Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. 78909 June 30, 1989

MATERNITY CHILDREN'S HOSPITAL, represented by ANTERA L. DORADO, President, petitioner, vs. THE HONORABLE SECRETARY OF LABOR AND THE REGIONAL DlRECTOR OF LABOR, REGION X,respondents.

MEDIALDEA, J.:

This is a petition for certiorari seeking the annulment of the Decision of the respondent Secretary of Labor dated September 24, 1986, affirming with modification the Order of respondent Regional Director of Labor, Region X, dated August 4, 1986, awarding salary differentials and emergency cost of living allowances (ECOLAS) to employees of petitioner, and the Order denying petitioner's motion for reconsideration dated May 13, 1987, on the ground of grave abuse of discretion.

Petitioner is a semi-government hospital, managed by the Board of Directors of the Cagayan de Oro Women's Club and Puericulture Center, headed by Mrs. Antera Dorado, as holdover President. The hospital derives its finances from the club itself as well as from paying patients, averaging 130 per month. It is also partly subsidized by the Philippine Charity Sweepstakes Office and the Cagayan De Oro City government.

Petitioner has forty-one (41) employees. Aside from salary and living allowances, the employees are given food, but the amount spent therefor is deducted from their respective salaries (pp. 77-78, Rollo).

On May 23, 1986, ten (10) employees of the petitioner employed in different capacities/positions filed a complaint with the Office of the Regional Director of Labor and Employment, Region X, for underpayment of their salaries and ECOLAS, which was docketed as ROX Case No. CW-71-86.

On June 16, 1986, the Regional Director directed two of his Labor Standard and Welfare Officers to inspect the records of the petitioner to ascertain the truth of the allegations in the complaints (p. 98, Rollo). Payrolls covering the periods of May, 1974, January, 1985, November, 1985 and May, 1986, were duly submitted for inspection.

On July 17, 1986, the Labor Standard and Welfare Officers submitted their report confirming that there was underpayment of wages and ECOLAs of all the employees by the petitioner, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, deficiency on wage and ecola as verified and confirmed per review of the respondent payrolls and interviews with the complainant workers and all other information gathered by the team, it is respectfully recommended to the Honorable Regional Director, this office, that Antera Dorado,

President be ORDERED to pay the amount of SIX HUNDRED FIFTY FOUR THOUSAND SEVEN HUNDRED FIFTY SIX & 01/100 (P654,756.01), representing underpayment of wages and ecola to the THIRTY SIX (36) employees of the said hospital as appearing in the attached Annex "F" worksheets and/or whatever action equitable under the premises. (p. 99, Rollo)

Based on this inspection report and recommendation, the Regional Director issued an Order dated August 4, 1986, directing the payment of P723,888.58, representing underpayment of wages and ECOLAs to all the petitioner's employees, the dispositive portion of which reads:

WHEREFORE, premises considered, respondent Maternity and Children Hospital is hereby ordered to pay the above-listed complainants the total amount indicated opposite each name, thru this Office within ten (10) days from receipt thereof. Thenceforth, the respondent hospital is also ordered to pay its employees/workers the prevailing statutory minimum wage and allowance.

SO ORDERED. (p. 34, Rollo)

Petitioner appealed from this Order to the Minister of Labor and Employment, Hon. Augusto S. Sanchez, who rendered a Decision on September 24, 1986, modifying the said Order in that deficiency wages and ECOLAs should be computed only from May 23, 1983 to May 23, 1986, the dispositive portion of which reads:

WHEREFORE, the August 29, 1986 order is hereby MODIFIED in that the deficiency wages and ECOLAs should only be computed from May 23, 1983 to May 23, 1986. The case is remanded to the Regional Director, Region X, for recomputation specifying the amounts due each the complainants under each of the applicable Presidential Decrees. (p. 40, Rollo)

On October 24, 1986, the petitioner filed a motion for reconsideration which was denied by the Secretary of Labor in his Order dated May 13, 1987, for lack of merit (p. 43 Rollo).

The instant petition questions the all-embracing applicability of the award involving salary differentials and ECOLAS, in that it covers not only the hospital employees who signed the complaints, but also those (a) who are not signatories to the complaint, and (b) those who were no longer in the service of the hospital at the time the complaints were filed.

Petitioner likewise maintains that the Order of the respondent Regional Director of Labor, as affirmed with modifications by respondent Secretary of Labor, does not clearly and distinctly state the facts and the law on which the award was based. In its "Rejoinder to Comment", petitioner further questions the authority of the Regional Director to award salary differentials and ECOLAs to private respondents, (relying on the case of Encarnacion vs. Baltazar, G.R. No. L-16883, March 27, 1961, 1 SCRA 860, as authority for raising the additional issue of lack of jurisdiction at any stage of the proceedings, p. 52, Rollo), alleging that the original and exclusive jurisdiction over money claims is properly lodged in the Labor Arbiter, based on Article 217, paragraph 3 of the Labor Code.

The primary issue here is whether or not the Regional Director had jurisdiction over the case and if so, the extent of coverage of any award that should be forthcoming, arising from his visitorial and enforcement powers under Article 128 of the Labor Code. The matter of whether or not the decision states clearly and distinctly statement of facts as well as the law upon which it is based, becomes relevant after the issue on jurisdiction has been resolved.

This is a labor standards case, and is governed by Art. 128-b of the Labor Code, as amended by E.O. No. 111. Labor standards refer to the minimum requirements prescribed by existing laws, rules, and regulations relating to wages, hours of work, cost of living allowance and other monetary and welfare benefits, including occupational, safety, and health standards (Section 7, Rule I, Rules on the Disposition of Labor Standards Cases in the Regional Office, dated September 16, 1987). 1 Under the present rules, a Regional Director exercises bothvisitorial and enforcement power over labor standards cases, and is therefore empowered to adjudicate money claims, provided there still exists an employer-employee relationship, and the findings of the regional office is not contested by the employer concerned.

Prior to the promulgation of E.O. No. 111 on December 24, 1986, the Regional Director's authority over money claims was unclear. The complaint in the present case was filed on May 23, 1986 when E.O. No. 111 was not yet in effect, and the prevailing view was that stated in the case of Antonio Ong, Sr. vs. Henry M. Parel, et al., G.R. No. 76710, dated December 21, 1987, thus:

. . . the Regional Director, in the exercise of his visitorial and enforcement powers under Article 128 of the Labor Code, has no authority to award money claims, properly falling within the jurisdiction of the labor arbiter. . . .

. . . If the inspection results in a finding that the employer has violated certain labor standard laws, then the regional director must order the necessary rectifications. However, this does not include adjudication of money claims, clearly within the ambit of the labor arbiter's authority under Article 217 of the Code.

The Ong case relied on the ruling laid down in Zambales Base Metals Inc. vs. The Minister of Labor, et al., (G.R. Nos. 73184-88, November 26, 1986, 146 SCRA 50) that the "Regional Director was not empowered to share in the original and exclusive jurisdiction conferred on Labor Arbiters by Article 217."

We believe, however, that even in the absence of E. O. No. 111, Regional Directors already had enforcement powers over money claims, effective under P.D. No. 850, issued on December 16, 1975, which transferred labor standards cases from the arbitration system to the enforcement system.

To clarify matters, it is necessary to enumerate a series of rules and provisions of law on the disposition of labor standards cases.

Prior to the promulgation of PD 850, labor standards cases were an exclusive function of labor arbiters, under Article 216 of the then Labor Code (PD No. 442, as amended by PD 570-a), which read in part:

Art. 216. Jurisdiction of the Commission. — The Commission shall have exclusive appellate jurisdiction over all cases decided by the Labor Arbiters and compulsory arbitrators.

The Labor Arbiters shall have exclusive jurisdiction to hear and decide the following cases involving all workers whether agricultural or non-agricultural.

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(c) All money claims of workers, involving non-payment or underpayment of wages, overtime compensation, separation pay, maternity leave and other money claims arising from employee-employer relations, except claims for workmen's compensation, social security and medicare benefits;

(d) Violations of labor standard laws;

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(Emphasis supplied)

The Regional Director exercised visitorial rights only under then Article 127 of the Code as follows:

ART. 127. Visitorial Powers. — The Secretary of Labor or his duly authorized representatives, including, but not restricted, to the labor inspectorate, shall have access to employers' records and premises at any time of the day or night whenever work is being undertaken therein, and the right to copy therefrom, to question any employee and investigate any fact, condition or matter which may be necessary to determine violations or in aid in the enforcement of this Title and of any Wage Order or regulation issued pursuant to this Code.

With the promulgation of PD 850, Regional Directors were given enforcement powers, in addition to visitorial powers. Article 127, as amended, provided in part:

SEC. 10. Article 127 of the Code is hereby amended to read as follows:

Art. 127. Visitorial and enforcement powers. —

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(b) The Secretary of Labor or his duly authorized representatives shall have the power to order and administer, after due notice and hearing, compliance with the labor standards provisions of this Code based on the findings of labor regulation officers or industrial safety engineers made in the course of inspection, and to issue writs of execution to the appropriate authority for the enforcement of their order.

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Labor Arbiters, on the other hand, lost jurisdiction over labor standards cases. Article 216, as then amended by PD 850, provided in part:

SEC. 22. Article 216 of the Code is hereby amended to read as follows:

Art. 216. Jurisdiction of Labor Arbiters and the Commission. — (a) The Labor Arbiters shall have exclusive jurisdiction to hear and

decide the following cases involving all workers, whether agricultural or non-agricultural:

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(3) All money claims of workers involving non-payment or underpayment of wages, overtime or premium compensation, maternity or service incentive leave, separation pay and other money claims arising from employer-employee relations, except claims for employee's compensation, social security and medicare benefits and as otherwise provided in Article 127 of this Code.

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(Emphasis supplied)

Under the then Labor Code therefore (PD 442 as amended by PD 570-a, as further amended by PD 850), there were three adjudicatory units: The Regional Director, the Bureau of Labor Relations and the Labor Arbiter. It became necessary to clarify and consolidate all governing provisions on jurisdiction into one document. 2 On April 23, 1976, MOLE Policy Instructions No. 6 was issued, and provides in part (on labor standards cases) as follows:

POLICY INSTRUCTIONS NO. 6

TO: All Concerned

SUBJECT: DISTRIBUTION OF JURISDICTION OVER LABOR CASES

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1. The following cases are under the exclusive original jurisdiction of the Regional Director.

a) Labor standards cases arising from violations of labor standard lawsdiscovered in the course of inspection or complaints where employer-employee relations still exist;

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2. The following cases are under the exclusive original jurisdiction of the Conciliation Section of the Regional Office:

a) Labor standards cases where employer-employee relations no longer exist;

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6. The following cases are certifiable to the Labor Arbiters:

a) Cases not settled by the Conciliation Section of the Regional Office, namely:

1) labor standard cases where employer-employee relations no longer exist;

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(Emphasis supplied)

MOLE Policy Instructions No. 7 (undated) was likewise subsequently issued, enunciating the rationale for, and the scope of, the enforcement power of the Regional Director, the first and second paragraphs of which provide as follows:

POLICY INSTRUCTIONS NO. 7

TO: All Regional Directors

SUBJECT: LABOR STANDARDS CASES

Under PD 850, labor standards cases have been taken from the arbitration system and placed under the enforcement system, except where a) questions of law are involved as determined by the Regional Director, b) the amount involved exceeds P100,000.00 or over 40% of the equity of the employer, whichever is lower, c) the case requires evidentiary matters not disclosed or verified in the normal course of inspection, or d) there is no more employer-employee relationship.

The purpose is clear: to assure the worker the rights and benefits due to him under labor standards laws without having to go through arbitration. The worker need not litigate to get what legally belongs to him. The whole enforcement machinery of the Department of Labor exists to insure its expeditious delivery to him free of charge. (Emphasis supplied)

Under the foregoing, a complaining employee who was denied his rights and benefits due him under labor standards law need not litigate. The Regional Director, by virtue of his enforcement power, assured "expeditious delivery to him of his rights and benefits free of charge", provided of course, he was still in the employ of the firm.

After PD 850, Article 216 underwent a series of amendments (aside from being re-numbered as Article 217) and with it a corresponding change in the jurisdiction of, and supervision over, the Labor Arbiters:

1. PD 1367 (5-1-78) — gave Labor Arbiters exclusive jurisdiction over unresolved issues in collective bargaining, etc., and those cases arising from employer-employee relationsduly indorsed by the Regional Directors. (It also removed his jurisdiction over moral or other damages) In other words, the Labor Arbiter entertained cases certified to him. (Article 228, 1978 Labor Code.)

2. PD 1391 (5-29-78) — all regional units of the National Labor Relations Commission (NLRC) were integrated into the Regional Offices Proper of

the Ministry of Labor; effectively transferring direct administrative control and supervision over the Arbitration Branch to the Director of the Regional Office of the Ministry of Labor. "Conciliable cases" which were thus previously under the jurisdiction of the defunct Conciliation Section of the Regional Office for purposes of conciliation or amicable settlement, became immediately assignable to the Arbitration Branch for jointconciliation and compulsory arbitration. In addition, the Labor Arbiter had jurisdiction even over termination and labor-standards cases that may be assigned to them for compulsory arbitration by the Director of the Regional Office. PD 1391 merged conciliation and compulsory arbitration functions in the person of the Labor Arbiter. The procedure governing the disposition of cases at the Arbitration Branch paralleled those in the Special Task Force and Field Services Division, with one major exception: the Labor Arbiter exercised full and untrammelled authority in the disposition of the case, particularly in the substantive aspect, his decisions and orders subject to review only on appeal to the NLRC. 3

3. MOLE Policy Instructions No. 37 — Because of the seemingly overlapping functions as a result of PD 1391, MOLE Policy Instructions No. 37 was issued on October 7, 1978, and provided in part:

POLICY INSTRUCTIONS NO. 37

TO: All Concerned

SUBJECT: ASSIGNMENT OF CASES TO LABOR ARBITERS

Pursuant to the provisions of Presidential Decree No. 1391 and to insure speedy disposition of labor cases, the following guidelines are hereby established for the information and guidance of all concerned.

1. Conciliable Cases.

Cases which are conciliable per se i.e., (a) labor standards cases where employer-employee relationship no longer exists; (b) cases involving deadlock in collective bargaining, except those falling under P.D. 823, as amended; (c) unfair labor practice cases; and (d) overseas employment cases, except those involving overseas seamen, shall be assigned by the Regional Director to the Labor Arbiter for conciliation and arbitration without coursing them through the conciliation section of the Regional Office.

2. Labor Standards Cases.

Cases involving violation of labor standards laws where employer- employee relationshipstill exists shall be assigned to the Labor Arbiters where:

a) intricate questions of law are involved; or

b) evidentiary matters not disclosed or verified in the normal course of inspection by labor regulations officers are required for their proper disposition.

3. Disposition of Cases.

When a case is assigned to a Labor Arbiter, all issues raised therein shall be resolved by him including those which are originally cognizable by the Regional Director to avoid multiplicity of proceedings. In other words, the whole case, and not merely issues involved therein, shall be assigned to and resolved by him.

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(Emphasis supplied)

4. PD 1691(5-1-80) — original and exclusive jurisdiction over unresolved issues in collective bargaining and money claims, which includes moral or other damages.

Despite the original and exclusive jurisdiction of labor arbiters over money claims, however, the Regional Director nonetheless retained his enforcement power, and remained empowered to adjudicate uncontested money claims.

5. BP 130 (8-21-8l) — strengthened voluntary arbitration. The decree also returned the Labor Arbiters as part of the NLRC, operating as Arbitration Branch thereof.

6. BP 227(6-1- 82) — original and exclusive jurisdiction over questions involving legality of strikes and lock-outs.

The present petition questions the authority of the Regional Director to issue the Order, dated August 4, 1986, on the basis of his visitorial and enforcement powers under Article 128 (formerly Article 127) of the present Labor Code. It is contended that based on the rulings in the Ong vs. Parel (supra) and the Zambales Base Metals, Inc. vs. The Minister of Labor (supra) cases, a Regional Director is precluded from adjudicating money claims on the ground that this is an exclusive function of the Labor Arbiter under Article 217 of the present Code.

On August 4, 1986, when the order was issued, Article 128(b) 4 read as follows:

(b) The Minister of Labor or his duly authorized representatives shall have the power to order and administer, after due notice and hearing, compliance with the labor standards provisions of this Code based on the findings of labor regulation officers or industrial safety engineers made in the course of inspection, and to issue writs of execution to the appropriate authority for the enforcement of their order, except in cases where the employer contests the findings of the labor regulations officer and raises issues which cannot be resolved without considering evidentiary matters that are not verifiable in the normal course of inspection. (Emphasis supplied)

On the other hand, Article 217 of the Labor Code as amended by P.D. 1691, effective May 1, 1980; Batas Pambansa Blg. 130, effective August 21, 1981; and Batas Pambansa Blg. 227, effective June 1, 1982, inter alia, provides:

ART. 217. Jurisdiction of Labor Arbiters and the Commission. — (a) The Labor Arbiters shall have theoriginal and exclusive jurisdiction to hear and decide within thirty (30) working days after submission of the case by the parties for decision, the following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Those that workers may file involving wages, hours of work and other terms and conditions of employment;

3. All money claims of workers, including those based on non-payment or underpayment of wages, overtime compensation, separation pay and other benefits provided by law or appropriate agreement, except claims for employees' compensation, social security, medicare and maternity benefits;

4. Cases involving household services; and

5. Cases arising from any violation of Article 265 of this Code, including questions involving the legality of strikes and lock-outs. (Emphasis supplied)

The Ong and Zambales cases involved workers who were still connected with the company. However, in the Ong case, the employer disputed the adequacy of the evidentiary foundation (employees' affidavits) of the findings of the labor standards inspectors while in the Zambales case, the money claims which arose from alleged violations of labor standards provisions were not discovered in the course of normal inspection. Thus, the provisions of MOLE Policy Instructions Nos. 6, (Distribution of Jurisdiction Over Labor Cases) and 37 (Assignment of Cases to Labor Arbiters) giving Regional Directors adjudicatory powers over uncontested money claims discovered in the course of normal inspection, provided an employer-employee relationship still exists, are inapplicable.

In the present case, petitioner admitted the charge of underpayment of wages to workers still in its employ; in fact, it pleaded for time to raise funds to satisfy its obligation. There was thus no contest against the findings of the labor inspectors.

Barely less than a month after the promulgation on November 26, 1986 of the Zambales Base Metals case, Executive Order No. 111 was issued on December 24, 1986, 5 amending Article 128(b) of the Labor Code, to read as follows:

(b) THE PROVISIONS OF ARTICLE 217 OF THIS CODE TO THE CONTRARY NOTWITHSTANDING AND IN CASES WHERE THE RELATIONSHIP OF EMPLOYER-EMPLOYEE STILL EXISTS, the Minister of Labor and Employment or his duly authorized representatives shall have the power to order and administer, after due notice and hearing, compliance with the labor standards provisions of this Code AND OTHER LABOR LEGISLATION based on the findings of labor regulation officers or industrial safety

engineers made in the course of inspection, and to issue writs of execution to the appropriate authority for the enforcement of their orders, except in cases where the employer contests the findings of the labor regulation officer and raises issues which cannot be resolved without considering evidentiary matters that are not verifiable in the normal course of inspection. (Emphasis supplied)

As seen from the foregoing, EO 111 authorizes a Regional Director to order compliance by an employer with labor standards provisions of the Labor Code and other legislation. It is Our considered opinion however, that the inclusion of the phrase, " The provisions of Article 217 of this Code to the contrary notwithstanding and in cases where the relationship of employer-employee still exists" ... in Article 128(b), as amended, above-cited, merelyconfirms/reiterates the enforcement adjudication authority of the Regional Director over uncontested money claimsin cases where an employer-employee relationship still exists. 6

Viewed in the light of PD 850 and read in coordination with MOLE Policy Instructions Nos. 6, 7 and 37, it is clear that it has always been the intention of our labor authorities to provide our workers immediate access (when still feasible, as where an employer-employee relationship still exists) to their rights and benefits, without being inconvenienced by arbitration/litigation processes that prove to be not only nerve-wracking, but financially burdensome in the long run.

Note further the second paragraph of Policy Instructions No. 7 indicating that the transfer of labor standards cases from the arbitration system to the enforcement system is

. . to assure the workers the rights and benefits due to him under labor standard laws, without having to go through arbitration. . .

so that

. . the workers would not litigate to get what legally belongs to him. .. ensuring delivery . . free of charge.

Social justice legislation, to be truly meaningful and rewarding to our workers, must not be hampered in its application by long-winded arbitration and litigation. Rights must be asserted and benefits received with the least inconvenience. Labor laws are meant to promote, not defeat, social justice.

This view is in consonance with the present "Rules on the Disposition of Labor Standard Cases in the Regional Offices " 7 issued by the Secretary of Labor, Franklin M. Drilon on September 16, 1987.

Thus, Sections 2 and 3 of Rule II on "Money Claims Arising from Complaint Routine Inspection", provide as follows:

Section 2. Complaint inspection. — All such complaints shall immediately be forwarded to the Regional Director who shall refer the case to the appropriate unit in the Regional Office for assignment to a Labor Standards and Welfare Officer (LSWO) for field inspection. When the field inspection does not produce the desired results, the Regional Director shall summon the parties for summary investigation to expedite the disposition of the case. . . .

Section 3. Complaints where no employer-employee relationship actually exists. — Where employer-employee relationship no longer exists by reason of the fact that it

has already been severed, claims for payment of monetary benefits fall within the exclusive and original jurisdiction of the labor arbiters. . . . (Emphasis supplied)

Likewise, it is also clear that the limitation embodied in MOLE Policy Instructions No. 7 to amounts not exceeding P100,000.00 has been dispensed with, in view of the following provisions of pars. (b) and (c), Section 7 on "Restitution", the same Rules, thus:

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(b) Plant-level restitutions may be effected for money claims not exceeding Fifty Thousand (P50,000.00). . . .

(c) Restitutions in excess of the aforementioned amount shall be effected at the Regional Office or at the worksite subject to the prior approval of the Regional Director.

which indicate the intention to empower the Regional Director to award money claims in excess of P100,000.00;provided of course the employer does not contest the findings made, based on the provisions of Section 8 thereof:

Section 8. Compromise agreement. — Should the parties arrive at an agreement as to the whole or part of the dispute, said agreement shall be reduced in writing and signed by the parties in the presence of the Regional Director or his duly authorized representative.

E.O. No. 111 was issued on December 24, 1986 or three (3) months after the promulgation of the Secretary of Labor's decision upholding private respondents' salary differentials and ECOLAs on September 24, 1986. The amendment of the visitorial and enforcement powers of the Regional Director (Article 128-b) by said E.O. 111 reflects the intention enunciated in Policy Instructions Nos. 6 and 37 to empower the Regional Directors to resolveuncontested money claims in cases where an employer-employee relationship still exists. This intention must be given weight and entitled to great respect. As held in Progressive Workers' Union, et. al. vs. F.P. Aguas, et. al. G.R. No. 59711-12, May 29, 1985, 150 SCRA 429:

. . The interpretation by officers of laws which are entrusted to their administration is entitled to great respect. We see no reason to detract from this rudimentary rule in administrative law, particularly when later events have proved said interpretation to be in accord with the legislative intent. ..

The proceedings before the Regional Director must, perforce, be upheld on the basis of Article 128(b) as amended by E.O. No. 111, dated December 24, 1986, this executive order "to be considered in the nature of a curative statute with retrospective application." (Progressive Workers' Union, et al. vs. Hon. F.P. Aguas, et al. (Supra); M. Garcia vs. Judge A. Martinez, et al., G.R. No. L- 47629, May 28, 1979, 90 SCRA 331).

We now come to the question of whether or not the Regional Director erred in extending the award to all hospital employees. We answer in the affirmative.

The Regional Director correctly applied the award with respect to those employees who signed the complaint, as well as those who did not sign the complaint, but were still connected with the hospital

at the time the complaint was filed (See Order, p. 33 dated August 4, 1986 of the Regional Director, Pedrito de Susi, p. 33, Rollo).

The justification for the award to this group of employees who were not signatories to the complaint is that the visitorial and enforcement powers given to the Secretary of Labor is relevant to, and exercisable over establishments, not over the individual members/employees, because what is sought to be achieved by its exercise is the observance of, and/or compliance by, such firm/establishment with the labor standards regulations. Necessarily, in case of an award resulting from a violation of labor legislation by such establishment, the entire members/employees should benefit therefrom. As aptly stated by then Minister of Labor Augusto S. Sanchez:

. . It would be highly derogatory to the rights of the workers, if after categorically finding the respondent hospital guilty of underpayment of wages and ECOLAs, we limit the award to only those who signed the complaint to the exclusion of the majority of the workers who are similarly situated. Indeed, this would be not only render the enforcement power of the Minister of Labor and Employment nugatory, but would be the pinnacle of injustice considering that it would not only discriminate but also deprive them of legislated benefits.

. . . (pp. 38-39, Rollo).

This view is further bolstered by the provisions of Sec. 6, Rule II of the "Rules on the Disposition of Labor Standards cases in the Regional Offices" (supra) presently enforced, viz:

SECTION 6. Coverage of complaint inspection. — A complaint inspection shall not be limited to the specific allegations or violations raised by the complainants/workers but shall be a thorough inquiry into and verification of the compliance by employer with existing labor standards and shall cover all workers similarly situated. (Emphasis supplied)

However, there is no legal justification for the award in favor of those employees who were no longer connectedwith the hospital at the time the complaint was filed, having resigned therefrom in 1984, viz:

1. Jean (Joan) Venzon (See Order, p. 33, Rollo) 2. Rosario Paclijan 3. Adela Peralta 4. Mauricio Nagales 5. Consesa Bautista 6. Teresita Agcopra 7. Felix Monleon 8. Teresita Salvador 9. Edgar Cataluna; and

10. Raymond Manija ( p.7, Rollo)

The enforcement power of the Regional Director cannot legally be upheld in cases of separated employees. Article 129 of the Labor Code, cited by petitioner (p. 54, Rollo) is not applicable as said article is in aid of the enforcement power of the Regional Director; hence, not applicable where the employee seeking to be paid underpayment of wages is already separated from the service. His claim is purely a money claim that has to be the subject of arbitration proceedings and therefore within the original and exclusive jurisdiction of the Labor Arbiter.

Petitioner has likewise questioned the order dated August 4, 1986 of the Regional Director in that it does not clearly and distinctly state the facts and the law on which the award is based.

We invite attention to the Minister of Labor's ruling thereon, as follows:

Finally, the respondent hospital assails the order under appeal as null and void because it does not clearly and distinctly state the facts and the law on which the awards were based. Contrary to the pretensions of the respondent hospital, we have carefully reviewed the order on appeal and we found that the same contains a brief statement of the (a) facts of the case; (b) issues involved; (c) applicable laws; (d) conclusions and the reasons therefor; (e) specific remedy granted (amount awarded). (p. 40, Rollo)

ACCORDINGLY, this petition should be dismissed, as it is hereby DISMISSED, as regards all persons still employed in the Hospital at the time of the filing of the complaint, but GRANTED as regards those employees no longer employed at that time.

SO ORDERED.

Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Cortes, Griño-Aquino and Regalado, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 167217 February 4, 2008

P.I. MANUFACTURING, INCORPORATED, petitioner, vs. P.I. MANUFACTURING SUPERVISORS AND FOREMAN ASSOCIATION and the NATIONAL LABOR UNION,respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

The Court has always promoted the policy of encouraging employers to grant wage and allowance increases to their employees higher than the minimum rates of increases prescribed by statute or administrative regulation. Consistent with this, the Court also adopts the policy that requires recognition and validation of wage increases given by employers either unilaterally or as a result of collective bargaining negotiations in an effort to correct wage distortions.1

Before us is a motion for reconsideration of our Resolution dated April 18, 2005 denying the present petition for review on certiorari for failure of the petitioner to show that a reversible error has been committed by the Court of Appeals in its (a) Decision dated July 21, 2004 and (b) Resolution dated February 18, 2005.

The facts are:

Petitioner P.I. Manufacturing, Incorporated is a domestic corporation engaged in the manufacture and sale of household appliances. On the other hand, respondent P.I. Manufacturing Supervisors and Foremen Association (PIMASUFA) is an organization of petitioner’s supervisors and foremen, joined in this case by its federation, the National Labor Union (NLU).

On December 10, 1987, the President signed into law Republic Act (R.A.) No. 66402 providing, among others, an increase in the statutory minimum wage and salary rates of employees and workers in the private sector. Section 2 provides:

SEC. 2. The statutory minimum wage rates of workers and employees in the private sector, whether agricultural or non-agricultural, shall be increased by ten pesos (P10.00) per day, except non-agricultural workers and employees outside Metro Manila who shall receive an increase of eleven pesos (P11.00) per day: Provided, That those already receiving above the minimum wage up to one hundred pesos (P100.00) shall receive an increase of ten pesos (P10.00) per day. Excepted from the provisions of this Act are domestic helpers and persons employed in the personal service of another.

Thereafter, on December 18, 1987, petitioner and respondent PIMASUFA entered into a new Collective Bargaining Agreement (1987 CBA) whereby the supervisors were granted an increase of P625.00 per month and the foremen, P475.00 per month. The increases were made retroactive

to May 12, 1987, or prior to the passage of R.A. No. 6640, and every year thereafter until July 26, 1989. The pertinent portions of the 1987 CBA read:

ARTICLE IV

SALARIES AND OVERTIME

Section 1. The COMPANY shall grant to all regular supervisors and foremen within the coverage of the unit represented by the ASSOCIATION, wage or salary increases in the amount set forth as follows:

A. For FOREMEN

Effective May 12, 1987, an increase of P475,00 per month to all qualified regular foremen who are in the service of the COMPANY as of said date and who are still in its employ on the signing of this Agreement, subject to the conditions set forth in sub-paragraph (d) hereunder;

a) Effective July 26, 1988, an increase of P475.00 per month/employee to all covered foremen;

b) Effective July 26, 1989, an increase of P475.00 per month/per employee to all covered foremen;

c) The salary increases from May 12, 1987 to November 30, 1987 shall be excluding and without increment on fringe benefits and/or premium and shall solely be on basic salary.

B. For SUPERVISORS

a) Effective May 12, 1987, an increase of P625.00 per month/employee to all qualified regular supervisors who are in the service of the COMPANY as of said date and who are still in its employ on the signing of the Agreement, subject to the conditions set forth in subparagraph (d) hereunder;

b) Effective July 26, 1988, an increase of P625.00 per month/employee to all covered supervisors;

c) Effective July 26, 1989, an increase of P625.00 per month/employee to all covered supervisors;

d) The salary increase from May 12, 1987 to November 30, 1987 shall be excluding and without increment on fringe benefits and/or premiums and shall solely be on basic salary.

On January 26, 1989, respondents PIMASUFA and NLU filed a complaint with the Arbitration Branch of the National Labor Relations Commission (NLRC), docketed as NLRC-NCR Case No. 00-01-00584, charging petitioner with violation of R.A. No. 6640.3 Respondents attached to their complaint a numerical illustration of wage distortion resulting from the implementation of R.A. No. 6640.

On March 19, 1990, the Labor Arbiter rendered his Decision in favor of respondents. Petitioner was ordered to give the members of respondent PIMASUFA wage increases equivalent to 13.5% of their basic pay they were receiving prior to December 14, 1987. The Labor Arbiter held:

As regards the issue of wage distortion brought about by the implementation of R.A. 6640 – It is correctly pointed out by the union that employees cannot waive future benefits, much less those mandated by law. That is against public policy as it would render meaningless the law. Thus, the waiver in the CBA does not bar the union from claiming adjustments in pay as a result of distortion of wages brought about by the implementation of R.A. 6640.

Just how much are the supervisors and foremen entitled to correct such distortion is now the question. Pursuant to the said law, those who on December 14, 1987 were receiving less than P100.00 are all entitled to an automatic across- the-board increase of P10.00 a day. The percentage in increase given those who received benefits under R.A. 6640 should be the same percentage given to the supervisors and foremen.

The statutory minimum pay then was P54.00 a day. With the addition of P10.00 a day, the said minimum pay raised to P64.00 a day. The increase of P10.00 a day is P13.5% of the minimum wage prior to December 14, 1987. The same percentage of the pay of members of petitioner prior to December 14, 1987 should be given them.

Finally, the claim of respondent that the filing of the present case, insofar as the provision of R.A. 6640 is concerned, is premature does not deserve much consideration considering that as of December 1988, complainant submitted in grievance the aforementioned issue but the same was not settled.4

On appeal by petitioner, the NLRC, in its Resolution dated January 8, 1991, affirmed the Labor Arbiter’s judgment.

Undaunted, petitioner filed a petition for certiorari with this Court. However, we referred the petition to the Court of Appeals pursuant to our ruling in St. Martin Funeral Homes v. NLRC.5 It was docketed therein as CA-G.R. SP No. 54379.

On July 21, 2004, the appellate court rendered its Decision affirming the Decision of the NLRC with modification by raising the 13.5% wage increase to 18.5%. We quote the pertinent portions of the Court of Appeals Decision, thus:

Anent the fourth issue, petitioner asseverates that the wage distortion issue is already barred by Sec. 2 Article IV of the Contract denominated as "The Company and Supervisors and Foremen Contract" dated December 18, 1987 declaring that it "absolves, quit claims and releases the COMPANY for any monetary claim they have, if any there might be or there might have been previous to the signing of this agreement." Petitioner interprets this as absolving it from any wage distortion brought about by the implementation of the new minimum wage law. Since the contract was signed on December 17, 1987, or after the effectivity of Republic Act No. 6640, petitioner claims that private respondent is deemed to have waived any benefit it may have under the new law.

We are not persuaded.

Contrary to petitioner’s stance, the increase resulting from any wage distortion caused by the implementation of Republic Act 6640 is not waivable. As held in the case of Pure Foods Corporation vs. National Labor Relations Commission, et al.:

"Generally, quitclaims by laborers are frowned upon as contrary to public policy and are held to be ineffective to bar recovery for the full measure of the worker’s rights.

The reason for the rule is that the employer and the employee do not stand on the same footing."

Moreover, Section 8 of the Rules Implementing RA 6640 states:

No wage increase shall be credited as compliance with the increase prescribed herein unless expressly provided under valid individual written/collective agreements; and provided further that such wage increase was granted in anticipation of the legislated wage increase under the act. But such increases shall not include anniversary wage increases provided in collective bargaining agreements.

Likewise, Article 1419 of the Civil Code mandates that:

When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency.

Thus, notwithstanding the stipulation provided under Section 2 of the Company and Supervisors and Foremen Contract, we find the members of private respondent union entitled to the increase of their basic pay due to wage distortion by reason of the implementation of RA 6640.

On the last issue, the increase of 13.5% in the supervisors and foremen’s basic salary must further be increased to 18.5% in order to correct the wage distortion brought about by the implementation of RA 6640. It must be recalled that the statutory minimum pay before RA 6640 was P54.00 a day. The increase ofP10.00 a day under RA 6640 on the prior minimum pay of P54.00 is 18.5% and not 13.5%. Thus, petitioner should be made to pay the amount equivalent to 18.5% of the basic pay of the members or private respondent union in compliance with the provisions of Section 3 of RA 6640."

Petitioner filed a motion for reconsideration but it was denied by the appellate court in its Resolution dated February 18, 2005.

Hence, the present recourse, petitioner alleging that the Court of Appeals erred:

1) In awarding wage increase to respondent supervisors and foremen to cure an alleged wage distortion that resulted from the implementation of R.A. No. 6640.

2) In disregarding the wage increases granted under the 1987 CBA correcting whatever wage distortion that may have been created by R.A. No. 6640.

3) In awarding wage increase equivalent to 18.5% of the basic pay of the members of respondent PIMASUFA in violation of the clear provision of R.A. No. 6640 excluding from its coverage employees receiving wages higher than P100.00.

4) In increasing the NLRC’s award of wage increase from 13.5% to 18.5%, which increase is very much higher than the P10.00 daily increase mandated by R.A. No. 6640.

Petitioner contends that the findings of the NLRC and the Court of Appeals as to the existence of a wage distortion are not supported by evidence; that Section 2 of R.A. No. 6640 does not provide for an increase in the wages of employees receiving more than P100.00; and that the 1987 CBA has

obliterated any possible wage distortion because the increase granted to the members of respondent PIMASUFA in the amount of P625.00 and P475.00 per month substantially widened the gap between the foremen and supervisors and as against the rank and file employees.

Respondents PIMASUFA and NLU, despite notice, failed to file their respective comments.

In a Minute Resolution dated April 18, 2005, we denied the petition for petitioner’s failure to show that the Court of Appeals committed a reversible error.

Hence, this motion for reconsideration.

We grant the motion.

In the ultimate, the issue here is whether the implementation of R.A. No. 6640 resulted in a wage distortion and whether such distortion was cured or remedied by the 1987 CBA.

