Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-12582 January 28, 1961

LVN PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-
appellees.

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

G.R. No. L-12598 January 28, 1961

SAMPAGUITA PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-
appellees.

Nicanor S. Sison for petitioner-appellant.

Jaime E. Ilagan for respondent-appellee Court of Agrarian Relations.
Gerardo P. Cabo Chan for respondent-appellee Philippine Musicians Guild.

CONCEPCION, J.:

Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review by certiorari of an
order of the Court of Industrial Relations in Case No. 306-MC thereof, certifying the Philippine
Musicians Guild (FFW), petitioner therein and respondent herein, as the sole and exclusive
bargaining agency of all musicians working with said companies, as well as with the Premiere
Productions, Inc., which has not appealed. The appeal of LVN Pictures, Inc., has been docketed as
G.R. No. L-12582, whereas G.R. No. L-12598 is the appeal of Sampaguita Pictures, Inc. Involving
as they do the same order, the two cases have been jointly heard in this Court, and will similarly be
disposed of.

In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter referred to as the
Guild, averred that it is a duly registered legitimate labor organization; that LVN Pictures, Inc.,
Sampaguita Pictures, Inc., and Premiere Productions, Inc. are corporations, duly organized under
the Philippine laws, engaged in the making of motion pictures and in the processing and distribution
thereof; that said companies employ musicians for the purpose of making music recordings for title
music, background music, musical numbers, finale music and other incidental music, without which a
motion picture is incomplete; that ninety-five (95%) percent of all the musicians playing for the
musical recordings of said companies are members of the Guild; and that the same has no
knowledge of the existence of any other legitimate labor organization representing musicians in said
companies. Premised upon these allegations, the Guild prayed that it be certified as the sole and
exclusive bargaining agency for all musicians working in the aforementioned companies. In their
respective answers, the latter denied that they have any musicians as employees, and alleged that
the musical numbers in the filing of the companies are furnished by independent contractors. The
lower court, however, rejected this pretense and sustained the theory of the Guild, with the result
already adverted to. A reconsideration of the order complained of having been denied by the
Court en banc, LVN Pictures, inc., and Sampaguita Pictures, Inc., filed these petitions for review
for certiorari.

Apart from impugning the conclusion of the lower court on the status of the Guild members as
alleged employees of the film companies, the LVN Pictures, Inc., maintains that a petition for
certification cannot be entertained when the existence of employer-employee relationship between
the parties is contested. However, this claim is neither borne out by any legal provision nor
supported by any authority. So long as, after due hearing, the parties are found to bear said
relationship, as in the case at bar, it is proper to pass upon the merits of the petition for certification.

It is next urged that a certification is improper in the present case, because, "(a) the petition does not
allege and no evidence was presented that the alleged musicians-employees of the respondents
constitute a proper bargaining unit, and (b) said alleged musicians-employees represent a majority
of the other numerous employees of the film companies constituting a proper bargaining unit under
section 12 (a) of Republic Act No. 875."

The absence of an express allegation that the members of the Guild constitute a proper bargaining
unit is fatal proceeding, for the same is not a "litigation" in the sense in which this term is commonly
understood, but a mere investigation of a non-adversary, fact finding character, in which the
investigating agency plays the part of a disinterested investigator seeking merely to ascertain the
desires of employees as to the matter of their representation. In connection therewith, the court
enjoys a wide discretion in determining the procedure necessary to insure the fair and free choice of
bargaining representatives by employees.1 Moreover, it is alleged in the petition that the Guild it a
duly registered legitimate labor organization and that ninety-five (95%) percent of the musicians
playing for all the musical recordings of the film companies involved in these cases are members of
the Guild. Although, in its answer, the LVN Pictures, Inc. denied both allegations, it appears that, at
the hearing in the lower court it was merely the status of the musicians as its employees that the film
companies really contested. Besides, the substantial difference between the work performed by said
musicians and that of other persons who participate in the production of a film, and the peculiar
circumstances under which the services of that former are engaged and rendered, suffice to show
that they constitute a proper bargaining unit. At this juncture, it should be noted that the action of the
lower court in deciding upon an appropriate unit for collective bargaining purposes is discretionary
(N.L.R.B. v. May Dept. Store Co., 66 Sup. Ct. 468. 90 L. ed. 145) and that its judgment in this
respect is entitled to almost complete finality, unless its action is arbitrary or capricious (Marshall
Field & Co. v. N.L.R.B. [C.C.A. 19431, 135 F. 2d. 891), which is far from being so in the cases at
bar.

Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining agency for the
musicians working in the aforesaid film companies. It does not intend to represent the other
employees therein. Hence, it was not necessary for the Guild to allege that its members constitute a
majority of all the employees of said film companies, including those who are not musicians. The real
issue in these cases, is whether or not the musicians in question are employees of the film
companies. In this connection the lower court had the following to say:

As a normal and usual course of procedure employed by the companies when a picture is to
be made, the producer invariably chooses, from the musical directors, one who will furnish
the musical background for a film. A price is agreed upon verbally between the producer and
musical director for the cost of furnishing such musical background. Thus, the musical
director may compose his own music specially written for or adapted to the picture. He
engages his own men and pays the corresponding compensation of the musicians under
him.
When the music is ready for recording, the musicians are summoned through 'call slips' in
the name of the film company (Exh 'D'), which show the name of the musician, his musical
instrument, and the date, time and place where he will be picked up by the truck of the film
company. The film company provides the studio for the use of the musicians for that
particular recording. The musicians are also provided transportation to and from the studio
by the company. Similarly, the company furnishes them meals at dinner time.

During the recording sessions, the motion picture director, who is an employee of the
company, supervises the recording of the musicians and tells what to do in every detail. He
solely directs the performance of the musicians before the camera as director, he supervises
the performance of all the action, including the musicians who appear in the scenes so that
in the actual performance to be shown on the screen, the musical director's intervention has
stopped.

And even in the recording sessions and during the actual shooting of a scene, the
technicians, soundmen and other employees of the company assist in the operation. Hence,
the work of the musicians is an integral part of the entire motion picture since they not only
furnish the music but are also called upon to appear in the finished picture.

The question to be determined next is what legal relationship exits between the musicians
and the company in the light of the foregoing facts.

We are thus called upon to apply R.A. Act 875. which is substantially the same as and
patterned after the Wagner Act substantially the same as a Act and the Taft-Hartley Law of
the United States. Hence, reference to decisions of American Courts on these laws on the
point-at-issue is called for.

Statutes are to be construed in the light of purposes achieved and the evils sought to be
remedied. (U.S. vs. American Tracking Association, 310 U.S. 534, 84 L. ed. 1345.) .

In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S. 111, the
United States Supreme Court said the Wagner Act was designed to avert the 'substantial
obstruction to the free flow of commerce which results from strikes and other forms of
industrial unrest by eliminating the causes of the unrest. Strikes and industrial unrest result
from the refusal of employers' to bargain collectively and the inability of workers to bargain
successfully for improvement in their working conditions. Hence, the purposes of the Act are
to encourage collective bargaining and to remedy the workers' inability to bargaining power,
by protecting the exercise of full freedom of association and designation of representatives of
their own choosing, for the purpose of negotiating the terms and conditions of their
employment.'

The mischief at which the Act is aimed and the remedies it offers are not confined exclusively
to 'employees' within the traditional legal distinctions, separating them from 'independent
contractor'. Myriad forms of service relationship, with infinite and subtle variations in the term
of employment, blanket the nation's economy. Some are within this Act, others beyond its
coverage. Large numbers will fall clearly on one side or on the other, by whatever test may
be applied. Inequality of bargaining power in controversies of their wages, hours and working
conditions may characterize the status of one group as of the other. The former, when acting
alone may be as helpless in dealing with the employer as dependent on his daily wage and
as unable to resist arbitrary and unfair treatment as the latter.'
To eliminate the causes of labor dispute and industrial strike, Congress thought it necessary
to create a balance of forces in certain types of economic relationship. Congress recognized
those economic relationships cannot be fitted neatly into the containers designated as
'employee' and 'employer'. Employers and employees not in proximate relationship may be
drawn into common controversies by economic forces and that the very dispute sought to be
avoided might involve 'employees' who are at times brought into an economic relationship
with 'employers', who are not their 'employers'. In this light, the language of the Act's
definition of 'employee' or 'employer' should be determined broadly in doubtful situations, by
underlying economic facts rather than technically and exclusively established legal
classifications. (NLRB vs. Blount, 131 F [2d] 585.)

In other words, the scope of the term 'employee' must be understood with reference to the
purposes of the Act and the facts involved in the economic relationship. Where all the
conditions of relation require protection, protection ought to be given .

By declaring a worker an employee of the person for whom he works and by recognizing and
protecting his rights as such, we eliminate the cause of industrial unrest and consequently
we promote industrial peace, because we enable him to negotiate an agreement which will
settle disputes regarding conditions of employment, through the process of collective
bargaining.

The statutory definition of the word 'employee' is of wide scope. As used in the Act, the term
embraces 'any employee' that is all employees in the conventional as well in the legal sense
expect those excluded by express provision. (Connor Lumber Co., 11 NLRB 776.).

It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes of industrial
unrest by protecting the exercise of their right to self-organization for the purpose of
collective bargaining. (b) To promote sound stable industrial peace and the advancement of
the general welfare, and the best interests of employers and employees by the settlement of
issues respecting terms and conditions of employment through the process of collective
bargaining between employers and representatives of their employees.

The primary consideration is whether the declared policy and purpose of the Act can be
effectuated by securing for the individual worker the rights and protection guaranteed by the
Act. The matter is not conclusively determined by a contract which purports to establish the
status of the worker, not as an employee.

The work of the musical director and musicians is a functional and integral part of the
enterprise performed at the same studio substantially under the direction and control of the
company.

In other words, to determine whether a person who performs work for another is the latter's
employee or an independent contractor, the National Labor Relations relies on 'the right to
control' test. Under this test an employer-employee relationship exist where the person for
whom the services are performed reserves the right to control not only the end to be
achieved, but also the manner and means to be used in reaching the end. (United Insurance
Company, 108, NLRB No. 115.).

Thus, in said similar case of Connor Lumber Company, the Supreme Court said:.

'We find that the independent contractors and persons working under them are
employees' within the meaning of Section 2 (3) of its Act. However, we are of the
 opinion that the independent contractors have sufficient authority over the persons
working under their immediate supervision to warrant their exclusion from the
unit. We shall include in the unit the employees working under the supervision of the
independent contractors, but exclude the contractors.'

'Notwithstanding that the employees are called independent contractors', the Board will hold
them to be employees under the Act where the extent of the employer's control over them
indicates that the relationship is in reality one of employment. (John Hancock Insurance Co.,
2375-D, 1940, Teller, Labor Dispute Collective Bargaining, Vol.).

The right of control of the film company over the musicians is shown (1) by calling the
musicians through 'call slips' in 'the name of the company; (2) by arranging schedules in its
studio for recording sessions; (3) by furnishing transportation and meals to musicians; and
(4) by supervising and directing in detail, through the motion picture director, the
performance of the musicians before the camera, in order to suit the music they are playing
to the picture which is being flashed on the screen.

Thus, in the application of Philippine statutes and pertinent decisions of the United States
Courts on the matter to the facts established in this case, we cannot but conclude that to
effectuate the policies of the Act and by virtue of the 'right of control' test, the members of the
Philippine Musicians Guild are employees of the three film companies and, therefore, entitled
to right of collective bargaining under Republic Act No. 875.

In view of the fact that the three (3) film companies did not question the union's majority, the
Philippine Musicians Guild is hereby declared as the sole collective bargaining
representative for all the musicians employed by the film companies."

We are fully in agreement with the foregoing conclusion and the reasons given in support thereof.
Both are substantially in line with the spirit of our decision in Maligaya Ship Watchmen Agency vs.
Associated Watchmen and Security Union, L-12214-17 (May 28, 1958). In fact, the contention of the
employers in the Maligaya cases, to the effect that they had dealt with independent contractors, was
stronger than that of the film companies in these cases. The third parties with whom the
management and the workers contracted in the Maligaya cases were agencies registered with the
Bureau of Commerce and duly licensed by the City of Manila to engage in the business of supplying
watchmen to steamship companies, with permits to engage in said business issued by the City
Mayor and the Collector of Customs. In the cases at bar, the musical directors with whom the film
companies claim to have dealt with had nothing comparable to the business standing of said
watchmen agencies. In this respect, the status of said musical directors is analogous to that of the
alleged independent contractor in Caro vs. Rilloraza, L-9569 (September 30, 1957), with the
particularity that the Caro case involved the enforcement of the liability of an employer under the
Workmen's Compensation Act, whereas the cases before us are merely concerned with the right of
the Guild to represent the musicians as a collective bargaining unit. Hence, there is less reason to
be legalistic and technical in these cases, than in the Caro case.

Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe Coconut Product
Co., Inc vs. CIR(46 Off. Gaz., 5506, 5509), Philippine Manufacturing Co. vs. Santos Vda. de
Geronimo, L-6968 (November 29, 1954), Viana vs. Al-Lagadan, L-8967 (May 31, 1956), and Josefa
Vda. de Cruz vs. The Manila Hotel Co. (53 Off. Gaz., 8540). Instead of favoring the theory of said
petitioners-appellants, the case of the Sunripe Coconut Product Co., Inc. is authority for herein
respondents-appellees. It was held that, although engaged as piece-workers, under the "pakiao"
system, the "parers" and "shellers" in the case were, not independent contractor, but employees of
said company, because "the requirement imposed on the 'parers' to the effect that 'the nuts are
pared whole or that there is not much meat wasted,' in effect limits or controls the means or details
by which said workers are to accomplish their services" — as in the cases before us.

The nature of the relation between the parties was not settled in the Viana case, the same having
been remanded to the Workmen's Compensation Commission for further evidence.

The case of the Philippine Manufacturing Co. involved a contract between said company and Eliano
Garcia, who undertook to paint a tank of the former. Garcia, in turn engaged the services of Arcadio
Geronimo, a laborer, who fell while painting the tank and died in consequence of the injuries thus
sustained by him. Inasmuch as the company was engaged in the manufacture of soap, vegetable
lard, cooking oil and margarine, it was held that the connection between its business and the
painting aforementioned was purely casual; that Eliano Garcia was an independent contractor; that
Geronimo was not an employee of the company; and that the latter was not bound, therefore, to pay
the compensation provided in the Workmen's Compensation Act. Unlike the Philippine
Manufacturing case, the relation between the business of herein petitioners-appellants and the work
of the musicians is not casual. As held in the order appealed from which, in this respect, is not
contested by herein petitioners-appellants — "the work of the musicians is an integral part of the
entire motion picture." Indeed, one can hardly find modern films without music therein. Hence, in
the Caro case (supra), the owner and operator of buildings for rent was held bound to pay the
indemnity prescribed in the Workmen's Compensation Act for the injury suffered by a carpenter while
working as such in one of said buildings even though his services had been allegedly engaged by a
third party who had directly contracted with said owner. In other words, the repair work had not
merely a casual connection with the business of said owner. It was a necessary incident thereof, just
as music is in the production of motion pictures.

The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957) differs materially
from the present cases. It involved the interpretation of Republic Act No. 660, which amends the law
creating and establishing the Government Service Insurance System. No labor law was sought to be
construed in that case. In act, the same was originally heard in the Court of First Instance of Manila,
the decision of which was, on appeal, affirmed by the Supreme Court. The meaning or scope if the
term "employee," as used in the Industrial Peace Act (Republic Act No. 875), was not touched
therein. Moreover, the subject matter of said case was a contract between the management of the
Manila Hotel, on the one hand, and Tirso Cruz, on the other, whereby the latter greed to furnish the
former the services of his orchestra, consisting of 15 musicians, including Tirso Cruz, "from 7:30
p.m. to closing time daily." In the language of this court in that case, "what pieces the orchestra shall
play, and how the music shall be arranged or directed, the intervals and other details — such are left
to the leader's discretion."

This is not situation obtaining in the case at bar. The musical directors above referred to
have no such control over the musicians involved in the present case. Said musical directors control
neither the music to be played, nor the musicians playing it. The film companies summon the
musicians to work, through the musical directors. The film companies, through the musical directors,
fix the date, the time and the place of work. The film companies, not the musical directors, provide
the transportation to and from the studio. The film companies furnish meal at dinner time.

What is more — in the language of the order appealed from — "during the recording sessions, the
motion picture director who is an employee of the company" — not the musical director —
"supervises the recording of the musicians and tells them what to do in every detail". The motion
picture director — not the musical director — "solely directs and performance of the musicians
before the camera". The motion picture director "supervises the performance of all the
actors, including the musicians who appear in the scenes, so that in the actual performance to be
shown in the screen, the musical director's intervention has stopped." Or, as testified to in the lower
court, "the movie director tells the musical director what to do; tells the music to be cut or tells
additional music in this part or he eliminates the entire music he does not (want) or he may want
more drums or move violin or piano, as the case may be". The movie director "directly controls the
activities of the musicians." He "says he wants more drums and the drummer plays more" or "if he
wants more violin or he does not like that.".

It is well settled that "an employer-employee relationship exists . . .where the person for whom the
services are performed reserves a right to control not only the end to be achieved but also the
means to be used in reaching such end . . . ." (Alabama Highway Express Co., Express Co., v. Local
612, 108S. 2d. 350.) The decisive nature of said control over the "means to be used", is illustrated in
the case of Gilchrist Timber Co., et al., Local No. 2530 (73 NLRB No. 210, pp. 1197, 1199-1201), in
which, by reason of said control, the employer-employee relationship was held to exist between the
management and the workers, notwithstanding the intervention of an alleged independent
contractor, who had, and exercise, the power to hire and fire said workers. The aforementioned
control over the means to be used" in reading the desired end is possessed and exercised by the
film companies over the musicians in the cases before us.

WHEREFORE, the order appealed from is hereby affirmed, with costs against petitioners herein. It is
so ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Paredes and
Dizon, JJ., concur.
Gutierrez David, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 119500 August 28, 1998

PAGUIO TRANSPORT CORPORATION, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and WILFREDO MELCHOR, respondents.

PANGANIBAN, J.:

In dismissing the petition, this Court reiterates the following doctrines: (1) the "boundary system"
used in taxi (and jeepney) operations presupposes an employer-employee relation; (2) the employer
must prove just (or authorized) cause and due process to justify dismissal of an employee; (3)
strained relations must be demonstrated as a fact; and (4) back wages and reinstatement are
necessary consequences of illegal dismissal.

The Case
Before us is a petition for certiorari and prohibition with preliminary injunction, assailing the
December 16, 1994 Decision of the National Labor Relations Commission 1 in NLRC NCR Case No.
00-02-01564-94 entitled "Wilfredo Melchor vs. Paguio Transport Corporation/Serafin Paguio." The
dispositive portion of the challenged Decision reads:

WHEREFORE, premises considered, the appeal insofar as it seeks reversal of the

finding on illegal dismissal is denied for lack of merit. The decision declaring that
complainant was illegally dismissed is affirmed. The decision is however partially
modified insofar as liability therefor is concerned. The liability shall inure against
PAGUIO TRANSPORT CORPORATION, subject to the provision of the Corporation
Code and the Rules of Court on matters taken herein. The backwages as computed
in the assailed decision is set aside, and a new one is hereby provided in the amount
of P86,400.00 as computed in the immediately preceding paragraph.

Petitioner also impugns the February 21, 1995 NLRC Resolution 2 denying the motion for
reconsideration.

The June 28, 1994 Decision of the labor arbiter, 3 which the NLRC modified as to the amount of back
wages, disposed as follows:

WHEREFORE, the respondents are hereby ordered to reinstate the complainant with
full backwages from the time his salaries were withheld from him until his actual
reinstatement.

The respondents are further ordered to pay him his 13th month pay in the amount of
P5,600.00.

Complainant's backwages up to the date of this Decision as computed by LEILANI E.

CALALANG of the Commission's NLRC NCR Branch is:

11/28/93 - 6/28/94 = 7 mos.

P800.00 x 3 days x 4 weeks = P9,600.00

P9,600.00 x 7 mos. = P67,200.00

The aspect of reinstatement either in the job or payroll at the option of the employers
being immediately executory pursuant to Article 223 of the Labor Code, the
respondents are hereby directed to so reinstate him when he reports for work by
virtue of this Decision.

Other claims are hereby dismissed for lack of evidence.

The Facts

The facts, as summarized in the challenged Decision, are as follows:

Complainant Wilfredo Melchor was hired by respondent company as a taxi driver on

25 December 1992 under the "[b]oundary [s]ystem. He [was] engaged to drive the
taxi unit assigned to him on a 24-hour schedule per trip every two (2) days, for which
he used to earn an average income from P500 to P700 per trip, exclusive of the
 P650.00 boundary and other deductions imposed on him. On 24 [sic] November
1993, complainant allegedly met a vehicular accident along Quirino Avenue near the
PNR Station and Plaza Dilao when he accidentally bumped a car which stopped at
the intersection even when the traffic light was green and go. After he submitted the
traffic accident report to the office of respondents, he was allegedly advised to stop
working and have a rest. After several days[,] he allegedly reported for work only to
be told that his service was no longer needed. Hence, the complaint for illegal
dismissal, among others.

Respondent[s] for their part maintained that complainant was not illegally dismissed,
there being in the first place no employer-employee relationship between them. In
amplification, it was argued that the element of control which [was] a paramount test
to determine the existence of such a relationship [was] lacking. So too, it argued the
element of the payment of compensation. Considering that in lieu of the latter,
payment of boundary is instead made allegedly makes the relationship between
them of a "wase-agreement" [sic]. Respondents then argued that even if an
employer-employee relationship were to be presumed as present, still complainant's
termination arose out of a valid cause and after he refused to articulate his stand on
the investigation being conducted on him. Respondents then harped on the
supposed three occasions when complainant figured in a vehicular accident involving
the taxi unit he was driving, viz: On August 3, which resulted in damages to the
respondent in the amount of P150.00; On August 4 which again resulted [in] the
damages to the respondent in the amount of P615.00; and, again on 4 November
1993, the mishap costing the respondents this time P25,370.00 in damages. As a
result of the alleged compounded damages which the respondents had to shoulder
on account of the supposed reckless driving of the complainant, the former was
allegedly left with no alternative but to ask complainant's explanation why he should
still be allowed to drive. Complainant, despite several chances, allegedly failed to do
so. 4

Ruling of the NLRC

The NLRC held that private respondent was an illegally dismissed employee of petitioner. Upholding
the existence of an employer-employee relationship, it cited Doce v. WCC, 5 in which the Supreme
Court ruled that "the relationship created between the parties operating under a 'boundary system' is
one of an employer and employee, and not of a lessor and a lessee." 6

The NLRC sustained the ruling of the labor arbiter that the private respondent was illegally
dismissed, for he "was not afforded the twin requirements of due process . . . ." 7 It rejected
petitioner's claim that private respondent had figured in three vehicular incidents because of his
reckless driving. It found that "except for petitioner's bare statements, no proof was presented to
establish with particularity the circumstances being claimed. . . . The guilt and culpability of [private
respondent] which would give [petitioner] valid ground to effect his dismissal cannot be established
by a mere allegation of his reckless driving." 8

Public Respondent NLRC found petitioner liable for back wages in the amount of P86,400, and not
P67,200 as computed by the labor arbiter. It found, however, that this liability should be imposed on
Petitioner Corporation only, and not on its president who was also impleaded by private respondent.

Hence, this petition. 9

Issues
Petitioner raises the following issues:

a. Whether or not public respondent Commission acted in excess of jurisdiction

and/or with grave abuse of discretion amounting to lack of jurisdiction in ordering the
reinstatement of private respondent with full backwages, despite its strained relations
with the petitioner and the reinstatement would, in effect, be inimical to the interest of
the latter in particular, and to the riding public in general;

b. Whether or not public respondent acted in excess of jurisdiction and/or with grave
abuse of discretion in refusing to reconsider its decision and resolution complained of
despite the facts prevailing to support the reconsideration. 10

In resolving the petition, we shall address the following points: (1) employer-employee relation, (2)
presence of just cause, (3) due process, (4) strained relationship, and (5) propriety of reinstatement
and backwages.

The Court's Ruling

The petition is not meritorious.

First Issue:
Employer-Employee Relation

Under the "boundary system," private respondent was engaged to drive petitioner's taxi unit on a 24-
hour schedule every two days. On each such trip, private respondent remitted to petitioner a
"boundary" of P650. Whatever he earned in excess of that amount was considered his income.

Petitioner argues that under said arrangement, he had no control over the number of hours private
respondent had to work and the routes he had to take. Therefore, he concludes that the employer-
employee relationship cannot be deemed to exist.

Petitioner's contention is not novel. In Martinez v. National Labor Relations Commission, 11 this Court
already ruled that the relationship of taxi owners and taxi drivers is the same as that between
jeepney owners and jeepney drivers under the "boundary system." In both cases, the employer-
employee relationship was deemed to exist, viz.:

The relationship between jeepney owners/operators on one hand and jeepney

drivers on the other under the boundary system is that of employer-employee and
not of lessor-lessee. . . . In the lease of chattels[,] the lessor loses complete control
over the chattel leased . . . . In the case of jeepney owners/operators and jeepney
drivers, the former exercise supervision and control over the latter. The fact that the
drivers do not receive fixed wages but get only the excess of that so-called boundary
they pay to the owner/operator is not sufficient to withdraw the relationship between
them from that of employer and employee. The doctrine is applicable in the present
case. Thus, private respondents were employees. . . because they had been
engaged to perform activities which were usually necessary or desirable in the usual
trade or business of the employer. 12

Second Issue:
Just Cause
Petitioner also asserts that private respondent's involvement in three vehicular accidents within a
span of several months constitutes just cause for his dismissal. It alleges that, according to the
police report concerning the most recent and serious vehicular mishap, it was private respondent
who was at fault and that the "city prosecutor of Quezon City recommended that an Information for
reckless imprudence resulting in damage to property be filed against him." 13

Petitioner, however, did not submit any proof to support these allegations. Well-settled is the rule
that the employer has the burden of proving that the dismissal of an employee is for a just cause.
The failure of the employer to discharge this burden means that the dismissal is not justified and that
the employee is entitled to reinstatement and backwages. 14 In this case, petitioner failed to prove
any just or authorized cause for his dismissal. Private respondent, therefore, must be deemed
illegally dismissed. 15

Petitioner contends that he "submitted and presented material and competent documentary
evidence consisting of police reports of vehicular accidents of taxicab units owned by petitioner and
driven by private respondent, the repairs and expenses suffered by the petitioner as a result thereof
and the resolution of the [c]ity [p]rosecutor of Quezon City finding private respondent at fault for the
November 4, 1993 vehicular accident caused by the latter." 16Adding that the submission of these
documents only on appeal does not diminish their probative value, petitioner cites Article 221 of the
Labor Code which reads:

Art. 221. Technical rules not binding and prior resort to amicable settlement. — In
any proceeding before the Commission or any of the Labor Arbiters, the rules of
procedure prevailing in courts of law and equity shall not be controlling and it is the
spirit and intention of the Code that the Commission and its members and the Labor
Arbiters shall use every and all reasonable means to ascertain the facts in each case
speedily and objectively without regard to technicalities of law and procedure, all in
the interest of due process. In any proceeding before the Commission or any Labor
Arbiter, the parties may be represented by legal counsel but it shall be the duty of the
Chairman, any Presiding Commissioner or Commissioner or any Labor Arbiter to
exercise complete control of the proceedings at all stages.

Any provision of law to the contrary notwithstanding, the Labor Arbiter shall exert all
efforts towards [t]he amicable settlement of a labor dispute within his jurisdiction on
or before the first hearing. The same rule shall apply to the Commission in the
exercise of its original jurisdiction.

However, a careful examination of both the original Complaint and the Petitioner's Memorandum of
Appeal from the labor arbiter's Decision reveals that said pieces of documentary evidence were not
mentioned or included therein, 17but were submitted by petitioner only when he filed his present
petition with this Court. These pieces of evidence were attached and referred to as Annexes "G",
"H", "I", "J", "K" and "L" of the said petition. Such factual issues cannot be resolved in a petition
for certiorari like the present case, because the Court's review of NLRC decisions is limited to
questions of jurisdiction and grave abuse of discretion. In PMI Colleges v. NLRC, 18 the Court held:

This Court is definitely not the proper venue to consider this matter for it is not a trier
of facts. . . . Certiorari is a remedy narrow in its scope and inflexible in character. It is
not a general utility tool in the legal workshop. Factual issues are not a proper
subject for certiorari, as the power of the Supreme Court to review labor cases is
limited to the issue of jurisdiction and grave abuse of discretion. . . . .
 Of the same tenor was our disquisition in Ilocos Sur Electric Cooperative, Inc. v.
NLRC where we made plain that:

In certiorari proceedings under Rule 65 of the Rules of Court, judicial

review by this Court does not go so far as to evaluate the sufficiency
of evidence upon which the Labor Arbiter and the NLRC based their
determinations, the inquiry being limited essentially to whether or not
said public respondents had acted without or in excess of [their]
jurisdiction or with grave abuse of discretion.

. . . Our deference to the expertise acquired by quasi-judicial agencies and the

limited scope granted us in the exercise of certiorari jurisdiction restrain us from
going so far as to probe into the correctness of a tribunal's evaluation of evidence,
unless there is a palpable mistake and complete disregard thereof in which
case certiorari would be proper. In plain terms, in certiorari proceedings, we are
concerned with mere errors of jurisdiction and not errors of judgment.

Equally devoid of correctness is petitioner's claim that the documents should be considered,
pursuant to Article 221 of the Labor Code which stares that technical rules are not binding in
proceedings before the labor arbiters and the NLRC. The Supreme Court is not a trier of facts; as
earlier stated, its jurisdiction in a petition for certiorari, like the present case, is confined to questions
of jurisdiction and grave abuse of discretion. The unexplained failure of petitioner to present its
evidence before the labor arbiter and the NLRC cannot compel this Court to expand the scope of its
review. Indeed, petitioner has not proffered a sufficient reason for this Court to do so.

Petitioner's reliance on Canete v. National Labor Relations Commission 19 is misplaced. In that case,
the documents were submitted to the NLRC before they were tackled by the Supreme Court.

Private respondent's admission that he was involved in the November 4, 1993 accident did not give
petitioner a just cause to dismiss him. Mere involvement in an accident, absent any showing of fault
or recklessness on the part of an employee, is not a valid ground for dismissal.

Third Issue:
No Due Process

Petitioner insists that private respondent was accorded due process, because he was allowed to
explain his side and to show cause why he should still be allowed to act as one of petitioner's
drivers.

This does not persuade. The Court has consistently held that in the dismissal of employees, the twin
requirements of notice and hearing are essential elements of due process. The employer must
furnish the worker two written notices: (1) one to apprise him of the particular acts or omissions for
which his dismissal is sought and (2) the other to inform him of his employer's decision to dismiss
him. As to the requirement of a hearing, the essence of due process lies simply in an opportunity to
be heard, and not always and indispensably in an actual hearing. 20

In the present case, petitioner failed to present proof, other than its bare allegations, that it had
complied with these requirements. 21 We reiterate: the burden of proof rests on the employer. Private
respondent, in fact, was not given notice that he was being dismissed. When ordered to explain the
vehicular accident that happened on November 4, 1993, he was not informed that petitioner was
contemplating his dismissal and that his involvement in said vehicular accident was the cause
thereof. Private respondent was merely asked to explain the vehicular accident per se, not his
defense against a charge of dismissal arising from the vehicular accident. He became aware of his
employer's intention to dismiss him only when he was actually told not to report for work anymore.

Fourth Issue:
Strained Relations

Notwithstanding its failure to prove just cause and due process in the dismissal of private
respondent, petitioner seeks to bar his reinstatement by invoking the doctrine of strained relations. It
contends that as a result of private respondent's "reckless and incompetent manner of driving . . .,
compounded by the damages suffered by petitioner in terms of repairs, related expenses, and the
institution of the instant case, the relationship between the parties are so strained as to preclude a
harmonious working atmosphere to the prejudice of the petitioner as well as private respondent." 22

We are not persuaded. Strained relations must be demonstrated as a fact. Petitioner failed to do so.
Its allegation that private respondent was incompetent and reckless in his manner of driving, which
led to the his involvement in three vehicular accidents, is not supported by the records. As earlier
noted, no evidence was properly submitted by petitioner to prove or give credence to his assertions.
Thus, Respondent NLRC ruled:

Despite allegation on the matter, not an iota of proof was presented to establish the
claim. This observation equally applies to the allegation that complainants, in three
(3) occasions had figured in [a] vehicular accident due to his reckless driving . . . . 23

Because the claim of petitioner has no factual basis, the doctrine on strained relations cannot be
applied in this case. Moreover, the filing of the Complaint for illegal dismissal does not by itself justify
the invocation of this doctrine. As the Court held in Capili vs. NLRC: 24

. . . [T]he doctrine on "strained relations" cannot be applied indiscriminately since

every labor dispute almost invariably results in "strained relations"; otherwise,
reinstatement can never be possible simply because some hostility is engendered
between the parties as a result of their disagreement. That is human nature.

Fifth Issue:
Reinstatement and Back Wages

Because he was illegally dismissed, private respondent is entitled to reinstatement and back wages
pursuant to Section 279 of the Labor Code, which reads:

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.

Interpreting this provision, the Court held in Bustamante v. NLRC 25 that illegally dismissed
employees are entitled to full back wages without conditions or limitations, viz.:

. . . [A] closer adherence to the legislative policy behind Rep. Act No. 6715 points to
"full backwages" as meaning exactly that, i.e., without deducting from backwages the
 earnings derived elsewhere by the concerned employee during the period of his
illegal dismissal. In other words, the provision calling for "full backwages" to illegally
dismissed employees is clear, plain and free from ambiguity and, therefore, must be
applied without attempted or strained interpretation.

The labor arbiter awarded back wages in the sum of P67,200 based on the following computation:

11/28/93 - 6/28/94 = 7 mos.

P800.00 x 3 days x 4 weeks = P6,600.00

P9,600 x 7 mos. = P67,200.00 26

In modifying the foregoing award, the NLRC relied on this other formula:

11/28/93 - 11/28/94 = 12 months

P600.00 x 3 days x 4 weeks = P 7,200.00

P7,200 x 12 months = P86,400.00. 27

Although the NLRC adjusted the amount of private respondent's monthly income and the period
during which back wages may be awarded, neither the petitioner nor the private respondent
questioned the new computation. Accordingly we sustain the award but stress that the back wages
ought to be computed from the time of the illegal dismissal to the time of reinstatement, either actual
or in the payroll, without any deduction or qualification.

WHEREFORE, the petition is hereby DISMISSED for utter lack merit, and the assailed Decision and
Resolution are hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

Davide, Jr. and Vitug, JJ., concur.

Bellosillo, J., took no part.

Quisumbing, J., concurs in the result.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 169704 November 17, 2010

ALBERT TENG, doing business under the firm name ALBERT TENG FISH TRADING, and
EMILIA TENG-CHUA, Petitioners,
vs.
ALFREDO S. PAHAGAC, EDDIE D. NIPA, ORLANDO P. LAYESE, HERNAN Y. BADILLES and
ROGER S. PAHAGAC, Respondents.

DECISION

BRION, J.:

Before this Court is a Petition for Review on Certiorari1 filed by petitioners Albert Teng Fish Trading,
its owner Albert Teng, and its manager Emilia Teng-Chua, to reverse and set aside the September
21, 2004 decision2 and the September 1, 2005 resolution3 of the Court of Appeals (CA) in CA-G.R.
SP No. 78783. The CA reversed the decision of the Voluntary Arbitrator (VA), National Conciliation
and Mediation Board (NCMB), Region IX, Zamboanga City, and declared that there exists an
employer-employee relationship between Teng and respondents Hernan Badilles, Orlando Layese,
Eddie Nipa, Alfredo Pahagac, and Roger Pahagac (collectively, respondent workers). It also found
that Teng illegally dismissed the respondent workers from their employment.

BACKGROUND FACTS

Albert Teng Fish Trading is engaged in deep sea fishing and, for this purpose, owns boats (basnig),
equipment, and other fishing paraphernalia. As owner of the business, Teng claims that he
customarily enters into joint venture agreements with master fishermen (maestros) who are skilled
and are experts in deep sea fishing; they take charge of the management of each fishing venture,
including the hiring of the members of its complement. He avers that the maestros hired the
respondent workers as checkers to determine the volume of the fish caught in every fishing voyage.4

On February 20, 2003, the respondent workers filed a complaint for illegal dismissal against Albert
Teng Fish Trading, Teng, and Chua before the NCMB, Region Branch No. IX, Zamboanga City.

The respondent workers alleged that Teng hired them, without any written employment contract, to
serve as his "eyes and ears" aboard the fishing boats; to classify the fish caught by bañera; to report
to Teng via radio communication the classes and volume of each catch; to receive instructions from
him as to where and when to unload the catch; to prepare the list of the provisions requested by the
maestro and the mechanic for his approval; and, to procure the items as approved by him.5 They
also claimed that they received regular monthly salaries, 13th month pay, Christmas bonus, and
incentives in the form of shares in the total volume of fish caught.

They asserted that sometime in September 2002, Teng expressed his doubts on the correct volume
of fish caught in every fishing voyage.6 In December 2002, Teng informed them that their services
had been terminated.7

In his defense, Teng maintained that he did not have any hand in hiring the respondent workers; the
maestros, rather than he, invited them to join the venture. According to him, his role was clearly
limited to the provision of the necessary capital, tools and equipment, consisting of basnig, gears,
fuel, food, and other supplies.8

The VA rendered a decision9 in Teng’s favor and declared that no employer-employee relationship
existed between Teng and the respondent workers. The dispositive portion of the VA’s May 30, 2003
decision reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the instant complaint
for lack of merit.
It follows also, that all other claims are likewise dismissed for lack of merit.10

The respondent workers received the VA’s decision on June 12, 2003.11 They filed a motion for
reconsideration, which was denied in an order dated June 27, 2003 and which they received on July
8, 2003.12 The VA reasoned out that Section 6, Rule VII of the 1989 Procedural Guidelines in the
Conduct of Voluntary Arbitration Proceedings (1989 Procedural Guidelines) does not provide the
remedy of a motion for reconsideration to the party adversely affected by the VA’s order or
decision.13 The order states:

Under Executive Order No. 126, as amended by Executive Order No. 251, and in order to implement
Article 260-262 (b) of the Labor Code, as amended by R.A. No. 6715, otherwise known as the
Procedural Guidelines in the Conduct of Voluntary Arbitration Proceedings, inter alia:

An award or the Decision of the Voluntary Arbitrators becomes final and executory after ten (10)
calendar days from receipt of copies of the award or decision by the parties (Sec. 6, Rule VII).

Moreover, the above-mentioned guidelines do not provide the remedy of a motion for
reconsideration to the party adversely affected by the order or decision of voluntary arbitrators.14

On July 21, 2003, the respondent-workers elevated the case to the CA. In its decision of September
21, 2004, the CA reversed the VA’s decision after finding sufficient evidence showing the existence
of employer-employee relationship:

WHEREFORE, premises considered, the petition is granted. The questioned decision of the
Voluntary Arbitrator dated May 30, 2003 is hereby REVERSED and SET ASIDE by ordering private
respondent to pay separation pay with backwages and other monetary benefits. For this purpose,
the case is REMANDED to the Voluntary Arbitrator for the computation of petitioner’s backwages
and other monetary benefits. No pronouncement as to costs.

SO ORDERED.15

Teng moved to reconsider the CA’s decision, but the CA denied the motion in its resolution of
September 1, 2005.16He, thereafter, filed the present Petition for Review on Certiorari under Rule 45
of the Rules of Court, claiming that:

a. the VA’s decision is not subject to a motion for reconsideration; and

b. no employer-employee relationship existed between Teng and the respondent workers.

Teng contends that the VA’s decision is not subject to a motion for reconsideration in the absence of
any specific provision allowing this recourse under Article 262-A of the Labor Code.17 He cites the
1989 Procedural Guidelines, which, as the VA declared, does not provide the remedy of a motion for
reconsideration.18 He claims that after the lapse of 10 days from its receipt, the VA’s decision
becomes final and executory unless an appeal is taken.19 He argues that when the respondent
workers received the VA’s decision on June 12, 2003,20 they had 10 days, or until June 22, 2003, to
file an appeal. As the respondent workers opted instead to move for reconsideration, the 10-day
period to appeal continued to run; thus, the VA’s decision had already become final and executory
by the time they assailed it before the CA on July 21, 2003.21

Teng further insists that the VA was correct in ruling that there was no employer-employee
relationship between him and the respondent workers. What he entered into was a joint venture
agreement with the maestros, where Teng’s role was only to provide basnig, gears, nets, and other
tools and equipment for every fishing voyage.22

THE COURT’S RULING

We resolve to deny the petition for lack of merit.

Article 262-A of the Labor Code does not prohibit the filing of a motion for reconsideration.

On March 21, 1989, Republic Act No. 671523 took effect, amending, among others, Article 263 of the
Labor Code which was originally worded as:

Art. 263 x x x Voluntary arbitration awards or decisions shall be final, unappealable, and executory.

As amended, Article 263 is now Article 262-A, which states:

Art. 262-A. x x x [T]he award or decision x x x shall contain the facts and the law on which it is
based. It shall be final and executory after ten (10) calendar days from receipt of the copy of the
award or decision by the parties.

Notably, Article 262-A deleted the word "unappealable" from Article 263. The deliberate selection of
the language in the amendatory act differing from that of the original act indicates that the legislature
intended a change in the law, and the court should endeavor to give effect to such intent.24 We
recognized the intent of the change of phraseology in Imperial Textile Mills, Inc. v. Sampang,25 where
we ruled that:

It is true that the present rule [Art. 262-A] makes the voluntary arbitration award final and executory
after ten calendar days from receipt of the copy of the award or decision by the parties. Presumably,
the decision may still be reconsidered by the Voluntary Arbitrator on the basis of a motion for
reconsideration duly filed during that period.26

In Coca-Cola Bottlers Phil., Inc., Sales Force Union-PTGWO-Balais v. Coca-Cola Bottlers

Philippines, Inc.,27 we likewise ruled that the VA’s decision may still be reconsidered on the basis of
a motion for reconsideration seasonably filed within 10 days from receipt thereof.28 The seasonable
filing of a motion for reconsideration is a mandatory requirement to forestall the finality of such
decision.29 We further cited the 1989 Procedural Guidelines which implemented Article 262-A, viz:30

[U]nder Section 6, Rule VII of the same guidelines implementing Article 262-A of the Labor Code,
this Decision, as a matter of course, would become final and executory after ten (10) calendar days
from receipt of copies of the decision by the parties x x x unless, in the meantime, a motion for
reconsideration or a petition for review to the Court of Appeals under Rule 43 of the Rules of Court is
filed within the same 10-day period. 31

These rulings fully establish that the absence of a categorical language in Article 262-A does not
preclude the filing of a motion for reconsideration of the VA’s decision within the 10-day period.
Teng’s allegation that the VA’s decision had become final and executory by the time the respondent
workers filed an appeal with the CA thus fails. We consequently rule that the respondent workers
seasonably filed a motion for reconsideration of the VA’s judgment, and the VA erred in denying the
motion because no motion for reconsideration is allowed.
The Court notes that despite our interpretation that Article 262-A does not preclude the filing of a
motion for reconsideration of the VA’s decision, a contrary provision can be found in Section 7, Rule
XIX of the Department of Labor’s Department Order (DO) No. 40, series of 2003:32

Rule XIX

Section 7. Finality of Award/Decision. – The decision, order, resolution or award of the voluntary
arbitrator or panel of voluntary arbitrators shall be final and executory after ten (10) calendar days
from receipt of the copy of the award or decision by the parties and it shall not be subject of a motion
for reconsideration.

Presumably on the basis of DO 40-03, the 1989 Procedural Guidelines was revised in 2005 (2005
Procedural Guidelines),33 whose pertinent provisions provide that:

Rule VII – DECISIONS

Section 6. Finality of Decisions. – The decision of the Voluntary Arbitrator shall be final and
executory after ten (10) calendar days from receipt of the copy of the decision by the parties.

Section 7. Motions for Reconsideration. – The decision of the Voluntary Arbitrator is not subject of a
Motion for Reconsideration.

We are surprised that neither the VA nor Teng cited DO 40-03 and the 2005 Procedural Guidelines
as authorities for their cause, considering that these were the governing rules while the case was
pending and these directly and fully supported their theory. Had they done so, their reliance on the
provisions would have nevertheless been unavailing for reasons we shall now discuss.

In the exercise of its power to promulgate implementing rules and regulations, an implementing
agency, such as the Department of Labor,34 is restricted from going beyond the terms of the law it
seeks to implement; it should neither modify nor improve the law. The agency formulating the rules
and guidelines cannot exceed the statutory authority granted to it by the legislature.35

By allowing a 10-day period, the obvious intent of Congress in amending Article 263 to Article 262-A
is to provide an opportunity for the party adversely affected by the VA’s decision to seek recourse via
a motion for reconsideration or a petition for review under Rule 43 of the Rules of Court filed with the
CA. Indeed, a motion for reconsideration is the more appropriate remedy in line with the doctrine of
exhaustion of administrative remedies. For this reason, an appeal from administrative agencies to
the CA via Rule 43 of the Rules of Court requires exhaustion of available remedies36 as a condition
precedent to a petition under that Rule.

The requirement that administrative remedies be exhausted is based on the doctrine that in
providing for a remedy before an administrative agency, every opportunity must be given to the
agency to resolve the matter and to exhaust all opportunities for a resolution under the given remedy
before bringing an action in, or resorting to, the courts of justice.37 Where Congress has not clearly
required exhaustion, sound judicial discretion governs,38 guided by congressional intent.39

By disallowing reconsideration of the VA’s decision, Section 7, Rule XIX of DO 40-03 and Section 7
of the 2005 Procedural Guidelines went directly against the legislative intent behind Article 262-A of
the Labor Code. These rules deny the VA the chance to correct himself40 and compel the courts of
justice to prematurely intervene with the action of an administrative agency entrusted with the
adjudication of controversies coming under its special knowledge, training and specific field of
expertise. In this era of clogged court dockets, the need for specialized administrative agencies with
the special knowledge, experience and capability to hear and determine promptly disputes on
technical matters or intricate questions of facts, subject to judicial review, is indispensable.41 In
Industrial Enterprises, Inc. v. Court of Appeals,42 we ruled that relief must first be obtained in an
administrative proceeding before a remedy will be supplied by the courts even though the matter is
within the proper jurisdiction of a court.43

There exists an employer-employee relationship between Teng and the respondent workers.

We agree with the CA’s finding that sufficient evidence exists indicating the existence of an
employer-employee relationship between Teng and the respondent workers.

While Teng alleged that it was the maestros who hired the respondent workers, it was his company
that issued to the respondent workers identification cards (IDs) bearing their names as employees
and Teng’s signature as the employer. Generally, in a business establishment, IDs are issued to
identify the holder as a bona fide employee of the issuing entity.

For the 13 years that the respondent workers worked for Teng, they received wages on a regular
basis, in addition to their shares in the fish caught.44 The worksheet showed that the respondent
workers received uniform amounts within a given year, which amounts annually increased until the
termination of their employment in 2002.45 Teng’s claim that the amounts received by the respondent
workers are mere commissions is incredulous, as it would mean that the fish caught throughout the
year is uniform and increases in number each year.

More importantly, the element of control – which we have ruled in a number of cases to be a strong
indicator of the existence of an employer-employee relationship – is present in this case. Teng not
only owned the tools and equipment, he directed how the respondent workers were to perform their
job as checkers; they, in fact, acted as Teng’s eyes and ears in every fishing expedition.

Teng cannot hide behind his argument that the respondent workers were hired by the maestros. To
consider the respondent workers as employees of the maestros would mean that Teng committed
impermissible labor-only contracting. As a policy, the Labor Code prohibits labor-only contracting:

ART. 106. Contractor or Subcontractor – x x x The Secretary of Labor and Employment may, by
appropriate regulations, restrict or prohibit the contracting-out of labor.

xxxx

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

Section 5 of the DO No. 18-02,46 which implements Article 106 of the Labor Code, provides:

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

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

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

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

In the present case, the maestros did not have any substantial capital or investment. Teng admitted
1avv phi1

that he solely provided the capital and equipment, while the maestros supplied the workers. The
power of control over the respondent workers was lodged not with the maestros but with Teng. As
checkers, the respondent workers’ main tasks were to count and classify the fish caught and report
them to Teng. They performed tasks that were necessary and desirable in Teng’s fishing business.
Taken together, these incidents confirm the existence of a labor-only contracting which is prohibited
in our jurisdiction, as it is considered to be the employer’s attempt to evade obligations afforded by
law to employees.

Accordingly, we hold that employer-employee ties exist between Teng and the respondent workers.
A finding that the maestros are labor-only contractors is equivalent to a finding that an employer-
employee relationship exists between Teng and the respondent workers. As regular employees, the
respondent workers are entitled to all the benefits and rights appurtenant to regular employment.

