INTRODUCTION

CONSTITUTIONAL PROVISIONS
ARTICLE II

SECTION 9. The State shall promote a just and dynamic social order that will ensure the
prosperity and independence of the nation and free the people from poverty through policies
that provide adequate social services, promote full employment, a rising standard of living,
and an improved quality of life for all.

SECTION 10. The State shall promote social justice in all phases of national development.

SECTION 11. The State values the dignity of every human person and guarantees full
respect for human rights.

SECTION 12. The State recognizes the sanctity of family life and shall protect and
strengthen the family as a basic autonomous social institution. It shall equally protect the
life of the mother and the life of the unborn from conception. The natural and primary right
and duty of parents in the rearing of the youth for civic efficiency and the development of
moral character shall receive the support of the Government.

SECTION 13. The State recognizes the vital role of the youth in nation-building and shall
promote and protect their physical, moral, spiritual, intellectual, and social well-being. It
shall inculcate in the youth patriotism and nationalism, and encourage their involvement in
public and civic affairs.

SECTION 14. The State recognizes the role of women in nation-building, and shall ensure
the fundamental equality before the law of women and men.
SECTION 18. The State affirms labor as a primary social economic force. It shall protect the
rights of workers and promote their welfare.
SECTION 20. The State recognizes the indispensable role of the private sector, encourages
private enterprise, and provides incentives to needed investments.
ARTICLE III
SECTION 10. No law impairing the obligation of contracts shall be passed.

SECTION 18. (1) No person shall be detained solely by reason of his political beliefs and
aspirations.

(2) No involuntary servitude in any form shall exist except as a punishment for a crime
whereof the party shall have been duly convicted.

Page 1 of 250
 Republic of the Philippines
SUPREME COURT

THIRD DIVISION

G.R. No. 155098 September 16, 2005

CAPITOL MEDICAL CENTER, INC. and DR. THELMA NAVARETTE-

CLEMENTE, Petitioners,
vs.
DR. CESAR E. MERIS, Respondent.

DECISION

CARPIO MORALES, J.:

Subject of the present appeal is the Court of Appeals Decision 1 dated February 15, 2002
reversing the NLRC Resolution2 dated January 19, 1999 and Labor Arbiter Decision 3 dated
April 28, 1998 which both held that the closure of the Industrial Service Unit of the

Capitol Medical Center, Inc., resulting to the termination of the services of herein
respondent Dr. Cesar Meris as Chief thereof, was valid.

On January 16, 1974, petitioner Capitol Medical Center, Inc. (Capitol) hired Dr. Cesar Meris
(Dr. Meris),4 one of its stockholders, 5 as in charge of its Industrial Service Unit (ISU) at a
monthly salary of P10,270.00.

Until the closure of the ISU on April 30, 1992, 6 Dr. Meris performed dual functions of
providing medical services to Capitols more than 500 employees and health workers as well
as to employees and workers of companies having retainer contracts with it. 7

On March 31, 1992, Dr. Meris received from Capitols president and chairman of the board,
Dr. Thelma Navarette-Clemente (Dr. Clemente), a notice advising him of the managements
decision to close or abolish the ISU and the consequent termination of his services as Chief
thereof, effective April 30, 1992.8 The notice reads as follows:

March 31, 1992

Dr. Cesar E. Meris

Chief, Industrial Service Unit

Capitol Medical Center

Dear Dr. Meris:

Greetings!

Please be formally advised that the hospital management has decided to abolish CMCs
Industrial Service Unit as of April 30, 1992 in view of the almost extinct demand for
direct medical services by the private and semi-government corporations in providing

Page 2 of 250
health care for their employees. Such a decision was arrived at, after considering the
existing trend of industrial companies allocating their health care requirements to
Health Maintenance Organizations (HMOs) or thru a tripartite arrangement with
medical insurance carriers and designated hospitals.

As a consequence thereof, all positions in the unit will be decommissioned at the same time
industrial services [are] deactivated. In that event, you shall be entitled to return to your
private practice as a consultant staff of the institution and will become eligible to
receive your retirement benefits as a former hospital employee. Miss Jane Telan on the
other hand will be transferred back to Nursing Service for reassignment at the CSR.

We wish to thank you for your long and faithful service to the institution and hope that our
partnership in health care delivery to our people will continue throughout the future. Best
regards.

Very truly yours,

(SGD.) DR. THELMA NAVARETTE-CLEMENTE9 (Emphasis and underscoring supplied)

Dr. Meris, doubting the reason behind the managements decision to close the ISU and
believing that the ISU was not in fact abolished as it continued to operate and offer services
to the client companies with Dr. Clemente as its head and the notice of closure was a mere
ploy for his ouster in view of his refusal to retire despite Dr. Clementes previous prodding
for him to do so,10 sought his reinstatement but it was unheeded.

Dr. Meris thus filed on September 7, 1992 a complaint against Capitol and Dr. Clemente for
illegal dismissal and reinstatement with claims for backwages, moral and exemplary
damages, plus attorneys fees.11

Finding for Capitol and Dr. Clemente, the Labor Arbiter held that the abolition of the ISU
was a valid and lawful exercise of management prerogatives and there was convincing
evidence to show that ISU was being operated at a loss. 12 The decretal text of the decision
reads:

WHEREFORE, judgment is hereby rendered dismissing the complaint. Respondents are

however ordered to pay complainant all sums due him under the hospital retirement
plan.

SO ORDERED.13 (Emphasis supplied)

On appeal by Dr. Meris, the National Labor Relations Commission (NLRC) modified the
Labor Arbiters decision. It held that in the exercise of Capitols management prerogatives, it
had the right to close the ISU even if it was not suffering business losses in light of Article
283 of the Labor Code and jurisprudence.14

And the NLRC set aside the Labor Arbiters directive for the payment of retirement benefits
to Dr. Meris because he did not retire. Instead, it ordered the payment of separation pay as
provided under Article 283 as he was discharged due to closure of ISU, to be charged
against the retirement fund.15

Page 3 of 250
Undaunted, Dr. Meris elevated the case to the Court of Appeals via petition for
review16 which, in the interest of substantial justice, was treated as one for certiorari. 17

Discrediting Capitols assertion that the ISU was operating at a loss as the evidence showed
a continuous trend of increase in its revenue for three years immediately preceding Dr.
Meriss dismissal on April 30, 1992,18 and finding that the ISUs "Analysis of Income and
Expenses" which was prepared long after Dr. Meriss dismissal, hence, not yet available, on
or before April 1992, was tainted with irregular entries, the appellate court held that
Capitols evidence failed to meet the standard of a sufficient and adequate proof of loss
necessary to justify the abolition of the ISU.19

The appellate court went on to hold that the ISU was not in fact abolished, its operation
and management having merely changed hands from Dr. Meris to Dr. Clemente; and that
there was a procedural lapse in terminating the services of Dr. Meris, no written notice to
the Department of Labor and Employment (DOLE) of the ISU abolition having been made,
thereby violating the requirement embodied in Article 283. 20

The appellate court, concluding that Capitol failed to strictly comply with both procedural
and substantive due process, a condition sine qua non for the validity of a case of
termination,21 held that Dr. Meris was illegally dismissed. It accordingly reversed the NLRC
Resolution and disposed as follows:

IN VIEW OF ALL THE FOREGOING, the assailed resolutions of the NLRC are hereby set
aside, and another one entered

1 declaring illegal the dismissal of petitioner as Chief of the Industrial Service Unit of
respondent Medical Center;

2 ordering respondents to pay petitioner

a) backwages from the date of his separation in April 1992 until this decision has attained
finality;

b) separation pay in lieu of reinstatement computed at the rate of one (1) month salary for
every year of service with a fraction of at least six (6) months being considered as one year;

c) other benefits due him or their money equivalent;

d) moral damages in the sum of P50,000.00;

e) exemplary damages in the sum of P50,000.00; and

f) attorneys fees of 10% of the total monetary award payable to petitioner.

SO ORDERED.22

Hence, the present petition for review assigning to the appellate court the following errors:

Page 4 of 250
 . . . IN OVERTURNING THE FACTUAL FINDINGS AND CONCLUSIONS OF BOTH THE
NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND THE LABOR ARBITER.

II

. . . IN HOLDING, CONTRARY TO THE FINDINGS OF BOTH THE LABOR ARBITER AND

THE NATIONAL LABOR RELATIONS COMMISSION, THAT THE INDUSTRIAL UNIT (ISU)
WAS NOT INCURRING LOSSES AND THAT IT WAS NOT IN FACT ABOLISHED.

III

. . . IN NOT UPHOLDING PETITIONERS MANAGEMENT PREROGATIVE TO ABOLISH THE

INDUSTRIAL SERVICE UNIT (ISU).

IV

. . . IN REQUIRING PETITIONERS TO PAY RESPONDENT BACKWAGES AS WELL AS

DAMAGES AND ATTORNEYS FEES. 23

Capitol questions the appellate courts deciding of the petition of Dr. Meris on the merits,
instead of merely determining whether the administrative bodies acted with grave abuse of
discretion amounting to lack or excess of jurisdiction.

The province of a special civil action for certiorari under Rule 65, no doubt the appropriate
mode of review by the Court of Appeals of the NLRC decision, 24 is limited only to correct
errors of jurisdiction or grave abuse of discretion amounting to lack or excess of
jurisdiction.25 In light of the merits of Dr. Meris claim, however, the relaxation by the
appellate court of procedural technicality to give way to a substantive determination of a
case, as this Court has held in several cases,26 to subserve the interest of justice, is in
order.

Capitol argues that the factual findings of the NLRC, particularly when they coincide with
those of the Labor Arbiter, as in the present case, should be accorded respect, even
finality.27

For factual findings of the NLRC which affirm those of the Labor Arbiter to be accorded
respect, if not finality, however, the same must be sufficiently supported by evidence on
record.28 Where there is a showing that such findings are devoid of support, or that the
judgment is based on a misapprehension of facts, 29 the lower tribunals factual findings will
not be upheld.

As will be reflected in the following discussions, this Court finds that the Labor Arbiter and
the NLRC overlooked some material facts decisive of the instant controversy.

Capitol further argues that the appellate courts conclusion that the ISU was not incurring
losses is arbitrary as it was based solely on the supposed increase in revenues of the unit
from 1989-1991, without taking into account the "Analysis of Income and Expenses" of ISU
from July 1, 1990 to July 1, 1991 which shows that the unit operated at a loss; 30 and that
the demand for the services of ISU became almost extinct in view of the affiliation of
industrial establishments with HMOs such as Fortunecare, Maxicare, Health Maintenance,

Page 5 of 250
Inc. and Philamcare and of tripartite arrangements with medical insurance carriers and
designated hospitals,31 and the trend resulted in losses in the operation of the ISU.

Besides, Capitol stresses, the health care needs of the hospital employees had been taken
over by other units without added expense to it;32 the appellate courts decision is at best
an undue interference with, and curtailment of, the exercise by an employer of its
management prerogatives;33 at the time of the closure of the ISU, Dr. Meris was already
eligible for retirement under the Capitols retirement plan; and the appellate court adverted
to the alleged lack of notice to the DOLE regarding Dr. Meriss dismissal but the latter never
raised such issue in his appeal to the NLRC or even in his petition for review before the
Court of Appeals, hence, the latter did not have authority to pass on the matter.34

Work is a necessity that has economic significance deserving legal protection. The social
justice and protection to labor provisions in the Constitution dictate so.

Employers are also accorded rights and privileges to assure their self-determination and
independence and reasonable return of capital. This mass of privileges comprises the so-
called management prerogatives. Although they may be broad and unlimited in scope, the
State has the right to determine whether an employers privilege is exercised in a manner
that complies with the legal requirements and does not offend the protected rights of labor.
One of the rights accorded an employer is the right to close an establishment or
undertaking.

The right to close the operation of an establishment or undertaking is explicitly recognized

under the Labor Code as one of the authorized causes in terminating employment of
workers, the only limitation being that the closure must not be for the purpose of
circumventing the provisions on termination of employment embodied in the Labor Code.

ART. 283. Closure of establishment and reduction of personnel. The employer may also
terminate the employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of
the establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a written notice on the workers
and the Ministry of Labor and Employment at least one (1) month before the intended date
thereof. In case of termination due to the installation of labor saving devices or redundancy,
the worker affected shall be entitled to a separation pay equivalent to at least his one (1)
month pay or to at least one (1) month pay for every year of service, whichever is higher. In
case retrenchment to prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to serious business losses or financial
reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half
(1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6)
months shall be considered one (1) whole year. (Emphasis and underscoring supplied)

The phrase "closures or cessation of operations of establishment or undertaking" includes a

partial or total closure or cessation.35

x x x Ordinarily, the closing of a warehouse facility and the termination of the services of
employees there assigned is a matter that is left to the determination of the employer in the
good faith exercise of its management prerogatives. The applicable law in such a case is
Article 283 of the Labor Code which permits closure or cessation of operation of an
establishment or undertaking not due to serious business losses or financial reverses,

Page 6 of 250
which, in our reading includes both the complete cessation of operations and the
cessation of only part of a companys business. (Emphasis supplied)

And the phrase "closures or cessation x x x not due to serious business losses or financial
reverses" recognizes the right of the employer to close or cease his business operations or
undertaking even if he is not suffering from serious business losses or financial reverses, as
long as he pays his employees their termination pay in the amount corresponding to their
length of service.36

It would indeed be stretching the intent and spirit of the law if a court were to unjustly
interfere in managements prerogative to close or cease its business operations just because
said business operation or undertaking is not suffering from any loss. 37 As long as the
companys exercise of the same is in good faith to advance its interest and not for the
purpose of defeating or circumventing the rights of employees under the law or a
valid agreement, such exercise will be upheld.38

Clearly then, the right to close an establishment or undertaking may be justified on grounds
other than business losses but it cannot be an unbridled prerogative to suit the whims of
the employer.

The ultimate test of the validity of closure or cessation of establishment or undertaking is

that it must be bona fide in character.39 And the burden of proving such falls upon the
employer.40

In the case at bar, Capitol failed to sufficiently prove its good faith in closing the ISU.

From the letter of Dr. Clemente to Dr. Meris, it is gathered that the abolition of the ISU was
due to the "almost extinct demand for
direct medical service by the private and semi-government corporations in providing health
care for their employees;" and that such extinct demand was brought about by "the existing
trend of industrial companies allocating their health care requirements to Health
Maintenance Organizations (HMOs) or thru a tripartite arrangement with medical insurance
carriers and designated hospitals."

The records of the case, however, fail to impress that there was indeed extinct demand for
the medical services rendered by the ISU. The ISUs Annual Report for the fiscal years 1986
to 1991, submitted by Dr. Meris to Dr. Clemente, and uncontroverted by Capitol, shows
the following:

Fiscal Year No. of Industrial No of No. of Capitol

Patients Companies Employees

1986-1987 466 11 1445

1987-1988 580 17 1707

1988-1989 676 14 1888

1989-1990 571 16 2731

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1990-1991 759 18 232041

If there was extinct demand for the ISU medical services as what Capitol and Dr. Clemente
purport to convey, why the number of client companies of the ISU increased from 11 to 18
from 1986 to 1991, as well as the number of patients from both industrial corporations and
Capitol employees, they did not explain.

The "Analysis of Income and Expenses" adduced by Capitol showing that the ISU incurred
losses from July 1990 to February 1992, to wit:

July 1, 1990 to July 1, 1991 to

June 30, 1991 February 29, 1992

INCOME P16, 772.00 P35, 236.00

TOTAL EXPENSES P225, 583.70 P169,244.34

NET LOSS P(208,811.70) P(134,008.34),42

was prepared by its internal auditor Vicenta Fernandez, 43 a relative of Dr. Clemente, and
not by an independent external auditor, hence, not beyond doubt. It is the financial
statements audited by independent external auditors which constitute the normal method
of proof of the profit and loss performance of a company. 44

At all events, the claimed losses are contradicted by the accounting records of Capitol itself
which show that ISU had increasing revenue from 1989 to 1991.

Year In-Patient Out-Patient Total Income

1989 P230,316.38 P 79,477.50 P309,793.88

1990 P278,438.10 P124,256.65 P402,694.75

1991 P305,126.35 P152,920.15 P458,046.5045

The foregoing disquisition notwithstanding, as reflected above, the existence of business

losses is not required to justify the closure or cessation of establishment or undertaking as
a ground to terminate employment of employees. Even if the ISU were not incurring losses,
its abolition or closure could be justified on other grounds like that proffered by Capitol
extinct demand. Capitol failed, however, to present sufficient and convincing evidence to
support such claim of extinct demand. In fact, the employees of Capitol submitted a
petition46 dated April 21, 1992 addressed to Dr. Clemente opposing the abolition of the ISU.

The closure of ISU then surfaces to be contrary to the provisions of the Labor Code on
termination of employment.

The termination of the services of Dr. Meris not having been premised on a just or
authorized cause, he is entitled to either reinstatement or separation pay if reinstatement is
no longer viable, and to backwages.

Page 8 of 250
Reinstatement, however, is not feasible in case of a strained employer-employee relationship
or when the work or position formerly held by the dismissed employee no longer exists, as
in the instant case.47 Dr. Meris is thus entitled to payment of separation pay at the rate of
one (1) month salary for every year of his employment, with a fraction of at least six (6)
months being considered as one(1) year,48 and full backwages from the time of his dismissal
from April 30, 1992 until the expiration of his term as Chief of ISU or his mandatory
retirement, whichever comes first.

The award by the appellate court of moral damages,49 however, cannot be sustained, solely
upon the premise that the employer fired his employee without just cause or due process.
Additional facts must be pleaded and proven to warrant the grant of moral damages under
the Civil Code, such as that the act of dismissal was attended by bad faith or fraud, or was
oppressive to labor, or done in a manner contrary to morals, good customs, or public policy;
and of course, that social humiliation, wounded feelings, grave anxiety, etc., resulted
therefrom.50Such circumstances, however, do not obtain in the instant case. More
specifically on bad faith, lack of it is mirrored in Dr. Clementes offer to Dr. Meris to be a
consultant of Capitol, despite the abolition of the ISU.

There being no moral damages, the award of exemplary damages does not lie.51

The award for attorneys fees, however, remains.52

WHEREFORE, the decision of the Court of Appeals dated February 15, 2002 is
hereby AFFIRMED with MODIFICATION. As modified, judgment is hereby rendered
ordering Capitol Medical Center, Inc. to pay Dr. Cesar Meris separation pay at the rate of
One (1) Month salary for every year of his employment, with a fraction of at least Six (6)
Months being considered as One (1) Year, full backwages from the time of his dismissal
from April 30, 1992 until the expiration of his term as Chief of the ISU or his mandatory
retirement, whichever comes first; other benefits due him or their money equivalent; and
attorneys fees.

Costs against petitioners.

SO ORDERED.

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 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 192558 February 15, 2012

BITOY JAVIER (DANILO P. JAVIER), Petitioner,

vs.
FLY ACE CORPORATION/FLORDELYN CASTILLO, Respondents.

DECISION

MENDOZA, J.:

This is a petition under Rule 45 of the Rules of Civil Procedure assailing the March 18,
2010 Decision1 of the Court of Appeals (CA) and its June 7, 2010 Resolution,2 in CA-G.R.
SP No. 109975, which reversed the May 28, 2009 Decision 3 of the National Labor Relations
Commission (NLRC) in the case entitled Bitoy Javier v. Fly Ace/Flordelyn Castillo,4 holding
that petitioner Bitoy Javier (Javier) was illegally dismissed from employment and ordering
Fly Ace Corporation (Fly Ace) to pay backwages and separation pay in lieu of reinstatement.

Antecedent Facts

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

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

For its part, Fly Ace averred that it was engaged in the business of importation and sales of
groceries. Sometime in December 2007, Javier was contracted by its employee, Mr. Ong, as
extra helper on a pakyaw basis at an agreed rate of P 300.00 per trip, which was later

Page 10 of 250
increased to P 325.00 in January 2008. Mr. Ong contracted Javier roughly 5 to 6 times only
in a month whenever the vehicle of its contracted hauler, Milmar Hauling Services, was not
available. On April 30, 2008, Fly Ace no longer needed the services of Javier. Denying that
he was their employee, Fly Ace insisted that there was no illegal dismissal. 8 Fly Ace
submitted a copy of its agreement with Milmar Hauling Services and copies of
acknowledgment receipts evidencing payment to Javier for his contracted services bearing
the words, "daily manpower (pakyaw/piece rate pay)" and the latters signatures/initials.

Ruling of the Labor Arbiter

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

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

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

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

xxxx

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

Ruling of the NLRC

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

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(importation, sales and delivery of groceries). He may not be considered as an independent
contractor because he could not exercise any judgment in the delivery of company
products. He was only engaged as a "helper."

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

WHEREFORE, premises considered, complainants appeal is partially GRANTED. The

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

1. Backwages -P 45,770.83

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

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

TOTAL -P 59,854.16

All other claims are dismissed for lack of merit.

SO ORDERED.11

Ruling of the Court of Appeals

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

xxx

In an illegal dismissal case the onus probandi rests on the employer to prove that its
dismissal was for a valid cause. However, before a case for illegal dismissal can prosper, an
employer-employee relationship must first be established. x x x it is incumbent upon
private respondent to prove the employee-employer relationship by substantial evidence.

xxx

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

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

The CA likewise added that Javiers failure to present salary vouchers, payslips, or other
pieces of evidence to bolster his contention, pointed to the inescapable conclusion that he
was not an employee of Fly Ace. Further, it found that Javiers work was not necessary and

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desirable to the business or trade of the company, as it was only when there were
scheduled deliveries, which a regular hauling service could not deliver, that Fly Ace would
contract the services of Javier as an extra helper. Lastly, the CA declared that the facts
alleged by Javier did not pass the "control test."

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

The petitioners moved for reconsideration, but to no avail.

Hence, this appeal anchored on the following grounds:

I.

WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

THE PETITIONER WAS NOT A REGULAR EMPLOYEE OF FLY ACE.

II.

WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

THE PETITIONER IS NOT ENTITLED TO HIS MONETARY CLAIMS.14

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

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

Page 13 of 250
Claiming to be an employee of Fly Ace, petitioner asserts that he was illegally dismissed by
the latters failure to observe substantive and procedural due process. Since his dismissal
was not based on any of the causes recognized by law, and was implemented without
notice, Javier is entitled to separation pay and backwages.

In its Comment,19 Fly Ace insists that there was no substantial evidence to prove employer-
employee relationship. Having a service contract with Milmar Hauling Services for the
purpose of transporting and delivering company products to customers, Fly Ace contracted
Javier as an extra helper or pahinante on a mere "per trip basis." Javier, who was actually a
loiterer in the area, only accompanied and assisted the company driver when Milmar could
not deliver or when the exigency of extra deliveries arises for roughly five to six times a
month. Before making a delivery, Fly Ace would turn over to the driver and Javier the
delivery vehicle with its loaded company products. With the vehicle and products in their
custody, the driver and Javier "would leave the company premises using their own means,
method, best judgment and discretion on how to deliver, time to deliver, where and [when]
to start, and manner of delivering the products." 20

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

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

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

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

Page 14 of 250
Fly Ace likewise claims that Javiers function as a pahinante was not directly related or
necessary to its principal business of importation and sales of groceries. Even without
Javier, the business could operate its usual course as it did not involve the business of
inland transportation. Lastly, the acknowledgment receipts bearing Javiers signature and
words "pakiao rate," referring to his earned salaries on a per trip basis, have evidentiary
weight that the LA correctly considered in arriving at the conclusion that Javier was not an
employee of the company.

The Court affirms the assailed CA decision.

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

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

Expectedly, opposing parties would stand poles apart and proffer allegations as different as
chalk and cheese. It is, therefore, incumbent upon the Court to determine whether the
party on whom the burden to prove lies was able to hurdle the same. "No particular form of
evidence is required to prove the existence of such employer-employee relationship. Any
competent and relevant evidence to prove the relationship may be
admitted.http://www.lawphil.net/judjuris/juri2009/may2009/gr_179652_2009.html -
fnt31 Hence, while no particular form of evidence is required, a finding that such
relationship exists must still rest on some substantial evidence. Moreover, the
substantiality of the evidence depends on its quantitative as well as
its qualitative aspects."30Although substantial evidence is not a function of quantity but
rather of quality, the x x x circumstances of the instant case demand that something more
should have been proffered. Had there been other proofs of employment, such as x x x
inclusion in petitioners payroll, or a clear exercise of control, the Court would have affirmed
the finding of employer-employee relationship."31

In sum, the rule of thumb remains: the onus probandi falls on petitioner to establish or
substantiate such claim by the requisite quantum of evidence. 32 "Whoever claims

Page 15 of 250
entitlement to the benefits provided by law should establish his or her right thereto x x
x."33 Sadly, Javier failed to adduce substantial evidence as basis for the grant of relief.

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

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

The Court is of the considerable view that on Javier lies the burden to pass the well-settled
tests to determine the existence of an employer-employee relationship, viz: (1) the selection
and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and
(4) the power to control the employees conduct. Of these elements, the most important
criterion is whether the employer controls or has reserved the right to control the employee
not only as to the result of the work but also as to the means and methods by which the
result is to be accomplished.35

In this case, Javier was not able to persuade the Court that the above elements exist in his
case.1avvphi1 He could not submit competent proof that Fly Ace engaged his services as a
regular employee; that Fly Ace paid his wages as an employee, or that Fly Ace could dictate
what his conduct should be while at work. In other words, Javiers allegations did not
establish that his relationship with Fly Ace had the attributes of an employer-employee
relationship on the basis of the above-mentioned four-fold test. Worse, Javier was not able
to refute Fly Aces assertion that it had an agreement with a hauling company to undertake
the delivery of its goods. It was also baffling to realize that Javier did not dispute Fly Aces
denial of his services exclusivity to the company. In short, all that Javier laid down were
bare allegations without corroborative proof.

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

Page 16 of 250
Considering the above findings, the Court does not see the necessity to resolve the second
issue presented.

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

While the Constitution is committed to the policy of social justice and the protection of the
working class, it should not be supposed that every labor dispute will be automatically
decided in favor of labor. Management also has its rights which are entitled to respect and
enforcement in the interest of simple fair play. Out of its concern for the less privileged in
life, the Court has inclined, more often than not, toward the worker and upheld his cause in
his conflicts with the employer. Such favoritism, however, has not blinded the Court to the
rule that justice is in every case for the deserving, to be dispensed in the light of the
established facts and the applicable law and doctrine.39

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

SO ORDERED.

Page 17 of 250
 Republic of the Philippines
SUPREME COURT
Baguio City

FIRST DIVISION

G.R. No. 192998 April 2, 2014

BERNARD A. TENAZAS, JAIME M. FRANCISCO and ISIDRO G. ENDRACA, Petitioners,

vs.
R. VILLEGAS TAXI TRANSPORT and ROMUALDO VILLEGAS, Respondents.

DECISION

REYES, J.:

This is a petition for review on certiorari1 filed under Rule 45 of the Rules of Court, assailing
the Decision2 dated March 11, 2010 and Resolution3 dated June 28, 2010 of the Court of
Appeals (CA) in CA-G.R. SP No. 111150, which affirmed with modification the
Decision4 dated June 23, 2009 of the National Labor Relations Commission (NLRC) in NLRC
LAC Case No. 07-002648-08.

The Antecedent Facts

On July 4, 2007, Bernard A. Tenazas (Tenazas) and Jaime M. Francisco (Francisco) filed a
complaint for illegal dismissal against R. Villegas Taxi Transport and/or Romualdo Villegas
(Romualdo) and Andy Villegas (Andy) (respondents). At that time, a similar case had already
been filed by Isidro G. Endraca (Endraca) against the same respondents. The two (2) cases
were subsequently consolidated.5

In their position paper,6 Tenazas, Francisco and Endraca (petitioners) alleged that they were
hired and dismissed by the respondents on the following dates:
Name Date of Hiring Date of Dismissal Salary

Bernard A. Tenazas 10/1997 07/03/07 Boundary System

Jaime M. Francisco 04/10/04 06/04/07 Boundary System

Isidro G. Endraca 04/2000 03/06/06 Boundary System7

Relaying the circumstances of his dismissal, Tenazas alleged that on July 1, 2007, the taxi
unit assigned to him was sideswiped by another vehicle, causing a dent on the left fender
near the driver seat. The cost of repair for the damage was estimated at P500.00. Upon
reporting the incident to the company, he was scolded by respondents Romualdo and Andy
and was told to leave the garage for he is already fired. He was even threatened with
physical harm should he ever be seen in the companys premises again. Despite the
warning, Tenazas reported for work on the following day but was told that he can no longer
drive any of the companys units as he is already fired.8

Francisco, on the other hand, averred that his dismissal was brought about by the
companys unfounded suspicion that he was organizing a labor union. He was

Page 18 of 250
instantaneously terminated, without the benefit of procedural due process, on June 4,
2007.9

Endraca, for his part, alleged that his dismissal was instigated by an occasion when he fell
short of the required boundary for his taxi unit. He related that before he was dismissed, he
brought his taxi unit to an auto shop for an urgent repair. He was charged the amount
of P700.00 for the repair services and the replacement parts. As a result, he was not able to
meet his boundary for the day. Upon returning to the company garage and informing the
management of the incident, his drivers license was confiscated and was told to settle the
deficiency in his boundary first before his license will be returned to him. He was no longer
allowed to drive a taxi unit despite his persistent pleas. 10

For their part, the respondents admitted that Tenazas and Endraca were employees of the
company, the former being a regular driver and the latter a spare driver. The respondents,
however, denied that Francisco was an employee of the company or that he was able to
drive one of the companys units at any point in time. 11

The respondents further alleged that Tenazas was never terminated by the company. They
claimed that on July 3, 2007, Tenazas went to the company garage to get his taxi unit but
was informed that it is due for overhaul because of some mechanical defects reported by the
other driver who takes turns with him in using the same. He was thus advised to wait for
further notice from the company if his unit has already been fixed. On July 8, 2007,
however, upon being informed that his unit is ready for release, Tenazas failed to report
back to work for no apparent reason. 12

As regards Endraca, the respondents alleged that they hired him as a spare driver in
February 2001. They allow him to drive a taxi unit whenever their regular driver will not be
able to report for work. In July 2003, however, Endraca stopped reporting for work without
informing the company of his reason. Subsequently, the respondents learned that a
complaint for illegal dismissal was filed by Endraca against them. They strongly
maintained, however, that they could never have terminated Endraca in March 2006 since
he already stopped reporting for work as early as July 2003. Even then, they expressed
willingness to accommodate Endraca should he wish to work as a spare driver for the
company again since he was never really dismissed from employment anyway. 13

On May 29, 2008, the petitioners, by registered mail, filed a Motion to Admit Additional
Evidence.14 They alleged that after diligent efforts, they were able to discover new pieces of
evidence that will substantiate the allegations in their position paper. Attached with the
motion are the following: (a) Joint Affidavit of the petitioners; 15 (2) Affidavit of Good Faith of
Aloney Rivera, a co-driver;16 (3) pictures of the petitioners wearing company shirts; 17 and (4)
Tenazas Certification/Record of Social Security System (SSS) contributions. 18

The Ruling of the Labor Arbiter

On May 30, 2008, the Labor Arbiter (LA) rendered a Decision, 19 which pertinently states,
thus:

In the case of complainant Jaime Francisco, respondents categorically denied the existence
of an employer-employee relationship. In this situation, the burden of proof shifts to the
complainant to prove the existence of a regular employment. Complainant Francisco failed
to present evidence of regular employment available to all regular employees, such as an

Page 19 of 250
employment contract, company ID, SSS, withholding tax certificates, SSS membership and
the like.

In the case of complainant Isidro Endraca, respondents claim that he was only an extra
driver who stopped reporting to queue for available taxi units which he could drive. In fact,
respondents offered him in their Position Paper on record, immediate reinstatement as extra
taxi driver which offer he refused.

In case of Bernard Tenazas, he was told to wait while his taxi was under repair but he did
not report for work after the taxi was repaired. Respondents[,] in their Position Paper, on
record likewise, offered him immediate reinstatement, which offer he refused.

We must bear in mind that the complaint herein is one of actual dismissal. But there was
no formal investigations, no show cause memos, suspension memos or termination memos
were never issued. Otherwise stated, there is no proof of overt act of dismissal committed by
herein respondents.

We are therefore constrained to rule that there was no illegal dismissal in the case at bar.

The situations contemplated by law for entitlement to separation pay does [sic] not apply.

WHEREFORE, premises considered, instant consolidated complaints are hereby dismissed

for lack of merit.

SO ORDERED.20

The Ruling of the NLRC

Unyielding, the petitioners appealed the decision of the LA to the NLRC. Subsequently, on
June 23, 2009, the NLRC rendered a Decision, 21 reversing the appealed decision of the LA,
holding that the additional pieces of evidence belatedly submitted by the petitioners sufficed
to establish the existence of employer-employee relationship and their illegal dismissal. It
held, thus:

In the challenged decision, the Labor Arbiter found that it cannot be said that the
complainants were illegally dismissed, there being no showing, in the first place, that the
respondent [sic] terminated their services. A portion thereof reads:

"We must bear in mind that the complaint herein is one of actual dismissal. But there were
no formal investigations, no show cause memos, suspension memos or termination memos
were never issued. Otherwise stated, there is no proof of overt act of dismissal committed by
herein respondents.

We are therefore constrained to rule that there was no illegal dismissal in the case at bar."

Issue: [W]hether or not the complainants were illegally dismissed from employment.

It is possible that the complainants Motion to Admit Additional Evidence did not reach the
Labor Arbiters attention because he had drafted the challenged decision even before they
submitted it, and thereafter, his staff attended only to clerical matters, and failed to bring
the motion in question to his attention. It is now up to this Commission to consider the

Page 20 of 250
complainants additional evidence. Anyway, if this Commission must consider evidence
submitted for the first time on appeal (Andaya vs. NLRC, G.R. No. 157371, July 15, 2005),
much more so must it consider evidence that was simply overlooked by the Labor Arbiter.

Among the additional pieces of evidence submitted by the complainants are the following:
(1) joint affidavit (records, p. 51-52) of the three (3) complainants; (2) affidavit (records, p.
53) of Aloney Rivera y Aldo; and (3) three (3) pictures (records, p. 54) referred to by the
complainant in their joint affidavit showing them wearing t-shirts bearing the name and
logo of the respondents company.

xxxx

WHEREFORE, the decision appealed from is hereby REVERSED. Respondent Rom[u]aldo

Villegas doing business under the name and style Villegas Taxi Transport is hereby ordered
to pay the complainants the following (1) full backwages from the date of their dismissal
(July 3, 2007 for Tena[z]as, June 4, 2004 for Francisco, and March 6, 2006 for Endraca[)]
up to the date of the finality of this decision[;] (2) separation pay equivalent to one month
for every year of service; and (3) attorneys fees equivalent to ten percent (10%) of the total
judgment awards.

SO ORDERED.22

On July 24, 2009, the respondents filed a motion for reconsideration but the NLRC denied
the same in its Resolution23 dated September 23, 2009.

The Ruling of the CA

Unperturbed, the respondents filed a petition for certiorari with the CA. On March 11,
2010, the CA rendered a Decision,24 affirming with modification the Decision dated June
23, 2009 of the NLRC. The CA agreed with the NLRCs finding that Tenazas and Endraca
were employees of the company, but ruled otherwise in the case of Francisco for failing to
establish his relationship with the company. It also deleted the award of separation pay and
ordered for reinstatement of Tenazas and Endraca. The pertinent portions of the decision
read as follows:

At the outset, We declare that respondent Francisco failed to prove that an employer-
employee relationship exists between him and R. Transport. If there is no employer-
employee relationship in the first place, the duty of R. Transport to adhere to the labor
standards provisions of the Labor Code with respect to Francisco is questionable.

xxxx

Although substantial evidence is not a function of quantity but rather of quality, the
peculiar environmental circumstances of the instant case demand that something more
should have been proffered. Had there been other proofs of employment, such as
Franciscos inclusion in R.R.

Transports payroll, this Court would have affirmed the finding of employer-employee
relationship.1wphi1 The NLRC, therefore, committed grievous error in ordering R.
Transport to answer for Franciscos claims.

Page 21 of 250
We now tackle R. Transports petition with respect to Tenazas and Endraca, who are both
admitted to be R. Transports employees. In its petition, R. Transport puts forth the theory
that it did not terminate the services of respondents but that the latter deliberately
abandoned their work. We cannot subscribe to this theory.

xxxx

Considering that the complaints for illegal dismissal were filed soon after the alleged dates
of dismissal, it cannot be inferred that respondents Tenazas and Endraca intended to
abandon their employment. The complainants for dismissal are, in themselves, pleas for the
continuance of employment. They are incompatible with the allegation of abandonment. x x
x.

For R. Transports failure to discharge the burden of proving that the dismissal of
respondents Tenazas and Endraca was for a just cause, We are constrained to uphold the
NLRCs conclusion that their dismissal was not justified and that they are entitled to back
wages. Because they were illegally dismissed, private respondents Tenazas and Endraca are
entitled to reinstatement and back wages x x x.

xxxx

However, R. Transport is correct in its contention that separation pay should not be
awarded because reinstatement is still possible and has been offered. It is well[-]settled that
separation pay is granted only in instances where reinstatement is no longer feasible or
appropriate, which is not the case here.

xxxx

WHEREFORE, the Decision of the National Labor Relations Commission dated 23 June
2009, in NLRC LAC Case No. 07-002648-08, and its Resolution dated 23 September 2009
denying reconsideration thereof are AFFIRMED with MODIFICATION in that the award of
Jaime Franciscos claims is DELETED. The separation pay granted in favor of Bernard
Tenazas and Isidro Endraca is, likewise, DELETED and their reinstatement is ordered
instead.

SO ORDERED.25 (Citations omitted)

On March 19, 2010, the petitioners filed a motion for reconsideration but the same was
denied by the CA in its Resolution 26 dated June 28, 2010.

Undeterred, the petitioners filed the instant petition for review on certiorari before this
Court on July 15, 2010.

The Ruling of this Court

The petition lacks merit.

Pivotal to the resolution of the instant case is the determination of the existence of
employer-employee relationship and whether there was an illegal dismissal. Remarkably,
the LA, NLRC and the CA had varying assessment on the matters at hand. The LA believed
that, with the admission of the respondents, there is no longer any question regarding the

Page 22 of 250
status of both Tenazas and Endraca being employees of the company. However, he ruled
that the same conclusion does not hold with respect to Francisco whom the respondents
denied to have ever employed or known. With the respondents denial, the burden of proof
shifts to Francisco to establish his regular employment. Unfortunately, the LA found that
Francisco failed to present sufficient evidence to prove regular employment such as
company ID, SSS membership, withholding tax certificates or similar articles. Thus, he was
not considered an employee of the company. Even then, the LA held that Tenazas and
Endraca could not have been illegally dismissed since there was no overt act of dismissal
committed by the respondents.27

On appeal, the NLRC reversed the ruling of the LA and ruled that the petitioners were all
employees of the company. The NLRC premised its conclusion on the additional pieces of
evidence belatedly submitted by the petitioners, which it supposed, have been overlooked
by the LA owing to the time when it was received by the said office. It opined that the said
pieces of evidence are sufficient to establish the circumstances of their illegal termination.
In particular, it noted that in the affidavit of the petitioners, there were allegations about
the companys practice of not issuing employment records and this was not rebutted by the
respondents. It underscored that in a situation where doubt exists between evidence
presented by the employer and the employee, the scales of justice must be tilted in favor of
the employee. It awarded the petitioners with: (1) full backwages from the date of their
dismissal up to the finality of the decision; (2) separation pay equivalent to one month of
salary for every year of service; and (3) attorneys fees.

On petition for certiorari, the CA affirmed with modification the decision of the NLRC,
holding that there was indeed an illegal dismissal on the part of Tenazas and Endraca but
not with respect to Francisco who failed to present substantial evidence, proving that he
was an employee of the respondents. The CA likewise dismissed the respondents claim that
Tenazas and Endraca abandoned their work, asseverating that immediate filing of a
complaint for illegal dismissal and persistent pleas for continuance of employment are
incompatible with abandonment. It also deleted the NLRCs award of separation pay and
instead ordered that Tenazas and Endraca be reinstated. 28

"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."29 The Court finds that none of the mentioned circumstances is present in this
case.

In reviewing the decision of the NLRC, the CA found that no substantial evidence was
presented to support the conclusion that Francisco was an employee of the respondents
and accordingly modified the NLRC decision. It stressed that with the respondents denial of
employer-employee relationship, it behooved Francisco to present substantial evidence to
prove that he is an employee before any question on the legality of his supposed dismissal
becomes appropriate for discussion. Francisco, however, did not offer evidence to
substantiate his claim of employment with the respondents. Short of the required quantum
of proof, the CA correctly ruled that the NLRCs finding of illegal dismissal and the monetary
awards which necessarily follow such ruling lacked factual and legal basis and must
therefore be deleted.

Page 23 of 250
The action of the CA finds support in Anonas Construction and Industrial Supply Corp., et
al. v. NLRC, et al.,30where the Court reiterated:

[J]udicial review of decisions of the NLRC via petition for certiorari under Rule 65, as a
general rule, is confined only to issues of lack or excess of jurisdiction and grave abuse of
discretion on the part of the NLRC. The CA does not assess and weigh the sufficiency of
evidence upon which the LA and the NLRC based their conclusions. The issue is limited to
the determination of whether or not the NLRC acted without or in excess of its jurisdiction,
or with grave abuse of discretion in rendering the resolution, except if the findings of the
NLRC are not supported by substantial evidence. 31 (Citation omitted and emphasis ours)

It is an oft-repeated rule that in labor cases, as in other administrative and quasi-judicial

proceedings, "the quantum of proof necessary is substantial evidence, or such amount of
relevant evidence which a reasonable mind might accept as adequate to justify a
conclusion."32 "[T]he burden of proof rests upon the party who asserts the affirmative of an
issue."33 Corollarily, as Francisco was claiming to be an employee of the respondents, it is
incumbent upon him to proffer evidence to prove the existence of said relationship.

"[I]n determining the presence or absence of an employer-employee relationship, the Court

has consistently looked for the following incidents, to wit: (a) the selection and engagement
of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers
power to control the employee on the means and methods by which the work is
accomplished. The last element, the so-called control test, is the most important element." 34

There is no hard and fast rule designed to establish the aforesaid elements. Any competent
and relevant evidence to prove the relationship may be admitted. Identification cards, cash
vouchers, social security registration, appointment letters or employment contracts,
payrolls, organization charts, and personnel lists, serve as evidence of employee status. 35

In this case, however, Francisco failed to present any proof substantial enough to establish
his relationship with the respondents. He failed to present documentary evidence like
attendance logbook, payroll, SSS record or any personnel file that could somehow depict his
status as an employee. Anent his claim that he was not issued with employment records, he
could have, at least, produced his social security records which state his contributions,
name and address of his employer, as his co-petitioner Tenazas did. He could have also
presented testimonial evidence showing the respondents exercise of control over the means
and methods by which he undertakes his work. This is imperative in light of the
respondents denial of his employment and the claim of another taxi operator, Emmanuel
Villegas (Emmanuel), that he was his employer. Specifically, in his Affidavit,36 Emmanuel
alleged that Francisco was employed as a spare driver in his taxi garage from January 2006
to December 2006, a fact that the latter failed to deny or question in any of the pleadings
attached to the records of this case. The utter lack of evidence is fatal to Franciscos case
especially in cases like his present predicament when the law has been very lenient in not
requiring any particular form of evidence or manner of proving the presence of employer-
employee relationship.

In Opulencia Ice Plant and Storage v. NLRC,37 this Court emphasized, thus:

No particular form of evidence is required to prove the existence of an employer-employee

relationship. Any competent and relevant evidence to prove the relationship may be
admitted. For, if only documentary evidence would be required to show that relationship, no

Page 24 of 250
scheming employer would ever be brought before the bar of justice, as no employer would
wish to come out with any trace of the illegality he has authored considering that it should
take much weightier proof to invalidate a written instrument. 38

Here, Francisco simply relied on his allegation that he was an employee of the company
without any other evidence supporting his claim. Unfortunately for him, a mere allegation
in the position paper is not tantamount to evidence. 39 Bereft of any evidence, the CA
correctly ruled that Francisco could not be considered an employee of the respondents.

The CAs order of reinstatement of Tenazas and Endraca, instead of the payment of
separation pay, is also well in accordance with prevailing jurisprudence. In Macasero v.
Southern Industrial Gases Philippines,40 the Court reiterated, thus:

[A]n illegally dismissed employee is entitled to two reliefs: backwages and

reinstatement.1wphi1 The two reliefs provided are separate and distinct. In instances
where reinstatement is no longer feasible because of strained relations between the
employee and the employer, separation pay is granted. In effect, an illegally dismissed
employee is entitled to either reinstatement, if viable, or separation pay if reinstatement is
no longer viable, and backwages.

The normal consequences of respondents illegal dismissal, then, are reinstatement without
loss of seniority rights, and payment of backwages computed from the time compensation
was withheld up to the date of actual reinstatement. Where reinstatement is no longer
viable as an option, separation pay equivalent to one (1) month salary for every year of
service should be awarded as an alternative. The payment of separation pay is in addition
to payment of backwages.41 (Emphasis supplied)

Clearly, it is only when reinstatement is no longer feasible that the payment of separation
pay is ordered in lieu thereof. For instance, if reinstatement would only exacerbate the
tension and strained relations between the parties, or where the relationship between the
employer and the employee has been unduly strained by reason of their irreconcilable
differences, it would be more prudent to order payment of separation pay instead of
reinstatement.42

This doctrine of strained relations, however, should not be used recklessly or applied
loosely43 nor be based on impression alone. "It bears to stress that reinstatement is the rule
and, for the exception of strained relations to apply, it should be proved that it is likely that
if reinstated, an atmosphere of antipathy and antagonism would be generated as to
adversely affect the efficiency and productivity of the employee concerned." 44

Moreover, the existence of strained relations, it must be emphasized, is a question of fact.

In Golden Ace Builders v. Talde, 45 the Court underscored:

Strained relations must be demonstrated as a fact, however, to be adequately supported by

evidencesubstantial evidence to show that the relationship between the employer and the
employee is indeed strained as a necessary consequence of the judicial
controversy.46 (Citations omitted and emphasis ours)

After a perusal of the NLRC decision, this Court failed to find the factual basis of the award
of separation pay to the petitioners. The NLRC decision did not state the facts which

Page 25 of 250
demonstrate that reinstatement is no longer a feasible option that could have justified the
alternative relief of granting separation pay instead.

The petitioners themselves likewise overlooked to allege circumstances which may have
rendered their reinstatement unlikely or unwise and even prayed for reinstatement
alongside the payment of separation pay in their position paper. 47 A bare claim of strained
relations by reason of termination is insufficient to warrant the granting of separation pay.
Likewise, the filing of the complaint by the petitioners does not necessarily translate to
strained relations between the parties. As a rule, no strained relations should arise from a
valid and legal act asserting ones right.48 Although litigation may also engender a certain
degree of hostility, the understandable strain in the parties relation would not necessarily
rule out reinstatement which would, otherwise, become the rule rather the exception in
illegal dismissal cases.49 Thus, it was a prudent call for the CA to delete the award of
separation pay and order for reinstatement instead, in accordance with the general rule
stated in Article 27950 of the Labor Code.

Finally, the Court finds the computation of the petitioners' backwages at the rate
of P800.00 daily reasonable and just under the circumstances. The said rate is consistent
with the ruling of this Court in Hyatt Taxi Services, Inc. v. Catinoy, 51 which dealt with the
same matter.

WHEREFORE, in view of the foregoing disquisition, the petition for review on certiorari is
DENIED. The Decision dated March 11, 2010 and Resolution dated June 28, 2010 of the
Court of Appeals in CA-G.R. SP No. 111150 are AFFIRMED.

SO ORDERED.

Page 26 of 250
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 173489 February 25, 2013

ALILEM CREDIT COOPERATIVE, INC., now known as ALILEM MULTIPURPOSE

COOPERATIVE, INC.,Petitioner,
vs.
SALVADOR M. BANDIOLA, JR., Respondent.

DECISION

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
petitioner Alilem Credit Cooperative, Inc. against respondent Salvador M. Bandiola, Jr.
assailing the Court of Appeals (CA) Decision1dated January 16, 2006 and Resolution 2 dated
July 5, 2006 in CAG. R. SP No. 64554.

The case stemmed from the following facts:

Respondent was employed by petitioner as bookkeeper. Petitioner's Board of Directors (the

Board) received a letter from a certain Napoleon Gao-ay (Napoleon) reporting the alleged
immoral coaduct and unbecoming behavior of respondent by having an illicit relationship
with Napoleons sister, Thelma G. Palma (Thelma). This prompted the Board to conduct a
preliminary investigation.3

During the preliminary investigation, the Board received the following evidence of
respondents alleged extramarital affair:

1. Melanie Gao-ays (Melanie) sworn statement declaring that sometime in December

1996, respondent slept on the same bed with Thelma in a boarding house in San
Fernando, La Union where she (Melanie) and Thelma resided. She personally
witnessed the intimacy of respondent and Thelma when they engaged in lovemaking
as they slept in one room and openly displayed their affection for each other.4

2. Rosita Tegons (Rosita) sworn statement that on May 23, 1997, she saw Thelma
talk to respondent in petitioners office asking him to accompany her in San
Fernando, La Union.5

3. Emma Gao-ay Lubrins (Emma, Thelmas sister) interview wherein she admitted
that she and her family confronted Thelma about the alleged extramarital affair
which Thelma allegedly admitted.6

4. Napoleons interview with the Board wherein he claimed that their family tried to
convince Thelma to end her extramarital affair with respondent but instead of
complying, she in fact lived together with respondent. 7

Page 27 of 250
The Board decided to form an Ad Hoc Committee to investigate the charges against
respondent yielding the following additional evidence:

1. Agustina Boteras (Agustina) sworn statement that she witnessed a confrontation

between Thelma and her sister in the latters residence concerning the alleged
extramarital affair. At that time, respondents wife was allegedly present who in fact
pleaded Thelma to end her relationship with respondent but she supposedly said
"No way!"8

2. Milagros Villacortes sworn statement that while she was at the Bethany Hospital
in San Fernando, La Union where her husband was confined, respondent
approached her and asked her to look for Thelma who was then having her class.
When he finally found her, respondent and Thelma met and talked in the hospital
premises.9

3. Julienne Marie L. Dalangeys certification that on August 9 to 10, 1996,

respondent attended a seminar on Internal Control and Systems Design I at the
Northern Luzon Federation of Cooperatives and Development Center (NORLU)
Pension House in Baguio City, together with a lady companion whom he introduced
as his wife. Apparently, the lady was not his wife because at that time, his wife
reported for work in the Municipal Hall of Alilem. 10

Respondent, on the other hand, denied the accusation against him. He, instead, claimed
that the accusation was a result of the insecurity felt by some members of the cooperative
and of the Board because of his growing popularity owing to his exemplary record as an
employee.11 Thelma executed an affidavit likewise denying the allegations of extra-marital
affair.12

Meanwhile, on June 7, 1997, the Board received a petition from about fifty members of the
cooperative asking the relief of respondent due to his illicit affair with Thelma. 13

In its Summary Investigation Report, the Ad Hoc Committee concluded that respondent was
involved in an extra-marital affair with Thelma. On July 10, 1997, the Chairman of the
Board sent a letter14 to respondent informing him of the existence of a prima facie case
against him for "illicit marital affair, an act that brings discredit to the cooperative
organization and a cause for termination per AMPC (Alilem Multi-Purpose Cooperative)
Personnel Policy. Respondent was directed to appear and be present at the AMPC office for
a hearing. He was likewise advised of his right to be assisted by counsel.

On the day of the hearing, respondent requested15 for postponement on the ground that his
lawyer was not available. The request was, however, denied and the hearing proceeded as
scheduled.

In a Memorandum16 dated July 16, 1997, respondent was informed of Board Resolution No.
05, series of 199717embodying the Boards decision to terminate his services as bookkeeper
of petitioner, effective July 31, 1997, without any compensation or benefit except the
unpaid balance of his regular salary for services actually rendered.18

Aggrieved, respondent filed a Complaint for Illegal Dismissal against petitioner before the
Regional Arbitration Branch of the National Labor Relations Commission (NLRC). 19

Page 28 of 250
On April 30, 1998, the Labor Arbiter (LA) dismissed 20 respondents complaint for lack of
merit. The LA concluded that respondent had been or might still be carrying on an affair
with a married woman. The LA found it unforgiving in the case of a married employee who
sleeps with or has illicit relations with another married person for in such case, the
employee sullies not only the reputation of his spouse and his family but the reputation as
well of the spouse of his paramour and the latters family. 21 As opposed to respondents
claim that the accusation is a mere fabrication of some of the directors or cooperative
members who were allegedly envious of his growing popularity, the LA gave more credence
to the testimonies of petitioners witnesses who were relatives of Thelma and who had no
motive to falsely testify because their family reputation was likewise at a risk of being
tarnished.22 The LA, thus, found respondent to have been validly dismissed from
employment for violation of the cooperatives Personnel Policy, specifically "the commission
of acts that bring discredit to the cooperative organization, especially, but not limited to
conviction of any crime, illicit marital affairs, scandalous acts inimical to established and
accepted social mores." The LA also found no violation of respondents right to due process
as he was given ample opportunity to defend himself from the accusation against him. 23

On appeal, the NLRC set aside24 the LA decision and rendered a judgment disposed in this
wise:

WHEREFORE, the appealed Decision of the Executive Labor Arbiter is SET ASIDE.
Judgment is hereby rendered:

1. declaring respondent Alilem Credit Cooperative, Inc. (ACCI) also known as Alilem
Multi-Purpose Cooperative (AMPC) guilty of illegal dismissal for the reasons above-
discussed;

2. directing the said respondent to pay complainant Salvador Bandiola, Jr. full
backwages computed from the time of (sic) his wages were withheld until finality of
this judgment;

3. directing, on account of strained relationship between the parties, the above-

named respondent to pay complainant, in lieu of reinstatement, separation pay
computed at one (1) month pay for every year of service, a fraction of six (6) months
to be computed as one (1) whole year; [and]

4. directing respondent to pay complainant ten (10%) percent attorneys fees based
on the total monetary award.

SO ORDERED.25

The NLRC found petitioners Personnel Policy to be of questionable existence and validity
because it was unnumbered.26 It held that even assuming that respondent had an extra-
marital affair with a married woman, the latter is not his fellow worker in petitioners
business establishment.27 It, thus, concluded that respondents dismissal was not founded
on any of the just causes for termination of employment under Article 282 of the Labor
Code, as amended.28 It, likewise, declared that respondent was not afforded his right to his
counsel of choice as his request for postponement was not allowed.29 Therefore, the NLRC
declared respondents dismissal from employment illegal, entitling him to the payment of
backwages, separation pay, and attorneys fees.30

Page 29 of 250
Petitioner elevated the matter to the CA, but it failed to obtain a favorable decision. The CA
found respondents dismissal being founded on the serious misconduct he allegedly
committed by carrying an illicit relationship with a married woman. 31 While considering
said act a serious misconduct, it refused to consider it sufficient to justify respondents
dismissal, because it was not done in the performance of his duties as would make him
unfit to continue working for petitioner.32 Petitioners motion for reconsideration was
likewise denied in the assailed July 5, 2006 resolution.

Unsatisfied, petitioner now comes before the Court in this petition for review
on certiorari insisting on the validity of respondents dismissal from employment.

We find merit in the petition.

It is undisputed that respondent was dismissed from employment for engaging in

extramarital affairs, a ground for termination of employment stated in petitioners Personnel
Policy. This basis of termination was made known to respondent as early as the first
communication made by petitioner. In its June 20, 1997 letter, petitioner directed
respondent to explain in writing or personal confrontation why he should not be terminated
for violation of Section 4.1.4 of the Personnel Policy.33 Respondent merely denied the
accusation against him34 and did not question the basis of such termination. When the LA
was called upon to decide the illegal dismissal case, it ruled in favor of petitioner and
upheld the basis of such dismissal which is the cited Personnel Policy.1wphi1 The NLRC,
however, refused to recognize the existence and validity of petitioners Personnel Policy on
which the ground for termination was embodied.35

The existence of the Personnel Policy containing provisions on the grounds for termination
of employees was not questioned by respondent. In his position paper, respondent only
assailed the effectivity of the policy, as for him as it was amended on the same date as the
letter-complaints against him. In other words, he claimed that the policy was amended in
order to include therein the ground for his termination to make sure that he is removed
from his position.36

We do not subscribe to such an argument.

A comparison of petitioners old and new Personnel Policies attached by respondent himself
to his Position Paper shows that under the old policy, one of the grounds for termination of
an employee is "commission of acts or commission (sic) of duties that bring discredit
to the organization,37" while under the new policy, one of the grounds is the "commission
of acts that brings (sic) discredit to the cooperative organization, especially, but not
limited to, conviction of any crime, illicit marital affairs, scandalous acts inimical
to established and accepted social mores." 38 Contrary to respondents claim, with the
amendment of the Personnel Policy, petitioner did not create a new ground for the
termination of employment to make sure that respondent is removed from his position. The
quoted ground under the old policy is similar to that provided for in the new policy. The
enumeration containing the specific act of "illicit marital affairs" is not an additional
ground, but an example of an act that brings discredit to the cooperative. It is merely an
interpretation of what petitioner considers as such. It is, thus, clear from the foregoing that
engaging in extra-marital affairs is a ground for termination of employment not only under
the new but even under the old Personnel Policy of petitioner. The effectivity of the policy as
to respondent cannot, therefore, be questioned.

Page 30 of 250
To be sure, an employer is free to regulate all aspects of employment.39 It may make
reasonable rules and regulations for the government of its employees which become part of
the contract of employment provided they are made known to the employee.40 In the event
of a violation, an employee may be validly terminated from employment on the ground that
an employer cannot rationally be expected to retain the employment of a person whose lack
of morals, respect and loyalty to his employer, regard for his employers rules and
application of the dignity and responsibility, has so plainly and completely been bared. 41

Applying now the above-discussed ground for termination, we now determine whether
respondent was properly dismissed from employment. In other words, did petitioner
adequately prove that respondent indeed engaged in extra-marital affairs, an act which
petitioner considers as would bring discredit to the cooperative?

We answer in the affirmative.

The employers evidence consists of sworn statements of either relatives or friends of

Thelma and respondent. They either had direct personal knowledge of the illicit relationship
or revealed circumstances indicating the existence of such relationship. As aptly observed
by the LA:

x x x Moreover, the credibility of the persons who bore witness against him can hardly be
questioned because some of these persons are relatives or friends of either [respondent] or
his lover. In particular, it is hard to see how Napoleon Gao-ay, the brother of his lover,
Thelma, could have resorted to a lie just to destroy him when the same scandal could also
result in tarnishing the reputation of his own family. The motive of Napoleon in bringing the
matter to the attention of the Board of Directors, after all, was based on ethical grounds
he wanted a stop to the affair because it was a disgrace to the community.

There is also no reason to doubt the statement of Melanie Gao-ay, the wife of Napoleon, who
witnessed the embarrassing "encounter", to borrow the term she used, between
[respondent] and Thelma in her own boarding house. 42

While respondents act of engaging in extra--marital affairs may be considered personal to

him and does not directly affect the performance of his assigned task as bookkeeper, aside
from the fact that the act was specifically provided for by petitioners Personnel Policy as
one of the grounds for termination of employment, said act raised concerns to petitioner as
the Board received numerous complaints and petitions from the cooperative members
themselves asking for the removal of respondent because of his immoral conduct. 43

The next question is whether procedural due process was observed in the termination of
respondents services. "Before the services of an employee can be validly terminated, the
employer must furnish him two written notices: (a) a written notice served on the employee
specifying the ground or grounds for termination, and giving the employee reasonable
opportunity to explain his side; and (b) a written notice of termination served on the
employee indicating that upon due consideration of all the circumstances, grounds have
been established to justify his termination."44 The employer must inform the employee of
the charges against him and to hear his defenses. A full adversarial proceeding is not
necessary as the parties may be heard through pleadings, written explanations, position
papers, memorandum or oral argument.45

Page 31 of 250
In this case, respondent was adequately afforded the opportunity to defend himself and
explain the accusation against him. Upon receipt of the complaint, petitioner conducted a
preliminary investigation and even created an Ad Hoc Committee to investigate the matter.
Respondent was directed to explain either in writing or by a personal confrontation with the
Board why he should not be terminated for engaging in illicit affair. 46 Not only did petitioner
give him the opportunity but respondent in fact informed petitioner that he opted to present
his side orally47 and did so as promised when he specifically denied such allegations before
the AdHoc Committee.48 Moreover, respondent was also allowed to peruse the investigation
report prepared by the Ad Hoc Committee and was advised that he was entitled to
assistance of counsel.49 Afterwhich, hearing was conducted. It was only after thorough
investigation and proper notice and hearing to respondent that petitioner decided whether
to dismiss the former or not. The decision to terminate respondent from employment was
embodied in Board Resolution No. 05, series of 1997 a copy of which was furnished
respondent.50 With this resolution, respondent was adequately notified of petitioners
decision to remove him from his position. Respondent cannot now claim that his right to
due process was infringed upon.

WHEREFORE, premises considered, the petition is hereby GRANTED. The Court of Appeals
Decision dated January 16, 2006 and Resolution dated July 5, 2006 in CA-G.R. SP No.
64554, are SET ASIDE. The Labor Arbiter's Decision dated April 30, 1998 in NLRC Case
No. RAB-1-08-1144-97 (IS) dismissing respondent Salvador M. Bandiola, Jr.'s complaint
against petitioner Alilem Credit Cooperative, Inc., Is REINSTATED.

SO ORDERED.

Page 32 of 250
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION
CHERRY J. PRICE, STEPHANIE G. G.R. No. 178505
DOMINGO AND LOLITA
ARBILERA, Petitioners, Present:

- versus - YNARES-SANTIAGO, J.,

Chairperson,
INNODATA PHILS. INC.,/ INNODATA
CORPORATION, LEO RABANG AND JANE AUSTRIA-MARTINEZ,
NAVARETTE, Respondents. CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:
September 30, 2008

x------------------------------------------------x

DECISION

CHICO-NAZARIO, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the
Decision1 dated 25 September 2006 and Resolution2 dated 15 June 2007 of the Court of
Appeals in CA-G.R. SP No. 72795, which affirmed the Decision dated 14 December 2001 of
the National Labor Relations Commission (NLRC) in NLRC NCR Case No. 30-03-01274-
2000 finding that petitioners were not illegally dismissed by respondents.

The factual antecedents of the case are as follows:

Respondent Innodata Philippines, Inc./Innodata Corporation (INNODATA) was a domestic

corporation engaged in the data encoding and data conversion business. It employed
encoders, indexers, formatters, programmers, quality/quantity staff, and others, to
maintain its business and accomplish the job orders of its clients. Respondent Leo Rabang
was its Human Resources and Development (HRAD) Manager, while respondent Jane
Navarette was its Project Manager. INNODATA had since ceased operations due to business
losses in June 2002.

Petitioners Cherry J. Price, Stephanie G. Domingo, and Lolita Arbilera were employed as
formatters by INNODATA. The parties executed an employment contract denominated as a
"Contract of Employment for a Fixed Period," stipulating that the contract shall be for a
period of one year,3 to wit:

CONTRACT OF EMPLOYMENT FOR A FIXED PERIOD

xxxx

Page 33 of 250
 WITNESSETH: That

WHEREAS, the EMPLOYEE has applied for the position of FORMATTER and in the course
thereof and represented himself/herself to be fully qualified and skilled for the said
position;

WHEREAS, the EMPLOYER, by reason of the aforesaid representations, is desirous of

engaging that the (sic) services of the EMPLOYEE for a fixed period;

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have
mutually agreed as follows:

TERM/DURATION

The EMPLOYER hereby employs, engages and hires the EMPLOYEE and the EMPLOYEE
hereby accepts such appointment as FORMATTER effective FEB. 16, 1999 to FEB. 16, 2000
a period of ONE YEAR.

xxxx

TERMINATION

6.1 In the event that EMPLOYER shall discontinue operating its business, this CONTRACT
shall also ipso facto terminate on the last day of the month on which the EMPLOYER ceases
operations with the same force and effect as is such last day of the month were originally
set as the termination date of this Contract. Further should the Company have no more
need for the EMPLOYEEs services on account of completion of the project, lack of work (sic)
business losses, introduction of new production processes and techniques, which will
negate the need for personnel, and/or overstaffing, this contract maybe pre-terminated by
the EMPLOYER upon giving of three (3) days notice to the employee.

6.2 In the event period stipulated in item 1.2 occurs first vis--vis the completion of the
project, this contract shall automatically terminate.

6.3 COMPANYs Policy on monthly productivity shall also apply to the EMPLOYEE.

6.4 The EMPLOYEE or the EMPLOYER may pre-terminate this CONTRACT, with or without
cause, by giving at least Fifteen (15) notice to that effect. Provided, that such pre-
termination shall be effective only upon issuance of the appropriate clearance in favor of the
said EMPLOYEE.

6.5 Either of the parties may terminate this Contract by reason of the breach or violation of
the terms and conditions hereof by giving at least Fifteen (15) days written notice.
Termination with cause under this paragraph shall be effective without need of judicial
action or approval.4

During their employment as formatters, petitioners were assigned to handle jobs for various
clients of INNODATA, among which were CAS, Retro, Meridian, Adobe, Netlib, PSM, and
Earthweb. Once they finished the job for one client, they were immediately assigned to do a
new job for another client.

Page 34 of 250
On 16 February 2000, the HRAD Manager of INNODATA wrote petitioners informing them
of their last day of work. The letter reads:

RE: End of Contract

Date: February 16, 2000

Please be informed that your employment ceases effective at the end of the close of business
hours on February 16, 2000.5

According to INNODATA, petitioners employment already ceased due to the end of their
contract.

On 22 May 2000, petitioners filed a Complaint6 for illegal dismissal and damages against
respondents. Petitioners claimed that they should be considered regular employees since
their positions as formatters were necessary and desirable to the usual business of
INNODATA as an encoding, conversion and data processing company. Petitioners also
averred that the decisions in Villanueva v. National Labor Relations Commission7 and
Servidad v. National Labor Relations Commission,8 in which the Court already purportedly
ruled "that the nature of employment at Innodata Phils., Inc. is regular," 9 constituted stare
decisis to the present case. Petitioners finally argued that they could not be considered
project employees considering that their employment was not coterminous with any project
or undertaking, the termination of which was predetermined.

On the other hand, respondents explained that INNODATA was engaged in the business of
data processing, typesetting, indexing, and abstracting for its foreign clients. The bulk of
the work was data processing, which involved data encoding. Data encoding, or the typing
of data into the computer, included pre-encoding, encoding 1 and 2, editing, proofreading,
and scanning. Almost half of the employees of INNODATA did data encoding work, while the
other half monitored quality control. Due to the wide range of services rendered to its
clients, INNODATA was constrained to hire new employees for a fixed period of not more
than one year. Respondents asserted that petitioners were not illegally dismissed, for their
employment was terminated due to the expiration of their terms of employment. Petitioners
contracts of employment with INNODATA were for a limited period only, commencing on 6
September 1999 and ending on 16 February 2000. 10 Respondents further argued that
petitioners were estopped from asserting a position contrary to the contracts which they
had knowingly, voluntarily, and willfully agreed to or entered into. There being no illegal
dismissal, respondents likewise maintained that petitioners were not entitled to
reinstatement and backwages.

On 17 October 2000, the Labor Arbiter11 issued its Decision12 finding petitioners complaint
for illegal dismissal and damages meritorious. The Labor Arbiter held that as formatters,
petitioners occupied jobs that were necessary, desirable, and indispensable to the data
processing and encoding business of INNODATA. By the very nature of their work as
formatters, petitioners should be considered regular employees of INNODATA, who were
entitled to security of tenure. Thus, their termination for no just or authorized cause was
illegal. In the end, the Labor Arbiter decreed:

FOREGOING PREMISES CONSIDERED, judgment is hereby rendered declaring

complainants dismissal illegal and ordering respondent INNODATA PHILS.
INC./INNODATA CORPORATION to reinstate them to their former or equivalent position

Page 35 of 250
without loss of seniority rights and benefits. Respondent company is further ordered to pay
complainants their full backwages plus ten percent (10%) of the totality thereof as
attorneys fees. The monetary awards due the complainants as of the date of this decision
are as follows:

A. Backwages

1. Cherry J. Price

2/17/2000 10/17/2000 at 223.50/day

P5,811.00/mo/ x 8 mos. P46,488.00

2. Stephanie Domingo 46,488.00

(same computation)

3. Lolita Arbilera 46,488.00

(same computation)

Total Backwages P139,464.00

B. Attorneys fees (10% of total award) 13,946.40

Total Award P153,410.40

Respondent INNODATA appealed the Labor Arbiters Decision to the NLRC. The NLRC, in its
Decision dated 14 December 2001, reversed the Labor Arbiters Decision dated 17 October
2000, and absolved INNODATA of the charge of illegal dismissal.

The NLRC found that petitioners were not regular employees, but were fixed-term
employees as stipulated in their respective contracts of employment. The NLRC applied
Brent School, Inc. v. Zamora13 and St. Theresas School of Novaliches Foundation v.
National Labor Relations Commission,14 in which this Court upheld the validity of fixed-
term contracts. The determining factor of such contracts is not the duty of the employee but
the day certain agreed upon by the parties for the commencement and termination of the
employment relationship. The NLRC observed that the petitioners freely and voluntarily
entered into the fixed-term employment contracts with INNODATA. Hence, INNODATA was
not guilty of illegal dismissal when it terminated petitioners employment upon the
expiration of their contracts on 16 February 2000.

The dispositive portion of the NLRC Decision thus reads:

WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and
SET ASIDE and a new one entered DISMISSING the instant complaint for lack of merit. 15

The NLRC denied petitioners Motion for Reconsideration in a Resolution dated 28 June
2002.16

Page 36 of 250
In a Petition for Certiorari under Rule 65 of the Rules of Court filed before the Court of
Appeals, petitioners prayed for the annulment, reversal, modification, or setting aside of the
Decision dated 14 December 2001 and Resolution dated 28 June 2002 of the
NLRC.lawphil.net

On 25 September 2006, the Court of Appeals promulgated its Decision sustaining the
ruling of the NLRC that petitioners were not illegally dismissed.

The Court of Appeals ratiocinated that although this Court declared in Villanueva and
Servidad that the employees of INNODATA working as data encoders and abstractors were
regular, and not contractual, petitioners admitted entering into contracts of employment
with INNODATA for a term of only one year and for a project called Earthweb. According to
the Court of Appeals, there was no showing that petitioners entered into the fixed-term
contracts unknowingly and involuntarily, or because INNODATA applied force, duress or
improper pressure on them. The appellate court also observed that INNODATA and
petitioners dealt with each other on more or less equal terms, with no moral dominance
exercised by the former on latter. Petitioners were therefore bound by the stipulations in
their contracts terminating their employment after the lapse of the fixed term.

The Court of Appeals further expounded that in fixed-term contracts, the stipulated period
of employment is governing and not the nature thereof. Consequently, even though
petitioners were performing functions that are necessary or desirable in the usual business
or trade of the employer, petitioners did not become regular employees because their
employment was for a fixed term, which began on 16 February 1999 and was
predetermined to end on 16 February 2000.

The appellate court concluded that the periods in petitioners contracts of employment were
not imposed to preclude petitioners from acquiring security of tenure; and, applying the
ruling of this Court in Brent, declared that petitioners fixed-term employment contracts
were valid. INNODATA did not commit illegal dismissal for terminating petitioners
employment upon the expiration of their contracts.

The Court of Appeals adjudged:

WHEREFORE, the instant petition is hereby DENIED and the Resolution dated December
14, 2001 of the National Labor Relations Commission declaring petitioners were not illegally
dismissed is AFFIRMED.17

The petitioners filed a Motion for Reconsideration of the afore-mentioned Decision of the
Court of Appeals, which was denied by the same court in a Resolution dated 15 June 2007.

Petitioners are now before this Court via the present Petition for Review on Certiorari, based
on the following assignment of errors:

I.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW

AND GRAVE ABUSE OF DISCRETION WHEN IT DID NOT APPLY THE SUPREME
COURT RULING IN THE CASE OF NATIVIDAD & QUEJADA THAT THE NATURE OF
EMPLOYMENT OF RESPONDENTS IS REGULAR NOT FIXED, AND AS SO RULED IN
AT LEAST TWO OTHER CASES AGAINST INNODATA PHILS. INC.

Page 37 of 250
 II.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN

RULING THAT THE STIPULATION OF CONTRACT IS GOVERNING AND NOT THE
NATURE OF EMPLOYMENT AS DEFINED BY LAW.

III.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT DID NOT
CONSIDER THE EVIDENCE ON RECORD SHOWING THAT THERE IS CLEAR
CIRCUMVENTION OF THE LAW ON SECURITY OF TENURE THROUGH CONTRACT
MANIPULATION.18

The issue of whether petitioners were illegally dismissed by respondents is ultimately

dependent on the question of whether petitioners were hired by INNODATA under valid
fixed-term employment contracts.

After a painstaking review of the arguments and evidences of the parties, the Court finds
merit in the present Petition. There were no valid fixed-term contracts and petitioners were
regular employees of the INNODATA who could not be dismissed except for just or
authorized cause.

The employment status of a person is defined and prescribed by law and not by what the
parties say it should be.19 Equally important to consider is that a contract of employment is
impressed with public interest such that labor contracts must yield to the common
good.20 Thus, provisions of applicable statutes are deemed written into the contract, and
the parties are not at liberty to insulate themselves and their relationships from the impact
of labor laws and regulations by simply contracting with each other. 21

Regular employment has been defined by Article 280 of the Labor Code, as amended, which
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 engagement of
the employee or where the work or services to be performed is seasonal in nature and
employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding

paragraph. Provided, That, any employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be considered a regular employee with
respect to the activity in which he is employed and his employment shall continue while
such activity exists. (Underscoring ours).