R.A. No. 6727, otherwise known as the Wage Rationalization Act, explicitly defines "wage distortion" as:

x x x a situation where an increase in prescribed wage rates results in the elimination or severe contraction of intentional quantitative differences in wage or salary rates between and among employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage structure based on skills, length of service, or other logical bases of differentiation.

Otherwise stated, wage distortion means the disappearance or virtual disappearance of pay differentials between lower and higher positions in an enterprise because of compliance with a wage order.6

In this case, the Court of Appeals correctly ruled that a wage distortion occurred due to the implementation of R.A. No. 6640. The numerical illustration submitted by respondents7 shows such distortion, thus:

II WAGE DISTORTION REGARDING RA-6640 (P10.00 per day increase effective December 31, 1987)

Illustration of Wage Distortion and corresponding wage adjustments as provided in RA-6640

NAME OF SUPERVISOR (S)

AND FOREMAN (F)

RATE BEFORE

INCREASE OF RA-

6640P10.00

RATE AFTER

INCREASE OF RA-

6640P10.00

P109.01 OVER-

PASSED P108.80

RATE AFTER ADJUSTMENT

P10.00

P118.80 OVER-

PASSED P118.08

RATE AFTER ADJUSTMENT

P10.00

P128.08 OVER-

PASSED P123.76

RATE AFTER ADJUSTMENT

P10.00

1. ALCANTARA, V (S) P 99.01 P 109.01

2. MORALES, A (F) 94.93 104.93

3. SALVO, R (F) 96.45 106.45

Note: No. 1 to 3 with increase of RA-6640

4.BUENCUCHILLO, C (S)

102.38 102.38 P 112.38

5. MENDOZA, D (F) 107.14 107.14 117.14

6. DEL PRADO, M (S) 108.80 108.80 118.80

7. PALENSO, A (F) 109.71 109.71 P 119.71

8. OJERIO, E (S) 111.71 111.71 121.71

9. REYES, J (S) 114.98 114.98 124.98

10. PALOMIQUE, S (F) 116.79 116.79 126.79

11. PAGLINAWAN, A (S) 116.98 116.98 126.98

12. CAMITO, M (S) 117.04 117.04 127.04

13. TUMBOCON, P (S) 117.44 117.44 127.44

14. SISON JR., B (S) 118.08 118.08 128.08

15. BORJA, R (S) 119.80 119.80 P 129.80

16. GINON, D (S) 123.76 123.76 133.76

17. GINON, T (S) 151. 49 151.49

18. ANDRES, M (S) 255.72 255.72

Note: No. 4 to 18 no increase in R.A. No. 6640

Notably, the implementation of R.A. No. 6640 resulted in the increase of P10.00 in the wage rates of Alcantara,supervisor, and Morales and Salvo, both foremen. They are petitioner’s lowest paid supervisor and foremen. As a consequence, the increased wage rates of foremen Morales and Salvo exceeded that ofsupervisor Buencuchillo. Also, the increased wage rate of supervisor Alcantara exceeded those ofsupervisors Buencuchillo and Del Prado. Consequently, the P9.79 gap or difference between the wage rate of supervisor Del Prado and that of supervisor Alcantara was eliminated. Instead, the latter gained a P.21 lead over Del Prado. Like a domino effect, these gaps or differences between and among the wage rates of all the above employees have been substantially altered and reduced. It is therefore undeniable that the increase in the wage rates by virtue of R.A. No. 6640 resulted in wage distortion or the elimination of the intentional quantitative differences in the wage rates of the above employees.

However, while we find the presence of wage distortions, we are convinced that the same were cured or remedied when respondent PIMASUFA entered into the 1987 CBA with petitioner after the effectivity of R.A. No. 6640. The 1987 CBA increased the monthly salaries of the supervisors by P625.00 and the foremen, by P475.00,effective May 12, 1987. These increases re-established and broadened the gap, not only between the supervisors and the foremen, but also between them and the rank-and-file employees. Significantly, the 1987 CBA wage increases almost doubled that of the P10.00 increase under R.A. No. 6640. The P625.00/month meansP24.03 increase per day for the supervisors, while the P475.00/month means P18.26 increase per day for the foremen. These increases were to be observed every year, starting May 12, 1987 until July 26, 1989. Clearly, the gap between the wage rates of the supervisors and those of the foremen was inevitably re-established. It continued to broaden through the years.

Interestingly, such gap as re-established by virtue of the CBA is more than a substantial compliance with R.A. No. 6640. We hold that the Court of Appeals erred in not taking into account the provisions

of the CBA viz-a-viz the wage increase under the said law. In National Federation of Labor v. NLRC,8 we held:

We believe and so hold that the re-establishment of a significant gap or differential between regular employees and casual employees by operation of the CBA was more than substantial compliance with the requirements of the several Wage Orders (and of Article 124 of the Labor Code). That this re-establishment of a significant differential was the result of collective bargaining negotiations, rather than of a special grievance procedure, is not a legal basis for ignoring it. The NLRC En Banc was in serious error when it disregarded the differential of P3.60 which had been restored by 1 July 1985 upon the ground that such differential "represent[ed] negotiated wage increase[s] which should not be considered covered and in compliance with the Wage Orders. x x x"

In Capitol Wireless, Inc. v. Bate,9 we also held:

x x x The wage orders did not grant across-the-board increases to all employees in the National Capital Region but limited such increases only to those already receiving wage rates not more than P125.00 per day under Wage Order Nos. NCR-01 and NCR-01-A and P142.00 per day under Wage Order No. NCR-02. Since the wage orders specified who among the employees are entitled to the statutory wage increases, then the increases applied only to those mentioned therein. The provisions of the CBA should be read in harmony with the wage orders, whose benefits should be given only to those employees covered thereby.

It has not escaped our attention that requiring petitioner to pay all the members of respondent PIMASUFA a wage increase of 18.5%, over and above the negotiated wage increases provided under the 1987 CBA, is highly unfair and oppressive to the former. Obviously, it was not the intention of R.A. No. 6640 to grant an across-the-board increase in pay to all the employees of petitioner. Section 2 of R.A. No. 6640 mandates only the following increases in the private sector: (1) P10.00 per day for the employees in the private sector, whether agricultural or non-agricultural, who are receiving the statutory minimum wage rates; (2) P11.00 per day for non-agricultural workers and employees outside Metro Manila; and (3) P10.00 per day for those already receiving the minimum wage up to P100.00. To be sure, only those receiving wages P100.00 and below are entitled to the P10.00 wage increase. The apparent intention of the law is only to upgrade the salaries or wages of the employees specified therein.10 As the numerical illustration shows, almost all of the members of respondent PIMASUFA have been receiving wage rates above P100.00 and, therefore, not entitled to the P10.00 increase. Only three (3) of them are receiving wage rates below P100.00, thus, entitled to such increase. Now, to direct petitioner to grant an across-the-board increase to all of them, regardless of the amount of wages they are already receiving, would be harsh and unfair to the former. As we ruled in Metropolitan Bank and Trust Company Employees Union ALU-TUCP v. NLRC:11

x x x To compel employers simply to add on legislative increases in salaries or allowances without regard to what is already being paid, would be to penalize employers who grant their workers more than the statutory prescribed minimum rates of increases. Clearly, this would be counter-productive so far as securing the interests of labor is concerned.

Corollarily, the Court of Appeals erred in citing Pure Foods Corporation v. National Labor Relations Commission12as basis in disregarding the provisions of the 1987 CBA. The case involves, not wage distortion, but illegal dismissal of employees from the service. The Release and Quitclaim executed

therein by the Pure Food’s employees were intended to preclude them from questioning the termination of their services, not their entitlement to wage increase on account of a wage distortion.

At this juncture, it must be stressed that a CBA constitutes the law between the parties when freely andvoluntarily entered into.13 Here, it has not been shown that respondent PIMASUFA was coerced or forced by petitioner to sign the 1987 CBA. All of its thirteen (13) officers signed the CBA with the assistance of respondent NLU. They signed it fully aware of the passage of R.A. No. 6640. The duty to bargain requires that the parties deal with each other with open and fair minds. A sincere endeavor to overcome obstacles and difficulties that may arise, so that employer-employee relations may be stabilized and industrial strife eliminated, must be apparent.14Respondents cannot invoke the beneficial provisions of the 1987 CBA but disregard the concessions it voluntary extended to petitioner. The goal of collective bargaining is the making of agreements that will stabilize business conditions and fix fair standards of working conditions.15 Definitely, respondents’ posture contravenes this goal.

In fine, it must be emphasized that in the resolution of labor cases, this Court has always been guided by the State policy enshrined in the Constitution that the rights of workers and the promotion of their welfare shall be protected. However, consistent with such policy, the Court cannot favor one party, be it labor or management, in arriving at a just solution to a controversy if the party concerned has no valid support to its claim, like respondents here.

WHEREFORE, we GRANT petitioner’ s motion for reconsideration and REINSTATE the petition we likewise GRANT. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 54379 is REVERSED.

SO ORDERED.

Puno, C.J., Chairperson, Corona, Azcuna, Leonardo-de Castro, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. 81958 June 30, 1988

PHILIPPINE ASSOCIATION OF SERVICE EXPORTERS, INC., petitioner, vs. HON. FRANKLIN M. DRILON as Secretary of Labor and Employment, and TOMAS D. ACHACOSO, as Administrator of the Philippine Overseas Employment Administration, respondents.

Gutierrez & Alo Law Offices for petitioner.

SARMIENTO, J.:

The petitioner, Philippine Association of Service Exporters, Inc. (PASEI, for short), a firm "engaged principally in the recruitment of Filipino workers, male and female, for overseas placement," 1 challenges the Constitutional validity of Department Order No. 1, Series of 1988, of the Department of Labor and Employment, in the character of "GUIDELINES GOVERNING THE TEMPORARY SUSPENSION OF DEPLOYMENT OF FILIPINO DOMESTIC AND HOUSEHOLD WORKERS," in this petition for certiorari and prohibition. Specifically, the measure is assailed for "discrimination against males or females;" 2 that it "does not apply to all Filipino workers but only to domestic helpers and females with similar skills;" 3 and that it is violative of the right to travel. It is held likewise to be an invalid exercise of the lawmaking power, police power being legislative, and not executive, in character.

In its supplement to the petition, PASEI invokes Section 3, of Article XIII, of the Constitution, providing for worker participation "in policy and decision-making processes affecting their rights and benefits as may be provided by law." 4 Department Order No. 1, it is contended, was passed in the absence of prior consultations. It is claimed, finally, to be in violation of the Charter's non-impairment clause, in addition to the "great and irreparable injury" that PASEI members face should the Order be further enforced.

On May 25, 1988, the Solicitor General, on behalf of the respondents Secretary of Labor and Administrator of the Philippine Overseas Employment Administration, filed a Comment informing the Court that on March 8, 1988, the respondent Labor Secretary lifted the deployment ban in the states of Iraq, Jordan, Qatar, Canada, Hongkong, United States, Italy, Norway, Austria, and Switzerland. * In submitting the validity of the challenged "guidelines," the Solicitor General invokes the police power of the Philippine State.

It is admitted that Department Order No. 1 is in the nature of a police power measure. The only question is whether or not it is valid under the Constitution.

The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." 5 As defined, it consists of (1) an imposition of restraint upon liberty or property,

(2) in order to foster the common good. It is not capable of an exact definition but has been, purposely, veiled in general terms to underscore its all-comprehensive embrace.

"Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuring the greatest benefits." 6

It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the Charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most vital functions of governance. Marshall, to whom the expression has been credited, 7 refers to it succinctly as the plenary power of the State "to govern its citizens."8

"The police power of the State ... is a power coextensive with self- protection, and it is not inaptly termed the "law of overwhelming necessity." It may be said to be that inherent and plenary power in the State which enables it to prohibit all things hurtful to the comfort, safety, and welfare of society." 9

It constitutes an implied limitation on the Bill of Rights. According to Fernando, it is "rooted in the conception that men in organizing the state and imposing upon its government limitations to safeguard constitutional rights did not intend thereby to enable an individual citizen or a group of citizens to obstruct unreasonably the enactment of such salutary measures calculated to ensure communal peace, safety, good order, and welfare." 10 Significantly, the Bill of Rights itself does not purport to be an absolute guaranty of individual rights and liberties "Even liberty itself, the greatest of all rights, is not unrestricted license to act according to one's will." 11 It is subject to the far more overriding demands and requirements of the greater number.

Notwithstanding its extensive sweep, police power is not without its own limitations. For all its awesome consequences, it may not be exercised arbitrarily or unreasonably. Otherwise, and in that event, it defeats the purpose for which it is exercised, that is, to advance the public good. Thus, when the power is used to further private interests at the expense of the citizenry, there is a clear misuse of the power. 12

In the light of the foregoing, the petition must be dismissed.

As a general rule, official acts enjoy a presumed vahdity. 13 In the absence of clear and convincing evidence to the contrary, the presumption logically stands.

The petitioner has shown no satisfactory reason why the contested measure should be nullified. There is no question that Department Order No. 1 applies only to "female contract workers," 14 but it does not thereby make an undue discrimination between the sexes. It is well-settled that "equality before the law" under the Constitution 15does not import a perfect Identity of rights among all men and women. It admits of classifications, provided that (1) such classifications rest on substantial distinctions; (2) they are germane to the purposes of the law; (3) they are not confined to existing conditions; and (4) they apply equally to all members of the same class. 16

The Court is satisfied that the classification made-the preference for female workers — rests on substantial distinctions.

As a matter of judicial notice, the Court is well aware of the unhappy plight that has befallen our female labor force abroad, especially domestic servants, amid exploitative working conditions marked by, in not a few cases, physical and personal abuse. The sordid tales of maltreatment suffered by migrant Filipina workers, even rape and various forms of torture, confirmed by

testimonies of returning workers, are compelling motives for urgent Government action. As precisely the caretaker of Constitutional rights, the Court is called upon to protect victims of exploitation. In fulfilling that duty, the Court sustains the Government's efforts.

The same, however, cannot be said of our male workers. In the first place, there is no evidence that, except perhaps for isolated instances, our men abroad have been afflicted with an Identical predicament. The petitioner has proffered no argument that the Government should act similarly with respect to male workers. The Court, of course, is not impressing some male chauvinistic notion that men are superior to women. What the Court is saying is that it was largely a matter of evidence (that women domestic workers are being ill-treated abroad in massive instances) and not upon some fanciful or arbitrary yardstick that the Government acted in this case. It is evidence capable indeed of unquestionable demonstration and evidence this Court accepts. The Court cannot, however, say the same thing as far as men are concerned. There is simply no evidence to justify such an inference. Suffice it to state, then, that insofar as classifications are concerned, this Court is content that distinctions are borne by the evidence. Discrimination in this case is justified.

As we have furthermore indicated, executive determinations are generally final on the Court. Under a republican regime, it is the executive branch that enforces policy. For their part, the courts decide, in the proper cases, whether that policy, or the manner by which it is implemented, agrees with the Constitution or the laws, but it is not for them to question its wisdom. As a co-equal body, the judiciary has great respect for determinations of the Chief Executive or his subalterns, especially when the legislature itself has specifically given them enough room on how the law should be effectively enforced. In the case at bar, there is no gainsaying the fact, and the Court will deal with this at greater length shortly, that Department Order No. 1 implements the rule-making powers granted by the Labor Code. But what should be noted is the fact that in spite of such a fiction of finality, the Court is on its own persuaded that prevailing conditions indeed call for a deployment ban.

There is likewise no doubt that such a classification is germane to the purpose behind the measure. Unquestionably, it is the avowed objective of Department Order No. 1 to "enhance the protection for Filipino female overseas workers" 17 this Court has no quarrel that in the midst of the terrible mistreatment Filipina workers have suffered abroad, a ban on deployment will be for their own good and welfare.

The Order does not narrowly apply to existing conditions. Rather, it is intended to apply indefinitely so long as those conditions exist. This is clear from the Order itself ("Pending review of the administrative and legal measures, in the Philippines and in the host countries . . ." 18), meaning to say that should the authorities arrive at a means impressed with a greater degree of permanency, the ban shall be lifted. As a stop-gap measure, it is possessed of a necessary malleability, depending on the circumstances of each case. Accordingly, it provides:

9. LIFTING OF SUSPENSION. — The Secretary of Labor and Employment (DOLE) may, upon recommendation of the Philippine Overseas Employment Administration (POEA), lift the suspension in countries where there are:

1. Bilateral agreements or understanding with the Philippines, and/or,

2. Existing mechanisms providing for sufficient safeguards to ensure the welfare and protection of Filipino workers. 19

The Court finds, finally, the impugned guidelines to be applicable to all female domestic overseas workers. That it does not apply to "all Filipina workers" 20 is not an argument for unconstitutionality.

Had the ban been given universal applicability, then it would have been unreasonable and arbitrary. For obvious reasons, not all of them are similarly circumstanced. What the Constitution prohibits is the singling out of a select person or group of persons within an existing class, to the prejudice of such a person or group or resulting in an unfair advantage to another person or group of persons. To apply the ban, say exclusively to workers deployed by A, but not to those recruited by B, would obviously clash with the equal protection clause of the Charter. It would be a classic case of what Chase refers to as a law that "takes property from A and gives it to B." 21 It would be an unlawful invasion of property rights and freedom of contract and needless to state, an invalid act. 22 (Fernando says: "Where the classification is based on such distinctions that make a real difference as infancy, sex, and stage of civilization of minority groups, the better rule, it would seem, is to recognize its validity only if the young, the women, and the cultural minorities are singled out for favorable treatment. There would be an element of unreasonableness if on the contrary their status that calls for the law ministering to their needs is made the basis of discriminatory legislation against them. If such be the case, it would be difficult to refute the assertion of denial of equal protection." 23 In the case at bar, the assailed Order clearly accords protection to certain women workers, and not the contrary.)

It is incorrect to say that Department Order No. 1 prescribes a total ban on overseas deployment. From scattered provisions of the Order, it is evident that such a total ban has hot been contemplated. We quote:

5. AUTHORIZED DEPLOYMENT-The deployment of domestic helpers and workers of similar skills defined herein to the following [sic] are authorized under these guidelines and are exempted from the suspension.

5.1 Hirings by immediate members of the family of Heads of State and Government;

5.2 Hirings by Minister, Deputy Minister and the other senior government officials; and

5.3 Hirings by senior officials of the diplomatic corps and duly accredited international organizations.

5.4 Hirings by employers in countries with whom the Philippines have [sic] bilateral labor agreements or understanding.

xxx xxx xxx

7. VACATIONING DOMESTIC HELPERS AND WORKERS OF SIMILAR SKILLS--Vacationing domestic helpers and/or workers of similar skills shall be allowed to process with the POEA and leave for worksite only if they are returning to the same employer to finish an existing or partially served employment contract. Those workers returning to worksite to serve a new employer shall be covered by the suspension and the provision of these guidelines.

xxx xxx xxx

9. LIFTING OF SUSPENSION-The Secretary of Labor and Employment (DOLE) may, upon recommendation of the Philippine Overseas Employment Administration (POEA), lift the suspension in countries where there are:

1. Bilateral agreements or understanding with the Philippines, and/or,

2. Existing mechanisms providing for sufficient safeguards to ensure the welfare and protection of Filipino workers. 24

xxx xxx xxx

The consequence the deployment ban has on the right to travel does not impair the right. The right to travel is subject, among other things, to the requirements of "public safety," "as may be provided by law." 25 Department Order No. 1 is a valid implementation of the Labor Code, in particular, its basic policy to "afford protection to labor," 26 pursuant to the respondent Department of Labor's rule-making authority vested in it by the Labor Code.27 The petitioner assumes that it is unreasonable simply because of its impact on the right to travel, but as we have stated, the right itself is not absolute. The disputed Order is a valid qualification thereto.

Neither is there merit in the contention that Department Order No. 1 constitutes an invalid exercise of legislative power. It is true that police power is the domain of the legislature, but it does not mean that such an authority may not be lawfully delegated. As we have mentioned, the Labor Code itself vests the Department of Labor and Employment with rulemaking powers in the enforcement whereof. 28

The petitioners's reliance on the Constitutional guaranty of worker participation "in policy and decision-making processes affecting their rights and benefits" 29 is not well-taken. The right granted by this provision, again, must submit to the demands and necessities of the State's power of regulation.

The Constitution declares that:

Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employment opportunities for all. 30

"Protection to labor" does not signify the promotion of employment alone. What concerns the Constitution more paramountly is that such an employment be above all, decent, just, and humane. It is bad enough that the country has to send its sons and daughters to strange lands because it cannot satisfy their employment needs at home. Under these circumstances, the Government is duty-bound to insure that our toiling expatriates have adequate protection, personally and economically, while away from home. In this case, the Government has evidence, an evidence the petitioner cannot seriously dispute, of the lack or inadequacy of such protection, and as part of its duty, it has precisely ordered an indefinite ban on deployment.

The Court finds furthermore that the Government has not indiscriminately made use of its authority. It is not contested that it has in fact removed the prohibition with respect to certain countries as manifested by the Solicitor General.

The non-impairment clause of the Constitution, invoked by the petitioner, must yield to the loftier purposes targetted by the Government. 31 Freedom of contract and enterprise, like all other freedoms, is not free from restrictions, more so in this jurisdiction, where laissez faire has never been fully accepted as a controlling economic way of life.

This Court understands the grave implications the questioned Order has on the business of recruitment. The concern of the Government, however, is not necessarily to maintain profits of

business firms. In the ordinary sequence of events, it is profits that suffer as a result of Government regulation. The interest of the State is to provide a decent living to its citizens. The Government has convinced the Court in this case that this is its intent. We do not find the impugned Order to be tainted with a grave abuse of discretion to warrant the extraordinary relief prayed for.

WHEREFORE, the petition is DISMISSED. No costs.

SO ORDERED.

Yap, C.J., Fernan, Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Cortes and Griño-Aquino, JJ., concur.

Gutierrez, Jr. and Medialdea, JJ., are on leave.

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-48926 December 14, 1987

MANUEL SOSITO, petitioner, vs. AGUINALDO DEVELOPMENT CORPORATION, respondent.

CRUZ, J.:

We gave due course to this petition and required the parties to file simultaneous memoranda on the sole question of whether or not the petitioner is entitled to separation pay under the retrenchment program of the private respondent.

The facts are as follows:

Petitioner Manuel Sosito was employed in 1964 by the private respondent, a logging company, and was in charge of logging importation, with a monthly salary of P675.00, 1 when he went on indefinite leave with the consent of the company on January 16, 1976. 2 On July 20, 1976, the private respondent, through its president, announced a retrenchment program and offered separation pay to employees in the active service as of June 30, 1976, who would tender their resignations not later than July 31, 1976. The petitioner decided to accept this offer and so submitted his resignation on July 29, 1976, "to avail himself of the gratuity benefits" promised. 3 However, his resignation was not acted upon and he was never given the separation pay he expected. The petitioner complained to the Department of Labor, where he was sustained by the labor arbiter. 4 The company was ordered to pay Sosito the sum of P 4,387.50, representing his salary for six and a half months. On appeal to the National Labor Relations Commission, this decision was reversed and it was held that the petitioner was not covered by the retrenchment program. 5 The petitioner then came to us.

For a better understanding of this case, the memorandum of the private respondent on its retrenchment program is reproduced in full as follows:

July 20, 1976

Memorandum To: ALL EMPLOYEES

Re: RETRENCHMENT PROGRAM

As you are all aware, the operations of wood-based industries in the Philippines for the last two (2) years were adversely affected by the worldwide decline in the demand for and prices of logs and wood products. Our company was no exception to this general decline in the market, and has suffered tremendous losses. In 1975 alone, such losses amounted to nearly P20,000,000.00.

The company has made a general review of its operations and has come to the unhappy decision of the need to make adjustments in its manpower strength if it is to survive. This is indeed an unfortunate and painful decision to make, but it leaves the company no alternative but to reduce its tremendous and excessive overhead expense in order to prevent an ultimate closure.

Although the law allows the Company, in a situation such as this, to drastically reduce it manpower strength without any obligation to pay separation benefits, we recognize the need to provide our employees some financial assistance while they are looking for other jobs.

The Company therefore is adopting a retrenchment program whereby employees who are in the active service as of June 30, 1976 will be paid separation benefits in an amount equivalent to the employee's one-half (1/2) month's basic salary multiplied by his/her years of service with the Company. Employees interested in availing of the separation benefits offered by the Company must manifest such intention by submitting written letters of resignation to the Management not later than July 31, 1976. Those whose resignations are accepted shall be informed accordingly and shall be paid their separation benefits.

After July 31, 1976, this offer of payment of separation benefits will no longer be available. Thereafter, the Company shall apply for a clearance to terminate the services of such number of employees as may be necessary in order to reduce the manpower strength to such desired level as to prevent further losses.

For additional information

and/or resignation forms,

please see Mr. Vic Maceda

or Atty. Ben Aritao. 6

It is clear from the memorandum that the offer of separation pay was extended only to those who were in the active service of the company as of June 30, 1976. It is equally clear that the petitioner was not eligible for the promised gratuity as he was not actually working with the company as of the said date. Being on indefinite leave, he was not in the active service of the private respondent although, if one were to be technical, he was still in its employ. Even so, during the period of indefinite leave, he was not entitled to receive any salary or to enjoy any other benefits available to those in the active service.

It seems to us that the petitioner wants to enjoy the best of two worlds at the expense of the private respondent. He has insulated himself from the insecurities of the floundering firm but at the same time would demand the benefits it offers. Being on indefinite leave from the company, he could seek and try other employment and remain there if he should find it acceptable; but if not, he could go back to his former work and argue that he still had the right to return as he was only on leave.

There is no claim that the petitioner was temporarily laid off or forced to go on leave; on the contrary, the record shows that he voluntarily sought the indefinite leave which the private respondent granted. It is strange that the company should agree to such an open-ended arrangement, which is obviously one-sided. The company would not be free to replace the petitioner but the petitioner would have a right to resume his work as and when he saw fit.

We note that under the law then in force the private respondent could have validly reduced its work force because of its financial reverses without the obligation to grant separation pay. This was permitted under the original Article 272(a), of the Labor Code, 7 which was in force at the time. To its credit, however, the company voluntarily offered gratuities to those who would agree to be phased out pursuant to the terms and conditions of its retrenchment program, in recognition of their loyalty and to tide them over their own financial difficulties. The Court feels that such compassionate measure deserves commendation and support but at the same time rules that it should be available only to those who are qualified therefore. We hold that the petitioner is not one of them.

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

WHEREFORE, the petition is DISMISSED and the challenged decision AFFIRMED, with costs against the petitioner.

SO ORDERED.

Teehankee, C.J., Narvasa, Paras and Gancayco, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 155421 July 7, 2004

ELMER M. MENDOZA, petitioner, vs. RURAL BANK OF LUCBAN, respondent.

D E C I S I O N

PANGANIBAN, J.:

The law protects both the welfare of employees and the prerogatives of management. Courts will not interfere with business judgments of employers, provided they do not violate the law, collective bargaining agreements, and general principles of fair play and justice. The transfer of personnel from one area of operation to another is inherently a managerial prerogative that shall be upheld if exercised in good faith -- for the purpose of advancing business interests, not of defeating or circumventing the rights of employees.

The Case

The Court applies these principles in resolving the instant Petition for Review1 under Rule 45 of the Rules of Court, assailing the June 14, 2002 Decision2 and September 25, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 68030. The assailed Decision disposed as follows:

"WHEREFORE, the petition for certiorari is hereby DISMISSED for lack of merit."4

The challenged Resolution denied petitioner's Motion for Reconsideration.

The Facts

On April 25, 1999, the Board of Directors of the Rural Bank of Lucban, Inc., issued Board Resolution Nos. 99-52 and 99-53, which read:

"Board Res. No. 99-52

"'RESOLVED AS IT IS HEREBY RESOLVED' that in line with the policy of the bank to familiarize bank employees with the various phases of bank operations and further strengthen the existing internal control system[,] all officers and employees are subject to reshuffle of assignments. Moreover, this resolution does not preclude the transfer of

assignment of bank officers and employees from the branch office to the head office and vice-versa."

"Board Res. No. 95-53

"Pursuant to Resolution No. 99-52, the following branch employees are hereby reshuffled to their new assignments without changes in their compensation and other benefits.

NAME OF EMPLOYEES PRESENT ASSIGNMENT NEW ASSIGNMENT

JOYCE V. ZETA Bank Teller C/A Teller

CLODUALDO ZAGALA C/A Clerk Actg. Appraiser

ELMER L. MENDOZA Appraiser Clerk-Meralco Collection

CHONA R. MENDOZA Clerk-Meralco Collection Bank Teller"5

In a letter dated April 30, 1999, Alejo B. Daya, the bank's board chairman, directed Briccio V. Cada, the manager of the bank's Tayabas branch, to implement the reshuffle.6 The new assignments were to "be effective on May 1, 1999 without changes in salary, allowances, and other benefits received by the aforementioned employees."7

On May 3, 1999, in an undated letter addressed to Daya, Petitioner Elmer Mendoza expressed his opinion on the reshuffle, as follows:

"RE: The recent reshuffle of employees as per Board Resolution dated April 25, 1999

"Dear Sir:

"This is in connection with the aforementioned subject matter and which the undersigned received on April 25, 1999.

"Needless to state, the reshuffling of the undersigned from the present position as Appraiser to Clerk-Meralco Collection is deemed to be a demotion without any legal basis. Before this action on your part[,] the undersigned has been besieged by intrigues due to [the] malicious machination of a certain public official who is bruited to be your good friend. These malicious insinuations were baseless and despite the fact that I have been on my job as Appraiser for the past six (6) years in good standing and never involved in any anomalous conduct, my being reshuffled to [C]lerk-[M]eralco [C]ollection is a blatant harassment on your part as a prelude to my termination in due time. This will constitute an unfair labor practice.

"Meanwhile, may I beseech your good office that I may remain in my position as Appraiser until the reason [for] my being reshuffled is made clear.

"Your kind consideration on this request will be highly appreciated."8

On May 10, 1999, Daya replied:

"Dear Mr. Mendoza,

"Anent your undated letter expressing your resentment/comments on the recent management's decision to reshuffle the duties of bank employees, please be informed that it was never the intention (of management) to downgrade your position in the bank considering that your due compensation as Bank Appraiser is maintained and no future reduction was intended.

"Aside from giving bank employees a wider experience in various banking operations, the reshuffle will also afford management an effective tool in providing the bank a sound internal control system/check and balance and a basis in evaluating the performance of each employee. A continuing bankwide reshuffle of employees shall be made at the discretion of management which may include bank officers, if necessary as expressed in Board Resolution No. 99-53, dated April 25, 1999. Management merely shifted the duties of employees, their position title [may be] retained if requested formally.

"Being a standard procedure in maintaining an effective internal control system recommended by the Bangko Sentral ng Pilipinas, we believe that the conduct of reshuffle is also a prerogative of bank management."9

On June 7, 1999, petitioner submitted to the bank's Tayabas branch manager a letter in which he applied for a leave of absence from work:

"Dear Sir:

"I wish I could continue working but due to the ailment that I always feel every now and then, I have the honor to apply for at least ten (10) days sick leave effective June 7, 1999.

"Hoping that this request [merits] your favorable and kind consideration and understanding."10

On June 21, 1999, petitioner again submitted a letter asking for another leave of absence for twenty days effective on the same date.11

On June 24, 1999, while on his second leave of absence, petitioner filed a Complaint before Arbitration Branch No. IV of the National Labor Relations Commission (NLRC). The Complaint -- for illegal dismissal, underpayment, separation pay and damages -- was filed against the Rural Bank of Lucban and/or its president, Alejo B. Daya; and its Tayabas branch manager, Briccio V. Cada. The case was docketed as NLRC Case SRAB-IV-6-5862-99-Q.12

The labor arbiter's June 14, 2000 Decision upheld petitioner's claims as follows:

"WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring respondents guilty of illegal dismissal.

2. Ordering respondents to reinstate complainant to his former position without loss of seniority rights with full backwages from date of dismissal to actual reinstatement in the amount of P55,000.00 as of June 30, 2000.

3. Ordering the payment of separation pay if reinstatement is not possible in the amount ofP30,000.00 in addition to 13th month pay of P5,000.00 and the usual P10,000.00 annual bonus afforded the employees.

4. Ordering the payment of unpaid salary for the period covering July 1-30, 1999 in the amount ofP5,000.00

5. Ordering the payment of moral damages in the amount of P50,000.00.

6. Ordering the payment of exemplary damages in the amount of P25,000.00

7. Ordering the payment of Attorney's fees in the amount of P18,000.00 which is 10% of the monetary award."13

On appeal, the NLRC reversed the labor arbiter.14 In its July 18, 2001 Resolution, it held:

"We can conceive of no reason to ascribe bad faith or malice to the respondent bank for its implementation of its Board Resolution directing the reshuffle of employees at its Tayabas branch to positions other than those they were occupying. While at first the employees thereby affected would experience difficulty in adjusting to their new jobs, it cannot be gainsaid that the objective for the reshuffle is noble, as not only would the employees obtain additional knowledge, they would also be more well-rounded in the operations of the bank and thus help the latter further strengthen its already existing internal control system.

"The only inconvenience, as [w]e see it, that the [petitioner] may have experienced is that from an appraiser he was made to perform the work of a clerk in the collection of Meralco payments, which he may have considered as beneath him and his experience, being a pioneer employee. But it cannot be discounted either that other employees at the Tayabas branch were similarly reshuffled. The only logical conclusion therefore is that the Board Resolution was not aimed solely at the [petitioner], but for all the other employees of the x x x bank as well. Besides, the complainant has not shown by clear, competent and convincing evidence that he holds a vested right to the position of Appraiser. x x x.

"How and by what manner a business concern conducts its affairs is not for this Commission to interfere with, especially so if there is no showing, as in the case at bar, that the reshuffle was motivated by bad faith or ill-will. x x x."15

After the NLRC denied his Motion for Reconsideration,16 petitioner brought before the CA a Petition for Certiorari17 assailing the foregoing Resolution.

Ruling of the Court of Appeals

Finding that no grave abuse of discretion could be attributed to the NLRC, the CA Decision ruled thus:

"The so-called 'harassment' which Mendoza allegedly experienced in the aftermath of the reshuffling of employees at the bank is but a figment of his imagination as there is no evidence extant on record which substantiates the same. His alleged demotion, the 'cold shoulder' stance, the things about his chair and table, and the alleged reason for the harassment are but allegations bereft of proof and are perforce inadmissible as self-serving statements and can never be considered repositories of truth nor serve as foundations of court decisions anent the resolution of the litigants' rights.

"When Mendoza was reshuffled to the position of clerk at the bank, he was not demoted as there was no [diminution] of his salary benefits and rank. He could even retain his position

title, had he only requested for it pursuant to the reply of the Chairman of the bank's board of directors to Mendoza's letter protesting the reshuffle. There is, therefore, no cause to doubt the reasons which the bank propounded in support of its move to reshuffle its employees, viz:

1. to 'familiarize bank employees with the various phases of bank operations,' and

2. to 'further strengthen the existing internal control system' of the bank.

"The reshuffling of its employees was done in good faith and cannot be made the basis of a finding of constructive dismissal.

"The fact that Mendoza was no longer included in the bank's payroll for July 1 to 15, 1999 does not signify that the bank has dismissed the former from its employ. Mendoza separated himself from the bank's employ when, on June 24, 1999, while on leave, he filed the illegal dismissal case against his employer for no apparent reason at all."18

Hence, this Petition.19

The Issues

Petitioner raises the following issues for our consideration:

"I. Whether or not the petitioner is deemed to have voluntarily separated himself from the service and/or abandoned his job when he filed his Complaint for constructive and consequently illegal dismissal;

"II. Whether or not the reshuffling of private respondent'[s] employees was done in good faith and cannot be made as the basis of a finding of constructive dismissal, even as the [petitioner's] demotion in rank is admitted by both parties;

"III. Whether or not the ruling in the landmark case of Ruben Serrano vs. NLRC [and Isetann Department Store (323 SCRA 445)] is applicable to the case at bar;

"IV. Whether or not the Court of Appeals erred in dismissing the petitioner's money claims, damages, and unpaid salaries for the period July 1-30, 1999, although this was not disputed by the private respondent; and

"V. Whether or not the entire proceedings before the Honorable Court of Appeals and the NLRC are a nullity since the appeal filed by private respondent before the NLRC on August 5, 2000 was on the 15th day or five (5) days beyond the reglem[e]ntary period of ten (10) days as provided for by law and the NLRC Rules of Procedure."20

In short, the main issue is whether petitioner was constructively dismissed from his employment.

The Court's Ruling

The Petition has no merit.

Main Issue: Constructive Dismissal

Constructive dismissal is defined as an involuntary resignation resorted to when continued employment is rendered impossible, unreasonable or unlikely; when there is a demotion in rank or a diminution of pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to the employee.21 Petitioner argues that he was compelled to file an action for constructive dismissal, because he had been demoted from appraiser to clerk and not given any work to do, while his table had been placed near the toilet and eventually removed.22 He adds that the reshuffling of employees was done in bad faith, because it was designed primarily to force him to resign.23

Management Prerogative to Transfer Employees

Jurisprudence recognizes the exercise of management prerogatives. For this reason, courts often decline to interfere in legitimate business decisions of employers.24 Indeed, labor laws discourage interference in employers' judgments concerning the conduct of their business.25 The law must protect not only the welfare of employees, but also the right of employers.