The dismissal of an employee, which the employer must validate, has a twofold requirement: one is
substantive, the other is procedural.47 Not only must the dismissal be for a just or an authorized
cause, as provided by law; the rudimentary requirements of due process – the opportunity to be
heard and to defend oneself – must be observed as well.48 The employer has the burden of proving
that the dismissal was for a just cause; failure to show this, as in the present case, would necessarily
mean that the dismissal was unjustified and, therefore, illegal.49

The respondent worker’s allegation that Teng summarily dismissed them on suspicion that they were
not reporting to him the correct volume of the fish caught in each fishing voyage was never denied
by Teng. Unsubstantiated suspicion is not a just cause to terminate one’s employment under Article
28250 of the Labor Code. To allow an employer to dismiss an employee based on mere allegations
and generalities would place the employee at the mercy of his employer, and would emasculate the
right to security of tenure.51 For his failure to comply with the Labor Code’s substantive requirement
on termination of employment, we declare that Teng illegally dismissed the respondent workers.

WHEREFORE, we DENY the petition and AFFIRM the September 21, 2004 decision and the
September 1, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 78783. Costs against the
petitioners.

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:
 CONCHITA CARPIO MORALES
Associate Justice

LUCAS P. BERSAMIN MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-32245 May 25, 1979

DY KEH BENG, petitioner,

vs.
INTERNATIONAL LABOR and MARINE UNION OF THE PHILIPPINES, ET AL., respondents.

A. M Sikat for petitioner.

D. A. Hernandez for respondents.

DE CASTRO, J.:

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

reinstate Carlos Solano and Ricardo Tudla to their former jobs with backwages from
their respective dates of dismissal until fully reinstated without loss to their right of
seniority and of such other rights already acquired by them and/or allowed by law. 1

Now, Dy Keh Beng assigns the following errors 2 as having been committed by the Court of Industrial
Relations:
I

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO

AND TUDLA WERE EMPLOYEES OF PETITIONERS.

II

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO

AND TUDLA WERE DISMISSED FROM THEIR EMPLOYMENT BY PETITIONER.

III

RESPONDENT COURT ERRED IN FINDING THAT THE TESTIMONIES ADDUCED

BY COMPLAINANT ARE CONVINCING AND DISCLOSES (SIC) A PATTERN OF
DISCRIMINATION BY THE PETITIONER HEREIN.

IV

RESPONDENT COURT ERRED IN DECLARING PETITIONER GUILTY OF

UNFAIR LABOR PRACTICE ACTS AS ALLEGED AND DESCRIBED IN THE
COMPLAINT.

RESPONDENT COURT ERRED IN PETITIONER TO REINSTATE RESPONDENTS

TO THEIR FORMER JOBS WITH BACKWAGES FROM THEIR RESPECTIVE
DATES OF DISMISSALS UNTIL FINALLY REINSTATED WITHOUT LOSS TO
THEIR RIGHT OF SENIORITY AND OF SUCH OTHER RIGHTS ALREADY
ACQUIRED BY THEM AND/OR ALLOWED BY LAW.

The facts as found by the Hearing Examiner are as follows:

A charge of unfair labor practice was filed against Dy Keh Beng, proprietor of a basket factory, for
discriminatory acts within the meaning of Section 4(a), sub-paragraph (1) and (4). Republic Act No.
875, 3 by dismissing on September 28 and 29, 1960, respectively, Carlos N. Solano and Ricardo
Tudla for their union activities. After preliminary investigation was conducted, a case was filed in the
Court of Industrial Relations for in behalf of the International Labor and Marine Union of the
Philippines and two of its members, Solano and Tudla In his answer, Dy Keh Beng contended that
he did not know Tudla and that Solano was not his employee because the latter came to the
establishment only when there was work which he did on pakiaw basis, each piece of work being
done under a separate contract. Moreover, Dy Keh Beng countered with a special defense of simple
extortion committed by the head of the labor union, Bienvenido Onayan.

After trial, the Hearing Examiner prepared a report which was subsequently adopted in toto by the
Court of Industrial Relations. An employee-employer relationship was found to have existed between
Dy Keh Beng and complainants Tudla and Solano, although Solano was admitted to have worked on
piece basis.4 The issue therefore centered on whether there existed an employee employer relation
between petitioner Dy Keh Beng and the respondents Solano and Tudla .

According to the Hearing Examiner, the evidence for the complainant Union tended to show that
Solano and Tudla became employees of Dy Keh Beng from May 2, 1953 and July 15,
1955, 5 respectively, and that except in the event of illness, their work with the establishment was
continuous although their services were compensated on piece basis. Evidence likewise showed
that at times the establishment had eight (8) workers and never less than five (5); including the
complainants, and that complainants used to receive ?5.00 a day. sometimes less. 6

According to Dy Keh Beng, however, Solano was not his employee for the following reasons:

(1) Solano never stayed long enought at Dy's establishment;

(2) Solano had to leave as soon as he was through with the

(3) order given him by Dy;

(4) When there were no orders needing his services there was nothing for him to do;

(5) When orders came to the shop that his regular workers could not fill it was then
that Dy went to his address in Caloocan and fetched him for these orders; and

(6) Solano's work with Dy's establishment was not continuous. , 7

According to petitioner, these facts show that respondents Solano and Tudla are only piece workers,
not employees under Republic Act 875, where an employee 8 is referred to as

shall include any employee and shag not be limited to the employee of a particular
employer unless the Act explicitly states otherwise and shall include any individual
whose work has ceased as a consequence of, or in connection with any current labor
dispute or because of any unfair labor practice and who has not obtained any other
substantially equivalent and regular employment.

while an employer 9

includes any person acting in the interest of an employer, directly or indirectly but
shall not include any labor organization (otherwise than when acting as an employer)
or anyone acting in the capacity of officer or agent of such labor organization.

Petitioner really anchors his contention of the non-existence of employee-employer relationship on

the control test. He points to the case of Madrigal Shipping Co., Inc. v. Nieves Baens del Rosario, et
al., L-13130, October 31, 1959, where the Court ruled that:

The test ... of the existence of employee and employer relationship is whether there
is an understanding between the parties that one is to render personal services to or
for the benefit of the other and recognition by them of the right of one to order and
control the other in the performance of the work and to direct the manner and method
of its performance.

Petitioner contends that the private respondents "did not meet the control test in the fight of the ...
definition of the terms employer and employee, because there was no evidence to show that
petitioner had the right to direct the manner and method of respondent's work. 10 Moreover, it is
argued that petitioner's evidence showed that "Solano worked on a pakiaw basis" and that he stayed
in the establishment only when there was work.
While this Court upholds the control test 11 under which an employer-employee relationship exists
"where the person for whom the services are performed reserves a right to control not only the end
to be achieved but also the means to be used in reaching such end, " it finds no merit with
petitioner's arguments as stated above. It should be borne in mind that the control test calls merely
for the existence of the right to control the manner of doing the work, not the actual exercise of the
right. 12 Considering the finding by the Hearing Examiner that the establishment of Dy Keh Beng is
"engaged in the manufacture of baskets known as kaing, 13 it is natural to expect that those working
under Dy would have to observe, among others, Dy's requirements of size and quality of the kaing.
Some control would necessarily be exercised by Dy as the making of the kaing would be subject to
Dy's specifications. Parenthetically, since the work on the baskets is done at Dy's establishments, it
can be inferred that the proprietor Dy could easily exercise control on the men he employed.

As to the contention that Solano was not an employee because he worked on piece basis, this Court
agrees with the Hearing Examiner that

circumstances must be construed to determine indeed if payment by the piece is just

a method of compensation and does not define the essence of the relation. Units of
time ... and units of work are in establishments like respondent (sic) just yardsticks
whereby to determine rate of compensation, to be applied whenever agreed upon.
We cannot construe payment by the piece where work is done in such an
establishment so as to put the worker completely at liberty to turn him out and take in
another at pleasure.

At this juncture, it is worthy to note that Justice Perfecto, concurring with Chief Justice Ricardo Paras
who penned the decision in "Sunrise Coconut Products Co. v. Court of Industrial Relations" (83
Phil..518, 523), opined that

judicial notice of the fact that the so-called "pakyaw" system mentioned in this case
as generally practiced in our country, is, in fact, a labor contract -between employers
and employees, between capitalists and laborers.

Insofar as the other assignments of errors are concerned, there is no showing that the Court of
Industrial Relations abused its discretion when it concluded that the findings of fact made by the
Hearing Examiner were supported by evidence on the record. Section 6, Republic Act 875 provides
that in unfair labor practice cases, the factual findings of the Court of Industrial Relations are
conclusive on the Supreme Court, if supported by substantial evidence. This provision has been put
into effect in a long line of decisions where the Supreme Court did not reverse the findings of fact of
the Court of Industrial Relations when they were supported by substantial evidence. 14

Nevertheless, considering that about eighteen (18) years have already elapsed from the time the
complainants were dismissed, 15 and that the decision being appealed ordered the payment of
backwages to the employees from their respective dates of dismissal until finally reinstated, it is
fitting to apply in this connection the formula for backwages worked out by Justice Claudio
Teehankee in "cases not terminated sooner." 16 The formula cans for fixing the award of backwages
without qualification and deduction to three years, "subject to deduction where there are mitigating
circumstances in favor of the employer but subject to increase by way of exemplary damages where
there are aggravating circumstances. 17 Considering there are no such circumstances in this case,
there is no reason why the Court should not apply the abovementioned formula in this instance.

WHEREFORE; the award of backwages granted by the Court of Industrial Relations is herein
modified to an award of backwages for three years without qualification and deduction at the
respective rates of compensation the employees concerned were receiving at the time of dismissal.
The execution of this award is entrusted to the National Labor Relations Commission. Costs against
petitioner.

SO ORDERED.

Teehankee, Makasiar, Guerrero, and Melencio-Herrera, JJ., concur.

Fernandez, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 84484 November 15, 1989

INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.

Tirol & Tirol for petitioner.

Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.

NARVASA, J.:

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

1. Basiao was "authorized to solicit within the Philippines applications for insurance
policies and annuities in accordance with the existing rules and regulations" of the
Company;

2. he would receive "compensation, in the form of commissions ... as provided in the

Schedule of Commissions" of the contract to "constitute a part of the consideration of
... (said) agreement;" and

3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well as all
its circulars ... and those which may from time to time be promulgated by it, ..." were
made part of said contract.

The contract also contained, among others, provisions governing the relations of the parties, the
duties of the Agent, the acts prohibited to him, and the modes of termination of the agreement, viz.:

RELATION WITH THE COMPANY. The Agent shall be free to exercise his own
judgment as to time, place and means of soliciting insurance. Nothing herein
contained shall therefore be construed to create the relationship of employee and
 employer between the Agent and the Company. However, the Agent shall observe
and conform to all rules and regulations which the Company may from time to time
prescribe.

ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving,

directly or indirectly, rebates in any form, or from making any misrepresentation or
over-selling, and, in general, from doing or committing acts prohibited in the Agent's
Manual and in circulars of the Office of the Insurance Commissioner.

TERMINATION. The Company may terminate the contract at will, without any
previous notice to the Agent, for or on account of ... (explicitly specified causes). ...

Either party may terminate this contract by giving to the other notice in writing to that
effect. It shall become ipso facto cancelled if the Insurance Commissioner should
revoke a Certificate of Authority previously issued or should the Agent fail to renew
his existing Certificate of Authority upon its expiration. The Agent shall not have any
right to any commission on renewal of premiums that may be paid after the
termination of this agreement for any cause whatsoever, except when the termination
is due to disability or death in line of service. As to commission corresponding to any
balance of the first year's premiums remaining unpaid at the termination of this
agreement, the Agent shall be entitled to it if the balance of the first year premium is
paid, less actual cost of collection, unless the termination is due to a violation of this
contract, involving criminal liability or breach of trust.

ASSIGNMENT. No Assignment of the Agency herein created or of commissions or

other compensations shall be valid without the prior consent in writing of the
Company. ...

Some four years later, in April 1972, the parties entered into another contract — an Agency
Manager's Contract — and to implement his end of it Basiao organized an agency or office to which
he gave the name M. Basiao and Associates, while concurrently fulfilling his commitments under the
first contract with the Company. 2

In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking a
reconsideration, Basiao sued the Company in a civil action and this, he was later to claim, prompted
the latter to terminate also his engagement under the first contract and to stop payment of his
commissions starting April 1, 1980. 3

Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and its
president. Without contesting the termination of the first contract, the complaint sought to recover
commissions allegedly unpaid thereunder, plus attorney's fees. The respondents disputed the
Ministry's jurisdiction over Basiao's claim, asserting that he was not the Company's employee, but an
independent contractor and that the Company had no obligation to him for unpaid commissions
under the terms and conditions of his contract. 5

The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting
agreement had established an employer-employee relationship between him and the Company, and
this conferred jurisdiction on the Ministry of Labor to adjudicate his claim. Said official's decision
directed payment of his unpaid commissions "... equivalent to the balance of the first year's premium
remaining unpaid, at the time of his termination, of all the insurance policies solicited by ... (him) in
favor of the respondent company ..." plus 10% attorney's fees. 6
This decision was, on appeal by the Company, affirmed by the National Labor Relations
Commission. 7 Hence, the present petition for certiorari and prohibition.

The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the
Company's employee by virtue of the contract invoked by him, thereby placing his claim for unpaid
commissions within the original and exclusive jurisdiction of the Labor Arbiter under the provisions of
Section 217 of the Labor Code, 8 or, contrarily, as the Company would have it, that under said
contract Basiao's status was that of an independent contractor whose claim was thus cognizable, not
by the Labor Arbiter in a labor case, but by the regular courts in an ordinary civil action.

The Company's thesis, that no employer-employee relation in the legal and generally accepted
sense existed between it and Basiao, is drawn from the terms of the contract they had entered into,
which, either expressly or by necessary implication, made Basiao the master of his own time and
selling methods, left to his judgment the time, place and means of soliciting insurance, set no
accomplishment quotas and compensated him on the basis of results obtained. He was not bound to
observe any schedule of working hours or report to any regular station; he could seek and work on
his prospects anywhere and at anytime he chose to, and was free to adopt the selling methods he
deemed most effective.

Without denying that the above were indeed the expressed implicit conditions of Basiao's contract
with the Company, the respondents contend that they do not constitute the decisive determinant of
the nature of his engagement, invoking precedents to the effect that the critical feature distinguishing
the status of an employee from that of an independent contractor is control, that is, whether or not
the party who engages the services of another has the power to control the latter's conduct in
rendering such services. Pursuing the argument, the respondents draw attention to the provisions of
Basiao's contract obliging him to "... observe and conform to all rules and regulations which the
Company may from time to time prescribe ...," as well as to the fact that the Company prescribed the
qualifications of applicants for insurance, processed their applications and determined the amounts
of insurance cover to be issued as indicative of the control, which made Basiao, in legal
contemplation, an employee of the Company. 9

It is true that the "control test" expressed in the following pronouncement of the Court in the 1956
case of Viana vs. Alejo Al-Lagadan10

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

elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employees' conduct — although the latter is the most important element
(35 Am. Jur. 445). ...

has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a
valid test of the character of a contract or agreement to render service. It should, however, be
obvious that not every form of control that the hiring party reserves to himself over the conduct of the
party hired in relation to the services rendered may be accorded the effect of establishing an
employer-employee relationship between them in the legal or technical sense of the term. A line
must be drawn somewhere, if the recognized distinction between an employee and an individual
contractor is not to vanish altogether. Realistically, it would be a rare contract of service that gives
untrammelled freedom to the party hired and eschews any intervention whatsoever in his
performance of the engagement.

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed
in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the
use of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it. The
distinction acquires particular relevance in the case of an enterprise affected with public interest, as
is the business of insurance, and is on that account subject to regulation by the State with respect,
not only to the relations between insurer and insured but also to the internal affairs of the insurance
company. 12 Rules and regulations governing the conduct of the business are provided for in the
Insurance Code and enforced by the Insurance Commissioner. It is, therefore, usual and expected
for an insurance company to promulgate a set of rules to guide its commission agents in selling its
policies that they may not run afoul of the law and what it requires or prohibits. Of such a character
are the rules which prescribe the qualifications of persons who may be insured, subject insurance
applications to processing and approval by the Company, and also reserve to the Company the
determination of the premiums to be paid and the schedules of payment. None of these really
invades the agent's contractual prerogative to adopt his own selling methods or to sell insurance at
his own time and convenience, hence cannot justifiably be said to establish an employer-employee
relationship between him and the company.

There is no dearth of authority holding persons similarly placed as respondent Basiao to be

independent contractors, instead of employees of the parties for whom they worked. In Mafinco
Trading Corporation vs. Ople, 13the Court ruled that a person engaged to sell soft drinks for another,
using a truck supplied by the latter, but with the right to employ his own workers, sell according to his
own methods subject only to prearranged routes, observing no working hours fixed by the other
party and obliged to secure his own licenses and defray his own selling expenses, all in
consideration of a peddler's discount given by the other party for at least 250 cases of soft drinks
sold daily, was not an employee but an independent contractor.

In Investment Planning Corporation of the Philippines us. Social Security System 14 a case almost on
all fours with the present one, this Court held that there was no employer-employee relationship
between a commission agent and an investment company, but that the former was an independent
contractor where said agent and others similarly placed were: (a) paid compensation in the form of
commissions based on percentages of their sales, any balance of commissions earned being
payable to their legal representatives in the event of death or registration; (b) required to put up
performance bonds; (c) subject to a set of rules and regulations governing the performance of their
duties under the agreement with the company and termination of their services for certain causes;
(d) not required to report for work at any time, nor to devote their time exclusively to working for the
company nor to submit a record of their activities, and who, finally, shouldered their own selling and
transportation expenses.

More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller to
buy and sell rice and palay without compensation except a certain percentage of what he was able
to buy or sell, did work at his own pleasure without any supervision or control on the part of his
principal and relied on his own resources in the performance of his work, was a plain commission
agent, an independent contractor and not an employee.

The respondents limit themselves to pointing out that Basiao's contract with the Company bound him
to observe and conform to such rules and regulations as the latter might from time to time prescribe.
No showing has been made that any such rules or regulations were in fact promulgated, much less
that any rules existed or were issued which effectively controlled or restricted his choice of methods
— or the methods themselves — of selling insurance. Absent such showing, the Court will not
speculate that any exceptions or qualifications were imposed on the express provision of the
contract leaving Basiao "... free to exercise his own judgment as to the time, place and means of
soliciting insurance."
The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with the
Company for twenty-five years. Whatever this is meant to imply, the obvious reply would be that
what is germane here is Basiao's status under the contract of July 2, 1968, not the length of his
relationship with the Company.

The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of
the petitioner, but a commission agent, an independent contractor whose claim for unpaid
commissions should have been litigated in an ordinary civil action. The Labor Arbiter erred in taking
cognizance of, and adjudicating, said claim, being without jurisdiction to do so, as did the respondent
NLRC in affirming the Arbiter's decision. This conclusion renders it unnecessary and premature to
consider Basiao's claim for commissions on its merits.

WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside,
and that complaint of private respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is
dismissed. No pronouncement as to costs.

SO ORDERED.

Cruz, Gancayco, Griño-Aquino, and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 167622 June 29, 2010

GREGORIO V. TONGKO, Petitioner,

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE
DIOS,Respondents.

RESOLUTION

BRION, J.:

This resolves the Motion for Reconsideration1 dated December 3, 2008 filed by respondent The
Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of November 7,
2008. In the assailed decision, we found that an employer-employee relationship existed between
Manulife and petitioner Gregorio Tongko and ordered Manulife to pay Tongko backwages and
separation pay for illegal dismissal.

The following facts have been stated in our Decision of November 7, 2008, now under
reconsideration, but are repeated, simply for purposes of clarity.

The contractual relationship between Tongko and Manulife had two basic phases. The first or initial
phase began on July 1, 1977, under a Career Agent’s Agreement (Agreement) that provided:
It is understood and agreed that the Agent is an independent contractor and nothing contained
herein shall be construed or interpreted as creating an employer-employee relationship between the
Company and the Agent.

xxxx

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

xxxx

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

Either of the parties hereto may likewise terminate his Agreement at any time without cause, by
giving to the other party fifteen (15) days notice in writing.2

Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and (2)
to maintain a standard of knowledge and competency in the sale of Manulife’s products, satisfactory
to Manulife and sufficient to meet the volume of the new business, required by his Production Club
membership.3

The second phase started in 1983 when Tongko was named Unit Manager in Manulife’s Sales
Agency Organization. In 1990, he became a Branch Manager. Six years later (or in 1996), Tongko
became a Regional Sales Manager.4

Tongko’s gross earnings consisted of commissions, persistency income, and management

overrides. Since the beginning, Tongko consistently declared himself self-employed in his income
tax returns. Thus, under oath, he declared his gross business income and deducted his business
expenses to arrive at his taxable business income. Manulife withheld the corresponding 10% tax on
Tongko’s earnings.5

In 2001, Manulife instituted manpower development programs at the regional sales management
level. Respondent Renato Vergel de Dios wrote Tongko a letter dated November 6, 2001 on
concerns that were brought up during the October 18, 2001 Metro North Sales Managers Meeting.
De Dios wrote:

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

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

While discussions, in general, were positive other than for certain comments from your end which
were perceived to be uncalled for, it became clear that a one-on-one meeting with you was
necessary to ensure that you and management, were on the same plane. As gleaned from some of
your previous comments in prior meetings (both in group and one-on-one), it was not clear that we
were proceeding in the same direction.

Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those
subsequent meetings you reiterated certain views, the validity of which we challenged and
subsequently found as having no basis.

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

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

xxxx

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

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

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

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

xxxx

All the above notwithstanding, we had your own records checked and we found that you made a lot
more money in the Year 2000 versus 1999. In addition, you also volunteered the information to
Kevin when you said that you probably will make more money in the Year 2001 compared to Year
2000. Obviously, your above statement about making "less money" did not refer to you but the way
you argued this point had us almost believing that you were spouting the gospel of truth when you
were not. x x x
 xxxx

All of a sudden, Greg, I have become much more worried about your ability to lead this group
towards the new direction that we have been discussing these past few weeks, i.e., Manulife’s goal
to become a major agency-led distribution company in the Philippines. While as you claim, you have
not stopped anyone from recruiting, I have never heard you proactively push for greater agency
recruiting. You have not been proactive all these years when it comes to agency growth.

xxxx

I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we
are making the following changes in the interim:

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

You have stated, if not implied, that your work as Regional Manager may be too taxing for you and
for your health. The above could solve this problem.

xxxx

2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star
Branch (NSB) in autonomous fashion. x x x

I have decided to make this change so as to reduce your span of control and allow you to
concentrate more fully on overseeing the remaining groups under Metro North, your Central Unit and
the rest of the Sales Managers in Metro North. I will hold you solely responsible for meeting the
objectives of these remaining groups.

xxxx

The above changes can end at this point and they need not go any further. This, however, is entirely
dependent upon you. But you have to understand that meeting corporate objectives by everyone is
primary and will not be compromised. We are meeting tough challenges next year, and I would want
everybody on board. Any resistance or holding back by anyone will be dealt with accordingly.6

Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating Tongko’s
services:

It would appear, however, that despite the series of meetings and communications, both one-on-one
meetings between yourself and SVP Kevin O’Connor, some of them with me, as well as group
meetings with your Sales Managers, all these efforts have failed in helping you align your directions
with Management’s avowed agency growth policy.

xxxx

On account thereof, Management is exercising its prerogative under Section 14 of your Agents
Contract as we are now issuing this notice of termination of your Agency Agreement with us effective
fifteen days from the date of this letter.7
Tongko responded by filing an illegal dismissal complaint with the National Labor Relations
Commission (NLRC) Arbitration Branch. He essentially alleged – despite the clear terms of the letter
terminating his Agency Agreement – that he was Manulife’s employee before he was illegally
dismissed.8

Thus, the threshold issue is the existence of an employment relationship. A finding that none exists
renders the question of illegal dismissal moot; a finding that an employment relationship exists, on
the other hand, necessarily leads to the need to determine the validity of the termination of the
relationship.

A. Tongko’s Case for Employment Relationship

Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding ₱50,000.00,
regardless of production levels attained and exclusive of commissions and bonuses. He also
claimed that as Regional Sales Manager, he was given a travel and entertainment allowance of
₱36,000.00 per year in addition to his overriding commissions; he was tasked with numerous
administrative functions and supervisory authority over Manulife’s employees, aside from merely
selling policies and recruiting agents for Manulife; and he recommended and recruited insurance
agents subject to vetting and approval by Manulife. He further alleges that he was assigned a
definite place in the Manulife offices when he was not in the field – at the 3rd Floor, Manulife Center,
108 Tordesillas corner Gallardo Sts., Salcedo Village, Makati City – for which he never paid any
rental. Manulife provided the office equipment he used, including tables, chairs, computers and
printers (and even office stationery), and paid for the electricity, water and telephone bills. As
Regional Sales Manager, Tongko additionally asserts that he was required to follow at least three
codes of conduct.9

B. Manulife’s Case – Agency Relationship with Tongko

Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was paid
commissions of varying amounts, computed based on the premium paid in full and actually received
by Manulife on policies obtained through an agent. As sales manager, Tongko was paid overriding
sales commission derived from sales made by agents under his unit/structure/branch/region.
Manulife also points out that it deducted and withheld a 10% tax from all commissions Tongko
received; Tongko even declared himself to be self-employed and consistently paid taxes as such—
i.e., he availed of tax deductions such as ordinary and necessary trade, business and professional
expenses to which a business is entitled.

Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he was not its
employee as characterized in the four-fold test and our ruling in Carungcong v. National Labor
Relations Commission.10

The Conflicting Rulings of the Lower Tribunals

The labor arbiter decreed that no employer-employee relationship existed between the parties.
However, the NLRC reversed the labor arbiter’s decision on appeal; it found the existence of an
employer-employee relationship and concluded that Tongko had been illegally dismissed. In the
petition for certiorari with the Court of Appeals (CA), the appellate court found that the NLRC gravely
abused its discretion in its ruling and reverted to the labor arbiter’s decision that no employer-
employee relationship existed between Tongko and Manulife.

Our Decision of November 7, 2008

In our Decision of November 7, 2008, we reversed the CA ruling and found that an employment
relationship existed between Tongko and Manulife. We concluded that Tongko is Manulife’s
employee for the following reasons:

1. Our ruling in the first Insular11 case did not foreclose the possibility of an insurance agent
becoming an employee of an insurance company; if evidence exists showing that the
company promulgated rules or regulations that effectively controlled or restricted an
insurance agent’s choice of methods or the methods themselves in selling insurance, an
employer-employee relationship would be present. The determination of the existence of an
employer-employee relationship is thus on a case-to-case basis depending on the evidence
on record.

2. Manulife had the power of control over Tongko, sufficient to characterize him as an
employee, as shown by the following indicators:

2.1 Tongko undertook to comply with Manulife’s rules, regulations and other
requirements, i.e., the different codes of conduct such as the Agent Code of
Conduct, the Manulife Financial Code of Conduct, and the Financial Code of
Conduct Agreement;

2.2 The various affidavits of Manulife’s insurance agents and managers, who
occupied similar positions as Tongko, showed that they performed administrative
duties that established employment with Manulife;12 and

2.3 Tongko was tasked to recruit some agents in addition to his other administrative
functions. De Dios’ letter harped on the direction Manulife intended to take, viz.,
greater agency recruitment as the primary means to sell more policies; Tongko’s
alleged failure to follow this directive led to the termination of his employment with
Manulife.

The Motion for Reconsideration

Manulife disagreed with our Decision and filed the present motion for reconsideration on the
following GROUNDS:

1. The November 7[, 2008] Decision violates Manulife’s right to due process by: (a) confining
the review only to the issue of "control" and utterly disregarding all the other issues that had
been joined in this case; (b) mischaracterizing the divergence of conclusions between the CA
and the NLRC decisions as confined only to that on "control"; (c) grossly failing to consider
the findings and conclusions of the CA on the majority of the material evidence, especially
[Tongko’s] declaration in his income tax returns that he was a "business person" or "self-
employed"; and (d) allowing [Tongko] to repudiate his sworn statement in a public document.

2. The November 7[, 2008] Decision contravenes settled rules in contract law and agency,
distorts not only the legal relationships of agencies to sell but also distributorship and
franchising, and ignores the constitutional and policy context of contract law vis-à-vis labor
law.

3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements of
the four-fold test other than the "control" test, reverses well-settled doctrines of law on
employer-employee relationships, and grossly misapplies the "control test," by selecting,
 without basis, a few items of evidence to the exclusion of more material evidence to support
its conclusion that there is "control."

4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by
Articles 8 and 9 of the Civil Code, beyond the powers granted to this Court under Article VIII,
Section 1 of the Constitution and contravenes through judicial legislation, the constitutional
prohibition against impairment of contracts under Article III, Section 10 of the Constitution.

5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and
reversible errors, which should be corrected, in concluding that Respondent Manulife and
Petitioner had an employer-employee relationship, that Respondent Manulife illegally
dismissed Petitioner, and for consequently ordering Respondent Manulife to pay Petitioner
backwages, separation pay, nominal damages and attorney’s fees.13

THE COURT’S RULING

A. The Insurance and the Civil Codes;

the Parties’ Intent and Established
Industry Practices

We cannot consider the present case purely from a labor law perspective, oblivious that the factual
antecedents were set in the insurance industry so that the Insurance Code primarily governs.
Chapter IV, Title 1 of this Code is wholly devoted to "Insurance Agents and Brokers" and specifically
defines the agents and brokers relationship with the insurance company and how they are governed
by the Code and regulated by the Insurance Commission.

The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as agency is
a civil law matter governed by the Civil Code. Thus, at the very least, three sets of laws – namely,
the Insurance Code, the Labor Code and the Civil Code – have to be considered in looking at the
present case. Not to be forgotten, too, is the Agreement (partly reproduced on page 2 of this Dissent
and which no one disputes) that the parties adopted to govern their relationship for purposes of
selling the insurance the company offers. To forget these other laws is to take a myopic view of the
present case and to add to the uncertainties that now exist in considering the legal relationship
between the insurance company and its "agents."

The main issue of whether an agency or an employment relationship exists depends on the incidents
of the relationship. The Labor Code concept of "control" has to be compared and distinguished with
the "control" that must necessarily exist in a principal-agent relationship. The principal cannot but
also have his or her say in directing the course of the principal-agent relationship, especially in cases
where the company-representative relationship in the insurance industry is an agency.

a. The laws on insurance and agency

The business of insurance is a highly regulated commercial activity in the country, in terms
particularly of who can be in the insurance business, who can act for and in behalf of an insurer, and
how these parties shall conduct themselves in the insurance business. Section 186 of the Insurance
Code provides that "No person, partnership, or association of persons shall transact any insurance
business in the Philippines except as agent of a person or corporation authorized to do the business
of insurance in the Philippines." Sections 299 and 300 of the Insurance Code on Insurance Agents
and Brokers, among other provisions, provide:
Section 299. No insurance company doing business in the Philippines, nor any agent thereof, shall
pay any commission or other compensation to any person for services in obtaining insurance, unless
such person shall have first procured from the Commissioner a license to act as an insurance agent
of such company or as an insurance broker as hereinafter provided.

No person shall act as an insurance agent or as an insurance broker in the solicitation or

procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the Philippines
or any agent thereof, without first procuring a license so to act from the Commissioner x x x The
Commissioner shall satisfy himself as to the competence and trustworthiness of the applicant and
shall have the right to refuse to issue or renew and to suspend or revoke any such license in his
discretion.
1avvphi1.net

Section 300. Any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transmits for a person other than himself an application for a policy or
contract of insurance to or from such company or offers or assumes to act in the negotiating of such
insurance shall be an insurance agent within the intent of this section and shall thereby become
liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject.

The application for an insurance agent’s license requires a written examination, and the applicant
must be of good moral character and must not have been convicted of a crime involving moral
turpitude.14 The insurance agent who collects premiums from an insured person for remittance to the
insurance company does so in a fiduciary capacity, and an insurance company which delivers an
insurance policy or contract to an authorized agent is deemed to have authorized the agent to
receive payment on the company’s behalf.15 Section 361 further prohibits the offer, negotiation, or
collection of any amount other than that specified in the policy and this covers any rebate from the
premium or any special favor or advantage in the dividends or benefit accruing from the policy.

Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and must
also act within the parameters of the authority granted under the license and under the contract with
the principal. Other than the need for a license, the agent is limited in the way he offers and
negotiates for the sale of the company’s insurance products, in his collection activities, and in the
delivery of the insurance contract or policy. Rules regarding the desired results (e.g., the required
volume to continue to qualify as a company agent, rules to check on the parameters on the authority
given to the agent, and rules to ensure that industry, legal and ethical rules are followed) are built-in
elements of control specific to an insurance agency and should not and cannot be read as elements
of control that attend an employment relationship governed by the Labor Code.

On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render some
service or to do something in representation or on behalf of another, with the consent or authority of
the latter."16 While this is a very broad definition that on its face may even encompass an
employment relationship, the distinctions between agency and employment are sufficiently
established by law and jurisprudence.

Generally, the determinative element is the control exercised over the one rendering service. The
employer controls the employee both in the results and in the means and manner of achieving this
result. The principal in an agency relationship, on the other hand, also has the prerogative to
exercise control over the agent in undertaking the assigned task based on the parameters outlined in
the pertinent laws.

Under the general law on agency as applied to insurance, an agency must be express in light of the
need for a license and for the designation by the insurance company. In the present case, the
Agreement fully serves as grant of authority to Tongko as Manulife’s insurance agent.17 This
agreement is supplemented by the company’s agency practices and usages, duly accepted by the
agent in carrying out the agency.18 By authority of the Insurance Code, an insurance agency is for
compensation,19 a matter the Civil Code Rules on Agency presumes in the absence of proof to the
contrary.20 Other than the compensation, the principal is bound to advance to, or to reimburse, the
agent the agreed sums necessary for the execution of the agency.21 By implication at least under
Article 1994 of the Civil Code, the principal can appoint two or more agents to carry out the same
assigned tasks,22 based necessarily on the specific instructions and directives given to them.

With particular relevance to the present case is the provision that "In the execution of the agency,
the agent shall act in accordance with the instructions of the principal."23 This provision is pertinent
for purposes of the necessary control that the principal exercises over the agent in undertaking the
assigned task, and is an area where the instructions can intrude into the labor law concept of control
so that minute consideration of the facts is necessary. A related article is Article 1891 of the Civil
Code which binds the agent to render an account of his transactions to the principal.

B. The Cited Case

The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish that the
company rules and regulations that an agent has to comply with are indicative of an employer-
employee relationship.24 The Dissenting Opinions of Justice Presbitero Velasco, Jr. and Justice
Conchita Carpio Morales also cite Insular Life Assurance Co. v. National Labor Relations
Commission (second Insular case)25 to support the view that Tongko is Manulife’s employee. On the
other hand, Manulife cites the Carungcong case and AFP Mutual Benefit Association, Inc. v.
National Labor Relations Commission (AFPMBAI case)26 to support its allegation that Tongko was
not its employee.

A caveat has been given above with respect to the use of the rulings in the cited cases because
none of them is on all fours with the present case; the uniqueness of the factual situation of the
present case prevents it from being directly and readily cast in the mold of the cited cases. These
cited cases are themselves different from one another; this difference underscores the need to read
and quote them in the context of their own factual situations.

The present case at first glance appears aligned with the facts in the Carungcong, the Grepalife, and
the second Insular Life cases. A critical difference, however, exists as these cited cases dealt with
the proper legal characterization of a subsequent management contract that superseded the original
agency contract between the insurance company and its agent. Carungcong dealt with a subsequent
Agreement making Carungcong a New Business Manager that clearly superseded the Agreement
designating Carungcong as an agent empowered to solicit applications for insurance. The Grepalife
case, on the other hand, dealt with the proper legal characterization of the appointment of the Ruiz
brothers to positions higher than their original position as insurance agents. Thus, after analyzing the
duties and functions of the Ruiz brothers, as these were enumerated in their contracts, we
concluded that the company practically dictated the manner by which the Ruiz brothers were to carry
out their jobs. Finally, the second Insular Life case dealt with the implications of de los Reyes’
appointment as acting unit manager which, like the subsequent contracts in the Carungcong and the
Grepalife cases, was clearly defined under a subsequent contract. In all these cited cases, a
determination of the presence of the Labor Code element of control was made on the basis of the
stipulations of the subsequent contracts.

In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the only
contract or document extant and submitted as evidence in the present case is the Agreement – a
pure agency agreement in the Civil Code context similar to the original contract in the first Insular
Life case and the contract in the AFPMBAI case. And while Tongko was later on designated unit
manager in 1983, Branch Manager in 1990, and Regional Sales Manager in 1996, no formal
contract regarding these undertakings appears in the records of the case. Any such contract or
agreement, had there been any, could have at the very least provided the bases for properly
ascertaining the juridical relationship established between the parties.

These critical differences, particularly between the present case and the Grepalife and the second
Insular Life cases, should therefore immediately drive us to be more prudent and cautious in
applying the rulings in these cases.

C. Analysis of the Evidence

c.1. The Agreement

The primary evidence in the present case is the July 1, 1977 Agreement that governed and defined
the parties’ relations until the Agreement’s termination in 2001. This Agreement stood for more than
two decades and, based on the records of the case, was never modified or novated. It assumes
primacy because it directly dealt with the nature of the parties’ relationship up to the very end;
moreover, both parties never disputed its authenticity or the accuracy of its terms.

By the Agreement’s express terms, Tongko served as an "insurance agent" for Manulife, not as an
employee. To be sure, the Agreement’s legal characterization of the nature of the relationship
cannot be conclusive and binding on the courts; as the dissent clearly stated, the characterization of
the juridical relationship the Agreement embodied is a matter of law that is for the courts to
determine. At the same time, though, the characterization the parties gave to their relationship in the
Agreement cannot simply be brushed aside because it embodies their intent at the time they entered
the Agreement, and they were governed by this understanding throughout their relationship. At the
very least, the provision on the absence of employer-employee relationship between the parties can
be an aid in considering the Agreement and its implementation, and in appreciating the other
evidence on record.

The parties’ legal characterization of their intent, although not conclusive, is critical in this case
because this intent is not illegal or outside the contemplation of law, particularly of the Insurance and
the Civil Codes. From this perspective, the provisions of the Insurance Code cannot be disregarded
as this Code (as heretofore already noted) expressly envisions a principal-agent relationship
between the insurance company and the insurance agent in the sale of insurance to the public. For 1aw ph!1

this reason, we can take judicial notice that as a matter of Insurance Code-based business practice,
an agency relationship prevails in the insurance industry for the purpose of selling insurance. The
Agreement, by its express terms, is in accordance with the Insurance Code model when it provided
for a principal-agent relationship, and thus cannot lightly be set aside nor simply be considered as an
agreement that does not reflect the parties’ true intent. This intent, incidentally, is reinforced by the
system of compensation the Agreement provides, which likewise is in accordance with the
production-based sales commissions the Insurance Code provides.

Significantly, evidence shows that Tongko’s role as an insurance agent never changed during his
relationship with Manulife. If changes occurred at all, the changes did not appear to be in the nature
of their core relationship. Tongko essentially remained an agent, but moved up in this role through
Manulife’s recognition that he could use other agents approved by Manulife, but operating under his
guidance and in whose commissions he had a share. For want of a better term, Tongko perhaps
could be labeled as a "lead agent" who guided under his wing other Manulife agents similarly tasked
with the selling of Manulife insurance.
Like Tongko, the evidence suggests that these other agents operated under their own agency
agreements. Thus, if Tongko’s compensation scheme changed at all during his relationship with
Manulife, the change was solely for purposes of crediting him with his share in the commissions the
agents under his wing generated. As an agent who was recruiting and guiding other insurance
agents, Tongko likewise moved up in terms of the reimbursement of expenses he incurred in the
course of his lead agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil Code. Thus,
Tongko received greater reimbursements for his expenses and was even allowed to use Manulife
facilities in his interactions with the agents, all of whom were, in the strict sense, Manulife agents
approved and certified as such by Manulife with the Insurance Commission.

That Tongko assumed a leadership role but nevertheless wholly remained an agent is the inevitable
conclusion that results from the reading of the Agreement (the only agreement on record in this
case) and his continuing role thereunder as sales agent, from the perspective of the Insurance and
the Civil Codes and in light of what Tongko himself attested to as his role as Regional Sales
Manager. To be sure, this interpretation could have been contradicted if other agreements had been
submitted as evidence of the relationship between Manulife and Tongko on the latter’s expanded
undertakings. In the absence of any such evidence, however, this reading – based on the available
evidence and the applicable insurance and civil law provisions – must stand, subject only to
objective and evidentiary Labor Code tests on the existence of an employer-employee relationship.

In applying such Labor Code tests, however, the enforcement of the Agreement during the course of
the parties’ relationship should be noted. From 1977 until the termination of the Agreement,
Tongko’s occupation was to sell Manulife’s insurance policies and products. Both parties acquiesced
with the terms and conditions of the Agreement. Tongko, for his part, accepted all the benefits
flowing from the Agreement, particularly the generous commissions.

Evidence indicates that Tongko consistently clung to the view that he was an independent agent
selling Manulife insurance products since he invariably declared himself a business or self-employed
person in his income tax returns. This consistency with, and action made pursuant to the
Agreement were pieces of evidence that were never mentioned nor considered in our
Decision of November 7, 2008. Had they been considered, they could, at the very least, serve as
Tongko’s admissions against his interest. Strictly speaking, Tongko’s tax returns cannot but be
legally significant because he certified under oath the amount he earned as gross business income,
claimed business deductions, leading to his net taxable income. This should be evidence of the first
order that cannot be brushed aside by a mere denial. Even on a layman’s view that is devoid of legal
considerations, the extent of his annual income alone renders his claimed employment status
doubtful.27

Hand in hand with the concept of admission against interest in considering the tax returns, the
concept of estoppel – a legal and equitable concept28 – necessarily must come into play. Tongko’s
previous admissions in several years of tax returns as an independent agent, as against his belated
claim that he was all along an employee, are too diametrically opposed to be simply dismissed or
ignored. Interestingly, Justice Velasco’s dissenting opinion states that Tongko was forced to declare
himself a business or self-employed person by Manulife’s persistent refusal to recognize him as its
employee.29 Regrettably, the dissent has shown no basis for this conclusion, an
understandable omission since no evidence in fact exists on this point in the records of the
case. In fact, what the evidence shows is Tongko’s full conformity with, and action as, an
independent agent until his relationship with Manulife took a bad turn.

Another interesting point the dissent raised with respect to the Agreement is its conclusion that the
Agreement negated any employment relationship between Tongko and Manulife so that the
commissions he earned as a sales agent should not be considered in the determination of the
backwages and separation pay that should be given to him. This part of the dissent is correct
although it went on to twist this conclusion by asserting that Tongko had dual roles in his relationship
with Manulife; he was an agent, not an employee, in so far as he sold insurance for Manulife, but
was an employee in his capacity as a manager. Thus, the dissent concluded that Tongko’s
backwages should only be with respect to his role as Manulife’s manager.

The conclusion with respect to Tongko’s employment as a manager is, of course, unacceptable for
the legal, factual and practical reasons discussed in this Resolution. In brief, the factual reason is
grounded on the lack of evidentiary support of the conclusion that Manulife exercised control over
Tongko in the sense understood in the Labor Code. The legal reason, partly based on the lack of
factual basis, is the erroneous legal conclusion that Manulife controlled Tongko and was thus its
employee. The practical reason, on the other hand, is the havoc that the dissent’s unwarranted
conclusion would cause the insurance industry that, by the law’s own design, operated along the
lines of principal-agent relationship in the sale of insurance.

c.2. Other Evidence of Alleged Control

A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing that
Manulife ever exercised means-and-manner control, even to a limited extent, over Tongko during his
ascent in Manulife’s sales ladder. In 1983, Tongko was appointed unit manager. Inexplicably,
Tongko never bothered to present any evidence at all on what this designation meant. This also
holds true for Tongko’s appointment as branch manager in 1990, and as Regional Sales Manager in
1996. The best evidence of control – the agreement or directive relating to Tongko’s duties and
responsibilities – was never introduced as part of the records of the case. The reality is, prior to de
Dios’ letter, Manulife had practically left Tongko alone not only in doing the business of selling
insurance, but also in guiding the agents under his wing. As discussed below, the alleged directives
covered by de Dios’ letter, heretofore quoted in full, were policy directions and targeted results that
the company wanted Tongko and the other sales groups to realign with in their own selling activities.
This is the reality that the parties’ presented evidence consistently tells us.

What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife
imposes on its agents in the sale of insurance. The mere presentation of codes or of rules and
regulations, however, is not per se indicative of labor law control as the law and jurisprudence teach
us.

As already recited above, the Insurance Code imposes obligations on both the insurance company
and its agents in the performance of their respective obligations under the Code, particularly on
licenses and their renewals, on the representations to be made to potential customers, the collection
of premiums, on the delivery of insurance policies, on the matter of compensation, and on measures
to ensure ethical business practice in the industry.

The general law on agency, on the other hand, expressly allows the principal an element of control
over the agent in a manner consistent with an agency relationship. In this sense, these control
measures cannot be read as indicative of labor law control. Foremost among these are the directives
that the principal may impose on the agent to achieve the assigned tasks, to the extent that they do
not involve the means and manner of undertaking these tasks. The law likewise obligates the agent
to render an account; in this sense, the principal may impose on the agent specific instructions on
how an account shall be made, particularly on the matter of expenses and reimbursements. To
these extents, control can be imposed through rules and regulations without intruding into the labor
law concept of control for purposes of employment.
From jurisprudence, an important lesson that the first Insular Life case teaches us is that a
commitment to abide by the rules and regulations of an insurance company does not ipso facto
make the insurance agent an employee. Neither do guidelines somehow restrictive of the insurance
agent’s conduct necessarily indicate "control" as this term is defined in jurisprudence. Guidelines
indicative of labor law "control," as the first Insular Life case tells us, should not merely
relate to the mutually desirable result intended by the contractual relationship; they must
have the nature of dictating the means or methods to be employed in attaining the result, or of
fixing the methodology and of binding or restricting the party hired to the use of these means. In fact,
results-wise, the principal can impose production quotas and can determine how many agents, with
specific territories, ought to be employed to achieve the company’s objectives. These are
management policy decisions that the labor law element of control cannot reach. Our ruling in these
respects in the first Insular Life case was practically reiterated in Carungcong. Thus, as will be
shown more fully below, Manulife’s codes of conduct,30 all of which do not intrude into the insurance
agents’ means and manner of conducting their sales and only control them as to the desired results
and Insurance Code norms, cannot be used as basis for a finding that the labor law concept of
control existed between Manulife and Tongko.

The dissent considers the imposition of administrative and managerial functions on Tongko as
indicative of labor law control; thus, Tongko as manager, but not as insurance agent, became
Manulife’s employee. It drew this conclusion from what the other Manulife managers disclosed in
their affidavits (i.e., their enumerated administrative and managerial functions) and after comparing
these statements with the managers in Grepalife. The dissent compared the control exercised by
Manulife over its managers in the present case with the control the managers in the Grepalife case
exercised over their employees by presenting the following matrix:31

Duties of Manulife’s Manager Duties of Grepalife’s Managers/Supervisors

- to render or recommend prospective - train understudies for the position of district
agents to be licensed, trained and manager
contracted to sell Manulife products and who
will be part of my Unit
- to coordinate activities of the agents under - properly account, record and document the
[the managers’] Unit in [the agents’] daily, company’s funds, spot-check and audit the work
weekly and monthly selling activities, making of the zone supervisors, x x x follow up the
sure that their respective sales targets are submission of weekly remittance reports of the
met; debit agents and zone supervisors

- to conduct periodic training sessions for
[the] agents to further enhance their sales
skill; and
- to assist [the] agents with their sales
activities by way of joint fieldwork,
consultations and one-on-one evaluation
and analysis of particular accounts
- direct and supervise the sales activities of the
debit agents under him, x x x undertake and
discharge the functions of absentee debit
agents, spot-check the record of debit agents,
and insure proper documentation of sales and
collections of debit agents.

Aside from these affidavits however, no other evidence exists regarding the effects of Tongko’s
additional roles in Manulife’s sales operations on the contractual relationship between them.

To the dissent, Tongko’s administrative functions as recruiter, trainer, or supervisor of other sales
agents constituted a substantive alteration of Manulife’s authority over Tongko and the performance
of his end of the relationship with Manulife. We could not deny though that Tongko remained, first
and foremost, an insurance agent, and that his additional role as Branch Manager did not lessen his
main and dominant role as insurance agent; this role continued to dominate the relations between
Tongko and Manulife even after Tongko assumed his leadership role among agents. This conclusion
cannot be denied because it proceeds from the undisputed fact that Tongko and Manulife never
altered their July 1, 1977 Agreement, a distinction the present case has with the contractual changes
made in the second Insular Life case. Tongko’s results-based commissions, too, attest to the
primacy he gave to his role as insurance sales agent.

