTLY SENTENCING IT TO PAY THE
ACTUAL AND COMPENSATORY DAMAGES SUSTAINED BY
COMPLAINTS, IS NOT IN ACCORD WITH THE LAW OR WITH
THE APPLICABLE RULINGS OF THIS HONORABLE COURT. 2
As earlier stated, NPC denies that the driver of the dump truck was its
employee. It alleges that it did not have the power of selection and
dismissal nor the power of control over Ilumba. 3 PHESCO, meanwhile,
argues that it merely acted as a "recruiter" of the necessary workers
for and in behalf of NPC. 4
Before we decide who is the employer of Ilumba, it is evidently
necessary to ascertain the contractual relationship between NPC and
PHESCO. Was the relationship one of employer and job (independent)
contractor or one of employer and "labor only" contractor?
Job (independent) contracting is present if the following conditions are
met: (a) 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 to the result
thereof; and (b) the contractor has substantial capital or investments in
the form of tools, equipment, machineries, work premises and other
materials which are necessary in the conduct of his business. 5 Absent
these requisites, what exists is a "labor only" contract under which the
person acting as contractor is considered merely as an agent or
intermediary of the principal who is responsible to the workers in the
same manner and to the same extent as if they had been directly
employed by him. 6 Taking into consideration the above distinction and
the provisions of the "Memorandum of Understanding" entered into by
PHESCO and NPC, we are convinced that PHESCO was engaged in
"labor only" contracting.
It must be noted that under the Memorandum, NPC had mandate to
approve the "critical path network and rate of expenditure to be
undertaken by PHESCO. 7 Likewise, the manning schedule and pay
scale of the workers hired by PHESCO were subject to confirmation by
NPC. 8 Then too, it cannot be ignored that if PHESCO enters into any
sub-contract or lease, again NPC's concurrence is needed. 9 Another
consideration is that even in the procurement of tools and equipment
that will be used by PHESCO, NPC's favorable recommendation is still
necessary before these tools and equipment can be purchased. 10
Notably, it is NPC that will provide the money or funding that will be
used by PHESCO to undertake the project. 11 Furthermore, it must be
emphasized that the project being undertaken by PHESCO, i.e.,
construction of power energy facilities, is related to NPC's principal
business of power generation. In sum, NPC's control over PHESCO in
matters concerning the performance of the latter's work is evident. It is
enough that NPC has the right to wield such power to be considered as
the employer. 12
Under this factual milieu, there is no doubt that PHESCO was engaged
in "labor-only" contracting vis-à-vis NPC and as such, it is considered
merely an agent of the latter. In labor-only contracting, an employer-
employee relationship between the principal employer and the
employees of the "labor-only" contractor is created. Accordingly, the
principal employer is responsible to the employees of the "labor-only"
contractor as if such employees had been directly employed by the
principal employer. 13 Since PHESCO is only a "labor-only" contractor,
the workers it supplied to NPC, including the driver of the ill-fated
truck, should be considered as employees of NPC. 14 After all, it is
axiomatic that any person (the principal employer) who enters into an
agreement with a job contractor, either for the performance of a
specified work or for the supply of manpower, assumes responsibility
over the employees of the latter. 15
However, NPC maintains that even assuming that a "labor only"
contract exists between it and PHESCO, its liability will not extend to
third persons who are injured due to the tortious acts of the employee
of the "labor-only" contractor. 16 Stated otherwise, its liability shall only
be limited to violations of the Labor Code and not quasi-delicts.
To bolster its position, NPC cites Section 9(b), Rule VII, Book III of the
Omnibus Rules Implementing the Labor Code which reads:
DO 18-02 Cases 22
(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.
In other words, NPC posits the theory that its liability is limited only to
compliance with the substantive labor provisions on working
conditions, rest periods, and wages and shall not extend to liabilities
suffered by third parties, viz.:
Consequently, the responsibilities of the employer
contemplated in a "labor only" contract, should, consistent
with the terms expressed in the rule, be restricted "to the
workers." The same can not be expanded to cover liabilities
for damages to third persons resulting from the employees'
tortious acts under Article 2180 of the Civil Code. 17
The reliance is misplaced. It bears stressing that the action was
premised on the recovery of damages as a result of quasi-delict
against both NPC and PHESCO, hence, it is the Civil Code and not the
Labor Code which is the applicable law in resolving this case.
To be sure, the pronouncement of this Court in Filamer Christian
Institute v. IAC, 18 is most instructive:
The present case does not deal with a labor dispute on
conditions of employment between an alleged employee and
an alleged employer. It invokes a claim brought by one for
damages for injury caused by the patently negligent acts of
a person, against both doer-employee and his employer.
Hence, the reliance on the implementing rule on labor to
disregard the primary liability of an employer under Article
2180 of the Civil Code is misplaced. An implementing rule on
labor cannot be used by an employer as a shield to avoid
liability under the substantive provisions of the Civil Code.
Corollarily from the above doctrine, the ruling in Cuison v. Norton &
Harrison Co., 19 finds applicability in the instant case, viz.:
It is well to repeat that under the civil law an employer is
only liable for the negligence of his employees in the
discharge of their respective duties. The defense of
independent contractor would be a valid one in the
Philippines just as it would be in the United States. Here Ora
was a contractor, but it does not necessarily follow that he
was an independent contractor. The reason for this
distinction is that the employer retained the power of
directing and controlling the work. The chauffeur and the two
persons on the truck were the employees of Ora, the
contractor, but Ora, the contractor, was an employee of
Norton & Harrison Co., charged with the duty of directing the
loading and transportation of the lumber. And it was the
negligence in loading the lumber and the use of minors on
the truck which caused the death of the unfortunate boy. On
the facts and the law, Ora was not an independent
contractor, but was the servant of the defendant, and for his
negligence defendant was responsible.
Given the above considerations, it is apparent that Article 2180 of the
Civil Code and not the Labor Code will determine the liability of NPC in
a civil suit for damages instituted by an injured person for any
negligent act of the employees of the "labor only" contractor. This is
consistent with the ruling that a finding that a contractor was a "labor-
only" contractor is equivalent to a finding that an employer-employee
relationship existed between the owner (principal contractor) and the
"labor-only" contractor, including the latter's workers. 20
With respect to the liability of NPC as the direct employer, Article 2180
of the Civil Code explicitly provides:
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of
their assigned tasks, even though the former are not
engaged in any business or industry.
In this regard, NPC's liability is direct, primary and solidary with
PHESCO and the driver. 21 Of course, NPC, if the judgment for damages

is satisfied by it, shall have recourse against PHESCO and the driver
who committed the negligence which gave rise to the action. 22
Finally, NPC, even if it truly believed that it was not the employer of the
driver, could still have disclaimed any liability had it raised the defense
of due diligence in the selection or supervision of PHESCO and Ilumba.
23
However, for some reason or another, NPC did not invoke said
defense. Hence, by opting not to present any evidence that it
exercised due diligence in the supervision of the activities of PHESCO
and Ilumba, NPC has foreclosed its right to interpose the same on
appeal in conformity with the rule that points of law, theories, issues of
facts and arguments not raised in the proceedings below cannot be
ventilated for the first time on appeal. 24 Consequently, its liability
stands.
WHEREFORE, in view of the foregoing, the assailed decision of the
Court of Appeals dated November 10, 1994 and its accompanying
resolution dated February 9, 1995 are AFFIRMED without prejudice to
the right of NPC to demand from PHESCO and Ilumba reimbursement
of the damages it would be adjudged to pay to complainants. No costs.
SO ORDERED.
G.R. Nos. 92777-78 March 13, 1991
ISAGANI ECAL, CRISOLOGO ECAL, NELSON BUENAOBRA,
NARDING BANDOGELIO, WILMER ECHAGUE, ROGELIO CASTILLO,
ALFREDO FERNANDO, OLIGARIO BIGATA, ROBERTO FERRER
AND HONESTO TANAEL, Represented by ISAGANI ECAL,
petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION),
JIMMY MATCHUKA AND HI-LINE TIMBER, INC., respondents.
Armando A. San Antonio for petitioners.
Chicote Abad & Macaisip Law Offices for private respondents.
GANCAYCO, J.:p
Is there an employer-employee relationship between petitioners and
private respondent Hi-Line Timber, Inc. or merely an employer-
independent contractor relationship between said private respondent
and petitioner Isagani Ecal with the other petitioners being mere
contract workers of Ecal? In the case of the latter, is Ecal engaged in
"job" contracting or "labor-only" contracting? What then is the extent
of the liability of private respondent? These are the questions raised in
this petition.
This case traces its origin from two consolidated complaints for illegal
dismissal and money claims filed by petitioners Isagani Ecal, Crisologo
Ecal, Nelson Buenaobra, Narding Bandogelio, Wilmer Echague, Rogelio
Castillo, Alfredo Fernando, Oligario Bigata, Roberto Ferrer and Honesto
Tanael against private respondents Hi-Line Timber, Inc. (hereinafter
referred to as Hi-Line) and Jimmy Matchuka, the company foreman,
with the Department of Labor and Employment docketed as NLRC case
No. RAB-03-09-0107-87 and No. RAB III-09-0116-87.
In their complaints/position papers, petitioners alleged, among others,
that they have been employed by Hi-Line as follows: Isagani Ecal, from
February, 1986; Crisologo Ecal, Buenaobra, Bandogelio, Fernando,
Bigata, Ferrer and Tanael, from March 3, 1986; and Castillo and
Echague, from May 1, 1986; that except for Isagani Ecal, they were all
receiving a salary of P 35.00 a day; that they were required to report
for work 7 days a week including rest days, legal holidays, except
Christmas and Good Friday from 7:00 A.M. to 7:00 P.M.; that they were
not given living allowance, overtime pay, premium pay for rest days
and legal holidays, 13th month pay and service incentive leave pay;
and, that on June 6, 1987, they were not allowed to work and instead
were informed that their services were no longer needed.
Private respondents, on the other hand, denied the existence of an
employer-employee relationship between the company and the
petitioners claiming that the latter are under the employ of an
independent contractor, petitioner Isagani Ecal, an employee of the
company until his resignation on February 4, 1987.
After submission of the supplemental position papers and other
evidence by the parties, the labor arbiter rendered his decision dated
June 10, 1988 finding no employer-employee relationship between the
parties. Thus, he dismissed the two cases for lack of merit. 1
DO 18-02 Cases 23
On appeal, public respondent National Labor Relations Commission
(NLRC) affirmed the aforesaid decision of the labor arbiter in a
resolution dated October 2, 1989. 2
The motion for reconsideration of petitioners was denied in a resolution
dated March 12, 1990. 3
In this petition for certiorari, petitioners primarily question the finding
of the public respondent NLRC that no employer-employee relationship
existed between them and Hi-Line Timber, Inc. They contend that
petitioner Isagani Ecal is not an independent contractor but a mere
employee of Hi-Line Line.
In response, the Solicitor General points out that the issue of whether
or not an employer-employee relationship exists between the parties is
a question of fact and the findings of the labor arbiter and the NLRC on
this issue are conclusive upon this Court if they are supported by
substantial evidence 4 as in this case.
The NLRC ruled —
We have carefully examined and evaluated the basis of the
decision of the Labor Arbiter and to Our mind his factual
findings are indeed supported by substantial evidence. Thus,
we cite a few of the clear and convincing evidence and
record which compelled the Labor Arbiter to disregard the
claim of the complainants that there was (an) employer-
employee relationship between the contending parties.
Firstly, the affidavit of respondents' personnel officer,
Elizabeth Natividad, dated 22 April 1988, clearly attesting to
the fact that complainants, except Isagani Ecal, who worked
at their plant at Bocaue, Bulacan, from 24 April 1986 up to 4
February 1987 and who tendered his resignation on the
latter date, were not at all employees of respondents;
secondly, the payrolls of the respondents do not indicate
that said complainants were employees of the respondents;
thirdly, the Sinumpaang Salaysay of Jose Mendoza, the
Secretary-Treasurer of the Hi-Line Workers Union-
Confederation of Free Laborers (CFL), a registered labor
Union under Reg. Cert. No. (FED-425)-6756-11, issued
March, 1987, to the effect that none of the complainants,
except Isagani Ecal, were listed as members of the union
and/or employees of respondents; and lastly, two (2)
Sinumpaang Salaysay dated 22 April 1988 executed by
respondents' company guard Honorio T. Battung and
Foreman Clemente S. Sales, respectively, attesting that it
was only Isagani Ecal who worked with respondents but
resigned on 4 February 1987 to work as (an) independent
contractor. 5
Petitioners claim that the NLRC based its decision solely on the
evidence aforestated and completely ignored the evidence they
presented thus denying them due process. The Court carefully
examined the records of the case and finds that the NLRC limited itself
to a superficial evaluation of the relationship of the parties based
mainly on the aforestated documents with emphasis on the company
payrolls without regard to the particular circumstances of the case.
The finding of the NLRC that Isagani Ecal is no longer an employee of
Hi-Line line is amply supported by the evidence on record. His
resignation letter dated February 4, 1987 stating "ako po ay
magreresign na sa aking trabaho bilang "laborer" sapagka't nakita ko
na mas malaki ang kikitain kung mangongontrata na lamang " 6 speaks
for itself. This was unsuccessfully rebutted by petitioners.
To determine whether there exists an employer-employee relationship,
the four-way test should be applied, namely: (1) 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—the
last being the most important element. 7 Neither the NLRC nor the
labor arbiter utilized these guides in their disposition of the complaint.
The records show that Hi-Line does not choose the workers but merely
accepts whoever may be selected by petitioner Isagani Ecal.
Petitioners are not included in the payroll. Instead a lump sum of
P1,400.00 is given to Isagani Ecal or his representative Solomon de los
Santos, every four days, to cover their wages for the period which the
petitioners divide among themselves.
Private respondents allege that Isagani Ecal customarily removes some
of his laborers at the Hi-Line sawmill and assigns them to other

sawmills; however, there was no evidence adduced to show that
indeed Ecal regularly or even once transferred some of his workers to
other sawmills. Petitioners worked at the company compound at
Wakas, Bocaue, Bulacan, at least eight hours a day, for seven days a
week so that it would be impossible for them to find time to work in
some other sawmill. On June 6, 1987, the company unilaterally
terminated the services of petitioners without notice allegedly on the
ground that its contract with Isagani Ecal has already expired.
As to the matter of control, it would seem that petitioners were mostly
left on their own to devise the most expeditious way of segregating
lumber materials as to sizes and of loading and unloading the same in
the chamber for drying. However, their task is performed within the
work premises of Hi-Line, specifically at its Kiln Drying Section, so it
cannot be said that no amount of control and supervision is exerted
upon them by the company through their foremen, private respondent
Matchuka and Clemente S. Sales. Moreover, the very nature of the task
performed by petitioners requires very limited supervision as there are
only so many ways of segregating lumber according to their sizes and
of loading and unloading them in the dryer so that all that the
company has to do is to check on the results of their work.
The foregoing observation suggests that there is a certain relationship
existing between the parties although a clear-cut characterization of
such relationship — whether it is an employer-employee relationship or
an employer-independent contractor relationship — is unavailing.
Hence, a closer scrutiny of said relationship is in order.
Petitioners urge that even assuming arguendo that Isagani Ecal is an
independent contractor, he should be considered only a labor supplier
who is deemed an agent of the company so that petitioners should
enjoy the status of being its employees; therefore, Hi-Line should be
held liable for illegally dismissing petitioners and for the non-payment
of benefits due them. Private respondents, however, maintain that
Isagani Ecal is an independent contractor or a job contractor.
The Solicitor General adopts the theory that Ecal is an independent
contractor. However, he faults the labor arbiter for his failure to
determine the benefits due petitioners, an issue raised by the latter, on
the ground that Hi-Line, being an indirect employer, is jointly and
severally liable with Isagani Ecal to the extent of the work performed
by the employees as if they were directly employed by it. He,
therefore, seeks the remand of the case to the labor arbiter for
determination of the unpaid benefits of petitioners.
The pertinent provisions of the Labor Code, as amended, are:
Art. 106. Contractor or subcontractor. — Whenever an
employer enters into a contract with another person for the
performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same
manner and extent that he is liable to employees directly
employed by him.
The Secretary of Labor may, by appropriate regulations,
restrict or prohibit the contracting out of labor to protect the
rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job
contracting as well as differentiations within these types of
contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code,
to prevent any violation or circumvention of any provision of
this Code.
There is "labor-only" contracting where the person supplying
workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and
placed by such person are performing activities which are
directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible
DO 18-02 Cases 24
to the workers in the same manner and extent as if the latter
were directly employed.
Art. 107. Indirect Employer. — The provisions of the
immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not
being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.
Under the provisions of Article 106, paragraphs 1 and 2, an employer
who enters into a contract with a contractor for the performance of
work for the employer does not thereby establish an employer-
employee relationship between himself and the employees of the
contractor. The law itself, however, creates such a relationship when a
contractor fails to pay the wages of his employees in accordance with
the Labor Code, and only for this limited purpose, i.e. to ensure that
the latter will be paid the wages due them. 8
On the other hand, the legal effect of a finding that a contractor is
merely a "labor only" contractor was explained in Philippine Bank of
Communications vs. National Labor Relations Commission, et al., 9 —
. . . The "labor-only" contractor — i.e., "the person or
intermediary" — is considered "merely as an agent of the
employer." The employer is made by the statute responsible
to the employees of the "labor only" contractor as if such
employee had been directly employed by the employer.
Thus, where "labor-only" contracting exists in a given case,
the statute itself implies or establishes an employer-
employee relationship between the employer (the owner of
the project) and the employees of the "labor-only"
contractor, this time for a comprehensive purpose:
"employer for purposes of this Code, to prevent any violation
or circumvention of any provision of this Code." The law in
effect holds both the employer and the 'labor-only'
contractor responsible to the latter's employees for the more
effective safeguarding of the employees' rights under the
Labor Code.
Sections 8 and 9, Rule VIII, Book III of the Omnibus Rules implementing
the Labor Code set forth the distinctions between "job" contracting and
"labor-only" contracting —
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 control and direction of his employer or principal in
all matters connected with the performance of the work
except as to the results thereof, and
(2) The contractor has substantial capital or investment in
the form of tools, equipments, machineries, work premises,
and other materials which are necessary in the conduct of
his business.
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, equipments, machineries, work
premises and other materials; and
(2) The workers recruited and placed by such person
are performing activities which are directly related to
the principal business or operations of the employer in
which workers are habitually employed.
(b) Labor-only contracting as defined herein is hereby
prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the
employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly
employed by him.

xxx xxx xxx
Applying the foregoing provisions, the Court finds petitioner Isagani
Ecal to be a "labor-only" contractor, a mere supplier of manpower to
Hi-Line. Isagani Ecal was only poor laborer at the time of his
resignation on February 4, 1987 who cannot even afford to have his
daughter treated for malnutrition. He resigned and became a supplier
of laborers for Hi-Line, because he saw an opportunity for him to earn
more than what he was earning while still in the payroll of the
company. At the same time, he continued working for the company as
a laborer at the kiln drying section. He definitely does not have
sufficient capital to invest in tools and machineries. Private
respondents, however, claim that the business contracted by Ecal did
not require the use of tools, equipment and machineries and the
contracted task had to be executed in the premises of Hi-Line.
Precisely, the job assigned to petitioners has to be executed within the
work premises of Hi-Line where they use the machineries and
equipment of the company for the drying of lumber materials. Even the
company's personnel officer Elizabeth Natividad admitted that Ecal
resigned in order to supply manpower to the company on a task basis.
10
By the very allegations of private respondents, it is quite clear that
Isagani Ecal only supplies manpower to Hi-Line within the context of
"labor-only" contracting as defined by law.
There is also no question that the task performed by petitioners is
directly related to the business of Hi-Line. Petitioners were assigned to
sort out the lumber materials whether wet or fresh kiln as to sizes and
to carry them from the stockpile to the dryer where they are loaded for
drying after which they are unloaded. The work of petitioners is an
integral part of the operation of the sawmill of Hi-Line without which
production and company sales will suffer.
A finding that Isagani Ecal is a "labor-only" contractor is equivalent to a
finding that an employer-employee relationship exists between the
company and Ecal including the latter's "contract workers" herein
petitioners, the relationship being such as provided by the law itself. 11
Indeed, the law prohibits "labor-only" contracting and creates an
employer- employee relationship for the protection of the laborers. The
Court had in fact observed that businessmen, with the aid of lawyers,
have tried to avoid the bringing about of an employer-employee
relationship in some of their enterprises because that juridical relation
spawns obligations connected with workmen's compensation, social
security, medicare, minimum wage, termination pay and unionism. 12
This unscrupulous practice is quite evident in the case at bar. It is
company policy that once an employee is assigned to the kiln drying
section, he is no longer included in the payroll and is then paid on a
task basis, even if he had long been employed with the company.
Since the employee will no longer be included in the payroll, it
becomes easy for the company to deny the regular employment of
such a worker and is able to avoid whatever obligations it may have
under an employer-employee relationship. Moreover, Hi-Line limits the
period of undertaking to only four days presumably to make
termination of the services of petitioners easier and to prevent them
from attaining regular status. The company had no doubt taken
advantage of these laborers in order to escape liability for benefits and
privileges accruing to one holding a regular employment. Without a law
prohibiting "labor-only" contracting to protect the rights of labor, these
poor workers will always be at the mercy of the employer.
Since petitioners perform tasks which are usually necessary or
desirable in the main business of Hi-Line, they should be deemed
regular employees of the latter 13 and as such are entitled to all the
benefits and rights appurtenant to regular employment.
Being regular employees, they should have been afforded due process
prior to their dismissal. 14 Instead they were unceremoniously
dismissed on June 6, 1987 when they were not allowed to enter the
company's premises by the security guards. The argument of private
respondents that the contract of Ecal with the company expired cannot
be sustained. Petitioners may only be dismissed for an authorized or
just cause and after due process.
At this juncture, We note that petitioners and private respondents
allege conflicting dates of employment of the former. Petitioners claim
that as early as March or May, 1986, they have already been working
with Hi-Line Line, while private respondents contend that it was only in
April, 1987 that they had been engaged by the company. This Court is
not a trier of facts and there is not enough basis in the records to
enable Us to come up with definite dates of employment. However,
whatever be the date of their employment, petitioners will still be
DO 18-02 Cases 25
considered employees of the company. If petitioners had started their
employment in 1986, they would have rendered more than 1 year of
service at the time of their dismissal and, therefore, should be
considered regular employees. Even if they have been engaged only in
April of 1987, they will still be deemed regular employees for as earlier
indicated, Isagani Ecal is a "labor-only" contractor and petitioners
perform activities directly related to the principal business of Hi-Line
Line.
Petitioners, having been illegally dismissed on June 6, 1987, are
entitled to backwages equivalent to three years without qualifications
and deductions in line with prevailing jurisprudence.
WHEREFORE, the decision of public respondent NLRC is hereby
REVERSED and SET ASIDE. Private respondent Hi-Line Timber, Inc. is
hereby ordered to reinstate petitioners to their former positions with
backwages equivalent to three (3) years without deductions and
qualifications. The records of the case are remanded to the labor
arbiter for determination of the unpaid benefits due petitioners. No
costs.
SO ORDERED.
G.R. No. 106108 February 23, 1995
CABALAN PASTULAN NEGRITO LABOR ASSOCIATION
(CAPANELA) and JOSE ALVIZ, SR. petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and FERNANDO
SANCHEZ, respondents.
REGALADO, J.:
A man said to the Universe,
Behold, I am born!
However, replied the Universe,
The fact does not create in me
A sense of obligation.
To most, these familiar verses express the article of faith for self-
reliance. To the racist in some countries, however, they mean that the
world does not owe the Negroid or other colored people equal
solicitude. The neo-colonial in the Philippines would hold the Negrito or
a member of indigenous cultural communities to the same social
bondage. But our Constitution and our laws were precisely formulated
under a sense of obligation to the marginalized and the under
privileged. Under such mandates, this Court has always accorded them
scrupulous and compassionate attention. In now resolving their
predicament in the case at bar, it call once again on the old Castilian
tenet: A él que la vida ha dado menos, désele mas por la ley. 1
In this petition for certiorari, the resolution of the National Labor
Relations Commission (hereafter, NLRC) dated February 28, 1992 2
which dismissed the appeal of herein petitioners from the decision of
the labor arbiter 3 for failure to file a supersedeas bond, as well as its
April 30, 1992 4 denying their motion for reconsideration, are assailed
for having been rendered with grave abuse of discretion.
The antecedents of the present recourse, as culled from the records,
are that herein private respondent, Fernando Sanchez, filed a
complaint for illegal dismissal, non-payment of back wages and other
benefits on January 3, 1991 with Regional Office No. III of the
Department of Labor and Employment in Olongapo City originally
docketed therein as NLRC Case No. RAB III 01-1931-91. The complaint,
naming Cabalan Pastulan Negrito Labor Association (CAPANELA, for
brevity) and its president, Jose Alviz, Sr., as respondents, alleged that
the former was employed by CAPANELA as a foreman with a monthly
salary of P3,245.70 from March, 1977 until he was illegally dismissed
on January 1, 1990. 5
Said complaint was later amended on February 22, 1991 to introduce
the correction that private respondent was illegally dismissed on March
27, 1990 (instead of January 1, 1990), and to further pray for
reinstatement without loss of seniority rights and payment of full back
wages and moral and exemplary damages. 6 As no amicable
settlement was arrived at during the mandatory pre-conference
despite efforts exerted by the labor arbiter, the parties were required
to simultaneously submit their respective position papers and/or
affidavits. 7 The case was submitted for resolution on March 11, 1991
on the bases of said position papers and other evidence, but the

parties were further allowed to submit their respective memoranda, 8
after which the case was deemed submitted for decision on May 29,
1991. 9
A decision was rendered on June 24, 1991 in favor of herein private
respondent, declaring his dismissal illegal, and ordering herein
petitioners, jointly and severally —
1. To pay the backwages of complainant from March 24,
1990 until June 24, 1991 and for 15 months at P3,245.70 a
month equals P48,685.50;
2. To immediately reinstate complainant to his former or
equivalent position without loss of seniority rights and other
privileges, and for this purpose, respondents are hereby
ordered to submit proof of the physical or payroll
reinstatement of the complainant within five (5) working
days from receipt hereof, provided further that should
reinstatement (be) not feasible due to any supervening
event, respondents are further ordered to pay the separation
pay of complainant equivalent to one month salary for every
year of service, a fraction of at least six (6) months service
considered as in addition to his respondents are further one
(1) whole year, in addition to his backwages; . . . .
but dismissing the claim for moral and exemplary damages for want of
substantial evidence. 10
The records further reveal that private respondent subsequently filed a
motion for the issuance of a writ of 11 This was opposed by execution
on July 15, 1991. 11 This was opposed by CAPANELA 12 through its new
counsel, Atty. Isagani M. Jungco, who at the same time filed a
memorandum of appeal 13 in its behalf, although admittedly without
posting a supersedeas bond because of want of funds of either
CAPANELA or its president and co-petitioner Alviz, Sr. Private
respondent, in his answer to CAPANELA's memorandum of, appeal 14
and reply to opposition to motion for execution, 15 was unconvinced
and adamantly insisted on the dismissal of the appeal due to non-
perfection thereof for failure to comply with the legal requirement of
posting a cash or surety bond as a requisite for the perfection of an
appeal.
A partial writ of execution 16 was issued by Labor Arbiter Saludares on
August 15, 1991 ordering the physical or payroll reinstatement of
private respondent. The sheriff's return of November 4, 1991, signed
by Numeriano S. Reyes, Sheriff II of the NLRC Regional Arbitration
Branch No. III, stated that the writ expired without any indication of
private respondent having been reinstated. 17
As stated at the outset, the NLRC dismissed the appeal on February 28,
1992 for failure of petitioners to post the supersedeas bond required
by law, stating that "(r)espondents' contention that it cannot post bond
because it is insolvent deserve(s) scant consideration not being
accompanied by proof there(of)," and denied petitioner's motion for
reconsideration.
The present controversy raises as principal issues for resolution by the
Court whether or not (1) the dismissal of private respondent was legal,
and; (2) the appeal was perfected despite failure to file a supersedeas
bond.
Anent the first issue, before we delve into the matter of the alleged
illegal dismissal of private respondent Sanchez by petitioner
CAPANELA, it is evidently necessary to ascertain the existence of an
employer-employee relationship between them.
Petitioners asseverate that CAPANELA is an association composed of
Negritos who worked inside the American naval base in Subic Bay
(hereinafter referred to as the Base). They initially received a daily
wage of P100.00 and thus earned, on the average, less than P3,000.00
per month. Said association organized the system of employment of
members of this cultural community who were accorded special
treatment concededly because of the occupancy of their ancestral
lands as part of the operational area and military facility used by the
Base authorities.
CAPANELA, through its officers, saw to it that its members reported for
work, recorded their attendance, and distributed the workers' salaries
paid by the Base at the end of a specific pay period, without gaining
any amount from such undertakings petitioner Alviz, Sr., for his part
DO 18-02 Cases 26
and as president of CAPANELA, was himself only an employee at the
Base. In other words, neither CAPANELA nor its president was the
employer of private respondent Sanchez; rather, it was the United
States Government acting through the military base authorities. 18
Contrarily, private respondent maintains that there existed an
employer-employee relationship, as allegedly supported by the
evidence on record, and that petitioners CAPANELA and Alviz, Sr.
exercised control as employer over the means and methods by which
the work was accomplished. He further argues that since the
determination of the existence of an employer-employee relationship is
a factual question, the findings of the labor officials thereon should be
considered conclusive and binding upon and respected by the
appellate courts. 19
It is hence clearly apparent that the judgment of the labor arbiter, as
affirmed by respondent commission, declaring the dismissal of private
respondent illegal and ordering the payment of back wages to him
together with his payroll or physical reinstatement, was premised on
the finding that there was an existing employer-employee relationship.
Indeed, findings of fact and conclusions of the labor arbiter, 20 as well
as those of the NLRC, 21 or, for that matter, any other adjudicative
body which
can be considered as a trier of facts on specific matters within its field
of expertise, 22 should be considered as binding and conclusive upon
the appellate courts. This is in addition to the fact that they were in a
better position to assess and evaluate the credibility of the contending
parties and the validity of their respective evidence. 23 However, these
doctrinal strictures hold true only when such findings and conclusions
are supported by substantial evidence. 24
In the case at bar, we are hard put to find sufficient evidential support
for public respondent's conclusion on the putative existence of an
employer-employee relationship between petitioners and private
respondent. We are accordingly persuaded that there is ample
justification to disturb the findings of respondent NLRC and to hold that
a reconsideration of its challenged resolutions is in order.
A careful reevaluation of the documentary evidence of record belies
the finding that CAPANELA, through its president and co-petitioner,
Jose Alviz, Sr., wielded control as an employer over private respondent.
It will be noted that in his affidavit dated March 4, 1991, 25 private
respondent himself declared that through the intervention of
CAPANELA, by way of its June 13, 1389 letter 26 to Lt. Mark S. Kistner,
he was cleared of the charge of larceny of U.S. government property.
Thereafter, in an indorsement dated July 11, 1989 from the Director of
Security, U.S. Navy Public Works Center, the recommendation for his
reinstatement and the release of his gate pass to the Base was
addressed to the Director, Investigation Section, U.S. Facility Security
Department via the Director of the Contracts Administration Division. 27
This only goes to show that CAPANELA had in fact no control over the
continued employment of its members working in the U.S. naval base.
For, after conducting its own investigation, CAPANELA could only
intervene in behalf of its members facing charges through a
recommendatory action request for favorable consideration. It could
not, on its own authority, exonerate such members from the charges,
much less effect their reinstatement without the approval of the Base
authorities. Interestingly, in order to comply with the labor arbiter's
decision of June 24, 1991, CAPANELA even had to write to the Resident
Officer-in-Charge of the Facility Support Contracts at Subic Bay
recommending the reinstatement of private respondent to his former
position. 28
Under their arrangement, CAPANELA, through its officers, could only
impose disciplinary sanctions upon its members for infractions of its
own rules and regulations, to the extent of ousting a member from the
association when called for under the circumstances. Nonetheless,
such called termination of membership in the association, which could
result in curtailment of the privilege of working at the Base inasmuch
as employment therein was conditioned upon membership in
CAPANELA, is not equivalent to the illegal dismissal from employment
contemplated in our labor laws. Petitioners, not being the employer,
obviously could not arrogate unto themselves an employer's
prerogatives of hiring and firing workers.
As succinctly pointed out by the Solicitor General:
True, there was a stipulation to the effect that Fernando
Sanchez was employed by petitioner CAPANELA, but the real

employer was the United States government and petitioner
was just a "labor-only contractor." Annexes "G" and "H" of
CAPANELA's Memorandum on Appeal show that the award or
contract of work was between CAPANELA and the United
States government through the U.S. Navy. The same
contract likewise clearly stipulated that CAPANELA was "to
provide labor and material to perform trash sorting services
in the Base period for all work specified in Section C." Annex
"A" of complainant Fernando Sanchez' Answer to petitioner's
Memorandum on Appeal itself proves that the negotiation
was between CAPANELA and the U.S. Navy, with the former
supplying the labor and the U.S. government paying the
wages. Since CAPANELA merely provided the labor force, it
cannot be deduced therefrom that CAPANELA should also
compensate the laborers; it is a case of non sequitur. In
other words, the actual mechanical act of making payments
was done by CAPANELA, but the monies therefor were
provided and disbursements made by the disbursing officer
of the U.S. Naval Supply Depot, Subic Bay (see Annexes "G"
and "H").
Moreover, ingress and egress in the work premises were
controlled not by CAPANELA but by the U.S. Base authorities
who could even reject entry of CAPANELA members then
duly employed as part of the project, and impose disciplinary
sanctions against them. Annex "1" of petitioners' Position
Paper as respondent in the NLRC Case No. RAB-III-01-193 1-
91, which was the letter of Lt. M.E. Kistner of the U.S. Navy,
clearly proves this. 29 (Emphasis in the original text.)
Prevailing case law enumerates the essential elements of an employer-
employee relationship as: (a) the selection and engagement of the
employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the
power of control with regard to the means and methods by which the
work is to be accomplished, with the power of control being the most
determinative factor. 30
The Solicitor General pertinently illustrates the glaring absence of
these elements in the present case:
. . . , as aforeshown, CAPANELA had no control of the
premises as it was the U.S. naval authorities who had the
power to issue passes or deny their issuance. In fact,
CAPANELA did not have absolute control on the disciplinary
measures to be imposed on its members employed in the
Base. Annex "1" of CAPANELA's Position Paper submitted
before the NLRC Regional Arbitration Branch established the
U.S. Navy's right to impose disciplinary measures for
violations or infractions of its rules and regulations as well as
the right to recommend suspensions or dismissals of the
workers. Moreover, it was not shown that CAPANELA had
control of the means and methods or manner by which the
workers were to go about their work. These are indeed
strong indicia of the U.S. Navy's right of control over the
workers as direct employer.
Third, there is evidence to prove that payment of wages was
merely done through CAPANELA, but the source of payment
was actually the U.S. government paying workers according
to the volume of work accomplished on rates agreed upon
between CAPANELA and the U.S. government. . . . 31
It would, therefore, be inutile to discuss the matter of the legality or
illegality of the dismissal of private respondent. Considering that
petitioners cannot legally be considered as the employer of herein
private respondent, it follows that it cannot be made liable as such nor
be required to bear the responsibility for the legal consequences of the
charge of illegal dismissal. Granting arguendo that private respondent
was illegally dismissed, the action should properly be directed against
the U.S. government which, through the Base authorities, was the true
employer in this case.
Neither can petitioners be deemed to have been engaged in
permissible job contracting under the law, for failure to satisfy the
following prescribed conditions:
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
DO 18-02 Cases 27
principal in all matters connected with 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. 32
In the present case, the setup was such that CAPANELA was merely
tasked with organizing the Negritos to facilitate the orderly
administration of work made available to them at the base facilities,
that is, sorting scraps for recycling. CAPANELA recorded the
attendance of its members and submitted the same to the Base
authorities for the determination of wages due them and the
preparation of the payroll. Payment of wages was coursed through
CAPANELA but the funds therefor came from the coffers of the Base.
Once inside the Base, control over the means and methods of work
was exercised by the Base authorities. Accordingly, CAPANELA
functioned as just an administrator of its Negrito members employed
at the Base.
From the legal standpoint, CAPANELA's activities may at most be
considered akin to that of labor-only contracting, albeit of a special or
peculiar type, wherein CAPANELA, operating like a contractor, merely
acted as an agent or intermediary of the employer. 33
The Solicitor General ramifies this aspect:
. . . , petitioner CAPANELA could not be classified as an
"independent contractor" because it was not shown that it
has substantial capital or investments to qualify as such
under the law. On the other hand, it was apparent that the
premises, tools, equipment, and other paraphernalia used by
the workers were all supplied by the U.S. government
through the U.S. Navy. What CAPANELA supplied was only
the local labor force, complainant Fernando Sanchez among
them. It is therefore clear that CAPANELA had no capital
outlay involved in the business or in the maintenance
thereof. 34
While it is not denied that an association or a labor organization or
union can at times be an employer insofar as people hired by it to
dispose of its business are concerned, 35 the situation in this case is
altogether different. A proper and necessary distinction should be
made between the employees of CAPANELA who actually attended to
its myriad functions as an association and its members who were
employed in the jobsite inside the Base vis-a-vis CAPANELA's relative
position as the employer of the former and a mere administrator with
respect to the latter.
On the matter of the perfection of an appeal from the decision of the
NLRC, petitioners plead for a more considerate and humane
application of the law as would allow their appeal to prosper despite
non-posting of a supersedeas bond on account of their insolvency. To
dismiss the appeal for failure to post said bond, petitioners aver, is
tantamount to denial of the constitutionally guaranteed right of access
to courts by reason of poverty. 36 Private respondent, on the other
hand, argues that perfection of an appeal within the reglementary
period and in compliance with all requirements of the law therefor is
jurisdictional. That petitioners do not have the funds for the premiums
for posting a supersedeas bond or for a cash deposit, disdainfully says
private respondent, "is not in the least our problem." 37
We have no quarrel with the provision of Article 223 of the Labor Code
which, in part and among others, requires that in case of a judgment
involving a monetary award, an appeal by the employer may be
perfected only upon posting of a cash or surety bond issued by a
reputable bonding company duly accredited by the commission in the
amount equivalent to the monetary award in the judgment appealed
from. Perfection of an appeal within the period and in the manner
prescribed by law is jurisdictional 38 and non-compliance with such
legal requirements is fatal and has the effect of rendering the
judgment final and executory. 39
However, in a number of recent cases, 40 the Court has eased the
requirement of posting a bond, as a condition for perfection of appeals
in labor cases, when to do so would bring about the immediate and
appropriate resolution of controversies on the merits without over-
indulgence in technicalities, 41 ever mindful of the underlying spirit and
intention of the Labor Code to ascertain the facts of each case speedily
and objectively without regard to technical rules of law and procedure,

all in the interest of due process. 42 Punctilious adherence to stringent
technical rules may be relaxed in the interest of the working man, 43
and should not defeat the complete and equitable resolution of the
rights and obligations of the parties. 44 Moreover, it is the duty of labor
officials to consider their decisions and inquire into the correctness of
execution, as supervening events may affect such execution. 45
The Solicitor General realistically assesses the situation, thus:
. . . As aforestated, above the technical consideration on
whether failure to post a supersedeas bond was fatal to
petitioners' appeal is the importance of first resolving
whether there was indeed an employer-employee
relationship in this case so as not to render the execution of
the NLRC's resolution unenforceable or impossible to
implement. . . . Besides, it is of public notice that the U.S.
Navy had withdrawn from the Subic Base in view of the
termination of the Bases Treaty. Even if CAPANELA were
ordered to reinstate complainant Fernando Sanchez, this is
obviously an impossible thing to perform as there is no
longer any work to be done inside the Base. Nor is petitioner
CAPANELA in a position to pay Sanchez's back wages
considering that it was the U.S. Navy that paid his
wages. . . . 46
In light of the circumstances in this case, the Solicitor General further
suggests two ways of writing finis to this dispute, i.e., to reconsider
public respondent's resolution of February 28, 1992 and April 30, 1992
and reinstate petitioner's appeal to give the latter a chance to prove
CAPANELA's insolvency or poverty, or to reverse the decision of the
labor arbiter on the ground that there was no employer-employee
relationship between petitioner CAPANELA and private respondent
Sanchez. Harmonizing our evaluation of the facts of this case with the
greater interests of social justice, and considering that the parties
involved are those upon whose socio-economic status we prefaced this
opinion, we opt for the latter.
While this Court, when it finds that a lower court or quasi-judicial body
is in error, may simply and conveniently nullify the challenged
decision, resolution or order and remand the case thereto for further
appropriate action, it is well within the conscientious exercise of its
broad review powers to refrain from doing so and instead choose to
render judgment on the merits when all material facts have been duly
laid before it as would buttress its ultimate conclusion, in the public
interest and for the expeditious administration of justice, such as
where the ends of justice would not be subserved by the remand of the
case. 47
IN VIEW OF ALL THE FOREGOING PREMISES, the resolutions of February
28, 1992 and April 30, 1992 of respondent National Labor Relations
Commission are accordingly ANNULLED, and the adjudgment of Labor
Arbiter Dominador B. Saludares in NLRC Case No. RAB III 01-1931-91 is
hereby REVERSED and SET ASIDE.
SO ORDERED.
Narvasa, C.J., Bidin, Puno and Mendoza, JJ., concur.
G.R. No. 115920 January 29, 1996
PCI AUTOMATION CENTER, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and HECTOR
SANTELICES, respondents.
PUNO, J.:
This is a special civil action for certiorari under Rule 65 of the Revised
Rules of Court for the annulment of the Decision of the National Labor
Relations Commission (NLRC) dated December 29, 19931 and its
Resolution dated April 15, 1994.2
In 1985, Philippine Commercial International Bank (PCIB) commenced
its 4th GL Environment Conversion Project intended to link all existing
computer systems within PCIB and its various branches around the
country. It entered into a Computer Services Agreement with petitioner
PCI Automation Center, Inc. (PCI-AC), under which petitioner obligated
itself to direct, supervise and run the development of the software,
computer software applications and computer system of PCIB. On the
DO 18-02 Cases 28
other hand, PCIB agreed to provide the petitioner with encoders and
computer attendants, among others.3
To comply with its obligation to procure manpower for the petitioner,
PCIB engaged the services of Prime Manpower Resources
Development, Inc. (Prime). PCIB and Prime entered into an External Job
Contract4 which provides:
1. Services — PRIME shall provide qualified and adequate
personnel services required by the CLIENT within two (2)
working days from time of receipt of the notice of the
CLIENT's requisition.
2. Selection — The CLIENT shall have the right to select,
refuse, or change any or all of the personnel assigned to
deliver these services to the CLIENT upon two (2) working
days notice to PRIME.
3. Supervision — The CLIENT shall be responsible in
supervising all PRIME personnel contracted and assigned to
deliver such services to the CLIENT. However, PRIME shall
check the time cards of the assigned personnel for payroll
and other related purposes. Any change or discontinuance in
the work assignment of the assigned personnel shall be
conveyed in writing to PRIME by CLIENT within two (2) days
from such change or termination.
4. Liability/Responsibility — It is expressly agreed that the
personnel assigned to the client are not employees of the
CLIENT, and as such PRIME shall at all times stand solely
liable and/or responsible for the enforcement of and
compliance with all existing laws, rules and regulations such
as, but not limited to the Labor Code, Social Security Act,
Employer's (sic) Compensation Commission Act as amended,
Medical Care; provided finally, that PRIME hereby agrees and
binds itself to save and hold CLIENT free and harmless from
any civil and criminal liability with respect thereof and/or
which may arise therefrom.
5. Direct Hiring/Absorption — Since the personnel assigned
to the CLIENT are PRIME employees, said employees cannot
be absorbed or hired directly by the CLIENT without PRIME's
prior written consent. In which case, CLIENT shall be charged
by PRIME a placement fee equivalent to ten percent (10%) of
the commencing annual gross compensation of the
employee concerned if said employees have worked with
CLIENT for less than five (5) months. If said employees have
worked with CLIENT as temporary employee for more than
five (5) months CLIENT shall not be charged any fee.
6. Injury/Damage — PRIME shall not be responsible for any
loss or damage caused by the assigned personnel to the
CLIENT's properties as well as properties of the customers of
the CLIENT unless the loss or damage is caused by the fact
that the assigned personnel lacks the capacity to work by
reason of any mental or physical defect or he was manifestly
unfit or unqualified to perform the tasks for which he has
been assigned by PRIME to the client.
In the event of injury to assigned PRIME personnel under this
contract, due to accidents which are work-related, the
CLIENT shall reimburse PRIME for medical expenses incurred
which under existing laws are required to be defrayed by the
employers. In the case of assigned PRIME personnel under
regular status, medical expenses due to accidents or
illnesses, whether or not work related, shall be defrayed by
PRIME under its Hospitalization Insurance Scheme.
7. Confidentiality — PRIME shall guarantee the confidentiality
of CLIENT's nature of job where PRIME personnel are
involved.
8. Mode/Term of Payment — For and in consideration of the
abovementioned services, the CLIENT shall pay PRIME the
corresponding hourly billing rate listed in Annex A which is
an integral part of this contract. Annex A consists of letter
agreement dated May 20, 1986 duly conformed by PRIME
and CLIENT as to the specific hourly rates per job category
and status as well as the composition of the billing rates,
basis for computation and the provision of reserves for
additional benefits granted to assigned regular PRIME

employees whenever those are applicable and/or payable.
Such rates apply only to work done by our employees during
the first eight (8) hours on any work day.
For work rendered by the assigned personnel in excess of
the regular work period agreed upon, the CLIENT shall be
billed by PRIME the rates on overtime pay set by the New
Labor Code. The schedule of hourly billing rates per job
category for work rendered on overtime whether done on a
regular work day; legal holiday, special holiday or rest day is
herein attached as Annex B and shall become an integral
part of this contract.
PRIME shall bill the CLIENT for actual services rendered by
sending CLIENT its statement of account on the 16th and on
the last day of each month. CLIENT shall make payment
within seven (7) working days from receipt of said statement
of account, unless the CLIENT, within the same period,
communicates to PRIME its refusal to pay on some valid
grounds, e.g. errors in computation etc. In the latter case,
CLIENT shall make payment within seven (7) working days
after the cause for non-payment is settled.
9. Provision for Rate Adjustment — In the event that wages
are increased and increased (sic) and additional fringe
benefits in favor of the employees are promulgated by law,
decrees or regulation or granted by mutual agreements
between PRIME and CLIENT, the above mentioned billing
rates shall be automatically adjusted to conform with the
new levels set by law or by both parties.
On September 20, 1985, private respondent Hector Santelices was
hired by Prime and assigned to petitioner as a data encoder to work on
the 4th GL Environment Conversion Project of PCIB.5 However, on
March 18, 1991, Prime decided to terminate private respondent's
services after it was informed by the petitioner that his services were
no longer needed in the project.6
Private respondent filed before the NLRC a complaint for illegal
dismissal against Prime and PCI-AC.7 In his position paper, private
respondent prayed for the payment of his 14th month pay, 13th month
pay, separation pay, unpaid service incentive leave, unpaid vacation
leave, termination pay, as well as moral and exemplary damages and
attorney's fees.8
On April 30, 1993, Labor Arbiter Melquiades Sol Del Rosario rendered a
Decision9 finding that private respondent's dismissal was illegal. The
dispositive portion of the Decision states:
CONFORMABLY with the foregoing, judgment is hereby
rendered finding complainant's dismissal to be illegal and
without legal basis. Consequently, complainant should be
immediately reinstated to his former or equivalent position
as data encoder at PCI-AC. Should reinstatement be
impossible or impractical due to a strained relation, then in
lieu thereof, payment of separation pay by Prime at one
month's pay (P3,060.00) per year of service reckoned from
September 20, 1985, a fraction of six (6) months service
being considered as one (1) whole year.
Respondents (sic) companies are further ordered to pay in
solidum the complainant the following amounts:
1. P78,030.00 as backwages (March 16, 1991 to April 30,
1993) not exceeding 3 years without qualification or
deduction at P3,060.00 a month;
2. P30,000.00 as moral damages;
3. P10,000.00 as exemplary damages; and
4. P5,000.00 as attorney's fees.
All other claims are hereby denied for lack of merit. 10
Prime and PCI-AC appealed to the NLRC.
On June 18, 1993, during the pendency of the appeal, Prime paid
private respondent the amount of P24,480.00 as separation pay in lieu
of reinstatement. This was in partial satisfaction of the judgment
rendered by the Labor Arbiter. Private respondent, for his part, waived
his right to be reinstated to his former position in Prime and/or PCI-AC.
Accordingly, Prime and private respondent executed and filed before
the office of the Labor Arbiter a document entitled "Partial Satisfaction
of Judgment and Waiver of Right".11
DO 18-02 Cases 29
On December 291 1993, public respondent NLRC affirmed the Decision
of the Labor Arbiter, but deleted the award of moral and exemplary
damages and attorney's fees.12
PCI-AC filed the present petition on the following ground:
. . . the public respondent acted with grave abuse of
discretion amounting to lack of jurisdiction when it
disregarded the substantial evidence in this case clearly
showing that private respondent was not illegally dismissed
by petitioner.13
The petition must fail.
Petitioner contends that private respondent, being a project employee,
was validly dismissed when the project for which he was hired was
completed on March 15, 1991. Petitioner avers that the 4th GL
Environment Conversion Project involved a phase-by-phase conversion
of PCIB's computer system. Private respondent was assigned to work
as data encoder in the Consolidated Financing System/Budget
Monitoring phase of the said computer conversion project. Allegedly,
this phase was completed on March 15, 1991. Petitioner makes the
submission that the completion of the work therein terminated further
need for private respondent's services.14
The public respondent, however, held otherwise after assessing the
evidence on record. It affirmed the findings of the Labor Arbiter, thus:
Going now to the second point of inquiry, which is the
completion or non-completion of the 4 GL conversion system
project, the testimony of Danilo Calauag, the assistant vice-
president and manager of International Operations of Prime
Manpower is most explicit. He testified on July 22, 1992 as
follows:
Mr. Santelices was assigned initially to Tower 2; (p.
33 TSN) then he was assigned to Tower 1 (ibid)
because there was work to be done in Tower 1
that necessitated his (complainant's) transfer
there (p. 35 ibid) although the work he
(complainant) was performing in Tower II was still
existing (supra) and Tower II is still in progress
(supra) meaning his original assignment is still on-
going up to the present (p. 36 ibid).
The foregoing testimony expressly and clearly admitted that
4 GL conversion project, more particularly Tower II to which
complainant was originally assigned is still an on-going
project, and not yet completed as posited by respondents.
There was therefore no reason for complainant's dismissal
on March 15, 1991 on the pretended ground which is
completion of the project. . . .15
We find no valid reason to disturb public respondent's findings. No less
than the assistant vice-president and manager for International
Operations of Prime testified that the project for which private
respondent was hired was still existing at the time of his dismissal. It is
settled that factual findings of quasi-judicial agencies like the Labor
Arbiter and the NLRC are generally accorded not only respect but even
finality if such findings are supported by substantial evidence.16
The petitioner also faults the public respondent in affirming the
disposition of the Labor Arbiter holding it solidarily liable with Prime for
all the monetary claims of private respondent. It insists that it is not an
employer of private respondent. It contends that private respondent is
an employee of Prime and he was merely assigned by Prime to the
petitioner to work on the 4th GL Environment Conversion Project of
PCIB.
We are not persuaded.
The petitioner, through PCIB, contracted Prime to provide it with
qualified personnel to work on the computer conversion project of
PCIB.17 The External Job Contract between Prime and PCIB must be
read in conjunction with the Computer Services Agreement between
PCIB and the petitioner. Under the Computer Services Agreement, the
petitioner shall direct and supervise the computer conversion project
of PCIB while PCIB shall provide the petitioner with data encoders and
computer attendants to work on the project. Pursuant to said