In the pursuit of its legitimate business interest, management has the prerogative to transfer or assign employees from one office or area of operation to another -- provided there is no demotion in rank or diminution of salary, benefits, and other privileges; and the action is not motivated by discrimination, made in bad faith, or effected as a form of punishment or demotion without sufficient cause.26 This privilege is inherent in the right of employers to control and manage their enterprise effectively.27 The right of employees to security of tenure does not give them vested rights to their positions to the extent of depriving management of its prerogative to change their assignments or to transfer them.28

Managerial prerogatives, however, are subject to limitations provided by law, collective bargaining agreements, and general principles of fair play and justice.29 The test for determining the validity of the transfer of employees was explained in Blue Dairy Corporation v. NLRC30 as follows:

"[L]ike other rights, there are limits thereto. The managerial prerogative to transfer personnel must be exercised without grave abuse of discretion, bearing in mind the basic elements of justice and fair play. Having the right should not be confused with the manner in which that right is exercised. Thus, it cannot be used as a subterfuge by the employer to rid himself of an undesirable worker. In particular, the employer must be able to show that the transfer is not unreasonable, inconvenient or prejudicial to the employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges and other benefits. Should the employer fail to overcome this burden of proof, the employee's transfer shall be tantamount to constructive dismissal, which has been defined as a quitting because continued employment is rendered impossible, unreasonable or unlikely; as an offer involving a demotion in rank and diminution in pay. Likewise, constructive dismissal exists when an act of clear discrimination, insensibility or disdain by an employer has become so unbearable to the employee leaving him with no option but to forego with his continued employment."31

Petitioner's Transfer Lawful

The employer bears the burden of proving that the transfer of the employee has complied with the foregoing test. In the instant case, we find no reason to disturb the conclusion of the NLRC and the CA that there was no constructive dismissal. Their finding is supported by substantial evidence -- that amount of relevant evidence that a reasonable mind might accept as justification for a conclusion.32

Petitioner's transfer was made in pursuit of respondent's policy to "familiarize bank employees with the various phases of bank operations and further strengthen the existing internal control system"33 of all officers and employees. We have previously held that employees may be transferred -- based on their qualifications, aptitudes and competencies -- to positions in which they can function with maximum benefit to the company.34 There appears no justification for denying an employer the right to transfer employees to expand their competence and maximize their full potential for the advancement of the establishment. Petitioner was not singled out; other employees were also reassigned without their express consent.

Neither was there any demotion in the rank of petitioner; or any diminution of his salary, privileges and other benefits. This fact is clear in respondent's Board Resolutions, the April 30, 1999 letter of Bank President Daya to Branch Manager Cada, and the May 10, 1999 letter of Daya to petitioner.

On the other hand, petitioner has offered no sufficient proof to support his allegations. Given no credence by both lower tribunals was his bare and self-serving statement that he had been positioned near the comfort room, made to work without a table, and given no work assignment.35 Purely conjectural is his claim that the reshuffle of personnel was a harassment in retaliation for an alleged falsification case filed by his relatives against a public official.36 While the rules of evidence prevailing in courts of law are not controlling in proceedings before the NLRC,37 parties must nonetheless submit evidence to support their contentions.

Secondary Issues:

Serrano v. NLRC Inapplicable

Serrano v. NLRC38 does not apply to the present factual milieu. The Court ruled therein that the lack of notice and hearing made the dismissal of the employee ineffectual, but not necessarily illegal.39 Thus, the procedural infirmity was remedied by ordering payment of his full back wages from the time of his dismissal.40 The absence of constructive dismissal in the instant case precludes the application of Serrano. Because herein petitioner was not dismissed, then he is not entitled to his claimed monetary benefits.

Alleged Nullity of NLRC and CA Proceedings

Petitioner argues that the proceedings before the NLRC and the CA were void, since respondent's appeal before the NLRC had allegedly been filed beyond the reglementary period.41 A careful scrutiny of his Petition for Review42 with the appellate court shows that this issue was not raised there. Inasmuch as the instant Petition challenges the Decision of the CA, we cannot rule on arguments that were not brought before it. This ruling is consistent with the due-process requirement that no question shall be entertained on appeal, unless it has been raised in the court below.43

WHEREFORE, this Petition is DENIED, and the June 14, 2002 Decision and the September 25, 2002 Resolution of the Court of Appeals are AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 156515 October 19, 2004

CHINA BANKING CORPORATION, petitioner, vs. MARIANO M. BORROMEO, respondent.

D E C I S I O N

CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari filed by China Banking Corporation seeking the reversal of the Decision1 dated July 19, 2002 of the Court of Appeals in CA-G.R. SP No. 57365, remanding to the Labor Arbiter for further hearings the complaint for payment of separation pay, mid-year bonus, profit share and damages filed by respondent Mariano M. Borromeo against the petitioner Bank. Likewise, sought to be reversed is the appellate court’s Resolution dated January 6, 2003, denying the petitioner Bank’s motion for reconsideration.

The factual antecedents of the case are as follows:

Respondent Mariano M. Borromeo joined the petitioner Bank on June 1, 1989 as Manager assigned at the latter’s Regional Office in Cebu City. He then had the rank of Manager Level I. Subsequently, the respondent was laterally transferred to Cagayan de Oro City as Branch Manager of the petitioner Bank’s branch thereat.

For the years 1989 and 1990, the respondent received a "highly satisfactory" performance rating and was given the corresponding profit sharing/p>erformance bonus. From 1991 up to 1995, he consistently received a "very good" performance rating for each of the said years and again received the corresponding profit sharing/p>erformance bonus. Moreover, in 1992, he was promoted from Manager Level I to Manager Level II. In 1994, he was promoted to Senior Manager Level I. Then again, in 1995, he was promoted to Senior Manager Level II. Finally, in 1996, with a "highly satisfactory" performance rating, the respondent was promoted to the position of Assistant Vice-President, Branch Banking Group for the Mindanao area effective October 16, 1996. Each promotion had the corresponding increase in the respondent’s salary as well as in the benefits he received from the petitioner Bank.

However, prior to his last promotion and then unknown to the petitioner Bank, the respondent, without authority from the Executive Committee or Board of Directors, approved several DAUD/BP accommodations amounting toP2,441,375 in favor of Joel Maniwan, with Edmundo Ramos as surety. DAUD/BP is the acronym for checks "Drawn Against Uncollected Deposits/Bills Purchased." Such checks, which are not sufficiently funded by cash, are generally not honored by banks. Further, a DAUD/BP accommodation is a credit accommodation granted to a few and select bank clients through the withdrawal of uncollected or uncleared check deposits from their current account. Under

the petitioner Bank’s standard operating procedures, DAUD/BP accommodations may be granted only by a bank officer upon express authority from its Executive Committee or Board of Directors.

As a result of the DAUD/BP accommodations in favor of Maniwan, a total of ten out-of-town checks (7 PCIB checks and 3 UCPB checks) of various dates amounting to P2,441,375 were returned unpaid from September 20, 1996 to October 17, 1996. Each of the returned checks was stamped with the notation "Payment Stopped/Account Closed."

On October 8, 1996, the respondent wrote a Memorandum to the petitioner Bank’s senior management requesting for the grant of a P2.4 million loan to Maniwan. The memorandum stated that the loan was "to regularize/liquidate subject’s (referring to Maniwan) DAUD availments." It was only then that the petitioner Bank came to know of the DAUD/BP accommodations in favor of Maniwan. The petitioner Bank further learned that these DAUD/BP accommodations exceeded the limit granted to clients, were granted without proper prior approval and already past due. Acting on this information, Samuel L. Chiong, the petitioner Bank’s First Vice- President and Head-Visayas Mindanao Division, in his Memorandum dated November 19, 1996 for the respondent, sought clarification from the latter on the following matters:

1) When DAUD/BP accommodations were allowed, what efforts, if any, were made to establish the identity and/or legitimacy of the alleged broker or drawers of the checks accommodated?

2) Did the branch follow and comply with operating procedure which require that all checks accommodated for DAUD/BP should be previously verified with the drawee bank and history if not outright balances determined if enough to cover the checks?

3) How did the accommodations reach P2,441,375.00 when our records indicate that the borrowers B/p>-DAUD line is only for P500,000.00? When did the accommodations start exceeding the limit of P500,000.00 and under whose authority?

4) When did the accommodated checks start bouncing?

5) What is the status of these checks now and what has the branch done so far to protect/ensure collectibility of the returned checks?

6) What about client Joel Maniwan and surety Edmund Ramos, what steps have they done to pay the checks returned?2

In reply thereto, the respondent, in his Letter dated December 5, 1996, answered the foregoing queries in seriatim and explained, thus:

1. None

2. No

3. The accommodations reach P2.4 million upon the request of Mr. Edmund Ramos, surety, and this request was subsequently approved by undersigned. The excess accommodations started in July ’96 without higher management approval.

4. Checks started bouncing on September 20, 1996.

5. Checks have remained unpaid. The branch sent demand letters to Messrs. Maniwan and Ramos and referred the matter to our Legal Dept. for filing of appropriate legal action.

6. Mr. Maniwan, thru his lawyer, Atty. Oscar Musni has signified their intention to settle by Feb. 1997.

Justification for lapses committed (Item nos. 1 to 3).

The account was personally endorsed and referred to us by Mr. Edmund Ramos, Branch Manager of Metrobank, Divisoria Br., Cagayan de Oro City. In fact, the CASA account was opened jointly as &/or (Maniwan &/or Ramos). Mr. Ramos gave us his full assurance that the checks that we intend to purchase are the same drawee that Metrobank has been purchasing for the past one (1) year already. He even disclosed that these checks were verified by his own branch accountant and that Mr. Maniwan’s loan account was being co-maked by Mr. Elbert Tan Yao Tin, son of Jose Tan Yao Tin of CIFC. To show his sincerity, Mr. Ramos signed as surety for Mr. Maniwan forP2.5MM. Corollary to this, Mr. Ramos applied for a loan with us mortgaging his house, lot and duplex with an estimated market value of P4.508MM. The branch, therefore, is not totally negligent as officer to officer bank checking was done. In fact, it is also for the very same reason that other banks granted DAUD to subject account and, likewise, the checks returned unpaid, namely:

Solidbank P1.8 Million

Allied Bank .8

Far East Bank 2.0

MBTC 5.0

The attached letter of Mr. Ramos dated 19 Nov. 1996 will speak for itself. Further to this, undersigned conferred with the acting BOH VSYap if these checks are legitimate 3rd party checks.

On the other hand, Atty. Musni continues to insist that Mr. Maniwan was gypped by a broker in the total amount of P10.00 Million.

Undersigned accepts full responsibility for committing an error in judgment, lapses in control and abuse of discretion by relying solely on the word, assurance, surety and REM of Mr. Edmund Ramos, a friend and a co-bank officer. I am now ready to face the consequence of my action.3

In another Letter dated April 8, 1997, the respondent notified Chiong of his intention to resign from the petitioner Bank and apologized "for all the trouble I have caused because of the Maniwan case."4 The respondent, however, vehemently denied benefiting therefrom. In his Letter dated April 30, 1997, the respondent formally tendered his irrevocable resignation effective May 31, 1997.5

In the Memorandum dated May 23, 1997 addressed to the respondent, Nancy D. Yang, the petitioner Bank’s Senior Vice-President and Head-Branch Banking Group, informed the former that his approval of the DAUD/BP accommodations in favor of Maniwan without authority and/or approval of higher management violated the petitioner Bank’s Code of Ethics. As such, he was directed to restitute the amount of P1,507,736.79 representing 90% of the total loss of P1,675,263.10 incurred by the petitioner Bank. However, in view of his resignation and considering the years of service in

the petitioner Bank, the management earmarked only P836,637.08 from the respondent’s total separation benefits or pay. The memorandum addressed to the respondent stated:

After a careful review and evaluation of the facts surrounding the above case, the following have been conclusively established:

1. The branch granted various BP/DAUD accommodations to clients Joel Maniwan/Edmundo Ramos in excess of approved lines through the following out-of-town checks which were returned for the reason "Payment Stopped/Account Closed":

1. PCIB Cebu Check No. 86256 P251,816.00

2. PCIB Cebu Check No. 86261 235,880.00

3. PCIB Cebu Check No. 8215 241,443.00

4. UCPB Tagbilaran Check No. 277,630.00

5. PCIB Bogo, Cebu Check No. 6117 267,418.00

6. UCPB Tagbilaran Check No. 216070 197,467.00

7. UCPB Tagbilaran Check No. 216073 263,920.00

8. PCIB Bogo, Cebu Check No. 6129 253,528.00

9. PCIB Bogo, Cebu Check No. 6122 198,615.00

10. PCIB Bogo, Cebu Check No. 6134 253,658.00

2. The foregoing checks were accommodated through your approval which was in excess of your authority.

3. The branch failed to follow the fundamental and basic procedures in handling BP/DAUD accommodations which made the accommodations basically flawed.

4. The accommodations were attended by lapses in control consisting of failure to report the exception and failure to cover the account of Joel Maniwan with the required Credit Line Agreement.

Since the foregoing were established by your own admissions in your letter explanation dated 5 December 1996, and the Audit Report and findings of the Region Head, Management finds your actions in violation of the Bank’s Code of Ethics:

Table 6.2., no. 1: Compliance with Standard Operating Procedures

- "Infraction of Bank procedures in handling any bank transactions or work assignment which results in a loss or probable loss."

Table 6.3., no. 6: Proper Conduct and Behavior -

"Willful misconduct in the performance of duty whether or not the bank suffers a loss," and/or

Table 6.5., no. 1: Work Responsibilities -

"Dereliction of duty whether or not the Bank suffers a loss," and/or

Table 6.6., no. 2: Authority and Subordination -

"Failure to carry out lawful orders or instructions of superiors."

Your approval of the accommodations in excess of your authority without prior authority and/or approval from higher management is a violation of the above cited Rules.

In view of these, you are directed to restitute the amount of P1,507,736.79 representing 90% of the total loss of P1,675,263.10 incurred by the Bank as your proportionate share. However, in light of your voluntary separation from the Bank effective May 31, 1997, in view of the years of service you have given to the Bank, management shall earmark and segregate only the amount of P836,637.08 from your total separation benefits/p>ay. The Bank further directs you to fully assist in the effort to collect from Joel Maniwan and Edmundo Ramos the sums due to the Bank.6

In the Letter dated May 26, 1997 addressed to the respondent, Remedios Cruz, petitioner Bank’s Vice-President of the Human Resources Division, again informed him that the management would withhold the sum of P836,637.08 from his separation pay, mid-year bonus and profit sharing. The amount withheld represented his proportionate share in the accountability vis-à-vis the DAUD/BP accommodations in favor of Maniwan. The said amount would be released upon recovery of the sums demanded from Maniwan in Civil Case No. 97174 filed against him by the petitioner Bank with the Regional Trial Court in Cagayan de Oro City.

Consequently, the respondent, through counsel, made a demand on the petitioner Bank for the payment of his separation pay and other benefits. The petitioner Bank maintained its position to withhold the sum ofP836,637.08. Thus, the respondent filed with the National Labor Relations Commission (NLRC), Regional Arbitration Branch No. 10, in Cagayan de Oro City, the complaint for payment of separation pay, mid-year bonus, profit share and damages against the petitioner Bank.

The parties submitted their respective position papers to the Labor Arbiter. Thereafter, the respondent filed a motion to set case for trial or hearing. Acting thereon, the Labor Arbiter, in the Order dated January 29, 1999, denied the same stating that:

... This Branch views that if complainant finds the necessity to controvert the allegations in the respondent’s pleadings, then he may file a supplemental position paper and adduce thereto evidence and additional supporting documents, the soonest possible time. All the evidence will be evaluated by the Branch to determine whether or not a clarificatory hearing shall be conducted.7

On February 26, 1999, the Labor Arbiter issued another Order submitting the case for resolution upon finding that he could judiciously pass on the merits without the necessity of further hearing.

On even date, the Labor Arbiter promulgated the Decision8 dismissing the respondent’s complaint. According to the Labor Arbiter, the respondent, an officer of the petitioner Bank, had committed a serious infraction when, in blatant violation of the bank’s standard operating procedures and policies, he approved the DAUD/BP accommodations in favor of Maniwan without authorization by senior management. Even the respondent himself had admitted this breach in the letters that he wrote to the senior officers of the petitioner Bank.

The Labor Arbiter, likewise, made the finding that the respondent offered to assign or convey a property that he owned to the petitioner Bank as well as proposed the withholding of the benefits due him to answer for the losses that the petitioner Bank incurred on account of unauthorized DAUD/BP accommodations. But even if the respondent had not given his consent, the Labor Arbiter held that the petitioner Bank’s act of withholding the benefits due the respondent was justified under its Code of Ethics. The respondent, as an officer of the petitioner Bank, was bound by the provisions of the said Code.

Aggrieved, the respondent appealed to the National Labor Relations Commission. After the parties had filed their respective memoranda, the NLRC, in the Decision dated October 20, 1999, dismissed the appeal as it affirmed in toto the findings and conclusions of the Labor Arbiter. The NLRC preliminarily ruled that the Labor Arbiter committed no grave abuse of discretion when he decided the case on the basis of the position papers submitted by the parties. On the merits, the NLRC, like the Labor Arbiter, gave credence to the petitioner Bank’s allegation that the respondent offered to pledge his property to the bank and proposed the withholding of his benefits in acknowledgment of the serious infraction he committed against the bank. Further, the NLRC concurred with the Labor Arbiter that the petitioner Bank was justified in withholding the benefits due the respondent. Being a responsible bank officer, the respondent ought to know that, based on the petitioner Bank’s Code of Ethics, restitution may be imposed on erring employees apart from any other penalty for acts resulting in loss or damage to the bank. The decretal portion of the NLRC decision reads:

WHEREFORE, the decision of the Labor Arbiter is Affirmed. The appeal is Dismissed for lack of merit.

SO ORDERED.9

The respondent moved for a reconsideration of the said decision but the NLRC, in the Resolution of December 20, 1999, denied his motion.

The respondent then filed a petition for certiorari with the Court of Appeals alleging that the NLRC committed grave abuse of discretion when it affirmed the findings and conclusions of the Labor Arbiter. He vehemently denied having offered to pledge his property to the bank or proposed the withholding of his separation pay and other benefits. Further, he argued that the petitioner Bank deprived him of his right to due process because it unilaterally imposed the penalty of restitution on him. The DAUD/BP accommodations in favor of Maniwan allegedly could not be considered as a "loss" to the bank as the amounts may still be recovered. The respondent, likewise, maintained that the Labor Arbiter should not have decided the case on the basis of the parties’ position papers but should have conducted a full-blown hearing thereon.

On July 19, 2002, the CA rendered the Decision10 now being assailed by the petitioner Bank. The CA found merit in the respondent’s contention that he was deprived of his right to due process by the petitioner Bank as no administrative investigation was conducted by it prior to

its act of withholding the respondent’s separation pay and other benefits. The respondent was not informed of any charge against him in connection with the Maniwan DAUD/BP accommodations nor afforded the right to a hearing or to defend himself before the penalty of restitution was imposed on him. This, according to the appellate court, was contrary not only to the fundamental principle of due process but to the petitioner Bank’s Code of Ethics as well.

The CA further held that the Labor Arbiter, likewise, failed to afford the respondent due process when it denied his motion to set case for trial or hearing. While the authority of the Labor Arbiter to decide a case based on the parties’ position papers and documents is indubitable, the CA opined that factual issues attendant to the case, including whether or not the respondent proposed the withholding of his benefits or pledged the same to the petitioner Bank, necessitated the conduct of a full-blown trial. The appellate court explained that:

Procedural due process, as must be remembered, has two main concerns, the prevention of unjustified or mistaken deprivation and the promotion of participation and dialogue by affected individuals in the decision-making process. Truly, the magnitude of the case and the withholding of Borromeo’s property as well as the willingness of the parties to conciliate, make a hearing imperative. As manifested by the bank, it did not contest Borromeo’s motion for hearing or trial inasmuch as the bank itself wanted to fully ventilate its side.11

Accordingly, the CA set aside the decision of the NLRC and ordered that the records of the case be remanded to the Labor Arbiter for further hearings on the factual issues involved.

The petitioner Bank filed a motion for reconsideration of the said decision but the CA, in the assailed Resolution of January 6, 2003, denied the same as it found no compelling ground to warrant reconsideration.12 Hence, its recourse to this Court alleging that the assailed CA decision is contrary to law and jurisprudence in that:

I.

THE FACTUAL FINDINGS OF THE LABOR ARBITER AS AFFIRMED BY THE NATIONAL LABOR RELATIONS COMMISSION ARE SUPPORTED BY SUBSTANTIAL EVIDENCE AND SHOULD HAVE BEEN ACCORDED RESPECT AND FINALITY BY THE COURT OF APPEALS IN ACCORDANCE WITH GOVERNING JURISPRUDENCE.

II.

AT ALL TIMES, THE LABOR ARBITER ACTED IN ACCORDANCE WITH THE REQUIREMENTS OF DUE PROCESS IN THE PROCEEDINGS A QUO.

III.

THERE WAS NO VIOLATION BY PETITIONER BANK OF RESPONDENT’S RIGHT TO DUE PROCESS AS NO ADMINISTRATIVE INVESTIGATION WAS NEEDED TO BE CONDUCTED ON HIS ADMITTED MISCONDUCT.13

The petitioner Bank posits that the sole factual issue that remained in dispute was whether the respondent pledged his benefits as guarantee for the losses the bank incurred resulting

from the unauthorized DAUD/BP accommodations in favor of Maniwan. On this issue, both the Labor Arbiter and the NLRC found that the respondent had indeed pledged his benefits to the bank. According to the petitioner Bank, this factual finding should have been accorded respect by the CA as the same is supported by the evidence on record. By ordering the remand of the case to the Labor Arbiter, the CA allegedly unjustifiably analyzed and weighed all over again the evidence presented.

The petitioner Bank insists that the Labor Arbiter acted within his authority when he denied the respondent’s motion to set case for hearing or trial and instead decided the case on the basis of the position papers and evidence submitted by the parties. Due process simply demands an opportunity to be heard and the respondent was not denied of this as he was even given the opportunity to file a supplemental position paper and other supporting documents, but he did not do so.

The petitioner Bank takes exception to the findings of the appellate court that the respondent was not afforded the right to a hearing or to defend himself by the petitioner Bank as it did not conduct an administrative investigation. The petitioner Bank points out that it was poised to conduct one but was preempted by the respondent’s resignation. In any case, respondent himself in his Letter dated December 5, 1996, in reply to the clarificatory queries of Chiong, admitted that the DAUD/BP accommodations were granted "without higher management approval" and that he (the respondent) "accepts full responsibility for committing an error of judgment, lapses in control and abuse of discretion ..." Given the respondent’s admission, the holding of a formal investigation was no longer necessary.

For his part, the respondent, in his Comment, maintains that the DAUD/BP accommodations in favor of Maniwan were approved, albeit not expressly, by the senior management of the petitioner Bank. He cites the regular reports he made to Chiong, his superior, regarding the DAUD/BP transactions made by the branch, including that of Maniwan, and Chiong never called his attention thereto nor stopped or reprimanded him therefor. These reports further showed that he did not conceal these transactions to the management.

The respondent vehemently denies having offered the withholding of his benefits or pledged the same to the petitioner Bank. The findings of the Labor Arbiter and the NLRC that what he did are allegedly not supported by the evidence on record.

The respondent is of the view that restitution is not proper because the petitioner Bank has not, as yet, incurred any actual loss as the amount owed by Maniwan may still be recovered from him. In fact, the petitioner Bank had already instituted a civil case against Maniwan for the recovery of the sum and the RTC rendered judgment in the petitioner Bank’s favor. The case is still pending appeal. In any case, the respondent argues that the petitioner Bank could not properly impose the accessory penalty of restitution on him without imposing the principal penalty of "Written Reprimand/Suspension" as provided under its Code of Ethics. He, likewise, vigorously avers that, in contravention of its own Code of Ethics, he was denied due process by the petitioner Bank as it did not conduct any administrative investigation relative to the unauthorized DAUD/BP accommodations. He was not informed in writing of any charge against him nor was he given the opportunity to defend himself.

The petition is meritorious.

The Court shall first resolve the procedural issue raised in the petition, i.e., whether the CA erred in remanding the case to the Labor Arbiter. The Court rules in the affirmative. It is settled that administrative bodies like the NLRC, including the Labor Arbiter, are not bound

by the technical niceties of the law and procedure and the rules obtaining in courts of law.14 Rules of evidence are not strictly observed in proceedings before administrative bodies like the NLRC, where decisions may be reached on the basis of position papers.15 The holding of a formal hearing or trial is discretionary with the Labor Arbiter and is something that the parties cannot demand as a matter of right.16 As a corollary, trial-type hearings are not even required as the cases may be decided based on verified position papers, with supporting documents and their affidavits.17

Hence, the Labor Arbiter acted well within his authority when he issued the Order dated February 26, 1999 submitting the case for resolution upon finding that he could judiciously pass on the merits without the necessity of further hearing. On the other hand, the assailed CA decision’s directive requiring him to conduct further hearings constitutes undue interference with the Labor Arbiter’s discretion. Moreover, to require the conduct of hearings would be to negate the rationale and purpose of the summary nature of the proceedings mandated by the Rules and to make mandatory the application of the technical rules of evidence.18 The appellate court, therefore, committed reversible error in ordering the remand of the case to the Labor Arbiter for further hearings.

Before delving on the merits of the case, it is well to remember that factual findings of the NLRC affirming those of the Labor Arbiter, both bodies being deemed to have acquired expertise in matters within their jurisdiction, when sufficiently supported by evidence on record, are accorded respect, if not finality, and are considered binding on this Court.19 As long as their decisions are devoid of any arbitrariness in the process of their deduction from the evidence proffered by the parties, all that is left is for the Court to stamp its affirmation.20

In this case, the factual findings of the Labor Arbiter and those of the NLRC concur on the following material points: the respondent was a responsible officer of the petitioner Bank; by his own admission, he granted DAUD/BP accommodations in excess of the authority given to him and in violation of the bank’s standard operating procedures; the petitioner Bank’s Code of Ethics provides that restitution/forfeiture of benefits may be imposed on the employees for, inter alia, infraction of the bank’s standard operating procedures; and, the respondent resigned from the petitioner Bank on May 31, 1998. These factual findings are amply supported by the evidence on record.

Indeed, it had been indubitably shown that the respondent admitted that he violated the petitioner Bank’s standard operating procedures in granting the DAUD/BP accommodations in favor of Maniwan without higher management approval. The respondent’s replies to the clarificatory questions propounded to him by way of the Memorandum dated November 19, 1996 were particularly significant. When the respondent was asked whether efforts were made to establish the identity and/or legitimacy of the drawers of the checks before the DAUD/BP accommodations were allowed,21 he replied in the negative.22 To the query "did the branch follow and comply with operating procedure which require that all checks accommodated for DAUD/BP should be previously verified with the drawee bank and history, if not outright balances, determined if enough to cover the checks?"23 again, the respondent answered "no."24 When asked under whose authority the excess DAUD/BP accommodations were granted,25 the respondent expressly stated that they were "approved by undersigned (referring to himself)" and that the excess accommodation was granted "without higher management approval."26 More telling, however, is the respondent’s statement that he "accepts full responsibility for committing an error in judgment, lapses in control and abuse of discretion by relying solely on the word, assurance, surety and REM of Mr. Edmundo Ramos."27 The respondent added that he was "ready to face the consequence of [his] action."28

The foregoing sufficiently establish that the respondent, by his own admissions, had violated the petitioner Bank’s standard operating procedures. Among others, the petitioner Bank’s Code of Ethics provides:

Table 6.2 COMPLIANCE WITH STANDARD OPERATING PROCEDURES

VIOLATIONS PENALTIES

1st 2nd 3rd 4th

1. Infraction of Bank

procedures in handling any

Bank transaction or

work assignment

which results in a loss or

probable loss

Written Reprimand/ Suspension*

Suspension/ Dismissal* Dismissal*

* With restitution, if warranted.

Further, the said Code states that:

7.2.5. Restitution/Forfeiture of Benefits

Restitution may be imposed independently or together with any other penalty in case of loss or damage to the property of the Bank, its employees, clients or other parties doing business with the Bank. The Bank may recover the amount involved by means of salary deduction or whatever legal means that will prompt offenders to pay the amount involved. But restitution shall in no way mitigate the penalties attached to the violation or infraction.

Forfeiture of benefits/p>rivileges may also be effected in cases where infractions or violations were incurred in connection with or arising from the application/availment thereof.

It is well recognized that company policies and regulations are, unless shown to be grossly oppressive or contrary to law, generally binding and valid on the parties and must be complied with until finally revised or amended unilaterally or preferably through negotiation or by competent authority.29 Moreover, management has the prerogative to discipline its employees and to impose appropriate penalties on erring workers pursuant to company rules and regulations.30 With more reason should these truisms apply to the respondent, who, by reason of his position, was required to act judiciously and to exercise his authority in harmony with company policies.31

Contrary to the respondent’s contention that the petitioner Bank could not properly impose the accessory penalty of restitution on him without imposing the principal penalty of "Written Reprimand/Suspension," the latter’s Code of Ethics expressly sanctions the imposition of restitution/forfeiture of benefits apart from or independent of the other penalties. Obviously, in view of his voluntary separation from the petitioner Bank, the imposition of the penalty of reprimand or suspension would be futile. The petitioner Bank was left with no other recourse but to impose the

ancillary penalty of restitution. It was certainly within the petitioner Bank’s prerogative to impose on the respondent what it considered the appropriate penalty under the circumstances pursuant to its company rules and regulations.

Anent the issue that the respondent’s right to due process was violated by the petitioner Bank since no administrative investigation was conducted prior to the withholding of his separation benefits, the Court rules that, under the circumstances obtaining in this case, no formal administrative investigation was necessary. Due process simply demands an opportunity to be heard and this opportunity was not denied the respondent.32

Prior to the respondent’s resignation, he was furnished with the Memorandum33 dated November 19, 1996 in which several clarificatory questions were propounded to him regarding the DAUD/BP accommodations in favor of Maniwan. Among others, the respondent was asked whether the bank’s standard operating procedures were complied with and under whose authority the accommodations were granted. From the tenor thereof, it could be reasonably gleaned that the said memorandum constituted notice of the charge against the respondent.

Replying to the queries, the respondent, in his Letter34 dated December 5, 1996, admitted, inter alia, that he approved the DAUD/BP accommodations in favor of Maniwan and the amount in excess of the credit limit ofP500,000 was approved by him without higher management approval. The respondent, likewise, admitted non-compliance with the bank’s standard operating procedures, specifically, that which required that all checks accommodated for DAUD/BP be previously verified with the drawee bank and history, if not outright balances determined if enough to cover the checks. In the same letter, the respondent expressed that he "accepts full responsibility for committing an error in judgment, lapses in control and abuse of discretion" and that he is "ready to face the consequence of his action."

Contrary to his protestations, the respondent was given the opportunity to be heard and considering his admissions, it became unnecessary to hold any formal investigation.35 More particularly, it became unnecessary for the petitioner Bank to conduct an investigation on whether the respondent had committed an "[I]nfraction of Bank procedures in handling any Bank transaction or work assignment which results in a loss or probable loss" because the respondent already admitted the same. All that was needed was to inform him of the findings of the management36 and this was done by way of the Memorandum37 dated May 23, 1997 addressed to the respondent. His claim of denial of due process must perforce fail.

Significantly, the respondent is not wholly deprived of his separation benefits. As the Labor Arbiter stressed in his decision, "the separation benefits due the complainant (the respondent herein) were merely withheld."38 The NLRC made the same conclusion and was even more explicit as it opined that the respondent "is entitled to the benefits he claimed in pursuance to the Collective Bargaining Agreement but, in the meantime, such benefits shall be deposited with the bank by way of pledge."39 Even the petitioner Bank itself gives "the assurance that as soon as the Bank has satisfied a judgment in Civil Case No. 97174, the earmarked portion of his benefits will be released without delay."40

It bears stressing that the respondent was not just a rank and file employee. At the time of his resignation, he was the Assistant Vice- President, Branch Banking Group for the Mindanao area of the petitioner Bank. His position carried authority for the exercise of independent judgment and discretion, characteristic of sensitive posts in corporate hierarchy.41 As such, he was, as earlier intimated, required to act judiciously and to exercise his authority in harmony with company policies.42

On the other hand, the petitioner Bank’s business is essentially imbued with public interest and owes great fidelity to the public it deals with.43 It is expected to exercise the highest degree of diligence in the selection and supervision of their employees.44 As a corollary, and like all other business enterprises, its prerogative to discipline its employees and to impose appropriate penalties on erring workers pursuant to company rules and regulations must be respected.45 The law, in protecting the rights of labor, authorized neither oppression nor self-destruction of an employer company which itself is possessed of rights that must be entitled to recognition and respect.46

WHEREFORE, the petition is GRANTED. The Decision dated July 19, 2002 of the Court of Appeals and its Resolution dated January 6, 2003 in CA-G.R. SP No. 57365 are REVERSED AND SET ASIDE. The Resolution dated October 20, 1999 of the NLRC, affirming the Decision dated February 26, 1999 of the Labor Arbiter, isREINSTATED.

SO ORDERED.

Puno, Austria-Martinez, Tinga, and Chico-Nazario*, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 85279 July 28, 1989

SOCIAL SECURITY SYSTEM EMPLOYEES ASSOCIATION (SSSEA), DIONISION T. BAYLON, RAMON MODESTO, JUANITO MADURA, REUBEN ZAMORA, VIRGILIO DE ALDAY, SERGIO ARANETA, PLACIDO AGUSTIN, VIRGILIO MAGPAYO, petitioner, vs. THE COURT OF APPEALS, SOCIAL SECURITY SYSTEM (SSS), HON. CEZAR C. PERALEJO, RTC, BRANCH 98, QUEZON CITY, respondents.

Vicente T. Ocampo & Associates for petitioners.

CORTES, J:

Primarily, the issue raised in this petition is whether or not the Regional Trial Court can enjoin the Social Security System Employees Association (SSSEA) from striking and order the striking employees to return to work. Collaterally, it is whether or not employees of the Social Security System (SSS) have the right to strike.

The antecedents are as follows:

On June 11, 1987, the SSS filed with the Regional Trial Court of Quezon City a complaint for damages with a prayer for a writ of preliminary injunction against petitioners, alleging that on June 9, 1987, the officers and members of SSSEA staged an illegal strike and baricaded the entrances to the SSS Building, preventing non-striking employees from reporting for work and SSS members from transacting business with the SSS; that the strike was reported to the Public Sector Labor - Management Council, which ordered the strikers to return to work; that the strikers refused to return to work; and that the SSS suffered damages as a result of the strike. The complaint prayed that a writ of preliminary injunction be issued to enjoin the strike and that the strikers be ordered to return to work; that the defendants (petitioners herein) be ordered to pay damages; and that the strike be declared illegal.

It appears that the SSSEA went on strike after the SSS failed to act on the union's demands, which included: implementation of the provisions of the old SSS-SSSEA collective bargaining agreement (CBA) on check-off of union dues; payment of accrued overtime pay, night differential pay and holiday pay; conversion of temporary or contractual employees with six (6) months or more of service into regular and permanent employees and their entitlement to the same salaries, allowances and benefits given to other regular employees of the SSS; and payment of the children's allowance of P30.00, and after the SSS deducted certain amounts from the salaries of the employees and allegedly committed acts of discrimination and unfair labor practices [Rollo, pp. 21-241].

The court a quo, on June 11, 1987, issued a temporary restraining order pending resolution of the application for a writ of preliminary injunction [Rollo, p. 71.] In the meantime, petitioners filed a

motion to dismiss alleging the trial court's lack of jurisdiction over the subject matter [Rollo, pp. 72-82.] To this motion, the SSS filed an opposition, reiterating its prayer for the issuance of a writ of injunction [Rollo, pp. 209-222]. On July 22,1987, in a four-page order, the court a quo denied the motion to dismiss and converted the restraining order into an injunction upon posting of a bond, after finding that the strike was illegal [Rollo, pp. 83- 86]. As petitioners' motion for the reconsideration of the aforesaid order was also denied on August 14, 1988 [Rollo, p. 94], petitioners filed a petition for certiorari and prohibition with preliminary injunction before this Court. Their petition was docketed as G.R. No. 79577. In a resolution dated October 21, 1987, the Court, through the Third Division, resolved to refer the case to the Court of Appeals. Petitioners filed a motion for reconsideration thereof, but during its pendency the Court of Appeals on March 9,1988 promulgated its decision on the referred case [Rollo, pp. 130-137]. Petitioners moved to recall the Court of Appeals' decision. In the meantime, the Court on June 29,1988 denied the motion for reconsideration in G.R. No. 97577 for being moot and academic. Petitioners' motion to recall the decision of the Court of Appeals was also denied in view of this Court's denial of the motion for reconsideration [Rollo, pp. 141- 143]. Hence, the instant petition to review the decision of the Court of Appeals [Rollo, pp. 12-37].