The dissent apparently did not also properly analyze and appreciate the great qualitative difference
that exists between:

 the Manulife managers’ role is to coordinate activities of the agents under the managers’
Unit in the agents’ daily, weekly, and monthly selling activities, making sure that their
respective sales targets are met.
 the District Manager’s duty in Grepalife is to properly account, record, and document the
company's funds, spot-check and audit the work of the zone supervisors, conserve the
company's business in the district through "reinstatements," follow up the submission of
weekly remittance reports of the debit agents and zone supervisors, preserve company
property in good condition, train understudies for the position of district managers, and
maintain his quota of sales (the failure of which is a ground for termination).
 the Zone Supervisor’s (also in Grepalife) has the duty to direct and supervise the sales
activities of the debit agents under him, conserve company property through
"reinstatements," undertake and discharge the functions of absentee debit agents, spot-
check the records of debit agents, and insure proper documentation of sales and collections
by the debit agents.

These job contents are worlds apart in terms of "control." In Grepalife, the details of how to do the
job are specified and pre-determined; in the present case, the operative words are the "sales target,"
the methodology being left undefined except to the extent of being "coordinative." To be sure, a
"coordinative" standard for a manager cannot be indicative of control; the standard only essentially
describes what a Branch Manager is – the person in the lead who orchestrates activities within the
group. To "coordinate," and thereby to lead and to orchestrate, is not so much a matter of control by
Manulife; it is simply a statement of a branch manager’s role in relation with his agents from the point
of view of Manulife whose business Tongko’s sales group carries.

A disturbing note, with respect to the presented affidavits and Tongko’s alleged administrative
functions, is the selective citation of the portions supportive of an employment relationship and the
consequent omission of portions leading to the contrary conclusion. For example, the following
portions of the affidavit of Regional Sales Manager John Chua, with counterparts in the other
affidavits, were not brought out in the Decision of November 7, 2008, while the other portions
suggesting labor law control were highlighted. Specifically, the following portions of the affidavits
were not brought out:32

1.a. I have no fixed wages or salary since my services are compensated by way of
commissions based on the computed premiums paid in full on the policies obtained thereat;

1.b. I have no fixed working hours and employ my own method in soliticing insurance at a
time and place I see fit;

1.c. I have my own assistant and messenger who handle my daily work load;
 1.d. I use my own facilities, tools, materials and supplies in carrying out my business of
selling insurance;

xxxx

6. I have my own staff that handles the day to day operations of my office;

7. My staff are my own employees and received salaries from me;

xxxx

9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as
income by a self-employed individual or professional with a ten (10) percent creditable
withholding tax. I also remit monthly for professionals.

These statements, read with the above comparative analysis of the Manulife and
the Grepalife cases, would have readily yielded the conclusion that no employer-employee
relationship existed between Manulife and Tongko.

Even de Dios’ letter is not determinative of control as it indicates the least amount of intrusion into
Tongko’s exercise of his role as manager in guiding the sales agents. Strictly viewed, de Dios’
directives are merely operational guidelines on how Tongko could align his operations with
Manulife’s re-directed goal of being a "big league player." The method is to expand coverage
through the use of more agents. This requirement for the recruitment of more agents is not a means-
and-method control as it relates, more than anything else, and is directly relevant, to Manulife’s
objective of expanded business operations through the use of a bigger sales force whose members
are all on a principal-agent relationship. An important point to note here is that Tongko was not
supervising regular full-time employees of Manulife engaged in the running of the insurance
business; Tongko was effectively guiding his corps of sales agents, who are bound to Manulife
through the same Agreement that he had with Manulife, all the while sharing in these agents’
commissions through his overrides. This is the lead agent concept mentioned above for want of a
more appropriate term, since the title of Branch Manager used by the parties is really a misnomer
given that what is involved is not a specific regular branch of the company but a corps of non-
employed agents, defined in terms of covered territory, through which the company sells insurance.
Still another point to consider is that Tongko was not even setting policies in the way a regular
company manager does; company aims and objectives were simply relayed to him with suggestions
on how these objectives can be reached through the expansion of a non-employee sales force.

Interestingly, a large part of de Dios’ letter focused on income, which Manulife demonstrated, in
Tongko’s case, to be unaffected by the new goal and direction the company had set. Income in
insurance agency, of course, is dependent on results, not on the means and manner of selling – a
matter for Tongko and his agents to determine and an area into which Manulife had not waded.
Undeniably, de Dios’ letter contained a directive to secure a competent assistant at Tongko’s own
expense. While couched in terms of a directive, it cannot strictly be understood as an intrusion into
Tongko’s method of operating and supervising the group of agents within his delineated territory.
More than anything else, the "directive" was a signal to Tongko that his results were unsatisfactory,
and was a suggestion on how Tongko’s perceived weakness in delivering results could be remedied.
It was a solution, with an eye on results, for a consistently underperforming group; its obvious intent
was to save Tongko from the result that he then failed to grasp – that he could lose even his own
status as an agent, as he in fact eventually did.
The present case must be distinguished from the second Insular Life case that showed the
hallmarks of an employer-employee relationship in the management system established. These
were: exclusivity of service, control of assignments and removal of agents under the private
respondent’s unit, and furnishing of company facilities and materials as well as capital described as
Unit Development Fund. All these are obviously absent in the present case. If there is a commonality
in these cases, it is in the collection of premiums which is a basic authority that can be delegated to
agents under the Insurance Code.

As previously discussed, what simply happened in Tongko’s case was the grant of an expanded
sales agency role that recognized him as leader amongst agents in an area that Manulife
defined. Whether this consequently resulted in the establishment of an employment
relationship can be answered by concrete evidence that corresponds to the following
questions:

 as lead agent, what were Tongko’s specific functions and the terms of his additional
engagement;
 was he paid additional compensation as a so-called Area Sales Manager, apart from the
commissions he received from the insurance sales he generated;
 what can be Manulife’s basis to terminate his status as lead agent;
 can Manulife terminate his role as lead agent separately from his agency contract; and
 to what extent does Manulife control the means and methods of Tongko’s role as lead
agent?

The answers to these questions may, to some extent, be deduced from the evidence at hand, as
partly discussed above. But strictly speaking, the questions cannot definitively and concretely be
answered through the evidence on record. The concrete evidence required to settle these questions
is simply not there, since only the Agreement and the anecdotal affidavits have been marked and
submitted as evidence.

Given this anemic state of the evidence, particularly on the requisite confluence of the factors
determinative of the existence of employer-employee relationship, the Court cannot conclusively find
that the relationship exists in the present case, even if such relationship only refers to Tongko’s
additional functions. While a rough deduction can be made, the answer will not be fully supported by
the substantial evidence needed.

Under this legal situation, the only conclusion that can be made is that the absence of evidence
showing Manulife’s control over Tongko’s contractual duties points to the absence of any employer-
employee relationship between Tongko and Manulife. In the context of the established evidence,
Tongko remained an agent all along; although his subsequent duties made him a lead agent with
leadership role, he was nevertheless only an agent whose basic contract yields no evidence of
means-and-manner control.

This conclusion renders unnecessary any further discussion of the question of whether an agent
may simultaneously assume conflicting dual personalities. But to set the record straight, the concept
of a single person having the dual role of agent and employee while doing the same task is a novel
one in our jurisprudence, which must be viewed with caution especially when it is devoid of any
jurisprudential support or precedent. The quoted portions in Justice Carpio-Morales’
dissent,33 borrowed from both the Grepalife and the second Insular Life cases, to support the duality
approach of the Decision of November 7, 2008, are regrettably far removed from their context – i.e.,
the cases’ factual situations, the issues they decided and the totality of the rulings in these cases –
and cannot yield the conclusions that the dissenting opinions drew.
The Grepalife case dealt with the sole issue of whether the Ruiz brothers’ appointment as zone
supervisor and district manager made them employees of Grepalife. Indeed, because of the
presence of the element of control in their contract of engagements, they were
considered Grepalife’s employees. This did not mean, however, that they were simultaneously
considered agents as well as employees of Grepalife; the Court’s ruling never implied that this
situation existed insofar as the Ruiz brothers were concerned. The Court’s statement – the
Insurance Code may govern the licensing requirements and other particular duties of insurance
agents, but it does not bar the application of the Labor Code with regard to labor standards and labor
relations – simply means that when an insurance company has exercised control over its agents so
as to make them their employees, the relationship between the parties, which was otherwise one for
agency governed by the Civil Code and the Insurance Code, will now be governed by the Labor
Code. The reason for this is simple – the contract of agency has been transformed into an employer-
employee relationship.

The second Insular Life case, on the other hand, involved the issue of whether the labor bodies have
jurisdiction over an illegal termination dispute involving parties who had two contracts – first, an
original contract (agency contract), which was undoubtedly one for agency, and another subsequent
contract that in turn designated the agent acting unit manager (a management contract). Both the
Insular Life and the labor arbiter were one in the position that both were agency contracts. The Court
disagreed with this conclusion and held that insofar as the management contract is concerned, the
labor arbiter has jurisdiction. It is in this light that we remanded the case to the labor arbiter for
further proceedings. We never said in this case though that the insurance agent had effectively
assumed dual personalities for the simple reason that the agency contract has been effectively
superseded by the management contract. The management contract provided that if the
appointment was terminated for any reason other than for cause, the acting unit manager would be
reverted to agent status and assigned to any unit.

The dissent pointed out, as an argument to support its employment relationship conclusion, that any
doubt in the existence of an employer-employee relationship should be resolved in favor of the
existence of the relationship.34This observation, apparently drawn from Article 4 of the Labor Code,
is misplaced, as Article 4 applies only when a doubt exists in the "implementation and application" of
the Labor Code and its implementing rules; it does not apply where no doubt exists as in a situation
where the claimant clearly failed to substantiate his claim of employment relationship by the
quantum of evidence the Labor Code requires.

On the dissent’s last point regarding the lack of jurisprudential value of our November 7, 2008
Decision, suffice it to state that, as discussed above, the Decision was not supported by the
evidence adduced and was not in accordance with controlling jurisprudence. It should, therefore, be
reconsidered and abandoned, but not in the manner the dissent suggests as the dissenting opinions
are as factually and as legally erroneous as the Decision under reconsideration.

In light of these conclusions, the sufficiency of Tongko’s failure to comply with the guidelines of de
Dios’ letter, as a ground for termination of Tongko’s agency, is a matter that the labor tribunals
cannot rule upon in the absence of an employer-employee relationship. Jurisdiction over the matter
belongs to the courts applying the laws of insurance, agency and contracts.

WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November 7,

2008, GRANTManulife’s motion for reconsideration and, accordingly, DISMISS Tongko’s petition.
No costs.

SO ORDERED.
ARTURO D. BRION
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 102199 January 28, 1997

AFP MUTUAL BENEFIT ASSOCIATION, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and EUTIQUIO BUSTAMANTE, respondents.

PANGANIBAN, J.:

The determination of the proper forum is crucial because the filing of the petition or complaint in the
wrong court or tribunal is fatal, even for a patently meritorious claim. More specifically, labor arbiters
and the National Labor Relations Commission have no jurisdiction to entertain and rule on money
claims where no employer-employee relations is involved. Thus, any such award rendered without
jurisdiction is a nullity.

This petition for certiorari under Rule 65, Rules of Court seeks to annul the Resolution 1 of the
National Labor Relations Commission, promulgated September 27, 1991, in NLRC-NCR Case No.
00-02-01196-90, entitled "Eutiquio Bustamante vs. AFP Mutual Benefit Association, Inc.," affirming
the decision of the labor arbiter which ordered payment of the amount of P319,796.00 as insurance
commissions to private respondent.

The Antecedent Facts

The facts are simple. Private respondent Eutiquio Bustamante had been an insurance underwriter of
petitioner AFP Mutual Benefit Association, Inc. since 1975. The Sales Agent's Agreement between
them provided: 2

B. Duties and Obligations:

1. During the lifetime of this Agreement, the SALES AGENT (private respondent)
shall solicit exclusively for AFPMBAI (petitioner), and shall be bound by the latter's
policies, memo circulars, rules and regulations which it may from time to time, revise,
modify or cancel to serve its business interests.

2. The SALES AGENT shall confine his business activities for AFPMBAI while inside
any military camp, installation or residence of military personnel. He is free to solicit
in the area for which he/she is licensed and as authoriied, provided however, that
AFPMBAI may from time to time, assign him a specific area of responsibility and a
production quota on a case to case basis.
 xxx xxx xxx

C. Commission

1. The SALES AGENT shall be entitled to the commission due for all premiums
actually due and received by AFPMBAI out of life insurance policies solicited and
obtained by the SALES AGENT at the rates set forth in the applicant's commission
schedules hereto attached.

xxx xxx xxx

D. General Provisions

1. There shall be no employer-employee relationship between the parties, the

SALES AGENT being hereby deemed an independent contractor.

As compensation, he received commissions based on the following percentages of the premiums

paid: 3

"30% of premium paid within the first year;

10% of premium paid with the second year;
5% of the premium paid during the third year;
3% of the premium paid during the fourth year; and
1% of the premium paid during the fifth year up to
the tenth year.

On July 5, 1989, petitioner dismissed private respondent for misrepresentation and for
simultaneously selling insurance for another life insurance company in violation of said agreement.

At the time of his dismissal, private respondent was entitled to accrued commissions equivalent to
twenty four (24) months per the Sales Agent Agreement and as stated in the account summary
dated July 5, 1989, approved by Retired Brig. Gen. Rosalino Alquiza, president of petitioner-
company. Said summary showed that private respondent had a total commission receivable of
P438,835.00, of which only P78,039.89 had been paid to him.

Private respondent wrote petitioner seeking the release of his commissions for said 24 months.
Petitioner, through Marketing Manager Juan Concepcion, replied that he was entitled to only
P75,000.00 to P100,000.00. Hence, believing Concepcion's computations, private respondent
signed a quitclaim in favor of petitioner.

Sometime in October 1989, private respondent was informed that his check was ready for release.
In collecting his check, he discovered from a document (account summary) attached to said check
that his total commissions for the 24 months actually amounted to P354,796.09. Said document
stated: 4

6. The total receivable for Mr. Bustamante out of the renewals and old business
generated since 1983 grosses P438,835.00 less his outstanding obligation in the
amount of P78,039.89 as of June 30, 1989, total expected commission would
amount to P354,796.09. From that figure at a 15% compromise settlement this would
mean P53,219.41 due him to settle his claim.
Private respondent, however, was paid only the amount of P35,000.00.

On November 23, 1989, private respondent filed a complaint with the Office of the Insurance
Commissioner praying for the payment of the correct amount of his commission. Atty. German C.
Alejandria, Chief of the Public Assistance and Information Division, Office of the Insurance
Commissioner, advised private respondent that it was the Department of Labor and Employment
that had jurisdiction over his complaint.

On February 26, 1990, private respondent filed his complaint with the Department of Labor claiming:
(1) commission for 2 years from termination of employment equivalent to 30% of premiums remitted
during employment; (2) P354,796.00 as commission earned from renewals and old business
generated since 1983; (3) P100,000.00 as moral damages; and (4) P100,000.00 as exemplary
damages.

After submission of position papers, Labor Arbiter Jose G. de Vera rendered his decision, dated
August 24, 1990, the dispositive portion of which reads: 5

WHEREFORE, all the foregoing premises being considered, judgment is hereby

rendered declaring the dismissal of the complainant as just and valid, and
consequently, his claim for separation pay is denied. On his money claim, the
respondent company is hereby ordered to pay complainant the sum of P319,796.00
plus attorney's fees in the amount of P31,976.60.

All other claims of the complainant are dismissed for want of merit.

The labor arbiter relied on the Sales Agent's Agreement proviso that petitioner could assign private
respondent a specific area of responsibility and a production quota, and read it as signalling the
existence of employer- employee relationship between petitioner and private respondent.

On appeal, the Second Division 6 of the respondent Commission affirmed the decision of the Labor
Arbiter. In the assailed Resolution, respondent Commission found no reason to disturb said ruling of
the labor arbiter and
ruled: 7

WHEREFORE, in view of the foregoing considerations, the subject appeal should be

as it is hereby, denied and the decision appealed from affirmed

SO ORDERED.

Hence, this petition.

The Issue

Petitioner contends that respondent Commission committed grave abuse of discretion in ruling that
the labor arbiter had jurisdiction over this case. At the heart of the controversy is the issue of
whether there existed an employer-employee relationship between petitioner and private
respondent.

Petitioner argues that, despite provisions B(1) and (2) of the Sales Agent's Agreement, there is no
employer-employee relationship between private respondent and itself. Hence, respondent
commission gravely abused its discretion when it held that the labor arbiter had jurisdiction over the
case.

The Court's Ruling

The petition is meritorious.

First Issue: Not All That Glitters Is Control

Well-settled is the doctrine that the existence of an employer-employee relationship is ultimately a

question of fact and that the findings thereon by the labor arbiter and the National Labor Relations
Commission shall be accorded not only respect but even finality when supported by substantial
evidence. 8 The determinative factor in such finality is the presence of substantial evidence to
support said finding, otherwise, such factual findings cannot bind this Court.

Respondent Commission concurred with the labor arbiter's findings that: 9

x x x The complainant's job as sales insurance agent is usually necessary and

desirable in the usual business of the respondent company. Under the Sales Agents
Agreement, the complainant was required to solicit exclusively for the respondent
company, and he was bound by the company policies, memo circulars, rules and
regulations which were issued from time to time. By such requirement to follow
strictly management policies, orders, circulars, rules and regulations, it only shows
that the respondent had control or reserved the right to control the complainant's
work as solicitor. Complainant was not an independent contractor as he did not carry
on an independent business other than that of the company's . . .

To this, respondent Commission added that the Sales Agent's Agreement specifically provided that
petitioner may assign private respondent a specific area of responsibility and a production quota.
From there, it concluded that apparently there is that exercise of control by the employer which is the
most important element in determining employer- employee relationship. 10

We hold, however, that respondent Commission misappreciated the facts of the case. Time and
again, the Court has applied the "four-fold" test in determining the existence of employer-employee
relationship. This test considers the following elements: (1) the power to hire; (2) the payment of
wages; (3) the power to dismiss; and (4) the power to control, the last being the most important
element. 11

The difficulty lies in correctly assessing if certain factors or elements properly indicate the presence
of control. Anent the issue of exclusivity in the case at bar, the fact that private respondent was
required to solicit business exclusively for petitioner could hardly be considered as control in labor
jurisprudence. Under Memo Circulars No. 2-81 12 and 2-85, dated December 17, 1981 and August 7,
1985, respectively, issued by the Insurance Commissioner, insurance agents are barred from
serving more than one insurance company, in order to protect the public and to enable insurance
companies to exercise exclusive supervision over their agents in their solicitation work. Thus, the
exclusivity restriction clearly springs from a regulation issued by the Insurance Commission, and not
from an intention by petitioner to establish control over the method and manner by which private
respondent shall accomplish his work. This feature is not meant to change the nature of the
relationship between the parties, nor does it necessarily imbue such relationship with the quality of
control envisioned by the law.
So too, the fact that private respondent was bound by company policies, memo/circulars, rules and
regulations issued from time to time is also not indicative of control. In its Reply to Complainant's
Position Paper, 13 petitioner alleges that the policies, memo/circulars, and rules and regulations
referred to in provision B(1) of the Sales Agent's Agreement are only those pertaining to payment of
agents' accountabilities, availment by sales agents of cash advances for sorties, circulars on
incentives and awards to be given based on production, and other matters concerning the selling of
insurance, in accordance with the rules promulgated by the Insurance Commission. According to the
petitioner, insurance solicitors are never affected or covered by the rules and regulations
concerning employee conduct and penalties for violations thereof, work standards, performance
appraisals, merit increases, promotions, absenteeism/attendance, leaves of absence, management-
union matters, employee benefits and the like. Since private respondent failed to rebut these
allegations, the same are deemed admitted, or at least proven, thereby leaving nothing to support
the respondent Commission's conclusion that the foregoing elements signified an employment
relationship between the parties.

In regard to the territorial assignments given to sales agents, this too cannot be held as indicative of
the exercise of control over an employee. First of all, the place of work in the business of soliciting
insurance does not figure prominently in the equation. And more significantly, private respondent
failed to rebut petitioner's allegation that it had never issued him any territorial assignment at all.
Obviously, this Court cannot draw the same inference from this feature as did the respondent
Commission.

To restate, the significant factor in determining the relationship of the parties is the presence or
absence of supervisory authority to control the method and the details of performance of the service
being rendered, and the degree to which the principal may intervene to exercise such control. The
presence of such power of control is indicative of an employment relationship, while absence thereof
is indicative of independent contractorship. In other words, the test to determine the existence of
independent contractorship is whether one claiming to be an independent contractor has contracted
to do the work according to his own methods and without being subject to the control of the
employer except only as to the result of the work. 14 Such is exactly the nature of the relationship
between petitioner and private respondent.

Further, not every form of control that a party reserves to himself over the conduct of the other party
in relation to the services being rendered may be accorded the effect of establishing an employer-
employee relationship. The facts of this case fall squarely with the case of Insular Life Assurance
Co., Ltd. vs. NLRC. In said case, we held that:

Logically, the line should be drawn between rules that merely serve as guidelines
towards the achievement of the mutually desired result without dictating the means
or methods to be employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of such means. The first,
which aim only to promote the result, create no employer-employee relationship
unlike the second, which address both the result and the means used to achieve it.
The distinction acquires particular relevance in the case of an enterprise affected
with public interest, as is the business of insurance, and is on that account subject to
regulation by the State with respect, not only to the relations between insurer and
insured but also to the internal affairs of the insurance company. Rules and
regulations governing the conduct of the business are provided for in the Insurance
Code and enforced by the Insurance Commissioner. It is, therefore, usual and
expected for an insurande company to promulgate a set of rules to guide its
commission agents in selling its policies that they may not run afoul of the law and
what it requires or prohibits. . . . None of these really invades the agent's contractual
prerogative to adopt his own selling methods or to sell insurance at his own time and
 convenience, hence cannot justifiably be said to establish an employer-employee
relationship between him and the company. 15

Private respondent's contention that he was petitioner's employee is belied by the fact that he was
free to sell insurance at any time as he was not subject to definite hours or conditions of work and in
turn was compensated according to the result of his efforts. By the nature of the business of
soliciting insurance, agents are normally left free to devise ways and means of persuading people to
take out insurance. There is no prohibition, as contended by petitioner, for private respondent to
work for as long as he does not violate the Insurance Code. As petitioner explains:

(Private respondent) was free to solicit life insurance anywhere he wanted and he
had free and unfettered time to pursue his business. He did not have to punch in and
punch out the bundy clock as he was not required to report to the (petitioner's) office
regularly. He was not covered by any employee policies or regulations and not
subject to the disciplinary action of management on the basis of the Employee Code
of Conduct. He could go out and sell insurance at his own chosen time. He was
entirely left to his own choices of areas or territories, with no definite, much less
supervised, time schedule.

(Private respondent) had complete control over his occupation and (petitioner) did
not exercise any right of Control and Supervision over his performance except as to
the payment of commission the amount of which entirely depends on the sole efforts
of (private respondent). He was free to engage in other occupation or practice other
profession for as long as he did not commit any violation of the ethical standards
prescribed in the Sales Agent's Agreement. 16

Although petitioner could have, theoretically, disapproved any of private respondent's transactions,
what could be disapproved was only the result of the work, and not the means by which it was
accomplished.

The "control" which the above factors indicate did not sum up to the power to control private
respondent's conduct in and mode of soliciting insurance. On the contrary, they clearly indicate that
the juridical element of control had been absent in this situation. Thus, the Court is constrained to
rule that no employment relationship had ever existed between the parties.

Second Issue: Jurisdiction of Respondent

Commission & Labor Arbiter

Under the contract invoked, private respondent had never been petitioner's employee, but only its
commission agent. As an independent contractor, his claim for unpaid commission should have
been litigated in an ordinary civil action. 17

The jurisdiction of labor arbiters and respondent Commission is set forth in Article 217 of the Labor
Code. 18 The unifying element running through paragraphs (1) — (6) of said provision is the
consistent reference to cases or disputes arising out of or in connection with an employer-employee
relationship. Prior to its amendment by Batas Pambansa Blg. 227 on June 1, 1982, this point was
clear as the article included "all other cases arising from employer-employee relation unless
expressly excluded by this Code." 19 Without this critical element of employment relationship, the
labor arbiter and respondent Commission can never acquire jurisdiction over a dispute. As in the
case at bar. It was serious error on the part of the labor arbiter to have assumed jurisdiction and
adjudicated the claim. Likewise, the respondent Commission's affirmance thereof.
Such lack of jurisdiction of a court or tribunal may be raised at any stage of the proceedings, even on
appeal. The doctrine of estoppel cannot be properly invoked by respondent Commission to cure this
fatal defect as it cannot confer jurisdiction upon a tribunal that to begin with, was bereft of jurisdiction
over a cause of action. 20 Moreover, in the proceedings below, petitioner consistently challenged the
jurisdiction of the labor arbiter 21 and respondent Commission. 22

It remains a basic fact in law that the choice of the proper forum is crucial as the decision of a court
or tribunal without jurisdiction is a total nullity. 23 A void judgment for want of jurisdiction is no
judgment at all. It cannot be the source of any right nor the creator of any obligation. All acts
performed pursuant to it and all claims emanating from it have no legal effect. Hence, it can never
become final. ". . . (I)t may be said to be a lawless thing which can be treated as an outlaw and slain
at sight, or ignored wherever and whenever it exhibits its head." 24

The way things stand, it becomes unnecessary to consider the merits of private respondent's claim
for unpaid commission. Be that as it may, this ruling is without prejudice to private respondent's right
to file a suit for collection of unpaid commissions against petitioner with the proper forum and within
the proper period.

WHEREFORE, the petition is hereby GRANTED, and the assailed Resolution is hereby SET ASIDE.

SO ORDERED.

Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.

SECOND DIVISION

G.R. No. 129315 October 2, 2000

OSIAS I. CORPORAL, SR., PEDRO TOLENTINO, MANUEL CAPARAS, ELPIDIO LACAP,

SIMPLICIO PEDELOS, PATRICIA NAS, and TERESITA FLORES, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LAO ENTENG COMPANY, INC. and/or
TRINIDAD LAO ONG, respondents.

DECISION

QUISUMBING, J.:

This special civil action for certiorari seeks the review of the Resolution dated October 17, 1996 of
public respondent National Labor Relations Commission (First Division),1 in NLRC NCR Case No.
00-04-03163-95, and the Resolution dated March 5, 1997 denying the motion for reconsideration.
The aforecited October 17th Resolution affirmed the Decision dated September 28, 1996 of Labor
Arbiter Potenciano S. Cañizares dismissing the petitioners' complaint for illegal dismissal and
declaring that petitioners are not regular employees of private respondent Lao Enteng Company,
Inc..

The records of the case show that the five male petitioners, namely, Osias I. Corporal, Sr., Pedro
Tolentino, Manuel Caparas, Elpidio Lacap, and Simplicio Pedelos worked as barbers, while the two
female petitioners, Teresita Flores and Patricia Nas worked as manicurists in New Look Barber
Shop located at 651 P. Paterno Street, Quiapo, Manila owned by private respondent Lao Enteng Co.
Inc.. Petitioner Nas alleged that she also worked as watcher and marketer of private respondent.

Petitioners claim that at the start of their employment with the New Look Barber Shop, it was a single
proprietorship owned and managed by Mr. Vicente Lao. In or about January 1982, the children of
Vicente Lao organized a corporation which was registered with the Securities and Exchange
Commission as Lao Enteng Co. Inc. with Trinidad Ong as President of the said corporation. Upon its
incorporation, the respondent company took over the assets, equipment, and properties of the New
Look Barber Shop and continued the business. All the petitioners were allowed to continue working
with the new company until April 15, 1995 when respondent Trinidad Ong informed them that the
building wherein the New Look Barber Shop was located had been sold and that their services were
no longer needed.2

On April 28, 1995, petitioners filed with the Arbitration Branch of the NLRC, a complaint for illegal
dismissal, illegal deduction, separation pay, non-payment of 13th month pay, and salary differentials.
Only petitioner Nas asked for payment of salary differentials as she alleged that she was paid a daily
wage of P25.00 throughout her period of employment. The petitioners also sought the refund of the
P1.00 that the respondent company collected from each of them daily as salary of the sweeper of
the barber shop.

Private respondent in its position paper averred that the petitioners were joint venture partners and
were receiving fifty percent commission of the amount charged to customers. Thus, there was no
employer-employee relationship between them and petitioners. And assuming arguendo, that there
was an employer-employee relationship, still petitioners are not entitled to separation pay because
the cessation of operations of the barber shop was due to serious business losses.

Respondent Trinidad Lao Ong, President of respondent Lao Enteng Co. Inc., specifically stated in
her affidavit dated September 06, 1995 that Lao Enteng Company, Inc. did not take over the
management of the New Look Barber Shop, that after the death Lao Enteng petitioner were verbally
informed time and again that the partnership may fold up anytime because nobody in the family had
the time to be at the barber shop to look after their interest; that New Look Barber Shop had always
been a joint venture partnership and the operation and management of the barber shop was left
entirely to petitioners; that her father's contribution to the joint venture included the place of
business, payment for utilities including electricity, water, etc. while petitioners as industrial partners,
supplied the labor; and that the barber shop was allowed to remain open up to April 1995 by the
children because they wanted to give the partners a chance at making it work. Eventually, they were
forced to close the barber shop because they continued to lose money while petitioners earned from
it. Trinidad also added that private respondents had no control over petitioners who were free to
come and go as they wished. Admittedly too by petitioners they received fifty percent to sixty percent
of the gross paid by customers. Trinidad explained that some of the petitioners were allowed to
register with the Social Security System as employees of Lao Enteng Company, Inc. only as an act
of accommodation. All the SSS contributions were made by petitioners. Moreover, Osias Corporal,
Elpidio Lacap and Teresita Flores were not among those registered with the Social Security System.
Lastly, Trinidad avers that without any employee-employer relationship petitioners claim for 13th
month pay and separation pay have no basis in fact and in law.3
In a Decision dated September 28, 1995, Labor Arbiter Potenciano S. Cañizares, Jr. ordered the
dismissal of the complaint on the basis of his findings that the complainants and the respondents
were engaged in a joint venture and that there existed no employer-employee relation between
them. The Labor Arbiter also found that the barber shop was closed due to serious business losses
or financial reverses and consequently declared that the law does not compel the establishment to
pay separation pay to whoever were its employees.4

On appeal, NLRC affirmed the said findings of the Labor Arbiter and dismissed the complaint for
want of merit, ratiocinating thus:

Indeed, complainants failed to show the existence of employer-employee relationship under the
fourway test established by the Supreme Court. It is a common practice in the Barber Shop industry
that barbers supply their own scissors and razors and they split their earnings with the owner of the
barber shop. The only capital of the owner is the place of work whereas the barbers provide the skill
and expertise in servicing customers. The only control exercised by the owner of the barber shop is
to ascertain the number of customers serviced by the barber in order to determine the sharing of
profits. The barbers maybe characterized as independent contractors because they are under the
control of the barber shop owner only with respect to the result of the work, but not with respect to
the details or manner of performance. The barbers are engaged in an independent calling requiring
special skills available to the public at large.5

Its motion for reconsideration denied in the Resolution6 dated March 5, 1997, petitioners filed the
instant petition assigning that the NLRC committed grave abuse of discretion in:

I. ARBITRARILY DISREGARDING SUBSTANTIAL EVIDENCE PROVING THAT

PETITIONERS WERE EMPLOYEES OF RESPONDENT COMPANY IN RULING THAT
PETITIONERS WERE INDEPENDENT CONTRACTORS.

II. NOT HOLDING THAT PETITIONERS WERE ILLEGALLY DISMISSED AND IN NOT
AWARDING THEIR MONEY CLAIMS.7

Petitioners principally argue that public respondent NLRC gravely erred in declaring that the
petitioners were independent contractors. They contend that they were employees of the respondent
company and cannot be considered as independent contractors because they did not carry on an
independent business. They did not cut hair, manicure, and do their work in their own manner and
method. They insist they were not free from the control and direction of private respondents in all
matters, and their services were engaged by the respondent company to attend to its customers in
its barber shop. Petitioners also stated that, individually or collectively, they do not have substantial
capital nor investments in tools, equipments, work premises and other materials necessary in the
conduct of the barber shop. What the barbers owned were merely combs, scissors, and razors,
while the manicurists owned only nail cutters, nail polishes, nippers and cuticle removers. By no
standard can these be considered "substantial capital" necessary to operate a barbers shop.

Finally, petitioners fault the NLRC for arbitrarily disregarding substantial evidence on record showing
that petitioners Pedro Tolentino, Manuel Caparas, Simplicio Pedelos, and Patricia Nas were
registered with the Social Security System as regular employees of the respondent company. The
SSS employment records in common show that the employer's ID No. of Vicente Lao/Barber and
Pawn Shop was 03-0606200-1 and that of the respondent company was 03-8740074-7. All the
foregoing entries in the SSS employment records were painstakingly detailed by the petitioners in
their position paper and in their memorandum appeal but were arbitrarily ignored first by the Labor
Arbiter and then by the respondent NLRC which did not even mention said employment records in
its questioned decision.
We found petition is impressed with merit.

In our view, this case is an exception to the general rule that findings of facts of the NLRC are to be
accorded respect and finality on appeal. We have long settled that this Court will not uphold
erroneous conclusions unsupported by substantial evidence.8 We must also stress that where the
findings of the NLRC contradict those of the labor arbiter, the Court, in the exercise of its equity
jurisdiction, may look into the records of the case and reexamine the questioned findings.9

The issues raised by petitioners boil down to whether or not an employer-employee relationship
existed between petitioners and private respondent Lao Enteng Company, Inc. The Labor Arbiter
has concluded that the petitioners and respondent company were engaged in a joint venture. The
NLRC concluded that the petitioners were independent contractors.

The Labor Arbiter's findings that the parties were engaged in a joint venture is unsupported by any
documentary evidence. It should be noted that aside from the self-serving affidavit of Trinidad Lao
Ong, there were no other evidentiary documents, nor written partnership agreements presented. We
have ruled that even the sharing of proceeds for every job of petitioners in the barber shop does not
mean they were not employees of the respondent company.10

Petitioner aver that NLRC was wrong when it concluded that petitioners were independent
contractors simply because they supplied their own working implements, shared in the earnings of
the barber shop with the owner and chose the manner of performing their work. They stressed that
as far as the result of their work was concerned the barber shop owner controlled them.

An independent contractor is one who undertakes "job contracting", i.e., a person who (a) carries on
an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the
results thereof, and (b) has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of the
business.11

Juxtaposing this provision vis-à-vis the facts of this case, we are convinced that petitioners are not
"independent contractors". They did not carry on an independent business. Neither did they
undertake cutting hair and manicuring nails, on their own as their responsibility, and in their own
manner and method. The services of the petitioners were engaged by the respondent company to
attend to the needs of its customers in its barber shop. More importantly, the petitioners, individually
or collectively, did not have a substantial capital or investment in the form of tools, equipment, work
premises and other materials which are necessary in the conduct of the business of the respondent
company. What the petitioners owned were only combs, scissors, razors, nail cutters, nail polishes,
the nippers - nothing else. By no standard can these be considered substantial capital necessary to
operate a barber shop. From the records, it can be gleaned that petitioners were not given work
assignments in any place other than at the work premises of the New Look Barber Shop owned by
the respondent company. Also, petitioners were required to observe rules and regulations of the
respondent company pertaining, among other things, observance of daily attendance, job
performance, and regularity of job output. The nature of work performed by were clearly directly
related to private respondent's business of operating barber shops. Respondent company did not
dispute that it owned and operated three (3) barber shops. Hence, petitioners were not independent
contractors.

Did an employee-employer relationship exist between petitioners and private respondent? The
following elements must be present for an employer-employee relationship to exist: (1) the selection
and engagement of the workers; (2) power of dismissal; (3) the payment of wages by whatever
means; and (4) the power to control the worker's conduct, with the latter assuming primacy in the
overall consideration. Records of the case show that the late Vicente Lao engaged the services of
the petitioners to work as barbers and manicurists in the New Look Barber Shop, then a single
proprietorship owned by him; that in January 1982, his children organized a corporation which they
registered with the Securities and Exchange Commission as Lao Enteng Company, Inc.; that upon
its incorporation, it took over the assets, equipment, and properties of the New Look Barber Shop
and continued the business; that the respondent company retained the services of all the petitioners
and continuously paid their wages. Clearly, all three elements exist in petitioners' and private
respondent's working arrangements.

Private respondent claims it had no control over petitioners. The power to control refers to the
1âwphi1

existence of the power and not necessarily to the actual exercise thereof, nor is it 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.12 As to the "control test", the following facts indubitably
reveal that respondent company wielded control over the work performance of petitioners, in that: (1)
they worked in the barber shop owned and operated by the respondents; (2) they were required to
report daily and observe definite hours of work; (3) they were not free to accept other employment
elsewhere but devoted their full time working in the New Look Barber Shop for all the fifteen (15)
years they have worked until April 15, 1995; (4) that some have worked with respondents as early as
in the 1960's; (5) that petitioner Patricia Nas was instructed by the respondents to watch the other
six (6) petitioners in their daily task. Certainly, respondent company was clothed with the power to
dismiss any or all of them for just and valid cause. Petitioners were unarguably performing work
necessary and desirable in the business of the respondent company.

While it is no longer true that membership to SSS is predicated on the existence of an employee-
employer relationship since the policy is now to encourage even the self-employed dressmakers,
manicurists and jeepney drivers to become SSS members, we could not agree with private
respondents that petitioners were registered with the Social Security System as their employees only
as an accommodation. As we have earlier mentioned private respondent showed no proof to their
claim that petitioners were the ones who solely paid all SSS contributions. It is unlikely that
respondents would report certain persons as their workers, pay their SSS premium as well as their
wages if it were not true that they were indeed their employees.13

Finally, we agree with the labor arbiter that there was sufficient evidence that the barber shop was
closed due to serious business losses and respondent company closed its barber shop because the
building where the barber shop was located was sold. An employer may adopt policies or changes
or adjustments in its operations to insure profit to itself or protect investment of its stockholders. In
the exercise of such management prerogative, the employer may merge or consolidate its business
with another, or sell or dispose all or substantially all of its assets and properties which may bring
about the dismissal or termination of its employees in the process.14

Prescinding from the above, we hold that the seven petitioners are employees of the private
respondent company; as such, they are to be accorded the benefits provided under the Labor Code,
specifically Article 283 which mandates the grant of separation pay in case of closure or cessation of
employer's business which is equivalent to one (1) month pay for every year of service.15 Likewise,
they are entitled to the protection of minimum wage statutes. Hence, the separation pay due them
may be computed on the basis of the minimum wage prevailing at the time their services were
terminated by the respondent company. The same is true with respect to the 13th month pay. The
Revised Guidelines on the Implementation of the 13th Month Pay Law states that "all rank and file
employees are now entitled to a 13th month pay regardless of the amount of basic salary that they
receive in a month. Such employees are entitled to the benefit regardless of their designation or
employment status, and irrespective of the method by which their wages are paid, provided that they
have worked for at least one (1) month during a calendar year" and so all the seven (7) petitioners
who were not paid their 13th month pay must be paid accordingly.16

Anent the other claims of the petitioners, such as the P10,000.00 as penalty for non-compliance with
procedural process; P10,000.00 as moral damages; refund of P1.00 per day paid to the sweeper;
salary differentials for petitioner Nas; attorney's fees), we find them without basis.

IN VIEW WHEREOF, the petition is GRANTED. The public respondent's Decision dated October 17,
1996 and Resolution dated March 05, 1997 are SET ASIDE. Private respondents are hereby
ordered to pay, severally and jointly, the seven (7) petitioners their (1) 13th month pay and (2)
separation pay equivalent to one month pay for every year of service, to be computed at the then
prevailing minimum wage at the time of their actual termination which was April 15, 1995.

Costs against private respondents.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 120969 January 22, 1998

ALEJANDRO MARAGUINOT, JR. and PAULINO ENERO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION) composed of Presiding
Commissioner RAUL T. AQUINO, Commissioner ROGELIO I. RAYALA and Commissioner
VICTORIANO R. CALAYCAY (Ponente), VIC DEL ROSARIO and VIVA FIMS, respondents.

DAVIDE, JR., J.:

By way of this special civil action for certiorari under Rule 65 of the Rules of Court, petitioners seek
to annul the 10 February 1995 Decision 1 of the National Labor Relations Commission (hereafter
NLRC), and its 6 April 1995 Resolution 2 denying the motion to reconsider the former in NLRC-NCR-
CA No. 006195-94. The decision reversed that of the Labor Arbiter in NLRC-NCR-Case No. 00-07-
03994-92.

The parties present conflicting sets of facts.

Petitioner Alejandro Maraguinot, Jr. maintains that he was employed by private respondents on 18
July 1989 as part of the filming crew with a salary of P375.00 per week. About four months later, he
was designated Assistant Electrician with a weekly salary of P400.00, which was increased to
P450.00 in May 1990. In June 1991, he was promoted to the rank of Electrician with a weekly salary
of P475.00, which was increased to P539.00 in September 1991.

Petitioner Paulino Enero, on his part, claims that private respondents employed him in June 1990 as
a member of the shooting crew with a weekly salary of P375.00, which was increased to P425.00 in
May 1991, then to P475.00 on 21 December 1991.3

Petitioners' tasks consisted of loading, unloading and arranging movie equipment in the shooting
area as instructed by the cameraman, returning the equipment to Viva Films' warehouse, assisting in
the "fixing" of the lighting system, and performing other tasks that the cameraman and/or director
may assign.4

Sometime in May 1992, petitioners sought the assistance of their supervisors, Mrs. Alejandria
Cesario, to facilitate their request that private respondents adjust their salary in accordance with the
minimum wage law. In June 1992, Mrs. Cesario informed petitioners that Mr. Vic del Rosario would
agree to increase their salary only if they signed a blank employment contract. As petitioners refused
to sign, private respondents forced Enero to go on leave in June 1992, then refused to take him back
when he reported for work on 20 July 1992. Meanwhile, Maraguinot was dropped from the company
payroll from 8 to 21 June 1992, but was returned on 22 June 1992. He was again asked to sign a
blank employment contract, and when he still refused, private respondents terminated his services
on 20 July 1992. 5 Petitioners thus sued for illegal dismissal6 before the Labor Arbiter.

On the other hand, private respondents claim that Viva Films (hereafter VIVA) is the trade
name of Viva Productions, Inc., and that it is primarily engaged in the distribution and
exhibition of movies — but not in the business of making movies; in the same vein, private
respondent Vic del Rosario is merely an executive producer, i.e., the financier who invests a
certain sum of money for the production of movies distributed and exhibited by VIVA.7

Private respondents assert that they contract persons called "producers" — also referred to
as "associate producers"8 — to "produce" or make movies for private respondents; and
contend that petitioners are project employees of the association producers who, in turn, act
as independent contractors. As such, there is no employer-employee relationship between
petitioners and private respondents.

Private respondents further contend that it was the associate producer of the film "Mahirap
Maging Pogi," who hired petitioner Maraguinot. The movie shot from 2 July up to 22 July
1992, and it was only then that Maraguinot was released upon payment of his last salary, as
his services were no longer needed. Anent petitioner Enero, he was hired for the movie
entitled "Sigaw ng Puso," later re-tired "Narito and Puso." He went on vacation on 8 June
1992, and by the time he reported for work on 20 July 1992, shooting for the movie had
already been completed.9

After considering both versions of the facts, the Labor Arbiter found as follows:

On the first issue, this Office rules that complainants are the employees of the
respondents. The producer cannot be considered as an independent
contractor but should be considered only as a labor-only contractor and as
such, acts as a mere agent of the real employer, the herein respondent.
Respondents even failed to name and specify who are the producers. Also, it is
 an admitted fact that the complainants received their salaries from the
respondents. The case cited by the respondents, Rosario Brothers,
Inc. vs. Ople, 131 SCRA 72 does not apply in this case.

It is very clear also that complainants are doing activities which are necessary
and essential to the business of the respondents, that of movie-making.
Complainant Maraguinot worked as an electrician while complainant Enero
worked as a crew [member]. 10

Hence, the Labor Arbiter, in his decision of 20 December 1993, decreed as follows:

WHEREFORE, judgment is hereby rendered declaring that complainants were

illegally dismissed.

Respondents are hereby ordered to reinstate complainant to their former

positions without loss [of] seniority rights and pay their backwages starting
July 21, 1992 to December 31, 1993 temporarily computed in the amount of
P38,000.00 for complainant Paulino Enero and P46,000.00 for complainant
Alejandro Maraguinot, Jr. and thereafter until actually reinstated.

Respondents are ordered to pay also attorney's fees equivalent to ten (10%)
and/or P8,400.00 on top of the award.11

Private respondents appealed to the NLRC (docketed as NLRC NCR-CA No. 006195-94). In its
decision 12 of 10 February 1995, the NLRC found the following circumstances of petitioners'
work "clearly established:"

1. Complainants [petitioners herein] were hired for specific movie projects and
their employment was co-terminus with each movie project the
completion/termination of which are pre-determined, such fact being made
known to complainants at the time of their engagement.

xxx xxx xxx

2 Each shooting unit works on one movie project at a time. And the work of the
shooting units, which work independently from each other, are not continuous
in nature but depends on the availability of movie projects.

3. As a consequence of the non-continuous work of the shooting units, the

total working hours logged by complainants in a month show extreme
variations. . . For instance, complainant Maraguinot worked for only 1.45 hours
in June 1991 but logged a total of 183.25 hours in January 1992. Complainant
Enero logged a total of only 31.57 hours in September 1991 but worked
for 183.35 hours the next month, October 1991.

4. Further shown by respondents is the irregular work schedule of

complainants on a daily basis. Complainant Maraguinot was supposed to
report on 05 August 1991 but reported only on 30 August 1991, or a gap of 25
days. Complainant Enero worked on 10 September 1991 and his next
scheduled working day was 28 September 1991, a gap of 18 days.
 5. The extremely irregular working days and hours of complainants' work
explain the lump sum payment for complainants' services for each movie
project. Hence, complainants were paid a standard weekly salary regardless of
the number of working days and hours they logged in. Otherwise, if the
principle of "no work no pay" was strictly applied, complainants' earnings for
certain weeks would be very negligible.

6. Respondents also alleged that complainants were not prohibited from

working with such movie companies like Regal, Seiko and FPJ Productions
whenever they are not working for the independent movie producers engaged
by respondents . . . This allegation was never rebutted by complainants and
should be deemed admitted.

The NLRC, in reversing the Labor Arbiter, then concluded that these circumstances,
taken together, indicated that complainants (herein petitioners) were "project
employees."

After their motion for reconsideration was denied by the NLRC in its Resolution 13 of 6 April
1995, petitioners filed the instant petition, claiming that the NLRC committed grave abuse of
discretion amounting to lack or excess of jurisdiction in: (1) finding that petitioners were
project employees; (2) ruling that petitioners were not illegally dismissed; and (3) reversing
the decision of the Labor Arbiter.

To support their claim that they were regular (and not project) employees of private
respondents, petitioners cited their performance of activities that were necessary or
desirable in the usual trade or business of private respondents and added that their work was
continuous, i.e., after one project was completed they were assigned to another project.
Petitioners thus considered themselves part of a work pool from which private respondents
drew workers for assignment to different projects. Petitioners lamented that there was no
basis for the NLRC's conclusion that they were project employees, while the associate
producers were independent contractors; and thus reasoned that as regular employees, their
dismissal was illegal since the same was premised on a "false cause," namely, the
completion of a project, which was not among the causes for dismissal allowed by the Labor
Code.

Private respondents reiterate their version of the facts and stress that their evidence
supports the view that petitioners are project employees; point to petitioners' irregular work
load and work schedule; emphasize the NLRC's finding that petitioners never controverted
the allegation that they were not prohibited from working with other movie companies; and
ask that the facts be viewed in the context of the peculiar characteristics of the movie
industry.

The Office of the Solicitor General (OSG) is convinced that this petition is improper since
petitioners raise questions of fact, particularly, the NLRC's finding that petitioners were
project employees, a finding supported by substantial evidence; and submits that petitioners'
reliance on Article 280 of the Labor Code to support their contention that they should be
deemed regular employees is misplaced, as said section "merely distinguishes between two
types of employees, i.e., regular employees and casual employees, for purposes of
determining the right of an employee to certain benefits."

The OSG likewise rejects petitioners' contention that since they were hired not for one
project, but for a series of projects, they should be deemed regular employees.
Citing Mamansag v. NLRC, 14 the OSG asserts that what matters is that there was a time-frame
for each movie project made known to petitioners at the time of their hiring. In closing, the
OSG disagrees with petitioners' claim that the NLRC's classification of the movie producers
as independent contractors had no basis in fact and in law, since, on the contrary, the NLRC
"took pains in explaining its basis" for its decision.