Based on the afore-quoted provision, the following employees are accorded regular status:
(1) those who are engaged to perform activities which are necessary or desirable in the
usual business or trade of the employer, regardless of the length of their employment; and

Page 38 of 250
(2) those who were initially hired as casual employees, but have rendered at least one year
of service, whether continuous or broken, with respect to the activity in which they are
employed.

Undoubtedly, petitioners belong to the first type of regular employees.

Under Article 280 of the Labor Code, the applicable test to determine whether an
employment should be considered regular or non-regular is the reasonable connection
between the particular activity performed by the employee in relation to the usual business
or trade of the employer. 22

In the case at bar, petitioners were employed by INNODATA on 17 February 1999 as

formatters. The primary business of INNODATA is data encoding, and the formatting of the
data entered into the computers is an essential part of the process of data encoding.
Formatting organizes the data encoded, making it easier to understand for the clients
and/or the intended end users thereof. Undeniably, the work performed by petitioners was
necessary or desirable in the business or trade of INNODATA.

However, it is also true that while certain forms of employment require the performance of
usual or desirable functions and exceed one year, these do not necessarily result in regular
employment under Article 280 of the Labor Code. 23 Under the Civil Code, fixed-term
employment contracts are not limited, as they are under the present Labor Code, to those
by nature seasonal or for specific projects with predetermined dates of completion; they also
include those to which the parties by free choice have assigned a specific date of
termination.24

The decisive determinant in term employment is the day certain agreed upon by the parties
for the commencement and termination of their employment relationship, a day certain
being understood to be that which must necessarily come, although it may not be known
when. Seasonal employment and employment for a particular project are instances of
employment in which a period, where not expressly set down, is necessarily implied. 25

Respondents maintain that the contracts of employment entered into by petitioners with
INNDOATA were valid fixed-term employment contracts which were automatically
terminated at the expiry of the period stipulated therein, i.e., 16 February 2000.

The Court disagrees.

While this Court has recognized the validity of fixed-term employment contracts, it has
consistently held that this is the exception rather than the general rule. More importantly, a
fixed-term employment is valid only under certain circumstances. In Brent, the very same
case invoked by respondents, the Court identified several circumstances wherein a fixed-
term is an essential and natural appurtenance, to wit:

Some familiar examples may be cited of employment contracts which may be neither for
seasonal work nor for specific projects, but to which a fixed term is an essential and natural
appurtenance: overseas employment contracts, for one, to which, whatever the nature of
the engagement, the concept of regular employment with all that it implies does not appear
ever to have been applied, Article 280 of the Labor Code notwithstanding; also
appointments to the positions of dean, assistant dean, college secretary, principal, and
other administrative offices in educational institutions, which are by practice or tradition

Page 39 of 250
rotated among the faculty members, and where fixed terms are a necessity without which
no reasonable rotation would be possible. Similarly, despite the provisions of Article 280,
Policy Instructions No. 8 of the Minister of Labor implicitly recognize that certain company
officials may be elected for what would amount to fixed periods, at the expiration of which
they would have to stand down, in providing that these officials, "x x may lose their jobs as
president, executive vice-president or vice president, etc. because the stockholders or the
board of directors for one reason or another did not reelect them." 26

As a matter of fact, the Court, in its oft-quoted decision in Brent, also issued a stern
admonition that where, from the circumstances, it is apparent that the period was imposed
to preclude the acquisition of tenurial security by the employee, then it should be struck
down as being contrary to law, morals, good customs, public order and public policy. 27

After considering petitioners contracts in their entirety, as well as the circumstances

surrounding petitioners employment at INNODATA, the Court is convinced that the terms
fixed therein were meant only to circumvent petitioners right to security of tenure and are,
therefore, invalid.

The contracts of employment submitted by respondents are highly suspect for not only
being ambiguous, but also for appearing to be tampered with.

Petitioners alleged that their employment contracts with INNODATA became effective 16
February 1999, and the first day they reported for work was on 17 February 1999. The
Certificate of Employment issued by the HRAD Manager of INNODATA also indicated that
petitioners Price and Domingo were employed by INNODATA on 17 February 1999.

However, respondents asserted before the Labor Arbiter that petitioners employment
contracts were effective only on 6 September 1999. They later on admitted in their
Memorandum filed with this Court that petitioners were originally hired on 16 February
1999 but the project for which they were employed was completed before the expiration of
one year. Petitioners were merely rehired on 6 September 1999 for a new project. While
respondents submitted employment contracts with 6 September 1999 as beginning date of
effectivity, it is obvious that in one of them, the original beginning date of effectivity, 16
February 1999, was merely crossed out and replaced with 6 September 1999. The copies of
the employment contracts submitted by petitioners bore similar alterations.

The Court notes that the attempt to change the beginning date of effectivity of petitioners
contracts was very crudely done. The alterations are very obvious, and they have not been
initialed by the petitioners to indicate their assent to the same. If the contracts were truly
fixed-term contracts, then a change in the term or period agreed upon is material and
would already constitute a novation of the original contract.

Such modification and denial by respondents as to the real beginning date of petitioners
employment contracts render the said contracts ambiguous. The contracts themselves state
that they would be effective until 16 February 2000 for a period of one year. If the contracts
took effect only on 6 September 1999, then its period of effectivity would obviously be less
than one year, or for a period of only about five months.

Obviously, respondents wanted to make it appear that petitioners worked for INNODATA for
a period of less than one year. The only reason the Court can discern from such a move on
respondents part is so that they can preclude petitioners from acquiring regular status

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based on their employment for one year. Nonetheless, the Court emphasizes that it has
already found that petitioners should be considered regular employees of INNODATA by the
nature of the work they performed as formatters, which was necessary in the business or
trade of INNODATA. Hence, the total period of their employment becomes irrelevant.

Even assuming that petitioners length of employment is material, given respondents

muddled assertions, this Court adheres to its pronouncement in Villanueva v. National
Labor Relations Commission,28 to the effect that where a contract of employment, being a
contract of adhesion, is ambiguous, any ambiguity therein should be construed strictly
against the party who prepared it. The Court is, thus, compelled to conclude that
petitioners contracts of employment became effective on 16 February 1999, and that they
were already working continuously for INNODATA for a year.

Further attempting to exonerate itself from any liability for illegal dismissal, INNODATA
contends that petitioners were project employees whose employment ceased at the end of a
specific project or undertaking. This contention is specious and devoid of merit.

In Philex Mining Corp. v. National Labor Relations Commission, 29 the Court defined "project
employees" as those workers hired (1) for a specific project or undertaking, and wherein (2)
the completion or termination of such project has been determined at the time of the
engagement of the employee.

Scrutinizing petitioners employment contracts with INNODATA, however, failed to reveal

any mention therein of what specific project or undertaking petitioners were hired for.
Although the contracts made general references to a "project," such project was neither
named nor described at all therein. The conclusion by the Court of Appeals that petitioners
were hired for the Earthweb project is not supported by any evidence on record. The one-
year period for which petitioners were hired was simply fixed in the employment contracts
without reference or connection to the period required for the completion of a project. More
importantly, there is also a dearth of evidence that such project or undertaking had already
been completed or terminated to justify the dismissal of petitioners. In fact, petitioners
alleged - and respondents failed to dispute that petitioners did not work on just one project,
but continuously worked for a series of projects for various clients of INNODATA.

In Magcalas v. National Labor Relations Commission,30 the Court struck down a similar
claim by the employer therein that the dismissed employees were fixed-term and project
employees. The Court here reiterates the rule that all doubts, uncertainties, ambiguities
and insufficiencies should be resolved in favor of labor. It is a well-entrenched doctrine that
in illegal dismissal cases, the employer has the burden of proof. This burden was not
discharged in the present case.

As a final observation, the Court also takes note of several other provisions in petitioners
employment contracts that display utter disregard for their security of tenure. Despite fixing
a period or term of employment, i.e., one year, INNODATA reserved the right to pre-
terminate petitioners employment under the following circumstances:

6.1 x x x Further should the Company have no more need for the EMPLOYEEs services on
account of completion of the project, lack of work (sic) business losses, introduction of new
production processes and techniques, which will negate the need for personnel, and/or
overstaffing, this contract maybe pre-terminated by the EMPLOYER upon giving of three (3)
days notice to the employee.

Page 41 of 250
 xxxx

6.4 The EMPLOYEE or the EMPLOYER may pre-terminate this CONTRACT, with or without
cause, by giving at least Fifteen (15) [day] notice to that effect. Provided, that such pre-
termination shall be effective only upon issuance of the appropriate clearance in favor of the
said EMPLOYEE. (Emphasis ours.)

Pursuant to the afore-quoted provisions, petitioners have no right at all to expect security of
tenure, even for the supposedly one-year period of employment provided in their contracts,
because they can still be pre-terminated (1) upon the completion of an unspecified project;
or (2) with or without cause, for as long as they are given a three-day notice. Such contract
provisions are repugnant to the basic tenet in labor law that no employee may be
terminated except for just or authorized cause.

Under Section 3, Article XVI of the Constitution, it is the policy of the State to assure the
workers of security of tenure and free them from the bondage of uncertainty of tenure
woven by some employers into their contracts of employment. This was exactly the purpose
of the legislators in drafting Article 280 of the Labor Code to prevent the circumvention by
unscrupulous employers of the employees right to be secure in his tenure by
indiscriminately and completely ruling out all written and oral agreements inconsistent with
the concept of regular employment.

In all, respondents insistence that it can legally dismiss petitioners on the ground that
their term of employment has expired is untenable. To reiterate, petitioners, being regular
employees of INNODATA, are entitled to security of tenure. In the words of Article 279 of the
Labor Code:

ART. 279. Security of Tenure. In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this
Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges and to his full backwages, inclusive of
allowances, and to his other benefits or their monetary equivalent computed from the time
his compensation was withheld from him up to the time of his actual reinstatement.

By virtue of the foregoing, an illegally dismissed employee is entitled to reinstatement

without loss of seniority rights and other privileges, with full back wages computed from the
time of dismissal up to the time of actual reinstatement.

Considering that reinstatement is no longer possible on the ground that INNODATA had
ceased its operations in June 2002 due to business losses, the proper award is separation
pay equivalent to one month pay31 for every year of service, to be computed from the
commencement of their employment up to the closure of INNODATA.

The amount of back wages awarded to petitioners must be computed from the time
petitioners were illegally dismissed until the time INNODATA ceased its operations in June
2002.32

Petitioners are further entitled to attorneys fees equivalent to 10% of the total monetary
award herein, for having been forced to litigate and incur expenses to protect their rights
and interests herein.

Page 42 of 250
Finally, unless they have exceeded their authority, corporate officers are, as a general rule,
not personally liable for their official acts, because a corporation, by legal fiction, has a
personality separate and distinct from its officers, stockholders and members. Although as
an exception, corporate directors and officers are solidarily held liable with the corporation,
where terminations of employment are done with malice or in bad faith, 33 in the absence of
evidence that they acted with malice or bad faith herein, the Court exempts the individual
respondents, Leo Rabang and Jane Navarette, from any personal liability for the illegal
dismissal of petitioners.

WHEREFORE, the Petition for Review on Certiorari is GRANTED. The Decision dated 25
September 2006 and Resolution dated 15 June 2007 of the Court of Appeals in CA-G.R. SP
No. 72795are hereby REVERSED and SET ASIDE. RespondentInnodata Philippines,
Inc./Innodata Corporation is ORDERED to pay petitioners Cherry J. Price, Stephanie G.
Domingo, and Lolita Arbilera: (a) separation pay, in lieu of reinstatement, equivalent to one
month pay for every year of service, to be computed from the commencement of their
employment up to the date respondent Innodata Philippines, Inc./Innodata Corporation
ceased operations; (b) full backwages, computed from the time petitioners compensation
was withheld from them up to the time respondent Innodata Philippines, Inc./Innodata
Corporation ceased operations; and (3) 10% of the total monetary award as attorneys fees.
Costs against respondent Innodata Philippines, Inc./Innodata Corporation.

SO ORDERED.

Page 43 of 250
 BANK OF THE PHILIPPINE ISLANDS, PETITIONER,
~vs~
BANK OF THE PHILIPPINE ISLANDS EMPLOYEES UNION- METRO MANILA, 22
AUGUST 2012 RESPONDENT.
DECISION
PERALTA, J.:
For resolution of this Court is the Petition for Review under Rule 45 of the Revised Rules of
Court, dated January 20, 2007, of petitioner Bank of the Philippine Islands (BPI) which
seeks to reverse and set aside the Court of Appeals (CA) Decision [1] and Resolution,[2] dated
June 8, 2006 and November 29, 2006, respectively, in CA-G.R. SP No. 83387.
The antecedent facts follow.
Respondent Bank of the Philippine Islands Employees Union-Metro Manila (BPIEU-MM), a
legitimate labor organization and the sole and exclusive bargaining representative of all the
regular rank-and-file employees of petitioner BPI in Metro Manila and petitioner BPI have
an existing Collective Bargaining Agreement (CBA)[3] which took effect on April 1, 2001. The
CBA provides for loan benefits and relatively low interest rates. The said provisions state:
Article VIII Fringe Benefits
xxxx
Section 14. Multi-Purpose Loan, Real Estate Secured Housing Loan and Car Loan.
The Bank agrees to continue and maintain its present policy and practice,
embodied in its Collective Bargaining Agreement with the Union which expired on
31 March 2001, extending to qualified regular employees the multi-purpose and
real estate secured housing loans, subject to the increased limits and provisions
hereinbelow, to wit:
(a) Multi-Purpose Loan not exceeding FORTY THOUSAND PESOS
(P40,000.00), payable within the period not exceeding three (3) years via semi-
monthly salary deductions, with interest at the rate of eight percent (8%) per
annum computed on the diminishing balance.
(b) Real Estate-Secured Housing Loan not exceeding FOUR HUNDRED FIFTY
THOUSAND PESOS (P450,000.00), payable over a period not exceeding
fifteen (15) years via semi-monthly salary deductions, with interest at the rate
of nine percent (9%) per annum computed on the diminishing balance.
The rate of interest on real estate secured loans, however, may be reduced to six
percent (6%) per annum, subject to the following conditions:
1. If the loan is accepted for coverage by the Home Insurance and Guaranty
Corporation (HIGC).
2. The HIGC premium shall be paid by the borrower.
3. The borrower procures a Mortgage Redemption Insurance coverage from an
insurance company selected by the BANK.
4. The BANK may increase the six percent (6%) interest if the HIGC or the
Government imposes new conditions or restrictions necessitating a higher
interest in order to maintain the BANKS position before such conditions or
restrictions were imposed.
5. Such other terms or conditions imposed or which may be imposed by the
HIGC.
6. It is distinctly understood that the rate of interest shall automatically revert
to nine percent (9%) per annum upon cancellation of the HIGC coverage for
any cause.
The BANK shall make strong representations with the Bangko Sentral ng Pilipinas
for a second upgrade and/or availment under the Housing Loan Program.

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 (c) Car Loan. The BANK shall submit a revised plan for the approval of the
Bangko Sentral ng Pilipinas which shall incorporate a car loan program in its
existing Housing Loan Program. The said car loan shall be a sub-limit under
the program such that any availment thereof shall operate to decrease the
available housing loan limit. Therefore, the combined amount of both housing
and car loans that may be availed of shall not exceed FOUR HUNDRED FIFTY
THOUSAND PESOS (P450,000.00). This supplemental revision of the loan
program shall be subject to the rules and regulations {e.g., amount of sub-
limit, credit ratio, type and age of vehicle, interest rate, etc.) which the BANK
may promulgate, and to the terms of the approval of the Bangko Sentral ng
Pilipinas.
The multi-purpose and housing loans stated in the next preceding paragraphs, as
well as the car loan which shall be incorporated in the housing loan program, shall
be subject further to the applicable provisions, guidelines and restrictions set forth
in the Central Bank Circular No. 561, as amended by Central Bank Circular No.
689, and to the rules, regulations and policies of the BANK on such loans insofar as
they do not violate the provisions, guidelines and restrictions set forth in said
Central Bank Circular No. 561, as amended.
Section 15. Emergency Loans. The BANK agrees to increase the amount of
emergency loans assistance, upon approval by the Central Bank of the Philippines,
from a maximum amount of Ten Thousand Pesos (PI 0,000.00) to a maximum
amount of Fifteen Thousand Pesos (P15,000.00) to qualified employees intended to
cover emergencies only, i.e., expenses incurred but could not be foreseen such as
those arising from natural calamities, emergency medical treatment and/or
hospitalization of an employee and/or his immediate family and other genuine
emergency cases of serious hardship as the BANK may determine. Hospital
expenses for caesarian delivery of a female employee or an employees wife not
covered by the Group Hospitalization Insurance Plan shall qualify for the
emergency loan.
Emergency loans shall be playable in twenty-four (24) months via semi-monthly
salary deductions and shall be charged interest at the minimal rate of Seven
percent (7%) per annum for the first P10,000.00 and Nine percent (9%) for the
additional P5.000.00 computed on the diminishing balance. The emergency loan
assistance program shall be governed by the rules, regulations and policies of the
BANK and such amendments or modifications thereof which the BANK may issue
from time to time.[4]
Thereafter, petitioner issued a no negative data bank policy [5] for the
implementation/availment of the manpower loans which the respondent objected to, thus,
resulting into labor-management dialogues. Unsatisfied with the result of those dialogues,
respondent brought the matter to the grievance machinery and afterwards, the issue, not
having been resolved, the parties raised it to the Voluntary Arbitrator.
In his decision, the Voluntary Arbitrator found merit in the respondents cause. Hence, the
dispositive portion of the said decision reads as follows:
WHEREFORE, viewed in the light of the foregoing circumstances, this Arbitrator
hereby rules:
1. That the imposition of the NO NEGATIVE DATA BANK as a new condition
for the implementation and availment of the manpower loan benefits by the
employees evidently violates the CBA;
2. That all employees who were not allowed or deprived of the manpower loan
benefits due to the NO NEGATIVE DATA BANK POLICY be immediately
granted in accordance with their respective loan benefits applied for;

Page 45 of 250
 3. That the respondent herein is ordered likewise to pay ten percent (10%) of
the total amount of all loans to be granted to all employees concerned as
Attorneys Fees; and
4. That the parties herein are directed to report compliance with the above
directives within ten (10) days from receipt of this ORDER.
SO ORDERED.[6]
Aggrieved, petitioner appealed the case to the CA via Rule 43, but the latter affirmed the
decision of the Voluntary Arbitrator with the modification that the award of attorneys fees
be deleted. The dispositive portion states:
WHEREFORE, premises considered, the Voluntary Arbitrators Decision dated April
5, 2004 is hereby AFFIRMED with the MODIFICATION that the award of attorneys
fees is hereby deleted.
SO ORDERED.[7]
Petitioner filed a motion for reconsideration, but it was denied in a Resolution[8] dated
November 29, 2006.
Hence, the presen
t petition.
Petitioner raises the following arguments:
A. The No NDB policy is a valid and reasonable requirement that is consistent
with sound banking practice and is meant to inculcate among officers and
employees of the petitioner the need for fiscal responsibility and discipline,
especially in an industry where the element of trust is paramount.
B. The No NDB policy does not violate the parties Collective Bargaining
Agreement.
C. The No NDB policy conforms to existing BSP regulations and circulars, and to
safe and sound banking practices.[9]
Respondent, on the other hand, claims that the petition did not comply with Section 4, Rule
45 of the Revised Rules of Court and must be dismissed outright in accordance with
Section 5 of the same rule; that the CA did not commit any reversible error in the
questioned judgment to warrant the exercise of its discretionary appellate jurisdiction; and
that the Voluntary Arbitrator and the CA duly passed upon the same issues raised in the
instant petition and their decisions are based on substantial evidence and are in
accordance with law and jurisprudence.[10]
Tn its Reply[11] dated September 21, 2007, petitioner reiterates the issues it presented in its
petition. It also argues that the present petition must not be dismissed based on mere
technicality.
Subsequently, the parties submitted their respective memoranda.
Petitioners arguments are mere rehash of those it raised in the CA. It insists that the
rationale behind the use of the no negative data bank policy aims to encourage employees
of a banking institution to exercise the highest standards of conduct, considering the
banks fiduciary relationship with its depositors and clients. It likewise contends that a
scrutiny of the CBA reveals an express conformity to petitioners prerogative to issue
policies that would guide the parties in the availment of manpower loans under the CBA.
Furthermore, petitioner avers that the subject policy does not only conform to the
provisions of the parties CBA, but it is also in harmony with the circulars and regulations
of the Bangko Sentral ng Pilipinas.
The petition lacks merit.
In a petition for review on certiorari, this Courts jurisdiction is limited to reviewing errors of
law in the absence of any showing that the factual findings complained of are devoid of
support in the records or are glaringly erroneous. [13] Firm is the doctrine that this Court is
not a trier of facts, and this applies with greater force in labor cases.[14] The issues

Page 46 of 250
presented by the petitioner are factual in nature. Nevertheless, the CA committed no error
in its questioned decision and resolution.
A CBA refers to the negotiated contract between a legitimate labor organization and the
employer concerning wages, hours of work and all other terms and conditions of
employment in a bargaining unit, including mandatory provisions for grievances and
arbitration machineries.[15] As in all other contracts, there must be clear indications that
the parties reached a meeting of the minds.[16]Therefore, the terms and conditions of a CBA
constitute the law between the parties.[17]
The CBA in this case contains no provision on the no negative data bank policy as a
prerequisite in the entitlement of the benefits it set forth for the employees. In fact, a close
reading of the CBA would show that the terms and conditions contained therein relative to
the availment of the loans are plain and clear, thus, all they need is the proper
implementation in order to reach their objective. The CA was, therefore, correct when it
ruled that, although it can be said that petitioner is authorized to issue rules and
regulations pertinent to the availment and administration of the loans under the CBA, the
additional rules and regulations, however, must not impose new conditions which are not
contemplated in the CBA and should be within the realm of reasonableness. The no
negative data bank policy is a new condition which is never contemplated in the CBA and
at some points, unreasonable to the employees because it provides that before an employee
or his/her spouse can avail of the loan benefits under the CBA, the said employee or
his/her spouse must not be listed in the negative data bank, or if previously listed therein,
must obtain a clearance at least one year or six months as the case may be, prior to a loan
application.
It must be remembered that negotiations between an employer and a union transpire before
they agree on the terms and conditions contained in the CBA. If the petitioner, indeed,
intended to include a no negative data bank policy in the CBA, it should have presented
such proposal to the union during the negotiations. To include such policy after the
effectivity of the CBA is deceptive and goes beyond the original agreement between the
contracting parties.
This Court also notes petitioners argument that the no negative data bank policy is
intended to exact a high standard of conduct from its employees. However, the terms and
conditions of the CBA must prevail. Petitioner can propose the inclusion of the said policy
upon the expiration of the CBA, during the negotiations for a new CBA, but in the
meantime, it has to honor the provisions of the existing CBA.
Article 1702 of the New Civil Code provides that, in case of doubt, all labor legislation and
all labor contracts shall be construed in favor of the safety and decent living of the laborer.
Thus, this Court has ruled that any doubt or ambiguity in the contract between
management and the union members should be resolved in favor of the latter. [18] Therefore,
there is no doubt, in this case, that the welfare of the laborers stands supreme.
WHEREFORE, the Petition for Review under Rule 45 of the Revised Rules of Court, dated
January 20, 2007, of petitioner Bank of the Philippine Islands, is hereby DENIED and the
Court of Appeals Decision and Resolution, dated June 8, 2006 and November 29, 2006,
respectively, are hereby AFFIRMED.
SO ORDERED.

Page 47 of 250
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 192601 June 3, 2013

PHILIPPINE JOURNALISTS, INC., Petitioner,

vs.
JOURNAL EMPLOYEES UNION (JEU), FOR ITS UNION MEMBER, MICHAEL
ALFANTE, Respondents.

DECISION

BERSAMIN, J.:

The coverage of the term legal dependent as used in a stipulation in a collective bargaining
agreement (CBA) granting funeral or bereavement benefit to a regular employee for the
death of a legal dependent, if the CBA is silent about it, is to be construed as similar to the
meaning that contemporaneous social legislations have set. This is because the terms of
such social legislations are deemed incorporated in or adopted by the CBA.

The decision of the Court of Appeals (CA) under review summarizes the factual and
procedural antecedents, as follows:

Complainant Judith Pulido alleged that she was hired by respondent as proofreader on 10
January 1991; that she was receiving a monthly basic salary of P-15,493.66 plus P-155.00
longevity pay plus other benefits provided by law and their Collective Bargaining Agreement;
that on 21 February 2003, as union president, she sent two letters to President Gloria
Arroyo, regarding their complaint of mismanagement being committed by PIJ executive;
that sometime in May 2003, the union was furnished with a letter by Secretary Silvestre
Afable, Jr. head of Presidential Management Staff (PMS), endorsing their letter-complaint to
Ombudsman Simeon V. Marcelo; that respondents took offense and started harassments to
complainant union president; that on 30 May 2003, complainant received a letter from
respondent Fundador Soriano, International Edition managing editor, regarding
complainants attendance record; that complainant submitted her reply to said memo on 02
June 2003; that on 06 June 2003, complainant received a memorandum of reprimand; that
on 04 July 2003, complainant received another memo from Mr. Soriano, for not wearing her
company ID, which she replied the next day 05 July 2003; that on 04 August 2003,
complainant again received a memo regarding complainants tardiness; that on 05 August
2003, complainant received another memorandum asking her to explain why she should
not be accused of fraud, which she replied to on 07 August 2003; and that on the same day
between 3:00 to 4:00 P.M., Mr. Ernesto "Estong" San Agustin, a staff of HRD handed her
termination paper.

Complainant added that in her thirteen (13) years with the company and after so many
changes in its management and executives, she had never done anything that will cause
them to issue a memorandum against her or her work attitude, more so, reasons to
terminate her services; that she got dismissed because she was the Union President who
was very active in defending and pursuing the rights of her union members, and in fighting

Page 48 of 250
against the abuses of respondent Corporate Officers; and that she got the ire of respondents
when the employees filed a complaint against the Corporate Officers before Malacaang and
which was later indorsed to the Office of the Ombudsman.

The second complainant Michael L. Alfante alleged that he started to work with respondents
as computer technician at Management Information System under manager Neri
Torrecampo on 16 May 2000; that on 15 July 2001, he was regularized receiving a monthly
salary of P9,070.00 plus other monetary benefits; that sometime in 2001, Rico
Pagkalinawan replaced Torrecampo, which was opposed by complainant and three other co-
employees; that Pagkalinawan took offense of their objection; that on 22 October 2002,
complainant Alfante received a memorandum from Pagkalinawan regarding his excessive
tardiness; that on 10 June 2003, complainant Alfante received a memorandum from
Executive Vice-President Arnold Banares, requiring him to explain his side on the
evaluation of his performance submitted by manager Pagkalinawan; that one week after
complainant submitted his explanation, he was handed his notice of dismissal on the
ground of "poor performance"; and that complainant was dismissed effective 28 July 2003.

Complainant Alfante submitted that he was dismissed without just cause.

Respondents, in their position paper, averred that complainants Pulido and Alfante were
dismissed for cause and with due process.

With regard to complainant Pulido, respondents averred that in a memorandum dated 30

May 2003, directed complainant to explain her habitual tardiness, at least 75 times from
January to May of 2003. In a memorandum, dated 06 June 2003, directed complainant to
observe the 3 p.m. rule to avoid grammatical lapses, use of stale stories just to beat the
10:00 p.m. deadline. In the same memorandum complainant was given the warning that
any repeated violation of the rules shall be dealt with more severely. Once again, in a
memorandum, dated 04 August 2003, complainant Pulido was required to explain why no
disciplinary action should be taken against her for habitual tardiness 18 times out of the
23 reporting days during the period from 27 June 27 July 2003 and on 05 August 2003,
complainant was directed to explain in writing why complainant should not be
administratively sanctioned for committing fraud or attempting to commit fraud against
respondents. Respondents found complainants explanations unsatisfactory. On 07 August
2003, respondents dismissed complainant Pulido for habitual tardiness, gross
insubordination, utter disrespect for superiors, and committing fraud or attempting to
commit fraud which led to the respondents loss of confidence upon complainant Pulido.

In case of complainant Alfante, respondents averred in defense that complainant was

dismissed for "poor performance" after an evaluation by his superior, and after being
forewarned that complainant may be removed if there was no showing of improvement in
his skills and knowledge on current technology.

In both instances, respondents maintained that they did not commit any act of unfair labor
practices; that they did not commit acts tantamount to interfering, restraining, or coercing
employees in the exercise of their right to self-organization.

Respondents deny liabilities as far as complainants monetary claims are concerned.

Concerning violations of the provision on wage distortion under Wage Order No. 9,
respondents stressed that complainants were not affected since their salary is way over the
minimum wage.

Page 49 of 250
With respect to the alleged non-adjustment of longevity pay and burial aid, respondent PJI
pointed out that it complies with the provisions of the CBA and that both complainants
have not claimed for the burial aid.

Respondents put forward the information that the alleged nonpayment of rest days every
Monday for the past three (3) years is a matter that is still at issue in NLRC Case No. 02-
0402973-93, which case is still pending before this Commission.

Respondents asserted that the respondents Arturo Dela Cruz, Bobby Capco, Arnold
Banares, Ruby Ruiz-Bruno and Fundador Soriano should not be held liable on account of
complainants dismissal as they merely acted as agents of respondent PJI. 1

Upon the foregoing backdrop, Labor Arbiter Corazon C. Borbolla rendered her decision on
March 29, 2006, disposing thusly:

WHEREFORE, foregoing premises considered, judgment is hereby rendered, finding

complainant Judith Pulido to have been illegally dismissed. As such, she is entitled to
reinstatement and backwages from 07 August 2003 up to her actual or payroll
reinstatement. To date, complainants backwages is P294,379.54.

Respondent Philippine Journalist, Inc. is hereby ordered to pay complainant Judith Pulido
her backwages from 07 August 2003 up to her actual or payroll reinstatement and to
reinstate her to her former position without loss of seniority right.

Respondent is further ordered to submit a report to this Office on complainants

reinstatement ten (10) days from receipt of this decision.

The charge of illegal dismissal by Michael Alfante is hereby dismissed for lack of merit.

The charge of unfair labor practice is dismissed for lack of basis.

SO ORDERED.2

Complainant Michael Alfante (Alfante), joined by his labor organization, Journal Employees
Union (JEU), filed a partial appeal in the National Labor Relations Commission (NLRC). 3

In the meantime, on May 10, 2006, petitioner and Judith Pulido (Pulido), the other
complainant, jointly manifested to the NLRC that the decision of March 29, 2006 had been
fully satisfied as to Pulido under the following terms, namely: (a) she would be reinstated to
her former position as editorial staffmember, or an equivalent position, without loss of
seniority rights, effective May 15, 2006; (b) she would go on maternity leave, and report to
work after giving birth; (c) she would be entitled to backwages of P130,000.00; and (d) she
would execute the quitclaim and release on May 11, 2006 in favor of petitioner. 4 This left
Alfante as the remaining complainant.

On January 31, 2007, the NLRC rendered its decision dismissing the partial appeal for lack
of merit.

JEU and Alfante moved for the reconsideration of the decision, but the NLRC denied their
motion on April 24, 2007.

Page 50 of 250
Thereafter, JEU and Alfante assailed the decision of the NLRC before the CA on certiorari
(C.A.-G.R. SP No. 99407).

On February 5, 2010, the CA promulgated its decision in C.A.-G.R. SP No.

99407,7 decreeing:

WHEREFORE, premises considered, the instant petition is PARTLY GRANTED.

The twin Resolutions dated January 31, 2007 and April 24, 2007, respectively, of the Third
Division of the National Labor Relations Commission (NLRC), in NLRC NCR CA No. 048785-
06 (NLRC NCR Case No. 00-10-11413-04), are MODIFIED insofar as the funeral or
bereavement aid is concerned, which is hereby GRANTED, but only after submission of
conclusive proofs that the deceased is a parent, either father or mother, of the employees
concerned, as well as the death certificate to establish the fact of death of the deceased legal
dependent.

The rest of the findings of fact and law in the assailed Resolutions are hereby AFFIRMED.

SO ORDERED.

Both parties moved for reconsideration, but the CA denied their respective motions for
reconsideration on June 2, 2010.8

JEU and Alfante appealed to the Court (G.R. No. 192478) to challenge the CAs dispositions
regarding the legality of: (a) Alfantes dismissal; (b) the non-compliance with Minimum Wage
Order No. 9; and (c) the non-payment of the rest day.9

On August 18, 2010, the Court denied due course to the petition in G.R. No. 192478 for
failure of petitioners to sufficiently show that the CA had committed any reversible error to
warrant the Courts exercise of its discretionary appellate jurisdiction.10

The Court denied with finality JEU and Alfantes ensuing motion for reconsideration
through the resolution of December 8, 2010. 11 The entry of judgment in G.R. No. 192478
issued in due course on February 1, 2011.12

On its part, petitioner likewise appealed (G.R. No. 192601), seeking the review of the CAs
disposition in the decision of February 5, 2010 on the granting of the funeral and
bereavement aid stipulated in the CBA.

In its petition for review, petitioner maintained that under Section 4, Article XIII of the CBA,
funeral and bereavement aid should be granted upon the death of a legal dependent of a
regular employee; that consistent with the definition provided by the Social Security System
(SSS), the term legal dependent referred to the spouse and children of a married regular
employee, and to the parents and siblings, 18 years old and below, of a single regular
employee;13 that the CBA considered the term dependents to have the same meaning as
beneficiaries, as provided in Section 5, Article XIII of the CBA on the payment of death
benefits;14 that its earlier granting of claims for funeral and bereavement aid without regard
to the foregoing definition of the legal dependents of married or single regular employees did
not ripen into a company policy whose unilateral withdrawal would constitute a violation of
Article 100 of the Labor Code, 15 the law disallowing the non-diminution of benefits;16 that it
had approved only four claims from 1999 to 2003 based on its mistaken interpretation of

Page 51 of 250
the term legal dependents, but later corrected the same in 2000; 17 that the grant of funeral
and bereavement aid for the death of an employees legal dependent, regardless of the
employees civil status, did not occur over a long period of time, was not consistent and
deliberate, and was partly due to its mistake in appreciating a doubtful question of law; and
that its denial of subsequent claims did not amount to a violation of the law against the
non-diminution of benefits.18

In their comment,19 JEU and Alfante countered that the CBA was a bilateral contractual
agreement that could not be unilaterally changed by any party during its lifetime; and that
the grant of burial benefits had already become a company practice favorable to the
employees, and could not anymore be reduced, diminished, discontinued or eliminated by
petitioner.

Issue

In view of the entry of judgment issued in G.R. No. 192478, JEU and Alfantes submissions
on the illegality of his dismissal, the non-payment of his rest days, and the violation of
Minimum Wage Order No. 9 shall no longer be considered and passed upon.

The sole remaining issue is whether or not petitioners denial of respondents claims for
funeral and bereavement aid granted under Section 4, Article XIII of their CBA constituted a
diminution of benefits in violation of Article 100 of the Labor Code.

Ruling

The petition for review lacks merit.

The nature and force of a CBA are delineated in Honda Phils., Inc. v. Samahan ng Malayang
Manggagawa sa Honda,20 thuswise:

A collective bargaining agreement (or CBA) refers to the negotiated contract between a
legitimate labor organization and the employer concerning wages, hours of work and all
other terms and conditions of employment in a bargaining unit. As in all contracts, the
parties in a CBA may establish such stipulations, clauses, terms and conditions as they
may deem convenient provided these are not contrary to law, morals, good customs, public
order or public policy. Thus, where the CBA is clear and unambiguous, it becomes the law
between the parties and compliance therewith is mandated by the express policy of the law.

Accordingly, the stipulations, clauses, terms and conditions of the CBA, being the law
between the parties, must be complied with by them. The literal meaning of the stipulations
of the CBA, as with every other contract, control if they are clear and leave no doubt upon
the intention of the contracting parties.22

Here, a conflict has arisen regarding the interpretation of the term legal dependent in
connection with the grant of funeral and bereavement aid to a regular employee under
Section 4, Article XIII of the CBA,23 which stipulates as follows:

SECTION 4. Funeral/Bereavement Aid. The COMPANY agrees to grant a

funeral/bereavement aid in the following instances:

a. Death of a regular employee in line of duty P50,000

Page 52 of 250
 b. Death of a regular employee not in line of duty P40,000

c. Death of legal dependent of a regular employee P15,000. (Emphasis supplied)

Petitioner insists that notwithstanding the silence of the CBA, the term legal dependent
should follow the definition of it under Republic Act (R.A.) No. 8282 (Social Security
Law),24 so that in the case of a married regular employee, his or her legal dependents
include only his or her spouse and children, and in the case of a single regular employee,
his or her legal dependents include only his or her parents and siblings, 18 years old and
below; and that the term dependents has the same meaning as beneficiaries as used in
Section 5, Article XIII of the CBA.

We cannot agree with petitioners insistence.

Social legislations contemporaneous with the execution of the CBA have given a meaning to
the term legal dependent. First of all, Section 8(e) of the Social Security Law provides that a
dependent shall be the following, namely: (a) the legal spouse entitled by law to receive
support from the member; (b) the legitimate, legitimated, or legally adopted, and illegitimate
child who is unmarried, not gainfully employed and has not reached 21 of age, or, if over 21
years of age, is congenitally or while still a minor has been permanently incapacitated and
incapable of self-support, physically or mentally; and (c) the parent who is receiving regular
support from the member. Secondly, Section 4(f) of R.A. No. 7875, as amended by R.A. No.
9241,25 enumerates who are the legal dependents, to wit: (a) the legitimate spouse who is
not a member; (b) the unmarried and unemployed legitimate, legitimated, illegitimate,
acknowledged children as appearing in the birth certificate; legally adopted or step-children
below 21 years of age; (c) children who are 21 years old and order but suffering from
congenital disability, either physical or mental, or any disability acquired that renders them
totally dependent on the member of our support; and (d) the parents who are 60 years old
or older whose monthly income is below an amount to be determined by the Philippine
Health Insurance Corporation in accordance with the guiding principles set forth in Article I
of R.A. No. 7875. And, thirdly, Section 2(f) of Presidential Decree No. 1146, as amended by
R.A. No. 8291,dependent for support upon the member or pensioner; (b) the legitimate,
legitimated, legally adopted child, including the illegitimate child, who is unmarried, not
gainfully employed, not over the age of majority, or is over the age of majority but
incapacitated and incapable of self-support due to a mental or physical defect acquired
prior to age of majority; and (c) the parents dependent upon the member for
support.1wphi1

It is clear from these statutory definitions of dependent that the civil status of the employee
as either married or single is not the controlling consideration in order that a person may
qualify as the employees legal dependent. What is rather decidedly controlling is the fact
that the spouse, child, or parent is actually dependent for support upon the employee.
Indeed, the Court has adopted this understanding of the term dependent in Social Security
System v. De Los Santos,27 viz:

Social Security System v. Aguas is instructive in determining the extent of the required
"dependency" under the SS Law. In Aguas, the Court ruled that although a husband and
wife are obliged to support each other, whether one is actually dependent for support upon
the other cannot be presumed from the fact of marriage alone.

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Further, Aguas pointed out that a wife who left her family until her husband died and lived
with other men, was not dependent upon her husband for support, financial or otherwise,
during the entire period.

Said the Court:

In a parallel case involving a claim for benefits under the GSIS law, the Court defined a
dependent as "one who derives his or her main support from another. Meaning, relying on,
or subject to, someone else for support; not able to exist or sustain oneself, or to perform
anything without the will, power, or aid of someone else." It should be noted that the GSIS
law likewise defines a dependent spouse as "the legitimate spouse dependent for support
upon the member or pensioner." In that case, the Court found it obvious that a wife who
abandoned the family for more than 17 years until her husband died, and lived with other
men, was not dependent on her husband for support, financial or otherwise, during that
entire period. Hence, the Court denied her claim for death benefits.

The obvious conclusion then is that a wife who is already separated de facto from her
husband cannot be said to be "dependent for support" upon the husband, absent any
showing to the contrary. Conversely, if it is proved that the husband and wife were still
living together at the time of his death, it would be safe to presume that she was dependent
on the husband for support, unless it is shown that she is capable of providing for herself.

Considering that existing laws always form part of any contract, and are deemed
incorporated in each and every contract,28 the definition of legal dependents under the
aforecited social legislations applies herein in the absence of a contrary or different
definition mutually intended and adopted by the parties in the CBA. Accordingly, the
concurrence of a legitimate spouse does not disqualify a child or a parent of the employee
from being a legal dependent provided substantial evidence is adduced to prove the actual
dependency of the child or parent on the support of the employee.

In this regard, the differentiation among the legal dependents is significant only in the event
the CBA has prescribed a hierarchy among them for the granting of a benefit; hence, the
use of the terms primary beneficiaries and secondary beneficiaries for that purpose. But
considering that Section 4, Article XIII of the CBA has not included that differentiation,
petitioner had no basis to deny the claim for funeral and bereavement aid of Alfante for the
death of his parent whose death and fact of legal dependency on him could be substantially
proved.

Pursuant to Article 100 of the Labor Code, petitioner as the employer could not reduce,
diminish, discontinue or eliminate any benefit and supplement being enjoyed by or granted
to its employees. This prohibition against the diminution of benefits is founded on the
constitutional mandate to protect the rights of workers and to promote their welfare and to
afford labor full protection.29 The application of the prohibition against the diminution of
benefits presupposes that a company practice, policy or tradition favorable to the employees
has been clearly established; and that the payments made by the employer pursuant to the
practice, policy, or tradition have ripened into benefits enjoyed by them. 30 To be considered
as a practice, policy or tradition, however, the giving of the benefits should have been done
over a long period of time, and must be shown to have been consistent and deliberate. 31 It is
relevant to mention that we have not yet settled on the specific minimum number of years
as the length of time sufficient to ripen the practice, policy or tradition into a benefit that
the employer cannot unilaterally withdraw.32

Page 54 of 250
The argument of petitioner that the grant of the funeral and bereavement benefit was not
voluntary but resulted from its mistaken interpretation as to who was considered a legal
dependent of a regular employee deserves scant consideration. To be sure, no doubtful or
difficult question of law was involved inasmuch as the several cogent statutes existing at
the time the CBA was entered into already defined who were qualified as the legal
dependents of another. Moreover, the voluntariness of the grant of the benefit became even
manifest from petitioners admission that, despite the memorandum it issued in 2000 33 in
order to "correct" the interpretation of the term legal dependent, it still approved in 2003 the
claims for funeral and bereavement aid of two employees, namely: (a) Cecille Bulacan, for
the death of her father; and (b) Charito Cartel, for the death of her mother, based on its
supposedly mistaken interpretation.34

It is further worthy to note that petitioner granted claims for funeral and bereavement aid
as early as 1999, then issued a memorandum in 2000 to correct its erroneous
interpretation of legal dependent under Section 4, Article XIII of the CBA. This
notwithstanding, the 2001-2004 CBA35 still contained the same provision granting funeral
or bereavement aid in case of the death of a legal dependent of a regular employee without
differentiating the legal dependents according to the employee's civil status as married or
single. The continuity in the grant of the funeral and bereavement aid to regular employees
for the death of their legal dependents has undoubtedly ripened into a company policy.
With that, the denial of Alfante's qualified claim for such benefit pursuant to Section 4,
Article XIII of the CBA violated the law prohibiting the diminution of benefits.

WHEREFORE, the Court AFFIRMS the decision promulgated on February 5, 201 0; and
ORDERS petitioner to pay the costs of suit.

SO ORDERED.

Page 55 of 250
 G.R. No. 177524, July 23, 2014

NATIONAL UNION OF WORKERS IN HOTEL RESTAURANT AND ALLIED INDUSTRIES

(NUWHRAIN-APL-IUF), PHILIPPINE PLAZA CHAPTER, Petitioner, v. PHILIPPINE PLAZA
HOLDINGS, INC., Respondent.

DECISION

BRION, J.:
We resolve the petition for review on certiorari,1challenging the January 31, 2007
decision2 and the April 20, 2007 resolution 3 of the Court of Appeals (CA) in CA-G.R. SP No.
93698.

This CA decision reversed the July 4, 2005 decision4 of the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 031977-02 (NLRC NCR-30-05-02011-01) that in
turn, reversed and set aside the April 30, 2002 decision 5 of the Labor Arbiter (LA).

The LA dismissed the complaint for non-payment of service charges filed by petitioner
National Union of Workers in Hotel Restaurant and Allied Industries (NUWHRAIN-APL-IUF),
Philippine Plaza Chapter (Union).
The Factual Antecedents

The Union is the collective bargaining agent of the rank-and-file employees of respondent
Philippine Plaza Holdings, Inc. (PPHI).

On November 24, 1998, the PPHI and the Union executed the Third Rank-and-File
Collective Bargaining Agreement as Amended 6 (CBA). The CBA provided, among others, for
the collection, by the PPHI, of a ten percent (10%) service charge on the sale of food,
beverage, transportation, laundry and rooms. The pertinent CBA provisions
read:chanroblesvirtuallawlibrary
SECTION 68. COLLECTION. The HOTEL shall continue to collect ten percent (10%) service
charge on the sale of food, beverage, transportation, laundry and rooms except on
negotiated contracts and special rates. [Emphasis supplied]

SECTION 69. DISTRIBUTION. The service charge to be distributed shall consist of the
following:
Effective Food & Beverage Room, Transportation & valet
1998 95% 100%
1997 95% 100%

The distributable amount will be shared equally by all HOTEL employees, including
managerial employees but excluding expatriates, with three shares to be given to PPHI Staff
and three shares to the UNION (one for the national and two for the local funds) that may
be utilized by them for purposes for which the UNION may decide.

These provisions merely reiterated similar provisions found in the PPHI-Unions earlier
collective bargaining agreement executed on August 29, 1995.7

On February 25, 1999, the Unions Service Charge Committee informed the Union
President, through an audit report (1st audit report),8 of uncollected service charges for the
last quarter of 1998 amounting to ?2,952,467.61. Specifically, the audit report referred to

Page 56 of 250
the service charges from the following items: (1) Journal Vouchers; (2) Banquet Other
Revenue; and (3) Staff and Promo. The Union presented this audit report to the PPHIs
management during the February 26, 1999 Labor Management Cooperation Meeting
(LMCM).9 The PPHIs management responded that the Hotel Financial Controller would
need to verify the audit report.

Through a letter dated June 9, 1999,10 the PPHI admitted liability for P80,063.88 out of the
P2,952,467.61 that the Union claimed as uncollected service charges. The PPHI denied the
rest of the Unions claims because: (1) they were exempted from the service charge being
revenues from special promotions (revenue from the Westin Gold Card sales) or
negotiated contracts (alleged revenue from the Maxi-Media contract); (2) the revenues did
not belong to the PPHI but to third-party suppliers; and (3) no revenue was realized from
these transactions as they were actually expenses incurred for the benefit of executives or
by way of good-will to clients and government officials.

During the July 12, 1999 LMCM, 11 the Union maintained its position on uncollected service
charges so that a deadlock on the issue ensued. The parties agreed to refer the matter to a
third party for the solution. They considered two options voluntary arbitration or court
action and promised to get back to each other on their chosen option.

In its formal reply (to the PPHIs June 9, 1999 letter) dated July 21, 1999 (2nd audit
report),12 the Union modified its claims. It claimed uncollected service charges from:
(1) Journal Vouchers - Westin Gold Revenue and Maxi-Media (F&B and Rooms Barter);
(2) Banquet and Other Revenue; and (3) Staff and Promo.

On August 10, 2000, the Unions Service Charge Committee made another service charge
audit report for the years 1997, 1998 and 1999 (3rd audit report).13 This 3rd audit report
reflected total uncollected service charges of P5,566,007.62 from the following entries: (1)
Journal Vouchers; (2) Guaranteed No Show; (3) Promotions; and (4) F & B
Revenue. The Union President presented the 3rd audit report to the PPHI on August 29,
2000.

When the parties failed to reach an agreement, the Union, on May 3, 2001, filed before the
LA (Regional Arbitration Branch of the NLRC) a complaint 14 for non-payment of specified
service charges. The Union additionally charged the PPHI with unfair labor practice (ULP)
under Article 248 of the Labor Code, i.e., for violation of their collective bargaining
agreement.

In its decision15 dated April 30, 2002, the LA dismissed the Unions complaint for lack of
merit. The LA declared that the Union failed to show, by law, contract and practice, its
entitlement to the payment of service charges from the entries specified in its audit reports
(specified entries/transactions).

The LA pointed out that Section 68 of the CBA explicitly requires, as a precondition for the
distribution of service charges in favor of the covered employees, the collection of the 10%
service charge on the sale of food, beverage, transportation, laundry and rooms; at the
same time, the provision exempts from its coverage negotiated contracts and special
rates that the LA deemed as non-revenue generating transactions involving food,
beverage, transportation, laundry and rooms. The Union failed to prove that the PPHI
collected 10% service charges on the specified entries/transactions that could have
triggered the PPHIs obligation under this provision.

Page 57 of 250
Particularly, the LA pointed out that, first, the only evidence on record that could have
formed the basis of the Unions claim for service charges was the PPHIs admission that, as
a matter of policy, it has been charging, collecting and distributing to the covered employees
10% service charge on the fifty percent (50%) of the total selling price of the Maxi-Media F
& B and on the Average House rate of the Maxi-Media Rooms. And it did so,
notwithstanding the fact that the Maxi-Media F & B and Rooms Barter is a negotiated
contract and/or special rate that Section 68 explicitly excludes from the service charge
coverage.

Second, while the PPHI derived revenues from the sale of the Westin Gold Cards (Westin
Gold Revenue), the PPHI did not and could not have collected a 10% service charge as these
transactions could not be considered as sale of food, beverage, transportation, laundry and
rooms that Section 68 contemplates.

Third, the Staff and Business Promotion and Banquet entry refers to the expenses
incurred by the PPHIs Marketing Department and Department Heads and Hotel executives
either as part of their perks or the PPHIs marketing tool/public relations. These are special
rates that are essentially non-revenue generating items.

Fourth, the Backdrop entry refers to services undertaken by third parties payment for
which were made of course to them; hence, this entry/transaction could not likewise be
considered as sale of services by PPHI for which collection of the 10% service charge was
warranted.

Lastly, the LA equally brushed aside the Unions claim of ULP declaring that the PPHI was
well within its legal and contractual right to refuse payment of service charges for entries
from which it did not collect any service charge pursuant to the provision of their CBA.

The NLRCs ruling

In its decision16 of July 4, 2005, the NLRC reversed the LAs decision and considered the
specified entries/transactions as service chargeable. As the PPHI failed to prove that it
paid or remitted the required service charges, the NLRC held the PPHI liable to pay the
Union P5,566,007.62 representing the claimed uncollected service charges for the years
1997, 1998 and 1999 per the 3rd audit report.

The PHHI went to the CA on a petition for certiorari17 after the NLRC denied its motion for
reconsideration.18
The CAs ruling

The CA granted the PPHIs petition in its January 31, 2007 decision. 19 It affirmed the LAs
decision but ordered the PPHI to pay the Union the amount of P80,063.88 as service
charges that it found was due under the circumstances. The CA declared that no service
charges were due from the specified entries/transactions; either these constituted
negotiated contracts and special rates that Section 68 of the CBA explicitly excludes
from the coverage of service charges, or they were cited bases that the Union failed to
sufficiently prove.

The CA pointed out that: one, the Westin Gold Card Revenues entry involved the sale, not
of food, beverage, transportation, laundry and rooms, but of a contractual right to be

Page 58 of 250
charged a lesser rate for the products and services that the Hotel and the stores within it
provide. At any rate, the PPHI charges, collects and distributes to the covered employees
the CBA-agreed service charges whenever any Westin Gold Card member purchases food,
beverage, etc. Two, the Maxi-Media F & B and Rooms and Barter entry did not involve
any sale transaction that Section 68 contemplates. The CA pointed out that the
arrangement20 between the PPHI and Maxi-Media International, Inc. was not one of sale but
an innominate contract of facio ut des, i.e., in exchange for the professional entertainment
services provided by Maxi-Media, the Hotel agreed to give the former P2,800,000.00 worth
of products and services. The CA added that this agreement falls under negotiated
contracts that Section 68 explicitly exempts. Three, the sale of Gift Certificates does not
involve the CBA-contemplated sale of food, beverage, etc. Four, the Union failed to show
the source of its computations for its Guaranteed No Show and F & B Revenue
claims. Five, the Business Promotions entry likewise did not involve any sale; these were
part of the PPHIs business expenses in the form of either signing benefits for the PPHIs
executives or as marketing tool used by the PPHIs marketing personnel to generate
goodwill. And six, the Unions claims for service charges that the PPHI allegedly collected
prior to May 3, 1998 or three years before the Union filed its complaint on May 3, 2001 had
already prescribed per Article 291 of the Labor Code.

The Union filed the present petition after the CA denied its motion for reconsideration 21 in
the CAs April 20, 2007 resolution.22
The Petition

The Union argues that the CA clearly misapprehended and misappreciated, with grave
abuse of discretion, the facts and evidence on record. It maintains that the specified
entries/transactions are revenue based transactions which, per Section 68 and 69 of the
CBA, clearly called for the collection and distribution of a 10% service charge in favor of the
covered employees.

Particularly, the Union argues that: (1) the Westin Gold Cards serve not only as a discount
card but also as a pre-paid card that provide its purchasing members complimentary
amenities for which the Hotel employees rendered services and should, therefore, had been
subjected to the 10% service charge; (2) the PPHI failed to prove that it had paid and
distributed to the covered employees the service charge due on the actual discounted sales
of food, beverage, etc., generated by the Westin Gold Cards; (3) the Hotel employees
likewise rendered services whenever the Maxi-Media International, Inc. consumed or
availed part of the P2,800,000.00 worth of goods and services pursuant to its agreement
with the PPHI; (4) the Maxi-Media discounts should be charged to the PPHI as part of its
expenses and not the Unions share in the service charges; (5) the PPHI has a separate
budget for promotions, hence the Business Promotions entry should likewise had been
subjected to the 10% service charge; (6) the sale of Gift Certificates, recorded in the PPHIs
Journal Vouchers as other revenue/income, constituted a revenue transaction for
which service charges were due; (7) the PPHI admitted that service charges from
Guaranteed No Show were due; and (8) it properly identified through reference numbers
the uncollected service charges from Food and Beverage Revenue. The Union contends
that in refusing to collect and remit the CBA-mandated service charges that the PPHI
insists were non-revenue transactions falling under Negotiated Contracts and/or Special
Rates, the PPHI, in effect, contravened the employees rights to service charges under the
law and the CBA.

The Union also contends that the term Negotiated Contracts should be applied to airline

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contracts only that they (the Union and the PPHI) intended when they executed the
CBA. It points out that at the time the CBA was executed, the PPHI had an existing
agreement with Northwest Airlines to which the term Negotiated Contracts clearly referred
to.

Further, the Union argues that its claim for unpaid services charges for the year 1997 and
part of 1998 had not yet prescribed. Applying Article 1155 of the Civil Code in relation to
Article 291 of the Labor Code, the Union points out that the running of the prescriptive
period for the filing of its claim was interrupted when it presented to the PPHI its 1st audit
report during the February 26, 1999 LMCM and when the PPHI admitted the service
charges due to the Union in the PPHIs June 9, 1999 letter.

The Union additionally argues that the PPHI failed to conform to the generally accepted
accounting standards when it reclassified the revenue items as expense items.

Finally, the Union contends that the PPHIs refusal, despite repeated demands, to distribute
the unremitted service charges and recognize its right to service charges on the specified
entries; the PPHIs deliberate failure to disclose its financial transactions and audit reports;
and the PPHIs reclassification of the revenues into expense items constitute gross violation
of the CBA that amounts to what the law considers as ULP.
The Case for the Respondent

The PPHI primarily counters, in its comment,23that the Unions call for the Court to
thoroughly re-examine the records violates the Rule 45 proscription against questions of
facts. The PPHI points out that Rule 45 of the Rules of Court under which the petition is
filed requires that only questions of law be raised. In addition, the factual findings of the
LA that had been affirmed by the CA deserve not only respect but even finality.

On the petitions merits, the PPHI argues that the specified entries/transactions for which
the Union claims service charges: (1) were not revenue generating transactions; (2) that did
not involve a sale of food, beverage, rooms, transportation or laundry; and/or (3) were in the
nature of negotiated contracts and special rates that Section 68 of the CBA specifically
excepts from the collection of service charges. Correlatively, Article 96 of the Labor Code
requires the collection of service charges as a condition precedent to its distribution or
payment. Thus, as no service charges were collected on the specified entries/transactions
that the CBA expressly excepts, the Unions claim for unpaid service charges clearly had no
basis.

To be precise, the PPHI points out that, first, the sale per se of the Westin Gold Cards did
not involve a sale of food, beverage, etc. that Section 68 of the CBA contemplates. The
discounted sales of food, beverage, etc. to Westin Gold Card holders, on the other hand, had
already been subjected to service charges inclusive of the discount, i.e., computed on the
gross sales of food, beverage, etc. to the card holders, and which service charges it had
already distributed to the covered employees. Second, its agreement with Maxi-Media
involved an exchange or barter transaction, i.e., its food and Hotel services in exchange for
Maxi-Medias entertainment services that did not generate income. This agreement likewise
falls under Negotiated Contracts that Section 68 clearly excepts. And, in any case, it had
already collected, and distributed to the covered employees, the service charges on the food,
beverage, etc. that Maxi-Media consumed based on the monthly average rate of the rooms
and on the 50% rate of the price of the consumed food and beverage. Third, the Union
failed to prove its claims for uncollected service charges from Guaranteed No Show and

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Business Promotions. Fourth, the Food and Beverage other Revenue entry refers to the
PPHIs transactions with external service providers the payment for whose services could
not be considered as the PPHIs revenue. Fifth, the sale per se of the Gift Certificates also
did not involve the Section 68-contemplated sale of food, beverage, etc. and the Union failed
to prove that the presented Gift Certificates had actually been consumed, i.e., used within
the Hotel premises for food, beverage, etc. And sixth, it had never been its practice to
collect service charges on the specified entries/transactions that could have otherwise
resulted in what the Union considers as partial abolition of service charges when it
refused to collect service charges from them.

The PPHI also disputes what it considers as the Unions strained interpretation of the CBA
exception of Negotiated Contracts as applicable to airline contracts only. It points out
that the clear wordings of Section 68 of the CBA plainly show the intent to except, in a
general and broad sense, Negotiated Contracts and Special Rates as to include the
Westin Gold Cards and Maxi-Media barter agreement. The PPHI additionally argues that
the CBAs exception of Negotiated Contracts and Special Rates from the collection of
service charges does not violate Article 96 of the Labor Code. It points out that Article 96
merely provides for the minimum percentage distribution, between it (the PPHI) as the
employer and the Hotels covered employees, of the collected service charges which their
CBA more than satisfied. It also points out that Article 96 does not prohibit the exception
of certain transactions from the coverage and/or collection of service charges that it (as the
employer) and the Union (in behalf of the covered Hotel employees) had voluntarily and
mutually agreed on in their CBA. And in fact, the Unions refusal to recognize these clear
and express exceptions constituted a violation of their agreement.

Further, the PPHI maintains that the Unions claim for the alleged uncollected service
charges for the year 1997 and the early months of 1998 had already prescribed per Article
291 of the Labor Code.

Finally, the PPHI points out that the issue in this case is not whether service charges had
been paid. Rather, the clear issue is whether or not service charges should have been
collected (and distributed to the covered employees) for the specified entries/transactions
that the LA and the CA correctly addressed and which the NLRC clearly missed as it
rendered a decision without any factual or legal basis.

The Courts Ruling

We find the petition unmeritorious.

Preliminary considerations: jurisdictional

limitations of the Courts Rule 45 review of
the CAs Rule 65 decision in labor cases; the
Montoya ruling and factual-issue-bar-rule

In a petition for review on certiorari under Rule 45 of the Rules of Court, we review the legal
errors that the CA may have committed in the assailed decision, in contrast with the review
for jurisdictional errors that we undertake in an original certiorari action. In reviewing the
legal correctness of the CA decision in a labor case taken under Rule 65 of the Rules of
Court, we examine the CA decision in the context that it determined the presence or the
absence of grave abuse of discretion in the NLRC decision before it and not on the basis of
whether the NLRC decision, on the merits of the case, was correct. In other words, we

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proceed from the premise that the CA undertook a Rule 65 review, not a review on appeal,
of the NLRC decision challenged before it. Within this limited scope of our Rule 45 review,
the question that we ask is: Did the CA correctly determine whether the NLRC committed
grave abuse of discretion in ruling on the case?24

In addition, the Courts jurisdiction in a Rule 45 petition for review on certiorari is limited to
resolving only questions of law. A question of law arises when the doubt or controversy
exists as to what law pertains to a particular set of facts; and a question of fact arises when
the doubt or controversy pertains to the truth or falsity of the alleged facts.25

The present petition essentially raises the question whether the Union may collect from
the PPHI, under the terms of the CBA, its share of the service charges. This is a clear
question of law that falls well within the Courts power in a Rule 45 petition.

Resolution of this question of law, however, is inextricably linked with the largely factual
issue of whether the specified entries/transactions fall within the generally covered sale of
food, beverage, transportation, etc. from which service charges are due or within the CBA
excepted Negotiated Contracts and Special Rates. It also unavoidably requires
resolution of another factual issue, i.e., whether the Unions claim for service charges
collected for the year 1997 and the early months of 1998 had already prescribed. As
questions of fact, they are proscribed by our Rule 45 jurisdiction; we generally cannot
address these factual issues except to the extent necessary to determine whether the CA
correctly found the NLRC in grave abuse of discretion in granting the Unions claim for service
charges from the specified entries/transactions.

The jurisdictional limitations of our Rule 45 review of the CAs Rule 65 decision in labor
cases constrain us to deny the present petition for clear lack of legal error in the CAs
decision. Our consideration of the facts taken within this limited scope of our factual
review power, convinces us that grave abuse of discretion attended the NLRCs decision. At
what point and to what extent the NLRC gravely abused its discretion is the matter we shall
discuss below.

The NLRCs patently erroneous appreciation

of the real issue in the present controversy,
along with the facts and the evidence, amounted
to grave abuse of discretion

In granting the Unions claim, the NLRC simply declared that the PPHI has not shown any
proof that it paid or remitted what is due to the Union and its members and concluded
that the specified entries/transactions were service chargeable. This NLRC conclusion
plainly failed to appreciate that it involved only the alleged uncollected service charges from
the specified entries/transactions. The NLRC likewise, in the course of its ruling, did not
point to any evidence supporting its conclusion.

In deciding as it did, the NLRC patently proceeded from the wrong premise, i.e., that the
PPHI did not at all distribute to the Hotels covered employees their share in the collected
service charges. It likewise erroneously assumed that all the specified entries/transactions
were subject to service charges and that the PPHI collected service charges from them as its
ruling was patently silent on this point. The NLRC also erroneously assumed that each and
every transaction that the PPHI entered into was subject to a service charge.

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What the NLRC clearly and conveniently overlooked was the underlying issue of whether
service charges are due from the specified entries/transactions, i.e., whether the specified
entries/transactions are covered by the CBAs general-rule provisions on the collection of
service charges or whether they are excepted because they fall within the excepted
Negotiated Contracts and Special Rates or simply did not involve a sale of food,
beverage, etc. from which service charges are due. This understanding of this cases real
issue is an indispensable requisite in the proper resolution of the controversy and a task
that the NLRC, as a tribunal exercising quasi-judicial power, must perform with
circumspection and utmost diligence. The patent failure led to its manifestly flawed
conclusions that were belied by the underlying facts. By so doing, the NLRC acted outside
the clear contemplation of the law.26

Accordingly, we affirm the CAs decision to be legally correct as it correctly reversed the
NLRC decision for grave abuse of discretion.

Nature of a CBA; rules in the interpretation of CBA provisions

A collective bargaining agreement, as used in Article 252 (now Article 262) 27 of the Labor
Code, is a contract executed at the request of either the employer or the employees
exclusive bargaining representative with respect to wages, hours of work and all other terms
and conditions of employment, including proposals for adjusting any grievances or
questions under such agreement.28 Jurisprudence settles that a CBA is the law between
the contracting parties who are obliged under the law to comply with its provisions. 29

As a contract and the governing law between the parties, the general rules of statutory
construction apply in the interpretation of its provisions. Thus, if the terms of the CBA are
plain, clear and leave no doubt on the intention of the contracting parties, the literal
meaning of its stipulations, as they appear on the face of the contract, shall prevail. 30 Only
when the words used are ambiguous and doubtful or leading to several interpretations of
the parties agreement that a resort to interpretation and construction is called for. 31

No service charges were due from the specified

entries/transactions; they either fall within the
CBA-excepted Negotiated Contracts and
Special Rates or did not involve a sale
of food, beverage, etc.

The Union anchors its claim for services charges on Sections 68 and 69 of the CBA, in
relation with Article 96 of the Labor Code. Section 68 states that the sale of food, beverage,
transportation, laundry and rooms are subject to service charge at the rate of ten percent
(10%). Excepted from the coverage of the 10% service charge are the so-called negotiated
contracts and special rates.

Following the wordings of Section 68 of the CBA, three requisites must be present for the
provisions on service charges to operate: (1) the transaction from which service charge is
sought to be collected is a sale; (2) the sale transaction covers food, beverage,
transportation, laundry and rooms; and (3) the sale does not result from negotiated
contracts and/or at special rates.

In plain terms, all transactions involving a sale of food, beverage, transportation, laundry
and rooms are generally covered. Excepted from the coverage are, first, non-sale

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transactions or transactions that do not involve any sale even though they involve food,
beverage, etc. Second, transactions that involve a sale but do not involve food, beverage,
etc. And third, transactions involving negotiated contracts and special rates i.e., a sale
of food, beverage, etc. resulting from negotiated contracts or at special rates; non-sale
transactions involving food, beverage, etc. resulting from negotiated contracts and/or
special rates; and sale transactions, but not involving food, beverage, etc., resulting from
negotiated contracts and special rates.

Notably, the CBA does not specifically define the terms negotiated contracts and special
rates. Nonetheless, the CBA likewise does not explicitly limit the use of these terms to
specified transactions. With particular reference to negotiated contracts, the CBA does
not confine its application to airline contracts as argued by the Union. Thus, as correctly
declared by the CA, the term negotiated contracts should be read as applying to all types
of negotiated contracts and not to airlines contracts only. This is in line with the basic
rule of construction that when the terms are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall prevail. A constricted
interpretation of this term, i.e., as applicable to airlines contracts only, must be positively
shown either by the wordings of the CBA or by sufficient evidence of the parties intention to
limit its application. The Union completely failed to provide support for its constricted
reading of the term negotiated contracts, either from the wordings of the CBA or from the
evidence.

In reversing the NLRCs ruling and denying the Unions claim, the CA found the specified
entries/transactions as either falling under the excepted negotiated contracts and/or
special rates or not involving a sale of food, beverage, etc. Specifically, it considered the
entries Westin Gold Cards Revenue and Maxi Media Barter to be negotiated contracts or
contracts under special rates, and the entries Business Promotions and Gift Certificates
as contracts that did not involve a sale of food, beverage, etc. The CA also found no factual
and evidentiary basis to support the Unions claim for service charges on the entries
Guaranteed No show and F & B Revenue.

Our consideration of the records taken under our limited factual review power convinces us
that these specified entries/transactions are indeed not subject to a 10% service charge. We
thus see no reason to disturb the CAs findings on these points.

The PPHI did not violate Article 96 of the

Labor Code when they refused the Unions
claim for service charges on the
specified entries/transactions

Article 96 of the Labor Code provides for the minimum percentage distribution between the
employer and the employees of the collected service charges, and its integration in the
covered employees wages in the event the employer terminates its policy of providing for its
collection. It pertinently reads:
Art. 96. Service Charges.

x x x In case the service charge is abolished, the share of the covered employees shall be
considered integrated in their wages.

This last paragraph of Article 96 of the Labor Code presumes the practice of collecting
service charges and the employers termination of this practice. When this happens, Article

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96 requires the employer to incorporate the amount that the employees had been receiving
as share of the collected service charges into their wages. In cases where no service charges
had previously been collected (as where the employer never had any policy providing for
collection of service charges or had never imposed the collection of service charges on
certain specified transactions), Article 96 will not operate.

In this case, the CA found that the PPHI had not in fact been collecting services charges on
the specified entries/transactions that we pointed out as either falling under negotiated
contracts and/or special rates or did not involve a sale of food, beverage,
etc. Accordingly, Article 96 of the Labor Code finds no application in this case; the PPHI
did not abolish or terminate the implementation of any company policy providing for the
collection of service charges on specified entries/transactions that could have otherwise
rendered it liable to pay an amount representing the covered employees share in the alleged
abolished service charges.

The Unions claim for service charges for the year

1997 and the early months of 1998 could not have
yet prescribed at the time it filed its complaint on
May 3, 2001; Article 1155 of the Civil Code applies
suppletorily to Article 291 of the Labor Code

Article 291 (now Article 305)32 of the Labor Code states that all money claims arising from
employer-employee relations x x x shall be filed within three (3) years from the time the
cause of action accrued; otherwise, they shall forever be barred. [Emphasis supplied]

Like other causes of action, the prescriptive period for money claims under Article 291 of
the Labor Code is subject to interruption. And, in the absence of an equivalent Labor Code
provision for determining whether Article 291s three-year prescriptive period may be
interrupted, Article 1155 of the Civil Code 33 may be applied. Thus, the period of
prescription of money claims under Article 291 is interrupted by: (1) the filing of an action;
(2) a written extrajudicial demand by the creditor; and (3) a written acknowledgment of the
debt by the debtor.

In the present petition, the facts indisputably showed that as early as 1998, the Union
demanded, via the 1st audit report, from the PPHI the payment and/or distribution of the
alleged uncollected service charges for the year 1997. From thereon, the parties went
through negotiations (LCMC) to settle and reconcile on their respective positions and
claims.

Under these facts the Unions written extrajudicial demand through its 1st audit report
and the successive negotiation meetings between the Union and the PPHI the running of
the three-year prescriptive period under Article 291 of the Labor Code could have effectively
been interrupted. Consequently, the Unions claims for the alleged uncollected service
charges for the year 1997 could not have yet prescribed at the time it filed its complaint on
May 3, 2001.

This non-barring effect of prescription, notwithstanding (i.e., that the running of the three-
year prescriptive period had effectively been interrupted by the Unions written
extrajudicial demand on the PPHI), the CA, as it affirmed the LA, still correctly denied the
Unions claims for the alleged uncollected and/or undistributed service charges on the
specified entries/transactions for the year 1997 and the early part of 1998. As the CA

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found and discussed in its decision, and with which we agree as amply supported by
factual and legal bases, the nature of these specified entries/transactions as either
excepted from the collection of service charges or not constituting a sale of food, beverage,
etc., and the Unions failure to support its claims by sufficient evidence warranted, without
doubt, the denial of the Unions action.

In sum, we find the CAs denial of the Unions claim for service charges from the specified
entries/transactions legally correct and to be well supported by the facts and the law. The
CA correctly reversed for grave abuse of discretion the NLRCs decision.

WHEREFORE, in light of these considerations, we hereby DENY the

petition. We AFFIRM the decision dated January 31, 2007 and resolution dated April 20,
2007 of the Court of Appeals in CA-G.R. Sp No. 93698.

SO ORDERED.

Page 66 of 250
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 175773 June 17, 2013

MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION

(MMPSEU), Petitioner,
vs.
MITSUBISHI MOTORS PHILIPPINES CORPORATION, Respondent.

DECISION

DEL CASTILLO, J.:

The Collective Bargaining Agreement (CBA) of the parties in this case provides that the
company shoulder the hospitalization expenses of the dependents of covered employees
subject to certain limitations and restrictions. Accordingly, covered employees pay part of
the hospitalization insurance premium through monthly salary deduction while the
company, upon hospitalization of the covered employees' dependents, shall pay the
hospitalization expenses incurred for the same. The conflict arose when a portion of the
hospitalization expenses of the covered employees' dependents were paid/shouldered by the
dependent's own health insurance. While the company refused to pay the portion of the
hospital expenses already shouldered by the dependents' own health insurance, the union
insists that the covered employees are entitled to the whole and undiminished amount of
said hospital expenses.

By this Petition for Review on Certiorari,1 petitioner Mitsubishi Motors Philippines Salaried
Employees Union (MMPSEU) assails the March 31, 2006 Decision 2 and December 5, 2006
Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 75630, which reversed and set
aside the Voluntary Arbitrators December 3, 2002 Decision4 and declared respondent
Mitsubishi Motors Philippines Corporation (MMPC) to be under no legal obligation to pay its
covered employees dependents hospitalization expenses which were already shouldered by
other health insurance companies.

Factual Antecedents

The parties CBA5 covering the period August 1, 1996 to July 31, 1999 provides for the
hospitalization insurance benefits for the covered dependents, thus:

SECTION 4. DEPENDENTS GROUP HOSPITALIZATION INSURANCE The COMPANY shall

obtain group hospitalization insurance coverage or assume under a self-insurance basis
hospitalization for the dependents of regular employees up to a maximum amount of forty
thousand pesos (P40,000.00) per confinement subject to the following:

a. The room and board must not exceed three hundred pesos (P300.00) per day up
to a maximum of thirty-one (31) days. Similarly, Doctors Call fees must not exceed
three hundred pesos (P300.00) per day for a maximum of thirty-one (31) days. Any
excess of this amount shall be borne by the employee.

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 b. Confinement must be in a hospital designated by the COMPANY. For this
purpose, the COMPANY shall designate hospitals in different convenient places to be
availed of by the dependents of employees. In cases of emergency where the
dependent is confined without the recommendation of the company doctor or in a
hospital not designated by the COMPANY, the COMPANY shall look into the
circumstances of such confinement and arrange for the payment of the amount to
the extent of the hospitalization benefit.

c. The limitations and restrictions listed in Annex "B" must be observed.

d. Payment shall be direct to the hospital and doctor and must be covered by actual
billings.