Agreement, PCIB called on Prime to furnish the petitioner with the
needed personnel, one of whom was private respondent. Hence,
although the parties in the External Job Contract are only Prime and
PCIB, the legal consequences of such contract must also be made to
apply to the petitioner. Under the circumstances, PCIB merely acted as
a conduit between the petitioner and Prime. The project was under the
management and supervision of the petitioner and it was the petitioner
which exercised control over the persons working on the project.
Under the law, any person (hereinafter referred to as the "principal
employer") who enters into an agreement with a job contractor, either
for the performance of a specified work or for the supply of manpower,
assumes responsibility over the employees of the latter.18 However, for
the purpose of determining the extent of the principal employer's
liability, the law makes a distinction between legitimate job contracting
and labor-only contracting. Article 106 of the Labor Code states:
Art. 106. Contractor or subcontractor. — Whenever an
employer enters into a contract with another person for the
performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same
manner and extent that he is liable to employees directly
employed by him.
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.
In legitimate job contracting, no employer-employee relationship exists
between the employees of the job contractor and the principal
employer. Even then, the principal employer becomes jointly and
severally liable with the job contractor for the payment of the
employees' wages whenever the contractor fails to pay the same. In
such case, the law creates an employer-employee relationship
between the principal employer and the job contractor's employees for
a limited purpose, that is, to ensure that the employees are paid their
wages. Other than the payment of wages, the principal employer is not
responsible for any claim made by the employees.19
On the other hand, in labor-only contracting, an employer-employee
relationship is created by law between the principal employer and the
employees of the labor-only contractor. In this case, the labor-only
contractor is considered merely an agent of the principal employer.
The principal employer is responsible to the employees of the labor-
only contractor as if such employees had been directly employed by
the principal employer. The principal employer therefore becomes
solidarily liable with the labor-only contractor for all the rightful claims
of the employees.20
Thus, in legitimate job contracting, the principal employer is
considered only an indirect employer,21 while in labor-only contracting,
the principal employer is considered the direct employer of the
employees.22
Considering the terms of the External Job Contract executed by Prime
and PCIB, it cannot be doubted that Prime is a labor-only contractor.
DO 18-02 Cases 30
Under the contract, Prime merely acted as a placement agency
providing manpower to the petitioner through PCIB. The service
rendered by Prime in favor of the petitioner was not the performance
of a specific job, but the supply of qualified personnel to work as data
encoders and computer attendants in connection with the petitioner's
project.
Rule VIII Book III of the Omnibus Implementing Rules and Regulations
of the Labor Code defines job contracting and labor-only contracting:
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 when such
person:
(1) Does not have substantial capital or
investment in the form of tools, equipment,
machineries, work premises and other materials;
and
(2) The workers recruited and placed by such
person are performing activities which are directly
related to the principal business or operations of
the employer in which workers are habitually
employed.
(b) Labor-only contracting as defined herein is hereby
prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the
employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly
employed by him.
xxx xxx xxx
In short, the legitimate job contractor provides services while the labor-
only contractor provides only manpower. The legitimate job contractor
undertakes to perform a specific job for the principal employer while
the labor-only contractor merely provides the personnel to work for the
principal employer.
As Prime is a labor-only contractor, the workers it supplied to the
petitioner, including private respondent, should be considered
employees of the petitioner.23 The admissions made by private
respondent in his affidavits and position paper that he is a regular
employee of Prime are not conclusive on this Court as the existence of
an employer-employee relationship is a question of law which may not
be made the subject of stipulation.24
We hold that public respondent did not commit grave abuse of
discretion in affirming the ruling of the Labor Arbiter adjudging the
petitioner solidarily liable with Prime for the payment of all the
monetary claims of private respondent. This is in accord with Article
106 of the Labor Code, as amended.
IN VIEW WHEREOF, the petition is DISMISSED. The assailed Decision
and Resolution are hereby AFFIRMED. No costs.
SO ORDERED.
G.R. Nos. 97320-27 July 30, 1993

VALLUM SECURITY SERVICES and BAGUIO LEISURE
CORPORATION (HYATT TERRACES BAGUIO), petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, RUBEN
ABELLERA, MANUEL GANANCIAL, SAMSON ALEJERA, ROMEO
BAUTISTA, CARLOS BANIAGO, GABRIEL CABASAL, ARTEMIO
CARIÑO, BENJAMIN LARON, SANTIAGO PACULAN, FRANCISCO
OBEDOZA, CEFERINO GARCIA, ARNOLD PAMINLAN, ROMAN
PALIMA, JOSEFINO LOZANO, PEDRO DULAY, JR., CLAUDIO
PANGANIBAN, RONNIE BALDERAS, AVELINO PINTO, BEN
ENRIQUE ESTOCAPIO, ESABELITO ANGARA, ROBERT AGUIMBAG,
WILSON ESTAVILLO, FELIXBERTO NARVASA, PABLITO ROSARIO,
EDGAR PALISOC, DONIE PERALTA, WILLY QUESADA, MARIO
URBANO, EDWIN JACOB, JOSE VIRGILIO LUSTERIO, MA. NESTOR
LABADOR, ROMEO LOPEZ, MANOLO MAGAT, MARIANO
MARCENA, WILSON MUNAR. ROSEMARIE DUMLAO, FLORENTINO
CASTAÑEDA, RUBEN PANTERIA, JOHNNY VILLANUEVA, DELIA
ROSARIO, GARY JAVATE, DEAN PASAMIC, VALERIE BRIONES,
NEMENCIO CUTCHON, PHILIP MORIS, VINCENT NOEL CABRERA
and JAIME GIMENO, respondents.
Sanidad Law Offices for petitioners.
Cabato Law Office for respondents.
FELICIANO, J.:
On 1 September 1986, petitioner Baguio Leisure Corporation (Hyatt
Terraces Baguio) ("Hyatt Baguio") and petitioner Vallum Security
Services ("Vallum") entered into a contract for security services under
the terms of which Vallum agreed to protect the properties and
premises of Hyatt Baguio by providing fifty (50) security guards, on a
24-hour basis, a day.
On 1 June 1988, Heinrich L. Maulbecker, Hyatt Baguio's General
Manager, wrote to Domingo A. Inocentes, President of Vallum advising
that effective 1 July 1988, the contract of security services would be
terminated.
Vallum informed Mr. Maulbecker, on 22 June 1988, that it was
agreeable to the termination of the contract.
On 30 June 1988, private respondents, who were security guards
provided by Vallum to Hyatt Baguio, were informed by Vallum's
Personnel Officer that the contract between the two (2) had already
expired. Private respondents were directed to report to Vallum's head
office at Sucat Road, in Muntinlupa, Metropolitan Manila, not later than
15 July 1988 for re-assignment. They were also told that failure to
report at Sucat would be taken to mean that they were no longer
interested in being re-assigned to some other client of Vallum.
None of the private respondents reported at Sucat for re-assignment.
Instead, between July and September 1988, private respondents filed
several complaints against petitioners in the National Labor Relations
Commission's Office ("NLRC") in Baguio City for illegal dismissal and
unfair labor practices; for violation of labor standards relating to
underpayment of wages, premium holiday and restday pay, uniform
allowances and meal allowances. They prayed for reinstatement with
full backwages. The several cases were consolidated together.
On 19 May 1989, the Labor Arbiter rendered a decision dismissing the
complaints. He found Vallum to be an independent contractor and,
consequently, declined to hold Hyatt Baguio liable for dismissal of
private respondents. He also held that the termination of services of
private respondents by Vallum did not constitute an unfair labor
practice, considering that such termination had been brought about by
lack of work. Furthermore, the Labor Arbiter held that private
respondents were not entitled to backwages or separation pay, in line
with the "no work, no pay" principle. Lastly, he found no violation of
the labor standard provisions on payment of wages and other
employee benefits. 1
Private respondents appealed the Labor Arbiter's decision to the NLRC.
On 31 July 1990, the NLRC promulgated a resolution reversing the
Labor Arbiter's decision, the dispositive portion of which resolution
reads as follows:
WHEREFORE, the decision appealed from is hereby
REVERSED and set aside and a new one entered ordering the
respondent Hyatt Terraces Baguio to reinstate the
complainants to their former positions with full backwages
DO 18-02 Cases 31
limited to one (1) year. In view of supervening event which
makes the reinstatement imposible, respondents Hyatt
Terraces Baguio and Vallum Security Services Corporation,
are directed, jointly and severally to pay complainants, in
lieu of reinstatement, separation pay equal to one (1) month
per year of service. Service of six month shall be considered
a year for the purpose of the same. 2
Petitioners moved for reconsideration, without success.
Vallum and Hyatt Baguio are hence before this Court on certiorari
seeking to: (a) reverse and annul the Resolutions of the NLRC of 31 July
1990 and 31 January 1991; and (b) reinstate the decision of the Labor
Arbiter dated 19 May 1989. Petitioners assert that the NLRC's finding
that an employer-employee relationship had existed between Hyatt
Baguio and private respondents, is tainted with arbitrariness.
The main issue here presented and addressed below is whether or not
private respondent security guards are indeed employees of petitioner
Hyatt Baguio.
In determining whether a given set of circumstances constitute or
exhibit an employer-employee relationship, the accepted rule is that
the elements or circumstances relating to the following matters shall
be examined and considered:
1. the selection and engagement of the employee;.
2. the payment of wages;
3. the power of dismissal; and
4. the power to control the employees' conduct. 3
Of the above, control of the employees' conduct is commonly regarded
as the most crucial and determinative indicator of the presence or
absence of an employer-employee relationship. 4 We examine below
the circumstances of the relationship between petitioners and private
respondents under the above four (4) rubrics.
In respect of the selection and engagement of the employees, the
records here show that private respondents filled up Hyatt
employment application forms and submitted the executed forms
directly to the Security Department of Hyatt Baguio. 5 It appears that
these executed application forms were returned to the respective
applicants; 6 nonetheless, however, a few days after the applications to
Hyatt Baguio were submitted, Vallum sent letters of acceptance to
private respondents. Petitioners do not deny that private respondent
had applied for employment at Hyatt's Security Department and that
Security Department was used to process the applications. Petitioners
argue that because the premises to be secured were located in Baguio,
Vallum found it more advantageous to recruit security guards from the
Baguio area. It would have been most inconvenient for applicants from
the Baguio area to have gone all the way to Sucat in Makati to file and
follow-up their applications; accordingly, Vallum was provided with its
own office at Hyatt Baguio and there the applications, with the
assistance of Hyatt Baguio's Security Department, were processed. 7
Petitioners' argument here, while understandable, does not negate the
fact that the process of selection and engagement of private
respondents had been carried out in Hyatt Baguio and subject to the
scrutiny of officers and employees of Hyatt Baguio.
In respect of the mode or manner of payment of wages, private
respondents submitted in evidence four hundred twenty-three (423)
pay slips (Exhibits "A" for complainants-private respondents), which
bore Hyatt Baguio's logo. 8 These pay slips show that it was Hyatt
Baguio which paid their wages directly and that Hyatt Baguio deducted
therefrom the necessary amounts for SSS premiums, internal revenue
withholding taxes, and medicare contributions. The Labor Arbiter had
found that a separate payroll was maintained for Vallum by Hyatt
Baguio; the NLRC, however, held that this finding had no factual basis,
and we are compelled to agree with this finding. It is true that a
subsequent agreement (10 September 1986) between Vallum and
Hyatt Baguio had provided:
1. That for the purposes of facilitating and prevention of
delays in the distribution of payroll to all Security guards
assigned at the premises of the company and as embraced
in the contract of Security services, the [vallum] shall
herewith authorize the [Hyatt Baguio] to undertake the
distribution of the payroll directly to the guards as
mentioned herein. (Emphasis supplied)

2. That for purposes of the payroll distribution as stated
above, the company shall devise ways to ensure the efficient
and prompt distribution to the guards of their respective
salaries. 9 (Emphasis supplied)
The fact that this agreement had stipulated for direct payment by
Hyatt Baguio of private respondents' wages did not, of course, dissolve
the relevance of such direct payment as an indicator of an employer-
employee relationship between Hyatt Baguio and private respondents.
Vallum did not even provide Hyatt Baguio with Vallum's own pay slips
or payroll vouchers for such direct payments. What clearly emerges is
that Hyatt Baguio discharged a function which was properly a function
of the employer.
Turning to the matter of location of the power of dismissal, we note
that the contract provided that upon loss of confidence on the part of
Hyatt Baguio vis-a-vis any security guard furnished by Vallum, such
security guard "may be changed immediately upon the request to
[Vallum] by [Hyatt Baguio]." Notwithstanding the terms of the formal
contract between petitioners, the NLRC found that, in operative fact, it
was Hyatt Baguio's Chief Security Officer
who exercised the power of enforcing disciplinary measures over the
security guards. 10 In the matter of termination of services of particular
security guards, Hyatt Baguio had merely used Vallum as a channel to
implement its decisions, much as it had done in the process of
selection and recruitment of the guards.
Coming then to the location of the power of control over the activities
of the security guards, the following factors lead us to the conclusion
that power was effectively located in Hyatt Baguio rather than in
Vallum:
(a) the assignments of particular security guards was subject
to the approval of Hyatt Baguio's Chief Security Officer; 11
(b) promotions of the security guards from casual to regular
employees were approved or ratified by the Chief Security
Officer of Hyatt Baguio; 12
(c) Hyatt Baguio's Chief Security Officer decided who among
the various security guards should be an duty or on call, as
well as who, in cases of disciplinary matters, should be
suspended or dismissed; 13
(d) the petitioners themselves admitted that Hyatt Baguio,
through its Chief Security Officer, awarded citations to
individual security guards for meritorious services. 14
Petitioners contend that what existed between Vallum and Hyatt
Baguio was simply close coordination and dove-tailing of operations,
rather than control and supervision by one over the operations of the
other, and that Hyatt Baguio's Chief Security Officer had acted as the
conduit between Hyatt Baguio and Vallum in respect of the
implementation of the contract of security services. That is not,
however, the characterization given by the NLRC to the details of the
factual relationships between Hyatt Baguio (acting through its Chief
Security Officer) and Vallum and private respondent security guards
and it is clear to the Court that the characterization reached by the
NLRC is not without the support of substantial evidence of record. We
agree with the NLRC's characterization.
One final circumstance seems worthy of note: orders received by
private respondent security guards were set forth on paper bearing the
letterheads of both Hyatt Baguio and Vallum. 15 It appears to us,
therefore, that Hyatt Baguio explicitly purported, at the very least, to
share with Vallum the exercise of the power of control and supervision
with Vallum over the security guards, if indeed Vallum was not
functioning merely as an alter ego of Hyatt Baguio in respect of the
operations of the security guards. In the ordinary course of business,
security guard agencies are engaged because of their specialized
capabilities in the matter of physical security. It is a security agency's
business to know the most efficacious manner of protecting and
securing a particular place at a particular time. In the case at bar, the
functions performed by Hyatt Baguio's Chief Security Officer were
precisely the duties which the head or senior officer of a legitimate
security agency would be exercising over its own employees.
Finally, we note that the contract for security services between Vallum
and Hyatt Baguio contained the following provisions:
DO 18-02 Cases 32
xxx xxx xxx
3. The AGENCY shall exercise discipline, supervision, control
and administration over the security guard so assigned to
the premises of the COMPANY in accordance with the Rules
and Regulations of the PCSUSIA, the Local Police
Departments, the AGENCY and the COMPANY.
4. The AGENCY shall provide at its own expense all
necessary, proper and duly licensed firearms, ammunitions,
nightsticks, and other paraphernalia for security purposes, to
the guards it assigns to the COMPANY and shall shoulder all
taxes and licenses relating to the Security Services referred
to in this agreement.
5. It is expressly understood and mutually agreed by the
parties hereto that the AGENCY shall be held solely liable for
any claim for security guards' wages and/or damages arising
out of personal injury including death caused, either by the
AGENCY's guard upon a third party or by the AGENCY'S
guard or third party upon a guard assigned by the AGENCY
to the COMPANY, and should the COMPANY be held liable
therefore, the AGENCY shall reimburse the COMPANY for any
and all amounts that it may have been called upon to pay.
xxx xxx xxx
7. The AGENCY shall always detail within the hours the
period provided for and in the paragraph 1 of this contract,
an authorized representative who shall handle for the
AGENCY all matters regarding security and enforcement
which the COMPANY may wish to implement.
The thrust of the foregoing discussion, however, is that the relationship
between Vallum and Hyatt Baguio as actually conducted departed
significantly from the formal written terms of their agreement. It is to
us self-evident that the characterization in law of such relationship
cannot conclusively be made in terms alone of the written agreement
— which constitutes but one factor out of many that the Court must
take into account — but must rest upon an examination of the detailed
facts of such relationship in the world of time and space.
We find no basis for overturning the conclusions reached by the NLRC
that Vallum, in the specific circumstances of this case, was not an
independent contractor but was, rather, a "labor-only" contracor.
Section 9 of Rule VII of Book III entitled "Conditions of Employment" of
the Omnibus Rules Implementing the Labor Code provides as follows:
Sec. 9. Labor-only contracting. (a) Any person who
undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where such
person:
(1) Does not have substantial capital or investment in
the form of tools, equipment, machineries, work
premises and other materials; and
(2) The workers recruited and placed by such person
are performing activities which are directly related to
the principal business or operations of the employer in
which workers are habitually employed.
(b) Labor-only contracting as defined herein is hereby
prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the
employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly
employed by him.
xxx xxx xxx
Sec. 8. Job contracting. — There is job contracting
permissible under the Code if the following conditions are
met:
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
own responsibility according his own manner and method,

free from the control and direction of his employer or
principal in all matters connected with the performance of
the work except as to results thereof; and
(2) The contractor has substantial capital or investment in
the form of tools, equipment, machineries, work premises,
and other materials which are necessary in the conduct of
his business.
In the case at bar, we noted that Vallum did not have a branch office in
Baguio City and that Hyatt Baguio provided Vallum with offices at
Hyatt's own premises and allowed Vallum to use its Security
Department in the processing of applications. That was the reason too
why Vallum had stipulated that Hyatt Baguio was to distribute the
salaries of the security guards directly to them and that Hyatt had
used its own corporate forms and pay slips in doing so. The security
guards were clearly performing activities directly related to the
business operations of Hyatt Baguio, since the undertaking to
safeguard the person and belongings of hotel guests is one of the
obligations of a hotel vis-a-vis its guests and the general public.
Where labor-only contracting exists in a given case, the law itself
implies or establishes an employer-employee relationship between the
employer (the owner of the project or establishment) (here, Hyatt
Baguio) and the employees of the labor-only contractor (here, Vallum)
to prevent any violation or circumvention of provisions of the Labor
Code. 16
The issue of illegal dismissal need not detain us for long. It has not
been alleged by petitioners that a just or authorized cause for
terminating private respondents' services had existed. And even if
such lawful cause existed, it is not alleged that private respondents'
rights to procedural due process in that connection had been
appropriately observed.
We conclude that petitioners have not shown any grave abuse of
discretion or any act without or any in excess of jurisdiction on the part
of the National Labor Relations Commission in rendering its Resolutions
dated 31 July 1990 and 31 January 1991.
WHEREFORE, premises considered, the Petition for Certiorari is hereby
DISMISSED for lack of merit. Costs against petitioners.
Bidin, Romero, Melo and Vitug, JJ., concur.
G.R. No. L-66598 December 19, 1986
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, HONORABLE
ARBITER TEODORICO L. DOGELIO and RICARDO ORPIADA
respondents.
Marcelino Lontok, Jr. for respondents.
FELICIANO, J.:
Petitioner Philippine Bank of Communications and the Corporate
Executive Search Inc. (CESI) entered into a letter agreement dated
January 1976 under which (CESI) undertook to provide "Tempo[rary]
Services" to petitioner Consisting of the "temporary services" of eleven
(11) messengers. The contract period is described as being "from
January 1976—." The petitioner in truth undertook to pay a "daily
service rate of P18, " on a per person basis.
DO 18-02 Cases 33
Attached to the letter agreement was a "List of Messengers assigned
at Philippine Bank of Communications" which list included, as item No.
5 thereof, the name of private respondent Ricardo Orpiada.
Ricardo Orpiada was thus assigned to work with the petitioner bank. As
such, he rendered services to the bank, within the premises of the
bank and alongside other people also rendering services to the bank.
There was some question as to when Ricardo Orpiada commenced
rendering services to the bank. As noted above, the letter agreement
was dated January 1976. However, the position paper submitted by
(CESI) to the National Labor Relations Commission stated that (CESI)
hired Ricardo Orpiada on 25 June 1975 as a Tempo Service employee,
and assigned him to work with the petitioner bank "as evidenced by
the appointment memo issued to him on 25 June 1975. " Be that as it
may, on or about October 1976, the petitioner requested (CESI) to
withdraw Orpiada's assignment because, in the allegation of the bank,
Orpiada's services "were no longer needed."
On 29 October 1976, Orpiada instituted a complaint in the Department
of Labor (now Ministry of Labor and Employment) against the petitioner
for illegal dismissal and failure to pay the 13th month pay provided for
in Presidential Decree No. 851. This complaint was docketed as Case
No. R04-1010184-76-E. After investigation, the Office of the Regional
Director, Regional Office No. IV of the Department of Labor, issued an
order dismissing Orpiada's complaint for failure of Mr. Orpiada to show
the existence of an employer-employee relationship between the bank
and himself.
Despite the foregoing order, Orpiada succeeded in having his
complaint certified for compulsory arbitration in Case No. RB-IV-11187-
77 entitled "Ricardo Orpiada, complaint vs. Philippine Bank of
Communications, respondent." During the compulsory arbitration
proceedings, CE SI was brought into the picture as an additional
respondent by the bank. Both the bank and (CESI) stoutly maintained
that (CESI) (and not the bank) was the employer of Orpiada.
On 12 September 1977, respondent Labor Arbiter Dogelio rendered a
decision in Case No. RB-IV-11187-77, the dispositive portion of which
read as follows:
WHEREFORE, premises considered, respondent bank is
hereby ordered to reinstate complainant to the same or
equivalent position with full back wages and to pay the
latter's 13th month pay for the year 1976.
On 26 October 1977, the bank appealed the decision of the Labor
Arbiter to the respondent NLRC. More than six years later—and the
record is silent on why the proceeding in the NLRC should have taken
more than six years to resolve the NLRC promulgated its decision
affirming the award of the Labor Arbiter and stating as follows:
WHEREFORE, except for the modification reducing the
complainant's back wages to two (2) years without
qualification, the Decision appealed from is hereby
AFFIRMED in an other respects.
Accordingly, on 2 April 1984, the bank filed the present petition for
certiorari with this Court seeking to annul and set aside (a) the decision
of respondent Labor Arbiter Dogelio dated 12 September 1977 in Labor
Case No. RB-IV-1118-77 and (b) the decision of the NLRC promulgated
on 29 December 1983 affirming with some modifications the decision
of the Labor Arbiter. This Court granted a temporary restraining order
on 11 April 1984. The main issue as litigated by the parties in this case
relates to whether or not an employer-employee relationship existed
between the petitioner bank and private respondent Ricardo Orpiada.
The petitioner bank maintains that no employer-employee relationship
was established between itself and Ricardo Orpiada and that Ricardo
Orpiada was an employee of (CESI) and not of the bank. The bank
documents its position by pointing to the following provisions of its
letter agreement with CE SI
1. The individual/s you i.e. (CESI) will assign to us i.e.
petitioner) will be subject to our acceptance and will observe
work-days, hours, and methods of work (sic); on the other
hand, they will not be asked to perform job (sic) not normally
related to the position/s for which Tempo Services were
contracted.
2. Such individuals will nevertheless remain your own
employees and you will therefore, retain all liabilities arising
from the new Labor Code as amended Social Security Act

and other applicable Governmental decrees, rules and
regulations, provided that, on our part, we shaIl
a. Require your employers assigned to us to
properly accomplish your daily time record, to
faithfully reflect all hours worked in our behalf
whether such work be within or beyond eight
hours of any day.
b. Notify you of any change in the work
assignment or contract period affecting any of
your employers assigned to us within 24 hours,
after such change is made.
— (Emphasis supplied)
The above language of the agreement between the bank and CE SI is
of course relevant and important as manifesting an intent to refrain
from constituting an employer-employee relationship between the
bank and the persons assigned or seconded to the bank by (CESI) That
extent to which the parties were successful in realizing their intent is
another matter, one that is dependent upon applicable law and not
merely upon the terms of their contract.
In the case of Viana vs. AI-Lagdan and Pica, 99 Phil. 408 (1956), this
Court listed certain factors to be taken into account in determining the
existence of an employer-employee relationship. These factors are:
1) The selection and engagement of the putative employee;
2) The payment of wages;
3) The power of dismissal- and
4) The power to control the putative employees' conduct,
although the latter is the most important element. ... (99
Phil. at 411- 412; Emphasis supplied)
In the present case, Orpiada was not previously selected by the bank.
Rather, Orpiada was assigned to work in the bank by (CESI) Orpiada
could not have found his way to the bank's offices had he not been first
hired by (CESI) and later assigned to work in the bank's offices. The
selection of Orpiada by (CESI) was, however, subject to the acceptance
of the bank and the bank did accept him As will be seen shortly, (CESI)
had hired Orpiada from the outside world precisely for the purpose of
assigning or seconding him to the bank.
With respect to the payment of Orpiada's wages, the bank remitted to
CE SI amounts corresponding to the "daily service rate" of Orpiada and
the others similarly assigned by (CESI) to the bank, and (CESI) paid to
Orpiada and the others the wages pertaining to to them. It is not clear
from the record whether the amounts remitted to (CESI) included some
factor for CESIs fees; it seems safe to assume that (CESI) had required
some amount in excess of the wages paid by (CESI) to Orpiada and the
others to cover its own overhead expenses and provide some
contribution to profit. The bank alleged that Orpiada did not appear in
its payroll and this allegation was not denied by Orpiada. Indeed, the
Labor Arbiter in Case No. R04-184-76-B found that Orpiada was listed
in the payroll of (CESI) with (CESI) deducting amounts representing his
Medicare and Social Security System premiums. A copy of the (CESI)
payroll was presented, strangely enough, by Orpiada himself to
Regional Office No. IV.
In respect of the power of dismissal we note that the bank requested
(CESI) to withdraw Orpiada's assignment and that (CESI) did, in fact,
withdraw such assignment. Upon such withdrawal from his assignment
with the bank, Orpiada was also terminated by (CESI) Indeed, it
appears clear that Orpiada was hired by (CESI) specifically for
assignment with the bank and that upon his withdrawal from such
assignment upon request of the bank, Orpiada's employment with
(CESI) was also severed, until some other client of (CESI) showed up in
the horizon to which Orpiada could once more be assigned. In the
position paper dated August 5, 1977 submitted by (CESI) before the
NLRC, (CESI) explained the relationship between itself and Orpiada in
lucid terms:
5. That as Petitioner herein was very well aware of from the
very beginning, he was hired by Corporate Executive Search,
Inc. as a temporary employee and as such, was being
assigned to work with the latter's client Respondent herein
that the rationale behind his hiring was the existence of a
service contract between Corporate Executive Search Inc.
and its client-company, the Philippine Bank of
Communications, the herein Respondent, and that when this
DO 18-02 Cases 34
service contract was 0terminated, then the reason for his
employment with Corporate Executive Search, Inc., ceased
to exist and that therefore Corporate Executive Search Inc.
had no alternative but to discontinue his employment until
another opportune time for his hiring would present itself;
6. That Petitioner was not given his 13th-month pay under
P.D. 851, because Corporate Executive Search Inc. gave the
13th month pay for 1976 to its employees in December
1976, and since the company had lost contact with the
Petitioner by reason of his having ceased to be connected
with it as of 22 October 1976, he was not among those given
the 13th-month pay. (Emphasis supplied)
Turning to the power to control Orpiada's conduct, it should be noted
immediately that Orpiada performed his sections within the bank's
premises, and not within the office premises of (CESI) As such, Orpiada
must have been subject to at least the same control and supervision
that the bank exercises over any other person physically within its
premises and rendering services to or for the bank, in other words, any
employee or staff member of the bank. It seems unreasonable to
suppose that the bank would have allowed Orpiada and the other
persons assigned to the bank by CE SI to remain within the bank's
premises and there render services to the bank, without subjecting
them to a substantial measure of control and supervision, whether in
respect of the manner in which they discharged their functions, or in
respect of the end results of their functions or activities, or both.
Application of the above factors in the specific context of this case
appears to yield mixed results so far as concerns the existence of an
employer- employer relationship between the bank and Orpiada. The
second ("payment of wages") and third ("power of dismissal") factors
suggest that the relevant relationship was that subsisting between
(CESI) and Orpiada, a relationship conceded by (CESI) to be one
between employer and employee. Upon the other hand, the first
("selection and engagement") and fourth ("control of employee's
conduct") factors indicate that some direct relationship did exist
between Orpiada and the bank and that such relationship may be
assimilated to employment. Perhaps the most important circumstance
which emerges from an examination of the facts of the tri-lateral
relationship between the bank, (CESI) and Orpiada is that the
employer-employee relationship between (CESI) and Orpiada was
established precisely in anticipation of, and for the very purpose of
making possible, the secondment of Orpiada to the bank. It is therefore
necessary to confront the task of determining the appropriate
characterization of the relationship between the bank and (CESI) was
that relationship one of employer and job (independent) contractor or
one of employer and "labor-only" contractor?
Articles 106 and 107 of the Labor Code of the Philippines (Presidential
Decree No. 442, as amended) provides as follows:
ART. 106. Contractor or sub-contractor.—Whenever an
employer enters into a contract with another person for the
performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions in this Code.
In the event that the contractor or sub-contractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or sub-contractor to such employees to the extent
of the work performed under the contract in the same
manner and extent that he is liable to employees directly
employed by him
The Secretary of Labor may, by appropriate regulations,
restrict or prohibit the contracting out of labor to protect the
rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job
contracting as well as differentiations within these types of
contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code,
to prevent any violation or circumvention of any provisions
of this Code.
There is "labor-only" contracting where the person supplying
workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and
placed by such person are performing activities which are

directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible
to the workers in the same manner and extent as if the
latter were directly employed by him.
ART. 107. Indirect employer. — The provisions of the
immediately preceding Article shall likewise apply to any
person, part, nership association or corporation which, not
being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.
(Emphasis supplied)
Under the general rule set out in the first and second paragraphs of
Article 106, an employer who enters into a contract with a contractor
for the performance of work for the employer, does not thereby create
an employer-employees relationship between himself and the
employees of the contractor. Thus, the employees of the contractor
remain the contractor's employees and his alone. Nonetheless when a
contractor fails to pay the wages of his employees in accordance with
the Labor Code, the employer who contracted out the job to the
contractor becomes jointly and severally liable with his contractor to
the employees of the latter "to the extent of the work performed under
the contract" as such employer were the employer of the contractor's
employees. The law itself, in other words, establishes an employer-
employee relationship between the employer and the job contractor's
employees for a limited purpose, i.e., in order to ensure that the latter
get paid the wages due to them.
A similar situation obtains where there is "labor only" contracting. The
"labor-only" contractor-i.e "the person or intermediary" is considered
"merely as an agent of the employer. " The employer is made by the
statute responsible to the employees of the "labor only" contractor as
if such employees had been directly employed by the employer. Thus,
where "labor only" contracting exists in a given case, the statute itself
implies or establishes an employer-employee relationship between the
employer (the owner of the project) and the employees of the "labor
only" contractor, this time for a comprehensive purpose: "employer for
purposes of this Code, to prevent any violation or circumvention of any
provision of this Code. " The law in effect holds both the employer and
the "labor-only" contractor responsible to the latter's employees for the
more effective safeguarding of the employees' rights under the Labor
Code.
Both the petitioner bank and (CESI) have insisted that (CESI) was not a
"labor only" contractor. Section 9 of Rule VIII of Book III entitled
"Conditions of Employment," of the Omnibus Rules Implementing the
Labor Code provides as follows:
Sec. 9. Labor-only contracting. — (a) Any person who
undertakes to supply workers to an employer shag be
deemed to be engaged in labor-only contracting where such
person:
(1) Does not have substantial capital or
investment in the form of tools, equipment,
machineries, work premises and other materials;
and
(2) The workers recruited and placed by such
person are performing activities which are to the
principal business or operations of the c workers
are habitually employed,
(b) Labor-only contracting as defined herein is hereby
prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the
employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly
employed by him
(c) For cases not file under this Article, the Secretary of
Labor shall determine through appropriate orders whether or
not the contracting out of labor is permissible in the light of
the circumstances of each case and after considering the
operating needs of the employer and the rights of the
workers involved. In such case, he may prescribe conditions
and restrictions to insure the protection and welfare of the
workers. (Emphasis supplied)
DO 18-02 Cases 35
In contrast, job contracting-contracting out a particular job to an
independent contractor is defined by the Implementing Rules as
follows:
Sec. 8. Job contracting. — There is job contracting
permissible under the Code if the following conditions are
met:
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
own responsibility according to his own manner and method
free from the control and direction of his employer or
principal in all matters connected with the performance of
the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in
the form of tools, equipment, machineries, work premises,
and other materials which are necessary in the conduct of
his business. (Emphasis supplied)
The bank and (CESI) urge that (CESI) is not properly regarded as a
"labor-only" contractor upon n the ground that (CESI) is possessed of
substantial capital or investment in the form of office equipment, tools
and trained service personnel.
We are unable to agree with the bank and (CESI) on this score. The
definition of "labor-only" contracting in Rule VIII, Book III of the
Implementing Rules must be read in conjunction with the definition of
job contracting given in Section 8 of the same Rules. The undertaking
given by CESI in favor of the bank was not the performance of a
specific — job for instance, the carriage and delivery of documents and
parcels to the addresses thereof. There appear to be many companies
today which perform this discrete service, companies with their own
personnel who pick up documents and packages from the offices of a
client or customer, and who deliver such materials utilizing their own
delivery vans or motorcycles to the addresses. In the present case, the
undertaking of (CESI) was to provide its client-the bank-with a certain
number of persons able to carry out the work of messengers. Such
undertaking of CESI was complied with when the requisite number of
persons were assigned or seconded to the petitioner bank. Orpiada
utilized the premises and office equipment of the bank and not those
of (CESI) Messengerial work-the delivery of documents to designated
persons whether within or without the bank premises — is of course
directly related to the day-to-day operations of the bank. Section 9(2)
quoted above does not require for its applicability that the petitioner
must be engaged in the delivery of items as a distinct and separate
line of business.
Succinctly put, CESI is not a parcel delivery company: as its name
indicates, it is a recruitment and placement corporation placing bodies,
as it were, in different client companies for longer or shorter periods of
time. It is this factor that, to our mind, distinguishes this case from
American President v. Clave et al, 114 SCRA 826 (1982) if indeed
distinguishing way is needed.
The bank urged that the letter agreement entered into with CESI was
designed to enable the bank to obtain the temporary services of
people necessary to enable the bank to cope with peak loads, to
replace temporary workers who were out on vacation or sick leave, and
to handle specialized work. There is, of course, nothing illegal about
hiring persons to carry out "a specific project or undertaking the
completion or termination of which [was] determined at the time of the
engagement of [the] employee, or where the work or service to be
performed is seasonal in nature and the employment is for the
duration of the season" (Article 281, Labor Code).<äre||anº•1àw> The
letter agreement itself, however, merely required (CESI) to furnish the
bank with eleven 11) messengers for " a contract period from January
19, 1976 —." The eleven (11) messengers were thus supposed to
render "temporary" services for an indefinite or unstated period of
time. Ricardo Orpiada himself was assigned to the bank's offices from
25 June 1975 and rendered services to the bank until sometime in
October 1976, or a period of about sixteen months. Under the Labor
Code, however, any employee who has rendered at least one year of
service, whether such service is continuous or not, shall be considered
a regular employee (Article 281, Second paragraph). Assuming,
therefore, that Orpiada could properly be regarded as a casual (as
distinguished from a regular) employee of the bank, he became
entitled to be regarded as a regular employee of the bank as soon as
he had completed one year of service to the bank. Employers may not
terminate the service of a regular employee except for a just cause or
when authorized under the Labor Code (Article 280, Labor Code). It is
not difficult to see that to uphold the contractual arrangement between
the bank and (CESI) would in effect be to permit employers to avoid

the necessity of hiring regular or permanent employees and to enable
them to keep their employees indefinitely on a temporary or casual
status, thus to deny them security of tenure in their jobs. Article 106 of
the Labor Code is precisely designed to prevent such a result.
We hold that, in the circumstances 'instances of this case, (CESI) was
engaged in "labor-only" or attracting vis-a-vis the petitioner and in
respect c Ricardo Orpiada, and that consequently, the petitioner bank
is liable to Orpiada as if Orpiada had been directly, employed not only
by (CESI) but also by the bank. It may well be that the bank may in
turn proceed against (CESI) to obtain reimbursement of, or some
contribution to, the amounts which the bank will have to pay to
Orpiada; but this it is not necessary to determine here.
WHEREFORE, the petition for certiorari is DENIED and the decision
promulgated on 29 December 1983 of the National Labor Relations
Commission is AFFIRMED. The Temporary Restraining Order issued by
this Court on 11 April 1984 is hereby lifted. Costs against petitioner.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera and Cruz, JJ., concur.
G.R. No. 179546 February 13, 2009
COCA-COLA BOTTLERS PHILS., INC., Petitioner,
vs.
ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR.,
ALFONSO PAA, JR., DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL
H. FRANCISCO, and EDWIN M. GOLEZ, Respondents.
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of
Court, assailing the Decision1 dated 19 February 2007, promulgated by
the Court of Appeals in CA-G.R. SP No. 85320, reversing the Resolution2
rendered on 30 October 2003 by the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 036494-03. The Court of
Appeals, in its assailed Decision, declared that respondents Alan M.
Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso Paa, Jr.,
Dempster P. Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M.
Golez were regular employees of petitioner Coca-Cola Bottlers Phils.,
Inc; and that Interserve Management & Manpower Resources, Inc.
(Interserve) was a labor-only contractor, whose presence was intended
merely to preclude respondents from acquiring tenurial security.
Petitioner is a domestic corporation duly registered with the Securities
and Exchange Commission (SEC) and engaged in manufacturing,
bottling and distributing soft drink beverages and other allied products.
On 15 April 2002, respondents filed before the NLRC two complaints
against petitioner, Interserve, Peerless Integrated Services, Inc., Better
Builders, Inc., and Excellent Partners, Inc. for reinstatement with
backwages, regularization, nonpayment of 13th month pay, and
damages. The two cases, docketed as NLRC NCR Case No. 04-02345-
2002 and NLRC NCR Case No. 05-03137-02, were consolidated.
Respondents alleged in their Position Paper that they were salesmen
assigned at the Lagro Sales Office of petitioner. They had been in the
employ of petitioner for years, but were not regularized. Their
employment was terminated on 8 April 2002 without just cause and
due process. However, they failed to state the reason/s for filing a
complaint against Interserve; Peerless Integrated Services, Inc.; Better
Builders, Inc.; and Excellent Partners, Inc.3
Petitioner filed its Position Paper (with Motion to Dismiss),4 where it
averred that respondents were employees of Interserve who were
tasked to perform contracted services in accordance with the
provisions of the Contract of Services5 executed between petitioner
and Interserve on 23 March 2002. Said Contract between petitioner
and Interserve, covering the period of 1 April 2002 to 30 September
2002, constituted legitimate job contracting, given that the latter was a
bona fide independent contractor with substantial capital or
investment in the form of tools, equipment, and machinery necessary
in the conduct of its business.
To prove the status of Interserve as an independent contractor,
petitioner presented the following pieces of evidence: (1) the Articles
DO 18-02 Cases 36
of Incorporation of Interserve;6 (2) the Certificate of Registration of
Interserve with the Bureau of Internal Revenue;7 (3) the Income Tax
Return, with Audited Financial Statements, of Interserve for 2001;8 and
(4) the Certificate of Registration of Interserve as an independent job
contractor, issued by the Department of Labor and Employment
(DOLE).9
As a result, petitioner asserted that respondents were employees of
Interserve, since it was the latter which hired them, paid their wages,
and supervised their work, as proven by: (1) respondents’ Personal
Data Files in the records of Interserve;10 (2) respondents’ Contract of
Temporary Employment with Interserve;11 and (3) the payroll records
of Interserve.12
Petitioner, thus, sought the dismissal of respondents’ complaint
against it on the ground that the Labor Arbiter did not acquire
jurisdiction over the same in the absence of an employer-employee
relationship between petitioner and the respondents.13
In a Decision dated 28 May 2003, the Labor Arbiter found that
respondents were employees of Interserve and not of petitioner. She
reasoned that the standard put forth in Article 280 of the Labor Code
for determining regular employment (i.e., that the employee is
performing activities that are necessary and desirable in the usual
business of the employer) was not determinative of the issue of
whether an employer-employee relationship existed between
petitioner and respondents. While respondents performed activities
that were necessary and desirable in the usual business or trade of
petitioner, the Labor Arbiter underscored that respondents’ functions
were not indispensable to the principal business of petitioner, which
was manufacturing and bottling soft drink beverages and similar
products.
The Labor Arbiter placed considerable weight on the fact that
Interserve was registered with the DOLE as an independent job
contractor, with total assets amounting to P1,439,785.00 as of 31
December 2001. It was Interserve that kept and maintained
respondents’ employee records, including their Personal Data Sheets;
Contracts of Employment; and remittances to the Social Securities
System (SSS), Medicare and Pag-ibig Fund, thus, further supporting the
Labor Arbiter’s finding that respondents were employees of Interserve.
She ruled that the circulars, rules and regulations which petitioner
issued from time to time to respondents were not indicative of control
as to make the latter its employees.
Nevertheless, the Labor Arbiter directed Interserve to pay respondents
their pro-rated 13th month benefits for the period of January 2002 until
April 2002.14
In the end, the Labor Arbiter decreed:
WHEREFORE, judgment is hereby rendered finding that [herein
respondents] are employees of [herein petitioner] INTERSERVE
MANAGEMENT & MANPOWER RESOURCES, INC. Concomitantly,
respondent Interserve is further ordered to pay [respondents] their
pro-rated 13th month pay.
The complaints against COCA-COLA BOTTLERS PHILS., INC. is
DISMISMMED for lack of merit.
In like manner the complaints against PEERLESS INTEGRATED
SERVICES, INC., BETTER BUILDING INC. and EXCELLENT PARTNERS
COOPERATIVE are DISMISSED for failure of complainants to pursue
against them.
Other claims are dismissed for lack of merit.
The computation of the Computation and Examination Unit, this
Commission if (sic) made part of this Decision. 15
Unsatisfied with the foregoing Decision of the Labor Arbiter,
respondents filed an appeal with the NLRC, docketed as NLRC NCR CA
No. 036494-03.
In their Memorandum of Appeal,16 respondents maintained that
contrary to the finding of the Labor Arbiter, their work was
indispensable to the principal business of petitioner. Respondents
supported their claim with copies of the Delivery Agreement17 between
petitioner and TRMD Incorporated, stating that petitioner was

"engaged in the manufacture, distribution and sale of soft drinks and
other related products with various plants and sales offices and
warehouses located all over the Philippines." Moreover, petitioner
supplied the tools and equipment used by respondents in their jobs
such as forklifts, pallet, etc. Respondents were also required to work in
the warehouses, sales offices, and plants of petitioner. Respondents
pointed out that, in contrast, Interserve did not own trucks, pallets
cartillas, or any other equipment necessary in the sale of Coca-Cola
products.
Respondents further averred in their Memorandum of Appeal that
petitioner exercised control over workers supplied by various
contractors. Respondents cited as an example the case of Raul Arenajo
(Arenajo), who, just like them, worked for petitioner, but was made to
appear as an employee of the contractor Peerless Integrated Services,
Inc. As proof of control by petitioner, respondents submitted copies of:
(1) a Memorandum18 dated 11 August 1998 issued by Vicente Dy (Dy),
a supervisor of petitioner, addressed to Arenajo, suspending the latter
from work until he explained his disrespectful acts toward the
supervisor who caught him sleeping during work hours; (2) a
Memorandum19 dated 12 August 1998 again issued by Dy to Arenajo,
informing the latter that the company had taken a more lenient and
tolerant position regarding his offense despite having found cause for
his dismissal; (3) Memorandum20 issued by Dy to the personnel of
Peerless Integrated Services, Inc., requiring the latter to present their
timely request for leave or medical certificates for their absences; (4)
Personnel Workers Schedules, 21 prepared by RB Chua, another
supervisor of petitioner; (5) Daily Sales Monitoring Report prepared by
petitioner;22 and (6) the Conventional Route System Proposed Set-up of
petitioner. 23
The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor
Arbiter’s Decision dated 28 May 2003 and pronounced that no
employer-employee relationship existed between petitioner and
respondents. It reiterated the findings of the Labor Arbiter that
Interserve was an independent contractor as evidenced by its
substantial assets and registration with the DOLE. In addition, it was
Interserve which hired and paid respondents’ wages, as well as paid
and remitted their SSS, Medicare, and Pag-ibig contributions.
Respondents likewise failed to convince the NLRC that the instructions
issued and trainings conducted by petitioner proved that petitioner
exercised control over respondents as their employer.24 The dispositive
part of the NLRC Resolution states: 25
WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit.
However, respondent Interserve Management & Manpower Resources,
Inc., is hereby ordered to pay the [herein respondents] their pro-rated
13th month pay.
Aggrieved once more, respondents sought recourse with the Court of
Appeals by filing a Petition for Certiorari under Rule 65, docketed as
CA-G.R. SP No. 85320.
The Court of Appeals promulgated its Decision on 9 February 2007,
reversing the NLRC Resolution dated 30 October 2003. The appellate
court ruled that Interserve was a labor-only contractor, with insufficient
capital and investments for the services which it was contracted to
perform. With only P510,000.00 invested in its service vehicles and
P200,000.00 in its machineries and equipment, Interserve would be
hard-pressed to meet the demands of daily soft drink deliveries of
petitioner in the Lagro area. The Court Appeals concluded that the
respondents used the equipment, tools, and facilities of petitioner in
the day-to-day sales operations.
Additionally, the Court of Appeals determined that petitioner had
effective control over the means and method of respondents’ work as
evidenced by the Daily Sales Monitoring Report, the Conventional
Route System Proposed Set-up, and the memoranda issued by the
supervisor of petitioner addressed to workers, who, like respondents,
were supposedly supplied by contractors. The appellate court deemed
that the respondents, who were tasked to deliver, distribute, and sell
Coca-Cola products, carried out functions directly related and
necessary to the main business of petitioner. The appellate court
finally noted that certain provisions of the Contract of Service between
petitioner and Interserve suggested that the latter’s undertaking did
not involve a specific job, but rather the supply of manpower.
The decretal portion of the Decision of the Court of Appeals reads:26
WHEREFORE, the petition is GRANTED. The assailed Resolutions of
public respondent NLRC are REVERSED and SET ASIDE. The case is
remanded to the NLRC for further proceedings.
DO 18-02 Cases 37
Petitioner filed a Motion for Reconsideration, which the Court of
Appeals denied in a Resolution, dated 31 August 2007.27
Hence, the present Petition, in which the following issues are raised28:
I
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE
WITH EVIDENCE ON RECORD, APPLICABLE LAWS AND ESTABLISHED
JURISPRUDENCE WHEN IT RULED THAT INTERSERVE IS A LABOR-ONLY
CONTRACTOR;
II
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE
WITH APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT
CONCLUDED THAT RESPONDENTS PERFORMED WORK NECESSARY
AND DESIRABLE TO THE BUSINESS OF [PETITIONER];
III
WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS
ERROR WHEN IT DECLARED THAT RESPONDENTS WERE EMPLOYEES OF
[PETITIONER], EVEN ABSENT THE FOUR ELEMENTS INDICATIVE OF AN
EMPLOYMENT RELATIONSHIP; AND
IV
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED WHEN
IT CONCLUDED THAT INTERSERVE WAS ENGAGED BY [PETITIONER] TO
SUPPLY MANPOWER ONLY.
The Court ascertains that the fundamental issue in this case is whether
Interserve is a legitimate job contractor. Only by resolving such issue
will the Court be able to determine whether an employer-employee
relationship exists between petitioner and the respondents. To settle
the same issue, however, the Court must necessarily review the factual
findings of the Court of Appeals and look into the evidence presented
by the parties on record.
As a general rule, factual findings of the Court of Appeals are binding
upon the Supreme Court. One exception to this rule is when the factual
findings of the former are contrary to those of the trial court, or the
lower administrative body, as the case may be. This Court is obliged to
resolve an issue of fact herein due to the incongruent findings of the
Labor Arbiter and the NLRC and those of the Court of Appeals. 29
The relations which may arise in a situation, where there is an
employer, a contractor, and employees of the contractor, are identified
and distinguished under Article 106 of the Labor Code:
Article 106. Contractor or subcontractor. - Whenever an employer
enters into a contract with another person for the performance of the
former’s work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with the provisions of
this Code.
In the event that the contractor or subcontractor fails to pay the wages
of his employees in accordance with this Code, the employer shall be
jointly and severally liable with his contractor or subcontractor to such
employees to the extent of the work performed under the contract, in
the same manner and extent that he is liable to employees directly
employed by him.
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 restriction, 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 employee 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.
The afore-quoted provision recognizes two possible relations among
the parties: (1) the permitted legitimate job contract, or (2) the
prohibited labor-only contracting.

A legitimate job contract, wherein an employer enters into a contract
with a job contractor for the performance of the former’s work, is
permitted by law. Thus, the employer-employee relationship between
the job contractor and his employees is maintained. In legitimate job
contracting, the law creates an employer-employee relationship
between the employer and the contractor’s employees only for a
limited purpose, i.e., to ensure that the employees are paid their
wages. The employer 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 employer is
not responsible for any claim made by the contractor’s employees.30
On the other hand, labor-only contracting is an arrangement wherein
the contractor merely acts as an agent in recruiting and supplying the
principal employer with workers for the purpose of circumventing labor
law provisions setting down the rights of employees. It is not condoned
by law. A finding by the appropriate authorities that a contractor is a
"labor-only" contractor establishes an employer-employee relationship
between the principal employer and the contractor’s employees and
the former becomes solidarily liable for all the rightful claims of the
employees. 31
Section 5 of the Rules Implementing Articles 106-109 of the Labor
Code, as amended, provides the guidelines in determining whether
labor-only contracting exists:
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 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 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 reversed 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. (Emphasis supplied.)
When there is labor-only contracting, Section 7 of the same
implementing rules, describes the consequences thereof:
Section 7. Existence of an employer-employee relationship.—The
contractor or subcontractor shall be considered the employer of the
contractual employee for purposes of enforcing the provisions of the
Labor Code and other social legislation. The principal, however, shall
be solidarily liable with the contractor in the event of any violation of
any provision of the Labor Code, including the failure to pay wages.
The principal shall be deemed the employer of the contractual
employee in any of the following case, as declared by a competent
authority:
a. where there is labor-only contracting; or
b. where the contracting arrangement falls within the
prohibitions provided in Section 6 (Prohibitions) hereof.
According to the foregoing provision, labor-only contracting would give
rise to: (1) the creation of an employer-employee relationship between
DO 18-02 Cases 38
the principal and the employees of the contractor or sub-contractor;
and (2) the solidary liability of the principal and the contractor to the
employees in the event of any violation of the Labor Code.
Petitioner argues that there could not have been labor-only
contracting, since respondents did not perform activities that were
indispensable to petitioner’s principal business. And, even assuming
that they did, such fact alone does not establish an employer-
employee relationship between petitioner and the respondents, since
respondents were unable to show that petitioner exercised the power
to select and hire them, pay their wages, dismiss them, and control
their conduct.
The argument of petitioner is untenable.
The law clearly establishes an employer-employee relationship
between the principal employer and the contractor’s employee upon a
finding that the contractor is engaged in "labor-only" contracting.
Article 106 of the Labor Code categorically states: "There is ‘labor-only’
contracting where the person supplying workers to an employee 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."
Thus, performing activities directly related to the principal business of
the employer is only one of the two indicators that "labor-only"
contracting exists; the other is lack of substantial capital or
investment. The Court finds that both indicators exist in the case at
bar.
Respondents worked for petitioner as salesmen, with the exception of
respondent Gil Francisco whose job was designated as leadman. In the
Delivery Agreement32 between petitioner and TRMD Incorporated, it is
stated that petitioner is engaged in the manufacture, distribution
and sale of softdrinks and other related products. The work of
respondents, constituting distribution and sale of Coca-Cola products,
is clearly indispensable to the principal business of petitioner. The
repeated re-hiring of some of the respondents supports this finding.33
Petitioner also does not contradict respondents’ allegations that the
former has Sales Departments and Sales Offices in its various offices,
plants, and warehouses; and that petitioner hires Regional Sales
Supervisors and District Sales Supervisors who supervise and control
the salesmen and sales route helpers.34
As to the supposed substantial capital and investment required of an
independent job contractor, petitioner calls the attention of the Court
to the authorized capital stock of Interserve amounting to P2,
000,000.00.35 It cites as authority Filipinas Synthetic Fiber Corp. v.
National Labor Relations Commission36 and Frondozo v. National Labor
Relations Commission,37 where the contractors’ authorized capital
stock of P1,600,000.00 and P2,000,000.00, respectively, were
considered substantial for the purpose of concluding that they were
legitimate job contractors. Petitioner also refers to Neri v. National
Labor Relations Commission38 where it was held that a contractor
ceases to be a labor-only contractor by having substantial capital
alone, without investment in tools and equipment.
This Court is unconvinced.
At the outset, the Court clarifies that although Interserve has an
authorized capital stock amounting to P2, 000,000.00, only
P625,000.00 thereof was paid up as of 31 December 2001. The Court
does not set an absolute figure for what it considers substantial capital
for an independent job contractor, but it measures the same against
the type of work which the contractor is obligated to perform for the
principal. However, this is rendered impossible in this case since the
Contract between petitioner and Interserve does not even specify the
work or the project that needs to be performed or completed by the
latter’s employees, and uses the dubious phrase "tasks and activities
that are considered contractible under existing laws and regulations."
Even in its pleadings, petitioner carefully sidesteps identifying or
describing the exact nature of the services that Interserve was
obligated to render to petitioner. The importance of identifying with
particularity the work or task which Interserve was supposed to
accomplish for petitioner becomes even more evident, considering that
the Articles of Incorporation of Interserve states that its primary
purpose is to operate, conduct, and maintain the business of janitorial
and allied services.39 But respondents were hired as salesmen and
leadman for petitioner. The Court cannot, under such ambiguous
circumstances, make a reasonable determination if Interserve had
substantial capital or investment to undertake the job it was
contracting with petitioner.