As regards the propriety of this action, which the Office of the Solicitor General takes issue
with, we rule that a special civil action for certiorari under Rule 65 of the Rules of Court is the
proper remedy for one who complains that the NLRC acted in total disregard of evidence
material to or decisive of the controversy. 15 In the instant case, petitioners allege that the
NLRC's conclusions have no basis in fact and in law, hence the petition may not be
dismissed on procedural or jurisdictional grounds.

The judicious resolution of this case hinges upon, first, the determination of whether an
employer-employee relationship existed between petitioners and private respondents or any
one of private respondents. If there was none, then this petition has no merit; conversely, if
the relationship existed, then petitioners could have been unjustly dismissed.

A related question is whether private respondents are engaged in the business of making
motion pictures. Del Rosario is necessarily engaged in such business as he finances the
production of movies. VIVA, on the other hand, alleges that it does not "make" movies, but
merely distributes and exhibits motion pictures. There being no further proof to this effect,
we cannot rely on this self-serving denial. At any rate, and as will be discussed below, private
respondents' evidence even supports the view that VIVA is engaged in the business of
making movies.

We now turn to the critical issues. Private respondents insist that petitioners are project
employees of associate producers who, in turn, act as independent contractors. It is settled
that the contracting out of labor is allowed only in case of job contracting. Section 8, Rule
VIII, Book III of the Omnibus Rules Implementing the Labor Code describes permissible job
contracting in this wise:

Sec. 8. Job contracting. — There is job contracting permissible under the Code
if the following conditions are met:

(1) The contractor carries on an independent

business and undertakes the contract work on his
own account under his own responsibility
according to his own manner and method, free
from the control and direction of his employer or
principal in all matters connected with the
performance of the work except as to the results
thereof; and

(2) The contractor has substantial capital or

investment in the form of tools, equipment,
machineries, work premises, and other materials
which are necessary in the conduct of his
business.

Assuming that the associate producers are job contractors, they must then be engaged in the
business of making motion pictures. As such, and to be a job contractor under the preceding
description, associate producers must have tools, equipment, machinery, work premises,
and other materials necessary to make motion pictures. However, the associate producers
here have none of these. Private respondents' evidence reveals that the movie-making
equipment are supplied to the producers and owned by VIVA. These include
generators, 16 cables and wooden platforms, 17 cameras and "shooting equipment;" 18 in fact,
VIVA likewise owns the trucks used to transport the equipment. 19 It is thus clear that the
associate producer merely leases the equipment from VIVA. 20 Indeed, private respondents'
Formal Offer of Documentary Evidence stated one of the purposes of Exhibit "148" as:

To prove further that the independent Producers rented Shooting Unit No. 2
from Viva to finish their films. 21

While the purpose of Exhibits "149," "149-A" and "149-B" was:

[T]o prove that the movies of Viva Films were contracted out to the different
independent Producers who rented Shooting Unit No. 3 with a fixed budget
and time-frame of at least 30 shooting days or 45 days whichever comes first. 22

Private respondent further narrated that VIVA's generators broke down during petitioners'
last movie project, which forced the associate producer concerned to rent generators,
equipment and crew from another company. 23 This only shows that the associate producer
did not have substantial capital nor investment in the form of tools, equipment and other
materials necessary for making a movie. Private respondents in effect admit that their
producers, especially petitioners' last producer, are not engaged in permissible job
contracting.

If private respondents insist that the associate producers are labor contractors, then these
producers can only be "labor-only" contractors, defined by the Labor Code as follows:

Art. 106. Contractor or subcontractor. — . . .

There is "labor-only" contracting where the person supplying workers to an

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

A more detailed description is provided by Section 9, Rule VIII, Book III of the
Omnibus Rules Implementing the Labor Code:

Sec. 9. Labor-only contracting. — (a) Any person who undertakes to supply

workers to an employer shall be deemed to be engaged in labor-only
contracting where such person:

(1) Does not have substantial capital or investment in the form of

tools, equipment, machineries, work premises and other
materials; and
 (2) The workers recruited and placed by such person are
performing activities which are directly related to the principal
business or operations of the employer in which workers are
habitually employed.

(b) Labor-only contracting as defined herein is

hereby prohibited and the person acting as
contractor shall be considered merely as an agent
or intermediary of the employer who shall be
responsible to the workers in the same manner
and extent as if the latter were directly employed
by him.

(c) For cases not falling under this Article, the

Secretary of Labor shall determine through
appropriate orders whether or not the contracting
out of labor is permissible in the light of the
circumstances of each case and after considering
the operating needs of the employer and the
rights of the workers involved. In such case, he
may prescribe conditions and restrictions to
insure the protection and welfare of the workers.

As labor-only contracting is prohibited, the law considers the person or entity engaged in the
same a mere agent or intermediary of the direct employer. But even by the preceding
standards, the associate producers of VIVA cannot be considered labor-only contractors as
they did not supply, recruit nor hire the workers. In the instant case, it was Juanita Cesario,
Shooting Unit Supervisor and an employee of VIVA, who recruited crew members from an
"available group of free-lance workers which includes the complainants Maraguinot and
Enero." 24 And in their Memorandum, private respondents declared that the associate
producer "hiresthe services of . . . 6) camera crew which includes (a) cameraman; (b) the
utility crew; (c) the technical staff; (d) generator man and electrician; (e) clapper; etc. . . .
." 25 This clearly showed that the associate producers did not supply the workers required by
the movie project.

The relationship between VIVA and its producers or associate producers seems to be that of
agency, 26 as the latter make movies on behalf of VIVA, whose business is to "make" movies.
As such, the employment relationship between petitioners and producers is actually one
between petitioners and VIVA, with the latter being the direct employer.

The employer-employee relationship between petitioners and VIVA can further be established
by the "control test." While four elements are usually considered in determining the existence
of an employment relationship, namely: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control
of the employee's conduct, the most important element is the employer's control of the
employee's conduct, not only as to the result of the work to be done but also as to the means
and methods to accomplish the same. 27 These four elements are present here. In their
position paper submitted to the Labor Arbiter, private respondents narrated the following
circumstances:
 [T]he PRODUCER has to work within the limits of the budget he is given by the
company, for as long as the ultimate finish[ed] product is acceptable to the
company . . .

The ensure that qualify films are produced by the PRODUCER who is an
independent contractor, the company likewise employs a Supervising
PRODUCER, a Project accountant and a Shooting unit supervisor. The
Company's Supervising PRODUCER is Mr. Eric Cuatico, the Project accountant
varies from time to time, and the Shooting Unit Supervisor is Ms. Alejandria
Cesario.

The Supervising PRODUCER acts as the eyes and ears of the company and of
the Executive Producer to monitor the progress of the PRODUCER's work
accomplishment. He is there usually in the field doing the rounds of inspection
to see if there is any problem that the PRODUCER is encountering and to
assist in threshing out the same so that the film project will be finished on
schedule. He supervises about 3 to 7 movie projects simultaneously [at] any
given time by coordinating with each film "PRODUCER". The Project
Accountant on the other hand assists the PRODUCER in monitoring the actual
expenses incurred because the company wants to insure that any additional
budget requested by the PRODUCER is really justified and warranted
especially when there is a change of original plans to suit the tast[e] of the
company on how a certain scene must be presented to make the film more
interesting and more commercially viable. (emphasis supplied).

VIVA's control is evident in its mandate that the end result must be a "quality film acceptable
to the company." The means and methods to accomplish the result are likewise controlled by
VIVA, viz., the movie project must be finished within schedule without exceeding the budget,
and additional expenses must be justified; certain scenes are subject to change to suit the
taste of the company; and the Supervising Producer, the "eyes and ears" of VIVA and del
Rosario, intervenes in the movie-making process by assisting the associate producer in
solving problems encountered in making the film.

It may not be validly argued then that petitioners are actually subject to the movie director's
control, and not VIVA's direction. The director merely instructs petitioners on how to better
comply with VIVA's requirements to ensure that a quality film is completed within schedule
and without exceeding the budget. At bottom, the director is akin to a supervisor who merely
oversees the activities of rank-and-file employees with control ultimately resting on the
employer.

Moreover, appointment slips 28 issued to all crew members state:

During the term of this appointment you shall comply with the duties and
responsibilities of your position as well as observe the rules and regulations
promulgated by your superiors and by Top Management.

The words "supervisors" and "Top Management" can only refer to the "supervisors" and
"Top Management" of VIVA. By commanding crew members to observe the rules and
regulations promulgated by VIVA, the appointment slips only emphasize VIVA's control over
petitioners.
Aside from control, the element of selection and engagement is likewise present in the
instant case and exercised by VIVA. A sample appointment slip offered by private
respondents "to prove that members of the shooting crew except the driver are project
employees of the Independent Producers" 29 reads as follows:

VIVA PRODUCTIONS, INC.

16 Sct. Albano St.
Diliman, Quezon City

PEDRO NICOLAS Date: June 15, 1992

APPOINTMENT SLIP

You are hereby appointed as SOUNDMAN for the film project entitled
"MANAMBIT". This appointment shall be effective upon the commencement of
the said project and shall continue to be effective until the completion of the
same.

For your services you shall receive the daily/weekly/monthly compensation of

P812.50.

During the term of this appointment you shall comply with the duties and
responsibilities of your position as well as observe the rules and regulations
promulgated by your superiors and by Top Management.

V
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y
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r
u
l
y
y
o
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s
,

(
a
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i
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l
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i
 b
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s
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)

CONFORME:

_________________

Name of appointee

Signed in the presence of:

___________________

Notably, nowhere in the appointment slip does it appear that it was the producer or associate
producer who hired the crew members; moreover, it is VIVA's corporate name which appears
on the heading of the appointment slip. What likewise tells against VIVA is that it paid
petitioners' salaries as evidenced by vouchers, containing VIVA's letterhead, for that
purpose. 30

All the circumstances indicate an employment relationship between petitioners and VIVA
alone, thus the inevitable conclusion is that petitioners are employees only of VIVA.

The next issue is whether petitioners were illegally dismissed. Private respondents contend
that petitioners were project employees whose employment was automatically terminated
with the completion of their respective projects. Petitioners assert that they were regular
employees who were illegally dismissed.

It may not be ignored, however, that private respondents expressly admitted that petitioners
were part of a work pool; 31 and, while petitioners were initially hired possibly as project
employees, they had attained the status of regular employees in view if VIVA's conduct.

A project employee or a member of a work pool may acquire the status of a regular employee
when the following concur:

1) There is a continuous rehiring of project employees even after cessation of a project;32 and

2) The tasks performed by the alleged "project employee" are vital, necessary and
indispensable to the usual business or trade of the employer. 33
 However, the length of time during which the employee was continuously re-hired is
not controlling, but merely serves as a badge of regular employment.34

In the instant case, the evidence on record shows that petitioner Enero was employed for a
total of two (2) years and engaged in at least eighteen (18) projects, while petitioner
Maraguinot was employed for some three (3) years and worked on at least twenty-three (23)
projects. 35 Moreover, as petitioners' tasks involved, among other chores, the loading,
unloading and

FILM DATE DATE ASSOCIATE

STARTED COMPLETED PRODUCER

LOVE AT FIRST SIGHT 1/3/90 2/16/90 MARIVIC ONG

PAIKOT-IKOT 1/26/90 3/11/90 EDITH MANUEL

ROCKY & ROLLY 2/13/90 3/29/90 M. ONG

PAIKOT-IKOT (addl. 1/2) 3/12/90 4/3/90 E. MANUEL

ROCKY & ROLLY (2nd contract) 4/6/90 5/20/90 M. ONG

NARDONG TOOTHPICK 4/4/90 5/18/90 JUN CHING

BAKIT KAY TAGAL NG SANDALI 6/26/90 10/20/90 E. MANUEL

BAKIT KAY TAGAL (2nd contract) 8/10/90 9/23/90 E. MANUEL

HINUKAY KO NA ANG LIBINGAN 9/6/90 10/20/90 JUN CHING

MO

MAGING SINO KA MAN 10/25/90 12/8/90 SANDY STA. MARIA

M. SINO KA MAN (2nd contract) 12/9/90 1/22/91 SANDY S

NOEL JUICO 1/29/91 3/14/90 JUN CHING

NOEL JUICO (2nd contract) 3/15/91 4/6/91 JUN CHING

ROBIN GOOD 5/7/91 6/20/91 M. ONG

UTOL KONG HOODLUM # 1 6/23/91 8/6/91 JUN CHING

KAPUTOL NG ISANG AWIT 8/18/91 10/2/91 SANDY S.

DARNA 10/4/91 11/18/91 E. MANUEL

DARNA (addl. 1/2) 11/20/91 12/12/91 E. MANUEL

MAGNONG REHAS 12/13/91 1/27/92 BOBBY GRIMALT

M. REHAS (2nd contract) 1/28/92 3/12/92 B. GRIMALT

HIRAM NA MUKHA 3/15/92 4/29/92 M. ONG

 HIRAM (2nd contract) 5/1/92 6/14/92 M. ONG

KAHIT AKO'Y BUSABOS 5/28/92 7/7/92 JERRY OHARA

SIGAW NG PUSO 7/1/92 8/4/92 M. ONG

SIGAW (addl. 1/2) 8/15/92 9/5/92 M. ONG

NGAYON AT KAILANMAN 9/6/92 10/20/92 SANDY STA. MARIA

While Maraguinot was a member of Shooting Unit III, which made the following movies
(Annex "4-A" of Respondents' Position Paper; OR, 29):

FILM DATE DATE ASSOCIATE

STARTED COMPLETED PRODUCER
GUMAPANG KA SA LUSAK 1/27/90 3/12/90 JUN CHING
PETRANG KABAYO 2/19/90 4/4/90 RUTH GRUTA
LUSAK (2nd contract) 3/14/90 4/27/90 JUN CHING
P. KABAYO (Addl 1/2 contract) 4/21/90 5/13/90 RUTH GRUTA
BADBOY 6/15/90 7/29/90 EDITH MANUEL
BADBOY (2nd contract) 7/30/90 8/21/90 E. MANUEL
ANAK NI BABY AMA 9/2/90 10/16/90 RUTH GRUTA
A.B. AMA (addl 1/2) 10/17/90 11/8/90 RUTH GRUTA
A.B. AMA (addl 2nd 1/2) 11/9/90 12/1/90 R. GRUTA
BOYONG MANALAC 11/30/90 1/14/91 MARIVIC ONG
HUMANAP KA NG PANGET 1/20/91 3/5/91 EDITH MANUEL
H. PANGET(2nd contract) 3/10/91 4/23/91 E. MANUEL
B. MANALAC (2nd contract) 5/22/91 7/5/91 M. ONG
ROBIN GOOD (2nd contract) 7/7/91 8/20/91 M. ONG
PITONG GAMOL 8/30/91 10/13/91 M. ONG
P. GAMOL (2nd contract) 10/14/91 11/27/91 M. ONG
GREASE GUN GANG 12/28/91 2/10/92 E. MANUEL
ALABANG GIRLS (1/2 contract) 3/4/92 3/26/92 M. ONG
BATANG RILES 3/9/92 3/30/92 BOBBY GRIMALT
UTOL KONG HOODLUM (part 2) 3/22/92 5/6/92 B. GRIMALT
UTOL (addl. 1/2 contract) 5/7/92 5/29/92 B. GRIMALT
MANDURUGAS (2nd contract) 5/25/92 7/8/92 JERRY OHARA
MAHIRAP MAGING POGI 7/2/92 8/15/92 M. ONG

arranging of movie equipment in the shooting area as instructed by the cameramen,

returning the equipment to the Viva Films' warehouse, and assisting in the "fixing" of
the lighting system, it may not be gainsaid that these tasks were vital, necessary and
indispensable to the usual business or trade of the employer. As regards the
underscored phrase, it has been held that this is ascertained by considering the
nature of the work performed and its relation to the scheme of the particular business
or trade in its entirety. 36
A recent pronouncement of this Court anent project or work pool employees who had
attained the status of regular employees proves most instructive:

The denial by petitioners of the existence of a work pool in the company

because their projects were not continuous is amply belied by petitioners
themselves who admit that: . . .

A work pool may exist although the workers in the pool do not receive salaries
and are free to seek other employment during temporary breaks in the
business, provided that the worker shall be available when called to report of a
project. Although primarily applicable to regular seasonal workers, this set-up
can likewise be applied to project workers insofar as the effect of temporary
cessation of work is concerned. This is beneficial to both the employer and
employee for it prevents the unjust situation of "coddling labor at the expense
of capital" and at the same time enables the workers to attain the status of
regular employees. Clearly, the continuous rehiring of the same set of
employees within the framework of the Lao Group of Companies is strongly
indicative that private respondents were an integral part of a work pool from
which petitioners drew its workers for its various projects.

In a final attempt to convince the Court that private respondents were indeed
project employees, petitioners point out that the workers were not regularly
maintained in the payroll and were free to offer their services to other
companies when there were no on-going projects. This argument however
cannot defeat the workers' status of regularity. We apply by analogy the vase
of Industrial-Commercial-Agricultural Workers Organization v. CIR [16 SCRA
526, 567-568 (1966)] which deals with regular seasonal employees. There we
held: . . .

Truly, the cessation of construction activities at the end of every project is a

foreseeable suspension of work. Of course, no compensation can be
demanded from the employer because the stoppage of operations at the end of
a project and before the start of a new one is regular and expected by both
parties to the labor relations. Similar to the case of regular seasonal
employees, the employment relation is not severed by merely being
suspended. [citing Manila Hotel Co. v. CIR, 9 SCRA 186 (1963)] The employees
are, strictly speaking, not separated from services but merely on leave of
absence without pay until they are reemployed. Thus we cannot affirm the
argument that non-payment of salary or non-inclusion in the payroll and the
opportunity to seek other employment denote project
employment. 37 (emphasis supplied)

While Lao admittedly involved the construction industry, to which Policy Instruction No.
20/Department Order No. 19 38 regarding work pools specifically applies, there seems to be no
impediment to applying the underlying principles to industries other than the construction
industry. 39 Neither may it be argued that a substantial distinction exists between the projects
undertaken in the construction industry and the motion picture industry. On the contrary,
the raison d' etre of both industries concern projects with a foreseeable suspension of work.

At this time, we wish to allay any fears that this decision unduly burdens an employer by
imposing a duty to re-hire a project employee even after completion of the project for which
he was hired. The import of this decision is not to impose a positive and sweeping obligation
upon the employer to re-hire project employees. What this decision merely accomplishes is a
judicial recognition of the employment status of a project or work pool employee in
accordance with what is fait accompli, i.e., the continuous re-hiring by the employer of
project or work pool employees who perform tasks necessary or desirable to the employer's
usual business or trade. Let it not be said that this decision "coddles" labor, for as Lao has
ruled, project or work pool employees who have gained the status of regular employees are
subject to the "no work-no pay" principle, to repeat:

A work pool may exist although the workers in the pool do not receive salaries and are free to
seek other employment during temporary breaks in the business, provided that the worker
shall be available when called to report for a project. Although primarily applicable to regular
seasonal workers, this set-up can likewise be applied to project workers insofar as the effect
of temporary cessation of work is concerned. This is beneficial to both the employer and
employee for it prevents the unjust situation of "coddling labor at the expense of capital" and
at the same time enables the workers to attain the status of regular employees.

The Court's ruling here is meant precisely to give life to the constitutional policy of
strengthening the labor sector, 40 but, we stress, not at the expense of management. Lest it be
misunderstood, this ruling does not mean that simply because an employee is a project or
work pool employee even outside the construction industry, he is deemed, ipso jure, a
regular employee. All that we hold today is that once a project or work pool employee has
been: (1) continuously, as opposed to intermittently, re-hired by the same employer for the
same tasks or nature of tasks; and (2) these tasks are vital, necessary and indispensable to
the usual business or trade of the employer, then the employee must be deemed a regular
employee, pursuant to Article 280 of the Labor Code and jurisprudence. To rule otherwise
would allow circumvention of labor laws in industries not falling within the ambit of Policy
Instruction No. 20/Department Order No. 19, hence allowing the prevention of acquisition of
tenurial security by project or work pool employees who have already gained the status of
regular employees by the employer's conduct.

In closing then, as petitioners had already gained the status of regular employees, their
dismissal was unwarranted, for the cause invoked by private respondents for petitioners'
dismissal, viz.: completion of project, was not, as to them, a valid cause for dismissal under
Article 282 of the Labor Code. As such, petitioners are now entitled to back wages and
reinstatement, without loss of seniority rights and other benefits that may have
accrued. 41 Nevertheless, following the principles of "suspension of work" and "no pay"
between the end of one project and the start of a new one, in computing petitioners' back
wages, the amounts corresponding to what could have been earned during the periods from
the date petitioners were dismissed until their reinstatement when petitioners' respective
Shooting Units were not undertaking any movie projects, should be deducted.

Petitioners were dismissed on 20 July 1992, at a time when Republic Act No. 6715 was
already in effect. Pursuant to Section 34 thereof which amended Section 279 of the Labor
Code of the Philippines and Bustamante v. NLRC, 42 petitioners are entitled to receive full
back wages from the date of their dismissal up to the time of their reinstatement, without
deducting whatever earnings derived elsewhere during the period of illegal dismissal, subject
however, to the above observations.

WHEREFORE, the instant petition is GRANTED. The assailed decision of the National Labor
Relations Commission in NLRC NCR CA No. 006195-94 dated 01 February 1995, as well as its
Resolution dated 6 April 1995, are hereby ANNULLED and SET ASIDE for having been
rendered with grave abuse of discretion, and the decision of the Labor Arbiter in NLRC NCR
Case No. 00-07-03994-92 is REINSTATED, subject, however, to the modification above
mentioned in the computation of back wages.

No pronouncement as to costs.

SO ORDERED.

Bellosillo, Vitug and Kapunan, JJ., concur.

FIRST DIVISION

G.R. No. 138051 June 10, 2004

JOSE Y. SONZA, petitioner,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari1 assailing the 26 March 1999 Decision2 of the
Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza
("SONZA"). The Court of Appeals affirmed the findings of the National Labor Relations Commission
("NLRC"), which affirmed the Labor Arbiter’s dismissal of the case for lack of jurisdiction.

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement

("Agreement") with the Mel and Jay Management and Development Corporation ("MJMDC"). ABS-
CBN was represented by its corporate officers while MJMDC was represented by SONZA, as
President and General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and Treasurer.
Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZA’s services exclusively
to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would
render to ABS-CBN, as follows:

a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;
 b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.3

ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of ₱310,000 for the first year and
₱317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on
the 10th and 25th days of the month.

On 1 April 1996, SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered into by
your goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y.
SONZA.

As you are well aware, Mr. Sonza irrevocably resigned in view of recent events
concerning his programs and career. We consider these acts of the station violative
of the Agreement and the station as in breach thereof. In this connection, we hereby
serve notice of rescission of said Agreement at our instance effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining
amount stipulated in paragraph 7 of the Agreement but reserves the right to seek
recovery of the other benefits under said Agreement.

Thank you for your attention.

Very truly yours,

(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and
Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN did not
pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel
allowance and amounts due under the Employees Stock Option Plan ("ESOP").

On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZA’s monthly talent fees through his account at
PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account with
the same bank where ABS-CBN deposited SONZA’s talent fees and other payments due him under
the Agreement.

In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to dismiss and directed
the parties to file their respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of
respondent company until April 15, 1996 and that he was not paid certain claims, it is
sufficient enough as to confer jurisdiction over the instant case in this Office. And as to
whether or not such claim would entitle complainant to recover upon the causes of action
 asserted is a matter to be resolved only after and as a result of a hearing. Thus, the
respondent’s plea of lack of employer-employee relationship may be pleaded only as a
matter of defense. It behooves upon it the duty to prove that there really is no employer-
employee relationship between it and the complainant.

The Labor Arbiter then considered the case submitted for resolution. The parties submitted their
position papers on 24 February 1997.

On 11 March 1997, SONZA filed a Reply to Respondent’s Position Paper with Motion to Expunge
Respondent’s Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBN’s
witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the
prevailing practice in the television and broadcast industry is to treat talents like SONZA as
independent contractors.

The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of
jurisdiction.6 The pertinent parts of the decision read as follows:

xxx

While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of the
contract of a talent," it stands to reason that a "talent" as above-described cannot be
considered as an employee by reason of the peculiar circumstances surrounding the
engagement of his services.

It must be noted that complainant was engaged by respondent by reason of his peculiar
skills and talent as a TV host and a radio broadcaster. Unlike an ordinary employee,
he was free to perform the services he undertook to render in accordance with his
own style. The benefits conferred to complainant under the May 1994 Agreement are
certainly very much higher than those generally given to employees. For one, complainant
Sonza’s monthly talent fees amount to a staggering ₱317,000. Moreover, his engagement as
a talent was covered by a specific contract. Likewise, he was not bound to render eight (8)
hours of work per day as he worked only for such number of hours as may be necessary.

The fact that per the May 1994 Agreement complainant was accorded some benefits
normally given to an employee is inconsequential. Whatever benefits complainant
enjoyed arose from specific agreement by the parties and not by reason of employer-
employee relationship. As correctly put by the respondent, "All these benefits are merely
talent fees and other contractual benefits and should not be deemed as ‘salaries, wages
and/or other remuneration’ accorded to an employee, notwithstanding the nomenclature
appended to these benefits. Apropos to this is the rule that the term or nomenclature given to
a stipulated benefit is not controlling, but the intent of the parties to the Agreement conferring
such benefit."

The fact that complainant was made subject to respondent’s Rules and Regulations,
likewise, does not detract from the absence of employer-employee relationship. As
held by the Supreme Court, "The line should be drawn between rules that merely serve as
guidelines towards the achievement of the mutually desired result without dictating the
means or methods to be employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of such means. The first, which
aim only to promote the result, create no employer-employee relationship unlike the second,
which address both the result and the means to achieve it." (Insular Life Assurance Co., Ltd.
vs. NLRC, et al., G.R. No. 84484, November 15, 1989).
 x x x (Emphasis supplied)7

SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming the
Labor Arbiter’s decision. SONZA filed a motion for reconsideration, which the NLRC denied in its
Resolution dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals
assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals
rendered a Decision dismissing the case.8

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRC’s finding that no employer-employee relationship existed
between SONZA and ABS-CBN. Adopting the NLRC’s decision, the appellate court quoted the
following findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract
merely as an agent of complainant Sonza, the principal. By all indication and as the law puts
it, the act of the agent is the act of the principal itself. This fact is made particularly true in this
case, as admittedly MJMDC ‘is a management company devoted exclusively to managing
the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco.’ (Opposition
to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza and
MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of the
May 1994 Agreement which specifically referred to MJMDC as the ‘AGENT’. As a matter of
fact, when complainant herein unilaterally rescinded said May 1994 Agreement, it was
MJMDC which issued the notice of rescission in behalf of Mr. Sonza, who himself signed the
same in his capacity as President.

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that
historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is only in
the May 1994 Agreement, which is the latest Agreement executed between ABS-CBN and
Mr. Sonza, that MJMDC figured in the said Agreement as the agent of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere ‘labor-only’ contractor of ABS-CBN

such that there exist[s] employer-employee relationship between the latter and Mr. Sonza.
On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS-CBN, but of the
talent/contractor Mr. Sonza, as expressly admitted by the latter and MJMDC in the May 1994
Agreement.

It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to
the regular courts, the same being in the nature of an action for alleged breach of contractual
obligation on the part of respondent-appellee. As squarely apparent from complainant-
appellant’s Position Paper, his claims for compensation for services, ‘13th month pay’,
signing bonus and travel allowance against respondent-appellee are not based on the Labor
Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds
under Stock Purchase Agreement are based on the latter. A portion of the Position Paper of
complainant-appellant bears perusal:
 ‘Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually
bound itself to pay complainant a signing bonus consisting of shares of stocks…with
FIVE HUNDRED THOUSAND PESOS (₱500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an amount
not lower than the amount he was receiving prior to effectivity of (the) Agreement’.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a

commutable travel benefit amounting to at least One Hundred Fifty Thousand Pesos
(₱150,000.00) per year.’

Thus, it is precisely because of complainant-appellant’s own recognition of the fact that his
contractual relations with ABS-CBN are founded on the New Civil Code, rather than the
Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant served
upon the latter a ‘notice of rescission’ of Agreement with the station, per his letter dated April
1, 1996, which asserted that instead of referring to unpaid employee benefits, ‘he is waiving
and renouncing recovery of the remaining amount stipulated in paragraph 7 of the
Agreement but reserves the right to such recovery of the other benefits under said
Agreement.’ (Annex 3 of the respondent ABS-CBN’s Motion to Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or
the Stock Purchase Agreement by respondent-appellee that complainant-appellant filed his
complaint. Complainant-appellant’s claims being anchored on the alleged breach of contract
on the part of respondent-appellee, the same can be resolved by reference to civil law and
not to labor law. Consequently, they are within the realm of civil law and, thus, lie with the
regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs. Villarama, 238
SCRA 267, 21 November 1994, an action for breach of contractual obligation is
intrinsically a civil dispute.9 (Emphasis supplied)

The Court of Appeals ruled that the existence of an employer-employee relationship between
SONZA and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve.10 A
special civil action for certiorari extends only to issues of want or excess of jurisdiction of the
NLRC.11 Such action cannot cover an inquiry into the correctness of the evaluation of the evidence
which served as basis of the NLRC’s conclusion.12 The Court of Appeals added that it could not re-
examine the parties’ evidence and substitute the factual findings of the NLRC with its own.13

The Issue

In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRC’S DECISION

AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED
BETWEEN SONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW,
JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING.14

The Court’s Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming
the NLRC ruling which upheld the Labor Arbiter’s dismissal of the case for lack of jurisdiction.
The present controversy is one of first impression. Although Philippine labor laws and jurisprudence
define clearly the elements of an employer-employee relationship, this is the first time that the Court
will resolve the nature of the relationship between a television and radio station and one of its
"talents." There is no case law stating that a radio and television program host is an employee of the
broadcast station.

The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a known
television and radio personality, and ABS-CBN, one of the biggest television and radio networks in
the country.

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee
of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because
SONZA was an independent contractor.

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courts accord

the factual findings of the Labor Arbiter and the NLRC not only respect but also finality when
supported by substantial evidence.15 Substantial evidence means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion.16 A party cannot prove the
absence of substantial evidence by simply pointing out that there is contrary evidence on record,
direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in
determining where the weight of evidence lies or what evidence is credible.17

SONZA maintains that all essential elements of an employer-employee relationship are present in
this case. Case law has consistently held that the elements of an employer-employee relationship
are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer’s power to control the employee on the means and methods by
which the work is accomplished.18 The last element, the so-called "control test", is the most
important element.19

A. Selection and Engagement of Employee

ABS-CBN engaged SONZA’s services to co-host its television and radio programs because of
SONZA’s peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by
respondent in specifically selecting and hiring complainant over other broadcasters of possibly
similar experience and qualification as complainant belies respondent’s claim of independent
contractorship."

Independent contractors often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of
his unique skills, talent and celebrity status not possessed by ordinary employees, is a
circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did
not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into
the Agreement with SONZA but would have hired him through its personnel department just like any
other employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his
status. We must consider all the circumstances of the relationship, with the control test being the
most important element.

B. Payment of Wages
ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC.
SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN.
SONZA also points out that ABS-CBN granted him benefits and privileges "which he would not have
enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the
Agreement. If SONZA were ABS-CBN’s employee, there would be no need for the parties to
stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay"20 which the law
automatically incorporates into every employer-employee contract.21Whatever benefits SONZA
enjoyed arose from contract and not because of an employer-employee relationship.22

SONZA’s talent fees, amounting to ₱317,000 monthly in the second and third year, are so huge and
out of the ordinary that they indicate more an independent contractual relationship rather than an
employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely
because of SONZA’s unique skills, talent and celebrity status not possessed by ordinary employees.
Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such
huge talent fees for his services. The power to bargain talent fees way above the salary scales of
ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual
relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of
SONZA as an independent contractor. The parties expressly agreed on such mode of payment.
Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over
any talent fee accruing under the Agreement.

C. Power of Dismissal

For violation of any provision of the Agreement, either party may terminate their relationship. SONZA
failed to show that ABS-CBN could terminate his services on grounds other than breach of contract,
such as retrenchment to prevent losses as provided under labor laws.23

During the life of the Agreement, ABS-CBN agreed to pay SONZA’s talent fees as long as "AGENT
and Jay Sonza shall faithfully and completely perform each condition of this Agreement."24 Even if it
suffered severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained
obligated to pay SONZA’s talent fees during the life of the Agreement. This circumstance indicates
an independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him
his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying
SONZA’s talent fees during the remaining life of the Agreement even if ABS-CBN cancelled
SONZA’s programs through no fault of SONZA.25

SONZA assails the Labor Arbiter’s interpretation of his rescission of the Agreement as an admission
that he is not an employee of ABS-CBN. The Labor Arbiter stated that "if it were true that
complainant was really an employee, he would merely resign, instead." SONZA did actually resign
from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZA’s letter
clearly bears this out.26 However, the manner by which SONZA terminated his relationship with ABS-
CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does not
determine his status as employee or independent contractor.

D. Power of Control
Since there is no local precedent on whether a radio and television program host is an employee or
an independent contractor, we refer to foreign case law in analyzing the present case. The United
States Court of Appeals, First Circuit, recently held in Alberty-Vélez v. Corporación De Puerto
Rico Para La Difusión Pública ("WIPR")27 that a television program host is an independent
contractor. We quote the following findings of the U.S. court:

Several factors favor classifying Alberty as an independent contractor. First, a television

actress is a skilled position requiring talent and training not available on-the-job. x x x
In this regard, Alberty possesses a master’s degree in public communications and
journalism; is trained in dance, singing, and modeling; taught with the drama department at
the University of Puerto Rico; and acted in several theater and television productions prior to
her affiliation with "Desde Mi Pueblo." Second, Alberty provided the "tools and
instrumentalities" necessary for her to perform. Specifically, she provided, or obtained
sponsors to provide, the costumes, jewelry, and other image-related supplies and services
necessary for her appearance. Alberty disputes that this factor favors independent contractor
status because WIPR provided the "equipment necessary to tape the show." Alberty’s
argument is misplaced. The equipment necessary for Alberty to conduct her job as host of
"Desde Mi Pueblo" related to her appearance on the show. Others provided equipment for
filming and producing the show, but these were not the primary tools that Alberty used to
perform her particular function. If we accepted this argument, independent contractors could
never work on collaborative projects because other individuals often provide the equipment
required for different aspects of the collaboration. x x x

Third, WIPR could not assign Alberty work in addition to filming "Desde Mi
Pueblo." Alberty’s contracts with WIPR specifically provided that WIPR hired her
"professional services as Hostess for the Program Desde Mi Pueblo." There is no evidence
that WIPR assigned Alberty tasks in addition to work related to these tapings. x x
x28 (Emphasis supplied)

Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor. The control test is the most important test our courts apply in
distinguishing an employee from an independent contractor.29 This test is based on the extent of
control the hirer exercises over a worker. The greater the supervision and control the hirer exercises,
the more likely the worker is deemed an employee. The converse holds true as well – the less
control the hirer exercises, the more likely the worker is considered an independent contractor.30

First, SONZA contends that ABS-CBN exercised control over the means and methods of his work.

SONZA’s argument is misplaced. ABS-CBN engaged SONZA’s services specifically to co-host the
"Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his work,
SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television,
and sounded on radio were outside ABS-CBN’s control. SONZA did not have to render eight hours
of work per day. The Agreement required SONZA to attend only rehearsals and tapings of the
shows, as well as pre- and post-production staff meetings.31 ABS-CBN could not dictate the contents
of SONZA’s script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-
CBN or its interests.32 The clear implication is that SONZA had a free hand on what to say or discuss
in his shows provided he did not attack ABS-CBN or its interests.

We find that ABS-CBN was not involved in the actual performance that produced the finished
product of SONZA’s work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN
merely reserved the right to modify the program format and airtime schedule "for more effective
programming."34 ABS-CBN’s sole concern was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of
SONZA’s work.

SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-CBN’s power over
the means and methods of the performance of his work. Although ABS-CBN did have the option not
to broadcast SONZA’s show, ABS-CBN was still obligated to pay SONZA’s talent fees... Thus, even
if ABS-CBN was completely dissatisfied with the means and methods of SONZA’s performance of
his work, or even with the quality or product of his work, ABS-CBN could not dismiss or even
discipline SONZA. All that ABS-CBN could do is not to broadcast SONZA’s show but ABS-CBN
must still pay his talent fees in full.35

Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the obligation to
continue paying in full SONZA’s talent fees, did not amount to control over the means and methods
of the performance of SONZA’s work. ABS-CBN could not terminate or discipline SONZA even if the
means and methods of performance of his work - how he delivered his lines and appeared on
television - did not meet ABS-CBN’s approval. This proves that ABS-CBN’s control was limited only
to the result of SONZA’s work, whether to broadcast the final product or not. In either case, ABS-
CBN must still pay SONZA’s talent fees in full until the expiry of the Agreement.

In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that
vaudeville performers were independent contractors although the management reserved the right to
delete objectionable features in their shows. Since the management did not have control over the
manner of performance of the skills of the artists, it could only control the result of the work by
deleting objectionable features.37

SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment
and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broadcast the
"Mel & Jay" programs. However, the equipment, crew and airtime are not the "tools and
instrumentalities" SONZA needed to perform his job. What SONZA principally needed were his
talent or skills and the costumes necessary for his appearance.38Even though ABS-CBN provided
SONZA with the place of work and the necessary equipment, SONZA was still an independent
contractor since ABS-CBN did not supervise and control his work. ABS-CBN’s sole concern was for
SONZA to display his talent during the airing of the programs.39

A radio broadcast specialist who works under minimal supervision is an independent

contractor.40 SONZA’s work as television and radio program host required special skills and talent,
which SONZA admittedly possesses. The records do not show that ABS-CBN exercised any
supervision and control over how SONZA utilized his skills and talent in his shows.

Second, SONZA urges us to rule that he was ABS-CBN’s employee because ABS-CBN subjected
him to its rules and standards of performance. SONZA claims that this indicates ABS-CBN’s control
"not only [over] his manner of work but also the quality of his work."

The Agreement stipulates that SONZA shall abide with the rules and standards of performance
"covering talents"41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules
and standards of performance prescribed for employees of ABS-CBN. The code of conduct imposed
on SONZA under the Agreement refers to the "Television and Radio Code of the Kapisanan ng mga
Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code
of Ethics."42 The KBP code applies to broadcasters, not to employees of radio and television
stations. Broadcasters are not necessarily employees of radio and television stations. Clearly, the
rules and standards of performance referred to in the Agreement are those applicable to talents and
not to employees of ABS-CBN.
In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an
employee of the former.43 In this case, SONZA failed to show that these rules controlled his
performance. We find that these general rules are merely guidelines towards the achievement of
the mutually desired result, which are top-rating television and radio programs that comply with
standards of the industry. We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party
in relation to the services being rendered may be accorded the effect of establishing an employer-
employee relationship. The facts of this case fall squarely with the case of Insular Life Assurance
Co., Ltd. vs. NLRC. In said case, we held that:

Logically, the line should be drawn between rules that merely serve as guidelines towards
the achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create
no employer-employee relationship unlike the second, which address both the result and the
means used to achieve it.44

The Vaughan case also held that one could still be an independent contractor although the hirer
reserved certain supervision to insure the attainment of the desired result. The hirer, however, must
not deprive the one hired from performing his services according to his own initiative.45

Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form of
control which ABS-CBN exercised over him.

This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an
employee of ABS-CBN. Even an independent contractor can validly provide his services exclusively
to the hiring party. In the broadcast industry, exclusivity is not necessarily the same as control.

The hiring of exclusive talents is a widespread and accepted practice in the entertainment
industry.46 This practice is not designed to control the means and methods of work of the talent, but
simply to protect the investment of the broadcast station. The broadcast station normally spends
substantial amounts of money, time and effort "in building up its talents as well as the programs they
appear in and thus expects that said talents remain exclusive with the station for a commensurate
period of time."47 Normally, a much higher fee is paid to talents who agree to work exclusively for a
particular radio or television station. In short, the huge talent fees partially compensates for
exclusivity, as in the present case.

MJMDC as Agent of SONZA

SONZA protests the Labor Arbiter’s finding that he is a talent of MJMDC, which contracted out his
services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an
employee of ABS-CBN. SONZA insists that MJMDC is a "labor-only" contractor and ABS-CBN is his
employer.

In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the
employee who is ostensibly under the employ of the "labor-only" contractor; and (3) the principal who
is deemed the real employer. Under this scheme, the "labor-only" contractor is the agent of the
principal. The law makes the principal responsible to the employees of the "labor-only contractor"
as if the principal itself directly hired or employed the employees.48 These circumstances are not
present in this case.
There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-
CBN. MJMDC merely acted as SONZA’s agent. The Agreement expressly states that MJMDC acted
as the "AGENT" of SONZA. The records do not show that MJMDC acted as ABS-CBN’s agent.
MJMDC, which stands for Mel and Jay Management and Development Corporation, is a corporation
organized and owned by SONZA and TIANGCO. The President and General Manager of MJMDC is
SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and managed
by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, who himself is
represented by MJMDC. That would make MJMDC the agent of both ABS-CBN and SONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to managing the

careers of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other
business, not even job contracting. MJMDC does not have any other function apart from acting as
agent of SONZA or TIANGCO to promote their careers in the broadcast and television industry.49

Policy Instruction No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8
January 1979 finally settled the status of workers in the broadcast industry. Under this policy, the
types of employees in the broadcast industry are the station and program employees.

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of
law. There is no legal presumption that Policy Instruction No. 40 determines SONZA’s status. A
mere executive issuance cannot exclude independent contractors from the class of service providers
to the broadcast industry. The classification of workers in the broadcast industry into only two groups
under Policy Instruction No. 40 is not binding on this Court, especially when the classification has no
basis either in law or in fact.

Affidavits of ABS-CBN’s Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando
Cruz without giving his counsel the

opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to

attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of
these witnesses as misleading and irrelevant.

While SONZA failed to cross-examine ABS-CBN’s witnesses, he was never prevented from denying
or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether to conduct a
formal (trial-type) hearing after the submission of the position papers of the parties, thus:

Section 3. Submission of Position Papers/Memorandum

xxx

These verified position papers shall cover only those claims and causes of action raised in
the complaint excluding those that may have been amicably settled, and shall be
accompanied by all supporting documents including the affidavits of their respective
witnesses which shall take the place of the latter’s direct testimony. x x x

Section 4. Determination of Necessity of Hearing. – Immediately after the submission of the

parties of their position papers/memorandum, the Labor Arbiter shall motu propio determine
 whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and
for the purpose of making such determination, ask clarificatory questions to further elicit facts
or information, including but not limited to the subpoena of relevant documentary evidence, if
any from any party or witness.50

The Labor Arbiter can decide a case based solely on the position papers and the supporting
documents without a formal trial.51 The holding of a formal hearing or trial is something that the
parties cannot demand as a matter of right.52 If the Labor Arbiter is confident that he can rely on the
documents before him, he cannot be faulted for not conducting a formal trial, unless under the
particular circumstances of the case, the documents alone are insufficient. The proceedings before a
Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the
technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings
before a Labor Arbiter.

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries
to treat talents like SONZA as independent contractors. SONZA argues that if such practice exists, it
is void for violating the right of labor to security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution53 arises only if there is an
employer-employee relationship under labor laws. Not every performance of services for a fee
creates an employer-employee relationship. To hold that every person who renders services to
another for a fee is an employee - to give meaning to the security of tenure clause - will lead to
absurd results.

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as
independent contractors. The right to life and livelihood guarantees this freedom to contract as
independent contractors. The right of labor to security of tenure cannot operate to deprive an
individual, possessed with special skills, expertise and talent, of his right to contract as an
independent contractor. An individual like an artist or talent has a right to render his services without
any one controlling the means and methods by which he performs his art or craft. This Court will not
interpret the right of labor to security of tenure to compel artists and talents to render their services
only as employees. If radio and television program hosts can render their services only as
employees, the station owners and managers can dictate to the radio and television hosts what they
say in their shows. This is not conducive to freedom of the press.

Different Tax Treatment of Talents and Broadcasters

The National Internal Revenue Code ("NIRC")54 in relation to Republic Act No. 7716,55 as amended
by Republic Act No. 8241,56 treats talents, television and radio broadcasters differently. Under the
NIRC, these professionals are subject to the 10% value-added tax ("VAT") on services they render.
Exempted from the VAT are those under an employer-employee relationship.57 This different tax
treatment accorded to talents and broadcasters bolters our conclusion that they are independent
contractors, provided all the basic elements of a contractual relationship are present as in this case.

Nature of SONZA’s Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service
incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock
Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZA’s
claims are all based on the May 1994 Agreement and stock option plan, and not on the Labor
Code. Clearly, the present case does not call for an application of the Labor Code provisions but an
interpretation and implementation of the May 1994 Agreement. In effect, SONZA’s cause of action is
for breach of contract which is intrinsically a civil dispute cognizable by the regular courts.58

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26
March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr., Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.

FIRST DIVISION

G.R. No. 164156 September 26, 2006

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
MARLYN NAZARENO, MERLOU GERZON, JENNIFER DEIPARINE, and JOSEPHINE
LERASAN, respondents.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-
G.R. SP No. 76582 and the Resolution denying the motion for reconsideration thereof. The CA
affirmed the Decision2 and Resolution3 of the National Labor Relations Commission (NLRC) in NLRC
Case No. V-000762-2001 (RAB Case No. VII-10-1661-2001) which likewise affirmed, with
modification, the decision of the Labor Arbiter declaring the respondents Marlyn Nazareno, Merlou
Gerzon, Jennifer Deiparine and Josephine Lerasan as regular employees.

The Antecedents

Petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) is engaged in the broadcasting business

and owns a network of television and radio stations, whose operations revolve around the broadcast,
transmission, and relay of telecommunication signals. It sells and deals in or otherwise utilizes the
airtime it generates from its radio and television operations. It has a franchise as a broadcasting
company, and was likewise issued a license and authority to operate by the National
Telecommunications Commission.
Petitioner employed respondents Nazareno, Gerzon, Deiparine, and Lerasan as production
assistants (PAs) on different dates. They were assigned at the news and public affairs, for various
radio programs in the Cebu Broadcasting Station, with a monthly compensation of P4,000. They
were issued ABS-CBN employees’ identification cards and were required to work for a minimum of
eight hours a day, including Sundays and holidays. They were made to perform the following tasks
and duties:

a) Prepare, arrange airing of commercial broadcasting based on the daily operations log and digicart
of respondent ABS-CBN;

b) Coordinate, arrange personalities for air interviews;

c) Coordinate, prepare schedule of reporters for scheduled news reporting and lead-in or incoming
reports;

d) Facilitate, prepare and arrange airtime schedule for public service announcement and complaints;

e) Assist, anchor program interview, etc; and

f) Record, log clerical reports, man based control radio.4

Their respective working hours were as follows:

Name Time No. of Hours

1. Marlene Nazareno 4:30 A.M.-8:00 A.M. 7 ½

8:00 A.M.-12:00 noon

2. Jennifer Deiparine 4:30 A.M.-12:00M.N. (sic) 7 ½

3. Joy Sanchez 1:00 P.M.-10:00 P.M.(Sunday) 9 hrs.

9:00 A.M.-6:00 P.M. (WF) 9 hrs.

4. Merlou Gerzon 9:00 A.M.-6:00 P.M. 9 hrs.5

The PAs were under the control and supervision of Assistant Station Manager Dante J. Luzon, and
News Manager Leo Lastimosa.

On December 19, 1996, petitioner and the ABS-CBN Rank-and-File Employees executed a
Collective Bargaining Agreement (CBA) to be effective during the period from December 11, 1996 to
December 11, 1999. However, since petitioner refused to recognize PAs as part of the bargaining
unit, respondents were not included to the CBA.6

On July 20, 2000, petitioner, through Dante Luzon, issued a Memorandum informing the PAs that
effective August 1, 2000, they would be assigned to non-drama programs, and that the DYAB studio
operations would be handled by the studio technician. Thus, their revised schedule and other
assignments would be as follows:
Monday – Saturday

4:30 A.M. – 8:00 A.M. – Marlene Nazareno.

Miss Nazareno will then be assigned at the Research Dept.

From 8:00 A.M. to 12:00

4:30 P.M. – 12:00 MN – Jennifer Deiparine

Sunday

5:00 A.M. – 1:00 P.M. – Jennifer Deiparine

1:00 P.M. – 10:00 P.M. – Joy Sanchez

Respondent Gerzon was assigned as the full-time PA of the TV News Department reporting directly
to Leo Lastimosa.