Upon motion of the SSS on February 6,1989, the Court issued a temporary restraining order enjoining the petitioners from staging another strike or from pursuing the notice of strike they filed with the Department of Labor and Employment on January 25, 1989 and to maintain the status quo [Rollo, pp. 151-152].

The Court, taking the comment as answer, and noting the reply and supplemental reply filed by petitioners, considered the issues joined and the case submitted for decision.

The position of the petitioners is that the Regional Trial Court had no jurisdiction to hear the case initiated by the SSS and to issue the restraining order and the writ of preliminary injunction, as jurisdiction lay with the Department of Labor and Employment or the National Labor Relations Commission, since the case involves a labor dispute.

On the other hand, the SSS advances the contrary view, on the ground that the employees of the SSS are covered by civil service laws and rules and regulations, not the Labor Code, therefore they do not have the right to strike. Since neither the DOLE nor the NLRC has jurisdiction over the dispute, the Regional Trial Court may enjoin the employees from striking.

In dismissing the petition for certiorari and prohibition with preliminary injunction filed by petitioners, the Court of Appeals held that since the employees of the SSS, are government employees, they are not allowed to strike, and may be enjoined by the Regional Trial Court, which had jurisdiction over the SSS' complaint for damages, from continuing with their strike.

Thus, the sequential questions to be resolved by the Court in deciding whether or not the Court of Appeals erred in finding that the Regional Trial Court did not act without or in excess of jurisdiction when it took cognizance of the case and enjoined the strike are as follows:

1. Do the employees of the SSS have the right to strike?

2. Does the Regional Trial Court have jurisdiction to hear the case initiated by the SSS and to enjoin the strikers from continuing with the strike and to order them to return to work?

These shall be discussed and resolved seriatim

I

The 1987 Constitution, in the Article on Social Justice and Human Rights, provides that the State "shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law" [Art. XIII, Sec. 31].

By itself, this provision would seem to recognize the right of all workers and employees, including those in the public sector, to strike. But the Constitution itself fails to expressly confirm this impression, for in the Sub-Article on the Civil Service Commission, it provides, after defining the scope of the civil service as "all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charters," that "[t]he right to self-organization shall not be denied to government employees" [Art. IX(B), Sec. 2(l) and (50)]. Parenthetically, the Bill of Rights also provides that "[tlhe right of the people, including those employed in the public and private sectors, to form unions, associations, or societies for purposes not contrary to law shall not abridged" [Art. III, Sec. 8]. Thus, while there is no question that the Constitution recognizes the right of government employees to organize, it is silent as to whether such recognition also includes the right to strike.

Resort to the intent of the framers of the organic law becomes helpful in understanding the meaning of these provisions. A reading of the proceedings of the Constitutional Commission that drafted the 1987 Constitution would show that in recognizing the right of government employees to organize, the commissioners intended to limit the right to the formation of unions or associations only, without including the right to strike.

Thus, Commissioner Eulogio R. Lerum, one of the sponsors of the provision that "[tlhe right to self-organization shall not be denied to government employees" [Art. IX(B), Sec. 2(5)], in answer to the apprehensions expressed by Commissioner Ambrosio B. Padilla, Vice-President of the Commission, explained:

MR. LERUM. I think what I will try to say will not take that long. When we proposed this amendment providing for self-organization of government employees, it does not mean that because they have the right to organize, they also have the right to strike. That is a different matter. We are only talking about organizing, uniting as a union. With regard to the right to strike, everyone will remember that in the Bill of Rights, there is a provision that the right to form associations or societies whose purpose is not contrary to law shall not be abridged. Now then, if the purpose of the state is to prohibit the strikes coming from employees exercising government functions, that could be done because the moment that is prohibited, then the union which will go on strike will be an illegal union. And that provision is carried in Republic Act 875. In Republic Act 875, workers, including those from the government-owned and controlled, are allowed to organize but they are prohibited from striking. So, the fear of our honorable Vice- President is unfounded. It does not mean that because we approve this resolution, it carries with it the right to strike. That is a different matter. As a matter of fact, that subject is now being discussed in the Committee on Social Justice because we are trying to find a solution to this problem. We know that this problem exist; that the moment we allow anybody in the government to strike, then what will happen if the members of the Armed Forces will go on strike? What will happen to those people trying to protect us? So that is a matter of discussion in the Committee on Social Justice. But, I repeat, the right to form an organization does not carry with it the right to strike. [Record of the Constitutional Commission, vol. 1, p. 569].

It will be recalled that the Industrial Peace Act (R.A. No. 875), which was repealed by the Labor Code (P.D. 442) in 1974, expressly banned strikes by employees in the Government, including instrumentalities exercising governmental functions, but excluding entities entrusted with proprietary functions:

.Sec. 11. Prohibition Against Strikes in the Government. — The terms and conditions of employment in the Government, including any political subdivision or instrumentality thereof, are governed by law and it is declared to be the policy of this Act that employees therein shall not strike for the purpose of securing changes or modification in their terms and conditions of employment. Such employees may belong to any labor organization which does not impose the obligation to strike or to join in strike:Provided, however, That this section shall apply only to employees employed in governmental functions and not those employed in proprietary functions of the Government including but not limited to governmental corporations.

No similar provision is found in the Labor Code, although at one time it recognized the right of employees of government corporations established under the Corporation Code to organize and bargain collectively and those in the civil service to "form organizations for purposes not contrary to law" [Art. 244, before its amendment by B.P. Blg. 70 in 1980], in the same breath it provided that "[t]he terms and conditions of employment of all government employees, including employees of government owned and controlled corporations, shall be governed by the Civil Service Law, rules and regulations" [now Art. 276]. Understandably, the Labor Code is silent as to whether or not government employees may strike, for such are excluded from its coverage [Ibid]. But then the Civil Service Decree [P.D. No. 807], is equally silent on the matter.

On June 1, 1987, to implement the constitutional guarantee of the right of government employees to organize, the President issued E.O. No. 180 which provides guidelines for the exercise of the right to organize of government employees. In Section 14 thereof, it is provided that "[t]he Civil Service law and rules governing concerted activities and strikes in the government service shall be observed, subject to any legislation that may be enacted by Congress." The President was apparently referring to Memorandum Circular No. 6, s. 1987 of the Civil Service Commission under date April 21, 1987 which, "prior to the enactment by Congress of applicable laws concerning strike by government employees ... enjoins under pain of administrative sanctions, all government officers and employees from staging strikes, demonstrations, mass leaves, walk-outs and other forms of mass action which will result in temporary stoppage or disruption of public service." The air was thus cleared of the confusion. At present, in the absence of any legislation allowing government employees to strike, recognizing their right to do so, or regulating the exercise of the right, they are prohibited from striking, by express provision of Memorandum Circular No. 6 and as implied in E.O. No. 180. [At this juncture, it must be stated that the validity of Memorandum Circular No. 6 is not at issue].

But are employees of the SSS covered by the prohibition against strikes?

The Court is of the considered view that they are. Considering that under the 1987 Constitution "[t]he civil service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charters" [Art. IX(B), Sec. .2(l) see also Sec. 1 of E.O. No. 180 where the employees in the civil service are denominated as "government employees"] and that the SSS is one such government-controlled corporation with an original charter, having been created under R.A. No. 1161, its employees are part of the civil service [NASECO v. NLRC, G.R. Nos. 69870 & 70295, November 24,1988] and are covered by the Civil Service Commission's memorandum prohibiting strikes. This being the case, the strike staged by the employees of the SSS was illegal.

The statement of the Court in Alliance of Government Workers v. Minister of Labor and Employment [G.R. No. 60403, August 3, 1:983, 124 SCRA 11 is relevant as it furnishes the rationale for distinguishing between workers in the private sector and government employees with regard to the right to strike:

The general rule in the past and up to the present is that 'the terms and conditions of employment in the Government, including any political subdivision or instrumentality thereof are governed by law" (Section 11, the Industrial Peace Act, R.A. No. 875, as amended and Article 277, the Labor Code, P.D. No. 442, as amended). Since the terms and conditions of government employment are fixed by law, government workers cannot use the same weapons employed by workers in the private sector to secure concessions from their employers. The principle behind labor unionism in private industry is that industrial peace cannot be secured through compulsion by law. Relations between private employers and their employees rest on an essentially voluntary basis. Subject to the minimum requirements of wage laws and other labor and welfare legislation, the terms and conditions of employment in the unionized private sector are settled through the process of collective bargaining. In government employment, however, it is the legislature and, where properly given delegated power, the administrative heads of government which fix the terms and conditions of employment. And this is effected through statutes or administrative circulars, rules, and regulations, not through collective bargaining agreements. [At p. 13; Emphasis supplied].

Apropos is the observation of the Acting Commissioner of Civil Service, in his position paper submitted to the 1971 Constitutional Convention, and quoted with approval by the Court in Alliance, to wit:

It is the stand, therefore, of this Commission that by reason of the nature of the public employer and the peculiar character of the public service, it must necessarily regard the right to strike given to unions in private industry as not applying to public employees and civil service employees. It has been stated that the Government, in contrast to the private employer, protects the interest of all people in the public service, and that accordingly, such conflicting interests as are present in private labor relations could not exist in the relations between government and those whom they employ. [At pp. 16-17; also quoted in National Housing Corporation v. Juco, G.R. No. 64313, January 17,1985,134 SCRA 172,178-179].

E.O. No. 180, which provides guidelines for the exercise of the right to organize of government employees, while clinging to the same philosophy, has, however, relaxed the rule to allow negotiation where the terms and conditions of employment involved are not among those fixed by law. Thus:

.SECTION 13. Terms and conditions of employment or improvements thereof, except those that are fixed by law, may be the subject of negotiations between duly recognized employees' organizations and appropriate government authorities.

The same executive order has also provided for the general mechanism for the settlement of labor disputes in the public sector to wit:

.SECTION 16. The Civil Service and labor laws and procedures, whenever applicable, shall be followed in the resolution of complaints, grievances and cases involving government employees. In case any dispute remains unresolved after

exhausting all the available remedies under existing laws and procedures, the parties may jointly refer the dispute to the [Public Sector Labor- Management] Council for appropriate action.

Government employees may, therefore, through their unions or associations, either petition the Congress for the betterment of the terms and conditions of employment which are within the ambit of legislation or negotiate with the appropriate government agencies for the improvement of those which are not fixed by law. If there be any unresolved grievances, the dispute may be referred to the Public Sector Labor - Management Council for appropriate action. But employees in the civil service may not resort to strikes, walk-outs and other temporary work stoppages, like workers in the private sector, to pressure the Govemment to accede to their demands. As now provided under Sec. 4, Rule III of the Rules and Regulations to Govern the Exercise of the Right of Government- Employees to Self- Organization, which took effect after the instant dispute arose, "[t]he terms and conditions of employment in the government, including any political subdivision or instrumentality thereof and government- owned and controlled corporations with original charters are governed by law and employees therein shall not strike for the purpose of securing changes thereof."

II

The strike staged by the employees of the SSS belonging to petitioner union being prohibited by law, an injunction may be issued to restrain it.

It is futile for the petitioners to assert that the subject labor dispute falls within the exclusive jurisdiction of the NLRC and, hence, the Regional Trial Court had no jurisdiction to issue a writ of injunction enjoining the continuance of the strike. The Labor Code itself provides that terms and conditions of employment of government employees shall be governed by the Civil Service Law, rules and regulations [Art. 276]. More importantly, E.O. No. 180 vests the Public Sector Labor - Management Council with jurisdiction over unresolved labor disputes involving government employees [Sec. 16]. Clearly, the NLRC has no jurisdiction over the dispute.

This being the case, the Regional Trial Court was not precluded, in the exercise of its general jurisdiction under B.P. Blg. 129, as amended, from assuming jurisdiction over the SSS's complaint for damages and issuing the injunctive writ prayed for therein. Unlike the NLRC, the Public Sector Labor - Management Council has not been granted by law authority to issue writs of injunction in labor disputes within its jurisdiction. Thus, since it is the Council, and not the NLRC, that has jurisdiction over the instant labor dispute, resort to the general courts of law for the issuance of a writ of injunction to enjoin the strike is appropriate.

Neither could the court a quo be accused of imprudence or overzealousness, for in fact it had proceeded with caution. Thus, after issuing a writ of injunction enjoining the continuance of the strike to prevent any further disruption of public service, the respondent judge, in the same order, admonished the parties to refer the unresolved controversies emanating from their employer- employee relationship to the Public Sector Labor - Management Council for appropriate action [Rollo, p. 86].

III

In their "Petition/Application for Preliminary and Mandatory Injunction," and reiterated in their reply and supplemental reply, petitioners allege that the SSS unlawfully withheld bonuses and benefits due the individual petitioners and they pray that the Court issue a writ of preliminary prohibitive and mandatory injunction to restrain the SSS and its agents from withholding payment thereof and to compel the SSS to pay them. In their supplemental reply, petitioners annexed an order of the Civil

Service Commission, dated May 5, 1989, which ruled that the officers of the SSSEA who are not preventively suspended and who are reporting for work pending the resolution of the administrative cases against them are entitled to their salaries, year-end bonuses and other fringe benefits and affirmed the previous order of the Merit Systems Promotion Board.

The matter being extraneous to the issues elevated to this Court, it is Our view that petitioners' remedy is not to petition this Court to issue an injunction, but to cause the execution of the aforesaid order, if it has already become final.

WHEREFORE, no reversible error having been committed by the Court of Appeals, the instant petition for review is hereby DENIED and the decision of the appellate court dated March 9, 1988 in CA-G.R. SP No. 13192 is AFFIRMED. Petitioners' "Petition/Application for Preliminary and Mandatory Injunction" dated December 13,1988 is DENIED.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

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

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

Armando V. Ampil for petitioners.

Siguion Reyna, Montecillo and Ongsiako Law Office for private respondents.

GUTIERREZ, JR., J.:

The elemental question in labor law of whether or not an employer-employee relationship exists between petitioners-members of the "Brotherhood Labor Unit Movement of the Philippines" (BLUM) and respondent San Miguel Corporation, is the main issue in this petition. The disputed decision of public respondent Ronaldo Zamora, Presidential Assistant for legal Affairs, contains a brief summary of the facts involved:

1. The records disclose that on July 11, 1969, BLUM filed a complaint with the now defunct Court of Industrial Relations, charging San Miguel Corporation, and the following officers: Enrique Camahort, Federico Ofiate Feliciano Arceo, Melencio Eugenia Jr., Ernesto Villanueva, Antonio Bocaling and Godofredo Cueto of unfair labor practice as set forth in Section 4 (a), sub-sections (1) and (4) of Republic Act No. 875 and of Legal dismissal. It was alleged that respondents ordered the individual complainants to disaffiliate from the complainant union; and that management dismissed the individual complainants when they insisted on their union membership.

On their part, respondents moved for the dismissal of the complaint on the grounds that the complainants are not and have never been employees of respondent company but employees of the independent contractor; that respondent company has never had control over the means and methods followed by the independent contractor who enjoyed full authority to hire and control said employees; and that the individual complainants are barred by estoppel from asserting that they are employees of respondent company.

While pending with the Court of Industrial Relations CIR pleadings and testimonial and documentary evidences were duly presented, although the actual hearing was delayed by several postponements. The dispute was taken over by the National Labor Relations Commission (NLRC) with the decreed abolition of the CIR and the hearing of the case intransferably commenced on September 8, 1975.

On February 9, 1976, Labor Arbiter Nestor C. Lim found for complainants which was concurred in by the NLRC in a decision dated June 28, 1976. The amount of backwages awarded, however, was reduced by NLRC to the equivalent of one (1) year salary.

On appeal, the Secretary in a decision dated June 1, 1977, set aside the NLRC ruling, stressing the absence of an employer-mployee relationship as borne out by the records of the case. ...

The petitioners strongly argue that there exists an employer-employee relationship between them and the respondent company and that they were dismissed for unionism, an act constituting unfair labor practice "for which respondents must be made to answer."

Unrebutted evidence and testimony on record establish that the petitioners are workers who have been employed at the San Miguel Parola Glass Factory since 1961, averaging about seven (7) years of service at the time of their termination. They worked as "cargadores" or "pahinante" at the SMC Plant loading, unloading, piling or palleting empty bottles and woosen shells to and from company trucks and warehouses. At times, they accompanied the company trucks on their delivery routes.

The petitioners first reported for work to Superintendent-in-Charge Camahort. They were issued gate passes signed by Camahort and were provided by the respondent company with the tools, equipment and paraphernalia used in the loading, unloading, piling and hauling operation.

Job orders emanated from Camahort. The orders are then transmitted to an assistant-officer-in-charge. In turn, the assistant informs the warehousemen and checkers regarding the same. The latter, thereafter, relays said orders to the capatazes or group leaders who then give orders to the workers as to where, when and what to load, unload, pile, pallet or clean.

Work in the glass factory was neither regular nor continuous, depending wholly on the volume of bottles manufactured to be loaded and unloaded, as well as the business activity of the company. Work did not necessarily mean a full eight (8) hour day for the petitioners. However, work,at times, exceeded the eight (8) hour day and necessitated work on Sundays and holidays. For this, they were neither paid overtime nor compensation for work on Sundays and holidays.

Petitioners were paid every ten (10) days on a piece rate basis, that is, according to the number of cartons and wooden shells they were able to load, unload, or pile. The group leader notes down the number or volume of work that each individual worker has accomplished. This is then made the basis of a report or statement which is compared with the notes of the checker and warehousemen as to whether or not they tally. Final approval of report is by officer-in-charge Camahort. The pay check is given to the group leaders for encashment, distribution, and payment to the petitioners in accordance with payrolls prepared by said leaders. From the total earnings of the group, the group leader gets a participation or share of ten (10%) percent plus an additional amount from the earnings of each individual.

The petitioners worked exclusive at the SMC plant, never having been assigned to other companies or departments of SMC plant, even when the volume of work was at its minimum. When any of the

glass furnaces suffered a breakdown, making a shutdown necessary, the petitioners work was temporarily suspended. Thereafter, the petitioners would return to work at the glass plant.

Sometime in January, 1969, the petitioner workers — numbering one hundred and forty (140) organized and affiliated themselves with the petitioner union and engaged in union activities. Believing themselves entitled to overtime and holiday pay, the petitioners pressed management, airing other grievances such as being paid below the minimum wage law, inhuman treatment, being forced to borrow at usurious rates of interest and to buy raffle tickets, coerced by withholding their salaries, and salary deductions made without their consent. However, their gripes and grievances were not heeded by the respondents.

On February 6, 1969, the petitioner union filed a notice of strike with the Bureau of Labor Relations in connection with the dismissal of some of its members who were allegedly castigated for their union membership and warned that should they persist in continuing with their union activities they would be dismissed from their jobs. Several conciliation conferences were scheduled in order to thresh out their differences, On February 12, 1969, union member Rogelio Dipad was dismissed from work. At the scheduled conference on February 19, 1969, the complainant union through its officers headed by National President Artemio Portugal Sr., presented a letter to the respondent company containing proposals and/or labor demands together with a request for recognition and collective bargaining.

San Miguel refused to bargain with the petitioner union alleging that the workers are not their employees.

On February 20, 1969, all the petitioners were dismissed from their jobs and, thereafter, denied entrance to respondent company's glass factory despite their regularly reporting for work. A complaint for illegal dismissal and unfair labor practice was filed by the petitioners.

The case reaches us now with the same issues to be resolved as when it had begun.

The question of whether an employer-employee relationship exists in a certain situation continues to bedevil the courts. Some businessmen try to avoid the bringing about of an employer-employee relationship in their enterprises because that judicial relation spawns obligations connected with workmen's compensation, social security, medicare, minimum wage, termination pay, and unionism. (Mafinco Trading Corporation v. Ople, 70 SCRA 139).

In determining the existence of an employer-employee relationship, the elements that are generally considered are the following: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished. It. is the called "control test" that is the most important element (Investment Planning Corp. of the Phils. v. The Social Security System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra,and Rosario Brothers, Inc. v. Ople, 131 SCRA 72).

Applying the above criteria, the evidence strongly indicates the existence of an employer-employee relationship between petitioner workers and respondent San Miguel Corporation. The respondent asserts that the petitioners are employees of the Guaranteed Labor Contractor, an independent labor contracting firm.

The facts and evidence on record negate respondent SMC's claim.

The existence of an independent contractor relationship is generally established by the following criteria: "whether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of a specified piece of work; the control and supervision of the work to another; the employer's power with respect to the hiring, firing and payment of the contractor's workers; the control of the premises; the duty to supply the premises tools, appliances, materials and labor; and the mode, manner and terms of payment" (56 CJS Master and Servant, Sec. 3(2), 46; See also 27 AM. Jur. Independent Contractor, Sec. 5, 485 and Annex 75 ALR 7260727)

None of the above criteria exists in the case at bar.

Highly unusual and suspect is the absence of a written contract to specify the performance of a specified piece of work, the nature and extent of the work and the term and duration of the relationship. The records fail to show that a large commercial outfit, such as the San Miguel Corporation, entered into mere oral agreements of employment or labor contracting where the same would involve considerable expenses and dealings with a large number of workers over a long period of time. Despite respondent company's allegations not an iota of evidence was offered to prove the same or its particulars. Such failure makes respondent SMC's stand subject to serious doubts.

Uncontroverted is the fact that for an average of seven (7) years, each of the petitioners had worked continuously and exclusively for the respondent company's shipping and warehousing department. Considering the length of time that the petitioners have worked with the respondent company, there is justification to conclude that they were engaged to perform activities necessary or desirable in the usual business or trade of the respondent, and the petitioners are, therefore regular employees (Phil. Fishing Boat Officers and Engineers Union v. Court of Industrial Relations, 112 SCRA 159 and RJL Martinez Fishing Corporation v. National Labor Relations Commission, 127 SCRA 454).

As we have found in RJL Martinez Fishing Corporation v. National Labor Relations Commission (supra):

... [T]he employer-employee relationship between the parties herein is not coterminous with each loading and unloading job. As earlier shown, respondents are engaged in the business of fishing. For this purpose, they have a fleet of fishing vessels. Under this situation, respondents' activity of catching fish is a continuous process and could hardly be considered as seasonal in nature. So that the activities performed by herein complainants, i.e. unloading the catch of tuna fish from respondents' vessels and then loading the same to refrigerated vans, are necessary or desirable in the business of respondents. This circumstance makes the employment of complainants a regular one, in the sense that it does not depend on any specific project or seasonable activity. (NLRC Decision, p. 94, Rollo). lwphl@itç

so as it with petitioners in the case at bar. In fact, despite past shutdowns of the glass plant for repairs, the petitioners, thereafter, promptly returned to their jobs, never having been replaced, or assigned elsewhere until the present controversy arose. The term of the petitioners' employment appears indefinite. The continuity and habituality of petitioners' work bolsters their claim of employee status vis-a-vis respondent company,

Even under the assumption that a contract of employment had indeed been executed between respondent SMC and the alleged labor contractor, respondent's case will, nevertheless, fail.

Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code provides:

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

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

(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business.

We find that Guaranteed and Reliable Labor contractors have neither substantial capital nor investment to qualify as an independent contractor under the law. The premises, tools, equipment and paraphernalia used by the petitioners in their jobs are admittedly all supplied by respondent company. It is only the manpower or labor force which the alleged contractors supply, suggesting the existence of a "labor only" contracting scheme prohibited by law (Article 106, 109 of the Labor Code; Section 9(b), Rule VIII, Book III, Implementing Rules and Regulations of the Labor Code). In fact, even the alleged contractor's office, which consists of a space at respondent company's warehouse, table, chair, typewriter and cabinet, are provided for by respondent SMC. It is therefore clear that the alleged contractors have no capital outlay involved in the conduct of its business, in the maintenance thereof or in the payment of its workers' salaries.

The payment of the workers' wages is a critical factor in determining the actuality of an employer-employee relationship whether between respondent company and petitioners or between the alleged independent contractor and petitioners. It is important to emphasize that in a truly independent contractor-contractee relationship, the fees are paid directly to the manpower agency in lump sum without indicating or implying that the basis of such lump sum is the salary per worker multiplied by the number of workers assigned to the company. This is the rule inSocial Security System v. Court of Appeals (39 SCRA 629, 635).

The alleged independent contractors in the case at bar were paid a lump sum representing only the salaries the workers were entitled to, arrived at by adding the salaries of each worker which depend on the volume of work they. had accomplished individually. These are based on payrolls, reports or statements prepared by the workers' group leader, warehousemen and checkers, where they note down the number of cartons, wooden shells and bottles each worker was able to load, unload, pile or pallet and see whether they tally. The amount paid by respondent company to the alleged independent contractor considers no business expenses or capital outlay of the latter. Nor is the profit or gain of the alleged contractor in the conduct of its business provided for as an amount over and above the workers' wages. Instead, the alleged contractor receives a percentage from the total earnings of all the workers plus an additional amount corresponding to a percentage of the earnings of each individual worker, which, perhaps, accounts for the petitioners' charge of unauthorized deductions from their salaries by the respondents.

Anent the argument that the petitioners are not employees as they worked on piece basis, we merely have to cite our rulings in Dy Keh Beng v. International Labor and Marine Union of the Philippines (90 SCRA 161), as follows:

"[C]ircumstances must be construed to determine indeed if payment by the piece is just a method of compensation and does not define the essence of the relation. Units of time . . . and units of work are in establishments like respondent (sic) just

yardsticks whereby to determine rate of compensation, to be applied whenever agreed upon. We cannot construe payment by the piece where work is done in such an establishment so as to put the worker completely at liberty to turn him out and take in another at pleasure."

Article 106 of the Labor Code provides the legal effect of a labor only contracting scheme, to wit:

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

Firmly establishing respondent SMC's role as employer is the control exercised by it over the petitioners that is, control in the means and methods/manner by which petitioners are to go about their work, as well as in disciplinary measures imposed by it.

Because of the nature of the petitioners' work as cargadores or pahinantes, supervision as to the means and manner of performing the same is practically nil. For, how many ways are there to load and unload bottles and wooden shells? The mere concern of both respondent SMC and the alleged contractor is that the job of having the bottles and wooden shells brought to and from the warehouse be done. More evident and pronounced is respondent company's right to control in the discipline of petitioners. Documentary evidence presented by the petitioners establish respondent SMC's right to impose disciplinary measures for violations or infractions of its rules and regulations as well as its right to recommend transfers and dismissals of the piece workers. The inter-office memoranda submitted in evidence prove the company's control over the petitioners. That respondent SMC has the power to recommend penalties or dismissal of the piece workers, even as to Abner Bungay who is alleged by SMC to be a representative of the alleged labor contractor, is the strongest indication of respondent company's right of control over the petitioners as direct employer. There is no evidence to show that the alleged labor contractor had such right of control or much less had been there to supervise or deal with the petitioners.

The petitioners were dismissed allegedly because of the shutdown of the glass manufacturing plant. Respondent company would have us believe that this was a case of retrenchment due to the closure or cessation of operations of the establishment or undertaking. But such is not the case here. The respondent's shutdown was merely temporary, one of its furnaces needing repair. Operations continued after such repairs, but the petitioners had already been refused entry to the premises and dismissed from respondent's service. New workers manned their positions. It is apparent that the closure of respondent's warehouse was merely a ploy to get rid of the petitioners, who were then agitating the respondent company for benefits, reforms and collective bargaining as a union. There is no showing that petitioners had been remiss in their obligations and inefficient in their jobs to warrant their separation.

As to the charge of unfair labor practice because of SMC's refusal to bargain with the petitioners, it is clear that the respondent company had an existing collective bargaining agreement with the IBM union which is the recognized collective bargaining representative at the respondent's glass plant.

There being a recognized bargaining representative of all employees at the company's glass plant, the petitioners cannot merely form a union and demand bargaining. The Labor Code provides the proper procedure for the recognition of unions as sole bargaining representatives. This must be followed.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The San Miguel Corporation is hereby ordered to REINSTATE petitioners, with three (3) years backwages. However,

where reinstatement is no longer possible, the respondent SMC is ordered to pay the petitioners separation pay equivalent to one (1) month pay for every year of service.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-80680 January 26, 1989

DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R. ERISPE, JOEL MADRIAGA, ARTHUR M. ESPINO, AMARO BONA, FERDINAND CRUZ, FEDERICO A. BELITA, ROBERTO P. ISLES, ELMER ARMADA, EDUARDO UDOG, PETER TIANSING, MIGUELITA QUIAMBOA, NOMER MATAGA, VIOLY ESTEBAN and LYDIA ORTEGA, petitioners, vs. CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON, NATIONAL LABOR RELATIONS COMMISSION, and HON. EMERSON C. TUMANON, respondents.

V.E. Del Rosario & Associates for respondent CMC.

The Solicitor General for public respondent.

Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.

Mildred A. Ramos for respondent Lily Victoria A. Azarcon.

SARMIENTO, J.:

On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the National Labor Relations Commission for reinstatement and payment of various benefits, including minimum wage, overtime pay, holiday pay, thirteen-month pay, and emergency cost of living allowance pay, against the respondent, the California Manufacturing Company. 1

On October 7, 1986, after the cases had been consolidated, the California Manufacturing Company (California) filed a motion to dismiss as well as a position paper denying the existence of an employer-employee relation between the petitioners and the company and, consequently, any liability for payment of money claims. 2 On motion of the petitioners, Livi Manpower Services, Inc. was impleaded as a party-respondent.

It appears that the petitioners were, prior to their stint with California, employees of Livi Manpower Services, Inc. (Livi), which subsequently assigned them to work as "promotional merchandisers" 3 for the former firm pursuant to a manpower supply agreement. Among other things, the agreement provided that California "has no control or supervisions whatsoever over [Livi's] workers with respect to how they accomplish their work or perform [Californias] obligation"; 4 the Livi "is an independent contractor and nothing herein contained shall be construed as creating between [California] and [Livi] . . . the relationship of principal[-]agent or employer[-]employee'; 5 that "it is hereby agreed that it is the sole responsibility of [Livi] to comply with all existing as well as future laws, rules and regulations pertinent to employment of labor" 6 and that "[California] is free and harmless from any liability arising from such laws or from any accident that may befall workers and employees of [Livi] while in the performance of their duties for [California]. 7

It was further expressly stipulated that the assignment of workers to California shall be on a "seasonal and contractual basis"; that "[c]ost of living allowance and the 10 legal holidays will be charged directly to [California] at cost "; and that "[p]ayroll for the preceeding [sic] week [shall] be delivered by [Livi] at [California's] premises." 8

The petitioners were then made to sign employment contracts with durations of six months, upon the expiration of which they signed new agreements with the same period, and so on. Unlike regular California employees, who received not less than P2,823.00 a month in addition to a host of fringe benefits and bonuses, they received P38.56 plus P15.00 in allowance daily.

The petitioners now allege that they had become regular California employees and demand, as a consequence whereof, similar benefits. They likewise claim that pending further proceedings below, they were notified by California that they would not be rehired. As a result, they filed an amended complaint charging California with illegal dismissal.

California admits having refused to accept the petitioners back to work but deny liability therefor for the reason that it is not, to begin with, the petitioners' employer and that the "retrenchment" had been forced by business losses as well as expiration of contracts. 9 It appears that thereafter, Livi re-absorbed them into its labor pool on a "wait-in or standby" status. 10

Amid these factual antecedents, the Court finds the single most important issue to be: Whether the petitioners are California's or Livi's employees.

The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the existence of any employer-employee relation between the petitioners and California ostensibly in the light of the manpower supply contract,supra, and consequently, against the latter's liability as and for the money claims demanded. In the same breath, however, the labor arbiter absolved Livi from any obligation because the "retrenchment" in question was allegedly "beyond its control ." 13 He assessed against the firm, nevertheless, separation pay and attorney's fees.

We reverse.

The existence of an employer-employees relation is a question of law and being such, it cannot be made the subject of agreement. Hence, the fact that the manpower supply agreement between Livi and California had specifically designated the former as the petitioners' employer and had absolved the latter from any liability as an employer, will not erase either party's obligations as an employer, if an employer-employee relation otherwise exists between the workers and either firm. At any rate, since the agreement was between Livi and California, they alone are bound by it, and the petitioners cannot be made to suffer from its adverse consequences.

This Court has consistently ruled that the determination of whether or not there is an employer-employee relation depends upon four standards: (1) the manner of selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a power of dismissal; and (4) the presence or absence of a power to control the putative employee's conduct. 14 Of the four, the right-of-control test has been held to be the decisive factor. 15

On the other hand, we have likewise held, based on Article 106 of the Labor Code, hereinbelow reproduced:

ART. 106. Contractor or sub-contractor. — Whenever an employee enters into a contract with another person for the performance of the former's work, the employees

of the contractor and of the latter's sub-contractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or sub-contractor fails to pay wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or sub-contractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.

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

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

that notwithstanding the absence of a direct employer-employee relationship between the employer in whose favor work had been contracted out by a "labor-only" contractor, and the employees, the former has the responsibility, together with the "labor-only" contractor, for any valid labor claims, 16 by operation of law. The reason, so we held, is that the "labor-only" contractor is considered "merely an agent of the employer," 17 and liability must be shouldered by either one or shared by both. 18

There is no doubt that in the case at bar, Livi performs "manpower services", 19 meaning to say, it contracts out labor in favor of clients. We hold that it is one notwithstanding its vehement claims to the contrary, and notwithstanding the provision of the contract that it is "an independent contractor." 20 The nature of one's business is not determined by self-serving appellations one attaches thereto but by the tests provided by statute and prevailing case law. 21 The bare fact that Livi maintains a separate line of business does not extinguish the equal fact that it has provided California with workers to pursue the latter's own business. In this connection, we do not agree that the petitioners had been made to perform activities 'which are not directly related to the general business of manufacturing," 22 California's purported "principal operation activity. " 23 The petitioner's had been charged with "merchandizing [sic] promotion or sale of the products of [California] in the different sales outlets in Metro Manila including task and occational [sic] price tagging," 24 an activity that is doubtless, an integral part of the manufacturing business. It is not, then, as if Livi had served as its (California's) promotions or sales arm or agent, or otherwise, rendered a piece of work it (California) could not have itself done; Livi, as a placement agency, had simply supplied it with the manpower necessary to carry out its (California's) merchandising activities, using its (California's) premises and equipment. 25

Neither Livi nor California can therefore escape liability, that is, assuming one exists.

The fact that the petitioners have allegedly admitted being Livi's "direct employees" 26 in their complaints is nothing conclusive. For one thing, the fact that the petitioners were (are), will not absolve California since liability has been imposed by legal operation. For another, and as we indicated, the relations of parties must be judged from case to case and the decree of law, and not by declarations of parties.

The fact that the petitioners have been hired on a "temporary or seasonal" basis merely is no argument either. As we held in Philippine Bank of Communications v. NLRC, 27 a temporary or casual employee, under Article 218 of the Labor Code, becomes regular after service of one year, unless he has been contracted for a specific project. And we cannot say that merchandising is a specific project for the obvious reason that it is an activity related to the day-to-day operations of California.

It would have been different, we believe, had Livi been discretely a promotions firm, and that California had hired it to perform the latter's merchandising activities. For then, Livi would have been truly the employer of its employees, and California, its client. The client, in that case, would have been a mere patron, and not an employer. The employees would not in that event be unlike waiters, who, although at the service of customers, are not the latter's employees, but of the restaurant. As we pointed out in the Philippine Bank of Communications case:

xxx xxx xxx

... The undertaking given by CESI in favor of the bank was not the performance of a specific job for instance, the carriage and delivery of documents and parcels to the addresses thereof. There appear to be many companies today which perform this discrete service, companies with their own personnel who pick up documents and packages from the offices of a client or customer, and who deliver such materials utilizing their own delivery vans or motorcycles to the addressees. In the present case, the undertaking of CESI was to provide its client the bank with a certain number of persons able to carry out the work of messengers. Such undertaking of CESI was complied with when the requisite number of persons were assigned or seconded to the petitioner bank. Orpiada utilized the premises and office equipment of the bank and not those of CESI. Messengerial work the delivery of documents to designated persons whether within or without the bank premises-is of course directly related to the day-to-day operations of the bank. Section 9(2) quoted above does not require for its applicability that the petitioner must be engaged in the delivery of items as a distinct and separate line of business.

Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and placement corporation placing bodies, as it were, in different client companies for longer or shorter periods of time, ... 28

In the case at bar, Livi is admittedly an "independent contractor providing temporary services of manpower to its client. " 29 When it thus provided California with manpower, it supplied California with personnel, as if such personnel had been directly hired by California. Hence, Article 106 of the Code applies.