Each employee shall pay one hundred pesos (P100.00) per month through salary deduction
as his share in the payment of the insurance premium for the above coverage with the
balance of the premium to be paid by the COMPANY. If the COMPANY is self-insured the
one hundred pesos (P100.00) per employee monthly contribution shall be given to the
COMPANY which shall shoulder the expenses subject to the above level of benefits and
subject to the same limitations and restrictions provided for in Annex "B" hereof.

The hospitalization expenses must be covered by actual hospital and doctors bills and any
amount in excess of the above mentioned level of benefits will be for the account of the
employee.

For purposes of this provision, eligible dependents are the covered employees natural
parents, legal spouse and legitimate or legally adopted or step children who are unmarried,
unemployed who have not attained twenty-one (21) years of age and wholly dependent upon
the employee for support.

This provision applies only in cases of actual confinement in the hospital for at least six (6)
hours.

Maternity cases are not covered by this section but will be under the next succeeding
section on maternity benefits.6

When the CBA expired on July 31, 1999, the parties executed another CBA 7 effective
August 1, 1999 to July 31, 2002 incorporating the same provisions on dependents
hospitalization insurance benefits but in the increased amount of P50,000.00. The room
and board expenses, as well as the doctors call fees, were also increased to P375.00.

On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida),

Hermie Juan Oabel (Oabel) and Jocelyn Martin (Martin), filed claims for reimbursement of
hospitalization expenses of their dependents.

MMPC paid only a portion of their hospitalization insurance claims, not the full amount. In
the case of Calida, his wife, Lanie, was confined at Sto. Tomas University Hospital from
September 4 to 9, 1998 due to Thyroidectomy. The medical expenses incurred
totalled P29,967.10. Of this amount, P9,000.00 representing professional fees was paid by
MEDICard Philippines, Inc. (MEDICard) which provides health maintenance to
Lanie.8 MMPC only paid P12,148.63.9 It did not pay the P9,000.00 already paid by
MEDICard and the P6,278.47 not covered by official receipts. It refused to give to Calida the

Page 68 of 250
difference between the amount of medical expenses of P27,427.1010 which he claimed to be
entitled to under the CBA and the P12,148.63 which MMPC directly paid to the hospital.

In the case of Martin, his father, Jose, was admitted at The Medical City from March 26 to
27, 2000 due to Acid Peptic Disease and incurred medical expenses amounting
to P9,101.30.14 MEDICard paid P8,496.00.15Consequently, MMPC only paid P288.40,16 after
deducting from the total medical expenses the amount paid by MEDICard and the P316.90
discount given by the hospital.

Claiming that under the CBA, they are entitled to hospital benefits amounting
to P27,427.10, P6,769.35 and P8,123.80, respectively, which should not be reduced by the
amounts paid by MEDICard and by Prosper, Calida, Oabel and Martin asked for
reimbursement from MMPC. However, MMPC denied the claims contending that double
insurance would result if the said employees would receive from the company the full
amount of hospitalization expenses despite having already received payment of portions
thereof from other health insurance providers.

This prompted the MMPSEU President to write the MMPC President 17 demanding full
payment of the hospitalization benefits. Alleging discrimination against MMPSEU union
members, she pointed out that full reimbursement was given in a similar claim filed by
Luisito Cruz (Cruz), a member of the Hourly Union. In a letter-reply,18 MMPC, through its
Vice-President for Industrial Relations Division, clarified that the claims of the said
MMPSEU members have already been paid on the basis of official receipts submitted. It also
denied the charge of discrimination and explained that the case of Cruz involved an entirely
different matter since it concerned the admissibility of certified true copies of documents for
reimbursement purposes, which case had been settled through voluntary arbitration.

On August 28, 2000, MMPSEU referred the dispute to the National Conciliation and
Mediation Board and requested for preventive mediation. 19

Proceedings before the Voluntary Arbitrator

On October 3, 2000, the case was referred to Voluntary Arbitrator Rolando Capocyan for
resolution of the issue involving the interpretation of the subject CBA provision.20

MMPSEU alleged that there is nothing in the CBA which prohibits an employee from
obtaining other insurance or declares that medical expenses can be reimbursed only upon
presentation of original official receipts. It stressed that the hospitalization benefits should
be computed based on the formula indicated in the CBA without deducting the benefits
derived from other insurance providers. Besides, if reduction is permitted, MMPC would be
unjustly benefited from the monthly premium contributed by the employees through salary
deduction. MMPSEU added that its members had legitimate claims under the CBA and that
any doubt as to any of its provisions should be resolved in favor of its members. Moreover,
any ambiguity should be resolved in favor of labor. 21

On the other hand, MMPC argued that the reimbursement of the entire amounts being
claimed by the covered employees, including those already paid by other insurance
companies, would constitute double indemnity or double insurance, which is circumscribed
under the Insurance Code. Moreover, a contract of insurance is a contract of indemnity and
the employees cannot be allowed to profit from their dependents loss. 22

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Meanwhile, the parties separately sought for a legal opinion from the Insurance
Commission relative to the issue at hand. In its letter 23 to the Insurance Commission,
MMPC requested for confirmation of its position that the covered employees cannot claim
insurance benefits for a loss that had already been covered or paid by another insurance
company. However, the Office of the Insurance Commission opted not to render an opinion
on the matter as the same may become the subject of a formal complaint before it. 24 On the
other hand, when queried by MMPSEU,25 the Insurance Commission, through Atty. Richard
David C. Funk II (Atty. Funk) of the Claims Adjudication Division, rendered an opinion
contained in a letter,26 viz:

Ms. Cecilia L. ParasPresident

Mitsubishi Motors Phils.

[Salaried] Employees Union

Ortigas Avenue Extension,
Cainta, Rizal

Madam:

We acknowledge receipt of your letter which, to our impression, basically poses the question
of whether or not recovery of medical expenses from a Health Maintenance Organization
bars recovery of the same reimbursable amount of medical expenses under a contract of
health or medical insurance.

We wish to opine that in cases of claims for reimbursement of medical expenses where
there are two contracts providing benefits to that effect, recovery may be had on both
simultaneously. In the absence of an Other Insurance provision in these coverages, the
courts have uniformly held that an insured is entitled to receive the insurance benefits
without regard to the amount of total benefits provided by other insurance. (INSURANCE
LAW, A Guide to Fundamental Principles, Legal Doctrines, and Commercial Practices;
Robert E. Keeton, Alau I. Widiss, p. 261). The result is consistent with the public policy
underlying the collateral source rule that is, x x x the courts have usually concluded that
the liability of a health or accident insurer is not reduced by other possible sources of
indemnification or compensation. (ibid).

Very truly yours,

RICHARD DAVID C. FUNK II

Officer-in-Charge
Claims Adjudication Division

(SGD.)
Attorney IV

On December 3, 2002, the Voluntary Arbitrator rendered a Decision 27 finding MMPC liable
to pay or reimburse the amount of hospitalization expenses already paid by other health
insurance companies. The Voluntary Arbitrator held that the employees may demand
simultaneous payment from both the CBA and their dependents separate health insurance
without resulting to double insurance, since separate premiums were paid for each
contract. He also noted that the CBA does not prohibit reimbursement in case there are
other health insurers.

Page 70 of 250
Proceedings before the Court of Appeals

MMPC filed a Petition for Review with Prayer for the Issuance of a Temporary Restraining
Order and/or Writ of Preliminary Injunction28 before the CA. It claimed that the Voluntary
Arbitrator committed grave abuse of discretion in not finding that recovery under both
insurance policies constitutes double insurance as both had the same subject matter,
interest insured and risk or peril insured against; in relying solely on the unauthorized legal
opinion of Atty. Funk; and in not finding that the employees will be benefited twice for the
same loss. In its Comment,29 MMPSEU countered that MMPC will unjustly enrich itself and
profit from the monthly premiums paid if full reimbursement is not made.

On March 31, 2006, the CA found merit in MMPCs Petition. It ruled that despite the lack of
a provision which bars recovery in case of payment by other insurers, the wordings of the
subject provision of the CBA showed that the parties intended to make MMPC liable only for
expenses actually incurred by an employees qualified dependent. In particular, the
provision stipulates that payment should be made directly to the hospital and that the
claim should be supported by actual hospital and doctors bills. These mean that the
employees shall only be paid amounts not covered by other health insurance and is more in
keeping with the principle of indemnity in insurance contracts. Besides, a contrary
interpretation would "allow unscrupulous employees to unduly profit from the x x x
benefits" and shall "open the floodgates to questionable claims x x x." 30

The dispositive portion of the CA Decision 31 reads:

WHEREFORE, the instant petition is GRANTED. The decision of the voluntary arbitrator
dated December 3, 2002 is REVERSED and SET ASIDE and judgment is rendered declaring
that under Art. XI, Sec. 4 of the Collective Bargaining Agreement between petitioner and
respondent effective August 1, 1999 to July 31, 2002, the formers obligation to reimburse
the Union members for the hospitalization expenses incurred by their dependents is
exclusive of those paid by the Union members to the hospital.

SO ORDERED.32

In its Motion for Reconsideration, 33 MMPSEU pointed out that the alleged oppression that
may be committed by abusive employees is a mere possibility whereas the resulting losses
to the employees are real. MMPSEU cited Samsel v. Allstate Insurance Co., 34 wherein the
Arizona Supreme Court explicitly ruled that an insured may recover from separate health
insurance providers, regardless of whether one of them has already paid the medical
expenses incurred. On the other hand, MMPC argued in its Comment35 that the cited
foreign case involves a different set of facts.

The CA, in its Resolution36 dated December 5, 2006, denied MMPSEUs motion.

Hence, this Petition.

Issues

MMPSEU presented the following grounds in support of its Petition:

A.

Page 71 of 250
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE DECISION
DATED 03 [DECEMBER] 2002 OF THE VOLUNTARY ARBITRATOR BELOW WHEN THE
SAME WAS SUPPORTED BY SUBSTANTIAL EVIDENCE, INCLUDING THE OPINION OF THE
INSURANCE COMMISSION THAT RECOVERY FROM BOTH THE CBA AND SEPARATE
HEALTH CARDS IS NOT PROHIBITED IN THE ABSENCE OF ANY SPECIFIC PROVISION IN
THE CBA.

B.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN OVERTURNING THE

DECISION OF THE VOLUNTARY ARBITRATOR WITHOUT EVEN GIVING ANY LEGAL OR
JUSTIFIABLE BASIS FOR SUCH REVERSAL.

C.

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN REFUSING TO CONSIDER OR

EVEN MENTION ANYTHING ABOUT THE AMERICAN AUTHORITIES CITED IN THE
RECORDS THAT DO NOT PROHIBIT, BUT IN FACT ALLOW, RECOVERY FROM TWO
SEPARATE HEALTH PLANS.

D.

THE COURT OF APPEALS GRAVELY ERRED IN GIVING MORE IMPORTANCE TO A

POSSIBLE, HENCE MERELY SPECULATIVE, ABUSE BY EMPLOYEES OF THE BENEFITS
IF DOUBLE RECOVERY WERE ALLOWED INSTEAD OF THE REAL INJURY TO THE
EMPLOYEES WHO ARE PAYING FOR THE CBA HOSPITALIZATION BENEFITS THROUGH
MONTHLY SALARY DEDUCTIONS BUT WHO MAY NOT BE ABLE TO AVAIL OF THE SAME
IF THEY OR THEIR DEPENDENTS HAVE OTHER HEALTH INSURANCE. 37

MMPSEU avers that the Decision of the Voluntary Arbitrator deserves utmost respect and
finality because it is supported by substantial evidence and is in accordance with the
opinion rendered by the Insurance Commission, an agency equipped with vast knowledge
concerning insurance contracts. It maintains that under the CBA, member-employees are
entitled to full reimbursement of medical expenses incurred by their dependents regardless
of any amounts paid by the latters health insurance provider. Otherwise, non-recovery will
constitute unjust enrichment on the part of MMPC. It avers that recovery from both the
CBA and other insurance companies is allowed under their CBA and not prohibited by law
nor by jurisprudence.

Our Ruling

The Petition has no merit.

Atty. Funk erred in applying the

collateral source rule.

The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that the employees
may recover benefits from different insurance providers without regard to the amount of
benefits paid by each. According to him, this view is consistent with the theory of the
collateral source rule.

Page 72 of 250
As part of American personal injury law, the collateral source rule was originally applied to
tort cases wherein the defendant is prevented from benefiting from the plaintiffs receipt of
money from other sources.38 Under this rule, if an injured person receives compensation for
his injuries from a source wholly independent of the tortfeasor, the payment should not be
deducted from the damages which he would otherwise collect from the tortfeasor.39 In a
recent Decision40 by the Illinois Supreme Court, the rule has been described as "an
established exception to the general rule that damages in negligence actions must be
compensatory." The Court went on to explain that although the rule appears to allow a
double recovery, the collateral source will have a lien or subrogation right to prevent such a
double recovery.41 In Mitchell v. Haldar,42 the collateral source rule was rationalized by the
Supreme Court of Delaware:

The collateral source rule is predicated on the theory that a tortfeasor has no interest in,
and therefore no right to benefit from monies received by the injured person from sources
unconnected with the defendant. According to the collateral source rule, a tortfeasor has
no right to any mitigation of damages because of payments or compensation received by the
injured person from an independent source. The rationale for the collateral source rule is
based upon the quasi-punitive nature of tort law liability. It has been explained as follows:

The collateral source rule is designed to strike a balance between two competing principles
of tort law: (1) a plaintiff is entitled to compensation sufficient to make him whole, but no
more; and (2) a defendant is liable for all damages that proximately result from his wrong. A
plaintiff who receives a double recovery for a single tort enjoys a windfall; a defendant who
escapes, in whole or in part, liability for his wrong enjoys a windfall. Because the law must
sanction one windfall and deny the other, it favors the victim of the wrong rather than the
wrongdoer.

Thus, the tortfeasor is required to bear the cost for the full value of his or her negligent
conduct even if it results in a windfall for the innocent plaintiff. (Citations omitted)

As seen, the collateral source rule applies in order to place the responsibility for losses on
the party causing them.43 Its application is justified so that "'the wrongdoer should not
benefit from the expenditures made by the injured party or take advantage of contracts or
other relations that may exist between the injured party and third persons." 44 Thus, it finds
no application to cases involving no-fault insurances under which the insured is
indemnified for losses by insurance companies, regardless of who was at fault in the
incident generating the losses.45 Here, it is clear that MMPC is a no-fault insurer. Hence, it
cannot be obliged to pay the hospitalization expenses of the dependents of its employees
which had already been paid by separate health insurance providers of said dependents.

The Voluntary Arbitrator therefore erred in adopting Atty. Funks view that the covered
employees are entitled to full payment of the hospital expenses incurred by their
dependents, including the amounts already paid by other health insurance companies
based on the theory of collateral source rule.

The conditions set forth in the CBA provision indicate an intention to limit MMPCs liability
only to actual expenses incurred by the employees dependents, that is, excluding the
amounts paid by dependents other health insurance providers.

The Voluntary Arbitrator ruled that the CBA has no express provision barring claims for
hospitalization expenses already paid by other insurers. Hence, the covered employees can

Page 73 of 250
recover from both. The CA did not agree, saying that the conditions set forth in the CBA
implied an intention of the parties to limit MMPCs liability only to the extent of the
expenses actually incurred by their dependents which excludes the amounts shouldered by
other health insurance companies.

We agree with the CA. The condition that payment should be direct to the hospital and
doctor implies that MMPC is only liable to pay medical expenses actually shouldered by the
employees dependents. It follows that MMPCs liability is limited, that is, it does not include
the amounts paid by other health insurance providers. This condition is obviously intended
to thwart not only fraudulent claims but also double claims for the same loss of the
dependents of covered employees.

It is well to note at this point that the CBA constitutes a contract between the parties and
as such, it should be strictly construed for the purpose of limiting the amount of the
employers liability.46 The terms of the subject provision are clear and provide no room for
any other interpretation. As there is no ambiguity, the terms must be taken in their plain,
ordinary and popular sense.47 Consequently, MMPSEU cannot rely on the rule that a
contract of insurance is to be liberally construed in favor of the insured. Neither can it rely
on the theory that any doubt must be resolved in favor of labor.

Samsel v. Allstate Insurance Co. is not

on all fours with the case at bar.

MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the Supreme Court of
Arizona allowed the insured to enjoy medical benefits under an automobile policy insurance
despite being able to also recover from a separate health insurer. In that case, the Allstate
automobile policy does not contain any clause restricting medical payment coverage to
expenses actually paid by the insured nor does it specifically provide for reduction of
medical payments benefits by a coordination of benefits.48 However, in the case before us,
the dependents group hospitalization insurance provision in the CBA specifically contains a
condition which limits MMPCs liability only up to the extent of the expenses that should be
paid by the covered employees dependent to the hospital and doctor. This is evident from
the portion which states that "payment by MMPC shall be direct to the hospital and
doctor."49 In contrast, the Allstate automobile policy expressly gives Allstate the authority to
pay directly to the insured person or on the latters behalf all reasonable expenses actually
incurred. Therefore, reliance on Samsel is unavailing because the facts therein are different
and not decisive of the issues in the present case.

To allow reimbursement of amounts paid

under other insurance policies shall
constitute double recovery which is not
sanctioned by law.

MMPSEU insists that MMPC is also liable for the amounts covered under other insurance
policies; otherwise, MMPC will unjustly profit from the premiums the employees contribute
through monthly salary deductions.

This contention is unmeritorious.

Page 74 of 250
To constitute unjust enrichment, it must be shown that a party was unjustly enriched in
the sense that the term unjustly could mean illegally or unlawfully. 50 A claim for unjust
enrichment fails when the person who will benefit has a valid claim to such benefit. 51

The CBA has provided for MMPCs limited liability which extends only up to the amount to
be paid to the hospital and doctor by the employees dependents, excluding those paid by
other insurers. Consequently, the covered employees will not receive more than what is due
them; neither is MMPC under any obligation to give more than what is due under the CBA.

Moreover, since the subject CBA provision is an insurance contract, the rights and
obligations of the parties must be determined in accordance with the general principles of
insurance law.52 Being in the nature of a non-life insurance contract and essentially a
contract of indemnity, the CBA provision obligates MMPC to indemnify the covered
employees medical expenses incurred by their dependents but only up to the extent of the
expenses actually incurred.53 This is consistent with the principle of indemnity which
proscribes the insured from recovering greater than the loss. 54 Indeed, to profit from a loss
will lead to unjust enrichment and therefore should not be countenanced. As aptly ruled by
the CA, to grant the claims of MMPSEU will permit possible abuse by employees.

WHEREFORE, the Petition is DENIED. The Decision dated March 31, 2006 and Resolution
dated December 5, 2006 of the Court of Appeals in CA-G.R. SP No. 75630, are AFFIRMED.

SO ORDERED.

Page 75 of 250
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 191281 December 5, 2012

BEST WEAR GARMENTS and/or WARREN PARDILLA, Petitioners,

vs.
ADELAIDA B. DE LEMOS and CECILE M. OCUBILLO, Respondents.

DECISION

VILLARAMA, J.:

This is a petition for review on certiorari under Rule 45 assailing the Decision 1 dated
February 24, 2009 and Resolution 2 dated February 10, 2010 of the Court of Appeals (CA) in
CA-G.R. SP No. 102002. TheCA reversed the Decision 3 dated August 28, 2007 of the
National Labor Relations Commission (NLRC) and reinstated the September 5, 2005
Decision 4 of the Labor Arbiter.

Petitioner Best Wear Garments is a sole proprietorship represented by its General Manager
Alex Sitosta. Respondents Cecile M. Ocubillo and Adelaida B. De Lemos were hired as
sewers on piece-rate basis by petitioners on October 27, 1993 andJuly 12, 1994,
respectively.

On May 20, 2004, De Lemos filed a complaint 5 for illegal dismissal with prayer for
backwages and other accrued benefits, separation pay, service incentive leave pay and
attorneys fees. A similar complaint6 was filed by Ocubillo on June 10, 2004. Both alleged in
their position paper that in August 2003, Sitosta arbitrarily transferred them to other areas
of operation of petitioners garments company, which they said amounted to constructive
dismissal as it resulted in less earnings for them.

De Lemos claimed that after two months in her new assignment, she was able to adjust but
Sitosta again transferred her to a "different operation where she could not earn [as] much
as before because by-products require long period of time to finish." She averred that the
reason for her transfer was her refusal "to render [overtime work] up to 7:00 p.m." Her
request to be returned to her previous assignment was rejected and she was "constrained
not to report for work as Sitosta had become indifferent to her since said transfer of
operation." She further alleged that her last salary was withheld by petitioner company. 7

On her part, Ocubillo alleged that her transfer was precipitated by her having "incurred
excessive absences since 2001." Her absences were due to the fact that her father became
very sick since 2001 until his untimely demise on November 9, 2003; aside from this, she
herself became very sickly. She claimed that from September to October 2003, Sitosta
assigned her to different machines "whichever is available" and that "there were times, she
could not earn for a day because there was no available machine to work for [sic]." Sitosta
also allegedly required her to render overtime work up to 7:00 p.m. which she refused
"because she was only paid up to 6:25 p.m." 8

Page 76 of 250
Petitioners denied having terminated the employment of respondents who supposedly
committed numerous absences without leave (AWOL). They claimed that sometime in
February 2004, De Lemos informed Sitosta that due to personal problem, she intends to
resign from the company. She then demanded the payment of separation pay. In March
2004, Ocubillo likewise intimated her intention to resign and demanded separation pay.
Sitosta explained to both De Lemos and Ocubillo that the company had no existing policy
on granting separation pay, and hence he could not act on their request. De Lemos never
reported back to work since March 2004, while Ocubillo failed to report for work from
October 2004 to the present.

As to the allegation of respondents that the reason for their transfer was their refusal to
render overtime work until 7:00 p.m., petitioners asserted that respondents are piece-rate
workers and hence they are not paid according to the number of hours worked.

On September 5, 2005, Labor Arbiter Arden S. Anni rendered a Decision granting

respondents claims, as follows:

WHEREFORE, ALL THE FOREGOING CONSIDERED, judgment is rendered, as follows:

1. Declaring that complainants were constructively, nay, illegally dismissed from

employment;

2. Ordering respondents to pay each of the complainants SEPARATION PAY

equivalent to one-month salary for every year of service, a fraction of at least six (6)
months being considered as one (1) whole year;

3. Ordering respondents to pay each of the complainants BACKWAGES computed

from the time of their dismissal up to the finality of this decision.

For this purpose, both parties are directed to submit their respective computations of the
total amount awarded for approval by this office.

All other claims are dismissed for lack of merit.

SO ORDERED.9

Labor Arbiter Anni ruled that since respondents neither resigned nor abandoned their jobs,
the ambiguities in the circumstances surrounding their dismissal are resolved in favor of
the workers. It was emphasized that respondents could no longer be deemed terminated for
reason of AWOL because this prerogative should have been exercised before the dismissals
have been effected. Moreover, it would have been illogical for respondents to resign and
then file a complaint for illegal dismissal.

Petitioners appealed to the NLRC which reversed the Labor Arbiters decision and dismissed
respondents complaints. The NLRC found no basis for the charge of constructive dismissal,
thus:

Complainants alleged demotion is vague. They simply allege that by reason of their transfer
in August 2003, they did not earn as much as they earned in their previous
assignments. They failed to state how much they earned before and after their transfer, if
only to determine whether or not there was indeed a diminution in their earnings. Further,

Page 77 of 250
it is to be stressed that complainants were paid on a piece rate basis, which simply means
that the more output, they produced the more earnings they will have. In other words, the
earning is dependent upon complainants.

We find more credible respondents assertion that complainants transfer was a valid
exercise of management prerogative. Respondent company points out that it is engaged
in the business of garments manufacturing as a sub-contractor. That, the kind of work it
performs is dependent into with its client which specifies the work it has to perform.
And, that corollary thereto, the work to be performed by its employees will depend on
the work specifications in the contract. Thus, if complainants have been assigned to
different operations, it was pursuant to the requirements of its contracts. x x x.

In furtherance of their defense that complainants were not dismissed, either actual or
constructive in August 2003, respondents allege that complainants continued to report for
work until February 2004 for complainant De Lemos and August 2004 for complainant
Ocubillo. We lend credence to this allegation of respondents because it remains unrebutted
by complainants.

It is to be noted that it was only [on] May 20, 2004 and June 10, 2004 that the instant
consolidated cases were filed by complainant De Lemos and Ocubillo, respectively. It may
not be amiss to state that the date of filing jibe with respondents allegation that sometime
in February and March 2004, complainants intimated their intention to resign and
demanded for payment of separation pay but was not favorably acted upon by
management.

Be that as it may, considering that complainants were not dismissed by respondents, they
should be ordered to report back to work without backwages and for the respondents to
accept them.

WHEREFORE, premises considered, the Decision dated September 5, 2005 is hereby SET
ASIDE and a new one entered dismissing complainants charge of illegal dismissal for lack
of merit. However, there being no dismissal, complainants Adelaida B. De Lemos and Cecile
M. Ocubillo are hereby directed to report back to work without backwages within ten (10)
days from receipt of this Resolution and for the respondent Company to accept them under
the same terms and conditions at the time of their employment.

SO ORDERED.10 (Italics in the original; emphasis supplied)

Respondents filed a motion for reconsideration which the NLRC denied. Thus, they elevated
the case to the CA alleging grave abuse of discretion on the part of the NLRC.

By Decision dated February 24, 2009, the CA granted the petition for certiorari, reversed
the ruling of the NLRC and reinstated the Labor Arbiters decision with modification that
the service incentive leave pay shall be excluded in the computation of the monetary award.
The CA found no valid and legitimate business reason for the transfer order which entailed
the reduction of respondents earnings. Because respondents plea to be returned to their
former posts was not heeded by petitioners, no other conclusion "is discernible from the
attendant circumstances except the fact that [respondents] transfer was unreasonable,
inconvenient and prejudicial to them which [is] tantamount to a constructive
dismissal."11 Moreover, the unauthorized absences of respondents did not warrant a finding
of abandonment in view of the length of their service with petitioner company and the

Page 78 of 250
difficulty in finding similar employment. The CA further invoked the rule that an employee
who forthwith takes steps to protest his layoff cannot by any logic be said to have
abandoned his work.

Petitioners filed a motion for partial reconsideration which was denied by the CA.

Hence, this petition alleging that the CA has glaringly overlooked and clearly erred in its
findings of fact and in applying the law on constructive dismissal.

At the outset, it must bestated that the main issue in this case involves a question of fact. It
is an established rule that the jurisdiction of the Supreme Court in cases brought before it
from the CA via Rule 45 of the 1997 Rules of Civil Procedure is generally limited to
reviewing errors of law. This Court is not a trier of facts. In the exercise of its power of
review, the findings of fact of the CA are conclusive and binding and consequently, it is not
our function to analyze or weigh evidence all over again. 12

There are, however, recognized exceptions13 to this rule such as when there is a divergence
between the findings of facts of the NLRC and that of the CA. 14 In this case, the CAs
findings are contrary to those of the NLRC. There is, therefore, a need to review the records
to determine which of them should be preferred as more conformable to evidentiary facts. 15

The right of employees to security of tenure does not give them vested rights to their
positions to the extent of depriving management of its prerogative to change their
assignments or to transfer them. Thus, an employer may transfer or assign employees from
one office or area of operation to another, provided there is no demotion in rank or
diminution of salary, benefits, and other privileges, and the action is not motivated by
discrimination, made in bad faith, or effected as a form of punishment or demotion without
sufficient cause.16

In Blue Dairy Corporation v. NLRC,17 we held that:

x x x. The managerial prerogative to transfer personnel must be exercised without grave

abuse of discretion, bearing in mind the basic elements of justice and fair play. Having the
right should not be confused with the manner in which that right is exercised. Thus, it
cannot be used as a subterfuge by the employer to rid himself of an undesirable worker. In
particular, the employer must be able to show that the transfer is not unreasonable,
inconvenient or prejudicial to the employee; nor does it involve a demotion in rank or a
diminution of his salaries, privileges and other benefits. Should the employer fail to
overcome this burden of proof, the employees transfer shall be tantamount to constructive
dismissal, which has been defined as a quitting because continued employment is rendered
impossible, unreasonable or unlikely; as an offer involving a demotion in rank and
diminution in pay. Likewise, constructive dismissal exists when an act of clear
discrimination, insensibility or disdain by an employer has become so unbearable to the
employee leaving him with no option but to forego with his continued employment. 18

With the foregoing as guidepost, we hold that the CA erred in reversing the NLRCs ruling
that respondents were not constructively dismissed.

Being piece-rate workers assigned to individual sewing machines, respondents earnings

depended on the quality and quantity of finished products. That their work output might
have been affected by the change in their specific work assignments does not necessarily

Page 79 of 250
implythat any resultingreduction in payis tantamount to constructive dismissal. Workers
under piece-rate employment have no fixed salaries and their compensation is computed on
the basis of accomplished tasks. As admitted by respondent De Lemos, some garments or
by-products took a longer time to finish so they could not earn as much as before. Also,the
type of sewing jobs available would depend on the specifications made by the clients of
petitioner company. Under these circumstances, it cannot be said that the transfer was
unreasonable, inconvenient or prejudicial to the respondents. Such deployment of sewers to
work on different types of garments as dictated by present business necessity is within the
ambit of management prerogative which, in the absence of bad faith, ill motive or
discrimination, should not be interfered with by the courts.

The records are bereft of any showing of clear discrimination, insensibility or disdain on the
part of petitioners in transferring respondents to perform a different type of sewing job.It is
unfair to charge petitioners with constructive dismissal simply because the respondents
insist that their transfer to a new work assignment was against their will. We have long
stated that "the objection to the transfer being grounded on solely upon the personal
inconvenience or hardship that will be caused to the employee by reason of the transfer is
not a valid reason to disobey an order of transfer." 19 That respondents eventually
discontinued reporting for work after their plea to be returned to their former work
assignment was their personal decision, for which the petitioners should not be held liable
particularly as the latter did not, in fact, dismiss them.

Indeed, there was no evidence that respondents were dismissed from

employment.1wphi1 In fact, petitioners expressed willingness to accept them back to
work. There being no termination of employment by the employer, the award of backwages
cannot be sustained. It is well settled that backwages may be granted only when there is a
finding of illegal dismissal.20 In cases where there is no evidence of dismissal, the remedy is
reinstatement but without backwages.21

The constitutional policy of providing full protection to labor is not intended to oppress or
destroy management.22While the Constitution is committed to the policy of social justice
and the protection of the working class, it should not be supposed that every labor dispute
will be automatically decided in favor of labor. Management also has its rights which are
entitled to respect and enforcement in the interest of simple fair play. 23 Thus, where
management prerogative to transfer employees is validly exercised, as in this case, courts
will decline to interfere.

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated
February 24, 2009 and Resolution dated February 10, 2010 of the Court of Appeals in CA-
G.R. SP No. 102002 are SET ASIDE. The Decision dated August 28, 2007 of the National
Labor Relations Commission is hereby REINSTATED and UPHELD.

No pronouncement as to costs.

SO ORDERED.

Page 80 of 250
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. Nos. 158786 & 158789 October 19, 2007

TOYOTA MOTOR PHILS. CORP. WORKERS ASSOCIATION (TMPCWA), ED CUBELO,

EDWIN ALARANA, ALEX ALEJO, ERWIN ALFONSO, MELVIN APOSTOL, DANIEL
AROLLADO, DOMINADOR ARRIOLA, LESTER ATUN, ROLANDO BALUYOT, RODERICK
BAYANI, ABEL BERCES, BENNY BERING, MELCHOR BLANCO, JERRY BOLOCON,
ELMER BULAN, NELSON CABAHUG, JESSIE CABATAY, MARCELO CABEZAS, ROQUE
CANDELARIO, JR., LORENZO CARAQUEO, DENNIS CARINGAL, GIENELL CASABA,
CHRISTOPHER CATAPUSAN, RICO CATRAL, JULIUS COMETA, JAY ANTONIO CORAL,
REYNALDO CUEVAS, BENIGNO DAVID, JR., JOEY DE GUZMAN, LEONARDO DE LEON,
ROGELIO DELOS SANTOS, JOSELITO DE OCAMPO, FRANK MANUEL DIA, ANTONIO
DIMAYUGA, ARMANDO ERCILLO, DELMAR ESPADILLA, DENNIS ESPELOA, JASON
FAJILAGUTAN, JOHN FAJURA, MELENCIO FRANCO, DEXTER FULGAR, EDUARDO
GADO, ERWIN GALANG, ROBIN GARCES, ARIEL GARCIA, RONALD GASPI, ANGELO
GAVARRA, REYNALDO GOJAR, EDGAR HILANGA, EUGENE JAY HONDRADA,
ALEJANDRO IMPERIAL, FERDINAND JAEN, JOEY JAVILLONAR, BASILIO LAQUI,
ALBERTO LOMBOY, JUDE JONOBELL LOZADA, JOHNNY LUCIDO, ROMMEL
MACALINDONG, NIXON MADRAZO, ROGELIO MAGISTRADO, JR., PHILIP JOHN
MAGNAYE, ALLAN JOHN MALABANAN, ROLANDO MALALUAN, JR., PAULINO MALEON,
MANUEL MANALO, JR., JONAMAR MANAOG, JOVITO MANECLANG, BAYANI MANGUIL,
JR., CARLITO MARASIGAN, ROMMEL MARIANO, BOBIT MENDOZA, ERICSON
MONTERO, MARLAW MONTERO, EDWIN NICANOR, RODERICK NIERVES, LOLITO
NUNEZ, FELIMON ORTIZ, EDWIN PECAYO, ERWIN PENA, JOWALD PENAMANTE,
JORGE POLUTAN, EDDIE RAMOS, ROLANDO REYES, PHILIP ROXAS, DAVID SALLAN,
JR., BERNARDO SALVADOR, BALDWIN SAN PABLO, JEFFREY SANGALANG, BERNABE
SAQUILABON, ALEX SIERRA, ROMUALDO SIMBORIO, EDWIN TABLIZO, PETRONIO
TACLAN, JR., RODEL TOLENTINO, ROMMEL TOLENTINO, GRANT ROBERT TORAL,
FEDERICO TORRES, JR., EMANNUEL TULIO, NESTOR UMITEN, JR., APOLLO
VIOLETA, SR., DOMINADOR ZAMORA, JR., ROMMEL ARCETA, ANTONIO BORSIGUE,
EMILIO COMPLETO, RANDY CONSIGNADO, BASILIO DELA CRUZ, ALEXANDER
ESTEVA, NIKKO FRANCO, RODEL GAMIT, ROBERTO GONZALES, PHILIP JALEA,
JOEY LLANERA, GERONIMO LOPEZ, RUEL MANEGO, EDWIN MANZANILLA, KENNETH
NATIVIDAD, LARRY ORMILLA, CORNELIO PLATON, PAUL ARTHUR SALES,
ALEJANDRO SAMPANG, LAURO SULIT, ROLANDO TOMAS, JOSE ROMMEL TRAZONA,
MICHAEL TEDDY YANGYON, MAXIMINO CRUZ, VIRGILIO COLANDOG, ROMMEL
DIGMA, JOSELITO HUGO, and RICKY CHAVEZ, Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, (NLRC-2ND DIVISION), HON.
COMMISSIONERS: VICTORINO CALAYCAY, ANGELITA GACUTAN, and RAUL AQUINO,
TOYOTA MOTOR PHILIPPINES CORPORATION, TAKESHI FUKUDA, and DAVID
GO, Respondents,

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. Nos. 158798-99

Page 81 of 250
TOYOTA MOTOR PHILIPPINES CORPORATION, Petitioner,
vs.
TOYOTA MOTOR PHILIPPINES CORP. WORKERS ASSOCIATION
(TMPCWA), Respondent.

DECISION

VELASCO, JR., J.:

The Case

In the instant petition under Rule 45 subject of G.R. Nos. 158786 and 158789, Toyota
Motor Philippines Corporation Workers Association (Union) and its dismissed officers and
members seek to set aside the February 27, 2003 Decision 1 of the Court of Appeals (CA) in
CA-G.R. SP Nos. 67100 and 67561, which affirmed the August 9, 2001 Decision 2 and
September 14, 2001 Resolution3 of the National Labor Relations Commission (NLRC),
declaring illegal the strikes staged by the Union and upholding the dismissal of the 227
Union officers and members.

On the other hand, in the related cases docketed as G.R. Nos. 158798-99, Toyota Motor
Philippines Corporation (Toyota) prays for the recall of the award of severance compensation
to the 227 dismissed employees, which was granted under the June 20, 2003 CA
Resolution4 in CA-G.R. SP Nos. 67100 and 67561.

In view of the fact that the parties are petitioner/s and respondent/s and vice-versa in the
four (4) interrelated cases, they will be referred to as simply the Union and Toyota hereafter.

The Facts

The Union is a legitimate labor organization duly registered with the Department of Labor
and Employment (DOLE) and is the sole and exclusive bargaining agent of all Toyota rank
and file employees.5

Toyota, on the other hand, is a domestic corporation engaged in the assembly and sale of
vehicles and parts.6 It is a Board of Investments (BOI) participant in the Car Development
Program and the Commercial Vehicle Development Program. It is likewise a BOI-preferred
non-pioneer export trader of automotive parts and is under the "Special Economic Zone Act
of 1995." It is one of the largest motor vehicle manufacturers in the country employing
around 1,400 workers for its plants in Bicutan and Sta. Rosa, Laguna. It is claimed that its
assets amount to PhP 5.525 billion, with net sales of PhP 14.646 billion and provisions for
income tax of PhP 120.9 million.

On February 14, 1999, the Union filed a petition for certification election among the Toyota
rank and file employees with the National Conciliation and Mediation Board (NCMB), which
was docketed as Case No. NCR-OD-M-9902-001. Med-Arbiter Ma. Zosima C. Lameyra
denied the petition, but, on appeal, the DOLE Secretary granted the Unions prayer, and,
through the June 25, 1999 Order, directed the immediate holding of the certification
election.7

After Toyotas plea for reconsideration was denied, the certification election was conducted.
Med-Arbiter Lameyras May 12, 2000 Order certified the Union as the sole and exclusive

Page 82 of 250
bargaining agent of all the Toyota rank and file employees. Toyota challenged said Order via
an appeal to the DOLE Secretary.8

In the meantime, the Union submitted its Collective Bargaining Agreement (CBA) proposals
to Toyota, but the latter refused to negotiate in view of its pending appeal. Consequently,
the Union filed a notice of strike on January 16, 2001 with the NCMB, docketed as NCMB-
NCR-NS-01-011-01, based on Toyotas refusal to bargain. On February 5, 2001, the NCMB-
NCR converted the notice of strike into a preventive mediation case on the ground that the
issue of whether or not the Union is the exclusive bargaining agent of all Toyota rank and
file employees was still unresolved by the DOLE Secretary.

In connection with Toyotas appeal, Toyota and the Union were required to attend a hearing
on February 21, 2001 before the Bureau of Labor Relations (BLR) in relation to the
exclusion of the votes of alleged supervisory employees from the votes cast during the
certification election. The February 21, 2001 hearing was cancelled and reset to February
22, 2001. On February 21, 2001, 135 Union officers and members failed to render the
required overtime work, and instead marched to and staged a picket in front of the BLR
office in Intramuros, Manila.9 The Union, in a letter of the same date, also requested that its
members be allowed to be absent on February 22, 2001 to attend the hearing and instead
work on their next scheduled rest day. This request however was denied by Toyota.

Despite denial of the Unions request, more than 200 employees staged mass actions on
February 22 and 23, 2001 in front of the BLR and the DOLE offices, to protest the partisan
and anti-union stance of Toyota. Due to the deliberate absence of a considerable number of
employees on February 22 to 23, 2001, Toyota experienced acute lack of manpower in its
manufacturing and production lines, and was unable to meet its production goals resulting
in huge losses of PhP 53,849,991.

Soon thereafter, on February 27, 2001, Toyota sent individual letters to some 360
employees requiring them to explain within 24 hours why they should not be dismissed for
their obstinate defiance of the companys directive to render overtime work on February 21,
2001, for their failure to report for work on February 22 and 23, 2001, and for their
participation in the concerted actions which severely disrupted and paralyzed the plants
operations.10These letters specifically cited Section D, paragraph 6 of the Companys Code
of Conduct, to wit:

Inciting or participating in riots, disorders, alleged strikes, or concerted actions detrimental

to [Toyotas] interest.

1st offense dismissal.11

Meanwhile, a February 27, 2001 Manifesto was circulated by the Union which urged its
members to participate in a strike/picket and to abandon their posts, the pertinent portion
of which reads, as follows:

YANIG sa kanyang komportableng upuan ang management ng TOYOTA. And dating takot,
kimi, at mahiyaing manggagawa ay walang takot na nagmartsa at nagprotesta laban sa
desperadong pagtatangkang baguhin ang desisyon ng DOLE na pabor sa UNYON. Sa
tatlong araw na protesta, mahigit sa tatlong daang manggagawa ang lumahok.

xxxx

Page 83 of 250
HANDA na tayong lumabas anumang oras kung patuloy na ipagkakait ng management
ang CBA. Oo maari tayong masaktan sa welga. Oo, maari tayong magutom sa
piketlayn. Subalit may pagkakaiba ba ito sa unti-unting pagpatay sa atin sa loob ng 12
taong makabaling likod ng pagtatrabaho? Ilang taon na lang ay magkakabutas na ang ating
mga baga sa mga alipato at usok ng welding. Ilang taon na lang ay marupok na ang ating
mga buto sa kabubuhat. Kung dumating na ang panahong ito at wala pa tayong CBA,
paano na? Hahayaan ba nating ang kumpanya lang ang makinabang sa yamang likha ng
higit sa isang dekadang pagpapagal natin?

HUWAG BIBITIW SA NASIMULANG TAGUMPAY!

PAIGTINGIN ANG PAKIKIBAKA PARA SA ISANG MAKATARUNGANG CBA!

HIGIT PANG PATATAGIN ANG PAGKAKAISA NG MGA MANGGAGAWA SA

TOYOTA!12 (Emphasis supplied.)

On the next day, the Union filed with the NCMB another notice of strike docketed as NCMB-
NCR-NS-02-061-01 for union busting amounting to unfair labor practice.

On March 1, 2001, the Union nonetheless submitted an explanation in compliance with the
February 27, 2001 notices sent by Toyota to the erring employees. The Union members
explained that their refusal to work on their scheduled work time for two consecutive days
was simply an exercise of their constitutional right to peaceably assemble and to petition
the government for redress of grievances. It further argued that the demonstrations staged
by the employees on February 22 and 23, 2001 could not be classified as an illegal strike or
picket, and that Toyota had already condoned the alleged acts when it accepted back the
subject employees.13

Consequently, on March 2 and 5, 2001, Toyota issued two (2) memoranda to the concerned
employees to clarify whether or not they are adopting the March 1, 2001 Unions
explanation as their own. The employees were also required to attend an investigative
interview,14 but they refused to do so.

On March 16, 2001, Toyota terminated the employment of 227 employees 15 for participation
in concerted actions in violation of its Code of Conduct and for misconduct under Article
282 of the Labor Code. The notice of termination reads:

After a careful evaluation of the evidence on hand, and a thorough assessment of your
explanation, TMP has concluded that there are overwhelming reasons to terminate your
services based on Article 282 of the Labor Code and TMPs Code of Conduct.

Your repeated absences without permission on February 22 to 23, 2001 to participate in a

concerted action against TMP constitute abandonment of work and/or very serious
misconduct under Article 282 of the Labor Code.

The degree of your offense is aggravated by the following circumstances:

1. You expressed to management that you will adopt the unions letter dated March
1, 2001, as your own explanation to the charges contained in the Due Process Form
dated February 27, 2001. It is evident from such explanation that you did not come
to work because you deliberately participated together with other Team Members in

Page 84 of 250
a plan to engage in concerted actions detrimental to TMPs interest. As a result of
your participation in the widespread abandonment of work by Team Members from
February 22 to 23, 2001, TMP suffered substantial damage.

It is significant that the absences you incurred in order to attend the clarificatory
hearing conducted by the Bureau of Labor Relations were unnecessary because the
union was amply represented in the said hearings by its counsel and certain
members who sought and were granted leave for the purpose. Your reason for being
absent is, therefore, not acceptable; and

2. Your participation in the organized work boycott by Team Members on February

22 and 23 led to work disruptions that prevented the Company from meeting its
production targets, resulting [in] foregone sales of more than eighty (80) vehicles,
mostly new-model Revos, valued at more than Fifty Million Pesos (50,000,000.00).

The foregoing is also a violation of TMPs Code of Conduct (Section D, Paragraph 6)

to wit:

"Inciting or participating in riots, disorders, illegal strikes or concerted actions

detrimental to TMPs interest."

Based on the above, TMP Management is left with no other recourse but to
terminate your employment effective upon your receipt thereof.

[Sgd.]
JOSE MARIA ALIGADA

Deputy Division Manager16

In reaction to the dismissal of its union members and officers, the Union went on
strike on March 17, 2001. Subsequently, from March 28, 2001 to April 12, 2001,
the Union intensified its strike by barricading the gates of Toyotas Bicutan and Sta.
Rosa plants. The strikers prevented workers who reported for work from entering the
plants. In his Affidavit, Mr. Eduardo Nicolas III, Security Department Head, stated
that:

3. On March 17, 2001, members of the Toyota Motor Philippines Corporation

Workers Association (TMPCWA), in response to the dismissal of some two hundred
twenty seven (227) leaders and members of TMPCWA and without observing the
requirements mandated by the Labor Code, refused to report for work and picketed
TMPC premises from 8:00 a.m. to 5:00 p.m. The strikers badmouthed people coming
in and hurled invectives such as "bakeru" at Japanese officers of the company. The
strikers likewise pounded the officers vehicle as they tried to enter the premises of
the company.

4. On March 28, 2001, the strikers intensified their picketing and barricaded the
gates of TMPCs Bicutan and Sta. Rosa plants, thus, blocking the free ingress/egress
to and from the premises. Shuttle buses and cars containing TMPC employees,
suppliers, dealers, customers and other people having business with the company,
were prevented by the strikers from entering the plants.

Page 85 of 250
 5. As a standard operating procedure, I instructed my men to take photographs and
video footages of those who participated in the strike. Seen on video footages taken
on various dates actively participating in the strike were union officers Emilio C.
Completo, Alexander Esteva, Joey Javellonar and Lorenzo Caraqueo.

6. Based on the pictures, among those identified to have participated in the March
28, 2001 strike were Grant Robert Toral, John Posadas, Alex Sierra, Allan John
Malabanan, Abel Bersos, Ernesto Bonavente, Ariel Garcia, Pablito Adaya, Feliciano
Mercado, Charlie Oliveria, Philip Roxas, June Lamberte, Manjolito Puno, Baldwin
San Pablo, Joseph Naguit, Federico Torres, Larry Gerola, Roderick Bayani, Allan
Oclarino, Reynaldo Cuevas, Jorge Polutan, Arman Ercillo, Jimmy Hembra, Albert
Mariquit, Ramil Gecale, Jimmy Palisoc, Normandy Castalone, Joey Llanera, Greg
Castro, Felicisimo Escrimadora, Rodolfo Bay, Ramon Clemente, Dante Baclino, Allan
Palomares, Arturo Murillo and Robert Gonzales. Attached hereto as Annexes "1" to
"18" are the pictures taken on March 28, 2001 at the Bicutan and Sta. Rosa plants.

7. From March 29 to 31, 2001, the strikers continued to barricade the entrances to
TMPCs two (2) plants. Once again, the strikers hurled nasty remarks and prevented
employees aboard shuttle buses from entering the plants. Among the strikers were
Christopher Saldivar, Basilio Laqui, Sabas Bernabise, Federico Torres, Freddie Olit,
Josel Agosto, Arthur Parilla, Richard Calalang, Ariel Garcia, Edgar Hilaga, Charlie
Oliveria, Ferdinand Jaen, Wilfredo Tagle, Alejandro Imperial, Manjolito Puno,
Delmar Espadilla, Domingo Javier, Apollo Violeta and Elvis Tabinao. 17

On March 29, 2001, Toyota filed a petition for injunction with a prayer for the issuance of a
temporary restraining order (TRO) with the NLRC, which was docketed as NLRC NCR Case
No. INJ-0001054-01. It sought free ingress to and egress from its Bicutan and Sta. Rosa
manufacturing plants. Acting on said petition, the NLRC, on April 5, 2001, issued a TRO
against the Union, ordering its leaders and members as well as its sympathizers to remove
their barricades and all forms of obstruction to ensure free ingress to and egress from the
companys premises. In addition, the NLRC rejected the Unions motion to dismiss based on
lack of jurisdiction.18

Meanwhile, Toyota filed a petition to declare the strike illegal with the NLRC arbitration
branch, which was docketed as NLRC NCR (South) Case No. 30-04-01775-01, and prayed
that the erring Union officers, directors, and members be dismissed. 19

On April 10, 2001, the DOLE Secretary assumed jurisdiction over the labor dispute and
issued an Order20certifying the labor dispute to the NLRC. In said Order, the DOLE
Secretary directed all striking workers to return to work at their regular shifts by April 16,
2001. On the other hand, it ordered Toyota to accept the returning employees under the
same terms and conditions obtaining prior to the strike or at its option, put them under
payroll reinstatement. The parties were also enjoined from committing acts that may
worsen the situation.1wphi1

The Union ended the strike on April 12, 2001. The union members and officers tried to
return to work on April 16, 2001 but were told that Toyota opted for payroll-reinstatement
authorized by the Order of the DOLE Secretary.

In the meantime, the Union filed a motion for reconsideration of the DOLE Secretarys April
10, 2001 certification Order, which, however, was denied by the DOLE Secretary in her May

Page 86 of 250
25, 2001 Resolution. Consequently, a petition for certiorari was filed before the CA, which
was docketed as CA-G.R. SP No. 64998.

In the intervening time, the NLRC, in compliance with the April 10, 2001 Order of the DOLE
Secretary, docketed the case as Certified Case No. 000203-01.

Meanwhile, on May 23, 2001, at around 12:00 nn., despite the issuance of the DOLE
Secretarys certification Order, several payroll-reinstated members of the Union staged a
protest rally in front of Toyotas Bicutan Plant bearing placards and streamers in defiance of
the April 10, 2001 Order.

Then, on May 28, 2001, around forty-four (44) Union members staged another protest
action in front of the Bicutan Plant. At the same time, some twenty-nine (29) payroll-
reinstated employees picketed in front of the Santa Rosa Plants main entrance, and were
later joined by other Union members.

On June 5, 2001, notwithstanding the certification Order, the Union filed another notice of
strike, which was docketed as NCMB-NCR-NS-06-150-01. On June 18, 2001, the DOLE
Secretary directed the second notice of strike to be subsumed in the April 10, 2001
certification Order.

In the meantime, the NLRC, in Certified Case No. 000203-01, ordered both parties to
submit their respective position papers on June 8, 2001. The union, however, requested for
abeyance of the proceedings considering that there is a pending petition for certiorari with
the CA assailing the validity of the DOLE Secretarys Assumption of Jurisdiction Order.

Thereafter, on June 19, 2001, the NLRC issued an Order, reiterating its previous order for
both parties to submit their respective position papers on or before June 2, 2001. The same
Order also denied the Unions verbal motion to defer hearing on the certified cases.

On June 27, 2001, the Union filed a Motion for Reconsideration of the NLRCs June 19,
2001 Order, praying for the deferment of the submission of position papers until its petition
for certiorari is resolved by the CA.

On June 29, 2001, only Toyota submitted its position paper. On July 11, 2001, the NLRC
again ordered the Union to submit its position paper by July 19, 2001, with a warning that
upon failure for it to do so, the case shall be considered submitted for decision.

Meanwhile, on July 17, 2001, the CA dismissed the Unions petition for certiorari in CA-
G.R. SP No. 64998, assailing the DOLE Secretarys April 10, 2001 Order.

Notwithstanding repeated orders to file its position paper, the Union still failed to submit its
position paper on July 19, 2001. Consequently, the NLRC issued an Order directing the
Union to submit its position paper on the scheduled August 3, 2001 hearing; otherwise, the
case shall be deemed submitted for resolution based on the evidence on record.

During the August 3, 2001 hearing, the Union, despite several accommodations, still failed
to submit its position paper. Later that day, the Union claimed it filed its position paper by
registered mail.

Page 87 of 250
Subsequently, the NLRC, in its August 9, 2001 Decision, declared the strikes staged by the
Union on February 21 to 23, 2001 and May 23 and 28, 2001 as illegal. The decretal portion
reads:

WHEREFORE, premises considered, it is hereby ordered:

(1) Declaring the strikes staged by the Union to be illegal.

(2) Declared [sic] that the dismissal of the 227 who participated in the illegal strike
on February 21-23, 2001 is legal.

(3) However, the Company is ordered to pay the 227 Union members, who
participated in the illegal strike severance compensation in an amount equivalent to
one month salary for every year of service, as an alternative relief to continued
employment.

(4) Declared [sic] that the following Union officers and directors to have forfeited
their employment status for having led the illegal strikes on February 21-23, 2001
and May 23 and 28, 2001: Ed Cubelo, Maximino Cruz, Jr., Ricky Chavez, Joselito
Hugo, Virgilio Colandog, Rommel Digma, Federico Torres, Emilio Completo,
Alexander Esteva, Joey Javellonar, Lorenzo Caraqueo, Roderick Nieres, Antonio
Borsigue, Bayani Manguil, Jr., and Mayo Mata.21

SO ORDERED.22

The NLRC considered the mass actions staged on February 21 to 23, 2001 illegal as the
Union failed to comply with the procedural requirements of a valid strike under Art. 263 of
the Labor Code.

After the DOLE Secretary assumed jurisdiction over the Toyota dispute on April 10, 2001,
the Union again staged strikes on May 23 and 28, 2001. The NLRC found the strikes illegal
as they violated Art. 264 of the Labor Code which proscribes any strike or lockout after
jurisdiction is assumed over the dispute by the President or the DOLE Secretary.

The NLRC held that both parties must have maintained the status quo after the DOLE
Secretary issued the assumption/certification Order, and ruled that the Union did not
respect the DOLE Secretarys directive.

Accordingly, both Toyota and the Union filed Motions for Reconsideration, which the NLRC
denied in its September 14, 2001 Resolution. 23 Consequently, both parties questioned the
August 9, 2001 Decision24 and September 14, 2001 Resolution of the NLRC in separate
petitions for certiorari filed with the CA, which were docketed as CA-G.R. SP Nos. 67100
and 67561, respectively. The CA then consolidated the petitions.

In its February 27, 2003 Decision,25 the CA ruled that the Unions petition is defective in
form for its failure to append a proper verification and certificate of non-forum shopping,
given that, out of the 227 petitioners, only 159 signed the verification and certificate of non-
forum shopping. Despite the flaw, the CA proceeded to resolve the petitions on the merits
and affirmed the assailed NLRC Decision and Resolution with a modification, however, of
deleting the award of severance compensation to the dismissed Union members.

Page 88 of 250
In justifying the recall of the severance compensation, the CA

considered the participation in illegal strikes as serious misconduct. It defined serious

misconduct as a transgression of some established and definite rule of action, a forbidden
act, a dereliction of duty, willful in character, and implies wrongful intent and not mere
error in judgment. It cited Panay Electric Company, Inc. v. NLRC,26 where we revoked the
grant of separation benefits to employees who lawfully participated in an illegal strike based
on Art. 264 of the Labor Code, which states that "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."27

However, in its June 20, 2003 Resolution, 28 the CA modified its February 27, 2003 Decision
by reinstating severance compensation to the dismissed employees based on social justice.

The Issues

Petitioner Union now comes to this Court and raises the following issues for our
consideration:

I. Whether the mere participation of ordinary employees in an illegal strike is enough

reason to warrant their dismissal.

II. Whether the Union officers and members act of holding the protest rallies in front
of the BLR office and the Office of the Secretary of Labor and Employment on
February 22 and 23, 2001 should be held as illegal strikes. In relation hereto,
whether the protests committed on May 23 and 28, 2001, should be held as illegal
strikes. Lastly, whether the Union violated the Assumption of Jurisdiction Order
issued by the Secretary of Labor and Employment.

III. Whether the dismissal of 227 Union officers and members constitutes unfair
labor practice.

IV. Whether the CA erred in affirming the Decision of the NLRC which excluded the
Unions Position Paper which the Union filed by mail. In the same vein, whether the
Unions right to due process was violated when the NLRC excluded their Position
Paper.

V. Whether the CA erred in dismissing the Unions Petition for Certiorari.

Toyota, on the other hand, presents this sole issue for our determination:

I. Whether the Court of Appeals erred in issuing its Resolution dated June 20, 2003,
partially modifying its Decision dated February 27, 2003, and awarding severance
compensation to the dismissed Union members.

In sum, two main issues are brought to the fore:

(1) Whether the mass actions committed by the Union on different occasions are
illegal strikes; and

Page 89 of 250
 (2) Whether separation pay should be awarded to the Union members who
participated in the illegal strikes.

The Courts Ruling

The Union contends that the NLRC violated its right to due process when it disregarded its
position paper in deciding Toyotas petition to declare the strike illegal.

We rule otherwise.

It is entirely the Unions fault that its position paper was not considered by the NLRC.
Records readily reveal that the NLRC was even too generous in affording due process to the
Union. It issued no less than three (3) orders for the parties to submit its position papers,
which the Union ignored until the last minute. No sufficient justification was offered why
the Union belatedly filed its position paper. In Datu Eduardo Ampo v. The Hon. Court of
Appeals, it was explained that a party cannot complain of deprivation of due process if he
was afforded an opportunity to participate in the proceedings but failed to do so. If he does
not avail himself of the chance to be heard, then it is deemed waived or forfeited without
violating the constitutional guarantee.29 Thus, there was no violation of the Unions right to
due process on the part of the NLRC.

On a procedural aspect, the Union faults the CA for treating its petition as an unsigned
pleading and posits that the verification signed by 159 out of the 227 petitioners has
already substantially complied with and satisfied the requirements under Secs. 4 and 5 of
Rule 7 of the Rules of Court.

The Unions proposition is partly correct.

Sec. 4 of Rule 7 of the Rules of Court states:

Sec. 4. Verification.Except when otherwise specifically required by law or rule, pleadings

need not be under oath, verified or accompanied by affidavit.

A pleading is verified by an affidavit that the affiant has read the pleading and that the
allegations therein are true and correct of his personal knowledge or based on authentic
records.

A pleading required to be verified which contains a verification based on "information and

belief" or upon "knowledge, information and belief," or lacks a proper verification, shall be
treated as an unsigned pleading.

The verification requirement is significant, as it is intended to secure an assurance that the

allegations in the pleading are true and correct and not the product of the imagination or a
matter of speculation.30 This requirement is simply a condition affecting the form of
pleadings, and noncompliance with the requirement does not necessarily render it fatally
defective. Indeed, verification is only a formal and not a jurisdictional requirement. 31

In this case, the problem is not the absence but the adequacy of the Unions verification,
since only 159 out of the 227 petitioners executed the verification. Undeniably, the petition
meets the requirement on the verification with respect to the 159 petitioners who executed
the verification, attesting that they have sufficient knowledge of the truth and correctness of

Page 90 of 250
the allegations of the petition. However, their signatures cannot be considered as
verification of the petition by the other 68 named petitioners unless the latter gave written
authorization to the 159 petitioners to sign the verification on their behalf. Thus, in Loquias
v. Office of the Ombudsman, we ruled that the petition satisfies the formal requirements
only with regard to the petitioner who signed the petition but not his co-petitioner who did
not sign nor authorize the other petitioner to sign it on his behalf. 32 The proper ruling in
this situation is to consider the petition as compliant with the formal requirements with
respect to the parties who signed it and, therefore, can be given due course only with regard
to them. The other petitioners who did not sign the verification and certificate against forum
shopping cannot be recognized as petitioners have no legal standing before the Court. The
petition should be dismissed outright with respect to the non-conforming petitioners.

In the case at bench, however, the CA, in the exercise of sound discretion, did not strictly
apply the ruling in Loquias and instead proceeded to decide the case on the merits.

The alleged protest rallies in front of the offices of BLR and DOLE Secretary and at
the Toyota plants constituted illegal strikes

When is a strike illegal?

Noted authority on labor law, Ludwig Teller, lists six (6) categories of an illegal strike, viz:

(1) [when it] is contrary to a specific prohibition of law, such as strike by employees
performing governmental functions; or

(2) [when it] violates a specific requirement of law[, such as Article 263 of the Labor
Code on the requisites of a valid strike]; or

(3) [when it] is declared for an unlawful purpose, such as inducing the employer to
commit an unfair labor practice against non-union employees; or

(4) [when it] employs unlawful means in the pursuit of its objective, such as a
widespread terrorism of non-strikers [for example, prohibited acts under Art. 264(e)
of the Labor Code]; or

(5) [when it] is declared in violation of an existing injunction[, such as injunction,

prohibition, or order issued by the DOLE Secretary and the NLRC under Art. 263 of
the Labor Code]; or

(6) [when it] is contrary to an existing agreement, such as a no-strike clause or

conclusive arbitration clause.33

Petitioner Union contends that the protests or rallies conducted on February 21 and 23,
2001 are not within the ambit of strikes as defined in the Labor Code, since they were
legitimate exercises of their right to peaceably assemble and petition the government for
redress of grievances. Mainly relying on the doctrine laid down in the case of Philippine
Blooming Mills Employees Organization v. Philippine Blooming Mills Co., Inc.,34 it argues that
the protest was not directed at Toyota but towards the Government (DOLE and BLR). It
explains that the protest is not a strike as contemplated in the Labor Code. The Union
points out that in Philippine Blooming Mills Employees Organization, the mass action staged
in Malacaang to petition the Chief Executive against the abusive behavior of some police

Page 91 of 250
officers was a proper exercise of the employees right to speak out and to peaceably gather
and ask government for redress of their grievances.

The Unions position fails to convince us.

While the facts in Philippine Blooming Mills Employees Organization are similar in some
respects to that of the present case, the Union fails to realize one major difference: there
was no labor dispute in Philippine Blooming Mills Employees Organization. In the present
case, there was an on-going labor dispute arising from Toyotas refusal to recognize and
negotiate with the Union, which was the subject of the notice of strike filed by the Union on
January 16, 2001. Thus, the Unions reliance on Phililippine Blooming Mills Employees
Organization is misplaced, as it cannot be considered a precedent to the case at bar.

A strike means any temporary stoppage of work by the concerted action of employees as a
result of an industrial or labor dispute. A labor dispute, in turn, includes any controversy
or matter concerning terms or conditions of employment or the association or
representation of persons in negotiating, fixing, maintaining, changing, or arranging the
terms and conditions of employment, regardless of whether the disputants stand in the
proximate relation of the employer and the employee. 35

In Bangalisan v. Court of Appeals, it was explained that "[t]he fact that the conventional
term strike was not used by the striking employees to describe their common course of
action is inconsequential, since the substance of the situation and not its appearance, will
be deemed controlling."36 The term "strike" has been elucidated to encompass not only
concerted work stoppages, but also slowdowns, mass leaves, sit-downs, attempts to
damage, destroy, or sabotage plant equipment and facilities, and similar activities. 37

Applying pertinent legal provisions and jurisprudence, we rule that the protest actions
undertaken by the Union officials and members on February 21 to 23, 2001 are not valid
and proper exercises of their right to assemble and ask government for redress of their
complaints, but are illegal strikes in breach of the Labor Code. The Unions position is
weakened by the lack of permit from the City of Manila to hold "rallies." Shrouded as
demonstrations, they were in reality temporary stoppages of work perpetrated through the
concerted action of the employees who deliberately failed to report for work on the
convenient excuse that they will hold a rally at the BLR and DOLE offices in Intramuros,
Manila, on February 21 to 23, 2001. The purported reason for these protest actions was to
safeguard their rights against any abuse which the med-arbiter may commit against their
cause. However, the Union failed to advance convincing proof that the med-arbiter was
biased against them. The acts of the med-arbiter in the performance of his duties are
presumed regular. Sans ample evidence to the contrary, the Union was unable to justify the
February 2001 mass actions. What comes to the fore is that the decision not to work for two
days was designed and calculated to cripple the manufacturing arm of Toyota. It becomes
obvious that the real and ultimate goal of the Union is to coerce Toyota to finally
acknowledge the Union as the sole bargaining agent of the company. This is not a legal and
valid exercise of the right of assembly and to demand redress of grievance.

We sustain the CAs affirmance of the NLRCs finding that the protest rallies staged on
February 21 to 23, 2001 were actually illegal strikes. The illegality of the Unions mass
actions was succinctly elaborated by the labor tribunal, thus:

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We have stated in our questioned decision that such mass actions staged before the Bureau
of Labor Relations on February 21-23, 2001 by the union officers and members fall
squarely within the definition of a strike (Article 212 (o), Labor Code). These concerted
actions resulted in the temporary stoppage of work causing the latter substantial losses.
Thus, without the requirements for a valid strike having been complied with, we were
constrained to consider the strike staged on such dates as illegal and all employees who
participated in the concerted actions to have consequently lost their employment status.

If we are going to stamp a color of legality on the two (2) [day-] walk out/strike of
respondents without filing a notice of strike, in effect we are giving license to all the unions
in the country to paralyze the operations of their companies/employers every time they
wish to hold a demonstration in front of any government agency. While we recognize the
right of every person or a group to peaceably assemble and petition the government for
redress of grievances, the exercise of such right is governed by existing laws, rules and
regulations.

Although the respondent union admittedly made earnest representations with the company
to hold a mass protest before the BLR, together with their officers and members, the denial
of the request by the management should have been heeded and ended their insistence to
hold the planned mass demonstration. Verily, the violation of the company rule cannot be
dismissed as mere absences of two days as being suggested by the union [are but]
concerted actions detrimental to Petitioner Toyotas interest. 38 (Emphasis supplied.)

It is obvious that the February 21 to 23, 2001 concerted actions were undertaken without
satisfying the prerequisites for a valid strike under Art. 263 of the Labor Code. The Union
failed to comply with the following requirements: (1) a notice of strike filed with the DOLE
30 days before the intended date of strike, or 15 days in case of unfair labor practice; 39 (2)
strike vote approved by a majority of the total union membership in the bargaining unit
concerned obtained by secret ballot in a meeting called for that purpose; and (3) notice
given to the DOLE of the results of the voting at least seven days before the intended strike.
These requirements are mandatory and the failure of a union to comply with them renders
the strike illegal.40 The evident intention of the law in requiring the strike notice and the
strike-vote report is to reasonably regulate the right to strike, which is essential to the
attainment of legitimate policy objectives embodied in the law. 41 As they failed to conform to
the law, the strikes on February 21, 22, and 23, 2001 were illegal.

Moreover, the aforementioned February 2001 strikes are in blatant violation of Sec. D, par.
6 of Toyotas Code of Conduct which prohibits "inciting or participating in riots, disorders,
alleged strikes or concerted actions detrimental to [Toyotas] interest." The penalty for the
offense is dismissal. The Union and its members are bound by the company rules, and the
February 2001 mass actions and deliberate refusal to render regular and overtime work on
said days violated these rules. In sum, the February 2001 strikes and walk-outs were illegal
as these were in violation of specific requirements of the Labor Code and a company rule
against illegal strikes or concerted actions.

With respect to the strikes committed from March 17 to April 12, 2001, those were initially
legal as the legal requirements were met. However, on March 28 to April 12, 2001, the
Union barricaded the gates of the Bicutan and Sta. Rosa plants and blocked the free ingress
to and egress from the company premises. Toyota employees, customers, and other people
having business with the company were intimidated and were refused entry to the plants.
As earlier explained, these strikes were illegal because unlawful means were employed. The

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acts of the Union officers and members are in palpable violation of Art. 264(e), which
proscribes acts of violence, coercion, or intimidation, or which obstruct the free ingress to
and egress from the company premises. Undeniably, the strikes from March 28 to April 12,
2001 were illegal.

Petitioner Union also posits that strikes were not committed on May 23 and 28, 2001. The
Union asserts that the rallies held on May 23 and 28, 2001 could not be considered strikes,
as the participants were the dismissed employees who were on payroll reinstatement. It
concludes that there was no work stoppage.

This contention has no basis.

It is clear that once the DOLE Secretary assumes jurisdiction over the labor dispute and
certifies the case for compulsory arbitration with the NLRC, the parties have to revert to
the status quo ante (the state of things as it was before). The intended normalcy of
operations is apparent from the fallo of the April 10, 2001 Order of then DOLE Secretary
Patricia A. Sto. Tomas, which reads:

WHEREFORE, PREMISES CONSIDERED, this Office hereby CERTIFIES the labor dispute
at Toyota Motors Philippines Corporation to the [NLRC] pursuant to Article 263 (g) of the
Labor Code, as amended. This Certification covers the current labor cases filed in relation
with the Toyota strike, particularly, the Petition for Injunction filed with the National Labor
Relations Commission entitled Toyota Motor Philippines Corporation vs. Toyota Motor
Philippines Corporation Workers Association (TMPCWA), Ed Cubelo, et al., NLRC Injunction
Case No. 3401054-01; Toyota Motor Philippines Corporation vs. Toyota Motor Philippines
Corporation Workers Association, et al., NLRC NCR Case No. 3004-01775-01, and such
other labor cases that the parties may file relating to the strike and its effects while this
Certification is in effect.

As provided under Article 2634(g) of the Labor Code, all striking workers are directed to
return to work at their regular shifts by April 16, 2001; the Company is in turn directed to
accept them back to work under the same terms and conditions obtaining prior to the work
stoppage, subject to the option of the company to merely reinstate a worker or workers in
the payroll in light of the negative emotions that the strike has generated and the need to
prevent the further deterioration of the relationship between the company and its workers.

Further, the parties are hereby ordered to cease and desist from committing any act that
might lead to the worsening of an already deteriorated situation. 42 (Emphasis supplied.)

It is explicit from this directive that the Union and its members shall refrain from engaging
in any activity that might exacerbate the tense labor situation in Toyota, which certainly
includes concerted actions.

This was not heeded by the Union and the individual respondents who staged illegal
concerted actions on May 23 and 28, 2001 in contravention of the Order of the DOLE
Secretary that no acts should be undertaken by them to aggravate the "already deteriorated
situation."

While it may be conceded that there was no work disruption in the two Toyota plants, the
fact still remains that the Union and its members picketed and performed concerted actions
in front of the Company premises. This is a patent violation of the assumption of

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jurisdiction and certification Order of the DOLE Secretary, which ordered the parties "to
cease and desist from committing any act that might lead to the worsening of an already
deteriorated situation." While there are no work stoppages, the pickets and concerted
actions outside the plants have a demoralizing and even chilling effect on the workers inside
the plants and can be considered as veiled threats of possible trouble to the workers when
they go out of the company premises after work and of impending disruption of operations
to company officials and even to customers in the days to come. The pictures presented by
Toyota undoubtedly show that the company officials and employees are being intimidated
and threatened by the strikers. In short, the Union, by its mass actions, has inflamed an
already volatile situation, which was explicitly proscribed by the DOLE Secretarys Order.
We do not find any compelling reason to reverse the NLRC findings that the pickets on May
23 and 28, 2001 were unlawful strikes.

From the foregoing discussion, we rule that the February 21 to 23, 2001 concerted actions,
the March 17 to April 12, 2001 strikes, and the May 23 and 28, 2001 mass actions were
illegal strikes.

Union officers are liable for unlawful strikes or illegal acts during a strike

Art. 264 (a) of the Labor Code provides:

ART. 264. PROHIBITED ACTIVITIES

(a) x x x

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.

Art. 264(a) sanctions the dismissal of a union officer who knowingly participates in an
illegal strike or who knowingly participates in the commission of illegal acts during a lawful
strike.

It is clear that the responsibility of union officials is greater than that of the members. They
are tasked with the duty to lead and guide the membership in decision making on union
activities in accordance with the law, government rules and regulations, and established
labor practices. The leaders are expected to recommend actions that are arrived at with
circumspection and contemplation, and always keep paramount the best interests of the
members and union within the bounds of law. If the implementation of an illegal strike is
recommended, then they would mislead and deceive the membership and the supreme
penalty of dismissal is appropriate. On the other hand, if the strike is legal at the beginning
and the officials commit illegal acts during the duration of the strike, then they cannot
evade personal and individual liability for said acts.

The Union officials were in clear breach of Art. 264(a) when they knowingly participated in
the illegal strikes held from February 21 to 23, 2001, from March 17 to April 12, 2001, and

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on May 23 and 28, 2001. We uphold the findings of fact of the NLRC on the involvement of
said union officials in the unlawful concerted actions as affirmed by the CA, thus:

As regards to the Union officers and directors, there is overwhelming justification to declare
their termination from service. Having instigated the Union members to stage and carry out
all illegal strikes from February 21-23, 2001, and May 23 and 28, 2001, the following Union
officers are hereby terminated for cause pursuant to Article 264(a) of the Labor Code: Ed
Cubelo, Maximino Cruz, Jr., Ricky Chavez, Joselito Hugo, Virgilio Colandog, Rommel
Digma, Federico Torres, Emilio Completo, Alexander Esteva, Joey Javellonar, Lorenzo
Caraqueo, Roderick Nieres, Antonio Borsigue, Bayani Manguil, Jr., and Mayo Mata. 43

The rule is well entrenched in this jurisdiction that factual findings of the labor tribunal,
when affirmed by the appellate court, are generally accorded great respect, even finality. 44

Likewise, we are not duty-bound to delve into the accuracy of the factual findings of the
NLRC in the absence of clear showing that these were arbitrary and bereft of any rational
basis.45 In the case at bench, the Union failed to convince us that the NLRC findings that
the Union officials instigated, led, and knowingly participated in the series of illegal strikes
are not reinforced by substantial evidence. Verily, said findings have to be maintained and
upheld. We reiterate, as a reminder to labor leaders, the rule that "[u]nion officers are duty
bound to guide their members to respect the law." 46 Contrarily, if the "officers urge the
members to violate the law and defy the duly constituted authorities, their dismissal from
the service is a just penalty or sanction for their unlawful acts." 47

Members liability depends on participation in illegal acts

Art. 264(a) of the Labor Code provides that a member is liable when he knowingly
participates in an illegal act "during a strike." While the provision is silent on whether the
strike is legal or illegal, we find that the same is irrelevant. As long as the members commit
illegal acts, in a legal or illegal strike, then they can be terminated. 48However, when union
members merely participate in an illegal strike without committing any illegal act, are they
liable?