Petitioner cannot seek refuge in Neri v. National Labor Relations
Commission. Unlike in Neri, petitioner was unable to prove in the
instant case that Interserve had substantial capitalization to be an
independent job contractor. In San Miguel Corporation v. MAERC
Integrated Services, Inc.,40 therein petitioner San Miguel Corporation
similarly invoked Neri, but was rebuffed by the Court based on the
following ratiocination41 :
Petitioner also ascribes as error the failure of the Court of Appeals to
apply the ruling in Neri v. NLRC. In that case, it was held that the law
did not require one to possess both substantial capital and investment
in the form of tools, equipment, machinery, work premises, among
others, to be considered a job contractor. The second condition to
establish permissible job contracting was sufficiently met if one
possessed either attribute.
Accordingly, petitioner alleged that the appellate court and the NLRC
erred when they declared MAERC a labor-only contractor despite the
finding that MAERC had investments amounting to P4,608,080.00
consisting of buildings, machinery and equipment.
However, in Vinoya v. NLRC, we clarified that it was not enough to
show substantial capitalization or investment in the form of tools,
equipment, machinery and work premises, etc., to be considered an
independent contractor. In fact, jurisprudential holdings were to the
effect that in determining the existence of an independent contractor
relationship, several factors may be considered, such as, but not
necessarily confined to, whether the contractor was 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 workers; the power of the employer with respect to
the hiring, firing and payment of the workers of the contractor; the
control of the premises; the duty to supply premises, tools, appliances,
materials and labor; and the mode, manner and terms of payment.
In Neri, the Court considered not only the fact that respondent Building
Care Corporation (BCC) had substantial capitalization but noted that
BBC carried on an independent business and performed its contract
according to its own manner and method, free from the control and
supervision of its principal in all matters except as to the results
thereof. The Court likewise mentioned that the employees of BCC were
engaged to perform specific special services for their principal. The
status of BCC had also been passed upon by the Court in a previous
case where it was found to be a qualified job contractor because it was
a "big firm which services among others, a university, an international
bank, a big local bank, a hospital center, government agencies, etc."
Furthermore, there were only two (2) complainants in that case who
were not only selected and hired by the contractor before being
assigned to work in the Cagayan de Oro branch of FEBTC but the Court
also found that the contractor maintained effective supervision and
control over them.
Thus, in San Miguel Corporation, the investment of MAERC, the
contractor therein, in the form of buildings, tools, and equipment of
more than P4,000,000.00 did not impress the Court, which still
declared MAERC to be a labor-only contractor. In another case, Dole
Philippines, Inc. v. Esteva,42 the Court did not recognize the contractor
therein as a legitimate job contractor, despite its paid-up capital of
over P4,000,000.00, in the absence of substantial investment in tools
and equipment used in the services it was rendering.
Insisting that Interserve had substantial investment, petitioner assails,
for being purely speculative, the finding of the Court of Appeals that
the service vehicles and equipment of Interserve, with the values of
P510,000.00 and P200,000.00, respectively, could not have met the
demands of the Coca-Cola deliveries in the Lagro area.
Yet again, petitioner fails to persuade.
The contractor, not the employee, has the burden of proof that it has
the substantial capital, investment, and tool to engage in job
contracting.43 Although not the contractor itself (since Interserve no
longer appealed the judgment against it by the Labor Arbiter), said
burden of proof herein falls upon petitioner who is invoking the
supposed status of Interserve as an independent job contractor.
Noticeably, petitioner failed to submit evidence to establish that the
service vehicles and equipment of Interserve, valued at P510,000.00
and P200,000.00, respectively, were sufficient to carry out its service
contract with petitioner. Certainly, petitioner could have simply
provided the courts with records showing the deliveries that were
undertaken by Interserve for the Lagro area, the type and number of
DO 18-02 Cases 39
equipment necessary for such task, and the valuation of such
equipment. Absent evidence which a legally compliant company could
have easily provided, the Court will not presume that Interserve had
sufficient investment in service vehicles and equipment, especially
since respondents’ allegation – that they were using equipment, such
as forklifts and pallets belonging to petitioner, to carry out their jobs –
was uncontroverted.
In sum, Interserve did not have substantial capital or investment in the
form of tools, equipment, machineries, and work premises; and
respondents, its supposed employees, performed work which was
directly related to the principal business of petitioner. It is, thus,
evident that Interserve falls under the definition of a "labor-only"
contractor, under Article 106 of the Labor Code; as well as Section 5(i)
of the Rules Implementing Articles 106-109 of the Labor Code, as
amended.
The Court, however, does not stop at this finding. It is also apparent
that Interserve is a labor-only contractor under Section 5(ii)44 of the
Rules Implementing Articles 106-109 of the Labor Code, as amended,
since it did not exercise the right to control the performance of the
work of respondents.
The lack of control of Interserve over the respondents can be gleaned
from the Contract of Services between Interserve (as the
CONTRACTOR) and petitioner (as the CLIENT), pertinent portions of
which are reproduced below:
WHEREAS, the CONTRACTOR is engaged in the business, among
others, of performing and/or undertaking, managing for consideration,
varied projects, jobs and other related management-oriented services;
WHEREAS, the CONTRACTOR warrants that it has the necessary
capital, expertise, technical know-how and a team of professional
management group and personnel to undertake and assume the
responsibility to carry out the above mentioned project and services;
WHEREAS, the CLIENT is desirous of utilizing the services and facilities
of the CONTRACTOR for emergency needs, rush jobs, peak product
loads, temporary, seasonal and other special project requirements the
extent that the available work of the CLIENT can properly be done by
an independent CONTRACTOR permissible under existing laws and
regulations;
WHEREAS, the CONTRACTOR has offered to perform specific
jobs/works at the CLIENT as stated heretofore, under the terms and
conditions herein stated, and the CLIENT has accepted the offer.
NOW THEREFORE, for and in consideration of the foregoing premises
and of the mutual covenants and stipulations hereinafter set forth, the
parties have hereto have stated and the CLIENT has accepted the
offer:
1. The CONTRACTOR agrees and undertakes to perform
and/or provide for the CLIENT, on a non-exclusive basis for
tasks or activities that are considered contractible under
existing laws and regulations, as may be needed by the
CLIENT from time to time.
2. To carry out the undertakings specified in the immediately
preceding paragraph, the CONTRACTOR shall employ the
necessary personnel like Route Helpers, Salesmen, Drivers,
Clericals, Encoders & PD who are at least
Technical/Vocational courses graduates provided with
adequate uniforms and appropriate identification cards, who
are warranted by the CONTRACTOR to be so trained as to
efficiently, fully and speedily accomplish the work and
services undertaken herein by the CONTRACTOR. The
CONTRACTOR represents that its personnel shall be in such
number as will be sufficient to cope with the requirements of
the services and work herein undertaken and that such
personnel shall be physically fit, of good moral character and
has not been convicted of any crime. The CLIENT, however,
may request for the replacement of the CONTRACTOR’S
personnel if from its judgment, the jobs or the projects being
done could not be completed within the time specified or
that the quality of the desired result is not being achieved.
3. It is agreed and understood that the CONTRACTOR’S
personnel will comply with CLIENT, CLIENT’S policies, rules

and regulations and will be subjected on-the-spot search by
CLIENT, CLIENT’S duly authorized guards or security men on
duty every time the assigned personnel enter and leave the
premises during the entire duration of this agreement.
4. The CONTRACTOR further warrants to make available at
times relievers and/or replacements to ensure continuous
and uninterrupted service as in the case of absences of any
personnel above mentioned, and to exercise the necessary
and due supervision over the work of its personnel.45
Paragraph 3 of the Contract specified that the personnel of contractor
Interserve, which included the respondents, would comply with
"CLIENT" as well as "CLIENT’s policies, rules and regulations." It even
required Interserve personnel to subject themselves to on-the-spot
searches by petitioner or its duly authorized guards or security men on
duty every time the said personnel entered and left the premises of
petitioner. Said paragraph explicitly established the control of
petitioner over the conduct of respondents. Although under paragraph
4 of the same Contract, Interserve warranted that it would exercise the
necessary and due supervision of the work of its personnel, there is a
dearth of evidence to demonstrate the extent or degree of supervision
exercised by Interserve over respondents or the manner in which it
was actually exercised. There is even no showing that Interserve had
representatives who supervised respondents’ work while they were in
the premises of petitioner.
Also significant was the right of petitioner under paragraph 2 of the
Contract to "request the replacement of the CONTRACTOR’S
personnel." True, this right was conveniently qualified by the phrase "if
from its judgment, the jobs or the projects being done could not be
completed within the time specified or that the quality of the desired
result is not being achieved," but such qualification was rendered
meaningless by the fact that the Contract did not stipulate what work
or job the personnel needed to complete, the time for its completion,
or the results desired. The said provision left a gap which could enable
petitioner to demand the removal or replacement of any employee in
the guise of his or her inability to complete a project in time or to
deliver the desired result. The power to recommend penalties or
dismiss workers is the strongest indication of a company’s right of
control as direct employer.46
Paragraph 4 of the same Contract, in which Interserve warranted to
petitioner that the former would provide relievers and replacements in
case of absences of its personnel, raises another red flag. An
independent job contractor, who is answerable to the principal only for
the results of a certain work, job, or service need not guarantee to said
principal the daily attendance of the workers assigned to the latter. An
independent job contractor would surely have the discretion over the
pace at which the work is performed, the number of employees
required to complete the same, and the work schedule which its
employees need to follow.
As the Court previously observed, the Contract of Services between
Interserve and petitioner did not identify the work needed to be
performed and the final result required to be accomplished. Instead,
the Contract specified the type of workers Interserve must provide
petitioner ("Route Helpers, Salesmen, Drivers, Clericals, Encoders &
PD") and their qualifications (technical/vocational course graduates,
physically fit, of good moral character, and have not been convicted of
any crime). The Contract also states that, "to carry out the
undertakings specified in the immediately preceding paragraph, the
CONTRACTOR shall employ the necessary personnel," thus,
acknowledging that Interserve did not yet have in its employ the
personnel needed by petitioner and would still pick out such personnel
based on the criteria provided by petitioner. In other words, Interserve
did not obligate itself to perform an identifiable job, work, or service for
petitioner, but merely bound itself to provide the latter with specific
types of employees. These contractual provisions strongly indicated
that Interserve was merely a recruiting and manpower agency
providing petitioner with workers performing tasks directly related to
the latter’s principal business.
The certification issued by the DOLE stating that Interserve is an
independent job contractor does not sway this Court to take it at face
value, since the primary purpose stated in the Articles of
Incorporation47 of Interserve is misleading. According to its Articles of
Incorporation, the principal business of Interserve is to provide
janitorial and allied services. The delivery and distribution of Coca-Cola
products, the work for which respondents were employed and assigned
to petitioner, were in no way allied to janitorial services. While the
DOLE may have found that the capital and/or investments in tools and
equipment of Interserve were sufficient for an independent contractor
for janitorial services, this does not mean that such capital and/or
DO 18-02 Cases 40
investments were likewise sufficient to maintain an independent
contracting business for the delivery and distribution of Coca-Cola
products.
With the finding that Interserve was engaged in prohibited labor-only
contracting, petitioner shall be deemed the true employer of
respondents. As regular employees of petitioner, respondents cannot
be dismissed except for just or authorized causes, none of which were
alleged or proven to exist in this case, the only defense of petitioner
against the charge of illegal dismissal being that respondents were not
its employees. Records also failed to show that petitioner afforded
respondents the twin requirements of procedural due process, i.e.,
notice and hearing, prior to their dismissal. Respondents were not
served notices informing them of the particular acts for which their
dismissal was sought. Nor were they required to give their side
regarding the charges made against them. Certainly, the respondents’
dismissal was not carried out in accordance with law and, therefore,
illegal.48
Given that respondents were illegally dismissed by petitioner, they are
entitled to reinstatement, full backwages, inclusive of allowances, and
to their other benefits or the monetary equivalents thereof computed
from the time their compensations were withheld from them up to the
time of their actual reinstatement, as mandated under Article 279 of
the Labor Code,.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Court
AFFIRMS WITH MODIFICATION the Decision dated 19 February 2007 of
the Court of Appeals in CA-G.R. SP No. 85320. The Court DECLARES
that respondents were illegally dismissed and, accordingly, ORDERS
petitioner to reinstate them without loss of seniority rights, and to pay
them full back wages computed from the time their compensation was
withheld up to their actual reinstatement. Costs against the petitioner.
SO ORDERED.
G.R. No. 177785 September 3, 2008
RANDY ALMEDA, EDWIN M. AUDENCIAL, NOLIE D. RAMIREZ,
ERNESTO M. CALICAGAN and REYNALDO M. CALICAGAN,
petitioners,
vs.
ASAHI GLASS PHILIPPINES, INC., respondent.
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of
the Revised Rules of Court, filed by petitioners Randy Almeda, Edwin
Audencial, Nolie Ramirez, Ernesto Calicagan and Reynaldo Calicagan,
seeking to reverse and set aside the Decision1 dated 10 November
2006 and the Resolution2 dated 27 April 2007 of the Court of Appeals
in CA-G.R. SP No. 93291. The appellate court reversed and set aside
the Decision dated 29 June 2005 and Resolution dated 24 November
2005 of the National Labor Relations Commission (NLRC) in NLRC NCR
CA No. 039768-04 finding respondent Asahi Glass Philippines, Inc.
jointly and severally liable with San Sebastian Allied Services, Inc.
(SSASI) for illegal dismissal, and ordering both respondent and SSASI to
reinstate petitioners to their former positions and to pay their
backwages from 2 December 2002 up to the date of their actual
reinstatement. Instead, the Court of Appeals reinstated the Decision
dated 18 February 2004 of the Labor Arbiter dismissing petitioners’
complaint for illegal dismissal against respondent and SSASI, but
ordering the payment of separation benefits to petitioners.
The present Petition arose from a complaint for illegal dismissal with
claims for moral and exemplary damages and attorney’s fees filed by
petitioners against respondent and SSASI.
In their Complaint3 filed before the Labor Arbiter, petitioners alleged
that respondent (a domestic corporation engaged in the business of
glass manufacturing) and SSASI (a labor-only contractor) entered into a
service contract on 5 March 2002 whereby the latter undertook to
provide the former with the necessary manpower for its operations.
Pursuant to such a contract, SSASI employed petitioners Randy
Almeda, Edwin Audencial, Nolie Ramirez and Ernesto Calicagan as
glass cutters, and petitioner Reynaldo Calicagan as Quality Controller,4
all assigned to work for respondent. Petitioners worked for respondent
for periods ranging from three to 11 years.5 On 1 December 2002,
respondent terminated its service contract with SSASI, which in turn,
terminated the employment of petitioners on the same date. Believing
that SSASI was a labor-only contractor, and having continuously

worked as glass cutters and quality controllers for the respondent -
functions which are directly related to its main line of business as glass
manufacturer - for three to 11 years, petitioners asserted that they
should be considered regular employees of the respondent; and that
their dismissal from employment without the benefit of due process of
law was unlawful. In support of their complaint, petitioners submitted a
copy of their work schedule to show that they were under the direct
control of the respondent which dictated the time and manner of
performing their jobs.
Respondent, on the other hand, refuted petitioners’ allegations that
they were its regular employees. Instead, respondent claimed that
petitioners were employees of SSASI and were merely assigned by
SSASI to work for respondent to perform intermittent services pursuant
to an Accreditation Agreement, dated 5 March 2002, the validity of
which was never assailed by the petitioners. Respondent contested
petitioners’ contention that they were performing functions that were
directly related to respondent’s main business since petitioners were
simply tasked to do mirror cutting, an activity occasionally performed
upon a customer’s order. Respondent likewise denied exercising
control over petitioners and asserted that such was wielded by SSASI.
Finally, respondent maintained that SSASI was engaged in legitimate
job contracting and was licensed by the Department of Labor and
Employment (DOLE) to engage in such activity as shown in its
Certificate of Registration.6 Respondent presented before the Labor
Arbiter copies of the Opinion dated 18 February 2003 of DOLE
Secretary Patricia Sto. Tomas authorizing respondent to contract out
certain activities not necessary or desirable to the business of the
company; and the Opinion dated 10 July 2003 of DOLE Bureau of Labor
Relations (DOLE-BLR) Director Hans Leo Cacdac allowing respondent to
contract out even services that were not directly related to its main
line of business.
SSASI, for its part, claimed that it was a duly registered independent
contractor as evidenced by the Certificate of Registration issued by the
DOLE on 3 January 2003. SSASI averred that it was the one who hired
petitioners and assigned them to work for respondent on occasions
that the latter’s work force could not meet the demands of its
customers. Eventually, however, respondent ceased to give job orders
to SSASI, constraining the latter to terminate petitioners’ employment.
On 18 February 2004, the Labor Arbiter promulgated his Decision7
finding that respondent submitted overwhelming documentary
evidence to refute the bare allegations of the petitioners and
accordingly dismissing the complaint for lack of merit. However, he
also ordered the payment of separation benefits to petitioners. The
Labor Arbiter thus decreed:
WHEREFORE, premises considered, judgment is hereby
rendered declaring that the instant case should be, as it is
hereby DISMISSED for lack of merit. However, the
respondent San Sebastian Allied Services, Inc. is hereby
ordered to pay the [herein petitioners] Edwin M. Audencial,
Reynaldo Calicagan, Randy Almeda, Nolie D. Ramirez and
Ernesto Calicagan their respective separation benefits in the
following specified amounts:
(1) Edwin Audencial P 41,327.00
(2) Reynaldo M. Calicagan 15, 860.00
(3) Randy V. Almeda 45,084.00
(4) Nolie Ramirez 15,028.00
(5) Ernesto Calicagan 22,542.00
All other claims are dismissed.
On appeal, the NLRC reversed the afore-quoted Decision of the Labor
Arbiter, giving more evidentiary weight to petitioners’ testimonies. It
appeared to the NLRC that SSASI was engaged in labor-only
contracting since it did not have substantial capital and investment in
the form of tools, equipment and machineries. The petitioners were
recruited and assigned by SSASI to respondent as glass cutters,
positions which were directly related to respondent’s principal business
of glass manufacturing. In light of the factual circumstances of the
case, the NLRC declared that petitioners were employees of
DO 18-02 Cases 41
respondent and not of SSASI. Hence, the NLRC ruled in its Decision8
dated 29 June 2005:
WHEREFORE, the decision appealed from is hereby VACATED
and SET ASIDE. [Herein respondent] and [SSASI] are hereby
ordered to: (1) reinstate the [herein petitioners] to their
former position as glass cutters; and (2) pay [petitioners’]
full backwages from December 2, 2002 up to the date of
their actual reinstatement. The liability of [respondent] and
[SSASI] for [petitioners’] backwages is further declared to be
joint and several.
Only respondent moved for the reconsideration of the foregoing NLRC
Decision. Respondent prayed that the NLRC vacate its previous finding
that SSASI was a labor-only contractor and that it was guilty of the
illegal dismissal of petitioners. In a Resolution9 dated 24 November
2005, the NLRC denied the Motion for Reconsideration of respondent
for lack of compelling justification to modify, alter or reverse its earlier
Decision.
This prompted respondent to elevate its case to the Court of Appeals
by the filing of a Petition for Certiorari with Application for the Issuance
of Temporary Restraining Order (TRO),10 alleging that the NLRC abused
its discretion in ignoring the established facts and legal principles fully
substantiated by the documentary evidence on record and legal
opinions of labor officials, and in giving more credence to the empty
allegations advanced by petitioners.
To prevent the execution of the Decision dated 25 June 2005 and
Resolution dated 24 November 2005 of the NLRC, respondent included
in its Petition a prayer for the issuance of a TRO, which it reiterated in
a motion filed on 29 August 2006. Acting on respondent’s motion, the
Court of Appeals issued a TRO on 11 September 2006 enjoining the
NLRC from enforcing its 25 June 2005 Decision and 24 November 2005
Resolution.11
On 10 November 2006, the Court of Appeals rendered a Decision
granting respondent’s Petition for Certiorari and reversingthe NLRC
Decision dated 25 June 2005. The appellate court found merit in
respondent’s argument that the NLRC gravely abused its discretion in
not finding that there was a legitimate job contracting between
respondent and SSASI. SSASI is a legitimate job contractor as proven
by its Certificate of Registration issued by the DOLE. Respondent
entered into a valid service contract with SSASI, by virtue of which
petitioners were assigned by SSASI to work for respondent. The service
contract itself, which was duly approved by the DOLE, defined the
relationship between SSASI and petitioners as one of employer-
employees. It was SSASI which exercised the power of control over
petitioners. Petitioners were merely allowed to work at respondent’s
premises for reasons of efficiency. Moreover, it was SSASI, not
respondent, who terminated petitioners’ services. The fallo of the
Decision of the Court of Appeals state:
WHEREFORE, premises considered, the petition is GRANTED
and [NLRC’s] assailed 29 June 2005 Decision is, accordingly,
REVERSED and SET ASIDE. In lieu thereof, the 18 February
2004 Decision rendered in the case by Labor Arbiter
Francisco A. Robles is REINSTATED.12
The Court of Appeals denied petitioners’ Motion for Reconsideration in
a Resolution dated 27 April 2007.
Hence, petitioners come before this Court via the instant Petition for
Review on Certiorari assailing the 10 November 2006 Decision and 27
April 2007 Resolution of the Court of Appeals based on the following
assignment of errors:
I.
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
REVERSING THE FINDING OF THE NLRC THAT RESPONDENT
COMPANY IS ENGAGED IN LABOR-ONLY CONTRACTING.
II.
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
REVERSING THE RULING OF THE NLRC THAT SAN SEBASTIAN
ALLIED SERVICES, INC. IS MERELY RESPONDENT’S AGENT
AND RESPONDENT IS PETITIONERS’ REAL EMPLOYER.
III.
THE COURT OF APPEALS COMMITTED AN ERROR IN
DISMISSING PETITIONERS’ COMPLAINT FOR ILLEGAL
DISMISSAL.

It is apparent to this Court that the judicious resolution of the Petition
at bar hinges on two elemental issues: (1) whether petitioners were
employees of respondent; and (2) if they were, whether they were
illegally dismissed.
Respondent adamantly insists that petitioners were not its employees
but those of SSASI, a legitimate job contractor duly licensed by the
DOLE to undertake job contracting activities. The job performed by
petitioners were not directly related to respondent’s primary venture
as flat glass manufacturer, for they were assigned to the mirroring line
to perform glass cutting on occasions when the employees of
respondent could not comply with the market’s intermittent increased
demand. And even if petitioners were working at respondent’s
premises, it was SSASI which effectively supervised the manner and
method petitioners performed their jobs, except as to the result
thereof.
The Court would only be able to deem petitioners as employees of
respondent if it is established that SSASI was a labor-only contractor,
and not a legitimate job contractor or subcontractor.
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.13 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.14
On the other hand, labor-only contracting, a prohibited act, is an
arrangement in which the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a
principal.15 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;
(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.16
In labor-only contracting, the statutes create an employer-employee
relationship for a comprehensive purpose: to prevent circumvention of
labor laws. The contractor is considered as merely the agent of the
principal employer and the latter is responsible to the employees of
the labor-only contractor as if such employees are directly employed
by the principal employer.17 Therefore, if SSASI was a labor-only
contractor, then respondent shall be considered as the employer of
petitioners who must bear the liability for the dismissal of the latter, if
any.
An important element of legitimate job contracting is that the
contractor has substantial capital or investment, which respondent
failed to prove. There is a dearth of evidence to prove that SSASI
possessed substantial capital or investment when respondent began
contractual relations with it more than a decade before 2003.
Respondent’s bare allegations, without supporting proof that SSASI had
substantial capital or investment, do not sway this Court. The Court did
not find a single financial statement or record to attest to the economic
DO 18-02 Cases 42
status and financial capacity of SSASI to venture into and sustain its
own business independent from petitioner.
Furthermore, the Court is unconvinced by respondent’s argument that
petitioners were performing jobs that were not directly related to
respondent’s main line of business. Respondent is engaged in glass
manufacturing. One of the petitioners served as a quality controller,
while the rest were glass cutters. The only excuse offered by
respondent - that petitioners’ services were required only when there
was an increase in the market’s demand with which respondent could
not cope - only prove even more that the services rendered by
petitioners were indeed part of the main business of respondent. It
would mean that petitioners supplemented the regular workforce when
the latter could not comply with the market’s demand; necessarily,
therefore, petitioners performed the same functions as the regular
workforce. Even respondent’s claim that petitioners’ services were
required only intermittently, depending on the market, deserves scant
credit. The indispensability of petitioners’ services was fortified by the
length and continuity of their performance, lasting for periods ranging
from three to 11 years.
More importantly, the Court finds that the crucial element of control
over petitioners rested in respondent. The power of control refers to
the authority of the employer to control the employee not only with
regard to the result of work to be done, but also to the means and
methods by which the work is to be accomplished. It should be borne
in mind that the power of control refers merely to the existence of the
power and not to the actual exercise thereof. It is not essential for the
employer to actually supervise the performance of duties of the
employee; it is enough that the former has a right to wield the power.18
In the instant case, petitioners worked at the respondent’s premises,
and nowhere else. Petitioners followed the work schedule prepared by
respondent. They were required to observe all rules and regulations of
the respondent pertaining to, among other things, the quality of job
performance, regularity of job output, and the manner and method of
accomplishing the jobs. Obscurity hounds respondent’s argument that
even if petitioners were working under its roof, it was still SSASI which
exercised control over the manner in which they accomplished their
work. There was no showing that it was SSASI who established
petitioners’ working procedure and methods, or who supervised
petitioners in their work, or who evaluated the same. Other than being
the one who hired petitioners, there was absolute lack of evidence that
SSASI exercised control over them or their work.
The fact that it was SSASI which dismissed petitioners from
employment is irrelevant. It is hardly proof of control, since it was
demonstrated only at the end of petitioners’ employment. What is
more, the dismissal of petitioners by SSASI was a mere result of the
termination by respondent of its contractual relations with SSASI.
Despite respondent’s disavowal of the existence of an employer-
employee relationship between it and petitioners and its unyielding
insistence that petitioners were employees of SSASI, the totality of the
facts and the surrounding circumstances of the case convey otherwise.
SSASI is a labor-only contractor; hence, it is considered as the agent of
respondent. Respondent is deemed by law as the employer of
petitioners. Surely, respondent cannot expect this Court to sustain its
stance and accord full evidentiary weight to the documentary evidence
belatedly procured in its vain attempt to evade liability as petitioners’
employer.
The Certificate of Registration presented by respondent to buttress its
position that SSASI is a duly registered job contractor is of little
significance, considering that it were issued only on 3 January 2003.
There is no further proof that prior to said date, SSASI had already
registered with and had been recognized by the DOLE as a job
contractor.
Verily, the Certificate of Registration of SSASI, instead of supporting
respondent’s case, only served to raise more doubts. The timing of the
registration of SSASI is highly suspicious. It is important to note that
SSASI was already providing respondent with workers, including
petitioners, long before SSASI was registered with the DOLE as a job
contractor. Some of the petitioners were hired by SSASI and made to
work for respondent for 11 years. Petitioners were also dismissed from
service only a month prior to the issuance of the Certificate of
Registration of SSASI. Neither respondent nor SSASI exerted any effort
to explain the reason for the belated registration with the DOLE by
SSASI as a purported job contractor. It may be safely discerned from
the surrounding circumstances that the Certificate of Registration of
SSASI was merely secured in order to blanket the previous relations
between SSASI and respondent with legality.

Moreover, the Certificate of Registration issued by the DOLE
recognized that SSASI was a legitimate job contractor only as of the
date of its issuance, 3 January 2003. There is no basis whatsoever to
give the said Certificate any retroactive effect. The Certificate can only
be used as reference by persons who would consider the services
offered by SSASI subsequent to its issuance. Respondent, who entered
into contractual relations with SSASI way before the said Certificate,
cannot claim that it relied thereon.
Hence, the status of SSASI as a job contractor previous to its
registration with the DOLE on 3 January 2003 is still refutable. It can
only be determined upon an evaluation of its activities as contractor
prior to the issuance of its Certificate of Registration.
For the same reasons, this Court cannot give much weight to the
Opinions dated 18 February 2003 and 10 July 2003 of DOLE Secretary
Sto. Tomas and DOLE-BLR Director Cacdac, respectively, allowing
respondent to contract out certain services. The said Opinions were
noticeably issued only after the hiring and termination of petitioners.
And, although the Opinions allow respondent to contract out certain
services, they do not necessarily prove that the services respondent
contracted to SSASI were actually among those it was allowed to
contract out; or that SSASI was a legitimate job contractor, thus,
relieving respondent of any liability for the dismissal of petitioners by
SSASI.
Equally unavailing is respondent’s stance that its relationship with
petitioners should be governed by the Accreditation Agreement
stipulating that petitioners were to remain employees of SSASI and
shall not become regular employees of the respondent. To permit
respondent to disguise the true nature of its transactions with SSASI by
the terms of its contract, for the purpose of evading its liabilities under
the law, would seriously impair the administration of justice. 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 as job contractor, it being crucial that its character be
measured in terms of and determined by the criteria set by statute.19
Having established that respondent was petitioners’ employer, the
Court now proceeds to determining whether petitioners were dismissed
in accordance with law.
Article 280 of the Labor Code, as amended, reads -
ART. 280. Regular and Casual Employment. - The provisions
of written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties, an
employment shall be deemed to be regular where the
employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade
of the employer, except where the employment has been
fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the
engagement of the employee or where the work or services
to be performed is seasonal in nature and the employment is
for the duration of the season.
An employment shall be deemed to be casual if its is not
covered by the preceding paragraph: Provided, That, any
employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in
which he is employed and his employment shall continue
while such activity exists.
This Court expounded on the afore-quoted provision, thus -
The primary standard, therefore, of determining a regular
employment is the reasonable connection between the
particular activity performed by the employee in relation to
the usual business or trade of the employer. x x x The
connection can be determined by considering the nature of
the work performed and its relation to the scheme of the
particular business or trade in its entirety. Also, if the
employee has been performing the job for at least one year,
even if the performance is not continuous or merely
intermittent, the law deems the repeated and continuing
need for its performance as sufficient evidence of the
necessity if not indispensability of that activity to the
business. Hence, the employment is also considered regular,
DO 18-02 Cases 43
but only with respect to such activity and while such activity
exists.20
In the instant Petition, the Court has already declared that petitioners’
employment as quality controllers and glass cutters are directly related
to the usual business or trade of respondent as a glass manufacturer.
Respondent would have wanted this Court to believe that petitioners’
employment was dependent on the increased market demand.
However, bearing in mind that petitioners have worked for respondent
for not less than three years and as much as 11 years, which
respondent did not refute, then petitioners’ continued employment
clearly demonstrates its continuing necessity and indispensability to
the business of respondent, raising their employment to regular status.
Thus, having gained regular status, petitioners were entitled to
security of tenure and could only be dismissed on just or authorized
causes and after they had been accorded due process.21
As petitioners’ employer, respondent has the burden of proving that
the dismissal was for a cause allowed under the law, and that they
were afforded procedural due process.22 However, respondent failed to
discharge this burden with substantial evidence as it noticeably
narrowed its defense to the denial of any employer-employee
relationship between it and petitioners.
The sole reason given for the dismissal of petitioners by SSASI was the
termination of its service contract with respondent. But since SSASI
was a labor-only contractor, and petitioners were to be deemed the
employees of respondent, then the said reason would not constitute a
just or authorized cause23 for petitioners’ dismissal. It would then
appear that petitioners were summarily dismissed based on the afore-
cited reason, without compliance with the procedural due process for
notice and hearing.
Herein petitioners, having been unjustly dismissed from work, are
entitled to reinstatement without loss of seniority rights and other
privileges and to full back wages, inclusive of allowances, and to other
benefits or their monetary equivalents computed from the time
compensation was withheld up to the time of actual reinstatement.24
Their earnings elsewhere during the periods of their illegal dismissal
shall not be deducted therefrom.25
WHEREFORE, premises considered, the instant Petition is GRANTED.
The Decision dated 10 November 2006 and Resolution dated 27 April
2007 of the Court of Appeals in CA-G.R. SP No. 93291 are REVERSED
and SET ASIDE. The Decision dated 29 June 2005 of the National
Labor Relations Commission in NLRC-NCR CA No. 039768-04 is thereby
REINSTATED. Let the records of this case be remanded to the
Computation and Examination Unit of the NLRC for the proper
computation of subject money claims as above-discussed. No costs.
SO ORDERED.
Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, Reyes, JJ.,
concur.
G.R. No. 168537 December 11, 2008
DAMIAN AKLAN, JUANITO AMIDO, REYNALDO BATICA, RAMIL
BAUTISTA, WELARD BAUTISTA, MAMERTO BRIGOLI, ELMER
CABOTEJA, JOEL CAMMAYO, WELFREDO CARIO, RODOLFO
CINCO, ARWEN DABLO, RUBEN DE CASTRO, ROMEO DEL
ROSARIO, RODERICK DELA CRUZ, ALEX DELA VEGA, JOAN ERICO
DUMALAGAN, JULITO DURIAN, JOSELITO DUYANEN, REX
FARNACIO, ROLANDO FELIZARDO, EFREN FERNANDEZ,
BERNARDO GALLOGO, EDUARDO GARCIA, REX IGNACIO, DANIEL
JAMISOLA, NOEL JANER, RAQUEL JANER, ROWAN JANER,
CONSORCIO LIÑAN, BERNARD MACARAEG, DARIO MACARAEG,
JESUS MACARAEG, EDGARDO MAHAGUAY, IRENEO ODIAMAR,
ALEXIS OLIVAR, ARNEL OLIVAR, EDUARDO PEREMNE, ALAN
QUILES, JOSEPH QUILES, RHONNEL RODIL, RONALDO
SALVADOR, RAMIL SANTIAGO, FRANCIS SUPRINO, REXES
SUPRINO, RODRIGO SUPRINO, RONALD SUPRINO, EDUARDO
TIONGSON, petitioners,
vs.
SAN MIGUEL CORPORATION, BMA PHILASIA, INC., and ARLENE
EUSEBIO, respondents.
REYES, R.T., J.:

WE tackle in this labor case the dichotomy between impermissible
labor-only contracting and legitimate job contracting.
This is a review on certiorari of the Decision1 of the Court of Appeals
(CA) upholding that of the National Labor Relations Commission
(NLRC), finding the dismissal of petitioners justified.
The Facts
Respondent BMA Philasia, Inc. (BMA) is a domestic corporation
engaged in the business of transporting and hauling of cargoes, goods,
and commodities of all kinds. Respondent Arlene Eusebio is the
president of BMA.
Petitioners, numbering forty-seven (47) in all, are the former
employees of respondent BMA at respondent San Miguel Corporation’s
(SMC) warehouse in Pasig City. They were hired under fixed-term
contracts beginning October 1999.
On July 31, 2001, a number of petitioners went to the Department of
Labor and Employment (DOLE) District Office to file a complaint
against BMA and Eusebio for underpayment of wages and non-
payment of premium pay for rest day, 13th month pay, and service
incentive leave pay.2
On August 14, 2001, petitioner Elmer Caboteja was charged with
insubordination and disrespect to superior, failure to properly perform
his job assignment, and unauthorized change of schedule. He was
directed to submit his written explanation within forty-eight (48) hours.
On August 17, 2001, Caboteja was terminated for the offenses of
disregard of company rules and regulations and rude attitude to
supervisors. On August 27, 2001, he filed a complaint for illegal
dismissal against BMA.3
On various dates thereafter, BMA agreed to a settlement with some of
the complainants in the case4 for underpayment of wages.5 Eleven of
the present petitioners executed quitclaims and releases in favor of
BMA and Eusebio in the presence of DOLE district officers. BMA refused
to settle the claim of other complainants.
On September 13, 2001, petitioners Joan Erico Dumalagan and Ronaldo
Salvador were also terminated for failure to perform their job
responsibilities. On September 17, 2001, Dumalagan and Salvador filed
complaints for illegal dismissal against BMA.6
On October 18, 2001, petitioners held a picket at the warehouse
premises to protest BMA’s refusal to pay the claim for underpayment
of the rest of the workers. This picket disrupted the business
operations of private respondents, prompting BMA to terminate their
services. Subsequently, petitioners filed separate complaints against
BMA, Eusebio, and SMC for illegal dismissal.7 All the complaints for
illegal dismissal were consolidated.
Petitioners alleged that they were illegally dismissed after filing a
complaint for underpayment of wages and non-payment of benefits
before the DOLE; they were terminated after staging a peaceful picket
to protest the non-payment of their claims. According to them, BMA is
a labor-only contractor. SMC was not only the owner of the warehouse
and equipment used by BMA, it was their true employer. The manner
and means by which they performed their work were controlled by
SMC through its Sales Logistic Coordinator who was overseeing their
performance everyday.
Private respondents BMA and Eusebio countered that petitioners
Caboteja, Dumalagan, and Salvador were validly and justly dismissed.
They were among the eleven who already signed quitclaims and
releases before the DOLE district office after receiving an amount in
settlement of their claims. As for the rest of petitioners (36
complainants), there was no illegal dismissal to speak of. Said
employees simultaneously did not go back to work for no apparent
reason on October 18, 2001.
Private respondent SMC maintained that it had no employer-employee
relationship with petitioners who were hired and supervised exclusively
by BMA pursuant to a warehousing and delivery agreement in
consideration of a fixed monthly fee. SMC argued that BMA is a
legitimate and independent contractor, duly registered with the
Securities and Exchange Commission (SEC) as a separate and distinct
corporation with substantial capitalization, investment, equipment, and
DO 18-02 Cases 44
tools. It submitted documentary evidence proving that BMA engaged
the services of petitioners, paid for their wages and benefits, and
exercised exclusive control and supervision over them.
SMC showed that under their contract, BMA provided delivery trucks,
drivers, and helpers in the storage and distribution of SMC products.
On a day-to-day basis, after the routes were made by SMC salesmen,
they would book the orders they obtained. In turn, BMA’s Schedular
Planner, detailed at the Pasig Warehouse, downloaded these booked
orders from the computer and processed the necessary documents to
be forwarded to the Warehouse Checker, also an employee of BMA.
SMC contended that petitioners were dismissed by BMA for staging a
two-hour strike without complying with the mandatory requirements
for a valid strike. As a result, BMA had to come up with ways and
means in order to avoid the disruption of delivery operations.
Labor Arbiter and NLRC Dispositions
After due hearings, Labor Arbiter Veneranda C. Guerrero found
respondent BMA liable for illegal dismissal and ordered the
reinstatement of petitioners. She ruled that the evidence presented
duly established that BMA was a legitimate independent contractor
and the actual employer of petitioners. Its failure, however, to comply
with the registration and reportorial requirements of the DOLE
rendered SMC, its principal, directly liable to the claims of petitioners.8
Thus, BMA and SMC were found jointly and severally liable for the
payment of petitioners’ backwages and money claims. The dispositive
part of the Arbiter ruling runs in this wise:
WHEREFORE, all the foregoing considered, judgment is
hereby rendered finding respondent BMA Philasia, Inc., liable
for illegal dismissal. Accordingly, is it hereby ordered to
reinstate all of the complainants to their previous positions,
and to pay jointly and severally with respondent San Miguel
the complainants’ backwages reckoned from the time of
their illegal dismissal up to their actual/payroll
reinstatement, the aggregate amount of which as of this
date amounts to SEVEN MILLION FIVE HUNDRED EIGHTEEN
THOUSAND TWO HUNDRED FIFTY-TWO AND 89/100 PESOS
(P7,518,252.89). In addition respondents are solidarily held
liable to pay the complainants’ Daniel Jamisola, Rodolfo
Cinco, Eduardo Garcia, Dario Macaraeg, Romeo Del Rosario,
Alan Quiles, Joseph Quiles, Ronald Suprino, Rolando
Felizardo, Efren Fernandez, Damian Aklan, Welard Bautista,
Rodrigo Suprino, Noel Janer, Jesus Macaraeg, Reynaldo
Batica, Rhonnel Rodil, Eduardo Peremne, Mamerto Brigoli,
Ireneo Odiamar, Rex Ignacio, Edgardo Mahaguay, Reyes
Suprino, Rodrigo Dela Cruz, Ramil Bautista, Francis Suprino,
Eduardo Tiongson, Joel Cammayo, Arwen Dablo, Alex Dela
Vega, Bernard Gallogo, Rex Farnacio, Ruben De Castro,
Rowan Janer, Raquel Janer, and Bernardo Macaraeg their
salary differentials, service incentive leave pay and 13th
month pay in the aggregate amount of ONE MILLION TWO
HUNDRED FIFTY-SIX THOUSAND THREE HUNDRED SIXTY-SIX
and 80/100 PESOS (P1,256,366.80).
Respondents are further assessed the amount equivalent to
ten percent (10%) of the total award, as and for attorney’s
fees.
The computation of the complainants’ individually adjudged
benefits shall form part of this Decision as Annex "A" hereof.
All other claims are DISMISSED for lack of merit.
SO ORDERED.9 (Emphasis supplied)
Respondents appealed the decision of the Labor Arbiter to the NLRC.
On December 19, 2003, the NLRC reversed the Labor Arbiter
disposition and ruled that there was no illegal dismissal. The fallo of
the NLRC decision reads:
WHEREFORE, in view of all the foregoing, the appealed
decision of the Labor Arbiter is hereby REVERSED and SET
ASIDE and a new decision is hereby rendered finding that
there was no illegal dismissal committed by respondents,
hence, no liability for backwages. However, complainants are
awarded their salary differentials, service incentive leave
pay and 13th month pay except for the year 2000 in the
aggregate amount of ONE MILLION TWO HUNDRED FIFTY-SIX
THOUSAND THREE HUNDRED SIXTY-SIX AND 80/100

(P1,256,366.80) and 10% ATTORNEY’s FEES based on the
salary differentials, SILP and 13th month pay.
SO ORDERED.10
The NLRC found that petitioners Caboteja, Dumalagan, and Salvador
were separated from their jobs for just and valid causes. They were
given the opportunity to explain their sides. As for the quitclaims
previously executed by the other petitioners, the NLRC ruled that these
were sufficient basis to release respondent BMA from liability.
With respect to the first and second assigned errors, the
records show that complainants Elmer Caboteja, Erico "Jojo"
Dumalagan and Ronaldo Salvador were separated from their
jobs for just and valid causes and after they were given the
chance to explain their sides. Copies of memoranda were
served upon them advising their violation of company rules
and regulations and rude attitude and disrespect to
superiors and disrespect to superiors in the case of Caboteja
and failure to perform duties and responsibilities in the case
of Dumalagan and Salvador. They were asked to explain and
finding their explanations unacceptable, respondents
dismissed them. Hence, they are not entitled to separation
pay.
As regards the other complainants, there is no showing that
they were illegally dismissed from their jobs by BMA. They
have not given details on to whom they reported for work,
who barred them from entering the respondents’ premises
and from working, in so many words how they were told that
they were already dismissed. The only evident fact is that
they just stopped reporting for work beginning October 18,
2001 without informing BMA why there were doing so. Their
claim that they were not allowed by the respondents to
return to their work is hard to believe. Why should the
respondents terminate simultaneously the services of the
complainants and completely paralyze respondents’
business operation, particularly their service contract with
SMC? Complainants have not shown any reason which would
compel the respondents to resort to mass dismissal. On the
other hand, complainants have strong reason to paralyze
respondents’ operation in order to force compliance to their
demands.
xxxx
In fact, the records of this case also disclose that during the
mandatory conciliation proceedings, BMA urged these
complainants to go back to work, but may refused to do so.
Obviously, their refusal to go back to their work was a
deliberate move to force respondents to give in to their
demands. Considering this refusal, it is not hard to believe
that complainants were not dismissed but rather they
refused to work in order to paralyze respondents’ operations
and force them to give in to complainants’ demands.11
(Emphasis supplied)
CA Disposition
Aggrieved, petitioners filed a Rule 65 petition with the CA. The
following grounds were interposed: (1) that the NLRC gravely abused
its discretion in holding that Caboteja, Dumalagan, and Salvador were
validly dismissed; (2) that the other petitioners were not dismissed but
were guilty of abandonment; and (3) that the quitclaims executed by
eleven of the petitioners barred the complaint for illegal dismissal.12
On April, 15, 2005, the CA denied the petition, affirming in full the
NLRC disposition, thus:
WHEREFORE, premises considered, the present petition is
hereby DENIED DUE COURSE and accordingly DISMISSED, for
lack of merit. The assailed Decision dated December 19,
2003 and Resolution dated July 20, 2004 of the National
Labor Relations Commission in the consolidated cases, NLRC
Case No. CN 08-04522-01-CA No. 036856-03 (NLRC NCR
North Sector Case Nos. 08-04522-2001, 09-04941-2001, 00-
11-05023-2001, 00-11-05969-2001, 11-01-00450-2002, 02-
00934-2002, 12-06288-2001, and 12-06320-2001), are
hereby AFFIRMED and UPHELD.
DO 18-02 Cases 45
No pronouncement as to costs.
SO ORDERED.13
In ruling against petitioners, the CA found that the NLRC committed no
reversible error or grave abuse of discretion in ruling that petitioners
were not illegally dismissed but actually refused to report back to work
after staging a surprise stoppage that paralyzed respondent BMA’s
business operations at the Pasig warehouse on October 18, 2001.
Issues
Undaunted, petitioners resorted to this review on certiorari, anchored
on the following grounds:
The CA committed a serious legal error in not ruling that
respondent San Miguel Corporation (principal of respondent
BMA Philasia), and respondent Arlene Eusebio, (president
and owner of respondent BMA Philasia) are all solidarily
liable for petitioners’ money claims.
The CA committed a serious legal error in ruling that the
quitclaims executed by eleven (11) of the petitioners, in
relation to their claims for underpayment of wages before
the DOLE, also barred their subsequent complaint for illegal
dismissal, despite the fact that the said complaint was not
yet in existence at the time the quitclaims were executed.
The CA committed a serious legal error in refusing to hold
that respondent San Miguel Corporation was petitioners’ real
employer despite the fact that respondent BMA Philasia was
not duly registered with the DOLE and caused the workers to
perform tasks directly related to the business of respondent
San Miguel Corporation and under the latter’s supervision.
The CA committed a legal error and acted with grave abuse
of discretion in holding that petitioners Elmer Caboteja, Joan
Erico Dumalagan, and Ronaldo Salvador were not illegally
dismissed from their jobs, despite a previous ruling of the
Labor Arbiter to the contrary.
The CA committed a serious legal error in not awarding
damages, at the very least, to petitioners Joan Erico
Dumalagan, and Ronaldo Salvador for violation of their right
to due process.
The CA seriously committed an error of law in holding that
the rest of the petitioners abandoned their jobs and were not
dismissed therefrom, contrary to the findings of the Labor
Arbiter who heard the case.14 (Underscoring supplied)
Our Ruling
Petitioners argue mainly that their employer is, in fact, respondent
SMC, not respondent BMA. They contend that BMA is a labor-only
contractor and SMC, as their true employer, should be held directly
liable for their money claims.
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.15
Both the Labor Arbiter and the NLRC found that the employment
contracts of petitioners duly prove that an employer-employee
relationship existed between petitioners and BMA. We hasten to add
that the existence of an employer-employee relationship is ultimately a
question of fact and the findings by the Labor Arbiter and the NLRC on
that score shall be accorded not only respect but even finality when
supported by ample evidence.16

In its ruling, the NLRC considered the following elements to determine
the existence of an employer-employee relationship: (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.17 All four elements were found by the NLRC to be
vested in BMA. This NLRC finding was affirmed by the CA:
x x x It is the BMA which actually conducts the hauling,
storage, handling, transporting, and delivery operations of
SMC’s products pursuant to their warehousing and Delivery
Agreement. BMA itself hires and supervises its own workers
to carry out the aforesaid business activities. Apart from the
fact that it was BMA which paid for the wages and benefits,
as well as SSS contributions of petitioners, it was also the
management of BMA which directly supervised and imposed
disciplinary actions on the basis of established rules and
regulations of the company. The documentary evidence
consisting of numerous memos throughout the period of
petitioners’ employment leaves no doubt in the mind of this
Court that petitioners are only too aware of who is their true
employer. Petitioners received daily instructions on their
tasks form BMA management, particularly, private
respondent Arlene C. Eusebio, and whenever they
committed lapses or offenses in connection with their work,
it was to said officer that they submitted compliance such as
written explanations, and brought matters connected with
their specific responsibilities.18
The employer-employee relationship between BMA and petitioners is
not tarnished by the absence of registration with DOLE as an
independent job contractor on the part of BMA. The absence of
registration only gives rise to the presumption that the contractor is
engaged in labor-only contracting, a presumption that respondent BMA
ably refuted.
Thus, We find no grave abuse of discretion in the CA observation that
respondent BMA is the true employer of petitioners who should be held
directly liable for their claims. Likewise, no grave abuse of discretion
can be ascribed to the CA when it ruled that illegal dismissal was
absent.
The records fully disclose that petitioners Caboteja, Dumalagan, and
Salvador were separated from their jobs for just and valid causes.
Caboteja was cited for violation of company rules and regulations and
disrespectful conduct. Dumalagan and Salvador were investigated for
failure to perform duties and responsibilities. After their explanations
were found unacceptable, they were accordingly dismissed.
As for the other petitioners, they contend that they were illegally
dismissed when respondent BMA barred them from entering the work
premises and from performing their work. Both the NLRC and the CA
found that petitioners failed to substantiate this contention. Rather,
what was shown in the records was that they simply stopped reporting
for work starting October 18, 2001 when they staged a picket. The CA
observation along this line is worth restating:
x x x petitioners failed to substantiate their claim that they
had been prevented from entering the work premises after
staging a "picket" on October 18, 2001 to further press their
demands for payment of their money claims. At this time,
the labor standards case was already pending with the DOLE
District Office and petitioners could have availed of said
proceedings with the intervention of DOLE officials. Instead,
however, they resorted to an illegal stoppage of work that
paralyzed the business operations of BMA. As aptly noted by
the NLRC, there is simply no probable or logical reason for
private respondent BMA to simultaneously dismiss its
workers that will disrupt business operations at the
warehouse. Under the factual circumstances, it clearly
appears that petitioners refused to report back to their work
in order to force their employer BMA to give in to their
immediate demand for the salary differentials and unpaid
benefits subject of their complaint with the DOLE. Hence,
BMA cannot be held liable for illegal dismissal.
While it is true that the defense of abandonment may not be
given credence or is negated by the immediate filing of
illegal dismissal cases by the affected employees, records
clearly reveal that as of October 18, 2001, petitioners
without justifiable cause failed and refused to report back to
their work. Their claim of having been prevented from
entering the work premises was not given due weight for no
particulars was even alleged by them in their report back to
DO 18-02 Cases 46
their jobs, who prevented their entry to the company
premises and details as to what steps they took to bring the
matter to the attention of DOLE District Office wherein their
complaint for labor standards violation was already
pending.19 (Emphasis supplied)
Moreover, eleven of petitioners contend that their quitclaims should
not be considered as a bar to their complaint for illegal dismissal
because that complaint was not yet in existence at the time the
quitclaims were executed. That the quitclaims were executed
voluntarily is not denied by petitioners. They, however, contend that
the quitclaims should be construed as limited to the money claims in
connection with the first labor standards complaint20 they had filed
before the DOLE district office.
Unless there is a showing that the employee signed
involuntarily or under duress, quitclaims and releases are
upheld by this Court as the law between the parties.21 If the
agreement was voluntarily entered into by the employee, with full
understanding of what he was doing, and represents a reasonable
settlement of the claims of the employee, it is binding on the parties
and may not be later disowned simply because of a change of mind.22
In the case under review, the quitclaims and releases signed by
petitioners stated:
That for and in consideration of the sum of FIFTY-THREE
THOUSAND PESOS (P53,000.00)23 in settlement of my/our
claim/s as financial assistance and/or gratuitously given by
my/our employer receipt of which is hereby acknowledge to
my/our complete and full satisfaction, I/we hereby release
and discharge the above respondent and/or its officers from
any and all claims by way of wages, overtime pay,
differential pay, or otherwise as may be due me/us incident
to my/our past employment with said establishment. I/we
hereby state further that I/we have no more claim, right or
action of whatsoever nature whether past, present or
contingent against the said respondent and/or its officers.24
(Emphasis supplied)
As correctly observed by the NLRC, the language employed by the
above quitclaims and releases indicates in no uncertain terms that
petitioners voluntarily and freely acknowledged receipt of full
satisfaction of all claims against respondents. Thus, the quitclaims
effectively barred petitioners from questioning their dismissal.
Social justice must be founded on the recognition of the necessity of
interdependence among diverse units of a society and of the
protection that should be equally and evenly extended to all groups as
a combined force in our social and economic life.25 While labor should
be protected at all times, this protection must not be at the expense of
capital.
WHEREFORE, the petition is DENIED and the assailed Decision of the
Court of Appeals AFFIRMED.
SO ORDERED.
G.R. No. 159668 March 7, 2008
MANDAUE GALLEON TRADE, INC. and/or GAMALLOSONS
TRADERS, INC., petitioners,
vs.
VICENTE ANDALES, RESTITUTA SOLITANA,* ELPIDIO SUELTO, ET
AL.**, respondents1.
.AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court assailing the Decision2 dated May 21, 2003 and the
Amended Decision3 dated August 19, 2003 of the Court of Appeals (CA)
in CA-G.R. SP No. 70214.
The facts:
Petitioners Mandaue Galleon Trade, Inc. (MGTI) and Gamallosons
Traders, Inc.4 (GTI) are business entities engaged in rattan furniture
manufacturing for export, with principal place of business at
Cabangcalan, Mandaue City.