The Court need not therefore consider whether it is Livi or California which exercises control over the petitioner vis-a-vis the four barometers referred to earlier, since by fiction of law, either or both shoulder responsibility.

It is not that by dismissing the terms and conditions of the manpower supply agreement, we have, hence, considered it illegal. Under the Labor Code, genuine job contracts are permissible, provided they are genuine job contracts. But, as we held in Philippine Bank of Communications, supra, when such arrangements are resorted to "in anticipation of, and for the very purpose of making possible, the secondment" 30 of the employees from the true employer, the Court will be justified in expressing its concern. For then that would compromise the rights of the workers, especially their right to security of tenure.

This brings us to the question: What is the liability of either Livi or California?

The records show that the petitioners bad been given an initial six-month contract, renewed for another six months. Accordingly, under Article 281 of the Code, they had become regular employees-of-California-and had acquired a secure tenure. Hence, they cannot be separated without due process of law.

California resists reinstatement on the ground, first, and as we Id, that the petitioners are not its employees, and second, by reason of financial distress brought about by "unfavorable political and economic atmosphere" 31"coupled by the February Revolution." 32 As to the first objection, we reiterate that the petitioners are its employees and who, by virtue of the required one-year length-of-service, have acquired a regular status. As to the second, we are not convinced that California has shown enough evidence, other than its bare say so, that it had in fact suffered serious business reverses as a result alone of the prevailing political and economic climate. We further find the attribution to the February Revolution as a cause for its alleged losses to be gratuitous and without basis in fact.

California should be warned that retrenchment of workers, unless clearly warranted, has serious consequences not only on the State's initiatives to maintain a stable employment record for the country, but more so, on the workingman himself, amid an environment that is desperately scarce in jobs. And, the National Labor Relations Commission should have known better than to fall for such unwarranted excuses and nebulous claims.

WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): SETTING ASIDE the decision, dated March 20, 1987, and the resolution, dated August 19, 1987; (2) ORDERING the respondent, the California Manufacturing Company, to REINSTATE the petitioners with full status and rights of regular employees; and (3) ORDERING the respondent, the California Manufacturing Company, and the respondents, Livi Manpower Service, Inc. and/or Lily-Victoria Azarcon, to PAY, jointly and severally, unto the petitioners: (a) backwages and differential pays effective as and from the time they had acquired a regular status under the second paragraph, of Section 281, of the Labor Code, but not to exceed three (3) years, and (b) all such other and further benefits as may be provided by existing collective bargaining agreement(s) or other relations, or by law, beginning such time; and (4) ORDERING the private respondents to PAY unto the petitioners attorney's fees equivalent to ten (10%) percent of all money claims hereby awarded, in addition to those money claims. The private respondents are likewise ORDERED to PAY the costs of this suit.

IT IS SO ORDERED.

Melencio-Herrera, (Chairperson), Paras, Padilla and Regalado, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 111501 March 5, 1996

PHILIPPINE FUJI XEROX CORPORATION, JENNIFER A. BERNARDO, and ATTY. VICTORINO LUIS, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (First Division), PAMBANSANG KILUSAN NG PAG-GAWA, (KILUSAN)-TUCP, PHILIPPINE XEROX EMPLOYEES UNION-KILUSAN and PEDRO GARADO, respondents.

MENDOZA, J.:p

This is a petition for certiorari to set aside the decision of the NLRC, finding petitioner Philippine Fuji Xerox Corporation (Fuji Xerox) guilty of illegally dismissing private respondent Pedro Garado and ordering him reinstated. The NLRC decision reverses on appeal a decision of the Labor Arbiter finding private respondent to be an employee of another firm, the Skillpower, Inc., and not of petitioner Fuji Xerox.

The question raised in this case is whether private respondent is an employee of Fuji Xerox (as the NLRC found) or of Skillpower, Inc. (as the Labor Arbiter found). For reasons to be hereafter explained, we hold that private respondent is an employee of Fuji Xerox and accordingly dismiss the petition for review of Fuji Xerox.

The following are the facts.

On May 6, 1977, petitioner Fuji Xerox entered into an agreement under which Skillpower, Inc. supplied workers to operate copier machines of Fuji Xerox as part of the latter's "Xerox Copier Project" in its sales offices. Private respondent Pedro Garado was assigned as key operator at Fuji Xerox's branch. at Buendia, Makati, Metro Manila, in February of 1980.

In February of 1983, Garado went on leave and his place was taken over by a substitute. Upon his return in March, he discovered that there was a spoilage of over 600 copies. Afraid that he might be blamed for the spoilage, he tried to talk a service technician of Fuji Xerox into stopping the meter of the machine.

The technician refused Garado's request, but this incident came to the knowledge of Fuji Xerox which, on May 31, 1983, reported the matter to Skillpower, Inc. The next day, Skillpower, Inc. wrote Garado, ordering him to explain. In the meantime, it suspended him from work. Garado filed a complaint for illegal dismissal.

The Labor Arbiter found that Garado applied for work to Skillpower, Inc.; that in 1980 he was employed and made to sign a contract; that although he received his salaries regularly from Fuji

Xerox, it was Skillpower, Inc. which exercised control and supervision over his work; that Skillpower, Inc. had substantial capital and investments in machinery, equipment, and service vehicles, and assets totalling P5,008,812.43. On the basis of these findings the Labor Arbiter held in a decision rendered on October 30, 1986 that Garado was an employee of Skillpower, Inc., and that he had merely been assigned by Skillpower, Inc. to Fuji Xerox. Hence, the Labor Arbiter dismissed Garado's complaint.

On the other hand, the NLRC found Garado to be infact an employee of petitioner Fuji Xerox and by it to have been illegally dismissed. The NLRC found that although Garado's request was wrongful, dismissal would be a disproportionate penalty. The NLRC held that although Skillpower, Inc. had substantial capital assets, the fact was that the copier machines, which Garado operated, belonged to petitioner Fuji Xerox, and that although it was Skillpower, Inc. which had suspended Garado, the latter merely acted at the behest of Fuji Xerox. The NLRC found that Garado worked under the control and supervision of Fuji Xerox, which paid his salaries, and that Skillpower, Inc. merely acted as paymaster-agent of Fuji Xerox. The NLRC held that Skillpower, Inc. was a labor-only contractor and Garado should be deemed to have been directly employed by Fuji Xerox, regardless of the agreement between it and Skillpower, Inc. Accordingly, the NLRC ordered:

WHEREFORE, premises considered, the respondents are hereby ordered to immediately reinstate complainant Pedro Garado to his former position as key operator with three (3) years backwages, without qualification or reduction whatsoever . . . . Except as herein above MODIFIED, the appealed decision is hereby Affirmed.

Hence the present petition. Fuji Xerox argues that Skillpower, Inc. is an independent contractor and that Garado is its employee for the following reasons:

(1) Garado was recruited by Skillpower, Inc.;

(2) The work done by Garado was not necessary to the conduct of the business of Fuji Xerox;

(3) Garado's salaries and benefits were paid directly by Skillpower, Inc.;

(4) Garado worked under the control of Skillpower, Inc.; and

(5) Skillpower, Inc. is a highly-capitalized business venture.

The contentions are without merit.

Fuji Xerox contends that Garado was actually recruited by Skillpower, Inc. as part of its personnel pool and later merely assigned to it (petitioner) . It is undisputed, however, that since 1980, 1 when Garado was first assigned to work at Fuji Xerox, he had never been assigned to any other company so much so that by 1984, he was already a member of the union which petitioned the company for his regularization. 2 From 1980 to 1984 he worked exclusively for petitioner. Indeed, he was recruited by Skillpower, Inc. solely for assignment to Fuji Xerox to work in the latter's Xerox Copier Project. 3

Petitioners claim that Skillpower, Inc. has other clients to whom it provided "temporary" services. That, however, is irrelevant. What is important is that once employed, Garado was never assigned to any other client of Skillpower, Inc. In fact, although under the agreement Skillpower, Inc. was

supposed to provide only "temporary" services, Skillpower, Inc. actually supplied Fuji Xerox the labor which the latter needed for its Xerox Copier Project for seven (7) years, from 1977 to 1984.

On January 1, 1983, private respondent signed a contract entitled "Appointment as Contract Worker," in which it was stated that private respondent's status was that of a contract worker for a definite period from January 1, 1983 to June 30, 1983. As such, private respondent's employment was considered temporary, to terminate automatically six (6) months afterwards, without necessity of any notice and without entitling private respondent to separation or termination pay. Private respondent was made to understand that he was an employee of Skillpower, Inc., and not of the client to which he was assigned. Therefore, the termination of the contract or any renewal or extension thereof did not entitle him to become an employee of the client and the latter was not under any obligation to appoint him as such, "notwithstanding the total duration of the contract or any extension or renewal thereof."

This is nothing but a crude attempt to circumvent the law and undermine the security of tenure of private respondent by employing workers under six-month contracts which are later extended indefinitely through renewals. As this Court held in the Philippine Bank of Communications v. NLRC: 4

It is not difficult to see that to uphold the contractual arrangement between the bank and CESI would in effect be to permit employers to avoid the necessity of hiring regular or permanent employees and to enable them to keep their employees indefinitely on a temporary or casual status, thus to deny them security of tenure in their jobs. Article 106 of the Labor Code is precisely designed to prevent such a result.

Second. Petitioner contends that the service provided by Skillpower, Inc., namely, operating petitioners' xerox machine, is not directly related nor necessary to the business of selling and leasing copier machines of petitioner. Petitioners claim that their Xerox Copier Project is just for public service and is purely incidental to its business. What petitioners earn from the project is not even sufficient to defray their expenses, let alone bring profits to them. As such, the project is no different from other services which can legally be contracted out, such as security and janitorial services. Petitioners contend that the copier service can be considered as part of their "housekeeping" tasks which can be let to independent contractors. 5

We disagree. As correctly held by the NLRC, at the very least, the Xerox Copier Project of petitioners promotes goodwill for the company . It may not generate income for the company but there are activities which a company may find necessary to engage in because they ultimately redound to its benefit. Operating the company's copiers at its branches advertises the quality of their products and promotes the company's reputation and public image. It also advertises the utility and convenience of having a copier machine. It is noteworthy that while not operated for profit the copying service is not intended either to be "promotional," as, indeed, petitioner charged a fee for the copies made.

It is wrong to say that if a task is not directly related to the employer's business, or it falls under what may be considered "housekeeping activities," the one performing the task is a job contractor. The determination of the existence of an employer-employee relationship is defined by law according to the facts of each case, regardless of the nature of the activities involved.

Third. Petitioners contend that it never exercised control over the conduct of private respondent. Petitioners allege that the salaries paid to Garado, as well as his employment records, vouchers and

loanchecks from the SSS were coursed through Skillpower, Inc. In addition private respondent applied for vacation leaves to Skillpower, Inc.

It is also contended that it was Skillpower, Inc. which twice required private respondent to explain why he should not be dismissed for the spoilage in Fuji Xerox's Buendia branch and suspended him pending the result of the investigation. According to petitioners, although they conducted an administrative investigation, the purpose was only to determine the complicity of their own employees in the incident, if any, and any criminal liability of private respondent.

This claim is belied by two letters written by Atty. Victorino H. Luis, Legal and Industrial Relations Officer of the company, to the union president, Nick Macaraig. The first letter, dated July 6, 1983, stated:

This has reference to your various letters dated today on administrative case concerning Messrs. Crisostomo Cruz, Pedro Garado and Ms. Evelyn Abenes.

In connection with the above and in the case likewise of Mr. Dionisio Guyala, please be advised that the proceedings against them are being carried out under the terms, and in accordance with the provisions of our Policy and Procedure on Employment Termination as well as Policy on Disciplinary Actions dated October 1, 1982, and not under the Grievance Machinery under our CBA.

Your action apparently is premised on the assumption that we are now in the Grievance Stage, which is premature. If we have allowed the Union to participate in our Investigation and Administrative panels, it is only a concession on management's part in accordance with No. IV, Section B, Paragraph 3 of the abovecited policy on the investigation, the Personnel/Administrative Department may consult the Union whenever necessary.

We shall entertain grievances under our CBA Machinery only after decisions have been made on the foregoing cases and should you find the penalties imposed, if any, as unjust, unduly harsh, discriminating otherwise fit subject for grievance by the Union itself under the terms of our CBA.

Accordingly, we are proceeding with our investigations on the administrative charges with or without your presence or that of the respondents if it is the latter's preference, as in the case of Crisostomo Cruz, to ignore the same. (Emphasis ours)

The second letter, dated July 13, 1983, 6 read:

You obviously persist in pursuing the misconception that our allowing your presence in the administrative proceedings against Messrs. Guyala, Cruz, et al. has set the Grievance Machinery under our CBA into play. We can only reiterate our statement in our letter of July 6 that we were implementing Policy and Procedures on Termination dated October 1, 1982 and that your presence in helping bolster the defense for the respondents was only with our forbearance in the spirit of cooperation in order to better ferret out the truth.

The power or authority to impose discipline and disciplinary measures upon employees is a basic prerogative of Management, something that cannot be abdicated, much less ceded to a CBA Grievance Committee which is limited to settling disputes and misunderstanding as to interpretation, application, or violation of

any provisions of the CBA agreement . . . As likewise pointed out in our letter of July 6 recourse to Grievance may possibly be resorted to if in the Union's opinion a penalty imposed upon a respondent Union member is discriminating to the member or otherwise illegal, unduly harsh, and the like. Ultimately, the remedy lies in appeal to the NLRC, as in similar cases in the past. (Emphasis ours)

These letters reveal the role which Fuji Xerox played in the dismissal of the private respondent. They dispel any doubt that Fuji Xerox exercised disciplinary authority over Garado and that Skillpower, Inc. issued the order of dismissal merely in obedience to the decision of petitioner.

Fourth. Petitioner avers that Skillpower, Inc. is a highly-capitalized business venture, registered as an "independent employer" with the Securities and Exchange Commission as well as the Department of Labor and Employment. Skillpower, Inc. is a member of the Social Security System. In 1984 it had assets exceeding P5 million pesos and at least 20 typewriters, office equipment and service vehicles. It had employees of its own and a pool of 25 clerks assigned to clients on a temporary basis.

Petitioners cite the case of Neri v. NLRC, 7 in which it was held that the Building Care Corporation (BCC) was an independent contractor on the basis of finding that it had substantial capital, although there was no evidence that it had investments in the form of tools, equipment, machineries and work premises. But the Court in that case considered not only the capitalization of the BCC but also the fact that BCC was providing specific special services (radio/telex operator and janitor) to the employer; that in another case 8 the Court had already found that the BCC was an independent contractor; that BCC retained control over the employees and the employer was actually just concerned with the end-result; that BCC had the power to reassign the employees and their deployment was not subject to the approval of the employer; and that BCC was paid in lump sum for the services it rendered. These features of that case make it distinguishable from the present one.

Here, the service being rendered by private respondent was not a specific or special skill that Skillpower, Inc. was in the business of providing. Although in the Neri case the telex machine operated by the employee belonged to the employer, the service was deemed permissible because it was specific and technical. This cannot be said of the service rendered by private respondent Garado.

The Rules to Implement of the Labor Code, Book III, Rule VIII, §8, provide that there is job contracting when the following conditions are fulfilled:

(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.

Otherwise, according to Art. 106 of the Labor code,

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by

such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

Petitioner Fuji Xerox argues that Skillpower, Inc. had typewriters and service vehicles for the conduct of its business independently of the petitioner. But typewriters and vehicles bear no direct relationship to the job for which Skillpower, Inc. contracted its service of operating copier machines and offering copying services to the public. The fact is that Skillpower, Inc. did not have copying machines of its own. What it did was simply to supply manpower to Fuji Xerox. The phrase "substantial capital and investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business," in the Implementing Rules clearly contemplates tools, equipment, etc., which are directly related to the service it is being contracted to render. One who does not have an independent business for undertaking the job contracted for is just an agent of the employer.

Fifth. The Agreement between petitioner Fuji Xerox and Skillpower, Inc. provides that Skillpower, Inc. is an independent contractor and that the workers hired by it "shall not, in any manner and under any circumstances, be considered employees of [the] Company, and that the Company has no control or supervision whatsoever over the conduct of the Contractor or any of its workers in respect to how they accomplish their work or perform the Contractor's obligations under this AGREEMENT."

In Tabas v. California Manufacturing Company, Inc., 9 this Court held on facts similar to those in case at bar:

There is no doubt that in the case at bar, Livi performs "manpower services," meaning to say, it contracts out labor in favor of clients. We hold that it is one notwithstanding its vehement claims to the contrary, and notwithstanding the provision of the contract that it is "an independent contractor." The nature of one's business is not determined by self-serving appellations one attaches thereto but by the tests provided by statute and prevailing case law. The bare fact that Livi maintains a separate line of business does not extinguish the equal fact that it has provided California with workers to pursue the latter's own business. In this connection, we do not agree that the petitioners had been made to perform activities "which are not directly related to the general business of manufacturing," California's purported "principal operation activity." The petitioners had been charged with "merchandising [sic] promotion or sale of the products of [California] in the different sales outlets in Metro Manila including task and occasional [sic] price tagging," an activity that is doubtless, an integral part of the manufacturing business. It is not, then, as if Livi had served as its (California's promotions or sales arm or agents, or otherwise, rendered a piece of work it (California) could not have itself done; Livi as a placement agency, had simply supplied it with the manpower necessary to carry out its (California's) merchandising activities, using its (California's) premises and equipment.

xxx xxx xxx

The fact that the petitioners have allegedly admitted being Livi's "direct employees" in their complaints is nothing conclusive. For one thing, the fact that the petitioners were (are), will not absolve California since liability has been imposed by legal

operation. For another, and as we indicated, the relations of parties must be judged from case to case and the decree of law, and not by declaration of parties.

Skillpower, Inc. is, therefore, a "labor-only" contractor and Garado is not its employee. No grave abuse of discretion can thus be imputed to the NLRC for declaring petitioner Fuji Xerox guilty of illegal dismissal of private respondent.

ACCORDINGLY, the petition for certiorari is DISMISSED for lack of merit.

SO ORDERED.

Regalado, Romero and Puno, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 64948 September 27, 1994

MANILA GOLF & COUNTRY CLUB, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT and FERMIN LLAMAR, respondents.

Bito, Misa & Lozada for petitioner.

Remberto Z. Evio for private respondent.

NARVASA, C.J.:

The question before the Court here is whether or not persons rendering caddying services for members of golf clubs and their guests in said clubs' courses or premises are the employees of such clubs and therefore within the compulsory coverage of the Social Security System (SSS).

That question appears to have been involved, either directly or peripherally, in three separate proceedings, all initiated by or on behalf of herein private respondent and his fellow caddies. That which gave rise to the present petition for review was originally filed with the Social Security Commission (SSC) via petition of seventeen (17) persons who styled themselves "Caddies of Manila Golf and Country Club-PTCCEA" for coverage and availment of benefits under the Social Security Act as amended, "PTCCEA" being the acronym of a labor organization, the "Philippine Technical, Clerical, Commercial Employees Association," with which the petitioners claimed to be affiliated. The petition, docketed as SSC Case No. 5443, alleged in essence that although the petitioners were employees of the Manila Golf and Country Club, a domestic corporation, the latter had not registered them as such with the SSS.

At about the same time, two other proceedings bearing on the same question were filed or were pending; these were:

(1) a certification election case filed with the Labor Relations Division of the Ministry of Labor by the PTCCEA on behalf of the same caddies of the Manila Golf and Country Club, the case being titled "Philippine Technical, Clerical, Commercial Association vs. Manila Golf and Country Club" and docketed as Case No. R4-LRDX-M-10-504-78; it appears to have been resolved in favor of the petitioners therein by Med-Arbiter Orlando S. Rojo who was thereafter upheld by Director Carmelo S. Noriel, denying the Club's motion for reconsideration; 1

(2) a compulsory arbitration case initiated before the Arbitration Branch of the Ministry of Labor by the same labor organization, titled "Philippine Technical, Clerical, Commercial Employees Association (PTCCEA), Fermin Lamar and Raymundo Jomok vs. Manila Golf and Country Club, Inc., Miguel Celdran, Henry Lim and Geronimo Alejo;" it was

dismissed for lack of merit by Labor Arbiter Cornelio T. Linsangan, a decision later affirmed on appeal by the National Labor Relations Commission on the ground that there was no employer-employee relationship between the petitioning caddies and the respondent Club. 2

In the case before the SSC, the respondent Club filed answer praying for the dismissal of the petition, alleging in substance that the petitioners, caddies by occupation, were allowed into the Club premises to render services as such to the individual members and guests playing the Club's golf course and who themselves paid for such services; that as such caddies, the petitioners were not subject to the direction and control of the Club as regards the manner in which they performed their work; and hence, they were not the Club's employees.

Subsequently, all but two of the seventeen petitioners of their own accord withdrew their claim for social security coverage, avowedly coming to realize that indeed there was no employment relationship between them and the Club. The case continued, and was eventually adjudicated by the SSC after protracted proceedings only as regards the two holdouts, Fermin Llamar and Raymundo Jomok. The Commission dismissed the petition for lack of merit, 3 ruling:

. . . that the caddy's fees were paid by the golf players themselves and not by respondent club. For instance, petitioner Raymundo Jomok averred that for their services as caddies a caddy's Claim Stub (Exh. "1-A") is issued by a player who will in turn hand over to management the other portion of the stub known as Caddy Ticket (Exh. "1") so that by this arrangement management will know how much a caddy will be paid (TSN, p. 80, July 23, 1980). Likewise, petitioner Fermin Llamar admitted that caddy works on his own in accordance with the rules and regulations (TSN, p. 24, February 26, 1980) but petitioner Jomok could not state any policy of respondent that directs the manner of caddying (TSN, pp. 76-77, July 23, 1980). While respondent club promulgates rules and regulations on the assignment, deportment and conduct of caddies (Exh. "C") the same are designed to impose personal discipline among the caddies but not to direct or conduct their actual work. In fact, a golf player is at liberty to choose a caddy of his preference regardless of the respondent club's group rotation system and has the discretion on whether or not to pay a caddy. As testified to by petitioner Llamar that their income depends on the number of players engaging their services and liberality of the latter (TSN, pp. 10-11, Feb. 26, 1980). This lends credence to respondent's assertion that the caddies are never their employees in the absence of two elements, namely, (1) payment of wages and (2) control or supervision over them. In this connection, our Supreme Court ruled that in the determination of the existence of an employer-employee relationship, the "control test" shall be considered decisive (Philippine Manufacturing Co. vs. Geronimo and Garcia, 96 Phil. 276; Mansal vs. P.P. Coheco Lumber Co., 96 Phil. 941; Viana vs. Al-lagadan, et al., 99 Phil. 408; Vda, de Ang, et al. vs. The Manila Hotel Co., 101 Phil. 358, LVN Pictures Inc. vs. Phil. Musicians Guild, et al., L-12582, January 28, 1961, 1 SCRA 132. . . . (reference being made also to Investment Planning Corporation Phil. vs. SSS 21 SCRA 925).

Records show the respondent club had reported for SS coverage Graciano Awit and Daniel Quijano, as bat unloader and helper, respectively, including their ground men, house and administrative personnel, a situation indicative of the latter's concern with the rights and welfare of its employees under the SS law, as amended. The unrebutted testimony of Col. Generoso A. Alejo (Ret.) that the ID cards issued to the caddies merely intended to identify the holders as accredited caddies of the club and privilege(d) to ply their trade or occupation within its premises which could be withdrawn anytime for loss of

confidence. This gives us a reasonable ground to state that the defense posture of respondent that petitioners were never its employees is well taken. 4

From this Resolution appeal was taken to the Intermediate appellate Court by the union representing Llamar and Jomok. After the appeal was docketed 5 and some months before decision thereon was reached and promulgated, Raymundo Jomok's appeal was dismissed at his instance, leaving Fermin Llamar the lone appellant. 6

The appeal ascribed two errors to the SSC:

(1) refusing to suspend the proceedings to await judgment by the Labor Relations Division of National Capital Regional Office in the certification election case (R-4-LRD-M-10-504-78) supra, on the precise issue of the existence of employer-employee relationship between the respondent club and the appellants, it being contended that said issue was "a function of the proper labor office"; and

(2) adjudicating that self same issue a manner contrary to the ruling of the Director of the Bureau of Labor Relations, which "has not only become final but (has been) executed or (become) res adjudicata." 7

The Intermediate Appellate Court gave short shirt to the first assigned error, dismissing it as of the least importance. Nor, it would appear, did it find any greater merit in the second alleged error. Although said Court reserved the appealed SSC decision and declared Fermin Llamar an employee of the Manila Gold and Country Club, ordering that he be reported as such for social security coverage and paid any corresponding benefits, 8 it conspicuously ignored the issue of res adjudicata raised in said second assignment. Instead, it drew basis for the reversal from this Court's ruling in Investment Planning Corporation of the Philippines vs. Social Security System,supra 9 and declared that upon the evidence, the questioned employer-employee relationship between the Club and Fermin Llamar passed the so-called "control test," establishment in the case — i.e., "whether the employer controls or has reserved the right to control the employee not only as to the result of the work to be done but also as to the means and methods by which the same is to be accomplished," — the Club's control over the caddies encompassing:

(a) the promulgation of no less than twenty-four (24) rules and regulations just about every aspect of the conduct that the caddy must observe, or avoid, when serving as such, any violation of any which could subject him to disciplinary action, which may include suspending or cutting off his access to the club premises;

(b) the devising and enforcement of a group rotation system whereby a caddy is assigned a number which designates his turn to serve a player;

(c) the club's "suggesting" the rate of fees payable to the caddies.

Deemed of title or no moment by the Appellate Court was the fact that the caddies were paid by the players, not by the Club, that they observed no definite working hours and earned no fixed income. It quoted with approval from an American decision 10 to the effect that: "whether the club paid the caddies and afterward collected in the first instance, the caddies were still employees of the club." This, no matter that the case which produced this ruling had a slightly different factual cast, apparently having involved a claim for workmen's compensation made by a caddy who, about to leave the premises of the club where he worked, was hit and injured by an automobile then negotiating the club's private driveway.

That same issue of res adjudicata, ignored by the IAC beyond bare mention thereof, as already pointed out, is now among the mainways of the private respondent's defenses to the petition for review. Considered in the perspective of the incidents just recounted, it illustrates as well as anything can, why the practice of forum-shopping justly merits censure and punitive sanction. Because the same question of employer-employee relationship has been dragged into three different fora, willy-nilly and in quick succession, it has birthed controversy as to which of the resulting adjudications must now be recognized as decisive. On the one hand, there is the certification case [R4-LRDX-M-10-504-78), where the decision of the Med-Arbiter found for the existence of employer-employee relationship between the parties, was affirmed by Director Carmelo S. Noriel, who ordered a certification election held, a disposition never thereafter appealed according to the private respondent; on the other, the compulsory arbitration case (NCR Case No. AB-4-1771-79), instituted by or for the same respondent at about the same time, which was dismissed for lack of merit by the Labor Arbiter, which was afterwards affirmed by the NLRC itself on the ground that there existed no such relationship between the Club and the private respondent. And, as if matters were not already complicated enough, the same respondent, with the support and assistance of the PTCCEA, saw fit, also contemporaneously, to initiate still a third proceeding for compulsory social security coverage with the Social Security Commission (SSC Case No. 5443), with the result already mentioned.

Before this Court, the petitioner Club now contends that the decision of the Med-Arbiter in the certification case had never become final, being in fact the subject of three pending and unresolved motions for reconsideration, as well as of a later motion for early resolution. 11 Unfortunately, none of these motions is incorporated or reproduced in the record before the Court. And, for his part, the private respondent contends, not only that said decision had been appealed to and been affirmed by the Director of the BLR, but that a certification election had in fact been held, which resulted in the PTCCEA being recognized as the sole bargaining agent of the caddies of the Manila Golf and Country Club with respect to wages, hours of work, terms of employment, etc. 12 Whatever the truth about these opposing contentions, which the record before the Court does not adequately disclose, the more controlling consideration would seem to be that, however, final it may become, the decision in a certification case, by the very nature of that proceedings, is not such as to foreclose all further dispute between the parties as to the existence, or non-existence, of employer-employee relationship between them.

It is well settled that for res adjudicata, or the principle of bar by prior judgment, to apply, the following essential requisites must concur: (1) there must be a final judgment or order; (2) said judgment or order must be on the merits; (3) the court rendering the same must have jurisdiction over the subject matter and the parties; and (4) there must be between the two cases identity of parties, identity of subject matter and identity of cause of action.13

Clearly implicit in these requisites is that the action or proceedings in which is issued the "prior Judgment" that would operate in bar of a subsequent action between the same parties for the same cause, be adversarial, or contentious, "one having opposing parties; (is) contested, as distinguished from an ex parte hearing or proceeding. . . . of which the party seeking relief has given legal notice to the other party and afforded the latter an opportunity to contest it" 14 and a certification case is not such a proceeding, as this Court already ruled:

A certification proceedings is not a "litigation" in the sense in which the term is commonly understood, but mere investigation of a non-adversary, fact-finding character, in which the investigating agency plays the part of a disinterested investigator seeking merely to ascertain the desires of the employees as to the matter of their representation. The court enjoys a wide discretion in determining the procedure necessary to insure the fair and free choice of bargaining representatives by the employees. 15

Indeed, if any ruling or judgment can be said to operate as res adjudicata on the contested issue of employer-employee relationship between present petitioner and the private respondent, it would logically be that rendered in the compulsory arbitration case (NCR Case No. AB-4-771-79, supra), petitioner having asserted, without dispute from the private respondent, that said issue was there squarely raised and litigated, resulting in a ruling of the Arbitration Branch (of the same Ministry of Labor) that such relationship did not exist, and which ruling was thereafter affirmed by the National Labor Relations Commission in an appeal taken by said respondent. 16

In any case, this Court is not inclined to allow private respondent the benefit of any doubt as to which of the conflicting ruling just adverted to should be accorded primacy, given the fact that it was he who actively sought them simultaneously, as it were, from separate fora, and even if the graver sanctions more lately imposed by the Court for forum-shopping may not be applied to him retroactively.

Accordingly, the IAC is not to be faulted for ignoring private respondent's invocation of res adjudicata; on contrary, it acted correctly in doing so.

Said Court’s holding that upon the facts, there exists (or existed) a relationship of employer and employee between petitioner and private respondent is, however, another matter. The Court does not agree that said facts necessarily or logically point to such a relationship, and to the exclusion of any form of arrangements, other than of employment, that would make the respondent's services available to the members and guest of the petitioner.

As long as it is, the list made in the appealed decision detailing the various matters of conduct, dress, language, etc. covered by the petitioner's regulations, does not, in the mind of the Court, so circumscribe the actions or judgment of the caddies concerned as to leave them little or no freedom of choice whatsoever in the manner of carrying out their services. In the very nature of things, caddies must submit to some supervision of their conduct while enjoying the privilege of pursuing their occupation within the premises and grounds of whatever club they do their work in. For all that is made to appear, they work for the club to which they attach themselves on sufference but, on the other hand, also without having to observe any working hours, free to leave anytime they please, to stay away for as long they like. It is not pretended that if found remiss in the observance of said rules, any discipline may be meted them beyond barring them from the premises which, it may be supposed, the Club may do in any case even absent any breach of the rules, and without violating any right to work on their part. All these considerations clash frontally with the concept of employment.

The IAC would point to the fact that the Club suggests the rate of fees payable by the players to the caddies as still another indication of the latter's status as employees. It seems to the Court, however, that the intendment of such fact is to the contrary, showing that the Club has not the measure of control over the incidents of the caddies' work and compensation that an employer would possess.

The Court agrees with petitioner that the group rotation system so-called, is less a measure of employer control than an assurance that the work is fairly distributed, a caddy who is absent when his turn number is called simply losing his turn to serve and being assigned instead the last number for the day. 17

By and large, there appears nothing in the record to refute the petitioner's claim that:

(Petitioner) has no means of compelling the presence of a caddy. A caddy is not required to exercise his occupation in the premises of petitioner. He may work with

any other golf club or he may seek employment a caddy or otherwise with any entity or individual without restriction by petitioner. . . .

. . . In the final analysis, petitioner has no was of compelling the presence of the caddies as they are not required to render a definite number of hours of work on a single day. Even the group rotation of caddies is not absolute because a player is at liberty to choose a caddy of his preference regardless of the caddy's order in the rotation.

It can happen that a caddy who has rendered services to a player on one day may still find sufficient time to work elsewhere. Under such circumstances, he may then leave the premises of petitioner and go to such other place of work that he wishes (sic). Or a caddy who is on call for a particular day may deliberately absent himself if he has more profitable caddying, or another, engagement in some other place. These are things beyond petitioner's control and for which it imposes no direct sanctions on the caddies. . . . 18

WHEREFORE, the Decision of the Intermediate Appellant Court, review of which is sought, is reversed and set aside, it being hereby declared that the private respondent, Fermin Llamar, is not an employee of petitioner Manila Golf and Country Club and that petitioner is under no obligation to report him for compulsory coverage to the Social Security System. No pronouncement as to costs.

SO ORDERED.

Regalado and Mendoza, JJ., concur.

Padilla, J., is on leave.

Puno, J., took no part.

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants, vs. THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute:

xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to as appellants, the Tourist World Service, Inc. leased the premises belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch office. In the said contract the party of the third part held herself solidarily liable with the party of the part for the prompt payment of the monthly rental agreed on. When the branch office was opened, the same was run by the herein appellant Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist World Service considered closing down its office. This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the manager and vice-president of the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the corporate secretary to receive the properties of the Tourist World Service then located at the said branch office. It further appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this, and to comply with the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests of the Tourist World Service. When neither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a complaint wall filed by the

herein appellants against the appellees with a prayer for the issuance of mandatory preliminary injunction. Both appellees answered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered the dismissal of the case without prejudice.

The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in support of her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined, the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly heard following which the court a quo ordered both cases dismiss for lack of merit, on the basis of which was elevated the instant appeal on the following assignment of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on Ermita;

2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees TWS or TWS and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her and appellee TWS with offices at the Ermita branch office and that she was not an employee of the TWS to the end that her relationship with TWS was one of a joint business venture appellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and nose specialist as well as a imediately columnist had been in the travel business prior to the establishment of the joint business venture with appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being the godmother of one of his children, with her own clientele, coming mostly from her own social circle (pp. 3-6 tsn. February 16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. 'A') covering the premises at A. Mabini St., she expressly warranting and holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc. for the prompt payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc., which had its own, separate office located at the Trade & Commerce Building; nor was she an employee thereof, having no participation in nor connection with said business at the Trade & Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own business (and not for any of the business of appellee Tourist World Service, Inc.) obtained from the airline companies. She shared the 7% commissions given by the airline companies giving appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and other sundry expenses, aside from desicion the office furniture and supplying some of fice furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the rental and other expenses in consideration for the 3% split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).

6. It was the understanding between them that appellant Mrs. Sevilla would be given the title of branch manager for appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World Service, Inc. and as such was designated manager. 1

xxx xxx xxx

The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of Appeal 5 rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state:

I

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.

IV

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the

relief of damages prayed for and whether or not the evidence for the said appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. 7 Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed with the private respondent, Segundina Noguera. The petitioners contend, however, that relation between the between parties was one of joint venture, but concede that "whatever might have been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands, 8 in reference to the padlocking now questioned.

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that the relation between the parties was in the character of employer and employee, the courts would have been without jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9

In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general, we have relied on the so-called right of control test, "where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such end." 10 Subsequently, however, we have considered, in addition to the standard of right-of control, the existing economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the existence of an employer-employee relationship. 11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita office, she had bound herself in solidumas and for rental payments, an arrangement that would be like claims of a master-servant relationship. True the respondent Court would later minimize her participation in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist World, since in any case, a true employee cannot be made to part with his own money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event, the parties must be bound by some other relation, but certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we said, employment is determined by the right-of-control test and certain economic parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a

partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the manner in which the business was run. A joint venture, including a partnership, presupposes generally a of standing between the joint co-venturers or partners, in which each party has an equal proprietary interest in the capital or property contributed 15 and where each party exercises equal rights in the conduct of the business. 16 furthermore, the parties did not hold themselves out as partners, and the building itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract that the agent renders services "in representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's authority as owner of the business undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that the ties had contemplated a principal agent relationship, rather than a joint managament or a partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for mutual interest, of the agent and the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in the business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her own name, after Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she earned as a result of her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to damages.

As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the telephone lines at the branch office. 20Yet, what cannot be denied is the fact that Tourist World Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate that contract without notice to its actual occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted from possession as summarily as one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival

firm. To be sure, the respondent court speaks of alleged business losses to justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that following such an information (that Sevilla was working for another company), Tourist World's board of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked, personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service. "22 It is strange indeed that Tourist World Service, Inc. did not find such a need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely its business operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for "breaches of contract where the defendant acted ... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. 24

ART. 2219. Moral damages 25 may be recovered in the following and analogous cases:

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(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages, 25and P5,000.00 as nominal 26 and/or temperate 27 damages, to be just, fair, and reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages.