On October 12, 2000, respondents filed a Complaint for Recognition of Regular Employment Status,
Underpayment of Overtime Pay, Holiday Pay, Premium Pay, Service Incentive Pay, Sick Leave Pay,
and 13th Month Pay with Damages against the petitioner before the NLRC. The Labor Arbiter
directed the parties to submit their respective position papers. Upon respondents’ failure to file their
position papers within the reglementary period, Labor Arbiter Jose G. Gutierrez issued an Order
dated April 30, 2001, dismissing the complaint without prejudice for lack of interest to pursue the
case. Respondents received a copy of the Order on May 16, 2001.7 Instead of re-filing their
complaint with the NLRC within 10 days from May 16, 2001, they filed, on June 11, 2001, an Earnest
Motion to Refile Complaint with Motion to Admit Position Paper and Motion to Submit Case For
Resolution.8 The Labor Arbiter granted this motion in an Order dated June 18, 2001, and forthwith
admitted the position paper of the complainants. Respondents made the following allegations:

1. Complainants were engaged by respondent ABS-CBN as regular and full-time employees for a
continuous period of more than five (5) years with a monthly salary rate of Four Thousand
(P4,000.00) pesos beginning 1995 up until the filing of this complaint on November 20, 2000.

Machine copies of complainants’ ABS-CBN Employee’s Identification Card and salary vouchers are
hereto attached as follows, thus:

I. Jennifer Deiparine:

Exhibit "A" - ABS-CBN Employee’s Identification Card

Exhibit "B", - ABS-CBN Salary Voucher from Nov.

Exhibit "B-1" & 1999 to July 2000 at P4,000.00

Exhibit "B-2"

Date employed: September 15, 1995

Length of service: 5 years & nine (9) months

II. Merlou Gerzon - ABS-CBN Employee’s Identification Card

Exhibit "C"

Exhibit "D"

Exhibit "D-1" &

Exhibit "D-2" - ABS-CBN Salary Voucher from March

1999 to January 2001 at P4,000.00

Date employed: September 1, 1995

Length of service: 5 years & 10 months

III. Marlene Nazareno

Exhibit "E" - ABS-CBN Employee’s Identification Card

Exhibit "E" - ABS-CBN Salary Voucher from Nov.

Exhibit "E-1" & 1999 to December 2000

Exhibit :E-2"

Date employed: April 17, 1996

Length of service: 5 years and one (1) month

IV. Joy Sanchez Lerasan

Exhibit "F" - ABS-CBN Employee’s Identification Card

Exhibit "F-1" - ABS-CBN Salary Voucher from Aug.

Exhibit "F-2" & 2000 to Jan. 2001

Exhibit "F-3"

Exhibit "F-4" - Certification dated July 6, 2000

Acknowledging regular status of

Complainant Joy Sanchez Lerasan

Signed by ABS-CBN Administrative

Officer May Kima Hife

Date employed: April 15, 1998

Length of service: 3 yrs. and one (1) month9

Respondents insisted that they belonged to a "work pool" from which petitioner chose persons to be
given specific assignments at its discretion, and were thus under its direct supervision and control
regardless of nomenclature. They prayed that judgment be rendered in their favor, thus:

WHEREFORE, premises considered, this Honorable Arbiter is most respectfully prayed, to issue an
order compelling defendants to pay complainants the following:

1. One Hundred Thousand Pesos (P100,000.00) each

and by way of moral damages;

2. Minimum wage differential;

3. Thirteenth month pay differential;

4. Unpaid service incentive leave benefits;

5. Sick leave;

6. Holiday pay;

7. Premium pay;

8. Overtime pay;

9. Night shift differential.

Complainants further pray of this Arbiter to declare them regular and permanent employees of
respondent ABS-CBN as a condition precedent for their admission into the existing union and
collective bargaining unit of respondent company where they may as such acquire or otherwise
perform their obligations thereto or enjoy the benefits due therefrom.

Complainants pray for such other reliefs as are just and equitable under the premises.10

For its part, petitioner alleged in its position paper that the respondents were PAs who basically
assist in the conduct of a particular program ran by an anchor or talent. Among their duties include
monitoring and receiving incoming calls from listeners and field reporters and calls of news sources;
generally, they perform leg work for the anchors during a program or a particular production. They
are considered in the industry as "program employees" in that, as distinguished from regular or
station employees, they are basically engaged by the station for a particular or specific program
broadcasted by the radio station. Petitioner asserted that as PAs, the complainants were issued
talent information sheets which are updated from time to time, and are thus made the basis to
determine the programs to which they shall later be called on to assist. The program assignments of
complainants were as follows:
a. Complainant Nazareno assists in the programs:

1) Nagbagang Balita (early morning edition)

2) Infor Hayupan

3) Arangkada (morning edition)

4) Nagbagang Balita (mid-day edition)

b. Complainant Deiparine assists in the programs:

1) Unzanith

2) Serbisyo de Arevalo

3) Arangkada (evening edition)

4) Balitang K (local version)

5) Abante Subu

6) Pangutana Lang

c. Complainant Gerzon assists in the program:

1) On Mondays and Tuesdays:

(a) Unzanith

(b) Serbisyo de Arevalo

(c) Arangkada (evening edition)

(d) Balitang K (local version)

(e) Abante Sugbu

(f) Pangutana Lang

2) On Thursdays

Nagbagang Balita

3) On Saturdays

(a) Nagbagang Balita

(b) Info Hayupan

(c) Arangkada (morning edition)

(d) Nagbagang Balita (mid-day edition)

4) On Sundays:

(a) Siesta Serenata

(b) Sunday Chismisan

(c) Timbangan sa Hustisya

(d) Sayri ang Lungsod

(e) Haranahan11

Petitioner maintained that PAs, reporters, anchors and talents occasionally "sideline" for other
programs they produce, such as drama talents in other productions. As program employees, a PA’s
engagement is coterminous with the completion of the program, and may be extended/renewed
provided that the program is on-going; a PA may also be assigned to new programs upon the
cancellation of one program and the commencement of another. As such program employees, their
compensation is computed on a program basis, a fixed amount for performance services irrespective
of the time consumed. At any rate, petitioner claimed, as the payroll will show, respondents were
paid all salaries and benefits due them under the law.12

Petitioner also alleged that the Labor Arbiter had no jurisdiction to involve the CBA and interpret the
same, especially since respondents were not covered by the bargaining unit.

On July 30, 2001, the Labor Arbiter rendered judgment in favor of the respondents, and declared
that they were regular employees of petitioner; as such, they were awarded monetary benefits. The
fallo of the decision reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered declaring the
complainants regular employees of the respondent ABS-CBN Broadcasting Corporation and
directing the same respondent to pay complainants as follows:

I - Merlou A. Gerzon P12,025.00

II - Marlyn Nazareno 12,025.00

III - Jennifer Deiparine 12,025.00

IV - Josephine Sanchez Lerazan 12,025.00

_________

P48,100.00

plus ten (10%) percent Attorney’s Fees or a TOTAL aggregate amount of PESOS: FIFTY TWO
THOUSAND NINE HUNDRED TEN (P52,910.00).
Respondent Veneranda C. Sy is absolved from any liability.

SO ORDERED.13

However, the Labor Arbiter did not award money benefits as provided in the CBA on his belief that
he had no jurisdiction to interpret and apply the agreement, as the same was within the jurisdiction of
the Voluntary Arbitrator as provided in Article 261 of the Labor Code.

Respondents’ counsel received a copy of the decision on August 29, 2001. Respondent Nazareno
received her copy on August 27, 2001, while the other respondents received theirs on September 8,
2001. Respondents signed and filed their Appeal Memorandum on September 18, 2001.

For its part, petitioner filed a motion for reconsideration, which the Labor Arbiter denied and
considered as an appeal, conformably with Section 5, Rule V, of the NLRC Rules of Procedure.
Petitioner forthwith appealed the decision to the NLRC, while respondents filed a partial appeal.

In its appeal, petitioner alleged the following:

1. That the Labor Arbiter erred in reviving or re-opening this case which had long been dismissed
without prejudice for more than thirty (30) calendar days;

2. That the Labor Arbiter erred in depriving the respondent of its Constitutional right to due process
of law;

3. That the Labor Arbiter erred in denying respondent’s Motion for Reconsideration on an
interlocutory order on the ground that the same is a prohibited pleading;

4. That the Labor Arbiter erred when he ruled that the complainants are regular employees of the
respondent;

5. That the Labor Arbiter erred when he ruled that the complainants are entitled to 13th month pay,
service incentive leave pay and salary differential; and

6. That the Labor Arbiter erred when he ruled that complainants are entitled to attorney’s fees.14

On November 14, 2002, the NLRC rendered judgment modifying the decision of the Labor Arbiter.
The fallo of the decision reads:

WHEREFORE, premises considered, the decision of Labor Arbiter Jose G. Gutierrez dated 30 July
2001 is SET ASIDE and VACATED and a new one is entered ORDERING respondent ABS-CBN
Broadcasting Corporation, as follows:

1. To pay complainants of their wage differentials and other benefits arising from the CBA as of 30
September 2002 in the aggregate amount of Two Million Five Hundred, Sixty-One Thousand Nine
Hundred Forty-Eight Pesos and 22/100 (P2,561,948.22), broken down as follows:

a. Deiparine, Jennifer - P 716,113.49

b. Gerzon, Merlou - 716,113.49

c. Nazareno, Marlyn - 716,113.49

d. Lerazan, Josephine Sanchez - 413,607.75

Total - P 2,561,948.22

2. To deliver to the complainants Two Hundred Thirty-Three (233) sacks of rice as of 30 September
2002 representing their rice subsidy in the CBA, broken down as follows:

a. Deiparine, Jennifer - 60 Sacks

b. Gerzon, Merlou - 60 Sacks

c. Nazareno, Marlyn - 60 Sacks

d. Lerazan, Josephine Sanchez - 53 Sacks

Total 233 Sacks; and

3. To grant to the complainants all the benefits of the CBA after 30 September 2002.

SO ORDERED.15

The NLRC declared that the Labor Arbiter acted conformably with the Labor Code when it granted
respondents’ motion to refile the complaint and admit their position paper. Although respondents
were not parties to the CBA between petitioner and the ABS-CBN Rank-and-File Employees Union,
the NLRC nevertheless granted and computed respondents’ monetary benefits based on the 1999
CBA, which was effective until September 2002. The NLRC also ruled that the Labor Arbiter had
jurisdiction over the complaint of respondents because they acted in their individual capacities and
not as members of the union. Their claim for monetary benefits was within the context of Article
217(6) of the Labor Code. The validity of respondents’ claim does not depend upon the interpretation
of the CBA.

The NLRC ruled that respondents were entitled to the benefits under the CBA because they were
regular employees who contributed to the profits of petitioner through their labor. The NLRC cited
the ruling of this Court in New Pacific Timber & Supply Company v. National Labor Relations
Commission.16

Petitioner filed a motion for reconsideration, which the NLRC denied.

Petitioner thus filed a petition for certiorari under Rule 65 of the Rules of Court before the CA, raising
both procedural and substantive issues, as follows: (a) whether the NLRC acted without jurisdiction
in admitting the appeal of respondents; (b) whether the NLRC committed palpable error in
scrutinizing the reopening and revival of the complaint of respondents with the Labor Arbiter upon
due notice despite the lapse of 10 days from their receipt of the July 30, 2001 Order of the Labor
Arbiter; (c) whether respondents were regular employees; (d) whether the NLRC acted without
jurisdiction in entertaining and resolving the claim of the respondents under the CBA instead of
referring the same to the Voluntary Arbitrators as provided in the CBA; and (e) whether the NLRC
acted with grave abuse of discretion when it awarded monetary benefits to respondents under the
CBA although they are not members of the appropriate bargaining unit.
On February 10, 2004, the CA rendered judgment dismissing the petition. It held that the perfection
of an appeal shall be upon the expiration of the last day to appeal by all parties, should there be
several parties to a case. Since respondents received their copies of the decision on September 8,
2001 (except respondent Nazareno who received her copy of the decision on August 27, 2001), they
had until September 18, 2001 within which to file their Appeal Memorandum. Moreover, the CA
declared that respondents’ failure to submit their position paper on time is not a ground to strike out
the paper from the records, much less dismiss a complaint.

Anent the substantive issues, the appellate court stated that respondents are not mere project
employees, but regular employees who perform tasks necessary and desirable in the usual trade
and business of petitioner and not just its project employees. Moreover, the CA added, the award of
benefits accorded to rank-and-file employees under the 1996-1999 CBA is a necessary
consequence of the NLRC ruling that respondents, as PAs, are regular employees.

Finding no merit in petitioner’s motion for reconsideration, the CA denied the same in a
Resolution17 dated June 16, 2004.

Petitioner thus filed the instant petition for review on certiorari and raises the following assignments
of error:

1. THE HONORABLE COURT OF APPEALS ACTED WITHOUT JURISDICTION AND GRAVELY

ERRED IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION
NOTWITHSTANDING THE PATENT NULLITY OF THE LATTER’S DECISION AND RESOLUTION.

2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF

THE NLRC FINDING RESPONDENTS REGULAR EMPLOYEES.

3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF

THE NLRC AWARDING CBA BENEFITS TO RESPONDENTS.18

Considering that the assignments of error are interrelated, the Court shall resolve them
simultaneously.

Petitioner asserts that the appellate court committed palpable and serious error of law when it
affirmed the rulings of the NLRC, and entertained respondents’ appeal from the decision of the
Labor Arbiter despite the admitted lapse of the reglementary period within which to perfect the same.
Petitioner likewise maintains that the 10-day period to appeal must be reckoned from receipt of a
party’s counsel, not from the time the party learns of the decision, that is, notice to counsel is notice
to party and not the other way around. Finally, petitioner argues that the reopening of a complaint
which the Labor Arbiter has dismissed without prejudice is a clear violation of Section 1, Rule V of
the NLRC Rules; such order of dismissal had already attained finality and can no longer be set
aside.

Respondents, on the other hand, allege that their late appeal is a non-issue because it was
petitioner’s own timely appeal that empowered the NLRC to reopen the case. They assert that
although the appeal was filed 10 days late, it may still be given due course in the interest of
substantial justice as an exception to the general rule that the negligence of a counsel binds the
client. On the issue of the late filing of their position paper, they maintain that this is not a ground to
strike it out from the records or dismiss the complaint.

We find no merit in the petition.

We agree with petitioner’s contention that the perfection of an appeal within the statutory or
reglementary period is not only mandatory, but also jurisdictional; failure to do so renders the
assailed decision final and executory and deprives the appellate court or body of the legal authority
to alter the final judgment, much less entertain the appeal. However, this Court has time and again
ruled that in exceptional cases, a belated appeal may be given due course if greater injustice may
occur if an appeal is not given due course than if the reglementary period to appeal were strictly
followed.19 The Court resorted to this extraordinary measure even at the expense of sacrificing order
and efficiency if only to serve the greater principles of substantial justice and equity.20

In the case at bar, the NLRC did not commit a grave abuse of its discretion in giving Article 22321 of
the Labor Code a liberal application to prevent the miscarriage of justice. Technicality should not be
allowed to stand in the way of equitably and completely resolving the rights and obligations of the
parties.22 We have held in a catena of cases that technical rules are not binding in labor cases and
are not to be applied strictly if the result would be detrimental to the workingman.23

Admittedly, respondents failed to perfect their appeal from the decision of the Labor Arbiter within
the reglementary period therefor. However, petitioner perfected its appeal within the period, and
since petitioner had filed a timely appeal, the NLRC acquired jurisdiction over the case to give due
course to its appeal and render the decision of November 14, 2002. Case law is that the party who
failed to appeal from the decision of the Labor Arbiter to the NLRC can still participate in a separate
appeal timely filed by the adverse party as the situation is considered to be of greater benefit to both
parties.24

We find no merit in petitioner’s contention that the Labor Arbiter abused his discretion when he
admitted respondents’ position paper which had been belatedly filed. It bears stressing that the
Labor Arbiter is mandated by law to use every reasonable means to ascertain the facts in each case
speedily and objectively, without technicalities of law or procedure, all in the interest of due
process.25 Indeed, as stressed by the appellate court, respondents’ failure to submit a position paper
on time is not a ground for striking out the paper from the records, much less for dismissing a
complaint.26 Likewise, there is simply no truth to petitioner’s assertion that it was denied due process
when the Labor Arbiter admitted respondents’ position paper without requiring it to file a comment
before admitting said position paper. The essence of due process in administrative proceedings is
simply an opportunity to explain one’s side or an opportunity to seek reconsideration of the action or
ruling complained of. Obviously, there is nothing in the records that would suggest that petitioner had
absolute lack of opportunity to be heard.27 Petitioner had the right to file a motion for reconsideration
of the Labor Arbiter’s admission of respondents’ position paper, and even file a Reply thereto. In
fact, petitioner filed its position paper on April 2, 2001. It must be stressed that Article 280 of the
Labor Code was encoded in our statute books to hinder the circumvention by unscrupulous
employers of the employees’ right to security of tenure by indiscriminately and absolutely ruling out
all written and oral agreements inharmonious with the concept of regular employment defined
therein.28

We quote with approval the following pronouncement of the NLRC:

The complainants, on the other hand, contend that respondents assailed the Labor Arbiter’s order
dated 18 June 2001 as violative of the NLRC Rules of Procedure and as such is violative of their
right to procedural due process. That while suggesting that an Order be instead issued by the Labor
Arbiter for complainants to refile this case, respondents impliedly submit that there is not any
substantial damage or prejudice upon the refiling, even so, respondents’ suggestion acknowledges
complainants right to prosecute this case, albeit with the burden of repeating the same procedure,
thus, entailing additional time, efforts, litigation cost and precious time for the Arbiter to repeat the
same process twice. Respondent’s suggestion, betrays its notion of prolonging, rather than
promoting the early resolution of the case.

Although the Labor Arbiter in his Order dated 18 June 2001 which revived and re-opened the
dismissed case without prejudice beyond the ten (10) day reglementary period had inadvertently
failed to follow Section 16, Rule V, Rules Procedure of the NLRC which states:

"A party may file a motion to revive or re-open a case dismissed without prejudice within ten (10)
calendar days from receipt of notice of the order dismissing the same; otherwise, his only remedy
shall be to re-file the case in the arbitration branch of origin."

the same is not a serious flaw that had prejudiced the respondents’ right to due process. The case
can still be refiled because it has not yet prescribed. Anyway, Article 221 of the Labor Code
provides:

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

The admission by the Labor Arbiter of the complainants’ Position Paper and Supplemental
Manifestation which were belatedly filed just only shows that he acted within his discretion as he is
enjoined by law to use every reasonable means to ascertain the facts in each case speedily and
objectively, without regard to technicalities of law or procedure, all in the interest of due process.
Indeed, the failure to submit a position paper on time is not a ground for striking out the paper from
the records, much less for dismissing a complaint in the case of the complainant. (University of
Immaculate Conception vs. UIC Teaching and Non-Teaching Personnel Employees, G.R. No.
144702, July 31, 2001).

"In admitting the respondents’ position paper albeit late, the Labor Arbiter acted within her discretion.
In fact, she is enjoined by law to use every reasonable means to ascertain the facts in each case
speedily and objectively, without technicalities of law or procedure, all in the interest of due process".
(Panlilio vs. NLRC, 281 SCRA 53).

The respondents were given by the Labor Arbiter the opportunity to submit position paper. In fact,
the respondents had filed their position paper on 2 April 2001. What is material in the compliance of
due process is the fact that the parties are given the opportunities to submit position papers.

"Due process requirements are satisfied where the parties are given the opportunities to submit
position papers". (Laurence vs. NLRC, 205 SCRA 737).

Thus, the respondent was not deprived of its Constitutional right to due process of law.29

We reject, as barren of factual basis, petitioner’s contention that respondents are considered as its
talents, hence, not regular employees of the broadcasting company. Petitioner’s claim that the
functions performed by the respondents are not at all necessary, desirable, or even vital to its trade
or business is belied by the evidence on record.

Case law is that this Court has always accorded respect and finality to the findings of fact of the CA,
particularly if they coincide with those of the Labor Arbiter and the National Labor Relations
Commission, when supported by substantial evidence.30 The question of whether respondents are
regular or project employees or independent contractors is essentially factual in nature; nonetheless,
the Court is constrained to resolve it due to its tremendous effects to the legions of production
assistants working in the Philippine broadcasting industry.

We agree with respondents’ contention that where a person has rendered at least one year of
service, regardless of the nature of the activity performed, or where the work is continuous or
intermittent, the employment is considered regular as long as the activity exists, the reason being
that a customary appointment is not indispensable before one may be formally declared as having
attained regular status. Article 280 of the Labor Code provides:

ART. 280. REGULAR AND CASUAL EMPLOYMENT.—The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall
be deemed to be regular where the employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the employer except where the
employment has been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the employee or where the work or
services to be performed is seasonal in nature and the employment is for the duration of the season.

In Universal Robina Corporation v. Catapang,31 the Court reiterated the test in determining whether
one is a regular employee:

The primary standard, therefore, of determining regular employment is the reasonable connection
between the particular activity performed by the employee in relation to the usual trade or business
of the employer. The test is whether the former is usually necessary or desirable in the usual
business or trade of the employer. The connection can be determined by considering the nature of
work performed and its relation to the scheme of the particular business or trade in its entirety. Also,
if the employee has been performing the job for at least a year, even if the performance is not
continuous and merely intermittent, the law deems repeated and continuing need for its performance
as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence,
the employment is considered regular, but only with respect to such activity and while such activity
exists.32

As elaborated by this Court in Magsalin v. National Organization of Working Men:33

Even while the language of law might have been more definitive, the clarity of its spirit and intent,
i.e., to ensure a "regular" worker’s security of tenure, however, can hardly be doubted. In
determining whether an employment should be considered regular or non-regular, the applicable test
is the reasonable connection between the particular activity performed by the employee in relation to
the usual business or trade of the employer. The standard, supplied by the law itself, is whether the
work undertaken is necessary or desirable in the usual business or trade of the employer, a fact that
can be assessed by looking into the nature of the services rendered and its relation to the general
scheme under which the business or trade is pursued in the usual course. It is distinguished from a
specific undertaking that is divorced from the normal activities required in carrying on the particular
business or trade. But, although the work to be performed is only for a specific project or seasonal,
where a person thus engaged has been performing the job for at least one year, even if the
performance is not continuous or is merely intermittent, the law deems the repeated and continuing
need for its performance as being sufficient to indicate the necessity or desirability of that activity to
the business or trade of the employer. The employment of such person is also then deemed to be
regular with respect to such activity and while such activity exists.34
Not considered regular employees are "project employees," the completion or termination of which is
more or less determinable at the time of employment, such as those employed in connection with a
particular construction project, and "seasonal employees" whose employment by its nature is only
desirable for a limited period of time. Even then, any employee who has rendered at least one year
of service, whether continuous or intermittent, is deemed regular with respect to the activity
performed and while such activity actually exists.

It is of no moment that petitioner hired respondents as "talents." The fact that respondents received
pre-agreed "talent fees" instead of salaries, that they did not observe the required office hours, and
that they were permitted to join other productions during their free time are not conclusive of the
nature of their employment. Respondents cannot be considered "talents" because they are not
actors or actresses or radio specialists or mere clerks or utility employees. They are regular
employees who perform several different duties under the control and direction of ABS-CBN
executives and supervisors.

Thus, there are two kinds of regular employees under the law: (1) those engaged to perform
activities which are necessary or desirable in the usual business or trade of the employer; and (2)
those casual employees who have rendered at least one year of service, whether continuous or
broken, with respect to the activities in which they are employed.35

The law overrides such conditions which are prejudicial to the interest of the worker whose weak
bargaining situation necessitates the succor of the State. What determines whether a certain
employment is regular or otherwise is not the will or word of the employer, to which the worker
oftentimes acquiesces, much less the procedure of hiring the employee or the manner of paying the
salary or the actual time spent at work. It is the character of the activities performed in relation to the
particular trade or business taking into account all the circumstances, and in some cases the length
of time of its performance and its continued existence.36 It is obvious that one year after they were
employed by petitioner, respondents became regular employees by operation of law.37

Additionally, respondents cannot be considered as project or program employees because no

evidence was presented to show that the duration and scope of the project were determined or
specified at the time of their engagement. Under existing jurisprudence, project could refer to two
distinguishable types of activities. First, a project may refer to a particular job or undertaking that is
within the regular or usual business of the employer, but which is distinct and separate, and
identifiable as such, from the other undertakings of the company. Such job or undertaking begins
and ends at determined or determinable times. Second, the term project may also refer to a
particular job or undertaking that is not within the regular business of the employer. Such a job or
undertaking must also be identifiably separate and distinct from the ordinary or regular business
operations of the employer. The job or undertaking also begins and ends at determined or
determinable times.38

The principal test is whether or not the project employees were assigned to carry out a specific
project or undertaking, the duration and scope of which were specified at the time the employees
were engaged for that project.39

In this case, it is undisputed that respondents had continuously performed the same activities for an
average of five years. Their assigned tasks are necessary or desirable in the usual business or trade
of the petitioner. The persisting need for their services is sufficient evidence of the necessity and
indispensability of such services to petitioner’s business or trade.40 While length of time may not be a
sole controlling test for project employment, it can be a strong factor to determine whether the
employee was hired for a specific undertaking or in fact tasked to perform functions which are vital,
necessary and indispensable to the usual trade or business of the employer.41 We note further that
petitioner did not report the termination of respondents’ employment in the particular "project" to the
Department of Labor and Employment Regional Office having jurisdiction over the workplace within
30 days following the date of their separation from work, using the prescribed form on employees’
termination/ dismissals/suspensions.42

As gleaned from the records of this case, petitioner itself is not certain how to categorize
respondents. In its earlier pleadings, petitioner classified respondents as program employees, and in
later pleadings, independent contractors. Program employees, or project employees, are different
from independent contractors because in the case of the latter, no employer-employee relationship
exists.

Petitioner’s reliance on the ruling of this Court in Sonza v. ABS-CBN Broadcasting Corporation43 is
misplaced. In that case, the Court explained why Jose Sonza, a well-known television and radio
personality, was an independent contractor and not a regular employee:

A. Selection and Engagement of Employee

ABS-CBN engaged SONZA’S services to co-host its television and radio programs because of
SONZA’S peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by
respondent in specifically selecting and hiring complainant over other broadcasters of possibly
similar experience and qualification as complainant belies respondent’s claim of independent
contractorship."

Independent contractors often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of
his unique skills, talent and celebrity status not possessed by ordinary employees, is a circumstance
indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess
such unique skills, talent and celebrity status, ABS-CBN would not have entered into the Agreement
with SONZA but would have hired him through its personnel department just like any other
employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his
status. We must consider all the circumstances of the relationship, with the control test being the
most important element.

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC.
SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN.
SONZA also points out that ABS-CBN granted him benefits and privileges "which he would not have
enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the
Agreement. If SONZA were ABS-CBN’s employee, there would be no need for the parties to
stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay which the law automatically
incorporates into every employer-employee contract. Whatever benefits SONZA enjoyed arose from
contract and not because of an employer-employee relationship.

SONZA’s talent fees, amounting to P317,000 monthly in the second and third year, are so huge and
out of the ordinary that they indicate more an independent contractual relationship rather than an
employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely
because of SONZA’S unique skills, talent and celebrity status not possessed by ordinary employees.
Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such
huge talent fees for his services. The power to bargain talent fees way above the salary scales of
ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual
relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of
SONZA as an independent contractor. The parties expressly agreed on such mode of payment.
Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over
any talent fee accruing under the Agreement.44

In the case at bar, however, the employer-employee relationship between petitioner and
respondents has been proven.

First. In the selection and engagement of respondents, no peculiar or unique skill, talent or celebrity
status was required from them because they were merely hired through petitioner’s personnel
department just like any ordinary employee.

Second. The so-called "talent fees" of respondents correspond to wages given as a result of an
employer-employee relationship. Respondents did not have the power to bargain for huge talent
fees, a circumstance negating independent contractual relationship.

Third. Petitioner could always discharge respondents should it find their work unsatisfactory, and
respondents are highly dependent on the petitioner for continued work.

Fourth. The degree of control and supervision exercised by petitioner over respondents through its
supervisors negates the allegation that respondents are independent contractors.

The presumption is that when the work done is an integral part of the regular business of the
employer and when the worker, relative to the employer, does not furnish an independent business
or professional service, such work is a regular employment of such employee and not an
independent contractor.45 The Court will peruse beyond any such agreement to examine the facts
that typify the parties’ actual relationship.46

It follows then that respondents are entitled to the benefits provided for in the existing CBA between
petitioner and its rank-and-file employees. As regular employees, respondents are entitled to the
benefits granted to all other regular employees of petitioner under the CBA.47 We quote with
approval the ruling of the appellate court, that the reason why production assistants were excluded
from the CBA is precisely because they were erroneously classified and treated as project
employees by petitioner:

x x x The award in favor of private respondents of the benefits accorded to rank-and-file employees
of ABS-CBN under the 1996-1999 CBA is a necessary consequence of public respondent’s ruling
that private respondents as production assistants of petitioner are regular employees. The monetary
award is not considered as claims involving the interpretation or implementation of the collective
bargaining agreement. The reason why production assistants were excluded from the said
agreement is precisely because they were classified and treated as project employees by petitioner.

As earlier stated, it is not the will or word of the employer which determines the nature of
employment of an employee but the nature of the activities performed by such employee in relation
to the particular business or trade of the employer. Considering that We have clearly found that
private respondents are regular employees of petitioner, their exclusion from the said CBA on the
misplaced belief of the parties to the said agreement that they are project employees, is therefore
not proper. Finding said private respondents as regular employees and not as mere project
employees, they must be accorded the benefits due under the said Collective Bargaining
Agreement.

A collective bargaining agreement is a contract entered into by the union representing the
employees and the employer. However, even the non-member employees are entitled to the
benefits of the contract. To accord its benefits only to members of the union without any valid reason
would constitute undue discrimination against non-members. A collective bargaining agreement is
binding on all employees of the company. Therefore, whatever benefits are given to the other
employees of ABS-CBN must likewise be accorded to private respondents who were regular
employees of petitioner.48

Besides, only talent-artists were excluded from the CBA and not production assistants who are
regular employees of the respondents. Moreover, under Article 1702 of the New Civil Code: "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."

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. SP No. 76582 are AFFIRMED. Costs against
petitioner.

SO ORDERED.

Panganiban, C.J., Chairperson, Ynares-Santiago, Austria-Martinez, Chico-Nazario, J.J., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 183810 January 21, 2010

FARLEY FULACHE, MANOLO JABONERO, DAVID CASTILLO, JEFFREY LAGUNZAD,

MAGDALENA MALIG-ON BIGNO, FRANCISCO CABAS, JR., HARVEY PONCE and ALAN C.
ALMENDRAS, Petitioners,
vs.
ABS-CBN BROADCASTING CORPORATION, Respondent.

DECISION

BRION, J.:

The petition for review on certiorari1 now before us seeks to set aside the decision2 and resolution3 of
the Court of Appeals, Nineteenth Division (CA) promulgated on March 25, 2008 and July 8, 2008,
respectively, in CA- G.R. SP No. 01838.4

The Antecedents
The Regularization Case.

In June 2001, petitioners Farley Fulache, Manolo Jabonero, David Castillo, Jeffrey Lagunzad,
Magdalena Malig-on Bigno, Francisco Cabas, Jr., Harvey Ponce and Alan C. Almendras
(petitioners) and Cresente Atinen (Atinen) filed two separate complaints for regularization, unfair
labor practice and several money claims (regularization case) against ABS-CBN Broadcasting
Corporation-Cebu (ABS-CBN). Fulache and Castillo were drivers/cameramen; Atinen, Lagunzad and
Jabonero were drivers; Ponce and Almendras were cameramen/editors; Bigno was a
PA/Teleprompter Operator-Editing, and Cabas was a VTR man/editor. The complaints (RAB VII
Case Nos. 06-1100-01 and 06-1176-01) were consolidated and were assigned to Labor Arbiter Julie
C. Rendoque.

The petitioners alleged that on December 17, 1999, ABS-CBN and the ABS-CBN Rank-and-File
Employees Union (Union) executed a collective bargaining agreement (CBA) effective December 11,
1999 to December 10, 2002; they only became aware of the CBA when they obtained copies of the
agreement; they learned that they had been excluded from its coverage as ABS-CBN considered
them temporary and not regular employees, in violation of the Labor Code. They claimed they had
already rendered more than a year of service in the company and, therefore, should have been
recognized as regular employees entitled to security of tenure and to the privileges and benefits
enjoyed by regular employees. They asked that they be paid overtime, night shift differential,
holiday, rest day and service incentive leave pay. They also prayed for an award of moral damages
and attorney’s fees.

ABS-CBN explained the nature of the petitioners’ employment within the framework of its operations.
It claimed that: it operates in several divisions, one of which is the Regional Network Group (RNG).
The RNG exercises control and supervision over all the ABS-CBN local stations to ensure that ABS-
CBN programs are extended to the provinces. A local station, like the Cebu station, can resort to
cost-effective and cost-saving measures to remain viable; local stations produced shows and
programs that were constantly changing because of the competitive nature of the industry, the
changing public demand or preference, and the seasonal nature of media broadcasting programs.
ABS-CBN claimed, too, that the production of programs per se is not necessary or desirable in its
business because it could generate profits by selling airtime to block-timers or through advertising.

ABS-CBN further claimed that to cope with fluctuating business conditions, it contracts on a case-to-
case basis the services of persons who possess the necessary talent, skills, training, expertise or
qualifications to meet the requirements of its programs and productions. These contracted persons
are called "talents" and are considered independent contractors who offer their services to
broadcasting companies.

Instead of salaries, ABS-CBN pointed out that talents are paid a pre-arranged consideration called
"talent fee" taken from the budget of a particular program and subject to a ten percent (10%)
withholding tax. Talents do not undergo probation. Their services are engaged for a specific program
or production, or a segment thereof. Their contracts are terminated once the program, production or
segment is completed.

ABS-CBN alleged that the petitioners’ services were contracted on various dates by its Cebu station
as independent contractors/off camera talents, and they were not entitled to regularization in these
capacities.

On January 17, 2002, Labor Arbiter Rendoque rendered his decision5 holding that the petitioners
were regular employees of ABS-CBN, not independent contractors, and are entitled to the benefits
and privileges of regular employees.
ABS-CBN appealed the ruling to the National Labor Relations Commission (NLRC) Fourth Division,
mainly contending that the petitioners were independent contractors, not regular employees.6

The Illegal Dismissal Case.

While the appeal of the regularization case was pending, ABS-CBN dismissed Fulache, Jabonero,
Castillo, Lagunzad and Atinen (all drivers) for their refusal to sign up contracts of employment with
service contractor Able Services. The four drivers and Atinen responded by filing a complaint for
illegal dismissal (illegal dismissal case). The case (RAB VII Case No. 07-1300-2002) was likewise
handled by Labor Arbiter Rendoque.

In defense, ABS-CBN alleged that even before the labor arbiter rendered his decision of January 17,
2002 in the regularization case, it had already undertaken a comprehensive review of its existing
organizational structure to address its operational requirements. It then decided to course through
legitimate service contractors all driving, messengerial, janitorial, utility, make-up, wardrobe and
security services for both the Metro Manila and provincial stations, to improve its operations and to
make them more economically viable. Fulache, Jabonero, Castillo, Lagunzad and Atinen were not
singled out for dismissal; as drivers, they were dismissed because they belonged to a job category
that had already been contracted out. It argued that even if the petitioners had been found to have
been illegally dismissed, their reinstatement had become a physical impossibility because their
employer-employee relationships had been strained and that Atinen had executed a quitclaim and
release.

In her April 21, 2003 decision in the illegal dismissal case,7 Labor Arbiter Rendoque upheld the
validity of ABS-CBN's contracting out of certain work or services in its operations. The labor arbiter
found that petitioners Fulache, Jabonero, Castillo, Lagunzad and Atinen had been dismissed due to
redundancy, an authorized cause under the law.8 He awarded them separation pay of one (1)
month’s salary for every year of service.

Again, ABS-CBN appealed to the NLRC which rendered on December 15, 2004 a joint decision on
the regularization and illegal dismissal cases.9 The NLRC ruled that there was an employer-
employee relationship between the petitioners and ABS-CBN as the company exercised control over
the petitioners in the performance of their work; the petitioners were regular employees because
they were engaged to perform activities usually necessary or desirable in ABS-CBN's trade or
business; they cannot be considered contractual employees since they were not paid for the result of
their work, but on a monthly basis and were required to do their work in accordance with the
company’s schedule. The NLRC thus affirmed with modification the labor arbiter's regularization
decision of January 17, 2002, additionally granting the petitioners CBA benefits and privileges.

The NLRC reversed the labor arbiter’s ruling in the illegal dismissal case; it found that petitioners
Fulache, Jabonero, Castillo, Lagunzad and Atinen had been illegally dismissed and awarded them
backwages and separation pay in lieu of reinstatement. Under both cases, the petitioners were
awarded CBA benefits and privileges from the time they became regular employees up to the time of
their dismissal.

The petitioners moved for reconsideration, contending that Fulache, Jabonero, Castillo and
Lagunzad are entitled to reinstatement and full backwages, salary increases and other CBA benefits
as well as 13th month pay, cash conversion of sick and vacation leaves, medical and dental
allowances, educational benefits and service awards. Atinen appeared to have been excluded from
the motion and there was no showing that he sought reconsideration on his own.
ABS-CBN likewise moved for the reconsideration of the decision, reiterating that Fulache, Jabonero,
Castillo and Lagunzad were independent contractors, whose services had been terminated due to
redundancy; thus, no backwages should have been awarded. It further argued that the petitioners
were not entitled to the CBA benefits because they never claimed these benefits in their position
paper before the labor arbiter while the NLRC failed to make a clear and positive finding that that
they were part of the bargaining unit; neither was there evidence to support this finding.

The NLRC resolved the motions for reconsideration on March 24, 200610 by reinstating the two
separate decisions of the labor arbiter dated January 17, 2002,11 and April 21, 2003,12 respectively.
Thus, on the regularization issue, the NLRC stood by the ruling that the petitioners were regular
employees entitled to the benefits and privileges of regular employees. On the illegal dismissal case,
the petitioners, while recognized as regular employees, were declared dismissed due to redundancy.
The NLRC denied the petitioners’ second motion for reconsideration in its order of May 31, 2006 for
being a prohibited pleading. 13

The CA Petition and Decision

The petitioners went to the CA through a petition for certiorari under Rule 65 of the Rules of
Court.14 They charged the NLRC with grave abuse of discretion in: (1) denying them the benefits
under the CBA; (2) finding no evidence that they are part of the company’s bargaining unit; (3) not
reinstating and awarding backwages to Fulache, Jabonero, Castillo and Lagunzad; and (4) ruling
that they are not entitled to damages and attorney’s fees.

ABS-CBN, on the other hand, questioned the propriety of the petitioners’ use of a certiorari petition.
It argued that the proper remedy for the petitioners was an appeal from the reinstated decisions of
the labor arbiter.

In its decision of March 25, 2008,15 the appellate court brushed aside ABS-CBN’s procedural
question, holding that the petition was justified because there is no plain, speedy or adequate
remedy from a final decision, order or resolution of the NLRC; the reinstatement of the labor arbiter’s
decisions did not mean that the proceedings reverted back to the level of the arbiter. It likewise
affirmed the NLRC ruling that the petitioners’ second motion for reconsideration is a prohibited
pleading under the NLRC rules.16

On the merits of the case, the CA ruled that the petitioners failed to prove their claim to CBA benefits
since they never raised the issue in the compulsory arbitration proceedings, and did not appeal the
labor arbiter’s decision which was silent on their entitlement to CBA benefits. The CA found that the
petitioners failed to show with specificity how Section 1 (Appropriate Bargaining Unit) and the other
provisions of the CBA applied to them.

On the illegal dismissal issue, the CA upheld the NLRC decision reinstating the labor arbiter’s April
21, 2003 ruling.17 Thus, the drivers – Fulache, Jabonero, Castillo and Lagunzad – were not illegally
dismissed as their separation from the service was due to redundancy; they had not presented any
evidence that ABS-CBN abused its prerogative in contracting out the services of drivers. Except for
separation pay, the CA denied the petitioners’ claim for backwages, moral and exemplary damages,
and attorney’s fees.

The petitioners moved for reconsideration, but the CA denied the motion in a resolution promulgated
on July 8, 2008.18 Hence, the present petition.

The Petition
The petitioners challenge the CA ruling on both procedural and substantive grounds. As procedural
questions, they submit that the CA erred in: (1) affirming the NLRC resolution which reversed its own
decision; (2) sustaining the NLRC ruling that their second motion for reconsideration is a prohibited
pleading; (3) not ruling that ABS-CBN admitted in its position paper before the labor arbiter that they
were members of the bargaining unit as the matter was not raised in its appeal to the NLRC; and, (4)
not ruling that notwithstanding their failure to appeal from the first decision of the Labor Arbiter, they
can still participate in the appeal filed by ABS-CBN regarding their employment status.

On the substantive aspect, the petitioners contend that the CA gravely erred in: (1) not considering
the evidence submitted to the NLRC on appeal to bolster their claim that they were members of the
bargaining unit and therefore entitled to the CBA benefits; (2) not ordering ABS-CBN to pay the
petitioners’ salaries, allowances and CBA benefits after the NLRC has declared that they were
regular employees of ABS-CBN; (3) not ruling that under existing jurisprudence, the position of driver
cannot be declared redundant, and that the petitioners-drivers were illegally dismissed; and, (4) not
ruling that the petitioners were entitled to damages and attorney’s fees.

The petitioners argue that the NLRC resolution of March 24, 200619 which set aside its joint decision
of December 15, 200420 and reinstated the twin decisions of the labor arbiter,21 had the effect of
promulgating a new decision based on issues that were not raised in ABS-CBN’s partial appeal to
the NLRC. They submit that the NLRC should have allowed their second motion for reconsideration
so that it may be able to equitably evaluate the parties’ "conflicting versions of the facts" instead of
denying the motion on a mere technicality.

On the question of their CBA coverage, the petitioners contend that the CA erred in not considering
that ABS-CBN admitted their membership in the bargaining unit, for nowhere in its partial appeal
from the labor arbiter’s decision in the regularization case did it allege that the petitioners failed to
prove that they are members of the bargaining unit; instead, the company stood by its position that
the petitioners were not entitled to the CBA benefits since they were independent
contractors/program employees.

The petitioners submit that while they did not appeal the labor arbiter’s decision in the regularization
case, ABS-CBN raised the employment status issue in its own appeal to the NLRC; this appeal laid
this issue open for review. They argue that they could still participate in the appeal proceedings at
the NLRC; pursue their position on the issue; and introduce evidence as they did in their reply to the
company’s appeal.22 They bewail the appellate court’s failure to consider the evidence they
presented to the NLRC (consisting of documents and sworn statements enumerating the activities
they are performing) clearly indicating that they are part of the rank-and-file bargaining unit at ABS-
CBN.

The petitioners then proceeded to describe the work they render for the company. Collectively, they
claim that they work as assistants in the production of the Cebuano news program broadcast daily
over ABS-CBN Channel 3, as follows: Fulache, Jabonero, Castillo and Lagunzad as production
assistants to drive the news team; Ponce and Almendras, to shoot scenes and events with the use
of cameras owned by ABS-CBN; Malig-on Bigno, as studio production assistant and assistant
editor/teleprompter operator; and Cabas, Jr., as production assistant for video editing and operating
the VTR machine recorder. As production assistants, the petitioners submit that they are rank-and-
file employees (citing in support of their position the Court’s ruling in ABS-CBN Broadcasting Corp.
v. Nazareno23) who are entitled to salary increases and other benefits under the CBA. Relying on the
Court’s ruling in New Pacific Timber and Supply Company, Inc. v. NLRC,24 they posit that to exclude
them from the CBA "would constitute undue discrimination and would deprive them of monetary
benefits they would otherwise be entitled to."
As their final point, the petitioners argue that even if they were not able to prove that they were
members of the bargaining unit, the CA should not have dismissed their petition. When the CA
affirmed the rulings of both the labor arbiter and the NLRC that they are regular employees, the CA
should have ordered ABS-CBN to recognize their regular employee status and to give them the
salaries, allowances and other benefits and privileges under the CBA. 1avvphi1

On the dismissal of Fulache, Jabonero, Castillo and Lagunzad, the petitioners impute bad faith on
ABS-CBN when it abolished the positions of drivers claiming that the company failed to comply with
the requisites of a valid redundancy action. They maintain that ABS-CBN did not present any
evidence on the new staffing pattern as approved by the management of the company, and did not
even bother to show why it considered the positions of drivers superfluous and unnecessary; it is not
true that the positions of drivers no longer existed because these positions were contracted out to an
agency that, in turn, recruited four drivers to take the place of Fulache, Jabonero, Castillo and
Lagunzad. As further indication that the redundancy action against the four drivers was done in bad
faith, the petitioners call attention to ABS-CBN’s abolition of the position of drivers after the labor
arbiter rendered her decision declaring Fulache, Jabonero, Castillo and Lagunzad regular company
employees. The petitioners object to the dismissal of the four drivers when they refused to sign
resignation letters and join Able Services, a contracting agency, contending that the four had no
reason to resign after the labor arbiter declared them regular company employees.

Since their dismissal was illegal and attended by bad faith, the petitioners insist that they should be
reinstated with backwages, and should likewise be awarded moral and exemplary damages, and
attorney's fees.

The Case for ABS-CBN

In its Comment filed on January 28, 2009,25 ABS-CBN presents several grounds which may be
synthesized as follows:

1. The petition raises questions of fact and not of law.

2. The CA committed no error in affirming the resolution of the NLRC reinstating the
decisions of the labor arbiter.

ABS-CBN submits that the petition should be dismissed for having raised questions of fact and not
of law in violation of Rule 45 of the Rules of Court. It argues that the question of whether the
petitioners were covered by the CBA (and therefore entitled to the CBA benefits) and whether the
petitioners were illegally dismissed because of redundancy, are factual questions that cannot be
reviewed on certiorari because the Court is not a trier of facts.

ABS-CBN dismisses the petitioners’ issues and arguments as mere rehash of what they raised in
their pleadings with the CA and as grounds that do not warrant further consideration. It further
contends that because the petitioners did not appeal the labor arbiter decisions, these decisions had
lapsed to finality and could no longer be the subject of a petition for certiorari; the petitioners cannot
obtain from the appellate court affirmative relief other than those granted in the appealed decision. It
also argues that the NLRC did not commit any grave abuse of discretion in reinstating the twin
decisions of the labor arbiter, thereby affirming that no CBA benefits can be awarded to the
petitioners; in the absence of any illegal dismissal, the petitioners were not entitled to reinstatement,
backwages, damages, and attorney's fees.

The Court's Ruling

We first resolve the parties’ procedural questions.

ABS-CBN wants the petition to be dismissed outright for its alleged failure to comply with the
requirement of Rule 45 of the Rules of Court that the petition raises only questions of law.26

We find no impropriety in the petition from the standpoint of Rule 45. The petitioners do not question
the findings of facts of the assailed decisions. They question the misapplication of the law and
jurisprudence on the facts recognized by the decisions. For example, they question as contrary to
law their exclusion from the CBA after they were recognized as regular rank-and-file employees of
ABS-CBN. They also question the basis in law of the dismissal of the four drivers and the legal
propriety of the redundancy action taken against. To reiterate the established distinctions between
questions of law and questions of fact, we quote hereunder our ruling in New Rural Bank of Guimba
(N.E.) Inc. v. Fermina S. Abad and Rafael Susan:27

We reiterate the distinction between a question of law and a question of fact. A question of
law exists when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts; or when the issue does not call for an examination of
the probative value of the evidence presented, the truth or falsehood of the facts being
admitted. A question of fact exists when a doubt or difference arises as to the truth or
falsehood of facts or when the query invites calibration of the whole evidence considering
mainly the credibility of the witnesses, the existence and relevancy of specific surrounding
circumstances, as well as their relation to each other and to the whole, and the probability of
the situation.

We also find no error in the CA’s affirmation of the denial of the petitioners’ second motion for
reconsideration of the March 24, 2006 resolution of the NLRC reinstating the labor arbiter’s twin
decisions. The petitioners’ second motion for reconsideration was a prohibited pleading under the
NLRC rules of procedure.28

The parties’ other procedural questions directly bear on the merits of their positions and are
discussed and resolved below, together with the core substantive issues of: (1) whether the
petitioners, as regular employees, are members of the bargaining unit entitled to CBA benefits; and
(2) whether petitioners Fulache, Jabonero, Castillo and Lagunzad were illegally dismissed.

The Claim for CBA Benefits

We find merit in the petitioners’ positions.

As regular employees, the petitioners fall within the coverage of the bargaining unit and are therefore
entitled to CBA benefits as a matter of law and contract. In the root decision (the labor arbiter’s
decision of January 17, 2002) that the NLRC and CA affirmed, the labor arbiter declared:

WHEREFORE, IN THE LIGHT OF THE FOREGOING, taking into account the factual scenario and
the evidence adduced by both parties, it is declared that complainants in these cases are REGULAR
EMPLOYEES of respondent ABS-CBN and not INDEPENDENT CONTRACTORS and thus
henceforth they are entitled to the benefits and privileges attached to regular status of their
employment.