Respondent Vicente Andales5 (Andales) filed a complaint with the
Labor Arbiter (LA) against both petitioners for illegal dismissal and non-
payment of 13th month pay and service incentive leave pay. His other
co-workers numbering 260 filed a similar complaint against petitioner
MGTI only.
The complainants alleged that MGTI hired them on various dates as
weavers, grinders, sanders and finishers; sometime in August 1998,
workers in the Finishing Department were told that they would be
transferred to a contractor and they were given Visitor Identification
Cards (IDs), while workers in the Weaving Department were told to
look for work elsewhere as the company had no work for them;
sometime in September 1998, workers in the Grinding Department
were not allowed to enter the company premises, while workers in the
Sanding Department were told that they could no longer work since
there was no work available; workers who were issued IDs were
allowed to go inside the premises; and they were dismissed without
notice and just cause.
They further alleged that they are regular employees of MGTI because:
(a) they performed their work inside the company premises in
Cabangcalan, Mandaue City; (b) they were issued uniforms by MGTI
and were told to strictly follow company rules and regulations; (c) they
were under the supervision of MGTI's foremen, quality control
personnel and checkers; (d) MGTI supplied the materials, designs, tools
and equipment in the production of furniture; (e) MGTI conducts
orientations on how the work was to be done and the safe and efficient
use of tools and equipment; (f) MGTI issues memoranda regarding
absences and waste of materials; and (g) MGTI exercises the power to
discipline them.
On the other hand, MGTI denied the existence of employer-employee
relationship with complainants, claiming that they are workers of
independent contractors whose services were engaged temporarily
and seasonally when the demands for its products are high and could
not be met by its regular workforce; the independent contractors
recruited and hired the complainants, prepared the payroll and paid
their wages, supervised and directed their work, and had authority to
dismiss them. It averred that due to the economic crisis and internal
squabble in the company, the volume of orders from foreign buyers
dived; as a survival measure, management decided to retrench its
employees; and the substantial separation pay paid to retrenched
employees caught the jealous eyes of complainants who caused the
filing of the complaint for illegal dismissal.
On August 23, 1999, the LA rendered a Decision6 holding that 1837
complainants are regular piece-rate employees of MGTI since they
were made to perform functions which are necessary to MGTI's rattan
furniture manufacturing business; the independent contractors were
not properly identified; the absence of proof that the independent
contractors have work premises of their own, substantial capital or
investment in the form of tools, equipment and machineries make
them only labor contractors; and there was no dismissal but only a
claim for separation pay. The LA ordered petitioners to take back
complainants and directed it to pay their 13th month pay in the total
sum of P545,386.43.
Both parties appealed. On April 30, 2001, the National Labor Relations
Commission (NLRC) rendered a Decision8 affirming the LA's finding of
employer-employee relationship. It held that labor-only contracting and
not job-contracting was present since the alleged contractors did not
have substantial capital in the form of equipment, machineries and
work premises. The NLRC, however, did not agree with the LA's finding
that there was no dismissal. It held that complainants were
constructively dismissed when they were unilaterally transferred to a
contractor to evade payment of separation pay as a result of the
retrenchment. Thus, it directed MGTI to pay complainants separation
pay of one month for every year of service based on the prevailing
minimum wage at the time of their dismissal, in addition to payment of
13th month pay.
Both parties filed separate motions for reconsideration9 but the NLRC
denied them in a Resolution10 dated February 12, 2002.
On April 19, 2002, petitioners filed a Petition for Certiorari11 with the
CA. On May 21, 2003 the CA rendered a Decision12 dismissing the
petition and affirming the findings of the NLRC. It held that MGTI is
liable to the respondents because the alleged contractors are not
independent contractors but labor-only contractors; that respondents
were constructively dismissed when they were unilaterally transferred
to another contractor; and that the allegation of retrenchment was not
proven.
DO 18-02 Cases 47
On June 12, 2003, petitioners filed a Motion for Reconsideration.13
On August 19, 2003, the CA rendered an Amended Decision14 partially
granting the motion, in this wise:
After taking a second look at the petition and in consonance
with Article 283 of the Labor Code, We are computing the
separation pay of the 183 private respondents at one-half
month salary per year of service up to the promulgation of
this Amended Decision.
WHEREFORE, petitioners' motion for reconsideration is
PARTIALLY GRANTED. This Court's decision dated May 21,
2003 is hereby amended. Petitioners are ordered to pay the
183 respondents their separation pay computed at one-half
month salary per year of service up to the promulgation of
this Amended Decision.
SO ORDERED.15
On September 16, 2003, petitioners filed with this Court a Motion for
Extension of Time to file a petition for review, which was granted by
the Court,16 and petitioners filed herein petition on October 23, 2003.
Meanwhile, on September 24, 2003, respondents filed a Motion for
Reconsideration with the CA assailing the reduction of the separation
pay in the Amended Decision.17 On December 9, 2003, the CA issued a
Resolution18 merely noting the Motion for Reconsideration filed by
respondents on the ground that the case had already been referred to
this Court by way of the present petition.
Respondents then filed with this Court a Petition for Certiorari with
Motion to Consolidate the Petition with the present petition, assailing
the August 19, 2003 Amended Decision and December 9, 2003 CA
Resolution. Respondents' petition, docketed as G.R. No. 162227, was
dismissed in a Resolution19 dated April 14, 2004 for failure to attach a
clearly legible duplicate original or certified true copy of the Amended
Decision. On August 26, 2004, entry of judgment was made.20
In the present petition, petitioners raise the sole issue:
I
WHETHER OR NOT THE COURT OF APPEALS COMMITTED
GRAVE AND REVERSIBLE ERROR IN CONSIDERING THE
RESPONDENTS AS EMPLOYEES OF THE PETITIONERS ABSENT
THE REQUISITES/ ELEMENTS IN THE JURISPRUDENCE AS
DETERMINATIVE FACTOR IN THE EXISTENCE OF EMPLOYER-
EMPLOYEE RELATIONSHIP.21
Petitioners submit that respondents are employees of independent
contractors who have their own manpower, tools, equipment and
capital; they did not have a hand in respondents' recruitment and
hiring, payment of wages, control and supervision, and dismissal; and
respondents did not have time cards or uniforms, nor were they
subjected to petitioner's company policies.
On the other hand, respondents, in their Comment and Memorandum,
assail the CA's Amended Decision which reduced the separation pay
from one month to one-half month, claiming there was no justification
to support such order. Moreover, they contend that they were denied
their day in court when the CA did not resolve their Motion for
Reconsideration of the Amended Decision. They aver that since they
were illegally dismissed, they are entitled to backwages and not only
separation pay.
The petition is bereft of merit.
Factual findings of quasi-judicial bodies like the NLRC, when adopted
and confirmed by the CA and if supported by substantial evidence, are
accorded respect and even finality by this Court.22 The existence of an
employer-employee relationship is a factual matter that will not be
delved into by this Court, since only questions of law may be raised in
petitions for review.23 The Court has recognized several exceptions to
this rule, such as: (1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when in making its findings, the CA went beyond the issues of the

case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth
in the petition as well as in the petitioner's main and reply briefs are
not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by
the evidence on record; and (11) when the CA manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.24 None of these
exceptions, however, has been convincingly shown by petitioners to
apply in the present case.
Article 106 of the Labor Code explains the relations which may arise
between an employer, a contractor and the contractor's employees
thus:
ART. 106. Contractor or subcontractor. – Whenever an
employer enters into a contract with another person for the
performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same
manner and extent that he is liable to employees directly
employed by him.
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
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.
The first two paragraphs of Article 106 set the general rule that a
principal is permitted by law to engage the services of a contractor for
the performance of a particular job, but the principal, nevertheless,
becomes solidarily liable with the contractor for the wages of the
contractor's employees. The third paragraph of Article 106, however,
empowers the Secretary of Labor to make distinctions between
permissible job contracting and "labor-only" contracting, which is a
prohibited act further defined under the last paragraph. 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, and the "labor-only"
contractor is considered as a mere agent of the principal, the real
employer.25
Sections 5 and 7 of the Rules Implementing Articles 106 to 109 of the
Labor Code, as amended26 (Implementing Rules), reinforce the rules in
determining the existence of employer-employee relationship between
employer, contractor or subcontractor, and the contractor's or
subcontractor's employee, to wit:
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:
DO 18-02 Cases 48
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 forgoing 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.
Section 7. Existence of an employer-employee
relationship. – The contractor or subcontractor shall be
considered the employer of the contractual employee for
purposes of enforcing the provisions of the Labor Code and
other social legislation. The principal, however, shall be
solidarily liable with the contractor in the event of any
violation of any provision of the Labor Code, including the
failure to pay wages.
The principal shall be deemed the employer of the
contractual employee in any of the following cases, as
declared by a competent authority:
a. where there is a labor-only contracting; or
b. where the contracting arrangement falls within
the prohibitions provided in Section 6
(Prohibitions) hereof.
Thus, based on Article 106 of the Labor Code and Sections 5 and 7 of
the Implementing Rules, "labor-only" contracting exists when the
following criteria are present: (1) where the contractor or
subcontractor supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among other things; and the workers
recruited and placed by the contractor or subcontractor are performing
activities which are directly related to the principal business of such
employer; or (2) where the contractor does not exercise the right to
control the performance of the work of the contractual employee.
In the present case, petitioners' claim that their contractors are
independent contractors, and, therefore, this case is one of permissible
job contracting, is without basis.
First, respondents' work as weavers, grinders, sanders and finishers is
directly related to MGTI's principal business of rattan furniture
manufacturing. Where the employees are tasked to undertake
activities usually desirable or necessary in the usual business of the
employer, the contractor is considered as a "labor-only" contractor and
such employees are considered as regular employees of the
employer.27
Second, MGTI was unable to present any proof that its contractors had
substantial capital. There was no evidence pertaining to the
contractors' capitalization; nor to their investment in tools, equipment
or implements actually used in the performance or completion of the
job, work, or service that they were contracted to render. The law casts
the burden on the contractor to prove that it has substantial capital,
investment, tools, etc. Employees, on the other hand, need not prove
that the contractor does not have substantial capital, investment, and
tools to engage in job-contracting.28

Thus, the contractors are "labor-only" contractors since they do not
have substantial capital or investment which relates to the service
performed and respondents performed activities which were directly
related to MGTI's main business. MGTI, the principal employer, is
solidarily liable with the labor-only contractors, for the rightful claims of
the employees. Under this set-up, "labor-only" contractors are deemed
agents of the principal, MGTI, and the law makes the principal
responsible to the employees of the "labor-only" contractor as if the
principal itself directly hired or employed the employees. In prohibiting
"labor-only" contracting and creating an employer-employee
relationship between the principal and the supposed contractor's
employees, the law intends to prevent employers from circumventing
labor laws intended to protect employees.
Hence, the Court sees no reason to disturb the findings of fact of the
NLRC and the CA.
Respondents' contention that the CA erred in lowering the award of
separation pay from one month to one-half month for every year of
service cannot prosper in the present petition. Whether right or wrong,
the decision of the CA on that matter had long become final and
executory with the dismissal of respondents' Petition for Certiorari,
docketed as G.R. No. 162227, assailing the reduction of the award of
separation pay. Entry of judgment was made therein on August 26,
2004; hence, the reduction of the separation pay is now immutable,
beyond the jurisdiction of this Court to amend, modify or reverse.29
Nothing is more settled in the law than that a decision that has
acquired finality becomes immutable and unalterable and may no
longer be modified in any respect even if the modification is meant to
correct erroneous conclusions of fact or law and whether it will be
made by the Court that rendered it or by the highest Court of the
land.30 The doctrine is founded on considerations of public policy and
sound practice that, at the risk of occasional errors, judgments must
become final at some definite point in time.31
The only recognized exceptions to the general rule are the correction
of clerical errors, the so-called nunc pro tunc entries which cause no
prejudice to any party, void judgments, and whenever circumstances
transpire after the finality of the decision rendering its execution unjust
and inequitable.32 None of the exceptions are present in the instant
case.
The CA Amended Decision cannot be considered by the Court as a void
judgment, as it was rendered by a tribunal with jurisdiction over the
subject matter of the petition.33 Neither can respondents complain that
they were denied due process of law since they had the opportunity to
be heard when they assailed the reduction of separation pay in their
Petition for Certiorari, G.R. No. 162227, but bungled the same when
they failed to comply with the basic procedural requirements in filing
the petition. Respondents cannot be allowed to resurrect a cause lost
thru negligence in properly pursuing their case.
WHEREFORE, the present petition is DENIED for lack of merit.
SO ORDERED.
Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ.,
concur.
SECOND DIVISION [G.R. No. 149793. April 15, 2005]
WACK WACK GOLF & COUNTRY CLUB, petitioner, vs. NATIONAL
LABOR RELATIONS COMMISSION, MARTINA G.
CAGASAN, CARMENCITA F. DOMINGUEZ, and
BUSINESS STAFFING AND MANAGEMENT, INC.,
respondents.
CALLEJO, SR., J.:
This is a petition for review of the Resolution [1] of the Court of
Appeals (CA) in CA-G.R. SP No. 63658, dismissing the petition for
certiorari before it for being insufficient in form and the subsequent
resolution denying the motion for reconsideration thereof.
The undisputed antecedent facts are as follows:
On November 29, 1996, a fire destroyed a large portion of the
main clubhouse of the Wack Wack Golf and Country Club (Wack Wack),
including its kitchen. In view of the reconstruction of the whole
clubhouse complex, Wack Wack filed a notice with the Department of
DO 18-02 Cases 49
Labor and Employment (DOLE) on April 14, 1997 that it was going to
suspend the operations of the Food and Beverage (F & B) Department
one (1) month thereafter. Notices to 54 employees (out of a
complement of 85 employees in the department) were also sent out,
informing them that they need not report for work anymore after April
14, 1997 but that they would still be paid their salaries up to May 14,
1997. They were further told that they would be informed once full
operations in Wack Wack resume.
The Wack Wack Golf Employees Union branded the suspension
of operations of the F & B Department as arbitrary, discriminatory and
constitutive of union-busting, so they filed a notice of strike with the
DOLE’s National Conciliation and Mediation Board (NCMB). Several
meetings between the officers of Wack Wack and the Union, headed by
its President, Crisanto Baluyot, Sr., and assisted by its counsel, Atty.
Pedro T. De Quiroz, were held until the parties entered into an
amicable settlement. An Agreement[2] was forged whereby a special
separation benefit/retirement package for interested Wack Wack
employees, especially those in the F & B Department was offered. The
terms and conditions thereof reads as follows:
1. The UNION and the affected employees of F & B who are
members of the UNION hereby agree to accept the special
separation benefit package agreed upon between the CLUB
management on the one hand, and the UNION officers and
the UNION lawyer on the other, in the amount equivalent to
one-and-one-half months salary for every year of service,
regardless of the number of years of service rendered. That,
in addition, said employees shall also receive the other
benefits due them, namely, the cash equivalent of unused
vacation and sick leave credits, proportionate 13th month
pay; and other benefits, if any, computed without premium;
2. That the affected F & B employees who have already
signified intention to be separated from the service under
the special separation benefit package shall receive their
separation pay as soon as possible;
3. That the same package shall, likewise, be made available
to other employees who are members of the bargaining unit
and who may or may not be affected by future similar
suspensions of operations. The UNION re-affirms and
recognizes that it is the sole prerogative of the management
of the Club to suspend part or all of its operations as may be
necessitated by the exigencies of the situation and the
general welfare of its membership. The closure of the West
Course, which is scheduled for conversion to an All-Weather
Championship golf course, is cited as an example. It is,
however, agreed that if a sufficient number of employees,
other than F & B employees, would apply for availment of
the package within the next two months, the Club may no
longer go through the process of formally notifying the
Department of Labor. The processing and handling of
benefits for these other employees shall be done over a
transition period within one year;
4. All qualified employees who may have been separated
from the service under the above package shall be
considered under a priority basis for employment by
concessionaires and/or contractors, and even by the Club
upon full resumption of operations, upon the
recommendation of the UNION. The Club may even
persuade an employee-applicant for availment under the
package to remain on his/her job, or be assigned to another
position.[3]
Respondent Carmencita F. Dominguez, who was then working in
the Administrative Department of Wack Wack, was the first to avail of
the special separation package.[4] Computed at 1½ months for every
year of service pursuant to the Agreement, her separation pay
amounted to P91,116.84, while economic benefits amounted to
P6,327.53.[5] On September 18, 1997, Dominguez signed a Release and
Quitclaim[6] in favor of Wack Wack.
Respondent Martina B. Cagasan was Wack Wack’s Personnel
Officer who, likewise, volunteered to avail of the separation package.[7]
On September 30, 1997, she received from Wack Wack the amount of
P469,495.66 as separation pay and other economic benefits amounting
to P17,010.50.[8] A Release and Quitclaim [9] was signed on September
30, 1997.
The last one to avail of the separation package was Crisanto
Baluyot, Sr. who, in a Letter[10] dated January 16, 1998 addressed to Mr.
Bienvenido Juan, Administrative Manager of Wack Wack, signified his
willingness to avail of the said early retirement package. The total
amount of P688,290.30[11] was received and the Release and
Quitclaim[12] signed on May 14, 1998.

On October 15, 1997, Wack Wack entered into a Management
Contract[13] with Business Staffing and Management, Inc. (BSMI), a
corporation engaged in the business as Management Service
Consultant undertaking and managing for a fee projects which are
specialized and technical in character like marketing, promotions,
merchandising, financial management, operation management and the
like.[14] BSMI was to provide management services for Wack Wack in
the following operational areas:
1. Golf operations management;
2. Management and maintenance of building facilities;
3 .Management of food and beverage operation;
4. Management of materials and procurement functions;
5. To provide and undertake administrative and
support services for the [said] projects.[15]
Pursuant to the Agreement, the retired employees of Wack Wack
by reason of their experience were given priority by BSMI in hiring. On
October 21, 1997, respondents Cagasan and Dominguez filed their
respective applications[16] for employment with BSMI. They were
eventually hired by BSMI to their former positions in Wack Wack as
project employees and were issued probationary contracts.[17]
Aside from BSMI, Wack Wack also engaged several contractors
which were assigned in various operating functions of the club, to wit:
1. Skills and Talent Employment Promotion (STEP)
whose 90 workers are designated as locker
attendants, golf bag attendants, nurses,
messengers, technical support engineer, golf
director, agriculturist, utilities and gardeners;
2. Marvel Manpower Agency - whose 19 employees are
designated as sweepers, locker attendants, drive
range attendant, telephone operator, workers and
secretaries;
3 City Service Corporation – contractor for janitorial
services for the whole club;
4. Microstar Business and Management Services, Inc.
whose 15 employees are designated in the
Finance and Accounting departments.[18]
Due to these various management service contracts, BSMI
undertook an organizational analysis and manpower evaluation to
determine its efficacy, and to streamline its operations. In the course
of its assessment, BSMI saw that the positions of Cagasan and
Dominguez were redundant. In the case of respondent Cagasan, her
tasks as personnel officer were likewise being taken cared of by the
different management service contractors; on the other hand,
Dominguez’s work as telephone operator was taken over by the
personnel of the accounting department. Thus, in separate Letters[19]
dated February 27, 1998, the services of Dominguez and Cagasan
were terminated. With respect to Baluyot, he applied for the position
of Chief Porter on May 12, 1998. The position, however, was among
those recommended to be abolished by the BSMI, so he was offered
the position of Caddie Master Aide with a starting salary of P5,500.00 a
month. Baluyot declined the offer. Pending Wack Wack’s approval of
the proposed abolition of the position of Chief Porter, Baluyot was
temporarily accepted to the position with a monthly salary of
P12,000.00. In July 1998, Baluyot decided not to accept the position of
Caddie Master Aide; thus, BSMI continued with its plan to abolish the
said position of Chief Porter and Baluyot was dismissed from the
service.
Thereafter, the three (3) employees filed their respective
complaints with the National Labor Relations Commission (NLRC) for
illegal dismissal and damages against Wack Wack and BSMI.
The complainants averred that they were dismissed without
cause. They accepted the separation package upon the assurance that
they would be given their former work and assignments once the Food
and Beverage Department of Wack Wack resumes its operations. On
the other hand, the respondents therein alleged that the dismissal of
the complainants were made pursuant to a study and evaluation of the
different jobs and positions and found them to be redundant.
In a Decision[20] dated January 25, 2000, the Labor Arbiter found
that the dismissal of Dominguez and Cagasan was for a valid and
authorized cause, and dismissed their complaints.
The position of personnel manager occupied by Martina Cagasan was
redundated as it is allegedly not necessary, because her functions will
be taken over [by] the field superintendent and the company’s
personnel and operations manager. The work of Carmencita
Dominguez on the other hand as telephone operator will be taken
over by the accounting department personnel. Such move really are
intended to streamline operations. While admittedly, they are still
necessary in the operations of Wack Wack, their jobs can be assigned
to some other personnel, who will be performing dual functions and
DO 18-02 Cases 50
does save Wack Wack money. This is feasible on account of the fact
that they are functions pertaining to administrative work.[21]
As to Baluyot, however, the Labor Arbiter found that while the
position of chief porter had been abolished, the caddie master aide had
been created. Their functions were one and the same. The porters,
upon instructions from the chief porter, are the ones who bring down
the golf bags of the players from the vehicle. The caddie master
receives them and counts the number of clubs inside the golf set.
After the game, the same procedure is repeated before the golf sets
are loaded once more into the vehicle. [22] The Labor Arbiter found that
the dismissal of Baluyot as Chief Porter was unjustified and can not be
considered redundant in the case at bar. It was a means resorted to in
order to unduly sever Baluyot’s relationship with BSMI without
justifiable cause. The Labor Arbiter therefore found Baluyot’s dismissal
to be illegal. The dispositive portion of the decision reads as follows:
CONFORMABLY WITH THE FOREGOING, judgment is hereby
rendered dismissing the complaints of Carmencita F. Dominguez and
Martina Cagasan for lack of merit. Finding Crisanto Baluyot’s
dismissal to be illegal. Consequently, he should immediately be
reinstated to his former position as Chief Porter or Caddie Master, and
paid his backwages which, as of December 31, 1999, has
accumulated in the sum of P180,000.00 by BSMI.
All other claims are dismissed for lack of merit.[23]
Since Baluyot no longer appealed the decision, complainants
Dominguez and Cagasan filed a Partial Appeal on the ground of prima
facie abuse of discretion on the part of the Labor Arbiter and serious
errors in his findings of facts and law. Their claims were anchored on
the Agreement between the Union and management, that they were
promised to be rehired upon the full resumption of operations of Wack
Wack. They asserted that Wack Wack and BSMI should not avoid
responsibility to their employment, by conniving with each other to
render useless and meaningless the Agreement.
BSMI also appealed to the NLRC, alleging that the Labor Arbiter
committed grave abuse of discretion in finding Baluyot’s dismissal to
be illegal, when in fact his position as Chief Porter was abolished
pursuant to a bona fide reorganization of Wack Wack. It was not
motivated by factors other than the promotion of the interest and
welfare of the company.
On September 27, 2000, the NLRC rendered its Decision[24]
ordering Wack Wack to reinstate Carmencita F. Dominguez and
Martina Cagasan to their positions in respondent Wack Wack Golf &
Country Club with full backwages and other benefits from the date of
their dismissal until actually reinstated. It anchored its ruling on the
Agreement dated June 16, 1997 reached between the Union and Wack
Wack, particularly Section 4[25] thereof. The NLRC directed Wack Wack
to reinstate the respondents and pay their backwages since “Business
Staffing and Management, Inc. (BSMI) is a contractor who [merely]
supplies workers to respondent Wack Wack. It has nothing to do with
the grievance of the complainants with their employer, respondent
Wack Wack.”
Wack Wack and BSMI filed a motion for reconsideration which
was denied in the Resolution[26] dated December 15, 2000.
Wack Wack, now the petitioner, consequently filed a petition for
certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 63658
alleging the following:
A. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF
DUE PROCESS IN HOLDING THAT RESPONDENTS CAGASAN AND
DOMINGUEZ HAVE REGAINED THEIR JOBS OR EMPLOYMENT
PURSUANT TO THE AGREEMENT BETWEEN PETITIONER AND WACK
WACK GOLF EMPLOYEES UNION.
B. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF
DUE PROCESS IN RULING THAT RESPONDENT BSMI IS NOT AN
INDEPENDENT CONTRACTOR BUT A MERE SUPPLIER OF WORKERS TO
THE PETITIONER.
C. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF
DUE PROCESS IN HOLDING PETITIONER LIABLE FOR THE
REINSTATEMENT OF RESPONDENTS CAGASAN AND DOMINGUEZ AND
FOR THE PAYMENT OF THEIR SUPPOSED BACKWAGES DESPITE THE
ABSENCE OF EMPLOYER-EMPLOYEE RELATION BETWEEN THEM.[27]
Likewise, BSMI also assailed the resolutions of the NLRC and filed
its own petition for certiorari with the CA, docketed as CA-G.R. SP No.
63553.[28] A perusal of the petition which is attached to the records
reveal that BSMI ascribes grave abuse of discretion on the part of the
NLRC in ruling that: (a) the private respondents have regained their
employment pursuant to the Agreement between Wack Wack and the

Wack Wack Golf Employees Union; (b) the dismissal of private
respondents was made pursuant to the petitioner’s exercise of its
management prerogatives; and (c) the petitioner (BSMI) is liable for
the reinstatement of private respondents and the payment of their
backwages.[29]
On April 3, 2001, the CA (Twelfth Division) dismissed the petition
on the ground that the petitioner therein failed to attach an Affidavit of
Service as required in Section 11, Rule 13 of the 1997 Rules of Civil
Procedure. Moreover, the verification and certification against forum
shopping was insufficient for having been executed by the general
manager who claimed to be the duly-authorized representative of the
petitioner, but did not show any proof of authority, i.e., a board
resolution, to the effect.
A motion for reconsideration was, consequently, filed appending
thereto the requisite documents of proof of authority. It asserted that
in the interest of substantial justice, the CA should decide the case on
its merits.
BSMI filed a Comment[30] to the Motion for Reconsideration of the
petitioner, also urging the CA to set aside technicalities and to consider
the legal issues involved: (a) whether or not there is a guaranty of
employment in favor of the complainants under the Agreement
between the petitioner and the Union; (b) whether or not the
termination of the employment of the complainants, based on
redundancy, is legal and valid; and (c) who are the parties liable for the
reinstatement of the complainants and the payment of backwages. It
further added that it shares the view of the petitioner, that the assailed
resolutions of the NLRC are tainted with legal infirmities. For this
reason, it was also constrained to file its own petition for certiorari with
the CA, docketed as CA-G.R. SP No. 63553 pending with the Special
Fourth Division, just to stress that there is no guaranty of perpetual
employment in favor of the complainants.
On August 31, 2001, the CA denied petitioner’s motion for
reconsideration.
The petitioner is now before the Court, assailing the twin
resolutions of the CA. It points out that BSMI has filed its petition for
certiorari before the CA one day late and yet, the Special Fourth
Division admitted the petition in the interest of substantial justice, and
directed the respondents to file a comment thereon; [31] whereas, in the
instant case, the mere lack of proof of authority of Wack Wack’s
General Manager to sign the certificate of non-forum shopping was
considered fatal by the CA’s Twelfth Division. It further asserts that its
petition for certiorari is meritorious, considering that the NLRC
committed grave abuse of discretion in ordering Wack Wack to
reinstate the respondents Cagasan and Dominguez, and to pay their
backwages when indubitable evidence shows that the said
respondents were no longer employees of Wack Wack when they filed
their complaints with the Labor Arbiter.
There is merit in the petition.
In Novelty Philippines, Inc. v. Court of Appeals,[32] the Court
recognized the authority of the general manager to sue on behalf of
the corporation and to sign the requisite verification and certification of
non-forum shopping. The general manager is also one person who is in
the best position to know the state of affairs of the corporation. It
was also error for the CA not to admit the requisite proof of authority
when in the Novelty case, the Court ruled that the subsequent
submission of the requisite documents constituted substantial
compliance with procedural rules. There is ample jurisprudence holding
that the subsequent and substantial compliance of an appellant may
call for the relaxation of the rules of procedure in the interest of
justice.[33] While it is true that rules of procedure are intended to
promote rather than frustrate the ends of justice, and while the swift
unclogging of court dockets is a laudable objective, it nevertheless
must not be met at the expense of substantial justice. [34] It was,
therefore, reversible error for the CA to have dismissed the petition for
certiorari before it. The ordinary recourse for us to take is to remand
the case to the CA for proper disposition on the merits; however,
considering that the records are now before us, we deem it necessary
to resolve the instant case in order to ensure harmony in the rulings
and expediency.
Indeed, the merits of the case constitute special or compelling
reasons for us to overlook the technical rules in this case. With the
dismissal of its petition for certiorari before the CA, the petitioner by
virtue of the NLRC decision is compelled to reinstate respondents
Cagasan and Dominguez and pay their full backwages from the time of
their dismissal until actual reinstatement when the attendant
circumstances, however, show that the respondents had no cause of
action against the petitioner for illegal dismissal and damages.
It must be recalled that said respondents availed of the special
separation package offered by the petitioner. This special separation
package was thought of and agreed by the two parties (Wack Wack
DO 18-02 Cases 51
and the Union) after a series of discussions and negotiations to avert
any labor unrest due to the closure of Wack Wack. [35] Priority was given
to the employees of the F & B Department, but was, likewise, offered
to the other employees who may wish to avail of the separation
package due to the reconstruction of Wack Wack. Respondents do not
belong to the F & B Department and yet, on their own volition opted to
avail of the special separation package. The applications which were
similarly worded read as follows:
TO : WACK WACK GOLF & COUNTRY CLUB
BOARD OF DIRECTORS AND MANAGEMENT
Based on the information that the Club and the employees’ Union
have reached an agreement on a special separation benefit package
equivalent to one-and-one-half months salary for every year of
service, regardless of the number of years of service, for employees
who have been affected and may be affected by ongoing as well as
forthcoming Club renovation, construction and related activities and
reportedly even for those who may not be affected but wish to avail of
an early retirement under the above package arrangement, I hereby
register my desire to be separated from the Club and receive the
benefits under the above stated package.[36]
Thereafter, the respondents signed their respective release and
quitclaims after receiving their money benefits.
It cannot be said that the respondents in the case at bar did not
fully comprehend and realize the consequences of their acts. Herein
respondents are not unlettered persons who need special protection.
They held responsible positions in the petitioner-employer, so they
presumably understood the contents of the documents they signed.
There is no showing that the execution thereof was tainted with deceit
or coercion. Further, the respondents were paid hefty amounts of
separation pay indicating that their separation from the company was
for a valuable consideration. Where the person making the waiver has
done so voluntarily, with a full understanding thereof, and the
consideration for the quitclaim is credible and reasonable, the
transaction must be recognized as being a valid and binding
undertaking.[37] As in contracts, these quitclaims amount to a valid and
binding compromise agreement between the parties which deserve to
be respected.[38]
We reiterate what was stated in the case of Periquet v. NLRC [39]
that:
Not all waivers and quitclaims are invalid as against public policy. If
the agreement was voluntarily entered into and represents a
reasonable settlement, it is binding on the parties and may not later
be disowned simply because of a change of mind. It is only where
there is clear proof that the waiver was wangled from an unsuspecting
or gullible person, or the terms of settlement are unconscionable on
its face, that the law will step in to annul the questionable
transaction. But where it is shown that the person making the waiver
did so voluntarily, with full understanding of what he was doing, and
the consideration for the quitclaim is credible and reasonable, the
transaction must be recognized as a valid and binding undertaking. …
[40]
When the respondents voluntarily signed their quitclaims and
accepted the separation package offered by the petitioner, they,
thenceforth, already ceased to be employees of the petitioner.
Nowhere does it appear in the Agreement that the petitioner assured
the respondents of continuous employment in Wack Wack. Qualified
employees were given priority in being hired by its concessionaires
and/or contractors such as BSMI when it entered into a management
contract with the petitioner.
This brings us to the threshold issue on whether or not BSMI is
an independent contractor or a labor-only contractor. The NLRC posits
that BSMI is merely a supplier of workers or a labor-only contractor;
hence, the petitioner remains to be the principal employer of the
respondents and liable for their reinstatement and payment of
backwages.
The ruling of the NLRC is wrong. An independent contractor is
one who undertakes “job contracting,” i.e., a person who: (a) 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 (b) has substantial capital or investment in the
form of tools, equipments, machineries, work premises and other
materials which are necessary in the conduct of the business.
Jurisprudential holdings are to the effect that 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
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
premises, tools, appliances, materials and labor; and the mode,
manner and terms of payment.[41]
There is indubitable evidence showing that BSMI is an
independent contractor, engaged in the management of projects,
business operations, functions, jobs and other kinds of business
ventures, and has sufficient capital and resources to undertake its
principal business. It had provided management services to various
industrial and commercial business establishments. Its Articles of
Incorporation proves its sufficient capitalization. In December 1993,
Labor Secretary Bienvenido Laguesma, in the case of In re Petition for
Certification Election Among the Regular Rank-and-File Employees
Workers of Byron-Jackson (BJ) Services International Incorporated,
Federation of Free Workers (FFW)-Byron Jackson Services Employees
Chapter,[42] recognized BSMI as an independent contractor. As a
legitimate job contractor, there can be no doubt as to the existence of
an employer-employee relationship between the contractor and the
workers.[43]
BSMI admitted that it employed the respondents, giving the said
retired employees some degree of priority merely because of their
work experience with the petitioner, and in order to have a smooth
transition of operations.[44] In accordance with its own recruitment
policies, the respondents were made to sign applications for
employment, accepting the condition that they were hired by BSMI as
probationary employees only. Not being contrary to law, morals, good
custom, public policy and public order, these employment contracts,
which the parties are bound are considered valid. Unfortunately, after
a study and evaluation of its personnel organization, BSMI was
impelled to terminate the services of the respondents on the ground of
redundancy. This right to hire and fire is another element of the
employer-employee relationship[45] which actually existed between the
respondents and BSMI, and not with Wack Wack.
There being no employer-employee relationship between the
petitioner and respondents Cagasan and Dominguez, the latter have
no cause of action for illegal dismissal and damages against the
petitioner. Consequently, the petitioner cannot be validly ordered to
reinstate the respondents and pay them their claims for backwages.
WHEREFORE, the petition is GRANTED. The Resolutions of the
Court of Appeals and the NLRC are SET ASIDE and REVERSED. The
complaints of respondents Cagasan and Dominguez are DISMISSED.
No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ.,
concur.
G.R. No. 112139 January 31, 2000
LAPANDAY AGRICULTURAL DEVELOPMENT CORPORATION,
petitioner,
vs.
THE HONORABLE COURT OF APPEALS (Former Eighth Division)
and COMMANDO SECURITY SERVICE AGENCY, INC., respondents.
GONZAGA-REYES, J.:
Before us is a Petition for Review on Certiorari of the decision1 of the
Court of Appeals2 in CA-G.R. CV No. 33893 entitled COMMANDO
SECURITY SERVICE AGENCY, INCORPORATED vs. LAPANDAY
AGRICULTURAL DEVELOPMENT CORPORATION which affirmed the
decision3 of the Regional Trial Court, 11th Judicial Region, Branch 9,
Davao City in Civil Case No. 19203-88.
The pertinent facts as found by the Court of Appeals are as follows:
The evidence shows that in June 1986, plaintiff Commando Security
Service Agency, Inc., and defendant Lapanday Agricultural
Development Corporation entered into a Guard Service Contract.
Plaintiff provided security guards in defendant's banana plantation. The
contract called for the payment to a guard of P754.28 on a daily 8-hour
basis and an additional P565.72 for a four hour overtime while the
shift-in-charge was to be paid P811.40 on a daily 8-hour basis and
P808.60 for the 4-hour overtime.
Wage Orders increasing the minimum wage in 1983 were complied
with by the defendant. On June 16, 1984, Wage Order No. 5 was
DO 18-02 Cases 52
promulgated directing an increase of P3.00 per day on the minimum
wage of workers in the private sector and a P5.00 increase on the
ECOLA. This was followed on November 1, 1984 by Wage Order No. 6
which further increased said minimum wage by P3.00 on the ECOLA.
Both Wage Orders contain the following provision:
"In the case of contract for construction projects and for
security, janitorial and similar services, the increase in the
minimum wage and allowances rates of the workers shall be
borne by the principal or client of the construction/service
contractor and the contracts shall be deemed amended
accordingly, subject to the provisions of Sec. 3 (b) of this
order" (Sec. 6 and Sec. 9, Wage Orders No. 5 and 6,
respectively).
Plaintiff demanded that its Guard Service Contract with defendant be
upgraded in compliance with Wage Order Nos. 5 and 6. Defendant
refused. Their Contract expired on June 6, 1986 without the rate
adjustment called for Wage Order Nos. 5 and 6 being implemented. By
the time of the filing of plaintiff's Complaint, the rate adjustment
payable by defendant amounted to P462,346.25. Defendant opposed
the Complaint by raising the following defenses: (1) the rate
adjustment is the obligation of the plaintiff as employer of the security
guards; (2) assuming its liability, the sum it should pay is less in
amount; and (3) the Wage Orders violate the impairment clause of the
Constitution.
The trial court decided in favor of the plaintiff. It held:
xxx xxx xxx
However, in order for the security agency to pay the security guards,
the Wage Orders made specific provisions to amend existing contracts
for security services by allowing the adjustment of the consideration
paid by the principal to the security agency concerned. (Eagle Security
Agency, Inc. vs. NLRC, Phil. Tuberculosis Society, Inc. vs. NLRC, et al.,
May 18, 1989).1âwphi1.nêt
The Wage Orders require the amendment of the contract as to the
consideration to cover the service contractor's payment of the
increases mandated. However, in the case at bar, the contract for
security services had earlier been terminated without the
corresponding amendment. Plaintiff now demands adjustment in the
contract price as the same was deemed amended by Wage Order Nos.
5 and 6.
Before the plaintiff could pay the minimum wage as mandated by law,
adjustments must be paid by the principal to the security agency
concerned.
Given these circumstances, if PTS pays the security guards,
it cannot claim reimbursements from Eagle. But if its Eagle
that pays them, the latter can claim reimbursement from
PTS in lieu of an adjustment, considering that the contract
had expired and had not been renewed. (Eagle Security
Agency vs. NLRC and Phil. Tuberculosis Society, Inc. vs.
NLRC, et al., 18 May 1989).
"As to the issue that Wage Orders Nos. 5 and 6 constitute impairments
of contracts in violation of constitutional guarantees, the High Court
ruled" The Supreme Court has rejected the impairment of contract
argument in sustaining the validity and constitutionality of labor and
social legislation like the Blue Sunday Law, compulsory coverage of
private sector employees in the Social Security System, and the
abolition of share tenancy enacted pursuant to the police power of the
state (Eagle Security Agency, Inc. vs. National Labor Relation
Commission and Phil. Tuberculosis Society, Inc. vs. NLRC, et al., May
18, 1989).
Petitioner's motion for reconsideration was denied;4 hence this petition
where petitioner cites the following grounds to support the instant
petition for review:
1. THE WAGE INCREASES PROVIDED FOR IN THE WAGE
ORDERS WERE DUE TO THE GUARDS AND NOT THE
SECURITY AGENCY;
2. A SECURITY AGENCY WHO DID NOT PAY WAGE INCREASE
TO ITS GUARDS IT HAD ALREADY TERMINATED AND

WITHOUT THEIR AUTHORIZATION CANNOT INSTITUTE AN
ACTION TO RECOVER SAID WAGE INCREASE FOR ITS
BENEFIT;
3. IN THE ABSENCE OF BAD FAITH AND WITHOUT THE TRIAL
COURT CORRECTLY ESTABLISHING THE BASIS FOR
ATTORNEY'S FEES, THE SAME MAY NOT BE AWARDED.
4. THE NATIONAL LABOR RELATIONS (SIC) IS THE PROPER
FORUM THAT HAS THE JURISDICTION TO RESOLVE THE ISSUE
OF WHETHER OR NOT THE PETITIONER IS LIABLE TO PAY THE
PRIVATE RESPONDENT THE WAGE AND ALLOWANCE
INCREASES MANDATED UNDER WAGE ORDER NOS. 5 AND 6.5
Reiterating its position below, petitioner asserts that private
respondent has no factual and legal basis to collect the benefits under
subject Wage Order Nos. 5 and 6 intended for the security guards
without the authorization of the security guards concerned. Inasmuch
as the services of the forty-two (42) security guards were already
terminated at the time the complaint was filed on August 15, 1988,
private respondent's complaint partakes of the nature of an action for
recovery of what was supposedly due the guards under said Wage
Orders, amounts that they claim were never paid by private
respondent and therefore not collectible by the latter from the
petitioner. Petitioner also assails the award of attorney's fees in the
amount of P115,585.31 or 25% of the total adjustment claim of
P462,341.25 for lack of basis and for being unconscionable.
Moreover, petitioner submits that it is the National Labor Relations
Commission (NLRC) and not the civil courts that has jurisdiction to
resolve the issue involved in this case for it refers to the enforcement
of wage adjustment and other benefits due to private respondent's
security guards mandated under Wage Order Nos. 5 and 6. Considering
that the RTC has no jurisdiction, its decision is without force and
effect.6
On the other hand, private respondent contends that the basis of its
action against petitioner-appellant is the enforcement of the Guard
Service Contract entered into by them, which is deemed amended by
Section 6 of Wage Order No. 5 and Section 9 of Wage Order No. 6; that
pursuant to their amended Guard Service Contract, the
increases/adjustments in wages and ECOLA are due to private
respondent and not to the security guards who are not parties to the
said contract. It is therefore immaterial whether or not private
respondent paid its security guards their wages as adjusted by said
Wage Orders and that since the forty-two (42) security guards are not
parties to the Guard Service Contract, there is no need for them to
authorize the filing of, or be joined in, this suit.
As regards the award to private respondent of the amount of P115,
585.31 as attorney's fees, private respondent maintains that there is
enough evidence and/or basis for the grant thereof, considering that
the adamant attitude of the petitioner (in implementing the questioned
Wage Orders) compelled the herein private respondent, to litigate in
court. Furthermore, since the legal fee payable by private respondent
to its counsel is essentially on contingent basis, the amount of P115,
583.31 granted by the trial court which is 25% of the total claim is not
unconscionable.
As regards the jurisdiction of the RTC, private respondent alleges that
the suit filed before the trial court is for the purpose of securing the
upgrading of the Guard Service Contract entered into by herein
petitioner and private respondent in June 1983. The enforcement of
this written contract does not fall under the jurisdiction of the NLRC
because the money claims involved therein did not arise from
employer-employee relations between the parties and is intrinsically a
civil dispute. Thus, jurisdiction lies with the regular courts. Private
respondent further contends that petitioner is estopped or barred from
raising the question of jurisdiction for the first time before the Supreme
Court after having voluntarily submitted to the jurisdiction of the
regular courts below and having lost its case therein.7
We resolve to grant the petition.
We resolve first the issue of jurisdiction. We agree with the respondent
that the RTC has jurisdiction over the subject matter of the present
case. It is well settled in law and jurisprudence that where no
employer-employee relationship exists between the parties and no
issue is involved which may be resolved by reference to the Labor
Code, other labor statutes or any collective bargaining agreement, it is
the Regional Trial Court that has jurisdiction.8 In its complaint, private
DO 18-02 Cases 53
respondent is not seeking any relief under the Labor Code but seeks
payment of a sum of money and damages on account of petitioner's
alleged breach of its obligation under their Guard Service Contract. The
action is within the realm of civil law hence jurisdiction over the case
belongs to the regular courts.9 While the resolution of the issue
involves the application of labor laws, reference to the labor code was
only for the determination of the solidary liability of the petitioner to
the respondent where no employer-employee relation exists. Article
217 of the Labor Code as amended vests upon the labor arbiters
exclusive original jurisdiction only over the following:
1. Unfair labor practices;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those
cases that workers may file involving wages, rates of pay,
hours of work and other terms and conditions of
employment;
4. Claims for actual, moral exemplary and other form of
damages arising from employer-employee relations;
5. Cases arising from any violation of Article 264 of this
Code, including questions involving legality of strikes and
lockouts; and
6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relations, including those of
persons in domestic or household service, involving an
amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for
reinstatement.
In all these cases, an employer-employee relationship is an
indispensable jurisdictional requisite;10 and there is none in this case.
On the merits, the core issue involved in the present petition is
whether or not petitioner is liable to the private respondent for the
wage adjustments provided under Wage Order Nos. 5 and 6 and for
attorney's fees.
Private respondent admits that there is no employer-employee
relationship between it and the petitioner. The private respondent is an
independent/job contractor11 who assigned security guards at the
petitioner's premises for a stipulated amount per guard per month. The
Contract of Security Services expressly stipulated that the security
guards are employees of the Agency and not of the petitioner.12
Articles 106 and 107 of the Labor Code provides the rule governing the
payment of wages of employees in the event that the contractor fails
to pay such wages as follows:
Art. 106. Contractor or sub contractor. — Whenever an
employer enters into a contract with another person for the
performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same
manner and extent that he is liable to employees directly
employed by him.
xxx xxx xxx
Art. 107. Indirect employer. — The provisions of the
immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not
being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.
It will be seen from the above provisions that the principal (petitioner)
and the contractor (respondent) are jointly and severally liable to the
employees for their wages. This Court held in Eagle Security, Inc. vs.

NLRC 13 and Spartan Security and Detective Agency, Inc. vs. NLRC 14
that the joint and several liability of the contractor and the principal is
mandated by the Labor Code to assure compliance with the provisions
therein including the minimum wage. The contractor is made liable by
virtue of his status as direct employer. The principal, on the other
hand, is made the indirect employer of the contractor's employees to
secure payment of their wages should the contractor be unable to pay
them.15 Even in the absence of an employer-employee relationship, the
law itself establishes one between the principal and the employees of
the agency for a limited purpose i.e. in order to ensure that the
employees are paid the wages due them. In the above-mentioned
cases, the solidary liability of the principal and contractor was held to
apply to the aforementioned Wage Order Nos. 5 and 6.16 In ruling that
under the Wage Orders, existing security guard services contracts are
amended to allow adjustment of the consideration in order to cover
payment of mandated increases, and that the principal is ultimately
liable for the said increases, this Court stated:
The Wage Orders are explicit that payment of the increases
are "to be borne" by the principal or client. "To be borne",
however, does not mean that the principal, PTSI in this case,
would directly pay the security guards the wage and
allowance increases because there is no privity of contract
between them. The security guards' contractual relationship
is with their immediate employer, EAGLE. As an employer,
EAGLE is tasked, among others, with the payment of their
wages [See Article VII Sec. 3 of the Contract for Security
Services, supra and Bautista vs. Inciong, G.R. No. 52824,
March 16, 1988, 158 SCRA 665].
On the other hand, there existed a contractual agreement
between PTSI and EAGLE wherein the former availed of the
security services provided by the latter. In return, the
security agency collects from its client payment for its
security services. This payment covers the wages for the
security guards and also expenses for their supervision and
training, the guards bonds, firearms with ammunitions,
uniforms and other equipments, accessories, tools, materials
and supplies necessary for the maintenance of a security
force.
Premises considered, the security guards' immediate
recourse for the payment of the increases is with their direct
employer, EAGLE. However, in order for the security agency
to comply with the new wage and allowance rates it has to
pay the security guards, the Wage Orders made specific
provision to amend existing contracts for security services
by allowing the adjustment of the consideration paid by the
principal to the security agency concerned. What the Wage
Orders require, therefore, is the amendment of the contracts
as to the consideration to cover the service contractors'
payment of the increases mandated. In the end, therefore,
ultimate liability for the payment of the increases rests with
the principal.
In view of the foregoing, the security guards should claim the
amount of the increases from EAGLE. Under the Labor Code,
in case the agency fails to pay them the amounts claimed,
PTSI should be held solidarily liable with EAGLE [Articles 106,
107 and 109]. Should EAGLE pay, it can claim an adjustment
from PTSI for an increase in consideration to cover the
increases payable to the security guards.17
It is clear also from the foregoing that it is only when contractor pays
the increases mandated that it can claim an adjustment from the
principal to cover the increases payable to the security guards. The
conclusion that the right of the contractor (as principal debtor) to
recover from the principal as solidary co-debtor) arises only if he has
paid the amounts for which both of them are jointly and severally liable
is in line with Article 1217 of the Civil Code which provides:
Art. 1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary debtors
offer to pay, the creditor may choose which offer to accept.
He who made payment may claim from his co-debtors only
the share which corresponds to each, with interest for the
payment already made. If the payment is made before the
debt is due, no interest for the intervening period may be
demanded. . . .
DO 18-02 Cases 54
Pursuant to the above provision, the right of reimbursement from a co-
debtor is recognized in favor of the one who paid.
It will be seen that the liability of the petitioner to reimburse the
respondent only arises if and when respondent actually pays its
employees the increases granted by Wage Order Nos. 5 and 6.
Payment, which means not only the delivery of money but also the
performance, in any other manner, of the obligation,18 is the operative
fact which will entitle either of the solidary debtors to seek
reimbursement for the share which corresponds to each of the debtors.
The records show that judgment was rendered by Labor Arbiter
Newton R. Sancho holding both petitioner and private respondent
jointly and solidarily liable to the security guards in a Decision19 dated
October 17, 1986 (NLRC Case No. 2849-MC-XI-86).20 However, it is not
disputed that the private respondent has not actually paid the security
guards the wage increases granted under the Wage Orders in question.
Neither is it alleged that there is an extant claim for such wage
adjustments from the security guards concerned, whose services have
already been terminated by the contractor. Accordingly, private
respondent has no cause of action against petitioner to recover the
wage increases. Needless to stress, the increases in wages are
intended for the benefit of the laborers and the contractor may not
assert a claim against the principal for salary wage adjustments that it
has not actually paid. Otherwise, as correctly put by the respondent,
the contractor would be unduly enriching itself by recovering wage
increases, for its own benefit.
Finally, considering that the private respondent has no cause of action
against the petitioner, private respondent is not entitled to attorney's
fees.1âwphi1.nêt
WHEREFORE, the petition is GRANTED. The decision of the Court of
Appeals dated May 24, 1993 is REVERSED and SET ASIDE. The
complaint of private respondent COMMANDO SECURITY SERVICE
AGENCY, INC. is hereby DISMISSED.
SO ORDERED.
Melo, Vitug, Panganiban and Purisima, JJ., concur.
G.R. No. 86010 October 3, 1989
LEOPOLDO GUARIN and ONE HUNDRED TWENTY (120) OTHERS,
petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LIPERCON
SERVICES, INC., and/or NOVELTY PHILIPPINES, INC.,
respondents.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for
petitioners.
Corazon R. Paulino for respondent LSI.
Ponce Enrile, Cayetano, Reyes & Manalastas for Novelty Philippines,
Inc.
GRIÑO-AQUINO, J.:
The sole issue in this petition for certiorari is whether or not, as found
by the National Labor Relations Commission (or NLRC), respondent
Lipercon Services, Inc. is an independent contractor and that
petitioners are its employees.
Novelty Philippines, Inc. is a domestic corporation that is engaged in
the garment manufacturing business.
Lipercon Services, Inc. is also a domestic corporation which is engaged
in business as a service contractor providing workers for other
companies.