Costs against said private respondents.

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 87098 November 4, 1996

ENCYCLOPAEDIA BRITANNICA (PHILIPPINES), INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER TEODORICO L. ROGELIO and BENJAMIN LIMJOCO, respondents.

TORRES, JR., J.:

Encyclopaedia Britannica (Philippines), Inc. filed this petition for certiorari to annul and set aside the resolution of the National Labor Relations Commission, Third Division, in NLRC Case No. RB IV-5158-76, dated December 28, 1988, the dispositive portion of which reads:

WHEREFORE, in view of all the foregoing, the decision dated December 7, 1982 of then Labor Arbiter Teodorico L. Dogelio is hereby AFFIRMED, and the instant appeal is hereby DISMISSED for lack of merit.

SO ORDERED. 1

Private respondent Benjamin Limjoco was a Sales Division Manager of petitioner Encyclopaedia Britannica and was in charge of selling petitioner's products through some sales representatives. As compensation, private respondent received commissions from the products sold by his agents. He was also allowed to use petitioner's name, goodwill and logo. It was, however, agreed upon that office expenses would be deducted from private respondent's commissions. Petitioner would also be informed about appointments, promotions, and transfers of employees in private respondent's district.

On June 14, 1974, private respondent Limjoco resigned from office to pursue his private business. Then on October 30, 1975, he filed a complaint against petitioner Encyclopaedia Britannica with the Department of Labor and Employment, claiming for non-payment of separation pay and other benefits, and also illegal deduction from his sales commissions.

Petitioner Encyclopaedia Britannica alleged that complainant Benjamin Limjoco (Limjoco, for brevity) was not its employee but an independent dealer authorized to promote and sell its products and in return, received commissions therefrom. Limjoco did not have any salary and his income from the petitioner company was dependent on the volume of sales accomplished. He also had his own separate office, financed the business expenses, and maintained his own workforce. The salaries of his secretary, utility man, and sales representatives were chargeable to his commissions. Thus, petitioner argued that it had no control and supervision over the complainant as to the manner and means he conducted his business operations. The latter did not even report to the office of the

petitioner and did not observe fixed office hours. Consequently, there was no employer-employee relationship.

Limjoco maintained otherwise. He alleged that he was hired by the petitioner in July 1970, was assigned in the sales department, and was earning an average of P4,000.00 monthly as his sales commission. He was under the supervision of the petitioner's officials who issued to him and his other personnel, memoranda, guidelines on company policies, instructions and other orders. He was, however, dismissed by the petitioner when the Laurel-Langley Agreement expired. As a result thereof, Limjoco asserts that in accordance with the established company practice and the provisions of the collective bargaining agreement, he was entitled to termination pay equivalent to one month salary, the unpaid benefits (Christmas bonus, midyear bonus, clothing allowance, vacation leave, and sick leave), and the amounts illegally deducted from his commissions which were then used for the payments of office supplies, office space, and overhead expenses.

On December 7, 1982, Labor Arbiter Teodorico Dogelio, in a decision ruled that Limjoco was an employee of the petitioner company. Petitioner had control over Limjoco since the latter was required to make periodic reports of his sales activities to the company. All transactions were subject to the final approval of the petitioner, an evidence that petitioner company had active control on the sales activities. There was therefore, an employer-employee relationship and necessarily, Limjoco was entitled to his claims. The decision also ordered petitioner company to pay the following:

1. To pay complainant his separation pay in the total amount of P16,000.00;

2. To pay complainant his unpaid Christmas bonus for three years or the amount of 12,000.00;

3. To pay complainant his unpaid mid-year bonus equivalent to one-half month pay or the total amount of P6,000.00;

4. To pay complainant his accrued vacation leave equivalent to 15 days per year of service, or the total amount of P6,000.00;

5. To pay complainant his unpaid clothing allowance in the total amount of P600.00; and

6. To pay complainant his accrued sick leave equivalent to 15 days per year of service or the total amount of P6,000.00. 2

On appeal, the Third Division of the National Labor Relations Commission affirmed the assailed decision. The Commission opined that there was no evidence supporting the allegation that Limjoco was an independent contractor or dealer. The petitioner still exercised control over Limjoco through its memoranda and guidelines and even prohibitions on the sale of products other than those authorized by it. In short, the petitioner company dictated how and where to sell its products. Aside from that fact, Limjoco passed the costs to the petitioner chargeable against his future commissions. Such practice proved that he was not an independent dealer or contractor for it is required by law that an independent contractor should have substantial capital or investment.

Dissatisfied with the outcome of the case, petitioner Encyclopaedia Britannica now comes to us in this petition forcertiorari and injunction with prayer for preliminary injunction. On April 3, 1989, this Court issued a temporary restraining order enjoining the enforcement of the decision dated December 7, 1982.

The following are the arguments raised by the petitioner:

I

The respondent NLRC gravely abused its discretion in holding that "appellant's contention that appellee was an independent contractor is not supported by evidence on record".

II

Respondent NLRC committed grave abuse of discretion in not passing upon the validity of the pronouncement of the respondent Labor Arbiter granting private respondent's claim for payment of Christmas bonus, Mid-year bonus, clothing allowance and the money equivalent of accrued and unused vacation and sick leave.

The NLRC ruled that there existed an employer-employee relationship and petitioner failed to disprove this finding. We do not agree.

In determining the existence of an employer-employee relationship the following elements must be present: 1) selection and engagement of the employee; 2) payment of wages; 3) power of dismissal; and 4) the power to control the employee's conduct. Of the above, control of employee's conduct is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. 3 Under the control test, an employer-employee relationship exists where the person for whom the services are performed reserves the right to control not only the end to be achieved, but also the manner and means to used in reaching that end. 4

The fact that petitioner issued memoranda to private respondents and to other division sales managers did not prove that petitioner had actual control over them. The different memoranda were merely guidelines on company policies which the sales managers follow and impose on their respective agents. It should be noted that in petitioner's business of selling encyclopedias and books, the marketing of these products was done through dealership agreements. The sales operations were primarily conducted by independent authorized agents who did not receive regular compensations but only commissions based on the sales of the products. These independent agents hired their own sales representatives, financed their own office expenses, and maintained their own staff. Thus, there was a need for the petitioner to issue memoranda to private respondent so that the latter would be apprised of the company policies and procedures. Nevertheless, private respondent Limjoco and the other agents were free to conduct and promote their sales operations. The periodic reports to the petitioner by the agents were but necessary to update the company of the latter's performance and business income.

Private respondent was not an employee of the petitioner company. While it was true that the petitioner had fixed the prices of the products for reason of uniformity and private respondent could not alter them, the latter, nevertheless, had free rein in the means and methods for conducting the marketing operations. He selected his own personnel and the only reason why he had to notify the petitioner about such appointments was for purpose of deducting the employees' salaries from his commissions. This he admitted in his testimonies, thus:

Q. Yes, in other words you were on what is known as P&L basis or profit and loss basis?

A. That is right.

Q. If for an instance, just example your sales representative in any period did not produce any sales, you would not get any money from Britannica, would you?

A. No, sir.

Q. In fact, Britannica by doing the accounting for you as division manager was merely making it easy for you to concentrate all your effort in selling and you don't worry about accounting, isn't that so?

A. Yes, sir.

Q. In fact whenever you hire a secretary or trainer you merely hire that person and notify Britannica so that Encyclopaedia Britannica will give the salaries and deduct it from your earnings, isn't that so?

A. In certain cases I just hired people previously employed by Encyclopaedia Britannica.

xxx xxx xxx

Q. In this Exhibit "2" you were informing Encyclopaedia Britannica that you have hired a certain person and you were telling Britannica how her salary was going to be taken cared of, is it not?

A. Yes, sir.

Q. You said here, "please be informed that we have appointed Miss Luz Villan as division trainer effective May 1, 1971 at P550.00 per month her salary will be chargeable to the Katipunan and Bayanihan Districts", signed by yourself. What is the Katipunan and Bayanihan District?

A. Those were districts under my division.

Q. In effect you were telling Britannica that you have hired this person and "you should charge her salary to me," is that right?

A. Yes, sir. 5

Private respondent was merely an agent or an independent dealer of the petitioner. He was free to conduct his work and he was free to engage in other means of livelihood. At the time he was connected with the petitioner company, private respondent was also a director and later the president of the Farmers' Rural Bank. Had he been an employee of the company, he could not be employed elsewhere and he would be required to devote full time for petitioner. If private respondent was indeed an employee, it was rather unusual for him to wait for more than a year from his separation from work before he decided to file his claims. Significantly, when Limjoco tendered his resignation to petitioner on June 14, 1974, he stated, thus:

Re: Resignation

I am resigning as manager of the EB Capitol Division effective 16 June 1974.

This decision was brought about by conflict with other interests which lately have increasingly required my personal attention. I feel that in fairness to the company and to the people under my supervision I should relinquish the position to someone who can devote full-time to the Division.

I wish to thank you for all the encouragement and assistance you have extended to me and to my group during my long association with Britannica.

Evidently, Limjoco was aware of "conflict with other interests which . . . have increasingly required my personal attention" (p. 118, Records). At the very least, it would indicate that petitioner has no effective control over the personal activities of Limjoco, who as admitted by the latter had other "conflict of interest" requiring his personal attention.

In ascertaining whether the relationship is that of employer-employee or one of independent contractor, each case must be determined by its own facts and all features of the relationship are to be considered. 6 The records of the case at bar showed that there was no such employer-employee relationship.

As stated earlier, "the element of control is absent; where a person who works for another does so more or less at his own pleasure and is not subject to definite hours or conditions of work, and in turn is compensated according to the result of his efforts and not the amount thereof, we should not find that the relationship of employer and employee exists. 7 In fine, there is nothing in the records to show or would "indicate that complainant was under the control of the petitioner" in respect of the means and methods 8 in the performance of complainant's work.

Consequently, private respondent is not entitled to the benefits prayed for.

In view of the foregoing premises, the petition is hereby GRANTED, and the decision of the NLRC is hereby REVERSED AND SET ASIDE.

SO ORDERED.

Regalado, Romero, Puno and Mendoza, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 119930 March 12, 1998

INSULAR LIFE ASSURANCE CO., LTD., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (Fourth Division, Cebu City), LABOR ARBITER NICASIO P. ANINON and PANTALEON DE LOS REYES, respondents.

BELLOSILLO, J.:

On 17 June 1994 respondent Labor Arbiter dismissed for lack of jurisdiction NLRC RAB-VII Case No. 03-0309-94 filed by private respondent Pantaleon de los Reyes against petitioner Insular Life Assurance Co., Ltd. (INSULAR LIFE), for illegal dismissal and nonpayment of salaries and back wages after finding no employer-employee relationship between De los Reyes and petitioner INSULAR LIFE. 1 On appeal by private respondent, the order of dismissal was reversed by the National Labor Relations Commission (NLRC) which ruled that respondent De los Reyes was an employee of petitioner. 2 Petitioner's motion for reconsideration having been denied, the NLRC remanded the case to the Labor Arbiter for hearing on the merits.

Seeking relief through this special civil action for certiorari with prayer for a restraining order and/or preliminary injunction, petitioner now comes to us praying for annulment of the decision of respondent NLRC dated 3 March 1995 and its Order dated 6 April 1995 denying the motion for reconsideration of the decision. It faults NLRC for acting without jurisdiction and/or with grave abuse of discretion when, contrary to established facts and pertinent law and jurisprudence, it reversed the decision of the Labor Arbiter and held instead that the complaint was properly filed as an employer-employee relationship existed between petitioner and private respondent.

Petitioner reprises the stand it assumed below that it never had any employer-employee relationship with private respondent, this being an express agreement between them in the agency contracts, particularly reinforced by the stipulation therein that De los Reyes was allowed discretion to devise ways and means to fulfill his obligations as agent and would be paid commission fees based on his actual output. It further insists that the nature of this work status as described in the contracts had already been squarely resolved by the Court in the earlier case of Insular Life Assurance Co., Ltd. v. NLRC and Basiao 3 where the complainant therein, Melecio Basiao, was similarly situated as respondent De los Reyes in that he was appointed first as an agent and then promoted as agency manager, and the contracts under which he was appointed contained terms and conditions identical to those of Delos Reyes. Petitioner concludes that since Basiao was declared by the Court to be an independent contractor and not an employee of petitioner, there should be no reason why the status of De los Reyes herein vis-a-vispetitioner should not be similarly determined.

We reject the submissions of petitioner and hold that respondent NLRC acted appropriately within the bounds of the law. The records of the case are replete with telltale indicators of an existing employer-employee relationship between the two parties despite written contractual disavowals.

These facts are undisputed: on 21 August 1992 petitioner entered into an agency contract with respondent Pantaleon de los Reyes 4 authorizing the latter to solicit within the Philippines applications for life insurance and annuities for which he would be paid compensation in the form of commissions. The contract was prepared by petitioner in its entirety and De los Reyes merely signed his conformity thereto. It contained the stipulation that no employer-employee relationship shall be created between the parties and that the agent shall be free to exercise his own judgment as to time, place and means of soliciting insurance. De los Reyes however was prohibited by petitioner from working for any other life insurance company, and violation of this stipulation was sufficient ground for termination of the contract. Aside from soliciting insurance for the petitioner, private respondent was required to submit to the former all completed applications for insurance within ninety (90) consecutive days, deliver policies, receive and collect initial premiums and balances of first year premiums, renewal premiums, deposits on applications and payments on policy loans. Private respondent was also bound to turn over to the company immediately any and all sums of money collected by him. In a written communication by petitioner to respondent De los Reyes, the latter was urged to register with the Social Security System as a self-employed individual as provided under PD No. 1636. 5

On 1 March 1993 petitioner and private respondent entered into another contract 6 where the latter was appointed as Acting Unit Manager under its office — the Cebu DSO V (157). As such, the duties and responsibilities of De los Reyes included the recruitment, training, organization and development within his designated territory of a sufficient number of qualified, competent and trustworthy underwriters, and to supervise and coordinate the sales efforts of the underwriters in the active solicitation of new business and in the furtherance of the agency's assigned goals. It was similarly provided in the management contract that the relation of the acting unit manager and/or the agents of his unit to the company shall be that of independent contractor. 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. As in the previous agency contract, De los Reyes together with his unit force was granted freedom to exercise judgment as to time, place and means of soliciting insurance. Aside from being granted override commissions, the acting unit manager was given production bonus, development allowance and a unit development financing scheme euphemistically termed "financial assistance" consisting of payment to him of a free portion of P300.00 per month and a validate portion of P1,200.00. While the latter amount was deemed as an advance against expected commissions, the former was not and would be freely given to the unit manager by the company only upon fulfillment by him of certain manpower and premium quota requirements. The agents and underwriters recruited and trained by the acting unit manager would be attached to the unit but petitioner reserved the right to determine if such assignment would be made or, for any reason, to reassign them elsewhere.

Aside from soliciting insurance, De los Reyes was also expressly obliged to participate in the company's conservation program, i.e., preservation and maintenance of existing insurance policies, and to accept moneys duly receipted on agent's receipts provided the same were turned over to the company. As long as he was unit manager in an acting capacity, De los Reyes was prohibited from working for other life insurance companies or with the government. He could not also accept a managerial or supervisory position in any firm doing business in the Philippines without the written consent of petitioner.

Private respondent worked concurrently as agent and Acting Unit Manager until he was notified by petitioner on 18 November 1993 that his services were terminated effective 18 December 1993. On 7 March 1994 he filed a complaint before the Labor Arbiter on the ground that he was illegally dismissed and that he was not paid his salaries and separation pay.

Petitioner filed a motion to dismiss the complaint of De los Reyes for lack of jurisdiction, citing the absence of employer-employee relationship. It reasoned out that based on the criteria for

determining the existence of such relationship or the so-called "four-fold test," i.e., (a) selection and engagement of employee, (b) payment of wages, (c) power of dismissal, and, (d) power of control, De los Reyes was not an employee but an independent contractor.

On 17 June 1994 the motion of petitioner was granted by the Labor Arbiter and the case was dismissed on the ground that the element of control was not sufficiently established since the rules and guidelines set by petitioner in its agency agreement with respondent Delos Reyes were formulated only to achieve the desired result without dictating the means or methods of attaining it.

Respondent NLRC however appreciated the evidence from a different perspective. It determined that respondent De los Reyes was under the effective control of petitioner in the critical and most important aspects of his work as Unit Manager. This conclusion was derived from the provisions in the contract which appointed private respondent as Acting Unit Manager, to wit: (a) De los Reyes was to serve exclusively the company, therefore, he was not an independent contractor; (b) he was required to meet certain manpower and production quota; and, (c) petitioner controlled the assignment to and removal of soliciting agents from his unit.

The NLRC also took into account other circumstances showing that petitioner exercised employer's prerogatives over De los Reyes, e.g., (a) limiting the work of respondent De los Reyes to selling a life insurance policy known as "Salary Deduction Insurance" only to members of the Philippine National Police, public and private school teachers and other employees of private companies; (b) assigning private respondent to a particular place and table where he worked whenever he was not in the field; (c) paying private respondent during the period of twelve (12) months of his appointment as Acting Unit Manager the amount of P1,500.00 as Unit Development Financing of which 20% formed his salary and the rest, i.e., 80%, as advance of his expected commissions; and, (d) promising that upon completion of certain requirements, he would be promoted to Unit Manager with the right of petitioner to revert him to agent status when warranted.

Parenthetically, both petitioner and respondent NLRC treated the agency contract and the management contract entered into between petitioner and De los Reyes as contracts of agency. We however hold otherwise. Unquestionably there exist major distinctions between the two agreements. While the first has the earmarks of an agency contract, the second is far removed from the concept of agency in that provided therein are conditionalities that indicate an employer-employee relationship. The NLRC therefore was correct in finding that private respondent was an employee of petitioner, but this holds true only insofar as the management contract is concerned. In view thereof, the Labor Arbiter has jurisdiction over the case..

It is axiomatic that the existence of an employer-employee relationship cannot be negated by expressly repudiating it in the management contract and providing therein that the "employee" is an independent contractor when the terms of the agreement clearly show otherwise. For, the employment status of a person is defined and prescribed by law and not by what the parties say it should be. 7 In determining the status of the management contract, the "four-fold test" on employment earlier mentioned has to be applied.

Petitioner contends that De los Reyes was never required to go through the pre-employment procedures and that the probationary employment status was reserved only to employees of petitioner. On this score, it insists that the first requirement of selection and engagement of the employee was not met.

A look at the provisions of the contract shows that private respondent was appointed as Acting Unit Manager only upon recommendation of the District Manager. 8 This indicates that private respondent was hired by petitioner because of the favorable endorsement of its duly authorized officer. But, this

approbation could only have been based on the performance of De los Reyes as agent under the agency contract so that there can be no other conclusion arrived under this premise than the fact that the agency or underwriter phase of the relationship of De los Reyes with petitioner was nothing more than a trial or probationary period for his eventual appointment as Acting Unit Manager of petitioner. Then, again, the very designation of the appointment of private respondent as "acting" unit manager obviously implies a temporary employment status which may be made permanent only upon compliance with company standards such as those enumerated under Sec. 6 of the management contract. 9

On the matter of payment of wages, petitioner points out that respondent was compensated strictly on commission basis, the amount of which was totally dependent on his total output. But, the manager's contract, speaks differently. Thus—

4. Performance Requirements. — To maintain your appointment as Acting Unit Manager you must meet the following manpower and production requirements:

Quarter Active Calendar Year Production Agents Cumulative FYP Production

1st 2 P 125,000 2nd 3 250,000 3rd 4 375,000 4th 5 500,000

5.4. Unit Development Financing (UDF). — As an Acting Unit Manager you shall be given during the first 12 months of your appointment a financial assistance which is composed of two parts:

5.4.1. Free Portion amounting to P300 per month, subject to your meeting prescribed minimum performance requirement on manpower and premium production. The free portion is not payable by you.

5.4.2. Validate Portion amounting to P1,200 per month, also subject to meeting the same prescribed minimum performance requirements on manpower and premium production. The validated portion is an advance against expected compensation during the UDF period and thereafter as may be necessary.

The above provisions unquestionably demonstrate that the performance requirement imposed on De los Reyes was applicable quarterly while his entitlement to the free portion (P300) and the validated portion (P1,200) wasmonthly starting on the first month of the twelve (12) months of the appointment. Thus, it has to be admitted that even before the end of the first quarter and prior to the so-called quarterly performance evaluation, private respondent was already entitled to be paid both the free and validated portions of the UDF every month because his production performance could not be determined until after the lapse of the quarter involved. This indicates quite clearly that the unit manager's quarterly performance had no bearing at all on his entitlement at least to the free portion of the UDF which for all intents and purposes comprised the salary regularly paid to him by petitioner. Thus it cannot be validly claimed that the financial assistance consisting of the free portion of the UDF was purely dependent on the premium production of the agent. Be that as it may, it is worth considering that the payment of compensation by way of commission does not militate against the conclusion that private respondent was an employee of petitioner. Under Art. 97 of the Labor

Code, "wage" shall mean "however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, price or commission basis . . . ."10

As to the matter involving the power of dismissal and control by the employer, the latter of which is the most important of the test, petitioner asserts that its termination of De los Reyes was but an exercise of its inherent right as principal under the contracts and that the rules and guidelines it set forth in the contract cannot, by any stretch of the imagination, be deemed as an exercise of control over the private respondent as these were merely directives that fixed the desired result without dictating the means or method to be employed in attaining it. The following factual findings of the NLRC 11 however contradict such claims:

A perusal of the appointment of complainant as Acting Unit Manager reveals that:

1. Complainant was to "exclusively" serve respondent company. Thus it is provided: . . . 7..7 Other causes of Termination: This appointment may likewise be terminated for any of the following causes: . . . 7..7..2. Your entering the service of the government or another life insurance company; 7..7..3. Your accepting a managerial or supervisory position in any firm doing business in the Philippines without the written consent of the Company; . . .

2. Complainant was required to meet certain manpower and production quotas.

3. Respondent (herein petitioner) controlled the assignment and removal of soliciting agents to and from complainant's unit, thus: . . . 7..2. Assignment of Agents: Agents recruited and trained by you shall be attached to your unit unless for reasons of Company policy, no such assignment should be made. The Company retains the exclusive right to assign new soliciting agents to the unit. It is agreed that the Company may remove or transfer any soliciting agents appointed and assigned to the said unit. . . .

It would not be amiss to state that respondent's duty to collect the company's premiums using company receipts under Sec. 7.4 of the management contract is further evidence of petitioner's control over respondent, thus:

xxx xxx xxx

7.4. Acceptance and Remittance of Premiums. — . . . . the Company hereby authorizes you to accept and to receive sums of money in payment of premiums, loans, deposits on applications, with or without interest, due from policyholders and applicants for insurance, and the like, specially from policyholders of business solicited and sold by the agents attached to your unit provided however, that all such payments shall be duly receipted by you on the corresponding Company's "Agents' Receipt" to be provided you for this purpose and to be covered by such rules and accounting regulations the Company may issue from time to time on the matter. Payments received by you shall be turned over to the Company's designated District or Service Office clerk or directly to the Home Office not later than the next working day from receipt thereof . . . .

Petitioner would have us apply our ruling in Insular Life Assurance Co., Ltd. v. NLRC and Basiao 12 to the instant case under the doctrine of stare decisis, postulating that both cases involve parties similarly situated and facts which are almost identical.

But we are not convinced that the cited case is on all fours with the case at bar. In Basiao, the agent was appointed Agency Manager under an Agency Manager Contract. To implement his end of the agreement, Melecio Basiao organized an agency office to which he gave the name M. Basiao and Associates. The Agency Manager Contract practically contained the same terms and conditions as the Agency Contract earlier entered into, and the Court observed that, "drawn from the terms of the contract they had entered into, (which) either expressly or by necessary implication, Basiao (was) made the master of his own time and selling methods, left to his own judgment the time, place and means of soliciting insurance, set no accomplishment quotas and compensated him on the bases 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." Upon these premises, Basiao was considered as agent — an independent contractor — of petitioner INSULAR LIFE.

Unlike Basiao, herein respondent De los Reyes was appointed Acting Unit Manager, not agency manager. There is no evidence that to implement his obligations under the management contract, De los Reyes had organized an office. Petitioner in fact has admitted that it provided De los Reyes a place and a table at its office where he reported for and worked whenever he was not out in the field. Placed under petitioner's Cebu District Service Office, the unit was given a name by petitioner — De los Reyes and Associates — and assigned Code No. 11753 and Recruitment No. 109398. Under the managership contract, De los Reyes was obliged to work exclusively for petitioner in life insurance solicitation and was imposed premium production quotas. Of course, the acting unit manager could not underwrite other lines of insurance because his Permanent Certificate of Authority was for life insurance only and for no other. He was proscribed from accepting a managerial or supervisory position in any other office including the government without the written consent of petitioner. De los Reyes could only be promoted to permanent unit manager if he met certain requirements and his promotion was recommended by the petitioner's District Manager and Regional Manager and approved by its Division Manager. As Acting Unit Manager, De los Reyes performed functions beyond mere solicitation of insurance business for petitioner. As found by the NLRC, he exercised administrative functions which were necessary and beneficial to the business of INSULAR LIFE.

In Great Pacific Life Insurance Company v. NLRC 13 which is closer in application than Basiao to this present controversy, we found that "the relationships of the Ruiz brothers and Grepalife were those of employer-employee. First, their work at the time of their dismissal as zone supervisor and district manager was necessary and desirable to the usual business of the insurance company. They were entrusted with supervisory, sales and other functions to guard Grepalife's business interests and to bring in more clients to the company, and even with administrative functions to ensure that all collections, reports and data are faithfully brought to the company . . . . A cursory reading of their respective functions as enumerated in their contracts reveals that the company practically dictates the manner by which their jobs are to be carried out . . . ." We need elaborate no further.

Exclusivity of service, control of assignments and removal of agents under private respondent's unit, collection of premiums, furnishing of company facilities and materials as well as capital described as Unit Development Fund are but hallmarks of the management system in which herein private respondent worked. This obtaining, there is no escaping the conclusion that private respondent Pantaleon de los Reyes was an employee of herein petitioner.

WHEREFORE, the petition of Insular Life Assurance Company, Ltd., is DENIED and the Decision of the National Labor Relations Commission dated 3 March 1995 and its Order of 6 April 1996 sustaining it are AFFIRMED. Let this case be REMANDED to the Labor Arbiter a quo who is directed to hear and dispose of this case with deliberate dispatch in light of the views expressed herein.

SO ORDERED.

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

Republic of the Philippines SUPREME COURT

Manila

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.

D E C I S I O N

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. 25By 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, isREINSTATED. 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 Associate Justice

ROMEO J. CALLEJO, SR. Associate Justice

MINITA V. CHICO-NAZARIO Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN Chief Justice

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 147816 May 9, 2003

EFREN P. PAGUIO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, METROMEDIA TIMES CORPORATION, ROBINA Y. GOKONGWEI, LIBERATO GOMEZ, JR., YOLANDA E. ARAGON, FREDERICK D. GO and ALDA IGLESIA,respondents.

VITUG, J.:

On 22 June 1992, respondent Metromedia Times Corporation entered, for the fifth time, into an agreement with petitioner Efren P. Paguio, appointing the latter to be an account executive of the firm.1 Again, petitioner was to solicit advertisements for "The Manila Times," a newspaper of general circulation, published by respondent company. Petitioner, for his efforts, was to receive compensation consisting of a 15% commission on direct advertisements less withholding tax and a 10% commission on agency advertisements based on gross revenues less agency commission and the corresponding withholding tax. The commissions, released every fifteen days of each month, were to be given to petitioner only after the clients would have paid for the advertisements. Apart from commissions, petitioner was also entitled to a monthly allowance of P2,000.00 as long as he met the P30,000.00-monthly quota. Basically, the contentious points raised by the parties had something to do with the following stipulations of the agreement; viz:

"12. You are not an employee of the Metromedia Times Corporation nor does the company have any obligations towards anyone you may employ, nor any responsibility for your operating expenses or for any liability you may incur. The only rights and obligations between us are those set forth in this agreement. This agreement cannot be amended or modified in any way except with the duly authorized consent in writing of both parties.

"13. Either party may terminate this agreement at any time by giving written notice to the other, thirty (30) days prior to effectivity of termination."2

On 15 August 1992, barely two months after the renewal of his contract, petitioner received the following notice from respondent firm -

"Dear Mr. Paguio,

"Please be advised of our decision to terminate your services as Account Executive of Manila Times effective September 30, 1992.

"This is in accordance with our contract signed last July 1, 1992."3

Apart from vague allegations of misconduct on which he was not given the opportunity to defend himself, i.e., pirating clients from his co-executives and failing to produce results, no definite cause for petitioner's termination was given. Aggrieved, petitioner filed a case before the labor arbiter, asking that his dismissal be declared unlawful and that his reinstatement, with entitlement to

backwages without loss of seniority rights, be ordered. Petitioner also prayed that respondent company officials be held accountable for acts of unfair labor practice, for P500,000.00 moral damages and for P200,000.00 exemplary damages.

In their defense, respondent Metromedia Times Corporation asserted that it did not enter into any agreement with petitioner outside of the contract of services under Articles 1642 and 1644 of the Civil Code of the Philippines.4Asserting their right to terminate the contract with petitioner, respondents pointed to the last provision thereof stating that both parties could opt to end the contract provided that either party would serve, thirty days prior to the intended date of termination, the corresponding notice to the other.

The labor arbiter found for petitioner and declared his dismissal illegal. The arbiter ordered respondent Metromedia Times Corporation and its officers to reinstate petitioner to his former position, without loss of seniority rights, and to pay him his commissions and other remuneration accruing from the date of dismissal on 15 August 1992 up until his reinstatement. He likewise adjudged that Liberato I. Gomez, general manager of respondent corporation, be held liable to petitioner for moral damages in the amount of P20,000.00.

On appeal, the National Labor Relations Commission (NLRC) reversed the ruling of the labor arbiter and declared the contractual relationship between the parties as being for a fixed-term employment. The NLRC declared a fixed-term employment to be lawful as long as "it was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the worker and absent any other circumstances vitiating his consent."5 The finding of the NLRC was primarily hinged on the assumption that petitioner, on account of his educated stature, having indeed personally prepared his pleadings without the aid of counsel, was an unlikely victim of a lopsided contract. Rejecting the assertion of petitioner that he was a regular employee, the NLRC held: "The decisive determinant would not be the activities that the employee (was) called upon to perform but rather, the day certain agreed upon by the parties for the commencement and termination of their employment relationship, a day certain being understood to be that which (would) necessarily come, although it (might) not be known when."6

Petitioner appealed the ruling of the NLRC before the Court of Appeals which upheld in toto the findings of the commission. In his petition for review on certiorari, petitioner raised the following issues for resolution:

"WHETHER OR NOT PETITIONER'S CONTRACT WITH PRIVATE RESPONDENT'S COMPANY IS FOR A FIXED PERIOD.

"WHETHER OR NOT PETITIONER'S DISMISSAL IS LEGAL.

"WHETHER OR NOT PETITIONER IS ENTITLED TO BACKWAGES AND MORAL DAMAGES."7

The crux of the matter would entail the determination of the nature of contractual relationship between petitioner and respondent company - was it or was it not one of regular employment?

A "regular employment," whether it is one or not, is aptly gauged from the concurrence, or the non-concurrence, of the following factors - a) the manner of selection and engagement of the putative employee, b) the mode of payment of wages, c) the presence or absence of the power of dismissal; and d) the presence or absence of the power to control the conduct of the putative employee or the power to control the employee with respect to the means or methods by which his work is to be accomplished.8 The "control test" assumes primacy in the overall consideration. Under this test, an

employment relation obtains where work is performed or services are rendered under the control and supervision of the party contracting for the service, not only as to the result of the work but also as to the manner and details of the performance desired.9

An indicum of regular employment, rightly taken into account by the labor arbiter, was the reservation by respondent Metromedia Times Corporation not only of the right to control the results to be achieved but likewise the manner and the means used in reaching that end.10 Metromedia Times Corporation exercised such control by requiring petitioner, among other things, to submit a daily sales activity report and also a monthly sales report as well. Various solicitation letters would indeed show that Robina Gokongwei, company president, Alda Iglesia, the advertising manager, and Frederick Go, the advertising director, directed and monitored the sales activities of petitioner.

The Labor Code, in Article 280 thereof, 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.

"An employment shall be deemed to be casual if it is not covered by the proceeding 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."

Thus defined, a regular employee is one who is engaged to perform activities which are necessary and desirable in the usual business or trade of the employer as against those which are undertaken for a specific project or are seasonal. Even in these latter cases, where such person has rendered at least one year of service, regardless of the nature of the activity performed or of whether it is continuous or intermittent, the employment is considered regular as long as the activity exists, it not being indispensable that he be first issued a regular appointment or be formally declared as such before acquiring a regular status.11

That petitioner performed activities which were necessary and desirable to the business of the employer, and that the same went on for more than a year, could hardly be denied. Petitioner was an account executive in soliciting advertisements, clearly necessary and desirable, for the survival and continued operation of the business of respondent corporation. Robina Gokongwei, its President, herself admitted that the income generated from paid advertisements was the lifeblood of the newspaper's existence. Implicitly, respondent corporation recognized petitioner's invaluable contribution to the business when it renewed, not just once but five times, its contract with petitioner.

Respondent company cannot seek refuge under the terms of the agreement it has entered into with petitioner. The law, in defining their contractual relationship, does so, not necessarily or exclusively upon the terms of their written or oral contract, but also on the basis of the nature of the work petitioner has been called upon to perform.12 The law affords protection to an employee, and it will not countenance any attempt to subvert its spirit and intent. A stipulation in an agreement can be ignored as and when it is utilized to deprive the employee of his security of tenure.13 The sheer

inequality that characterizes employer-employee relations, where the scales generally tip against the employee, often scarcely provides him real and better options.

The real question that should thus be posed is whether or not petitioner has been justly dismissed from service. A lawful dismissal must meet both substantive and procedural requirements; in fine, the dismissal must be for a just or authorized cause and must comply with the rudimentary due process of notice and hearing. It is not shown that respondent company has fully bothered itself with either of these requirements in terminating the services of petitioner. The notice of termination recites no valid or just cause for the dismissal of petitioner nor does it appear that he has been given an opportunity to be heard in his defense.

The evidence, however, found by the appellate court is wanting that would indicate bad faith or malice on the part of respondents, particularly by respondent Liberato I. Gomez, and the award of moral damages must thus be deleted.

WHEREFORE, the instant petition is GRANTED. The decision of the Court of Appeals in C.A. G.R. SP No. 527773 and that of the National Labor Relations Commission are hereby SET ASIDE and that of the Labor Arbiter is REINSTATED except with respect to the P20,000.00 moral damages adjudged against respondent Liberato I. Gomez which award is deleted.

SO ORDERED.

Davide, Jr., C.J., Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 73887 December 21, 1989

GREAT PACIFIC LIFE ASSURANCE CORPORATION, petitioner, vs. HONORATO JUDICO and NATIONAL LABOR RELATIONS COMMISSION, respondents.

G.A. Fortun and Associates for petitioner.

Corsino B. Soco for private respondent.

PARAS J.:

Before us is a Petition for certiorari to review the decision of the National Labor Relations Commission (NLRC, for brevity) dated September 9, 1985 reversing the decision of Labor Arbiter Vito J. Minoria, dated June 9, 1983, by 1) ordering petitioner insurance company, Great Pacific Life Assurance Corporation (Grepalife, for brevity) to recognize private respondent Honorato Judico, as its regular employee as defined under Art. 281 of the Labor Code and 2) remanding the case to its origin for the determination of private respondent Judico's money claims.

The records of the case show that Honorato Judico filed a complaint for illegal dismissal against Grepalife, a duly organized insurance firm, before the NLRC Regional Arbitration Branch No. VII, Cebu City on August 27, 1982. Said complaint prayed for award of money claims consisting of separation pay, unpaid salary and 13th month pay, refund of cash bond, moral and exemplary damages and attorney's fees.

Both parties appealed to the NLRC when a decision was rendered by the Labor Arbiter dismissing the complaint on the ground that the employer-employee relations did not exist between the parties but ordered Grepalife to pay complainant the sum of Pl,000.00 by reason of Christian Charity.

On appeal, said decision was reversed by the NLRC ruling that complainant is a regular employee as defined under Art. 281 of the Labor Code and declaring the appeal of Grepalife questioning the legality of the payment of Pl,000.00 to complainant moot and academic. Nevertheless, for the purpose of revoking the supersedeas bond of said company it ruled that the Labor Arbiter erred in awarding Pl,000.00 to complainant in the absence of any legal or factual basis to support its payment.

Petitioner company moved to reconsider, which was denied, hence this petition for review raising four legal issues to wit:

I. Whether the relationship between insurance agents and their principal, the insurance company, is that of agent and principal to be governed by the Insurance Code and the Civil Code provisions on agency, or one of employer-employee, to be governed by the Labor Code.