This declaration unequivocally settled the petitioners’ employment status: they are ABS-CBN’s
regular employees entitled to the benefits and privileges of regular employees. These benefits and
privileges arise from entitlements under the law (specifically, the Labor Code and its related laws),
and from their employment contract as regular ABS-CBN employees, part of which is the CBA if they
fall within the coverage of this agreement. Thus, what only needs to be resolved as an issue for
purposes of implementation of the decision is whether the petitioners fall within CBA coverage.

The parties’ 1999-2002 CBA provided in its Article I (Scope of the Agreement) that:29

Section 1. APPROPRIATE BARGAINING UNIT. – The parties agree that the appropriate bargaining
unit shall be regular rank-and-file employees of ABS-CBN BROADCASTING CORPORATION but
shall not include:

a) Personnel classified as Supervisor and Confidential employees;

b) Personnel who are on "casual" or "probationary" status as defined in Section 2 hereof;

c) Personnel who are on "contract" status or who are paid for specified units of work such as
writer-producers, talent-artists, and singers.

The inclusion or exclusion of new job classifications into the bargaining unit shall be subject of
discussion between the COMPANY and the UNION. [emphasis supplied]

Under these terms, the petitioners are members of the appropriate bargaining unit because they are
regular rank-and-file employees and do not belong to any of the excluded categories. Specifically,
nothing in the records shows that they are supervisory or confidential employees; neither are they
casual nor probationary employees. Most importantly, the labor arbiter’s decision of January 17,
2002 – affirmed all the way up to the CA level – ruled against ABS-CBN’s submission that they are
independent contractors. Thus, as regular rank-and-file employees, they fall within CBA coverage
under the CBA’s express terms and are entitled to its benefits.

We see no merit in ABS-CBN’s arguments that the petitioners are not entitled to CBA benefits
because: (1) they did not claim these benefits in their position paper; (2) the NLRC did not
categorically rule that the petitioners were members of the bargaining unit; and (3) there was no
evidence of this membership. To further clarify what we stated above, CBA coverage is not only a
question of fact, but of law and contract. The factual issue is whether the petitioners are regular
rank-and-file employees of ABS-CBN. The tribunals below uniformly answered this question in the
affirmative. From this factual finding flows legal effects touching on the terms and conditions of the
petitioners’ regular employment. This was what the labor arbiter meant when he stated in his
decision that "henceforth they are entitled to the benefits and privileges attached to regular status of
their employment." Significantly, ABS-CBN itself posited before this Court that "the Court of Appeals
did not gravely err nor gravely abuse its discretion when it affirmed the resolution of the NLRC dated
March 24, 2006 reinstating and adopting in toto the decision of the Labor Arbiter dated January 17,
2002 x x x."30 This representation alone fully resolves all the objections – procedural or otherwise –
ABS-CBN raised on the regularization issue.

The Dismissal of Fulache, Jabonero,

Castillo and Lagunzad

The termination of employment of the four drivers occurred under highly questionable circumstances
and with plain and unadulterated bad faith.

The records show that the regularization case was in fact the root of the resulting bad faith as this
case gave rise and led to the dismissal case. First, the regularization case was filed leading to the
labor arbiter’s decision31declaring the petitioners, including Fulache, Jabonero, Castillo and
Lagunzad, to be regular employees. ABS-CBN appealed the decision and maintained its position
that the petitioners were independent contractors.

In the course of this appeal, ABS-CBN took matters into its own hands and terminated the
petitioners’ services, clearly disregarding its own appeal then pending with the NLRC. Notably, this
appeal posited that the petitioners were not employees (whose services therefore could be
terminated through dismissal under the Labor Code); they were independent contractors whose
services could be terminated at will, subject only to the terms of their contracts. To justify the
termination of service, the company cited redundancy as its authorized cause but offered no
justificatory supporting evidence. It merely claimed that it was contracting out the petitioners’
activities in the exercise of its management prerogative.

ABS-CBN’s intent, of course, based on the records, was to transfer the petitioners and their activities
to a service contractor without paying any attention to the requirements of our labor laws; hence,
ABS-CBN dismissed the petitioners when they refused to sign up with the service contractor.32 In this
manner, ABS-CBN fell into a downward spiral of irreconcilable legal positions, all undertaken in the
hope of saving itself from the decision declaring its "talents" to be regular employees.

By doing all these, ABS-CBN forgot labor law and its realities.

It forgot that by claiming redundancy as authorized cause for dismissal, it impliedly admitted that the
petitioners were regular employees whose services, by law, can only be terminated for the just and
authorized causes defined under the Labor Code.

Likewise ABS-CBN forgot that it had an existing CBA with a union, which agreement must be
respected in any move affecting the security of tenure of affected employees; otherwise, it ran the
risk of committing unfair labor practice – both a criminal and an administrative offense.33 It similarly
forgot that an exercise of management prerogative can be valid only if it is undertaken in good faith
and with no intent to defeat or circumvent the rights of its employees under the laws or under valid
agreements.34

Lastly, it forgot that there was a standing labor arbiter’s decision that, while not yet final because of
its own pending appeal, cannot simply be disregarded. By implementing the dismissal action at the
time the labor arbiter’s ruling was under review, the company unilaterally negated the effects of the
labor arbiter’s ruling while at the same time appealling the same ruling to the NLRC. This unilateral
move is a direct affront to the NLRC’s authority and an abuse of the appeal process.

All these go to show that ABS-CBN acted with patent bad faith. A close parallel we can draw to
characterize this bad faith is the prohibition against forum-shopping under the Rules of Court. In
forum-shopping, the Rules characterize as bad faith the act of filing similar and repetitive actions for
the same cause with the intent of somehow finding a favorable ruling in one of the actions
filed.35 ABS-CBN’s actions in the two cases, as described above, are of the same character, since its
obvious intent was to defeat and render useless, in a roundabout way and other than through the
appeal it had taken, the labor arbiter’s decision in the regularization case. Forum-shopping is
penalized by the dismissal of the actions involved. The penalty against ABS-CBN for its bad faith in
the present case should be no less.

The errors and omissions do not belong to ABS-CBN alone. The labor arbiter himself who handled
both cases did not see the totality of the company’s actions for what they were. He appeared to have
blindly allowed what he granted the petitioners with his left hand, to be taken away with his right
hand, unmindful that the company already exhibited a badge of bad faith in seeking to terminate the
services of the petitioners whose regular status had just been recognized. He should have
recognized the bad faith from the timing alone of ABS-CBN’s conscious and purposeful moves to
secure the ultimate aim of avoiding the regularization of its so-called "talents."

The NLRC, for its part, initially recognized the presence of bad faith when it originally ruled that:

While notice has been made to the employees whose positions were declared redundant, the
element of good faith in abolishing the positions of the complainants appear to be wanting. In fact, it
remains undisputed that herein complainants were terminated when they refused to sign an
employment contract with Able Services which would make them appear as employees of the
agency and not of ABS-CBN. Such act by itself clearly demonstrates bad faith on the part of the
respondent in carrying out the company’s redundancy program x x x.36

On motion for reconsideration by both parties, the NLRC reiterated its "pronouncement that
complainants were illegally terminated as extensively discussed in our Joint Decision dated
December 15, 2004."37 Yet, in an inexplicable turnaround, it reconsidered its joint decision and
reinstated not only the labor arbiter’s decision of January 17, 2002 in the regularization case, but
also his illegal dismissal decision of April 21, 2003.38 Thus, the NLRC joined the labor arbiter in his
error that we cannot but characterize as grave abuse of discretion.

The Court cannot leave unchecked the labor tribunals’ patent grave abuse of discretion that resulted,
without doubt, in a grave injustice to the petitioners who were claiming regular employment status
and were unceremoniously deprived of their employment soon after their regular status was
recognized. Unfortunately, the CA failed to detect the labor tribunals’ gross errors in the disposition
of the dismissal issue. Thus, the CA itself joined the same errors the labor tribunals committed.

The injustice committed on the petitioners/drivers requires rectification. Their dismissal was not only
unjust and in bad faith as the above discussions abundantly show. The bad faith in ABS-CBN’s
move toward its illegitimate goal was not even hidden; it dismissed the petitioners – already
recognized as regular employees – for refusing to sign up with its service contractor. Thus, from
every perspective, the petitioners were illegally dismissed.

By law,39 illegally dismissed employees are entitled to reinstatement without loss of seniority rights
and other privileges and to full backwages, inclusive of allowances, and to other benefits or their
monetary equivalent from the time their compensation was withheld from them up to the time of their
actual reinstatement. The four dismissed drivers deserve no less.

Moreover, they are also entitled to moral damages since their dismissal was attended by bad
faith.40 For having been compelled to litigate and to incur expenses to protect their rights and
interest, the petitioners are likewise entitled to attorney’s fees.41

WHEREFORE, premises considered, we hereby GRANT the petition. The decision dated March 25,
2008 and the resolution dated July 8, 2008 of the Court of Appeals in CA-G.R. SP No. 01838 are
hereby REVERSED and SET ASIDE. Accordingly, judgment is hereby rendered as follows:

1. Confirming that petitioners FARLEY FULACHE, MANOLO JABONERO, DAVID

CASTILLO, JEFFREY LAGUNZAD, MAGDALENA MALIG-ON BIGNO, FRANCISCO
CABAS, JR., HARVEY PONCE and ALAN C. ALMENDRAS are regular employees of ABS-
CBN BROADCASTING CORPORATION, and declaring them entitled to all the rights,
benefits and privileges, including CBA benefits, from the time they became regular
employees in accordance with existing company practice and the Labor Code;
 2. Declaring illegal the dismissal of Fulache, Jabonero, Castillo and Lagunzad, and ordering
ABS-CBN to immediately reinstate them to their former positions without loss of seniority
rights with full backwages and all other monetary benefits, from the time they were dismissed
up to the date of their actual reinstatement;

3. Awarding moral damages of ₱100,000.00 each to Fulache, Jabonero, Castillo and

Lagunzad; and,

4. Awarding attorney’s fees of 10% of the total monetary award decreed in this Decision.

Costs against the respondent.

SO ORDERED.

ARTURO D. BRION
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 155207 August 13, 2008

WILHELMINA S. OROZCO, petitioner,

vs.
THE FIFTH DIVISION OF THE HONORABLE COURT OF APPEALS, PHILIPPINE DAILY INQUIRER,
and LETICIA JIMENEZ MAGSANOC, respondents.

DECISION

NACHURA, J.:

The case before this Court raises a novel question never before decided in our jurisdiction – whether a
newspaper columnist is an employee of the newspaper which publishes the column.

In this Petition for Review under Rule 45 of the Revised Rules on Civil Procedure, petitioner Wilhelmina
S. Orozco assails the Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 50970 dated June 11,
2002 and its Resolution2 dated September 11, 2002 denying her Motion for Reconsideration. The CA
reversed and set aside the Decision3 of the National Labor Relations Commission (NLRC), which in turn
had affirmed the Decision4 of the Labor Arbiter finding that Orozco was an employee of private
respondent Philippine Daily Inquirer (PDI) and was illegally dismissed as columnist of said newspaper.

In March 1990, PDI engaged the services of petitioner to write a weekly column for its Lifestyle section.
She religiously submitted her articles every week, except for a six-month stint in New York City when she,
nonetheless, sent several articles through mail. She received compensation of P250.00 – later increased
to P300.00 – for every column published.5
On November 7, 1992, petitioner’s column appeared in the PDI for the last time. Petitioner claims that her
then editor, Ms. Lita T. Logarta,6 told her that respondent Leticia Jimenez Magsanoc, PDI Editor in Chief,
wanted to stop publishing her column for no reason at all and advised petitioner to talk to Magsanoc
herself. Petitioner narrates that when she talked to Magsanoc, the latter informed her that it was PDI
Chairperson Eugenia Apostol who had asked to stop publication of her column, but that in a telephone
conversation with Apostol, the latter said that Magsanoc informed her (Apostol) that the Lifestyle section
already had many columnists.7

On the other hand, PDI claims that in June 1991, Magsanoc met with the Lifestyle section editor to
discuss how to improve said section. They agreed to cut down the number of columnists by keeping only
those whose columns were well-written, with regular feedback and following. In their judgment,
petitioner’s column failed to improve, continued to be superficially and poorly written, and failed to meet
the high standards of the newspaper. Hence, they decided to terminate petitioner’s column. 8

Aggrieved by the newspaper’s action, petitioner filed a complaint for illegal dismissal, backwages, moral
and exemplary damages, and other money claims before the NLRC.

On October 29, 1993, Labor Arbiter Arthur Amansec rendered a Decision in favor of petitioner,
the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered, finding complainant to be an employee of

respondent company; ordering respondent company to reinstate her to her former or equivalent
position, with backwages.

Respondent company is also ordered to pay her 13th month pay and service incentive leave pay.

Other claims are hereby dismissed for lack of merit.

SO ORDERED.9

The Labor Arbiter found that:

[R]espondent company exercised full and complete control over the means and method by which
complainant’s work – that of a regular columnist – had to be accomplished. This control might not
be found in an instruction, verbal or oral, given to complainant defining the means and method
she should write her column. Rather, this control is manifested and certained (sic) in respondents’
admitted prerogative to reject any article submitted by complainant for publication.

By virtue of this power, complainant was helplessly constrained to adopt her subjects and style of
writing to suit the editorial taste of her editor. Otherwise, off to the trash can went her articles.

Moreover, this control is already manifested in column title, "Feminist Reflection" allotted
complainant. Under this title, complainant’s writing was controlled and limited to a woman’s
perspective on matters of feminine interests. That respondent had no control over the subject
matter written by complainant is strongly belied by this observation. Even the length of
complainant’s articles were set by respondents.

Inevitably, respondents would have no control over when or where complainant wrote her articles
as she was a columnist who could produce an article in thirty (3) (sic) months or three (3) days,
depending on her mood or the amount of research required for an article but her actions were
controlled by her obligation to produce an article a week. If complainant did not have to report for
work eight (8) hours a day, six (6) days a week, it is because her task was mainly mental. Lastly,
the fact that her articles were (sic) published weekly for three (3) years show that she was
 respondents’ regular employee, not a once-in-a-blue-moon contributor who was not under any
pressure or obligation to produce regular articles and who wrote at his own whim and leisure. 10

PDI appealed the Decision to the NLRC. In a Decision dated August 23, 1994, the NLRC Second Division
dismissed the appeal thereby affirming the Labor Arbiter’s Decision. The NLRC initially noted that PDI
failed to perfect its appeal, under Article 223 of the Labor Code, due to non-filing of a cash or surety bond.
The NLRC said that the reason proffered by PDI for not filing the bond – that it was difficult or impossible
to determine the amount of the bond since the Labor Arbiter did not specify the amount of the judgment
award – was not persuasive. It said that all PDI had to do was compute based on the amount it was
paying petitioner, counting the number of weeks from November 7, 1992 up to promulgation of the Labor
Arbiter’s decision.11

The NLRC also resolved the appeal on its merits. It found no error in the Labor Arbiter’s findings of fact
and law. It sustained the Labor Arbiter’s reasoning that respondent PDI exercised control over petitioner’s
work.

PDI then filed a Petition for Review12 before this Court seeking the reversal of the NLRC Decision.
However, in a Resolution13 dated December 2, 1998, this Court referred the case to the Court of Appeals,
pursuant to our ruling in St. Martin Funeral Homes v. National Labor Relations Commission.14

The CA rendered its assailed Decision on June 11, 2002. It set aside the NLRC Decision and dismissed
petitioner’s Complaint. It held that the NLRC misappreciated the facts and rendered a ruling wanting in
substantial evidence. The CA said:

The Court does not agree with public respondent NLRC’s conclusion. First, private respondent
admitted that she was and [had] never been considered by petitioner PDI as its employee.
Second, it is not disputed that private respondent had no employment contract with petitioner
PDI. In fact, her engagement to contribute articles for publication was based on a verbal
agreement between her and the petitioner’s Lifestyle Section Editor. Moreover, it was evident that
private respondent was not required to report to the office eight (8) hours a day. Further, it is not
disputed that she stayed in New York for six (6) months without petitioner’s permission as to her
leave of absence nor was she given any disciplinary action for the same. These undisputed facts
negate private respondent’s claim that she is an employee of petitioner.

Moreover, with regards (sic) to the control test, the public respondent NLRC’s ruling that the
guidelines given by petitioner PDI for private respondent to follow, e.g. in terms of space
allocation and length of article, is not the form of control envisioned by the guidelines set by the
Supreme Court. The length of the article is obviously limited so that all the articles to be featured
in the paper can be accommodated. As to the topic of the article to be published, it is but logical
that private respondent should not write morbid topics such as death because she is contributing
to the lifestyle section. Other than said given limitations, if the same could be considered
limitations, the topics of the articles submitted by private respondent were all her choices. Thus,
the petitioner PDI in deciding to publish private respondent’s articles only controls the result of the
work and not the means by which said articles were written.

As such, the above facts failed to measure up to the control test necessary for an employer-
employee relationship to exist.15

Petitioner’s Motion for Reconsideration was denied in a Resolution dated September 11, 2002. She then
filed the present Petition for Review.

In a Resolution dated April 29, 2005, the Court, without giving due course to the petition, ordered the
Labor Arbiter to clarify the amount of the award due petitioner and, thereafter, ordered PDI to post the
requisite bond. Upon compliance therewith, the petition would be given due course. Labor Arbiter
Amansec clarified that the award under the Decision amounted to P15,350.00. Thus, PDI posted the
requisite bond on January 25, 2007.16

We shall initially dispose of the procedural issue raised in the Petition.

Petitioner argues that the CA erred in not dismissing outright PDI’s Petition for Certiorari for PDI’s failure
to post a cash or surety bond in violation of Article 223 of the Labor Code.

This issue was settled by this Court in its Resolution dated April 29, 2005. 17 There, the Court held:

But while the posting of a cash or surety bond is jurisdictional and is a condition sine qua non to
the perfection of an appeal, there is a plethora of jurisprudence recognizing exceptional instances
wherein the Court relaxed the bond requirement as a condition for posting the appeal.

xxxx

In the case of Taberrah v. NLRC, the Court made note of the fact that the assailed decision of the
Labor Arbiter concerned did not contain a computation of the monetary award due the
employees, a circumstance which is likewise present in this case. In said case, the Court stated,

As a rule, compliance with the requirements for the perfection of an appeal within the
reglamentary (sic) period is mandatory and jurisdictional. However, in National
Federation of Labor Unions v. Ladrido as well as in several other cases, this Court
relaxed the requirement of the posting of an appeal bond within the reglementary period
as a condition for perfecting the appeal. This is in line with the principle that substantial
justice is better served by allowing the appeal to be resolved on the merits rather than
dismissing it based on a technicality.

The judgment of the Labor Arbiter in this case merely stated that petitioner was entitled to
backwages, 13th month pay and service incentive leave pay without however including a
computation of the alleged amounts.

xxxx

In the case of NFLU v. Ladrido III, this Court postulated that "private respondents cannot be
expected to post such appeal bond equivalent to the amount of the monetary award when the
amount thereof was not included in the decision of the labor arbiter." The computation of the
amount awarded to petitioner not having been clearly stated in the decision of the labor arbiter,
private respondents had no basis for determining the amount of the bond to be posted.

Thus, 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 of 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. But while this Court may relax the observance of
reglementary periods and technical rules to achieve substantial justice, it is not prepared to give
due course to this petition and make a pronouncement on the weighty issue obtaining in this case
until the law has been duly complied with and the requisite appeal bond duly paid by private
respondents.18

Records show that PDI has complied with the Court’s directive for the posting of the bond; 19 thus, that
issue has been laid to rest.
We now proceed to rule on the merits of this case.

The main issue we must resolve is whether petitioner is an employee of PDI, and if the answer be in the
affirmative, whether she was illegally dismissed.

We rule for the respondents.

The existence of an employer-employee relationship is essentially a question of fact.20 Factual findings of

quasi-judicial agencies like the NLRC are generally accorded respect and finality if supported by
substantial evidence.21

Considering, however, that the CA’s findings are in direct conflict with those of the Labor Arbiter and
NLRC, this Court must now make its own examination and evaluation of the facts of this case.

It is true that petitioner herself admitted that she "was not, and [had] never been considered respondent’s
employee because the terms of works were arbitrarily decided upon by the respondent."22 However, the
employment status of a person is defined and prescribed by law and not by what the parties say it should
be.23

This Court has constantly adhered to the "four-fold test" to determine whether there exists an employer-
employee relationship between parties.24 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 employer’s power to control the employee’s conduct.25

Of these four elements, it is the power of control which is the most crucial26 and most determinative
factor,27 so important, in fact, that the other elements may even be disregarded.28 As this Court has
previously held:

the significant factor in determining the relationship of the parties is the presence or absence of
supervisory authority to control the method and the details of performance of the service being
rendered, and the degree to which the principal may intervene to exercise such control. 29

In other words, the test is whether the employer controls or has reserved the right to control the
employee, not only as to the work done, but also as to the means and methods by which the same is
accomplished.30

Petitioner argues that several factors exist to prove that respondents exercised control over her and her
work, namely:

a. As to the Contents of her Column – The PETITIONER had to insure that the contents of her
column hewed closely to the objectives of its Lifestyle Section and the over-all principles that the
newspaper projects itself to stand for. As admitted, she wanted to write about death in relation to
All Souls Day but was advised not to.

b. As to Time Control – The PETITIONER, as a columnist, had to observe the deadlines of the
newspaper for her articles to be published. These deadlines were usually that time period when
the Section Editor has to "close the pages" of the Lifestyle Section where the column in located.
"To close the pages" means to prepare them for printing and publication.

As a columnist, the PETITIONER’s writings had a definite day on which it was going to appear.
So she submitted her articles two days before the designated day on which the column would
come out.
 This is the usual routine of newspaper work. Deadlines are set to fulfill the newspapers’
obligations to the readers with regard to timeliness and freshness of ideas.

c. As to Control of Space – The PETITIONER was told to submit only two or three pages of article
for the column, (sic) "Feminist Reflections" per week. To go beyond that, the Lifestyle editor
would already chop off the article and publish the rest for the next week. This shows that
PRIVATE RESPONDENTS had control over the space that the PETITIONER was assigned to fill.

d. As to Discipline – Over time, the newspaper readers’ eyes are trained or habituated to look for
and read the works of their favorite regular writers and columnists. They are conditioned, based
on their daily purchase of the newspaper, to look for specific spaces in the newspapers for their
favorite write-ups/or opinions on matters relevant and significant issues aside from not being late
or amiss in the responsibility of timely submission of their articles.

The PETITIONER was disciplined to submit her articles on highly relevant and significant issues
on time by the PRIVATE RESPONDENTS who have a say on whether the topics belong to those
considered as highly relevant and significant, through the Lifestyle Section Editor. The
PETITIONER had to discuss the topics first and submit the articles two days before publication
date to keep her column in the newspaper space regularly as expected or without miss by its
readers.31

Given this discussion by petitioner, we then ask the question: Is this the form of control that our labor laws
contemplate such as to establish an employer-employee relationship between petitioner and respondent
PDI?

It is not.

Petitioner has misconstrued the "control test," as did the Labor Arbiter and the NLRC.

Not all rules imposed by the hiring party on the hired party indicate that the latter is an employee of the
former. Rules which serve as general guidelines towards the achievement of the mutually desired result
are not indicative of the power of control. 32 Thus, this Court has explained:

It should, however, be obvious that not every form of control that the hiring party reserves to
himself over the conduct of the party hired in relation to the services rendered may be accorded
the effect of establishing an employer-employee relationship between them in the legal or
technical sense of the term. A line must be drawn somewhere, if the recognized distinction
between an employee and an individual contractor is not to vanish altogether. Realistically, it
would be a rare contract of service that gives untrammelled freedom to the party hired and
eschews any intervention whatsoever in his performance of the engagement.

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the result and the means
used to achieve it. x x x.33

The main determinant therefore is whether the rules set by the employer are meant to control not just the
results of the work but also the means and method to be used by the hired party in order to achieve such
results. Thus, in this case, we are to examine the factors enumerated by petitioner to see if these are
merely guidelines or if they indeed fulfill the requirements of the control test.
Petitioner believes that respondents’ acts are meant to control how she executes her work. We do not
agree. A careful examination reveals that the factors enumerated by the petitioner are inherent conditions
in running a newspaper. In other words, the so-called control as to time, space, and discipline are dictated
by the very nature of the newspaper business itself.

We agree with the observations of the Office of the Solicitor General that:

The Inquirer is the publisher of a newspaper of general circulation which is widely read
throughout the country. As such, public interest dictates that every article appearing in the
newspaper should subscribe to the standards set by the Inquirer, with its thousands of readers in
mind. It is not, therefore, unusual for the Inquirer to control what would be published in the
newspaper. What is important is the fact that such control pertains only to the end result, i.e., the
submitted articles. The Inquirer has no control over [petitioner] as to the means or method used
by her in the preparation of her articles. The articles are done by [petitioner] herself without any
intervention from the Inquirer.34

Petitioner has not shown that PDI, acting through its editors, dictated how she was to write or produce her
articles each week. Aside from the constraints presented by the space allocation of her column, there
were no restraints on her creativity; petitioner was free to write her column in the manner and style she
was accustomed to and to use whatever research method she deemed suitable for her purpose. The
apparent limitation that she had to write only on subjects that befitted the Lifestyle section did not
translate to control, but was simply a logical consequence of the fact that her column appeared in that
section and therefore had to cater to the preference of the readers of that section.

The perceived constraint on petitioner’s column was dictated by her own choice of her column’s
perspective. The column title "Feminist Reflections" was of her own choosing, as she herself admitted,
since she had been known as a feminist writer.35Thus, respondent PDI, as well as her readers, could
reasonably expect her columns to speak from such perspective.

Contrary to petitioner’s protestations, it does not appear that there was any actual restraint or limitation on
the subject matter – within the Lifestyle section – that she could write about. Respondent PDI did not
dictate how she wrote or what she wrote in her column. Neither did PDI’s guidelines dictate the kind of
research, time, and effort she put into each column. In fact, petitioner herself said that she received "no
comments on her articles…except for her to shorten them to fit into the box allotted to her column."
Therefore, the control that PDI exercised over petitioner was only as to the finished product of her efforts,
i.e., the column itself, by way of either shortening or outright rejection of the column.

The newspaper’s power to approve or reject publication of any specific article she wrote for her column
cannot be the control contemplated in the "control test," as it is but logical that one who commissions
another to do a piece of work should have the right to accept or reject the product. The important factor to
consider in the "control test" is still the element of control over how the work itself is done, not just the end
result thereof.

In contrast, a regular reporter is not as independent in doing his or her work for the newspaper. We note
the common practice in the newspaper business of assigning its regular reporters to cover specific
subjects, geographical locations, government agencies, or areas of concern, more commonly referred to
as "beats." A reporter must produce stories within his or her particular beat and cannot switch to another
beat without permission from the editor. In most newspapers also, a reporter must inform the editor about
the story that he or she is working on for the day. The story or article must also be submitted to the editor
at a specified time. Moreover, the editor can easily pull out a reporter from one beat and ask him or her to
cover another beat, if the need arises.

This is not the case for petitioner. Although petitioner had a weekly deadline to meet, she was not
precluded from submitting her column ahead of time or from submitting columns to be published at a later
time. More importantly, respondents did not dictate upon petitioner the subject matter of her columns, but
only imposed the general guideline that the article should conform to the standards of the newspaper and
the general tone of the particular section.

Where a person who works for another performs his job more or less at his own pleasure, in the manner
he sees fit, not subject to definite hours or conditions of work, and is compensated according to the result
of his efforts and not the amount thereof, no employer-employee relationship exists.36

Aside from the control test, this Court has also used the economic reality test. The economic realities
prevailing within the activity or between the parties are examined, taking into consideration the totality of
circumstances surrounding the true nature of the relationship between the parties. 37 This is especially
appropriate when, as in this case, there is no written agreement or contract on which to base the
relationship. In our jurisdiction, the benchmark of economic reality in analyzing possible employment
relationships for purposes of applying the Labor Code ought to be the economic dependence of the
worker on his employer.38

Petitioner’s main occupation is not as a columnist for respondent but as a women’s rights advocate
working in various women’s organizations.39 Likewise, she herself admits that she also contributes
articles to other publications.40 Thus, it cannot be said that petitioner was dependent on respondent PDI
for her continued employment in respondent’s line of business.41

The inevitable conclusion is that petitioner was not respondent PDI’s employee but an independent
contractor, engaged to do independent work.

There is no inflexible rule to determine if a person is an employee or an independent contractor; thus, the
characterization of the relationship must be made based on the particular circumstances of each
case.42 There are several factors43 that may be considered by the courts, but as we already said, the right
to control is the dominant factor in determining whether one is an employee or an independent
contractor.44

In our jurisdiction, the Court has held that an independent contractor is one who carries on a distinct and
independent business and undertakes to perform the job, work, or service on one’s own account and
under one’s own responsibility according to one’s own manner and method, free from the control and
direction of the principal in all matters connected with the performance of the work except as to the results
thereof.45

On this point, Sonza v. ABS-CBN Broadcasting Corporation46 is enlightening. In that case, the Court
found, using the four-fold test, that petitioner, Jose Y. Sonza, was not an employee of ABS-CBN, but an
independent contractor. Sonza was hired by ABS-CBN due to his "unique skills, talent and celebrity
status not possessed by ordinary employees," a circumstance that, the Court said, was indicative, though
not conclusive, of an independent contractual relationship. Independent contractors often present
themselves to possess unique skills, expertise or talent to distinguish them from ordinary
employees.47 The Court also found that, as to payment of wages, Sonza’s talent fees were the result of
negotiations between him and ABS-CBN.48 As to the power of dismissal, the Court found that the terms of
Sonza’s engagement were dictated by the contract he entered into with ABS-CBN, and the same contract
provided that either party may terminate the contract in case of breach by the other of the terms
thereof.49 However, the Court held that the foregoing are not determinative of an employer-employee
relationship. Instead, it is still the power of control that is most important.

On the power of control, the Court found that in performing his work, Sonza only needed his skills and
talent – how he delivered his lines, appeared on television, and sounded on radio were outside ABS-
CBN’s control.50 Thus:
 We find that ABS-CBN was not involved in the actual performance that produced the finished
product of SONZA’s work. ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN
merely reserved the right to modify the program format and airtime schedule "for more effective
programming." ABS-CBN’s sole concern was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance
of SONZA’s work.

SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-CBN’s power over
the means and methods of the performance of his work. Although ABS-CBN did have the option
not to broadcast SONZA’s show, ABS-CBN was still obligated to pay SONZA’s talent fees...
Thus, even if ABS-CBN was completely dissatisfied with the means and methods of SONZA’s
performance of his work, or even with the quality or product of his work, ABS-CBN could not
dismiss or even discipline SONZA. All that ABS-CBN could do is not to broadcast SONZA’s show
but ABS-CBN must still pay his talent fees in full.

Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the obligation to
continue paying in full SONZA’s talent fees, did not amount to control over the means and
methods of the performance of SONZA’s work. ABS-CBN could not terminate or discipline
SONZA even if the means and methods of performance of his work - how he delivered his lines
and appeared on television - did not meet ABS-CBN’s approval. This proves that ABS-CBN’s
control was limited only to the result of SONZA’s work, whether to broadcast the final product or
not. In either case, ABS-CBN must still pay SONZA’s talent fees in full until the expiry of the
Agreement.

In Vaughan, et al. v. Warner, et al., the United States Circuit Court of Appeals ruled that
vaudeville performers were independent contractors although the management reserved the right
to delete objectionable features in their shows. Since the management did not have control over
the manner of performance of the skills of the artists, it could only control the result of the work by
deleting objectionable features.

SONZA further contends that ABS-CBN exercised control over his work by supplying all
equipment and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to
broadcast the "Mel & Jay" programs. However, the equipment, crew and airtime are not the "tools
and instrumentalities" SONZA needed to perform his job. What SONZA principally needed were
his talent or skills and the costumes necessary for his appearance. Even though ABS-CBN
provided SONZA with the place of work and the necessary equipment, SONZA was still an
independent contractor since ABS-CBN did not supervise and control his work. ABS-CBN’s sole
concern was for SONZA to display his talent during the airing of the programs.

A radio broadcast specialist who works under minimal supervision is an independent contractor.
SONZA’s work as television and radio program host required special skills and talent, which
SONZA admittedly possesses. The records do not show that ABS-CBN exercised any
supervision and control over how SONZA utilized his skills and talent in his shows. 51

The instant case presents a parallel to Sonza. Petitioner was engaged as a columnist for her talent, skill,
experience, and her unique viewpoint as a feminist advocate. How she utilized all these in writing her
column was not subject to dictation by respondent. As in Sonza, respondent PDI was not involved in the
actual performance that produced the finished product. It only reserved the right to shorten petitioner’s
articles based on the newspaper’s capacity to accommodate the same. This fact, we note, was not
unique to petitioner’s column. It is a reality in the newspaper business that space constraints often dictate
the length of articles and columns, even those that regularly appear therein.
Furthermore, respondent PDI did not supply petitioner with the tools and instrumentalities she needed to
perform her work. Petitioner only needed her talent and skill to come up with a column every week. As
such, she had all the tools she needed to perform her work.

Considering that respondent PDI was not petitioner’s employer, it cannot be held guilty of illegal
dismissal.

WHEREFORE, the foregoing premises considered, the Petition is DISMISSED. The Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 50970 are hereby AFFIRMED.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 169207 March 25, 2010

WPP MARKETING COMMUNICATIONS, INC., JOHN STEEDMAN, MARK WEBSTER, and

NOMINADA LANSANG, Petitioners,
vs.
JOCELYN M. GALERA, Respondent.

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

G.R. No. 169239

JOCELYN M. GALERA, Petitioner,

vs.
WPP MARKETING COMMUNICATIONS, INC., JOHN STEEDMAN, MARK WEBSTER, and
NOMINADA LANSANG, Respondents.

DECISION

CARPIO, Acting C.J.:

The Case

G.R. Nos. 169207 and 169239 are petitions for review1 assailing the Decision2 promulgated on 14
April 2005 as well as the Resolution3 promulgated on 1 August 2005 of the Court of Appeals
(appellate court) in CA-G.R. SP No. 78721. The appellate court granted and gave due course to the
petition filed by Jocelyn M. Galera (Galera). The appellate court’s decision reversed and set aside
that of the National Labor Relations Commission (NLRC), and directed WPP Marketing
Communications, Inc. (WPP) to pay Galera backwages, separation pay, unpaid housing benefit,
unpaid personal and accident insurance benefits, cash value under the company’s pension plan, 30
days paid holiday benefit, moral damages, exemplary damages, 10% of the total judgment award as
attorney’s fees, and costs of the suit.

The Facts

The appellate court narrated the facts as follows:

Petitioner is Jocelyn Galera (GALERA), a [sic] American citizen who was recruited from the United
States of America by private respondent John Steedman, Chairman-WPP Worldwide and Chief
Executive Officer of Mindshare, Co., a corporation based in Hong Kong, China, to work in the
Philippines for private respondent WPP Marketing Communications, Inc. (WPP), a corporation
registered and operating under the laws of Philippines. GALERA accepted the offer and she signed
an Employment Contract entitled "Confirmation of Appointment and Statement of Terms and
Conditions" (Annex B to Petition for Certiorari). The relevant portions of the contract entered into
between the parties are as follows:

Particulars:
Name : Jocelyn M. Galera
Address : 163 Mediterranean Avenue
Hayward, CA 94544
Position : Managing Director
Mindshare Philippines

Annual Salary : Peso 3,924,000

Start Date : 1 September 1999

Commencement Date : 1 September 1999

(for continuous service)

Office : Mindshare Manila

6. Housing Allowance
 The Company will provide suitable housing in Manila at a maximum cost (including
management fee and other associated costs) of Peso 576,000 per annum.

7. Other benefits.

The Company will provide you with a fully maintained company car and a driver.

The Company will continue to provide medical, health, life and personal accident insurance
plans, to an amount not exceeding Peso 300,000 per annum, in accordance with the terms
of the respective plans, as provided by JWT Manila.

The Company will reimburse you and your spouse one way business class air tickets from
USA to Manila and the related shipping and relocation cost not exceeding US$5,000
supported by proper documentation. If you leave the Company within one year, you will
reimburse the Company in full for all costs of the initial relocation as described therein.

You will participate in the JWT Pension Plan under the terms of this plan, the Company
reserves the right to transfer this benefit to a Mindshare Pension Plan in the future, if so
required.

8. Holidays

You are entitled to 20 days paid holiday in addition to public holidays per calendar year to be
taken at times agreed with the Company. Carry-over of unused accrued holiday entitlement
into a new holiday year will not normally be allowed. No payment will be made for holidays
not taken. On termination of your employment, unless you have been summarily dismissed,
you will be entitled to receive payment for unused accrued holiday pay. Any holiday taken in
excess of your entitlement shall be deducted from your final salary payment.

9. Leave Due to Sickness or Injury

The maximum provision for sick leave is 15 working days per calendar year.

12. Invention/Know-How

Any discovery, invention, improvement in procedure, trademark, trade name, designs,

copyrights or get-ups made, discovered or created by you during the continuance of your
employment hereunder relating to the business of the Company shall belong to and shall be
the absolute property of the Company. If required to do so by the Company (whether during
or after the termination of your employment) you shall at the expense of the company
execute all instruments and do all things necessary to vest in ownership for all other rights,
title and interests (including any registered rights therein) in such discovery, invention,
improvement in procedure, trademark, trade name, design, copyright or get-up in the
Company (or its Nominee) absolutely and as sole beneficial owner.

14. Notice.

The first three months of your employment will be a trial period during which either you or the
Company may terminate your employment on one week’s notice. If at the end of that period,
the Company is satisfied with your performance, you will become a permanent employee.
Thereafter you will give Company and the Company will give you three months notice of
 termination of employment. The above is always subject to the following: (1) the Company’s
right to terminate the contract of employment on no or short notice where you are in breach
of contract; (2) your employment will at any event cease without notice on your retirement
date when you are 60 years of age.

SIGNED JOCELYN M. GALERA 8-16-99

Date of Birth [sic] 12-25-55

Employment of GALERA with private respondent WPP became effective on September 1,

1999 solely on the instruction of the CEO and upon signing of the contract, without any further action
from the Board of Directors of private respondent WPP.

Four months had passed when private respondent WPP filed before the Bureau of Immigration an
application for petitioner GALERA to receive a working visa, wherein she was designated as Vice
President of WPP. Petitioner alleged that she was constrained to sign the application in order that
she could remain in the Philippines and retain her employment.

Then, on December 14, 2000, petitioner GALERA alleged she was verbally notified by private
respondent STEEDMAN that her services had been terminated from private respondent WPP. A
termination letter followed the next day.4

On 3 January 2001, Galera filed a complaint for illegal dismissal, holiday pay, service incentive leave
pay, 13th month pay, incentive plan, actual and moral damages, and attorney’s fees against WPP
and/or John Steedman (Steedman), Mark Webster (Webster) and Nominada Lansang (Lansang).
The case was docketed as NLRC NCR Case No. 30-01-00044-01.

The Labor Arbiter’s Ruling

In his Decision dated 31 January 2002, Labor Arbiter Edgardo M. Madriaga (Arbiter Madriaga) held
WPP, Steedman, Webster, and Lansang liable for illegal dismissal and damages. Arbiter Madriaga
stated that Galera was not only illegally dismissed but was also not accorded due process. Arbiter
Madriaga explained, thus:

[WPP] failed to observe the two-notice rule. [WPP] through respondent Steedman for a five (5)
minute meeting on December 14, 2000 where she was verbally told that as of that day, her
employment was being terminated. [WPP] did not give [Galera] an opportunity to defend herself and
explain her side. [Galera] was even prohibited from reporting for work that day and was told not to
report for work the next day as it would be awkward for her and respondent Steedman to be in the
same premises after her termination. [WPP] only served [Galera] her written notice of termination
only on 15 December 2001, one day after she was verbally apprised thereof.

The law mandates that the dismissal must be properly done otherwise, the termination is gravely
defective and may be declared unlawful as we hereby hold [Galera’s] dismissal to be illegal and
unlawful. Where there is no showing of a clear, valid and legal cause for the termination of
employment, the law considers the matter a case of illegal dismissal and the burden is on the
employer to prove that the termination was for a valid or authorized cause. The law mandates that
both the substantive and procedural aspects of due process should be observed. The facts clearly
show that respondents were remiss on both aspects. Perforce, the dismissal is void and unlawful.

xxxx
Considering the work performance and achievements of [Galera] for the year 2000, we do not find
any basis for the alleged claim of incompetence by herein respondents. Had [Galera] been really
incompetent, she would not have been able to generate enormous amounts [sic] of revenues and
business for [WPP]. She also appears to be well liked as a leader by her subordinates, who have
come forth in support of [Galera]. These facts remain undisputed by respondents.

A man’s job being a property right duly protected by our laws, an employer who deprives an
employee [of] the right to defend himself is liable for damages consistent with Article 32 of the Civil
Code. To allow an employer to terminate the employment of his worker based merely on allegations
without proof places the [employee] in an uncertain situation. The unflinching rule in illegal dismissal
cases is that the employer bears the burden of proof.

In the instant case, respondents have not been able to muster evidence to counter [Galera’s]
allegations. [Galera’s] allegations remain and stand absent proof from respondents rebutting them.
Hence, our finding of illegal dismissal against respondents who clearly have conspired in bad faith to
deprive [Galera] of her right to substantive and procedural due process.5

The dispositive portion of Arbiter Madriaga’s decision reads as follows:

WHEREFORE, premises considered, we hereby hold herein respondents liable for illegal dismissal
and damages, and award to [Galera], by virtue of her expatriate status, the following:

a. Reinstatement without loss of seniority rights.

b. Backwages amounting to $120,000 per year at ₱50.00 to US $1 exchange rate, 13th

month pay, transportation and housing benefits.

c. Remuneration for business acquisitions amounting to Two Million Eight Hundred Fifty
Thousand Pesos (₱2,850,000.00) and Media Plowback Incentive equivalent to Three Million
Pesos (₱3,000,000.00) or a total of not less than One Hundred Thousand US Dollars
($100,000.00).

d. US Tax Protection of up to 35% coverage equivalent to Thirty Eight Thousand US Dollars

($38,000).

e. Moral damages including implied defamation and punitive damages equivalent to Two
Million Dollars (US$2,000,000.00).

f. Exemplary damages equivalent to One Million Dollars ($1,000,000.00).

g. Attorney’s fees of 10% of the total award herein.

SO ORDERED.6

The Ruling of the NLRC

The First Division of the NLRC reversed the ruling of Arbiter Madriaga. In its Decision7 promulgated
on 19 February 2003, the NLRC stressed that Galera was WPP’s Vice-President, and therefore, a
corporate officer at the time she was removed by the Board of Directors on 14 December 2000. The
NLRC stated thus:
It matters not that her having been elected by the Board to an added position of being a member of
the Board of Directors did not take effect as her May 31, 2000 election to such added position was
conditioned to be effective upon approval by SEC of the Amended By-Laws, an approval which took
place only in February 21, 2001, i.e., after her removal on December 14, 2000. What counts is, at
the time of her removal, she continued to be WPP’s Vice-President, a corporate officer, on hold over
capacity.

Ms. Galera’s claim that she was not a corporate officer at the time of her removal because her May
31, 2000 election as Vice President for Media, under WPP’s Amended By-Laws, was subject to the
approval by the Securities and Exchange Commission and that the SEC approved the Amended By-
Laws only in February 2001. Such claim is unavailing. Even if Ms. Galera’s subsequent election as
Vice President for Media on May 31, 2000 was subject to approval by the SEC, she continued to
hold her previous position as Vice President under the December 31, 1999 election until such time
that her successor is duly elected and qualified. It is a basic principle in corporation law, which
principle is also embodied in WPP’s by-laws, that a corporate officer continues to hold his position as
such until his successor has been duly elected and qualified. When Ms. Galera was elected as Vice
President on December 31, 1999, she was supposed to have held that position until her successor
has been duly elected and qualified. The record shows that Ms. Galera was not replaced by anyone.
She continued to be Vice President of WPP with the same operational title of Managing Director for
Mindshare and continued to perform the same functions she was performing prior to her May 31,
2000 election.

In the recent case of Dily Dany Nacpil v. International Broadcasting Corp., the definition of corporate
officer for purposes of intra-corporate controversy was even broadened to include a
Comptroller/Assistant Manager who was appointed by the General Manager, and whose
appointment was later approved by the Board of Directors. In this case, the position of comptroller
was not even expressly mentioned in the By-Laws of the corporation, and yet, the Supreme Court
found him to be a corporate officer. The Court ruled that —

(since) petitioner’s appointment as comptroller required the approval and formal action of IBC’s
Board of Directors to become valid, it is clear therefore that petitioner is a corporate officer whose
dismissal may be the subject of a controversy cognizable by the SEC... Had the petitioner been an
ordinary employee, such board action would not have been required.

Such being the case, the imperatives of law require that we hold that the Arbiter below had no
jurisdiction over Galera’s case as, again, she was a corporate officer at the time of her removal.

WHEREFORE, the appeals of petitioner from the Decision of Labor Arbiter Edgardo Madriaga dated
January 31, 2002 and his Order dated March 21, 2002, respectively, are granted. The January 31,
2002 decision of the Labor Arbiter is set aside for being null and void and the temporary restraining
order we issued on April 24, 2002 is hereby made permanent. The complaint of Jocelyn Galera is
dismissed for lack of jurisdiction.

SO ORDERED.8

In its Resolution9 promulgated on 4 June 2003, the NLRC further stated:

We are fully convinced that this is indeed an intra-corporate dispute which is beyond the labor
arbiter’s jurisdiction. These consolidated cases clearly [involve] the relationship between a
corporation and its officer and is properly within the definition of an intra-corporate relationship
which, under P.D. No. 902-A, is within the jurisdiction of the SEC (now the commercial courts). Such
being the case, We are constrained to rule that the Labor Arbiter below had no jurisdiction over Ms.
Galera’s complaint for illegal dismissal.

WHEREFORE, the motion for reconsideration filed by Ms. Galera is hereby denied for lack of merit.
We reiterate our February 19, 2003 Decision setting aside the Labor Arbiter’s Decision dated
January 31, 2002 for being null and void.

SO ORDERED.10

Galera assailed the NLRC’s decision and resolution before the appellate court and raised a lone
assignment of error.

The National Labor Relations Commission acted with grave abuse of discretion amounting to lack or
excess of jurisdiction when it reversed the decision of the Labor Arbiter not on the merits but for
alleged lack of jurisdiction.11

The Decision of the Appellate Court

The appellate court reversed and set aside the decision of the NLRC. The appellate court ruled that
the NLRC’s dismissal of Galera’s appeal is not in accord with jurisprudence. A person could be
considered a "corporate officer" only if appointed as such by a corporation’s Board of Directors, or if
pursuant to the power given them by either the Articles of Incorporation or the By-Laws.12

The appellate court explained:

A corporation, through its board of directors, could only act in the manner and within the formalities,
if any, prescribed by its charter or by the general law. If the action of the Board is ultra vires such
is motu proprio void ab initio and without legal effect whatsoever. The by-laws of a corporation are its
own private laws which substantially have the same effect as the laws of the corporation. They are,
in effect, written into the charter. In this sense, they beome part of the fundamental law of the
corporation with which the corporation and its directors and officers must comply.

Even if petitioner GALERA had been appointed by the Board of Directors on December 31, 1999,
private respondent WPP’s By-Laws provided for only one Vice-President, a position already
occupied by private respondent Webster. The same defect also stains the Board of Directors’
appointment of petitioner GALERA as a Director of the corporation, because at that time the By-
Laws provided for only five directors. In addition, the By-laws only empowered the Board of Directors
to appoint a general manager and/or assistant general manager as corporate officers in addition to a
chairman, president, vice-president and treasurer. There is no mention of a corporate officer entitled
"Managing Director."