On July 6, 1983, Novelty and Lipercon entered into a "Contract of
Services" in which Lipercon, as the "CONTRACTOR," and Novelty, as
the "COMPANY," agreed as follows:
1. The CONTRACTOR shall provide the COMPANY with
Contractual Laborers/Helpers/Janitors as requested by the
COMPANY from time to time and such other activities that
may be contracted out at the discretion of the COMPANY.
2. In consideration for the above undertakings of the
CONTRACTOR, the COMPANY expressly agrees to pay the
CONTRACTOR a fee based on the rates as shown on Annex
'A' of this agreement which is deemed as incorporated
herein. A three (3%) percent Contractor's Tax shall be
charged to the client which is made part of the billing rate.
3. The CONTRACTOR shall employ the necessary personnel
to efficiently, fully and speedily accomplish the work and
services undertaken herein by the CONTRACTOR. The
CONTRACTOR represents that its personnel shall be in such
number as will be sufficient to cope with the requirements of
the services and work herein undertaken and that such
personnel shall be physically fit, with good moral character
and has not been convicted of any crime.
4. The CONTRACTOR shall comply with all labor laws such as
Minimum Wage Law, Eight Hour Labor Law, Social Security
System, Medicare, Maternity Contribution, ECC and other
laws relating to employers and employees. It is hereby
expressly understood and agreed that the COMPANY shall
not be liable in any manner whatsoever for non-compliance
with any requirements involving employer-employee
relationship and other matters relative to labor laws, and
CONTRACTOR hereby renders the COMPANY free and
harmless from any responsibility whatsoever for non-
compliance with any such requirements and for any violation
of any laws, rules and regulations.
5. The CONTRACTOR shall be answerable for any claim for
losses caused by its personnel assigned to the COMPANY and
for damages to property of the COMPANY, its employees,
officers or agents or to third parties, or for personal injury,
including death which may arise from the work or services
under this contract from negligence of employees of the
CONTRACTOR; provided, however that necessary
investigation be made and that the loss and/or damage
sustained was a result of negligence of the contractor's
personnel.
6. It is the essence of this contract which is hereby agreed
and understood by both parties that there is no employer-
employee relationship between the COMPANY and employee
assigned by the CONTRACTOR under this agreement.
Therefore, the CONTRACTOR obliges itself and its successors
in interest, to pay whatever salaries and wages may be due
under this contract, including any and all obligations, claims
which may arise as a result of the employer-employee
relationship existing between the CONTRACTOR and its
employees assigned under this agreement and warrants to
hold the COMPANY free and harmless of and from any
responsibility, liability or claim regarding employment.
7. The CONTRACTOR shall have exclusive discretion in the
selection, engagement and discharge of its personnel,
employees or agents or otherwise in the direction and
control of the personnel, workers and employees of the
CONTRACTOR shall be within its full control.
8. The COMPANY agrees to pay the amount due to the
CONTRACTOR under this contract within seven (7) days after
presentation of bills. If payment is not made within thirty
(30) days after due date, a one (1%) percent interest per
month shall be added to the unpaid balance.
9. This contract shall remain in full force from July 6, 1983 to
July 5,1984 and is renewable at the option of the COMPANY.
Either party may terminate this contract upon giving thirty
(30) days notice to the other party. (pp. 17-18, Rollo.)
Petitioners were hired by Lipercon and assigned to Novelty as helpers,
janitors, janitresses, firemen, and mechanics under the above
DO 18-02 Cases 55
agreement. Petitioners worked for Novelty for some three years. On
December 31, 1986, Novelty terminated its agreement with Lipercon,
resulting in the dismissal of the petitioners.
On January 9, 1987, petitioners filed a complaint for illegal dismissal
against both Lipercon and Novelty (Case No. NLRC-NCR-1-107-87).
Lipercon did not answer.
In a decision dated June 29, 1987, the Labor Arbiter ruled that the
petitioners were regular employees of Novelty and declared their
dismissal illegal. Both employers appealed.
Lipercon Services, Inc., on appeal, alleged that the decision was
contrary to the facts of the case and not in conformity with the
evidence on record and that the Executive Labor Arbiter gravely
abused his discretion when he ruled that Lipercon Services, Inc. merely
acted as an agent of Novelty Philippines, Inc. in the hiring and
placement of the complainants.
On August 19, 1988, the NLRC rendered a decision holding that
Lipercon was an independent contractor and that the petitioners were
its employees. The dispositive portion of the NLRC's decision reads as
follows:
WHEREFORE, premises considered, the appealed decision is
hereby set aside and another judgment entered, ordering
respondent Lipercon Services, Inc. to reinstate herein
complainants to their former positions without loss of
seniority rights and other related benefits granted by law
with a limited backwages of one (1) year without
qualification or deduction. In case reinstatement is no longer
feasible, respondent Lipercon Services, Inc. is hereby
ordered to grant complainants separation pay of one (1)
month salary for every year of service, a fraction of six (6)
months considered as one (1) whole year in addition to the
one year backwages. (p. 26, Rollo.)
The petition is meritorious.
Articles 106 and 107 of the Labor Code of the Philippines provide:
ART. 106. Contractor or subcontractor.— Whenever an
employer enters into a contract with another person for the
performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be
paid, in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same
manner and extent that he is liable to employees directly
employed by him.
The Secretary of Labor may, by appropriate regulations,
restrict or prohibit the contracting out of labor to protect the
rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job
contracting as well as differentiations within these types of
contracting and determine who among the parties involved
shall be considered the employer for purposes of this code,
to prevent any violation or circumvention of any provision of
this Code.
There is 'labor-only' contracting where the person supplying
workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and
placed by such person are performing activities which are
directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible
to the workers in the same manner and extent as if the latter
were directly employed by him.
ART. 107. Indirect Employer. — The provisions of the
immediately preceding Article shall likewise apply to any

person, partnership, association or corporation which, not
being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.
Sections 8 and 9, Rule VIII, Book I of the Omnibus Rules implementing
the Labor Code defines "job" contracting and "labor-only" contracting
as follows:
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, equipments, 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, equipments, machineries, work premises and
other materials; and
(2) The workers recruited and placed by such person are
performing activities which are directly related to the
principal business or operations of the employer in which
workers are habitually employed.
(b) Labor-only contracting as defined herein is
hereby prohibited and the person acting as
contractor shall be considered merely as an agent or
intermediary of the employer who shall be
responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
(c) For cases not falling under this article, the
Secretary of Labor shall determine through
appropriate orders whether or not the contracting
out of labor is permissible in the light of the
circumstances of each case and after considering the
operating needs of the employer and the rights of
the workers involved. In such case, he may prescribe
conditions and restrictions to insurer the protection
and welfare of the workers.
It is clear from the foregoing definitions that under the "Contract of
Services" between Lipercon and Novelty, Lipercon was a "labor-only"
contractor, hence, only an agent of Novelty to procure workers for the
latter, the real employer.
The NLRC's finding that Lipercon was not a mere labor-only contractor
because it has substantial capital or investment in the form of tools,
equipment, machineries, work premises, is based on insubstantial
evidence, as the NLRC pointed out, that "it (Lipercon) claims to be
possessed among others, of substantial capital and equipment
essential to carry out its business as a general independent contractor"
(p. 25, Rollo).
The law casts the burden on the contractor to prove that he/it has
substantial capital, investment, tools, etc. The petitioners, on the other
hand, need not prove the negative fact that the contractor does not
have substantial capital, investment, and tools to engage in job
contracting.
The jobs assigned to the petitioners as mechanics, janitors, gardeners,
firemen and grasscutters were directly related to the business of
Novelty as a garment manufacturer. In the case of Philippine Bank of
Communications vs. NLRC, 146 SCRA 347, we ruled that the work of a
messenger is directly related to a bank's operations. In its Comment,
Novelty contends that the services which are directly related to
DO 18-02 Cases 56
manufacturing garments are sewing, textile cutting, designs, dying,
quality control, personnel, administration, accounting, finance,
customs, delivery and similar other activities; and that allegedly, "[i]t is
only by stretching the imagination that one may conclude that the
services of janitors, janitresses, firemen, grasscutters, mechanics and
helpers are directly related to the business of manufacturing
garments" (p. 78, Rollo). Not so, for the work of gardeners in
maintaining clean and well-kept grounds around the factory,
mechanics to keep the machines functioning properly, and firemen to
look out for fires, are directly related to the daily operations of a
garment factory. That fact is confirmed by Novelty's rehiring the
workers or renewing the contract with Lipercon every year from 1983
to 1986, a period of three (3) years.
As Lipercon was a "labor-only" contractor, the workers it supplied
Novelty became regular employees of the latter.
WHEREFORE, the decision of the NLRC is set aside and that of the
Labor Arbiter is reinstated. Novelty Philippines, Inc. is ordered to
reinstate the petitioners with backwages for one (1) year without
qualification or deduction. In case reinstatement is no longer feasible,
respondent Novelty Philippines, Inc. is hereby ordered to grant the
complainants separation pay equivalent to one (1) month salary for
every year of service, a fraction of six (6) months to be considered as
one (1) whole year, in addition to their backwages. Costs against
respondent Novelty Philippines, Inc.
SO ORDERED.
Narvasa, Cruz and Gancayco, JJ., concur.
Medialdea, J., took no part.
G.R. Nos. 102633-35 January 19, 1993
RHONE-POULENC AGROCHEMICALS PHILIPPINES, INC.,
petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, URCISIO A. ORAIN,
and PAULINO G. ROMAN, respondents.
Francis V. Sobrevinas and Divinagracia S. San Juan for petitioner.
GUTIERREZ, JR., J.:
Petitioner Rhone-Poulenc Agrochemicals Philippines, Inc. (Rhone-
Poulenc for brevity) assails the finding by the National Labor Relations
Commission (NLRC) that Contemporary Services, Inc. (CSI), a supplier
of janitorial services, is a labor-only contractor.
The petitioner is a domestic corporation engaged in the manufacture of
agro-chemicals. Its business operations involve the formulation,
production, distribution and sale in the local market of its agro-
chemical products.
On January 1, 1988, as a consequence of the sale by Union Carbide,
Inc. of all its agricultural-chemical divisions worldwide in favor of
Rhone-Poulenc Agrochemie, France, the petitioner's mother
corporation, the petitioner acquired from Union Carbide Philippines Far
East, Inc. (Union Carbide for short) the latter's agro-chemical
formulation plant in Namayan, Mandaluyong, Metro Manila.
Rhone-Poulenc and Union Carbide agreed on a three-month transition
period for the turnover of the Namayan plant to the former. Hence,
from January 1 to March 31, 1988, both Union Carbide and Rhone-
Poulenc shared and operated the same facilities.
In 1987, prior to the sale, Union Carbide had entered into a contract
with CSI for the latter's supply of janitorial services. During the
transition period, Union Carbide continued to avail itself of CSI's
janitorial services. Thus, petitioner Rhone-Poulenc found itself sharing
the Namayan plant with Union Carbide while the factory was being
serviced and maintained by janitors supplied by CSI.
Midway through the transition period, Union Carbide instructed CSI to
reduce the number of janitors working at the plant from eight (8) to
seven (7). Private respondent Paulino Roman, one of the janitors, was

recalled by CSI on February 15, l988 for reassignment. However,
Roman refused to acknowledge receipt of the recall memorandum.
On March 9, 1988, Union Carbide formally notified CSI of the
termination of their janitorial service agreement, effective April 1,
1988, citing as reason the global buy-out by Rhone-Poulenc,
Agrochemie, France of Union Carbides Inc.'s agro-chemical business.
CSI thereafter issued a memorandum dated March 20, 1988 to the
seven remaining janitors assigned to the Namayan plant, including
respondent Urcisio Orain, recalling and advising them to report to the
CSI office for reassignment. Like Roman, the janitors refused to
acknowledge receipt of the recall memorandum.
Meanwhile, in anticipation of the March 31, 1988 pull-out by Union
Carbide, the petitioner started screening proposals by prospective
service contractors. Rhone-Poulenc likewise invited CSI to submit to its
Bidding Committee a cost quotation of its janitorial services. However,
another contractor, the Marilag Business and Industrial Services, Inc.
passed the bidding committee's standards and obtained the janitorial
services contract.
On April 1, 1988, the eight janitors reported for work at the Namayan
plant but were refused admission and were told that another group of
janitors had replaced them. These janitors then filed separate
complaints for illegal dismissal, payment of 13th month salary, service
leave and overtime pay against Union Carbide, Rhone-Poulenc and CSI.
These cases were consolidated by order of Labor Arbiter Manuel
Asuncion dated May 23, 1988.
Trial on the merits ensued wherein the labor arbiter conducted full-
blown hearings on factual issues. After the cases were submitted for
decision, six of the original complainants tendered their resignations to
CSI in consideration of the latter's settlement of all their claims. Hence,
only the claims of respondents Roman and Orain remained unsettled.
On November 8, 1989, Labor Arbiter Asuncion ruled that CSI is a
legitimate service contractor and that Roman and Orain were
employees of CSI. The dispositive portion of the labor arbiter's decision
is quoted below:
WHEREFORE, the respondent CSI is ordered to pay the
complainants Orain and Roman their separation pays
computed at one-half of their salaries for every year of
service. The rest of the claims are dismissed for lack of
merit.
The respondents UCFEI and RPAPI were (sic) absolved from
any liability it being shown that they were not the employers
of the complainants. (Rollo, p. 52).
Respondents Roman and Orain appealed the decision to the NLRC. In a
resolution dated March 13, 1991, the NLRC reversed the labor arbiter's
ruling, found that CSI was a mere agent of Union Carbide and Rhone-
Poulenc and held that Rhone-Poulenc was guilty of illegal dismissal.
Respondent NLRC cited the case of Guarin v. NLRC, 178 SCRA 267
(1987), which according to it "involves circumstances similar, if not
identical, to the circumstances obtaining in the case at bar."
In that case, Novelty Philippines, Inc., a domestic corporation engaged
in garment manufacturing, entered into a contract with Lipercon
Services, Inc., a service contractor. The agreement provided, among
others, that there was no employer-employee relationship between
Novelty and the workers assigned by Lipercon to the former, and that
Lipercon shall have exclusive discretion in the selection, engagement
and discharge of its employees and shall have full control over said
employees. The one hundred twenty (120) petitioners in Guarin were
hired by Lipercon and assigned to Novelty as helpers, janitors, firemen
and mechanics until the termination by Novelty of the service
agreement resulting in their dismissal. They sued both Novelty and
Lipercon for illegal dismissal.
The labor arbiter adjudged that the petitioners were regular employees
of Novelty and declared their dismissal illegal. The NLRC reversed this
decision and declared that Lipercon was an independent contractor
and that the petitioners were its employees.
The Court, in a petition for certiorari, upheld the labor arbiter's decision
and ruled:
DO 18-02 Cases 57
The jobs assigned to the petitioners as mechanics, janitors,
gardeners, firemen and grasscutters were directly related to
the business of Novelty as a garment manufacturer. In the
case of Philippine Bank of Communications v. NLRC, 146
SCRA 347, we ruled that the work of a messenger is directly
related to a bank's operations. In its Comment, Novelty
contends that the services which are directly related to
manufacturing garments are sewing, textile cutting, designs,
dyeing, quality control, personnel, administration,
accounting, finance, customs, delivery and similar activities;
and that allegedly, "[i]t is only by stretching the imagination
that one may conclude that the services of janitors,
janitresses, firemen, grasscutters, mechanics and helpers
are directly related to the business of manufacturing
garments" (p. 78, Rollo). Not so, for the work of gardeners in
maintaining clean and well-kept grounds around the factory,
mechanics to keep the machines functioning properly, and
firemen to look out for fires, are directly related to the daily
operations of a garment factory. That fact is confirmed by
Novelty's rehiring the workers or renewing the contract with
Lipercon every year from 1983 to 1986, a period of three (3)
years. (Guarin v. National Labor Relations Commission, 178
SCRA 267, at p. 273).
Applying the Guarin ruling to the case at bar, the NLRC pronounced:
It is in the light of the foregoing that we are constrained to
rule, and so hold, that respondent CSI is a mere agent of
respondent UCFEI and RPAPI who, in the context of the
aforecited pronouncement of the Supreme Court, were the
real employers of the complainants. Consequently,
respondent RPAPI's (the successor-in-interest by sale of
respondent UCFEI) refusal to take in the complainants (after
admittedly absorbing or utilizing their services during the
transition period from 04 January to 31 March 1988) on the
ground that it already had engaged the services of another
service contractor, constitutes an illegal dismissal plain and
simple.
For while it is true that there is no law requiring that a
purchaser should absorb the employees of the selling
company (Central Azucarera del Davao v. CA, 137 SCRA
295); and unless expressly assumed, labor contracts are not
enforceable against a transferee of an enterprise (Fernando
v. Angat Labor Union, 5 SCRA 249; and Visayan Trans. Co. v.
Java, 93 Phil. 962), it is equally true that employees
absorbed by the successor-employers enjoy continuity of
employment status (Cruz v. PAFLU, 42 SCRA 68; PAFLU v.
CIR, 4 SCRA 457; Guerrero's Transport Services v. Blaylocks ,
30 June 1976, 71 SCRA 621; and Sumandi v. Leogardo, et al.,
G.R. No. 67635, 17 Jan. 1985).
As we have stated earlier, respondent RPAPI admits in its
opposition to the appeal (p. 4) that it made use of the
services of the complainants during its transition period from
04 January to 31 March 1983. Said act of utilizing,
temporarily though, the services of the complainants (which,
in a way, attests to the necessity or desirability of the
complainants' service to the operation of the respondent's
business) constitutes an absorption that gave them the right
to be retained. Its refusal to readmit the complainants
constitutes an illegal dismissal.
Under these conditions, the mandate to reinstate the
complainants should, therefore, be addressed to the
respondent RPAPI and not to the respondent CSI, a "labor
only" contractor, nor to the UCFEI which had ceased to be
the employer of the complainants because of the sale of its
business. (Rollo, pp. 39-40).
The NLRC then ordered the petitioner to reinstate respondents Roman
and Orain and to pay one year backwages, or to grant them separation
pay if reinstatement was not feasible. As to the respondents' claim for
13th month pay, incentive leave and overtime pay, these were
dismissed by the NLRC for lack of sufficient factual basis.
Rhone-Poulenc filed a motion for reconsideration which was denied by
the public respondent in its resolution of September 11, 199l. Hence,
this petition for certiorari.
On December 2, 1991, the Court resolved to issue a temporary
restraining order enjoining the NLRC from enforcing and/or carrying out

its resolutions dated March 13, 1991 and September 11, 1991. (Rollo,
pp. 54-56)
Petitioner Rhone-Poulenc maintains that it is CSI, and not Union
Carbide and Rhone-Poulenc, as successor, which is the actual employer
of the respondent janitors. Rhone-Poulenc insists that, contrary to the
NLRC's findings, CSI is a legitimate independent contractor providing
janitorial services to a wide range of clientele including Union Carbide.
Moreover, the petitioner avers that it was grave abuse of discretion on
the part of the public respondent to conclude that Rhone-Poutlenc
absorbed Roman and Orain into its workforce.
The issues to be resolved in this petition are:
(1) Whether or not the janitors were employees of Union
Carbide;
(2) Whether or not CSI is a labor-only contractor; and
(3) Whether or not petitioner Rhone-Poulenc absorbed the
janitors into its workforce.
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection
and engagement of employees (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employee's
conduct — although the latter is the most important element. (See Ecal
V. NLRC, 195 SCRA 224 [1991]; Singer Sewing Machine Company v.
Drilon, 193 SCRA 270 [1991]; Brotherhood Labor Unity Movement in
the Philippines v. Zamora, 147 SCRA 49 [1986]; Social Security System
v. Court of Appeals, 39 SCRA 629 [1971]; Viaña v. Al-Lagadan and Piga,
99 Phil. 408 [1956]).
Where the employer-employee relationship has been ascertained, the
employer becomes bound by the statutory requirements pertaining,
though not limited, to terms and conditions of employment, labor
relations and
post-employment. But the law has likewise provided for situations
where, although the application of the aforementioned four-fold test
will not establish an employer-employee relationship, a person or
employer who contracts with another for the performance of the
former's work or of any work, nevertheless becomes liable to the
employees of the contractor. Articles 106, 107 and 109 of the Labor
Code provide:
Art. 106. Contractor or subcontractor — Whenever an
employer enters into a contract with another person for the
performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same
manner and extent that he is liable to employees directly
employed by him.
xxx xxx xxx
There is labor-only contracting where the person supplying
workers to an employer does not have substantial capital or
investment, in the form of tools, equipment, machineries,
work premises, among others and the workers recruited and
placed by such persons, are performing activities which are
directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible
to the workers in the same manner and extent as if the latter
were directly employed by him.
Art. 107. Indirect employer. — The provisions of the
immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not
being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.
Art. 109. Solidary liability — The provisions of existing laws
to the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or
subcontractor for any violation of any provision of this Code.
For purposes of determining the extent of their civil liability
DO 18-02 Cases 58
under this Chapter, they shall be considered as direct
employers.
The import Of the foregoing provisions was enunciated in the case of
Philippine Bank of Communications v. National Labor Relations
Commission, 146 SCRA 347 (1986):
Under the general rule set out in the first and second
paragraphs of Article 106, an employer who enter's into a
contract with a contractor for the performance of work for
the employer, does not thereby create an employer-
employee relationship between himself and the employees
of the contractor. Thus, the employees of the contractor
remain the contractor's employees and his alone.
Nonetheless, when a contractor fails to pay the wages of his
employees in accordance with the Labor Code, the employer
who contracted out the job to the contractor becomes jointly
and severally liable with his contractor to the employees of
the latter "to the extent of work performed under the
contract" as if such employer were the employer of the
contractor's employees. The law itself, in other words,
establishes an employer-employee relationship between the
employer and the job contractor's employees for a limited
purpose, i.e., in order to ensure that the latter get paid the
wages due to them.
A similar situation obtains where there is "labor only"
contracting. The "labor-only" contractor — i.e. "the person or
intermediary" — is considered "merely as an agent of the
employer." The employer is made by the statute responsible
to the employees of the "labor only" contractor as if such
employees had been directly employed by the employer.
Thus, where "labor only" contracting exists in a given case,
the statute itself implies or establishes an employer-
employee relationship between the employer (the owner of
the project) and the employees of the "labor only"
contractor, this time for a comprehensive purpose:
"employer for purposes of this Code, to prevent any violation
or circumvention of any provision of this Code." The law in
effect holds both the employer and the "labor only"
contractor responsible to the latter's employees for the more
effective safeguarding of the employees' rights under the
Labor Code. (at p. 356; emphasis supplied)
And in determining whether a contractor is engaged in labor-only
contracting or in job contracting, reference may be made to Sections 8
and 9 of the Implementing Rules, which provide:
Sec. 8. Job contracting. — There is job contracting
permissible under the Code if the following conditions are
met:
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his
own responsibility according to his own manner and method,
free from the control and direction of his employer or
principal in all matters connected with the performance of
the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in
the form of tools, equipment, machineries, work premises,
and other materials which are necessary in the conduct of
his business.
Sec. 9. Labor-only contracting. — (a) Any person who
undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where such
person;
(1) Does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises and
other materials; and
(2) The workers recruited and placed by such person are
performing activities which are directly related to the
principal business or operations of the employer in which
workers are habitually employed.
(b) Labor-only contracting as defined herein is hereby
prohibited and the person acting as contractor shall be

considered merely as an agent or intermediary of the
employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly
employed by him.
xxx xxx xxx
Applying the foregoing principles to the case at bar, the Court is
constrained to rule for the petitioner.
There is no employer-employee relationship between Union Carbide
and the respondent janitors. The respondents themselves admitted
that they were selected and hired by CSI and were assigned to Union
Carbide. CSI likewise acknowledged that the two janitors were its
employees. The janitors drew their salaries from CSI and not from
Union Carbide. CSI exercised control over these janitors through
Richard Barroga, also a CSI employee, who gave orders and
instructions to CSI janitors assigned to the Namayan plant. Moreover,
CSI had the power to assign its janitors to various clients and to pull
out, as it had done in a number of occasions, any of its janitors working
at Union Carbide.
As to whether CSI is engaged in labor-only contracting or in job
contracting, applying the test prescribed by the Labor Code and the
implementing rules, we find sufficient basis from the records to
conclude that CSI is engaged in job contracting. As correctly declared
by the labor arbiter:
Moreover, CSI is a legitimate service contractor. It is
registered as one and doing business as such with a number
of known companies in the country. It has a contract with
UCFEI to assign janitorial and ground services to the latter
for a fee. The complainants' work were basically janitorial
and gardening chores. The tools of their trade were supplied
by CSI. Of course, we are aware of the complainants' claim
that they were made to do chores which are production jobs.
Yet, there is no showing of regularity or permanence of such
assignment. Those occasional errands cannot be considered
as genuine control of UCFEI over the complainants. (Rollo,
pp. 51-52)
Moreover, in Kimberly Independent Labor Union v. Drilon, 185 SCRA
190 [1990], the Court took judicial notice of the general practice
adopted in several government and private institutions and industries
of hiring a janitorial service on an independent contractor basis.
It must be stressed that the janitorial service agreement between
Union Carbide and CSI binds only the two, and not petitioner Rhone-
Poulenc. As new owner, Rhone-Poulenc had every right to choose its
own service contractor.
Respondent NLRC relied heavily on the ruling in Guarin, supra, in
deducing that CSI was a labor-only contractor. The facts in Guarin,
however, are different from those obtaining in the present case. In
Guarin, the contractor failed to prove that it had substantial capital or
investment in the form of tools, equipment, machineries, work
premises and other materials. In the case at bar, it has been
established that CSI, the contractor, owns and maintains its own office;
that it owns office equipment such as, but not limited to, typewriters,
calculators, xerox machines, mimeographing machines, airconditioning
units and transportation vehicles; and that it furnishes its janitors the
cleaning equipment such as carpet vacuums and polishing machines.
Moreover, the petitioners in Guarin, who were assigned as helpers,
janitors, firemen and mechanics, numbered one hundred twenty (120)
in all which, by itself, amounts to a considerable workforce and gives
rise to the suspicion that the service agreement between Novelty and
Lipercon was designed to evade the obligations inherent in an
employer-employee relationship. In contrasts there were only eight (8)
janitors supplied by CSI to Union Carbide.
These two substantial differences, taken together, are sufficient to
remove the present case from the ambit of the Guarin ruling.
Even on the supposition that the janitors were, indeed, employees of
Union Carbide or that CSI is a labor-only contractor, thus making Union
Carbide a direct employer of these janitors, petitioner Rhone-Poulenc,
as purchaser of Union Carbide's business is not compelled to absorb
these janitors into its workforce. An innocent transferee of a business
establishment has no liability to the employees of the transferor to
continue employing them. (Central Azucarera del Davao v. Court of
Appeals, 137 SCRA 295 [1985]).
DO 18-02 Cases 59
The NLRC, however, concluded that since Rhone-Poulenc made use of
the services of the janitors during the three-month transition period,
then said act of utilizing their services constitutes absorption of the
janitors into the petitioner's workforce which gives them the right to be
retained. This ratiocination is not correct. The public respondent failed
to consider the fact that during the three-month transition period prior
to Union Carbide's turnover of the facilities, the service contract
between Union Carbide and CSI was still in force. Whatever benefit the
petitioner derived from the continuous availment by Union Carbide of
the services of CSI's janitors was merely incidental. The NLRC also
overlooked the fact that it was still Union Carbide who paid CSI for the
services of these janitors. Also, even prior to the expiration of the
transition period, the petitioner, in anticipation of the pullout of Union
Carbide and its hired service agencies, started screening its own
service contractors. Under these circumstances, the petitioner may not
be deemed to have absorbed the respondent janitors as its own
employees.
WHEREFORE, the resolutions of the respondent National Labor
Relations Commission dated March 13, 1991 and September 11, 1991
are SET ASIDE. The decision of the labor arbiter dated November 8,
1989 is hereby REINSTATED.
The temporary restraining order issued by this Court on December 2,
1991 is made PERMANENT.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
G.R. No. 101539 September 4, 1992
CECILE DE OCAMPO, WILFREDO SAN PEDRO, REYNALDO
DOVICAR, BIEN MEDINA, CESAR ABRIOL, ARTEMIO CASTRO,
LARRY ALCANTARA, MICHAEL NOCUM, JESUS DEO JR., PUBLEO
DARAG, EDUARDO BINO, EDUARDO VELES, ERVIN DAVID,
PROTACIO PEREZ, NOEL VICTOR, ELENO DACATIMBAN,
ANTONIO BERNARDO, CARLITO VICTORIA, TIMOTEO MIJARES,
ALEX RAMOS, REYNALDO CRUZ, MODESTO MAMESIA, DOMINGO
SILARDE, RENATO PUENTAS, RENE VILLANUEVA, MARCELO
DELA CRUZ and HERNANDO LEGASPI, petitioners
vs.
NATIONAL LABOR RELATIONS COMMISSION and BALIWAG
MAHOGANY CORPORATION, respondents.
MEDIALDEA, J.:
This Petition for certiorari seeks to annul and set aside the resolution
issued by the respondent National Labor Relations Commission on July
8, 1991, in Certified Case No. 0548 entitled "In Re: Labor Dispute at
Baliwag Mahogany Corporation," affirming with modification its
previous decision dated October 23, 1990, declaring the union officers
and/or members who participated in the illegal strike staged on
February 6, 1990 to have lost their status of employment; and
directing private respondent Baliwag Mahogany Corporation to pay
separation pay to certain employees and to reinstate without
backwages all union Members not found to have committed prohibited
acts.
The antecedent facts are as follows:
Petitioners Cecile de Ocampo, Wilfredo San Pedro, Reynaldo Dovicar,
Bien Medina, Cesar Abriol, Artemio Castro, Larry Alcantara, Michael
Nocum, Jesus Deo, Jr., Publeo Darag, Eduardo Bino, Eduardo Veles,
Ervin David, Prostacio Perez, Noel Victor, Eleno Dacatimban, Antonio
Bernardo, Carlito Victoria, Timoteo Mijares, Alex Ramos, Reynaldo
Cruz, Modesto Mamesia, Domingo Silarde, Renato Puertas, Rene
Villanueva, Marcelo dela Cruz and Hernando Legaspi are employees of
private respondent Baliwag Mahogany Corporation. They are either
officers or members of the Baliwag Mahogany Corporation Union-CFW,
the existing collective bargaining agent of the rank and file employees
in the company. Private respondent Baliwag Mahogany Corporation is
an enterprise engaged in the production of wooden doors and furniture
and has a total workforce of about 900 employees.
In 1988, private respondent Baliwag Mahogany Corporation (company)
and Baliwag Mahogany Corporation Union-CFW (union) entered into a
collective bargaining agreement containing, among other things,
provisions on conversion into cash of unused vacation and sick leaves;

grievance machinery procedure; and the right of the company to
schedule work on Sundays and holidays.
In November, 1989, the union made several requests from the
company, one of which was the cash conversion of unused vacation
and sick leave for 1987-1988 and 1988-1989.
Acting on the matter, the company ruled to allow payment of unused
vacation and sick leaves for the period of 1987-1988 but disallowed
cash conversion of the 1988-1989 unused leaves.
On January 3, 1990, the company issued suspension orders affecting
twenty (20) employees for failure to render overtime work on
December 30, 1989. The suspension was for a period of three (3) days
effective January 3, 1996 to January 5, 1990.
On the same day, the union filed a notice of strike on the grounds of
unfair labor practice particularly the violation of the CBA provisions on
non-payment of unused leaves and illegal dismissal of seven (7)
employees in November, 1989.
On January 13, 1990, the company issued a notice of termination to
three (3) employees or union members, namely, Cecile de Ocampo,
Rene Villanueva and Marcelo dela Cruz, of the machinery department,
allegedly to effect cost reduction and redundancy.
The members of the union conducted a picket at the main gate of the
company on January 18, 1990.
On the same day, the company filed a petition to declare the strike
illegal with prayer for injunction against the union, Cecile de Ocampo,
Wilfredo San Pedro and Rene Aguilar.
An election of officers was conducted by the union on January 19,
1990. Consequently, Cecile de Ocampo was elected as president.
During the conciliation meeting held at National Conciliation and
Mediation Board (NCMB) on January 22, 1990 relative to the notice of
strike filed by the union on January 3, 1990, the issue pertaining to the
legality of the termination of three (3) union members was raised by
the union. However, both parties agreed to discuss it separately.
Subsequently, in a letter dated January 28, 1990, the union requested
for the presence of a NCMB representative during a strike vote held by
the union. The strike vote resulted to 388 votes out of 415 total votes
in favor of the strike.
Consequently, the union staged a strike on February 6, 1990.
On February 7, 1990, the company filed a petition to assume
jurisdiction with the Department of Labor and Employment.
On February 16, 1990, the company filed an amended petition, praying
among other things, that the strike staged by the union on February 6,
1990 be declared illegal, there being no genuine strikeable issue and
the violation of the no-strike clause of the existing CBA between the
parties.
The Secretary of Labor in an order dated February 15, 1990, certified
the entire labor dispute to the respondent Commission for compulsory
arbitration and directed all striking workers including the dismissed
employees to return to work and the management to accept them
back.
The company filed an urgent motion for assignment of a sheriff to
enforce the order of the Secretary.
In an order dated February 22, 1990, the Secretary of Labor directed
Sheriff Alfredo Antonio, Jr., to implement the order.
On February 23, 1990, the sheriff, with the assistance of the PC/INP of
San Rafael, removed the barricades and opened the main gate of the
company.
DO 18-02 Cases 60
Criminal complaints for illegal assembly, grave threats, and grave
coercion were filed against Cecile de Ocampo, Timoteo Mijares,
Modesto Mamesia and Domingo Silarde by the local police authorities
on February 24, 1990.
On February 25, 1990, the company caused the publication of his
return to work order in two (2) newspapers, namely NGAYON and
ABANTE.
In its letter dated February 27, 1990, the union, through its President
Cecile de Ocampo, requested the Regional Director of DOLE, Region III
to intervene in the existing dispute with management.
Meanwhile, the company extended the February 26, 1990 deadline for
the workers to return to work until March 15, 1990.
The respondent Commission rendered a decision on October 23, 1990,
declaring the strikes staged on January 18, 1990 and February 6, 1990
illegal, the dispositive portion of which provides as follows, to wit:
WHEREFORE, judgment is hereby rendered as follows:
1. The strike staged on January 18, 1990 is hereby declared
illegal and all employees who participated therein are
reprimanded therefor or an further warned that future
similar acts shall be dealt more severely;
2. The strike staged on February 6, 1990 is hereby declared
illegal and the Union officers/members are deemed
suspended from March 15, 1990 the last deadline of the
company for them to report to the date of promulgation of
this Decision. In short, the Union officers/members are
ordered reinstated to their positions but without backwages;.
3. Baliwag Mahogany Corporation is hereby directed to
immediately reinstate Cecile de Ocampo, Rene Villanueva
and Marcelo dela Cruz to their former positions without loss
of seniority rights to pay them full backwages for the period
from January 17, 1990 to March 15, 1990 only;
4. The Baliwag Mahogany Corporation is hereby directed to
immediately reinstate Alex Ramos, Ronaldo Cruz, Fernando
Hernandez, Renato Puertas, Hernando Legaspi to their
former positions and to pay them backwages from date of
dismissal to March 15, 1990 only;
5. The Baliwag Mahogany Corporation is hereby exonerated
of the charge of unfair labor practice;
6. The Baliwag Mahogany Corporation is directed to pay its
employment the cash equivalent of unused sick leaves for
year 1989;
7. The Baliwag Mahogany Corporation is directed to remit to
the Union the dues for the month of January 1990.
SO ORDERED. (Rollo, pp. 68-69)
Such decision prompted the company to file a motion for
reconsideration substantially on the ground that public respondent
seriously erred in not dismissing the employees particularly the union
officers, who participated in the illegal strike.
In its supplemental motion for reconsideration, the company
contended that as a result of the strike, it failed to meet the purchase
orders for the quarter valued at fifteen million pesos.
Petitioners filed an opposition to the company's motion for
reconsideration and subsequently a supplemental comment/opposition
to motion for reconsideration.
On December 13, 1990, the respondent Commission directed the Labor
Arbiter to receive evidence on the issues raised in the motion for
reconsideration and additional evidence on the issues already passed
upon and to submit a report thereon.

On July 8, 1991, the respondent Commission rendered a resolution
affirming with modification the decision dated October 23, 1990, the
dispositive portion of which provides as follows:
WHEREFORE, premises considered, the Decision of October
23, 1990 is hereby MODIFIED, to wit:
1. The strike staged on February 6, 1990 is hereby declared
illegal and the Union officers/members who participated in
said strike committed prohibited acts are deemed to have
lost their status of employment, to wit:
1. Cecile de Ocampo
2. Wilfredo San Pedro
3. Reynaldo Aguilar
4. Bren Medina (Bien Medina)
5. Cesar Abriol
6. Artemio Castro
7. Larry Alcantara
8. Melie Nocum (Michael Nocum)
9. Jesus Deo, Jr.
10. Publeo Darag
11. Eduardo Bino
12. Eduardo Vices (Eduardo Veles)
13. Abroin David (Ervin David)
14. Protacio Perez (Prostacio Perez)
15. Celso Sarmiento
16. Neol Vicbon (Noel Victor)
17. Alano Dacatimban (Eleno Dacatimban)
18. Antonio Bernardo
19. Carlito Victoria
20. Timoteo Mijares
21. Alex Ramos
22. Reynaldo Cruz
23. Modesto Manesia
24. Domingo Silarde
25. Renato Puertas
26. Hernando Legaspi
2. The Baliwag Mahogany Corporation is directed to pay
Cecile de Ocampo, Rene Villanueva and Marcelo Cruz
separation pay computed at one month per year of service in
addition to one month pay as indemnification pay for lack of
notice (Art. 283, Labor Code).
3. The Baliwag Mahogany Corporation is directed to pay Alex
Ramos, Reynaldo Cruz, Renato Puertas, Hernando Legaspi
separation pay computed at one (1) month per year of
service in addition to backwages limited to six (6) months.
4. The Baliwag Mahogany Corporation is directed to reinstate
but without backwages all Union members not found herein
to have committed prohibited acts nor found to have
accepted settlement from it nor have voluntarily left the
Company for reasons of their own.
5. All other findings in the questioned Decision are affirmed.
SO ORDERED. (Rollo, pp. 45-47)
Hence, this present petition raising three (3) issues, to wit:
1. Whether or not there is legal basis for declaring the loss of
employment status by petitioners on account of the strike in
respondent Company.
2. Whether or not the dismissals of petitioners Cecile de
Ocampo, Rene Villanueva, and Marcelo dela Cruz from their
positions by the company on the ground of redundancy was
done in good faith.
3. Whether or not respondent NLRC acted correctly in
allowing respondent company to submit additional evidence
in support of its Motion for Reconsideration and in giving
credence to the said evidence despite the fact that the same
were not newly-discovered evidence as defined under the
Rules of Court. (Rollo, p. 11)
DO 18-02 Cases 61
After a careful review of the records of this case, the Court finds the
petition devoid of merit.
Petitioners insist that there is no specific finding by the respondent
commision regarding the particular participation of the individual
petitioners in the supposed acts of violence or commission of
prohibited acts during the strike such as denial of free ingress to the
premises of the company and egress therefrom as well as illegal acts
of coercion during the February, 1990 strike.
The Solicitor General disagrees and claims that it is undisputed that
the union resorted to illegal acts during the strike arguing that private
respondent's personnel manager specifically identified the union
officers and members who committed the prohibited acts and actively
participated therein.
Moreover, the Solicitor General maintains that the illegality of the
strike likewise stems from the failure of the petitioners to honor the
certification order and heed the return-to-work order issued by the
Secretary of Labor.
Answering this contention, the petitioners argued that their failure to
immediately return to work was not impelled by any malicious or
malevolent motive but rather, by their apprehension regarding their
physical safety due to the presence of military men in the factory who
might cause them harm.
The law on the matter is Article 264 (a) of the Labor Code, to wit:
Article 264. (a) Prohibited activities. (a) ––
No strike or lockout shall be declared after assumption of
jurisdiction by the President or the Minister or after
certification or submission of the dispute to compulsory or
voluntary arbitration or during the pendency of cases
involving the same grounds for the strike or lockout.
Any worker whose employment has been terminated as a
consequence of an unlawful lockout shall be entitled to
reinstatement with full backwages. Any union officer who
knowingly participates in an illegal strike and any worker or
union officer who knowingly participates in the commission
of illegal acts during a strike may be declared to have lost
his employment status: Provided, That mere participation of
a worker in a lawful strike shall not constitute sufficient
ground for termination of his employment, even if a
replacement had been hired by the employer during such
lawful strike.
The clear mandate of the aforequoted article was stressed in the case
of Union of Filipro Employees v. Nestle Philippines, Inc. (G.R. Nos.
88710-13, December 19, 1990, 192 SCRA 396, 411) where it was held
that a strike that is undertaken despite the issuance by the Secretary
of Labor of an assumption or certification order becomes a prohibited
activity and thus illegal, pursuant to the second paragraph of Art. 264
of the Labor Code as Amended and the Union officers and members, as
a result, are deemed to have lost their employment status for having
knowingly participated in an illegal act.
Unrebutted evidence shows that the individual petitioners defied the
return-to-work order of the Secretary of Labor issued on February 15,
1990. As a matter of fact, it was only on February 23, 1990 when the
barricades were removed and the main gate of the company was
opened. Hence, the termination of the services of the individual
petitioners is justified on this ground alone.
Anent the contention that the respondent Commission gravely abused
its discretion when it allowed the presentation of additional evidence to
prove the loss suffered by the company despite the fact that they were
mere afterthoughts and just concocted by the company, time and
again, We emphasize that "technical rules of evidence are not binding
in labor cases. Labor officials should use every and reasonable means
to ascertain the facts in each case speedily and objectively, without
regard to technicalities of law or procedure, all in the interest of due
process" (Philippine Telegraph and Telephone Corporation v. National
Labor Relations Commission, G.R. No. 80600, March 21, 1990, 183
SCRA 451, 457).

Turning to the legality of the termination of three (3) of the individual
petitioners, petitioners contend that the company acted in bad faith
when it terminated the services of the three mechanics because the
positions held by them were not at all abolished but merely given to
Gemac Machineries.
On the contrary, the company stresses that when it contracted the
services of Gemac Machineries for the maintenance and repair of its
industrial machinery, it only adopted a cost saving and cost-
consciousness program in order to improve production efficiency.
We sustain respondent Commission's finding that petitioners' dismissal
was justified by redundancy due to superfluity and hence legal.
We believe that redundancy, for purposes of our Labor Code, exists
where the services of an employee are in excess of what is reasonably
demanded by the actual requirement of the enterprise. Succinctly put,
a position is redundant where it is superfluous, and superfluity of a
position or positions may be the outcome of a number of factors, such
as over hiring of workers, decreased volume of business, or dropping of
a particular product line or service activity previously manufactured or
undertaken by the enterprise. The employer had no legal obligation to
keep in its payroll more employees, than are necessary for the
operation of its business. (Wiltshire File Co., Inc. v. National Labor
Relations Commission, G.R. No. 82249, February 7, 1991; 193 SCRA
665,672).
The reduction of the number of workers in a company made necessary
by the introduction of the services of Gemac Machineries in the
maintenance and repair of its industrial machinery is justified. There
can be no question as to the right of the company to contract the
services of Gemac Machineries to replace the services rendered by the
terminated mechanics with a view to effecting more economic and
efficient methods of production.
In the same case, We ruled that "(t)he characterization of (petitioners')
services as no longer necessary or sustainable, and therefore properly
terminable, was an exercise of business judgment on the part of
(private respondent) company. The wisdom or soundness of such
characterization or decision was not subject to discretionary review on
the part of the Labor Arbiter nor of the NLRC so long, of course, as
violation of law or merely arbitrary and malicious action is not shown"
(ibid, p. 673).
In contracting the services of Gemac Machineries, as part of the
company's cost-saving program, the services rendered by the
mechanics became redundant and superfluous, and therefore properly
terminable. The company merely exercised its business judgment or
management prerogative. And in the absence of any proof that the
management abused its discretion or acted in a malicious or arbitrary
manner, the court will not interfere with the exercise of such
prerogative.
Well-settled is the rule that the factual findings of administrative
bodies are entitled to great weight, and these findings are accorded
not only respect but even finality when supported by substantial
evidence (Family Planning Organization of the Philippines, Inc. v.
National Labor Relations Commission, G.R. No. 75987, March 23, 1992,
p. 7 citing Asian Construction and Development Corporation v. National
Labor Relations Commission, G.R. No. 85866, July 24, 1998, 187 SCRA
784, 787). Hence, the truth or the falsehood of alleged facts is not for
this Court now to re-examine.
In the light of the foregoing considerations, it is clear that the assailed
resolution of the respondent Commission is not tainted with
arbitrariness nor grave abuse of discretion.
ACCORDINGLY, the petition is DISMISSED for lack of merit and the
resolution of the respondent Commission dated July 8, 1991 is hereby
AFFIRMED.
SO ORDERED.
Cruz, Griño-Aquino and Bellosillo, JJ., concur.
G.R. No. 124055 June 8, 2000
DO 18-02 Cases 62
ROLANDO E. ESCARIO, NESTOR ANDRES, CESAR AMPER,
LORETO BALDEMOR, EDUARDO BOLONIA, ROMEO E. BOLONIA,
ANICETO CADESIM, JOEL CATAPANG, NESTOR DELA CRUZ,
EDUARDO DUNGO ESCARIO REY, ELIZALDE ESTASIO, CAROLINO
M. PABIAN, RENATO JANER, EMER B. LIQUIGAN, ALEJANDRO
MABAWAD, FERNANDO M. MAGTIBAY, DOMINADOR B.
MILLILLIN, NOEL B. MANILA, VIRGILIO A. MANIO, ROMEO M.
MENDOZA, TIMOTEO NOTARION, FREDERICK RAMOS, JOSEPH
REYES, JESSIE SEVILLA, NOEL STO. DOMINGO, DODJIE
TAJONERA, JOSELITO TIONLOC, ARNEL UMALI, MAURLIE C.
VIBAR, ROLANDO ZALDUA, RODOLFO TUAZON, TEODORO
LUGADA, MAURING MANUEL, MARCIANO VERCARA, JR.,
ARMANDO IBASCO, CAYETANO IBASCO, LEONILO MEDINA,
JOSELITO ODO, MELCHOR BUELA, GOMER GOMEZ, HENRY
PONCE, RAMON ORTIZ, JR., ANTONIO MIJARES, JR., MARIO
DIZER, REYNANTE PEJO, ARNALDO RAFAEL, NELSON BERUELA,
AUGUSTO RAMOS, RODOLFO VALENTIN, ANTONIO CACAM,
VERNON VELASQUEZ, NORMAN VALLO, ALEJANDRO ORTIZ,
ROSANO VALLO, ANDREW ESPINOSA, EDGAR CABARDO,
FIDELES REYES, EDGARDO FRANCISCO, FERNANDO VILLARUEL,
LEOPOLDO OLEGARIO, OSCAR SORIANO, GARY RELOS, DANTE
IRANZO, RONALDO BACOLOR, RONALD ESGUERA VICTOR
ALVAREZ, JOSE MARCELO, DANTE ESTRELLADO, MELQUIADES
ANGELES, GREGORIO TALABONG, ALBERT BALAO, ALBERT
CANLAS, CAMILO VELASCO, PONTINO CHRISTOPHER,
WELFREDO RAMOS, REYNALDO RODRIGUEZ, RAZ GARIZALDE,
MIGUEL TUAZON, ROBERTO SANTOS, AND RICARDO MORTEL,
petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, CALIFORNIA
MANUFACTURING CO, INC. AND DONNA LOUISE ADVERTISING
AND MARKETING ASSOCIATES INCORPORATED, respondents.
KAPUNAN, J.
Before this Court is a petition for certiorari under Rule 65, which seeks
to annul and set aside the decision, promulgated on 10 May 1995, of
the National Labor Relations Commission (NLRC). The assailed decision
reversed the decision of the Labor Arbiter, and ruled that the
petitioners are employees of Donna Louise Advertising and Marketing
Associates, Inc. and ordered the reinstatement of petitioners and the
payment of backwages.
Private respondent California Marketing Co. Inc. (CMC) is a domestic
corporation principally engaged in the manufacturing of food products
and distribution of such products to wholesalers and retailers. Private
respondent Donna Louise Advertising and Marketing Associates, Inc.
(D.L. Admark) is a duly registered promotional firm.
Petitioners worked as merchandisers for the products of CMC. Their
services were terminated on 16 March 1992.
The parties presented conflicting versions of the facts.
Petitioners allege that they were employed by CMC as merchandisers.
Among the tasks assigned to them were the withdrawing of stocks
from the warehouse, the fixing of prices, price-tagging, displaying of
merchandise, and the inventory of stocks. These were done under the
control, management and supervision of CMC. The materials and
equipment necessary in the performance of their job, such as price
markers, gun taggers, toys, pentel pen, streamers and posters were
provided by CMC. Their salaries were being paid by CMC. According to
petitioners, the hiring, control and supervision of the workers and the
payment of salaries, were all coursed by CMC through its agent D.L.
Admark in order for CMC to avoid its liability under the law.
On 7 February 1992, petitioners filed a case against CMC before the
Labor Arbiter for the regularization of their employment status. During
the pendency of the case before the Labor Arbiter, D.L. Admark sent to
petitioners notice of termination of their employment effective 16
March 1992. Hence, their complaint was amended so as to include
illegal dismissal as cause of action. Thereafter, twenty-seven more
persons joined as complainants. CMC filed a motion to implead as
party-defendant D.L. Admark and at the same time the latter filed a
motion to intervene. Both motions were granted.
CMC, on the other hand, denied the existence of an employer-
employee relationship between petitioner and itself. Rather, CMC
contended that it is D.L. Admark who is the employer of the
petitioners. While CMC is engaged in the manufacturing of food
products and distribution of such to wholesalers and retailers, it is not
allowed by law to engage in retail or direct sales to end consumers. It,

however, hired independent job contractors such as D.L. Admark, to
provide the necessary promotional activities for its product
lines.1âwphi1.nêt
For its part, D.L. Admark asserted that it is the employer of the
petitioners. Its primary purpose is to carry on the business of
advertising, promotion and publicity, the sales and merchandising of
goods and services and conduct survey and opinion polls. As an
independent contractor it serves several clients among which include
Purefoods, Corona Supply, Firstbrand, Splash Cosmetics and herein
private respondent California Marketing.
On 29 July 1994, the Labor Arbiter rendered a decision finding that
petitioners are the employees of CMC as they were engaged in
activities that are necessary and desirable in the usual business or
trade of CMC. 1 In justifying its ruling, the Labor Arbiter cited the case
of Tabas v. CMC which, likewise, involved private respondent CMC. In
the Tabas case, this Court ruled that therein petitioner merchandisers
were employees of CMC, to wit:
There is no doubt that in the case at bar, Livi performs
"manpower services," meaning to say, it contracts out labor
in favor of clients. We hold that it is one notwithstanding its
vehement claims to the contrary and not-withstanding its
vehement claims to the contrary, and notwithstanding the
provision of the contract that it is "an independent
contractor." The nature of one's business is not determined
by self-serving appellations one attaches thereto but by the
tests provided by statute and prevailing case law. The bare
fact that Livi maintains a separate line of business does not
extinguish the equal fact that it has provided California with
workers to pursue the latter's own business. In this
connection, we do not agree that the petitioner has been
made to perform activities "which are not directly related to
the general business of manufacturing," California's
purported "principal operation activity. The petitioners had
been charged with merchandising [sic] promotion or sale of
the products of [California] in the different sales outlets in
Metro Manila including task and occational [sic] price
tagging" an activity that is doubtless, an integral part of the
manufacturing business. It is not, then, as if Livi had served
as its (California's) promotions or sales arm or agent, or
otherwise rendered a piece of work it (California) could not
itself have done; Livi as a placement agency, had simply
supplied it with manpower necessary to carry out its
(California's) merchandising activities, using its (California's)
premises and equipment. 2
On appeal, the NLRC set aside the decision of the Labor Arbiter. It ruled
that no employer-employee relationship existed between the
petitioners and CMC. It, likewise, held that D.L. Admark is a legitimate
independent contractor, hence, the employer of the petitioners.
Finding no valid grounds existed for the dismissal of the petitioners by
D.L. Admark, it ordered their reinstatement. The dispositive portion of
the decision reads:
WHEREFORE, premises considered, the appealed judgment
is modified. Intervenor DL ADMARK is ordered to reinstate
the eighty one (81) complainants mentioned in the appealed
decision to their former positions with backwages from
March 16, 1992 until they are actually reinstated. The award
of attorney's fees equivalent to ten (10%) of the award is
deleted for lack of basis. 3
Petitioners filed a motion for reconsideration but the same was denied
by the NLRC for lack of merit. 4
Hence, this petition.
In the main, the issue brought to fore is whether petitioners are
employees of CMC or D.L. Admark. In resolving this, it is necessary to
determine whether D.L. Admark is a labor-only contractor or an
independent contractor.
Petitioners are of the position that D.L. Admark is a labor-only
contractor and cites this Court's ruling in the case of Tabas, which they
claim is applicable to the case at bar for the following reasons:
1. The petitioners are merchandisers and the petitioners in
the Tabas case are also merchandisers who have the same
nature of work.
DO 18-02 Cases 63
2. The respondent in this case is California Manufacturing
Co. Inc. while respondent in the Tabas case is the same
California Manufacturing Co. Inc.
3. The agency in the Tabas case is Livi Manpower Services.
In this case, there are at least, three (3) agencies namely:
the same Livi Manpower Services; the Rank Manpower
Services and D.L. Admark whose participation is to give and
pay the salaries of the petitioners and that the money
came from the respondent CMC as in the Tabas case.
4. The supervision, management and/or control rest upon
respondent California Manufacturing Co. Inc. as found by
the Honorable Labor Arbiter which is also, true in the Tabas
Case. 5
We cannot sustain the petition.
Petitioners' reliance on the Tabas case is misplaced. In said case, we
ruled that therein contractor Livi Manpower Services was a mere
placement agency and had simply supplied herein petitioner with the
manpower necessary to carry out the company's merchandising
activity. We, however, further stated that:
It would have been different, we believe, had Livi been
discretely a promotions firm, and that California had hired it
to perform the latter's merchandising activities. For then, Livi
would have been truly the employer of its employees and
California, its client. . . . . 6
In other words, CMC can validly farm out its merchandising activities to
a legitimate independent contractor.
There is labor-only contracting when the contractor or sub-contractor
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 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. 7
In contrast, there is permissible job contracting when a principal
agrees to put out or farm out with a contractor or a subcontractor the
performance or completion of a specific job, work or service within a
definite or predetermined period, regardless of whether such job or
work or service is to be performed or completed within or outside the
premises of the principal. In this arrangement, the following conditions
must concur:
(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; and
(b) The contractor has substantial capita or investment in
the form of tools, equipment, machineries (sic), work
premises, and other materials which are necessary in the
conduct of his business. 8
In the recent case of Alexander Vinoya vs. NLRC et al., 9 this Court
ruled that in order to be considered an independent contractor it is not
enough to show substantial capitalization or investment in the form of
tools, equipment, machinery and work premises. In addition, the
following factors need be considered: (a) whether the contractor is
carrying on an independent business; (b) the nature and extent of the
work; (c) the skill required; (d) the term and duration of the
relationship; (e) the right to assign the performance of specified pieces
of work; (f) the control and supervision of the workers; (g) the power of
the employer with respect to the hiring firing and payment of workers
of the contractor; (h) the control of the premises; (i) the duty to supply
premises, tools, appliances, materials, and labor, and (j) the mode,
manner and terms of payment. 10