II. Whether insurance agents are entitled to the employee benefits prescribed by the Labor Code.

III. Whether the public respondent NLRC has jurisdiction to take cognizance of a controversy between insurance agent and the insurance company, arising from their agency relations.

IV. Whether the public respondent acted correctly in setting aside the decision of Labor Arbiter Vito J. Minoria and in ordering the case remanded to said Labor Arbiter for further proceedings.(p. 159, Rollo)

The crux of these issues boil down to the question of whether or not employer-employee relationship existed between petitioner and private respondent.

Petitioner admits that on June 9, 1976, private respondent Judico entered into an agreement of agency with petitioner Grepalife to become a debit agent attached to the industrial life agency in Cebu City. Petitioner defines a debit agent as "an insurance agent selling/servicing industrial life plans and policy holders. Industrial life plans are those whose premiums are payable either daily, weekly or monthly and which are collectible by the debit agents at the home or any place designated by the policy holder" (p. 156, Rollo). Such admission is in line with the findings of public respondent that as such debit agent, private respondent Judico had definite work assignments including but not limited to collection of premiums from policy holders and selling insurance to prospective clients. Public respondent NLRC also found out that complainant was initially paid P 200. 00 as allowance for thirteen (13) weeks regardless of production and later a certain percentage denominated as sales reserve of his total collections but not lesser than P 200.00. Sometime in September 1981, complainant was promoted to the position of Zone Supervisor and was given additional (supervisor's) allowance fixed at P110.00 per week. During the third week of November 1981, he was reverted to his former position as debit agent but, for unknown reasons, not paid so-called weekly sales reserve of at least P 200.00. Finally on June 28, 1982, complainant was dismissed by way of termination of his agency contract.

Petitioner assails the findings of the NLRC that private respondent is an employee of the former. Petitioner argues that Judico's compensation was not based on any fixed number of hours he was required to devote to the service of petitioner company but rather it was the production or result of his efforts or his work that was being compensated and that the so-called allowance for the first thirteen weeks that Judico worked as debit agent, cannot be construed as salary but as a subsidy or a way of assistance for transportation and meal expenses of a new debit agent during the initial period of his training which was fixed for thirteen (13) weeks. Stated otherwise, petitioner contends that Judico's compensation, in the form of commissions and bonuses, was based on actual production, (insurance plans sold and premium collections).

Said contentions of petitioner are strongly rejected by private respondent. He maintains that he received a definite amount as his Wage known as "sales reserve" the failure to maintain the same would bring him back to a beginner's employment with a fixed weekly wage of P 200.00 regardless of production. He was assigned a definite place in the office to work on when he is not in the field; and in addition to canvassing and making regular reports, he was burdened with the job of collection and to make regular weekly report thereto for which an anemic performance would mean dismissal. He earned out of his faithful and productive service, a promotion to Zone Supervisor with additional supervisor's allowance, (a definite or fixed amount of P110.00) that he was dismissed primarily because of anemic performance and not because of the termination of the contract of agency substantiate the fact that he was indeed an employee of the petitioner and not an insurance agent in the ordinary meaning of the term.

That private respondent Judico was an agent of the petitioner is unquestionable. But, as We have held in Investment Planning Corp. vs. SSS, 21 SCRA 294, an insurance company may have two classes of agents who sell its insurance policies: (1) salaried employees who keep definite hours and work under the control and supervision of the company; and (2) registered representatives who work on commission basis. The agents who belong to the second category are not required to report for work at anytime, they do not have to devote their time exclusively to or work solely for the company since the time and the effort they spend in their work depend entirely upon their own will and initiative; they are not required to account for their time nor submit a report of their activities; they shoulder their own selling expenses as well as transportation; and they are paid their commission based on a certain percentage of their sales. One salient point in the determination of employer-employee relationship which cannot be easily ignored is the fact that the compensation that these agents on commission received is not paid by the insurance company but by the investor (or the person insured). After determining the commission earned by an agent on his sales the agent directly deducts it from the amount he received from the investor or the person insured and turns over to the insurance company the amount invested after such deduction is made. The test therefore is whether the "employer" controls or has reserved the right to control the "employee" not only as to the result of the work to be done but also as to the means and methods by which the same is to be accomplished.

Applying the aforementioned test to the case at bar, We can readily see that the element of control by the petitioner on Judico was very much present. The record shows that petitioner Judico received a definite minimum amount per week as his wage known as "sales reserve" wherein the failure to maintain the same would bring him back to a beginner's employment with a fixed weekly wage of P 200.00 for thirteen weeks regardless of production. He was assigned a definite place in the office to work on when he is not in the field; and in addition to his canvassing work he was burdened with the job of collection. In both cases he was required to make regular report to the company regarding these duties, and for which an anemic performance would mean a dismissal. Conversely faithful and productive service earned him a promotion to Zone Supervisor with additional supervisor's allowance, a definite amount of P110.00 aside from the regular P 200.00 weekly "allowance". Furthermore, his contract of services with petitioner is not for a piece of work nor for a definite period.

On the other hand, an ordinary commission insurance agent works at his own volition or at his own leisure without fear of dismissal from the company and short of committing acts detrimental to the business interest of the company or against the latter, whether he produces or not is of no moment as his salary is based on his production, his anemic performance or even dead result does not become a ground for dismissal. Whereas, in private respondent's case, the undisputed facts show that he was controlled by petitioner insurance company not only as to the kind of work; the amount of results, the kind of performance but also the power of dismissal. Undoubtedly, private respondent, by nature of his position and work, had been a regular employee of petitioner and is therefore entitled to the protection of the law and could not just be terminated without valid and justifiable cause.

Premises considered, the appealed decision is hereby AFFIRMED in toto.

SO ORDERED.

Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado, JJ ., concur.

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 165881 April 19, 2006

OSCAR VILLAMARIA, JR. Petitioner, vs. COURT OF APPEALS and JERRY V. BUSTAMANTE, Respondents

D E C I S I O N

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of Court assailing the Decision1 and Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 78720 which set aside the Resolution3of the National Labor Relations Commission (NLRC) in NCR-30-08-03247-00, which in turn affirmed the Decision4of the Labor Arbiter dismissing the complaint filed by respondent Jerry V. Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship engaged in assembling passenger jeepneys with a public utility franchise to operate along the Baclaran-Sucat route. By 1995, Villamaria stopped assembling jeepneys and retained only nine, four of which he operated by employing drivers on a "boundary basis." One of those drivers was respondent Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante remitted P450.00 a day to Villamaria as boundary and kept the residue of his daily earnings as compensation for driving the vehicle. In August 1997, Villamaria verbally agreed to sell the jeepney to Bustamante under the "boundary-hulog scheme," where Bustamante would remit to Villarama P550.00 a day for a period of four years; Bustamante would then become the owner of the vehicle and continue to drive the same under Villamaria’s franchise. It was also agreed that Bustamante would make a downpayment of P10,000.00.

On August 7, 1997, Villamaria executed a contract entitled "Kasunduan ng Bilihan ng Sasakyan sa Pamamagitan ng Boundary-Hulog"5 over the passenger jeepney with Plate No. PVU-660, Chassis No. EVER95-38168-C and Motor No. SL-26647. The parties agreed that if Bustamante failed to pay the boundary-hulog for three days, Villamaria Motors would hold on to the vehicle until Bustamante paid his arrears, including a penalty of P50.00 a day; in case Bustamante failed to remit the daily boundary-hulog for a period of one week, the Kasunduan would cease to have legal effect and Bustamante would have to return the vehicle to Villamaria Motors.

Under the Kasunduan, Bustamante was prohibited from driving the vehicle without prior authority from Villamaria Motors. Thus, Bustamante was authorized to operate the vehicle to transport passengers only and not for other purposes. He was also required to display an identification card in front of the windshield of the vehicle; in case of failure to do so, any fine that may be imposed by government authorities would be charged against his account. Bustamante further obliged himself to pay for the cost of replacing any parts of the vehicle that would be lost or damaged due to his negligence. In case the vehicle sustained serious damage, Bustamante was obliged to notify Villamaria Motors before commencing repairs. Bustamante was not allowed to wear slippers, short pants or undershirts while driving. He was required to be polite and respectful towards the passengers. He was also obliged to notify Villamaria Motors in case the vehicle was leased for two

or more days and was required to attend any meetings which may be called from time to time. Aside from the boundary-hulog, Bustamante was also obliged to pay for the annual registration fees of the vehicle and the premium for the vehicle’s comprehensive insurance. Bustamante promised to strictly comply with the rules and regulations imposed by Villamaria for the upkeep and maintenance of the jeepney.

Bustamante continued driving the jeepney under the supervision and control of Villamaria. As agreed upon, he made daily remittances of P550.00 in payment of the purchase price of the vehicle. Bustamante failed to pay for the annual registration fees of the vehicle, but Villamaria allowed him to continue driving the jeepney.

In 1999, Bustamante and other drivers who also had the same arrangement with Villamaria Motors failed to pay their respective boundary-hulog. This prompted Villamaria to serve a "Paalala,"6 reminding them that under the Kasunduan, failure to pay the daily boundary-hulog for one week, would mean their respective jeepneys would be returned to him without any complaints. He warned the drivers that the Kasunduan would henceforth be strictly enforced and urged them to comply with their obligation to avoid litigation.

On July 24, 2000, Villamaria took back the jeepney driven by Bustamante and barred the latter from driving the vehicle.

On August 15, 2000, Bustamante filed a Complaint7 for Illegal Dismissal against Villamaria and his wife Teresita. In his Position Paper,8 Bustamante alleged that he was employed by Villamaria in July 1996 under the boundary system, where he was required to remit P450.00 a day. After one year of continuously working for them, the spouses Villamaria presented the Kasunduan for his signature, with the assurance that he (Bustamante) would own the jeepney by March 2001 after paying P550.00 in daily installments and that he would thereafter continue driving the vehicle along the same route under the same franchise. He further narrated that in July 2000, he informed the Villamaria spouses that the surplus engine of the jeepney needed to be replaced, and was assured that it would be done. However, he was later arrested and his driver’s license was confiscated because apparently, the replacement engine that was installed was taken from a stolen vehicle. Due to negotiations with the apprehending authorities, the jeepney was not impounded. The Villamaria spouses took the jeepney from him on July 24, 2000, and he was no longer allowed to drive the vehicle since then unless he paid them P70,000.00.

Bustamante prayed that judgment be rendered in his favor, thus:

WHEREFORE, in the light of the foregoing, it is most respectfully prayed that judgment be rendered ordering the respondents, jointly and severally, the following:

1. Reinstate complainant to his former position without loss of seniority rights and execute a Deed of Sale in favor of the complainant relative to the PUJ with Plate No. PVU-660;

2. Ordering the respondents to pay backwages in the amount of P400.00 a day and other benefits computed from July 24, 2000 up to the time of his actual reinstatement;

3. Ordering respondents to return the amount of P10,000.00 and P180,000.00 for the expenses incurred by the complainant in the repair and maintenance of the subject jeep;

4. Ordering the respondents to refund the amount of One Hundred (P100.00) Pesos per day counted from August 7, 1997 up to June 2000 or a total of P91,200.00;

5. To pay moral and exemplary damages of not less than P200,000.00;

6. Attorney’s fee[s] of not less than 10% of the monetary award.

Other just and equitable reliefs under the premises are also being prayed for.9

In their Position Paper,10 the spouses Villamaria admitted the existence of the Kasunduan, but alleged that Bustamante failed to pay the P10,000.00 downpayment and the vehicle’s annual registration fees. They further alleged that Bustamante eventually failed to remit the requisite boundary-hulog of P550.00 a day, which prompted them to issue the Paalaala. Instead of complying with his obligations, Bustamante stopped making his remittances despite his daily trips and even brought the jeepney to the province without permission. Worse, the jeepney figured in an accident and its license plate was confiscated; Bustamante even abandoned the vehicle in a gasoline station in Sucat, Parañaque City for two weeks. When the security guard at the gasoline station requested that the vehicle be retrieved and Teresita Villamaria asked Bustamante for the keys, Bustamante told her: "Di kunin ninyo." When the vehicle was finally retrieved, the tires were worn, the alternator was gone, and the battery was no longer working.

Citing the cases of Cathedral School of Technology v. NLRC11 and Canlubang Security Agency Corporation v. NLRC,12 the spouses Villamaria argued that Bustamante was not illegally dismissed since the Kasunduan executed on August 7, 1997 transformed the employer-employee relationship into that of vendor-vendee. Hence, the spouses concluded, there was no legal basis to hold them liable for illegal dismissal. They prayed that the case be dismissed for lack of jurisdiction and patent lack of merit.

In his Reply,13 Bustamante claimed that Villamaria exercised control and supervision over the conduct of his employment. He maintained that the rulings of the Court in National Labor Union v. Dinglasan,14 Magboo v. Bernardo,15 and Citizen's League of Free Workers v. Abbas16 are germane to the issue as they define the nature of the owner/operator-driver relationship under the boundary system. He further reiterated that it was the Villamaria spouses who presented the Kasunduan to him and that he conformed thereto only upon their representation that he would own the vehicle after four years. Moreover, it appeared that the Paalala was duly received by him, as he, together with other drivers, was made to affix his signature on a blank piece of paper purporting to be an "attendance sheet."

On March 15, 2002, the Labor Arbiter rendered judgment17 in favor of the spouses Villamaria and ordered the complaint dismissed on the following ratiocination:

Respondents presented the contract of Boundary-Hulog, as well as the PAALALA, to prove their claim that complainant violated the terms of their contract and afterwards abandoned the vehicle assigned to him. As against the foregoing, [the] complaint’s (sic) mere allegations to the contrary cannot prevail.

Not having been illegally dismissed, complainant is not entitled to damages and attorney's fees.18

Bustamante appealed the decision to the NLRC,19 insisting that the Kasunduan did not extinguish the employer-employee relationship between him and Villamaria. While he did not receive fixed wages, he kept only the excess of the boundary-hulog which he was required to remit daily to Villamaria under the agreement. Bustamante maintained that he remained an employee because he was engaged to perform activities which were necessary or desirable to Villamaria’s trade or business.

The NLRC rendered judgment20 dismissing the appeal for lack of merit, thus:

WHEREFORE, premises considered, complainant's appeal is hereby DISMISSED for reasons not stated in the Labor Arbiter's decision but mainly on a jurisdictional issue, there being none over the subject matter of the controversy.21

The NLRC ruled that under the Kasunduan, the juridical relationship between Bustamante and Villamaria was that of vendor and vendee, hence, the Labor Arbiter had no jurisdiction over the complaint. Bustamante filed a Motion for Reconsideration, which the NLRC resolved to deny on May 30, 2003.22

Bustamante elevated the matter to the CA via Petition for Certiorari, alleging that the NLRC erred

I

IN DISMISSING PETITIONER’S APPEAL "FOR REASON NOT STATED IN THE LABOR ARBITER’S DECISION, BUT MAINLY ON JURISDICTIONAL ISSUE;"

II

IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE WHEN IT DECLARED THAT THE RELATIONSHIP WHICH WAS ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE PROTECTIVE MANTLE OF OUR LABOR LAWS.23

Bustamante insisted that despite the Kasunduan, the relationship between him and Villamaria continued to be that of employer-employee and as such, the Labor Arbiter had jurisdiction over his complaint. He further alleged that it is common knowledge that operators of passenger jeepneys (including taxis) pay their drivers not on a regular monthly basis but on commission or boundary basis, or even the boundary-hulog system. Bustamante asserted that he was dismissed from employment without any lawful or just cause and without due notice.

For his part, Villamaria averred that Bustamante failed to adduce proof of their employer-employee relationship. He further pointed out that the Dinglasan case pertains to the boundary system and not the boundary-hulog system, hence inapplicable in the instant case. He argued that upon the execution of the Kasunduan, the juridical tie between him and Bustamante was transformed into a vendor-vendee relationship. Noting that he was engaged in the manufacture and sale of jeepneys and not in the business of transporting passengers for consideration, Villamaria contended that the daily fees which Bustmante paid were actually periodic installments for the the vehicle and were not the same fees as understood in the boundary system. He added that the boundary-hulog plan was basically a scheme to help the driver-buyer earn money and eventually pay for the unit in full, and for the owner to profit not from the daily earnings of the driver-buyer but from the purchase price of the unit sold. Villamaria further asserted that the apparently restrictive conditions in the Kasunduan did not mean that the means and method of driver-buyer’s conduct was controlled, but were mere ways to preserve the vehicle for the benefit of both parties: Villamaria would be able to collect the agreed purchase price, while Bustamante would be assured that the vehicle would still be in good running condition even after four years. Moreover, the right of vendor to impose certain conditions on the buyer should be respected until full ownership of the property is vested on the latter. Villamaria insisted that the parallel circumstances obtaining in Singer Sewing Machine Company v. Drilon24 has analogous application to the instant issue.

In its Decision25 dated August 30, 2004, the CA reversed and set aside the NLRC decision. The fallo of the decision reads:

UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned resolutions of the NLRC must be, as they are hereby are, REVERSED AND SET ASIDE, and judgment entered in favor of petitioner:

1. Sentencing private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante separation pay computed from the time of his employment up to the time of termination based on the prevailing minimum wage at the time of termination; and,

2. Condemning private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante back wages computed from the time of his dismissal up to March 2001 based on the prevailing minimum wage at the time of his dismissal.

Without Costs.

SO ORDERED.26

The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamante’s complaint. Under the Kasunduan, the relationship between him and Villamaria was dual: that of vendor-vendee and employer-employee. The CA ratiocinated that Villamaria’s exercise of control over Bustamante’s conduct in operating the jeepney is inconsistent with the former’s claim that he was not engaged in the transportation business. There was no evidence that petitioner was allowed to let some other person drive the jeepney.

The CA further held that, while the power to dismiss was not mentioned in the Kasunduan, it did not mean that Villamaria could not exercise it. It explained that the existence of an employment relationship did not depend on how the worker was paid but on the presence or absence of control over the means and method of the employee’s work. In this case, Villamaria’s directives (to drive carefully, wear an identification card, don decent attire, park the vehicle in his garage, and to inform him about provincial trips, etc.) was a means to control the way in which Bustamante was to go about his work. In view of Villamaria’s supervision and control as employer, the fact that the "boundary" represented installment payments of the purchase price on the jeepney did not remove the parties’ employer-employee relationship.

While the appellate court recognized that a week’s default in paying the boundary-hulog constituted an additional cause for terminating Bustamante’s employment, it held that the latter was illegally dismissed. According to the CA, assuming that Bustamante failed to make the required payments as claimed by Villamaria, the latter nevertheless failed to take steps to recover the unit and waited for Bustamante to abandon it. It also pointed out that Villamaria neither submitted any police report to support his claim that the vehicle figured in a mishap nor presented the affidavit of the gas station guard to substantiate the claim that Bustamante abandoned the unit.

Villamaria received a copy of the decision on September 8, 2004, and filed, on September 17, 2004, a motion for reconsideration thereof. The CA denied the motion in a Resolution27 dated November 2, 2004, and Villamaria received a copy thereof on November 8, 2004.

Villamaria, now petitioner, seeks relief from this Court via petition for review on certiorari under Rule 65 of the Rules of Court, alleging that the CA committed grave abuse of its discretion amounting to excess or lack of jurisdiction in reversing the decision of the Labor Arbiter and the NLRC. He claims that the CA erred in ruling that the juridical relationship between him and respondent under the Kasunduan was a combination of employer-employee and vendor-vendee relationships. The terms

and conditions of the Kasunduan clearly state that he and respondent Bustamante had entered into a conditional deed of sale over the jeepney; as such, their employer-employee relationship had been transformed into that of vendor-vendee. Petitioner insists that he had the right to reserve his title on the jeepney until after the purchase price thereof had been paid in full.

In his Comment on the petition, respondent avers that the appropriate remedy of petitioner was an appeal via a petition for review on certiorari under Rule 45 of the Rules of Court and not a special civil action of certiorari under Rule 65. He argues that petitioner failed to establish that the CA committed grave abuse of its discretion amounting to excess or lack of jurisdiction in its decision, as the said ruling is in accord with law and the evidence on record.

Respondent further asserts that the Kasunduan presented to him by petitioner which provides for a boundary-hulog scheme was a devious circumvention of the Labor Code of the Philippines. Respondent insists that his juridical relationship with petitioner is that of employer-employee because he was engaged to perform activities which were necessary or desirable in the usual business of petitioner, his employer.

In his Reply, petitioner avers that the Rules of Procedure should be liberally construed in his favor; hence, it behooves the Court to resolve the merits of his petition.

We agree with respondent’s contention that the remedy of petitioner from the CA decision was to file a petition for review on certiorari under Rule 45 of the Rules of Court and not the independent action of certiorari under Rule 65. Petitioner had 15 days from receipt of the CA resolution denying his motion for the reconsideration within which to file the petition under Rule 45.28 But instead of doing so, he filed a petition for certiorari under Rule 65 on November 22, 2004, which did not, however, suspend the running of the 15-day reglementary period; consequently, the CA decision became final and executory upon the lapse of the reglementary period for appeal. Thus, on this procedural lapse, the instant petition stands to be dismissed.29

It must be stressed that the recourse to a special civil action under Rule 65 of the Rules of Court is proscribed by the remedy of appeal under Rule 45. As the Court elaborated in Tomas Claudio Memorial College, Inc. v. Court of Appeals:30

We agree that the remedy of the aggrieved party from a decision or final resolution of the CA is to file a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, on questions of facts or issues of law within fifteen days from notice of the said resolution. Otherwise, the decision of the CA shall become final and executory. The remedy under Rule 45 of the Rules of Court is a mode of appeal to this Court from the decision of the CA. It is a continuation of the appellate process over the original case. A review is not a matter of right but is a matter of judicial discretion. The aggrieved party may, however, assail the decision of the CA via a petition for certiorari under Rule 65 of the Rules of Court within sixty days from notice of the decision of the CA or its resolution denying the motion for reconsideration of the same. This is based on the premise that in issuing the assailed decision and resolution, the CA acted with grave abuse of discretion, amounting to excess or lack of jurisdiction and there is no plain, speedy and adequate remedy in the ordinary course of law. A remedy is considered plain, speedy and adequate if it will promptly relieve the petitioner from the injurious effect of the judgment and the acts of the lower court.

The aggrieved party is proscribed from filing a petition for certiorari if appeal is available, for the remedies of appeal and certiorari are mutually exclusive and not alternative or successive. The aggrieved party is, likewise, barred from filing a petition for certiorari if the remedy of appeal is lost through his negligence. A petition for certiorari is an original action and does not interrupt the course of the principal case unless a temporary restraining order or a writ of preliminary injunction has been

issued against the public respondent from further proceeding. A petition for certiorari must be based on jurisdictional grounds because, as long as the respondent court acted within its jurisdiction, any error committed by it will amount to nothing more than an error of judgment which may be corrected or reviewed only by appeal.31

However, we have also ruled that a petition for certiorari under Rule 65 may be considered as filed under Rule 45, conformably with the principle that rules of procedure are to be construed liberally, provided that the petition is filed within the reglementary period under Section 2, Rule 45 of the Rules of Court, and where valid and compelling circumstances warrant that the petition be resolved on its merits.32 In this case, the petition was filed within the reglementary period and petitioner has raised an issue of substance: whether the existence of a boundary-hulog agreement negates the employer-employee relationship between the vendor and vendee, and, as a corollary, whether the Labor Arbiter has jurisdiction over a complaint for illegal dismissal in such case.

We resolve these issues in the affirmative.

The rule is that, the nature of an action and the subject matter thereof, as well as, which court or agency of the government has jurisdiction over the same, are determined by the material allegations of the complaint in relation to the law involved and the character of the reliefs prayed for, whether or not the complainant/plaintiff is entitled to any or all of such reliefs.33 A prayer or demand for relief is not part of the petition of the cause of action; nor does it enlarge the cause of action stated or change the legal effect of what is alleged.34 In determining which body has jurisdiction over a case, the better policy is to consider not only the status or relationship of the parties but also the nature of the action that is the subject of their controversy.35

Article 217 of the Labor Code, as amended, vests on the Labor Arbiter exclusive original jurisdiction only over the following:

x x x (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 wage, 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 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 relationship, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.

(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.

In the foregoing cases, an employer-employee relationship is an indispensable jurisdictional requisite.36 The jurisdiction of Labor Arbiters and the NLRC under Article 217 of the Labor Code is limited to disputes arising from an employer-employee relationship which can only be resolved by reference to the Labor Code, other labor statutes or their collective bargaining agreement.37 Not every dispute between an employer and employee involves matters that only the Labor Arbiter and the NLRC can resolve in the exercise of their adjudicatory or quasi-judicial powers. Actions between employers and employees where the employer-employee relationship is merely incidental is within the exclusive original jurisdiction of the regular courts.38 When the principal relief is to be granted under labor legislation or a collective bargaining agreement, the case falls within the exclusive jurisdiction of the Labor Arbiter and the NLRC even though a claim for damages might be asserted as an incident to such claim.39

We agree with the ruling of the CA that, under the boundary-hulog scheme incorporated in the Kasunduan, a dual juridical relationship was created between petitioner and respondent: that of employer-employee and vendor-vendee. The Kasunduan did not extinguish the employer-employee relationship of the parties extant before the execution of said deed.

As early as 1956, the Court ruled in National Labor Union v. Dinglasan40 that the jeepney owner/operator-driver relationship under the boundary system is that of employer-employee and not lessor-lessee. This doctrine was affirmed, under similar factual settings, in Magboo v. Bernardo41 and Lantaco, Sr. v. Llamas,42 and was analogously applied to govern the relationships between auto-calesa owner/operator and driver,43 bus owner/operator and conductor,44 and taxi owner/operator and driver.45

The boundary system is a scheme by an owner/operator engaged in transporting passengers as a common carrier to primarily govern the compensation of the driver, that is, the latter’s daily earnings are remitted to the owner/operator less the excess of the boundary which represents the driver’s compensation. Under this system, the owner/operator exercises control and supervision over the driver. It is unlike in lease of chattels where the lessor loses complete control over the chattel leased but the lessee is still ultimately responsible for the consequences of its use. The management of the business is still in the hands of the owner/operator, who, being the holder of the certificate of public convenience, must see to it that the driver follows the route prescribed by the franchising and regulatory authority, and the rules promulgated with regard to the business operations. The fact that the driver does not receive fixed wages but only the excess of the "boundary" given to the owner/operator is not sufficient to change the relationship between them. Indubitably, the driver performs activities which are usually necessary or desirable in the usual business or trade of the owner/operator.46

Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount which represented the boundary of petitioner as well as respondent’s partial payment (hulog) of the purchase price of the jeepney.

Respondent was entitled to keep the excess of his daily earnings as his daily wage. Thus, the daily remittances also had a dual purpose: that of petitioner’s boundary and respondent’s partial payment (hulog) for the vehicle. This dual purpose was expressly stated in the Kasunduan. The well-settled rule is that an obligation is not novated by an instrument that expressly recognizes the old one, changes only the terms of payment, and adds other obligations not incompatible with the old provisions or where the new contract merely supplements the previous one. 47 The two obligations of the respondent to remit to petitioner the boundary-hulog can stand together.

In resolving an issue based on contract, this Court must first examine the contract itself, keeping in mind that when the terms of the agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail.48 The intention of the contracting parties should be ascertained by looking at the words used to project their intention, that is, all the words, not just a particular word or two or more words standing alone. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.49 The parts and clauses must be interpreted in relation to one another to give effect to the whole. The legal effect of a contract is to be determined from the whole read together.50

Under the Kasunduan, petitioner retained supervision and control over the conduct of the respondent as driver of the jeepney, thus:

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng boundary hulog ay ang mga sumusunod:

1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG PANIG ang sasakyan ipinagkatiwala sa kanya ng TAUHAN NG UNANG PANIG.

2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG IKALAWANG PANIG sa paghahanapbuhay bilang pampasada o pangangalakal sa malinis at maayos na pamamaraan.

3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG IKALAWANG PANIG sa mga bagay na makapagdudulot ng kahihiyan, kasiraan o pananagutan sa TAUHAN NG UNANG PANIG.

4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng UNANG PANIG.

5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang maglagay ng ID Card sa harap ng windshield upang sa pamamagitan nito ay madaliang malaman kung ang nagmamaneho ay awtorisado ng VILLAMARIA MOTORS o hindi.

6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng] multa kung sakaling mahuli ang sasakyang ito na hindi nakakabit ang ID card sa wastong lugar o anuman kasalanan o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang materyales o piyesa na papalitan ng nasira o nawala ito dahil sa kanyang kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang hinuhulugan pa rin ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan.

9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang ipinagkaloob ng TAUHAN NG UNANG PANIG, ang TAUHAN NG IKALAWANG PANIG ay obligadong itawag ito muna sa VILLAMARIA MOTORS bago ipagawa sa alin mang Motor Shop na awtorisado ng VILLAMARIA MOTORS.

10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa panahon ng pamamasada na ang nagmamaneho ay naka-tsinelas, naka short pants at nakasando lamang. Dapat ang nagmamaneho ay laging nasa maayos ang kasuotan upang igalang ng mga pasahero.

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang driver ay magpapakita ng magandang asal sa mga pasaheros at hindi dapat magsasalita ng masama kung sakali man may pasaherong pilosopo upang maiwasan ang anumang kaguluhan na maaaring kasangkutan.

12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang TAUHAN NG IKALAWANG PANIG sa loob ng tatlong (3) araw ay ang opisina ng VILLAMARIA MOTORS ang may karapatang mangasiwa ng nasabing sasakyan hanggang matugunan ang lahat ng responsibilidad. Ang halagang dapat bayaran sa opisina ay may karagdagang multa ng P50.00 sa araw-araw na ito ay nasa pangangasiwa ng VILLAMARIA MOTORS.

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay nangangahulugan na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG.

14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa rehistro, comprehensive insurance taon-taon at kahit anong uri ng aksidente habang ito ay hinuhulugan pa sa TAUHAN NG UNANG PANIG.

15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo sa pangkalahatang pagpupulong ng VILLAMARIA MOTORS sa tuwing tatawag ang mga tagapangasiwa nito upang maipaabot ang anumang mungkahi sa ikasusulong ng samahan.

16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng mga patakaran na magkakaroon ng pagbabago o karagdagan sa mga darating na panahon at hindi magiging hadlang sa lahat ng mga balakin ng VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at ikakatibay ng Samahan.

17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging buwaya sa pasahero upang hindi kainisan ng kapwa driver at maiwasan ang pagkakasangkot sa anumang gulo.

18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang kalagayan lalo na sa umaga bago pumasada, at sa hapon o gabi naman ay sisikapin mapanatili ang kalinisan nito.

19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng dalawa o higit pang araw sa lalawigan ay dapat lamang na ipagbigay alam muna ito sa VILLAMARIA MOTORS upang maiwasan ang mga anumang suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang pakikipag-unahan sa kaninumang sasakyan upang maiwasan ang aksidente.

21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon sasabihin sa VILLAMARIA MOTORS mabuti man or masama ay iparating agad ito sa kinauukulan at iwasan na iparating ito kung [kani-kanino] lamang upang maiwasan ang anumang usapin. Magsadya agad sa opisina ng VILLAMARIA MOTORS.

22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso kong sinasang-ayunan at buong sikap na pangangalagaan ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan at gagamitin lamang ito sa paghahanapbuhay at wala nang iba pa.51

The parties expressly agreed that petitioner, as vendor, and respondent, as vendee, entered into a contract to sell the jeepney on a daily installment basis of P550.00 payable in four years and that petitioner would thereafter become its owner. A contract is one of conditional sale, oftentimes referred to as contract to sell, if the ownership or title over the

property sold is retained by the vendor, and is not passed to the vendee unless and until there is full payment of the purchase price and/or upon faithful compliance with the other terms and conditions that may lawfully be stipulated.52 Such payment or satisfaction of other preconditions, as the case may be, is a positive suspensive condition, the failure of which is not a breach of contract, casual or serious, but simply an event that would prevent the obligation of the vendor to convey title from acquiring binding force.53 Stated differently, the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed.54 The vendor may extrajudicially terminate the operation of the contract, refuse conveyance, and retain the sums or installments already received, where such rights are expressly provided for.55

Under the boundary-hulog scheme, petitioner retained ownership of the jeepney although its material possession was vested in respondent as its driver. In case respondent failed to make his P550.00 daily installment payment for a week, the agreement would be of no force and effect and respondent would have to return the jeepney to petitioner; the employer-employee relationship would likewise be terminated unless petitioner would allow respondent to continue driving the jeepney on a boundary basis of P550.00 daily despite the termination of their vendor-vendee relationship.

The juridical relationship of employer-employee between petitioner and respondent was not negated by the foregoing stipulation in the Kasunduan, considering that petitioner retained control of respondent’s conduct as driver of the vehicle. As correctly ruled by the CA:

The exercise of control by private respondent over petitioner’s conduct in operating the jeepney he was driving is inconsistent with private respondent’s claim that he is, or was, not engaged in the transportation business; that, even if petitioner was allowed to let some other person drive the unit, it was not shown that he did so; that the existence of an employment relation is not dependent on how the worker is paid but on the presence or absence of control over the means and method of the work; that the amount earned in excess of the "boundary hulog" is equivalent to wages; and that the fact that the power of dismissal was not mentioned in the Kasunduan did not mean that private respondent never exercised such power, or could not exercise such power.

Moreover, requiring petitioner to drive the unit for commercial use, or to wear an identification card, or to don a decent attire, or to park the vehicle in Villamaria Motors garage, or to inform Villamaria Motors about the fact that the unit would be going out to the province for two days of more, or to drive the unit carefully, etc. necessarily related to control over the means by which the petitioner was to go about his work; that the ruling applicable here is not Singer Sewing Machine but National Labor

Union since the latter case involved jeepney owners/operators and jeepney drivers, and that the fact that the "boundary" here represented installment payment of the purchase price on the jeepney did not withdraw the relationship from that of employer-employee, in view of the overt presence of supervision and control by the employer.56

Neither is such juridical relationship negated by petitioner’s claim that the terms and conditions in the Kasunduan relative to respondent’s behavior and deportment as driver was for his and respondent’s benefit: to insure that respondent would be able to pay the requisite daily installment of P550.00, and that the vehicle would still be in good condition despite the lapse of four years. What is primordial is that petitioner retained control over the conduct of the respondent as driver of the jeepney.

Indeed, petitioner, as the owner of the vehicle and the holder of the franchise, is entitled to exercise supervision and control over the respondent, by seeing to it that the route provided in his franchise, and the rules and regulations of the Land Transportation Regulatory Board are duly complied with. Moreover, 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.57

As respondent’s employer, it was the burden of petitioner to prove that respondent’s termination from employment was for a lawful or just cause, or, at the very least, that respondent failed to make his daily remittances of P550.00 as boundary. However, petitioner failed to do so. As correctly ruled by the appellate court:

It is basic of course that 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.

Parenthetically, given the peculiarity of the situation of the parties here, the default in the remittance of the boundary hulog for one week or longer may be considered an additional cause for termination of employment. The reason is because the Kasunduan would be of no force and effect in the event that the purchaser failed to remit the boundary hulog for one week. The Kasunduan in this case pertinently stipulates:

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG na wala ng paghahabol pa.

Moreover, 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 back wages.

In the case at bench, private respondent in his position paper before the Labor Arbiter, alleged that petitioner failed to pay the miscellaneous fee of P10,000.00 and the yearly registration of the unit; that petitioner also stopped remitting the "boundary hulog," prompting him (private respondent) to issue a "Paalala," which petitioner however ignored; that petitioner even brought the unit to his (petitioner’s) province without informing him (private respondent) about it; and that petitioner eventually abandoned the vehicle at a gasoline station after figuring in an accident. But private respondent failed to substantiate these allegations with solid, sufficient proof. Notably, private respondent’s allegation viz, that he retrieved the vehicle from the gas station, where petitioner abandoned it, contradicted his statement in the Paalala that he would enforce the provision (in the

Kasunduan) to the effect that default in the remittance of the boundary hulog for one week would result in the forfeiture of the unit. The Paalala reads as follows:

"Sa lahat ng mga kumukuha ng sasakyan

"Sa pamamagitan ng ‘BOUNDARY HULOG’

"Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular na ang paragrapo 13 na nagsasaad na kung hindi kayo makapagbigay ng Boundary Hulog sa loob ng isang linggo ay kusa ninyong ibabalik and nasabing sasakyan na inyong hinuhulugan ng wala ng paghahabol pa.

"Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong ipatutupad ang nasabing Kasunduan kaya’t aking pinaaalala sa inyong lahat na tuparin natin ang nakalagay sa kasunduan upang maiwasan natin ito.

"Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo makaabot pa sa korte kung sakaling hindi ninyo isasauli ang inyong sasakyan na hinuhulugan na ang mga magagastos ay kayo pa ang magbabayad sapagkat ang hindi ninyo pagtupad sa kasunduan ang naging dahilan ng pagsampa ng kaso.

"Sumasainyo

"Attendance: 8/27/99

"(The Signatures appearing herein

include (sic) that of petitioner’s) (Sgd.)

OSCAR VILLAMARIA, JR."

If it were true that petitioner did not remit the boundary hulog for one week or more, why did private respondent not forthwith take steps to recover the unit, and why did he have to wait for petitioner to abandon it?1avvphil.net

On another point, private respondent did not submit any police report to support his claim that petitioner really figured in a vehicular mishap. Neither did he present the affidavit of the guard from the gas station to substantiate his claim that petitioner abandoned the unit there.58

Petitioner’s claim that he opted not to terminate the employment of respondent because of magnanimity is negated by his (petitioner’s) own evidence that he took the jeepney from the respondent only on July 24, 2000.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 78720 is AFFIRMED. Costs against petitioner.

SO ORDERED.

ROMEO J. CALLEJO, SR. Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN Chief Justice Chairperson

CONSUELO YNARES-SANTIAGO Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ Asscociate Justice

MINITA V. CHICO-NAZARIO Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN Chief Justice

Republic of the Philippines SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 142293 February 27, 2003

VICENTE SY, TRINIDAD PAULINO, 6B’S TRUCKING CORPORATION, and SBT1 TRUCKING CORPORATION,petitioners, vs. HON. COURT OF APPEALS and JAIME SAHOT, respondents.

D E C I S I O N

QUISUMBING, J.:

This petition for review seeks the reversal of the decision2 of the Court of Appeals dated February 29, 2000, in CA-G.R. SP No. 52671, affirming with modification the decision3 of the National Labor Relations Commission promulgated on June 20, 1996 in NLRC NCR CA No. 010526-96. Petitioners also pray for the reinstatement of the decision4 of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-94.

Culled from the records are the following facts of this case:

Sometime in 1958, private respondent Jaime Sahot5 started working as a truck helper for petitioners’ family-owned trucking business named Vicente Sy Trucking. In 1965, he became a truck driver of the same family business, renamed T. Paulino Trucking Service, later 6B’s Trucking Corporation in 1985, and thereafter known as SBT Trucking Corporation since 1994. Throughout all these changes in names and for 36 years, private respondent continuously served the trucking business of petitioners.

In April 1994, Sahot was already 59 years old. He had been incurring absences as he was suffering from various ailments. Particularly causing him pain was his left thigh, which greatly affected the performance of his task as a driver. He inquired about his medical and retirement benefits with the Social Security System (SSS) on April 25, 1994, but discovered that his premium payments had not been remitted by his employer.

Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically examined and treated for EOR, presleyopia, hypertensive retinopathy G II (Annexes "G-5" and "G-3", pp. 48, 104, respectively),6 HPM, UTI, Osteoarthritis (Annex "G-4", p. 105),7 and heart enlargement (Annex G, p. 107).8 On said grounds, Belen Paulino of the SBT Trucking Service management told him to file a formal request for extension of his leave. At the end of his week-long absence, Sahot applied for extension of his leave for the whole month of June, 1994. It was at this time when petitioners allegedly threatened to terminate his employment should he refuse to go back to work.

At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work, But he could not retire on pension because petitioners never paid his correct SSS premiums. The fact remained he could no longer work as his left thigh hurt abominably. Petitioners ended his dilemma. They carried out their threat and dismissed him from work, effective June 30, 1994. He ended up sick, jobless and penniless.

On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the recovery of separation pay and attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6B’s Trucking and SBT Trucking, herein petitioners.

For their part, petitioners admitted they had a trucking business in the 1950s but denied employing helpers and drivers. They contend that private respondent was not illegally dismissed as a driver because he was in fact petitioner’s industrial partner. They add that it was not until the year 1994, when SBT Trucking Corporation was established, and only then did respondent Sahot become an employee of the company, with a monthly salary that reached P4,160.00 at the time of his separation.

Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and was not able to report for work for almost seven days. On June 1, 1994, Sahot asked permission to extend his leave of absence until June 30, 1994. It appeared that from the expiration of his leave, private respondent never reported back to work nor did he file an extension of his leave. Instead, he filed the complaint for illegal dismissal against the trucking company and its owners.

Petitioners add that due to Sahot’s refusal to work after the expiration of his authorized leave of absence, he should be deemed to have voluntarily resigned from his work. They contended that Sahot had all the time to extend his leave or at least inform petitioners of his health condition. Lastly, they cited NLRC Case No. RE-4997-76, entitled "Manuelito Jimenez et al. vs. T. Paulino Trucking Service," as a defense in view of the alleged similarity in the factual milieu and issues of said case to that of Sahot’s, hence they are in pari material and Sahot’s complaint ought also to be dismissed.

The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that there was no illegal dismissal in Sahot’s case. Private respondent had failed to report to work. Moreover, said the Labor Arbiter, petitioners and private respondent were industrial partners before January 1994. The Labor Arbiter concluded by ordering petitioners to pay "financial assistance" of P15,000 to Sahot for having served the company as a regular employee since January 1994 only.

On appeal, the National Labor Relations Commission modified the judgment of the Labor Arbiter. It declared that private respondent was an employee, not an industrial partner, since the start. Private respondent Sahot did not abandon his job but his employment was terminated on account of his illness, pursuant to Article 2849 of the Labor Code. Accordingly, the NLRC ordered petitioners to pay private respondent separation pay in the amount of P60,320.00, at the rate of P2,080.00 per year for 29 years of service.

Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision dated February 29, 2000, the appellate court affirmed with modification the judgment of the NLRC. It held that private respondent was indeed an employee of petitioners since 1958. It also increased the amount of separation pay awarded to private respondent to P74,880, computed at the rate of P2,080 per year for 36 years of service from 1958 to 1994. It decreed:

WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB Trucking Corporation is hereby directed to pay complainant Jaime Sahot the sum of SEVENTY-FOUR THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and for his separation pay.10

Hence, the instant petition anchored on the following contentions:

I

RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED] DECISION AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL LABOR RELATIONS COMMISSION DECIDED NOT IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE 402 OF THE CIVIL CODE.11

II

RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT THE NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL FINDINGS OF THE LABOR ARBITER AS THE LATTER WAS IN A BETTER POSITION TO OBSERVE THE DEMEANOR AND DEPORTMENT OF THE WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION (305 SCRA 233).12

III

PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING CORPORATION.13

Three issues are to be resolved: (1) Whether or not an employer-employee relationship existed between petitioners and respondent Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or not respondent Sahot is entitled to separation pay.

Crucial to the resolution of this case is the determination of the first issue. Before a case for illegal dismissal can prosper, an employer-employee relationship must first be established.14

Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found that respondent Sahot was not an employee but was in fact, petitioners’ industrial partner.15 It is contended that it was the Labor Arbiter who heard the case and had the opportunity to observe the demeanor and deportment of the parties. The same conclusion, aver petitioners, is supported by substantial evidence.16 Moreover, it is argued that the findings of fact of the Labor Arbiter was wrongly overturned by the NLRC when the latter made the following pronouncement:

We agree with complainant that there was error committed by the Labor Arbiter when he concluded that complainant was an industrial partner prior to 1994. A computation of the age of complainant shows that he was only twenty-three (23) years when he started working with respondent as truck helper. How can we entertain in our mind that a twenty-three (23) year old man, working as a truck helper, be considered an industrial partner. Hence we rule that complainant was only an employee, not a partner of respondents from the time complainant started working for respondent.17

Because the Court of Appeals also found that an employer-employee relationship existed, petitioners aver that the appellate court’s decision gives an "imprimatur" to the "illegal" finding and conclusion of the NLRC.

Private respondent, for his part, denies that he was ever an industrial partner of petitioners. There was no written agreement, no proof that he received a share in petitioners’ profits, nor was there anything to show he had any participation with respect to the running of the business.18

The elements to determine the existence of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to control 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 it.19

As found by the appellate court, petitioners owned and operated a trucking business since the 1950s and by their own allegations, they determined private respondent’s wages and rest day.20 Records of the case show that private respondent actually engaged in work as an employee. During the entire course of his employment he did not have the freedom to determine where he would go, what he would do, and how he would do it. He merely followed instructions of petitioners and was content to do so, as long as he was paid his wages. Indeed, said the CA, private respondent had worked as a truck helper and driver of petitioners not for his own pleasure but under the latter’s control.

Article 176721 of the Civil Code states that in a contract of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves.22 Not one of these circumstances is present in this case. No written agreement exists to prove the partnership between the parties. Private respondent did not contribute money, property or industry for the purpose of engaging in the supposed business. There is no proof that he was receiving a share in the profits as a matter of course, during the period when the trucking business was under operation. Neither is there any proof that he had actively participated in the management, administration and adoption of policies of the business. Thus, the NLRC and the CA did not err in reversing the finding of the Labor Arbiter that private respondent was an industrial partner from 1958 to 1994.

On this point, we affirm the findings of the appellate court and the NLRC. Private respondent Jaime Sahot was not an industrial partner but an employee of petitioners from 1958 to 1994. The existence of an employer-employee relationship is ultimately a question of fact23 and the findings thereon by the NLRC, as affirmed by the Court of Appeals, deserve not only respect but finality when supported by substantial evidence. Substantial evidence is such amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion.24

Time and again this Court has said that "if doubt exists between the evidence presented by the employer and the employee, the scales of justice must be tilted in favor of the latter."25 Here, we entertain no doubt. Private respondent since the beginning was an employee of, not an industrial partner in, the trucking business.

Coming now to the second issue, was private respondent validly dismissed by petitioners?

Petitioners contend that it was private respondent who refused to go back to work. The decision of the Labor Arbiter pointed out that during the conciliation proceedings, petitioners requested respondent Sahot to report back for work. However, in the same proceedings, Sahot stated that he was no longer fit to continue working, and instead he demanded separation pay. Petitioners then retorted that if Sahot did not like to work as a driver anymore, then he could be given a job that was less strenuous, such as working as a checker. However, Sahot declined that suggestion. Based on the foregoing recitals, petitioners assert that it is clear that Sahot was not dismissed but it was of his own volition that he did not report for work anymore.

In his decision, the Labor Arbiter concluded that:

While it may be true that respondents insisted that complainant continue working with respondents despite his alleged illness, there is no direct evidence that will prove that complainant’s illness prevents or incapacitates him from performing the function of a driver. The fact remains that complainant suddenly stopped working due to boredom or otherwise when he refused to work as a checker which certainly is a much less strenuous job than a driver.26

But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the Court of Appeals, held that:

While it was very obvious that complainant did not have any intention to report back to work due to his illness which incapacitated him to perform his job, such intention cannot be construed to be an abandonment. Instead, the same should have been considered as one of those falling under the just causes of terminating an employment. The insistence of respondent in making complainant work did not change the scenario.

It is worthy to note that respondent is engaged in the trucking business where physical strength is of utmost requirement (sic). Complainant started working with respondent as truck helper at age twenty-three (23), then as truck driver since 1965. Complainant was already fifty-nine (59) when the complaint was filed and suffering from various illness triggered by his work and age.

x x x27

In termination cases, the burden is upon the employer to show by substantial evidence that the termination was for lawful cause and validly made.28 Article 277(b) of the Labor Code puts the burden of proving that the dismissal of an employee was for a valid or authorized cause on the employer, without distinction whether the employer admits or does not admit the dismissal.29 For an employee’s dismissal to be valid, (a) the dismissal must be for a valid cause and (b) the employee must be afforded due process.30

Article 284 of the Labor Code authorizes an employer to terminate an employee on the ground of disease, viz:

Art. 284. Disease as a ground for termination- An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or prejudicial to his health as well as the health of his co-employees: xxx

However, in order to validly terminate employment on this ground, Book VI, Rule I, Section 8 of the Omnibus Implementing Rules of the Labor Code requires:

Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and his continued employment is prohibited by law or prejudicial to his health or to the health of his co-employees, the employer shall not terminate his employment unless there is a certification by competent public health authority that the disease is of such nature or at such a stage that it cannot be cured within a period of six (6) months even with proper medical treatment. If the disease or ailment can be cured within the period, the employer shall not terminate the employee but shall ask the employee to take a leave. The employer shall reinstate such employee to his former position immediately upon the restoration of his normal health. (Italics supplied).

As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC,31 the requirement for a medical certificate under Article 284 of the Labor Code cannot be dispensed with; otherwise, it would sanction the unilateral and arbitrary determination by the employer of the gravity or extent of the employee’s illness and thus defeat the public policy in the protection of labor.

In the case at bar, the employer clearly did not comply with the medical certificate requirement before Sahot’s dismissal was effected. In the same case of Sevillana vs. I.T. (International) Corp., we ruled:

Since the burden of proving the validity of the dismissal of the employee rests on the employer, the latter should likewise bear the burden of showing that the requisites for a valid dismissal due to a disease have been complied with. In the absence of the required certification by a competent public health authority, this Court has ruled against the validity of the employee’s dismissal. It is therefore incumbent upon the private respondents to prove by the quantum of evidence required by law that petitioner was not dismissed, or if dismissed, that the dismissal was not illegal; otherwise, the dismissal would be unjustified. This Court will not sanction a dismissal premised on mere conjectures and suspicions, the evidence must be substantial and not arbitrary and must be founded on clearly established facts sufficient to warrant his separation from work.32

In addition, we must likewise determine if the procedural aspect of due process had been complied with by the employer.

From the records, it clearly appears that procedural due process was not observed in the separation of private respondent by the management of the trucking company. The employer is required to furnish an employee with two written notices before the latter is dismissed: (1) the notice to apprise the employee of the particular acts or omissions for which his dismissal is sought, which is the equivalent of a charge; and (2) the notice informing the employee of his dismissal, to be issued after the employee has been given reasonable opportunity to answer and to be heard on his defense.33 These, the petitioners failed to do, even only for record purposes. What management did was to threaten the employee with dismissal, then actually implement the threat when the occasion presented itself because of private respondent’s painful left thigh.

All told, both the substantive and procedural aspects of due process were violated. Clearly, therefore, Sahot’s dismissal is tainted with invalidity.

On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled to separation pay. The law is clear on the matter. An employee who is terminated because of disease is entitled to "separation pay equivalent to at least one month salary or to one-half month salary for every year of service, whichever is greater xxx."34Following the formula set in Art. 284 of the Labor Code, his separation pay was computed by the appellate court at P2,080 times 36 years (1958 to 1994) or P74,880. We agree with the computation, after noting that his last monthly salary was P4,160.00 so that one-half thereof is P2,080.00. Finding no reversible error nor grave abuse of discretion on the part of appellate court, we are constrained to sustain its decision. To avoid further delay in the payment due the separated worker, whose claim was filed way back in 1994, this decision is immediately executory. Otherwise, six percent (6%) interest per annum should be charged thereon, for any delay, pursuant to provisions of the Civil Code.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated February 29, 2000 is AFFIRMED. Petitioners must pay private respondent Jaime Sahot his separation pay for 36 years of service at the rate of one-half monthly pay for every year of service, amounting to P74,880.00, with interest of six per centum (6%) per annum from finality of this decision until fully paid.

Costs against petitioners.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, and Callejo, Sr., JJ., concur.

Austria-Martinez, J., no part.

Republic of the Philippines SUPREME COURT

Manila

THIRD DIVISION

G.R. Nos. 83380-81 November 15, 1989

MAKATI HABERDASHERY, INC., JORGE LEDESMA and CECILIO G. INOCENCIO, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, CEFERINA J. DIOSANA (Labor Arbiter, Department of Labor and Employment, National Capital Region), SANDIGAN NG MANGGAGAWANG PILIPINO (SANDIGAN)-TUCP and its members, JACINTO GARCIANO, ALFREDO C. BASCO, VICTORIO Y. LAURETO, ESTER NARVAEZ, EUGENIO L. ROBLES, BELEN N. VISTA, ALEJANDRO A. ESTRABO, VEVENCIO TIRO, CASIMIRO ZAPATA, GLORIA ESTRABO, LEONORA MENDOZA, MACARIA G. DIMPAS, MERILYN A. VIRAY, LILY OPINA, JANET SANGDANG, JOSEFINA ALCOCEBA and MARIA ANGELES, respondents.

Ledesma, Saludo & Associates for petitioners.

Pablo S. Bernardo for private respondents.

FERNAN, C.J.:

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

The undisputed facts are as follows:

Individual complainants, private respondents herein, have been working for petitioner Makati Haberdashery, Inc. as tailors, seamstress, sewers, basters (manlililip) and "plantsadoras". They are paid on a piece-rate basis except Maria Angeles and Leonila Serafina who are paid on a monthly basis. In addition to their piece-rate, they are given a daily allowance of three (P 3.00) pesos provided they report for work before 9:30 a.m. everyday.

Private respondents are required to work from or before 9:30 a.m. up to 6:00 or 7:00 p.m. from Monday to Saturday and during peak periods even on Sundays and holidays.

On July 20, 1984, the Sandigan ng Manggagawang Pilipino, a labor organization of the respondent workers, filed a complaint docketed as NLRC NCR Case No. 7-2603-84 for (a) underpayment of the basic wage; (b) underpayment of living allowance; (c) non-payment of overtime work; (d) non-

payment of holiday pay; (e) non-payment of service incentive pay; (f) 13th month pay; and (g) benefits provided for under Wage Orders Nos. 1, 2, 3, 4 and 5. 1

During the pendency of NLRC NCR Case No. 7-2603-84, private respondent Dioscoro Pelobello left with Salvador Rivera, a salesman of petitioner Haberdashery, an open package which was discovered to contain a "jusi" barong tagalog. When confronted, Pelobello replied that the same was ordered by respondent Casimiro Zapata for his customer. Zapata allegedly admitted that he copied the design of petitioner Haberdashery. But in the afternoon, when again questioned about said barong, Pelobello and Zapata denied ownership of the same. Consequently a memorandum was issued to each of them to explain on or before February 4, 1985 why no action should be taken against them for accepting a job order which is prejudicial and in direct competition with the business of the company. 2 Both respondents allegedly did not submit their explanation and did not report for work. 3 Hence, they were dismissed by petitioners on February 4, 1985. They countered by filing a complaint for illegal dismissal docketed as NLRC NCR Case No. 2-428-85 on February 5, 1985. 4

On June 10, 1986, Labor Arbiter Ceferina J. Diosana rendered judgment, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in NLRC NCR Case No. 2-428-85 finding respondents guilty of illegal dismissal and ordering them to reinstate Dioscoro Pelobello and Casimiro Zapata to their respective or similar positions without loss of seniority rights, with full backwages from July 4, 1985 up to actual reinstatement. The charge of unfair labor practice is dismissed for lack of merit.

In NLRC NCR Case No. 7-26030-84, the complainants' claims for underpayment re violation of the minimum wage law is hereby ordered dismissed for lack of merit.

Respondents are hereby found to have violated the decrees on the cost of living allowance, service incentive leave pay and the 13th Month Pay. In view thereof, the economic analyst of the Commission is directed to compute the monetary awards due each complainant based on the available records of the respondents retroactive as of three years prior to the filing of the instant case.

SO ORDERED. 5

From the foregoing decision, petitioners appealed to the NLRC. The latter on March 30, 1988 affirmed said decision but limited the backwages awarded the Dioscoro Pelobello and Casimiro Zapata to only one (1) year. 6

After their motion for reconsideration was denied, petitioners filed the instant petition raising the following issues:

I

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTS BETWEEN PETITIONER HABERDASHERY AND RESPONDENTS WORKERS.

II

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS WORKERS ARE ENTITLED TO MONETARY CLAIMS DESPITE THE FINDING THAT THEY ARE NOT ENTITLED TO MINIMUM WAGE.

III

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS PELOBELLO AND ZAPATA WERE ILLEGALLY DISMISSED. 7

The first issue which is the pivotal issue in this case is resolved in favor of private respondents. We have repeatedly held in countless decisions that the test of employer-employee relationship is four-fold: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct. It is the so called "control test" that is the most important element. 8 This simply means the determination of whether the employer controls or has reserved the right to control the employee not only as to the result of the work but also as to the means and method by which the same is to be accomplished. 9

The facts at bar indubitably reveal that the most important requisite of control is present. As gleaned from the operations of petitioner, when a customer enters into a contract with the haberdashery or its proprietor, the latter directs an employee who may be a tailor, pattern maker, sewer or "plantsadora" to take the customer's measurements, and to sew the pants, coat or shirt as specified by the customer. Supervision is actively manifested in all these aspects — the manner and quality of cutting, sewing and ironing.

Furthermore, the presence of control is immediately evident in this memorandum issued by Assistant Manager Cecilio B. Inocencio, Jr. dated May 30, 1981 addressed to Topper's Makati Tailors which reads in part:

4. Effective immediately, new procedures shall be followed:

A. To follow instruction and orders from the undersigned Roger Valderama, Ruben Delos Reyes and Ofel Bautista. Other than this person (sic) must ask permission to the above mentioned before giving orders or instructions to the tailors.

B. Before accepting the job orders tailors must check the materials, job orders, due dates and other things to maximize the efficiency of our production. The materials should be checked (sic) if it is matched (sic) with the sample, together with the number of the job order.

C. Effective immediately all job orders must be finished one day before the due date. This can be done by proper scheduling of job order and if you will cooperate with your supervisors. If you have many due dates for certain day, advise Ruben or Ofel at once so that they can make necessary adjustment on due dates.

D. Alteration-Before accepting alteration person attending on customs (sic) must ask first or must advise the tailors regarding the due dates so that we can eliminate what we call 'Bitin'.

E. If there is any problem regarding supervisors or co-tailor inside our shop, consult with me at once settle the problem. Fighting inside the shop is strictly prohibited. Any tailor violating this memorandum will be subject to disciplinary action.

For strict compliance. 10

From this memorandum alone, it is evident that petitioner has reserved the right to control its employees not only as to the result but also the means and methods by which the same are to be accomplished. That private respondents are regular employees is further proven by the fact that they have to report for work regularly from 9:30 a.m. to 6:00 or 7:00 p.m. and are paid an additional allowance of P 3.00 daily if they report for work before 9:30 a.m. and which is forfeited when they arrive at or after 9:30 a.m. 11

Since private respondents are regular employees, necessarily the argument that they are independent contractors must fail. As established in the preceding paragraphs, private respondents did not exercise independence in their own methods, but on the contrary were subject to the control of petitioners from the beginning of their tasks to their completion. Unlike independent contractors who generally rely on their own resources, the equipment, tools, accessories, and paraphernalia used by private respondents are supplied and owned by petitioners. Private respondents are totally dependent on petitioners in all these aspects.

Coming now to the second issue, there is no dispute that private respondents are entitled to the Minimum Wage as mandated by Section 2(g) of Letter of Instruction No. 829, Rules Implementing Presidential Decree No. 1614 and reiterated in Section 3(f), Rules Implementing Presidential Decree 1713 which explicitly states that, "All employees paid by the result shall receive not less than the applicable new minimum wage rates for eight (8) hours work a day, except where a payment by result rate has been established by the Secretary of Labor. ..." 12 No such rate has been established in this case.

But all these notwithstanding, the question as to whether or not there is in fact an underpayment of minimum wages to private respondents has already been resolved in the decision of the Labor Arbiter where he stated: "Hence, for lack of sufficient evidence to support the claims of the complainants for alleged violation of the minimum wage, their claims for underpayment re violation of the Minimum Wage Law under Wage Orders Nos. 1, 2, 3, 4, and 5 must perforce fall." 13

The records show that private respondents did not appeal the above ruling of the Labor Arbiter to the NLRC; neither did they file any petition raising that issue in the Supreme Court. Accordingly, insofar as this case is concerned, that issue has been laid to rest. As to private respondents, the judgment may be said to have attained finality. For it is a well-settled rule in this jurisdiction that "an appellee who has not himself appealed cannot obtain from the appellate court-, any affirmative relief other than the ones granted in the decision of the court below. " 14

As a consequence of their status as regular employees of the petitioners, they can claim cost of living allowance. This is apparent from the provision defining the employees entitled to said allowance, thus: "... All workers in the private sector, regardless of their position, designation or status, and irrespective of the method by which their wages are paid. " 15

Private respondents are also entitled to claim their 13th Month Pay under Section 3(e) of the Rules and Regulations Implementing P.D. No. 851 which provides:

Section 3. Employers covered. — The Decree shall apply to all employers except to:

xxx xxx xxx

(e) Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing a specific work, irrespective of

the time consumed in the performance thereof, except where the workers are paid on piece-rate basis in which case the employer shall be covered by this issuance insofar as such workers are concerned. (Emphasis supplied.)

On the other hand, while private respondents are entitled to Minimum Wage, COLA and 13th Month Pay, they are not entitled to service incentive leave pay because as piece-rate workers being paid at a fixed amount for performing work irrespective of time consumed in the performance thereof, they fall under one of the exceptions stated in Section 1(d), Rule V, Implementing Regulations, Book III, Labor Code. For the same reason private respondents cannot also claim holiday pay (Section 1(e), Rule IV, Implementing Regulations, Book III, Labor Code).

With respect to the last issue, it is apparent that public respondents have misread the evidence, for it does show that a violation of the employer's rules has been committed and the evidence of such transgression, the copied barong tagalog, was in the possession of Pelobello who pointed to Zapata as the owner. When required by their employer to explain in a memorandum issued to each of them, they not only failed to do so but instead went on AWOL (absence without official leave), waited for the period to explain to expire and for petitioner to dismiss them. They thereafter filed an action for illegal dismissal on the far-fetched ground that they were dismissed because of union activities. Assuming that such acts do not constitute abandonment of their jobs as insisted by private respondents, their blatant disregard of their employer's memorandum is undoubtedly an open defiance to the lawful orders of the latter, a justifiable ground for termination of employment by the employer expressly provided for in Article 283(a) of the Labor Code as well as a clear indication of guilt for the commission of acts inimical to the interests of the employer, another justifiable ground for dismissal under the same Article of the Labor Code, paragraph (c). Well established in our jurisprudence is the right of an employer to dismiss an employee whose continuance in the service is inimical to the employer's interest. 16

In fact the Labor Arbiter himself to whom the explanation of private respondents was submitted gave no credence to their version and found their excuses that said barong tagalog was the one they got from the embroiderer for the Assistant Manager who was investigating them, unbelievable.

Under the circumstances, it is evident that there is no illegal dismissal of said employees. Thus, We have ruled that:

No employer may rationally be expected to continue in employment a person whose lack of morals, respect and loyalty to his employer, regard for his employer's rules, and appreciation of the dignity and responsibility of his office, has so plainly and completely been bared.

That there should be concern, sympathy, and solicitude for the rights and welfare of the working class, is meet and proper. That in controversies between a laborer and his master, doubts reasonably arising from the evidence, or in the interpretation of agreements and writings should be resolved in the former's favor, is not an unreasonable or unfair rule. But that disregard of the employer's own rights and interests can be justified by that concern and solicitude is unjust and unacceptable. (Stanford Microsystems, Inc. v. NLRC, 157 SCRA 414-415 [1988] ).

The law is protecting the rights of the laborer authorizes neither oppression nor self-destruction of the employer.17 More importantly, while the Constitution is committed to the policy of social justice and the protection of the working class, it should not be supposed that every labor dispute will automatically be decided in favor of labor. 18

Finally, it has been established that the right to dismiss or otherwise impose discriplinary sanctions upon an employee for just and valid cause, pertains in the first place to the employer, as well as the authority to determine the existence of said cause in accordance with the norms of due process. 19

There is no evidence that the employer violated said norms. On the contrary, private respondents who vigorously insist on the existence of employer-employee relationship, because of the supervision and control of their employer over them, were the very ones who exhibited their lack of respect and regard for their employer's rules.

Under the foregoing facts, it is evident that petitioner Haberdashery had valid grounds to terminate the services of private respondents.

WHEREFORE, the decision of the National Labor Relations Commission dated March 30, 1988 and that of the Labor Arbiter dated June 10, 1986 are hereby modified. The complaint filed by Pelobello and Zapata for illegal dismissal docketed as NLRC NCR Case No. 2-428-85 is dismissed for lack of factual and legal bases. Award of service incentive leave pay to private respondents is deleted.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

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 dismissal 6 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 wasco-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. 20Indeed, 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 "hires the 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.

Very truly yours,

(an

illegible signature)

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 STARTED

DATE COMPLETED

ASSOCIATE 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 MO 9/6/90 10/20/90 JUN CHING

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 STARTED

DATE COMPLETED

ASSOCIATE 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.

Republic of the Philippines SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 129076 November 25, 1998

ORLANDO FARMS GROWERS ASSOCIATION/GLICERIO AÑOVER, petitioner, vs. THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION (FIFTH DIVISION), ANTONIO PAQUIT, ESTHER BONGGOT, FRANCISCO BAUG, LEOCADIO ORDONO, REBECCA MOREN, MARCELINA HONTIVEROS, MARTIN ORDONO, TITO ORDONO, FE ORDONO, ERNIE COLON, EUSTIQUIO GELDO, DANNY SAM, JOEL PIAMONTE, FEDERICO PASTOLERO, VIRGINIA BUSANO, EDILMIRO ALDION, EUGENIO BETICAN, JR. and BERNARDO OPERIO, respondents.

ROMERO, J.:

It is a settled doctrine that an employer-employee relationship can be deduced from the existence of the following elements: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct.

The principal issue to be resolved in the instant petition is whether or not an unregistered association may be an employer independent of the respective members it represents.

The evidence reveals the ensuing facts:

Petitioner Orlando Farms Growers Association, with co-petitioner Glicerio Añover as its President, is an association of landowners engaged in the production of export quality bananas located in Kinamayan, Sto. Tomas, Davao del Norte, established for the sole purpose of dealing collectively with Stanfilco on matters concerning technical services, canal maintenance, irrigation and pest control, among others. Respondents, on the other hand, were hired as farm workers by several member-landowners but; nonetheless, were made to perform functions as packers and harvesters in the plantation of petitioner association.

After respondents were dismissed on various dates from January 8, 1993 to July 30, 1994, several complaints were filed against petitioner for illegal dismissal and monetary benefits. Based on similar grounds, the same were consolidated in the office of Labor Arbiter Newton R. Sancho who, in a decision dated September 6, 1995, ordered their reinstatement, viz:

WHEREFORE, judgment is hereby rendered declaring the dismissal of the 20 above-named complainants ILLEGAL, and ordering respondents Orlando Farms Growers Association/Glicerio Anover to REINSTATE them immediately to their former or equivalent positions, and to PAY individual complainants their respective backwages and other benefits (wage differentials, 13th month pay and holiday pay) appearing opposite their names above set forth, including moral damages and attorney's fees, in the total amount of P1,047,720.92 only.

All other claims are dismissed for lack of merit.

As becoming a collective association, respondents liabilities to complainants are joint and solidary, with its responsible officers.

The case of Loran Paquit and Lovilla Dorlones 1 is dropped for having been amicably settled.

In case of appeal, backwages and other benefits shall accrue but in no case exceeding 3 years, without any qualification or deduction.

SO ORDERED. 2

On appeal, the National Labor Relations Commission (NLRC) affirmed the same in toto in a decision dated December 26, 1996. Its motion for reconsideration having been denied on February 25, 1997, petitioner filed the instant petition for certiorari.

Petitioner alleged that the NLRC erred in finding that respondents were its employees and not of the individual landowners which fact can easily be deduced from the payments made by the latter of respondent's Social Security System (SSS) contributions. Moreover, it could have never exercised the power of control over them with regard to the manner and method by which the work was to be accomplished, which authority remain vested with the landowners despite becoming members thereof.

The arguments adduced before us do not warrant the nullification of the findings made by the Labor Arbiter and the NLRC as the determination of the existence of an employer-employee relationship between the party-litigants, being a question of fact, is amply supported by substantial evidence, as can be gathered from a perfunctory reading, not only of the pleadings submitted, but from the assailed decision, as well. Thus, the authority of this Court to review the findings of the NLRC is limited to allegations of lack of jurisdiction or grave abuse of discretion.

The contention that petitioner, being an unregistered association and having been formed solely to serve as an effective medium for dealing collectively with Stanfilco, does not exist in law and, therefore, cannot be considered an employer, is misleading. This assertion can easily be dismissed by reference to Article 212 (e) of the Labor Code, as amended, which defines an employer as any person acting in the interest of an employer, directly or indirectly. Following a careful scrutiny of the said provision, the Court concludes that the law does not require an employer to be registered before he may come within the purview of the Labor Code, consistent with the established rule in statutory construction that when the law does not distinguish, we should not distinguish. To do otherwise would bring about a situation whereby employees are denied, not only redress of their grievances, but, more importantly, the protection and benefits accorded to them by law if their employer happens to be an unregistered association.

To reiterate, as held in the case of Filipinas Broadcasting Network, Inc. v. NLRC, 3 the following are generally considered in the determination of the existence of an employer-employee relationship; (1) the manner of selection and engagement; (2) the payment of wages; (3) the presence or absence of the power of dismissal; and (4) the presence or absence of the power of control; of these four, the last one being the most important.

In the instant case, the following circumstances which support the existence of employer-employee relations cannot be denied. During the subsistence of the association, several circulars and memoranda were issued concerning, among other things, absences without formal request, loitering

in the work area and disciplinary measures with which every worker is enjoined to comply. Furthermore, the employees were issued identification cards which the Court, in the case of Domasig v. NLRC, 4 construed, not only as a security measure but mainly to identify the holder as a bonafide employee of the firm. However, what makes the relationship explicit is the power of the petitioner to enter into compromise agreements involving money claims filed by three of its employees, namely: Lorna Paquit, Lovella Dorlones and Jasmine Espanola. If petitioner's disclaimer were to be believed, what benefit would accrue to it in settling an employer-employee dispute to which it allegedly lay no claim?

In spite of the overwhelming evidence sufficient to justify a conclusion that respondents were indeed employees of petitioner, the latter, nevertheless, maintain the preposterous claim that the ID card, circulars and memoranda were issued merely to facilitate the efficient use of common resources, as well as to promote uniform rules in the work establishment. On this score, we defer to the observations made by the NLRC when it ruled that, while the original purpose of the formation of the association was merely to provide the landowners a unified voice in dealing with Stanfilco, petitioner however exceeded its avowed intentions when its subsequent actions reenforced only too clearly its admitted role of employer. As reiterated all too often, factual findings of the NLRC, particularly when they coincide with those of the Labor Arbiter, are accorded respect, even finality, and will not be disturbed for as long as such findings are supported by substantial evidence. 5

Prescinding from the foregoing, we now address the issue of whether or not petitioner had a valid ground to dismiss respondents from their respective employment.

It is settled that in termination disputes, the employer bears the burden of proving that the dismissal is for just cause, failing which it would mean that the dismissal is not justified and the employer is entitled to reinstatement. 6The dismissal of employees must be made within the parameters of the law and pursuant to the basic tenets of equity, justice and fair play. 7 In Brahm Industries, Inc. v. NLRC, 8 the Court explained that there are two (2) facets of valid termination of employment; (a) the legality of the act of dismissal, i.e., the dismissal must be under any of the just causes provided under Art. 282 9 of the Labor Code; and (b) the legality of the manner of dismissal, which means that there must be observance of the requirements of due process, otherwise known as the two-notice rule. Thus, "the employer is required to furnish the employee with a written notice containing a statement of the cause for termination and to afford said employee ample opportunity to be heard and to defend himself with the assistance of his representative, if he so desires. The employer is also required to notify the worker in writing of the decision to dismiss him, stating clearly the reasons therefore." 10

In the instant case, petitioner severed employment relations when it whimsically dismissed the respondents in utter disregard of the safeguards underscored in the Constitution, as well as in the Labor Code. Petitioner failed to controvert the allegation that it was responsible for the dismissal of the employees. Instead of denying the same or otherwise imputing liability on its member-landowner by naming the employees allegedly in his employ, petitioner was silent on the issue and harped on the non-existence of employer-employee relationship between the parties, which contention we find to be tangential. However related the issue might seem, it would have been more relevant for the petitioner to have presented ample evidence before the NLRC and this Court to justify its exoneration from liability. Having failed in this respect, we deem it fatal to its defense.

For having been dismissed without a valid cause and for non-observance of the due process requirement, respondents, consistent with recent jurisprudence laid down in the case of Bustamante v. NLRC, 11 are entitled to receive full backwages from the date of their dismissal up to the time of their reinstatement. The order, therefore, of the labor arbiter limiting backwages to a period of three (3) years in the event of an appeal, is erroneous.

WHEREFORE, in view of the foregoing, the petition is hereby DISMISSED and the decision of the National Labor Relations Commission dated September 6, 1995 is AFFIRMED subject to the deletion of the award of moral damages and attorney's fees. The Court, however, is remanding this case to Labor Arbiter Newton R. Sancho to specify in the dispositive portion of his decision the names of the respondents and the amount that each is entitled to.

SO ORDERED.

Narvasa, C.J., Kapunan, Purisima and Pardo, JJ., concur.