This was squarely answered in Gold City Integrated Port Service, Inc. v. NLRC, 49 where it
was held that an ordinary striking worker cannot be terminated for mere participation in an
illegal strike. This was an affirmation of the rulings in Bacus v. Ople 50 and Progressive
Workers Union v. Aguas, 51 where it was held that though the strike is illegal, the ordinary
member who merely participates in the strike should not be meted loss of employment on
the considerations of compassion and good faith and in view of the security of tenure
provisions under the Constitution. In Esso Philippines, Inc. v. Malayang Manggagawa sa
Esso (MME), it was explained that a member is not responsible for the unions illegal strike
even if he voted for the holding of a strike which became illegal. 52

Noted labor law expert, Professor Cesario A. Azucena, Jr., traced the history relating to the
liability of a union member in an illegal strike, starting with the "rule of vicarious liability,"
thus:

Under [the rule of vicarious liability], mere membership in a labor union serves as basis of
liability for acts of individuals, or for a labor activity, done on behalf of the union. The union
member is made liable on the theory that all the members are engaged in a general
conspiracy, and the unlawful acts of the particular members are viewed as necessary

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incidents of the conspiracy. It has been said that in the absence of statute providing
otherwise, the rule of vicarious liability applies.

Even the Industrial Peace Act, however, which was in effect from 1953 to 1974, did not
adopt the vicarious liability concept. It expressly provided that:

No officer or member of any association or organization, and no association or organization

participating or interested in a labor dispute shall be held responsible or liable for the
unlawful acts of individual officers, members, or agents, except upon proof of actual
participation in, or actual authorization of, such acts or of ratifying of such acts after actual
knowledge thereof.

Replacing the Industrial Peace Act, the Labor Code has not adopted the vicarious liability
rule.53

Thus, the rule on vicarious liability of a union member was abandoned and it is only when
a striking worker "knowingly participates in the commission of illegal acts during a strike"
that he will be penalized with dismissal.

Now, what are considered "illegal acts" under Art. 264(a)?

No precise meaning was given to the phrase "illegal acts." It may encompass a number of
acts that violate existing labor or criminal laws, such as the following:

(1) Violation of Art. 264(e) of the Labor Code which provides that "[n]o person
engaged in picketing shall commit any act of violence, coercion or intimidation or
obstruct the free ingress to or egress from the employers premises for lawful
purposes, or obstruct public thoroughfares";

(2) Commission of crimes and other unlawful acts in carrying out the strike;54 and

(3) Violation of any order, prohibition, or injunction issued by the DOLE Secretary or
NLRC in connection with the assumption of jurisdiction/certification Order under
Art. 263(g) of the Labor Code.

As earlier explained, this enumeration is not exclusive and it may cover other breaches of
existing laws.

In the cases at bench, the individual respondents participated in several mass actions, viz:

(1) The rallies held at the DOLE and BLR offices on February 21, 22, and 23, 2001;

(2) The strikes held on March 17 to April 12, 2001; and

(3) The rallies and picketing on May 23 and 28, 2001 in front of the Toyota Bicutan
and Sta. Rosa plants.

Did they commit illegal acts during the illegal strikes on February 21 to 23, 2001, from
March 17 to April 12, 2001, and on May 23 and 28, 2001?

The answer is in the affirmative.

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As we have ruled that the strikes by the Union on the three different occasions were illegal,
we now proceed to determine the individual liabilities of the affected union members for
acts committed during these forbidden concerted actions.

Our ruling in Association of Independent Unions in the Philippines v. NLRC lays down the
rule on the liability of the union members:

Decisive on the matter is the pertinent provisions of Article 264 (a) of the Labor Code that:
"[x x x] any worker [x x x] who knowingly participates in the commission of illegal acts
during a strike may be declared to have lost his employment status. [x x x]" It can be
gleaned unerringly from the aforecited provision of law in point, however, that an ordinary
striking employee can not be terminated for mere participation in an illegal strike. There
must be proof that he committed illegal acts during the strike and the striker who
participated in the commission of illegal act[s] must be identified. But proof beyond
reasonable doubt is not required. Substantial evidence available under the
circumstances, which may justify the imposition of the penalty of dismissal, may
suffice.

In the landmark case of Ang Tibay vs. CIR, the court ruled "Not only must there be some
evidence to support a finding or conclusion, but the evidence must be
substantial. Substantial evidence is more than a mere scintilla. It means such
relevant evidence that a reasonable mind might accept as sufficient to support a
conclusion."55 (Emphasis supplied.)

Thus, it is necessary for the company to adduce proof on the participation of the striking
employee in the commission of illegal acts during the strikes.

After a scrutiny of the records, we find that the 227 employees indeed joined the February
21, 22, and 23, 2001 rallies and refused to render overtime work or report for work. These
rallies, as we earlier ruled, are in reality illegal strikes, as the procedural requirements for
strikes under Art. 263 were not complied with. Worse, said strikes were in violation of the
company rule prohibiting acts "in citing or participating in riots, disorders, alleged strikes
or concerted action detrimental to Toyotas interest."

With respect to the February 21, 22, and 23, 2001 concerted actions, Toyota submitted the
list of employees who did not render overtime work on February 21, 2001 and who did not
report for work on February 22 and 23, 2001 as shown by Annex "I" of Toyotas Position
Paper in NLRC Certified Case No. 000203-01 entitled In Re: Labor Dispute at Toyota Motor
Philippines Corp. The employees who participated in the illegal concerted actions were as
follows:

1. Aclan, Eugenio; 2. Agosto, Joel; 3. Agot, Rodelio; 4. Alarana, Edwin; 5. Alejo, Alex; 6.
Alfonso, Erwin; 7. Apolinario, Dennis; 8. Apostol, Melvin; 9. Arceta, Romel; 10. Arellano,
Ruel; 11. Ariate, Abraham; 12. Arollado, Daniel; 13. Arriola, Dominador; 14. Atun, Lester;
15. Bala, Rizalino; 16. Baluyut, Rolando; 17. Banzuela, Tirso Jr.; 18. Bayani, Roderick; 19.
Benabise, Sabas Jr.; 20. Berces, Abel; 21. Bering, Benny; 22. Birondo, Alberto; 23. Blanco,
Melchor; 24. Bolanos, Dexter; 25. Bolocon, Jerry; 26. Borebor, Rurel; 27. Borromeo, Jubert;
28. Borsigue, Antonio; 29. Bulan, Elmer; 30. Busano, Freddie; 31. Bustillo, Ernesto Jr.; 32.
Caalim, Alexander; 33. Cabahug, Nelson; 34. Cabatay, Jessie; 35. Cabezas, Marcelo; 36.
Calalang, Richard; 37. Candelario, Roque Jr.; 38. Capate, Leo Nelson; 39. Carandang,
Resty; 40. Caraqueo, Lorenzo; 41. Caringal, Dennis; 42. Casaba, Gienell; 43. Catapusan,

Page 98 of 250
Christopher; 44. Catral, Rico; 45. Cecilio, Felipe; 46. Cinense, Joey; 47. Cometa, Julius; 48.
Completo, Emilio; 49. Consignado, Randy; 50. Coral, Jay Antonio; 51. Correa, Claudio Jr.;
52. Cuevas, Reynaldo; 53. Dacalcap, Albert; 54. Dakay, Ryan; 55. Dalanon, Herbert; 56.
Dalisay, Rene; 57. David, Benigno Jr.; 58. De Guzman, Joey; 59. Dela Cruz, Basilio; 60.
Dela Cruz, Ferdinand; 61. Dela Torre, Heremo; 62. De Leon, Leonardo; 63. Delos Santos,
Rogelio; 64. De Ocampo, Joselito; 65. De Silva, Leodegario; 66. Del Mundo, Alex; 67. Del
Rio, Rey; 68. Dela Ysla, Alex; 69. Dia, Frank Manuel; 70. Dimayuga, Antonio; 71. Dingcong,
Jessiah; 72. Dumalag, Jasper; 73. Duyag, Aldrin; 74. Ercillo, Armando; 75. Espadilla,
Delmar; 76. Espejo, Lionel; 77. Espeloa, Dennis; 78. Esteva, Alexander; 79. Estole,
Francisco; 80. Fajardo, George; 81. Fajilagutan, Jason; 82. Fajura, John; 83. Franco,
Melencio; 84. Franco, Nikko; 85. Fulgar, Dexter; 86. Fulo, Dante; 87. Gado, Eduardo; 88.
Galang, Erwin; 89. Gamit, Rodel; 90. Garces, Robin; 91. Garcia, Ariel; 92. Gaspi, Ronald;
93. Gavarra, Angelo; 94. Gerola, Genaro Jr.; 95. Gerola, Larry; 96. Gohilde, Michael; 97.
Gojar, Regino; 98. Gojar, Reynaldo; 99. Gonzales, Roberto; 100. Gutierrez, Bernabe; 101.
Hilaga, Edgar; 102. Hilanga, Melchor; 103. Hondrada, Eugene Jay; 104. Imperial,
Alejandro; 105. Jaen, Ferdinand; 106. Jalea, Philip; 107. Javillonar, Joey; 108. Julve,
Frederick; 109. Lalisan, Victorio; 110. Landicho, Danny; 111. Laqui, Basilio; 112. Lavide,
Edgar; 113. Lazaro, Orlando; 114. Legaspi, Noel; 115. Lising, Reynaldo Jr.; 116. Llanera,
Joey; 117. Lomboy, Alberto; 118. Lopez, Geronimo; 119. Lozada, Jude Jonobell; 120.
Lucido, Johny; 121. Macalindong, Rommel; 122. Madrazo, Nixon; 123. Magbalita, Valentin;
124. Magistrado, Rogelio Jr.; 125. Magnaye, Philip John; 126. Malabanan, Allan John; 127.
Malabrigo, Angelito; 128. Malaluan, Rolando Jr.; 129. Malate, Leoncio Jr.; 130. Maleon,
Paulino; 131. Manaig, Roger; 132. Manalang, Joseph Patrick; 133. Manalo, Manuel Jr.;
134. Manaog, Jonamar; 135. Manaog, Melchor; 136. Mandolado, Melvin; 137. Maneclang,
Jovito; 138. Manego, Ruel; 139. Manguil, Bayani Jr.; 140. Manigbas, June; 141. Manjares,
Alfred; 142. Manzanilla, Edwin; 143. Marasigan, Carlito; 144. Marcial, Nilo; 145. Mariano,
Rommel; 146. Mata, Mayo; 147. Mendoza, Bobit; 148. Mendoza, Roberto; 149. Milan,
Joseph; 150. Miranda, Eduardo; 151. Miranda, Luis; 152. Montero, Ericson; 153. Montero,
Marlaw; 154. Montes, Ruel; 155. Morales, Dennis; 156. Natividad, Kenneth; 157. Nava,
Ronaldo; 158. Nevalga, Alexander; 159. Nicanor, Edwin; 160. Nierves, Roderick; 161.
Nunez, Alex; 162. Nunez, Lolito; 163. Obe, Victor; 164. Oclarino, Alfonso; 165. Ojenal, Leo;
166. Olit, Freddie; 167. Oliver, Rex; 168. Oliveria, Charlie; 169. Operana, Danny; 170.
Oriana, Allan; 171. Ormilla, Larry; 172. Ortiz, Felimon; 173. Paniterce, Alvin; 174. Parallag,
Gerald; 175. Pecayo, Edwin; 176. Pena, Erwin; 177. Penamante, Jowald; 178. Piamonte,
Melvin; 179. Piamonte, Rogelio; 180. Platon, Cornelio; 181. Polutan, Jorge; 182. Posada,
John; 183. Puno, Manjolito; 184. Ramos, Eddie; 185. Reyes, Rolando; 186. Roxas, Philip;
187. Sales, Paul Arthur; 188. Sallan, David Jr.; 189. Salvador, Bernardo; 190. Sampang,
Alejandro; 191. San Pablo, Baldwin; 192. Sangalang, Jeffrey; 193. Santiago, Eric; 194.
Santos, Raymond; 195. Sapin, Al Jose; 196. Saquilabon, Bernabe; 197. Serrano, Ariel; 198.
Sierra, Alex; 199. Simborio, Romualdo; 200. Sulit, Lauro; 201. Tabirao, Elvisanto; 202.
Tablizo, Edwin; 203. Taclan, Petronio; 204. Tagala, Rommel; 205. Tagle, Wilfredo Jr.; 206.
Tecson Alexander; 207. Templo, Christopher; 208. Tenorio, Roderick; 209. Tolentino, Rodel;
210. Tolentino, Rommel; 211. Tolentino, Romulo Jr.; 212. Tomas, Rolando; 213. Topaz,
Arturo Sr.; 214. Toral, Grant Robert; 215. Torres, Dennis; 216. Torres, Federico; 217.
Trazona, Jose Rommel; 218. Tulio, Emmanuel; 219. Umiten, Nestor Jr.; 220. Vargas,
Joseph; 221. Vergara, Allan; 222. Vergara, Esdwin; 223. Violeta, Apollo Sr.; 224. Vistal,
Alex; 225. Yangyon, Michael Teddy; 226. Zaldevar, Christopher; and 227. Zamora,
Dominador Jr.

Toyotas Position Paper containing the list of striking workers was attested to as true and
correct under oath by Mr. Jose Ma. Aligada, First Vice President of the Group

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Administration Division of Toyota. Mr. Emerito Dumaraos, Assistant Department Manager
of the Production Department of Toyota, likewise submitted a June 29, 2001
Affidavit56 confirming the low attendance of employees on February 21, 22, and 23, 2001,
which resulted from the intentional absences of the aforelisted striking workers. The Union,
on the other hand, did not refute Toyotas categorical assertions on the participation of said
workers in the mass actions and their deliberate refusal to perform their assigned work on
February 21, 22, and 23, 2001. More importantly, it did not deny the fact of absence of the
employees on those days from the Toyota manufacturing plants and their deliberate refusal
to render work. Their admission that they participated in the February 21 to 23, 2001 mass
actions necessarily means they were absent from their work on those days.

Anent the March 28 to April 12, 2001 strikes, evidence is ample to show commission of
illegal acts like acts of coercion or intimidation and obstructing free ingress to or egress
from the company premises. Mr. Eduardo Nicolas III, Toyotas Security Chief, attested in his
affidavit that the strikers "badmouthed people coming in and shouted invectives such as
bakeru at Japanese officers of the company." The strikers even pounded the vehicles of
Toyota officials. More importantly, they prevented the ingress of Toyota employees,
customers, suppliers, and other persons who wanted to transact business with the
company. These were patent violations of Art. 264(e) of the Labor Code, and may even
constitute crimes under the Revised Penal Code such as threats or coercion among others.

On March 28, 2001, the following have committed illegal actsblocking the ingress to or
egress from the two (2) Toyota plants and preventing the ingress of Toyota employees on
board the company shuttle at the Bicutan and Sta. Rosa Plants, viz:

1. Grant Robert Toral; 2. John Posadas; 3. Alex Sierra; 4. Allan John Malabanan; 5. Abel
Berces; 6. Ariel Garcia; 7. Charlie Oliveria; 8. Manjolito Puno; 9. Baldwin San Pablo; 10.
Federico Torres; 11. Larry Gerola; 12. Roderick Bayani; 13. Allan Oclarino; 14. Reynaldo
Cuevas; 15. George Polutan; 16. Arman Ercillo; 17. Joey Llanera; and 18. Roberto Gonzales

Photographs were submitted by Toyota marked as Annexes "1" through "18" of its Position
Paper, vividly showing the participation of the aforelisted employees in illegal acts. 57

To further aggravate the situation, a number of union members committed illegal acts
(blocking the ingress to and egress from the plant) during the strike staged on March 29,
2001 at the Toyota plant in Bicutan, to wit:

1. Basilio Laqui; 2. Sabas Benabise; 3. Federico Torres; 4. Freddie Olit; and 5. Joel Agosto

Pictures marked as Annexes "21" to "22" of Toyotas Position Paper reveal the illegal acts
committed by the aforelisted workers.58

On the next day, March 30, 2001, several employees again committed illegal acts (blocking
ingress to and egress from the plant) during the strike at the Bicutan plant, to wit:

1. Ariel Garcia; 2. Edgar Hilaga; 3. Charlie Oliveria; 4. Ferdinand Jaen; 5. Wilfredo Tagle; 6.
Alejandro Imperial; 7. Manjolito Puno; 8. Delmar Espadilla; 9. Apollo Violeta; and 10. Elvis
Tabirao

Pictures marked as Annexes "25" to "26" and "28" of Toyotas Position Paper show the
participation of these workers in unlawful acts.59

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On April 5, 2001, seven (7) Toyota employees were identified to have committed illegal acts
(blocking ingress to and egress from the plant) during the strike held at the Bicutan plant,
to wit:

1. Raymund Santos; 2. Elvis Tabirao; 3. Joseph Vargas; 4. Bernardo Salvador; 5. Antonio

Dimayuga; 6. Rurel Borebor; and 7. Alberto Lomboy

The participations of the strikers in illegal acts are manifest in the pictures marked as
Annexes "32" and "33" of Toyotas Position Paper. 60

On April 6, 2001, only Rogelio Piamonte was identified to have committed illegal acts
(blocking ingress to and egress from the Toyota plant) during the strike at the Toyota Santa
Rosa plant.61 Then, on April 9, 2001, Alvin Paniterce, Dennis Apolinario, and Eduardo
Miranda62 were identified to have committed illegal acts (blocking ingress to and egress from
the Toyota plant) during the strike at the Toyota Santa Rosa plant and were validly
dismissed by Toyota.

Lastly, the strikers, though on payroll reinstatement, staged protest rallies on May 23, 2001
and May 28, 2001 in front of the Bicutan and Sta. Rosa plants. These workers acts in
joining and participating in the May 23 and 28, 2001 rallies or pickets were patent
violations of the April 10, 2001 assumption of jurisdiction/certification Order issued by the
DOLE Secretary, which proscribed the commission of acts that might lead to the "worsening
of an already deteriorated situation." Art. 263(g) is clear that strikers who violate the
assumption/certification Order may suffer dismissal from work. This was the situation in
the May 23 and 28, 2001 pickets and concerted actions, with the following employees who
committed illegal acts:

a. Strikers who joined the illegal pickets on May 23, 2001 were (1) Dennis Apolinario; (2)
Abel Berces; (3) Benny Bering; (4) Dexter Bolaos; (5) Freddie Busano; (6) Ernesto Bustillo,
Jr.; (7) Randy Consignado; (8) Herbert Dalanon; (9) Leodegario De Silva; (10) Alexander
Esteva; (11) Jason Fajilagutan; (12) Nikko Franco; (13) Genaro Gerola, Jr.; (14) Michael
Gohilde; (15) Rogelio Magistrado; (16) Rolando Malaluan, Jr.; (17) Leoncio Malate, Jr.; (18)
Edwin Manzanilla; (19) Nila Marcial; (20) Roderick Nierves; (21) Larry Ormilla; (22) Filemon
Ortiz; (23) Cornelio Platon; (24) Alejandro Sampang; (25) Eric Santiago; (26) Romualdo
Simborio; (27) Lauro Sulit; and (28) Rommel Tagala.

Pictures show the illegal acts (participation in pickets/strikes despite the issuance of a
return-to-work order) committed by the aforelisted strikers. 63

b. Strikers who participated in the May 28, 2001 were (1) Joel Agosto; (2) Alex Alejo; (3)
Erwin Alfonso; (4) Dennis Apolinario; (5) Melvin Apostol; (6) Rommel Arceta; (7) Lester Atun;
(8) Abel Berces; (9) Benny Bering; (10) Dexter Bolanos; (11) Marcelo Cabezas; (12) Nelson
Leo Capate; (13) Lorenzo Caraqueo; (14) Christopher Catapusan; (15) Ricky Chavez; (16)
Virgilio Colandog; (17) Claudio Correa; (18) Ed Cubelo; (19) Reynaldo Cuevas; (20) Rene
Dalisay; (21) Benigno David, Jr.; (22) Alex Del Mundo; (23) Basilio Dela Cruz; (24) Roel
Digma; (25) Aldrin Duyag; (26) Armando Ercillo; (27) Delmar Espadilla; (28) Alexander
Esteva; (29) Nikko Franco; (30) Dexter Fulgar; (31) Dante Fulo; (32) Eduardo Gado; (33)
Michael Gohilde; (34) Eugene Jay Hondrada II; (35) Joey Javillonar; (36) Basilio Laqui; (37)
Alberto Lomboy; (38) Geronimo Lopez; (39) Rommel Macalindog; (40) Nixon Madrazo; (41)
Valentin Magbalita; (42) Allan Jon Malabanan; (43) Jonamar Manaog; (44) Bayani Manguil;
(45) June Manigbas; (46) Alfred Manjares; (47) Edwin Manzanilla; (48) Mayo Mata; (49) Leo

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Ojenal; (50) Allan Oriana; (51) Rogelio Piamonte; (52) George Polutan; (53) Eric Santiago;
(54) Bernabe Saquilabon; (55) Alex Sierra; (56) Romualdo Simborio; (57) Lauro Sulit; (58)
Elvisanto Tabirao; (59) Edwin Tablizo; (60) Emmanuel Tulio; (61) Nestor Umiten; (62)
Joseph Vargas; (63) Edwin Vergara; and (64) Michael Teddy Yangyon.

Toyota presented photographs which show said employees conducting mass pickets and
concerted actions.64

Anent the grant of severance compensation to legally dismissed union members, Toyota
assails the turn-around by the CA in granting separation pay in its June 20, 2003
Resolution after initially denying it in its February 27, 2003 Decision. The company
asseverates that based on the CA finding that the illegal acts of said union members
constitute gross misconduct, not to mention the huge losses it suffered, then the grant of
separation pay was not proper.

The general rule is that when just causes for terminating the services of an employee under
Art. 282 of the Labor Code exist, the employee is not entitled to separation pay. The
apparent reason behind the forfeiture of the right to termination pay is that lawbreakers
should not benefit from their illegal acts. The dismissed employee, however, is entitled to
"whatever rights, benefits and privileges [s/he] may have under the applicable individual or
collective bargaining agreement with the employer or voluntary employer policy or
practice"65 or under the Labor Code and other existing laws. This means that the employee,
despite the dismissal for a valid cause, retains the right to receive from the employer
benefits provided by law, like accrued service incentive leaves. With respect to benefits
granted by the CBA provisions and voluntary management policy or practice, the
entitlement of the dismissed employees to the benefits depends on the stipulations of the
CBA or the company rules and policies.

As in any rule, there are exceptions. One exception where separation pay is given even
though an employee is validly dismissed is when the court finds justification in applying the
principle of social justice well entrenched in the 1987 Constitution. In Phil. Long Distance
Telephone Co. (PLDT) v. NLRC, the Court elucidated why social justice can validate the
grant of separation pay, thus:

The reason is that our Constitution is replete with positive commands for the promotion of
social justice, and particularly the protection of the rights of the workers. The enhancement
of their welfare is one of the primary concerns of the present charter. In fact, instead of
confining itself to the general commitment to the cause of labor in Article II on the
Declaration of Principles of State Policies, the new Constitution contains a separate article
devoted to the promotion of social justice and human rights with a separate sub-topic for
labor. Article XIII expressly recognizes the vital role of labor, hand in hand with
management, in the advancement of the national economy and the welfare of the people in
general. The categorical mandates in the Constitution for the improvement of the lot of the
workers are more than sufficient basis to justify the award of separation pay in proper
cases even if the dismissal be for cause. 66

In the same case, the Court laid down the rule that severance compensation shall be
allowed only when the cause of the dismissal is other than serious misconduct or that
which reflects adversely on the employees moral character. The Court succinctly discussed
the propriety of the grant of separation pay in this wise:

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We hold that henceforth separation pay shall be allowed as a measure of social justice only
in those instances where the employee is validly dismissed for causes other than serious
misconduct or those reflecting on his moral character. Where the reason for the valid
dismissal is, for example, habitual intoxication or an offense involving moral turpitude, like
theft or illicit sexual relations with a fellow worker, the employer may not be required to give
the dismissed employee separation pay, or financial assistance, or whatever other name it is
called, on the ground of social justice.

A contrary rule would, as the petitioner correctly argues, have the effect, of rewarding
rather than punishing the erring employee for his offense. And we do not agree that the
punishment is his dismissal only and that the separation pay has nothing to do with the
wrong he has committed. Of course it has. Indeed, if the employee who steals from the
company is granted separation pay even as he is validly dismissed, it is not unlikely that he
will commit a similar offense in his next employment because he thinks he can expect a like
leniency if he is again found out. This kind of misplaced compassion is not going to do labor
in general any good as it will encourage the infiltration of its ranks by those who do not
deserve the protection and concern of the Constitution.

The policy of social justice is not intended to countenance wrongdoing simply because it is
committed by the underprivileged. At best it may mitigate the penalty but it certainly will
not condone the offense. Compassion for the poor is an imperative of every humane society
but only when the recipient is not a rascal claiming an undeserved privilege. Social justice
cannot be permitted to be refuge of scoundrels any more than can equity be an impediment
to the punishment of the guilty. Those who invoke social justice may do so only if their
hands are clean and their motives blameless and not simply because they happen to be
poor. This great policy of our Constitution is not meant for the protection of those who have
proved they are not worthy of it, like the workers who have tainted the cause of labor with
the blemishes of their own character.67

Explicit in PLDT are two exceptions when the NLRC or the courts should not grant
separation pay based on social justiceserious misconduct (which is the first ground for
dismissal under Art. 282) or acts that reflect on the moral character of the employee. What
is unclear is whether the ruling likewise precludes the grant of separation pay when the
employee is validly terminated from work on grounds laid down in Art. 282 of the Labor
Code other than serious misconduct.

A recall of recent cases decided bearing on the issue reveals that when the termination is
legally justified on any of the grounds under Art. 282, separation pay was not allowed.
In Ha Yuan Restaurant v. NLRC,68 we deleted the award of separation pay to an employee
who, while unprovoked, hit her co-workers face, causing injuries, which then resulted in a
series of fights and scuffles between them. We viewed her act as serious misconduct which
did not warrant the award of separation pay. In House of Sara Lee v. Rey,69 this Court
deleted the award of separation pay to a branch supervisor who regularly, without
authorization, extended the payment deadlines of the companys sales agents. Since the
cause for the supervisors dismissal involved her integrity (which can be considered as
breach of trust), she was not worthy of compassion as to deserve separation pay based on
her length of service. In Gustilo v. Wyeth Phils., Inc.,70 this Court found no exceptional
circumstance to warrant the grant of financial assistance to an employee who repeatedly
violated the companys disciplinary rules and regulations and whose employment was thus
terminated for gross and habitual neglect of his duties. In the doctrinal case of San Miguel
v. Lao,71 this Court reversed and set aside the ruling of the CA granting retirement benefits

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or separation pay to an employee who was dismissed for willful breach of trust and
confidence by causing the delivery of raw materials, which are needed for its glass
production plant, to its competitor. While a review of the case reports does not reveal a case
involving a termination by reason of the commission of a crime against the employer or
his/her family which dealt with the issue of separation pay, it would be adding insult to
injury if the employer would still be compelled to shell out money to the offender after the
harm done.

In all of the foregoing situations, the Court declined to grant termination pay because the
causes for dismissal recognized under Art. 282 of the Labor Code were serious or grave in
nature and attended by willful or wrongful intent or they reflected adversely on the moral
character of the employees. We therefore find that in addition to serious misconduct, in
dismissals based on other grounds under Art. 282 like willful disobedience, gross and
habitual neglect of duty, fraud or willful breach of trust, and commission of a crime against
the employer or his family, separation pay should not be conceded to the dismissed
employee.

In analogous causes for termination like inefficiency, drug use, and others, the NLRC or the
courts may opt to grant separation pay anchored on social justice in consideration of the
length of service of the employee, the amount involved, whether the act is the first offense,
the performance of the employee and the like, using the guideposts enunciated in PLDT on
the propriety of the award of separation pay.

In the case at bench, are the 227 striking employees entitled to separation pay?

In the instant case, the CA concluded that the illegal strikes committed by the Union
members constituted serious misconduct.72

The CA ratiocinated in this manner:

Neither can social justice justify the award to them of severance compensation or any other
form of financial assistance. x x x

xxxx

Considering that the dismissal of the employees was due to their participation in the illegal
strikes as well as violation of the Code of Conduct of the company, the same constitutes
serious misconduct. A serious misconduct is a transgression of some established and
definite rule of action, a forbidden act, a dereliction of duty, willful in character, and implies
wrongful intent and not mere error in judgment. In fact, in Panay Electric Company, Inc. v.
NLRC, the Supreme Court nullified the grant of separation benefits to employees who
unlawfully participated in an illegal strike in light of Article 264, Title VIII, Book V of the
Labor Code, that, "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."

The constitutional guarantee on social justice is not intended only for the poor but for the
rich as well. It is a policy of fairness to both labor and management. 73 (Emphasis supplied.)

In disposing of the Unions plea for reconsideration of its February 27, 2003 Decision, the
CA however performed a volte-face by reinstating the award of separation pay.

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The CAs grant of separation pay is an erroneous departure from our ruling in Phil. Long
Distance Telephone Co. v. NLRC that serious misconduct forecloses the award of separation
pay. Secondly, the advertence to the alleged honest belief on the part of the 227 employees
that Toyota committed a breach of the duty to bargain collectively and an abuse of valid
exercise of management prerogative has not been substantiated by the evidence extant on
record. There can be no good faith in intentionally incurring absences in a collective fashion
from work on February 22 and 23, 2001 just to attend the DOLE hearings. The Unions
strategy was plainly to cripple the operations and bring Toyota to its knees by inflicting
substantial financial damage to the latter to compel union recognition. The Union officials
and members are supposed to know through common sense that huge losses would befall
the company by the abandonment of their regular work. It was not disputed that Toyota
lost more than PhP 50 million because of the willful desertion of company operations in
February 2001 by the dismissed union members. In addition, further damage was
experienced by Toyota when the Union again resorted to illegal strikes from March 28 to
April 12, 2001, when the gates of Toyota were blocked and barricaded, and the company
officials, employees, and customers were intimidated and harassed. Moreover, they were
fully aware of the company rule on prohibition against concerted action inimical to the
interests of the company and hence, their resort to mass actions on several occasions in
clear violation of the company regulation cannot be excused nor justified. Lastly, they
blatantly violated the assumption/certification Order of the DOLE Secretary, exhibiting
their lack of obeisance to the rule of law. These acts indeed constituted serious misconduct.

A painstaking review of case law renders obtuse the Unions claim for separation pay. In a
slew of cases, this Court refrained from awarding separation pay or financial assistance to
union officers and members who were separated from service due to their participation in or
commission of illegal acts during strikes. In the recent case of Pilipino Telephone Corporation
v. Pilipino Telephone Employees Association (PILTEA),74 this Court upheld the dismissal of
union officers who participated and openly defied the return-to-work order issued by the
DOLE Secretary. No separation pay or financial assistance was granted. In Sukhothai
Cuisine and Restaurant v. Court of Appeals,75 this Court declared that the union officers
who participated in and the union members who committed illegal acts during the illegal
strike have lost their employment status. In this case, the strike was held illegal because it
violated agreements providing for arbitration. Again, there was no award of separation pay
nor financial assistance. In Philippine Diamond Hotel and Resort, Inc. v. Manila Diamond
Hotel Employees Union,76the strike was declared illegal because the means employed was
illegal. We upheld the validity of dismissing union members who committed illegal acts
during the strike, but again, without awarding separation pay or financial assistance to the
erring employees. In Samahang Manggagawa sa Sulpicio Lines, Inc. v. Sulpicio Lines,77 this
Court upheld the dismissal of union officers who participated in an illegal strike sans any
award of separation pay. Earlier, in Grand Boulevard Hotel v. Genuine Labor Organization of
Workers in Hotel, Restaurant and Allied Industries,78 we affirmed the dismissal of the
Unions officers who participated in an illegal strike without awarding separation pay,
despite the NLRCs declaration urging the company to give financial assistance to the
dismissed employees.79 In Interphil Laboratories Union-FFW, et al. v. Interphil Laboratories,
Inc.,80 this Court affirmed the dismissal of the union officers who led the concerted action in
refusing to render overtime work and causing "work slowdowns." However, no separation
pay or financial assistance was allowed. In CCBPI Postmix Workers Union v. NLRC,81 this
Court affirmed the dismissal of union officers who participated in the strike and the union
members who committed illegal acts while on strike, without awarding them separation pay
or financial assistance. In 1996, in Allied Banking Corporation v. NLRC,82 this Court
affirmed the dismissal of Union officers and members, who staged a strike despite the

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DOLE Secretarys issuance of a return to work order but did not award separation pay. In
the earlier but more relevant case of Chua v. NLRC,83 this Court deleted the NLRCs award
of separation benefits to an employee who participated in an unlawful and violent strike,
which strike resulted in multiple deaths and extensive property damage. In Chua, we
viewed the infractions committed by the union officers and members as a serious
misconduct which resulted in the deletion of the award of separation pay in conformance to
the ruling in PLDT. Based on existing jurisprudence, the award of separation pay to the
Union officials and members in the instant petitions cannot be sustained.

One last point to considerit is high time that employer and employee cease to view each
other as adversaries and instead recognize that theirs is a symbiotic relationship, wherein
they must rely on each other to ensure the success of the business. When they consider
only their own self-interests, and when they act only with their own benefit in mind, both
parties suffer from short-sightedness, failing to realize that they both have a stake in the
business. The employer wants the business to succeed, considering the investment that has
been made. The employee in turn, also wants the business to succeed, as continued
employment means a living, and the chance to better ones lot in life. It is clear then that
they both have the same goal, even if the benefit that results may be greater for one party
than the other. If this becomes a source of conflict, there are various, more amicable means
of settling disputes and of balancing interests that do not add fuel to the fire, and instead
open avenues for understanding and cooperation between the employer and the employee.
Even though strikes and lockouts have been recognized as effective bargaining tools, it is an
antiquated notion that they are truly beneficial, as they only provide short-term solutions
by forcing concessions from one party; but staging such strikes would damage the working
relationship between employers and employees, thus endangering the business that they
both want to succeed. The more progressive and truly effective means of dispute resolution
lies in mediation, conciliation, and arbitration, which do not increase tension but instead
provide relief from them. In the end, an atmosphere of trust and understanding has much
more to offer a business relationship than the traditional enmity that has long divided the
employer and the employee.

WHEREFORE, the petitions in G.R. Nos. 158786 and 158789 are DENIED while those in
G.R. Nos. 158798-99 are GRANTED.

The June 20, 2003 CA Resolution in CA-G.R. SP Nos. 67100 and 67561 restoring the grant
of severance compensation is ANNULLED and SET ASIDE.

The February 27, 2003 CA Decision in CA-G.R. SP Nos. 67100 and 67561, which affirmed
the August 9, 2001 Decision of the NLRC but deleted the grant of severance compensation,
is REINSTATED and AFFIRMED.

No costs.

SO ORDERED.

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 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 184011 September 18, 2013

REYNALDO HAYAN MOYA, Petitioner,

vs.
FIRST SOLID RUBBER INDUSTRIES, INC., Respondent.

DECISION

PEREZ, J.:

Before the Court is a Petition for Review on Certiorari 1 from the Decision2 of the Special
Third Division of the Court of Appeals in CA-G.R. SP No. 99500 dated 30 April 2008,
modifying the Decision of the National Labor Relations Commission (NLRC) by deleting the
award of separation pay in favor of Reynaldo Hayan Moya (Moya). The dispositive portion of
the assailed decision reads:

WHEREFORE, premises considered, the petition is hereby GRANTED. The Resolutions

dated January 31, 2007 and April 24, 2007 of the National Labor Relations Commission in
NLRC NCR CA No. 048653-06 (NLRC NCR Case No. 00-11-12626 2004) affirming the
Decision dated February 28, 2006 of the Labor Arbiter Pablo C. Espiritu, Jr. is MODIFIED
by deleting the award for separation pay in favor of private respondent Reynaldo Hayan
Moya.3

The facts as gathered by this Court follow:

On 25 January 2005, Moya filed before the NLRC-National Capital Region a complaint for
illegal dismissal against First Solid Rubber Industries, Inc. (First Solid) and its President
Edward Lee Sumulong. In his complaint-affidavit,4Moya alleged that:

1. Sometime in May 1993, he was hired by the company First Solid, a business
engaged in manufacturing of tires and rubbers, as a machine operator;

2. Through years of dedication to his job, he was promoted as head of the Tire
Curing Department of the company;

3. On October 15, 2004, he reported an incident about an under curing of tires

within his department which led to the damage of five tires;

4. The company conducted an investigation of the incident and he was later required
to explain;

5. In his explanation, he stated that the damage was caused by machine failure and
the incident was without any fault of the operator;

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 6. Despite his explanation of what transpired, he was terminated by the company
through a letter dated November 9, 2004.

From the foregoing, he prayed that payment of backwages, separation pay, moral damages
and exemplary damages be adjudged in his favor due to the illegal dismissal he suffered
from the company.

Moya, through his Reply,5 added that his termination fell short of any of the just causes of
serious misconduct, gross and habitual neglect of duties and willful breach of trust. He
pointed out that the company failed to prove that his act fell within the purview of improper
or wrong misconduct, and that a single act of negligence as compared to eleven (11) years of
service of good record with the company will not justify his dismissal.

First Solid, in its Position Paper,6 Reply7 and Memorandum,8 admitted that Moya was a
former employee of the company and was holding the position of Officer-in-Charge of the
Tire Curing Department until his valid dismissal. However, it denied that it illegally
dismissed Moya and maintained that his severance from the company was due to a valid
exercise of management prerogative.9 The company insisted on its right to validly dismiss
an employee in good faith if it has a reasonable ground to believe that its employee is
responsible of misconduct, and the nature of his participation therein renders him
absolutely unworthy of the trust and confidence demanded by his position. 10

Opposing the story of Moya, the company countered that Moya, who was exercising
supervision and control over the employees as a department head, failed to exercise the
diligence required of him to see to it that the machine operator, Melandro Autor, properly
operated the machine. This act is considered as a gross and habitual neglect of duty which
caused actual losses to the company. 11

During the initial investigation, Moya, in his Explanation Letter12 dated 15 October 2004,
insisted that the cause of the damage of five (5) tires was due to premature hauling of the
tires below curing time. Unsatisfied with the explanation, the company sent Moya a
Letter13 dated 26 October 2004 stating that he failed to explain what really transpired in the
under curing of tires. The company informed Moya that the damage was caused by the
operators unlawful setting of the timer from manual to automatic without Moyas
permission. To make the matter worse, Moya failed to disclose the real situation that the
operator was at fault.

Moya was given twenty-four (24) hours to defend himself and explain the matter. In
response, Moya admitted in a letter dated 29 October 2004 his mistake of not disclosing the
true incident and explained that he found it more considerate to just let the operator be
suspended and be fined for the damage committed. He denied any willful intention to
conceal the truth or cover up the mistake of his employee. Finally, he asked for the
companys forgiveness for the fault he had committed. 14 In a letter dated 3 November 2004,
Moya reiterated his plea for forgiveness and asked for another chance to continue his
employment with the company. 15

Procedural due process, through issuance of twin notices, was also complied with by the
company. Moya was informed of the charges against him through a
memorandum16 indicating his violation and was given an opportunity to answer or rebut
the charges. After giving his explanation through several letters to the company, a notice
was sent informing him of the managements decision of his dismissal and termination from

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services on9 November 2004 based on serious misconduct, gross and habitual neglect of
duty and willful breach of trust reposed upon him by the company. 17

On 28 February 2006, Labor Arbiter Pablo C. Espiritu, Jr. rendered a judgment 18 finding
sufficient and valid grounds to dismiss Moya for concealing and lying to First Solid about
the factual circumstances leading to the damage of five (5) tires on 15 October 2004.
However, it ruled that the dismissal from service of the complainant was too harsh as a
penalty since it was a first offense and there was no willful and malicious intention on his
part to cause damage. The dispositive portion reads:

WHEREFORE, judgment is hereby rendered ordering Respondents First Solid Rubber

Industrial, Inc. and Edward Lee Sumulong to jointly and severally pay complainant
separation pay in lieu of reinstatement the amount of P63, 654.00.

All other claims whether monetary or otherwise are hereby DISMISSED for lack of merit. 19

In justifying his decision, the Labor Arbiter explained that the length of time during which
the complainant was deprived of employment was sufficient penalty for the act he had
committed against the company. As a result, his reinstatement without backwages to his
former position was in order. However, since the employment was already strained and
Moya was no longer seeking to be reinstated, he decided that it was for the best interest of
both parties to award instead a separation pay of one (1) month salary for every year of
credited service less the total of cash advances of the complainant amounting
to P19,000.00.20

Not in total accord with the outcome of the decision, First Solid filed its partial appeal
before the NLRC on 13 April 2006. The company assailed as error on the part of the Labor
Arbiter the grant of separation pay in favor of Moya despite the finding that there was a just
cause for the employees dismissal from service. It was submitted that the complainants
length of service to the company cannot be invoked to justify the award. It was argued that
Moya was dismissed for just causes; hence, to award separation pay would be tantamount
to giving a prize for disloyalty and breach of trust. 21

On 31 January 2007, the NLRC affirmed the Decision of the Labor Arbiter in its entirety.22

The NLRC affirmed the finding of the Labor Arbiter that a separation pay should be given to
Moya in lieu of reinstatement citing primarily his length of service and years of contribution
to the profitable business operation of the company. It also noted that this transgression
was the first mistake of Moya in the performance of his functions. Finally, it cited as
justification the Courts ruling in St. Michaels Institute v. Santos, 23 wherein the Court held
that "even when an employee is found to have transgressed the employers rules, in the
actual imposition of penalties upon the erring employee, due consideration must still be
given to his length of service and the number of violations committed during his
employment."24

In its Motion for Reconsideration, 25 First Solid insisted that length of service cannot
mitigate breach of trust which is penalized with dismissal.

On 24 April 2007, the NLRC denied the motion of First Solid as it found no compelling
justification to overturn its findings.26

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In its Petition for Certiorari before the Court of Appeals, the company reiterated its previous
arguments that separation pay cannot be awarded to validly dismissed employees and that
length of service was not a ground to reduce the penalty of dismissal due to breach of
trust.27

In his Comment28 and Memorandum,29 Moya capitalized on the pronouncement of the

Labor Arbiter that his alleged infraction does not merit a penalty of dismissal from service
given his length of service to the company as well as the failure of the company to prove
that he acted maliciously and with the intention to cause damage.

First Solid, in its Reply30 and Memorandum,31 argued that Moya, being a supervisor, the
company reposed on him its trust and confidence. He was expected to remain loyal and
trustworthy and promote the best interest of the company. His act of concealing, by making
a fraudulent report to the company regarding the transgression of the machine operator
under him, is a valid basis for dismissal based on breach of trust and confidence. The
company further contended that the award of separation pay made by the labor tribunals
was contrary to law and jurisprudence.

In its Decision,32 the Court of Appeals ruled in favor of the company and reversed the
decisions of the labor tribunals. The dispositive portions reads:

WHEREFORE, premises considered, the petition is GRANTED. The Resolutions dated

January 31, 2007 and April 24, 2007 of the National Labor Relations Commission in NLRC
NCR CA No. 048653-06(NLRC NCR Case No. 00-11-12626-2004) affirming the Decision
dated February 28, 2006 of the Labor Arbiter Pablo C. Espiritu, Jr. is MODIFIED by
deleting the award for separation pay in favor of private respondent Reynaldo Hayan
Moya.33

The appellate court ruled that an employee found to be guilty of serious misconduct or
other acts reflecting his moral character is not entitled to separation pay. Moya who held a
supervisory position as the Head of the Curing Department breached the trust reposed
upon him when he did not disclose what was actually done by the machine operator which
eventually caused the damage. It was only when the company discovered that the report
was not in accordance with what really transpired that Moya admitted its mistake. In sum,
the appellate court agreed that First Solid presented substantial proof to consider Moya as
dishonest and disloyal to the company.

It took the position that instead of being a basis for the award of separation pay, Moyas
length of service should have been taken against him. The reason for his dismissal was his
lack of integrity and loyalty to the company reflecting upon his moral character.

The appellate court emphasized that while the law is considerate to the welfare of the
employees whenever there is a labor conflict, it also protects the right of an employer to
exercise its management prerogative in good faith.

The Courts Ruling

That there is a valid ground for the dismissal of Moya based on breach and loss of trust and
confidence is no longer at issue. The Labor Arbiter, NLRC and the appellate court were
unanimous in their rulings on this matter. The remaining question is whether or not
petitioner employee is entitled to separation pay based on his length of service.

Page 110 of 250

Petitioner is not entitled to separation pay. Payment of separation pay cannot be justified by
his length of service.

It must be stressed that Moya was not an ordinary rank-and-file employee. He was holding
a supervisory rank being an Officer-in-Charge of the Tire Curing Department. The position,
naturally one of trust, required of him abiding honesty as compared to ordinary rank-and-
file employees. When he made a false report attributing the damage of five tires to machine
failure, he breached the trust and confidence reposed upon him by the company.

In a number of cases,34 this Court put emphasis on the right of an employer to exercise its
management prerogative in dealing with its companys affairs including its right to dismiss
its erring employees. We recognized the right of the employer to regulate all aspects of
employment, such as the freedom to prescribe work assignments, working methods,
processes to be followed, regulation regarding transfer of employees, supervision of their
work, lay-off and discipline, and dismissal and recall of workers. 35 It is a general principle of
labor law to discourage interference with an employers judgment in the conduct of his
business. As already noted, even as the law is solicitous of the welfare of the employees, it
also recognizes employers exercise of management prerogatives. As long as the companys
exercise of judgment is in good faith to advance its interest and not for the purpose of
defeating or circumventing the rights of employees under the laws or valid agreements,
such exercise will be upheld.36

Following the ruling in The Coca-Cola Export Corporation v. Gacayan,37 the employers have
a right to impose a penalty of dismissal on employees by reason of loss of trust and
confidence. More so, in the case of supervisors or personnel occupying positions of
responsibility, does loss of trust justify termination. Loss of confidence as a just cause for
termination of employment is premised on the fact that an employee concerned holds a
position of trust and confidence. This situation holds where a person is entrusted with
confidence on delicate matters, such as the custody, handling, or care and protection of the
employers property. But, in order to constitute a just cause for dismissal, the act
complained of must be "work-related" such as would show the employee concerned to be
unfit to continue working for the employer.38

The foregoing as viewpoint, the right of First Solid to handle its own affairs in managing its
business must be respected. The clear consequence is the denial of the grant of separation
pay in favor of Moya.

As pronounced in the recent case of Unilever Philippines, Inc., v. Rivera, 39 an employee who
has been dismissed for any of the just causes enumerated under Article 282 40 of the Labor
Code, including breach of trust, is not entitled to separation pay. 41 This is further bolstered
by Section 7,Rule I, Book VI of the Omnibus Rules Implementing the Labor Code which
provides that:

Sec. 7. Termination of employment by employer. The just causes for terminating the
services of an employee shall be those provided in Article 282 of the Code. The separation
from work of an employee for a just cause does not entitle him to the termination pay
provided in the Code, without prejudice, however, to whatever rights, benefits and privileges
he may have under the applicable individual or collective agreement with the employer or
voluntary employer policy or practice.1wphi1

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However, this Court also provides exceptions to the rule based on "social justice" or on
"equitable grounds" following the ruling in Philippine Long Distance Telephone Co. v.
NLRC,42 stating that separation pay shall be allowed as a measure of social justice only in
those instances where the employee is validly dismissed for causes other than serious
misconduct or those reflecting on his moral character. Where the reason for the valid
dismissal is, for example, habitual intoxication or an offense involving moral turpitude, like
theft or illicit sexual relations with a fellow worker, the employer may not be required to give
the dismissed employee separation pay, or financial assistance, or whatever other name it is
called, on the ground of social justice.43

The PLDT case further elucidates why an erring employee could not benefit under the cloak
of social justice in the award of separation pay, we quote:

The policy of social justice is not intended to countenance wrongdoing simply because it is
committed by the underprivileged. At best it may mitigate the penalty but it certainly will
not condone the offense. Compassion for the poor is an imperative of every humane society
but only when the recipient is not a rascal claiming an undeserved privilege. Social justice
cannot be permitted to be refuge of scoundrels any more than can equity be an impediment
to the punishment of the guilty. Those who invoke social justice may do so only if their
hands are clean and their motives blameless and not simply because they happen to be
poor. This great policy of our Constitution is not meant for the protection of those who have
proved they are not worthy of it, like the workers who have tainted the cause of labor with
the blemishes of their own character.44

Moyas dismissal is based on one of the grounds under Art. 282 of the Labor Code which is
willful breach by the employee of the trust reposed in him by his employer. Also, he is
outside the protective mantle of the principle of social justice as his act of concealing the
truth from the company is clear disloyalty to the company which has long employed
him.1wphi1

Indeed, as found below, Moyas length of service should be taken against him. The
pronouncement in Reno Foods, Inc. v. Nagkakaisang Lakas ng Manggagawa (NLM)
Katipunan45 is instructive on the matter:

x x x Length of service is not a bargaining chip that can simply be stacked against the
employer. After all, an employer-employee relationship is symbiotic where both parties
benefit from mutual loyalty and dedicated service. If an employer had treated his employee
well, has accorded him fairness and adequate compensation as determined by law, it is only
fair to expect a long-time employee to return such fairness with at least some respect and
honesty. Thus, it may be said that betrayal by a long-time employee is more insulting and
odious for a fair employer.46 (Emphasis supplied).

WHEREFORE, we DENY the petition for review on certiorari. The Decision dated 30 April
2008 and Resolution dated 1 August 2008 of the Special Third Division of the Court of
Appeals in CA-G.R. SP No. 99500 are hereby AFFIRMED.

Page 112 of 250

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 172101 November 23, 2007

REPUBLIC OF THE PHILIPPINES, represented by the SOCIAL SECURITY COMMISSION

and SOCIAL SECURITY SYSTEM, Petitioners,
vs.
ASIAPRO COOPERATIVE, Respondent.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised
Rules of Civil Procedure seeking to annul and set aside the Decision 1 and Resolution2 of the
Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006,
respectively, which annulled and set aside the Orders of the Social Security Commission
(SSC) in SSC Case No. 6-15507-03, dated 17 February 20043 and 16 September
2004,4respectively, thereby dismissing the petition-complaint dated 12 June 2003 filed by
herein petitioner Social Security System (SSS) against herein respondent.

Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial

body authorized by law to resolve disputes arising under Republic Act No. 1161, as
amended by Republic Act No. 8282.5 Petitioner SSS is a government corporation created by
virtue of Republic Act No. 1161, as amended. On the other hand, herein respondent Asiapro
Cooperative (Asiapro) is a multi-purpose cooperative created pursuant to Republic Act No.
69386 and duly registered with the Cooperative Development Authority (CDA) on 23
November 1999 with Registration Certificate No. 0-623-2460.7

The antecedents of this case are as follows:

Respondent Asiapro, as a cooperative, is composed of owners-members. Under its by-laws,

owners-members are of two categories, to wit: (1) regular member, who is entitled to all the
rights and privileges of membership; and (2) associate member, who has no right to vote
and be voted upon and shall be entitled only to such rights and privileges provided in its
by-laws.8 Its primary objectives are to provide savings and credit facilities and to develop
other livelihood services for its owners-members. In the discharge of the aforesaid primary
objectives, respondent cooperative entered into several Service Contracts 9 with Stanfilco - a
division of DOLE Philippines, Inc. and a company based in Bukidnon. The owners-members
do not receive compensation or wages from the respondent cooperative. Instead, they
receive a share in the service surplus10 which the respondent cooperative earns from
different areas of trade it engages in, such as the income derived from the said Service
Contracts with Stanfilco. The owners-members get their income from the service surplus
generated by the quality and amount of services they rendered, which is determined by the
Board of Directors of the respondent cooperative.

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

On 26 September 2002, however, petitioner SSS through its Vice-President for Mindanao
Division, Atty. Eddie A. Jara, sent a letter11 to the respondent cooperative, addressed to its
Chief Executive Officer (CEO) and General Manager Leo G. Parma, informing the latter that
based on the Service Contracts it executed with Stanfilco, respondent cooperative is
actually a manpower contractor supplying employees to Stanfilco and for that reason, it is
an employer of its owners-members working with Stanfilco. Thus, respondent cooperative
should register itself with petitioner SSS as an employer and make the corresponding report
and remittance of premium contributions in accordance with the Social Security Law of
1997. On 9 October 2002,12 respondent cooperative, through its counsel, sent a reply to
petitioner SSSs letter asserting that it is not an employer because its owners-members are
the cooperative itself; hence, it cannot be its own employer. Again, on 21 October
2002,13 petitioner SSS sent a letter to respondent cooperative ordering the latter to register
as an employer and report its owners-members as employees for compulsory coverage with
the petitioner SSS. Respondent cooperative continuously ignored the demand of petitioner
SSS.

Accordingly, petitioner SSS, on 12 June 2003, filed a Petition14 before petitioner SSC
against the respondent cooperative and Stanfilco praying that the respondent cooperative
or, in the alternative, Stanfilco be directed to register as an employer and to report
respondent cooperatives owners-members as covered employees under the compulsory
coverage of SSS and to remit the necessary contributions in accordance with the Social
Security Law of 1997. The same was docketed as SSC Case No. 6-15507-03. Respondent
cooperative filed its Answer with Motion to Dismiss alleging that no employer-employee
relationship exists between it and its owners-members, thus, petitioner SSC has no
jurisdiction over the respondent cooperative. Stanfilco, on the other hand, filed an Answer
with Cross-claim against the respondent cooperative.

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

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

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

A. [Petitioner] SSC arbitrarily proceeded with the case as if it has jurisdiction over
the petition a quo, considering that it failed to first resolve the issue of the existence

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 of an employer-employee relationship between [respondent] cooperative and its
owners-members.

B. While indeed, the [petitioner] SSC has jurisdiction over all disputes arising under
the SSS Law with respect to coverage, benefits, contributions, and related matters, it
is respectfully submitted that [petitioner] SSC may only assume jurisdiction in cases
where there is no dispute as to the existence of an employer-employee relationship.

C. Contrary to the holding of the [petitioner] SSC, the legal issue of employer-
employee relationship raised in [respondents] Motion to Dismiss can be
preliminarily resolved through summary hearings prior to the hearing on the merits.
However, any inquiry beyond a preliminary determination, as what [petitioner SSC]
wants to accomplish, would be to encroach on the jurisdiction of the National Labor
Relations Commission [NLRC], which is the more competent body clothed with
power to resolve issues relating to the existence of an employment relationship.

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

A. [Respondent] is not an employer within the contemplation of the Labor Law but is
a multi-purpose cooperative created pursuant to Republic Act No. 6938 and
composed of owners-members, not employees.

B. The rights and obligations of the owners-members of [respondent] cooperative are

derived from their Membership Agreements, the Cooperatives By-Laws, and Republic
Act No. 6938, and not from any contract of employment or from the Labor Laws.
Moreover, said owners-members enjoy rights that are not consistent with being mere
employees of a company, such as the right to participate and vote in decision-
making for the cooperative.

C. As found by the Bureau of Internal Revenue [BIR], the owners-members of

[respondent] cooperative are not paid any compensation income. 15 (Emphasis
supplied.)

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

WHEREFORE, the petition is GRANTED. The assailed Orders dated [17 February 2004] and
[16 September 2004], are ANNULLED and SET ASIDE and a new one is entered
DISMISSING the petition-complaint dated [12 June 2003] of [herein petitioner] Social
Security System.16

Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it was
denied by the appellate court in its Resolution dated 20 March 2006.

Hence, this Petition.

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

Page 115 of 250

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

II. Respondent [cooperative] is estopped from questioning the jurisdiction of

petitioner SSC after invoking its jurisdiction by filing an [A]nswer with [M]otion to
[D]ismiss before it.

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

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

presentation of evidence is necessary.

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

its [owners-members].

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

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

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

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

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

Page 116 of 250

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

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

Lastly, respondent cooperative asserts that it cannot be considered estopped from assailing
the jurisdiction of petitioner SSC simply because it filed an Answer with Motion to Dismiss,
especially where the issue of jurisdiction is raised at the very first instance and where the
only relief being sought is the dismissal of the petition-complaint for lack of jurisdiction.

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

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

II. Whether the respondent cooperative is estopped from assailing the jurisdiction of
petitioner SSC since it had already filed an Answer with Motion to Dismiss before
the said body.

Petitioner SSCs jurisdiction is clearly stated in Section 5 of Republic Act No. 8282 as well
as in Section 1, Rule III of the 1997 SSS Revised Rules of Procedure.

Section 5 of Republic Act No. 8282 provides:

SEC. 5. Settlement of Disputes. (a) Any dispute arising under this Act with respect to
coverage, benefits, contributions and penalties thereon or any other matter related thereto,
shall be cognizable by the Commission, x x x. (Emphasis supplied.)

Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states:

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

It is clear then from the aforesaid provisions that any issue regarding the compulsory
coverage of the SSS is well within the exclusive domain of the petitioner SSC. It is important
to note, though, that the mandatory coverage under the SSS Law is premised on the

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existence of an employer-employee relationship17 except in cases of compulsory coverage of
the self-employed.

It is axiomatic that the allegations in the complaint, not the defenses set up in the Answer
or in the Motion to Dismiss, determine which court has jurisdiction over an action;
otherwise, the question of jurisdiction would depend almost entirely upon the
defendant.18 Moreover, it is well-settled that once jurisdiction is acquired by the court, it
remains with it until the full termination of the case. 19 The said principle may be applied
even to quasi-judicial bodies.

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

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

respondent cooperative and its owners-members was put in issue and considering that the
compulsory coverage of the SSS Law is predicated on the existence of such relationship, it
behooves the petitioner SSC to determine if there is really an employer-employee
relationship that exists between the respondent cooperative and its owners-members.

The question on the existence of an employer-employee relationship is not within the

exclusive jurisdiction of the National Labor Relations Commission (NLRC). Article 217 of the
Labor Code enumerating the jurisdiction of the Labor Arbiters and the NLRC provides that:

ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. - (a) x x x.

xxxx

6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of
persons in domestic or household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement. 20

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

Page 118 of 250

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

Even before the petitioner SSC could make a determination of the existence of an employer-
employee relationship, however, the respondent cooperative already elevated the Order of
the petitioner SSC, denying its Motion to Dismiss, to the Court of Appeals by filing a
Petition for Certiorari. As a consequence thereof, the petitioner SSC became a party to the
said Petition for Certiorari pursuant to Section 5(b)22 of Republic Act No. 8282. The
appellate court ruled in favor of the respondent cooperative by declaring that the petitioner
SSC has no jurisdiction over the petition-complaint filed before it because there was no
employer-employee relationship between the respondent cooperative and its owners-
members. Resultantly, the petitioners SSS and SSC, representing the Republic of the
Philippines, filed a Petition for Review before this Court.

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

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

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

First. It is expressly provided in the Service Contracts that it is the respondent cooperative
which has the exclusive discretion in the selection and engagement of the owners-members
as well as its team leaders who will be assigned at Stanfilco. 28 Second. Wages are defined as
"remuneration or earnings, however designated, capable of being expressed in terms of
money, whether fixed or ascertained, on a time, task, piece or commission basis, or other
method of calculating the same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to be done, or for service

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rendered or to be rendered."29 In this case, the weekly stipends or the so-called shares in
the service surplus given by the respondent cooperative to its owners-members were in
reality wages, as the same were equivalent to an amount not lower than that prescribed by
existing labor laws, rules and regulations, including the wage order applicable to the area
and industry; or the same shall not be lower than the prevailing rates of wages. 30 It cannot
be doubted then that those stipends or shares in the service surplus are indeed wages,
because these are given to the owners-members as compensation in rendering services to
respondent cooperatives client, Stanfilco. Third. It is also stated in the above-mentioned
Service Contracts that it is the respondent cooperative which has the power to investigate,
discipline and remove the owners-members and its team leaders who were rendering
services at Stanfilco.31Fourth. As earlier opined, of the four elements of the employer-
employee relationship, the "control test" is the most important. In the case at bar, it is the
respondent cooperative which has the sole control over the manner and means of
performing the services under the Service Contracts with Stanfilco as well as the means and
methods of work.32 Also, the respondent cooperative is solely and entirely responsible for its
owners-members, team leaders and other representatives at Stanfilco. 33 All these clearly
prove that, indeed, there is an employer-employee relationship between the respondent
cooperative and its owners-members.

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

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

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

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

This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of
Davao City, Inc. v. Ferrer-Calleja37 wherein it held that:

A cooperative, therefore, is by its nature different from an ordinary business concern, being
run either by persons, partnerships, or corporations. Its owners and/or members are the
ones who run and operate the business while the others are its employees x x x.

An employee therefore of such a cooperative who is a member and co-owner thereof cannot
invoke the right to collective bargaining for certainly an owner cannot bargain with himself

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or his co-owners. In the opinion of August 14, 1981 of the Solicitor General he correctly
opined that employees of cooperatives who are themselves members of the cooperative have
no right to form or join labor organizations for purposes of collective bargaining for being
themselves co-owners of the cooperative.1awp++i1

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

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

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

In the present case, it is not disputed that the respondent cooperative had registered itself
with the Cooperative Development Authority, as evidenced by its Certificate of Registration
No. 0-623-2460.40 In its by-laws,41 its Board of Directors directs, controls, and supervises
the business and manages the property of the respondent cooperative. Clearly then, the
management of the affairs of the respondent cooperative is vested in its Board of Directors
and not in its owners-members as a whole. Therefore, it is completely logical that the
respondent cooperative, as a juridical person represented by its Board of Directors, can
enter into an employment with its owners-members.

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

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

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision
and the Resolution of the Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006
and 20 March 2006, respectively, are hereby REVERSED and SET ASIDE. The Orders of the
petitioner SSC dated 17 February 2004 and 16 September 2004 are hereby REINSTATED.
The petitioner SSC is hereby DIRECTED to continue hearing the petition-complaint filed

Page 121 of 250

before it by the petitioner SSS as regards the compulsory coverage of the respondent
cooperative and its owners-members. No costs.

SO ORDERED.

Page 122 of 250

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 153511 July 18, 2012

LEGEND HOTEL (MANILA), owned by TITANIUM CORPORATION, and/or, NELSON

NAPUD, in his capacity as the President of Petitioner Corporation, Petitioner,
vs.
HERNANI S. REALUYO, also known as JOEY ROA, Respondent.

DECISION

BERSAMIN, J.:

This labor case for illegal dismissal involves a pianist employed to perform in the restaurant
of a hotel. On August 9, 1999, respondent, whose stage name was Joey R. Roa, filed a
complaint for alleged unfair labor practice, constructive illegal dismissal, and the
underpayment/nonpayment of his premium pay for holidays, separation pay, service
incentive leave pay, and 13111 month pay. He prayed for attorney's fees, moral damages off
P100,000.00 and exemplary damages for P100,000.00. 1

Respondent averred that he had worked as a pianist at the Legend Hotels Tanglaw
Restaurant from September 1992 with an initial rate of P400.00/night that was given to
him after each nights performance; that his rate had increased to P750.00/night; and that
during his employment, he could not choose the time of performance, which had been fixed
from 7:00 pm to 10:00 pm for three to six times/week. He added that the Legend Hotels
restaurant manager had required him to conform with the venues motif; that he had been
subjected to the rules on employees representation checks and chits, a privilege granted to
other employees; that on July 9, 1999, the management had notified him that as a cost-
cutting measure his services as a pianist would no longer be required effective July 30,
1999; that he disputed the excuse, insisting that Legend Hotel had been lucratively
operating as of the filing of his complaint; and that the loss of his employment made him
bring his complaint.2

In its defense, petitioner denied the existence of an employer-employee relationship with

respondent, insisting that he had been only a talent engaged to provide live music at
Legend Hotels Madison Coffee Shop for three hours/day on two days each week; and stated
that the economic crisis that had hit the country constrained management to dispense with
his services.

On December 29, 1999, the Labor Arbiter (LA) dismissed the complaint for lack of merit
upon finding that the parties had no employer-employee relationship.3 The LA explained
thusly:

xxx

Page 123 of 250

On the pivotal issue of whether or not there existed an employer-employee relationship
between the parties, our finding is in the negative. The finding finds support in the service
contract dated September 1, 1992 xxx.

xxx

Even if we grant the initial non-existence of the service contract, as complainant suggests in
his reply (third paragraph, page 4), the picture would not change because of the admission
by complainant in his letter dated October 8, 1996 (Annex "C") that what he was receiving
was talent fee and not salary.

This is reinforced by the undisputed fact that complainant received his talent fee nightly,
unlike the regular employees of the hotel who are paid by monthly xxx.

xxx

And thus, absent the power to control with respect to the means and methods by which his
work was to be accomplished, there is no employer-employee relationship between the
parties xxx.

xxx

WHEREFORE, this case must be, as it is hereby, DISMISSED for lack of merit.

SO ORDERED.4

Respondent appealed, but the National Labor Relations Commission (NLRC) affirmed the LA
on May 31, 2001.5

Respondent assailed the decision of the NLRC in the Court of Appeals (CA) on certiorari.

On February 11, 2002, the CA set aside the decision of the NLRC, 6 holding:

xxx

Applying the above-enumerated elements of the employee-employer relationship in this

case, the question to be asked is, are those elements present in this case?

The answer to this question is in the affirmative.

xxx

Well settled is the rule that of the four (4) elements of employer-employee relationship, it is
the power of control that is more decisive.

In this regard, public respondent failed to take into consideration that in petitioners line of
work, he was supervised and controlled by respondents restaurant manager who at certain
times would require him to perform only tagalog songs or music, or wear barong tagalog to
conform with Filipiniana motif of the place and the time of his performance is fixed by the
respondents from 7:00 pm to 10:00 pm, three to six times a week. Petitioner could not
choose the time of his performance. xxx.

Page 124 of 250

As to the status of petitioner, he is considered a regular employee of private respondents
since the job of the petitioner was in furtherance of the restaurant business of respondent
hotel. Granting that petitioner was initially a contractual employee, by the sheer length of
service he had rendered for private respondents, he had been converted into a regular
employee xxx.

xxx

xxx In other words, the dismissal was due to retrenchment in order to avoid or minimize
business losses, which is recognized by law under Article 283 of the Labor Code, xxx.

xxx

WHEREFORE, foregoing premises considered, this petition is GRANTED. xxx. 7

Issues

In this appeal, petitioner contends that the CA erred:

I. XXX WHEN IT RULED THAT THERE IS THE EXISTENCE OF EMPLOYER-

EMPLOYEE RELATIONSHIP BETWEEN THE PETITIONER HOTEL AND
RESPONDENT ROA.

II. XXX IN FINDING THAT ROA IS A REGULAR EMPLOYEE AND THAT THE
TERMINATION OF HIS SERVICES WAS ILLEGAL. THE CA LIKEWISE ERRED WHEN
IT DECLARED THE REINSTATEMENT OF ROA TO HIS FORMER POSITION OR BE
GIVEN A SEPARATION PAY EQUIVALENT TO ONE MONTH FOR EVERY YEAR OF
SERVICE FROM SEPTEMBER 1999 UNTIL JULY 30, 1999 CONSIDERING THE
ABSENCE OF AN EMPLOYMENT RELATIONSHIP BETWEEN THE PARTIES.

III. XXX WHEN IT DECLARED THAT ROA IS ENTITLED TO BACKWAGES, SERVICE

INCENTIVE LEAVE AND OTHER BENEFITS CONSIDERING THAT THERE IS NO
EMPLOYER EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES.

IV. XXX WHEN IT NULLIFIED THE DECISION DATED MAY 31, 2001 IN NLRC NCR
CA NO. 023404-2000 OF THE NLRC AS WELL AS ITS RESOLUTION DATED JUNE
29, 2001 IN FAVOR OF HEREIN PETITIONER HOTEL WHEN HEREIN RESPONDENT
ROA FAILED TO SHOW PROOF THAT THE NLRC AND THE LABOR ARBITER HAVE
COMMITTED GRAVE ABUSE OF DISCRETION OR LACK OF JURISDICTION IN
THEIR RESPECTIVE DECISIONS.

V. XXX WHEN IT OVERLOOKED THE FACT THAT THE PETITION WHICH ROA
FILED IS IMPROPER SINCE IT RAISED QUESTIONS OF FACT.

VI. XXX WHEN IT GAVE DUE COURSE TO THE PETITION FILED BY ROA WHEN IT
IS CLEARLY IMPROPER AND SHOULD HAVE BEEN DISMISSED OUTRIGHT
CONSIDERING THAT A PETITION FOR CERTIORARI UNDER RULE 65 IS LIMITED
ONLY TO QUESTIONS OR ISSUES OF GRAVE ABUSE OF DISCRETION OR LACK
OF JURISDICTION COMMITTED BY THE NLRC OR THE LABOR ARBITER, WHICH
ISSUES ARE NOT PRESENT IN THE CASE AT BAR.

Page 125 of 250

The assigned errors are divided into the procedural issue of whether or not the petition for
certiorari filed in the CA was the proper recourse; and into two substantive issues, namely:
(a) whether or not respondent was an employee of petitioner; and (b) if respondent was
petitioners employee, whether he was validly terminated.

Ruling

The appeal fails.

Procedural Issue:

Certiorari was a proper recourse

Petitioner contends that respondents petition for certiorari was improper as a remedy
against the NLRC due to its raising mainly questions of fact and because it did not
demonstrate that the NLRC was guilty of grave abuse of discretion.

The contention is unwarranted. There is no longer any doubt that a petition for certiorari
brought to assail the decision of the NLRC may raise factual issues, and the CA may then
review the decision of the NLRC and pass upon such factual issues in the process. 8 The
power of the CA to review factual issues in the exercise of its original jurisdiction to issue
writs of certiorari is based on Section 9 of Batas Pambansa Blg. 129, which pertinently
provides that the CA "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."

Substantive Issue No. 1:

Employer-employee relationship existed between the parties

We next ascertain if the CA correctly found that an employer-employee relationship existed

between the parties.

The issue of whether or not an employer-employee relationship existed between petitioner

and respondent is essentially a question of fact.9 The factors that determine the issue
include who has the power to select the employee, who pays the employees wages, who has
the power to dismiss the employee, and who exercises control of the methods and results by
which the work of the employee is accomplished. 10 Although no particular form of evidence
is required to prove the existence of the relationship, and any competent and relevant
evidence to prove the relationship may be admitted, 11 a finding that the relationship exists
must nonetheless rest on substantial evidence, which is that amount of relevant evidence
that a reasonable mind might accept as adequate to justify a conclusion. 12

Generally, the Court does not review factual questions, primarily because the Court is not a
trier of facts. However, where, like here, there is a conflict between the factual findings of
the Labor Arbiter and the NLRC, on the one hand, and those of the CA, on the other hand,
it becomes proper for the Court, in the exercise of its equity jurisdiction, to review and re-
evaluate the factual issues and to look into the records of the case and re-examine the
questioned findings.13

Page 126 of 250

A review of the circumstances reveals that respondent was, indeed, petitioners employee.
He was undeniably employed as a pianist in petitioners Madison Coffee Shop/Tanglaw
Restaurant from September 1992 until his services were terminated on July 9, 1999.

First of all, petitioner actually wielded the power of selection at the time it entered into the
service contract dated September 1, 1992 with respondent. This is true, notwithstanding
petitioners insistence that respondent had only offered his services to provide live music at
petitioners Tanglaw Restaurant, and despite petitioners position that what had really
transpired was a negotiation of his rate and time of availability. The power of selection was
firmly evidenced by, among others, the express written recommendation dated January 12,
1998 by Christine Velazco, petitioners restaurant manager, for the increase of his
remuneration.14

Petitioner could not seek refuge behind the service contract entered into with respondent. It
is the law that defines and governs an employment relationship, whose terms are not
restricted to those fixed in the written contract, for other factors, like the nature of the work
the employee has been called upon to perform, are also considered. The law affords
protection to an employee, and does not countenance any attempt to subvert its spirit and
intent. Any stipulation in writing can be ignored when the employer utilizes the stipulation
to deprive the employee of his security of tenure. The inequality that characterizes
employer-employee relations generally tips the scales in favor of the employer, such that the
employee is often scarcely provided real and better options. 15

Secondly, petitioner argues that whatever remuneration was given to respondent were only
his talent fees that were not included in the definition of wage under the Labor Code; and
that such talent fees were but the consideration for the service contract entered into
between them.

The argument is baseless.

Respondent was paid P400.00 per three hours of performance from 7:00 pm to 10:00 pm,
three to six nights a week. Such rate of remuneration was later increased to P750.00 upon
restaurant manager Velazcos recommendation. There is no denying that the remuneration
denominated as talent fees was fixed on the basis of his talent and skill and the quality of
the music he played during the hours of performance each night, taking into account the
prevailing rate for similar talents in the entertainment industry. 16

Respondents remuneration, albeit denominated as talent fees, was still considered as

included in the term wage in the sense and context of the Labor Code, regardless of how
petitioner chose to designate the remuneration. Anent this, Article 97(f) of the Labor Code
clearly states:

xxx wage paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or ascertained on a
time, task, piece, or commission basis, or other method of calculating the same, which is
payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for services rendered or to be rendered, and
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.

Page 127 of 250

Clearly, respondent received compensation for the services he rendered as a pianist in
petitioners hotel. Petitioner cannot use the service contract to rid itself of the consequences
of its employment of respondent. There is no denying that whatever amounts he received for
his performance, howsoever designated by petitioner, were his wages.