Based on the foregoing criterion, we find that D.L. Admark is a
legitimate independent contractor.
Among the circumstances that tend to establish the status of D.L.
Admark as a legitimate job contractor are:
1) The SEC registration certificate of D.L. Admark states that
it is a firm engaged in promotional, advertising, marketing
and merchandising activities.
2) The service contract between CMC and D.L. Admark
clearly provides that the agreement is for the supply of sales
promoting merchandising services rather than one of
manpower placement. 11
3) D.L. Admark was actually engaged in several activities,
such as advertising, publication, promotions, marketing and
merchandising. It had several merchandising contracts with
companies like Purefoods, Corona Supply, Nabisco Biscuits,
and Licron. It was likewise engaged in the publication
business as evidenced by it magazine the "Phenomenon." 12
4) It had its own capital assets to carry out its promotion
business. It then had current assets amounting to P6 million
and is therefore a highly capitalized venture. 13 It had an
authorized capital stock of P500,000.00. It owned several
motor vehicles and other tools, materials and equipment to
service its clients. It paid rentals of P30,020 for the office
space it occupied.
Moreover, by applying the four-fold test used in determining employer-
employee relationship, the status of D.L. Admark as the true employer
of petitioners is further established. The elements of this test 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. 14
As regards the first element, petitioners themselves admitted that they
were selected and hired by D.L. Admark. 15
As to the second element, the NLRC noted that D.L. Admark was able
to present in evidence the payroll of petitioners, sample SSS
contribution forms filed and submitted by D.L. Admark to the SSS, and
the application for employment by R. de los Reyes, all tending to show
that D.L. Admark was paying for the petitioners' salaries. In contrast,
petitioners did not submit an iota of evidence that it was CMC who paid
for their salaries. The fact that the agreement between CMC and D.L.
Admark contains the billing rate and cost breakdown of payment for
core merchandisers and coordinators does not in any way establish
that it was CMC who was paying for their salaries. As correctly pointed
out by both CMC 16 and the Office of the Solicitor General, 17 such cost
breakdown is a standard content of service contracts designed to
insure that under the contract, employees of the job contractor will
receive benefits mandated by law.
Neither did the petitioners prove the existence of the third element.
Again petitioners admitted that it was D.L. Admark who terminated
their
employment. 18
To prove the fourth and most important element of control, petitioners
presented the memoranda of CMC's sales and promotions manager.
The Labor Arbiter found that these memos "indubitably show that the
complainants were under the supervision and control of the CMC
people." 19 However, as correctly pointed out by the NLRC, a careful
scrutiny of the documents adverted to, will reveal that nothing therein
would remotely suggest that CMC was supervising and controlling the
work of the petitioners:
. . . The memorandums (Exhibit "B") were addressed to the
store or grocery owners telling them about the forthcoming
sales promotions of CMC products. While in one of the
memorandums a statement is made that "our merchandisers
and demonstrators will be assigned to pack the premium
with your stocks in the shelves . . ., yet it does not
necessarily mean to refer to the complainants, as they claim,
since CMC has also regular merchandisers and
demonstrators. It would be different if in the memorandums
were sent or given to the complainants and their duties or
roles in the said sales campaign are therein defined. It is also
DO 18-02 Cases 64
noted that in one of the memorandums it was addressed to:
"All regular merchandisers/demonstrators." . . . we are not
convinced that the documents sufficiently prove employer-
employee relationship between complainants and
respondents CMC. 20
The Office of the Solicitor General, likewise, notes that the documents
fail to show anything that would remotely suggest control and
supervision exercised by CMC over petitioners on the matter on how
they should perform their work. The memoranda were addressed
either to the store owners or "regular" merchandisers and
demonstrators of CMC. Thus, petitioners, who filed a complaint for
regularization against respondent CMC, thereby, conceding that they
are not regular employees of the latter, cannot validly claim to be the
ones referred to in said memos. 21
Having proven the existence of an employer-employee relationship
between D.L. Admark and petitioners, it is no longer relevant to
determine whether the activities performed by the latter are necessary
or desirable to the usual business or trade of CMC.
On the issue of illegal dismissal, we agree with the findings of the NLRC
that D.L. Admark "admits having dismissed the petitioners for allegedly
disowning and rejecting them as them as their employer."
Undoubtedly, the reason given is not just cause to terminate
petitioners. 22 D.L. Admark's belated claim that the petitioners were not
terminated but simply did not report to
work 23 is not supported by the evidence on record. Moreover, there is
no showing that due process was afforded the petitioners.
IN VIEW OF THE FOREGOING, finding no grave abuse of discretion on
the part of the National Labor Relations Commission, the assailed
decision is AFFIRMED in toto.
SO ORDERED.
Puno, Pardo and Ynares-Santiago, JJ., concur.
Davide, Jr., C.J., on official leave abroad.
G.R. Nos. 97008-09 July 23, 1993
VIRGINIA G. NERI and JOSE CABELIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK &
TRUST COMPANY (FEBTC) and BUILDING CARE CORPORATION,
respondents.
R.L. Salcedo & Improso Law Office for petitioners.
Bengzon, Zarnaga, Narciso, Cudala, Pecson, Bengzon & Jimenez for
Bldg. Care Corp.
Bautista, Picaso, Buyco, Tan & Fider for respondent FEBTC.
BELLOSILLO, J.:
Respondents are sued by two employees of Building Care Corporation,
which provides janitorial and other specific services to various firms, to
compel Far Bast Bank and Trust Company to recognize them as its
regular employees and be paid the same wages which its employees
receive.
Building Care Corporation (BCC, for brevity), in the proceedings below,
established that it had substantial capitalization of P1 Million or a
stockholders equity of P1.5 Million. Thus the Labor Arbiter ruled that
BCC was only job contracting and that consequently its employees
were not employees of Far East Bank and Trust Company (FEBTC, for
brevity). on appeal, this factual finding was affirmed by respondent
National Labor Relations Commission (NLRC, for brevity). Nevertheless,
petitioners insist before us that BCC is engaged in "labor-only"
contracting hence, they conclude, they are employees of respondent
FEBTC.

Petitioners Virginia G. Neri and Jose Cabelin applied for positions with,
and were hired by, respondent BCC, a corporation engaged in
providing technical, maintenance, engineering, housekeeping, security
and other specific services to its clientele. They were assigned to work
in the Cagayan de Oro City Branch of respondent FEBTC on 1 May 1979
and 1 August 1980, respectively, Neri an radio/telex operator and
Cabelin as janitor, before being promoted to messenger on 1 April
1989.
On 28 June 1989, petitioners instituted complaints against FEBTC and
BCC before Regional Arbitration Branch No. 10 of the Department of
Labor and Employment to compel the bank to accept them as regular
employees and for it to pay the differential between the wages being
paid them by BCC and those received by FEBTC employees with similar
length of service.
On 16 November 1989, the Labor Arbiter dismissed the complaint for
lack of merit. 1 Respondent BCC was considered an independent
contractor because it proved it had substantial capital. Thus,
petitioners were held to be regular employees of BCC, not FEBTC. The
dismissal was appealed to NLRC which on 28 September 1990 affirmed
the decision on appeal. 2 On 22 October 1990, NLRC denied
reconsideration of its affirmance, 3 prompting petitioners to seek
redress from this Court.
Petitioners vehemently contend that BCC in engaged in "labor-only"
contracting because it failed to adduce evidence purporting to show
that it invested in the form of tools, equipment, machineries, work
premises and other materials which are necessary in the conduct of its
business. Moreover, petitioners argue that they perform duties which
are directly related to the principal business or operation of FEBTC. If
the definition of "labor-only" contracting 4 is to be read in conjunction
with job contracting, 5 then the only logical conclusion is that BCC is a
"labor only" contractor. Consequently, they must be deemed
employees of respondent bank by operation of law since BCC is merely
an agent of FEBTC following the doctrine laid down in Philippine Bank
of Communications v. National Labor Relations Commission 6 where we
ruled that where "labor-only" contracting exists, the Labor Code itself
establishes an employer-employee relationship between the employer
and the employees of the "labor-only" contractor; hence, FEBTC should
be considered the employer of petitioners who are deemed its
employees through its agent, "labor-only" contractor BCC.
We cannot sustain the petition.
Respondent BCC need not prove that it made investments in the form
of tools, equipment, machineries, work premises, among others,
because it has established that it has sufficient capitalization. The
Labor Arbiter and the NLRC both determined that BCC had a capital
stock of P1 million fully subscribed and paid for. 7 BCC is therefore a
highly capitalized venture and cannot be deemed engaged in "labor-
only" contracting.
It is well-settled that there is "labor-only" contracting where: (a) the
person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries,
work premises, among others; and, (b) the workers recruited and
placed by such person are performing activities which are directly
related to the principal business of the employer. 8
Article 106 of the Labor Code defines "labor-only" contracting thus —
Art. 106. Contractor or subcontractor. — . . . . There is "labor-
only" contracting where the person supplying workers to an
employer does not have substantial capital or investment in
the form of tools, equipment, machineries, work premises,
among others, and the workers recruited by such persons
are performing activities which are directly related to the
principal business of such employer . . . . (emphasis
supplied).
Based on the foregoing, BCC cannot be considered a "labor-only"
contractor because it has substantial capital. While there may be no
evidence that it has investment in the form of tools, equipment,
machineries, work premises, among others, it is enough that it has
substantial capital, as was established before the Labor Arbiter as well
as the NLRC. In other words, the law does not require both substantial
capital and investment in the form of tools, equipment, machineries,
etc. This is clear from the use of the conjunction "or". If the intention
was to require the contractor to prove that he has both capital and the
requisite investment, then the conjunction "and" should have been
DO 18-02 Cases 65
used. But, having established that it has substantial capital, it was no
longer necessary for BCC to further adduce evidence to prove that it
does not fall within the purview of "labor-only" contracting. There is
even no need for it to refute petitioners' contention that the activities
they perform are directly related to the principal business of
respondent bank.
Be that as it may, the Court has already taken judicial notice of the
general practice adopted in several government and private
institutions and industries of hiring independent contractors to perform
special services. 9 These services range from janitorial, 10 security 11
and even technical or other specific services such as those performed
by petitioners Neri and Cabelin. While these services may be
considered directly related to the principal business of the employer, 12
nevertheless, they are not necessary in the conduct of the principal
business of the employer.
In fact, the status of BCC as an independent contractor was previously
confirmed by this Court in Associated Labor Unions-TUCP v. National
Labor Relations Commission, 13 where we held thus —
The public respondent ruled that the complainants are not
employees of the bank but of the company contracted to
serve the bank. Building Care Corporation is a big firm which
services, among others, a university, an international bank,
a big local bank, a hospital center, government agencies,
etc. It is a qualified independent contractor. The public
respondent correctly ruled against petitioner's contentions . .
. . (Emphasis supplied).
Even assuming ex argumenti that petitioners were performing
activities directly related to the principal business of the bank, under
the "right of control" test they must still be considered employees of
BCC. In the case of petitioner Neri, it is admitted that FEBTC issued a
job description which detailed her functions as a radio/telex operator.
However, a cursory reading of the job description shows that what was
sought to be controlled by FEBTC was actually the end-result of the
task, e.g., that the daily incoming and outgoing telegraphic transfer of
funds received and relayed by her, respectively, tallies with that of the
register. The guidelines were laid down merely to ensure that the
desired end-result was achieved. It did not, however, tell Neri how the
radio/telex machine should be operated. In the Shipside case, 14 we
ruled —
. . . . If in the course of private respondents' work (referring
to the workers), SHIPSIDE occasionally issued instructions to
them, that alone does not in the least detract from the fact
that only STEVEDORES is the employer of the private
respondents, for in legal contemplation, such instructions
carry no more weight than mere requests, the privity of
contract being between SHIPSIDE and STEVEDORES . . . .
Besides, petitioners do not deny that they were selected and hired by
BCC before being assigned to work in the Cagayan de Oro Branch of
FFBTC. BCC likewise acknowledges that petitioners are its employees.
The record is replete with evidence disclosing that BCC maintained
supervision and control over petitioners through its Housekeeping and
Special Services Division: petitioners reported for work wearing the
prescribed uniform of BCC; leaves
of absence were filed directly with BCC; and, salaries were drawn only
from BCC. 15
As a matter of fact, Neri even secured a certification from BCC on 16
May 1986 that she was employed by the latter. On the other hand, on
24 May 1988, Cabelin filed a complaint for underpayment of wages,
non-integration of salary adjustments mandated by Wage Orders Nos.
5 & 6 and R.A. 6640 as well as for illegal deduction 16 against BCC
alone which was provisionally dismissed on 19 August 1988 upon
Cabelin's manifestation that his money claim was negligible. 17
More importantly, under the terms and conditions of the contract, it
was BCC alone which had the power to reassign petitioners. Their
deployment to FEBTC was not subject to the bank's acceptance.
Cabelin was promoted to messenger because the FEBTC branch
manager promised BCC that two (2) additional janitors would be hired
from the company if the promotion was to be effected. 18 Furthermore,
BCC was to be paid in lump sum unlike in the situation in Philippine
Bank of Communications 19 where the contractor, CESI, was to be paid
at a daily rate on a per person basis. And, the contract therein
stipulated that the CESI was merely to provide manpower that would
render temporary services. In the case at bar, Neri and Cabelin were to
perform specific special services. Consequently, petitioners cannot be

held to be employees of FEBTC as BCC "carries an independent
business" and undertaken the performance of its contract with various
clients according to its "own manner and method, free from the control
and supervision" of its principals in all matters "except as to the results
thereof." 20
Indeed, the facts in Philippine Bank of Communications do not square
with those of the instant case. Therein, the Court ruled that CESI was a
"labor-only" contractor because upholding the contract between the
contractor and the bank would in effect permit employers to avoid the
necessity of hiring regular or permanent employees and would enable
them to keep their employees indefinitely on a temporary or casual
basis, thus denying them security of tenure in their jobs. This of course
violates the Labor Code. BCC has not committed any violation. Also,
the former case was for illegal dismissal; this case, on the other hand,
is for conversion of employment status so that petitioners can receive
the same salary being given to regular employees of FEBTC. But, as
herein determined, petitioners are not regular employees of FEBTC but
of BCC. At any rate, the finding that BCC in a qualified independent
contractor precludes us from applying the Philippine Bank of
Communications doctrine to the instant petition.
The determination of employer-employee relationship involves factual
findings. 21 Absent any grave abuse of discretion, and we find none in
the case before us, we are bound by the findings of the Labor Arbiter
as affirmed by respondent NLRC.
IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED.
SO ORDERED.
Cruz, Griño-Aquino, Davide, Jr. and Quiason, JJ., concur.
SECOND DIVISION
MANILA ELECTRIC COMPANY, G.R. No. 145271
Petitioner,
- versus -
Present:
ROGELIO BENAMIRA, ERNIE
DE SAGUN[1], DIOSDADO PUNO, Chairman,
YOGARE, FRANCISCO MORO[2], AUSTRIA-MARTINEZ,
OSCAR LAGONOY[3], ROLANDO CALLEJO, SR.,
BENI, ALEX BENI, RAUL[4] DE TINGA, and
GUIA, ARMED SECURITY & CHICO-NAZARIO, JJ.
DETECTIVE AGENCY, INC.,
(ASDAI) and ADVANCE FORCES
SECURITY & INVESTIGATION Promulgated:
SERVICES, INC., (AFSISI),
Respondents. July 14, 2005
x------------------------------------------------x
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45
of the Rules of Court assailing the Decision,[5] dated September 27,
2000, of the Court of Appeals (CA) in CA-G.R. SP No. 50520 which
declared petitioner Manila Electric Company (MERALCO) as the direct
employer of individual respondents Rogelio Benamira, Ernie De Sagun,
Diosdado Yogare, Francisco Moro, Oscar Lagonoy, Rolando Beni, Alex
Beni and Raul De Guia (individual respondents for brevity).
The factual background of the case is as follows:
The individual respondents are licensed security guards
formerly employed by People’s Security, Inc. (PSI) and deployed as
such at MERALCO’s head office in Ortigas Avenue, Pasig, Metro Manila.
On November 30, 1990, the security service agreement
between PSI and MERALCO was terminated.
Immediately thereafter, fifty-six of PSI’s security guards,
including herein eight individual respondents, filed a complaint for
unpaid monetary benefits against PSI and MERALCO, docketed as
NLRC-NCR Case No. 05-02746-90.
Meanwhile, the security service agreement between
respondent Armed Security & Detective Agency, Inc., (ASDAI) and
MERALCO took effect on December 1, 1990. In the agreement, ASDAI
was designated as the AGENCY while MERALCO was designated as the
DO 18-02 Cases 66
COMPANY. The pertinent terms and conditions of the agreement are
as follows:
1. The AGENCY shall initially provide the COMPANY with
TWO HUNDRED TWENTY (220) licensed, uniformed, bonded
and armed security guards to be assigned at the COMPANY’s
“MERALCO CENTER,” complete with nightsticks, flashlights,
raincoats, and other paraphernalias to work on eight (8)
hours duty. The COMPANY shall determine the number of
security guards in accordance with its needs and the areas
of responsibility assigned to each, and shall have the option
to increase or decrease the number of guards at any time
provided the AGENCY is notified within twenty four (24)
hours of the contemplated reduction or increase of the
guards in which case the cost or consideration shall be
adjusted accordingly.
2. The COMPANY shall furnish the AGENCY copies of written
specific instruction to be followed or implemented by the
latter’s personnel in the discharge of their duties and
responsibilities and the AGENCY shall be responsible for the
faithful compliance therewith by its personnel together with
such general and specific orders which shall be issued from
time to time.
3. For and in consideration of the services to be rendered
by the AGENCY to the COMPANY, the COMPANY during the
term of this contract shall pay the AGENCY the amount of
THREE THOUSAND EIGHT HUNDRED PESOS (P3,800.00) a
month per guard, FOUR THOUSAND PESOS (P4,000.00) for
the Shift Leader and FOUR THOUSAND TWO HUNDRED
PESOS (P4,200.00) for the Detachment Commander for eight
(8) hours work/day, Saturdays, Sundays and Holidays
included, payable semi-monthly.
xxx
5. The AGENCY shall assume the responsibility for the
proper and efficient performance of duties by the security
guards employed by it and it shall be solely responsible for
any act of said security guards during their watch hours, the
COMPANY being specifically released from any and all
liability to third parties arising from the acts or omission of
the security guards of the AGENCY.
6. The AGENCY also agrees to hold the COMPANY entirely
free from any liability, cause or causes of action or claims
which may be filed by said security guards by reason of their
employment with the AGENCY pursuant to this Agreement or
under the provisions of the Labor Code, the Social Security
Act, and other laws, decrees or social legislations now
enacted or which hereafter may be enacted.
7. Discipline and Administration of the security guards shall
conform with the rules and regulations of the AGENCY, and
the COMPANY reserves the right to require without
explanation the replacement of any guard whose behavior,
conduct or appearance is not satisfactory to the COMPANY
and that the AGENCY cannot pull-out any security guard
from the COMPANY without the consent of the latter.
8. The AGENCY shall conduct inspections through its duly
authorized inspector at least two (2) times a week of guards
assigned to all COMPANY installations secured by the
AGENCY located in the Metropolitan Manila area and at least
once a week of the COMPANY’s installations located outside
of the Metropolitan Manila area and to further submit its
inspection reports to the COMPANY. Likewise, the COMPANY
shall have the right at all times to inspect the guards of the
AGENCY assigned to the COMPANY.
9. The said security guards shall be hired by the AGENCY
and this contract shall not be deemed in any way to
constitute a contract of employment between the COMPANY
and any of the security guards hired by the AGENCY but
merely as a contract specifying the conditions and manner
under which the AGENCY shall render services to the
COMPANY.
10. Nothing herein contained shall be understood to make
the security guards under this Agreement, employees of the
COMPANY, it being clearly understood that such security
guards shall be considered as they are, employees of the
AGENCY alone, so that the AGENCY shall be responsible for
compliance with all pertinent labor laws and regulations
included but not limited to the Labor Code, Social Security
Act, and all other applicable laws and regulations including
that providing for a withholding tax on income.
 DO 18-02 Cases 67

(underpayment of actual regular hours and overtime hours

xxx rendered, and premium pay for holiday and rest day) in the
following amounts:
13. This contract shall take effect on the 1st day of
December, 1990 and shall continue from year to year unless NAME
sooner terminated by the COMPANY for cause or otherwise OVERTIME DIFFERENTIALS
terminated by either party without cause upon thirty (30) AND PREMIUM
days written notice by one party to the other.[6] PAY FOR HOLIDAY & REST DAY

1. Rogelio Benamira P14,615.75

Subsequently, the individual respondents were absorbed by 2. Ernie De Sagun 21,164.31
ASDAI and retained at MERALCO’s head office. 3. Diosdado Yogare 7,108.77
4. Francisco Maro 26,567.11
On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered 5. Oscar Lagonay 18,863.36
a decision in NLRC-NCR Case No. 05-02746-90 in favor of the former 6. Rolando Beni 21,834.12
PSI security guards, including the individual respondents. 7. Alex Beni 21,648.80
8. Ruel De Guia 14,200.33
Less than a month later, or on July 21, 1992, the individual
respondents filed another complaint for unpaid monetary benefits, this
time against ASDAI and MERALCO, docketed as NLRC-NCR Case No.
3. Ordering Respondents ASDAI and MERALCO to jointly
00-07-03953-92.
and solidarily pay complainants 10% attorney’s fees in the
amount of P14,600.25 based on the total monetary award
On July 25, 1992, the security service agreement between
due to the complainants in the amount of P146,002.55.
respondent Advance Forces Security & Investigation Services, Inc.
(AFSISI) and MERALCO took effect, terminating the previous security
All other claims of the complainants are hereby DISMISSED
service agreement with ASDAI.[7] Except as to the number of security
for lack of merit.
guards,[8] the amount to be paid the agency, [9] and the effectivity of the
agreement,[10] the terms and conditions were substantially identical
The counter-claim of respondent AFSISI for damages is
with the security service agreement with ASDAI.
hereby dismissed for want of substantial evidence to justify
the grant of damages.
On July 29, 1992, the individual respondents amended their
complaint to implead AFSISI as party respondent. On August 11, 1992
SO ORDERED.[11]
they again amended their complaint to allege that AFSISI terminated
their services on August 6, 1992 without notice and just cause and
therefore guilty of illegal dismissal.
All the parties, except AFSISI, appealed to the National Labor
Relations Commission (NLRC).
The individual respondents alleged that: MERALCO and
Individual respondents’ partial appeal assailed solely the
ASDAI never paid their overtime pay, service incentive leave pay,
Labor Arbiter’s declaration that ASDAI is their employer. They insisted
premium pay for Sundays and Holidays, P50.00 monthly uniform
that AFSISI is the party liable for their illegal dismissal and should be
allowance and underpaid their 13th month pay; on July 24, 1992, when
the party directed to reinstate them.
the security service agreement of ASDAI was terminated and AFSISI
took over the security functions of the former on July 25, 1992,
For its part, MERALCO attributed grave abuse of discretion
respondent security guard Benamira was no longer given any work
on the part of the Labor Arbiter in failing to consider the absence of
assignment when AFSISI learned that the former has a pending case
employer-employee relationship between MERALCO and individual
against PSI, in effect, dismissing him from the service without just
respondents.
cause; and, the rest of the individual respondents were absorbed by
AFSISI but were not given any assignments, thereby dismissing them
On the other hand, ASDAI took exception from the Labor
from the service without just cause.
Arbiter’s finding that it is the employer of the individual respondents
and therefore liable for the latter’s unpaid monetary benefits.
ASDAI denied in general terms any liability for the claims of
the individual respondents, claiming that there is nothing due them in
On April 10, 1995, the NLRC affirmed in toto the decision of
connection with their services.
the Labor Arbiter.[12] On April 19, 1995, the individual respondents filed
a motion for partial reconsideration but it was denied by the NLRC in a
On the other hand, MERALCO denied liability on the ground
Resolution dated May 23, 1995.[13]
of lack of employer-employee relationship with individual respondents.
It averred that the individual respondents are the employees of the
On August 11, 1995, the individual respondents filed a
security agencies it contracted for security services; and that it has no
petition for certiorari before us, docketed as G.R. No. 121232.[14] They
existing liability for the individual respondents’ claims since said
insisted that they were absorbed by AFSISI and the latter effected their
security agencies have been fully paid for their services per their
termination without notice and just cause.
respective security service agreement.
After the submission of the responsive pleadings and
For its part, AFSISI asserted that: it is not liable for illegal
memoranda, we referred the petition, in accordance with St. Martin
dismissal since it did not absorb or hire the individual respondents, the
Funeral Homes vs. NLRC,[15] to the CA which, on September 27, 2000,
latter were merely hold-over guards from ASDAI; it is not obliged to
modified the decision of the NLRC by declaring MERALCO as the direct
employ or absorb the security guards of the agency it replaced since
employer of the individual respondents.
there is no provision in its security service agreement with MERALCO
or in law requiring it to absorb and hire the guards of ASDAI as it has
The CA held that: MERALCO changed the security agency
its own guards duly trained to service its various clients.
manning its premises three times while engaging the services of the
same people, the individual respondents; MERALCO employed a
On January 3, 1994, after the submission of their respective
scheme of hiring guards through an agency and periodically entering
evidence and position papers, Labor Arbiter Pablo C. Espiritu, Jr.
into service contract with one agency after another in order to evade
rendered a Decision holding ASDAI and MERALCO jointly and solidarily
the security of tenure of individual respondents; individual respondents
liable to the monetary claims of individual respondents and dismissing
are regular employees of MERALCO since their services as security
the complaint against AFSISI. The dispositive portion of the decision
guards are usually necessary or desirable in the usual business or
reads as follows:
trade of MERALCO and they have been in the service of MERALCO for
no less than six years; an employer-employee relationship exists
WHEREFORE, conformably with the above premises,
between MERALCO and the individual respondents because: (a)
judgment is hereby rendered:
MERALCO had the final say in the selection and hiring of the guards, as
when its advice was proved to have carried weight in AFSISI’s decision
1. Declaring ASDAI as the employer of the complainants
not to absorb the individual respondents into its workforce; (b)
and as such complainants should be reinstated as regular
MERALCO paid the wages of individual respondents through ASDAI and
security guards of ASDAI without loss of seniority rights,
AFSISI; (c) MERALCO’s discretion on matters of dismissal of guards was
privileges and benefits and for ASDAI to immediately post
given great weight and even finality since the record shows that the
the complainants as security guards with their clients. The
individual respondents were replaced upon the advice of MERALCO;
complaint against AFSISI is Dismissed for lack of merit.
and, (d) MERALCO has the right, at any time, to inspect the guards, to
require without explanation the replacement of any guard whose
2. Ordering both respondents, ASDAI and MERALCO to
behavior, conduct or appearance is not satisfactory and ASDAI and
jointly and solidarily pay complainants monetary claims

AFSISI cannot pull out any security guard from MERALCO without the
latter’s consent; and, a labor-only contract existed between ASDAI and
AFSISI and MERALCO, such that MERALCO is guilty of illegal dismissal
without just cause and liable for reinstatement of individual
respondents to its workforce.
The dispositive portion of the CA’s Decision reads as follows:
WHEREFORE, in view of the foregoing premises, the
Resolution subject of this petition is hereby AFFIRMED with
MODIFICATION in the sense that MERALCO is declared the
employer of the petitioners. Accordingly, private respondent
MERALCO is hereby ordered as follows:
1. To reinstate petitioners into MERALCO’s work force as
regular security guards without loss of seniority rights and
other privileges; and
2. To pay the petitioners’ full backwages, inclusive of
allowances, and other benefits or their monetary equivalent
computed from the time their compensation was withheld
from them up to the time of their actual reinstatement, for
which the Labor Arbiter Pablo C. Espiritu, Jr. is hereby
directed to undertake the necessary computation and
enforcement thereof.
With respect to the rest of the dispositive portion of the
assailed Resolution which affirmed the decision of the Labor
Arbiter Pablo C. Espiritu, Jr., particularly the joint and solidary
liabilities of both ASDAI and MERALCO to the petitioners, the
same are hereby AFFIRMED.
SO ORDERED. [16]
Hence, the present petition for review on certiorari, filed by
MERALCO, anchored on the following grounds:
A. THE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR AND GRAVE ABUSE OF DISCRETION IN
HOLDING THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP
EXISTS BETWEEN PETITIONER MERALCO AND INDIVIDUAL
RESPONDENTS.
B. THE COURT OF APPEALS GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT INDIVIDUAL RESPONDENTS
ARE REGULAR EMPLOYEES OF PETITIONER MERALCO.
C. THE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR IN ALLOWING INDIVIDUAL
RESPONDENTS TO RAISE FOR THE FIRST TIME ON APPEAL,
THE ISSUE THAT PETITIONER WAS THEIR DIRECT EMPLOYER.
D. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN
FINDING THAT PETITIONER MERALCO IS GUILTY OF ILLEGAL
DISMISSAL.
E. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT INDIVIDUAL RESPONDENTS ARE ENTITLED TO
REINSTATEMENT INTO PETITIONER’S WORKFORCE.
F. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT
FINDING THAT PETITIONER MERALCO IS ENTITLED TO
REIMBURSEMENT FROM RESPONDENT ASDAI FOR THE
MONETARY CLAIMS PETITIONER PAID TO INDIVIDUAL
RESPONDENTS PURSUANT TO THE SECURITY SERVICE
AGREEMENT.[17]
Anent the first ground, MERALCO submits that the elements
of “four-fold” test to determine the existence of an employer-employee
relation, namely: (1) the power to hire, (2) the payment of wages, (3)
the power to dismiss, and (4) the power to control, are not present in
the instant case.
Regarding the power to hire, MERALCO contends that the
records are bereft of any evidence that shows that it participated in or
influenced the decision of PSI and ASDAI to hire or absorb the
individual respondents.
As to the payment of wages, MERALCO maintains that the
individual respondents received their wages from their agency.
With regard to the power to dismiss, MERALCO argues that
the security service agreement clearly provided that the discipline and
administration of the security guards shall conform to the rules and
regulations of the agency.
DO 18-02 Cases 68
Concerning the power of control, MERALCO asserts that
there is no evidence that individual respondents were subjected to its
control as to the manner or method by which they conduct or perform
their work of guarding of MERALCO’s premises.
Furthermore, MERALCO insists that ASDAI and AFSISI are not
labor-only contractors since they have their own equipment,
machineries and work premises which are necessary in the conduct of
their business and the duties performed by the security guards are not
necessary in the conduct of MERALCO’s principal business.
With respect to the second ground, MERALCO argues that
the individual respondents cannot be considered as regular employees
as the duties performed by them as security guards are not necessary
in the conduct of MERALCO’s principal business which is the
distribution of electricity.
As regards the third ground, MERALCO argues that it was
denied due process when the individual respondents raised for the first
time in the CA the issue that MERALCO is their direct employer since
the individual respondents have always considered themselves as
employees of AFSISI and nowhere in the Labor Arbiter or the NLRC did
they raise the argument that MERALCO is their direct employer.
Regarding the fourth ground, MERALCO asserts that it is not
guilty of illegal dismissal because it had no direct hand or participation
in the termination of the employment of individual respondents, who
even insisted in their petition for certiorari in the CA that it was AFSISI
which terminated their employment.
As to the fifth ground, MERALCO maintains that the
individual respondents are not entitled to reinstatement into its
workforce because no employer-employee relationship exists between
it and the individual respondents.
With regard to the sixth ground, MERALCO asserts that since
it is not the direct employer of the individual respondents, it has a right
of reimbursement from ASDAI for the full amount it may pay to the
individual respondents under Articles 106 and 107 of the Labor Code.
In contrast, the individual respondents maintain that the CA
aptly found that all the elements in employer-employee relationship
exist between them and MERALCO and there is no cogent reason to
deviate from such factual findings.
For its part, ASDAI contends that the instant petition raises
factual matters beyond the jurisdiction of this Court to resolve since
only questions of law may be raised in a petition for review on
certiorari. It submits that while the rule admits of exceptions,
MERALCO failed to establish that the present case falls under any of
the exceptions.
On the other hand, AFSISI avers that there is no employer-
employee relationship between MERALCO and the security guards of
any of the security agencies under contract with MERALCO.
It is a settled rule that in the exercise of the Supreme Court’s
power of review, the Court is not a trier of facts and does not normally
undertake the re-examination of the evidence presented by the
contending parties during the trial of the case considering that the
findings of facts of the CA are conclusive and binding on the Court.
However, jurisprudence has recognized several exceptions in which
factual issues may be resolved by this Court, to wit:
(1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; (5) when the findings of facts
are conflicting; (6) when in making its findings the Court of
Appeals went beyond the issues of the case, or its findings
are contrary to the admissions of both the appellant and
the appellee; (7) when the findings are contrary to the trial
court; (8) when the findings are conclusions without citation
of specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioner’s
main and reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on
record; and (11) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different
conclusion.[18]
In the present case, the existence of an employer-employee
relationship is a question of fact which is well within the province of the
CA. Nonetheless, given the reality that the CA’s findings are at odds to

those of the NLRC, the Court is constrained to look deeper into the
attendant circumstances obtaining in the present case, as appearing
on record.
At the outset, we note that the individual respondents never
alleged in their complaint in the Labor Arbiter, in their appeal in the
NLRC and even in their petition for certiorari in the CA that MERALCO
was their employer. They have always advanced the theory that
AFSISI is their employer. A perusal of the records shows it was only in
their Memorandum in the CA that this thesis was presented and
discussed for the first time. We cannot ignore the fact that this
position of individual respondents runs contrary to their earlier
submission in their pleadings filed in the Labor Arbiter, NLRC and even
in the petition for certiorari in the CA that AFSISI is their employer and
liable for their termination. As the object of the pleadings is to draw
the lines of battle, so to speak, between the litigants and to indicate
fairly the nature of the claims or defenses of both parties, a party
cannot subsequently take a position contrary to, or inconsistent, with
his pleadings.[19]
Moreover, it is a fundamental rule of procedure that higher
courts are precluded from entertaining matters neither alleged in the
pleadings nor raised during the proceedings below, but ventilated for
the first time only in a motion for reconsideration or on appeal. [20] The
individual respondents are bound by their submissions that AFSISI is
their employer and they should not be permitted to change their
theory. Such a change of theory cannot be tolerated on appeal, not
due to the strict application of procedural rules but as a matter of
fairness. A change of theory on appeal is objectionable because it is
contrary to the rules of fair play, justice and due process.[21]
Thus, the CA should not have considered the new theory
offered by the individual respondents in their memorandum.
The present petition for review on certiorari is far from novel
and, in fact, not without precedence. We have ruled in Social Security
System vs. Court of Appeals[22] that:
...The guards or watchmen render their services to private
respondent by allowing themselves to be assigned by said
respondent, which furnishes them arms and ammunition, to
guard and protect the properties and interests of private
respondent's clients, thus enabling that respondent to fulfill
its contractual obligations. Who the clients will be, and
under what terms and conditions the services will be
rendered, are matters determined not by the guards or
watchmen, but by private respondent. On the other hand,
the client companies have no hand in selecting who among
the guards or watchmen shall be assigned to them. It is
private respondent that issues assignment orders and
instructions and exercises control and supervision over the
guards or watchmen, so much so that if, for one reason or
another, the client is dissatisfied with the services of a
particular guard, the client cannot himself terminate the
services of such guard, but has to notify private respondent,
which either substitutes him with another or metes out to
him disciplinary measures. That in the course of a
watchman's assignment the client conceivably issues
instructions to him, does not in the least detract from the
fact that private respondent is the employer of said
watchman, for in legal contemplation such instructions carry
no more weight than mere requests, the privity of contract
being between the client and private respondent, not
between the client and the guard or watchman. Corollarily,
such giving out of instructions inevitably spring from the
client's right predicated on the contract for services entered
into by it with private respondent.
In the matter of compensation, there can be no question at
all that the guards or watchmen receive compensation from
private respondent and not from the companies or
establishments whose premises they are guarding. The fee
contracted for to be paid by the client is admittedly not
equal to the salary of a guard or watchman; such fee is
arrived at independently of the salary to which the guard or
watchman is entitled under his arrangements with private
respondent.[23]
and reiterated in American President Lines vs. Clave,[24] thus:
In the light of the foregoing standards, We fail to see how
the complaining watchmen of the Marine Security Agency
can be considered as employees of the petitioner. It is the
agency that recruits, hires, and assigns the work of its
watchmen. Hence, a watchman can not perform any
security service for the petitioner's vessels unless the
agency first accepts him as its watchman. With respect to
DO 18-02 Cases 69
his wages, the amount to be paid to a security guard is
beyond the power of the petitioner to determine. Certainly,
the lump sum amount paid by the petitioner to the agency in
consideration of the latter's service is much more than the
wages of any one watchman. In point of fact, it is the
agency that quantifies and pays the wages to which a
watchman is entitled.
Neither does the petitioner have any power to dismiss the
security guards. In fact, We fail to see any evidence in the
record that it wielded such a power. It is true that it may
request the agency to change a particular guard. But this,
precisely, is proof that the power lies in the hands of the
agency.
Since the petitioner has to deal with the agency, and not the
individual watchmen, on matters pertaining to the
contracted task, it stands to reason that the petitioner does
not exercise any power over the watchmen's conduct.
Always, the agency stands between the petitioner and the
watchmen; and it is the agency that is answerable to the
petitioner for the conduct of its guards.[25]
In this case, the terms and conditions embodied in the
security service agreement between MERALCO and ASDAI expressly
recognized ASDAI as the employer of individual respondents.
Under the security service agreement, it was ASDAI which
(a) selected, engaged or hired and discharged the security guards; (b)
assigned them to MERALCO according to the number agreed upon; (c)
provided the uniform, firearms and ammunition, nightsticks,
flashlights, raincoats and other paraphernalia of the security guards;
(d) paid them salaries or wages; and, (e) disciplined and supervised
them or principally controlled their conduct. The agreement even
explicitly provided that “[n]othing herein contained shall be
understood to make the security guards under this Agreement,
employees of the COMPANY, it being clearly understood that such
security guards shall be considered as they are, employees of the
AGENCY alone.” Clearly, the individual respondents are the employees
of ASDAI.
As to the provision in the agreement that MERALCO reserved
the right to seek replacement of any guard whose behavior, conduct or
appearance is not satisfactory, such merely confirms that the power to
discipline lies with the agency. It is a standard stipulation in security
service agreements that the client may request the replacement of the
guards to it. Service-oriented enterprises, such as the business of
providing security services, generally adhere to the business adage
that “the customer or client is always right” and, thus, must satisfy the
interests, conform to the needs, and cater to the reasonable
impositions of its clients.
Neither is the stipulation that the agency cannot pull out any
security guard from MERALCO without its consent an indication of
control. It is simply a security clause designed to prevent the agency
from unilaterally removing its security guards from their assigned
posts at MERALCO’s premises to the latter’s detriment.
The clause that MERALCO has the right at all times to inspect
the guards of the agency detailed in its premises is likewise not
indicative of control as it is not a unilateral right. The agreement
provides that the agency is principally mandated to conduct
inspections, without prejudice to MERALCO’s right to conduct its own
inspections.
Needless to stress, for the power of control to be present,
the person for whom the services are rendered must reserve the right
to direct not only the end to be achieved but also the means for
reaching such end.[26] Not all rules imposed by the hiring party on the
hired party indicate that the latter is an employee of the former.[27]
Rules which serve as general guidelines towards the achievement of
the mutually desired result are not indicative of the power of control.[28]
Verily, the security service agreements in the present case
provided that all specific instructions by MERALCO relating to the
discharge by the security guards of their duties shall be directed to the
agency and not directly to the individual respondents. The individual
respondents failed to show that the rules of MERALCO controlled their
performance.
Moreover, ASDAI and AFSISI are not “labor-only”
contractors. There is “labor only” contract when the person acting as
contractor is considered merely as an agent or intermediary of the
principal who is responsible to the workers in the same manner and to
the same extent as if they had been directly employed by him. On the
other hand, “job (independent) contracting” is present if the following
conditions are met: (a) 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 to the
result thereof; and (b) the contractor has substantial capital or
investments in the form of tools, equipment, machineries, work
premises and other materials which are necessary in the conduct of his
business.[29] Given the above distinction and the provisions of the
security service agreements entered into by petitioner with ASDAI and
AFSISI, we are convinced that ASDAI and AFSISI were engaged in job
contracting.
The individual respondents can not be considered as regular
employees of the MERALCO for, although security services are
necessary and desirable to the business of MERALCO, it is not directly
related to its principal business and may even be considered
unnecessary in the conduct of MERALCO’s principal business, which is
the distribution of electricity.
Furthermore, the fact that the individual respondents filed
their claim for unpaid monetary benefits against ASDAI is a clear
indication that the individual respondents acknowledge that ASDAI is
their employer.
We cannot give credence to individual respondents’
insistence that they were absorbed by AFSISI when MERALCO’s
security service agreement with ASDAI was terminated. The individual
respondents failed to present any evidence to confirm that AFSISI
absorbed them into its workforce. Thus, respondent Benamira was not
retained in his post at MERALCO since July 25, 1992 due to the
termination of the security service agreement of MERALCO with
ASDAI. As for the rest of the individual respondents, they retained
their post only as “hold-over” guards until the security guards of AFSISI
took over their post on August 6, 1992.[30]
In the present case, respondent Benamira has been “off-
detail” for seventeen days while the rest of the individual respondents
have only been “off- detail” for five days when they amended their
complaint on August 11, 1992 to include the charge of illegal
dismissal. The inclusion of the charge of illegal dismissal then was
premature. Nonetheless, bearing in mind that ASDAI simply stopped
giving the individual respondents any assignment and their inactivity
clearly persisted beyond the six-month period allowed by Article 286[31]
of the Labor Code, the individual respondents were, in effect,
constructively dismissed by ASDAI from employment, hence, they
should be reinstated.
The fact that there is no actual and direct employer-
employee relationship between MERALCO and the individual
respondents does not exonerate MERALCO from liability as to the
monetary claims of the individual respondents. When MERALCO
contracted for security services with ASDAI as the security agency that
hired individual respondents to work as guards for it, MERALCO
became an indirect employer of individual respondents pursuant to
Article 107 of the Labor Code, which reads:
ART. 107. Indirect employer - The
provisions of the immediately preceding Article
shall likewise apply to any person, partnership,
association or corporation which, not being an
employer, contracts with an independent
contractor for the performance of any work, task,
job or project.
When ASDAI as contractor failed to pay the individual respondents,
MERALCO as principal becomes jointly and severally liable for the
individual respondents’ wages, under Articles 106 and 109 of the Labor
Code, which provide:
ART. 106. Contractor or subcontractor. - Whenever an
employer enters into a contract with another person for the
performance of the former[‘s] work, the employees of the
contractor and of the latter[‘s] subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same
manner and extent that he is liable to employees directly
employed by him. xxx
ART. 109. Solidary liability - The provisions of existing laws
to the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or
subcontractor for any violation of any provision of this Code.
For purpose of determining the extent of their civil liability
under this Chapter, they shall be considered as direct
employers.
DO 18-02 Cases 70
ASDAI is held liable by virtue of its status as direct employer,
while MERALCO is deemed the indirect employer of the individual
respondents for the purpose of paying their wages in the event of
failure of ASDAI to pay them. This statutory scheme gives the
workers the ample protection
consonant with labor and social justice provisions of the 1987
Constitution.[32]
However, as held in Mariveles Shipyard Corp. vs. Court of
Appeals,[33] the solidary liability of MERALCO with that of ASDAI does
not preclude the application of Article 1217 of the Civil Code on the
right of reimbursement from his co-debtor by the one who paid, [34]
which provides:
ART. 1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary debtors
offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors
only the share which corresponds to each, with the interest
for the payment already made. If the payment is made
before the debt is due, no interest for the intervening period
may be demanded.
When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the
obligation, such share shall be borne by all his co-debtors, in
proportion to the debt of each.
ASDAI may not seek exculpation by claiming that MERALCO’s
payments to it were inadequate for the individual respondents’ lawful
compensation. As an employer, ASDAI is charged with knowledge of
labor laws and the adequacy of the compensation that it demands for
contractual services is its principal concern and not any other’s.[35]
WHEREFORE, the present petition is GRANTED. The assailed
Decision, dated September 27, 2000, of the CA is REVERSED and SET
ASIDE. The Decision of the Labor Arbiter dated January 3, 1994 and
the Resolution of the NLRC dated April 10, 1995 are AFFIRMED with the
MODIFICATION that the joint and solidary liability of ASDAI and
MERALCO to pay individual respondents’ monetary claims for
underpayment of actual regular hours and overtime hours rendered,
and premium pay for holiday and rest day, as well as attorney’s fees,
shall be without prejudice to MERALCO’s right of reimbursement from
ASDAI.
SO ORDERED.
G.R. No. 171814 May 8, 2009
SOUTH DAVAO DEVELOPMENT COMPANY, INC. (NOW SODACO
AGRICULTURAL CORPORATION) AND/OR MALONE PACQUIAO
AND VICTOR A. CONSUNJI, Petitioners,
vs.
SERGIO L. GAMO, ERNESTO BELLEZA, FELIX TERONA, CARLOS
ROJAS, MAXIMO MALINAO, VIRGILIO COSEP, ELEONOR COSEP,
MAXIMO TOLDA, NELSON BAGAAN, and TRADE UNION OF THE
PHILIPPINES and ALLIED SERVICES (TUPAS), Respondents.
TINGA, J.:
Before us is a Rule 45 petition1 which seeks the reversal of the Court of
Appeals’ decision2 and resolution3 in CA-G.R. SP No. 68511. The Court
of Appeal’s decision reinstated the NLRC’s Resolution4 dated 23 March
2001 which reversed the labor arbiter’s decision.5
Petitioner South Davao Development Company (petitioner or petitioner
corporation) is the operator of a coconut and mango farm in San Isidro,
Davao Oriental and Inawayan/Baracatan, Davao del Sur. On August
1963 petitioner hired respondent Sergio L. Gamo (Gamo) as a foreman.
Sometime in 1987, petitioner appointed Gamo as a copra maker
contractor. Respondents Ernesto Belleza, Carlos Rojas, Maximo Malinao
were all employees in petitioner’s coconut farm, while respondents
Felix Terona, Virgilio Cosep, Maximo Tolda, and Nelson Bagaan were
assigned to petitioner’s mango farm. All of the abovenamed
respondents (copra workers) were later transferred by petitioner to
Gamo as the latter’s copraceros. From 1987 to 1999, Gamo and
petitioner entered into a profit-sharing agreement wherein 70% of the
net proceeds of the sale of copra went to petitioner and 30% to Gamo.
The copra workers were paid by Gamo from his 30% share.