Hence, when the Board of Directors enacted the Resolutions of December 31, 1999 and May 31,
2000, it exceeded its authority under the By-Laws and are, therefore, ultra vires. Although private
respondent WPP sought to amend these defects by filing Amended By-Laws with the Securities and
Exchange Commission, they did not validate the ultra vires resolutions because the Amended By-
Laws did not take effect until February 16, 2001, when it was approved by the SEC. Since by-laws
operate only prospectively, they could not validate the ultra vires resolutions.13

The dispositive portion of the appellate court’s decision reads:

WHEREFORE, the petition is hereby GRANTED and GIVEN DUE COURSE. The assailed Decision
of the National Labor Relations Commission is hereby REVERSED and SET ASIDE and a new one
is entered DIRECTING private respondent WPP MARKETING COMMUNICATIONS, INC. to:

1. Pay [Galera] backwages at the peso equivalent of US$120,000.00 per annum plus three
months from her summary December 14, 2000 dismissal up to March 14, 2001 because
three months notice is required under the contract, plus 13th month pay, bonuses and
general increases to which she would have been normally entitled, had she not been
dismissed and had she not been forced to stop working, including US tax protection of up to
35% coverage which she had been enjoying as an expatriate;

2. Pay x x x GALERA the peso equivalent of US$185,000.00 separation pay (1 ½ years);

3. Pay x x x GALERA any unpaid housing benefit for the 18 ½ months of her employment in
the service to the Company as an expatriate in Manila, Philippines at the rate of ₱576,000
per year; unpaid personal and accident insurance benefits for premiums at the rate of
₱300,000.00 per year; whatever cash value in the JWT Pension Plan; and thirty days paid
holiday benefit under the contract for the 1 ½ calendar years with the Company;

4. Pay x x x GALERA the reduced amount of PhP2,000,000.00 as moral damages;

5. Pay [Galera] the reduced amount of PhP1,000,000.00 as exemplary damages;

6. Pay [Galera] an amount equivalent to 10% of the judgment award as attorney’s fees;

7. Pay the cost of the suit.

SO ORDERED.14

Respondents filed a motion for reconsideration on 5 May 2005. Galera filed a motion for partial
reconsideration and/or clarification on the same date. The appellate court found no reason to revise
or reverse its previous decision and subsequently denied the motions in a Resolution promulgated
on 1 August 2005.15

The Issues

WPP, Steedman, Webster, and Lansang raised the following grounds in G.R. No. 169207:

I. The Court of Appeals seriously erred in ruling that the NLRC has jurisdiction over
[Galera’s] complaint because she was not an employee. [Galera] was a corporate officer of
WPP from the beginning of her term until her removal from office.

II. Assuming arguendo that the Court of Appeals correctly ruled that the NLRC has
jurisdiction over [Galera’s] complaint, it should have remanded the case to the Labor Arbiter
for reception of evidence on the merits of the case.

III. [Galera] is an alien, hence, can never attain a regular or permanent working status in the
Philippines.

IV. [Galera] is not entitled to recover backwages, other benefits and damages from WPP.16
On the other hand, in G.R. No. 169239, Galera raised the following grounds in support of her
petition:

The CA decision should be consistent with Article 279 of the Labor Code and applicable
jurisprudence, that full backwages and separation pay (when in lieu of reinstatement), should be
reckoned from time of dismissal up to time of reinstatement (or payment of separation pay, in case
separation instead of reinstatement is awarded).

Accordingly, petitioner Galera should be awarded full backwages and separation pay for the period
from 14 December 2000 until the finality of judgment by the respondents, or, at the very least, up to
the promulgation date of the CA decision.

The individual respondents Steedman, Webster and Lansang must be held solidarily liable with
respondent WPP for the wanton and summary dismissal of petitioner Galera, to be consistent with
law and jurisprudence as well as the specific finding of the CA of bad faith on the part of
respondents.17

This Court ordered the consolidation of G.R. Nos. 169207 and 169239 in a resolution dated 16
January 2006.18

The Ruling of the Court

In its consolidated comment, the Office of the Solicitor General (OSG) recommended that (A) the
Decision dated 14 April 2005 of the appellate court finding (1) Galera to be a regular employee of
WPP; (2) the NLRC to have jurisdiction over the present case; and (3) WPP to have illegally
dismissed Galera, be affirmed; and (B) the case remanded to the Labor Arbiter for the computation
of the correct monetary award. Despite the OSG’s recommendations, we see that Galera’s failure to
seek an employment permit prior to her employment poses a serious problem in seeking relief
before this Court. Hence, we settle the various issues raised by the parties for the guidance of the
bench and bar.

Whether Galera is an Employee or a Corporate Officer

Galera, on the belief that she is an employee, filed her complaint before the Labor Arbiter. On the
other hand, WPP, Steedman, Webster and Lansang contend that Galera is a corporate officer;
hence, any controversy regarding her dismissal is under the jurisdiction of the Regional Trial Court.
We agree with Galera.

Corporate officers are given such character either by the Corporation Code or by the corporation’s
by-laws. Under Section 25 of the Corporation Code, the corporate officers are the president,
secretary, treasurer and such other officers as may be provided in the by-laws.19 Other officers are
sometimes created by the charter or by-laws of a corporation, or the board of directors may be
empowered under the by-laws of a corporation to create additional offices as may be necessary.

An examination of WPP’s by-laws resulted in a finding that Galera’s appointment as a corporate

officer (Vice-President with the operational title of Managing Director of Mindshare) during a special
meeting of WPP’s Board of Directors is an appointment to a non-existent corporate office. WPP’s by-
laws provided for only one Vice-President. At the time of Galera’s appointment on 31 December
1999, WPP already had one Vice-President in the person of Webster. Galera cannot be said to be a
director of WPP also because all five directorship positions provided in the by-laws are already
occupied. Finally, WPP cannot rely on its Amended By-Laws to support its argument that Galera is a
corporate officer. The Amended By-Laws provided for more than one Vice-President and for two
additional directors. Even though WPP’s stockholders voted for the amendment on 31 May 2000, the
SEC approved the amendments only on 16 February 2001. Galera was dismissed on 14 December
2000. WPP, Steedman, Webster, and Lansang did not present any evidence that Galera’s dismissal
took effect with the action of WPP’s Board of Directors.1avvphi 1

The appellate court further justified that Galera was an employee and not a corporate officer by
subjecting WPP and Galera’s relationship to the four-fold test: (a) the selection and engagement of
the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to
control the employee with respect to the means and methods by which the work is to be
accomplished. The appellate court found:

x x x Sections 1 and 4 of the employment contract mandate where and how often she is to perform
her work; sections 3, 5, 6 and 7 show that wages she receives are completely controlled by x x x
WPP; and sections 10 and 11 clearly state that she is subject to the regular disciplinary procedures
of x x x WPP.

Another indicator that she was a regular employee and not a corporate officer is Section 14 of the
contract, which clearly states that she is a permanent employee — not a Vice-President or a
member of the Board of Directors.

xxxx

Another indication that the Employment Contract was one of regular employment is Section 12,
which states that the rights to any invention, discovery, improvement in procedure, trademark, or
copyright created or discovered by petitioner GALERA during her employment shall automatically
belong to private respondent WPP. Under Republic Act 8293, also known as the Intellectual
Property Code, this condition prevails if the creator of the work subject to the laws of patent or
copyright is an employee of the one entitled to the patent or copyright.

Another convincing indication that she was only a regular employee and not a corporate officer is the
disciplinary procedure under Sections 10 and 11 of the Employment Contract, which states that her
right of redress is through Mindshare’s Chief Executive Officer for the Asia-Pacific. This implies that
she was not under the disciplinary control of private respondent WPP’s Board of Directors (BOD),
which should have been the case if in fact she was a corporate officer because only the Board of
Directors could appoint and terminate such a corporate officer.

Although petitioner GALERA did sign the Alien Employment Permit from the Department of Labor
and Employment and the application for a 9(g) visa with the Bureau of Immigration – both of which
stated that she was private respondent’s WPP’ Vice President – these should not be considered
against her. Assurming arguendo that her appointment as Vice-President was a valid act, it must be
noted that these appointments occurred afater she was hired as a regular employee. After her
appointments, there was no appreciable change in her duties.20

Whether the Labor Arbiter and the NLRC

have jurisdiction over the present case

Galera being an employee, then the Labor Arbiter and the NLRC have jurisdiction over the present
case. Article 217 of the Labor Code provides:
Jurisdiction of Labor Arbiters and the Commission. — (a) Except as otherwise provided under this
Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide x x x 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 the
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 other
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 (₱5,000.00) regardless of whether accompanied with a claim for
reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided
by Labor Arbiters.

(c) Cases arising from the interpretation of collective bargaining agreements and
those arising from the interpretation or enforcement of company personnel policies
shall be disposed of by the Labor Arbiter by referring the same to the grievance
machinery and voluntary arbitration as may be provided in said agreements.

In contrast, Section 5.2 of Republic Act No. 8799, or the Securities Regulation Code, states:

The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the courts of general jurisdiction or the appropriate Regional Trial
Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until
finally disposed.

The pertinent portions of Section 5 of Presidential Decree No. 902-A, mentioned above, states:

b) Controversies arising out of intra-corporate or partnership relations, between and among

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 their individual franchise or right to exist as such entity;
 c) Controversies in the election or appointments of directors, trustees, officers or managers
of such corporations, partnerships or associations.

Whether WPP illegally dismissed Galera

WPP’s dismissal of Galera lacked both substantive and procedural due process.

Apart from Steedman’s letter dated 15 December 2000 to Galera, WPP failed to prove any just or
authorized cause for Galera’s dismissal. Steedman’s letter to Galera reads:

The operations are currently in a shamble. There is lack of leadership and confidence in your
abilities from within, our agency partners and some clients.

Most of the staff I spoke with felt they got more guidance and direction from Minda than yourself. In
your role as Managing Director, that is just not acceptable.

I believe your priorities are mismanaged. The recent situation where you felt an internal strategy
meeting was more important than a new business pitch is a good example.

You failed to lead and advise on the two new business pitches. In both cases, those involved sort
(sic) Minda’s input. As I discussed with you back in July, my directive was for you to lead and review
all business pitches. It is obvious [that] confusion existed internally right up until the day of the pitch.

The quality output is still not to an acceptable standard, which was also part of my directive that you
needed to focus on back in July.

I do not believe you understand the basic skills and industry knowledge required to run a media
special operation.21

WPP, Steedman, Webster, and Lansang, however, failed to substantiate the allegations in
Steedman’s letter. Galera, on the other hand, presented documentary evidence22 in the form of
congratulatory letters, including one from Steedman, which contents are diametrically opposed to the
15 December 2000 letter.

The law further requires that the employer must furnish the worker sought to be dismissed with two
written notices before termination of employment can be legally effected: (1) notice which apprises
the employee of the particular acts or omissions for which his dismissal is sought; and (2) the
subsequent notice which informs the employee of the employer’s decision to dismiss him. Failure to
comply with the requirements taints the dismissal with illegality.23WPP’s acts clearly show that
Galera’s dismissal did not comply with the two-notice rule.

Whether Galera is entitled to the monetary award

WPP, Steedman, Webster, and Lansang argue that Galera is not entitled to backwages because
she is an alien. They further state that there is no guarantee that the Bureau of Immigration and the
Department of Labor and Employment will continue to grant favorable rulings on the applications for
a 9(g) visa and an Alien Employment Permit after the expiry of the validity of Galera’s documents on
31 December 2000. WPP’s argument is a circular argument, and assumes what it attempts to prove.
Had WPP not dismissed Galera, there is no doubt in our minds that WPP would have taken action
for the approval of documents required for Galera’s continued employment.
This is Galera’s dilemma: Galera worked in the Philippines without a proper work permit but now
wants to claim employee’s benefits under Philippine labor laws.

Employment of GALERA with private respondent WPP became effective on September 1,

1999 solely on the instruction of the CEO and upon signing of the contract, without any further action
from the Board of Directors of private respondent WPP.

Four months had passed when private respondent WPP filed before the Bureau of
Immigration an application for petitioner GALERA to receive a working visa, wherein she was
designated as Vice President of WPP. Petitioner alleged that she was constrained to sign the
application in order that she could remain in the Philippines and retain her employment.24

The law and the rules are consistent in stating that the employment permit must be acquired prior to
employment. The Labor Code states: "Any alien seeking admission to the Philippines for
employment purposes and any domestic or foreign employer who desires to engage an alien for
employment in the Philippines shall obtain an employment permit from the Department of
Labor."25 Section 4, Rule XIV, Book 1 of the Implementing Rules and Regulations provides:

Employment permit required for entry. — No alien seeking employment, whether as a resident or
non-resident, may enter the Philippines without first securing an employment permit from the
Ministry. If an alien enters the country under a non-working visa and wishes to be employed
thereafter, he may only be allowed to be employed upon presentation of a duly approved
employment permit.

Galera cannot come to this Court with unclean hands. To grant Galera’s prayer is to sanction the
violation of the Philippine labor laws requiring aliens to secure work permits before their
employment. We hold that the status quo must prevail in the present case and we leave the parties
where they are. This ruling, however, does not bar Galera from seeking relief from other
jurisdictions.

WHEREFORE, we PARTIALLY GRANT the petitions in G.R. Nos. 169207 and 169239. We SET
ASIDE the Decision of the Court of Appeals promulgated on 14 April 2005 as well as the Resolution
promulgated on 1 August 2005 in CA-G.R. SP No. 78721.

SO ORDERED.

ANTONIO T. CARPIO
Acting Chief Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 167648 January 28, 2008

TELEVISION AND PRODUCTION EXPONENTS, INC. and/or ANTONIO P. TUVIERA, petitioners,

vs.
ROBERTO C. SERVAÑA, respondent.

DECISION

TINGA, J.:

This petition for review under Rule 45 assails the 21 December 2004 Decision1 and 8 April 2005
Resolution2 of the Court of Appeals declaring Roberto Servaña (respondent) a regular employee of
petitioner Television and Production Exponents, Inc. (TAPE). The appellate court likewise ordered
TAPE to pay nominal damages for its failure to observe statutory due process in the termination of
respondent’s employment for authorized cause.

TAPE is a domestic corporation engaged in the production of television programs, such as the long-
running variety program, "Eat Bulaga!". Its president is Antonio P. Tuviera (Tuviera). Respondent
Roberto C. Servaña had served as a security guard for TAPE from March 1987 until he was
terminated on 3 March 2000.

Respondent filed a complaint for illegal dismissal and nonpayment of benefits against TAPE. He
alleged that he was first connected with Agro-Commercial Security Agency but was later on
absorbed by TAPE as a regular company guard. He was detailed at Broadway Centrum in Quezon
City where "Eat Bulaga!" regularly staged its productions. On 2 March 2000, respondent received a
memorandum informing him of his impending dismissal on account of TAPE’s decision to contract
the services of a professional security agency. At the time of his termination, respondent was
receiving a monthly salary of P6,000.00. He claimed that the holiday pay, unpaid vacation and sick
leave benefits and other monetary considerations were withheld from him. He further contended that
his dismissal was undertaken without due process and violative of existing labor laws, aggravated by
nonpayment of separation pay.3

In a motion to dismiss which was treated as its position paper, TAPE countered that the labor arbiter
had no jurisdiction over the case in the absence of an employer-employee relationship between the
parties. TAPE made the following assertions: (1) that respondent was initially employed as a security
guard for Radio Philippines Network (RPN-9); (2) that he was tasked to assist TAPE during its live
productions, specifically, to control the crowd; (3) that when RPN-9 severed its relationship with the
security agency, TAPE engaged respondent’s services, as part of the support group and thus a
talent, to provide security service to production staff, stars and guests of "Eat Bulaga!" as well as to
control the audience during the one-and-a-half hour noontime program; (4) that it was agreed that
complainant would render his services until such time that respondent company shall have engaged
the services of a professional security agency; (5) that in 1995, when his contract with RPN-9
expired, respondent was retained as a talent and a member of the support group, until such time that
TAPE shall have engaged the services of a professional security agency; (6) that respondent was
not prevented from seeking other employment, whether or not related to security services, before or
after attending to his "Eat Bulaga!" functions; (7) that sometime in late 1999, TAPE started
negotiations for the engagement of a professional security agency, the Sun Shield Security Agency;
and (8) that on 2 March 2000, TAPE issued memoranda to all talents, whose functions would be
rendered redundant by the engagement of the security agency, informing them of the management’s
decision to terminate their services.4

TAPE averred that respondent was an independent contractor falling under the talent group category
and was working under a special arrangement which is recognized in the industry.5

Respondent for his part insisted that he was a regular employee having been engaged to perform an
activity that is necessary and desirable to TAPE’s business for thirteen (13) years.6

On 29 June 2001, Labor Arbiter Daisy G. Cauton-Barcelona declared respondent to be a regular

employee of TAPE. The Labor Arbiter relied on the nature of the work of respondent, which is
securing and maintaining order in the studio, as necessary and desirable in the usual business
activity of TAPE. The Labor Arbiter also ruled that the termination was valid on the ground of
redundancy, and ordered the payment of respondent’s separation pay equivalent to one (1)-month
pay for every year of service. The dispositive portion of the decision reads:

WHEREFORE, complainant’s position is hereby declared redundant. Accordingly,

respondents are hereby ordered to pay complainant his separation pay computed at the rate
of one (1) month pay for every year of service or in the total amount of P78,000.00.7

On appeal, the National Labor Relations Commission (NLRC) in a Decision8 dated 22 April 2002
reversed the Labor Arbiter and considered respondent a mere program employee, thus:

We have scoured the records of this case and we find nothing to support the Labor Arbiter’s
conclusion that complainant was a regular employee.

xxxx

The primary standard to determine regularity of employment is the reasonable connection

between the particular activity performed by the employee in relation to the usual business or
trade of the employer. This connection can be determined by considering the nature and
work performed and its relation to the scheme of the particular business or trade in its
entirety. x x x Respondent company is engaged in the business of production of television
shows. The records of this case also show that complainant was employed by respondent
company beginning 1995 after respondent company transferred from RPN-9 to GMA-7, a
fact which complainant does not dispute. His last salary was P5,444.44 per month. In such
industry, security services may not be deemed necessary and desirable in the usual
business of the employer. Even without the performance of such services on a regular basis,
respondent’s company’s business will not grind to a halt.

xxxx

Complainant was indubitably a program employee of respondent company. Unlike [a] regular
employee, he did not observe working hours x x x. He worked for other companies, such as
M-Zet TV Production, Inc. at the same time that he was working for respondent company.
The foregoing indubitably shows that complainant-appellee was a program employee.
Otherwise, he would have two (2) employers at the same time.9
Respondent filed a motion for reconsideration but it was denied in a Resolution10 dated 28 June
2002.

Respondent filed a petition for certiorari with the Court of Appeals contending that the NLRC acted
with grave abuse of discretion amounting to lack or excess of jurisdiction when it reversed the
decision of the Labor Arbiter. Respondent asserted that he was a regular employee considering the
nature and length of service rendered.11

Reversing the decision of the NLRC, the Court of Appeals found respondent to be a regular
employee. We quote the dispositive portion of the decision:

IN LIGHT OF THE FOREGOING, the petition is hereby GRANTED. The Decision dated 22
April 2002 of the public respondent NLRC reversing the Decision of the Labor Arbiter and its
Resolution dated 28 June 2002 denying petitioner’s motion for reconsideration
are REVERSED and SET ASIDE. The Decision dated 29 June 2001 of the Labor Arbiter
is REINSTATED with MODIFICATION in that private respondents are ordered to pay jointly
and severally petitioner the amount of P10,000.00 as nominal damages for non-compliance
with the statutory due process.

SO ORDERED.12

Finding TAPE’s motion for reconsideration without merit, the Court of Appeals issued a
Resolution13 dated 8 April 2005 denying said motion.

TAPE filed the instant petition for review raising substantially the same grounds as those in its
petition for certiorari before the Court of Appeals. These matters may be summed up into one main
issue: whether an employer-employee relationship exists between TAPE and respondent.

On 27 September 2006, the Court gave due course to the petition and considered the case
submitted for decision.14

At the outset, it bears emphasis that the existence of employer-employee relationship is ultimately a
question of fact. Generally, only questions of law are entertained in appeals by certiorari to the
Supreme Court. This rule, however, is not absolute. Among the several recognized exceptions is
when the findings of the Court of Appeals and Labor Arbiters, on one hand, and that of the NLRC, on
the other, are conflicting,15 as obtaining in the case at bar.

Jurisprudence is abound with cases that recite the factors to be considered in determining the
existence of employer-employee relationship, namely: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to
control the employee with respect to the means and method by which the work is to be
accomplished.16 The most important factor involves the control test. Under the control test, there is
an employer-employee relationship when the person for whom the services are performed reserves
the right to control not only the end achieved but also the manner and means used to achieve that
end.17

In concluding that respondent was an employee of TAPE, the Court of Appeals applied the "four-fold
test" in this wise:
 First. The selection and hiring of petitioner was done by private respondents. In fact, private
respondents themselves admitted having engaged the services of petitioner only in 1995
after TAPE severed its relations with RPN Channel 9.

By informing petitioner through the Memorandum dated 2 March 2000, that his services will
be terminated as soon as the services of the newly hired security agency begins, private
respondents in effect acknowledged petitioner to be their employee. For the right to hire and
fire is another important element of the employer-employee relationship.

Second. Payment of wages is one of the four factors to be considered in determining the
existence of employer-employee relation. . . Payment as admitted by private respondents
was given by them on a monthly basis at a rate of P5,444.44.

Third. Of the four elements of the employer-employee relationship, the "control test" is the
most important. x x x

The bundy cards representing the time petitioner had reported for work are evident proofs of
private respondents’ control over petitioner more particularly with the time he is required to
report for work during the noontime program of "Eat Bulaga!" If it were not so, petitioner
would be free to report for work anytime even not during the noontime program of "Eat
Bulaga!" from 11:30 a.m. to 1:00 p.m. and still gets his compensation for being a "talent."
Precisely, he is being paid for being the security of "Eat Bulaga!" during the above-
mentioned period. The daily time cards of petitioner are not just for mere record purposes as
claimed by private respondents. It is a form of control by the management of private
respondent TAPE.18

TAPE asseverates that the Court of Appeals erred in applying the "four-fold test" in determining the
existence of employer-employee relationship between it and respondent. With respect to the
elements of selection, wages and dismissal, TAPE proffers the following arguments: that it never
hired respondent, instead it was the latter who offered his services as a talent to TAPE; that the
Memorandum dated 2 March 2000 served on respondent was for the discontinuance of the contract
for security services and not a termination letter; and that the talent fees given to respondent were
the pre-agreed consideration for the services rendered and should not be construed as wages.
Anent the element of control, TAPE insists that it had no control over respondent in that he was free
to employ means and methods by which he is to control and manage the live audiences, as well as
the safety of TAPE’s stars and guests.19

The position of TAPE is untenable. Respondent was first connected with Agro-Commercial Security
Agency, which assigned him to assist TAPE in its live productions. When the security agency’s
contract with RPN-9 expired in 1995, respondent was absorbed by TAPE or, in the latter’s language,
"retained as talent."20 Clearly, respondent was hired by TAPE. Respondent presented his
identification card21 to prove that he is indeed an employee of TAPE. It has been in held that in a
business establishment, an identification card is usually provided not just as a security measure but
to mainly identify the holder thereof as a bona fide employee of the firm who issues it.22

Respondent claims to have been receiving P5,444.44 as his monthly salary while TAPE prefers to
designate such amount as talent fees. Wages, as defined in the Labor Code, are remuneration or
earnings, however designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece or commission basis, or other method of calculating the same,
which is payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to be rendered. It is beyond
dispute that respondent received a fixed amount as monthly compensation for the services he
rendered to TAPE.

The Memorandum informing respondent of the discontinuance of his service proves that TAPE had
the power to dismiss respondent.

Control is manifested in the bundy cards submitted by respondent in evidence. He was required to
report daily and observe definite work hours. To negate the element of control, TAPE presented a
certification from M-Zet Productions to prove that respondent also worked as a studio security guard
for said company. Notably, the said certificate categorically stated that respondent reported for work
on Thursdays from 1992 to 1995. It can be recalled that during said period, respondent was still
working for RPN-9. As admitted by TAPE, it absorbed respondent in late 1995.23

TAPE further denies exercising control over respondent and maintains that the latter is an
independent contractor.24Aside from possessing substantial capital or investment, a legitimate job
contractor or subcontractor carries on a distinct and independent business and undertakes to
perform the job, work or service on its own account and under its own responsibility according to its
own manner and method, and free from the control and direction of the principal in all matters
connected with the performance of the work except as to the results thereof.25 TAPE failed to
establish that respondent is an independent contractor. As found by the Court of Appeals:

We find the annexes submitted by the private respondents insufficient to prove that herein
petitioner is indeed an independent contractor. None of the above conditions exist in the
case at bar. Private respondents failed to show that petitioner has substantial capital or
investment to be qualified as an independent contractor. They likewise failed to present a
written contract which specifies the performance of a specified piece of work, the nature and
extent of the work and the term and duration of the relationship between herein petitioner
and private respondent TAPE.26

TAPE relies on Policy Instruction No. 40, issued by the Department of Labor, in classifying
respondent as a program employee and equating him to be an independent contractor.

Policy Instruction No. 40 defines program employees as—

x x x those whose skills, talents or services are engaged by the station for a particular or
specific program or undertaking and who are not required to observe normal working hours
such that on some days they work for less than eight (8) hours and on other days beyond the
normal work hours observed by station employees and are allowed to enter into employment
contracts with other persons, stations, advertising agencies or sponsoring companies. The
engagement of program employees, including those hired by advertising or sponsoring
companies, shall be under a written contract specifying, among other things, the nature of
the work to be performed, rates of pay and the programs in which they will work. The
contract shall be duly registered by the station with the Broadcast Media Council within three
(3) days from its consummation.27

TAPE failed to adduce any evidence to prove that it complied with the requirements laid down in the
policy instruction. It did not even present its contract with respondent. Neither did it comply with the
contract-registration requirement.

Even granting arguendo that respondent is a program employee, stills, classifying him as an
independent contractor is misplaced. The Court of Appeals had this to say:
 We cannot subscribe to private respondents’ conflicting theories. The theory of private
respondents that petitioner is an independent contractor runs counter to their very own
allegation that petitioner is a talent or a program employee. An independent contractor is not
an employee of the employer, while a talent or program employee is an employee. The only
difference between a talent or program employee and a regular employee is the fact that a
regular employee is entitled to all the benefits that are being prayed for. This is the reason
why private respondents try to seek refuge under the concept of an independent contractor
theory. For if petitioner were indeed an independent contractor, private respondents will not
be liable to pay the benefits prayed for in petitioner’s complaint.28

More importantly, respondent had been continuously under the employ of TAPE from 1995 until his
termination in March 2000, or for a span of 5 years. Regardless of whether or not respondent had
been performing work that is necessary or desirable to the usual business of TAPE, respondent is
still considered a regular employee under Article 280 of the Labor Code which provides:

Art. 280. Regular and Casual Employment.—The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties, an employment
shall be deemed to be regular where the employee has been engaged to perform activities
which are usually necessary or desirable in the usual business or trade of the employer,
except where the employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of engagement of the
employee or where the work or service 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.

As a regular employee, respondent cannot be terminated except for just cause or when authorized
by law.29 It is clear from the tenor of the 2 March 2000 Memorandum that respondent’s termination
was due to redundancy. Thus, the Court of Appeals correctly disposed of this issue, viz:

Article 283 of the Labor Code provides that 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 thereby shall be
entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1)
month pay for every year or service, whichever is higher.

xxxx

We uphold the finding of the Labor Arbiter that "complainant [herein petitioner] was
terminated upon [the] management’s option to professionalize the security services in its
operations. x x x" However, [we] find that although petitioner’s services [sic] was for an
authorized cause, i.e., redundancy, private respondents failed to prove that it complied with
service of written notice to the Department of Labor and Employment at least one month
prior to the intended date of retrenchment. It bears stressing that although notice was served
upon petitioner through a Memorandum dated 2 March 2000, the effectivity of his dismissal
 is fifteen days from the start of the agency’s take over which was on 3 March 2000.
Petitioner’s services with private respondents were severed less than the month requirement
by the law.

Under prevailing jurisprudence the termination for an authorized cause requires payment of
separation pay. Procedurally, if the dismissal is based on authorized causes under Articles
283 and 284, the employer must give the employee and the Deparment of Labor and
Employment written notice 30 days prior to the effectivity of his separation. Where the
dismissal is for an authorized cause but due process was not observed, the dismissal should
be upheld. While the procedural infirmity cannot be cured, it should not invalidate the
dismissal. However, the employer should be liable for non-compliance with procedural
requirements of due process.

xxxx

Under recent jurisprudence, the Supreme Court fixed the amount of P30,000.00 as nominal
damages. The basis of the violation of petitioners’ right to statutory due process by the
private respondents warrants the payment of indemnity in the form of nominal damages. The
amount of such damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances. We believe this form of damages would serve to deter
employer from future violations of the statutory due process rights of the employees. At the
very least, it provides a vindication or recognition of this fundamental right granted to the
latter under the Labor Code and its Implementing Rules. Considering the circumstances in
the case at bench, we deem it proper to fix it at P10,000.00.30

In sum, we find no reversible error committed by the Court of Appeals in its assailed decision.

However, with respect to the liability of petitioner Tuviera, president of TAPE, absent any showing
that he acted with malice or bad faith in terminating respondent, he cannot be held solidarily liable
with TAPE.31 Thus, the Court of Appeals ruling on this point has to be modified.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with
MODIFICATION in that only petitioner Television and Production Exponents, Inc. is liable to pay
respondent the amount of P10,000.00 as nominal damages for non-compliance with the statutory
due process and petitioner Antonio P. Tuviera is accordingly absolved from liability.

SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson
 ANTONIO T. CARPIO CONCHITA CARPIO MORALES
Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 176484 November 25, 2008

CALAMBA MEDICAL CENTER, INC., petitioner

vs.
NATIONAL LABOR RELATIONS COMMISSION, RONALDO LANZANAS AND
MERCEDITHA* LANZANAS, respondents.

DECISION

CARPIO MORALES, J.:

The Calamba Medical Center (petitioner), a privately-owned hospital, engaged the services of medical
doctors-spouses Ronaldo Lanzanas (Dr. Lanzanas) and Merceditha Lanzanas (Dr. Merceditha) in March
1992 and August 1995, respectively, as part of its team of resident physicians. Reporting at the hospital
twice-a-week on twenty-four-hour shifts, respondents were paid a monthly "retainer" of P4,800.00
each.1 It appears that resident physicians were also given a percentage share out of fees charged for out-
patient treatments, operating room assistance and discharge billings, in addition to their fixed monthly
retainer.2

The work schedules of the members of the team of resident physicians were fixed by petitioner's medical
director Dr. Raul Desipeda (Dr. Desipeda). And they were issued identification cards 3 by petitioner and
were enrolled in the Social Security System (SSS).4 Income taxes were withheld from them.5

On March 7, 1998, Dr. Meluz Trinidad (Dr. Trinidad), also a resident physician at the hospital,
inadvertently overheard a telephone conversation of respondent Dr. Lanzanas with a fellow employee,
Diosdado Miscala, through an extension telephone line. Apparently, Dr. Lanzanas and Miscala were
discussing the low "census" or admission of patients to the hospital. 6

Dr. Desipeda whose attention was called to the above-said telephone conversation issued to Dr.
Lanzanas a Memorandum of March 7, 1998 reading:

As a Licensed Resident Physician employed in Calamba Medical Center since several

years ago, the hospital management has committed upon you utmost confidence in the
performance of duties pursuant thereto. This is the reason why you were awarded the privilege to
practice in the hospital and were entrusted hospital functions to serve the interest of both the
hospital and our patients using your capability for independent judgment.

Very recently though and unfortunately, you have committed acts inimical to the interest of the
hospital, the details of which are contained in the hereto attached affidavit of witness.
 You are therefore given 24 hours to explain why no disciplinary action should be taken
against you.

Pending investigation of your case, you are hereby placed under 30-days [sic] preventive
suspension effective upon receipt hereof.7 (Emphasis, italics and underscoring supplied)

Inexplicably, petitioner did not give respondent Dr. Merceditha, who was not involved in the said incident,
any work schedule after sending her husband Dr. Lanzanas the memorandum,8 nor inform her the reason
therefor, albeit she was later informed by the Human Resource Department (HRD) officer that that was
part of petitioner's cost-cutting measures.9

Responding to the memorandum, Dr. Lanzanas, by letter of March 9, 1998,10 admitted that he spoke with
Miscala over the phone but that their conversation was taken out of context by Dr. Trinidad.

On March 14, 1998,11 the rank-and-file employees union of petitioner went on strike due to unresolved
grievances over terms and conditions of employment.12

On March 20, 1998, Dr. Lanzanas filed a complaint for illegal suspension13 before the National Labor
Relations Commission (NLRC)-Regional Arbitration Board (RAB) IV. Dr. Merceditha subsequently filed a
complaint for illegal dismissal.14

In the meantime, then Sec. Cresenciano Trajano of the Department of Labor and Employment (DOLE)
certified the labor dispute to the NLRC for compulsory arbitration and issued on April 21, 1998 return-to-
work Order to the striking union officers and employees of petitioner pending resolution of the labor
dispute.15

In a memorandum16 of April 22, 1998, Dr. Desipeda echoed the April 22, 1998 order of the Secretary of
Labor directing all union officers and members to return-to-work "on or April 23, 1998, except those
employees that were already terminated or are serving disciplinary actions." Dr. Desipeda thus ordered
the officers and members of the union to "report for work as soon as possible" to the hospital's personnel
officer and administrator for "work scheduling, assignments and/or re-assignments."

Petitioner later sent Dr. Lanzanas a notice of termination which he received on April 25, 1998, indicating
as grounds therefor his failure to report back to work despite the DOLE order and his supposed role in the
striking union, thus:

On April 23, 1998, you still did not report for work despite memorandum issued by the CMC
Medical Director implementing the Labor Secretary's ORDER. The same is true on April 24, 1998
and April 25, 1998,--you still did not report for work [sic].

You are likewise aware that you were observed (re: signatories [sic] to the Saligang Batas of
BMCMC-UWP) to be unlawfully participating as member in the rank-and-file union's concerted
activities despite knowledge that your position in the hospital is managerial in nature (Nurses,
Orderlies, and staff of the Emergency Room carry out your orders using your independent
judgment) which participation is expressly prohibited by the New Labor Code and which
prohibition was sustained by the Med-Arbiter's ORDER dated February 24, 1998. (Emphasis and
italics in the original; underscoring partly in the original and partly supplied)

For these reasons as grounds for termination, you are hereby terminated for cause from
employment effective today, April 25, 1998, without prejudice to further action for revocation of
your license before the Philippine [sic] Regulations [sic] Commission.17 (Emphasis and
underscoring supplied)
Dr. Lanzanas thus amended his original complaint to include illegal dismissal.18 His and Dr. Merceditha's
complaints were consolidated and docketed as NLRC CASE NO. RAB-IV-3-9879-98-L.

By Decision19 of March 23, 1999, Labor Arbiter Antonio R. Macam dismissed the spouses' complaints for
want of jurisdiction upon a finding that there was no employer-employee relationship between the parties,
the fourth requisite or the "control test" in the determination of an employment bond being absent.

On appeal, the NLRC, by Decision20 of May 3, 2002, reversed the Labor Arbiter's findings, disposing as
follows:

WHEREFORE, the assailed decision is set aside. The respondents are ordered to pay the
complainants their full backwages; separation pay of one month salary for every year of service in
lieu of reinstatement; moral damages of P500,000.00 each; exemplary damages of P250,000.00
each plus ten percent (10%) of the total award as attorney's fees.

SO ORDERED.21

Petitioner's motion for reconsideration having been denied, it brought the case to the Court of Appeals on
certiorari.

The appellate court, by June 30, 2004 Decision,22 initially granted petitioner's petition and set aside the
NLRC ruling. However, upon a subsequent motion for reconsideration filed by respondents, it reinstated
the NLRC decision in an Amended Decision23 dated September 26, 2006 but tempered the award to each
of the spouses of moral and exemplary damages to P100,000.00 and P50,000.00, respectively and
omitted the award of attorney's fees.

In finding the existence of an employer-employee relationship between the parties, the appellate court
held:

x x x. While it may be true that the respondents are given the discretion to decide on how to treat
the petitioner's patients, the petitioner has not denied nor explained why its Medical Director still
has the direct supervision and control over the respondents. The fact is the petitioner's
Medical Director still has to approve the schedule of duties of the respondents. The
respondents stressed that the petitioner's Medical Director also issues instructions or orders to
the respondents relating to the means and methods of performing their duties, i.e.
admission of patients, manner of characterizing cases, treatment of cases, etc., and may even
overrule, review or revise the decisions of the resident physicians. This was not
controverted by the petitioner. The foregoing factors taken together are sufficient to constitute the
fourth element, i.e. control test, hence, the existence of the employer-employee relationship. In
denying that it had control over the respondents, the petitioner alleged that the respondents were
free to put up their own clinics or to accept other retainership agreement with the other hospitals.
But, the petitioner failed to substantiate the allegation with substantial evidence. (Emphasis and
underscoring supplied)24

The appellate court thus declared that respondents were illegally dismissed.

x x x. The petitioner's ground for dismissing respondent Ronaldo Lanzanas was based on his
alleged participation in union activities, specifically in joining the strike and failing to observe the
return-to-work order issued by the Secretary of Labor. Yet, the petitioner did not adduce any
piece of evidence to show that respondent Ronaldo indeed participated in the strike. x x x.

In the case of respondent Merceditha Lanzanas, the petitioner's explanation that "her marriage to
complainant Ronaldo has given rise to the presumption that her sympat[hies] are likewise with
 her husband" as a ground for her dismissal is unacceptable. Such is not one of the grounds to
justify the termination of her employment.25(Underscoring supplied)

The fallo of the appellate court's decision reads:

WHEREFORE, the instant Motion for Reconsideration is GRANTED, and the Court's decision
dated June 30, 2004, is SET ASIDE. In lieu thereof, a new judgment is entered, as follows:

WHEREFORE, the petition is DISMISSED. The assailed decision dated May 3, 2002 and
order dated September 24, 2002 of the NLRC in NLRC NCR CA No. 019823-99 are
AFFIRMED with the MODIFICATION that the moral and exemplary damages are
reduced to P100,000.00 each and P50,000.00 each, respectively.

SO ORDERED.26 (Emphasis and italics in the original; underscoring supplied)

Preliminarily, the present petition calls for a determination of whether there exists an employer-employee
relationship27between petitioner and the spouses-respondents.

Denying the existence of such relationship, petitioner argues that the appellate court, as well as the
NLRC, overlooked its twice-a-week reporting arrangement with respondents who are free to practice their
profession elsewhere the rest of the week. And it invites attention to the uncontroverted allegation that
respondents, aside from their monthly retainers, were entitled to one-half of all suturing, admitting,
consultation, medico-legal and operating room assistance fees.28 These circumstances, it stresses, are
clear badges of the absence of any employment relationship between them.

This Court is unimpressed.

Under the "control test," an employment relationship exists between a physician and a hospital if the
hospital controls both the means and the details of the process by which the physician is to accomplish
his task.29

Where a person who works for another does so more or less at his own pleasure and is not subject to
definite hours or conditions of work, and is compensated according to the result of his efforts and not the
amount thereof, the element of control is absent.30

As priorly stated, private respondents maintained specific work-schedules, as determined by petitioner

through its medical director, which consisted of 24-hour shifts totaling forty-eight hours each week and
which were strictly to be observed under pain of administrative sanctions.

That petitioner exercised control over respondents gains light from the undisputed fact that in the
emergency room, the operating room, or any department or ward for that matter, respondents' work is
monitored through its nursing supervisors, charge nurses and orderlies. Without the approval or consent
of petitioner or its medical director, no operations can be undertaken in those areas. For control test to
apply, it is not essential for the employer to actually supervise the performance of duties of the employee,
it being enough that it has the right to wield the power. 31

With respect to respondents' sharing in some hospital fees, this scheme does not sever the employment
tie between them and petitioner as this merely mirrors additional form or another form of compensation or
incentive similar to what commission-based employees receive as contemplated in Article 97 (f) of the
Labor Code, thus:

"Wage" paid to any employee shall mean the remuneration or earning, however designated,
capable of being expressed in terms of money, whether fixed or ascertained on a time, task,
 piece, or commission basis, or other method of calculating the same, which is payable by
an employer to an employee under a written or unwritten contract of employment for work done or
to be done, or for services rendered or to be rendered and includes the fair and reasonable value,
as determined by the Secretary of Labor, of board, lodging, or other facilities customarily
furnished by the employer to the employee. x x x (Emphasis and underscoring supplied),

Respondents were in fact made subject to petitioner-hospital's Code of Ethics,32 the provisions of which
cover administrative and disciplinary measures on negligence of duties, personnel conduct and behavior,
and offenses against persons, property and the hospital's interest.

More importantly, petitioner itself provided incontrovertible proof of the employment status of
respondents, namely, the identification cards it issued them, the payslips33 and BIR W-2 (now 2316)
Forms which reflect their status as employees, and the classification as "salary" of their remuneration.
Moreover, it enrolled respondents in the SSS and Medicare (Philhealth) program. It bears noting at this
juncture that mandatory coverage under the SSS Law34 is premised on the existence of an employer-
employee relationship,35 except in cases of compulsory coverage of the self-employed. It would be
preposterous for an employer to report certain persons as employees and pay their SSS premiums as
well as their wages if they are not its employees.36

And if respondents were not petitioner's employees, how does it account for its issuance of the earlier-
quoted March 7, 1998 memorandum explicitly stating that respondent is "employed" in it and of the
subsequent termination letter indicating respondent Lanzanas' employment status.

Finally, under Section 15, Rule X of Book III of the Implementing Rules of the Labor Code, an employer-
employee relationship exists between the resident physicians and the training hospitals, unless there is a
training agreement between them, and the training program is duly accredited or approved by the
appropriate government agency. In respondents' case, they were not undergoing any specialization
training. They were considered non-training general practitioners,37 assigned at the emergency rooms
and ward sections.

Turning now to the issue of dismissal, the Court upholds the appellate court's conclusion that private
respondents were illegally dismissed.

Dr. Lanzanas was neither a managerial nor supervisory employee but part of the rank-and-file. This is the
import of the Secretary of Labor's Resolution of May 22, 1998 in OS A-05-15-98 which reads:

xxxx

In the motion to dismiss it filed before the Med-Arbiter, the employer (CMC) alleged that 24
members of petitioner are supervisors, namely x x x Rolando Lanzonas [sic] x x x.

A close scrutiny of the job descriptions of the alleged supervisors narrated by the employer only
proves that except for the contention that these employees allegedly supervise, they do not
however recommend any managerial action. At most, their job is merely routinary in nature and
consequently, they cannot be considered supervisory employees.

They are not therefore barred from membership in the union of rank[-]and[-]file, which the
petitioner [the union] is seeking to represent in the instant case. 38 (Emphasis and underscoring
supplied)

xxxx
Admittedly, Dr. Lanzanas was a union member in the hospital, which is considered indispensable to the
national interest. In labor disputes adversely affecting the continued operation of a hospital, Article 263(g)
of the Labor Code provides:

ART. 263. STRIKES, PICKETING, AND LOCKOUTS.–

xxxx

(g) x x x x

x x x x. In labor disputes adversely affecting the continued operation of such hospitals,

clinics or medical institutions, it shall be the duty of the striking union or locking-out employer
to provide and maintain an effective skeletal workforce of medical and other health personnel,
whose movement and services shall be unhampered and unrestricted, as are necessary to insure
the proper and adequate protection of the life and health of its patients, most especially
emergency cases, for the duration of the strike or lockout. In such cases, the Secretary of Labor
and Employment is mandated to immediately assume, within twenty-four hours from knowledge
of the occurrence of such strike or lockout, jurisdiction over the same or certify to the Commission
for compulsory arbitration. For this purpose, the contending parties are strictly enjoined to
comply with such orders, prohibitions and/or injunctions as are issued by the Secretary of
Labor and Employment or the Commission, under pain of immediate disciplinary action,
including dismissal or loss of employment status or payment by the locking-out employer
of backwages, damages and other affirmative relief, even criminal prosecution against
either or both of them.

x x x x (Emphasis and underscoring supplied)

An assumption or certification order of the DOLE Secretary automatically results in a return-to-work of

all striking workers, whether a corresponding return-to-work order had been issued.39 The DOLE
Secretary in fact issued a return-to-work Order, failing to comply with which is punishable by dismissal or
loss of employment status.40

Participation in a strike and intransigence to a return-to-work order must, however, be duly proved in
order to justify immediate dismissal in a "national interest" case. As the appellate court as well as the
NLRC observed, however, there is nothing in the records that would bear out Dr. Lanzanas' actual
participation in the strike. And the medical director's Memorandum 41 of April 22, 1998 contains nothing
more than a general directive to all union officers and members to return-to-work. Mere membership in a
labor union does not ipso facto mean participation in a strike.

Dr. Lanzanas' claim that, after his 30-day preventive suspension ended on or before April 9, 1998, he was
never given any work schedule42 was not refuted by petitioner. Petitioner in fact never released any
findings of its supposed investigation into Dr. Lanzanas' alleged "inimical acts."

Petitioner thus failed to observe the two requirements,before dismissal can be effected ─ notice and
hearing ─ which constitute essential elements of the statutory process; the first to apprise the employee
of the particular acts or omissions for which his dismissal is sought, and the second to inform the
employee of the employer's decision to dismiss him.43 Non-observance of these requirements runs afoul
of the procedural mandate.44

The termination notice sent to and received by Dr. Lanzanas on April 25, 1998 was the first and only time
that he was apprised of the reason for his dismissal. He was not afforded, however, even the slightest
opportunity to explain his side. His was a "termination upon receipt" situation. While he was priorly made
to explain on his telephone conversation with Miscala,45 he was not with respect to his supposed
participation in the strike and failure to heed the return-to-work order.
As for the case of Dr. Merceditha, her dismissal was worse, it having been effected without any just or
authorized cause and without observance of due process. In fact, petitioner never proferred any valid
cause for her dismissal except its view that "her marriage to [Dr. Lanzanas] has given rise to the
presumption that her sympath[y] [is] with her husband; [and that when [Dr. Lanzanas] declared that he
was going to boycott the scheduling of their workload by the medical doctor, he was presumed to be
speaking for himself [and] for his wife Merceditha."46

Petitioner's contention that Dr. Merceditha was a member of the union or was a participant in the strike
remained just that. Its termination of her employment on the basis of her conjugal relationship is not
analogous to

any of the causes enumerated in Article 28247 of the Labor Code. Mere suspicion or belief, no matter how
strong, cannot substitute for factual findings carefully established through orderly procedure. 48

The Court even notes that after the proceedings at the NLRC, petitioner never even mentioned Dr.
Merceditha's case. There is thus no gainsaying that her dismissal was both substantively and
procedurally infirm.

Adding insult to injury was the circulation by petitioner of a "watchlist" or "watch out list"49 including therein
the names of respondents. Consider the following portions of Dr. Merceditha's Memorandum of Appeal:

3. Moreover, to top it all, respondents have circulated a so called "Watch List" to other hospitals,
one of which [was] procured from Foothills Hospital in Sto. Tomas, Batangas [that] contains her
name. The object of the said list is precisely to harass Complainant and malign her good name
and reputation. This is not only unprofessional, but runs smack of oppression as CMC is trying
permanently deprived [sic] Complainant of her livelihood by ensuring that she is barred from
practicing in other hospitals.

4. Other co-professionals and brothers in the profession are fully aware of these "watch out" lists
and as such, her reputation was not only besmirched, but was damaged, and she suffered social
humiliation as it is of public knowledge that she was dismissed from work. Complainant came
from a reputable and respected family, her father being a retired full Colonel in the Army, Col.
Romeo A. Vente, and her brothers and sisters are all professionals, her brothers, Arnold and
Romeo Jr., being engineers. The Complainant has a family protection [sic] to protect. She
likewise has a professional reputation to protect, being a licensed physician. Both her personal
and professional reputation were damaged as a result of the unlawful acts of the respondents.50

While petitioner does not deny the existence of such list, it pointed to the lack of any board action on its
part to initiate such listing and to circulate the same, viz:

20. x x x. The alleged watchlist or "watch out list," as termed by complainants, were merely lists
obtained by one Dr. Ernesto Naval of PAMANA Hospital. Said list was given by a stockholder
of respondent who was at the same time a stockholder of PAMAN[A] Hospital. The giving of
the list was not a Board action.51 (Emphasis and underscoring supplied)

The circulation of such list containing names of alleged union members intended to prevent employment
of workers for union activities similarly constitutes unfair labor practice, thereby giving a right of action for
damages by the employees prejudiced.52

A word on the appellate court's deletion of the award of attorney's fees. There being no basis advanced in
deleting it, as exemplary damages were correctly awarded,53 the award of attorney's fees should be
reinstated.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. SP No. 75871
is AFFIRMED with MODIFICATION in that the award by the National Labor Relations Commission of
10% of the total judgment award as attorney's fees is reinstated. In all other aspects, the decision of the
appellate court is affirmed.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

DANTE O. TINGA PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

ARTURO D. BRION
Associate Justice

SECOND DIVISION

G.R. No. 119268 February 23, 2000

ANGEL JARDIN, DEMETRIO CALAGOS, URBANO MARCOS, ROSENDO MARCOS, LUIS DE

LOS ANGELES, JOEL ORDENIZA and AMADO CENTENO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC) and GOODMAN TAXI (PHILJAMA
INTERNATIONAL, INC.) respondents.