It is notable that under the Rules Implementing the Labor Code and as held in Tan v.
Lagrama,17 every employer is required to pay his employees by means of a payroll, which
should show in each case, among others, the employees rate of pay, deductions made from
such pay, and the amounts actually paid to the employee. Yet, petitioner did not present
the payroll of its employees to bolster its insistence of respondent not being its employee.

That respondent worked for less than eight hours/day was of no consequence and did not
detract from the CAs finding on the existence of the employer-employee relationship. In
providing that the " normal hours of work of any employee shall not exceed eight (8) hours a
day," Article 83 of the Labor Code only set a maximum of number of hours as "normal
hours of work" but did not prohibit work of less than eight hours.

Thirdly, the power of the employer to control the work of the employee is considered the
most significant determinant of the existence of an employer-employee relationship.18 This
is the so-called control test, and is premised on whether the person for whom the services
are performed reserves the right to control both the end achieved and the manner and
means used to achieve that end.19

Petitioner submits that it did not exercise the power of control over respondent and cites
the following to buttress its submission, namely: (a) respondent could beg off from his
nightly performances in the restaurant for other engagements; (b) he had the sole
prerogative to play and perform any musical arrangements that he wished; (c) although
petitioner, through its manager, required him to play at certain times a particular music or
song, the music, songs, or arrangements, including the beat or tempo, were under his
discretion, control and direction; (d) the requirement for him to wear barong Tagalog to
conform with the Filipiniana motif of the venue whenever he performed was by no means
evidence of control; (e) petitioner could not require him to do any other work in the
restaurant or to play the piano in any other places, areas, or establishments, whether or
not owned or operated by petitioner, during the three hour period from 7:00 pm to 10:00
pm, three to six times a week; and (f) respondent could not be required to sing, dance or
play another musical instrument.

A review of the records shows, however, that respondent performed his work as a pianist
under petitioners supervision and control. Specifically, petitioners control of both the end
achieved and the manner and means used to achieve that end was demonstrated by the
following, to wit:

a. He could not choose the time of his performance, which petitioners had fixed from
7:00 pm to 10:00 pm, three to six times a week;

b. He could not choose the place of his performance;

c. The restaurants manager required him at certain times to perform only Tagalog
songs or music, or to wear barong Tagalog to conform to the Filipiniana motif; and

Page 128 of 250

 d. He was subjected to the rules on employees representation check and chits, a
privilege granted to other employees.

Relevantly, it is worth remembering that the employer need not actually supervise the
performance of duties by the employee, for it sufficed that the employer has the right to
wield that power.

Lastly, petitioner claims that it had no power to dismiss respondent due to his not being
even subject to its Code of Discipline, and that the power to terminate the working
relationship was mutually vested in the parties, in that either party might terminate at will,
with or without cause.

The claim is contrary to the records. Indeed, the memorandum informing respondent of the
discontinuance of his service because of the present business or financial condition of
petitioner20 showed that the latter had the power to dismiss him from employment. 21

Substantive Issue No. 2:

Validity of the Termination

Having established that respondent was an employee whom petitioner terminated to

prevent losses, the conclusion that his termination was by reason of retrenchment due to
an authorized cause under the Labor Code is inevitable.

Retrenchment is one of the authorized causes for the dismissal of employees recognized by
the Labor Code. It is a management prerogative resorted to by employers to avoid or to
minimize business losses. On this matter, Article 283 of the Labor Code states:

Article 283. Closure of establishment and reduction of personnel. The employer may also
terminate the employment of any employee due to the installation of labor-saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Ministry of Labor
and Employment at least one (1) month before the intended date thereof. xxx. In case of
retrenchment to prevent losses and in cases of closures or cessation of operations of
establishment or undertaking not due to serious business losses or financial reverses, the
separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay
for every year of service, whichever is higher. A fraction of at least six (6) months shall be
considered one (1) whole year.

The Court has laid down the following standards that an employer should meet to justify
retrenchment and to foil abuse, namely:

(a) The expected losses should be substantial and not merely de minimis in extent;

(b) The substantial losses apprehended must be reasonably imminent;

(c) The retrenchment must be reasonably necessary and likely to effectively prevent
the expected losses; and

Page 129 of 250

 (d) The alleged losses, if already incurred, and the expected imminent losses sought
to be forestalled must be proved by sufficient and convincing evidence. 22

Anent the last standard of sufficient and convincing evidence, it ought to be pointed out
that a less exacting standard of proof would render too easy the abuse of retrenchment as a
ground for termination of services of employees. 23

Was the retrenchment of respondent valid?

In termination cases, the burden of proving that the dismissal was for a valid or authorized
cause rests upon the employer. Here, petitioner did not submit evidence of the losses to its
business operations and the economic havoc it would thereby imminently sustain. It only
claimed that respondents termination was due to its "present business/financial
condition." This bare statement fell short of the norm to show a valid retrenchment. Hence,
we hold that there was no valid cause for the retrenchment of respondent.

Indeed, not every loss incurred or expected to be incurred by an employer can justify
retrenchment.1wphi1 The employer must prove, among others, that the losses are
substantial and that the retrenchment is reasonably necessary to avert such losses. Thus,
by its failure to present sufficient and convincing evidence to prove that retrenchment was
necessary, respondents termination due to retrenchment is not allowed.

The Court realizes that the lapse of time since the retrenchment might have rendered
respondent's reinstatement to his former job no longer feasible. If that should be true, then
petitioner should instead pay to him separation pay at the rate of one. month pay for every
year of service computed from September 1992 (when he commenced to work for the
petitioners) until the finality of this decision, and full backwages from the time his
compensation was withheld until the finality of this decision.

WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision of
the Court of Appeals promulgated on February 11, 2002, subject to the modification that
should reinstatement be no longer feasible, petitioner shall pay to respondent separation
pay of one month for every year of service computed from September 1992 until the finality
of this decision, and full backwages from the time his compensation was withheld until the
finality of this decision.

Costs of suit to be paid by the petitioners.

SO ORDERED.

Page 130 of 250

 GR NO. 200580, February 11, 2015

MARIAN B. NAVARETTE, PETITIONER,

~vs~
MANILA INTERNATIONAL FREIGHT FORWARDERS, INC/MIFFI LOGISTICS COMPANY,
INC., MR. HARADA, & MBI MILLENNIUM EXPERTS, INC., RESPONDENTS.
DECISION
VELASCO JR., J.:
The Case
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing
the October 4, 2011 Decision of the Court of Appeals (CA), as effectively reiterated in its
January 30, 2012 Resolution, in CA-G.R. SP No. 112102, entitled Manila International
Freight Forwarders, Inc./MIFFI Logistics Company, Inc. v. National Labor Relations
Commission and Marian B. Navarette. The CA issuances reversed and set aside the
February 27, 2009 Decision and October 19, 2009 Resolution of the National Labor
Relations Commission (NLRC) and reinstated the May 24, 2004 Decision of the Labor
Arbiter which dismissed the complaint for illegal dismissal.
The Facts
Respondents Manila International Freight Forwarders, Inc. (MIFFI) and MIFFI Logistics
Company, Inc. (MCLI) are corporations engaged in the business of freight and cargo
forwarding, hauling, carrying, handling, distributing, loading and unloading of general
cargoes and all classes of goods, wares and merchandise.
MIFF1 had, during the period material, entered into a contract with MBI Millennium
Experts, Inc. (MBI) for the provision of production workers and technical personnel for
MIFFIs projects or temporary needs, including the assignment of employees to temporarily
replace those in the Packaging Department who are on maternity leave. To be able to
address the immediate concerns of the employees detailed to the aforesaid department, MBI
assigned a supervisor/coordinator, Ma. Glynnis Quindo (Quindo), to MIFFI.
On January 15, 2002, MBI hired petitioner Marian Navarette (Navarette) and, on the same
day, assigned her as a temporary project employee to MIFFIs Packaging Department. There,
for a fixed period of three (3) months, or until April of 2002, she worked amongst MIFFIs
regular employees who performed the same tasks as hers. She also used MIFFIs equipment
and was supervised by Gidey Fajiculay and Sonny Porto, both employees of MIFFI.
A second contract was later concluded between Navarette and MBI, under which she was to
serve as MIFFIs warehouse staff from April 16, 2002 to October 1, 2002. Another contract
effective March 1, 2003 until August 1, 2003 resulted in Navarette being transferred to
respondent MLCI MIFFIs subsidiary.
On July 29, 2003, Navarette, joined by other employees, filed a complaint for inspection
against MIFFI, MLCI, MBI and a certain PAMS with the Department of Labor and
Employment (DOLE) Regional Arbitration Branch IV. Following an inspection of
respondents premises on August 5, 2003, certain violations of labor laws were uncovered,
including labor-only contracting by MBI. Several hearings were had and eventually, the
parties decided to submit an agreement to be signed by all concerned and to be approved by
DOLE officials.
Pursuant to said covenant, MBI called a meeting where Navarette and her co-workers were
handed and asked to sign a document entitled Minutes of the Hearing/Agreement, [DOLE],
Region IV. Navarette found the contents of the document to be erroneous since it stated
that the parties had already come to an agreement on the issues and conditions when, in
fact, no such agreement was made. This angered Navarette, causing her to throw the
document and to say, Hindi ito ang pinag-usapan natin sa DOLE! Niloloko niyo long kami.
Her actuations, to MBI, constituted serious misconduct, for which a show cause

Page 131 of 250

memorandum was issued directing her to explain herself. Dissatisfied with her
explanationthat her actuations were so because the Minutes did not reflect the truth
MBI issued another memorandum which Navarette, upon perusal, tore and threw away.
After issuing several memoranda setting conferences on the matter to which Navarette
could not attend because of her work schedule, MBI finally terminated Navarettes
employment on October 6, 2003.[1] On October 23, 2003, Navarette filed a complaint for
illegal dismissal before the NLRC against MBI, MIFFI and MCLI, docketed as NLRC-NCR
Case No. 00-10-11705-03.
In a Decision dated May 24, 2004, Labor Arbiter Dolores M. Peralta-Beley dismissed the
complaint on the finding that Navarettes acts complained of constituted serious
misconduct, a valid cause for dismissal. Too, MBI, being a legitimate job contractor, is
Navarettes employer, not MIFFI or MCLI. The fallo of the Decision reads:
In the light of the foregoing, the complaint for illegal dismissal must be dismissed for
want of factual and legal basis. Necessarily, the claim for back wages must likewise be
dismissed as it is granted only to illegally dismissed employees by way of relief.
xxxx
WHEREFORE, premises considered, judgment is hereby rendered dismissing the instant
complaint for lack of merit.
SO ORDERED.[2]
On appeal,[3] the NLRC reversed the Decision of the Labor Arbiter and ordered Navarettes
reinstatement with backwages and other benefits. To the commission, MBI is a labor-only
contractor, thus making MIFFI and MCLI Navarettes employer. The NLRC disposed of the
case in this wise:
WHEREFORE, premises considered, the appeal is GRANTED. The Decision of the Labor
Arbiter dated May 24, 2004 is REVERSED and SET ASIDE, and a NEW ONE rendered
finding respondent MBI as a labor-only contractor. Consequently, respondents
MIFFI/MCLI are declared to be complainants employer, and accordingly respondents
MIFFI/MCLI are ordered to:

1. Reinstate complainant to her former position or equivalent position without loss

of seniority rights;
2. Pay complainant her full backwages computed from the time she was illegally
dismissed up to the finality of this Decision; and
3. Pay complainant attorneys fees in an amount equivalent to ten (10%) of the total
monetary award.
Complainants monetary award is provisionally computed as follows:
Backwages
1.) Basic Salary
10/6/03-
6/15/05
250x26x20.30 131,950.00
6/16/05-
7/10/06
275x26x12.83 91,734.50
7/11/06-
8/27/07
300x26x13.57 105,846.00
8/28/07-
6/13/08

Page 132 of 250

362x26x9.53 89,696.36
6/14/08-
8/27/08
377x26x2.47 24,210.94
8/28/08-
2/3/09
382x26x5.17 51,348.44 494,786.24
2.) 13th mo pay
494,786.24/12 41,232.19
3.) SILP
2505/1220.30 2,114.58
2755/1212.83 1.470.10
3005/1213.57 1,696.25
3625/129.53 1,437.44
3775/122.47 387.99
3825/125.17 822.89 7,929.25
4.) COLA
10/6/03-
7/9/04
50x26x9.10 11,830.00
7/10/04-
8/27/07
50x26x37.60 48,880.00
6/14/08-
8/27/08
5x26x24.7 321.10 61,031.10 604,978.78
Attorneys
60,497.88
fee 10%
Total Award P665.476.66[4]
Aggrieved, respondents moved for reconsideration, alleging that Navarette is not their
employee, MBI being a legitimate job contractor, as held by the NLRC in the related case
of Manlangit v. MIFFI and/or MCLI and MBI.[5] The NLRC, however, in its October 19, 2009
Resolution, found no merit therein and sustained its earlier Decision.
Respondents, thus, sought a review of the NLRC Decision and Resolution before the CA via
a Petition for Certiorari under Rule 65 of the Rules of Court. Before the CA could dispose of
said petition, the Court, on August 31, 2011, in Manlangit, et al. v. MIFFI, et al.,[6]issued a
Resolution where it dismissed the Manlangit petition and upheld the ruling of the CA that
MBIs contract with MIFF1/MCL1, respondents in said case as well as in the case at bar,
was one of legitimate job contracting, contrary to the assertions of therein petitioners.
Eventually, the CA, in the present case, ordered the reversal of the NLRC Decision and the
reinstatement of the Labor Arbiters ruling. The dispositive portion of the appellate courts
Decision is hereunder quoted:
WHEREFORE, the petition is GRANTED. The Decision dated February 27, 2009 and
Resolution dated October 19, 2009 of the [NLRC] are REVERSED and SET ASIDE. The
Decision of the Labor Arbiter dated May 24, 2004, which dismissed the complaint for
lack of merit is REINSTATED.

Page 133 of 250

 SO ORDERED.[7]
Petitioners motion for reconsideration was also denied.
The Issues
Petitioner presently seeks a review of the CA Decision on the following grounds:
The Honorable [CA] misapplied the law and misapprehended the facts in ruling that there
is absence of employer-employee relationship between the petitioner and the respondent
[MIFFI].
The Hon. [CA] misapplied the law in ruling that petitioner is not entitled to the reliefs
prayed for.
The issues in the case at bar are as follows: (1) whether petitioner Navarette is respondents
employee; and (2) whether her dismissal is illegal.
Our Ruling
We resolve to deny the petition.
Navarette is MBIs employee
A fundamental principle in Philippine labor law is the application of the four-fold test in
determining the existence of an employer-employee relationship, thus: (1) selection and
engagement; (2) payment of wages; (3) power to dismiss; and (4) power of control over the
means and methods by which the work is to be accomplished.[8] There are, however,
instances when these elements are not exercised by a single person or entity. There are
cases where one or more of the said factors are assumed by another entity, for which
reason, the Court made it clear that of the four tests mentioned, it is the power of control
that is determinative.[9] One such instance is whenever an employer supplies workers to
another pursuant to a contracting agreement, i.e., job contracting.
Per DOLE Order No. 3, Series of 2001, there is contracting or subcontracting whenever an
employer, referred to as the principal, farms out the performance of a part of its business to
another, referred to as the contractor or subcontractor, and for the purpose of undertaking
the principals business that is farmed out, the contractor or subcontractor then employs
its own employees. In such an arrangement, the four-fold test must be satisfied by the
contractor or subcontractor.[10] Otherwise, it is the principal that shall be considered as the
employer.
Not all forms of contracting arrangements are, however, permitted. In contrast, there is the
so-called labor-only contracting.
Labor-only contracting exists when: (1) the person supplying workers to the purported
principal does not have substantial capital or investments in the form of tools, equipment,
machineries, work premises, among others; and (2) the workers recruited and placed by
such person/entity perform activities which are directly related to the principal business of
the alleged principal.[11] Finding that a contractor is engaged in labor-only contracting is
then equivalent to declaring that there exists an employer-employee relationship between
the supposed principal and the employee of the purported contractor. [12] It also results in
the following: (1) the subcontractor will be treated as the agent of the principal whose acts
and representations bind the latter; (2) the principal, being the employer, will be responsible
to the employees for all their entitlements and benefits under labor laws; and (3) the
principal and the subcontractor will be solidarity treated as the employer.
With the mentioned effects of labor-only contracting on employment status, a determination
of the legitimacy or illegality of the contracting arrangement between the principal and the
contractor is necessary not only to determine who between the two entities is the real
employer of the employee but also to determine upon whom liability should be imposed in
the event that the employee is illegally dismissed, as here, among others.
In this respect, respondents contend that MBI is a legitimate job contractor [13] and
consequently, Navarette is MBIs employee, invoking the application of the principle of res
judicata. According to respondents, the Court has already passed upon and ruled on the

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legitimacy of MBIs contract with themthat it is one of permissible job contractingwhen
We affirmed the contracts status through a Resolution dated August 31, 2011 in the
adverted case of Manlangit, et al. v. MIFFI, et al., docketed as G.R. No. 196175.
Briefly, Manlangit involved a complaint for regularization, illegal deduction, wage distortion
and attorneys fees, later amended to include illegal dismissal, filed by Gabriel Manlangit
and thirty six (36) other workers against MIFFI, MLCI, and MBI. Like Navarette, Manlangit,
et al. were also hired by MBI and assigned to MIFFI.
After due proceedings, the Labor Arbiter found for MIFFI, MLCI and MBI and dismissed the
complaint, ruling that Manlangit, et al. were project employees of MBI, whose employments
were coterminous with the service agreement between MBI and MIFFI/MLCI. Therefrom,
Manlangit, et al. went to the NLRC which dismissed their appeal for lack of merit and for
non-perfection in view of their failure to comply with the mandatory provision on
verification and certification of non-forum shopping. Upon the review of the case, the CA,
then later this Court, veritably affirmed the Decision of the Labor Arbiter, as effectively
upheld by the NLRC.[14]
In light of Manlangit, respondents add, the ruling on the legality of MBI and respondents
contractual relationship, being one of permissible job contracting, can no longer be
disturbed.
We agree with respondents that Our adjudication in Manlangit of the issue of the legitimacy
of MBIs contract with respondents and necessarily, the question who between MBI and
MIFFI is Navarettes employer, have already been settled by the Court and must not be
disturbed. Per Manlangit, MBI is respondents employer and res judicata by conclusiveness
of judgment bars further challenge on this issue.
For res judicata by conclusiveness of judgment to apply, the following elements should be
present, viz: (1) the judgment sought to bar the new action must be final; (2) the decision
must have been rendered by a court having jurisdiction over the subject matter and the
parties; (3) the disposition of the case must be a judgment on the merits; and (4) there must
be as between the first and second action, identity of parties, but not identity of causes of
action.[15]
When applicable, the doctrine of conclusiveness of judgment has this effect: the prior
judgment is conclusive in the second case only as to those matters actually and directly
controverted and determined and not as to matters merely involved therein. Stated
differently, conclusiveness of judgment finds application when a fact or question has been
squarely put in issue, judicially passed upon, and adjudged in a former suit by a court of
competent jurisdiction.[16]
As to the first requisite, Manlangit which is being set as a bar to the instant case is a final
judgment. With respect to the second requisite, the decision was rendered by the Court of
Appeals which was affirmed by this Court, both of which have jurisdiction over the subject
matter and the parties. Anent the third requisite, the dispositions were judgments on the
merit.
Regarding the fourth requisite, there is identity or similarity of parties but no identity of
causes of action. While Navarette is not a party in Manlangit, there is commonality or
similarity of parties in the two cases. Navarette and the petitioners in Manlangit are
similarly situated, being co-workers performing the same tasks of packaging, barcoding,
and sealing, among others. Too, their assignment to herein respondents proceeded from the
same job contracting agreement between MBI and respondents. [17] In fact, it was the
petitioners in Manlangit who supported herein petitioner, Navarette, their leader, when she
filed the complaint for inspection against respondents before the DOLE which, as previously
mentioned, yielded a finding that there is a labor-only contracting arrangement between
MBI and respondents. It is this complaint for inspection that triggered the chain of events
which eventually led to the filing by therein petitioners of a complaint for regularization,

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later converted into one for illegal dismissal,[18] as well as Navarettes subsequent filing of
her own complaint for illegal dismissal against MBI and herein respondents. Thus, based
on these circumstances, there is commonality or similarity of parties. An absolute identity
of parties is not necessary because a shared identity of interest will suffice for res
judicata to apply. A mere substantial identity of parties or even community of interests
between the parties in the prior and subsequent cases would be sufficient. [19]
With respect to the causes of action, the cause of action in this petition is for illegal
dismissal, while in Manlangit, the causes of action are for regularization, illegal deduction,
wage distortion and attorneys fees.
Thus, all the requisites of res judicata by conclusiveness of judgment are present. The Court
applies Manlangit to the instant petition moored on res judicata by conclusiveness of
judgment. To rule otherwise will not enhance and strengthen stability of judicial decisions.
With the finding that MBI is a legitimate labor contractor and is the employer of petitioner
Navarette, the Court cannot, however, pass upon the issue of whether MBI is guilty of illegal
dismissal. The antecedents show that while the MBI is a party respondent in NLRC-NCR
Case No. 00-10-11705-03 together with respondents MIFFI and MLCI, the ruling of Labor
Arbiter Peralta-Beley is to dismiss petitioners complaint upon a finding of a valid dismissal
grounded on serious misconduct.
Petitioner appealed said adverse decision to the NLRC against the MBI and herein
respondents in NLRC CA No. 040934-04, and the NLRC found MIFFI and MLCI liable but
not MBI. As a consequence, respondents MIFFI and MLCI filed a petition under Rule 65
with the CA in CA-G.R. SP No. 112102. MBI did not join said respondents since it was not
adjudged liable by the NLRC. On the other hand, petitioner did not file a petition with the
CA questioning the NLRC decision declaring MIFFI and MLCI liable but absolving MBI.
Thus, the NLRC decision dated February 27, 2004 excluding MBI from any liability to
petitioner became FINAL when petitioner no longer challenged said ruling before the CA.
WHEREFORE, premises considered, the instant petition is hereby DENIED. Accordingly,
the Decision of the Court of Appeals dated October 4, 2011 and its Resolution dated
January 30, 2012 in CA-G.R. SP No. 112102 are hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

Page 136 of 250

G.R. Nos. 173254-55 & 173263

DIAMOND FARMS, INC., Petitioner,

vs.
SOUTHERN PHILIPPINES FEDERATION OF LABOR (SPFL)-WORKERS SOLIDARITY OF
DARBMUPCO/DIAMOND-SPFL, DIAMOND FARMS AGRARIAN REFORM
BENEFICIARIES MULTI-PURPOSE COOPERATIVE (DARBMUPCO), VOLTER LOPEZ,
RUEL ROMERO, PATRICIO CAPRECHO, REY DIMACALI, ELESIO EMANEL, VICTOR
SINGSON, NILDA DIMACALI, PREMITIVO* DIAZ, RUDY VISTAL, ROGER MONTERO,
JOSISIMO GOMEZ and MANUEL MOSQUERA, Respondents.

DECISION

JARDELEZA, J.:

We resolve in this Petition for Review1 under Rule 45 of the Rules of Court, the issue of who
among Diamond Farms, Inc. ("DFI"), Diamond Farms Agrarian Reform Beneficiaries Multi-
Purpose Cooperative ("DARBMUPCO") and the individual contractors 2 ("respondent-
contractors") is the employer of the 400 employees ("respondent-workers").

DFI challenges the March 31, 2006 Decision 3 and May 30, 2006 Resolution4 of the Court
Appeals, Special Twenty-Second Division, Cagayan De Oro City for being contrary to law
and jurisprudence. The Decision dismissed DFIs Petition for Certiorari in C.A.-G.R. SP Nos.
53806 and 61607 and granted DARBMUPCOs Petition for Certiorari in C.A.-G.R. SP No.
59958. It declared DFI as the statutory employer of the respondent-workers.

The Facts

DFI owns an 800-hectare banana plantation ("original plantation") in Alejal, Carmen,

Davao.5 Pursuant to Republic Act No. 6657 or the Comprehensive Agrarian Reform Law of
1988 ("CARL"), commercial farms shall be subject to compulsory acquisition and
distribution,6 thus the original plantation was covered by the law. However, the Department
of Agrarian Reform ("DAR") granted DFI a deferment privilege to continue agricultural
operations until 1998.7 Due to adverse marketing problems and observance of the so-called
"lay-follow" or the resting of a parcel of land for a certain period of time after exhaustive
utilization, DFI closed some areas of operation in the original plantation and laid off its
employees.8 These employees petitioned the DAR for the cancellation of DFIs deferment
privilege alleging that DFI already abandoned its area of operations. 9 The DAR Regional
Director recalled DFIs deferment privilege resulting in the original plantations automatic
compulsory acquisition and distribution under the CARL. 10 DFI filed a motion for
reconsideration which was denied. It then appealed to the DAR Secretary. 11

In the meantime, to minimize losses, DFI offered to give up its rights and interest over the
original plantation in favor of the government by way of a Voluntary Offer to Sell. 12 The DAR
accepted DFIs offer to sell the original plantation. However, out of the total 800 hectares,
the DAR only approved the disposition of 689.88 hectares. Hence, the original plantation
was split into two: 689.88 hectares were sold to the government ("awarded plantation") and
the remaining 200 hectares, more or less, were retained by DFI ("managed area"). 13 The
managed area is subject to the outcome of the appeal on the cancellation of the deferment
privilege before the DAR Secretary.

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On January 1, 1996, the awarded plantation was turned over to qualified agrarian reform
beneficiaries ("ARBs") under the CARL. These ARBs are the same farmers who were working
in the original plantation. They subsequently organized themselves into a multi-purpose
cooperative named "DARBMUPCO," which is one of the respondents in this case. 14

On March 27, 1996, DARBMUPCO entered into a Banana Production and Purchase
Agreement ("BPPA")15 with DFI.16 Under the BPPA, DARBMUPCO and its members as
owners of the awarded plantation, agreed to grow and cultivate only high grade quality
exportable bananas to be sold exclusively to DFI. 17 The BPPA is effective for 10 years.18

On April 20, 1996, DARBMUPCO and DFI executed a "Supplemental to Memorandum

Agreement" ("SMA").19 The SMA stated that DFI shall take care of the labor cost arising from
the packaging operation, cable maintenance, irrigation pump and irrigation maintenance
that the workers of DARBMUPCO shall conduct for DFIs account under the BPPA. 20

From the start, DARBMUPCO was hampered by lack of manpower to undertake the
agricultural operation under the BPPA because some of its members were not willing to
work.21 Hence, to assist DARBMUPCO in meeting its production obligations under the
BPPA, DFI engaged the services of the respondent-contractors, who in turn recruited the
respondent-workers.22

The engagement of the respondent-workers, as will be seen below, started a series of labor
disputes among DARBMUPCO, DFI and the respondent-contractors.

C.A. G.R. SP No. 53806

On February 10, 1997, respondent Southern Philippines Federation of Labor ("SPFL")a

legitimate labor organization with a local chapter in the awarded plantationfiled a petition
for certification election in the Office of the Med-Arbiter in Davao City.23 SPFL filed the
petition on behalf of some 400 workers (the respondent-workers in this petition) "jointly
employed by DFI and DARBMUPCO" working in the awarded plantation.

DARBMUPCO and DFI denied that they are the employers of the respondent-workers. They
claimed, instead, that the respondent-workers are the employees of the respondent-
contractors.24

In an Order dated May 14, 1997,25 the Med-Arbiter granted the petition for certification
election. It directed the conduct of certification election and declared that DARBMUPCO
was the employer of the respondent-workers. The Order stated that "whether the said
workers/employees were hired by independent contractors is of no moment. What is
material is that they were hired purposely to work on the 689.88 hectares banana
plantation [the awarded plantation] now owned and operated by DARBMUPCO."26

DARBMUPCO appealed to the Secretary of Labor and Employment ("SOLE"). In a Resolution

dated February 18, 1999,27 the SOLE modified the decision of the Med-Arbiter. The SOLE
held that DFI, through its manager and personnel, supervised and directed the performance
of the work of the respondentcontractors. The SOLE thus declared DFI as the employer of
the respondent-workers.28

DFI filed a motion for reconsideration which the SOLE denied in a Resolution dated May 4,
1999.29

Page 138 of 250

On June 11, 1999, DFI elevated the case to the Court of Appeals ("CA") via a Petition
for Certiorari30 under Rule 65 of the Rules of Court. The case was raffled to the CAs former
Twelfth Division and was docketed as C.A.-G.R. SP No. 53806.

C.A.-G.R. SP. No. 59958

Meanwhile, on June 20, 199731 and September 15, 1997,32 SPFL, together with more than
300 workers, filed a case for underpayment of wages, non-payment of 13th month pay and
service incentive leave pay and attorneys fees against DFI, DARBMUPCO and the
respondent-contractors before the National Labor Relations Commission ("NLRC") in Davao
City. DARBMUPCO averred that it is not the employer of respondent-workers; neither is
DFI. It asserted that the money claims should be directed against the true employerthe
respondent-contractors.33

In a Decision dated January 22, 1999,34 the Labor Arbiter ("LA") held that the respondent-
contractors are "labor-only contractors." The LA gave credence to the affidavits of the other
contractors35 of DFI (who are not party-respondents in this petition) asserting that DFI
engaged their services, and supervised and paid their laborers. The affidavits also stated
that the contractors had no dealings with DARBMUPCO, except that their work is done in
the awarded plantation.36

The LA held that, under the law, DFI is deemed as the statutory employer of all the
respondent-workers.37 The LA dismissed the case against DARBMUPCO and the
respondent-contractors.38

DFI appealed to the NLRC. In a Resolution dated May 24, 1999, 39 the NLRC Fifth Division
modified the Decision of the LA and declared that DARBMUPCO and DFI are the statutory
employers of the workers rendering services in the awarded plantation and the managed
area, respectively.40 It adjudged DFI and DARBMUPCO as solidarily liable with the
respondent-contractors for the monetary claims of the workers, in proportion to their net
planted area.41

DARBMUPCO filed a motion for reconsideration which was denied. 42 It filed a second
motion for reconsideration in the NLRC, which was also denied for lack of merit and for
being barred under the NLRC Rules of Procedure.43Hence, DARBMUPCO elevated the case
to the CA by way of a Petition for Certiorari.44 The case was docketed as C.A.-G.R. SP. No.
59958.

The former Eleventh Division of the CA consolidated C.A. G.R. SP. No. 59958 and C.A.-G.R.
SP No. 53806 in a Resolution dated January 27, 2001. 45

C.A.-G.R. SP No. 61607

Pursuant to the May 4, 1999 Resolution of the SOLE approving the conduct of certification
election, the Department of Labor and Employment ("DOLE") conducted a certification
election on October 1, 1999. 46 On even date, DFI filed an election protest47 before the Med-
Arbiter arguing that the certification election was premature due to the pendency of a
petition for certiorari before the CA assailing the February 18, 1999 and May 4, 1999
Resolutions of the SOLE (previously discussed in C.A.-G.R. SP No. 53806).

Page 139 of 250

In an Order dated December 15, 1999,48 the Med-Arbiter denied DFIs election protest, and
certified SPFL-Workers Solidarity of DARBMUPCO/DIAMOND-SPFL ("WSD-SPFL") as the
exclusive bargaining representative of the respondent-workers. DFI filed a Motion for
Reconsideration49 which the Med-Arbiter treated as an appeal, and which the latter elevated
to the SOLE.

In a Resolution dated July 18, 2000,50 the SOLE dismissed the appeal. The Resolution
stated that the May 4, 1999 Resolution directing the conduct of certification election is
already final and executory on June 4, 1999. It pointed out that the filing of the petition
for certiorari before the CA assailing the February 18, 1999 and May 4, 1999 Resolutions
does not stay the conduct of the certification election because the CA did not issue a
restraining order.51 DFI filed a Motion for Reconsideration but the motion was denied.52

On October 27, 2000, DFI filed a Petition for Certiorari53 before the CA, docketed as C.A.-
G.R. SP No. 61607.

In a Resolution dated August 2, 2005,54 the CA Twenty-Third Division consolidated C.A.-

G.R. SP No. 61607 with C.A.-G.R. SP. No. 59958 and C.A. G.R. SP No. 53806.

The Assailed CA Decision and Resolution

The CA was confronted with two issues: 55

(1) "Whether DFI or DARBMUPCO is the statutory employer of the [respondent-

workers] in these petitions; and

(2) Whether or not a certification election may be conducted pending the resolution
of the petition for certiorari filed before this Court, the main issue of which is the
identity of the employer of the [respondent-workers] in these petitions."

On the first issue, the CA agreed with the ruling of the SOLE 56 that DFI is the statutory
employer of the respondent-workers. It noted that the DFI hired the respondent-
contractors, who in turn procured their own men to work in the land owned by
DARBMUPCO. Further, DFI admitted that the respondent-contractors worked under the
direction and supervision of DFIs managers and personnel. DFI also paid for the
respondent-contractors services.57 The CA said that the fact that the respondent-workers
worked in the land owned by DARBMUPCO is immaterial. "Ownership of the land is not one
of the four (4) elements generally considered to establish employer-employee relationship."58

The CA also ruled that DFI is the true employer of the respondent-workers because the
respondent-contractors are not independent contractors. 59 The CA stressed that in its
pleadings before the Med-Arbiter, the SOLE, and the CA, DFI revealed that DARBMUPCO
lacks manpower to fulfill the production requirements under the BPPA. This impelled DFI to
hire contractors to supply labor enabling DARBMUPCO to meet its quota. The CA observed
that while the various agencies involved in the consolidated petitions sometimes differ as to
who the statutory employer of the respondent-workers is, they are uniform in finding that
the respondent-contractors are labor-only contractors.60

On the second issue, the CA reiterated the ruling of the SOLE 61 that absent an injunction
from the CA, the pendency of a petition for certiorari does not stay the holding of the
certification election.62 The challenged Resolution of the SOLE is already final and executory

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as evidenced by an Entry of Judgment dated July 14, 1999; hence, the merits of the case
can no longer be reviewed.63

The CA thus held in its Decision dated March 31, 2006:

WHEREFORE, premises considered, this Court hereby ORDERS:

(1) the DISMISSAL of the petitions in C.A.-G.R. SP No. 53806 and C.A.-G.R. SP No.
61607; and

(2) the GRANTING of the petition in C.A.-G.R. SP No. 59958 and the SETTING
ASIDE of the assailed resolutions of the NLRC dated 24 May 1999, 30 July 1999
and 26 June 2000, respectively.

SO ORDERED.64

DFI filed a Motion for Reconsideration of the CA Decision which was denied in a Resolution
dated May 30, 2006.65

DFI is now before us by way of Petition for Review on Certiorari praying that DARBMUPCO
be declared the true employer of the respondent-workers.

DARBMUPCO filed a Comment66 maintaining that under the control test, DFI is the true
employer of the respondent-workers.

Respondent-contractors filed a Verified Explanation and Memorandum67 asserting that they

were labor-only contractors; hence, they are merely agents of the true employer of the
respondent-workers.

SPFL did not file any comment or memorandum on behalf of the respondent-workers.68

The Issue

The issue before this Court is who among DFI, DARBMUPCO and the respondent-
contractors is the employer of the respondent-workers.

Our Ruling

We deny the petition.

This case involves job contracting, a labor arrangement expressly allowed by law.
Contracting or subcontracting is an arrangement whereby a principal (or employer) 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.69 It involves a trilateral relationship among the principal or
employer, the contractor or subcontractor, and the workers engaged by the contractor or
subcontractor.70

Article 106 of the Labor Code of the Philippines 71 (Labor Code) explains the relations which
may arise between an employer, a contractor, and the contractors employees, 72 thus:

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ART. 106. Contractor or subcontracting. Whenever an employer enters into a contract
with another person for the performance of the formers work, the employees of the
contractor and of the latters subcontractor, if any, shall be paid in accordance with the
provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent of the work performed under
the contract, in the same manner and extent that he is liable to employees directly
employed by him.

The Secretary of Labor and Employment may, by appropriate regulations, restrict or

prohibit the contracting out of labor to protect the rights of workers established under 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.

The Omnibus Rules Implementing the Labor Code 73 distinguishes between permissible job
contracting (or independent contractorship) and labor-only contracting. Job contracting is
permissible under the Code 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 as to the results thereof;
and

(b) 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.74

In contrast, job contracting shall be deemed as labor-only contracting, an arrangement

prohibited by law, if a person who undertakes to supply workers to an employer:

(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.75

Page 142 of 250

As a general rule, a contractor is presumed to be a labor-only contractor, unless such
contractor overcomes the burden of proving that it has the substantial capital, investment,
tools and the like.76

Based on the conditions for permissible job contracting, we rule that respondent-
contractors are labor-only contractors.

There is no evidence showing that respondent-contractors are independent contractors. The

respondent-contractors, DFI, and DARBMUPCO did not offer any proof that respondent-
contractors were not engaged in labor-only contracting. In this regard, we cite our ruling
in Caro v. Rilloraza,77 thus:

"In regard to the first assignment of error, the defendant company pretends to show
through Venancio Nasol's own testimony that he was an independent contractor who
undertook to construct a railway line between Maropadlusan and Mantalisay, but as far as
the record shows, Nasol did not testify that the defendant company had no control over him
as to the manner or methods he employed in pursuing his work. On the contrary, he stated
that he was not bonded, and that he only depended upon the Manila Railroad for money to
be paid to his laborers. As stated by counsel for the plaintiffs, the word independent
contractor means 'one who exercises independent employment and contracts to do a piece
of work according to his own methods and without being subject to control of his employer
except as to result of the work.' Furthermore, if the employer claims that the workmen is an
independent contractor, for whose acts he is not responsible, the burden is on him to show
his independence.

Tested by these definitions and by the fact that the defendant has presented
practically no evidence to determine whether Venancio Nasol was in reality an
independent contractor or not, we are inclined to think that he is nothing but an
intermediary between the defendant and certain laborers. It is indeed difficult to find
that Nasol is an independent contractor; a person who possesses no capital or money of
his own to pay his obligations to them, who files no bond to answer for any fulfillment of his
contract with his employer and specially subject to the control and supervision of his
employer, falls short of the requisites or conditions necessary for the common and
independent contractor."78 (Citations omitted; emphasis supplied.)

To support its argument that respondent-contractors are the employers of respondent-

workers, and not merely labor-only contractors, DFI should have presented proof showing
that respondent-contractors carry on an independent business and have sufficient
capitalization. The record, however, is bereft of showing of even an attempt on the part of
DFI to substantiate its argument.

DFI cannot cite the May 24, 1999 Resolution of the NLRC as basis that respondent-
contractors are independent contractors. Nowhere in the NLRC Resolution does it say that
the respondent-contractors are independent contractors. On the contrary, the NLRC
declared that "it was not clearly established on record that said [respondent-]contractors
are independent, xxx."79

Further, respondent-contractors admit, and even insist that they are engaged in labor-only
contracting. As will be seen below, respondent-contractors made the admissions and
declarations on two occasions: first was in their Formal Appearance of Counsel and Motion

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for Exclusion of Individual Party-Respondents filed before the LA; and second was in their
Verified Explanation and Memorandum filed before this Court.

Before the LA, respondent-contractors categorically stated that they are "labor-only"
contractors who have been engaged by DFI and DARBMUPCO. 80 They admitted that they do
not have substantial capital or investment in the form of tools, equipment, machineries,
work premises and other materials, and they recruited workers to perform activities directly
related to the principal operations of their employer.81

Before this Court, respondents-contractors again admitted that they are labor-only
contractors. They narrated that:

1. Herein respondents, Voltaire Lopez, Jr., et al., were commissioned and

contracted by petitioner, Diamond Farms, Inc. (DFI) to recruit farm workers,
who are the complaining [respondent-workers] (as represented by Southern
Philippines Federation of Labor (SPFL) in this appeal by certiorari), in order to
perform specific farm activities, such as pruning, deleafing, fertilizer application,
bud inject, stem spray, drainage, bagging, etc., on banana plantation lands awarded
to private respondent, Diamond Farms Agrarian Reform Beneficiaries Multi-Purpose
Cooperative (DARBMUPCO) and on banana planted lands owned and managed by
petitioner, DFI.

2. All farm tools, implements and equipment necessary to performance of such farm
activities were supplied by petitioner DFI to respondents Voltaire Lopez, Jr., et. al.
as well as to respondents-SPFL, et. al. Herein respondents Voltaire Lopez, Jr. et.
al. had no adequate capital to acquire or purchase such tools, implements,
equipment, etc.

3. Herein respondents Voltaire Lopez, Jr., et. al. As well as respondents-SPFL,

et. al. were being directly supervised, controlled and managed by petitioner
DFI farm managers and supervisors, specifically on work assignments and
performance targets. DFI managers and supervisors, at their sole discretion and
prerogative, could directly hire and terminate any or all of the respondents-SPFL, et.
al., including any or all of the herein respondents Voltaire Lopez, Jr., et. al.

4. Attendance/Time sheets of respondents-SPFL, et. al. were being prepared by

herein respondents Voltaire Lopez, Jr., et. al., and correspondingly submitted to
petitioner DFI. Payment of wages to respondents-SPFL, et. al. were being paid for by
petitioner DFI thru herein respondents Voltaire Lopez, [Jr.], et. al. The latter were
also receiving their wages/salaries from petitioner DFI for
monitoring/leading/recruiting the respondents-SPFL, et. al.

5. No monies were being paid directly by private respondent DARBMUPCO to

respondents-SPFL, et al., nor to herein respondents Voltaire Lopez, [Jr.], et. al. Nor
did respondent DARBMUPCO directly intervene much less supervise any or all of
[the] respondents-SPFL, et. al. including herein respondents Voltaire Lopez, Jr., et.
al.82 (Emphasis supplied.)

The foregoing admissions are legally binding on respondent-contractors.83 Judicial

admissions made by parties in the pleadings, or in the course of the trial or other
proceedings in the same case are conclusive and so does not require further evidence to

Page 144 of 250

prove them.84 Here, the respondent-contractors voluntarily pleaded that they are labor-only
contractors; hence, these admissions bind them.

A finding that a contractor is a labor-only contractor is equivalent to a declaration that

there is an employer-employee relationship between the principal, and the workers of the
labor-only contractor; the labor-only contractor is deemed only as the agent of the
principal.85 Thus, in this case, respondent-contractors are the labor-only contractors and
either DFI or DARBMUPCO is their principal.

We hold that DFI is the principal.

Under Article 106 of the Labor Code, a principal or employer refers to the person who enters
into an agreement with a job contractor, either for the performance of a specified work or
for the supply of manpower.86 In this regard, we quote with approval the findings of the CA,
to wit:

The records show that it is DFI which hired the individual [respondent-contractors]
who in turn hired their own men to work in the 689.88 hectares land of DARBMUPCO
as well as in the managed area of the plantation. DFI admits [that] these [respondent-
contractors] worked under the direction and supervision of the DFI managers and
personnel. DFI paid the [respondent-contractors] for the services rendered in the plantation
and the [respondent-contractors] in turn pay their workers after they [respondent-
contractors] received payment from DFI. xxx DARBMUPCO did not have anything to do with
the hiring, supervision and payment of the wages of the workers-respondents thru the
contractors-respondents. xxx87 (Emphasis supplied.)

DFI does not deny that it engaged the services of the respondent-contractors. It does not
dispute the claims of respondent-contractors that they sent their billing to DFI for payment;
and that DFIs managers and personnel are in close consultation with the respondent-
contractors.88

DFI cannot argue that DARBMUPCO is the principal of the respondent-contractors because
it (DARBMUPCO) owns the awarded plantation where respondent-contractors and
respondent-workers were working;89 and therefore DARBMUPCO is the ultimate beneficiary
of the employment of the respondent-workers.90

That DARBMUPCO owns the awarded plantation where the respondent-contractors and
respondent-workers were working is immaterial. This does not change the situation of the
parties. As correctly found by the CA, DFI, as the principal, hired the respondent-
contractors and the latter, in turn, engaged the services of the respondent-workers.91 This
was also the unanimous finding of the SOLE,92 the LA,93 and the NLRC.94 Factual findings
of the NLRC, when they coincide with the LA and affirmed by the CA are accorded with
great weight and respect and even finality by this Court.95

Alilin v. Petron Corporation96 is applicable. In that case, this Court ruled that the presence of
the power of control on the part of the principal over the workers of the contractor, under
the facts, prove the employer-employee relationship between the former and the latter,
thus:

[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

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supposed contractor." In this case, the employer-employee relationship between Petron
and petitioners becomes all the more apparent due to the presence of the power of
control on the part of the former over the latter.

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

This Court has constantly adhered to the "four-fold test" to determine whether there exists
an employer-employee relationship between the parties.1wphi1 The four elements of an
employment relationship are: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the power to control the employees
conduct.

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

Hence, the facts that petitioners were hired by Romeo or his father and that their salaries
were paid by them do not detract from the conclusion that there exists an employer-
employee relationship between the parties due to Petrons power of control over the
petitioners. One manifestation of the power of control is the power to transfer employees
from one work assignment to another. Here, Petron could order petitioners to do work
outside of their regular "maintenance/utility" job. Also, petitioners were required to report
for work everyday at the bulk plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule,
and wear proper uniform and safety helmets as prescribed by the safety and security
measures being implemented within the bulk plant. All these imply control. In an industry
where safety is of paramount concern, control and supervision over sensitive operations,
such as those performed by the petitioners, are inevitable if not at all necessary. Indeed,
Petron deals with commodities that are highly volatile and flammable which, if mishandled
or not properly attended to, may cause serious injuries and damage to property and the
environment. Naturally, supervision by Petron is essential in every aspect of its product
handling in order not to compromise the integrity, quality and safety of the products that it
distributes to the consuming public. 97 (Citations omitted; emphasis supplied)

That DFI is the employer of the respondent-workers is bolstered by the CAs finding that
DFI exercises control over the respondent-workers.98 DFI, through its manager and
supervisors provides for the work assignments and performance targets of the respondent-
workers. The managers and supervisors also have the power to directly hire and terminate
the respondent-workers.99 Evidently, DFI wields control over the respondent-workers.

Neither can DFI argue that it is only the purchaser of the bananas produced in the awarded
plantation under the BPPA,100 and that under the terms of the BPPA, no employer-employee
relationship exists between DFI and the respondent-workers,101 to wit:

UNDERTAKING OF THE FIRST PARTY

xxx

3. THE FIRST PARTY [DARBMUPCO] shall be responsible for the proper conduct, safety,
benefits and general welfare of its members working in the plantation and specifically
render free and harmless the SECOND PARTY [DFI] of any expense, liability or claims
arising therefrom. It is clearly recognized by the FIRST PARTY that its members and

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other personnel utilized in the performance of its function under this agreement are
not employees of the SECOND PARTY.102 (Emphasis supplied)

In labor-only contracting, it is the law which creates an employer-employee relationship

between the principal and the workers of the labor-only contractor.103

Inasmuch as it is the law that forms the employment ties, the stipulation in the BPPA that
respondent-workers are not employees of DFI is not controlling, as the proven facts show
otherwise. The law prevails over the stipulations of the parties. Thus, in Tabas v. California
Manufacturing Co., Inc.,104 we held that:

The existence of an employer-employees relation is a question of law and being such,

it cannot be made the subject of agreement.1wphi1 Hence, the fact that the manpower
supply agreement between Livi and California had specifically designated the former as the
petitioners' employer and had absolved the latter from any liability as an employer, will not
erase either party's obligations as an employer, if an employer-employee relation otherwise
exists between the workers and either firm. xxx 105 (Emphasis supplied.)

Clearly, DFI is the true employer of the respondent-workers; respondent-contractors are

only agents of DFI. Under Article 106 of the Labor Code, DFI shall be solidarily liable with
the respondent-contractors for the rightful claims of the respondent-workers, to the same
manner and extent as if the latter are directly employed by DFI. 106

WHEREFORE, the petition is DENIED for lack of merit. The March 31, 2006 Decision and
the May 30, 2006 Resolution of the Court of Appeals in C.A.-G.R. SP Nos. 53806, 61607
and 59958 are hereby AFFIRMED.

SO ORDERED.

Page 147 of 250

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 179652 May 8, 2009

PEOPLE'S BROADCASTING (BOMBO RADYO PHILS., INC.), Petitioner,

vs.
THE SECRETARY OF THE DEPARTMENT OF LABOR AND EMPLOYMENT, THE
REGIONAL DIRECTOR, DOLE REGION VII, and JANDELEON JUEZAN, Respondents.

DECISION

TINGA, J.:

The present controversy concerns a matter of first impression, requiring as it does the
determination of the demarcation line between the prerogative of the Department of Labor
and Employment (DOLE) Secretary and his duly authorized representatives, on the one
hand, and the jurisdiction of the National Labor Relations Commission, on the other, under
Article 128 (b) of the Labor Code in an instance where the employer has challenged the
jurisdiction of the DOLE at the very first level on the ground that no employer-employee
relationship ever existed between the parties.

I.

The instant petition for certiorari under Rule 65 assails the decision and the resolution of
the Court of Appeals dated 26 October 2006 and 26 June 2007, respectively, in C.A. G.R.
CEB-SP No. 00855.1

The petition traces its origins to a complaint filed by Jandeleon Juezan (respondent) against
Peoples Broadcasting Service, Inc. (Bombo Radyo Phils., Inc) (petitioner) for illegal
deduction, non-payment of service incentive leave, 13th month pay, premium pay for
holiday and rest day and illegal diminution of benefits, delayed payment of wages and non-
coverage of SSS, PAG-IBIG and Philhealth before the Department of Labor and Employment
(DOLE) Regional Office No. VII, Cebu City.2 On the basis of the complaint, the DOLE
conducted a plant level inspection on 23 September 2003. In the Inspection Report
Form,3 the Labor Inspector wrote under the heading "Findings/Recommendations" "non-
diminution of benefits" and "Note: Respondent deny employer-employee relationship with
the complainant- see Notice of Inspection results." In the Notice of Inspection Results 4also
bearing the date 23 September 2003, the Labor Inspector made the following notations:

Management representative informed that complainant is a drama talent hired on a per

drama " participation basis" hence no employer-employeeship [sic] existed between them.
As proof of this, management presented photocopies of cash vouchers, billing statement,
employments of specific undertaking (a contract between the talent director & the
complainant), summary of billing of drama production etc. They (mgt.) has [sic] not control
of the talent if he ventures into another contract w/ other broadcasting industries.

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On the other hand, complainant Juezans alleged violation of non-diminution of benefits is
computed as follows:

@ P 2,000/15 days + 1.5 mos = P 6,000

(August 1/03 to Sept 15/03)

Note: Recommend for summary investigation or whatever action deem proper. 5

Petitioner was required to rectify/restitute the violations within five (5) days from receipt. No
rectification was effected by petitioner; thus, summary investigations were conducted, with
the parties eventually ordered to submit their respective position papers. 6

In his Order dated 27 February 2004, 7 DOLE Regional Director Atty. Rodolfo M. Sabulao
(Regional Director) ruled that respondent is an employee of petitioner, and that the former
is entitled to his money claims amounting to P203,726.30. Petitioner sought
reconsideration of the Order, claiming that the Regional Director gave credence to the
documents offered by respondent without examining the originals, but at the same time he
missed or failed to consider petitioners evidence. Petitioners motion for reconsideration
was denied.8 On appeal to the DOLE Secretary, petitioner denied once more the existence of
employer-employee relationship. In its Order dated 27 January 2005, the Acting DOLE
Secretary dismissed the appeal on the ground that petitioner did not post a cash or surety
bond and instead submitted a Deed of Assignment of Bank Deposit. 9

Petitioner elevated the case to the Court of Appeals, claiming that it was denied due process
when the DOLE Secretary disregarded the evidence it presented and failed to give it the
opportunity to refute the claims of respondent. Petitioner maintained that there is no
employer-employee relationship had ever existed between it and respondent because it was
the drama directors and producers who paid, supervised and disciplined respondent. It also
added that the case was beyond the jurisdiction of the DOLE and should have been
considered by the labor arbiter because respondents claim exceeded P5,000.00.

The Court of Appeals held that petitioner was not deprived of due process as the essence
thereof is only an opportunity to be heard, which petitioner had when it filed a motion for
reconsideration with the DOLE Secretary. It further ruled that the latter had the power to
order and enforce compliance with labor standard laws irrespective of the amount of
individual claims because the limitation imposed by Article 29 of the Labor Code had been
repealed by Republic Act No. 7730.10 Petitioner sought reconsideration of the decision but
its motion was denied.11

Before this Court, petitioner argues that the National Labor Relations Commission (NLRC),
and not the DOLE Secretary, has jurisdiction over respondents claim, in view of Articles
217 and 128 of the Labor Code.12 It adds that the Court of Appeals committed grave abuse
of discretion when it dismissed petitioners appeal without delving on the issues raised
therein, particularly the claim that no employer-employee relationship had ever existed
between petitioner and respondent. Finally, petitioner avers that there is no appeal, or any
plain, speedy and adequate remedy in the ordinary course of law available to it.

On the other hand, respondent posits that the Court of Appeals did not abuse its discretion.
He invokes Republic Act No. 7730, which "removes the jurisdiction of the Secretary of Labor
and Employment or his duly authorized representatives, from the effects of the restrictive

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provisions of Article 129 and 217 of the Labor Code, regarding the confinement of
jurisdiction based on the amount of claims."13 Respondent also claims that petitioner was
not denied due process since even when the case was with the Regional Director, a hearing
was conducted and pieces of evidence were presented. Respondent stands by the propriety
of the Court of Appeals ruling that there exists an employer-employee relationship between
him and petitioner. Finally, respondent argues that the instant petition for certiorari is a
wrong mode of appeal considering that petitioner had earlier filed a Petition for Certiorari,
Mandamus and Prohibition with the Court of Appeals; petitioner, instead, should have filed
a Petition for Review.14

II.

The significance of this case may be reduced to one simple questiondoes the Secretary of
Labor have the power to determine the existence of an employer-employee relationship?

To resolve this pivotal issue, one must look into the extent of the visitorial and enforcement
power of the DOLE found in Article 128 (b) of the Labor Code, as amended by Republic Act
7730. It reads:

Article 128 (b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the
contrary, and in cases where the relationship of employer-employee still exists, the
Secretary of Labor and Employment or his duly authorized representatives shall have the
power to issue compliance orders to give effect to the labor standards provisions of this
Code and other labor legislation based on the findings of labor employment and
enforcement officers or industrial safety engineers made in the course of inspection. The
Secretary or his duly authorized representative shall issue writs of execution to the
appropriate authority for the enforcement of their orders, except in cases where the
employer contests the findings of the labor employment and enforcement officer and raises
issues supported by documentary proofs which were not considered in the course of
inspection. (emphasis supplied)

xxx

The provision is quite explicit that the visitorial and enforcement power of the DOLE comes
into play only "in cases when the relationship of employer-employee still exists." It also
underscores the avowed objective underlying the grant of power to the DOLE which is "to
give effect to the labor standard provision of this Code and other labor legislation." Of
course, a persons entitlement to labor standard benefits under the labor laws presupposes
the existence of employer-employee relationship in the first place.

The clause "in cases where the relationship of employer-employee still exists" signifies that
the employer-employee relationship must have existed even before the emergence of the
controversy. Necessarily, the DOLEs power does not apply in two instances, namely: (a)
where the employer-employee relationship has ceased; and (b) where no such relationship
has ever existed.

The first situation is categorically covered by Sec. 3, Rule 11 of the Rules on the Disposition
of Labor Standards Cases15 issued by the DOLE Secretary. It reads:

Rule II MONEY CLAIMS ARISING FROM COMPLAINT/ROUTINE INSPECTION

Page 150 of 250

Sec. 3. Complaints where no employer-employee relationship actually exists. Where
employer-employee relationship no longer exists by reason of the fact that it has already
been severed, claims for payment of monetary benefits fall within the exclusive and original
jurisdiction of the labor arbiters. Accordingly, if on the face of the complaint, it can be
ascertained that employer-employee relationship no longer exists, the case, whether
accompanied by an allegation of illegal dismissal, shall immediately be endorsed by the
Regional Director to the appropriate branch of the National Labor Relations Commission
(NLRC).

In the recent case of Bay Haven, Inc. v. Abuan, 16 this Court recognized the first situation
and accordingly ruled that a complainants allegation of his illegal dismissal had deprived
the DOLE of jurisdiction as per Article 217 of the Labor Code. 17

In the first situation, the claim has to be referred to the NLRC because it is the NLRC which
has jurisdiction in view of the termination of the employer-employee relationship. The same
procedure has to be followed in the second situation since it is the NLRC that has
jurisdiction in view of the absence of employer-employee relationship between the
evidentiary parties from the start.

Clearly the law accords a prerogative to the NLRC over the claim when the employer-
employee relationship has terminated or such relationship has not arisen at all. The reason
is obvious. In the second situation especially, the existence of an employer-employee
relationship is a matter which is not easily determinable from an ordinary inspection,
necessarily so, because the elements of such a relationship are not verifiable from a mere
ocular examination. The intricacies and implications of an employer-employee relationship
demand that the level of scrutiny should be far above the cursory and the mechanical.
While documents, particularly documents found in the employers

office are the primary source materials, what may prove decisive are factors related to the
history of the employers business operations, its current state as well as accepted
contemporary practices in the industry. More often than not, the question of employer-
employee relationship becomes a battle of evidence, the determination of which should be
comprehensive and intensive and therefore best left to the specialized quasi-judicial body
that is the NLRC.

It can be assumed that the DOLE in the exercise of its visitorial and enforcement power
somehow has to make a determination of the existence of an employer-employee
relationship. Such prerogatival determination, however, cannot be coextensive with the
visitorial and enforcement power itself. Indeed, such determination is merely preliminary,
incidental and collateral to the DOLEs primary function of enforcing labor standards
provisions. The determination of the existence of employer-employee relationship is still
primarily lodged with the NLRC. This is the meaning of the clause "in cases where the
relationship of employer-employee still exists" in Art. 128 (b).

Thus, before the DOLE may exercise its powers under Article 128, two important questions
must be resolved: (1) Does the employer-employee relationship still exist, or alternatively,
was there ever an employer-employee relationship to speak of; and (2) Are there violations of
the Labor Code or of any labor law?

The existence of an employer-employee relationship is a statutory prerequisite to and a

limitation on the power of the Secretary of Labor, one which the legislative branch is

Page 151 of 250

entitled to impose. The rationale underlying this limitation is to eliminate the prospect of
competing conclusions of the Secretary of Labor and the NLRC, on a matter fraught with
questions of fact and law, which is best resolved by the quasi-judicial body, which is the
NRLC, rather than an administrative official of the executive branch of the government. If
the Secretary of Labor proceeds to exercise his visitorial and enforcement powers absent the
first requisite, as the dissent proposes, his office confers jurisdiction on itself which it
cannot otherwise acquire.

The approach suggested by the dissent is frowned upon by common law. To wit:

[I]t is a general rule, that no court of limited jurisdiction can give itself jurisdiction by a
wrong decision on a point collateral to the merits of the case upon which the limit to its
jurisdiction depends; and however its decision may be final on all particulars, making up
together that subject matter which, if true, is within its jurisdiction, and however necessary
in many cases it may be for it to make a preliminary inquiry, whether some collateral
matter be or be not within the limits, yet, upon this preliminary question, its decision must
always be open to inquiry in the superior court.18

A more liberal interpretative mode, "pragmatic or functional analysis," has also emerged in
ascertaining the jurisdictional boundaries of administrative agencies whose jurisdiction is
established by statute. Under this approach, the Court examines the intended function of
the tribunal and decides whether a particular provision falls within or outside that function,
rather than making the provision itself the determining centerpiece of the analysis. 19 Yet
even under this more expansive approach, the dissent fails.

A reading of Art. 128 of the Labor Code reveals that the Secretary of Labor or his authorized
representatives was granted visitorial and enforcement powers for the purpose of
determining violations of, and enforcing, the Labor Code and any labor law, wage order, or
rules and regulations issued pursuant thereto. Necessarily, the actual existence of an
employer-employee relationship affects the complexion of the putative findings that the
Secretary of Labor may determine, since employees are entitled to a different set of rights
under the Labor Code from the employer as opposed to non-employees. Among these
differentiated rights are those accorded by the "labor standards" provisions of the Labor
Code, which the Secretary of Labor is mandated to enforce. If there is no employer-employee
relationship in the first place, the duty of the employer to adhere to those labor standards
with respect to the non-employees is questionable.

This decision should not be considered as placing an undue burden on the Secretary of
Labor in the exercise of visitorial and enforcement powers, nor seen as an unprecedented
diminution of the same, but rather a recognition of the statutory limitations thereon. A
mere assertion of absence of employer-employee relationship does not deprive the DOLE of
jurisdiction over the claim under Article 128 of the Labor Code. At least a prima facie
showing of such absence of relationship, as in this case, is needed to preclude the DOLE
from the exercise of its power. The Secretary of Labor would not have been precluded from
exercising the powers under Article 128 (b) over petitioner if another person with better-
grounded claim of employment than that which respondent had. Respondent, especially if
he were an employee, could have very well enjoined other employees to complain with the
DOLE, and, at the same time, petitioner could ill-afford to disclaim an employment
relationship with all of the people under its aegis.

Page 152 of 250

Without a doubt, petitioner, since the inception of this case had been consistent in
maintaining that respondent is not its employee. Certainly, a preliminary determination,
based on the evidence offered, and noted by the Labor Inspector during the inspection as
well as submitted during the proceedings before the Regional Director puts in genuine
doubt the existence of employer-employee relationship. From that point on, the prudent
recourse on the part of the DOLE should have been to refer respondent to the NLRC for the
proper dispensation of his claims. Furthermore, as discussed earlier, even the evidence
relied on by the Regional Director in his order are mere self-serving declarations of
respondent, and hence cannot be relied upon as proof of employer-employee relationship.

III.

Aside from lack of jurisdiction, there is another cogent reason to to set aside the Regional
Directors 27 February 2004 Order. A careful study of the case reveals that the said Order,
which found respondent as an employee of petitioner and directed the payment of
respondents money claims, is not supported by substantial evidence, and was even made
in disregard of the evidence on record.

It is not enough that the evidence be simply considered. The standard is substantial
evidence as in all other quasi-judicial agencies. The standard employed in the last sentence
of Article 128(b) of the Labor Code that the documentary proofs be "considered in the
course of inspection" does not apply. It applies only to issues other than the fundamental
issue of existence of employer-employee relationship. A contrary rule would lead to
controversies on the part of labor officials in resolving the issue of employer-employee
relationship. The onset of arbitrariness is the advent of denial of substantive due process.

As a general rule, the Supreme Court is not a trier of facts. This applies with greater force in
cases before quasi-judicial agencies whose findings of fact are accorded great respect and
even finality. To be sure, the same findings should be supported by substantial evidence
from which the said tribunals can make its own independent evaluation of the facts.
Likewise, it must not be rendered with grave abuse of discretion; otherwise, this Court will
not uphold the tribunals conclusion.20 In the same manner, this Court will not hesitate to
set aside the labor tribunals findings of fact when it is clearly shown that they were arrived
at arbitrarily or in disregard of the evidence on record or when there is showing of fraud or
error of law.21

At the onset, it is the Courts considered view that the existence of employer- employee
relationship could have been easily resolved, or at least prima facie determined by the labor
inspector, during the inspection by looking at the records of petitioner which can be found
in the work premises. Nevertheless, even if the labor inspector had noted petitioners
manifestation and documents in the Notice of Inspection Results, it is clear that he did not
give much credence to said evidence, as he did not find the need to investigate the matter
further. Considering that the documents shown by petitioner, namely: cash vouchers,
checks and statements of account, summary billings evidencing payment to the alleged real
employer of respondent, letter-contracts denominated as "Employment for a Specific
Undertaking," prima facie negate the existence of employer-employee relationship, the labor
inspector could have exerted a bit more effort and looked into petitioners payroll, for
example, or its roll of employees, or interviewed other employees in the premises. After all,
the labor inspector, as a labor regulation officer is given "access to employers records and
premises at any time of day or night whenever work is being undertaken therein, and the
right to copy therefrom, to question any employee and investigate any fact, condition or

Page 153 of 250

matter which may be necessary to determine violations or which may aid in the
enforcement of this Code and of any labor law, wage order or rules and regulations
pursuant thereto."22 Despite these far-reaching powers of labor regulation officers, records
reveal that no additional efforts were exerted in the course of the inspection.

The Court further examined the records and discovered to its dismay that even the Regional
Director turned a blind eye to the evidence presented by petitioner and relied instead on the
self-serving claims of respondent.

In his position paper, respondent claimed that he was hired by petitioner in September
1996 as a radio talent/spinner, working from 8:00 am until 5 p.m., six days a week, on a
gross rate of P60.00 per script, earning an average of P15,0000.00 per month, payable on a
semi-monthly basis. He added that the payment of wages was delayed; that he was not
given any service incentive leave or its monetary commutation, or his 13th month pay; and
that he was not made a member of the Social Security System (SSS), Pag-Ibig and
PhilHealth. By January 2001, the number of radio programs of which respondent was a
talent/spinner was reduced, resulting in the reduction of his monthly income
from P15,000.00 to only P4,000.00, an amount he could barely live on. Anent the claim of
petitioner that no employer-employee relationship ever existed, respondent argued that that
he was hired by petitioner, his wages were paid under the payroll of the latter, he was
under the control of petitioner and its agents, and it was petitioner who had the power to
dismiss him from his employment.23 In support of his position paper, respondent attached a
photocopy of an identification card purportedly issued by petitioner, bearing respondents
picture and name with the designation "Spinner"; at the back of the I.D., the following is
written: " This certifies that the card holder is a duly Authorized MEDIA Representative of
BOMBO RADYO PHILIPPINES THE NO.1 Radio Network in the Country ***BASTA
RADYO BOMBO***"24 Respondent likewise included a Certification which reads:

This is to certify that MR. JANDELEON JUEZAN is a program employee of PEOPLES

BROADCASTING SERVICES, INC. (DYMF- Bombo Radyo Cebu) since 1990 up to the
present.

Furtherly certifies that Mr. Juezan is receiving a monthly salary of FIFTEEN THOUSAND
(P15,000.00) PESOS.

This certification is issued upon the request of the above stated name to substantiate loan
requirement.

Given this 18th day of April 2000, Cebu City , Philippines.

(signed)
GREMAN B. SOLANTE
Station Manager

On the other hand, petitioner maintained in its position paper that respondent had never
been its employee. Attached as annexes to its position paper are photocopies of cash
vouchers it issued to drama producers, as well as letters of employment captioned
"Employment for a Specific Undertaking", wherein respondent was appointed by different
drama directors as spinner/narrator for specific radio programs. 25

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In his Order, the Regional Director merely made a passing remark on petitioners claim of
lack of employer-employee relationshipa token paragraphand proceeded to a detailed
recitation of respondents allegations. The documents introduced by petitioner in its
position paper and even those presented during the inspection were not given an iota of
credibility. Instead, full recognition and acceptance was accorded to the claims of
respondentfrom the hours of work to his monthly salary, to his alleged actual duties, as
well as to his alleged "evidence." In fact, the findings are anchored almost verbatim on the
self-serving allegations of respondent.

Furthermore, respondents pieces of evidencethe identification card and the certification

issued by petitioners Greman Solante are not even determinative of an employer-
employee relationship. The certification, issued upon the request of respondent, specifically
stated that "MR. JANDELEON JUEZAN is a program employee of PEOPLES
BROADCASTING SERVICES, INC. (DYMF- Bombo Radyo Cebu)," it is not therefore "crystal
clear that complainant is a station employee rather than a program employee hence entitled
to all the benefits appurtenant thereto,"26 as found by the DOLE Regional Director.
Respondent should be bound by his own evidence. Moreover, the classification as to
whether one is a "station employee" and "program employee," as lifted from Policy
Instruction No. 40,27 dividing the workers in the broadcast industry into only two groups is
not binding on this Court, especially when the classification has no basis either in law or in
fact.28

Even the identification card purportedly issued by petitioner is not proof of employer-
employee relationship since it only identified respondent as an "Authorized Representative
of Bombo Radyo," and not as an employee. The phrase gains significance when compared
vis a vis the following notation in the sample identification cards presented by petitioner in
its motion for reconsideration:

1. This is to certify that the person whose picture and signature appear hereon is an
employee of Bombo Radio Philippines.

2. This ID must be worn at all times within Bombo Radyo Philippines premises for
proper identification and security. Furthermore, this is the property of Bombo Radyo
Philippines and must be surrendered upon separation from the company.

HUMAN RESOURCE DEPARMENT

(Signed)
JENALIN D. PALER
HRD HEAD

Respondent tried to address the discrepancy between his identification card and the
standard identification cards issued by petitioner to its employees by arguing that what he
annexed to his position paper was the old identification card issued to him by petitioner. He
then presented a photocopy of another "old" identification card, this time purportedly
issued to one of the employees who was issued the new identification card presented by
petitioner.29 Respondents argument does not convince. If it were true that he is an
employee of petitioner, he would have been issued a new identification card similar to the
ones presented by petitioner, and he should have presented a copy of such new
identification card. His failure to show a new identification card merely demonstrates that

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what he has is only his "Media" ID, which does not constitute proof of his employment with
petitioner.

It has long been established that in administrative and quasi-judicial proceedings,

substantial evidence is sufficient as a basis for judgment on the existence of employer-
employee relationship. Substantial evidence, which is the quantum of proof required in
labor cases, is "that amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion."30 No particular form of evidence is required to prove the
existence of such employer-employee relationship. Any competent and relevant evidence to
prove the relationship may be admitted. 31 Hence, while no particular form of evidence is
required, a finding that such relationship exists must still rest on some substantial
evidence. Moreover, the substantiality of the evidence depends on its quantitative as well as
its qualitative aspects.32

In the instant case, save for respondents self-serving allegations and self-defeating
evidence, there is no substantial basis to warrant the Regional Directors finding that
respondent is an employee of petitioner. Interestingly, the Order of the Secretary of Labor
denying petitioners appeal dated 27 January 2005, as well as the decision of the Court of
Appeals dismissing the petition for certiorari, are silent on the issue of the existence of an
employer-employee relationship, which further suggests that no real and proper
determination the existence of such relationship was ever made by these tribunals. Even
the dissent skirted away from the issue of the existence of employer-employee relationship
and conveniently ignored the dearth of evidence presented by respondent.

Although substantial evidence is not a function of quantity but rather of quality, the
peculiar environmental circumstances of the instant case demand that something more
should have been proffered.33 Had there been other proofs of employment, such as
respondents inclusion in petitioners payroll, or a clear exercise of control, the Court would
have affirmed the finding of employer-employee relationship. The Regional Director,
therefore, committed grievous error in ordering petitioner to answer for respondents claims.
Moreover, with the conclusion that no employer-employee relationship has ever existed
between petitioner and respondent, it is crystal-clear that the DOLE Regional Director had
no jurisdiction over respondents complaint. Thus, the improvident exercise of power by the
Secretary of Labor and the Regional Director behooves the court to subject their actions for
review and to invalidate all the subsequent orders they issued.

IV.

The records show that petitioners appeal was denied because it had allegedly failed to post
a cash or surety bond. What it attached instead to its appeal was the Letter
Agreement34 executed by petitioner and its bank, the cash voucher, 35 and the Deed of
Assignment of Bank Deposits.36 According to the DOLE, these documents do not constitute
the cash or surety bond contemplated by law; thus, it is as if no cash or surety bond was
posted when it filed its appeal.

The Court does not agree.

The provision on appeals from the DOLE Regional Offices to the DOLE Secretary is in the
last paragraph of Art. 128 (b) of the Labor Code, which reads:

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An order issued by the duly authorized representative of the Secretary of Labor and
Employment under this article may be appealed to the latter. In case said order involves a
monetary award, an appeal by the employer may be perfected only upon the posting of a
cash or surety bond issued by a reputable bonding company duly accredited by the
Secretary of Labor and Employment in the amount equivalent to the monetary award in the
order appealed from. (emphasis supplied)

While the requirements for perfecting an appeal must be strictly followed as they are
considered indispensable interdictions against needless delays and for orderly discharge of
judicial business, the law does admit exceptions when warranted by the circumstances.
Technicality should not be allowed to stand in the way of equitably and completely resolving
the rights and obligations of the parties.37 Thus, in some cases, the bond requirement on
appeals involving monetary awards had been relaxed, such as when (i) there was
substantial compliance with the Rules; (ii) the surrounding facts and circumstances
constitute meritorious ground to reduce the bond; (iii) a liberal interpretation of the
requirement of an appeal bond would serve the desired objective of resolving controversies
on the merits; or (iv) the appellants, at the very least exhibited their willingness and/or
good faith by posting a partial bond during the reglementary period. 38

A review of the documents submitted by petitioner is called for to determine whether they
should have been admitted as or in lieu of the surety or cash bond to sustain the appeal
and serve the ends of substantial justice.

The Deed of Assignment reads:

DEED OF ASSIGNMENT OF BANK DEPOSIT

WITH SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That I, GREMAN B. SOLANTE in my capacity as Station Manager of DYMF Cebu City,

PEOPLES BROADCASTING SERVICES, INC., a corporation duly authorized and existing
under and by virtue of the laws of the Philippines, for and in consideration of the sum of
PESOS: TWO HUNDRED THREE THOUSAND SEVEN HUNDRED TWENTY SIX PESOS &
30/100 ONLY (P203,726.30) Phil. Currency, as CASH BOND GUARANTEE for the monetary
award in favor to the Plaintiff in the Labor Case docketed as LSED Case No. R0700-2003-
09-CI-09, now pending appeal.

That Respondent-Appellant do hereby undertake to guarantee available and sufficient funds

covered by Platinum Savings Deposit (PSD) No. 010-8-00038-4 of PEOPLES
BROADCASTING SERVICES, INC. in the amount of PESOS: TWO HUNDRED THREE
THOUSAND SEVEN HUNDRED TWENTY SIX PESOS & 30/100 ONLY (P203,726.30)
payable to Plaintiff-Appellee/Department of Labor and Employment Regional Office VII at
Queen City Development Bank, Cebu Branch, Sanciangko St. Cebu City.

It is understood that the said bank has the full control of Platinum Savings Deposit (PSD)
No. 010-8-00038-4 from and after this date and that said sum cannot be withdrawn by the
Plaintiff-Appellee/ Department of Labor and Employment Regional Office VII until such time
that a Writ of Execution shall be ordered by the Appellate Office.

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FURTHER, this Deed of Assignment is limited to the principal amount of PESOS: TWO
HUNDRED THREE THOUSAND SEVEN HUNDRED TWENTY SIX PESOS & 30/100 ONLY
(P203,726.30) Phil. Currency, therefore, any interest to be earned from the said Deposit will
be for the account holder.

IN WITNESS WHEREOF, I have hereunto affixed my signature this 18th day if June, 2004,
in the City of Cebu, Philippines.

PEOPLES BROADCASTING SERVICES, INC.

By:

(Signed)
GREMAN B. SOLANTE
Station Manager

As priorly mentioned, the Deed of Assignment was accompanied by a Letter Agreement

between Queen City Development Bank and petitioner concerning Platinum Savings
Deposit (PSD) No. 010-8-00038-4,39 and a Cash Voucher issued by petitioner showing the
amount of P203,726.30 deposited at the said bank.

Casting aside the technical imprecision and inaptness of words that mark the three
documents, a liberal reading reveals the documents petitioner did assign, as cash bond for
the monetary award in favor of respondent in LSED Case NO. RO700-2003-CI-09, the
amount of P203,726.30 covered by petitioners PSD Account No. 010-8-00038-4 with the
Queen City Development Bank at Sanciangko St. Cebu City, with the depositary bank
authorized to remit the amount to, and upon withdrawal by respondent and or the
Department of Labor and Employment Regional Office VII, on the basis of the proper writ of
execution. The Court finds that the Deed of Assignment constitutes substantial compliance
with the bond requirement.

The purpose of an appeal bond is to ensure, during the period of appeal, against any
occurrence that would defeat or diminish recovery by the aggrieved employees under the
judgment if subsequently affirmed.40 The Deed of Assignment in the instant case, like a
cash or surety bond, serves the same purpose. First, the Deed of Assignment constitutes
not just a partial amount, but rather the entire award in the appealed Order. Second, it is
clear from the Deed of Assignment that the entire amount is under the full control of the
bank, and not of petitioner, and is in fact payable to the DOLE Regional Office, to be
withdrawn by the same office after it had issued a writ of execution. For all intents and
purposes, the Deed of Assignment in tandem with the Letter Agreement and Cash Voucher
is as good as cash. Third, the Court finds that the execution of the Deed of Assignment, the
Letter Agreement and the Cash Voucher were made in good faith, and constituted clear
manifestation of petitioners willingness to pay the judgment amount.

The Deed of Assignment must be distinguished from the type of bank certification
submitted by appellants in Cordova v. Keysas Boutique, 41 wherein this Court found that
such bank certification did not come close to the cash or surety bond required by law. The
bank certification in Cordova merely stated that the employer maintains a depository
account with a balance of P23,008.19, and that the certification was issued upon the
depositors request for whatever legal purposes it may serve. There was no indication that
the said deposit was made specifically for the pending appeal, as in the instant case. Thus,

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the Court ruled that the bank certification had not in any way ensured that the award
would be paid should the appeal fail. Neither was the appellee in the case prevented from
making withdrawals from the savings account. Finally, the amount deposited was measly
compared to the total monetary award in the judgment. 42

V.

Another question of technicality was posed against the instant petition in the hope that it
would not be given due course. Respondent asserts that petitioner pursued the wrong mode
of appeal and thus the instant petition must be dismissed.1avvphi1.zw+ Once more, the
Court is not convinced.

A petition for certiorari is the proper remedy when any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of its jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction and there is no appeal,
nor any plain speedy, and adequate remedy at law. There is "grave abuse of discretion"
when respondent acts in a capricious or whimsical manner in the exercise of its judgment
as to be equivalent to lack of jurisdiction. 43

Respondent may have a point in asserting that in this case a Rule 65 petition is a wrong
mode of appeal, as indeed the writ of certiorari is an extraordinary remedy, and certiorari
jurisdiction is not to be equated with appellate jurisdiction. Nevertheless, it is settled, as a
general proposition, that the availability of an appeal does not foreclose recourse to the
extraordinary remedies, such as certiorari and prohibition, where appeal is not adequate or
equally beneficial, speedy and sufficient, as where the orders of the trial court were issued
in excess of or without jurisdiction, or there is need to promptly relieve the aggrieved party
from the injurious effects of the acts of an inferior court or tribunal, e.g., the court has
authorized execution of the judgment.44 This Court has even recognized that a recourse to
certiorari is proper not only where there is a clear deprivation of petitioners fundamental
right to due process, but so also where other special circumstances warrant immediate and
more direct action.45

In one case, it was held that the extraordinary writ of certiorari will lie if it is satisfactorily
established that the tribunal acted capriciously and whimsically in total disregard of
evidence material to or even decisive of the controversy, 46 and if it is shown that the refusal
to allow a Rule 65 petition would result in the infliction of an injustice on a party by a
judgment that evidently was rendered whimsically and capriciously, ignoring and
disregarding uncontroverted facts and familiar legal principles without any valid cause
whatsoever.47

It must be remembered that a wide breadth of discretion is granted a court of justice in

certiorari proceedings.48The Court has not too infrequently given due course to a petition for
certiorari, even when the proper remedy would have been an appeal, where valid and
compelling considerations would warrant such a recourse. 49Moreover, the Court allowed a
Rule 65 petition, despite the availability of plain, speedy or adequate remedy, in view of the
importance of the issues raised

therein.50 The rules were also relaxed by the Court after considering the public interest
involved in the case;51when public welfare and the advancement of public policy dictates;
when the broader interest of justice so requires; when the writs issued are null and void; or
when the questioned order amounts to an oppressive exercise of judicial authority. 52

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"The peculiar circumstances of this case warrant, as we held in Republic v. Court of
Appeals, 107 SCRA 504, 524, the exercise once more of our exclusive prerogative to
suspend our own rules or to exempt a particular case from its operation as in x x Republic
of the Philippines v. Court of Appeals, et al., (83 SCRA 453, 478-480 [1978]), thus: x x The
Rules have been drafted with the primary objective of enhancing fair trials and expediting
justice. As a corollary, if their applications and operation tend to subvert and defeat instead
of promote and enhance it, their suspension is justified."53

The Regional Director fully relied on the self-serving allegations of respondent and
misinterpreted the documents presented as evidence by respondent. To make matters
worse, DOLE denied petitioners appeal based solely on petitioners alleged failure to file a
cash or surety bond, without any discussion on the merits of the case. Since the petition for
certiorari before the Court of Appeals sought the reversal of the two aforesaid orders, the
appellate court necessarily had to examine the evidence anew to determine whether the
conclusions of the DOLE were supported by the evidence presented. It appears, however,
that the Court of Appeals did not even review the assailed orders and focused instead on a
general discussion of due process and the jurisdiction of the Regional Director. Had the
appellate court truly reviewed the records of the case, it would have seen that there existed
valid and sufficient grounds for finding grave abuse of discretion on the part of the DOLE
Secretary as well the Regional Director. In ruling and acting as it did, the Court finds that
the Court of Appeals may be properly subjected to its certiorari jurisdiction. After all, this
Court has previously ruled that the extraordinary writ of certiorari will lie if it is
satisfactorily1avvphi1

established that the tribunal had acted capriciously and whimsically in total disregard of
evidence material to or even decisive of the controversy.54

The most important consideration for the allowance of the instant petition is the
opportunity for the Court not only to set the demarcation between the NLRCs jurisdiction
and the DOLEs prerogative but also the procedure when the case involves the fundamental
challenge on the DOLEs prerogative based on lack of employer-employee relationship. As
exhaustively discussed here, the DOLEs prerogative hinges on the existence of employer-
employee relationship, the issue is which is at the very heart of this case. And the evidence
clearly indicates private respondent has never been petitioners employee. But the DOLE did
not address, while the Court of Appeals glossed over, the issue. The peremptory dismissal of
the instant petition on a technicality would deprive the Court of the opportunity to resolve
the novel controversy.1avvphi1

WHEREFORE, the petition is GRANTED. The Decision dated 26 October 2006 and the
Resolution dated 26 June 2007 of the Court of Appeals in C.A. G.R. CEB-SP No. 00855 are
REVERSED and SET ASIDE. The Order of the then Acting Secretary of the Department of
Labor and Employment dated 27 January 2005 denying petitioners appeal, and the Orders
of the Director, DOLE Regional Office No. VII, dated 24 May 2004 and 27 February 2004,
respectively, are ANNULLED. The complaint against petitioner is DISMISSED.

SO ORDERED.

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 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 171212 August 4, 2014

INDOPHIL TEXTILE MILLS, INC., Petitioner,

vs.
ENGR. SALVADOR ADVIENTO, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court which seeks to review, reverse and set-aside the Decision1 of the Court of Appeals
(CA), dated May 30, 2005, and its Resolution2dated January 10, 2006 in the case entitled
Jndophil Textile Mills, Inc. v. Hon. Rolando R. Velasco and Engr. Salvador Adviento,
docketed as CA-G.R. SP No. 83099.

The facts are not disputed.

Petitioner Indophil Textile Mills, Inc. is a domestic corporation engaged in the business of
manufacturing thread for weaving.3 On August 21, 1990, petitioner hired respondent Engr.
Salvador Adviento as Civil Engineer to maintain its facilities in Lambakin, Marilao,
Bulacan.4 On August 7, 2002, respondent consulted a physician due to recurring weakness
and dizziness.5 Few days later, he was diagnosed with Chronic Poly Sinusitis, and
thereafter, with moderate, severe and persistent Allergic Rhinitis.6 Accordingly, respondent
was advised by his doctor to totally avoid house dust mite and textile dust as it will
transmute into health problems.7

Distressed, respondent filed a complaint against petitioner with the National Labor
Relations Commission (NLRC), San Fernando, Pampanga, for alleged illegal dismissal and
for the payment of backwages, separation pay, actual damages and attorneys fees. The said
case, docketed as NLRC Case No. RAB-III-05-5834-03, is still pending resolution with the
NLRC at the time the instant petition was filed.8

Subsequently, respondent filed another Complaint 9 with the Regional Trial Court (RTC) of
Aparri, Cagayan, alleging that he contracted such occupational disease by reason of the
gross negligence of petitioner to provide him with a safe, healthy and workable
environment.

In his Complaint, respondent alleged that as part of his job description, he conductsregular
maintenance check on petitioners facilities including its dye house area, which is very hot
and emits foul chemical odor with no adequate safety measures introduced by
petitioner.10 According to respondent, the air washer dampers and all roof exhaust vests are
blown into open air, carrying dust thereto.11 Concerned, respondent recommended to
management to place roof insulation to minimize, if not, eradicate the health hazards
attendant in the work place.12 However, said recommendation was turned down by

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management due to high cost.13 Respondent further suggested to petitioners management
that the engineering office be relocated because ofits dent prone location, such that even if
the door of the office is sealed, accumulated dust creeps in outside the office. 14 This was
further aggravated by the installation of new filters fronting the office. 15 However, no action
was taken by management.16According to respondent, these healthhazards have been the
persistent complaints of most, if not all, workers of petitioner. 17 Nevertheless, said
complaints fell on deaf ears as petitioner callously ignored the health problems of its
workers and even tended to be apathetic to their plight, including respondent. 18

Respondent averred that, being the only breadwinner in the family, he made several
attempts to apply for a new job, but to his dismay and frustration, employers who knew
ofhis present health condition discriminated against him and turned down his
application.19 By reason thereof, respondent suffered intense moral suffering, mental
anguish, serious anxiety and wounded feelings, praying for the recovery of the following: (1)
Five Million Pesos (P5,000,000.00) asmoral damages; (2) Two Million Pesos (P2,000,000.00)
as exemplary damages; and (3) Seven Million Three Thousand and Eight Pesos
(P7,003,008.00) as compensatory damages.20 Claiming to be a pauper litigant, respondent
was not required to pay any filing fee.21

In reply, petitioner filed a Motion to Dismiss 22 on the ground that: (1) the RTC has no
jurisdiction over the subject matter of the complaint because the same falls under the
original and exclusive jurisdiction of the Labor Arbiter (LA) under Article 217(a)(4) of the
Labor Code; and (2) there is another action pending with the Regional Arbitration Branch III
of the NLRC in San Fernando City, Pampanga, involving the same parties for the same
cause.

On December 29, 2003, the RTC issued a Resolution 23 denying the aforesaid Motion and
sustaining its jurisdiction over the instant case. It held that petitioners alleged failure to
provide its employees with a safe, healthy and workable environment is an act of
negligence, a case of quasi-delict. As such, it is not within the jurisdiction of the LA under
Article 217 of the Labor Code. On the matter of dismissal based on lis pendencia, the RTC
ruled that the complaint before the NLRC has a different cause of action which is for illegal
dismissal and prayer for backwages, actual damages, attorneys fees and separation pay
due to illegal dismissal while in the present case, the cause of action is for quasi-
delict.24 The falloof the Resolution is quoted below:

WHEREFORE, finding the motion to dismiss to be without merit, the Court deniesthe
motion to dismiss.

SO ORDERED.25

On February 9, 2004, petitioner filed a motion for reconsideration thereto, which was
likewise denied in an Order issued on even date.

Expectedly, petitioner then filed a Petition for Certiorariwith the CA on the ground that the
RTC committed grave abuse of discretion amounting to lack or excess of jurisdiction in
upholding that it has jurisdiction over the subject matter of the complaint despite the broad
and clear terms of Article 217 of the Labor Code, as amended. 26

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After the submission by the parties of their respective Memoranda, the CA rendered a
Decision27 dated May 30, 2005 dismissing petitioners Petition for lack of merit, the
dispositive portion of which states:

WHEREFORE, premises considered, petition for certiorari is hereby DISMISSEDfor lack of

merit. SO ORDERED.28

From the aforesaid Decision, petitioner filed a Motion for Reconsideration which was
nevertheless denied for lack of merit in the CAs Resolution 29 dated January 10, 2006.
Hence, petitioner interposed the instant petition upon the solitary ground that "THE
HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN A
WAY NOT IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THE
HONORABLE SUPREME COURT."30 Simply, the issue presented before us is whether or not
the RTC has jurisdiction over the subject matter of respondents complaint praying for
moral damages,exemplary damages, compensatory damages, anchored on petitioners
alleged gross negligence in failing to provide a safe and healthy working environment for
respondent.

The delineation between the jurisdiction of regular courts and labor courts over cases
involving workers and their employers has always been a matter of dispute. 31 It is up to the
Courts to lay the line after careful scrutiny of the factual milieu of each case. Here, we find
that jurisdiction rests on the regular courts.

In its attempt to overturn the assailed Decision and Resolution of the CA, petitioner argues
that respondentsclaim for damages is anchored on the alleged gross negligence of petitioner
as an employer to provide its employees, including herein respondent, with a safe, healthy
and workable environment; hence, it arose from an employer-employee relationship.32 The
fact of respondents employment withpetitioner as a civil engineer is a necessary element of
his cause ofaction because without the same, respondent cannot claim to have a rightto a
safe, healthy and workable environment.33 Thus, exclusive jurisdiction over the same
should be vested in the Labor Arbiter and the NLRC pursuant to Article 217(a)(4) of the
Labor Code of the Philippines (Labor Code), as amended. 34

We are not convinced.

The jurisdiction of the LA and the NLRC is outlined in Article 217 of the Labor Code, as
amended by Section 9 of Republic Act (R.A.) No. 6715, to wit:

ART. 217. Jurisdiction of Labor Arbiters and the Commission-- (a) Except as otherwise
provided under this Code the Labor Arbiter shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the submission of the case by the
parties for decision without extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or nonagricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file
involvingwages, rates of pay, hours of work and other terms and conditions of
employment;

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 4. Claims for actual, moral, exemplary and other forms of damages arising from
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code including questions
involving the 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.

x x x.35

While we have upheld the present trend to refer worker-employer controversies to labor
courts in light of the aforequoted provision, we have also recognized that not all claims
involving employees can be resolved solely by our labor courts, specifically when the law
provides otherwise.36 For this reason, we have formulated the "reasonable causal
connection rule," wherein if there is a reasonable causal connection between the claim
asserted and the employer-employee relations, then the case is within the jurisdiction of the
labor courts; and in the absence thereof, it is the regular courts that have
jurisdiction.37 Such distinction is apt since it cannot be presumed that money claims of
workers which do not arise out of or in connection with their employer-employee
relationship, and which would therefore fall within the general jurisdiction of the regular
courts of justice, were intended by the legislative authority to be taken away from the
jurisdiction of the courts and lodged with Labor Arbiters on an exclusive basis. 38

In fact, as early as Medina vs. Hon. Castro-Bartolome,39 in negating the jurisdiction of the
LA, although the parties involved were an employer and two employees, the Court
succinctly held that:

The pivotal question to Our mind iswhether or not the Labor Code has any relevance to the
reliefs sought by the plaintiffs. For if the Labor Code has no relevance, any discussion
concerning the statutes amending it and whether or not they have retroactive effect is
unnecessary.

It is obvious from the complaint that the plaintiffs have not alleged any unfair labor
practice. Theirs is a simple action for damages for tortious acts allegedly committed by the
defendants. Such being the case, the governing statute is the Civil Code and not the Labor
Code. It results that the orders under revieware based on a wrong premise. 40

Similarly, we ruled in the recent case of Portillo v. Rudolf Lietz, Inc. 41 that not all disputes
between an employer and his employees fall within the jurisdiction of the labor tribunals
suchthat when the claim for damages is grounded on the "wanton failure and refusal"
without just cause of an employee to report for duty despite repeated notices served upon
him of the disapproval of his application for leave ofabsence, the same falls within the
purview of Civil Law, to wit:

As early as Singapore Airlines Limited v. Pao, we established that not all disputes between
an employer and his employee(s) fall within the jurisdiction of the labor tribunals. We

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differentiated between abandonment per seand the manner and consequent effects of such
abandonment and ruled that the first, is a labor case, while the second, is a civil law case.

Upon the facts and issues involved, jurisdiction over the present controversy must be held
to belong to the civil Courts. While seemingly petitioner's claim for damages arises from
employer-employee relations, and the latest amendment to Article 217 of the Labor Code
under PD No. 1691 and BP Blg. 130 provides that all other claimsarising from employer-
employee relationship are cognizable by Labor Arbiters [citation omitted], in essence,
petitioner's claim for damages is grounded on the "wanton failure and refusal"without just
cause of private respondent Cruz to report for duty despite repeated notices served upon
him of the disapproval of his application for leave of absence without pay. This, coupled
with the further averment that Cruz "maliciously and with bad faith" violated the terms and
conditions of the conversion training course agreement to the damage of petitioner removes
the present controversy from the coverage of the Labor Code and brings it within the
purview of Civil Law.

Clearly, the complaint was anchored not on the abandonment per seby private respondent
Cruz of his jobas the latter was not required in the Complaint to report back to workbut
on the manner and consequent effects of such abandonmentof work translated in terms of
the damages which petitioner had to suffer. x x x. 42

Indeed, jurisprudence has evolved the rule that claims for damages under Article 217(a)(4)
of the Labor Code, to be cognizable by the LA, must have a reasonable causal connection
withany of the claims provided for in that article.43 Only if there is such a connection with
the other claims can a claim for damages be considered as arising from employer-employee
relations.44

In the case at bench, we find that such connection is nil.

True, the maintenance of a safe and healthy workplace is ordinarily a subject of labor
cases. More, the acts complained of appear to constitute matters involving employee-
employer relations since respondent used to be the Civil Engineer of petitioner. However, it
should be stressed that respondents claim for damages is specifically grounded on
petitioners gross negligenceto provide a safe, healthy and workable environment for its
employees a case of quasi-delict. This is easily ascertained from a plain and cursory
reading of the Complaint,45 which enumerates the acts and/or omissions of petitioner
relative to the conditions in the workplace, to wit:

1. Petitioners textile mills have excessive flying textile dust and waste in its
operations and no effort was exerted by petitioner to minimize or totally eradicate it;

2. Petitioner failed to provide adequate and sufficient dust suction facilities;

3. Textile machines are cleaned with air compressors aggravating the dusty work
place;

4. Petitioner has no physician specializing in respiratoryrelated illness considering it

is a textile company;

5. Petitioner has no device to detectthe presence or density of dust which is

airborne;

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 6. The chemical and color room are not equipped with proper safety chemical nose
mask; and

7. The power and boiler plant emit too much smoke with solid particles blown to the
air from the smoke stack of the power plant emitting a brown rust color which
engulfs the entire compound.46

In addition, respondent alleged that despite his earnest efforts to suggest to management to
place roof insulation to minimize, if not, eradicate the health hazards attendant in the
workplace, the same was not heeded.47

It is a basic tenet that jurisdiction over the subject matter is determined upon the
allegations made in the complaint, irrespective of whether or not the plaintiff is entitled to
recover upon the claim asserted therein, which is a matter resolved only after and as a
result of a trial.48 Neither can jurisdiction of a court bemade to depend upon the defenses
made by a defendant in his answer or motion to dismiss. 49 In this case, a perusal of the
complaint would reveal that the subject matter is one of claim for damages arising from
quasi-delict, which is within the ambit of the regular court's jurisdiction.

The pertinent provision of Article 2176 of the Civil Code which governs quasi-delictprovides
that: Whoever by act or omissioncauses damageto another, there being fault or negligence,
is obliged to pay for the damagedone. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called quasi-delict.50

Thus, to sustain a claim liability under quasi-delict, the following requisites must concur:
(a) damages suffered by the plaintiff; (b) fault or negligence of the defendant, or someother
person for whose acts he must respond; and (c) the connection of causeand effect between
the fault or negligence of the defendant and the damages incurred by the plaintiff. 51

In the case at bar, respondent alleges that due to the continued and prolonged exposure to
textile dust seriously inimical to his health, he suffered work-contracted disease which is
now irreversible and incurable, and deprived him of job opportunities.52 Clearly, injury and
damages were allegedly suffered by respondent, an element of quasi-delict. Secondly, the
previous contract of employment between petitioner and respondent cannot be used to
counter the element of "no pre-existing contractual relation" since petitioners alleged gross
negligence in maintaining a hazardous work environment cannot be considered a mere
breach of such contract of employment, but falls squarely within the elements of quasi-
delictunder Article 2176 of the Civil Code since the negligence is direct, substantive and
independent.53 Hence, we ruled in Yusen Air and Sea Services Phils., Inc. v. Villamor 54that:

When, as here, the cause of action is based on a quasi-delictor tort, which has no
reasonable causal connection with any of the claims provided for in Article 217, jurisdiction
over the action is with the regular courts.55

It also bears stressing that respondent is not praying for any relief under the Labor Code of
the Philippines. He neither claims for reinstatement nor backwages or separation pay
resulting from an illegal termination. The cause of action herein pertains to the
consequence of petitioners omission which led to a work-related disease suffered by
respondent, causing harm or damage to his person. Such cause of action is within the
realm of Civil Law, and jurisdiction over the controversy belongs to the regular courts. 56

Page 166 of 250

Our ruling in Portillo, is instructive, thus:

There is no causal connection between private respondents claim for damages and the
respondent employers claim for damages for the alleged "Goodwill Clause" violation.
Portillos claim for unpaid salaries did not have anything to do with her alleged violation of
the employment contract as, in fact, her separation from employmentis not "rooted" in the
alleged contractual violation. She resigned from her employment. She was not dismissed.
Portillos entitlementto the unpaid salaries is not even contested. Indeed, Lietz Inc.s
argument about legal compensation necessarily admits that it owesthe money claimed by
Portillo.57

Further, it cannot be gainsaid that the claim for damages occurred afterthe employer-
employee relationship of petitioner and respondent has ceased. Given that respondent no
longer demands for any relief under the Labor Code as well as the rules and regulations
pertinent thereto, Article 217(a)(4) of the Labor Code is inapplicable to the instant case, as
emphatically held in Portillo, to wit:

It is clear, therefore, that while Portillos claim for unpaid salaries is a money claim that
arises out ofor in connection with an employeremployee relationship, Lietz Inc.s claim
against Portillo for violation of the goodwill clause is a money claim based on an act done
after the cessation of the employment relationship. And, while the jurisdiction over Portillos
claim is vested in the labor arbiter, the jurisdiction over Lietz Inc.s claim rests on the
regular courts. Thus:

As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks to
recover damages based on the parties' contract of employment as redress for respondent's
breach thereof. Such cause of action is within the realm of Civil Law, and jurisdiction over
the controversy belongs to the regular courts. More so must this be in the present case,
what with the reality that the stipulation refers to the post-employment relations of the
parties.58

Where the resolution of the dispute requires expertise, not in labor management relations
nor in wage structures and other terms and conditions of employment, but rather in the
application of the general civil law, such claim falls outside the area of competence of
expertise ordinarily ascribed to the LA and the NLRC. 59

Guided by the aforequoted doctrines, we find no reason to reverse the findings of the
CA.1wphi1 The RTC has jurisdiction over the subject matter of respondent's complaint
praying for moral damages, exemplary damages, compensatory damages, anchored on
petitioner's alleged gross negligence in failing to provide a safe and healthy working
environment for respondent. WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals, dated May 30, 2005, and its Resolution dated January 10, 2006 in CA-
G.R. SP No. 83099 are hereby AFFIRMED.

SO ORDERED.

Page 167 of 250

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 148132 January 28, 2008

SMART COMMUNICATIONS, INC., petitioner,

vs.
REGINA M. ASTORGA, respondent.

x---------------------------------------------------x

G.R. No. 151079 January 28, 2008

SMART COMMUNICATIONS, INC., petitioner,

vs.
REGINA M. ASTORGA, respondent.

x---------------------------------------------------x

G.R. No. 151372 January 28, 2008

REGINA M. ASTORGA, petitioner,

vs.
SMART COMMUNICATIONS, INC. and ANN MARGARET V. SANTIAGO, respondents.

DECISION

NACHURA, J.:

For the resolution of the Court are three consolidated petitions for review on certiorari under
Rule 45 of the Rules of Court. G.R. No. 148132 assails the February 28, 2000 Decision 1 and
the May 7, 2001 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP. No. 53831. G.R.
Nos. 151079 and 151372 question the June 11, 2001 Decision 3and the December 18, 2001
Resolution4 in CA-G.R. SP. No. 57065.

Regina M. Astorga (Astorga) was employed by respondent Smart Communications,

Incorporated (SMART) on May 8, 1997 as District Sales Manager of the Corporate Sales
Marketing Group/ Fixed Services Division (CSMG/FSD). She was receiving a monthly
salary of P33,650.00. As District Sales Manager, Astorga enjoyed additional benefits,
namely, annual performance incentive equivalent to 30% of her annual gross salary, a
group life and hospitalization insurance coverage, and a car plan in the amount
of P455,000.00.5

In February 1998, SMART launched an organizational realignment to achieve more efficient

operations. This was made known to the employees on February 27, 1998. 6 Part of the
reorganization was the outsourcing of the marketing and sales force. Thus, SMART entered
into a joint venture agreement with NTT of Japan, and formed SMART-NTT Multimedia,

Page 168 of 250

Incorporated (SNMI). Since SNMI was formed to do the sales and marketing work, SMART
abolished the CSMG/FSD, Astorgas division.

To soften the blow of the realignment, SNMI agreed to absorb the CSMG personnel who
would be recommended by SMART. SMART then conducted a performance evaluation of
CSMG personnel and those who garnered the highest ratings were favorably recommended
to SNMI. Astorga landed last in the performance evaluation, thus, she was not
recommended by SMART. SMART, nonetheless, offered her a supervisory position in the
Customer Care Department, but she refused the offer because the position carried lower
salary rank and rate.

Despite the abolition of the CSMG/FSD, Astorga continued reporting for work. But on
March 3, 1998, SMART issued a memorandum advising Astorga of the termination of her
employment on ground of redundancy, effective April 3, 1998. Astorga received it on March
16, 1998.7

The termination of her employment prompted Astorga to file a Complaint 8 for illegal
dismissal, non-payment of salaries and other benefits with prayer for moral and exemplary
damages against SMART and Ann Margaret V. Santiago (Santiago). She claimed that
abolishing CSMG and, consequently, terminating her employment was illegal for it violated
her right to security of tenure. She also posited that it was illegal for an employer, like
SMART, to contract out services which will displace the employees, especially if the
contractor is an in-house agency.9

SMART responded that there was valid termination. It argued that Astorga was dismissed
by reason of redundancy, which is an authorized cause for termination of employment, and
the dismissal was effected in accordance with the requirements of the Labor Code. The
redundancy of Astorgas position was the result of the abolition of CSMG and the creation of
a specialized and more technically equipped SNMI, which is a valid and legitimate exercise
of management prerogative.10

In the meantime, on May 18, 1998, SMART sent a letter to Astorga demanding that she pay
the current market value of the Honda Civic Sedan which was given to her under the
companys car plan program, or to surrender the same to the company for proper
disposition.11 Astorga, however, failed and refused to do either, thus prompting SMART to
file a suit for replevin with the Regional Trial Court of Makati (RTC) on August 10, 1998.
The case was docketed as Civil Case No. 98-1936 and was raffled to Branch 57. 12

Astorga moved to dismiss the complaint on grounds of (i) lack of jurisdiction; (ii) failure to
state a cause of action; (iii) litis pendentia; and (iv) forum-shopping. Astorga posited that
the regular courts have no jurisdiction over the complaint because the subject thereof
pertains to a benefit arising from an employment contract; hence, jurisdiction over the
same is vested in the labor tribunal and not in regular courts. 13

Pending resolution of Astorgas motion to dismiss the replevin case, the Labor Arbiter
rendered a Decision14dated August 20, 1998, declaring Astorgas dismissal from
employment illegal. While recognizing SMARTs right to abolish any of its departments, the
Labor Arbiter held that such right should be exercised in good faith and for causes beyond
its control. The Arbiter found the abolition of CSMG done neither in good faith nor for
causes beyond the control of SMART, but a ploy to terminate Astorgas employment. The
Arbiter also ruled that contracting out the functions performed by Astorga to an in-house

Page 169 of 250

agency like SNMI was illegal, citing Section 7(e), Rule VIII-A of the Rules Implementing the
Labor Code.

Accordingly, the Labor Arbiter ordered:

WHEREFORE, judgment is hereby rendered declaring the dismissal of [Astorga] to

be illegal and unjust. [SMART and Santiago] are hereby ordered to:

1. Reinstate [Astorga] to [her] former position or to a substantially equivalent

position, without loss of seniority rights and other privileges, with full backwages,
inclusive of allowances and other benefits from the time of [her] dismissal to the date
of reinstatement, which computed as of this date, are as follows:
(a) Astorga
BACKWAGES; (P33,650.00 x 4 months) = P134,600.00
UNPAID SALARIES (February 15, 1998-April
3, 1998
February 15-28, 1998 = P 16,823.00
March 1-31, [1998] = P 33,650.00
April 1-3, 1998 = P 3,882.69
CAR MAINTENANCE ALLOWANCE = P 8,000.00
(P2,000.00 x 4)
FUEL ALLOWANCE = P 14,457.83
(300 liters/mo. x 4 mos. at P12.04/liter)
TOTAL = P211,415.52

xxxx

3. Jointly and severally pay moral damages in the amount of P500,000.00 x x x and
exemplary damages in the amount of P300,000.00. x x x

4. Jointly and severally pay 10% of the amount due as attorneys fees.

SO ORDERED.15

Subsequently, on March 29, 1999, the RTC issued an Order 16 denying Astorgas motion to
dismiss the replevin case. In so ruling, the RTC ratiocinated that:

Assessing the [submission] of the parties, the Court finds no merit in the motion to
dismiss.

As correctly pointed out, this case is to enforce a right of possession over a company
car assigned to the defendant under a car plan privilege arrangement. The car is
registered in the name of the plaintiff. Recovery thereof via replevin suit is allowed
by Rule 60 of the 1997 Rules of Civil Procedure, which is undoubtedly within the
jurisdiction of the Regional Trial Court.

Page 170 of 250

 In the Complaint, plaintiff claims to be the owner of the company car and despite
demand, defendant refused to return said car. This is clearly sufficient statement of
plaintiffs cause of action.

Neither is there forum shopping. The element of litis penden[t]ia does not appear to
exist because the judgment in the labor dispute will not constitute res judicata to
bar the filing of this case.

WHEREFORE, the Motion to Dismiss is hereby denied for lack of merit.

SO ORDERED.17

Astorga filed a motion for reconsideration, but the RTC denied it on June 18, 1999. 18

Astorga elevated the denial of her motion via certiorari to the CA, which, in its February 28,
2000 Decision,19reversed the RTC ruling. Granting the petition and, consequently,
dismissing the replevin case, the CA held that the case is intertwined with Astorgas
complaint for illegal dismissal; thus, it is the labor tribunal that has rightful jurisdiction
over the complaint. SMARTs motion for reconsideration having been denied, 20 it elevated
the case to this Court, now docketed as G.R. No. 148132.

Meanwhile, SMART also appealed the unfavorable ruling of the Labor Arbiter in the illegal
dismissal case to the National Labor Relations Commission (NLRC). In its September 27,
1999 Decision,21 the NLRC sustained Astorgas dismissal. Reversing the Labor Arbiter, the
NLRC declared the abolition of CSMG and the creation of SNMI to do the sales and
marketing services for SMART a valid organizational action. It overruled the Labor Arbiters
ruling that SNMI is an in-house agency, holding that it lacked legal basis. It also declared
that contracting, subcontracting and streamlining of operations for the purpose of
increasing efficiency are allowed under the law. The NLRC further found erroneous the
Labor Arbiters disquisition that redundancy to be valid must be impelled by economic
reasons, and upheld the redundancy measures undertaken by SMART.

The NLRC disposed, thus:

WHEREFORE, the Decision of the Labor Arbiter is hereby reversed and set aside.
[Astorga] is further ordered to immediately return the company vehicle assigned to
her. [Smart and Santiago] are hereby ordered to pay the final wages of [Astorga] after
[she] had submitted the required supporting papers therefor.

SO ORDERED.22

Astorga filed a motion for reconsideration, but the NLRC denied it on December 21, 1999. 23

Astorga then went to the CA via certiorari. On June 11, 2001, the CA rendered a
Decision24 affirming with modification the resolutions of the NLRC. In gist, the CA agreed
with the NLRC that the reorganization undertaken by SMART resulting in the abolition of
CSMG was a legitimate exercise of management prerogative. It rejected Astorgas posturing
that her non-absorption into SNMI was tainted with bad faith. However, the CA found that
SMART failed to comply with the mandatory one-month notice prior to the intended
termination. Accordingly, the CA imposed a penalty equivalent to Astorgas one-month
salary for this non-compliance. The CA also set aside the NLRCs order for the return of the

Page 171 of 250

company vehicle holding that this issue is not essentially a labor concern, but is civil in
nature, and thus, within the competence of the regular court to decide. It added that the
matter had not been fully ventilated before the NLRC, but in the regular court.

Astorga filed a motion for reconsideration, while SMART sought partial reconsideration, of
the Decision. On December 18, 2001, the CA resolved the motions, viz.:

WHEREFORE, [Astorgas] motion for reconsideration is hereby PARTIALLY

GRANTED. [Smart] is hereby ordered to pay [Astorga] her backwages from 15
February 1998 to 06 November 1998. [Smarts] motion for reconsideration is
outrightly DENIED.

SO ORDERED.25

Astorga and SMART came to us with their respective petitions for review assailing the CA
ruling, docketed as G.R Nos. 151079 and 151372. On February 27, 2002, this Court
ordered the consolidation of these petitions with G.R. No. 148132. 26

In her Memorandum, Astorga argues:

THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF ASTORGAS

DISMISSAL DESPITE THE FACT THAT HER DISMISSAL WAS EFFECTED IN CLEAR
VIOLATION OF THE CONSTITUTIONAL RIGHT TO SECURITY OF TENURE,
CONSIDERING THAT THERE WAS NO GENUINE GROUND FOR HER DISMISSAL.

II

SMARTS REFUSAL TO REINSTATE ASTORGA DURING THE PENDENCY OF THE

APPEAL AS REQUIRED BY ARTICLE 223 OF THE LABOR CODE, ENTITLES
ASTORGA TO HER SALARIES DURING THE PENDENCY OF THE APPEAL.

III

THE COURT OF APPEALS WAS CORRECT IN HOLDING THAT THE REGIONAL

TRIAL COURT HAS NO JURISDICTION OVER THE COMPLAINT FOR RECOVERY OF
A CAR WHICH ASTORGA ACQUIRED AS PART OF HER EMPLOYEE (sic) BENEFIT. 27

On the other hand, Smart in its Memoranda raises the following issues:

WHETHER THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION

OF SUBSTANCE IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH
APPLICABLE DECISION OF THE HONORABLE SUPREME COURT AND HAS SO FAR
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER OF SUPERVISION
WHEN IT RULED THAT SMART DID NOT COMPLY WITH THE NOTICE
REQUIREMENTS PRIOR TO TERMINATING ASTORGA ON THE GROUND OF
REDUNDANCY.

Page 172 of 250

 II

WHETHER THE NOTICES GIVEN BY SMART TO ASTORGA AND THE DEPARTMENT

OF LABOR AND EMPLOYMENT ARE SUBSTANTIAL COMPLIANCE WITH THE
NOTICE REQUIREMENTS BEFORE TERMINATION.

III

WHETHER THE RULE ENUNCIATED IN SERRANO VS. NATIONAL LABOR

RELATIONS COMMISSION FINDS APPLICATION IN THE CASE AT BAR
CONSIDERING THAT IN THE SERRANO CASE THERE WAS ABSOLUTELY NO
NOTICE AT ALL.28

IV

WHETHER THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION

OF SUBSTANCE IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH
APPLICABLE DECISION[S] OF THE HONORABLE SUPREME COURT AND HAS SO
FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER OF SUPERVISION
WHEN IT RULED THAT THE REGIONAL TRIAL COURT DOES NOT HAVE
JURISDICTION OVER THE COMPLAINT FOR REPLEVIN FILED BY SMART TO
RECOVER ITS OWN COMPANY VEHICLE FROM A FORMER EMPLOYEE WHO WAS
LEGALLY DISMISSED.

WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED TO APPRECIATE

THAT THE SUBJECT OF THE REPLEVIN CASE IS NOT THE ENFORCEMENT OF A
CAR PLAN PRIVILEGE BUT SIMPLY THE RECOVERY OF A COMPANY CAR.

VI

WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED TO APPRECIATE

THAT ASTORGA CAN NO LONGER BE CONSIDERED AS AN EMPLOYEE OF SMART
UNDER THE LABOR CODE.29

The Court shall first deal with the propriety of dismissing the replevin case filed with the
RTC of Makati City allegedly for lack of jurisdiction, which is the issue raised in G.R. No.
148132.

Replevin is an action whereby the owner or person entitled to repossession of goods or

chattels may recover those goods or chattels from one who has wrongfully distrained or
taken, or who wrongfully detains such goods or chattels. It is designed to permit one having
right to possession to recover property in specie from one who has wrongfully taken or
detained the property.30 The term may refer either to the action itself, for the recovery of
personalty, or to the provisional remedy traditionally associated with it, by which
possession of the property may be obtained by the plaintiff and retained during the
pendency of the action.31

Page 173 of 250

That the action commenced by SMART against Astorga in the RTC of Makati City was one
for replevin hardly admits of doubt.

In reversing the RTC ruling and consequently dismissing the case for lack of jurisdiction,
the CA made the following disquisition, viz.:

[I]t is plain to see that the vehicle was issued to [Astorga] by [Smart] as part of the
employment package. We doubt that [SMART] would extend [to Astorga] the same
car plan privilege were it not for her employment as district sales manager of the
company. Furthermore, there is no civil contract for a loan between [Astorga] and
[Smart]. Consequently, We find that the car plan privilege is a benefit arising out of
employer-employee relationship. Thus, the claim for such falls squarely within the
original and exclusive jurisdiction of the labor arbiters and the NLRC. 32

We do not agree. Contrary to the CAs ratiocination, the RTC rightfully assumed jurisdiction
over the suit and acted well within its discretion in denying Astorgas motion to dismiss.
SMARTs demand for payment of the market value of the car or, in the alternative, the
surrender of the car, is not a labor, but a civil, dispute. It involves the relationship of debtor
and creditor rather than employee-employer relations.33 As such, the dispute falls within
the jurisdiction of the regular courts.

In Basaya, Jr. v. Militante,34 this Court, in upholding the jurisdiction of the RTC over the
replevin suit, explained:

Replevin is a possessory action, the gist of which is the right of possession in the
plaintiff. The primary relief sought therein is the return of the property in specie
wrongfully detained by another person. It is an ordinary statutory proceeding to
adjudicate rights to the title or possession of personal property. The question of
whether or not a party has the right of possession over the property involved and if
so, whether or not the adverse party has wrongfully taken and detained said
property as to require its return to plaintiff, is outside the pale of competence of a
labor tribunal and beyond the field of specialization of Labor Arbiters.

xxxx

The labor dispute involved is not intertwined with the issue in the Replevin Case.
The respective issues raised in each forum can be resolved independently on the
other. In fact in 18 November 1986, the NLRC in the case before it had issued an
Injunctive Writ enjoining the petitioners from blocking the free ingress and egress to
the Vessel and ordering the petitioners to disembark and vacate. That aspect of the
controversy is properly settled under the Labor Code. So also with petitioners right
to picket. But the determination of the question of who has the better right to take
possession of the Vessel and whether petitioners can deprive the Charterer, as the
legal possessor of the Vessel, of that right to possess in addressed to the competence
of Civil Courts.

In thus ruling, this Court is not sanctioning split jurisdiction but defining avenues
of jurisdiction as laid down by pertinent laws.

The CA, therefore, committed reversible error when it overturned the RTC ruling and
ordered the dismissal of the replevin case for lack of jurisdiction.

Page 174 of 250

Having resolved that issue, we proceed to rule on the validity of Astorgas dismissal.

Astorga was terminated due to redundancy, which is one of the authorized causes for the
dismissal of an employee. The nature of redundancy as an authorized cause for dismissal is
explained in the leading case of Wiltshire File Co., Inc. v. National Labor Relations
Commission,35 viz:

x x x redundancy in an employers personnel force necessarily or even ordinarily

refers to duplication of work. That no other person was holding the same position
that private respondent held prior to termination of his services does not show that
his position had not become redundant. Indeed, in any well organized business
enterprise, it would be surprising to find duplication of work and two (2) or more
people doing the work of one person. We believe that redundancy, for purposes of
the Labor Code, exists where the services of an employee are in excess of what is
reasonably demanded by the actual requirements 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 overhiring of workers,
decreased volume of business, or dropping of a particular product line or service
activity previously manufactured or undertaken by the enterprise.

The characterization of an employees services as superfluous or no longer necessary and,

therefore, properly terminable, is an exercise of business judgment on the part of the
employer. The wisdom and soundness of such characterization or decision is not subject to
discretionary review provided, of course, that a violation of law or arbitrary or malicious
action is not shown.36

Astorga claims that the termination of her employment was illegal and tainted with bad
faith. She asserts that the reorganization was done in order to get rid of her. But except for
her barefaced allegation, no convincing evidence was offered to prove it. This Court finds it
extremely difficult to believe that SMART would enter into a joint venture agreement with
NTT, form SNMI and abolish CSMG/FSD simply for the sole purpose of easing out a
particular employee, such as Astorga. Moreover, Astorga never denied that SMART offered
her a supervisory position in the Customer Care Department, but she refused the offer
because the position carried a lower salary rank and rate. If indeed SMART simply wanted
to get rid of her, it would not have offered her a position in any department in the
enterprise.

Astorga also states that the justification advanced by SMART is not true because there was
no compelling economic reason for redundancy. But contrary to her claim, an employer is
not precluded from adopting a new policy conducive to a more economical and effective
management even if it is not experiencing economic reverses. Neither does the law require
that the employer should suffer financial losses before he can terminate the services of the
employee on the ground of redundancy. 37

We agree with the CA that the organizational realignment introduced by SMART, which
culminated in the abolition of CSMG/FSD and termination of Astorgas employment was an
honest effort to make SMARTs sales and marketing departments more efficient and
competitive. As the CA had taken pains to elucidate:

x x x a careful and assiduous review of the records will yield no other conclusion
than that the reorganization undertaken by SMART is for no purpose other than its

Page 175 of 250

 declared objective as a labor and cost savings device. Indeed, this Court finds no
fault in SMARTs decision to outsource the corporate sales market to SNMI in order
to attain greater productivity. [Astorga] belonged to the Sales Marketing Group
under the Fixed Services Division (CSMG/FSD), a distinct sales force of SMART in
charge of selling SMARTs telecommunications services to the corporate market.
SMART, to ensure it can respond quickly, efficiently and flexibly to its customers
requirement, abolished CSMG/FSD and shortly thereafter assigned its functions to
newly-created SNMI Multimedia Incorporated, a joint venture company of SMART
and NTT of Japan, for the reason that CSMG/FSD does not have the necessary
technical expertise required for the value added services. By transferring the duties
of CSMG/FSD to SNMI, SMART has created a more competent and specialized
organization to perform the work required for corporate accounts. It is also relieved
SMART of all administrative costs management, time and money-needed in
maintaining the CSMG/FSD. The determination to outsource the duties of the
CSMG/FSD to SNMI was, to Our mind, a sound business judgment based on
relevant criteria and is therefore a legitimate exercise of management prerogative.

Indeed, out of our concern for those lesser circumstanced in life, this Court has inclined
towards the worker and upheld his cause in most of his conflicts with his employer. This
favored treatment is consonant with the social justice policy of the Constitution. But while
tilting the scales of justice in favor of workers, the fundamental law also guarantees the
right of the employer to reasonable returns for his investment. 38 In this light, we must
acknowledge the prerogative of the employer to adopt such measures as will promote
greater efficiency, reduce overhead costs and enhance prospects of economic gains, albeit
always within the framework of existing laws. Accordingly, we sustain the reorganization
and redundancy program undertaken by SMART.

However, as aptly found by the CA, SMART failed to comply with the mandated one (1)
month notice prior to termination. The record is clear that Astorga received the notice of
termination only on March 16, 199839 or less than a month prior to its effectivity on April 3,
1998. Likewise, the Department of Labor and Employment was notified of the redundancy
program only on March 6, 1998.40

Article 283 of the Labor Code clearly provides:

Art. 283. Closure of establishment and reduction of personnel. The employer may
also terminate the employment of any employee due to the installation of labor
saving devices, redundancy, retrenchment to prevent losses or the closing or
cessation of operation of the establishment or undertaking unless the closing is for
the purpose of circumventing the provisions of this Title, by serving a written notice
on the workers and the Ministry of Labor and Employment at least one (1) month
before the intended date thereof x x x.

SMARTs assertion that Astorga cannot complain of lack of notice because the
organizational realignment was made known to all the employees as early as February 1998
fails to persuade. Astorgas actual knowledge of the reorganization cannot replace the
formal and written notice required by the law. In the written notice, the employees are
informed of the specific date of the termination, at least a month prior to the effectivity of
such termination, to give them sufficient time to find other suitable employment or to make
whatever arrangements are needed to cushion the impact of termination. In this case,
notwithstanding Astorgas knowledge of the reorganization, she remained uncertain about

Page 176 of 250

the status of her employment until SMART gave her formal notice of termination. But such
notice was received by Astorga barely two (2) weeks before the effective date of termination,
a period very much shorter than that required by law.

Be that as it may, this procedural infirmity would not render the termination of Astorgas
employment illegal. The validity of termination can exist independently of the procedural
infirmity of the dismissal.41 In DAP Corporation v. CA,42 we found the dismissal of the
employees therein valid and for authorized cause even if the employer failed to comply with
the notice requirement under Article 283 of the Labor Code. This Court upheld the
dismissal, but held the employer liable for non-compliance with the procedural
requirements.

The CA, therefore, committed no reversible error in sustaining Astorgas dismissal and at
the same time, awarding indemnity for violation of Astorga's statutory rights.

However, we find the need to modify, by increasing, the indemnity awarded by the CA to
Astorga, as a sanction on SMART for non-compliance with the one-month mandatory notice
requirement, in light of our ruling in Jaka Food Processing Corporation v. Pacot,43 viz.:

[I]f the dismissal is based on a just cause under Article 282 but the employer failed
to comply with the notice requirement, the sanction to be imposed upon him should
be tempered because the dismissal process was, in effect, initiated by an act
imputable to the employee, and (2) if the dismissal is based on an authorized cause
under Article 283 but the employer failed to comply with the notice requirement, the
sanction should be stiffer because the dismissal process was initiated by the
employers exercise of his management prerogative.

We deem it proper to increase the amount of the penalty on SMART to P50,000.00.

As provided in Article 283 of the Labor Code, Astorga is, likewise, entitled to separation pay
equivalent to at least one (1) month salary or to at least one (1) months pay for every year of
service, whichever is higher. The records show that Astorgas length of service is less than a
year. She is, therefore, also entitled to separation pay equivalent to one (1) month pay.

Finally, we note that Astorga claimed non-payment of wages from February 15, 1998. This
assertion was never rebutted by SMART in the proceedings a quo. No proof of payment was
presented by SMART to disprove the allegation. It is settled that in labor cases, the burden
of proving payment of monetary claims rests on the employer. 44 SMART failed to discharge
the onus probandi. Accordingly, it must be held liable for Astorgas salary from February 15,
1998 until the effective date of her termination, on April 3, 1998.

However, the award of backwages to Astorga by the CA should be deleted for lack of basis.
Backwages is a relief given to an illegally dismissed employee. Thus, before backwages may
be granted, there must be a finding of unjust or illegal dismissal from work. 45 The Labor
Arbiter ruled that Astorga was illegally dismissed. But on appeal, the NLRC reversed the
Labor Arbiters ruling and categorically declared Astorgas dismissal valid. This ruling was
affirmed by the CA in its assailed Decision. Since Astorgas dismissal is for an authorized
cause, she is not entitled to backwages. The CAs award of backwages is totally inconsistent
with its finding of valid dismissal.

Page 177 of 250

WHEREFORE, the petition of SMART docketed as G.R. No. 148132 is GRANTED. The
February 28, 2000 Decision and the May 7, 2001 Resolution of the Court of Appeals in CA-
G.R. SP. No. 53831 are SET ASIDE. The Regional Trial Court of Makati City, Branch 57
is DIRECTED to proceed with the trial of Civil Case No. 98-1936 and render its Decision
with reasonable dispatch.

On the other hand, the petitions of SMART and Astorga docketed as G.R. Nos. 151079 and
151372 are DENIED. The June 11, 2001 Decision and the December 18, 2001 Resolution
in CA-G.R. SP. No. 57065, are AFFIRMED with MODIFICATION. Astorga is declared validly
dismissed. However, SMART is ordered to pay Astorga P50,000.00 as indemnity for its non-
compliance with procedural due process, her separation pay equivalent to one (1) month
pay, and her salary from February 15, 1998 until the effective date of her termination on
April 3, 1998. The award of backwages is DELETED for lack of basis.

SO ORDERED.

Page 178 of 250

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 181393 July 28, 2009

GRANDTEQ INDUSTRIAL STEEL PRODUCTS, INC. and ABELARDO M.

GONZALES, Petitioners,
vs.
EDNA MARGALLO, Respondent.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Decision1 dated 21 January 2008 of the Court of Appeals in CA-G.R. SP No. 100012, which
affirmed the Decision2 dated 18 October 2006, as modified by the Resolution3 dated 21 May
2007, of the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 045888-05.
The NLRC effectively reversed the Decision 4 dated 11 July 2005 of the Labor Arbiter in
NLRC NCR Case No. 00-09-10803-04, which entirely dismissed the Complaint filed by
respondent Edna Margallo (Margallo) against petitioners Grandteq Industrial Steel
Products, Inc. (Grandteq) and Abelardo M. Gonzales (Gonzales); and, instead, ordered
Grandteq and Gonzales to refund to Margallo her car loan payments, as well as to pay the
latter sales commission and attorneys fees.

Grandteq is a domestic corporation engaged in the business of selling welding electrodes,

alloy steels, aluminum and copper alloys.5 Gonzales is the President/Owner of
Grandteq.6 Grandteq employed Margallo as Sales Engineer beginning 3 August 1999. 7

Margallo claimed that on an unstated date, she availed herself of the car loan program
offered to her by Grandteq as a reward for being "Salesman of the Year." She paid the down
payment on a brand new Toyota Corolla, 8amounting to P201,000.00, out of her own pocket.
The monthly amortization for the car was P10,302.00, of which P5,302.00 was to be her
share and P5,000.00 was to be the share of Grandteq.

On 29 December 2003, Margallo received a letter 9 signed by Gonzales and Rolando de Leon
(De Leon), Vice-President for Administration of Grandteq, which reads:

Mrs. Edna E. Margallo

c/o Grandteq Industrial
Steel Products, Inc.
#2 Cooper St., cor. Benitez
SFDM, Quezon City

Dear Mrs. Margallo:

This is to inform you that our records show the following:

Page 179 of 250

 1) That, last December 18, 2003, you instructed our company driver and
helper to load 4 pcs. tool steel to be delivered at circle freight.

2) That together with Mr. Steve Rivera, on or about 12:00 noon, you went at
(sic) Eagle Global Logistics at Circle Freight, NAIA, Paraaque City to ship
the following items to Moog Control Corp. Phils. Branch located at Baguio
Ecozone, Baguio City, using the Sales Invoice of JVM Industrial Supply and
Allied Services.

a) 2 pcs. tool steel 4140 " x 2x 3

b) 2 pcs. tool steel 4140 1"x 2 x 3

3) That you are working with JVM Industrial Supply and Allied Services
concurrent with your being employed with Grandteq Industrial Steel
Products, Inc.

4) That JVM Industrial Supply and Allied Services are supplying steel
products to Moog Control Corp. Phils. Branch which is also a client of
Grandteq and which you are the authorized salesman of the company.

Because of this, you are given a (sic) twenty-four (24) hours upon receipt of this letter to
submit a written explanation on why you should not be given a disciplinary action for
allegedly violating/committing:

a) Moonlighting

b) Sabotage

c) Breach of trust and confidence (labor code).

You are also invited to attend a meeting with regards to the allegations on Jan. 5, 2004 at
10:00 a.m. You may bring with you a lawyer or any representative to assist you on (sic) the
said meeting.

Failure on your part to submit a written explanation on the specified period and failure to
attend the hearing would mean that you are waiving your rights to be heard and the
appropriate action will be taken against you.

Moreover, to protect the evidences and witnesses against you, management has decided to
place you under preventive suspension effective December 29, 2003.

Very truly yours,

(Signed) (Signed)
Abelardo M. Gonzales Ronaldo A. de Leon
President VP - Administration

Responding to the foregoing letter, Margallo wrote the following letter-reply dated 30
December 2003:

Page 180 of 250

December 30, 2003
To: Mr. Abelardo M. Gonzales
President

Thru: Mr. Ronald A. de Leon

VP Administration

Dear Sir,

Last December 18, 2003, Mr. Steve D. Rivera instructed me to tell to our delivery people to
bring the said item to circle freight. Which I did that (sic) I thought it was ok because it was
inside the company. Sir I was just following orders from Mr. D. Rivera who is one of my
boss (sic). Sir, what I did is the same thing that Ive been doing with my other bosses. That
i[f] they instructed me to do things I immediately follow. Because I am only an employee. Sir
never that I work with JVM (sic).

Sir im (sic) sorry if I did wrong by not asking what to do. Which I think an ordinary
employee like me would do is to follow orders from my superiors.

IM SO SORRY SIR IF I FAIL YOU.

(Signed)
Edna E. Margallo10

Margallo then averred that in January 2004, De Leon asked her to just resign, promising
that if she did, she would still be paid her commissions and other benefits, as well as be
reimbursed her car loan payments. Relying on De Leons promise, Margallo tendered on 13
January 2004, her irrevocable resignation, effective immediately. 11

Margallo, however, alleged that she was never paid her money claims. Grandteq failed to
pay her commissions in the sum of P87,508.00, equivalent to 5% of the total sales that she
collected as of January 2004, which amounted to P1,750,148.84. Grandteq likewise failed
to refund the "sales accommodations" or advances she gave her customers. In addition,
after Margallos resignation, Grandteq sold her car to Annaliza Estrella, another employee,
for P550,000.00.12 These events prompted her to file before the Labor Arbiter a
Complaint13 against Grandteq and Gonzales, for recovery of sales commission, cash
incentive and car loan payment, damages and attorney fees, which was docketed as NLRC
Case No. 0009-108-03-04.

Grandteq and Gonzales opposed Margallos claims. They maintained that Margallo was not
entitled to sales commissions because the computation thereof, according to company
policy, should be based on actual collections within 180 days from invoice date. All of
Margallos credit sales transactions were unpaid, outstanding, and past due. Margallo was
also not entitled to any sales incentive, because said benefit was intended for customers,
and not for the sales personnel. 14 Grandteq and Gonzales further insisted that Margallo had
no right to the refund of her car loan payments under the car loan agreement she executed
with Grandteq, which expressly provided that in the event that Margallo resigned or was
terminated for cause during the effectivity of said agreement, her car loan payments would
be forfeited in favor of Grandteq, and Grandteq would regain possession of the car.

Page 181 of 250

The Labor Arbiter rendered a Decision on 11 July 2005, dismissing all of Margallos claims,
thus:

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

case for lack of merit.15

The Labor Arbiter held that Margallo was not able to prove by substantial evidence her
entitlement to the sales commission:

After a careful review of the records, this Office finds that considering [Margallo] already
receives a basic salary plus allowances, her claim for sales commission is therefore an
added benefit wholly dependent upon her sales performance based on existing company
policy. As such, it is an affirmative allegation or claim that is not normally included in the
regular course of business and for which law presumes that an employee is generally not
entitled to. Thus, it behooves, upon the employee to prove that he is entitled to said
affirmative allegations and the onus is upon him to establish his right thereto (see Eternit
Employees and Workers Unions vs. De Veyra, 189 SCRA 752 and Nucum vs. Inciong, 204
SCRA 697).

In the instant case, this Office finds [Margallo] to have failed to substantially discharge her
burden of proving that she is entitled to the P87,508.00 in sales commissions since other
than her bare allegations, [Margallo] did not show any other proof, including prior payment
of said sales commissions, to justify her claim.

And, quite noteworthy too is that under the [Grandteq]s policy, rules and regulations on
the grant of sales commissions, the computation thereof shall be based on actual collection
against all sales on credit and the validity of the said commission shall be 180 days from
invoice dates; otherwise, the salesman shall not be entitled thereto and forfeits any right to
demand payment of the commission thereon as the sales are considered bad debts as
uncollectible. Since the records of [Grandteq] showed that [Margallo]s credit sales remain
unpaid and outstanding for over 180 days, [Margallo] is therefore not entitled to sales
commissions.

No denial whatsoever of the above-discussed company policy was made by [Margallo] in her
Reply.

Thus, having failed to establish entitlement to said sales commission, the same is hereby
denied.16

For a similar reason, the Labor Arbiter denied Margallos claim for payment of cash
incentive:

As regards to cash incentives, once again this Office finds that the same is also an
affirmative allegation and the burden of proving entitlement thereto rests upon the
employee. And having failed to even mention how much of the alleged cash incentive she is
entitled to in Annexes "A" and "2-a" of her position paper, the same is hereby denied. 17

Finally, the Labor Arbiter found that Margallo had no right to the reimbursement of her car
loan payments under her car loan agreement with Grandteq:

Page 182 of 250

And as regards of (sic) the car loan, the same should be governed by the undisputed terms
and conditions of the Agreement between complainant and respondent company (Annex "A"
of respondents position paper). And page 2 of said Agreement clearly stipulates that in case
of resignation, all payments made by the personnel shall be forfeited in favor of the
company. Thus, the claim for refund of the car loan should likewise be denied. 18

Margallo filed an appeal with the NLRC, docketed as NLRC NCR CA No. 045888-05.
Although the NLRC, in its Decision dated 18 October 2006, stated that it merely "modified"
the Decision dated 11 July 2005 of the Labor Arbiter, it effectively reversed the same by
granting Margallo her claims for sales commission, reimbursement of her car loan
payments, and attorneys fees. The fallo of the NLRC Decision is quoted below:

WHEREFORE, the decision appealed from is hereby MODIFIED. [Herein petitioners]

Grandteq Industrial Products, Inc. and/or its President/General Manager, [petitioner]
Abelardo M. Gonzales, are hereby ordered to refund to the [herein respondent Margallo] her
car loan payments amounting to P217,815.94 and to pay her the amount of P10,870.79
representing her unpaid sales commissions plus ten percent (10%) of the total monetary
award as attorneys fees.19

In ordering that Grandteq and Gonzales reimburse the car loan payments made by
Margallo, the NLRC reasoned:

It is unlikely for an employee who has invested his time and industry in a particular job to
simply give it up after being accused of violating company rules and regulations. It is more
likely that he did so upon the expectation that she would derive a certain benefit from it.
Thus, the claim that the [herein respondent Margalllo] resigned because she was promised
that she would be paid her money claims if she did, is more credible than the contention
that she did so without any prodding from the [herein petitioners Grandteq and Gonzales].

It would therefore appear that the provision, in the agreement (records, pp. 32-340)
executed by the parties, that "in case of resignation of the PERSONNEL from the COMPANY,
all payments made by the PERSONNEL shall be forfeited in favor of the COMPANY" has
been superseded by the above-mentioned subsequent agreement between the parties.

Besides, it is uncontroverted that the car loan program was offered to the complainant as a
reward for being the "Salesman of the Year." Moreover, nowhere in their pleadings did the
[petitioners Grandteq and Gonzales] controvert the claim that the [respondent Margallo]
paid the down payment, entire first amortization, insurance, and her share in the monthly
amortizations for seventeen months, or the total amount of P214,395.90 for the car. It is
also uncontroverted that after the [respondent Margallo]s negotiated resignation, her car
was resold to another employee for the original price. Under the circumstances, the above-
quoted contractual provision is null and void for being contrary to morals, good customs,
and public policy. The law overrides contracts which are prepared by employers to
circumvent the rights of their employees (Baguio Country Club vs. NLRC, 206 SCRA 643).
Thus, the above-quoted contractual provision does not bar the [respondent Margallo] from
recovering her car loan payments from the [petitioners Grandteq and Gonzales]. 20

As for Margallos other claims, the NLRC affirmed her entitlement to the unpaid sales
commission, but not to the cash incentive:

Page 183 of 250

Insofar as the [respondent Margallo]s claim for unpaid sales commission is concerned, it is
noteworthy that in the list (records, pp. 16-18) of sales she adduced in evidence, the
column bearing the heading "collected" indicates that, as of January 2004, the total
collections from her sales amount to only P217,815.94. Since it is undisputed hat her sales
commission are equivalent to 5% of her collections, she may recover unpaid sales
commissions amounting to P10,890.79. Finally, since there is no showing that the
[respondent Margallo]s claim for cash incentive is based on a particular contract or
company practice, it was correctly dismissed for lack of merit.21

Grandteq and Gonzales filed a Motion for Reconsideration, 22 while Margallo also filed an
Omnibus Motion for Partial Reconsideration and Issuance of Subpoena. 23 The NLRC denied
the Motions for Reconsideration of all parties in a Resolution dated 21 May 2007, but
modified the NLRC Decision dated 18 October 2006 by slightly reducing the amount of car
loan payments to be refunded to Margallo:

WHEREFORE, the Motions for Reconsideration are hereby DENIED for lack of merit.
However, the dispositive portion of this Commissions (2nd Division) October 18, 2006
Decision is hereby corrected to read:

WHEREFORE, the decision appealed from is hereby MODIFIED. [Herein petitioners]

Grandteq Industrial Products, Inc. and/or its President/General Manager, [petitioner]
Abelardo M. Gonzales, are hereby ordered to refund to [herein respondent Margallo] her car
loan payments amounting to P214,395.90 and to pay her the amount of P10,870.79
representing her unpaid sales commissions plus ten percent (10%) of the total monetary
award as attorneys fees.24

Grandteq and Gonzales elevated the case to the Court of Appeals by way of a Petition for
Certiorari, under Rule 65 of the Rules of Court, which was docketed as CA-G.R. SP No.
100012.lawphil

In its Decision dated 21 January 2008, the Court of Appeals agreed with the NLRC,
dismissing the therein Petition of Grandteq and Gonzales in this wise:

WHEREFORE, premises considered, the Petition is DENIED for lack of merit. Costs against
petitioners.25

Like the NLRC, the Court of Appeals found that Margallo had a right to be reimbursed her
car loan payments, and the terms of the car loan agreement between Margallo and
Grandteq should not be applied for being highly prejudicial to the employees interest:

Truly, the contracting parties may establish such stipulations, clauses, terms and
conditions as they want, and their agreement would have the force of law between them.
However, those terms and conditions agreed upon must not be contrary to law, morals,
customs, public policy or public order. Precisely, the law overrides such conditions which
are prejudicial to the interest of the worker. The law affords protection to an employee, and
it will not countenance any attempt to subvert its spirit and intent. The sheer inequality
that characterizes employer-employee relations, where the scales generally tip against the
employee, often scarcely provides him real and better options. Moreover, in controversies
between a laborer and his master, doubts reasonably arising from the evidence, or in the
interpretation of agreements and writing should be resolved in the formers favor. 26

Page 184 of 250

The Court of Appeals likewise affirmed the order of the NLRC that Grandteq and Gonzales
pay Margallo her sales commission, placing the burden upon the employer to prove that the
employees money claims had been paid:

With respect to the unpaid sales commissions of P10,870.79 to be paid by petitioners in

favor of private respondent, it is incumbent upon petitioner employer to prove that said
money claim has been paid. This is in tune with the general precept that: "one who pleads
payment has the burden of proving it, and even where the employees must allege
nonpayment, the general rule is that the burden rests on the defendant to prove (payment),
rather than on the plaintiff to prove non-payment." The reason for the rule is that the
pertinent personnel files, payrolls, records, remittances and other similar documents
which will show that overtime, differentials, service incentive leave and other claims of
workers have been paid are not in the possession of the worker but in the custody and
absolute control of the employer. In the present case, petitioners [Grandteq and Gonzales]
failed to discharge the burden of proving that the amount of P10,870.79 representing
[herein respondent Margallo]s sales commissions has already been paid to the latter. Thus,
the NLRC (Second Division) did not commit grave abuse of discretion in awarding said
money claim in favor of [respondent Margallo].27

Assiduous, Grandteq and Gonzales are now before this Court via the Petition at bar.

Grandteq and Gonzales assert that the Court of Appeals erred in declaring the car loan
agreement between Grandteq and Margallo, particularly the provision therein on the
forfeiture of car loan payments in favor of Grandteq should Margallo resign from the
company, as null and void.28

The Court, however, is in agreement with the Court of Appeals and the NLRC.

Generally speaking, contracts are respected as the law between the contracting parties. The
contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public
order or public policy.29

The questionable provision in the car loan agreement between Grandteq and Margallo
provides: "In case of resignation, of the personnel from the company, all payments made by
the personnel shall be forfeited in favor of the company."30 Connected thereto is the
provision in the same car loan agreement, which reads:

1. The COMPANY shall have the right to regain the possession of the car before the
expiration of the term of the loan in the event of any of the following:

a. The PERSONNEL resigns from the COMPANY during the effectivity of this agreement. 31

Said provisions plainly are contrary to the fundamental principles of justice and fairness. It
must be remembered that Margallo herself paid for the down payment and her share in the
monthly amortization of the car. However, she did not get to leave with the car when she
resigned from Grandteq. In effect, Margallo parted with her hard-earned money for nothing,
being left, as she is, with an empty bag. The inequitableness in the conduct of Grandteq
and Gonzales is heightened by the fact that after they regained possession of the car, they
resold the same to another employee under a similar contract bearing the same terms and
conditions signed by Margallo.

Page 185 of 250

The principle that no person may unjustly enrich oneself at the expense of another (Nemo
cum alteris detrimento locupletari potest) is embodied in Article 22 of the New Civil Code, to
wit:

ART. 22. Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or
legal ground, shall return the same to him.

The above-quoted article is part of the chapter of the Civil Code on Human Relations, the
provisions of which were formulated as "basic principles to be observed for the rightful
relationship between human beings and for the stability of the social order; designed to
indicate certain norms that spring from the fountain of good conscience; [are] guides for
human conduct that should run as golden threads through society to the end that law may
approach its supreme ideal, which is the sway and dominance of justice." There is unjust
enrichment when a person unjustly retains a benefit at the loss of another, or when a
person retains the money or property of another against the fundamental principles of
justice, equity and good conscience.32

As can be gleaned from the foregoing, there is unjust enrichment when (1) a person is
unjustly benefited, and (2) such benefit is derived at the expense of or with damages to
another. The main objective of the principle of unjust enrichment is to prevent one from
enriching oneself at the expense of another. It is commonly accepted that this doctrine
simply means that a person shall not be allowed to profit or enrich himself inequitably at
anothers expense. One condition for invoking this principle is that the aggrieved party has
no other action based on a contract, quasi-contract, crime, quasi-delict, or any other
provision of law.

This is not a case of equity overruling or supplanting a positive provision of law or judicial
rule. Rather, equity is exercised in this case "as the complement of legal jurisdiction [that]
seeks to reach and to complete justice where courts of law, through the inflexibility of their
rules and want of power to adapt their judgments to the special circumstances of cases, are
incompetent to do so."33

The principle against unjust enrichment obliges Grandteq and Gonzales to refund to
Margallo the car loan payments she had made, since she has not actually acquired the car.
To relieve Grandteq and Gonzales of their obligation to reimburse Margallo would, indeed,
be to sanction unjust enrichment in favor of the first two and cause unjust poverty to the
latter.34

The Court rigorously disapproves contracts that demonstrate a clear attempt to exploit the
employee and deprive him of the protection sanctioned by both the Constitution and the
Labor Code.

The Constitution and the Labor Code mandate the protection of labor. Hence, as a matter of
judicial policy, this Court has, in a number of instances, leaned backwards to protect labor
and the working class against the machinations and incursions of their more financially
entrenched employers.35

Although not strictly a labor contract, the car loan agreement herein involves a benefit
extended by the employers, Grandteq and Gonzales, to their employee, Margallo. It should
benefit, and not unduly burden, Margallo. The Court cannot, in any way, uphold a car loan

Page 186 of 250

agreement that threatens the employee with the forfeiture of all the car loan payments
he/she had previously made, plus loss of the possession of the car, should the employee
wish to resign; otherwise, said agreement can then be used by the employer as an
instrument to either hold said employee hostage to the job or punish him/her for resigning.

The Court further finds no error in the grant by the Court of Appeals and the NLRC of
Margallos claim for sales commission.

In cases involving money claims of employees, the employer has the burden of proving that
the employees did receive their wages and benefits and that the same were paid in
accordance with law.36

It is settled that once the employee has set out with particularity in his complaint, position
paper, affidavits and other documents the labor standard benefits he is entitled to, and
which the employer allegedly failed to pay him, it becomes the employers burden to prove
that it has paid these money claims. One who pleads payment has the burden of proving it;
and even where the employees must allege nonpayment, the general rule is that the burden
rests on the defendant to prove payment, rather than on the plaintiff to prove
nonpayment.37

Under the terms and conditions of Margallos employment with Grandteq, it is provided that
she "will do field sales with commission on sales made after a months training." 38 On this
basis, Margallos entitlement to sales commission is unrebutted.

Hence, it was actually the Labor Arbiter who erred in denying Margallos claim for sales
commission "for failure to state the particulars to substantiate the same." Grandteq and
Gonzales have the burden of proof to show, by substantial evidence, their claim that
Margallo was not entitled to sales commissions because the sales made by the latter
remained outstanding and unpaid, rendering these sales as bad debts and thus nullifying
Margallos right to this monetary benefit. Grandteq and Gonzales could have presented
pertinent company records to prove this claim. It is a rule that failure of employers to
submit the necessary documents that are in their possession as employers gives rise to the
presumption that the presentation thereof is prejudicial to its cause. 39

WHEREFORE, premises considered, the Petition is DENIED for lack of merit. The Decision
dated 21 January 2008 of the Court of Appeals in CA-GR SP No. 100012 is AFFIRMED.
Costs against petitioners Grandteq Industrial Steel Products, Inc. and Abelardo M.
Gonzales.

SO ORDERED.

Page 187 of 250

 Republic of the Philippines
SUPREME COURT

SECOND DIVISION

G.R. No. 154376 September 30, 2005

ROBERTO T. DOMONDON, Petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, VAN MELLE PHILS., INC. and NIELS
H.B. HAVE, Respondent.

DECISION

PUNO, J.:

This is a petition for review on certiorari seeking the reversal of the February 28, 2002
Decision1 of the Court of Appeals in CA-G.R. SP No. 65130 and its July 17, 2002
Resolution,2 denying petitioners motion for reconsideration. The assailed Decision affirmed
the rulings of the National Labor Relations Commission (NLRC) and the Labor Arbiter,
which held that petitioner was not illegally dismissed but voluntarily resigned.

On November 20, 1998, petitioner Roberto T. Domondon filed a complaint before the
Regional Arbitration Branch of the NLRC, Quezon City, against private respondent Van
Melle Phils., Inc. (VMPI) and its President and General Manager, private respondent Niels
H.B. Have. He claimed illegal dismissal and prayed for reinstatement, payment of full
backwages inclusive of allowances, 14th month pay, sick and vacation leaves, share in the
profits, moral and exemplary damages and attorneys fees.3

Petitioner alleged that on January 8, 1997, private respondent VMPI, a manufacturing

company engaged in the production and distribution of confectionaries and related
products, hired him as Materials Manager through its then President and General Manager
Victor M. Endaya. He was tasked to supervise the Inventory Control, Purchasing, and
Warehouse and Distribution Sections of the company. He was given a guaranteed monthly
salary of ninety-eight thousand (P98,000.00) pesos for fourteen (14) months with annual
merit adjustment, profit sharing bonus from 0-2 months based on individual, company and
corporate performance,4 and a brand new
1600cc Honda VTEC5 with 300 liters monthly gas allowance.6

Petitioner claimed that things worked out well for him in the beginning until Endaya was
transferred to China in August 1997 and was replaced by private respondent Have, a Dutch
national. According to petitioner, private respondent Have immediately set a one-on-one
meeting with him and requested his courtesy resignation. Alleging that the decision came
from the Asia Regional Office, private respondent Have wanted to reorganize and put his
people in management. Petitioner refused to resign and life got difficult for him. His
decisions were always questioned by private respondent Have. He was subjected to verbal
abuse. His competence was undermined by baseless and derogatory memos, which lay the
bases for his removal from the company. He also did not receive his 14th month pay. 7

Petitioner further stated that the final straw came on June 10, 1998, in another one-on-one
meeting with private respondent Have. Private respondent Have informed petitioner that

Page 188 of 250

things would get more difficult for him if he does not resign. Private respondent Have threw
a veiled threat at petitioner to the effect that "a dignified resignation would be infinitely
better than being fired for a fabricated lawful cause." Private respondent Have offered
financial assistance if petitioner would leave peacefully but the offer must be accepted
immediately or it would be withdrawn. Thus, petitioner signed a "ready-made" resignation
letter without deliberation and evaluation of the consequences. His main concern then was
to prevent the "end of his professional career." 8

Petitioner stated that on the same day that he handed in his resignation letter, private
respondent VMPI posted a memorandum with information of his replacement. He claimed
that to lend a semblance of credibility to his forced resignation, private respondents
released to him a portion of the offered financial package. 9

On their part, private respondents admitted hiring petitioner under the circumstances set
forth by him but denied illegally dismissing him. They maintained that with his educational
and professional background, petitioner could not have been coerced and intimidated into
resigning from the company. Instead, they claimed that he voluntarily resigned "to embark
on management consultancy in the field of strategic planning and import/export." 10 They
stated that petitioner informed them about his intention to resign and requested a "soft
landing" financial support in the amount of three hundred thousand (P300,000.00) pesos
on top of accrued benefits due him upon resignation. Private respondents granted the
request. Subsequently, however, petitioner proposed the transfer of ownership of the car
assigned to him in lieu of the financial assistance from the company. Since company policy
prohibits disposition of assets without valuable consideration, the parties agreed that
petitioner shall pay for the car with the P300,000.00 "soft landing" financial assistance from
private respondent VMPI.

Private respondents averred that petitioner, who was then in charge of the disposition of the
assets of the company, effected the registration of the car in his name.11 Joannes Cornelis
Kuiten, then Vice-President for Finance, signed for the company. 12 On July 30,
1998, P300,000.00 was credited to petitioners payroll account 13but he did not use it to pay
for the car as agreed upon. Repeated demands for payment were unheeded. In its letter of
demand dated October 28, 1998, private respondent VMPI gave petitioner an option to
apply the P169,368.32 total cash conversion of his sick and vacation leave credits, 13th
and 14th months pay less taxes as partial
payment for the car and pay the balance of P130,631.68, or return the car to the
company.14 Petitioner did not exercise either option. Instead, on November 20, 1998, he
filed a complaint for illegal dismissal against private respondents.

On June 14, 1999, the Labor Arbiter15 ruled for private respondents, viz:

WHEREFORE, premises considered, the complaint for illegal dismissal is hereby dismissed
for lack of merit, and the claim for damages and attorneys fees denied.

The complainant has the option to reconvey to respondents the car sold to him and thus
retain full credit of the P300,000.00 "soft landing" assistance, or retain ownership of the car
by paying respondents the purchase price of P300,000.00 minus any amount due him
corresponding to his accrued benefits that has been applied by respondents as partial
payment for the car.

Page 189 of 250

The NLRC affirmed the Decision of the Labor Arbiter 16 on January 26, 2001 and denied
petitioners motion for reconsideration on March 5, 2001. Petitioner went to the Court of
Appeals on a special civil action for certiorari but failed for the third time. The appellate
court dismissed the petition on February 28, 2002 and denied petitioners motion for
reconsideration on July 17, 2002; hence, this petition for review on certiorari.

Petitioner raises as error the failure of the appellate court to apply the rule in termination of
employment that the burden rests upon the employer to prove by substantial evidence that
the employee was removed for lawful or authorized cause. He also questions the jurisdiction
of the Labor Arbiter to resolve the issue of the transfer of car-ownership by private
respondents.

I.

The first issue raises factual matters which may not be reviewed by the Court. Our
jurisdiction is limited to reviewing errors of law. Not being a trier of facts, the Court cannot
re-examine and re-evaluate the probative value of evidence presented to the Labor Arbiter,
the NLRC and the Court of Appeals, which formed the basis of the questioned decision and
resolution.17 Indeed, their findings when in absolute agreement are accorded not only
respect but even finality as long as they are supported by substantial evidence. 18

In any event, we combed the records of the case at bar and found no compelling reason to
disturb the uniform findings and conclusions of the Court of Appeals, the NLRC and the
Labor Arbiter. There was no arbitrary disregard or misapprehension of evidence of such
nature as to compel a contrary conclusion if properly appreciated. Petitioners letter of
resignation, his educational attainment, and the circumstances antecedent and
contemporaneous to the filing of the complaint for illegal dismissal are substantial
proof of petitioners voluntary resignation.

Petitioners letter of resignation was categorical that he was resigning "to embark on
management consultancy in the field of strategic planning and import/export." 19 Petitioner
was holding a managerial position at private respondent VMPI and he was previously Vice-
President for strategic planning at LG Collins Electronics. Thus, "management consultancy
in the field of strategic planning" was a logical reason for the resignation, which either
petitioner or private respondents may provide.

"Import/export," whether inclusive or exclusive of the clause "managerial consultancy," on

the other hand, could neither be inferred from petitioners nature of work with private
respondent VMPI nor from his past work experiences. Thus, even if petitioner was correct in
arguing that he could not have considered it given the state of the countrys economy,
anyone may provide it as reason for the resignation, including him and private respondents.

But assuming that private respondents prepared the letter of resignation for petitioner to
sign as claimed, the Court is not convinced that petitioner was coerced and intimidated into
signing it. Petitioner is no ordinary employee with limited education. He has a Bachelor of
Arts Degree in Economics from the University of Santo Tomas, has completed academic
requirements for Masters of Business Economics from the University of Asia and the
Pacific, and studied law for two (2) years at Adamson University. He also has a good
professional record, which highlights his marketability. Thus, his reliance on the case
of Molave Tours Corporation v. NLRC,20 where the employee found to have been forced to
resign was a mere garage custodian, is clearly misplaced.

Page 190 of 250

In termination cases, the employer decides for the employee. It is different in resignation
cases for resignation is a formal pronouncement of relinquishment of an office. It is made
with the intention of relinquishing the office accompanied by an act of relinquishment. 21 In
the instant case, petitioner relinquished his position when he submitted his letter of
resignation. His subsequent act of receiving and keeping his requested "soft landing"
financial assistance of P300,000.00, and his retention and use of the car subject of his
arrangement with private respondents showed his resolve to relinquish his post.

Thus, we affirm the findings of the Labor Arbiter, the NLRC and the Court of Appeals that
private respondents were able to prove through substantial evidence that petitioner was not
illegally dismissed.22

II.

The next issue involves the jurisdiction of the Labor Arbiter to hear and decide the question
on the transfer of ownership of the car assigned to petitioner. He contends that it is the
regular courts that have jurisdiction over the question and not the Labor Arbiter.

This is not an issue of first impression. The jurisdiction of Labor Arbiters is provided
under Article 217(a) of the Labor Code, as amended, viz:

(a) Except as otherwise provided under this Code the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without extension, even in the absence of
stenographic notes, the following cases involving all workers, whether agricultural or non-
agricultural:

1. Unfair labor practice cases;

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 forms of damages arising from employer-
employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving
the legality of strikes and lockouts;

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 instances, the matrix is the existence of an employer-employee relationship. In

the case at bar, there is no dispute that petitioner is an employee of the respondents.
In Baez v. Valdevilla,23 we held:

Page 191 of 250

x x x Presently, and as amended by R.A. 6715, the jurisdiction of Labor Arbiters and the
NLRC in Article 217 is comprehensive enough to include claims for all forms of damages
"arising from the employer-employee relations."

Whereas this Court in a number of occasions had applied the jurisdictional provisions of
Article 217 to claims of damages filed by employees,24 we hold that by the designating
clause "arising from the employer-employee relations" Article 217 should apply with equal
force to the claim of an employer for actual damages against its dismissed employee,
where the basis for the claim arises from or is necessarily connected with the fact of
termination, and should be entered as a counterclaim in the illegal dismissal case.

Baez is in accord with paragraph 6 of Article 217(a), which covers "all other claims, arising
from employer-employee relations," viz:

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 the case at bar, petitioner claims illegal dismissal and prays for reinstatement, payment
of full backwages inclusive of allowances, 14th month pay, sick and vacation leaves, share
in the profits, moral and exemplary damages and attorneys fees. 25 These causes of action
clearly fall within the jurisdiction of the Labor Arbiter, specifically under paragraphs 2,
3 and 4 of Article 217(a). On the other hand, private respondents made a counterclaim
involving the transfer of ownership of a company car to petitioner. They maintain that he
failed to pay for the car in accordance with their agreement. The issue is whether this claim
of private respondents arose from the employer-employee relationship of the parties
pursuant to paragraph 6 of Article 217(a) under the general clause as quoted above.

The records show that the initial agreement of the parties was that petitioner would be
extended a "soft-landing" financial assistance in the amount of P300,000.00 on top of his
accrued benefits at the time of the effectivity of his resignation. However, petitioner later
changed his mind. He requested that he be allowed to keep the car assigned to him in lieu
of the financial assistance. However, company policy prohibits transfer of ownership of
property without valuable consideration. Thus, the parties agreed that petitioner shall still
be extended the P300,000.00 financial support, which he shall use to pay for the subject
car. On July 30, 1998, private respondent VMPI deposited the agreed amount in petitioners
account.26 Despite having registered the car in his name and repeated demands from
private respondents, petitioner failed to pay for it as agreed upon. Petitioner did not also
return the car. Without doubt, the transfer of the ownership of the company car to
petitioner is connected with his resignation and arose out of the parties employer-employee
relations. Accordingly, private respondents claim for damages falls within the jurisdiction of
the Labor Arbiter.

III.

Petitioner was not illegally dismissed but voluntarily resigned. His claims for reinstatement,
payment of full backwages inclusive of allowances, moral and exemplary damages and
attorneys fees must necessarily fail. However, he is entitled to his 14th month pay, cash
conversion of accrued sick and vacation leaves and profit share in the aggregate amount
of P169,368.32, the total of which is not disputed. The amount shall be applied to his

Page 192 of 250

obligation to pay P300,000.00 for the company car, which ownership was transferred to
him. The return of the company car to private respondents, given the period that has lapsed
from the offer, ceased to be an option open to petitioner.

IN VIEW WHEREOF, the decision of the Court of Appeals is AFFIRMED with

MODIFICATION. Petitioner Roberto T. Domondon is ORDERED to pay private respondent
Van Melle Phils., Inc. the amount of P130,631.68, representing the balance of the purchase
price of the car in his custody after deducting his entitlement to 14th month pay, cash
conversion of accrued sick and vacation leaves and profit share in the total amount
of P169,368.32 from the P300,000.00 "soft-landing" financial assistance he received from
private respondent.

SO ORDERED.

Page 193 of 250

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 141093 February 20, 2001

PRUDENTIAL BANK and TRUST COMPANY, petitioner,

vs.
CLARITA T. REYES, respondent.

GONZAGA-REYES, J.:

Before the Court is a petition for review on certiorari of the Decision,1 dated October 15,
1999 of the Court of Appeals in C.A.-G.R. SP No. 30607 and of its Resolution, dated
December 6, 1999 denying petitioner's motion for reconsideration of said decision. The
Court of Appeals reversed and set aside the resolution 2 of the National Labor Relations
Commission (NLRC) in NLRC NCR CA No.009364-95, reversing and setting aside the labor
arbiter's decision and dismissing for lack of merit private respondent's complaint. 3

The case stems from NLRC NCR Case No.00-06-03462-92, which is a complaint for illegal
suspension and illegal dismissal with prayer for moral and exemplary damages, gratuity,
fringe benefits and attorney's fees filed by Clarita Tan Reyes against Prudential Bank and
Trust Company (the Bank) before the labor arbiter. Prior to her dismissal, private
respondent Reyes held the position of Assistant Vice President in the foreign department of
the Bank, tasked with the duties, among others, to collect checks drawn against overseas
banks payable in foreign currency and to ensure the collection of foreign bills or checks
purchased, including the signing of transmittal letters covering the same.

After proceedings duly undertaken by the parties, judgment was rendered by labor Arbiter
Cornelio L. Linsangan, the dispositive portion of which reads:

"WHEREFORE, finding the dismissal of complainant to be without factual and legal

basis, judgment is hereby rendered ordering the respondent bank to pay her back
wages for three (3) years in the amount of P540,000.00 (P15,000.00 x 36 mos.). In
lieu of reinstatement, the respondent is also ordered to pay complainant separation
pay equivalent to one month salary for every year of service, in the amount of
P420,000.00 (P15,000 x 28 mos.). In addition, the respondent should. also pay
complainant profit sharing and unpaid fringe benefits. Attorney's fees equivalent to
ten (10%) percent of the total award should likewise be paid by respondent.

SO ORDERED."4

Not satisfied, the Bank appealed to the NLRC which, as mentioned at the outset, reversed
the Labor Arbiter's decision in its Resolution dated 24 March 1997. Private respondent
sought reconsideration which, however, was denied by the NLRC in its Resolution of 28
July 1998. Aggrieved, private respondent commenced on October 28, 1998, a petition for
certiorari before the Supreme Court.5 The subject petition was referred to the Court of
Appeals for appropriate action and disposition per resolution of this Court dated November
25, 1998, in accordance with the ruling in St. Marlin Funeral Homes vs. NLRC.6

Page 194 of 250

In its assailed decision, the Court of Appeals adopted the following antecedent facts leading
to Reyes's dismissal as summarized by the NLRC:

"The auditors of the Bank discovered that two checks, No.011728-7232-146, in the
amount of US$109,650.00, and No. 011730-7232-146, in the amount of
US$115,000.00, received by the Bank on April 6, 1989, drawn ,by the Sanford
Trading against Hongkong and Shanghai Banking Corporation, Jurong Branch,
Singapore, in favor of Filipinas Tyrom, were not sent out for collection to Hongkong
Shanghai Banking Corporation on the alleged order of the complainant until the
said checks became stale.

The Bank created a committee to investigate the findings of the auditors involving
the two checks which were not collected and became stale.

On March 8, 1991, the president of the Bank issued a memorandum to the

complainant informing her of the findings of the auditors and asked her to give her
side. In reply, complainant requested for an extension of one week to submit her
explanation. In a "subsequent letter, dated March 14, 1991, to the president,
complainant stated that in view of the refusal of the Bank that she be furnished
copies of the pertinent documents she is requesting and the refusal to grant her a
reasonable period to prepare her answer, she was constrained to make a general
denial of any misfeasance or malfeasance on her part and asked that a formal
investigation be made.

As the complainant failed to attend and participate in the formal investigation

conducted by the Committee on May 24, 1991, despite due notice, the Committee
proceeded with its hearings and heard the testimonies of several witnesses.

The Committee's findings were:

'a) The two (2) HSBC checks were received by the Foreign Department on 6
April 1989. On the same day, complainant authorized the crediting of the
account of Filipinas Tyrom in the amount of P4,780,102.70 corresponding to
the face value of the checks, (Exhibits 6, 22 to 22-A and 23 to 23-A). On the
following day, a transmittal letter was prepared by Ms. Cecilia Joven, a
remittance clerk then assigned in the Foreign Department, for the purpose of
sending out the two (2) HSBC checks for collection. She then requested
complainant to sign the said transmittal letters (Exhibits 1, 7 and 25; TSN,
11 March 1993, pp. 42-52), as it is complainant who gives her instructions
directly concerning the transmittal of foreign bills purchased. All other
transmittal letters are in fact signed by complainant.

b) After Ms. Joven delivered the transmittal letters and the checks to the
Accounting Section of the Foreign Department, complainant instructed her to
withdraw the same for the purpose of changing the addressee thereon from
American Express Bank to Bank of Hawaii (ibid.) under a special collection
scheme (Exhibits 4 and 5 to 5-B).

c) After complying with complainant's instruction, Ms. Joven then returned

to complainant for the latter to sign the new transmittal letters. However,
complainant told Ms. Joven to just hold on to the letters and checks and

Page 195 of 250

 await further instructions (ibid.). Thus, the new transmittal letters remained
unsigned. (See Exhibits 5 to 5-B).

d) In June 1989, Ms. Joven was transferred to another department. Hence,

her duties, responsibilities and functions, including the responsibility over
the two (2) HSBC checks, were turned over to another remittance clerk, Ms.
Analisa Castillo (Exhibit 14; TSN, 4 June 1993, pp. 27-29).

e) When asked by Ms. Castillo about the two (2) HSBC checks, Ms. Joven
relayed to the latter complainant's instruction (Exhibit 14; TSN, 4 June
1993, p. 42).

f) About fifteen (15) months after the HSBC checks were received by the
Bank, the said checks were discovered in the course of an audit conducted
by the Bank's auditors. Atty. Pablo Magno, the Bank's legal counsel, advised
complainant to send the checks for collection despite the lapse of fifteen (15)
months.

g) Complainant, however, deliberately withheld Atty. Magno's advice from her

superior, the Senior Vice-President, Mr. Renato Santos and falsely informed
the latter that Atty . Magno advised that a demand letter be sent instead,
thereby further delaying the collection of the HSBC checks.

h) On 10 July 1990, the HSBC checks were finally sent for collection, but
were returned on 16 July 1990 for the reason 'account closed' (Exhibits 2-A
and 3-A).'

After a review of the Committee's findings, the Board of Directors of the Bank
resolved not to re-elect complainant any longer to the position of assistant president
pursuant to the Bank's By-laws.

On July 19, 1991, complainant was informed of her termination of employment from
the Bank by Senior Vice President Benedicto L. Santos, in a letter the text of which
is quoted in full:

'Dear Mrs. Reyes:

After a thorough investigation and appreciation of the charges against you as

contained in the Memorandum of the President dated March 8, 1991, the
Fact Finding Committee which was created to investigate the commission
and/or omission of the acts alluded therein, has found the following:

1. You have deliberately held the clearing of Checks Nos. 11728 and 11730
of Hongkong and Shanghai Banking Corporation in the total amount of
US$224,650.00 by giving instructions to the collection clerk not to send the
checks for collection. In view thereof, when the said checks were finally sent
to clearing after the lapse of 15 months from receipt of said checks, they
were returned for the reason 'Account closed.' To date, the value of said
checks have not been paid by Filipinas Tyrom, which as payee of the checks,
had been credited with their peso equivalent;

Page 196 of 250

 2. You tried to influence the decision of Atty. Pablo P. Magno, Bank legal
counsel, by asking him to do something allegedly upon instructions of a
Senior Vice President of the Bank or else lose his job when in truth and in
fact no such instructions was given; and

3. You deliberately withheld from Mr. Santos, Senior Vice President, the
advice given by the legal counsel of the Bank which Mr. Santos had asked
you to seek. As a matter of fact, you even relayed a false advice which
delayed further the sending of the two checks for collection. Likewise, you
refused to heed the advice of the Bank's legal counsel to send the checks for
collection.

These findings have given rise to the Bank's loss of trust and confidence in
you, the same being acts of serious misconduct in the performance of your
duties resulting in monetary loss to the Bank. In view thereof, the Board has
resolved not to re-elect you to the position of Assistant Vice President of the
Bank. Accordingly, your services are terminated effective immediately. In
relation thereto, your monetary and retirement benefits are forfeited except
those that have vested in you.'

In her position paper, complainant alleged that the real reason for her dismissal was
her filing of the criminal cases against the bank president, the vice president and
the auditors of the Bank, such filing not being a valid ground for her dismissal.
Furthermore, she alleged that it would be self-serving for the respondent to state
that she was found guilty of gross misconduct in deliberately withholding the
clearing of the two dollar checks. She further alleged that she was not afforded due
process as she was not given the chance to refute the charges mentioned in the
letter of dismissal. Hence, she was illegally dismissed.

On the other hand, respondent argues that there were substantial bases for the
bank to lose its trust and confidence on the complainant and, accordingly, had just
cause for terminating her services. Moreover, for filing the clearly unfounded suit
against the respondent's officers, complainant is liable to pay moral and exemplary
damages and attorney's fees."7

The Court of Appeals found that the NLRC committed grave abuse of discretion in ruling
that the dismissal of Reyes is valid. In effect, the Court of Appeals reinstated the judgment
of the labor arbiter with modification as follows:

"WHEREFORE, in the light of the foregoing, the decision appealed from is hereby
REVERSED and SET ASIDE. In lieu thereof, judgment is hereby rendered ordering
respondent Bank as follows:

1. To pay petitioner full backwages and other benefits from July 19, 1991 up
to the finality of this judgment;

2. To pay petitioner separation pay equivalent to one (1) month salary for
every year of service in lieu of reinstatement; and

3. To pay attorney's fee equivalent to ten (10%) percent of the total award.

Page 197 of 250

 SO ORDERED."8

Hence, the Bank's recourse to this Court contending in its memorandum that:

"IN SETTING ASIDE THE DECISION DATED 24 MARCH 1997 AND THE
RESOLUTION DATED 28 JULY 1998 OF THE NLRC AND REINSTATING WITH
MODIFICATION THE DECISION DATED 20 JULY 1995 OF LABOR ARBITER
CORNELIO L. LINSANGAN, THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED, IN VIEW OF THE FOLLOWING:

I.

IT IS THE SEC (NOW THE REGIONAL TRIAL COURT) AND NOT THE NLRC WHICH
HAS ORIGINAL AND EXCLUSIVE JURISDICTION OVER CASES INVOLVING THE
REMOVAL FROM OFFICE OF CORPORATE OFFICERS.

II.

EVEN ASSUMING ARGUENDO THAT THE NLRC HAS JURISDICTION, THERE WAS
SUBSTANTIAL EVIDENCE OF RESPONDENT'S MISCONDUCT JUSTIFYING THE
BANK'S LOSS OF TRUST AND CONFIDENCE ON (sic) HER.

III.

EVEN ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO

BACKWAGES, THE HONORABLE COURT OF APPEALS ERRED IN AWARDING
UNLIMITED AND UNQUALIFIED BACKWAGES THEREBY GOING FAR BEYOND
THE LABOR ARBITER'S DECISION LIMITING THE SAME TO THREE YEARS,
WHICH DECISION RESPONDENT HERSELF SOUGHT TO EXECUTE." 9

In sum, the resolution of this petition hinges on (1) whether the NLRC has jurisdiction over
the complaint for illegal dismissal; (2) whether complainant Reyes was illegally dismissed;
and (3) whether the amount of back wages awarded was proper.

On the first issue, petitioner seeks refuge behind the argument that the dispute is an intra-
corporate controversy concerning as it does the non-election of private respondent to the
position of Assistant Vice-President of the Bank which falls under the exclusive and
original, jurisdiction of the Securities and Exchange Commission (now the Regional Trial
Court) under Section 5 of Presidential Decree No. 902-A. More specifically, petitioner
contends that complainant is a corporate officer, an elective position under the corporate
by-laws and her non-election is an intra-corporate controversy cognizable by the SEC
invoking lengthily a number of this Court's decisions.10

Petitioner Bank can no longer raise the issue of jurisdiction under the principle of estoppel.
The Bank participated in the proceedings from start to finish. It filed its position paper with
the Labor Arbiter. When the decision of the Labor Arbiter was adverse to it, the Bank
appealed to the NLRC. When the NLRC decided in its favor, the bank said nothing about
jurisdiction. Even before the Court of Appeals, it never questioned the proceedings on the
ground of lack of jurisdiction. It was only when the Court of Appeals ruled in favor of
private respondent did it raise the issue of jurisdiction. The Bank actively participated in
the proceedings before the Labor Arbiter, the NLRC and the Court of Appeals. While it is

Page 198 of 250

true that jurisdiction over the subject matter of a case may be raised at any time of the
proceedings, this rule presupposes that laches or estoppel has not supervened. In this
regard, Baaga vs. Commission on the Settlement of Land Problems, 11 is most enlightening.
The Court therein stated:

"This Court has time and again frowned upon the undesirable practice of a party
submitting his case for decision and then accepting the judgment, only if favorable,
and attacking it for lack of jurisdiction when adverse. Here, the principle of estoppel
lies. Hence, a party may be estopped or barred from raising the question of
jurisdiction for the first time in a petition before the Supreme Court when it failed to
do so in the early stages of the proceedings."

Undeterred, the Bank also contends that estoppel cannot lie considering that "from the
beginning, petitioner Bank has consistently asserted in all its pleadings at all stages of the
proceedings that respondent held the position of Assistant Vice President, an elective
position which she held by virtue of her having been elected as such by the Board of
Directors." As far as the records before this Court reveal however, such an assertion was
made only in the appeal to the NLRC and raised again before the Court of Appeals, not for
purposes of questioning jurisdiction but to establish that private respondent's tenure was
subject to the discretion of the Board of Directors and that her non-reelection was a mere
expiration of her term. The Bank insists that private respondent was elected Assistant Vice
President sometime in 1990 to serve as such for only one year. This argument will not do
either and must be rejected.

It appears that private respondent was appointed Accounting Clerk by the Bank on July 14,
1963. From that position she rose to become supervisor. Then in 1982, she was appointed
Assistant Vice-President which she occupied until her illegal dismissal on July 19, 1991.
The bank's contention that she merely holds an elective position and that in effect she is
not a regular employee is belied by the nature of her work and her length of service with the
Bank. As earlier stated, she rose from the ranks and has been employed with the Bank
since 1963 until the termination of her employment in 1991. As Assistant Vice President of
the foreign department of the Bank, she is tasked, among others, to collect checks drawn
against overseas banks payable in foreign currency and to ensure the collection of foreign
bills or checks purchased, including the signing of transmittal letters covering the same. It
has been stated that "the primary standard of determining regular employment is the
reasonable connection between the particular activity performed by the employee in relation
to the usual trade or business of the employer.12 Additionally, "an employee is regular
because of the nature of work and the length of service, not because of the mode or even
the reason for hiring them."13 As Assistant Vice-President of the Foreign Department of the
Bank she performs tasks integral to the operations of the bank and her length of service
with the bank totaling 28 years speaks volumes of her status as a regular employee of the
bank. In fine, as a regular employee, she is entitled to security of tenure; that is, her
services may be terminated only for a just or authorized cause.14 This being in truth a case
of illegal dismissal, it is no wonder then that the Bank endeavored to the very end to
establish loss of trust and confidence and serious misconduct on the part of private
respondent but, as will be discussed later, to no avail.

This brings us to the second issue wherein the Bank insists that it has presented
substantial evidence to prove the breach of trust on the part of private respondent
warranting her dismissal. On this point, the Court of Appeals disagreed and set aside the
findings of the NLRC that Reyes deliberately withheld the release of the two dollar checks;

Page 199 of 250

that she is guilty of conflict of interest that she waived her right to due process for not
attending the hearing; and that she was dismissed based on loss of trust and confidence.
We quote pertinent portions of the decision, to wit:

"FIRST: Respondent Bank heavily relied on the testimony and affidavit of Remittance
Clerk Joven' in trying to establish loss of confidence. However, Joven's allegation
that petitioner instructed her to hold the subject two dollar checks amounting to
$224,650.00 falls short of the requisite proof to warrant petitioner's dismissal.
Except for Joven's bare assertion to withhold the dollar checks per petitioner's
instruction, respondent Bank failed to adduce convincing evidence to prove bad
faith and malice. It bears emphasizing that respondent Bank's witnesses merely
corroborate Joven's testimony.

Upon this point, the rule that proof beyond reasonable doubt is not required to
terminate an employee on the charge of loss of confidence and that it is sufficient
that there is some basis for such loss of confidence, is not absolute. The right of an
employer to dismiss employees on the ground that it has lost its trust and
confidence in him must not be exercised arbitrarily and without just cause. For loss
of trust and confidence to be valid ground for an employee's dismissal, it must be
substantial and not arbitrary, and must be founded on clearly established facts
sufficient to warrant the employee's separation from work (Labor vs. NLRC, 248
SCRA 183).

SECOND. Respondent Bank's charge of deliberate withholding of the two dollar

checks finds no support in the testimony of Atty. Jocson, Chairman of the
Investigating Committee. On cross examination, Atty. Jocson testified that the
documents themselves do not show any direct withholding (pp. 186-187, Rollo).
There being conflict in the statement of witnesses, the court must adopt the
testimony which it believes to be true (U.S. vs. Losada, 18 Phil. 90).

THIRD. Settled is the rule that when the conclusions of the Labor Arbiter are
sufficiently substantiated by the evidence on record, the same should be respected
by appellate tribunals since he is in a better position to assess and evaluate the
credibility of the contending parties (Ala Mode Garments, Inc. vs. NLRC, 268 SCRA
497). In this regard, the Court quotes with approval the following disquisition of
Labor Arbiter Linsangan, thus:

This Office has repeatedly gone over the records of the case and
painstakingly examined the testimonies of respondent bank's witnesses. One
thing was clearly established: that the legality of complainant's dismissal
based on the first ground stated in respondent's letter of termination (exh.
25-J, supra) will rise or fall on the credibility of Miss Joven who undisputedly
is the star witness for the bank. It will be observed that the testimonies of the
bank's other witnesses, Analiza Castillo, Dante Castor and Antonio Ragasa
pertaining to the non-release of the dollar checks and their corresponding
transmittal letters were all anchored on what was told them by Ms. Joven,
that is: she was instructed by complainant to hold the release of subject
checks. In a nutshell, therefore, the issue boils down to who between
complainant and Ms. Joven is more credible.

Page 200 of 250

After painstakingly examining the testimonies of Ms. Joven and respondent's
other witnesses' this Office finds the evidence still wanting in proof of
complainant's guilt. This Office had closely observed the demeanor of Ms.
Joven while testifying on the witness stand and was not impressed by her
assertions. The allegation of Ms. Joven in that her non-release of the dollar
checks was upon the instruction of complainant Reyes is extremely doubtful.
In the first place, the said instruction constitutes a gross violation of the
bank's standard operating procedure. Moreover, Ms. Joven was fully aware
that the instruction, if carried out, will greatly prejudice her employer bank.
It was incumbent upon Ms. Joven not only to disobey the instruction but
even to report the matter to management, if same was really given to her by
complainant.

Our doubt on the veracity of Ms. Joven's allegation even deepens as we

consider the fact that when the non-release of the checks was discovered by
Ms. Castillo the former contented herself by continuously not taking any
action on the two dollar checks. Worse, Ms. Joven even impliedly told by Ms.
Castillo (sic) to ignore the two checks and just withhold their release. In her
affidavit Ms. Castillo said:

'4. When I asked Cecille Joven what I was supposed to do with those
checks, she said the same should be held as per instruction of Mrs.
Reyes.' (Exh. "14", supra).

The evidence shows that it was only on 16 May 1990 that Ms. Joven broke
her silence on the matter despite the fact that on 15 November 1989, at
about 8:00 p.m. the complainant, accompanied by driver Celestino Banito,
went to her residence and confronted her regarding the non-release of the
dollar checks. It took Ms. Joven eighteen (18) months before she explained
her side on the controversy. As to what prompted her to make her letter of
explanation was not even mentioned.

On the other hand, the actions taken by the complainant were spontaneous.
When complainant was informed by Mr. Castor and Ms. Castillo regarding
the non-release of the checks sometime in November, 1989 she immediately
reported the matter to Vice President Santos, Head of the Foreign
Department. And as earlier mentioned, complainant went to the residence of
Ms. Joven to confront her. In this regard, Celestino Bonito, complainant's
driver, stated in his affidavit, thus:

'1. Sometime on November 15, 1989 at about 7:00 o'clock in the

evening, Mrs. Clarita Tan Reyes and I were in the residence of one
Ms. Cecille Joven, then a Processing Clerk in the Foreign Department
of Prudential Bank;

2. Ms. Cecille Joven, her mother, myself, and Mrs. Clarita Tan Reyes
were seated in the sala when the latter asked the former, Ms. Cecille
Joven, how it came about that the two dollar checks which she was
then holding with the transmittal letters, were found in a plastic
envelope kept day-to-day by the former;

Page 201 of 250

 3. Hesitatingly, Cecille Joven said: "Eh, Mother (Mrs. Tan Reyes had
been intimately called Mother in the Bank) akala ko bouncing checks
yon mga yon.

4. Mrs. Clarita Tan Reyes, upon hearing those words, was surprised
and she said: "Ano, papaano mong alam na bouncing na hindi mo pa
pinadadala:

5. Mrs. Cecille Joven turned pale and was not able to answer.'

There are other factors that constrain this Office to doubt even more the
legality of complainant's dismissal based on the first ground stated in the
letter of dismissal. The non-release of the dollar checks was reported to top
management sometime on 15 November 1989 when complainant,
accompanied by Supervisor Dante Castor and Analiza Castillo, reported the
matter to Vice President Santos. And yet, it was only on 08 March 1991, after
a lapse of sixteen (16) months from the time the non-release of the checks
was reported to the Vice President, that complainant was issued a
memorandum directing her to submit an explanation. And it took the bank
another four (4) months before it dismissed complainant.

The delayed action taken by respondent against complainant lends credence

to the assertion of the latter that her dismissal was a mere retaliation to the
criminal complaints she filed against the bank's top officials.

It clearly appears from the foregoing that the complainant herein has no
knowledge of, much less participation in, the non-release of the dollar checks
under discussion. Ms. Joven is solely responsible for the same. Incidentally,
she was not even reprimanded by the bank.

FOURTH. Respondent Bank having failed to furnish petitioner necessary documents

imputing loss of confidence, petitioner was not amply afforded opportunity to
prepare an intelligent answer. The Court finds nothing confidential in the auditor's
report and the affidavit of Transmittal Clerk Joven. Due process dictates that
management accord the employees every kind of assistance to enable him to prepare
adequately for his defense, including legal representation.

The issue of conflict of interest not having been covered by the investigation, the
Court finds it irrelevant to the charge."15

We uphold the findings of the Court of Appeals that the dismissal of private respondent on
the ground of loss of trust and confidence was without basis. The charge was predicated on
the testimony of Ms. Joven and we defer to the findings of the Labor Arbiter as confirmed
and adopted by the Court of Appeals on the credibility of said witness. This Court is not a
trier of facts and will not weigh anew the evidence already passed upon by the Court of
Appeals.16

On the third issue, the Bank questions the award of full backwages and other benefits from
July 19, 1991 up to the finality of this judgment; separation pay equivalent to one (1)
month salary for every year of service in lieu of reinstatement; and attorney's fees
equivalent to ten (10%) percent of the total award. The Bank argues, in the main, that

Page 202 of 250

private respondent is not entitled to full backwages in view of the fact that she did not
bother to appeal that portion of the labor arbiter's judgment awarding back wages limited to
three years. It must be stressed that private respondent filed a special civil action for
certiorari to review the decision of the NLRC17 and not an ordinary appeal. An ordinary
appeal is distinguished from the remedy of certiorari under Rule 65 of the Revised Rules of
Court in that in ordinary appeals it is settled that a party who did not appeal cannot seek
affirmative relief other than the ones granted in the decision of the court below.18 On the
other hand, resort to a judicial review of the decisions of the National Labor Relations
Commission in a petition for certiorari under Rule 65 of Rules of Court is confined to issues
of want or excess of jurisdiction and grave abuse of discretion.19 In the instant case, the
Court of Appeals found that the NLRC gravely abused its discretion in finding that the
private respondent's dismissal was valid and so reversed the same. Corollary to the
foregoing, the appellate court awarded backwages in accordance with current
jurisprudence.

Indeed, jurisprudence is clear on the amount of backwages recoverable in cases of illegal

dismissal. Employees illegally dismissed prior to the effectivity of Republic Act No. 6715 on
March 21, 1989 are entitled to backwages up to three (3) years without deduction or
qualification, while those illegally dismissed after are granted full backwages inclusive of
allowances and other benefits or their monetary equivalent from the time their actual
compensation was withheld from them up to the time of their actual
reinstatement.20 Considering that private respondent was terminated on July 19, 1991, she
is entitled to full backwages from the time her actual compensation was withheld from her
(which, as a rule, is from the time of her illegal dismissal) up to the finality of this judgment
(instead of reinstatement) considering that reinstatement is no longer feasible as correctly
pointed out by the Court of Appeals on account of the strained relations brought about by
the litigation in this case. Since reinstatement is no longer viable, she is also entitled to
separation pay equivalent to one (1) month salary for every year of service. 21 Lastly, since
private respondent was compelled to file an action for illegal dismissal with the labor
arbiter, she is likewise entitled to attorney's fees 22 at the rate above-mentioned. There is no
room to argue, as the Bank does here, that its liability should be mitigated on account of its
good faith and that private respondent is not entirely blameless. There is no showing that
private respondent is partly at fault or that the Bank acted in good faith in terminating an
employee of twenty-eight years. In any event, Article 279 of Republic Act No. 6715 23 clearly
and plainly provides for "full backwages" to illegally dismissed employees.1wphi1.nt

WHEREFORE, the instant petition for review on certiorari is DENIED, and the assailed
Decision of the Court of Appeals, dated October 15, 1999, is AFFIRMED.

SO ORDERED.

Page 203 of 250

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 168757 January 19, 2011

RENATO REAL, Petitioner,

vs.
SANGU PHILIPPINES, INC. and/ or KIICHI ABE, Respondents.

DECISION

DEL CASTILLO, J.:

The perennial question of whether a complaint for illegal dismissal is intra-corporate and
thus beyond the jurisdiction of the Labor Arbiter is the core issue up for consideration in
this case.

This Petition for Review on Certiorari assails the Decision1 dated June 28, 2005 of the Court
of Appeals (CA) in CA-G.R. SP. No. 86017 which dismissed the petition for certiorari filed
before it.

Factual Antecedents

Petitioner Renato Real was the Manager of respondent corporation Sangu Philippines, Inc.,
a corporation engaged in the business of providing manpower for general services, like
janitors, janitresses and other maintenance personnel, to various clients. In 2001,
petitioner, together with 29 others who were either janitors, janitresses, leadmen and
maintenance men, all employed by respondent corporation, filed their respective
Complaints2 for illegal dismissal against the latter and respondent Kiichi Abe, the
corporations Vice-President and General Manager. These complaints were later on
consolidated.

With regard to petitioner, he was removed from his position as Manager through Board
Resolution 2001-033adopted by respondent corporations Board of Directors. Petitioner
complained that he was neither notified of the Board Meeting during which said board
resolution was passed nor formally charged with any infraction. He just received from
respondents a letter4 dated March 26, 2001 stating that he has been terminated from
service effective March 25, 2001 for the following reasons: (1) continuous absences at his
post at Ogino Philippines Inc. for several months which was detrimental to the corporations
operation; (2) loss of trust and confidence; and, (3) to cut down operational expenses to
reduce further losses being experienced by respondent corporation.

Respondents, on the other hand, refuted petitioners claim of illegal dismissal by alleging
that after petitioner was appointed Manager, he committed gross acts of misconduct
detrimental to the company since 2000. According to them, petitioner would almost always
absent himself from work without informing the corporation of his whereabouts and that he
would come to the office only to collect his salaries. As he was almost always absent,
petitioner neglected to supervise the employees resulting in complaints from various clients

Page 204 of 250

about employees performance. In one instance, petitioner together with a few others, while
apparently drunk, went to the premises of one of respondents clients, Epson Precision
(Phils.) Inc., and engaged in a heated argument with the employees therein. Because of this,
respondent Abe allegedly received a complaint from Epsons Personnel Manager concerning
petitioners conduct. Respondents likewise averred that petitioner established a company
engaged in the same business as respondent corporations and even submitted proposals
for janitorial services to two of the latters clients. Because of all these, the Board of
Directors of respondent corporation met on March 24, 2001 and adopted Board Resolution
No. 2001-03 removing petitioner as Manager. Petitioner was thereafter informed of his
removal through a letter dated March 26, 2001 which he, however, refused to receive.

Further, in what respondents believed to be an act of retaliation, petitioner allegedly

encouraged the employees who had been placed in the manpower pool to file a complaint
for illegal dismissal against respondents. Worse, he later incited those assigned in Epson
Precision (Phils.) Inc., Ogino Philippines Corporation, Hitachi Cable Philippines Inc. and
Philippine TRC Inc. to stage a strike on April 10 to 16, 2001. Not satisfied, petitioner
together with other employees also barricaded the premises of respondent corporation.
Such acts respondents posited constitute just cause for petitioners dismissal and that
same was validly effected.

Rulings of the Labor Arbiter and the National Labor Relations Commission

The Labor Arbiter in a Decision5 dated June 5, 2003 declared petitioner and his co-
complainants as having been illegally dismissed and ordered respondents to reinstate
complainants to their former positions without loss of seniority rights and other privileges
and to pay their full backwages from the time of their dismissal until actually reinstated
and furthermore, to pay them attorneys fees. The Labor Arbiter found no convincing proof
of the causes for which petitioner was terminated and noted that there was complete
absence of due process in the manner of his termination.

Respondents thus appealed to the National Labor Relations Commission (NLRC) and raised
therein as one of the issues the lack of jurisdiction of the Labor Arbiter over petitioners
complaint. Respondents claimed that petitioner is both a stockholder and a corporate
officer of respondent corporation, hence, his action against respondents is an intra-
corporate controversy over which the Labor Arbiter has no jurisdiction.

The NLRC found such contention of respondents to be meritorious. Aside from petitioners
own admission in the pleadings that he is a stockholder and at the same time occupying a
managerial position, the NLRC also gave weight to the corporations General Information
Sheet6 (GIS) dated October 27, 1999 listing petitioner as one of its stockholders,
consequently his termination had to be effected through a board resolution. These, the
NLRC opined, clearly established petitioners status as a stockholder and as a corporate
officer and hence, his action against respondent corporation is an intra-corporate
controversy over which the Labor Arbiter has no jurisdiction. As to the other complainants,
the NLRC ruled that there was no dismissal. The NLRC however, modified the appealed
decision of the Labor Arbiter in a Decision 7 dated February 13, 2004, the dispositive portion
of which reads:

WHEREFORE, all foregoing premises considered, the appealed Decision dated June 5, 2003
is hereby MODIFIED. Accordingly, judgment is hereby rendered DISMISSING the complaint

Page 205 of 250

of Renato Real for lack of jurisdiction. As to the rest of the complainants, they are hereby
ordered to immediately report back to work but without the payment of backwages.

All other claims against respondents including attorneys fees are DISMISSED for lack of
merit.

SO ORDERED.

Still joined by his co-complainants, petitioner brought the case to the CA by way of petition
for certiorari.

Ruling of the Court of Appeals

Before the CA, petitioner imputed upon the NLRC grave abuse of discretion amounting to
lack or excess of jurisdiction in declaring him a corporate officer and in holding that his
action against respondents is an intra-corporate controversy and thus beyond the
jurisdiction of the Labor Arbiter.

While admitting that he is indeed a stockholder of respondent corporation, petitioner

nevertheless disputed the declaration of the NLRC that he is a corporate officer thereof. He
posited that his being a stockholder and his being a managerial employee do not ipso
facto confer upon him the status of a corporate officer. To support this contention,
petitioner called the CAs attention to the same GIS relied upon by the NLRC when it
declared him to be a corporate officer. He pointed out that although said information sheet
clearly indicates that he is a stockholder of respondent corporation, he is not an officer
thereof as shown by the entry "N/A" or "not applicable" opposite his name in the officer
column. Said column requires that the particular position be indicated if the person is an
officer and if not, the entry "N/A". Petitioner further argued that the fact that his dismissal
was effected through a board resolution does not likewise mean that he is a corporate
officer. Otherwise, all that an employer has to do in order to avoid compliance with the
requisites of a valid dismissal under the Labor Code is to dismiss a managerial employee
through a board resolution. Moreover, he insisted that his action for illegal dismissal is not
an intra-corporate controversy as same stemmed from employee-employer relationship
which is well within the jurisdiction of the Labor Arbiter. This can be deduced and is
bolstered by the last paragraph of the termination letter sent to him by respondents stating
that he is entitled to benefits under the Labor Code, to wit:

In this connection (his dismissal) you are entitled to separation pay and other benefits
provided for under the Labor Code of the Philippines.8 (Emphasis supplied)

In contrast, respondents stood firm that the action against them is an intra-corporate
controversy. It cited Tabang v. National Labor Relations Commission 9 wherein this Court
declared that "an intra-corporate controversy is one which arises between a stockholder and
the corporation;" that "[t]here is no distinction, qualification, nor any exemption
whatsoever;" and that it is "broad and covers all kinds of controversies between
stockholders and corporations." In view of this ruling and since petitioner is undisputedly a
stockholder of the corporation, respondents contended that the action instituted by
petitioner against them is an intra-corporate controversy cognizable only by the appropriate
regional trial court. Hence, the NLRC correctly dismissed petitioners complaint for lack of
jurisdiction.

Page 206 of 250

In the assailed Decision10 dated June 28, 2005, the CA sided with respondents and affirmed
the NLRCs finding that aside from being a stockholder of respondent corporation, petitioner
is also a corporate officer thereof and consequently, his complaint is an intra-corporate
controversy over which the labor arbiter has no jurisdiction. Said court opined that if it was
true that petitioner is a mere employee, the respondent corporation would not have called a
board meeting to pass a resolution for petitioners dismissal considering that it was very
tedious for the Board of Directors to convene and to adopt a resolution every time they
decide to dismiss their managerial employees. To support its finding, the CA likewise
cited Tabang. As to petitioners co-complainants, the CA likewise affirmed the NLRCS
finding that they were never dismissed from the service. The dispositive portion of the CA
Decision reads:

WHEREFORE, the instant petition is hereby DISMISSED. Accordingly, the assailed decision
and resolution of the public respondent National Labor Relations Commission in NLRC NCR
CA No. 036128-03 NLRC SRAB-IV-05-6618-01-B/05-6619-02-B/05-6620-02-B/10-6637-
01-B/10-6833-01-B, STANDS.

SO ORDERED.

Now alone but still undeterred, petitioner elevated the case to us through this Petition for
Review on Certiorari.

The Parties Arguments

Petitioner continues to insist that he is not a corporate officer. He argues that a corporate
officer is one who holds an elective position as provided in the Articles of Incorporation or
one who is appointed to such other positions by the Board of Directors as specifically
authorized by its By-Laws. And, since he was neither elected nor is there any showing that
he was appointed by the Board of Directors to his position as Manager, petitioner maintains
that he is not a corporate officer contrary to the findings of the NLRC and the CA.

Petitioner likewise contends that his complaint for illegal dismissal against respondents is
not an intra-corporate controversy. He avers that for an action or suit between a
stockholder and a corporation to be considered an intra-corporate controversy, same must
arise from intra-corporate relations, i.e., an action involving the status of a stockholder as
such. He believes that his action against the respondents does not arise from intra-
corporate relations but rather from employer-employee relations. This, according to him,
was even impliedly recognized by respondents as shown by the earlier quoted portion of the
termination letter they sent to him.

For their part, respondents posit that what petitioner is essentially assailing before this
Court is the finding of the NLRC and the CA that he is a corporate officer of respondent
corporation. To the respondents, the question of whether petitioner is a corporate officer is
a question of fact which, as held in a long line of jurisprudence, cannot be the subject of
review under this Petition for Review on Certiorari. At any rate, respondents insist that
petitioner who is undisputedly a stockholder of respondent corporation is likewise a
corporate officer and that his action against them is an intra-corporate dispute beyond the
jurisdiction of the labor tribunals. To support this, they cited several jurisprudence such
as Pearson & George (S.E. Asia), Inc. v. National Labor Relations Commission, 11Philippine
School of Business Administration v. Leano, 12 Fortune Cement Corporation v. National Labor
Relations Commission13 and again, Tabang v. National Labor Relations Commission. 14

Page 207 of 250

Moreover, in an attempt to demolish petitioners claim that the present controversy
concerns employer-employee relations, respondents enumerated the following facts and
circumstances: (1) Petitioner was an incorporator, stockholder and manager of respondent
company; (2) As an incorporator, he was one of only seven incorporators of respondent
corporation and one of only four Filipino members of the Board of Directors; (3) As
stockholder, he has One Thousand (1,000) of the Ten Thousand Eight Hundred (10,800)
common shares held by Filipino stockholders, with a par-value of One Hundred Thousand
Pesos (P100,000.00); (4) His appointment as manager was by virtue of Section 1, Article IV
of respondent corporations By-Laws; (5) As manager, he had direct management and
authority over all of respondent corporations skilled employees; (6) Petitioner has shown
himself to be an incompetent manager, unable to properly supervise the employees and
even causing friction with the corporations clients by engaging in unruly behavior while in
clients premises; (7) As if his incompetence was not enough, in a blatant and palpable act
of disloyalty, he established another company engaged in the same line of business as
respondent corporation; (8) Because of these acts of incompetence and disloyalty,
respondent corporation through a Resolution adopted by its Board of Directors was finally
constrained to remove petitioner as Manager and declare his office vacant; (9) After his
removal, petitioner urged the employees under him to stage an unlawful strike by leading
them to believe that they have been illegally dismissed from employment. 15Apparently,
respondents intended to show from this enumeration that petitioners removal pertains to
his relationship with respondent corporation, that is, his utter failure to advance its interest
and the prejudice caused by his acts of disloyalty. For this reason, respondents see the
action against them not as a case between an employer and an employee as what petitioner
alleges, but one by an officer and at same time a major stockholder seeking to be reinstated
to his former office against the corporation that declared his position vacant.

Finally, respondents state that the fact that petitioner is being given benefits under the
Labor Code as stated in his termination letter does not mean that they are recognizing the
employer-employee relations between them. They explain that the benefits provided under
the Labor Code were merely made by respondent corporation as the basis in determining
petitioners compensation package and that same are merely part of the perquisites of
petitioners office as a director and manager. It does not and it cannot change the intra-
corporate nature of the controversy. Hence, respondents pray that this petition be
dismissed for lack of merit.

Issues

From the foregoing and as earlier mentioned, the core issue to be resolved in this case is
whether petitioners complaint for illegal dismissal constitutes an intra-corporate
controversy and thus, beyond the jurisdiction of the Labor Arbiter.

Our Ruling

Two-tier test in determining the existence of intra-corporate controversy

Respondents strongly rely on this Courts pronouncement in the 1997 case of Tabang v.
National Labor Relations Commission, to wit:

[A]n intra-corporate controversy is one which arises between a stockholder and the
corporation. There is no distinction, qualification nor any exemption whatsoever. The

Page 208 of 250

provision is broad and covers all kinds of controversies between stockholders and
corporations.16

In view of this, respondents contend that even if petitioner challenges his being a corporate
officer, the present case still constitutes an intra-corporate controversy as petitioner is
undisputedly a stockholder and a director of respondent corporation.

It is worthy to note, however, that before the promulgation of the Tabang case, the Court
provided in Mainland Construction Co., Inc. v. Movilla17 a "better policy" in determining
which between the Securities and Exchange Commission (SEC) and the Labor Arbiter has
jurisdiction over termination disputes,18 or similarly, whether they are intra-corporate or
not, viz:

The fact that the parties involved in the controversy are all stockholders or that the parties
involved are the stockholders and the corporation does not necessarily place the dispute
within the ambit of the jurisdiction of the SEC (now the Regional Trial Court 19). The better
policy to be followed in determining jurisdiction over a case should be to consider
concurrent factors such as the status or relationship of the parties or the nature of
the question that is subject of their controversy. In the absence of any one of these
factors, the SEC will not have jurisdiction. Furthermore, it does not necessarily follow that
every conflict between the corporation and its stockholders would involve such corporate
matters as only SEC (now the Regional Trial Court20) can resolve in the exercise of its
adjudicatory or quasi-judicial powers. (Emphasis ours)

And, while Tabang was promulgated later than Mainland Construction Co., Inc., the "better
policy" enunciated in the latter appears to have developed into a standard approach in
classifying what constitutes an intra-corporate controversy. This is explained lengthily
in Reyes v. Regional Trial Court of Makati, Br. 142,21 to wit:

Intra-Corporate Controversy

A review of relevant jurisprudence shows a development in the Courts approach in

classifying what constitutes an intra-corporate controversy. Initially, the main consideration
in determining whether a dispute constitutes an intra-corporate controversy was limited to
a consideration of the intra-corporate relationship existing between or among the parties.
The types of relationships embraced under Section 5(b) x x x were as follows:

a) between the corporation, partnership or association and the public;

b) between the corporation, partnership or association and its stockholders,

partners, members or officers;

c) between the corporation, partnership or association and the State as far as its
franchise, permit or license to operate is concerned; and

d) among the stockholders, partners or associates themselves.

The existence of any of the above intra-corporate relations was sufficient to confer
jurisdiction to the SEC (now the RTC), regardless of the subject matter of the dispute. This
came to be known as the relationship test.

Page 209 of 250

However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc., the
Court introduced the nature of the controversy test. We declared in this case that it is not
the mere existence of an intra-corporate relationship that gives rise to an intra-corporate
controversy; to rely on the relationship test alone will divest the regular courts of their
jurisdiction for the sole reason that the dispute involves a corporation, its directors, officers,
or stockholders. We saw that there is no legal sense in disregarding or minimizing the value
of the nature of the transactions which gives rise to the dispute.

Under the nature of the controversy test, the incidents of that relationship must also be
considered for the purpose of ascertaining whether the controversy itself is intra-corporate.
The controversy must not only be rooted in the existence of an intra-corporate relationship,
but must as well pertain to the enforcement of the parties correlative rights and obligations
under the Corporation Code and the internal and intra-corporate regulatory rules of the
corporation. If the relationship and its incidents are merely incidental to the controversy or
if there will still be conflict even if the relationship does not exist, then no intra-corporate
controversy exists.

The Court then combined the two tests and declared that jurisdiction should be determined
by considering not only the status or relationship of the parties, but also the nature of the
question under controversy. This two-tier test was adopted in the recent case of Speed
Distribution Inc. v. Court of Appeals:

To determine whether a case involves an intra-corporate controversy, and is to be heard

and decided by the branches of the RTC specifically designated by the Court to try and
decide such cases, two elements must concur: (a) the status or relationship of the parties,
and (2) the nature of the question that is the subject of their controversy.

The first element requires that the controversy must arise out of intra-corporate or
partnership relations between any or all of the parties and the corporation, partnership, or
association of which they are not stockholders, members or associates, between any or all
of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership, or
association and the State insofar as it concerns the individual franchises. The second
element requires that the dispute among the parties be intrinsically connected with the
regulation of the corporation. If the nature of the controversy involves matters that are
purely civil in character, necessarily, the case does not involve an intra-corporate
controversy. [Citations omitted.]

Guided by this recent jurisprudence, we thus find no merit in respondents contention that
the fact alone that petitioner is a stockholder and director of respondent corporation
automatically classifies this case as an intra-corporate controversy. To reiterate, not all
conflicts between the stockholders and the corporation are classified as intra-corporate.
There are other factors to consider in determining whether the dispute involves corporate
matters as to consider them as intra-corporate controversies.

What then is the nature of petitioners Complaint for Illegal Dismissal? Is it intra-corporate
and thus beyond the jurisdiction of the Labor Arbiter? We shall answer this question by
using the standards set forth in the Reyes case.

No intra-corporate relationship between the parties

Page 210 of 250

As earlier stated, petitioners status as a stockholder and director of respondent corporation
is not disputed. What the parties disagree on is the finding of the NLRC and the CA that
petitioner is a corporate officer. An examination of the complaint for illegal dismissal,
however, reveals that the root of the controversy is petitioners dismissal as Manager of
respondent corporation, a position which respondents claim to be a corporate office. Hence,
petitioner is involved in this case not in his capacity as a stockholder or director, but as an
alleged corporate officer. In applying the relationship test, therefore, it is necessary to
determine if petitioner is a corporate officer of respondent corporation so as to establish the
intra-corporate relationship between the parties. And albeit respondents claim that the
determination of whether petitioner is a corporate officer is a question of fact which this
Court cannot pass upon in this petition for review on certiorari, we shall nonetheless
proceed to consider the same because such question is not the main issue to be resolved in
this case but is merely collateral to the core issue earlier mentioned.

Petitioner negates his status as a corporate officer by pointing out that although he was
removed as Manager through a board resolution, he was never elected to said position nor
was he appointed thereto by the Board of Directors. While the By-Laws of respondent
corporation provides that the Board may from time to time appoint such officers as it may
deem necessary or proper, he avers that respondents failed to present any board resolution
that he was appointed pursuant to said By-Laws. He instead alleges that he was hired as
Manager of respondent corporation solely by respondent Abe. For these reasons, petitioner
claims to be a mere employee of respondent corporation rather than as a corporate officer.

We find merit in petitioners contention.

"Corporate officers in the context of Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the Corporation Code or by the corporations
by-laws. There are three specific officers whom a corporation must have under Section 25 of
the Corporation Code. These are the president, secretary and the treasurer. The number of
officers is not limited to these three. A corporation may have such other officers as may be
provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or
general manager. The number of corporate officers is thus limited by law and by the
corporations by-laws."22

Respondents claim that petitioner was appointed Manager by virtue of Section 1, Article IV
of respondent corporations By-Laws which provides:

ARTICLE IV
OFFICER

Section 1. Election/Appointment Immediately after their election, the Board of Directors

shall formally organize by electing the President, Vice-President, the Secretary at said
meeting.

The Board, may from time to time, appoint such other officers as it may determine
to be necessary or proper. Any two (2) or more positions may be held concurrently by the
same person, except that no one shall act as President and Treasurer or Secretary at the
same time.

x x x x23 (Emphasis ours)

Page 211 of 250

We have however examined the records of this case and we find nothing to prove that
petitioners appointment was made pursuant to the above-quoted provision of respondent
corporations By-Laws. No copy of board resolution appointing petitioner as Manager or any
other document showing that he was appointed to said position by action of the board was
submitted by respondents. What we found instead were mere allegations of respondents in
their various pleadings24 that petitioner was appointed as Manager of respondent
corporation and nothing more. "The Court has stressed time and again that allegations
must be proven by sufficient evidence because mere allegation is definitely not evidence."25

It also does not escape our attention that respondents made the following conflicting
allegations in their Memorandum on Appeal 26 filed before the NLRC which cast doubt on
petitioners status as a corporate officer, to wit:

xxxx

24. Complainant-appellee Renato Real was appointed as the manager of respondent-

appellant Sangu on November 6, 1998. Priorly [sic], he was working at Atlas Ltd. Co. at
Mito-shi, Ibaraki-ken Japan. He was staying in Japan as an illegal alien for the past eleven
(11) years. He had a problem with his family here in the Philippines which prompted him to
surrender himself to Japans Bureau of Immigration and was deported back to the
Philippines. His former employer, Mr. Tsutomo Nogami requested Mr. Masahiko Shibata,
one of respondent-appellant Sangus Board of Directors, if complainant-appellee Renato
Real could work as one of its employees here in the Philippines because he had been
blacklisted at Japans Immigration Office and could no longer go back to Japan. And so it
was arranged that he would serve as respondent-appellant Sangus manager,
receiving a salary of P25,000.00. As such, he was tasked to oversee the operations of the
company. x x x (Emphasis ours)

xxxx

As earlier stated, complainant-appellee Renato Real was hired as the manager of

respondent-appellant Sangu. As such, his position was reposed with full trust and
confidence. x x x

While respondents repeatedly claim that petitioner was appointed as Manager pursuant to
the corporations By-Laws, the above-quoted inconsistencies in their allegations as to how
petitioner was placed in said position, coupled by the fact that they failed to produce any
documentary evidence to prove that petitioner was appointed thereto by action or with
approval of the board, only leads this Court to believe otherwise. It has been consistently
held that "[a]n office is created by the charter of the corporation and the officer is elected
(or appointed) by the directors or stockholders." 27 Clearly here, respondents failed to prove
that petitioner was appointed by the board of directors. Thus, we cannot subscribe to their
claim that petitioner is a corporate officer. Having said this, we find that there is no intra-
corporate relationship between the parties insofar as petitioners complaint for illegal
dismissal is concerned and that same does not satisfy the relationship test.

Present controversy does not relate to intra-corporate dispute

We now go to the nature of controversy test. As earlier stated, respondents terminated the
services of petitioner for the following reasons: (1) his continuous absences at his post at
Ogino Philippines, Inc; (2) respondents loss of trust and confidence on petitioner; and, (3)

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to cut down operational expenses to reduce further losses being experienced by the
corporation. Hence, petitioner filed a complaint for illegal dismissal and sought
reinstatement, backwages, moral damages and attorneys fees. From these, it is not difficult
to see that the reasons given by respondents for dismissing petitioner have something to do
with his being a Manager of respondent corporation and nothing with his being a director or
stockholder. For one, petitioners continuous absences in his post in Ogino relates to his
performance as Manager. Second, respondents loss of trust and confidence in petitioner
stemmed from his alleged acts of establishing a company engaged in the same line of
business as respondent corporations and submitting proposals to the latters clients while
he was still serving as its Manager. While we note that respondents also claim these acts as
constituting acts of disloyalty of petitioner as director and stockholder, we, however, think
that same is a mere afterthought on their part to make it appear that the present case
involves an element of intra-corporate controversy. This is because before the Labor Arbiter,
respondents did not see such acts to be disloyal acts of a director and stockholder but
rather, as constituting willful breach of the trust reposed upon petitioner as Manager. 28 It
was only after respondents invoked the Labor Arbiters lack of jurisdiction over petitioners
complaint in the Supplemental Memorandum of Appeal29 filed before the NLRC that
respondents started considering said acts as such. Third, in saying that they were
dismissing petitioner to cut operational expenses, respondents actually want to save on the
salaries and other remunerations being given to petitioner as its Manager. Thus, when
petitioner sought for reinstatement, he wanted to recover his position as Manager, a
position which we have, however, earlier declared to be not a corporate position. He is not
trying to recover a seat in the board of directors or to any appointive or elective corporate
position which has been declared vacant by the board. Certainly, what we have here is a
case of termination of employment which is a labor controversy and not an intra-corporate
dispute. In sum, we hold that petitioners complaint likewise does not satisfy the nature of
controversy test.

With the elements of intra-corporate controversy being absent in this case, we thus hold
that petitioners complaint for illegal dismissal against respondents is not intra-corporate.
Rather, it is a termination dispute and, consequently, falls under the jurisdiction of the
Labor Arbiter pursuant to Section 21730 of the Labor Code.

We take note of the cases cited by respondents and find them inapplicable to the case at
bar. Fortune Cement Corporation v. National Labor Relations Commission 31 involves a
member of the board of directors and at the same time a corporate officer who claims he
was illegally dismissed after he was stripped of his corporate position of Executive Vice-
President because of loss of trust and confidence. On the other hand, Philippine School of
Business Administration v. Leano32 and Pearson & George v. National Labor Relations
Commission33 both concern a complaint for illegal dismissal by corporate officers who were
not re-elected to their respective corporate positions. The Court declared all these cases as
involving intra-corporate controversies and thus affirmed the jurisdiction of the SEC (now
the RTC)34 over them precisely because they all relate to corporate officers and their removal
or non-reelection to their respective corporate positions. Said cases are by no means similar
to the present case because as discussed earlier, petitioner here is not a corporate officer.

With the foregoing, it is clear that the CA erred in affirming the decision of the NLRC which
dismissed petitioners complaint for lack of jurisdiction. In cases such as this, the Court
normally remands the case to the NLRC and directs it to properly dispose of the case on the
merits. "However, when there is enough basis on which a proper evaluation of the merits of
petitioners case may be had, the Court may dispense with the time-consuming procedure

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of remand in order to prevent further delays in the disposition of the case." 35 "It is already
an accepted rule of procedure for us to strive to settle the entire controversy in a single
proceeding, leaving no root or branch to bear the seeds of litigation. If, based on the
records, the pleadings, and other evidence, the dispute can be resolved by us, we will do so
to serve the ends of justice instead of remanding the case to the lower court for further
proceedings."36 We have gone over the records before us and we are convinced that we can
now altogether resolve the issue of the validity of petitioners dismissal and hence, we shall
proceed to do so.

Petitioners dismissal not in accordance with law

"In an illegal dismissal case, the onus probandi rests on the employer to prove that [the]
dismissal of an employee is for a valid cause."37 Here, as correctly observed by the Labor
Arbiter, respondents failed to produce any convincing proof to support the grounds for
which they terminated petitioner. Respondents contend that petitioner has been absent for
several months, yet they failed to present any proof that petitioner was indeed absent for
such a long time. Also, the fact that petitioner was still able to collect his salaries after his
alleged absences casts doubts on the truthfulness of such charge. Respondents likewise
allege that petitioner engaged in a heated argument with the employees of Epson, one of
respondents clients. But just like in the charge of absenteeism, there is no showing that an
investigation on the matter was done and that disciplinary action was imposed upon
petitioner. At any rate, we have reviewed the records of this case and we agree with the
Labor Arbiter that under the circumstances, said charges are not sufficient bases for
petitioners termination. As to the charge of breach of trust allegedly committed by
petitioner when he established a new company engaged in the same line of business as
respondent corporations and submitted proposals to two of the latters clients while he was
still a Manager, we again observe that these are mere allegations without sufficient proof.
To reiterate, allegations must be proven by sufficient evidence because mere allegation is
definitely not evidence.38

Moreover, petitioners dismissal was effected without due process of law.lawphi1 "The twin
requirements of notice and hearing constitute the essential elements of due process. The
law requires the employer to furnish the employee sought to be dismissed with two written
notices before termination of employment can be legally effected: (1) a written notice
apprising the employee of the particular acts or omissions for which his dismissal is sought
in order to afford him an opportunity to be heard and to defend himself with the assistance
of counsel, if he desires, and (2) a subsequent notice informing the employee of the
employers decision to dismiss him. This procedure is mandatory and its absence taints the
dismissal with illegality."39 Since in this case, petitioners dismissal was effected through a
board resolution and all that petitioner received was a letter informing him of the boards
decision to terminate him, the abovementioned procedure was clearly not complied with. All
told, we agree with the findings of the Labor Arbiter that petitioner has been illegally
dismissed. And, as an illegally dismissed employee is entitled to the two reliefs of
backwages and reinstatement,40 we affirm the Labor Arbiters judgment ordering petitioners
reinstatement to his former position without loss of seniority rights and other privileges and
awarding backwages from the time of his dismissal until actually reinstated. Considering
that petitioner has to secure the services of counsel to protect his interest and necessarily
has to incur expenses, we likewise affirm the award of attorneys fees which is equivalent to
10% of the total backwages that respondents must pay petitioner in accordance with this
Decision.

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WHEREFORE, the petition is hereby GRANTED. The assailed June 28, 2005 Decision of the
Court of Appeals insofar as it affirmed the National Labor Relations Commissions dismissal
of petitioners complaint for lack of jurisdiction, is hereby REVERSED and SET ASIDE. The
June 5, 2003 Decision of the Labor Arbiter with respect to petitioner Renato Real is
AFFIRMED and this case is ordered REMANDED to the National Labor Relations
Commission for the computation of petitioners backwages and attorneys fees in
accordance with this Decision.

SO ORDERED.

Page 215 of 250

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 201298 February 5, 2014

RAUL C. COSARE, Petitioner,

vs.
BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.

DECISION

REYES, J.:

Before the Court is a petition for review on certiorari 1 under Rule 45 of the Rules of Court,
which assails the Decision2 dated November 24, 2011 and Resolution3 dated March 26,
2012 of the Court of Appeals (CA) in CA-G.R. SP. No. 117356, wherein the CA ruled that the
Regional Trial Court (RTC), and not the Labor Arbiter (LA), had the jurisdiction over
petitioner Raul C. Cosare's (Cosare) complaint for illegal dismissal against Broadcom Asia,
Inc. (Broadcom) and Dante Arevalo (Arevalo), the President of Broadcom (respondents).

The Antecedents

The case stems from a complaint4 for constructive dismissal, illegal suspension and
monetary claims filed with the National Capital Region Arbitration Branch of the National
Labor Relations Commission (NLRC) by Cosare against the respondents.

Cosare claimed that sometime in April 1993, he was employed as a salesman by Arevalo,
who was then in the business of selling broadcast equipment needed by television networks
and production houses. In December 2000, Arevalo set up the company Broadcom, still to
continue the business of trading communication and broadcast equipment. Cosare was
named an incorporator of Broadcom, having been assigned 100 shares of stock with par
value of P1.00 per share.5 In October 2001, Cosare was promoted to the position of
Assistant Vice President for Sales (AVP for Sales) and Head of the Technical Coordination,
having a monthly basic net salary and average commissions of P18,000.00 and P37,000.00,
respectively.6

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcoms Vice President for
Sales and thus, became Cosares immediate superior. On March 23, 2009, Cosare sent a
confidential memo7 to Arevalo to inform him of the following anomalies which were allegedly
being committed by Abiog against the company: (a) he failed to report to work on time, and
would immediately leave the office on the pretext of client visits; (b) he advised the clients of
Broadcom to purchase camera units from its competitors, and received commissions
therefor; (c) he shared in the "under the-table dealings" or "confidential commissions" which
Broadcom extended to its clients personnel and engineers; and (d) he expressed his
complaints and disgust over Broadcoms uncompetitive salaries and wages and delay in the
payment of other benefits, even in the presence of office staff. Cosare ended his memo by
clarifying that he was not interested in Abiogs position, but only wanted Arevalo to know of
the irregularities for the corporations sake.

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Apparently, Arevalo failed to act on Cosares accusations. Cosare claimed that he was
instead called for a meeting by Arevalo on March 25, 2009, wherein he was asked to tender
his resignation in exchange for "financial assistance" in the amount
of P300,000.00.8 Cosare refused to comply with the directive, as signified in a letter 9dated
March 26, 2009 which he sent to Arevalo.

On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcoms Manager
for Finance and Administration, a memo10 signed by Arevalo, charging him of serious
misconduct and willful breach of trust, and providing in part:

1. A confidential memo was received from the VP for Sales informing me that you
had directed, or at the very least tried to persuade, a customer to purchase a
camera from another supplier. Clearly, this action is a gross and willful violation of
the trust and confidence this company has given to you being its AVP for Sales and
is an attempt to deprive the company of income from which you, along with the
other employees of this company, derive your salaries and other benefits. x x x.

2. A company vehicle assigned to you with plate no. UNV 402 was found abandoned
in another place outside of the office without proper turnover from you to this office
which had assigned said vehicle to you. The vehicle was found to be inoperable and
in very bad condition, which required that the vehicle be towed to a nearby auto
repair shop for extensive repairs.

3. You have repeatedly failed to submit regular sales reports informing the company
of your activities within and outside of company premises despite repeated
reminders. However, it has been observed that you have been both frequently absent
and/or tardy without proper information to this office or your direct supervisor, the
VP for Sales Mr. Alex Abiog, of your whereabouts.

4. You have been remiss in the performance of your duties as a Sales officer as
evidenced by the fact that you have not recorded any sales for the past immediate
twelve (12) months. This was inspite of the fact that my office decided to relieve you
of your duties as technical coordinator between Engineering and Sales since June
last year so that you could focus and concentrate [on] your activities in sales. 11

Cosare was given forty-eight (48) hours from the date of the memo within which to present
his explanation on the charges. He was also "suspended from having access to any and all
company files/records and use of company assets effective immediately."12 Thus, Cosare
claimed that he was precluded from reporting for work on March 31, 2009, and was instead
instructed to wait at the offices receiving section. Upon the specific instructions of Arevalo,
he was also prevented by Villareal from retrieving even his personal belongings from the
office.

On April 1, 2009, Cosare was totally barred from entering the company premises, and was
told to merely wait outside the office building for further instructions. When no such
instructions were given by 8:00 p.m., Cosare was impelled to seek the assistance of the
officials of Barangay San Antonio, Pasig City, and had the incident reported in the barangay
blotter.13

On April 2, 2009, Cosare attempted to furnish the company with a Memo 14 by which he
addressed and denied the accusations cited in Arevalos memo dated March 30, 2009. The

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respondents refused to receive the memo on the ground of late filing, prompting Cosare to
serve a copy thereof by registered mail. The following day, April 3, 2009, Cosare filed the
subject labor complaint, claiming that he was constructively dismissed from employment by
the respondents. He further argued that he was illegally suspended, as he placed no serious
and imminent threat to the life or property of his employer and co-employees.15

In refuting Cosares complaint, the respondents argued that Cosare was neither illegally
suspended nor dismissed from employment. They also contended that Cosare committed
the following acts inimical to the interests of Broadcom: (a) he failed to sell any broadcast
equipment since the year 2007; (b) he attempted to sell a Panasonic HMC 150 Camera
which was to be sourced from a competitor; and (c) he made an unauthorized request in
Broadcoms name for its principal, Panasonic USA, to issue an invitation for Cosares
friend, one Alex Paredes, to attend the National Association of Broadcasters Conference in
Las Vegas, USA.16 Furthermore, they contended that Cosare abandoned his job 17 by
continually failing to report for work beginning April 1, 2009, prompting them to issue on
April 14, 2009 a memorandum18 accusing Cosare of absence without leave beginning April
1, 2009.

The Ruling of the LA

On January 6, 2010, LA Napoleon M. Menese (LA Menese) rendered his

Decision19 dismissing the complaint on the ground of Cosares failure to establish that he
was dismissed, constructively or otherwise, from his employment. For the LA, what
transpired on March 30, 2009 was merely the respondents issuance to Cosare of a show-
cause memo, giving him a chance to present his side on the charges against him. He
explained:

It is obvious that [Cosare] DID NOT wait for respondents action regarding the charges
leveled against him in the show-cause memo. What he did was to pre-empt that action by
filing this complaint just a day after he submitted his written explanation. Moreover, by
specifically seeking payment of "Separation Pay" instead of reinstatement, [Cosares] motive
for filing this case becomes more evident.20

It was also held that Cosare failed to substantiate by documentary evidence his allegations
of illegal suspension and non-payment of allowances and commissions.

Unyielding, Cosare appealed the LA decision to the NLRC.

The Ruling of the NLRC

On August 24, 2010, the NLRC rendered its Decision 21 reversing the Decision of LA Menese.
The dispositive portion of the NLRC Decision reads:

WHEREFORE, premises considered, the DECISION is REVERSED and the Respondents are
found guilty of Illegal Constructive Dismissal. Respondents BROADCOM ASIA, INC. and
Dante Arevalo are ordered to pay [Cosares] backwages, and separation pay, as well as
damages, in the total amount of P1,915,458.33, per attached Computation.

SO ORDERED.22

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In ruling in favor of Cosare, the NLRC explained that "due weight and credence is accorded
to [Cosares] contention that he was constructively dismissed by Respondent Arevalo when
he was asked to resign from his employment." 23 The fact that Cosare was suspended from
using the assets of Broadcom was also inconsistent with the respondents claim that Cosare
opted to abandon his employment.

Exemplary damages in the amount of P100,000.00 was awarded, given the NLRCs finding
that the termination of Cosares employment was effected by the respondents in bad faith
and in a wanton, oppressive and malevolent manner. The claim for unpaid commissions
was denied on the ground of the failure to include it in the prayer of pleadings filed with the
LA and in the appeal.

The respondents motion for reconsideration was denied. 24 Dissatisfied, they filed a petition
for certiorari with the CA founded on the following arguments: (1) the respondents did not
have to prove just cause for terminating the employment of Cosare because the latters
complaint was based on an alleged constructive dismissal; (2) Cosare resigned and was
thus not dismissed from employment; (3) the respondents should not be declared liable for
the payment of Cosares monetary claims; and (4) Arevalo should not be held solidarily
liable for the judgment award.

In a manifestation filed by the respondents during the pendency of the CA appeal, they
raised a new argument, i.e., the case involved an intra-corporate controversy which was
within the jurisdiction of the RTC, instead of the LA. 25 They argued that the case involved a
complaint against a corporation filed by a stockholder, who, at the same time, was a
corporate officer.

The Ruling of the CA

On November 24, 2011, the CA rendered the assailed Decision 26 granting the respondents
petition. It agreed with the respondents contention that the case involved an intra-
corporate controversy which, pursuant to Presidential Decree No. 902-A, as amended, was
within the exclusive jurisdiction of the RTC. It reasoned:

Record shows that [Cosare] was indeed a stockholder of [Broadcom], and that he was listed
as one of its directors. Moreover, he held the position of [AVP] for Sales which is listed as a
corporate office. Generally, the president, vice-president, secretary or treasurer are
commonly regarded as the principal or executive officers of a corporation, and modern
corporation statutes usually designate them as the officers of the corporation. However, it
bears mentioning that under Section 25 of the Corporation Code, the Board of Directors of
[Broadcom] is allowed to appoint such other officers as it may deem necessary. Indeed,
[Broadcoms] By-Laws provides:

Article IV
Officer

Section 1. Election / Appointment Immediately after their election, the Board of Directors
shall formally organize by electing the President, the Vice-President, the Treasurer, and the
Secretary at said meeting.

The Board, may, from time to time, appoint such other officers as it may determine to be
necessary or proper. x x x

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We hold that [the respondents] were able to present substantial evidence that [Cosare]
indeed held a corporate office, as evidenced by the General Information Sheet which was
submitted to the Securities and Exchange Commission (SEC) on October 22,
2009.27 (Citations omitted and emphasis supplied)

Thus, the CA reversed the NLRC decision and resolution, and then entered a new one
dismissing the labor complaint on the ground of lack of jurisdiction, finding it unnecessary
to resolve the main issues that were raised in the petition. Cosare filed a motion for
reconsideration, but this was denied by the CA via the Resolution28 dated March 26, 2012.
Hence, this petition.

The Present Petition

The pivotal issues for the petitions full resolution are as follows: (1) whether or not the case
instituted by Cosare was an intra-corporate dispute that was within the original jurisdiction
of the RTC, and not of the LAs; and (2) whether or not Cosare was constructively and
illegally dismissed from employment by the respondents.

The Courts Ruling

The petition is impressed with merit.

Jurisdiction over the controversy

As regards the issue of jurisdiction, the Court has determined that contrary to the ruling of
the CA, it is the LA, and not the regular courts, which has the original jurisdiction over the
subject controversy. An intra-corporate controversy, which falls within the jurisdiction of
regular courts, has been regarded in its broad sense to pertain to disputes that involve any
of the following relationships: (1) between the corporation, partnership or association and
the public; (2) between the corporation, partnership or association and the state in so far as
its franchise, permit or license to operate is concerned; (3) between the corporation,
partnership or association and its stockholders, partners, members or officers; and (4)
among the stockholders, partners or associates, themselves. 29 Settled jurisprudence,
however, qualifies that when the dispute involves a charge of illegal dismissal, the action
may fall under the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls
termination disputes and claims for damages arising from employer-employee relations as
provided in Article 217 of the Labor Code. Consistent with this jurisprudence, the mere fact
that Cosare was a stockholder and an officer of Broadcom at the time the subject
controversy developed failed to necessarily make the case an intra-corporate dispute.

In Matling Industrial and Commercial Corporation v. Coros, 30 the Court distinguished

between a "regular employee" and a "corporate officer" for purposes of establishing the true
nature of a dispute or complaint for illegal dismissal and determining which body has
jurisdiction over it. Succinctly, it was explained that "[t]he determination of whether the
dismissed officer was a regular employee or corporate officer unravels the conundrum" of
whether a complaint for illegal dismissal is cognizable by the LA or by the RTC. "In case of
the regular employee, the LA has jurisdiction; otherwise, the RTC exercises the legal
authority to adjudicate.31

Applying the foregoing to the present case, the LA had the original jurisdiction over the
complaint for illegal dismissal because Cosare, although an officer of Broadcom for being its

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AVP for Sales, was not a "corporate officer" as the term is defined by law. We emphasized in
Real v. Sangu Philippines, Inc.32 the definition of corporate officers for the purpose of
identifying an intra-corporate controversy. Citing Garcia v. Eastern Telecommunications
Philippines, Inc.,33 we held:

" Corporate officers in the context of Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the Corporation Code or by the corporations
by-laws. There are three specific officers whom a corporation must have under Section 25 of
the Corporation Code. These are the president, secretary and the treasurer. The number of
officers is not limited to these three. A corporation may have such other officers as may be
provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or
general manager. The number of corporate officers is thus limited by law and by the
corporations by-laws."34 (Emphasis ours)

In Tabang v. NLRC,35 the Court also made the following pronouncement on the nature of
corporate offices:

It has been held that an "office" is created by the charter of the corporation and the officer
is elected by the directors and stockholders. On the other hand, an "employee" usually
occupies no office and generally is employed not by action of the directors or stockholders
but by the managing officer of the corporation who also determines the compensation to be
paid to such employee.36 (Citations omitted)

As may be deduced from the foregoing, there are two circumstances which must concur in
order for an individual to be considered a corporate officer, as against an ordinary employee
or officer, namely: (1) the creation of the position is under the corporations charter or by-
laws; and (2) the election of the officer is by the directors or stockholders. It is only when
the officer claiming to have been illegally dismissed is classified as such corporate officer
that the issue is deemed an intra-corporate dispute which falls within the jurisdiction of the
trial courts.

To support their argument that Cosare was a corporate officer, the respondents referred to
Section 1, Article IV of Broadcoms by-laws, which reads:

ARTICLE IV
OFFICER

Section 1. Election / Appointment Immediately after their election, the Board of Directors
shall formally organize by electing the President, the Vice-President, the Treasurer, and the
Secretary at said meeting.

The Board may, from time to time, appoint such other officers as it may determine to be
necessary or proper. Any two (2) or more compatible positions may be held concurrently by
the same person, except that no one shall act as President and Treasurer or Secretary at
the same time.37 (Emphasis ours)

This was also the CAs main basis in ruling that the matter was an intra-corporate dispute
that was within the trial courts jurisdiction.

The Court disagrees with the respondents and the CA. As may be gleaned from the
aforequoted provision, the only officers who are specifically listed, and thus with offices that

Page 221 of 250

are created under Broadcoms by-laws are the following: the President, Vice-President,
Treasurer and Secretary. Although a blanket authority provides for the Boards
appointment of such other officers as it may deem necessary and proper, the respondents
failed to sufficiently establish that the position of AVP for Sales was created by virtue of an
act of Broadcoms board, and that Cosare was specifically elected or appointed to such
position by the directors. No board resolutions to establish such facts form part of the case
records. Further, it was held in Marc II Marketing, Inc. v. Joson 38 that an enabling clause in
a corporations by-laws empowering its board of directors to create additional officers, even
with the subsequent passage of a board resolution to that effect, cannot make such position
a corporate office. The board of directors has no power to create other corporate offices
without first amending the corporate by-laws so as to include therein the newly created
corporate office.39 "To allow the creation of a corporate officer position by a simple inclusion
in the corporate by-laws of an enabling clause empowering the board of directors to do so
can result in the circumvention of that constitutionally well-protected right [of every
employee to security of tenure]."40

The CAs heavy reliance on the contents of the General Information Sheets 41, which were
submitted by the respondents during the appeal proceedings and which plainly provided
that Cosare was an "officer" of Broadcom, was clearly misplaced. The said documents could
neither govern nor establish the nature of the office held by Cosare and his appointment
thereto. Furthermore, although Cosare could indeed be classified as an officer as provided
in the General Information Sheets, his position could only be deemed a regular office, and
not a corporate office as it is defined under the Corporation Code. Incidentally, the Court
noticed that although the Corporate Secretary of Broadcom, Atty. Efren L. Cordero, declared
under oath the truth of the matters set forth in the General Information Sheets, the
respondents failed to explain why the General Information Sheet officially filed with the
Securities and Exchange Commission in 2011 and submitted to the CA by the respondents
still indicated Cosare as an AVP for Sales, when among their defenses in the charge of
illegal dismissal, they asserted that Cosare had severed his relationship with the
corporation since the year 2009.

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the cases
filing did not necessarily make the action an intra- corporate controversy. "Not all conflicts
between the stockholders and the corporation are classified as intra-corporate. There are
other facts to consider in determining whether the dispute involves corporate matters as to
consider them as intra-corporate controversies."42 Time and again, the Court has ruled that
in determining the existence of an intra-corporate dispute, the status or relationship of the
parties and the nature of the question that is the subject of the controversy must be taken
into account.43 Considering that the pending dispute particularly relates to Cosares rights
and obligations as a regular officer of Broadcom, instead of as a stockholder of the
corporation, the controversy cannot be deemed intra-corporate. This is consistent with the
"controversy test" explained by the Court in Reyes v. Hon. RTC, Br. 142,44 to wit:

Under the nature of the controversy test, the incidents of that relationship must also be
considered for the purpose of ascertaining whether the controversy itself is intra-corporate.
The controversy must not only be rooted in the existence of an intra-corporate relationship,
but must as well pertain to the enforcement of the parties correlative rights and obligations
under the Corporation Code and the internal and intra-corporate regulatory rules of the
corporation. If the relationship and its incidents are merely incidental to the controversy or
if there will still be conflict even if the relationship does not exist, then no intra-corporate
controversy exists.45 (Citation omitted)

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It bears mentioning that even the CAs finding 46 that Cosare was a director of Broadcom
when the dispute commenced was unsupported by the case records, as even the General
Information Sheet of 2009 referred to in the CA decision to support such finding failed to
provide such detail.

All told, it is then evident that the CA erred in reversing the NLRCs ruling that favored
Cosare solely on the ground that the dispute was an intra-corporate controversy within the
jurisdiction of the regular courts.

The charge of constructive dismissal

Towards a full resolution of the instant case, the Court finds it appropriate to rule on the
correctness of the NLRCs ruling finding Cosare to have been illegally dismissed from
employment.

In filing his labor complaint, Cosare maintained that he was constructively dismissed, citing
among other circumstances the charges that were hurled and the suspension that was
imposed against him via Arevalos memo dated March 30, 2009. Even prior to such charge,
he claimed to have been subjected to mental torture, having been locked out of his files and
records and disallowed use of his office computer and access to personal
belongings.47 While Cosare attempted to furnish the respondents with his reply to the
charges, the latter refused to accept the same on the ground that it was filed beyond the
48-hour period which they provided in the memo.

Cosare further referred to the circumstances that allegedly transpired subsequent to the
service of the memo, particularly the continued refusal of the respondents to allow Cosares
entry into the companys premises. These incidents were cited in the CA decision as follows:

On March 31, 2009, [Cosare] reported back to work again. He asked Villareal if he could
retrieve his personal belongings, but the latter said that x x x Arevalo directed her to deny
his request, so [Cosare] again waited at the receiving section of the office. On April 1, 2009,
[Cosare] was not allowed to enter the office premises. He was asked to just wait outside of
the Tektite (PSE) Towers, where [Broadcom] had its offices, for further instructions on how
and when he could get his personal belongings. [Cosare] waited until 8 p.m. for instructions
but none were given. Thus, [Cosare] sought the assistance of the officials of Barangay San
Antonio, Pasig who advised him to file a labor or replevin case to recover his personal
belongings. x x x.48 (Citation omitted)

It is also worth mentioning that a few days before the issuance of the memo dated March
30, 2009, Cosare was allegedly summoned to Arevalos office and was asked to tender his
immediate resignation from the company, in exchange for a financial assistance
of P300,000.00.49 The directive was said to be founded on Arevalos choice to retain Abiogs
employment with the company. 50 The respondents failed to refute these claims.

Given the circumstances, the Court agrees with Cosares claim of constructive and illegal
dismissal. "[C]onstructive dismissal occurs when there is cessation of work because
continued employment is rendered impossible, unreasonable, or unlikely as when there is a
demotion in rank or diminution in pay or when a clear discrimination, insensibility, or
disdain by an employer becomes unbearable to the employee leaving the latter with no
other option but to quit."51 In Dimagan v. Dacworks United, Incorporated, 52 it was
explained:

Page 223 of 250

The test of constructive dismissal is whether a reasonable person in the employees position
would have felt compelled to give up his position under the circumstances. It is an act
amounting to dismissal but is made to appear as if it were not. Constructive dismissal is
therefore a dismissal in disguise. The law recognizes and resolves this situation in favor of
employees in order to protect their rights and interests from the coercive acts of the
employer.53 (Citation omitted)

It is clear from the cited circumstances that the respondents already rejected Cosares
continued involvement with the company. Even their refusal to accept the explanation
which Cosare tried to tender on April 2, 2009 further evidenced the resolve to deny Cosare
of the opportunity to be heard prior to any decision on the termination of his employment.
The respondents allegedly refused acceptance of the explanation as it was filed beyond the
mere 48-hour period which they granted to Cosare under the memo dated March 30, 2009.
However, even this limitation was a flaw in the memo or notice to explain which only further
signified the respondents discrimination, disdain and insensibility towards Cosare,
apparently resorted to by the respondents in order to deny their employee of the
opportunity to fully explain his defenses and ultimately, retain his employment. The Court
emphasized in King of Kings Transport, Inc. v. Mamac 54 the standards to be observed by
employers in complying with the service of notices prior to termination:

[T]he first written notice to be served on the employees should contain the specific causes or
grounds for termination against them, and a directive that the employees are given the
opportunity to submit their written explanation within a reasonable period. "Reasonable
opportunity" under the Omnibus Rules means every kind of assistance that management
must accord to the employees to enable them to prepare adequately for their defense. This
should be construed as a period of at least five (5) calendar days from receipt of the notice
to give the employees an opportunity to study the accusation against them, consult a union
official or lawyer, gather data and evidence, and decide on the defenses they will raise
against the complaint. Moreover, in order to enable the employees to intelligently prepare
their explanation and defenses, the notice should contain a detailed narration of the facts
and circumstances that will serve as basis for the charge against the employees. A general
description of the charge will not suffice. Lastly, the notice should specifically mention
which company rules, if any, are violated and/or which among the grounds under Art. 282
is being charged against the employees.55 (Citation omitted, underscoring ours, and
emphasis supplied)

In sum, the respondents were already resolute on a severance of their working relationship
with Cosare, notwithstanding the facts which could have been established by his
explanations and the respondents full investigation on the matter. In addition to this, the
fact that no further investigation and final disposition appeared to have been made by the
respondents on Cosares case only negated the claim that they actually intended to first
look into the matter before making a final determination as to the guilt or innocence of their
employee. This also manifested from the fact that even before Cosare was required to
present his side on the charges of serious misconduct and willful breach of trust, he was
summoned to Arevalos office and was asked to tender his immediate resignation in
exchange for financial assistance.

The clear intent of the respondents to find fault in Cosare was also manifested by their
persistent accusation that Cosare abandoned his post, allegedly signified by his failure to
report to work or file a leave of absence beginning April 1, 2009. This was even the subject
of a memo56 issued by Arevalo to Cosare on April 14, 2009, asking him to explain his

Page 224 of 250

absence within 48 hours from the date of the memo. As the records clearly indicated,
however, Arevalo placed Cosare under suspension beginning March 30, 2009. The
suspension covered access to any and all company files/records and the use of the assets of
the company, with warning that his failure to comply with the memo would be dealt with
drastic management action. The charge of abandonment was inconsistent with this
imposed suspension. "Abandonment is the deliberate and unjustified refusal of an employee
to resume his employment. To constitute abandonment of work, two elements must concur:
(1) the employee must have failed to report for work or must have been absent without
valid or justifiable reason; and (2) there must have been a clear intention on the part of the
employee to sever the employer- employee relationship manifested by some overt
act."57 Cosares failure to report to work beginning April 1, 2009 was neither voluntary nor
indicative of an intention to sever his employment with Broadcom. It was illogical to be
requiring him to report for work, and imputing fault when he failed to do so after he was
specifically denied access to all of the companys assets. As correctly observed by the NLRC:

[T]he Respondent[s] had charged [Cosare] of abandoning his employment beginning on April
1, 2009. However[,] the show-cause letter dated March 3[0], 2009 (Annex "F", ibid)
suspended [Cosare] from using not only the equipment but the "assets" of Respondent
[Broadcom]. This insults rational thinking because the Respondents tried to mislead us and
make [it appear] that [Cosare] failed to report for work when they had in fact had [sic]
placed him on suspension. x x x.58

Following a finding of constructive dismissal, the Court finds no cogent reason to modify
the NLRC's monetary awards in Cosare's favor. In Robinsons Galleria/Robinsons
Supermarket Corporation v. Ranchez,59 the Court reiterated that an illegally or
constructively dismissed employee is entitled to: (1) either reinstatement, if viable, or
separation pay, if reinstatement is no longer viable; and (2) backwages.60 The award of
exemplary damages was also justified given the NLRC's finding that the respondents acted
in bad faith and in a wanton, oppressive and malevolent manner when they dismissed
Cosare. It is also by reason of such bad faith that Arevalo was correctly declared solidarily
liable for the monetary awards.

WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011 and
Resolution dated March 26, 2012 of the Court of Appeals in CA-G.R. SP. No. 117356 are
SET ASIDE. The Decision dated August 24, 2010 of the National Labor Relations
Commission in favor of petitioner Raul C. Cosare is AFFIRMED.

SO ORDERED.

Page 225 of 250

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 197011 January 28, 2015

ESSENCIA Q. MANARPIIS, Petitioner,

vs.
TEXAN PHILIPPINES, INC., RICHARD TAN and CATHERINE P. RIALUBIN-
TAN, Respondents.

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 assailing the Decision 1 dated
March 24, 2010, and Resolution 2 dated May 19, 2011 of the Court of Appeals (CA) in CA-
G.R. SP No. 106661. The CA reversed and set aside the Decision 3 dated January 25, 2008
and Resolution4 dated September 22, 2008 of the First Division of the National Labor
Relations Commission (NLRC) in NLRC CA No. 029806-01, which affirmed the
Decision5 dated June 28, 2001 of the Labor Arbiter (LA) in NLRC Case No. 00-08-04110-
2000.

Texan Philippines, Inc. (TPI), which is owned and managed by Catherine Rialubin-Tan and
her Singaporean husband Richard Tan (respondents), is a domestic corporation engaged in
the importation, distribution and marketing of imported fragrances and aroma and other
specialized products and services. In July 1999, respondents hired Essencia Q. Manarpiis
(petitioner) as Sales and Marketing Manager of the company's Aroma Division with a
monthly salary of P33,800.00.6

Claiming insurmountable losses, respondents served a written notice (July 27, 2000)
addressed to all their employees that TPI will cease operations by August 31, 2000.7

On August 7, 2000, petitioner filed a complaint for illegal dismissal, non-payment of

overtime pay, holiday pay, service incentive leave pay, unexpired vacation leave and 13th
month pay and with prayer for moral and actual damages. Subsequently, petitioner
amended her complaint to state the true date of her dismissal which is July 27, 2000 and
not August 31, 2000. She averred that on the same day she was served with notice of
company closure, respondents barred her from reporting for work and paid her last salary
up to the end of July 2000. 8

On September 18, 2000, petitioner received the following Memorandum9:

September 15, 2000

MEMO TO : MS. ESSENCIA MANARPIIS

Sales and Marketing Manager
Aroma Division

Page 226 of 250

SUBJECT : Notice Of Investigation And Grounding

Dear Ms. Manarpiis,

You are hereby notified that an investigation will be conducted on 20 September 2000 at
2:00 p.m. in our office regarding your alleged violation of company rules and regulations,
specifically: I (par. B) - - Fraudulent Expense/Disbursement expenses

I (par. G) - - Collusion/Connivance with Intent to Defraud

II (Section 6) - - Sabotage

II (Section 12) - - Loss of Confidence

III (Section 2) - - Libel/Slander

III (Section 8 par. e) - - Other acts of Insubordination

V (par. C & D) - - AWOL/Abandonment

V (par. I) - - Committing other acts of gross inefficiency or incompetence said

acts constitutive of gross misconduct, gross insubordination and dishonesty.
You may bring your witnesses and counsel if you so desire. In the meantime,
you will not be allowed to perform your usual functions, but will instead
report to the undersigned.

Additionally, you are directed to submit to the undersigned your explanation in writing,
within (72) hours from receipt hereof (but in no case later than 20 September 2000), why no
appropriate disciplinary action and/or penalties may be imposed against you relative to the
foregoing.

Failure to submit said written explanation within the prescribed period and/or attend the
investigation hearing on 20 September 2000 shall constitute an implied admission of the
charges and waiver on your part to due process.

For your information and compliance.

(SGD.) RICHARD TAN

(President)

Petitioner alleged that assales and marketing manager, she received the agreed commission
based on actual sales collection on the first quarter of 2000 and was expecting to also
receive such commission on the 2nd , 3rd and 4th quarters. However, on July 27, 2000,
after receiving a text message from respondent Richard Tan, she proceeded to her office and
learned that her table drawers were forcibly opened and her files confiscated. She protested
the company closure asserting that the alleged business losses were belied by TPIs
financial documents. But despite her pleas, she was asked to pack up her things and by the
end of the month her salary was discontinued. She then received the memorandum
regarding the company closure and was required to turn over the company car, pager and
cellphone. She was told not to report for work anymore.10

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After receiving the September 15,2000 memorandum, petitioners counsel sent a reply
stating that there was no point in the investigation because respondents already dismissed
petitioner purportedly on the ground of cessation of business due to insurmountable losses,
and also it was impossible for petitioner to respond tothe charges which are devoid of
particulars as to the alleged irregularities she committed. It was pointed out that
respondents should have investigated the supposed violations of company rules and
fraudulent acts earlier and not when petitioner had filed an illegal dismissal complaint. 11

Subsequently, petitioner received the following memorandum 12:

September 25, 2000

TO : MS. ESSENCIA MANARPIIS

Sales and Marketing Manager
Aroma Division

SUBJECT : NOTICE OF TERMINATION

Ms. Manarpiis,

This is to inform you that your employment with the Company is terminated effective today,
September 25, 2000, due to Dishonesty, Loss of Confidence, and Abandonment of Work.

An internal audit of the Company shows that several obligations of the Company were paid
twice to the same supplier. Considering the level of your position, the inescapable
conclusion is that you have colluded with the Company supplier to defraud the Company of
its finances. Moreover, you have fraudulently caused to be reimbursed representation
expenses and other expense statements purporting to be that of your sales representatives
while in truth and in fact they were yours, and you received the corresponding payments
therefor.

Also, your attendance record showed that you have been absent without official leave
(AWOL)since August 3, 2000 up to date.

A notice of AWOL dated September 14, 2000 has been sent to you but you refused to accept
the same, much less, refused to act on it.

For your information and guidance

(SGD.) RICHARD TAN

President

Believing that her dismissal was without just cause, petitioner prayed for reinstatement if
still viable, and if not, award of separation pay with back wages from August 1, 2000, and
payment of her monetary claims for sales commissions, pro-rated 13th month pay, five days
service incentive leave pay and sick leaves, as well as moral and exemplary damages plus
attorneys fees.13

Respondents denied the charge of illegal dismissal and explained that TPIs closure was
averted by a new financing package obtained by respondent Richard Tan. They asserted
that the requisite notices of business closure to government authorities and to their

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employees were complied with, and notwithstanding that TPI has in fact continued its
operations, petitioner was found to have committed infractions resulting in loss of
confidence which was the ground for the termination of her employment. They likewise
averred that respondent Rialubin-Tan gave specific instructions to petitioner for her to
continue reporting for work even after August 31, 2000 but she instead went AWOL and
subsequently abandoned her job, to the utmost prejudice of the company. 14

On June 28, 2001, LA Melquiades Sol D. Del Rosario rendered a Decision declaring the
dismissal of petitioner as illegal:

CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered finding

complainants dismissal to be illegal. Consequently, she should be paid in solidum by
respondents the following:

a) P304,200.00 as backwages as of May 31, 2001[;]

b) P101,400.00 as separation pay for 3 years[;]

c) 1% of the gross sales of complainant and .75% on other sales as determined by

the parties as complainants commissions;

d) 10% for and as attorneys fees of the money awards.

SO ORDERED.15

Respondents appealed to the NLRC which affirmed the LAs decision. Their motion for
reconsideration was also denied.

In a petition for certiorari filed with the CA, respondents argued that the subsequent
termination of petitioner on the grounds of dishonesty, loss of confidence and
abandonment, after TPI was able to regain financial viability, was made in view of the fact
that commission of the said offenses surfaced only during the audit investigation conducted
after notice of cessation of business operation was sent to the employees. Despite advice for
her to continue reporting for work after August 31, 2000, the effectivity date of the intended
closure, petitioner just stopped doing so and instead filed the complaint for illegal dismissal
and likewise failed to turn over all company documents and records in her possession. They
also discovered that petitioner put up her own company "Vita VSI Scents," enticing clients
to buy the same products they used to purchase from TPI.

By Decision dated March 24, 2010, the CA reversed the NLRC and ruled that petitioner was
validly dismissed:

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated January 25,
2008 and the Resolution dated September 22, 2008 of the National Labor Relations
Commission are hereby REVERSED and SET ASIDE. Resultantly, Essencia Manarpiis
complaint for illegal dismissal against Texan Philippines, Inc., Richard Tan and Catherine
Realubin-Tan is hereby DISMISSEDfor lack of merit. No costs.

SO ORDERED.16

Petitioner filed a motion for reconsideration but it was denied by the CA.

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Hence, this petition arguing that the CA committed patent reversible errors when it: (1)
granted the unverified/unsworn certification of non-forum shopping accompanying
respondents petition for certiorari; (2) granted respondents petition for certiorari without
finding any grave abuse of discretion on the part of NLRC; (3) disturbed the consistent
factual findings of the LA and NLRC which were duly supported by substantial evidence
and devoid of any unfairness and arbitrariness; and (4) substituted its own findings of facts
to those of the LA and NLRC, the CAs findings being unsupported by substantial
evidence.17

The petition is meritorious.

We first address petitioners contention on the alleged formal infirmity of the petition for
certiorari filed before the CA. Petitioner argued that the same was defective as the jurat
therein was based on the mere community tax certificate of respondent Rialubin-Tan,
instead of a government-issued identification card required under the 2004 Rules on
Notarial Practice. Such ground was never raised by herein petitioner in her comment on the
CA petition, thus, it cannot be validly raised by the petitioner at this stage. 18

Furthermore, we have consistently held that verification of a pleading is a formal, not a

jurisdictional, requirement intended to secure the assurance that the matters alleged in a
pleading are true and correct. Thus, the court may simply order the correction of unverified
pleadings or act on them and waive strict compliance withthe rules. It 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 beenmade in good faith or are true and correct. 19

Under the Rules of Court and settled doctrine, a petition for review on certiorari under Rule
45 of the Rules of Court is limited to questions of law. As a rule, the findings of fact of the
CA are final and conclusive, and this Court will not review them on appeal.20

However, there are instances in which factual issues may be resolved by this Court, to wit:
(1) the conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2)
the inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6)
the CA goes beyond the issues of the case and its findings are contrary to the admissions of
both appellant and appellee;(7) the findings of fact of the CA are contrary to those of the
trial court; (8) said findings of facts are conclusions without citation of specific evidence on
which they are based; (9) the facts set forth in the petition aswell as in the petitioners main
and reply briefs are not disputed by the respondent; and (10) the findings of fact of the CA
are premised on the supposed absence of evidence and contradicted by the evidence on
record.21

Considering that the findings of facts and the conclusions of the CA are contrary to those of
the LA and the NLRC, we find it necessary to evaluate such findings.

On the issue of illegal dismissal, both the LA and NLRC found no just or authorized cause
for the termination of petitioners employment.

LA Del Rosario observed that respondents flip-flopped on the issue of petitioners

termination as when they claimed she was dismissed due to insurmountable losses so that
TPIs personnel were notified of the company closure effective August 31, 2000, and at the

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same time they accused petitioner of fraudulent acts and abandonment of work resulting in
loss of trust and confidence which caused her dismissal. He also found there was no
compliance with the legal requisites of the said grounds for dismissal under Article 283
(business closure) suchas the lack of termination report sent to the Department of Labor
and Employment (DOLE), financial documents which are audited and signed by an
independent auditor, and the two-notice requirement sent to the last known address of the
employee alleged to have abandoned work under Book V, RuleXIV, Section 2 of the
Omnibus Rules Implementing the Labor Code. It was noted that while TPIs financial
documents have BIR stampmark, they were not shown to have been prepared by an
independent auditor.

The NLRC upheld the LAs ruling that petitioners dismissal was not valid, viz:

As between the above, conflicting allegations, We find the version of the complainant more
credible. Record of the instant case would provide that other than respondents bare
allegations that complainant was instructed to continue working even beyond 31 August
2000, no evidence was presented to substantiate the same. If respondents could easily
issue a notice of business closure to all its employees, and at the same time, immediately
require the complainant to surrender all company properties assigned to her, We could not
understand why they could not easily issue another letter, this time, intended only for the
complainant informing her that her employment was still necessary.

Relative to the companys closure due to business losses, prevailing jurisprudence would
dictate that the same should be substantiated by competent evidence. Financial statements
audited by independent external auditors constitute the normal method of proof of the
profit and loss performance of the company. To exempt an employer [from] the payment of
separation pay, he or she must establish by sufficient and convincing evidence that the
losses were serious, substantial and actual x x x.

In the instant case, respondents may have presented before the Labor Arbiter its Statement
of Income for the year 1999. While its preparation may be in compliance with the
requirements of the Bureau of Internal Revenue for taxation purposes, based on the
jurisprudence provided above, the same would not suffice for purposes of respondents
defense in the instant case. In their appeal, respondents alleged that on the basis of the
audited Statement of Income and Retained Earnings For the Year Ending 31 December
2000, the company incurred a net loss of almost half a million pesos. Assuming the same to
be true since we cannot find a copy of said statement attached to [the] record, it would
appear that the company had attained a better position in year 2000 as compared to year
1999 when they incurred a net loss of more than Two Million Pesos. Furthermore, said
evidence is already immaterial considering that the companys intended closure did not
actually take effect.

Upon a finding that complainant was not instructed to continue working even beyond 31
August 2000 butwas told not to report to work upon receipt of the notice of companys
closure, it certainly follows that respondents would no longer inform complainant of the
companys continued operation after respondent Tan had allegedly succeeded in searching
for funds. In fact, We are not even persuaded that the companys closure was prevented by
the new funds sought by respondent Tan when in the first place, there was no intended
closure at all but only a decision to dismiss complainant in a manner that would enable
respondents evade liabilities under the Labor Code.

Page 231 of 250

With regard to the alleged violation of company rules and regulations, We agree with the
finding that respondent[s] acts of issuing the two notices setting the case [for] investigation
were mere afterthoughts. As highlighted in the assailed Decision, the first notice was issued
after respondents had already received the summons in the instant case. More importantly,
the above discussion would provide that prior to issuance of said first notice, complainant
was already illegally dismissed. Furthermore, assuming for the sake of argument that
complainant was not yet terminated, a reading of the said first notice would show that it
does not conform with the requirements of due process. The same had failed to discuss the
circumstances under which each of the charges therein was committed by the complainant.
As can be noted from the letter dated 19 September 2000 sent by complainants counsel to
respondent Tan, it was impossible for his client to submit a written explanation thereto
since the notice to explain is devoid of particulars regarding the alleged irregularities.

As a consequence of complainant[s] double termination, initially through the purported

cessation of business operations, and thereafter, by imputing offenses violative of company
rules and regulations, we agree with the finding [that] she was illegally dismissed, and as
such, entitled to backwages. She would have been entitled to reinstatement but we believe
that the charges lodged by the respondents against the complainant had rendered
reinstatement non-viable. Thus, she should be granted separation pay instead. 22 (Citations
omitted)

The CA, however, considered the evidence of respondents sufficient to prove the alleged
business losses and their good faith in resorting to closure of the company. It cited the
1999 Annual Income Tax Return showing a net loss of P2,290,580.48 and financial
statement indicating a net loss of P2,301,228.61 for the year ended December 31, 1999;
respondents claim that it was forced to sell six company cars; and the DOLE termination
report.

On the other grounds invoked by respondents to justify petitioners termination, the CA

cited the following infractions: (a) several company obligations towards a supplier which
were paid twice during her term as Marketing and Sales Manager; (b) company funds
procured by petitioner, represented to be "under the table" expenditures for the Bureau of
Customs which she cannot explain when queried; (c) divulging confidential company
matters to the customers; and (d) establishing her own company while still employed with
TPI.

We reverse the CA and reinstate the LAs decision as affirmed by the NLRC.

Closure or cessation of business is the complete or partial cessation of the operations

and/or shut-down of the establishment of the employer. It is carried out to either stave off
the financial ruin or promote the business interest of the employer. Closure ofbusiness as
an authorized cause for termination of employment is governed by Article 283 23 of the Labor
Code, as amended.

If the business closure is due to serious losses or financial reverses, the employer must
present sufficient proof of its actual or imminent losses; it must show proof that the
cessation of or withdrawal from business operations was bona fidein character. 24 A written
notice tothe DOLE thirty days before the intended date of closure is also required, the
purpose of which is to inform the employees of the specific date of termination or closure of
business operations, and which must be served upon each and every employee of the

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company one month before the date of effectivity to give them sufficient time to make the
necessary arrangement.25

The ultimate test of the validity of closure or cessation of establishment or undertaking is

that it must be bona fidein character.1wphi1 And the burden of proving such falls upon
the employer.26 After evaluating the evidence on record, we uphold the factual findings and
conclusions of the labor tribunals that petitioner was dismissed without just or authorized
cause, and that the announced cessation of business operations was a subterfuge for
getting rid of petitioner. While the introduction of additional evidence before the NLRC is not
proscribed, the said tribunal was still not persuaded by the company closure purportedly
averted only by the alleged fresh funding procured by respondent Tan, for the latter claim
remained unsubstantiated. The CAs finding of serious business losses is not borne by the
evidence on record. The financial statements supposedly bearing the stamp mark of BIR
were not signed by an independent auditor. Besides, the non-compliance with the
requirements under Article 283 of the Labor Code, as amended, gains relevance in this case
not for the purpose of proving the illegality of the company closure or cessation of business,
which did not materialize, butas an indication of bad faith on the part of respondents
inhastily terminating petitioners employment. Under the circumstances, the subsequent
investigation and termination of petitioner on grounds of dishonesty, loss of confidence and
abandonment of work, clearlyappears as an afterthought as it was done only after petitioner
had filed an illegal dismissal case and respondents have been summoned for hearing before
the LA.

We have laid down the two elements which must concur for a valid abandonment, viz: (1)
the failure to report to work or absence without valid or justifiable reason, and (2) a clear
intention to sever the employer employee relationship, with the second element as the more
determinative factor being manifested by some overt acts. 27Abandonment as a just ground
for dismissal requires the deliberate, unjustified refusalof the employee to perform his
employment responsibilities. Mere absence or failure to work, even after notice to return, is
not tantamount to abandonment.28

Furthermore, it is well-settled that the filing by an employee of a complaint for illegal

dismissal with a prayer for reinstatement is proof enough of his desire to return to work,
thus, negating the employers charge of abandonment. 29 An employee who takes steps to
protest his dismissal cannot logically be said to have abandoned his work. 30

Abandonment in this case was a trumped up charge, apparently to make it appear that
petitioner was not yet terminated when she filed the illegal dismissal complaint and to give
a semblance of truth to the belated investigation against the petitioner. Petitioner did not
abandon her work but was told not to report for work anymore after being served a written
notice of termination of company closure on July 27, 2000 and turning over company
properties to respondent Rialubin-Tan.

On the issue of loss of confidence, we have held that proof beyond reasonable doubt is not
needed to justify the loss as long as the employer has reasonable ground to believe that the
employee is responsible for the misconduct and his participation therein renders him
unworthy of the trust and confidence demanded of his position. 31 Nonetheless, the right of
an employer to dismiss employees on the ground of loss of trust and confidence, however,
must not be exercised arbitrarily and without just cause. Unsupported by sufficient proof,
loss of confidence is without basis and may not be successfully invoked as a ground for
dismissal. Loss of confidence as a ground for dismissal has never been intended to afford

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an occasion for abuse by the employer of its prerogative, as it can easily be subject to abuse
because of its subjective nature, as in the case at bar, and the loss must be founded on
clearly established facts sufficient to warrant the employees separation from work. 32

Here, loss of confidence was belatedly raised by the respondents who initiated an
investigation on the alleged irregularities committed by petitioner only after the latter had
questioned the legality of her earlier dismissal due to the purported company closure. As
correctly observed by the NLRC, assuming to be true that respondents had not yet actually
dismissed the petitioner, the notice of cessation of operations (memo dated July 27, 2000)
addressed to all employees never mentioned the supposed charges against the petitioner
who was also never issued a separate memorandum to that effect. Moreover, the turn over
of company properties by petitioner on the same date as demanded by respondent Rialubin-
Tan belies the latters claim that she verbally instructed the former to continue reporting for
work in view of the audit of the companys finances. Indeed, considering the gravity of the
accusations of fraud against the petitioner, it is strange that respondents have not at least
issued her a separate memorandum on her accountability for the alleged business losses.

To prove the dishonesty imputed to petitioner, respondents submitted before the NLRC a
letter dated August 4, 2000 from one of TPIs suppliers advising the company of a supposed
double payment made in February and March 2000. However, there is no showing that
such payment was made or ordered by petitioner, and neither was it shown that this
overpayment was reflected in the account books of TPI. Respondents likewise failed to prove
their accusation that petitioner put up a competing business while she was still employed
with TPI, and their bare allegation thatpetitioner divulged confidential company matters to
customers. As to the supposed failure of petitioner to account for funds intended for "under
the table" transactions at the Bureau of Customs, the same was never raised before the
labor tribunals and not a shred of evidence was presented by respondent to prove this
allegation.

Apropos we recall our pronouncement in Lima Land, Inc., et al. v. Cuevas 33:

As a final note, the Court is wont to reiterate that while an employer has its own interest to
protect, and pursuant thereto, it may terminate a managerial employee for a just cause,
such prerogative to dismiss or lay off an employee mustbe exercised without abuse of
discretion. Its implementation should be tempered with compassion and understanding.
The employer should bear in mind that, in the execution of the said prerogative, whatis at
stake is not only the employees position, but his very livelihood, his very breadbasket.
Indeed, the consistent rule is that if doubts exist between the evidence presented by the
employer and the employee, the scales of justice must be tilted in favor of the latter. The
employer must affirmatively show rationally adequate evidence that the dismissal was for
justifiable cause. Thus, when the breach of trust or loss of confidence alleged is not borne
by clearly established facts, as in this case, such dismissal on the cited grounds cannot be
allowed.34 (Emphasis supplied)

The normal consequences of petitioners illegal dismissal are reinstatement without loss of
seniority rights, and payment of back wages computed from the time compensation was
withheld up to the date of actual reinstatement. Where reinstatement is no longer viable as
an option, separation pay equivalent to one month salary for every year of service should be
awarded as an alternative. The payment of separation pay is in addition to payment of back
wages.35 Given the strained relations between the parties, the award of separation pay, in
lieu of reinstatement, is in order.

Page 234 of 250

Finally, on the solidary liabilityof respondents Richard Tan and Catherine Rialubin-Tan for
the monetary awards.1wphi1 It is basic that a corporation being a juridical entity, may act
only through its directors, officers and employees. Obligations incurred by them, acting as
such corporate agents are not theirs butthe direct accountabilities of the corporation they
represent. However,in certain exceptional situations, solidary liability may be incurred by
corporate officers. In labor cases for instance, this Court has held corporate directors and
officers solidarily liable with the corporation for the termination of employment of employees
done with malice or bad faith.36 We sustain the NLRCs conclusion that the schemes
implemented by the respondents to justify petitioners baseless dismissal, and the manner
by which such schemes were effected showed malice and bad faith on their part.
Consequently, its affirmance of the order of the LA that the amounts awarded to petitioner
are "payable in solidum by respondents"is proper. The NLRC likewise correctly upheld the
award of attorneys fees considering that petitioner was assisted by a private counsel to
prosecute her illegal dismissal complaint and enforce her rights under our labor laws.

WHEREFORE, the petition is GRANTED. The Decision dated March 24, 2010 and
Resolution dated May 19, 2011 of the Court of Appeals in CA-G.R. SP No. 106661 are
hereby REVERSED and SET ASIDE.

The Decision dated June 28, 2001 of the Labor Arbiter in NLRC Case No. 00-08-04110-
2000, as affirmed by the Decision dated January 25, 2008 of the National Labor Relations
Commission in NLRC CA No. 029806-01, is hereby REINSTATED.

No pronouncement as to costs.

SO ORDERED.

Page 235 of 250

G.R. No. 208908

THE COFFEE BEAN and TEA LEAF PILIPPINES, INC. and WALDEN CU, Petitioners,
vs.
ROLLY P. ARENAS, Respondent.

DECISION

BRION, J.:

We resolve in this petition for review on certiorari1 the challenge to the Court of Appeals'
(CA) decision2 dated March 26, 2013 and resolution3 dated August 30, 2013 in CA-G.R. SP
No. 117822. These assailed CA rulings affirmed the National Labor Relations Commission's
(NLRC) decision4 dated August 13, 2010, which also affirmed the Labor Arbiter's (LA)
February 28, 2010 decision.

The Antecedent Facts

On April 1, 2008, the Coffee Bean and Tea Leaf Philippines, Inc. (CBTL) hired Rolly P.
Arenas (Arenas) to work as a "barista" at its Paseo Center Branch. His principal functions
included taking orders from customers and preparing their ordered food and
beverages.5 Upon signing the employment contract,6 Arenas was informed of CBTLs
existing employment policies.

To ensure the quality of its crews services, CBTL regularly employs a "mystery guest
shopper" who poses as a customer, for the purpose of covertly inspecting the baristas job
performance.7

In April 2009, a mystery guest shopper at the Paseo Center Branch submitted a report
stating that on March 30, 2009, Arenas was seen eating non-CBTL products at CBTLs al
fresco dining area while on duty. As a result, the counter was left empty without anyone to
take and prepare the customers orders. 8

On another occasion, or on April 28, 2009, Katrina Basallo (Basallo), the duty manager of
CBTL, conducted a routine inspection of the Paseo Center Branch. While inspecting the
stores products, she noticed an iced tea bottle being chilled inside the bin where the ice for
the customers drinks is stored; thus, she called the attention of the staff on duty. When
asked, Arenas muttered, "kaninong iced tea?" and immediately picked the bottle and
disposed it outside the store.9

After inspection, Basallo prepared a store managers report which listed Arenas recent
infractions, as follows:

1.Leaving the counter unattended and eating chips in an unauthorized area while
on duty (March 30, 2009);

2.Reporting late for work on several occasions (April 1, 3 and 22); and

3.Placing an iced tea bottle in the ice bin despite having knowledge of company
policy prohibiting the same (April 28, 2009). 10

Page 236 of 250

Based on the mystery guest shopper and duty managers reports, Arenas was required to
explain his alleged violations. However, CBTL found Arenas written explanation
unsatisfactory, hence CBTL terminated his employment. 11

Arenas filed a complaint for illegal dismissal. After due proceedings, the LA ruled in his
favor, declaring that he had been illegally dismissed. On appeal, the NLRC affirmed the LAs
decision.

CBTL filed a petition for certiorari under Rule 65 before the CA. CBTL insisted that Arenas
infractions amounted to serious misconduct or willful disobedience, gross and habitual
neglect of duties, and breach of trust and confidence. To support these allegations, CBTL
presented Arenas letter12 where he admitted his commission of the imputed violations.

On March 26, 2013, the CA issued its decision dismissing the petition. The CA ruled that
Arenas offenses fell short of the required legal standards to justify his dismissal; and that
these do not constitute serious misconduct or willful disobedience, and gross negligence, to
merit his termination from service. The CA denied CBTLs motion for reconsideration
opening the way for this present appeal via a petition for review on certiorari.

The main issue before us is whether CBTL illegally dismissed Arenas from employment.

The Petition

CBTL argues that under the terms and conditions of the employment contract, Arenas
agreed to abide and comply with CBTLs policies, procedures, rules and regulations, as
provided for under CBTLs table of offenses and penalties and/or employee
handbook.13 CBTL cites serious misconduct as the primary reason for terminating Arenas
employment. CBTL also imputes dishonesty on the part of Arenas for not immediately
admitting that he indeed left his bottled iced tea inside the ice bin.

Our Ruling

We DENY the petition.

As a rule, in certiorari proceedings under Rule 65 of the Rules of Court, the CA does not
assess and weigh each piece of evidence introduced in the case. The CA only examines the
factual findings of the NLRC to determine whether its conclusions are supported by
substantial evidence, whose absence points to grave abuse of discretion amounting to lack
or excess of jurisdiction. 14 In the case of Mercado v. AMA Computer College, 15 we
emphasized that:

As a general rule, in certiorari proceedings under Rule 65 of the Rules of Court, the
appellate court does not assess and weigh the sufficiency of evidence upon which the Labor
Arbiter and the NLRC based their conclusion. The query in this proceeding is limited to the
determination of whether or not the NLRC acted without or in excess of its jurisdiction or
with grave abuse of discretion in rendering its decision. x x x16 [Italics supplied]

Our review of the records shows that the CA did not err in affirming the LA and the NLRCs
rulings. No grave abuse of discretion tainted these rulings, thus, the CAs decision also
warrants this Courts affirmation. The infractions which Arenas committed do not justify
the application of the severe penalty of termination from service.

Page 237 of 250

First, Arenas was found eating non-CBTL products inside the stores premises while on
duty. Allegedly, he left the counter unattended without anyone to entertain the incoming
customers. Second, he chilled his bottled iced tea inside the ice bin, in violation of CBTLs
sanitation and hygiene policy. CBTL argues that these violations constitute willful
disobedience, thus meriting dismissal from employment.

We disagree with CBTL.

For willful disobedience to be a valid cause for dismissal, these two elements must concur:
(1) the employees assailed conduct must have been willful, that is, characterized by a
wrongful and perverse attitude; and (2) the order violated must have been reasonable,
lawful, made known to the employee, and must pertain to the duties which he had been
engaged to discharge.17

Tested against these standards, it is clear that Arenas alleged infractions do not amount to
such a wrongful and perverse attitude. Though Arenas may have admitted these
wrongdoings, these do not amount to a wanton disregard of CBTLs company policies. As
Arenas mentioned in his written explanation, he was on a scheduled break when he was
caught eating at CBTLs al fresco dining area. During that time, the other service crews
were the one in charge of manning the counter. Notably, CBTLs employee handbook
imposes only the penalty of written warning for the offense of eating non-CBTL products
inside the stores premises.

CBTL also imputes gross and habitual neglect of duty to Arenas for coming in late in three
separate instances.

Gross negligence implies a want or absence of, or failure to exercise even a slight care or
diligence, or the entire absence of care.1avvphi1 It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them. 18There is habitual neglect if based
on the circumstances, there is a repeated failure to perform ones duties for a period of
time.19

In light of the foregoing criteria, we rule that Arenas three counts of tardiness cannot be
considered as gross and habitual neglect of duty. The infrequency of his tardiness already
removes the character of habitualness. These late attendances were also broadly spaced
out, negating the complete absence of care on Arenas part in the performance of his duties.
Even CBTL admitted in its notice to explain that this violation does not merit yet a
disciplinary action and is only an aggravating circumstance to Arenas other violations. 20

To further justify Arenas dismissal, CBTL argues that he committed serious misconduct
when he lied about using the ice bin as cooler for his bottled iced tea. Under CBTLs
employee handbook, dishonesty, even at the first instance, warrants the penalty of
termination from service.21

For misconduct or improper behavior to be a just cause for dismissal,

(a) it must be serious; (b) it must relate to the performance of the employees duties;
and (c) it must show that the employee has become unfit to continue working for the
employer.22

Page 238 of 250

However, the facts on record reveal that there was no active dishonesty on the part of
Arenas. When questioned about who placed the bottled iced tea inside the ice bin, his
immediate reaction was not to deny his mistake, but to remove the bottle inside the bin and
throw it outside. More importantly, when he was asked to make a written explanation of his
action, he admitted that the bottled iced tea was his.

Thus, even if there was an initial reticence on Arenas part, his subsequent act of owing to
his mistake only shows the absence of a deliberate intent to lie or deceive his CBTL
superiors. On this score, we conclude that Arenas action did not amount to serious
misconduct.

Moreover, the imputed violations of Arenas, whether taken singly or as a whole, do not
necessitate the imposition of the strict and harsh penalty of dismissal from service. The LA,
NLRC and the CA all consistently ruled that these offenses are not grave enough to qualify
as just causes for dismissal. Factual findings of the labor tribunals especially if affirmed by
the CA must be given great weight, and merit the Courts respect.

As a final remark, we note that petitioner Walden Chu (Chu) should not be held jointly and
severally liable with CBTL for Arenas adjudged monetary awards.1wphi1 The LA and the
NLRC ruled for their solidary liability but the CA failed to dispose this issue in its decision.

A corporation is a juridical entity with a legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it.23 Thus, as a
general rule, an officer may not be held liable for the corporation's labor obligations unless
he acted with evident malice and/or bad faith in dismissing an employee. 24

In the present case, there was no showing of any evident malice or bad faith on Chu's part
as CBTL's president. His participation in Arenas' termination was not even sufficiently
alleged and argued. Hence, he cannot be held solidarily liable for CBTL' s liabilitiesArenasto
.

WHEREFORE, in light of these considerations, we hereby DENY the petition for lack of
merit. The Court of Appeals committed no grave abuse of discretion in its decision of March
26, 2013 and its resolution of August 30, 2013 in CA-G.R. SP No. 117822, except with
respect to the liability of petitioner Walden Chu. We thus absolve petitioner Walden Chu
from paying in his personal capacity the monetary awards of respondent Rolly P. Arenas. No
costs.

SO ORDERED.

Page 239 of 250

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 92598 May 20, 1994

PURIFICACION Y. MANLIGUEZ, ANTONINA Y. LUIS and BENJAMIN C.

YBANEZ, petitioners,
vs.
THE COURT OF APPEALS, ET AL., respondents.

Rufino L. Remoreras for petitioners.

Danilo L. Pilapil for private respondents.

PUNO, J.:

This is an appeal by certiorari from the Decision of the Court of Appeals, 1 dated November
16, 1989, denying due course to and dismissing the petition in CA-G.R. SP NO. 18017. 2

The case at bench finds its roots in the Decision of the Department of Labor and
Employment (Region VII), ordering Inductocast Cebu, a partnership based in Mandaue City,
to pay its former employees a total of P232,908.00. As a consequence of the judgment, the
labor department's regional sheriff levied the buildings and improvements standing on Lot
109, Plan 11-5121-Amd., at Tipolo, Mandaue City. The levied properties (hereinafter
referred to as the "Tipolo properties") were subsequently sold at public auction to said
employees.

On May 25, 1988, petitioners filed with the RTC of Cebu City, 7th Judicial Branch, a
Complaint 3 which sought the lifting of the levy over, and annulment of the sale of, the
Tipolo properties. The Complaint was docketed as Civil Case No. Ceb-6917, and raffled to
Branch 8 of the trial court. Petitioners therein alleged that: they are the owners of the Lot
109; they entered into a lease agreement with Inductocast Cebu over Lot 109; the lease
contract provided that, except for machineries and equipment, all improvements introduced
in the leased premises shall automatically be owned by the Lessor (petitioners) upon the
expiration/termination of the contract; 4 the lease agreement was terminated by petitioners
in November, 1980 due to non-payment of rentals by Inductocast Cebu; 5 thereafter,
petitioners took actual possession of and occupied the Tipolo properties. Petitioners likewise
alleged in their Complaint that they became aware of the labor dispute involving
Inductocast only after the impugned public auction sale. 6

Atty. Danilo Pilapil, claiming to be the John Doe named in the Complaint, filed a motion to
dismiss on the ground that the trial court had no jurisdiction over the case. The buyers of
the Tipolo properties, as intervenors, also filed a motion to dismiss on the same ground.
Both motions, which were opposed by petitioners, were denied.

Page 240 of 250

The intervenors, however, moved for reconsideration of the denial. In an Order dated April
18, 1989, the trial court granted the motion and dismissed Civil Case No. Ceb-6917. It held
that the civil case "is actually in the nature of a quashal of the levy and the certificate of
sale, a case arising out of a dispute that was instituted by the previous employees of
Inductocast before the Department of Labor and Employment, Region 7." 7 Citing Pucan
vs. Bengzon, 155 SCRA 692 (1987), it held it had no jurisdiction over the case since the levy
and sale "are connected with the case within the exclusive jurisdiction of the Department of
Labor and Employment." 8

Petitioners questioned the dismissal of their Complaint to the respondent Court of Appeals,
through a petition for certiorari and preliminary injunction. 9 The appellate court, in its
impugned Decision, denied the petition as it held:

To Our minds, the issue on what forum the case must be tried or heard is a
settled one. The Department of Labor is the agency upon which devolves the
jurisdiction over disputes emanating from and in relation with labor
controversies to the exclusion of the regular courts.

The issue in the case at bar concerns the levy of a property in pursuance to a
writ of execution, arising out of labor disputes. There can be no doubt that
jurisdiction pertains to the Department of Labor.

xxx xxx xxx

In the light of the factual antecedents and incidents that transpired in the
hearing of this case at bar, the (trial court) correctly ruled that indeed the
Department of Labor has jurisdiction over the case. Consequently, WE see no
abuse of discretion let alone a grave one, amounting to lack or in excess of
its jurisdiction correctible with a writ of certiorari.

Indeed, the issue of granting or denying a motion to dismiss is addressed to

the sound discretion of the court, and in the absence of a capricious and
whimsical exercise of power, certiorari will not lie.

Thus, this appeal where petitioners contend:

THE RESPONDENT APPELLATE COURT ERRED IN HOLDING

THAT THE DEPARTMENT OF LABOR HAS JURISDICTION ON
THE SUBJECT MATTER AND NATURE OF THE CASE AS
AGAINST THE CIVIL COURT.

We find merit in the appeal. Firstly, respondent court erred in holding that the trial court
does not have jurisdiction over the case filed by petitioners. It is at once evident that the
Civil Case No. Ceb-6917 is not a labor case. No employer-employee relationship exists
between petitioners and the other parties, and no issue is involved which may be resolved
by reference to the Labor Code, other labor statutes, or any collective bargaining agreement.
Neither can we characterize petitioner's action before the trial court as arising out of a labor
dispute. It was not brought to reverse or modify the judgment of the Department of Labor
and Employment (DOLE). Neither did it question the validity of, or pray for, the quashal of
the writ of execution against Inductocast.

Page 241 of 250

What is to be litigated in Civil Case No. Ceb-6917 is the issue of ownership over the Tipolo
properties. Clearly, it is the RTC and not the labor department which can take cognizance of
the case, as provided by B.P. Blg. 129 ("An Act Reorganizing the Judiciary, Appropriating
Funds Therefor, and For Other Purposes"), thus:

Sec. 19. Jurisdiction in civil case. Regional Trial Courts shall exercise
exclusive original jurisdiction:

xxx xxx xxx

(2) In all civil actions which involve the title to, or possession of real property,
or any interest therein, except actions for forcible entry into and unlawful
detainer of lands or buildings, original jurisdiction over which is conferred
upon Metropolitan Trial Courts, Municipal Trial Courts, and Municipal
Circuit Trial Courts;

xxx xxx xxx

The action taken by petitioners before the RTC asserting their ownership over the levied
properties is mandated by Section 17, Rule 39 of the Revised Rules of Court. Time and
again, we have held that:

Under Section 17, Rule 39, a third person who claims property levied upon
on execution may vindicate such claim by action. . . . The right of a person
who claims to be the owner of property levied upon on execution to file a
third-party claim with the sheriff is not exclusive, and he may file an action
to vindicate his claim even if the judgment creditor files an indemnity bond
in favor of the sheriff to answer for any damages that may be suffered by the
third-party claimant. By "action", as stated in the Rule, what is meant is a
separate and independent action. 10

Secondly, it is incorrect to argue that the trial court cannot take cognizance of Civil Case
No. Ceb-6917 without interfering with the writ of attachment and writ of execution of a co-
equal body. It is settled that the levy and sale of property by virtue of a writ of attachment is
lawful only when the levied property indubitably belongs to the defendant. If property other
than those of the defendant is attached and sold by the sheriff, he acts beyond the limits of
his and the court's authority. 11 In this regard, we held in the case of Uy, Jr. vs. Court of
Appeals, 191 SCRA 275 (1991) that:

The main issue in this case is whether or not properties levied and seized by
virtue of a writ of attachment and later by a writ of execution, were
under custodia legis and therefore not subject to the jurisdiction of another
co-equal court where a third party claimant claimed ownership of the same
properties.

The issue has long been laid to rest in the case of Manila Herald Publishing
Co., Inc. v. Ramos (88 Phil. 94 [1951]) where the Court ruled that while it is
true that property in custody of the law may not be interfered with, without
the permission of the proper court, this rule is confined to cases where the
property belongs to the defendant or one in which the defendant has
proprietary interests. But when the Sheriff, acting beyond the bounds of his

Page 242 of 250

 office seizes a stranger's property, the rule does not apply and interference
with his custody is not interference with another court's order of attachment.

Also, in the more recent case of Santos vs. Bayhon, 199 SCRA 525 (1991), we stated, viz.:

The general rule that no court has the power to interfere by injunction with
the judgments or decrees of another court with concurrent or coordinate
jurisdiction possessing equal power to grant injunctive relief, applies only
when no third-party claimant is involved. . . . When a third party, or stranger
to the action, asserts a claim over the property levied upon, the claimant may
vindicate his claim by an independent action in the proper civil court which
may stop the execution of the judgment on property not belonging to the
judgment debtor (Citations omitted.)

Finally, it must be noted that the Pucan case relied upon by respondent court is
inapplicable to the case at bench which involves a third-party claim over property levied on
execution. In Pucan, we enjoined the Regional Trial Court from acting on the petition for
damages and prohibition against the enforcement of the writ of execution issued by the
NCR director of the then Ministry of Labor and Employment in a labor case for the following
reason:

A perusal of the petition for damages and prohibition filed by Saulog Transit,
Inc., in the lower court reveals that basically, what was being questioned was
the legality or propriety of the alias writ of execution dated March 1, 1985, as
well as the acts performed by the Ministry officials in implementing the
same. In other words, the petition was actually in the nature of a motion to
quash the writ; and with respect to the acts of the Ministry officials, a case
growing out of a labor dispute, as the acts complained of, were perpetrated
during the execution of a decision of the then Minister of Labor and
Employment. However characterized, jurisdiction over the petition pertains
to the Labor Ministry, now Department and not the regular courts. This
conclusion is evident, not only from the provisions of Article 224(b) of the
Labor Code, but also of
Article 218, as amended by Batas Pambansa Blg. 227 in connection with
Article 255 of the same Code.

xxx xxx xxx

Apparently, Saulog Transit, Inc. was misled by its own prayer for actual,
moral and exemplary damages. It believed that such additional cause of
action could clothe the petition with the mantle of a regular action cognizable
by the regular courts. It was, of course, mistaken for the fact remains that
the acts complained of are mere incidents of a labor dispute. Such prayer
therefore did not alter the complexion of the case as one arising from a labor
dispute, but was subsumed by the nature of the main case, over which the
regular courts had no jurisdiction, much less the power to issue a temporary
or permanent injunction or restraining order. . . . 12

In fine, we prohibited the action before the trial court in Pucan because it attacked the
regularity of the issuance of the alias writ of execution in the labor case, which is but an
incident of the labor dispute. This is not so in the case at bench where the civil case filed by

Page 243 of 250

petitioners does not even collaterally attack the validity of the DOLE's writ of attachment.
On the contrary, petitioners in Civil Case No. Ceb-6917 pray for the trial court's ruling that
the DOLE's judgment could not be validly executed on the Tipolo properties, which allegedly
do not belong to Inductocast.

IN VIEW WHEREOF, the petition for review is GRANTED. The Decision of the Court of
Appeals in CA-G.R. SP No. 18017, dated November 16, 1989, is REVERSED and SET
ASIDE. The Regional Trial Court of Cebu City, Branch 8 is ordered to try Civil Case Ceb-
6917 on its merit. No costs.

SO ORDERED.

Page 244 of 250

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 109272 August 10, 1994

GEORG GROTJAHN GMBH & CO., petitioner,

vs.
HON. LUCIA VIOLAGO ISNANI, Presiding Judge, Regional Trial Court, Makati, Br. 59;
ROMANA R. LANCHINEBRE; and TEOFILO A. LANCHINEBRE, respondents.

A.M. Sison, Jr. & Associates for petitioner.

Pedro L. Laso for private respondents.

PUNO, J.:

Petitioner impugns the dismissal of its Complaint for a sum of money by the respondent
judge for lack of jurisdiction and lack of capacity to sue.

The records show that petitioner is a multinational company organized and existing under
the laws of the Federal Republic of Germany. On July 6, 1983, petitioner filed an
application, dated July 2, 1983, 1 with the Securities and Exchange Commission (SEC) for
the establishment of a regional or area headquarters in the Philippines, pursuant to
Presidential Decree No. 218. The application was approved by the Board of Investments
(BOI) on September 6, 1983. Consequently, on September 20, 1983, the SEC issued a
Certificate of Registration and License to petitioner. 2

Private respondent Romana R. Lanchinebre was a sales representative of petitioner from

1983 to mid-1992. On March 12, 1992, she secured a loan of twenty-five thousand pesos
(P25,000.00) from petitioner. On March 26 and June 10, 1992, she made additional cash
advances in the sum of ten thousand pesos (P10,000.00). Of the total amount, twelve
thousand one hundred seventy pesos and thirty-seven centavos (P12,170.37) remained
unpaid. Despite demand, private respondent Romana failed to settle her obligation with
petitioner.

On July 22, 1992, private respondent Romana Lanchinebre filed with the Arbitration
Branch of the National Labor Relations Commission (NLRC) in Manila, a Complaint for
illegal suspension, dismissal and non-payment of commissions against petitioner. On
August 18, 1992, petitioner in turn filed against private respondent a Complaint for
damages amounting to one hundred twenty thousand pesos (P120,000.00) also with the
NLRC Arbitration Branch (Manila). 3 The two cases were consolidated.

On September 2, 1992, petitioner filed another Complaint for collection of sum of money
against private respondents spouses Romana and Teofilo Lanchinebre which was docketed

Page 245 of 250

as Civil Case No. 92-2486 and raffled to the sala of respondent judge. Instead of filing their
Answer, private respondents moved to dismiss the Complaint. This was opposed by
petitioner.

On December 21, 1992, respondent judge issued the first impugned Order, granting the
motion to dismiss. She held, viz:

Jurisdiction over the subject matter or nature of the action is conferred by

law and not subject to the whims and caprices of the parties.

Under Article 217 of the Labor Code of the Philippines, the Labor Arbiters
shall have original and exclusive jurisdiction to hear and decide, within thirty
(30) calendar days after the submission of the case by the parties for
decision, the following cases involving all workers, whether agricultural or
non-agricultural:

(4) claims for actual, moral, exemplary and other forms of damages arising
from an employer-employee relations.

xxx xxx xxx

(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 or
not accompanied with a claim for reinstatement.

In its complaint, the plaintiff (petitioner herein) seeks to recover alleged cash
advances made by defendant (private respondent herein) Romana
Lanchinebre while the latter was in the employ of the former. Obviously the
said cash advances were made pursuant to the employer-employee
relationship between the (petitioner) and the said (private respondent) and as
such, within the original and exclusive jurisdiction of the National Labor
Relations Commission.

Again, it is not disputed that the Certificate of Registration and License

issued to the (petitioner) by the Securities and Exchange Commission was
merely "for the establishment of a regional or area headquarters in the
Philippines, pursuant to Presidential Decree No. 218 and its implementing
rules and regulations." It does not include a license to do business in the
Philippines. There is no allegation in the complaint moreover that (petitioner)
is suing under an isolated transaction. It must be considered that under
Section 4, Rule 8 of the Revised Rules of Court, facts showing the capacity of
a party to sue or be sued or the authority of a party to sue or be sued in a
representative capacity or the legal existence of an organized association of
persons that is made a party must be averred. There is no averment in the
complaint regarding (petitioner's) capacity to sue or be sued.

Finally, (petitioner's) claim being clearly incidental to the occupation or

exercise of (respondent) Romana Lanchinebre's profession, (respondent)
husband should not be joined as party defendant. 4

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On March 8, 1993, the respondent judge issued a minute Order denying petitioner's Motion
for Reconsideration.

Petitioner now raises the following assignments of errors:

THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE REGULAR

COURTS HAVE NO JURISDICTION OVER DISPUTES BETWEEN AN
EMPLOYER AND AN EMPLOYEE INVOLVING THE APPLICATION PURELY OF
THE GENERAL CIVIL LAW.

II

THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT PETITIONER HAS

NO CAPACITY TO SUE AND BE SUED IN THE PHILIPPINES DESPITE THE
FACT THAT PETITIONER IS DULY LICENSED BY THE SECURITIES AND
EXCHANGE COMMISSION TO SET UP AND OPERATE A REGIONAL OR
AREA HEADQUARTERS IN THE COUNTRY AND THAT IT HAS
CONTINUOUSLY OPERATED AS SUCH FOR THE LAST NINE (9) YEARS.

III

THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE ERRONEOUS

INCLUSION OF THE HUSBAND IN A COMPLAINT IS A FATAL DEFECT THAT
SHALL RESULT IN THE OUTRIGHT DISMISSAL OF THE COMPLAINT.

IV

THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE HUSBAND IS

NOT REQUIRED BY THE RULES TO BE JOINED AS A DEFENDANT IN A
COMPLAINT AGAINST THE WIFE.

There is merit to the petition.

Firstly, the trial court should not have held itself without jurisdiction over Civil Case No.
92-2486. It is true that the loan and cash advances sought to be recovered by petitioner
were contracted by private respondent Romana Lanchinebre while she was still in the
employ of petitioner. Nonetheless, it does not follow that Article 217 of the Labor Code
covers their relationship.

Not every dispute between an employer and employee involves matters that only labor
arbiters and the NLRC can resolve in the exercise of their adjudicatory or quasi-judicial
powers. The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code
is limited to disputes arising from an employer-employee relationship which can only be
resolved by reference to the Labor Code, other labor statutes, or their collective bargaining
agreement. In this regard, we held in the earlier case of Molave Motor Sales, Inc. vs. Laron,
129 SCRA 485 (1984), viz:

Before the enactment of BP Blg. 227 on June 1, 1982, Labor Arbiters, under
paragraph 5 of Article 217 of the Labor Code had jurisdiction over "all other

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 cases arising from employer-employee relation, unless expressly excluded by
this Code." Even then, the principal followed by this Court was that,
although a controversy is between an employer and an employee, the Labor
Arbiters have no jurisdiction if the Labor Code is not involved. In Medina vs.
Castro-Bartolome, 116 SCRA 597, 604 in negating jurisdiction of the Labor
Arbiter, although the parties were an employer and two employees, Mr.
Justice Abad Santos stated:

The pivotal question to Our mind is whether or not the Labor

Code has any relevance to the reliefs sought by plaintiffs. For
if the Labor Code has no relevance, any discussion concerning
the statutes amending it and whether or not they have
retroactive effect is unnecessary.

xxx xxx xxx

And in Singapore Airlines Limited vs. Pao, 122 SCRA 671, 677, the
following was said:

Stated differently, petitioner seeks protection under the civil

laws and claims no benefits under the Labor Code. The
primary relief sought is for liquidated damages for breach of a
contractual obligation. The other items demanded are not
labor benefits demanded by workers generally taken
cognizance of in labor disputes, such as payment of wages,
overtime compensation or separation pay. The items claimed
are the natural consequences flowing from breach of an
obligation, intrinsically a civil dispute.

xxx xxx xxx

In San Miguel Corporation vs. NLRC, 161 SCRA 719 (1988), we crystallized the doctrines set
forth in the Medina, Singapore Airlines, and Molave Motors cases, thus:

. . . The important principle that runs through these three (3) cases is that
where the claim to the principal relief sought is to be resolved not by
reference to the Labor Code or other labor relations statute or a collective
bargaining agreement but by the general civil law, the jurisdiction over the
dispute belongs to the regular courts of justice and not to the Labor Arbiter
and the NLRC. In such situations, resolutions of the dispute requires
expertise, not in labor management relations nor in wage structures and
other terms and conditions of employment, but rather in the application of
the general civil law. Clearly, such claims fall outside the area of competence
or expertise ordinarily ascribed to Labor Arbiters and the NLRC and the
rationale for granting jurisdiction over such claims to these agencies
disappears.

Civil Case No. 92-2486 is a simple collection of a sum of money brought by petitioner, as
creditor, against private respondent Romana Lanchinebre, as debtor. The fact that they
were employer and employee at the time of the transaction does not negate the civil

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jurisdiction of the trial court. The case does not involve adjudication of a labor dispute but
recovery of a sum of money based on our civil laws on obligation and contract.

Secondly, the trial court erred in holding that petitioner does not have capacity to sue in the
Philippines. It is clear that petitioner is a foreign corporation doing business in the
Philippines. Petitioner is covered by the Omnibus Investment Code of 1987. Said law
defines "doing business," as follows:

. . . shall include soliciting orders, purchases, service contracts, opening

offices, whether called "liaison" offices or branches; appointing
representatives or distributors who are domiciled in the Philippines or who in
any calendar year stay in the Philippines for a period or periods totalling one
hundred eighty (180) days or more; participating in the management,
supervision or control of any domestic business firm, entity or corporation in
the Philippines, and any other act or acts that imply a continuity of
commercial dealings or arrangements and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions
normally incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization. 5

There is no general rule or governing principle as to what constitutes "doing" or "engaging

in" or "transacting" business in the Philippines. Each case must be judged in the light of its
peculiar circumstances. 6 In the case at bench, petitioner does not engage in commercial
dealings or activities in the country because it is precluded from doing so by P.D. No. 218,
under which it was established. 7 Nonetheless, it has been continuously, since 1983, acting
as a supervision, communications and coordination center for its home office's affiliates in
Singapore, and in the process has named its local agent and has employed Philippine
nationals like private respondent Romana Lanchinebre. From this uninterrupted
performance by petitioner of acts pursuant to its primary purposes and functions as a
regional/area headquarters for its home office, it is clear that petitioner is doing business in
the country. Moreover, private respondents are estopped from assailing the personality of
petitioner. So we held in Merrill Lynch Futures, Inc. vs. Court of Appeals, 211 SCRA 824, 837
(1992):

The rule is that a party is estopped to challenge the personality of a

corporation after having acknowledged the same by entering into a contract
with it. And the "doctrine of estoppel to deny corporate existence applies to
foreign as well as to domestic corporations;" "one who has dealth with a
corporation of foreign origin as a corporate entity is estopped to deny its
corporate existence and capacity." The principle "will be applied to prevent a
person contracting with a foreign corporation from later taking advantage of
its noncompliance with the statutes chiefly in cases where such person has
received the benefits of the contract, . . . (Citations omitted.)

Finally, the trial court erred when it dismissed Civil Case No. 92-2486 on what it found to
be the misjoinder of private respondent Teofilo Lanchinebre as party defendant. It is a basic
rule that "(m)isjoinder or parties is not ground for dismissal of an action." 8 Moreover, the
Order of the trial court is based on Section 4(h), Rule 3 of the Revised Rules of Court, which
provides:

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 A married woman may not . . . be sued alone without joining her husband,
except . . . if the litigation is incidental to the profession, occupation or
business in which she is engaged,

Whether or not the subject loan was incurred by private respondent as an incident to her
profession, occupation or business is a question of fact. In the absence of relevant evidence,
the issue cannot be resolved in a motion to dismiss.

IN VIEW WHEREOF, the instant Petition is GRANTED. The Orders, dated December 21,
1992 and March 8, 1993, in Civil Case No. 92-2486 are REVERSED AND SET ASIDE. The
RTC of Makati, Br. 59, is hereby ordered to hear the reinstated case on its merits. No costs.

SO ORDERED.

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