Petitioner wanted to standardize payments to its "contractors" in its
coconut farms. On 2 October 1999, petitioner proposed a new payment
scheme to Gamo. The new scheme provided a specific price for each
copra making activity. Gamo submitted his counter proposal.6
Petitioner did not accept Gamo’s counter proposal since it was higher
by at least fifty percent (50%) from its original offer. Without agreeing
to the new payment scheme, Gamo and his copra workers started to
do harvesting work. Petitioner told them to stop. Eventually, petitioner
and Gamo agreed that the latter may continue with the harvest
provided that it would be his last "contract" with petitioner. Gamo
suggested to petitioner to look for a new "contractor" since he was not
amenable to the new payment scheme.7
Gamo and petitioner failed to agree on a payment scheme, thus,
petitioner did not renew the "contract" of Gamo. Gamo and the copra
workers alleged that they were illegally dismissed.
On the other hand, respondent Eleonor Cosep (Eleonor) was employed
as a mango classifier in the packing house of petitioner’s mango farm
in San Isidro, Davao Oriental. Sometime in October 1999, she did not
report for work as she had wanted to raise and sell pigs instead.
Petitioner, through Malone Pacquiao, tried to convince Eleonor to
report for work but to no avail.
On 22 March 2000, respondents filed a complaint8 for illegal dismissal
against petitioner. They alleged that sometime in December 1999,
petitioner verbally terminated them en masse.
The labor arbiter dismissed9 the complaint. He ruled that there was no
employee-employer relationship between petitioner and respondents.
As to Eleonor, he ruled that she had voluntarily stopped working.
Respondents appealed to the National Labor Relations Commission
(NLRC). The NLRC’s Resolution10 reversed the arbiter’s decision and
ruled that respondents were petitioner’s employees. Petitioner moved11
for reconsideration. The NLRC granted12 the motion for reconsideration
and ruled that the nature of the job of the respondents could not result
in an employer-employee relationship. Respondents moved for
reconsideration which was denied.13
Respondents filed a petition for certiorari14 under Rule 65 with the
Court of Appeals. The Court of Appeals ruled that there existed an
employer-employee relationship. It declared that respondents were
regular seasonal employees who can be dismissed by the petitioner at
the end of the season provided due process is observed.15 With regard
to Eleonor, the Court of Appeals ruled that she did not abandon her
work.
Hence this petition.
Petitioner raises the following issues: (1) whether the Court of Appeals
failed to take judicial notice of the accepted practice of independent
contractors in the coconut industry; (2) whether there is a valid job
contracting between petitioner and Gamo; and (3) whether Eleonor
had effectively abandoned her work.
The labor arbiter took judicial notice of the alleged prevailing business
practices in the coconut industry that copra making activities are done
quarterly; that the workers can contract with other farms; and that the
workers are independent from the land owner on all work aspects.
Petitioner wants this Court to take judicial notice of the current
business practice in the coconut industry which allegedly treats
copraceros as independent contractors. In Expertravel & Tours, Inc. v.
Court of Appeals, 16 we held, thus:
Generally speaking, matters of judicial notice have three material
requisites: (1) the matter must be one of common and general
knowledge; (2) it must be well and authoritatively settled and not
doubtful or uncertain; and (3) it must be known to be within the limits
of the jurisdiction of the court. The principal guide in determining what
facts may be assumed to be judicially known is that of notoriety.17
Hence, it can be said that judicial notice is limited to facts evidenced
by public records and facts of general notoriety. Moreover, a judicially
noticed fact must be one not subject to a reasonable dispute in that it
is either: (1) generally known within the territorial jurisdiction of the
trial court; or (2) capable of accurate and ready determination by
resorting to sources whose accuracy cannot reasonably be
questionable.18
DO 18-02 Cases 71
Things of "common knowledge," of which courts take judicial matters
coming to the knowledge of men generally in the course of the
ordinary experiences of life, or they may be matters which are
generally accepted by mankind as true and are capable of ready and
unquestioned demonstration. Thus, facts which are universally known,
and which may be found in encyclopedias, dictionaries or other
publications, are judicially noticed, provided, they are of such universal
notoriety and so generally understood that they may be regarded as
forming part of the common knowledge of every person. As the
common knowledge of man ranges far and wide, a wide variety of
particular facts have been judicially noticed as being matters of
common knowledge. But a court cannot take judicial notice of any fact
which, in part, is dependent on the existence or non-existence of a fact
of which the court has no constructive knowledge.19
An invocation that the Court take judicial notice of certain facts should
satisfy the requisites set forth by case law. A mere prayer for its
application shall not suffice. Thus, in this case the Court cannot take
judicial notice of the alleged business practices in the copra industry
since none of the material requisites of matters of judicial notice is
present in the instant petition. The record is bereft of any indication
that the matter is of common knowledge to the public and that it has
the characteristic of notoriety, except petitioners’ self-serving claim.
A related issue is whether Gamo is an independent contractor. In
Escario v. NLRC,20 we ruled that there is permissible job contracting
when a principal agrees to put out or farm out with a contractor or a
subcontractor the performance or completion of a specific job, work or
service within a definite or predetermined period, regardless of
whether such job or work service is to be performed within or outside
the premises of the principal.21 To establish the existence of an
independent contractor, we apply the following conditions: first, 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 to the result thereof; and second, the
contractor has substantial capital or investments in the form of tools,
equipment, machineries, work premises and other materials which are
necessary in the conduct of his business.22
The Implementing Rules and Regulation of the Labor Code defines
investment—as 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.23 The investment must be sufficient to carry out the job
at hand.
In the case at bar, Gamo and the copra workers did not exercise
independent judgment in the performance of their tasks. The tools
used by Gamo and his copra workers like the karit, bolo, pangbunot,
panglugit and pangtapok are not sufficient to enable them to complete
the job.24 Reliance on these primitive tools is not enough. In fact, the
accomplishment of their task required more expensive machineries
and equipment, like the trucks to haul the harvests and the drying
facility, which petitioner corporation owns.
In order to determine the existence of an employer-employee
relationship, the Court has frequently applied 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," which is considered the most
important element.25 From the time they were hired by petitioner
corporation up to the time that they were reassigned to work under
Gamo’s supervision, their status as petitioner corporation’s employees
did not cease. Likewise, payment of their wages was merely coursed
through Gamo. As to the most determinative test―the power of
control, it is sufficient that the power to control the manner of doing
the work exists, it does not require the actual exercise of such power.26
In this case, it was in the exercise of its power of control when
petitioner corporation transferred the copra workers from their
previous assignments to work as copraceros. It was also in the exercise
of the same power that petitioner corporation put Gamo in charge of
the copra workers although under a different payment scheme. Thus, it
is clear that an employer-employee relationship has existed between
petitioner corporation and respondents since the beginning and such
relationship did not cease despite their reassignments and the change
of payment scheme.
As to the last issue, petitioner seeks our indulgence to declare that
Eleonor has abandoned her work. Petitioner admitted that Eleonor was
its regular employee.27 However, it claimed that she abandoned her
work, preferring to sell and raise pigs instead.

It is well settled that abandonment as a just and valid ground for
dismissal requires the deliberate and unjustified refusal of the
employee to return for work. Two elements must be present, namely:
(1) the failure to report for work or absence without valid or justifiable
reason, and (2) a clear intention to sever the employer-employee
relationship. The second element is more determinative of the intent
and must be evinced by overt acts. Mere absence, not being sufficient,
the burden of proof rests upon the
employer to show that the employee clearly and deliberately intended
to discontinue her employment without any intention of returning.28 In
Samarca v. Arc-Men Industries, Inc, we held that abandonment is a
matter of intention and cannot lightly be presumed from certain
equivocal acts.1awphi1
To constitute abandonment, there must be clear proof of deliberate
and unjustified intent to sever the employer-employee relationship.
Clearly, the operative act is still the employee’s ultimate act of putting
an end to his employment.29 However, an employee who takes steps to
protest her layoff cannot be said to have abandoned her work because
a charge of abandonment is totally inconsistent with the immediate
filing of a complaint for illegal dismissal, more so when it includes a
prayer for reinstatement.30 When Eleonor filed the illegal dismissal
complaint, it totally negated petitioner’s theory of abandonment.
Also, to effectively dismiss an employee for abandonment, the
employer must comply with the due process requirement of sending
notices to the employee. In Brahm Industries, Inc. v. NLRC,31 we ruled
that this requirement is not a mere formality that may be dispensed
with at will. Its disregard is a matter of serious concern since it
constitutes a safeguard of the highest order in response to man’s
innate sense of justice.32 Petitioner was not able to send the necessary
notice requirement to Eleonor. Petitioner’s belated claim that it was
not able to send the notice of infraction prior to the filing of the illegal
dismissal case cannot simply unacceptable.33 Based on the foregoing,
Eleonor did not abandon her work.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals is AFFIRMED. Cost against petitioner.
SO ORDERED.
G.R. No. 161366 June 16, 2009
SYCIP, GORRES, VELAYO & COMPANY, Petitioner,
vs.
CAROL DE RAEDT, Respondent.
CARPIO, J.:
The Case
Before the Court is a petition for review1 challenging the 7 October
2003 Decision2 and 17 December 2003 Resolution3 of the Court of
Appeals in CA-G.R. SP No. 59916. The Court of Appeals reversed the 16
February 2000 Decision4 of the National Labor Relations Commission
and partially reinstated the 14 July 1999 Decision5 of Labor Arbiter
Monroe C. Tabingan holding that respondent Carol De Raedt (De
Raedt) was illegally dismissed by petitioner Sycip, Gorres, Velayo &
Company (SGV).
The Facts
Sometime in June 1989, the Philippine Government and the
Commission for European Communities (Commission) entered into a
Financing Memorandum whereby the Commission undertook to provide
financial and technical assistance for the implementation of rural micro
projects in five provinces of the Cordillera area in Northern Luzon.
Consequently, the Central Cordillera Agricultural Programme (CECAP)
project was launched to be implemented by the Department of
Agriculture (DA).
On 22 May 1989, the DA contracted Travers Morgan International Ltd.
(TMI) to provide the required technical assistance services for CECAP.
On 1 July 1989, TMI and SGV entered into a Sub-Consultancy
Agreement for the latter to undertake part of the technical assistance
services requirements of the CECAP. SGV would provide for the
DO 18-02 Cases 72
Technical Assistance Services. Hence, SGV proposed qualified
consultants as defined by the Terms of Reference.
The acceptance and appointment of the proposed consultants to the
project were subject to the unanimous approval of the TMI, the DA and
the Commission. For the position of Sociologist, SGV proposed Felino
Lorente (Lorente). However, Thomas Gimenez (Gimenez) of the DA
disputed the qualifications of Lorente and recommended instead De
Raedt.
Martin Tull (Tull) of TMI replied to Gimenez that TMI would consider De
Raedt for the sociologist position. Thus, Gimenez volunteered to call De
Raedt to advise her of a possible assignment to the CECAP.
Eventually, the DA advised SGV that De Raedt’s nomination, among
others, had been approved by the Commission and the DA and that
she was expected to start her assignment on 3 July 1989.
On 6 July 1989, De Raedt wrote SGV expressing her conformity to the
consultancy contract, thus she was advised to sign the same. De Raedt
signed the contract on 14 July 1989 but her start-up date with the
CECAP was moved to 15 August 1989 with the approval of the DA
because she was in Thailand to finish an assignment.
While the CECAP was in progress, TMI received verbal and written
complaints from the project staff regarding De Raedt’s performance
and working relations with them.
An investigation was then conducted by the TMI on the above
complaints. Thereafter, the TMI confirmed that De Raedt’s retention
would be counter-productive to the progress of the project because a
number of project staff found it difficult to work with her. Thus, the TMI
directed SGV to withdraw De Raedt from the CECAP.
In compliance with TMI’s instructions, SGV facilitated De Raedt’s
withdrawal from the CECAP.
De Raedt filed a case against SGV for illegal dismissal and damages
before the Arbitration Branch of the NLRC.
The Labor Arbiter rendered a decision in favor of De Raedt.
SGV appealed the decision of the Labor Arbiter to the NLRC, which
rendered judgment in favor of SGV.
De Raedt filed a petition for certiorari with the Court of Appeals, which
reversed the NLRC in a Decision promulgated on 7 October 2003.
SGV filed a motion for reconsideration, which was denied by the Court
of Appeals in its Resolution dated 17 December 2003.
Hence, this petition.
The Ruling of the Labor Arbiter
The Labor Arbiter found De Raedt as an employee of SGV. How she
conducted herself and how she carried out the project were dependent
on and prescribed by SGV and TMI, respectively. The Labor Arbiter
further ruled that SGV is considered as the employer of De Raedt since
it acted indirectly in the interest of TMI, the entity directly in-charge of
the CECAP project for which De Raedt was hired. Moreover, the Labor
Arbiter found SGV as the entity which is the source of De Raedt’s
income and other benefits.1avvphi1
The Labor Arbiter found no sufficient valid ground to terminate De
Raedt’s services although procedural due process was observed. The
dispositive portion of the 14 July 1999 Decision of the Labor Arbiter
reads:
WHEREFORE, judgment is hereby rendered declaring complainant to
have been illegally dismissed by respondent. Consequently,
respondent Sycip, Gorres & Velayo and Co. is hereby ordered to pay
complainant the following:

a) Unpaid salaries corresponding to the unexpired portion of
the contract in the amount of Eight Hundred Two Thousand
(P802,000.00) Pesos;
b) Moral damages in the amount of Two Hundred Fifty
Thousand (P250,000.00) Pesos;
c) Exemplary damages in the amount of One Hundred
Thousand (P100,000.00) Pesos;
d) 10% of the total award as attorney’s fees amounting to
One Hundred Fifteen Thousand Two Hundred Pesos
(P115,200.00).
The computations of which are hereto attached as Annex "A" and
made an integral part hereof.
SO ORDERED.6
The Ruling of the NLRC
The NLRC reversed the ruling of the Labor Arbiter and found that there
was no employer-employee relationship between SGV and De Raedt.
The NLRC agreed with the Labor Arbiter’s finding that SGV had no
discretion in the selection of De Raedt for the position of Sociologist in
the CECAP. The selection was made by the TMI, upon recommendation
of Gimenez of the DA, to be approved by the DA and the Commission.
The engagement of De Raedt was coursed through SGV.
The payment of De Raedt’s service fee was done through SGV but the
funds came from the TMI as shown by SGV’s billings to TMI for De
Raedt’s professional fee.
As regards the power of dismissal, SGV merely implemented TMI’s
instructions to withdraw De Raedt from the CECAP.
The NLRC found that SGV did not exercise control over De Raedt’s
work. The Sub-Consultancy Agreement between TMI and SGV clearly
required De Raedt to work closely with and under the direction and
supervision of both the Team leader and the Project Coordinator.
Hence, SGV’s participation is to merely monitor her attendance,
through time records, for the payment of her retainer fee and to
validate the time she expended in the project with her written reports.
The following circumstances also indicated that no employment
relationship existed between the parties: (1) De Raedt was engaged on
a contract basis; (2) the letter-agreement between the parties clearly
states that there is no employer-employee relationship between the
parties and that De Raedt was at all times to be considered an
independent contractor; and (3) De Raedt was allowed to engage in
other employment during all the time she was connected with the
project.
The dispositive portion of the 16 February 2000 Decision of the NLRC
reads:
WHEREFORE, premises considered, the assailed decision of the Labor
Arbiter is REVERSED and SET ASIDE and the complaint is DISMISSED
for lack of jurisdiction.
SO ORDERED.7
The Ruling of the Court of Appeals
The Court of Appeals reversed the ruling of the NLRC and reinstated
the decision of the Labor Arbiter insofar as the latter found De Raedt as
an employee of SGV.
The Court of Appeals found that based on the letter-agreement
between the parties, SGV engaged De Raedt for the project on a
contract basis for 40 months over a period of five years during which
she was to work full time. She could not engage in any other
DO 18-02 Cases 73
employment. In fact, she had to resign from her teaching job at the
University of the Philippines. She could not leave her place of
assignment without SGV’s consent. She must maintain an accurate
record of the time she spent on the job, and prepare reports which
may be required by her team leader and SGV. Whether actual
supervision of her work had turned out to be minimal or not, SGV
reserved the right to exercise it at any time. Further, SGV asserted its
right to terminate her services.8
The Court of Appeals found that De Raedt was removed from the
project because of personality differences, which is not one of the
grounds for a valid dismissal of an employee.9
The dispositive portion of the 7 October 2003 Decision of the Court of
Appeals reads:
IN VIEW OF THE FOREGOING, the assailed decision of the NLRC dated
February 16, 2000 is REVERSED, and a new one ENTERED partially
REINSTATING the Decision of Labor Arbiter Monroe Tabing[a]n on July
14, 1999, by affirming paragraph (a) thereof, deleting paragraph (b)
and (c), and reducing the award of attorney’s fees in paragraph (d) to
5% of the principal award.
SO ORDERED.10
The Issue
The issue in this case is whether De Raedt was an employee of SGV. If
so, whether De Raedt was illegally dismissed by SGV.
The Ruling of the Court
The petition is meritorious.
The existence of an employer-employee relationship is ultimately a
question of fact. As a general rule, factual issues are beyond the
province of this Court. However, this rule admits of exceptions, one of
which is where there are conflicting findings of fact, such as in the
present case. Consequently, this Court shall scrutinize the records to
ascertain the facts for itself.11
To determine the existence of an employer-employee relationship,
case law has consistently applied the four-fold test, to wit: (a) the
selection and engagement of the employee; (b) the payment of wages;
(c) the power of dismissal; and (d) the employer’s power to control the
employee on the means and methods by which the work is
accomplished. The so-called "control test" is the most important
indicator of the presence or absence of an employer-employee
relationship.12
A. Selection and Engagement of the Employee
De Raedt was contracted by SGV as part of the latter’s obligation
under the Sub-Consultancy Agreement with TMI, which was in turn
contracted by the DA to provide the services required for the foreign-
assisted CECAP project. De Raedt was neither engaged by SGV as an
ordinary employee, nor was she picked by SGV from a pool of
consultants already working for SGV. Hence, SGV engaged De Raedt’s
services precisely because SGV had an existing Sub-Consultancy
Agreement with TMI to provide such services.1avvphi1
The Labor Arbiter and the NLRC both agree that SGV had no discretion
in the selection of De Raedt for the position of Sociologist in the
CECAP. The selection was made by the TMI, upon recommendation of
Gimenez of the DA, to be approved by the DA and the Commission.
The engagement of De Raedt was merely coursed through SGV.
Moreover, SGV’s first choice for the Sociologist position was Lorente.
However, Gimenez recommended De Raedt to SGV. De Raedt’s
testimony proves that her appointment was ultimately the DA’s
decision, and not SGV’s, thus:
Q Madam Witness, how did you come to know the vacancy
here in CECAP project for a position of project Sociologist?

A I was contacted when I was in Honolulu. I was contacted by
the firm Sarmiento and Company who asked me if I would
list myself for the position of project sociologist for the
CECAP project in 1987 when it was discussed by the NGO’s
in the Cordillera and finally I was contacted by the SGV. They
asked me if I am interested in the position project
sociologist. I was also contacted by Mr. Gimenez to ask me if
SGV had contacted me regarding the position.
Q So among the informants who gave you an idea that the
position of project sociologist is the project director himself,
is it not?
A He informed me that I have been considered by the
Department of Agriculture for the position of project
sociologist.
Q Before you were considered for the position of (sic) the
Department of Agriculture, did you give them an application?
A No, sir.
Q Do you know who gave your name to them?
A Not sure, may be the Department of Agriculture or
Sarmiento, because I was asked by the consultancy firm
Sarmiento if I would be willing to list with their business
consultants for the CECAP project and this was before the
bidding and Sarmiento did not make the bidding for the
project.
Q Sarmiento is different from SGV is that correct?
A Yes, sir.13 (Emphasis supplied)
B. Payment of Wages
The letter-agreement between the parties specifies the consideration
for De Raedt’s services as a retainer fee payable for every day of
completed service in the project. In addition to this, monthly
subsistence and housing allowances and medical insurance were to be
given to De Raedt. The retainer fees and privileges given to De Raedt
are not commonly given to ordinary employees, who receive basic
monthly salaries and other benefits under labor laws.
The Court notes that the retainer fees paid by SGV to De Raedt
ultimately came from its "client," TMI. De Raedt was aware that the
source of the funds was the grant from the Commission. By the terms
of the Sub-Consultancy Agreement, TMI paid SGV remuneration of the
fixed unit rate component of the part services.
However, whatever amount SGV received from TMI did not necessarily
entitle De Raedt to the entire amount. In the parties’ letter-agreement,
SGV made it clear that payments made by TMI "should not be
construed as being due [De Raedt] since these items are intended for
the administration, overhead expenses, and other related expenses of
[SGV] in the development, management, and supervision of [De
Raedt’s] assignment."
C. Power of Dismissal
Under the letter-agreement between the parties, SGV may terminate
De Raedt’s services "at anytime that the contract between the
Department of Agriculture – Government of the Philippines and Travers
Morgan International, Consulting Engineers, Planners and Management
Consultants is terminated for any cause whatsoever."
De Raedt failed to show that SGV could terminate her services on
grounds other than the end of the contract between the DA as
implementing agency of the CECAP and TMI or the termination by TMI
of the contract with SGV, such as retrenchment to prevent losses as
provided under labor laws.14
Further, under the parties’ agreement, should De Raedt decide to
leave the project for any reason whatsoever other than a reasonable
cause beyond her control which prevents her from performing the
DO 18-02 Cases 74
required services, De Raedt shall be liable for liquidated damages for
breach of contract, in an amount equivalent to the retainer fee for a
period of one month. This pre-termination with penalty clause in the
parties’ agreement clearly negates the existence of an employment
relationship between the parties. If De Raedt were indeed SGV’s
employee, she should have been able to resign for whatever
professional or personal reason at anytime, even prior to the end of the
contract between the DA and TMI or between TMI and SGV, without
incurring any liability for such resignation.
Besides, it was TMI, through Tull, which instructed SGV to disengage
De Raedt from the project. Terminating De Raedt’s services was
beyond SGV’s control, as SGV had no choice but to comply with the
directive of its client (TMI). Clearly, De Raedt’s retention as a
Sociologist in the CECAP project was dependent on TMI’s and DA’s
decisions. In his letter dated 14 June 1991 addressed to SGV, Tull wrote
the following:
Notwithstanding a number of staff on the project, all employed by the
Department of Agriculture, have confirmed that they have found it
difficult to work with Mrs de Raedt over the past few months which
supports the earlier advice from the Department of Agriculture.
In the circumstances I consider we have no alternative but to
replace Mrs de Raedt. Would you please make arrangement for her
to be withdrawn from the project by the end of June 1991. Payment of
staff fees and housing allowances under the project in respect of Mrs
de Raedt will be paid up to 30th June 1991.15 (Emphasis supplied)
D. Power of Control
The letter-agreement between the parties required De Raedt to
maintain an accurate time record, notify SGV of delays in De Raedt’s
schedule, secure a prior clearance to leave place of assignment, and
prepare reports. These requirements hardly show that SGV exercises
control over the means and methods in the performance of De Raedt’s
duties as a Sociologist of the CECAP. SGV was not concerned with De
Raedt’s ways of accomplishing her work as a Sociologist. Rather, SGV
naturally expected to be updated regularly of De Raedt’s "work
progress," if any, on the project for which she was specifically
engaged16 to ensure SGV’s compliance with the terms and conditions
of the Sub-Consultancy Agreement with TMI. The services to be
performed by her specified what she needed to achieve but not on how
she was to go about it.17
In sum, there existed no employer-employee relationship between the
parties. De Raedt is an independent contractor, who was engaged by
SGV to render services to SGV’s client TMI, and ultimately to DA on the
CECAP project, regarding matters in the field of her special knowledge
and training for a specific period of time. Unlike an ordinary employee,
De Raedt received retainer fees and benefits such as housing and
subsistence allowances and medical insurance. De Raedt’s services
could be terminated on the ground of end of contract between the DA
and TMI, and not on grounds under labor laws. Though the end of the
contract between the DA and TMI was not the ground for the
withdrawal of De Raedt from the CECAP, De Raedt was disengaged
from the project upon the instruction of SGV’s client, TMI. Most
important of all, SGV did not exercise control over the means and
methods by which De Raedt performed her duties as Sociologist. SGV
did impose rules on De Raedt, but these were necessary to ensure
SGV’s faithful compliance with the terms and conditions of the Sub-
Consultancy Agreement it entered into with TMI.
WHEREFORE, the Court GRANTS the petition. The Court SETS ASIDE
the 7 October 2003 Decision and 17 December 2003 Resolution of the
Court of Appeals in CA-G.R. SP No. 59916 and REINSTATES the 16
February 2000 Decision of the National Labor Relations Commission.
SO ORDERED.
RAUL G. LOCSIN andG.R. No. 185251
EDDIE B. TOMAQUIN,
Petitioners,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus -
CHICO-NAZARIO,

VELASCO, JR.,
NACHURA, and
PERALTA, JJ.
PHILIPPINE LONG DISTANCE Promulgated:
TELEPHONE COMPANY,
Respondent.
October 2, 2009
x-----------------------------------------------------------------------------------------x
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks
the reversal of the May 6, 2008 Decision1[1] and November 4, 2008
Resolution2[2] of the Court of Appeals (CA) in CA-G.R. SP No. 97398,
entitled Philippine Long Distance Telephone Company v. National
Labor Relations Commission, Raul G. Locsin and Eddie B. Tomaquin.
The assailed decision set aside the Resolutions of the National Labor
Relations Commission (NLRC) dated October 28, 2005 and August 28,
2006 which in turn affirmed the Decision dated February 13, 2004 of
the Labor Arbiter. The assailed resolution, on the other hand, denied
petitioners’ motion for reconsideration of the assailed decision.
The Facts
On November 1, 1990, respondent Philippine Long Distance
Telephone Company (PLDT) and the Security and Safety Corporation of
the Philippines (SSCP) entered into a Security Services Agreement3[3]
(Agreement) whereby SSCP would provide armed security guards to
PLDT to be assigned to its various offices.
Pursuant to such agreement, petitioners Raul Locsin and
Eddie Tomaquin, among other security guards, were posted at a PLDT
office.
On August 30, 2001, respondent issued a Letter dated
August 30, 2001 terminating the Agreement effective October 1,
2001.4[4]
Despite the termination of the Agreement, however,
petitioners continued to secure the premises of their assigned office.
They were allegedly directed to remain at their post by representatives
of respondent. In support of their contention, petitioners provided the
Labor Arbiter with copies of petitioner Locsin’s pay slips for the period
of January to September 2002.5[5]
Then, on September 30, 2002, petitioners’ services were
terminated.
Thus, petitioners filed a complaint before the Labor Arbiter
for illegal dismissal and recovery of money claims such as overtime
pay, holiday pay, premium pay for holiday and rest day, service
incentive leave pay, Emergency Cost of Living Allowance, and moral
and exemplary damages against PLDT.
The Labor Arbiter rendered a Decision finding PLDT liable for
illegal dismissal. It was explained in the Decision that petitioners were
found to be employees of PLDT and not of SSCP. Such conclusion was
arrived at with the factual finding that petitioners continued to serve as
guards of PLDT’s offices. As such employees, petitioners were entitled
to substantive and procedural due process before termination of
employment. The Labor Arbiter held that respondent failed to observe
such due process requirements. The dispositive portion of the Labor
Arbiter’s Decision reads:
WHEREFORE, premises considered, judgment is
hereby rendered ordering respondent Philippine Long
1
2 employment.
3 Article 280 of the Labor Code, does complainants
4 renewal of its security contract with the complainant
5 [controlled] by the respondent anytime they wanted to.
DO 18-02 Cases 75
Distance and Telephone Company (PLDT) to pay
complainants Raul E. Locsin and Eddie Tomaquin their
separation pay and back wages computed as follows:
NAME SEPARATION PAY
BACKWAGES
1. Raul E. Locsin P127,500.00
P240,954.67
2. Eddie B. Tomaquin P127,500.00
P240,954.67
P736,909.
34
All other claims are DISMISSED for want of factual
basis.
Let the computation made by the Computation
and Examination Unit form part of this decision.
SO ORDERED.
PLDT appealed the above Decision to the NLRC which
rendered a Resolution affirming in toto the Arbiter’s Decision.
Thus, PDLT filed a Motion for Reconsideration of the NLRC’s
Resolution which was also denied.
Consequently, PLDT filed a Petition for Certiorari with the CA
asking for the nullification of the Resolution issued by the NLRC as well
as the Labor Arbiter’s Decision. The CA rendered the assailed decision
granting PLDT’s petition and dismissing petitioners’ complaint. The
dispositive portion of the CA Decision provides:
WHEREFORE, the instant Petition for Certiorari is
GRANTED. The Resolutions dated October 28, 2005 and
August 28, 2006 of the National Labor Relations Commission
are ANNULLED and SET ASIDE. Private respondents’
complaint against Philippine Long Distance Telephone
Company is DISMISSED.
SO ORDERED.
The CA applied the four-fold test in order to determine the
existence of an employer-employee relationship between the parties
but did not find such relationship. It determined that SSCP was not a
labor-only contractor and was an independent contractor having
substantial capital to operate and conduct its own business. The CA
further bolstered its decision by citing the Agreement whereby it was
stipulated that there shall be no employer-employee relationship
between the security guards and PLDT.
Anent the pay slips that were presented by petitioners, the
CA noted that those were issued by SSCP and not PLDT; hence, SSCP
continued to pay the salaries of petitioners after the Agreement. This
fact allegedly proved that petitioners continued to be employees of
SSCP albeit performing their work at PLDT’s premises.
From such assailed decision, petitioners filed a motion for
reconsideration which was denied in the assailed resolution.
Hence, we have this petition.
The Issues
1. Whether or not; complainants extended services to the
respondent for one (1) year from October 1, 2001, the
effectivity of the termination of the contract of
complainants agency SSCP, up to September 30, 2002,
without a renewed contract, constitutes an employer-
employee relationship between respondent and the
complainants.
2. Whether or not; in accordance to the provision of the
Article 280 of the Labor Code, complainants extended
services to the respondent for another one (1) year
without a contract be considered as contractual
3. Whether or not; in accordance to the provision of the
thirteen (13) years of service to the respondent with
manifestation to the respondent thirteen (13) years
agency SSCP, can be considered only as “seasonal in
nature” or fixed as [specific projects] or undertakings
and its completion or termination can be dictated as

4. Whether or not; complainants from being an alleged
contractual employees of the respondent for thirteen
(13) years as they were then covered by a contract,
becomes regular employees of the respondent as the
one (1) year extended services of the complainants
were not covered by a contract, and can be considered
as direct employment pursuant to the provision of the
Article 280 of the Labor Code.
5. Whether or not; the Court of Appeals committed grave
abuse of discretion when it set aside and [annulled] the
labor [arbiter’s] decision and of the NLRC’s resolution
declaring the dismissal of the complainant as illegal. 6[6]
The Court’s Ruling
This petition is hereby granted.
An Employer-Employee
Relationship Existed Between the Parties
It is beyond cavil that there was no employer-employee
relationship between the parties from the time of petitioners’ first
assignment to respondent by SSCP in 1988 until the alleged
termination of the Agreement between respondent and SSCP. In fact,
this was the conclusion that was reached by this Court in Abella v.
Philippine Long Distance Telephone Company,7[7] where we ruled that
petitioners therein, including herein petitioners, cannot be considered
as employees of PLDT. It bears pointing out that petitioners were
among those declared to be employees of their respective security
agencies and not of PLDT.
The only issue in this case is whether petitioners became
employees of respondent after the Agreement between SSCP and
respondent was terminated.
This must be answered in the affirmative.
Notably, respondent does not deny the fact that petitioners
remained in the premises of their offices even after the Agreement was
terminated. And it is this fact that must be explained.
To recapitulate, the CA, in rendering a decision in favor of
respondent, found that: (1) petitioners failed to prove that SSCP was a
labor-only contractor; and (2) petitioners are employees of SSCP and
not of PLDT.
In arriving at such conclusions, the CA relied on the
provisions of the Agreement, wherein SSCP undertook to supply PLDT
with the required security guards, while furnishing PLDT with a
performance bond in the amount of PhP 707,000. Moreover, the CA
gave weight to the provision in the Agreement that SSCP warranted
that it “carry on an independent business and has substantial capital or
investment in the form of equipment, work premises, and other
materials which are necessary in the conduct of its business.”
Further, in determining that no employer-employee
relationship existed between the parties, the CA quoted the express
provision of the Agreement, stating that no employer-employee
relationship existed between the parties herein. The CA disregarded
the pay slips of Locsin considering that they were in fact issued by
SSCP and not by PLDT.
From the foregoing explanation of the CA, the fact remains
that petitioners remained at their post after the termination of the
Agreement. Notably, in its Comment dated March 10, 2009, 8[8]
respondent never denied that petitioners remained at their post until
September 30, 2002. While respondent denies the alleged
circumstances stated by petitioners, that they were told to remain at
their post by respondent’s Security Department and that they were
informed by SSCP Operations Officer Eduardo Juliano that their salaries
would be coursed through SSCP as per arrangement with PLDT, it does
not state why they were not made to vacate their posts. Respondent
said that it did not know why petitioners remained at their posts.
6 important element in the determination of the existence of an
7 9
8 10
DO 18-02 Cases 76
Rule 131, Section 3(y) of the Rules of Court provides:
SEC. 3. Disputable presumptions.—The
following presumptions are satisfactory if
uncontradicted, but may be contradicted and
overcome by other evidence:
xxxx
(y) That things have happened
according to the ordinary course of nature and the
ordinary habits of life.
In the ordinary course of things, responsible business owners
or managers would not allow security guards of an agency with whom
the owners or managers have severed ties with to continue to stay
within the business’ premises. This is because upon the termination of
the owners’ or managers’ agreement with the security agency, the
agency’s undertaking of liability for any damage that the security
guard would cause has already been terminated. Thus, in the event of
an accident or otherwise damage caused by such security guards, it
would be the business owners and/or managers who would be liable
and not the agency. The business owners or managers would,
therefore, be opening themselves up to liability for acts of security
guards over whom the owners or managers allegedly have no control.
At the very least, responsible business owners or managers
would inquire or learn why such security guards were remaining at
their posts, and would have a clear understanding of the
circumstances of the guards’ stay. It is but logical that responsible
business owners or managers would be aware of the situation in their
premises.
We point out that with respondent’s hypothesis, it would
seem that SSCP was paying petitioners’ salaries while securing
respondent’s premises despite the termination of their Agreement.
Obviously, it would only be respondent that would benefit from such a
situation. And it is seriously doubtful that a security agency that was
established for profit would allow its security guards to secure
respondent’s premises when the Agreement was already terminated.
From the foregoing circumstances, reason dictates that we
conclude that petitioners remained at their post under the instructions
of respondent. We can further conclude that respondent dictated upon
petitioners that the latter perform their regular duties to secure the
premises during operating hours. This, to our mind and under the
circumstances, is sufficient to establish the existence of an employer-
employee relationship. Certainly, the facts as narrated by petitioners
are more believable than the irrational denials made by respondent.
Thus, we ruled in Lee Eng Hong v. Court of Appeals:9[9]
Evidence, to be believed, must not only proceed from the
mouth of a credible witness, but it must be credible in itself
— such as the common experience and observation of
mankind can approve as probable under the circumstances.
We have no test of the truth of human testimony, except its
conformity to our knowledge, observation and experience.
Whatever is repugnant to these belongs to the miraculous
and is outside judicial cognizance (Castañares v. Court of
Appeals, 92 SCRA 568 [1979]).
To reiterate, while respondent and SSCP no longer had any
legal relationship with the termination of the Agreement, petitioners
remained at their post securing the premises of respondent while
receiving their salaries, allegedly from SSCP. Clearly, such a situation
makes no sense, and the denials proffered by respondent do not shed
any light to the situation. It is but reasonable to conclude that, with the
behest and, presumably, directive of respondent, petitioners continued
with their services. Evidently, such are indicia of control that
respondent exercised over petitioners.
Such power of control has been explained as the “right to
control not only the end to be achieved but also the means to be used
in reaching such end.”10[10] With the conclusion that respondent
directed petitioners to remain at their posts and continue with their
duties, it is clear that respondent exercised the power of control over
them; thus, the existence of an employer-employee relationship.
In Tongko v. The Manufacturers Life Insurance Co. (Phils.)
Inc.,11[11] we reiterated the oft repeated rule that control is the most
employer-employee relationship:

In the determination of whether an employer-employee
relationship exists between two parties, this Court applies
the four-fold test to determine the existence of the elements
of such relationship. In Pacific Consultants International Asia,
Inc. v. Schonfeld, the Court set out the elements of an
employer-employee relationship, thus:
Jurisprudence is firmly settled that whenever the
existence of an employment relationship is in dispute,
four elements constitute the reliable yardstick: (a) the
selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d)
the employer’s power to control the employee’s
conduct. It is the so-called “control test” which
constitutes the most important index of the existence
of the employer-employee relationship that is, whether
the employer controls or has reserved the right to
control the employee not only as to the result of the
work to be done but also as to the means and methods
by which the same is to be accomplished. Stated
otherwise, an employer-employee relationship exists
where the person for whom the services are performed
reserves the right to control not only the end to be
achieved but also the means to be used in reaching
such end.
Furthermore, Article 106 of the Labor Code contains a
provision on contractors, to wit:
Art. 106. Contractor or subcontractor. Whenever an
employer enters into a contract with another person for the
performance of the former’s work, the employees of the
contractor and of the latter’s subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same
manner and extent that he is liable to employees directly
employed by him.
The Secretary of Labor and Employment may, by
appropriate regulations, restrict or prohibit the
contracting-out of labor to protect the rights of
workers established under this Code. In so prohibiting
or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as
well as differentiations within these types of
contracting and determine who among the parties
involved shall be considered the employer for
purposes of this Code, to prevent any violation or
circumvention of any provision of this Code.
There is “labor-only” contracting where the person supplying
workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and
placed by such person are performing activities which are
directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible
to the workers in the same manner and extent as if the latter
were directly employed by him. (Emphasis supplied.)
Thus, the Secretary of Labor issued Department Order No.
18-2002, Series of 2002, implementing Art. 106 as follows:
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 which are
directly related to the main business of the principal; or
11
DO 18-02 Cases 77
(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.
On the other hand, Sec. 7 of the department order contains
the consequence of such labor-only contracting:
Section 7. Existence of an employer-employee
relationship.––The contractor or subcontractor shall be
considered the employer of the contractual employee for
purposes of enforcing the provisions of the Labor Code and
other social legislation. The principal, however, shall be
solidarily liable with the contractor in the event of any
violation of any provision of the Labor Code, including the
failure to pay wages.
The principal shall be deemed the employer of the
contractual employee in any of the following cases as
declared by a competent authority:
(a) where there is labor-only
contracting; or
(b) where the contracting
arrangement falls within the prohibitions provided
in Section 6 (Prohibitions) hereof. (Emphasis
supplied.)
Evidently, respondent having the power of control over
petitioners must be considered as petitioners’ employer––from the
termination of the Agreement onwards––as this was the only time that
any evidence of control was exhibited by respondent over petitioners
and in light of our ruling in Abella.12[12] Thus, as aptly declared by the
NLRC, petitioners were entitled to the rights and benefits of employees
of respondent, including due process requirements in the termination
of their services.
Both the Labor Arbiter and NLRC found that respondent did
not observe such due process requirements. Having failed to do so,
respondent is guilty of illegal dismissal.
WHEREFORE, we SET ASIDE the CA’s May 6, 2008 Decision
and November 4, 2008 Resolution in CA-G.R. SP No. 97398. We hereby
REINSTATE the Labor Arbiter’s Decision dated February 13, 2004 and
the NLRC’s Resolutions dated October 28, 2005 and August 28, 2006.
No costs.
SO ORDERED.
12
 DO 18-02 Cases 78

OLDARICO S. TRAVEÑO, ROVEL A.
GENELSA, RUEL U. VILLARMENTE,
ALFREDO A. PANILAGAO, CARMEN
P. DANILA, ELIZABETH B.
MACALINO, RAMIL P. ALBITO,
REYNALDO A. LADRILLO, LUCAS G.
TAMAYO, DIOSDADO A. AMORIN,
RODINO C. VASQUEZ, GLORIA A.
FELICANO, NOLE E. FERMILAN,
JOSELITO B. RENDON, CRISTETA D.
CAÑA, EVELYN D. ARCENAL and
JEORGE M. NONO,
Petitioners,
- versus -
BOBONGON BANANA GROWERS
MULTI-PURPOSE COOPERATIVE,
TIMOG AGRICULTURAL
CORPORATION, DIAMOND FARMS,
INC., and DOLE ASIA PHILIPPINES,
Respondents.
x------------------------------------------- x
G.R. No. 164205 DFI answered for itself and TACOR, which it claimed had
been merged with it and ceased to exist as a corporation. Denying
Present: that it had engaged the services of petitioners, 18[6] DFI alleged that
during the corporate lifetime of TACOR, it had an arrangement with
QUISUMBING, J., Chairperson, several landowners in Santo Tomas, Davao Del Norte whereby TACOR
CORONA,* was to extend financial and technical assistance to them for the
CARPIO MORALES, development of their lands into a banana plantation on the condition
DEL CASTILLO, and that the bananas produced therein would be sold exclusively to
ABAD, JJ. TACOR; that the landowners worked on their own farms and hired
laborers to assist them; that the landowners themselves decided to
form a cooperative in order to better attain their business objectives;
Promulgated: and that it was not in a position to state whether petitioners were
working on the banana plantation of the landowners who had
contracted with TACOR.19[7]
September 3, 2009
The Cooperative failed to file a position paper despite due
notice, prompting the Labor Arbiter to consider it to have waived its
right to adduce evidence in its defense.
Nothing was heard from respondent Dole Asia Philippines.
By consolidated Decision dated October 30, 2002, 20[8] the
Labor Arbiter, found respondent Cooperative guilty of illegal dismissal.
It dropped the complaints against DFI, TACOR and Dole Asia
Philippines. Thus it disposed:

CARPIO MORALES, J.: WHEREFORE, judgment is hereby rendered:

By the account of petitioner Oldarico Traveño and his 16 co-
petitioners, in 1992, respondent Timog Agricultural Corporation
(TACOR) and respondent Diamond Farms, Inc. (DFI) hired them to work
1. Declaring respondent Bobongon Banana
Growers Multi-purpose Cooperative guilty of illegal dismissal;
at a banana plantation at Bobongon, Santo Tomas, Davao Del Norte
which covered lands previously planted with rice and corn but whose
owners had agreed to convert into a banana plantation upon being 2. Ordering respondent Bobongon Banana
convinced that TACOR and DFI could provide the needed capital, Growers Multi-purpose Cooperative to pay complainants full
expertise, and equipment. Petitioners helped prepare the lands for the backwages from the time of their illegal dismissal up to this
planting of banana suckers and eventually carried out the planting as promulgation, to be determined during the execution stage;
well.13[1]

Petitioners asseverated that while they worked under the
direct control of supervisors assigned by TACOR and DFI, these
companies used different schemes to make it appear that petitioners
were hired through independent contractors, including individuals,
unregistered associations, and cooperatives; that the successive
changes in the names of their employers notwithstanding, they
continued to perform the same work under the direct control of TACOR
and DFI supervisors; and that under the last scheme adopted by these
companies, the nominal individual contractors were required to, as
they did, join a cooperative and thus became members of respondent
Bobongon Banana Growers Multi-purpose Cooperative (the
Cooperative).14[2]
Continued petitioners: Sometime in 2000, above-named
respondents began utilizing harassment tactics to ease them out of
their jobs. Without first seeking the approval of the Department of
Labor and Employment (DOLE), they changed their compensation
package from being based on a daily rate to a pakyawan rate that
depended on the combined productivity of the “gangs” they had been
grouped into. Soon thereafter, they stopped paying their salaries,
prompting them to stop working.15[3]
One after another, three separate complaints for illegal
dismissal were filed by petitioners, individually and collectively, with
the National Labor Relations Commission (NLRC) against said
respondents including respondent Dole Asia Philippines as it then
supposedly owned TACOR,16[4] for unpaid salaries, overtime pay, 13th
month pay, service incentive leave pay, damages, and attorney’s
fees.17[5]
*
13
3. Ordering respondent Bobongon Banana
Growers Multi-purpose Cooperative to reinstate
complainants to their former positions without loss of
seniority rights and if not possible, to pay them separation
pay equivalent to 1/2 month pay for every year of service;
4. Ordering respondent Bobongon Banana
Grower Cooperative [sic] to pay 10% of the total award as
Attorney’s fees;
5. All other respondents are hereby dropped as
party-respondents for lack of merit. (Underscoring supplied)
In finding for petitioners, the Labor Arbiter relied heavily on
the following Orders submitted by DFI which were issued in an earlier
case filed with the DOLE, viz: (1) Order dated July 11, 1995 of the
Director of DOLE Regional Office No. XI declaring the Cooperative as
the employer of the 341 workers in the farms of its several members;
(2) Order dated December 17, 1997 of the DOLE Secretary affirming
the Order dated July 11, 1995 of the Director of DOLE Regional Office
No. XI; and (3) Order dated June 23, 1998 of the DOLE Secretary
denying the Cooperative’s Motion for Reconsideration.
On partial appeal to the NLRC, petitioners questioned the
Labor Arbiter’s denial of their money claims and the dropping of their
complaints against TACOR, DFI, and Dole Asia Philippines.
By Resolution dated July 30, 2003,21[9] the NLRC sustained
the Labor Arbiter’s ruling that the employer of petitioners is the
Cooperative, there being no showing that the earlier mentioned Orders
of the DOLE Secretary had been set aside by a court of competent
jurisdiction. It partially granted petitioners’ appeal, however, by
ordering the Cooperative to pay them their unpaid wages, wage
differentials, service incentive leave pay, and 13th month pay. It thus
remanded the case to the Labor Arbiter for computation of those
awards.

14 18

15 19

16 20

17 21

Their Motion for Reconsideration having been denied by
Resolution of September 30, 2003,22[10] petitioners appealed to the
Court of Appeals via certiorari.23[11]
By Resolution dated February 20, 2004,24[12] the appellate
court dismissed petitioners’ petition for certiorari on the ground that
the accompanying verification and certification against forum shopping
was defective, it having been signed by only 19 of the 22 therein
named petitioners. Their Motion for Reconsideration having been
denied by Resolution of May 13, 2004,25[13] petitioners lodged the
present Petition for Review on Certiorari.
Petitioners posit that the appellate court erred in dismissing
their petition on a mere technicality as it should have, at most,
dismissed the petition only with respect to the non-signing petitioners.
Dwelling on the merits of the case, petitioners posit that the
Labor Arbiter and the NLRC disregarded evidence on record showing
that while the Cooperative was their employer on paper, the other
respondents exercised control and supervision over them; that the
Cooperative was a labor-only contractor; and that the Orders of the
DOLE Secretary relied upon by the Labor Arbiter and the NLRC are not
applicable to them as the same pertained to a certification election
case involving different parties and issues.26[14]
DFI, commenting for itself and TACOR, maintains that,
among other things, it was not the employer of petitioners; and that it
cannot comment on their money claims because no evidence was
submitted in support thereof.27[15]
It appears that respondent Cooperative had been
dissolved.28[16]
As respondent Dole Asia Philippines failed to file a comment,
the Court, by Resolution of November 29, 2006,29[17] required it to (1)
show cause why it should not be held in contempt for its failure to
heed the Court’s directive, and (2) file the required comment, within 10
days from notice.
Dole Philippines, Inc. (DPI) promptly filed an Urgent
Manifestation30[18] stating that, among other things, while its division
located in Davao City received the Court’s Resolution directing Dole
Asia Philippines to file a comment on the present petition, DPI did not
file a comment as the directive was addressed to “Dole Asia
Philippines”, an entity which is not registered at the Securities and
Exchange Commission.
Commenting on DPI’s Urgent Manifestation, petitioners
contend that DPI cannot be allowed to take advantage of their lack of
knowledge as to its exact corporate name, DPI having raised the
matter for the first time before this Court notwithstanding its receipt of
all pleadings and court processes from the inception of this case. 31[19]
22
23
24
25
26
27
28
29
30
31
DO 18-02 Cases 79
Upon review of the records, the Court finds that DPI never
ever participated in the proceedings despite due notice. Its posturing,
therefore, that the court processes it received were addressed to “Dole
Asia Philippines,” a non-existent entity, does not lie. That DPI is the
intended respondent, there is no doubt.
Respecting the appellate court’s dismissal of petitioners’
appeal due to the failure of some of them to sign the therein
accompanying verification and certification against forum-shopping,
the Court’s guidelines for the bench and bar in Altres v. Empleo,32[20]
which were culled “from jurisprudential pronouncements,” are
instructive:
For the guidance of the bench and bar, the Court restates in
capsule form the jurisprudential pronouncements already
reflected above respecting non-compliance with the
requirements on, or submission of defective,
verification and certification against forum shopping:
1) A distinction must be made between non-
compliance with the requirement on or submission of
defective verification, and non-compliance with the
requirement on or submission of defective certification
against forum shopping.
2) As to verification, non-compliance therewith or a
defect therein does not necessarily render the pleading
fatally defective. The court may order its submission or
correction or act on the pleading if the attending
circumstances are such that strict compliance with the Rule
may be dispensed with in order that the ends of justice may
be served thereby.
3) Verification is deemed substantially
complied with when one who has ample knowledge to
swear to the truth of the allegations in the complaint
or petition signs the verification, and when matters
alleged in the petition have been made in good faith
or are true and correct.
4) As to certification against forum shopping, non-
compliance therewith or a defect therein, unlike in
verification, is generally not curable by its subsequent
submission or correction thereof, unless there is a need to
relax the Rule on the ground of “substantial compliance” or
presence of “special circumstances or compelling reasons.”
5) The certification against forum shopping
must be signed by all the plaintiffs or petitioners in a
case; otherwise, those who did not sign will be
dropped as parties to the case. Under reasonable or
justifiable circumstances, however, as when all the plaintiffs
or petitioners share a common interest and invoke a
common cause of action or defense, the signature of only
one of them in the certification against forum shopping
substantially complies with the Rule.
6) Finally, the certification against forum shopping
must be executed by the party-pleader, not by his counsel.
If, however, for reasonable or justifiable reasons, the party-
pleader is unable to sign, he must execute a Special Power
of Attorney designating his counsel of record to sign on his
behalf. (Emphasis and underscoring supplied)
The foregoing restated pronouncements were lost in the
challenged Resolutions of the appellate court. Petitioners’ contention
that the appellate court should have dismissed the petition only as to
the non-signing petitioners or merely dropped them as parties to
the case is thus in order.
Instead of remanding the case to the appellate court,
however, the Court deems it more practical to decide the substantive
issue raised in this petition so as not to further delay the disposition of
this case.33[21] And it thus resolves to deviate as well from the general
rule that factual questions are not entertained in petitions for review
on certiorari of the appellate court’s decisions in order to write finis to
this protracted litigation.
The sole issue is whether DFI (with which TACOR had been
merged) and DPI should be held solidarily liable with the Cooperative
for petitioners’ illegal dismissal and money claims.
32
33

The Labor Code and its Implementing Rules empower the
Labor Arbiter to be the trier of facts in labor cases. 34[22] Much reliance
is thus placed on the Arbiter’s findings of fact, having had the
opportunity to discuss with the parties and their witnesses the factual
matters of the case during the conciliation phase. 35[23] Just the same, a
review of the records of the present case does not warrant a
conclusion different from the Arbiter’s, as affirmed by the NLRC, that
the Cooperative is the employer of petitioners.
To be sure, the matter of whether the Cooperative is an
independent contractor or a labor-only contractor may not be used to
predicate a ruling in this case. 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.36[24] The present case
does not involve such an arrangement.
DFI did not farm out to the Cooperative the performance of a
specific job, work, or service. Instead, it entered into a Banana
Production and Purchase Agreement37[25] (Contract) with the
Cooperative, under which the Cooperative would handle and fund the
production of bananas and operation of the plantation covering lands
owned by its members in consideration of DFI’s commitment to provide
financial and technical assistance as needed, including the supply of
information and equipment in growing, packing, and shipping bananas.
The Cooperative would hire its own workers and pay their wages and
benefits, and sell exclusively to DFI all export quality bananas
produced that meet the specifications agreed upon.
To the Court, the Contract between the Cooperative and DFI,
far from being a job contracting arrangement, is in essence a business
partnership that partakes of the nature of a joint venture. 38[26] The
rules on job contracting are, therefore, inapposite. The Court may not
alter the intention of the contracting parties as gleaned from their
stipulations without violating the autonomy of contracts principle under
Article 1306 of the Civil Code which gives the contracting parties the
utmost liberality and freedom to establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good custom, public order or public policy.
Petitioners’ claim of employment relationship with the
Cooperative’s herein co-respondents must be assessed on the basis of
four standards, viz: (a) the manner of their selection and engagement;
(b) the mode of payment of their wages; (c) the presence or absence
of the power of dismissal; and (d) the presence or absence of control
over their conduct. Most determinative among these factors is the so-
called “control test.”39[27]
There is nothing in the records which indicates the presence
of any of the foregoing elements of an employer-employee
relationship.
The absence of the first requisite, which refers to selection
and engagement, is shown by DFI’s total lack of knowledge on who
actually were engaged by the Cooperative to work in the banana
plantation. This is borne out by the Contract between the Cooperative
and DFI, under which the Cooperative was to hire its own workers. As
TACOR had been merged with DFI, and DPI is merely alleged to have
previously owned TACOR, this applies to them as well. Petitioners
failed to prove the contrary. No employment contract whatsoever was
submitted to substantiate how petitioners were hired and by whom.
On the second requisite, which refers to the payment of
wages, it was likewise the Cooperative that paid the same. As
reflected earlier, under the Contract, the Cooperative was to handle
and fund the production of bananas and operation of the plantation. 40
[28]
The Cooperative was also to be responsible for the proper conduct,
34
35
36
37
38
39
DO 18-02 Cases 80
safety, benefits, and general welfare of its members and workers in
the plantation.41[29]
As to the third requisite, which refers to the power of
dismissal, and the fourth requisite, which refers to the power of
control, both were retained by the Cooperative. Again, the Contract
stipulated that the Cooperative was to be responsible for the proper
conduct and general welfare of its members and workers in the
plantation.
The crucial element of control refers to the authority of the
employer to control the employee not only with regard to the result of
the work to be done, but also to the means and methods by which the
work is to be accomplished.42[30] While it suffices that the power of
control exists, albeit not actually exercised, there must be some
evidence of such power. In the present case, petitioners did not
present any.
There being no employer-employee relationship between
petitioners and the Cooperative’s co-respondents, the latter are not
solidarily liable with the Cooperative for petitioners’ illegal dismissal
and money claims.
While the Court commiserates with petitioners on their loss
of employment, especially now that the Cooperative is no longer a
going concern, it cannot simply, by default, hold the Cooperative’s co-
respondents liable for their claims without any factual and legal
justification therefor. The social justice policy of labor laws and the
Constitution is not meant to be oppressive of capital.
En passant, petitioners are not precluded from pursuing any
available remedies against the former members of the defunct
Cooperative as their individual circumstances may warrant.
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
G.R. Nos. 82763-64 March 19, 1990
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER
ISABEL P. ORTIGUERRA, and LABOR ALLIANCE FOR NATIONAL
DEVELOPMENT, respondents.
The Legal Counsel for petitioner.
Piorello E. Azura, Errol Ismael, B. Palaci and Maria Lourdes C. Legaspi
for APT.
Pablo B. Castillon for respondent LAND.
MELENCIO-HERRERA, J.:
This Petition for Certiorari addresses itself to the 12 February 1986
Order of the National Labor Relations Commission directing petitioner
Development Bank of the Philippines (DBP) to remit the sum of
P6,292,380.00 "out of proceeds of the foreclosed properties of Lirag
Textile Mills Inc., sold at public auction in order to satisfy the
judgment" in NLRC Cases Nos. NCR-3-2581-82 and 2-2090-82.
40
41
42

The background facts of these two cases may be summarized as
follows:
The complainants in the two cases filed below were former employees
of Lirag Textile Mills, Inc. (LIRAG, for short). LIRAG was a mortgage
debtor of DBP. Private respondent Labor Alliance for National
Development (LAND, for brevity) was the bargaining representative of
the more or less 800 former rank and file employees of LIRAG. Around
September 1981, LIRAG started terminating the services of its
employees on the ground of retrenchment. By December of the said
year there were already 180 regular employees separated from the
service. LIRAG has since ceased operations presumably due to
financial reverses.
In February 1982, Joselito Albay, one of the employees dismissed in
September 1981, filed a complaint before the National Labor Relations
Commission (NLRC) against LIRAG for illegal dismissal (Case No. 2-
2090-82). On 1 March 1982, LAND, on behalf of 180 dismissed
members, also filed a Complaint against LIRAG seeking separation pay,
13th month pay, gratuity pay, sick leave and vacation leave pay and
emergency allowance (Case No. 3-2581-82). These two cases were
consolidated and jointly heard by the NLRC. Said complainants have
since been joined by supervisors and managers.
In a Decision, dated 30 July 1982, Labor Arbiter Apolinar L. Sevilla
ordered LIRAG to pay the individual complainants. The NLRC (Third
Division) affirmed the same on 28 March 1982. That judgment became
final and executory.
On 15 April 1983, a Writ of Execution was issued. On the same day,
DBP extrajudicially foreclosed the mortgaged properties for failure of
LIRAG to pay its mortgage obligation. As the only bidder at the
foreclosure sale, DBP acquired said mortgaged properties for
P31,346,462.90. Since DBP was the sole mortgagee, no actual
payment was made, the amount of the bid having been merely
credited in partial satisfaction of LIRAG's indebtedness.
By reason of said foreclosure, the Writ of Execution issued in favor of
the complainants remained unsatisfied. A Notice of Levy on Execution
on the properties of LIRAG was then entered.
On 7 December 1984, LAND filed a "Motion for Writ of Execution and
Garnishment" of the proceeds of the foreclosure sale.
On 30 May 1985, upon motion of LAND, Labor Arbiter Apolinar L.
Sevilla ordered the DBP impleaded "in the interest of justice and due
process," and required it to intervene.
On 12 February 1986, and over the opposition of DBP, Labor Arbiter
Sevilla granted the Writ of Garnishment and directed DBP to remit to
the NLRC the sum of P6,292,380.00 out of the proceeds of the
foreclosed properties of LIRAG sold at public auction in order to satisfy
the judgment previously rendered.
DBP sought reconsideration of the above Order on the grounds of
NLRC's lack of jurisdiction over it since it was not a party to the case,
and that it was deprived of its property without due process of law.
Public respondent, Labor Arbiter Isabel P. Ortiguerra denied
reconsideration on 25 May 1987. DBP appealed that denial to the
NLRC.
In the meantime, on 3 February 1987, by virtue of Proclamation Nos.
50 and 50-A, the Asset Privatization Trust (APT) became the transferee
of the DBP foreclosed assets of LIRAG. On 12 July 1989, by virtue of
that transfer, we deemed APT impleaded as a party-petitioner and
gave it time within which to file its pleading. It submitted a
Memorandum on 22 November 1989.
It appears that on 21 December 1987, a partial Compromise
Agreement was entered into between APT and LAND (Litex Chapter)
whereby APT paid the complainants-employees, ex gratia, the sum of
P750,000.00 "in full settlement of their claims, past and present, with
respect to all assets of LITEX transferred by DBP to APT." That amount
was received by LAND's local President. Apparently, however, on 25
January 1988, LAND, through its national President, filed its opposition
to the Compromise Agreement for being contrary to law, morals and
public policy.
DO 18-02 Cases 81
On 25 March 1988, the NLRC (First Division) affirmed the appealed
Order and dismissed the DBP appeal.
DBP is now before us seeking a review and reversal. On 30 January
1989, the Court resolved to give due course to the petition and to
require the parties to submit simultaneous memoranda. On 1 February
1990, the Court's Second Division referred the case to the Court en
banc, which the latter accepted on the same date.
It is true that DBP was not an original party and that it was ordered
impleaded only after the Writs of Execution were not satisfied because
the properties levied upon on execution had been foreclosed
extrajudicially by it. DBP had to be impleaded, however, for the proper
satisfaction of a final judgment. Being an incident in the execution of
the final judgment award, NLRC retained jurisdiction and control over
the case and could issue such orders as were necessary for the
implementation of that award. Its inclusion as a party could not have
been accomplished at the earlier stages of the proceedings because at
the time of the filing of the Complaint, private respondents' cause of
action was only against LIRAG.
DBP cannot rightfully contend that it was deprived of due process. It
was given the opportunity to be heard and to present its evidence. It
had actually filed its Opposition to the Motion for Execution and
Garnishment filed by LAND on 7 January 1985, and the Order granting
the Motion was issued only after hearing. DBP had also addressed an
appeal to the NLRC. It had submitted, therefore, to the jurisdiction of
the NLRC.
Now, for the core issue — whether or not the NLRC gravely abused its
discretion in affirming the Order of the Labor Arbiter granting the Writ
of Garnishment out of the proceeds of LIRAG's properties foreclosed by
DBP to satisfy the judgment in these cases.
We are constrained to rule in the affirmative.
Article 110 of the Labor Code provides:
Art. 110. Worker preference in case of bankruptcy. — In the
event of bankruptcy or liquidation of an employer's business,
his workers shall enjoy first preference as regards wages due
them for services rendered during the period prior to the
bankruptcy or liquidation, any provision to the contrary
notwithstanding. Unpaid wages shall be paid in full before
other creditors may establish any claim to a share in the
assets of the employer.
In implementation of the foregoing, Section 10, Rule VIII, Book III of the
Revised Rules and Regulations Implementing the Labor Code, as
amended, provides:
Sec. 10. Payment of wages in case of bankruptcy. — Unpaid
wages earned by the employees before the declaration of
bankruptcy or judicial liquidation of the employer's business
shall be given first preference and shall be paid in full before
other creditors may establish any claim to a share in the
assets of the employer. (Emphasis supplied).
In interpreting the foregoing provisions, the Court, in Development
Bank of the Philippines vs. Santos (G.R. Nos. 78261-62, 8 March 1989),
categorically stated:
It is quite clear from the provision that a declaration of
bankruptcy or a judicial liquidation must be present before
the workers preference may be enforced. Thus, Article 110
of the Labor Code and its implementing rule cannot be
invoked by the respondents in this case absent a formal
declaration of bankruptcy or a liquidation order. . . .
Since then, however, Article 110 has been amended by Republic Act
No. 6715 and now reads as follows:
Sec. 1. Article 110 of Presidential Decree No. 442, as
amended, otherwise known as the Labor Code of the
Philippines, is hereby further amended to read as follows:
Art. 110. Worker preference in case of bankruptcy. — In the
event of bankruptcy or liquidation of an employer's business,

his workers shall enjoy first preference as regards their
unpaid wages and other monetary claims, any provision of
law to the contrary notwithstanding. Such unpaid wages and
monetary claims shall be paid in full before the claims of the
Government and other creditors may be paid. (Amendments
emphasized).
The amendment expands worker preference to cover not only unpaid
wages but also other monetary claims to which even claims of the
Government must be deemed subordinate.
Section 10, Rule III, Book III of the Omnibus Rules Implementing the
Labor Code has also been amended by Section 1 of the Rules and
Regulations Implementing RA 6715 as approved by the then Secretary
of Labor and Employment on 24 May 1989, and now provides:
Sec. 10. Payment of wages and other monetary claims in
case of bankruptcy. — In case of bankruptcy or liquidation of
the employer's business, the unpaid wages and other
monetary claims of the employees shall be given first
preference and shall be paid in full before the claims of
government and other creditors may be paid.
Notably, the terms "declaration" of bankruptcy or "judicial" liquidation
have been eliminated. Does this mean then that liquidation
proceedings have been done away with?
We opine in the negative, upon the following considerations:
1. Because of its impact on the entire system of credit, Article 110 of
the Labor Code cannot be viewed in isolation but must be read in
relation to the Civil Code scheme on classification and preference of
credits.
Article 110 of the Labor Code, in determining the reach of its
terms, cannot be viewed in isolation. Rather, Article 110
must be read in relation to the provisions of the Civil Code
concerning the classification, concurrence and preference of
credits, which provisions find particular application in
insolvency proceedings where the claims of all creditors,
preferred or non-preferred, may be adjudicated in a binding
manner. . . . Republic vs. Peralta (G.R. No. L-56568, May 20,
1987, 150 SCRA 37).
2. In the same way that the Civil Code provisions on classification of
credits and the Insolvency Law have been brought into harmony, so
also must the kindred provisions of the Labor Law be made to
harmonize with those laws.
3. In the event of insolvency, a principal objective should be to effect
an equitable distribution of the insolvent's property among his
creditors. To accomplish this there must first be some proceeding
where notice to all of the insolvents's creditors may be given and
where the claims of preferred creditors may be bindingly adjudicated
(De Barretto vs. Villanueva, No. L-14938, December 29, 1962, 6 SCRA
928). The rationale therefore has been expressed in the recent case of
DBP vs. Secretary of Labor (G.R. No. 79351, 28 November 1989), which
we quote:
A preference of credit bestows upon the preferred creditor
an advantage of having his credit satisfied first ahead of
other claims which may be established against the debtor.
Logically, it becomes material only when the properties and
assets of the debtors are insufficient to pay his debts in full;
for if the debtor is amply able to pay his various creditors in
full, how can the necessity exist to determine which of his
creditors shall be paid first or whether they shall be paid out
of the proceeds of the sale the debtor's specific property?
Indubitably, the preferential right of credit attains
significance only after the properties of the debtor have
been inventoried and liquidated, and the claims held by his
various creditors have been established (Kuenzle & Streiff
(Ltd.) vs. Villanueva, 41 Phil 611 (1916); Barretto vs.
Villanueva, G.R. No. 14938, 29 December 1962, 6 SCRA 928;
Philippine Savings Bank vs. Lantin, G.R. 33929, 2 September
1983, 124 SCRA 476).
4. A distinction should be made between a preference of credit and a
lien. A preference applies only to claims which do not attach to specific
properties. A lien creates a charge on a particular property. The right of
DO 18-02 Cases 82
first preference as regards unpaid wages recognized by Article 110
does not constitute a lien on the property of the insolvent debtor in
favor of workers. It is but a preference of credit in their favor, a
preference in application. It is a method adopted to determine and
specify the order in which credits should be paid in the final
distribution of the proceeds of the insolvent's assets. It is a right to a
first preference in the discharge of the funds of the judgment debtor.
In the words of Republic vs. Peralta, supra:
Article 110 of the Labor Code does not purport to create a
lien in favor of workers or employees for unpaid wages either
upon all of the properties or upon any particular property
owned by their employer. Claims for unpaid wages do not
therefore fall at all within the category of specially preferred
claims established under Articles 2241 and 2242 of the Civil
Code, except to the extent that such complaints for unpaid
wages are already covered by Article 2241, number 6:
"claims for laborers wages, on the goods manufactured or
the work done;" or by Article 2242, number 3: "claims of
laborers and other workers engaged in the construction,
reconstruction or repair of buildings, canals and other works,
upon said buildings, canals and other works, upon said
buildings, canals and other works." To the extent that claims
for unpaid wages fall outside the scope of Article 2241,
number 6 and 2242, number 3, they would come within the
ambit of the category of ordinary preferred credits under
Article 2244.
5. The DBP anchors its claim on a mortgage credit. A mortgage directly
and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for
whose security it was constituted (Article 2176, Civil Code). It creates a
real right which is enforceable against the whole world. It is a lien on
an identified immovable property, which a preference is not. A
recorded mortgage credit is a special preferred credit under Article
2242 (5) of the Civil Code on classification of credits. The preference
given by Article 110, when not falling within Article 2241 (6) and Article
2242 (3) of the Civil Code and not attached to any specific property, is
an ordinary preferred credit although its impact is to move it from
second priority to first priority in the order of preference established by
Article 2244 of the Civil Code (Republic vs. Peralta, supra).
In fact, under the Insolvency Law (Section 29) a creditor holding a
mortgage or lien of any kind as security is not permitted to vote in the
election of the assignee in insolvency proceedings unless the value of
his security is first fixed or he surrenders all such property to the
receiver of the insolvent's estate.
6. Even if Article 110 and its Implementing Rule, as amended, should
be interpreted to mean "absolute preference," the same should be
given only prospective effect in line with the cardinal rule that laws
shall have no retroactive effect, unless the contrary is provided (Article
4, Civil Code). Thereby, any infringement on the constitutional
guarantee on non-impairment of the obligation of contracts (Section
10, Article III, 1987 Constitution) is also avoided. In point of fact, DBP's
mortgage credit antedated by several years the amendatory law, RA
No. 6715. To give Article 110 retroactive effect would be to wipe out
the mortgage in DBP's favor and expose it to a risk which it sought to
protect itself against by requiring a collateral in the form of real
property.
In fine, the right to preference given to workers under Article 110 of
the Labor Code cannot exist in any effective way prior to the time of its
presentation in distribution proceedings. It will find application when, in
proceedings such as insolvency, such unpaid wages shall be paid in full
before the "claims of the Government and other creditors" may be
paid. But, for an orderly settlement of a debtor's assets, all creditors
must be convened, their claims ascertained and inventoried, and
thereafter the preferences determined in the course of judicial
proceedings which have for their object the subjection of the property
of the debtor to the payment of his debts or other lawful obligations.
Thereby, an orderly determination of preference of creditors' claims is
assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2,
1983, 124 SCRA 476); the adjudication made will be binding on all
parties-in-interest, since those proceedings are proceedings in rem;
and the legal scheme of classification, concurrence and preference of
credits in the Civil Code, the Insolvency Law, and the Labor Code is
preserved in harmony.
WHEREFORE, Certiorari is GRANTED, and the assailed Decision of
public respondent, the National Labor Relations Commission (NLRC),
dated 25 March 1988, is hereby SET ASIDE.

The Development Bank of the Philippines, the Asset Privatization Trust,
the Labor Alliance for National Development (LAND), and other
creditors who may be so minded, are hereby directed, within sixty (60)
days from notice, to institute involuntary insolvency proceedings
before the proper Court where all the assets of Lirag Textile Mills, Inc.,
may be inventoried, the preferences of all its creditors determined, and
their claims discharged in a binding and conclusive manner. No costs.
SO ORDERED.
Fernan, C.J., Narvasa, Gutierrez, Jr., Feliciano, Gancayco, Bidin, Cortes,
Griño-Aquino, Medialdea and Regalado, JJ., concur.
Separate Opinions
CRUZ, J., dissenting:
I was the lone dissenter in Republic v. Peralta, 150 SCRA 37, which is
the mainstay of the present majority ponencia. Even then, I was
convinced that it was the intention of the legislature to give absolute
preference to the workers' claims pursuant to the social justice policy.
The amendment of Article 110 of the Labor Code only strengthens that
conviction and, I like to think, vindicates my original position. I
reiterate it now and repeat that:
Social Justice is not a mere catch phrase to be mouthed with
sham fervor in Labor Day celebrations for the delectation
and seduction of the working class. It is a mandate we
should pursue with energy and sincerity if we are to truly
insure the dignity and well-being of the laborer.
I am proud to dissent once again on the side of labor.
PADILLA, J., dissenting:
The material facts are riot disputed. Lirag Textile (LIRAG) ceased
operations by early 1982. Pursuant to a final and executory judgment
of the NLRC, dated 20 March 1983, LIRAG was adjudged liable to its
workers for unpaid wages and salaries which, as of 12 February 1986,
amounted to P6,292,380.00.
LIRAG's only remaining asset was mortgaged to Development Bank of
the Philippines (DBP) which on 15 April 1983 foreclosed the mortgage
and acquired said property at public auction for P31,346.462.90, in
partial satisfaction of LIRAG's indebtedness to DBP. LIRAG's workers
through their union (LAND) thereupon sought to garnish on DBP the
proceeds of the foreclosure sale, to the extent of their adjudged unpaid
wages (P6,292,380.00). The NLRC ruled for LAND over DBP's objection.
The issue therefore, in practical terms, is whether P6,292,380.00
should be deducted from the P31,346,462.90 realized by DBP from the
foreclosure sale of LIRAG's property, to fully satisfy LAND's claim for
LIRAG workers' unpaid wages, thereby leaving a balance of
P25,054,082.90 only in partial satisfaction of LIRAG's debt to DBP.
The majority holds that LAND may not enforce its first preference in
the satisfaction of unpaid monetary claims of its members, viz. LIRAG's
workers, over that of DBP, in the absence of a formal declaration of
bankruptcy or judicial liquidation of LIRAG's business.
I regret that I cannot join the majority ruling in the light of the
amendment to Article 110 of the Labor Code by Republic Act 6715,
approved on 2 March 1989, and the resultant amendment of Section
10, Rule VIII, Book III of the Revised Rules and Regulations
Implementing the Labor Code.
Before its amendment by Republic Act 6715, Article 110 of the Labor
Code provided —
Worker preference in case of bankruptcy. — In the event of
bankruptcy or liquidation of an employer's business, his
workers shall enjoy first preference as regards wages due
them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shall be paid in full
before other creditors may establish any claim to a share in
the assets of the employer.
DO 18-02 Cases 83
After Republic Act 6715, Art. 110 now provides:
Worker preference in case of bankruptcy. — In the event of
bankruptcy or liquidation of an employer's business, his
workers shall enjoy first preference as regards their wages
and other monetary claims, any provisions of law to the
contrary notwithstanding. Such unpaid wages and monetary
claims shall be paid in full before claims of the government
and other creditors may be paid.
Section 10 of the Implementing Rules, before Republic Act 6715
provided:
Payment of wages in case of bankruptcy. — Unpaid wages
earned by the employees before the declaration of
bankruptcy or judicial liquidation of the employer's business
shall be given first preference and shall be paid in full before
other creditors may establish any claim to a share in the
assets of the employer.
After Republic Act 6715, Section 10 of the Rules now provides:
Payment of wages and other monetary claims in case of
bankruptcy. — In case of bankruptcy or liquidation of the
employer's business, the unpaid wages and other monetary
claims of the employees shall be given first preference and
shall be paid in full before the claims of government and
other creditors may be paid.
The majority, in my considered opinion, has failed to fully take into
account the radical change introduced by Republic Act 6715 into the
system of priorities or preferences among credits or creditors ordained
by the Civil Code.
Under the provisions of the Civil Code, specifically, Articles 2241 and
2242, jointly with Articles 2246 to 2249, a two-tier order of preference
of credits is established. The first tier includes only taxes, duties and
fees on specific movable or immovable property. All other special
preferred credits stand on a second tier. 1
Under the system of preferences in the Civil Code, only taxes enjoy
absolute preference i.e., they exclude the credits of the lower order
until such taxes are fully satisfied out of the proceeds of the sale of the
property subject of the preference, and taxes can even exhaust such
proceeds. All other special preferred credits enjoy no priority among
themselves but must be paid or satisfied pro rata. To make the
prorating fully effective, the preferred creditors enumerated in Nos. 2
to 13 of Article 2241 and Nos. 2 to 10 of Article 2242 must be
convened and the import of their claims ascertained in some
proceeding where the claims of all may be bindingly adjudicated.
With the amendment of Article 110 of the Labor Code by Republic Act
6715, a three-tier order of preference is established wherein unpaid
wages and other monetary claims of workers enjoy absolute
preference over all other claims, including those of the Government, in
cases where a debtor-employer is unable to pay in full all his
obligations. The absolute preference given to monetary claims of
workers, to which claims of the Government, i.e., taxes, are now
subordinated, manifests the clear and deliberate intent of our
lawmaker to put flesh and blood into the expressed Constitutional
policy of protecting the rights of workers and promoting their welfare. 2
I thus take exception to the proposition that a prior formal declaration
of insolvency or bankruptcy or a judicial liquidation of the employer's
business is a condition sine qua non to the operation of the preference
accorded to workers under Article 110 of the Labor Code, for the
following specific reasons:
First, the majority reads into the aforesaid law and implementing rule a
qualification that is not there. Nowhere is it stated in the present law
and its new implementing rule that a prior declaration of bankruptcy or
judicial liquidation is a condition sine qua non to the operation of
Article 110. In fact, it will be noted that the phrase declaration of
bankruptcy or judicial liquidation of the employer's business, which
formerly appeared in Section 10, Rule VIII, Book III of the Revised Rules
and Regulations Implementing the Labor Code has been deleted in the
new implementing rule. What is to me even more obvious and,
therefore, significant in the present law and implementing new rule is
the unconditional and unqualified grant of priority to workers'

monetary claims over and above all other claims as against all the
assets of an employer incapable of fully paying his obligations.
Second, a proceeding in rem, by its nature, seeks to bar any other
person who claims any interest in the property or right subject of the
suit. To my mind, such a proceeding is not essential or necessary to
enforce the workers' preferential right over the assets of the insolvent
debtor as against other creditors of the lower tier, as Article 110 of the
Labor Code itself bars the satisfaction of claims of other creditors,
including the Government, until unpaid wages and monetary claims of
the workers are first satisfied in full. Further, it appears that such a
proceeding is essential only where the credits are concurring and enjoy
no preference over one another, but not when the law accords to one
of the credits absolute priority and undisputed supremacy. This
submission finds support, by analogy, in the case of De Barreto vs.
Villanueva, where the Court stated:
Thus it becomes evident that one preferred creditor's third
party claim to the proceeds of the foreclosure (as in the case
now before us) is not the proceeding contemplated by law
for the enforcement of preference under Article 2242, unless
the claimant were enforcing credit for taxes that enjoy
absolute priority. If none of the claim is for taxes, a dispute
between two creditors will not enable the court to ascertain
the prorata dividend corresponding to each, because the
rights of other creditors likewise enjoying preference under
Article 2242 cannot be ascertained. 3 (Emphasis ours)
In sum, it is to me clear that, whether or not there be a judicial
proceeding in rem, i.e., insolvency, bankruptcy or liquidation
proceedings, the fact remains that Congress intends that the assets of
the insolvent debtor be held, first and above all else, to satisfy in full
the unpaid wages and monetary claims of its workers. Translated into
the case at bar, a formal declaration of insolvency or bankruptcy or
judicial liquidation of the employer's business should not be a price
imposed upon the workers to enable them to get their much needed
and already adjudicated unpaid wages. This position, I believe, is only
in keeping with a fundamental state policy enshrined in the
Constitutional mandate to accord protection to labor. The legislative
intent being clear and manifest, it is the duty of this Court, I submit,
not to decimate but to give it breath and life.
ACCORDINGLY, I vote to DISMISS the DBP petition and to AFFIRM the
resolution of the NLRC in favor of LAND.
Paras, J., concur.
SARMIENTO, J., dissenting:
I join Mr. Justice Teodoro Padilla in his dissent. It is also my considered
opinion that under Republic Act No. 6715, the payment of unpaid
wages and other benefits to labor enjoys preference over all other
indebtedness, including taxes, of management, with or without a
declaration of insolvency.
It is likewise so, because labor enjoys protection not only from statute
but from the very Constitution. Thus:
Sec. 18. The State affirms labor as a primary social economic
force. It shall protect the rights of workers and promote their
welfare. (Article II)
xxx xxx xxx
Sec. 3. The State shall afford full protection to labor, local
and overseas, organized and unorganized, and promote full
employment and equality or employment opportunities for
all.
It shall guarantee the rights of all workers to self-
organization, collective bargaining and negotiations, and
peaceful concerted activities, including the right to strike in
accordance with law. They shall be entitled to security of
tenure, humane conditions of work, and a living wage. They
shall also participate in policy and decision-making
processes affecting their rights and benefits as may be
provided by law.
DO 18-02 Cases 84
The State shall promote the principle of shared responsibility
between workers and employers and the preferential use of
voluntary modes in settling disputes, including conciliation,
and shall enforce their mutual compliance therewith to foster
industrial peace.
The State shall regulate the relations between workers and
employers recognizing the right of labor to its just share in
the fruits of production and the right of enterprises to
reasonable returns on investments, and to expansion and
growth. (Article XIII)
On the other hand, under the Labor Code:
Art. 3. Declaration of basic policy — The State shall afford
protection to labor, promote full employment, ensure equal
work opportunities regardless of sex, race or creed and
regulate the relations between workers and employers. The
State shall assure the rights of workers to self-organization,
collective bargaining security of tenure, and just and
humane conditions of work.
Art. 4. Construction in favor of labor — All doubts in the
implementation and interpretation of the provisions of this
code, including its implementing rules and regulations, shall
be resolved in favor of labor.
Under the Civil Code:
Art. 1700. The relations between capital and labor are not
merely contractual. They are so impressed with public
interest that labor contracts must yield to the common good.
Therefore, such contracts are subject to the special laws on
labor unions, collective bargaining, strikes and lockouts,
closed shop, wages, working conditions, hours of labor and
similar subjects.
xxx xxx xxx
Art. 1702. In case of doubt, all labor legislation and all labor
contracts shall be construed in favor of the safety and
decent living for the laborer.
It is true that under the Charter, "[n]o person shall be deprived,"
among other things, "of property without due process of law,"
however, the basic document also states, that:
Sec. 6. The use of property bears a social function, and all
economic agents shall contribute to the common good.
Individuals and private groups, including corporations,
cooperatives, and similar collective organizations, shall have
the right to own, establish, and operate economic enterprises,
subject to the duty of the State to promote distributive justice
and to intervene when the common good so demands. (Article
XII)
Pascual says that in any productive economy, the first factor is labor.
[PASCUAL, LABOR AND TENANCY RELATIONS LAW 2 (1975 ed.)]. I
agree with him. For in any enterprise, it is labor on which management
depends to run its business, to till its land, and to make its money. Yet,
labor has been the doormat of the economy when it should be its hub.
And now, we will make them fall in line along with creditors of
management in collecting what it (labor) already owns — its just
wages. I do not think that this is in accord with established State
policies.
[G.R. No. 151983-84, July 31, 2008]
JOSE MAX S. ORTIZ, PETITIONER, VS. SAN MIGUEL
CORPORATION, RESPONDENT.
CHICO-NAZARIO, J.:
This case is a Petition for Review on Certiorari under Rule 45 of the
1997 Revised Rules of Civil Procedure seeking to modify or partially
reconsider the Decision[1] dated 22 August 2001 and Resolution[2] dated
9 January 2002 of the Court of Appeals in CA-G.R. SP No. 54576-77,
insofar as the award of attorney's fees is concerned. Herein

petitioner Jose Max S. Ortiz prays that this Court affirm the award of
attorney's fees equivalent to 10% of the monetary award adjudged by
the National Labor Relations Commission (NLRC) in its Decisions dated
21 July 1995 and 25 July 1995 in NLRC Cases No. V-0255-94[3] and No.
V-0068-95, [4] respectively. Petitioner asserts that he is entitled to the
said attorney's fees.
Petitioner is a member of the Philippine Bar who represented the
complainants in NLRC Cases No. V-0255-94 and No. V-0068-95
instituted against herein private respondent San Miguel Corporation
sometime in 1992 and 1993.
Private respondent, on the other hand, is a corporation duly organized
and existing under and by virtue of the laws of the Republic of the
Philippines. It is primarily engaged in the manufacture and sale of food
and beverage particularly beer products. In line with its business, it
operates breweries and sales offices throughout the Philippines.[5] The
complainants in NLRC Cases No. V-0255-94 and No. V-0068-95 were
employees at private respondent's Sales Offices in the provinces.
NLRC Case No. V-0255-94 (Aguirre Cases)
In 1992, several employees from the Bacolod, Cadiz, and Himamaylan
Beer Sales Offices filed with the Labor Arbiter separate complaints
against private respondent for illegal dismissal with prayer for
reinstatement with backwages; elevation of employment status from
casual- temporary to regular-permanent reckoned after six months
from the start of complainants' employment; underpayment of
salaries; non-payment of holiday pay, service incentive leave pay,
allowances and sick leaves; non-payment of benefits under the existing
Collective Bargaining Agreements (CBA); attorney's fees; moral,
exemplary and other damages; and interest. The foregoing complaints
were consolidated and initially docketed as RAB Cases No. 06-01-
10031-92; 06-01-10048-92; 06-01-10049-92; 06-02-10210-92; 06-02-
10211-92; and 06-03-10255-92 (hereinafter collectively referred to as
the Aguirre Cases). After conducting a full-blown trial, the parties
were given the opportunity to submit their respective memoranda.
Subsequently, the cases were submitted for resolution.
On 30 June 1994, Labor Arbiter Reynaldo J. Gulmatico (Labor Arbiter
Gulmatico) rendered a Decision [6] in the Aguirre Cases finding all the
complainants to have been illegally dismissed. He ordered
complainants' reinstatement to their previous or equivalent positions
without loss of seniority rights. He also ordered private respondent to
pay the complainants (1) full backwages and other CBA benefits in the
total amount of P6,197,952.88; (2) rice subsidy or its monetary
equivalent; and (3) attorney's fees equivalent to 10% of the
monetary award or in the amount of P619,795.28. Labor Arbiter
Gulmatico, however, dismissed complainants' claim for overtime pay,
holiday pay, 13th month pay differential, service incentive leave pay,
moral damages and all other claims for lack of merit.[7]
Unsatisfied with Labor Arbiter Gulmatico's monetary and economic
awards, complainants appealed to the NLRC, where the Aguirre Cases
were collectively docketed as NLRC Case No. V-0255-94. The NLRC
would later render a Decision dated 21 July 1995 in the Aguirre Cases
affirming the Decision of Labor Arbiter Gulmatico, with the following
modifications: (1) granting sales commission to the complainants and
adopting their computation thereof in their Appeal Memorandum[8] filed
before the NLRC; (2) adjusting and/or reducing the amounts awarded
to complainants Alfredo Gadian, Jr., Renato Junsay, Agustines Llacuna,
and Florencio de la Piedra depending on the dates they were
employed; (3) determining that Modesto Jabaybay, who died on 28
December 1993, was to receive only the amount of P356,128.02; (4)
declaring that all the complainants except Romeo Magbanua, who
withdrew his complaint, were entitled to whatever benefits were given
under the CBA; and (5) that complainants Romeo Magbanua and
Modesto Jabaybay shall no longer be reinstated.[9]
Private respondent moved for the reconsideration of the aforesaid 21
July 1995 NLRC Decision, but its motion was denied by the NLRC in its
Resolution[10] dated 27 February 1996.
NLRC Case No. V-0068-95 (Toquero Case)
While the Aguirre Cases were still pending resolution by Labor Arbiter
Gulmatico, three other employees at the San Carlos Sales Office filed
with the Labor Arbiter a similar complaint for illegal dismissal against
private respondent in 1993. Their complaint was docketed as RAB Case
No. 06-07-10404-93 (hereinafter referred to as the Toquero Case).
On 26 December 1994, Labor Arbiter Ray Allan T. Drilon (Labor Arbiter
Drilon) rendered his Decision[11] in the Toquero Case also ruling that
the three complainants were illegally dismissed. Thus, he ordered the
complainants' immediate reinstatement to their former positions
DO 18-02 Cases 85
without loss of seniority rights. He ordered private respondent to pay
complainants (1) backwages and other benefits in the amount of
P572,542.50; (2) all benefits, privileges and rights enjoyed by the
private respondent's regular employees in the total amount of
P339,055.00; (3) a total of 159 sacks of rice ration; (4) sales
commissions based on the monthly sales of beer sold by their office for
the last three years; and (5) attorney's fees in the amount of
P91,159.75.[12]
Again, the complainants were not contented with Labor Arbiter Drilon's
Decision, and they appealed their case to the NLRC which was then
docketed as NLRC Case No. V-0068-95. On 25 July 1995, the NLRC
rendered a Decision modifying the 26 December 1994 Decision of
Labor Arbiter Drilon by ordering the private respondent to pay the
complainants the following: (1) additional awards of sales commission;
(2) tailoring allowance; (3) monetary equivalent of their uniform for two
years consisting of 24 sets of t-shirts and 6 pairs of pants; and (4)
attorney's fees of 10% of the total monetary award or
P198,296.95.[13]
In its Resolution[14] dated 9 October 1995, the NLRC partially granted
private respondent's motion for reconsideration by allowing the
deduction from the award of backwages any earnings of complainants
elsewhere during the pendency of their case.[15]
CA-G.R. SP No. 54576-77
Failing to get a favorable ruling from the NLRC in both the Aguirre and
Toquero Cases, private respondent elevated the NLRC Decisions to this
Court via a Petition for Certiorari, where they were docketed as G.R.
No. 124426[16] and G.R. No. 122975, respectively.[17] On 15 July 1996,
this Court issued a Resolution[18] consolidating the two cases. In another
Resolution[19] dated 30 June 1999, this Court referred the said cases to
the Court of Appeals conforming to its ruling in St. Martin Funeral
Home v. NLRC and Bienvenido Aricayos.[20] The Court of Appeals
accepted the consolidated cases in its Resolution[21] dated 7 September
1999, and docketed the same as CA-G.R. SP No. 54576-77.
While the private respondent's Petitions for Certiorari were pending
before the Court of Appeals, all but one of the remaining complainants
in the Aguirre and Toquero Cases appeared on various dates before
Labor Arbiters Gulmatico and Drilon, and in the presence of two
witnesses, signed separate Deeds of Release, Waiver and Quitclaim[22]
in favor of private respondent. Based on the Deeds they executed, the
complainants agreed to settle their claims against private respondent
for amounts less than what the NLRC actually awarded. Private
respondent withheld 10% of the total amount agreed upon by the
parties in the said Deeds as attorney's fees and handed it over to
petitioner.
Private respondent then attached the Deeds of Release, Waiver and
Quitclaim to its Manifestation and Motion[23] filed before the appellate
court. On 22 August 2001, the Court of Appeals rendered a Decision[24]
in CA-G.R. SP No. 54576-77 affirming the NLRC Decision dated 21 July
1995 and Resolution dated 27 February 1996 in the Aguirre Cases,
only insofar as it concerned complainant Alfredo Gadian, Jr.
(complainant Gadian), the only complainant who did not execute a
Deed of Release, Waiver and Quitclaim. With respect to the other
complainants in the Aguirre and Toquero Cases, their complaints were
dismissed on account of their duly executed Deeds of Release, Waiver
and Quitclaim.[25]
Private respondent moved for the partial reconsideration of the 22
August 2001 Decision of the Court of Appeals, seeking the reversal and
setting aside of the 22 August 2001 Decision of the Court of Appeals in
CA-G.R. SP. No. 54576-77, which affirmed the 21 July 1995 Decision
and 27 February 1996 Resolution of the NLRC in the Aguirre Cases,
insofar as complainant Gadian was concerned; and the dismissal of
complainant Gadian's complaint against private respondent for lack of
merit.[26] Complainant Gadian and his counsel, herein petitioner, for
their part, likewise moved for the partial reconsideration of the same
Decision of the appellate court praying that the award of attorney's
fees of 10% should be based on the monetary awards adjudged by the
NLRC.[27] In a Resolution[28] dated 9 January 2002, the appellate court
denied both motions.

G.R. No. 151421 and No. 151427
Private respondent appealed before this Court by filing a Petition for
Review, docketed as G.R. No. 151421 and No. 151427. However,
private respondent's Petition was denied due course by this Court in a
Resolution[29] dated 18 March 2002 for failure of the private respondent
to show that a reversible error had been committed by the appellate
court. The Court also denied private respondent's motion for
reconsideration.[30] The denial of the private respondent's Petition in
G.R. No. 151421 and No. 151427 became final and executory on 24
July 2002. [31]
G.R. No. 151983-84
Petitioner filed this present Petition for Review on his own behalf,
docketed as G.R. No. 151983-84, praying that this Court grant him
attorney's fees equivalent to those awarded by the NLRC in the Aguirre
and Toquero Cases. He makes the following lone assignment of error in
his Petition:
THE HONORABLE PUBLIC RESPONDENT COURT OF APPEALS
COMMITTED GRAVE ABUSE OF DISCRETION IN NOT AWARDING
ATTORNEY'S FEES BASED ON THE ORIGINAL AWARD MADE BY THE
NLRC-FOURTH DIVISON.[32]
In his Memorandum, [33] petitioner posits the following issues:
I. WHETHER THE PRESENT PETITION RAISES A QUESTION OF
LAW.
II. WHETHER PETITIONER IS A REAL PARTY IN INTEREST TO FILE
THE PRESENT PETITION.
III. WHETHER PETITIONER IS ENTITLED TO ADDITIONAL
ATTORNEY'S FEES ON TOP OF WHAT WAS ALREADY
RECEIVED.[34]
Petitioner alleges that the Decision of the appellate court was
prejudicial only insofar as it failed to grant 10% attorney's fees based
on the monetary and economic awards adjudged by the NLRC in its
Decisions in the Aguirre and Toquero Cases. Considering that the only
complainant who did not execute a Deed of Release, Waiver and
Quitclaim, namely, complainant Gadian, obtained a favorable judgment
from the Court of Appeals, he was no longer interested in pursuing an
appeal; and petitioner is, thus, constrained to bring the present
Petition, with himself as the forced petitioner, for the purpose
of recovering the aforesaid attorney's fees.
In the instant Petition, petitioner is claiming additional attorney's
fees, representing the difference between the amount as decreed in
the NLRC Decisions in the Aguirre and Toquero Cases and the amount
he already received from private respondent, equivalent to the 10%
attorney's fees the latter withheld from the amounts it actually paid to
the complainants who signed the Deeds of Release, Waiver and
Quitclaim.
Petitioner avows that he is entitled to attorney's fees based on the
monetary awards as stated in the Decisions of the NLRC in the Aguirre
and Toquero Cases because (1) the Deeds of Release, Waiver and
Quitclaim executed by all but one of the complainants during the
pendency of CA-G.R. SP. No. 54576-77 before the Court of Appeals
were done without his conformity; (2) he, together with his assistant
lawyers, had invested substantial time and effort for more than seven
or eight years and even spent considerable amounts of personal
money for the prosecution of these consolidated cases from the Labor
Arbiter up to this Court; hence, it would be grossly unfair for the
petitioner to receive only 10% of the financial assistance given to the
complainants by virtue of the Deeds of Release, Waiver and Quitclaim
they signed; and (3) petitioner's right to attorney's fees has become
vested after rendering painstaking legal services to the complainants,
making him and his collaborating counsels entitled to the full amount
of attorney's fees as awarded by the NLRC.
While this Court concedes that the instant Petition for Review raises a
question of law, it denies the Petition for lack of merit and lack of
petitioner's standing to file the same.
This Court has consistently ruled that a question of law exists when
there is a doubt or controversy as to what the law is on a certain state
of facts. On the other hand, there is a question of fact when the
doubt or difference arises as to the alleged truth or falsehood of the
alleged facts. For a question to be one of law, it must involve no
examination of the probative value of the evidence presented by the
litigants or any of them.[35] The test of whether a question is one of law
or of fact is not the appellation given to such question by the party
DO 18-02 Cases 86
raising the same; rather, it is whether the appellate court can
determine the issue raised without reviewing or evaluating the
evidence, in which case, it is a question of law; otherwise, it is a
question of fact.[36]
In the case at bar, the core issue presented by the petitioner is with
respect to the amount of attorney's fees to which he should be
entitled: whether he is entitled to the amount of attorney's fees as
adjudged by the NLRC in its Decisions in the Aguirre and Toquero
Cases or only to the 10% of the amounts actually paid to his clients,
the complainants who signed the Deeds of Release, Waiver and
Quitclaim.
The aforesaid issue evidently involves a question of law. In determining
whether the petitioner should be entitled to the attorney's fees stated
in the NLRC Decisions, this Court does not need to go over the pieces
of evidence submitted by the parties in the proceedings below to
determine their probative value. What it needs to do is ascertain and
apply the relevant law and jurisprudence on the award of attorney's
fees to the prevailing parties in labor cases.
Article 111 of the Labor Code, as amended, specifically provides:
ART. 111. ATTORNEY'S FEES. - (a) In cases of unlawful withholding
of wages the culpable party may be assessed attorney's fees
equivalent to ten percent of the amount of wages recovered.
(b) It shall be unlawful for any person to demand or accept, in any
judicial or administrative proceedings for the recovery of the wages,
attorney's fees which exceed ten percent of the amount of wages
recovered. (Emphasis supplied.)
In PCL Shipping Philippines, Inc. v. National Labor Relations
Commission[37] citing Dr. Reyes v. Court of Appeals,[38] this Court
enunciated that there are two commonly accepted concepts of
attorney's fees, the so-called ordinary and extraordinary. In its
ordinary concept, an attorney's fee is the reasonable compensation
paid to a lawyer by his client for the legal services the former has
rendered to the latter. The basis of this compensation is the fact of the
attorney's employment by and his agreement with the client. In its
extraordinary concept, attorney's fees are deemed indemnity for
damages ordered by the court to be paid by the losing party in a
litigation. The instances in which these may be awarded are those
enumerated in Article 2208 of the Civil Code, specifically paragraph
7[39] thereof, which pertains to actions for recovery of wages, and is
payable not to the lawyer but to the client, unless they have
agreed that the award shall pertain to the lawyer as additional
compensation or as part thereof.[40] Article 111 of the Labor
Code, as amended, contemplates the extraordinary concept of
attorney's fees.
Still according to PCL Shipping, Article 111 is an exception to the
declared policy of strict construction in the awarding of attorney's fees.
Although express findings of fact and law are 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.
In carrying out and interpreting the Labor Code's provisions and
implementing regulations, the employee's welfare should be the
primordial and paramount consideration. This kind of interpretation
gives meaning and substance to the liberal and compassionate spirit of
the law as provided in Article 4 of the Labor Code, which states that
"all doubts in the implementation and interpretation of the provisions
of the Labor Code including its implementing rules and regulations,
shall be resolved in favor of labor"; and Article 1702 of the Civil Code,
which provides that "in case of doubt, all labor legislation and all labor
contracts shall be construed in favor of the safety and decent living for
the laborer." [41]
Based on the foregoing, the attorney's fees awarded by the NLRC in its
Decisions in the Aguirre and Toquero Cases pertain to the
complainants, petitioner's clients, as indemnity for damages; and not
to petitioner as compensation for his legal services. Records show that
the petitioner neither alleged nor proved that his clients, the
complainants, willingly agreed that the award of attorney's fees would
accrue to him as an additional compensation or part thereof.
What the complainants explicitly agreed to in their individual Deeds of
Release, Waiver, and Quitclaim was that the 10% attorney's fees of the
petitioner shall be deducted from the amount of the gross
settlement. Provision 8 of the Deeds of Release, Waiver and Quitclaim
reads:
8. x x x. As a client, I have the right to decide on the matter of whether
to settle my case and the amount of the settlement, which right I am
now exercising without prejudice to my counsel's claim to the legally
mandated 10% attorney's fees. As a matter of fact, I had

requested and [herein private respondent] has complied with
it, that [private respondent] deduct from the gross settlement
10% representing attorney's fees of [herein petitioner] and
make a check payable to the latter in such amount.[42] (Emphasis
supplied.)
The foregoing provision cannot be taken to mean that the
complainants concerned agreed that the attorney's fees awarded by
the NLRC pertained to petitioner as additional compensation or part
thereof since (1) the Deeds were executed between complainants and
private respondent, the petitioner was not even a party to the said
documents; and (2) private complainants' request that private
respondent withhold 10% attorney's fees to be payable to petitioner
was in relation to the amount of gross settlement under the Deeds and
not to the amounts awarded by the NLRC. In fact, petitioner challenges
the due execution of the Deeds, and may not now take an inconsistent
position by using the provisions of the very same Deeds as proof that
complainants impliedly or expressly agreed that the attorney's fees
awarded by the NLRC pertained to him under the ordinary concept of
attorney's fees.
Thus, this Court has no recourse but to interpret the award of
attorney's fees by the NLRC in its extraordinary concept. And since the
attorney's fees pertained to the complainants as indemnity for
damages, it was totally within the complainants' right to waive the
amount of said attorney's fees and settle for a lesser amount thereof in
exchange for the immediate end to litigation. Petitioner cannot prevent
complainants from compromising and/or withdrawing their complaints
at any stage of the proceedings just to protect his anticipated
attorney's fees.
Even assuming arguendo that the complainants in the Aguirre and
Toquero Cases did indeed agree that the attorney's fees awarded by
the NLRC should be considered in their ordinary concept, i.e. , as
compensation for petitioner's services, we refer back to Article 111 of
the Labor Code, as amended, which provides that the attorney's fees
should be equivalent to 10% of the amount of wages recovered. Since
the complainants decided to settle their complaints against the private
respondent, the amounts actually received by them pursuant to the
Deeds of Release, Waiver and Quitclaim are the amounts "recovered"
and the proper basis for determining the 10% attorney's fees.
Petitioner cannot claim further to be a real party in interest herein for
the very same reasons already discussed above.
It is elementary that it is only in the name of a real party in interest
that a civil suit may be prosecuted.[43] Section 2, Rule 3 of the 1997
Revised Rules of Civil Procedure, as amended, provides:
SEC. 2. Parties in interest. - A real party in interest is the party who
stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit. Unless otherwise authorized by
law or these Rules, every action must be prosecuted or defended in the
name of the real party in interest.
The established rule is that a real party in interest is one who would be
benefited or injured by the judgment, or one entitled to the avails of
the suit. The word "interest," as contemplated by the Rules, means
material interest or an interest in issue and to be affected by the
judgment, as distinguished from mere interest in the question involved
or a mere incidental interest. Stated differently, the rule refers to a real
or present substantial interest as distinguished from a mere
expectancy or a future, contingent, subordinate, or consequential
interest. As a general rule, one who has no right or interest to protect
cannot invoke the jurisdiction of the court asparty-plaintiffinanaction.[44]
The afore-quoted rule has two requirements: 1) to institute an action,
the plaintiff must be the real party in interest; and 2) the action must
be prosecuted in the name of the real party in interest. Necessarily,
the purposes of this provision are 1) to prevent the prosecution of
actions by persons without any right or title to or interest in the case;
2) to require that the actual party entitled to legal relief be the one to
prosecute the action; 3) to avoid a multiplicity of suits; and 4) to
discourage litigation and keep it within certain bounds, pursuant to
sound public policy.[45]
In the case at bar, it is beyond cavil that the petitioner is not the real
party in interest; hence, he cannot file this Petition to recover the
attorney's fees as adjudged by the NLRC in its Decisions dated 21 July
1995 and 25 July 1995 in the Aguirre and Toquero Cases, respectively.
To reiterate, the award of attorney's fees pertain to the prevailing
parties in the NLRC cases, namely, the complainants, all but one of
whom no longer pursued their complaints against private respondent
after executing Deeds of Release, Waiver and Quitclaim. Not being the
party to whom the NLRC awarded the attorney's fees, neither is the
DO 18-02 Cases 87
petitioner the proper party to question the non-awarding of the same
by the appellate court.
In addition, as found by the Court of Appeals, when the complainants
executed their respective Deeds of Release, Waiver and Quitclaim,
petitioner already received attorney's fees equivalent to 10% of the
amounts paid to the complainants in accordance with the Deeds, as
evidenced by several cash vouchers and checks payable to
petitioner[46] and signed by his representative.[47] Even petitioner
himself admitted this fact.
This would show that petitioner has been compensated for the services
he rendered the complainants. It may do well for petitioner to
remember that as a lawyer, he is a member of an honorable
profession, the primary vision of which is justice. The practice of
law is a decent profession and not a money-making trade.
Compensation should be but a mere incident. [48]
If petitioner earnestly believes that the amounts he already received
are grossly deficient, considering the substantial time and efforts he
and his assistant lawyers invested, as well as the personal money he
expended for the prosecution of complainants' cases for more than
seven or eight years, then petitioner's remedy is not against the
private respondent, but against his own clients, the complainants. He
should file a separate action for collection of sum of money against
complainants to recover just compensation for his legal services, and
not the present Petition for Review to claim from private respondent
the attorney's fees which were adjudged by the NLRC in favor of
complainants as the prevailing parties in the Aguirre and Toquero
Cases.
Finally, as stated earlier, petitioner assails the Deeds of Release,
Waiver and Quitclaim executed by the complainants for being
executed without his conformity and, thus, in violation of the
requirements of the Labor Code. Such argument is specious.
There is no specific provision in the Labor Code, as amended, which
requires the conformity of petitioner, as the complainants' counsel, to
make their Deeds of Release, Waiver and Quitclaim valid. The only
requisites for the validity of any Deed of Release, Waiver and Quitclaim
are the following: (1) that there was no fraud or deceit on the part of
any of the parties; (2) that the consideration for the quitclaim is
credible and reasonable; and (3) that the contract is not contrary to
law, public order, public policy, morals or good customs or prejudicial
to a third person with a right recognized by law.[49] In this case, it
cannot be questioned that those requisites were completely satisfied,
making the Deeds of Release, Waiver and Quitclaim individually
executed by the complainants valid.
Moreover, both the NLRC and the Court of Appeals found the Deeds of
Release, Waiver and Quitclaim to be validly and willfully executed by
the complainants. The Court of Appeals ruled:
Further, as correctly stated by the [herein private respondent], to wit:
`The separate Deeds of Release, Waiver and Quitclaim were all
executed and signed by the private respondents concerned before the
Labor Arbiter, Hon. Reynaldo Gulmatico, who handled the case a quo
and rendered the decision in favor of [complainants therein]. As a
matter of course, a Labor Arbiter asks, and even explains, to the
person executing a quitclaim before him about the contents and the
implications thereof. It is only after the Labor Arbiter has satisfied
himself that the quitclaim involved was voluntarily executed by the
person concerned and that there is a substantial consideration
involved would he sign it.'
"While quitclaims executed by employees are commonly frowned upon
as contrary to public policy and are ineffective to bar claims for the full
measure of the employees' legal rights, there are legitimate waivers
that represent a voluntary and reasonable settlement of laborers'
claims which should be respected by the courts as the law between the
parties."[50]
WHEREFORE, premises considered, the instant Petition is hereby
DENIED. Costs against petitioner.
SO ORDERED.
WE CONCUR:
Ynares-Santiago, (Chairperson), Austria-Martinez, Reyes, and
Leonardo-De Castro, JJ., concur.