QUISUMBING, J.:
This special civil action for certiorari seeks to annul the decision1 of public respondent promulgated
on October 28, 1994, in NLRC NCR CA No. 003883-92, and its resolution2 dated December 13,
1994 which denied petitioners motion for reconsideration.

Petitioners were drivers of private respondent, Philjama International Inc., a domestic corporation
engaged in the operation of "Goodman Taxi." Petitioners used to drive private respondent's taxicabs
every other day on a 24-hour work schedule under the boundary system. Under this arrangement,
the petitioners earned an average of P400.00 daily. Nevertheless, private respondent admittedly
regularly deducts from petitioners, daily earnings the amount of P30.00 supposedly for the washing
of the taxi units. Believing that the deduction is illegal, petitioners decided to form a labor union to
protect their rights and interests.

Upon learning about the plan of petitioners, private respondent refused to let petitioners drive their
taxicabs when they reported for work on August 6, 1991, and on succeeding days. Petitioners
suspected that they were singled out because they were the leaders and active members of the
proposed union. Aggrieved, petitioners filed with the labor arbiter a complaint against private
respondent for unfair labor practice, illegal dismissal and illegal deduction of washing fees. In a
decision3 dated August 31, 1992, the labor arbiter dismissed said complaint for lack of merit.

On appeal, the NLRC (public respondent herein), in a decision dated April 28, 1994, reversed and
set aside the judgment of the labor arbiter. The labor tribunal declared that petitioners are
employees of private respondent, and, as such, their dismissal must be for just cause and after due
process. It disposed of the case as follows:

WHEREFORE, in view of all the foregoing considerations, the decision of the Labor Arbiter
appealed from is hereby SET ASIDE and another one entered:

1. Declaring the respondent company guilty of illegal dismissal and accordingly it is directed
to reinstate the complainants, namely, Alberto A. Gonzales, Joel T. Morato, Gavino
Panahon, Demetrio L. Calagos, Sonny M. Lustado, Romeo Q. Clariza, Luis de los Angeles,
Amado Centino, Angel Jardin, Rosendo Marcos, Urbano Marcos, Jr., and Joel Ordeniza, to
their former positions without loss of seniority and other privileges appertaining thereto; to
pay the complainants full backwages and other benefits, less earnings elsewhere, and to
reimburse the drivers the amount paid as washing charges; and

2. Dismissing the charge of unfair [labor] practice for insufficiency of evidence.

SO ORDERED.4

Private respondent's first motion for reconsideration was denied. Remaining hopeful, private
respondent filed another motion for reconsideration. This time, public respondent, in its
decision5 dated October 28, 1994, granted aforesaid second motion for reconsideration. It ruled that
it lacks jurisdiction over the case as petitioners and private respondent have no employer-employee
relationship. It held that the relationship of the parties is leasehold which is covered by the Civil Code
rather than the Labor Code, and disposed of the case as follows:

VIEWED IN THE LIGHT OF ALL THE FOREGOING, the Motion under reconsideration is
hereby given due course.

Accordingly, the Resolution of August 10, 1994, and the Decision of April 28, 1994 are
hereby SET ASIDE. The Decision of the Labor Arbiter subject of the appeal is likewise SET
ASIDE and a NEW ONE ENTERED dismissing the complaint for lack of jurisdiction.
 No costs.

SO ORDERED.6

Expectedly, petitioners sought reconsideration of the labor tribunal's latest decision which was
denied. Hence, the instant petition.

In this recourse, petitioners allege that public respondent acted without or in excess of jurisdiction, or
with grave abuse of discretion in rendering the assailed decision, arguing that:

THE NLRC HAS NO JURISDICTION TO ENTERTAIN RESPONDENT'S SECOND MOTION FOR

RECONSIDERATION WHICH IS ADMITTEDLY A PLEADING PROHIBITED UNDER THE NLRC
RULES, AND TO GRANT THE SAME ON GROUNDS NOT EVEN INVOKED THEREIN.

II

THE EXISTENCE OF AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES IS

ALREADY A SETTLED ISSUE CONSTITUTING RES JUDICATA, WHICH THE NLRC HAS NO
MORE JURISDICTION TO REVERSE, ALTER OR MODIFY.

III

IN ANY CASE, EXISTING JURISPRUDENCE ON THE MATTER SUPPORTS THE VIEW THAT
PETITIONERS-TAXI DRIVERS ARE EMPLOYEES OF RESPONDENT TAXI COMPANY.7

The petition is impressed with merit.

The phrase "grave abuse of discretion amounting to lack or excess of jurisdiction" has settled
meaning in the jurisprudence of procedure. It means such capricious and whimsical exercise of
judgment by the tribunal exercising judicial or quasi-judicial power as to amount to lack of power.8 In
labor cases, this Court has declared in several instances that disregarding rules it is bound to
observe constitutes grave abuse of discretion on the part of labor tribunal.

In Garcia vs. NLRC,9 private respondent therein, after receiving a copy of the labor arbiter's decision,
wrote the labor arbiter who rendered the decision and expressed dismay over the judgment. Neither
notice of appeal was filed nor cash or surety bond was posted by private respondent. Nevertheless,
the labor tribunal took cognizance of the letter from private respondent and treated said letter as
private respondent's appeal. In a certiorari action before this Court, we ruled that the labor tribunal
acted with grave abuse of discretion in treating a mere letter from private respondent as private
respondent's appeal in clear violation of the rules on appeal prescribed under Section 3(a), Rule VI
of the New Rules of Procedure of NLRC.

In Philippine Airlines Inc. vs. NLRC,10 we held that the labor arbiter committed grave abuse of
discretion when he failed to resolve immediately by written order a motion to dismiss on the ground
of lack of jurisdiction and the supplemental motion to dismiss as mandated by Section 15 of Rule V
of the New Rules of Procedure of the NLRC.
In Unicane Workers Union-CLUP vs. NLRC,11 we held that the NLRC gravely abused its discretion
by allowing and deciding an appeal without an appeal bond having been filed as required under
Article 223 of the Labor Code.

In Mañebo vs. NLRC,12 we declared that the labor arbiter gravely abused its discretion in
disregarding the rule governing position papers. In this case, the parties have already filed their
position papers and even agreed to consider the case submitted for decision, yet the labor arbiter
still admitted a supplemental position paper and memorandum, and by taking into consideration, as
basis for his decision, the alleged facts adduced therein and the documents attached thereto.

In Gesulgon vs. NLRC,13 we held that public respondent gravely abused its discretion in treating the
motion to set aside judgment and writ of execution as a petition for relief of judgment. In doing so,
public respondent had, without sufficient basis, extended the reglementary period for filing petition
for relief from judgment contrary to prevailing rule and case law.

In this case before us, private respondent exhausted administrative remedy available to it by seeking
reconsideration of public respondent's decision dated April 28, 1994, which public respondent
denied. With this motion for reconsideration, the labor tribunal had ample opportunity to rectify errors
or mistakes it may have committed before resort to courts of justice can be had.14 Thus, when private
respondent filed a second motion for reconsideration, public respondent should have forthwith
denied it in accordance with Rule 7, Section 14 of its New Rules of Procedure which allows only one
motion for reconsideration from the same party, thus:

Sec. 14. Motions for Reconsideration. — Motions for reconsideration of any order, resolution
or decision of the Commission shall not be entertained except when based on palpable or
patent errors, provided that the motion is under oath and filed within ten (10) calendar days
from receipt of the order, resolution or decision with proof of service that a copy of the same
has been furnished within the reglementary period the adverse party and provided further,
that only one such motion from the same party shall be entertained. [Emphasis supplied]

The rationale for allowing only one motion for reconsideration from the same party is to assist the
parties in obtaining an expeditious and inexpensive settlement of labor cases. For obvious reasons,
delays cannot be countenanced in the resolution of labor disputes. The dispute may involve no less
than the livelihood of an employee and that of his loved ones who are dependent upon him for food,
shelter, clothing, medicine, and education. It may as well involve the survival of a business or an
industry.15

As correctly pointed out by petitioner, the second motion for reconsideration filed by private
respondent is indubitably a prohibited pleading16 which should have not been entertained at all.
Public respondent cannot just disregard its own rules on the pretext of "satisfying the ends of
justice",17 especially when its disposition of a legal controversy ran afoul with a clear and long
standing jurisprudence in this jurisdiction as elucidated in the subsequent discussion. Clearly,
disregarding a settled legal doctrine enunciated by this Court is not a way of rectifying an error or
mistake. In our view, public respondent gravely abused its discretion in taking cognizance and
granting private respondent's second motion for reconsideration as it wrecks the orderly procedure in
seeking reliefs in labor cases.

But, there is another compelling reason why we cannot leave untouched the flip-flopping decisions of
the public respondent. As mentioned earlier, its October 28, 1994 judgment is not in accord with the
applicable decisions of this Court. The labor tribunal reasoned out as follows:
 On the issue of whether or not employer-employee relationship exists, admitted is the fact
that complainants are taxi drivers purely on the "boundary system". Under this system the
driver takes out his unit and pays the owner/operator a fee commonly called "boundary" for
the use of the unit. Now, in the determination the existence of employer-employee
relationship, the Supreme Court in the case of Sara, et al., vs. Agarrado, et al. (G.R. No.
73199, 26 October 1988) has applied the following four-fold test: "(1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4)
the power of control the employees conduct."

"Among the four (4) requisites", the Supreme Court stresses that "control is deemed the
most important that the other requisites may even be disregarded". Under the control test, an
employer-employee relationship exists if the "employer" has reserved the right to control the
"employee" not only as to the result of the work done but also as to the means and methods
by which the same is to be accomplished. Otherwise, no such relationship exists. (Ibid.)

Applying the foregoing parameters to the case herein obtaining, it is clear that the
respondent does not pay the drivers, the complainants herein, their wages. Instead, the
drivers pay a certain fee for the use of the vehicle. On the matter of control, the drivers, once
they are out plying their trade, are free to choose whatever manner they conduct their trade
and are beyond the physical control of the owner/operator; they themselves determine the
amount of revenue they would want to earn in a day's driving; and, more significantly aside
from the fact that they pay for the gasoline they consume, they likewise shoulder the cost of
repairs on damages sustained by the vehicles they are driving.

Verily, all the foregoing attributes signify that the relationship of the parties is more of a
leasehold or one that is covered by a charter agreement under the Civil Code rather than the
Labor Code.18

The foregoing ratiocination goes against prevailing jurisprudence.

In a number of cases decided by this Court,19 we ruled that the relationship between jeepney
owners/operators on one hand and jeepney drivers on the other under the boundary system is that
of employer-employee and not of lessor-lessee. We explained that in the lease of chattels, the lessor
loses complete control over the chattel leased although the lessee cannot be reckless in the use
thereof, otherwise he would be responsible for the damages to the lessor. In the case of jeepney
owners/operators and jeepney drivers, the former exercise supervision and control over the latter.
The management of the business is in the owner's hands. The owner as holder of the certificate of
public convenience must see to it that the driver follows the route prescribed by the franchising
authority and the rules promulgated as regards its operation. Now, the fact that the drivers do not
receive fixed wages but get only that in excess of the so-called "boundary" they pay to the
owner/operator is not sufficient to withdraw the relationship between them from that of employer and
employee. We have applied by analogy the abovestated doctrine to the relationships between bus
owner/operator and bus conductor,20 auto-calesa owner/operator and driver,21 and recently between
taxi owners/operators and taxi drivers.22 Hence, petitioners are undoubtedly employees of private
respondent because as taxi drivers they perform activities which are usually necessary or desirable
in the usual business or trade of their employer.

As consistently held by this Court, termination of employment must be effected in accordance with
law. The just and authorized causes for termination of employment are enumerated under Articles
282, 283 and 284 of the Labor Code. The requirement of notice and hearing is set-out in Article 277
(b) of the said Code. Hence, petitioners, being employees of private respondent, can be dismissed
only for just and authorized cause, and after affording them notice and hearing prior to termination.
In the instant case, private respondent had no valid cause to terminate the employment of
petitioners. Neither were there two (2) written notices sent by private respondent informing each of
the petitioners that they had been dismissed from work. These lack of valid cause and failure on the
part of private respondent to comply with the twin-notice requirement underscored the illegality
surrounding petitioners' dismissal.

Under the law, 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.23 It must be emphasized, though, that
recent judicial pronouncements24 distinguish between employees illegally dismissed prior to the
effectivity of Republic Act No. 6715 on March 21, 1989, and those whose illegal dismissals were
effected after such date. Thus, employees illegally dismissed prior to March 21, 1989, are entitled to
backwages up to three (3) years without deduction or qualification, while those illegally dismissed
after that date 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. The legislative policy behind Republic Act No. 6715 points to "full
backwages" as meaning exactly that, i.e., without deducting from backwages the earnings derived
elsewhere by the concerned employee during the period of his illegal dismissal. Considering that
petitioners were terminated from work on August 1, 1991, they are entitled to full backwages on the
basis of their last daily earnings.

With regard to the amount deducted daily by private respondent from petitioners for washing of the
taxi units, we view the same as not illegal in the context of the law. We note that after a tour of duty,
it is incumbent upon the driver to restore the unit he has driven to the same clean condition when he
took it out. Car washing after a tour of duty is indeed a practice in the taxi industry and is in fact
dictated by fair play.25 Hence, the drivers are not entitled to reimbursement of washing charges. 1âwphi1.nêt

WHEREFORE, the instant petition is GRANTED. The assailed DECISION of public respondent
dated October 28, 1994, is hereby SET ASIDE. The DECISION of public respondent dated April 28,
1994, and its RESOLUTION dated December 13, 1994, are hereby REINSTATED subject to
MODIFICATION. Private respondent is directed to reinstate petitioners to their positions held at the
time of the complained dismissal. Private respondent is likewise ordered to pay petitioners their full
backwages, to be computed from the date of dismissal until their actual reinstatement. However, the
order of public respondent that petitioners be reimbursed the amount paid as washing charges is
deleted. Costs against private respondents.

SO ORDERED.

Bellosillo, Mendoza and De Leon, Jr., JJ., concur.

Buena, on official leave.
 FIRST DIVISION

G.R. No. 170087 August 31, 2006

ANGELINA FRANCISCO, Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION, SEIICHIRO
TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA, IRENE BALLESTEROS, TRINIDAD LIZA and
RAMON ESCUETA, Respondents.

DECISION

YNARES-SANTIAGO, J.:

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

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

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

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

For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her
salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in the profit of Kasei
Corporation. 8
In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged that she
was required to sign a prepared resolution for her replacement but she was assured that she would
still be connected with Kasei Corporation. Timoteo Acedo, the designated Treasurer, convened a
meeting of all employees of Kasei Corporation and announced that nothing had changed and that
petitioner was still connected with Kasei Corporation as Technical Assistant to Seiji Kamura and in
charge of all BIR matters. 9

Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up to
September 2001 for a total reduction of P22,500.00 as of September 2001. Petitioner was not paid
her mid-year bonus allegedly because the company was not earning well. On October 2001,
petitioner did not receive her salary from the company. She made repeated follow-ups with the
company cashier but she was advised that the company was not earning well. 10

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

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

Private respondents averred that petitioner is not an employee of Kasei Corporation. They alleged
that petitioner was hired in 1995 as one of its technical consultants on accounting matters and act
concurrently as Corporate Secretary. As technical consultant, petitioner performed her work at her
own discretion without control and supervision of Kasei Corporation. Petitioner had no daily time
record and she came to the office any time she wanted. The company never interfered with her work
except that from time to time, the management would ask her opinion on matters relating to her
profession. Petitioner did not go through the usual procedure of selection of employees, but her
services were engaged through a Board Resolution designating her as technical consultant. The
money received by petitioner from the corporation was her professional fee subject to the 10%
expanded withholding tax on professionals, and that she was not one of those reported to the BIR or
SSS as one of the company’s employees. 12

Petitioner’s designation as technical consultant depended solely upon the will of management. As
such, her consultancy may be terminated any time considering that her services were only
temporary in nature and dependent on the needs of the corporation.

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

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

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

1. finding complainant an employee of respondent corporation;

2. declaring complainant’s dismissal as illegal;

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

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

(27,500 x 10 mos.)

b. Salary Differentials (01/2001 – 09/2001) 22,500.00

c. Housing Allowance (01/2001 – 07/2002) 57,000.00

d. Midyear Bonus 2001 27,500.00

e. 13th Month Pay 27,500.00

f. 10% share in the profits of Kasei

Corp. from 1996-2001 361,175.00

g. Moral and exemplary damages 100,000.00

h. 10% Attorney’s fees 87,076.50

P957,742.50

If reinstatement is no longer feasible, respondents are ordered to pay complainant separation pay
with additional backwages that would accrue up to actual payment of separation pay.

SO ORDERED. 14

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

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

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

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

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

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

SO ORDERED. 15

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

WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor
Relations Commissions dated April 15, 2003 is hereby REVERSED and SET ASIDE and a new one
is hereby rendered dismissing the complaint filed by private respondent against Kasei Corporation,
et al. for constructive dismissal.

SO ORDERED. 16

The appellate court denied petitioner’s motion for reconsideration, hence, the present recourse.

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

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

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

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

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

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

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

In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic conditions
prevailing between the parties, in addition to the standard of right-of-control like the inclusion of the
employee in the payrolls, to give a clearer picture in determining the existence of an employer-
employee relationship based on an analysis of the totality of economic circumstances of the worker.

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

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

By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation
because she was under the direct control and supervision of Seiji Kamura, the corporation’s
Technical Consultant. She reported for work regularly and served in various capacities as
Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate Secretary, with
substantially the same job functions, that is, rendering accounting and tax services to the company
and performing functions necessary and desirable for the proper operation of the corporation such
as securing business permits and other licenses over an indefinite period of engagement.

Under the broader economic reality test, the petitioner can likewise be said to be an employee of
respondent corporation because she had served the company for six years before her dismissal,
receiving check vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses and
allowances, as well as deductions and Social Security contributions from August 1, 1999 to
December 18, 2000. 26 When petitioner was designated General Manager, respondent corporation
made a report to the SSS signed by Irene Ballesteros. Petitioner’s membership in the SSS as
manifested by a copy of the SSS specimen signature card which was signed by the President of
Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces the
existence of an employer-employee relationship between petitioner and respondent corporation. 27

It is therefore apparent that petitioner is economically dependent on respondent corporation for her
continued employment in the latter’s line of business.

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

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

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

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

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

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

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

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month
from January to September 2001. This amounts to an illegal termination of employment, where the
petitioner is entitled to full backwages. Since the position of petitioner as accountant is one of trust
and confidence, and under the principle of strained relations, petitioner is further entitled to
separation pay, in lieu of reinstatement. 34

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal.

Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to when
continued employment becomes impossible, unreasonable or unlikely; when there is a demotion in
rank or a diminution in pay; or when a clear discrimination, insensibility or disdain by an employer
becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. Florendo-Flores, 36 we ruled that
where an employee ceases to work due to a demotion of rank or a diminution of pay, an
unreasonable situation arises which creates an adverse working environment rendering it impossible
for such employee to continue working for her employer. Hence, her severance from the company
was not of her own making and therefore amounted to an illegal termination of employment.

In affording full protection to labor, this Court must ensure equal work opportunities regardless of
sex, race or creed. Even as we, in every case, attempt to carefully balance the fragile relationship
between employees and employers, we are mindful of the fact that the policy of the law is to apply
the Labor Code to a greater number of employees. This would enable employees to avail of the
benefits accorded to them by law, in line with the constitutional mandate giving maximum aid and
protection to labor, promoting their welfare and reaffirming it as a primary social economic force in
furtherance of social justice and national development.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals
dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515
are ANNULLED and SET ASIDE. The Decision of the National Labor Relations Commission dated
April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The case is REMANDED to the
Labor Arbiter for the recomputation of petitioner Angelina Francisco’s full backwages from the time
she was illegally terminated until the date of finality of this decision, and separation pay representing
one-half month pay for every year of service, where a fraction of at least six months shall be
considered as one whole year.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 121143 January 21, 1997

PURIFICACION G. TABANG, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and PAMANA GOLDEN CARE MEDICAL
CENTER FOUNDATION, INC., respondents.

REGALADO, J.:

This is a petition for certiorari which seeks to annul the resolution of the National Labor Relations
Commission (NLRC), dated June 26, 1995, affirming in toto the order of the labor arbiter, dated April
26, 1994, which dismissed petitioner's complaint for illegal dismissal with money claims for lack of
jurisdiction.

The records show that petitioner Purificacion Tabang was a founding member, a member of the
Board of Trustees, and the corporate secretary of private respondent Pamana Golden Care Medical
Center Foundation, Inc., a non-stock corporation engaged in extending medical and surgical
services.

On October 30, 1990, the Board of Trustees issued a memorandum appointing petitioner as Medical
Director and Hospital Administrator of private respondent's Pamana Golden Care Medical Center in
Calamba, Laguna.

Although the memorandum was silent as to the amount of remuneration for the position, petitioner
claims that she received a monthly retainer fee of five thousand pesos (P5,000.00) from private
respondent, but the payment thereof was allegedly stopped in November, 1991.

As medical director and hospital administrator, petitioner was tasked to run the affairs of the
aforesaid medical center and perform all acts of administration relative to its daily operations.

On May 1, 1993, petitioner was allegedly informed personally by Dr. Ernesto Naval that in a special
meeting held on April 30, 1993, the Board of Trustees passed a resolution relieving her of her
position as Medical Director and Hospital Administrator, and appointing the latter and Dr. Benjamin
Donasco as acting Medical Director and acting Hospital Administrator, respectively. Petitioner
averred that she thereafter received a copy of said board resolution.

On June 6, 1993, petitioner filled a complaint for illegal dismissal and non-payment of wages,
allowances and 13th month pay before the labor arbiter.

Respondent corporation moved for the dismissal of the complaint on the ground of lack of jurisdiction
over the subject matter. It argued that petitioner's position as Medical Director and Hospital
Administrator was interlinked with her position as member of the Board of Trustees, hence, her
dismissal is an intra-corporate controversy which falls within the exclusive jurisdiction of the
Securities and Exchange Commission (SEC).

Petitioner opposed the motion to dismiss, contending that her position as Medical Director and
Hospital Administrator was separate and distinct from her position as member of the Board of
Trustees. She claimed that there is no intra-corporate controversy involved since she filed the
complaint in her capacity as Medical Director and Hospital Administrator, or as an employee of
private respondent.

On April 26, 1994, the labor arbiter issued an order dismissing the complaint for lack of jurisdiction.
He ruled that the case falls within the jurisdiction of the SEC, pursuant to Section 5 of Presidential
Decree No.
902-A. 1

Petitioner's motion for reconsideration was treated as an appeal by the labor arbiter who
consequently ordered the elevation of the entire records of the case to public respondent NLRC for
appellate review. 2

On appeal, respondent NLRC affirmed the dismissal of the case on the additional ground that "the
position of a Medical Director and Hospital Administrator is akin to that of an executive position in a
corporate ladder structure." hence, petitioner's removal from the said position was an intra-corporate
controversy within the original and exclusive jurisdiction of the SEC. 3

Aggrieved by the decision, petitioner filed the instant petition which we find, however, to be without
merit.

We agree with the findings of the NLRC that it is the SEC which has jurisdiction over the case at bar.
The charges against herein private respondent partake of the nature of an intra-corporate
controversy. Similarly, the determination of the rights of petitioner and the concomitant liability of
private respondent arising from her ouster as a medical director and/or hospital administrator, which
are corporate offices, is an intra-corporate controversy subject to the jurisdiction of the SEC.

Contrary to the contention of petitioner, a medical director and a hospital administrator are
considered as corporate officers under the by-laws of respondent corporation. Section 2(i), Article I
thereof states that one of the powers of the Board of Trustees is "(t)o appoint a Medical Director,
Comptroller/Administrator, Chiefs of Services and such other officers as it may deem necessary and
prescribe their powers and duties."4

The president, vice-president, secretary and 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. 5However, other offices are sometimes created by the charter or by-laws
of a corporation, or the board of directors may be empowered under the by-laws of a corporation to
create additional offices as may be necessary. 6 It has been held that an "office'' is created by the
charter of the corporation and the officer is elected by the directors or stockholders. 7 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. 8

In the case at bar, considering that herein petitioner, unlike an ordinary employee, was appointed by
respondent corporation's Board of Trustees in its memorandum of October 30, 1990, 9 she is
deemed an officer of the corporation. Perforce, Section 5(c) of Presidential Decree No. 902-A, which
provides that the SEC exercises exclusive jurisdiction over controversies in the election appointment
of directors, trustees, officers or managers of corporations, partnerships or associations, applies in
the present dispute. Accordingly, jurisdiction over the same is vested in the SEC, and not in the
Labor Arbiter or the NLRC.

Moreover, the allegation of petitioner that her being a member of the Board of Trustees was not one
of the considerations for her appointment is belied by the tenor of the memorandum itself. It states:
"We hope that you will uphold and promote the mission of our foundation," 10 and this cannot be
construed other than in reference to her position or capacity as a corporate trustee.

A corporate officer's dismissal is always a corporate act, or an intra-corporate controversy, and the
nature is not altered by the reason or wisdom with which the Board of Directors may have in taking
such action. 11 Also, an intra-corporate controversy is one which arises between a stockholder and
the corporation. There is no distinction, qualification, nor any exemption whatsoever. The provision is
broad and covers all kinds of controversies between stockholders and corporations. 12

With regard to the amount of P5,000,00 formerly received by herein petitioner every month, the
same cannot be considered as compensation for her services rendered as Medical Director and
Hospital Administrator. The vouchers 13 submitted by petitioner show that the said amount was paid
to her by PAMANA, Inc., a stock corporation which is separate and distinct from herein private
respondent. Although the payments were considered advances to Pamana Golden Care, Calamba
branch, there is no evidence to show that the Pamana Golden Care stated in the vouchers refers to
herein respondent Pamana Golden Care Medical Center Foundation, Inc.

Pamana Golden Care is a division of Pamana, Inc., while respondent Pamana Golden Care Medical
Center Foundation, Inc. is a non-stock, non-profit corporation. It is stated in the memorandum of
petitioner that Pamana, Inc. is a stock and profit corporation selling pre-need plan for education,
pension and health care. The health care plan is called Pamana Golden Care Plan and the holders
are called Pamana Golden Care Card Holders or, simply, Pamana Members. 14

It is an admitted fact that herein petitioner is a retained physician of Pamana, Inc., whose patients
are holders of the Pamana Golden Care Card. In fact, in her complaint 15 filed before the Regional
Trial Court of Calamba, herein petitioner is asking among others, for professional fees and/or
retainer fees earned for her treatment of Pamana Golden Care card holders. 16 Thus, at most, said
vouchers can only be considered as proof of payment of retainer fees made by Pamana, Inc. to
herein petitioner as a retained physician of Pamana Golden Care.

Moreover, even assuming that the monthly payment of P5,000.00 was a valid claim against
respondent corporation, this would not operate to effectively remove this case from the jurisdiction of
the SEC. In the case of Cagayan de Oro Coliseum, Inc. vs. Office of the Minister of Labor and
Employment, etc., et al., 17 we ruled that "(a)lthough the reliefs sought by Chavez appear to fall under
the jurisdiction of the labor arbiter as they are claims for unpaid salaries and other remunerations for
services rendered, a close scrutiny thereof shows that said claims are actually part of the perquisites
of his position in, and therefore interlinked with, his relations with the corporation. In Dy, et
al.,vs. NLRC, et al., the Court said: "(t)he question of remuneration involving as it does, a person
who is not a mere employee but a stockholder and officer, an integral part, it might be said, of the
corporation, is not a simple labor problem but a matter that comes within the area of corporate affairs
and management and is in fact a corporate controversy in contemplation of the Corporation Code."

WHEREFORE, the questioned resolution of the NLRC is hereby AFFIRMED, without prejudice to
petitioner's taking recourse to and seeking relief through the appropriate remedy in the proper forum.

SO ORDERED.

Romero, Puno, Mendoza and Torres, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 157802 October 13, 2010

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER,

CATHERINE SPENCER, AND ALEX MANCILLA, Petitioners,
vs.
RICARDO R. COROS, Respondent.

DECISION
BERSAMIN, J.:

This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is
cognizable by the Labor Arbiter (LA) or by the Regional Trial Court (RTC). The determination of
whether the dismissed officer was a regular employee or a corporate officer unravels the
conundrum. In the case of the regular employee, the LA has jurisdiction; otherwise, the RTC
exercises the legal authority to adjudicate.

In this appeal via petition for review on certiorari, the petitioners challenge the decision dated
September 13, 20021and the resolution dated April 2, 2003,2 both promulgated in C.A.-G.R. SP No.
65714 entitled Matling Industrial and Commercial Corporation, et al. v. Ricardo R. Coros and
National Labor Relations Commission, whereby by the Court of Appeals (CA) sustained the ruling of
the National Labor Relations Commission (NLRC) to the effect that the LA had jurisdiction because
the respondent was not a corporate officer of petitioner Matling Industrial and Commercial
Corporation (Matling).

Antecedents

After his dismissal by Matling as its Vice President for Finance and Administration, the respondent
filed on August 10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and
some of its corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan
City.3

The petitioners moved to dismiss the complaint,4 raising the ground, among others, that the
complaint pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due to the
controversy being intra-corporate inasmuch as the respondent was a member of Matling’s Board of
Directors aside from being its Vice-President for Finance and Administration prior to his termination.

The respondent opposed the petitioners’ motion to dismiss,5 insisting that his status as a member of
Matling’s Board of Directors was doubtful, considering that he had not been formally elected as
such; that he did not own a single share of stock in Matling, considering that he had been made to
sign in blank an undated indorsement of the certificate of stock he had been given in 1992; that
Matling had taken back and retained the certificate of stock in its custody; and that even assuming
that he had been a Director of Matling, he had been removed as the Vice President for Finance and
Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000
showed.

On October 16, 2000, the LA granted the petitioners’ motion to dismiss,6 ruling that the respondent
was a corporate officer because he was occupying the position of Vice President for Finance and
Administration and at the same time was a Member of the Board of Directors of Matling; and that,
consequently, his removal was a corporate act of Matling and the controversy resulting from such
removal was under the jurisdiction of the SEC, pursuant to Section 5, paragraph (c) of Presidential
Decree No. 902.

Ruling of the NLRC

The respondent appealed to the NLRC,7 urging that:

I
THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING
APPELLEE’S MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO
FILE HIS OPPOSITION THERETO THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE
PROCESS.

II

THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE FOR
LACK OF JURISDICTION.

On March 13, 2001, the NLRC set aside the dismissal, concluding that the respondent’s complaint
for illegal dismissal was properly cognizable by the LA, not by the SEC, because he was not a
corporate officer by virtue of his position in Matling, albeit high ranking and managerial, not being
among the positions listed in Matling’s Constitution and By-Laws.8 The NLRC disposed thuswise:

WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and holding
that the case at bench does not involve any intracorporate matter. Hence, jurisdiction to hear and act
on said case is vested with the Labor Arbiter, not the SEC, considering that the position of Vice-
President for Finance and Administration being held by complainant-appellant is not listed as among
respondent's corporate officers.

Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in order
that the Labor Arbiter below could act on the case at bench, hear both parties, receive their
respective evidence and position papers fully observing the requirements of due process, and
resolve the same with reasonable dispatch.

SO ORDERED.

The petitioners sought reconsideration,9 reiterating that the respondent, being a member of the
Board of Directors, was a corporate officer whose removal was not within the LA’s jurisdiction.

The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified
machine copies of Matling’s Amended Articles of Incorporation and By Laws to prove that the
President of Matling was thereby granted "full power to create new offices and appoint the officers
thereto, and the minutes of special meeting held on June 7, 1999 by Matling’s Board of Directors to
prove that the respondent was, indeed, a Member of the Board of Directors.10

Nonetheless, on April 30, 2001, the NLRC denied the petitioners’ motion for reconsideration.11

Ruling of the CA

The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R. No. SP
65714, contending that the NLRC committed grave abuse of discretion amounting to lack of
jurisdiction in reversing the correct decision of the LA.

In its assailed decision promulgated on September 13, 2002,12 the CA dismissed the petition for
certiorari, explaining:

For a position to be considered as a corporate office, or, for that matter, for one to be considered as
a corporate officer, the position must, if not listed in the by-laws, have been created by the
corporation's board of directors, and the occupant thereof appointed or elected by the same board of
directors or stockholders. This is the implication of the ruling in Tabang v. National Labor Relations
Commission, which reads:

"The president, vice president, secretary and 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, other offices are sometimes created by the charter or by-laws
of a corporation, or the board of directors may be empowered under the by-laws of a corporation to
create additional offices as may be necessary.

It has been held that an 'office' is created by the charter of the corporation and the officer is elected
by the directors or 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."

This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations
Commission and De Rossi v. National Labor Relations Commission.

The position of vice-president for administration and finance, which Coros used to hold in the
corporation, was not created by the corporation’s board of directors but only by its president or
executive vice-president pursuant to the by-laws of the corporation. Moreover, Coros’ appointment to
said position was not made through any act of the board of directors or stockholders of the
corporation. Consequently, the position to which Coros was appointed and later on removed from, is
not a corporate office despite its nomenclature, but an ordinary office in the corporation.

Coros’ alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor arbiter.

WHEREFORE, the petition for certiorari is hereby DISMISSED.

SO ORDERED.

The CA denied the petitioners’ motion for reconsideration on April 2, 2003.13

Issue

Thus, the petitioners are now before the Court for a review on certiorari, positing that the respondent
was a stockholder/member of the Matling’s Board of Directors as well as its Vice President for
Finance and Administration; and that the CA consequently erred in holding that the LA had
jurisdiction.

The decisive issue is whether the respondent was a corporate officer of Matling or not. The
resolution of the issue determines whether the LA or the RTC had jurisdiction over his complaint for
illegal dismissal.

Ruling

The appeal fails.

The Law on Jurisdiction in Dismissal Cases

As a rule, the illegal dismissal of an officer or other employee of a private employer is properly
cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which
provides as follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (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 the
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 (₱5,000.00) regardless of whether accompanied with
a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by
Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining

agreements and those arising from the interpretation or enforcement of company personnel
policies shall be disposed of by the Labor Arbiter by referring the same to the grievance
machinery and voluntary arbitration as may be provided in said agreements. (As amended
by Section 9, Republic Act No. 6715, March 21, 1989).

Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls
under the jurisdiction of the Securities and Exchange Commission (SEC), because the controversy
arises out of intra-corporate or partnership relations between and among stockholders, members, or
associates, or 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 the controversy concerns their individual
franchise or right to exist as such entity; or because the controversy involves the election or
appointment of a director, trustee, officer, or manager of such corporation, partnership, or
association.14 Such controversy, among others, is known as an intra-corporate dispute.
Effective on August 8, 2000, upon the passage of Republic Act No. 8799,15 otherwise known as The
Securities Regulation Code, the SEC’s jurisdiction over all intra-corporate disputes was transferred
to the RTC, pursuant to Section 5.2 of RA No. 8799, to wit:

5.2. The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate
the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission
shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed
as of 30 June 2000 until finally disposed.

Considering that the respondent’s complaint for illegal dismissal was commenced on August 10,
2000, it might come under the coverage of Section 5.2 of RA No. 8799, supra, should it turn out that
the respondent was a corporate, not a regular, officer of Matling.

II

Was the Respondent’s Position of Vice President

for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondent’s position as Vice President for Finance and
Administration was a corporate office. If it was, his dismissal by the Board of Directors rendered the
matter an intra-corporate dispute cognizable by the RTC pursuant to RA No. 8799.

The petitioners contend that the position of Vice President for Finance and Administration was a
corporate office, having been created by Matling’s President pursuant to By-Law No. V, as
amended,16 to wit:

BY LAW NO. V
Officers

The President shall be the executive head of the corporation; shall preside over the meetings of the
stockholders and directors; shall countersign all certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors; shall have full power to hire and discharge any
or all employees of the corporation; shall have full power to create new offices and to appoint the
officers thereto as he may deem proper and necessary in the operations of the corporation and as
the progress of the business and welfare of the corporation may demand; shall make reports to the
directors and stockholders and perform all such other duties and functions as are incident to his
office or are properly required of him by the Board of Directors. In case of the absence or disability of
the President, the Executive Vice President shall have the power to exercise his functions.

The petitioners argue that the power to create corporate offices and to appoint the individuals to
assume the offices was delegated by Matling’s Board of Directors to its President through By-Law
No. V, as amended; and that any office the President created, like the position of the respondent,
was as valid and effective a creation as that made by the Board of Directors, making the office a
corporate office. In justification, they cite Tabang v. National Labor Relations Commission,17 which
held that "other offices are sometimes created by the charter or by-laws of a corporation, or the
board of directors may be empowered under the by-laws of a corporation to create additional officers
as may be necessary."
The respondent counters that Matling’s By-Laws did not list his position as Vice President for
Finance and Administration as one of the corporate offices; that Matling’s By-Law No. III listed only
four corporate officers, namely: President, Executive Vice President, Secretary, and
Treasurer; 18 that the corporate offices contemplated in the phrase "and such other officers as may
be provided for in the by-laws" found in Section 25 of the Corporation Code should be clearly and
expressly stated in the By-Laws; that the fact that Matling’s By-Law No. III dealt with Directors &
Officers while its By-Law No. V dealt with Officers proved that there was a differentiation between
the officers mentioned in the two provisions, with those classified under By-Law No. V being ordinary
or non-corporate officers; and that the officer, to be considered as a corporate officer, must be
elected by the Board of Directors or the stockholders, for the President could only appoint an
employee to a position pursuant to By-Law No. V.

We agree with respondent.

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a
corporation must formally organize by the election of a president, who shall be a director, a treasurer
who may or may not be a director, a secretary who shall be a resident and citizen of the
Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more
positions may be held concurrently by the same person, except that no one shall act as president
and secretary or as president and treasurer at the same time.

The directors or trustees and officers to be elected shall perform the duties enjoined on them by law
and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a
greater majority, a majority of the number of directors or trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate business, and every decision
of at least a majority of the directors or trustees present at a meeting at which there is a quorum
shall be valid as a corporate act, except for the election of officers which shall require the vote of a
majority of all the members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be
considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law
enabling provision is not enough to make a position a corporate office. Guerrea v. Lezama,19 the first
ruling on the matter, held that the only officers of a corporation were those given that character either
by the Corporation Code or by the By-Laws; the rest of the corporate officers could be considered
only as employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc.
v. King:20

An "office" is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and generally is employed not by
the 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.

In this case, respondent was appointed vice president for nationwide expansion by Malonzo,
petitioner’'s general manager, not by the board of directors of petitioner. It was also Malonzo who
determined the compensation package of respondent. Thus, respondent was an employee, not a
"corporate officer." The CA was therefore correct in ruling that jurisdiction over the case was properly
with the NLRC, not the SEC (now the RTC).
This interpretation is the correct application of Section 25 of the Corporation Code, which plainly
states that the corporate officers are the President, Secretary, Treasurer and such other officers as
may be provided for in the By-Laws. Accordingly, the corporate officers in the context of PD No. 902-
A are exclusively those who are given that character either by the Corporation Code or by the
corporation’s By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the
constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By-
Laws of an enabling clause on the creation of just any corporate officer position.

It is relevant to state in this connection that the SEC, the primary agency administering the
Corporation Code, adopted a similar interpretation of Section 25 of the Corporation Code in its
Opinion dated November 25, 1993,21 to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the
corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the
Board has no power to create other Offices without amending first the corporate By-laws. However,
the Board may create appointive positions other than the positions of corporate Officers, but
the persons occupying such positions are not considered as corporate officers within the
meaning of Section 25 of the Corporation Code and are not empowered to exercise the functions
of the corporate Officers, except those functions lawfully delegated to them. Their functions and
duties are to be determined by the Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to create a
corporate office to the President, in light of Section 25 of the Corporation Code requiring the Board
of Directors itself to elect the corporate officers. Verily, the power to elect the corporate officers was
a discretionary power that the law exclusively vested in the Board of Directors, and could not be
delegated to subordinate officers or agents.22 The office of Vice President for Finance and
Administration created by Matling’s President pursuant to By Law No. V was an ordinary, not a
corporate, office.

To emphasize, the power to create new offices and the power to appoint the officers to occupy them
vested by By-Law No. V merely allowed Matling’s President to create non-corporate offices to be
occupied by ordinary employees of Matling. Such powers were incidental to the President’s duties as
the executive head of Matling to assist him in the daily operations of the business.

The petitioners’ reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that
offices not expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling
provision were also considered corporate offices, was plainly obiter dictum due to the position
subject of the controversy being mentioned in the By-Laws. Thus, the Court held therein that the
position was a corporate office, and that the determination of the rights and liabilities arising from the
ouster from the position was an intra-corporate controversy within the SEC’s jurisdiction.

In Nacpil v. Intercontinental Broadcasting Corporation,23 which may be the more appropriate ruling,
the position subject of the controversy was not expressly mentioned in the By-Laws, but was created
pursuant to a By-Law enabling provision authorizing the Board of Directors to create other offices
that the Board of Directors might see fit to create. The Court held there that the position was a
corporate office, relying on the obiter dictum in Tabang.

Considering that the observations earlier made herein show that the soundness of their dicta is not
unassailable, Tabang and Nacpil should no longer be controlling.
 III

Did Respondent’s Status as Director and

Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and
relying on Paguio v. National Labor Relations Commission24 and Ongkingko v. National Labor
Relations Commission,25 the NLRC had no jurisdiction over his complaint, considering that any case
for illegal dismissal brought by a stockholder/officer against the corporation was an intra-corporate
matter that must fall under the jurisdiction of the SEC conformably with the context of PD No. 902-A.

The petitioners’ insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings, the complainants
were undeniably corporate officers due to their positions being expressly mentioned in the By-Laws,
aside from the fact that both of them had been duly elected by the respective Boards of Directors.
But the herein respondent’s position of Vice President for Finance and Administration was not
expressly mentioned in the By-Laws; neither was the position of Vice President for Finance and
Administration created by Matling’s Board of Directors. Lastly, the President, not the Board of
Directors, appointed him.

True it is that the Court pronounced in Tabang as follows:

Also, an intra-corporate controversy is one which arises between a stockholder and the corporation.
There is no distinction, qualification or any exemption whatsoever. The provision is broad and covers
all kinds of controversies between stockholders and corporations.26

However, the Tabang pronouncement is not controlling because it is too sweeping and does not
accord with reason, justice, and fair play. In order to determine whether a dispute constitutes an
intra-corporate controversy or not, the Court considers two elements instead, namely: (a) the status
or relationship of the parties; and (b) the nature of the question that is the subject of their
controversy. This was our thrust in Viray v. Court of Appeals:27

The establishment of any of the relationships mentioned above will not necessarily always confer
jurisdiction over the dispute on the SEC to the exclusion of regular courts. The statement made in
one case that the rule admits of no exceptions or distinctions is not that absolute. The better policy in
determining which body has jurisdiction over a case would be to consider not only the status or
relationship of the parties but also the nature of the question that is the subject of their controversy.

Not every conflict between a corporation and its stockholders involves corporate matters that only
the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. If, for example, a
person leases an apartment owned by a corporation of which he is a stockholder, there should be no
question that a complaint for his ejectment for non-payment of rentals would still come under the
jurisdiction of the regular courts and not of the SEC. By the same token, if one person injures
another in a vehicular accident, the complaint for damages filed by the victim will not come under the
jurisdiction of the SEC simply because of the happenstance that both parties are stockholders of the
same corporation. A contrary interpretation would dissipate the powers of the regular courts and
distort the meaning and intent of PD No. 902-A.

In another case, Mainland Construction Co., Inc. v. Movilla,28 the Court reiterated these determinants
thuswise:
In order that the SEC (now the regular courts) can take cognizance of a case, the controversy must
pertain to any of the following relationships:

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 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 SEC. 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 the 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 the SEC can resolve
in the exercise of its adjudicatory or quasi-judicial powers.29

The criteria for distinguishing between corporate officers who may be ousted from office at will, on
one hand, and ordinary corporate employees who may only be terminated for just cause, on the
other hand, do not depend on the nature of the services performed, but on the manner of creation of
the office. In the respondent’s case, he was supposedly at once an employee, a stockholder, and a
Director of Matling. The circumstances surrounding his appointment to office must be fully
considered to determine whether the dismissal constituted an intra-corporate controversy or a labor
termination dispute. We must also consider whether his status as Director and stockholder had any
relation at all to his appointment and subsequent dismissal as Vice President for Finance and
Administration.

Obviously enough, the respondent was not appointed as Vice President for Finance and
Administration because of his being a stockholder or Director of Matling. He had started working for
Matling on September 8, 1966, and had been employed continuously for 33 years until his
termination on April 17, 2000, first as a bookkeeper, and his climb in 1987 to his last position as Vice
President for Finance and Administration had been gradual but steady, as the following sequence
indicates:

1966 – Bookkeeper

1968 – Senior Accountant

1969 – Chief Accountant

1972 – Office Supervisor

1973 – Assistant Treasurer

1978 – Special Assistant for Finance

 1980 – Assistant Comptroller

1983 – Finance and Administrative Manager

1985 – Asst. Vice President for Finance and Administration

1987 to April 17, 2000 – Vice President for Finance and Administration

Even though he might have become a stockholder of Matling in 1992, his promotion to the position
of Vice President for Finance and Administration in 1987 was by virtue of the length of quality
service he had rendered as an employee of Matling. His subsequent acquisition of the status of
Director/stockholder had no relation to his promotion. Besides, his status of Director/stockholder was
unaffected by his dismissal from employment as Vice President for Finance and Administration. 1avv phi 1

In Prudential Bank and Trust Company v. Reyes,30 a case involving a lady bank manager who had
risen from the ranks but was dismissed, the Court held that her complaint for illegal dismissal was
correctly brought to the NLRC, because she was deemed a regular employee of the bank. The Court
observed thus:

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. 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." 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. 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.

WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the Court of
Appeals.

Costs of suit to be paid by the petitioners.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:
 CONCHITA CARPIO MORALES
Associate Justice
Chairperson

ARTURO D. BRION MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

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 Decision1 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 Contracts9 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.

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 SSS’s 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 cooperative’s 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 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 [respondent’s] 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
respondent’s Motion to Dismiss. The said issue is supported by the following arguments:

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
[cooperative’s] [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 cooperative’s 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 cooperative’s 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.
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 cooperative’s
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 SSC’s 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 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 (₱5,000.00) regardless of
whether accompanied with a claim for reinstatement.20

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

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

Even before the petitioner SSC could make a determination of the existence of an employer-
employee relationship, however, the respondent cooperative already elevated the Order of the
petitioner SSC, denying its Motion to Dismiss, to the Court of Appeals by filing a Petition for
Certiorari. As a consequence thereof, the petitioner SSC became a 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 Court’s 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 exceptions24 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 worker’s conduct, with the latter
assuming primacy in the overall consideration.25The most important element is the employer’s
control of the employee’s conduct, not only as to the result of the work to be done, but also as to the
means and methods to accomplish.26 The power of control refers to the existence of the power and
not necessarily to the actual exercise thereof. It is not essential for the employer to actually
supervise the performance of duties of the employee; it is enough that the employer has the right to
wield that power.27 All the aforesaid elements are present in this case.

First. It is expressly provided in the Service Contracts that it is the respondent cooperative which has
the exclusive discretion in the selection and engagement of the owners-members as well as its team
leaders who will be assigned at Stanfilco.28 Second. Wages are defined as "remuneration or
earnings, however designated, capable of being expressed in terms of money, whether fixed or
ascertained, on a time, task, piece or commission basis, or other method of calculating the same,
which is payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to be rendered."29 In this case,
the weekly stipends or the so-called shares in the service surplus given by the respondent
cooperative to its owners-members were in reality wages, as the same were equivalent to an
amount not lower than that prescribed by existing labor laws, rules and regulations, including the
wage order applicable to the area and industry; or the same shall not be lower than the prevailing
rates of wages.30 It cannot 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 cooperative’s 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.31 Fourth. As earlier opined, of the four elements of the employer-employee relationship, the
"control test" is the most important. In the case at bar, it is the respondent cooperative which has the
sole control over the manner and means of performing the services under the Service Contracts with
Stanfilco as well as the means and methods of work.32 Also, the respondent cooperative is solely
and entirely responsible for its owners-members, team leaders and other representatives at
Stanfilco.33 All these clearly prove that, indeed, there is an employer-employee relationship between
the respondent cooperative and its owners-members.

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

As previously pointed out by this Court, an employee-employer relationship actually exists between
the respondent cooperative and its owners-members. The four elements in the four-fold test for the
existence of an employment relationship have been complied with. The respondent cooperative
must not be allowed to deny its employment relationship with its owners-members by invoking the
questionable Service Contracts provision, when in actuality, it does exist. The existence of an
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 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.1aw p++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-member’s 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 before it by the petitioner
SSS as regards the compulsory coverage of the respondent cooperative and its owners-members.
No costs.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ADOLFO S. AZCUNA

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice