[G.R. No. 192084, September 14, 2011]

JOSE MEL BERNARTE, PETITIONER, VS. PHILIPPINE BASKETBALL ASSOCIATION (PBA), JOSE EMMANUEL M. EALA, AND PERRY MARTINEZ, RESPONDENTS.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review[1] of the 17 December 2009 Decision[2] and 5 April 2010 Resolution[3] of the Court of Appeals in CA-G.R. SP No. 105406. The Court of Appeals set aside the decision of the National Labor Relations Commission (NLRC), which affirmed the decision of the Labor Arbiter, and held that petitioner Jose Mel Bernarte is an independent contractor, and not an employee of respondents Philippine Basketball Association (PBA), Jose Emmanuel M. Eala, and Perry Martinez. The Court of Appeals denied the motion for reconsideration.

The Facts

The facts, as summarized by the NLRC and quoted by the Court of Appeals, are as follows:

Complainants (Jose Mel Bernarte and Renato Guevarra) aver that they were invited to join the PBA as referees. During the leadership of Commissioner Emilio Bernardino, they were made to sign contracts on a year-to-year basis. During the term of Commissioner Eala, however, changes were made on the terms of their employment.

Complainant Bernarte, for instance, was not made to sign a contract during the first conference of the All-Filipino Cup which was from February 23, 2003 to June 2003. It was only during the second conference when he was made to sign a one and a half month contract for the period July 1 to August 5, 2003.

On January 15, 2004, Bernarte received a letter from the Office of the Commissioner advising him that his contract would not be renewed citing his unsatisfactory performance on and off the court. It was a total shock for Bernarte who was awarded Referee of the year in 2003. He felt that the dismissal was caused by his refusal to fix a game upon order of Ernie De Leon.

On the other hand, complainant Guevarra alleges that he was invited to join the PBA pool of referees in February 2001. On March 1, 2001, he signed a contract as trainee. Beginning 2002, he signed a yearly contract as Regular Class C referee. On May 6, 2003, respondent Martinez

issued a memorandum to Guevarra expressing dissatisfaction over his questioning on the assignment of referees officiating out-of-town games. Beginning February 2004, he was no longer made to sign a contract.

Respondents aver, on the other hand, that complainants entered into two contracts of retainer with the PBA in the year 2003. The first contract was for the period January 1, 2003 to July 15, 2003; and the second was for September 1 to December 2003. After the lapse of the latter period, PBA decided not to renew their contracts.

Complainants were not illegally dismissed because they were not employees of the PBA. Their respective contracts of retainer were simply not renewed. PBA had the prerogative of whether or not to renew their contracts, which they knew were fixed.[4]

In her 31 March 2005 Decision,[5] the Labor Arbiter[6]

declared petitioner an employee whose dismissal by respondents was illegal. Accordingly, the Labor Arbiter ordered the reinstatement of petitioner and the payment of backwages, moral and exemplary damages and attorney's fees, to wit:

WHEREFORE, premises considered all respondents who are here found to have illegally dismissed complainants are hereby ordered to (a) reinstate complainants within thirty (30) days from the date of receipt of this decision and to solidarily pay complainants:

1. backwages from January 1, 2004 up to the finality of this Decision, which to date is

2. moral damages

3. exemplary damages

JOSE MEL BERNARTE

P536,250.00 100,000.00 50,000.00

RENATO GUEVARRA

P211,250.00

100,000.00

50,000.00

4. 10% attorney's fees

TOTAL

or a total of P1,152,250.00

68,625.00

P754,875.00

36,125.00

P397,375.00

The rest of the claims are hereby dismissed for lack of merit or basis.

SO ORDERED.[7]

In its 28 January 2008 Decision,[8] the NLRC affirmed the Labor Arbiter's judgment. The dispositive portion of the NLRC's decision reads:

WHEREFORE, the appeal is hereby DISMISSED. The Decision of Labor Arbiter Teresita D. Castillon-Lora dated March 31, 2005 is AFFIRMED.

SO ORDERED.[9]

Respondents filed a petition for certiorari with the Court of Appeals, which overturned the decisions of the NLRC and Labor Arbiter. The dispositive portion of the Court of Appeals' decision reads:

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated January 28, 2008 and Resolution dated August 26, 2008 of the National Labor Relations Commission are ANNULLED and SET ASIDE. Private respondents' complaint before the Labor Arbiter is DISMISSED.

SO ORDERED.[10]

The Court of Appeals' Ruling

The Court of Appeals found petitioner an independent contractor since respondents did not exercise any form of control over the means and methods by which petitioner performed his work as a basketball referee. The Court of Appeals held:

While the NLRC agreed that the PBA has no control over the referees' acts of blowing the whistle and making calls during basketball games, it, nevertheless, theorized that the said acts refer to the means and methods employed by the referees in officiating basketball games for the illogical reason that said acts refer only to the referees' skills. How could a skilled referee perform his job without blowing a whistle and making calls? Worse, how can the PBA control the performance of work of a referee without controlling his acts of blowing the whistle and making calls?

Moreover, this Court disagrees with the Labor Arbiter's finding (as affirmed by the NLRC) that the Contracts of Retainer show that petitioners have control over

private respondents.

x x x x

Neither do We agree with the NLRC's affirmance of the Labor Arbiter's conclusion that private respondents' repeated hiring made them regular employees by operation of law.[11]

The Issues

The main issue in this case is whether petitioner is an employee of respondents, which in turn determines whether petitioner was illegally dismissed.

Petitioner raises the procedural issue of whether the Labor Arbiter's decision has become final and executory for failure of respondents to appeal with the NLRC within the reglementary period.

The Ruling of the Court

The petition is bereft of merit.

The Court shall first resolve the procedural issue posed by petitioner.

Petitioner contends that the Labor Arbiter's Decision of 31 March 2005 became final and executory for failure of respondents to appeal with the NLRC within the prescribed period. Petitioner claims that the Labor Arbiter's decision was constructively served on respondents as early as August 2005 while respondents appealed the Arbiter's decision only on 31 March 2006, way beyond the reglementary period to appeal. Petitioner points out that service of an unclaimed registered mail is deemed complete five days from the date of first notice of the post master. In this case three notices were issued by the post office, the last being on 1 August 2005. The unclaimed registered mail was consequently returned to sender. Petitioner presents the Postmaster's Certification to prove constructive service of the Labor Arbiter's decision on respondents. The Postmaster certified:

x x x

That upon receipt of said registered mail matter, our registry in charge, Vicente Asis, Jr., immediately issued the first registry notice to claim on July 12, 2005 by the addressee. The second and third notices were issued on July 21 and August 1, 2005, respectively.

That the subject registered letter was returned to the sender (RTS) because the addressee failed to claim it after our one month retention period elapsed. Said registered letter was dispatched from this office to Manila CPO (RTS) under bill #6, line 7, page1, column 1, on September 8, 2005.[12]

Section 10, Rule 13 of the Rules of Court provides:

SEC. 10. Completeness of service. - Personal service is complete upon actual delivery. Service by ordinary mail is complete upon the expiration of ten (10) days after mailing, unless the court otherwise provides. Service by registered mail is complete upon actual receipt by the addressee, or after five (5) days from the date he received the first notice of the postmaster, whichever date is earlier.

The rule on service by registered mail contemplates two situations: (1) actual service the completeness of which is determined upon receipt by the addressee of the registered mail; and (2) constructive service the completeness of which is determined upon expiration of five days from the date the addressee received the first notice of the postmaster.[13]

Insofar as constructive service is concerned, there must be conclusive proof that a first notice was duly sent by the postmaster to the addressee.[14] Not only is it required that notice of the registered mail be issued but that it should also be delivered to and received by the addressee.[15] Notably, the presumption that official duty has been regularly performed is not applicable in this situation. It is incumbent upon a party who relies on constructive service to prove that the notice was sent to, and received by, the addressee. [16]

The best evidence to prove that notice was sent would be a certification from the postmaster, who should certify not only that the notice was issued or sent but also as to how, when and to whom the delivery and receipt was made. The mailman may also testify that the notice was actually delivered.[17]

In this case, petitioner failed to present any concrete proof as to how, when and to whom the delivery and receipt of the three notices issued by the post office was made. There is no conclusive evidence showing that the post office notices were actually received by respondents, negating petitioner's claim of constructive service of the Labor Arbiter's decision on respondents. The Postmaster's Certification does not sufficiently prove that the three notices were delivered to and received by respondents; it only indicates that the post office issued the three notices. Simply put, the issuance of the notices by the post office is not equivalent to delivery to and receipt by the addressee of the registered mail. Thus, there is no proof of completed constructive service of the Labor Arbiter's decision on respondents.

At any rate, the NLRC declared the issue on the finality of the Labor Arbiter's decision moot as respondents' appeal was considered in the interest of substantial justice. We agree with the NLRC. The ends of justice will be better served if we resolve the instant case on the merits rather than allowing the substantial issue of whether petitioner is an independent contractor or an employee linger and remain unsettled due to procedural technicalities.

The existence of an employer-employee relationship is ultimately a question of fact. As a general rule, factual issues

are beyond the province of this Court. However, this rule admits of exceptions, one of which is where there are conflicting findings of fact between the Court of Appeals, on one hand, and the NLRC and Labor Arbiter, on the other, such as in the present case.[18]

To determine the existence of an employer-employee relationship, case law has consistently applied the four-fold test, to wit: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control the employee on the means and methods by which the work is accomplished. The so-called "control test" is the most important indicator of the presence or absence of an employer-employee relationship.[19]

In this case, PBA admits repeatedly engaging petitioner's services, as shown in the retainer contracts. PBA pays petitioner a retainer fee, exclusive of per diem or allowances, as stipulated in the retainer contract. PBA can terminate the retainer contract for petitioner's violation of its terms and conditions.

However, respondents argue that the all-important element of control is lacking in this case, making petitioner an independent contractor and not an employee of respondents.

Petitioner contends otherwise. Petitioner asserts that he is an employee of respondents since the latter exercise control over the performance of his work. Petitioner cites the following stipulations in the retainer contract which evidence control: (1) respondents classify or rate a referee; (2) respondents require referees to attend all basketball games organized or authorized by the PBA, at least one hour before the start of the first game of each day; (3) respondents assign petitioner to officiate ballgames, or to act as alternate referee or substitute; (4) referee agrees to observe and comply with all the requirements of the PBA governing the conduct of the referees whether on or off the court; (5) referee agrees (a) to keep himself in good physical, mental, and emotional condition during the life of the contract; (b) to give always his best effort and service, and loyalty to the PBA, and not to officiate as referee in any basketball game outside of the PBA, without written prior consent of the Commissioner; (c) always to conduct himself on and off the court according to the highest standards of honesty or morality; and (6) imposition of various sanctions for violation of the terms and conditions of the contract.

The foregoing stipulations hardly demonstrate control over the means and methods by which petitioner performs his work as a referee officiating a PBA basketball game. The contractual stipulations do not pertain to, much less dictate, how and when petitioner will blow the whistle and make calls. On the contrary, they merely serve as rules of conduct or guidelines in order to maintain the integrity of the professional basketball league. As correctly observed by the Court of Appeals, "how could a skilled referee perform his job without blowing a whistle and making calls? x x x [H]ow can the PBA control the performance of work of a referee without controlling his acts of blowing the whistle and making calls?"[20]

In Sonza v. ABS-CBN Broadcasting Corporation,[21] which determined the relationship between a television and radio station and one of its talents, the Court held that not all rules

imposed by the hiring party on the hired party indicate that the latter is an employee of the former. The Court held:

We find that these general rules are merely guidelines towards the achievement of the mutually desired result, which are top-rating television and radio programs that comply with standards of the industry. We have ruled that:

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

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employer-employee relationship unlike the second, which address both the result and the means used to achieve it.[22]

We agree with respondents that once in the playing court, the referees exercise their own independent judgment, based on the rules of the game, as to when and how a call or decision is to be made. The referees decide whether an infraction was committed, and the PBA cannot overrule them once the decision is made on the playing court. The referees are the only, absolute, and final authority on the playing court. Respondents or any of the PBA officers cannot and do not determine which calls to make or not to make and cannot control the referee when he blows the whistle because such authority exclusively belongs to the referees. The very nature of petitioner's job of officiating a professional basketball game undoubtedly calls for freedom of control by respondents.

Moreover, the following circumstances indicate that petitioner is an independent contractor: (1) the referees are required to report for work only when PBA games are scheduled, which is three times a week spread over an average of only 105 playing days a year, and they officiate games at an average of two hours per game; and (2) the only deductions from the fees received by the referees are withholding taxes.

In other words, unlike regular employees who ordinarily report for work eight hours per day for five days a week, petitioner is required to report for work only when PBA

games are scheduled or three times a week at two hours per game. In addition, there are no deductions for contributions to the Social Security System, Philhealth or Pag-Ibig, which are the usual deductions from employees' salaries. These undisputed circumstances buttress the fact that petitioner is an independent contractor, and not an employee of respondents.

Furthermore, the applicable foreign case law declares that a referee is an independent contractor, whose special skills and independent judgment are required specifically for such position and cannot possibly be controlled by the hiring party.

In Yonan v. United States Soccer Federation, Inc.,[23] the United States District Court of Illinois held that plaintiff, a soccer referee, is an independent contractor, and not an employee of defendant which is the statutory body that governs soccer in the United States. As such, plaintiff was not entitled to protection by the Age Discrimination in Employment Act. The U.S. District Court ruled:

Generally, "if an employer has the right to control and direct the work of an individual, not only as to the result to be achieved, but also as to details by which the result is achieved, an employer/employee relationship is likely to exist." The Court must be careful to distinguish between "control[ling] the conduct of another party contracting party by setting out in detail his obligations" consistent with the freedom of contract, on the one hand, and "the discretionary control an employer daily exercises over its employee's conduct" on the other.

Yonan asserts that the Federation "closely supervised" his performance at each soccer game he officiated by giving him an assessor, discussing his performance, and controlling what clothes he wore while on the field and traveling. Putting aside that the Federation did not, for the most part, control what clothes he wore, the Federation did not supervise Yonan, but rather evaluated his performance after matches. That the Federation evaluated Yonan as a referee does not mean that he was an employee. There is no question that parties retaining independent contractors may judge the performance of those contractors to determine if the contractual relationship should continue. x x x

It is undisputed that the Federation did not control the way Yonan refereed his games. He had full discretion and authority, under the Laws of the Game, to call the game as he saw fit. x x x In a similar vein, subjecting Yonan to qualification standards and procedures like the Federation's registration and training requirements does not create an employer/employee relationship. x x x

A position that requires special skills and independent judgment weights in favor of independent contractor status. x x x Unskilled work, on the other hand, suggests an employment relationship. x x x Here, it is undisputed that soccer refereeing, especially at the professional and international level, requires "a great deal of skill and natural ability." Yonan asserts that it was the Federation's training that made him a top referee, and that suggests he was an employee. Though substantial training supports an employment inference, that inference is dulled significantly or negated when the putative employer's activity is the result of a statutory requirement, not the employer's choice. x x x

In McInturff v. Battle Ground Academy of Franklin,[24] it was held that the umpire was not an agent of the Tennessee Secondary School Athletic Association (TSSAA), so the player's vicarious liability claim against the association should be dismissed. In finding that the umpire is an independent contractor, the Court of Appeals of Tennesse ruled:

The TSSAA deals with umpires to achieve a result-uniform rules for all baseball games played between TSSAA member schools. The TSSAA does not supervise regular season games. It does not tell an official how to conduct the game beyond the framework established by the rules. The TSSAA does not, in the vernacular of the case law, control the means and method by which the umpires work.

In addition, the fact that PBA repeatedly hired petitioner does not by itself prove that petitioner is an employee of the former. For a hired party to be considered an employee, the hiring party must have control over the means and methods by which the hired party is to perform his work, which is absent in this case. The continuous rehiring by PBA of petitioner simply signifies the renewal of the contract between PBA and petitioner, and highlights the satisfactory services rendered by petitioner warranting such contract renewal. Conversely, if PBA decides to discontinue petitioner's services at the end of the term fixed in the contract, whether for unsatisfactory services, or violation of the terms and conditions of the contract, or for whatever other reason, the same merely results in the non-renewal of the contract, as in the present case. The non-renewal of the contract between the parties does not constitute illegal dismissal of petitioner by respondents.

WHEREFORE, we DENY the petition and AFFIRM the assailed decision of the Court of Appeals.

SO ORDERED.

THIRD DIVISION

[G.R. No. 169510 : August 08, 2011]

ATOK BIG WEDGE COMPANY, INC., PETITIONER, VS. JESUS P. GISON, RESPONDENT.

D E C I S I O N

PERALTA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the Decision[1] dated May 31, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 87846, and the Resolution[2] dated August 23, 2005 denying petitioner's motion for reconsideration.

The procedural and factual antecedents are as follows:

Sometime in February 1992, respondent Jesus P. Gison was engaged as part-time consultant on retainer basis by petitioner Atok Big Wedge Company, Inc. through its then Asst. Vice-President and Acting Resident Manager, Rutillo A. Torres.  As a consultant on retainer basis, respondent assisted petitioner's retained legal counsel with matters pertaining to the prosecution of cases against illegal surface occupants within the area covered by the company's mineral claims. Respondent was likewise tasked to perform liaison work with several government agencies, which he said was his expertise.

Petitioner did not require respondent to report to its office on a regular basis, except when occasionally requested by the management to discuss matters needing his expertise as a consultant.  As payment for his services, respondent received a retainer fee of P3,000.00 a month,[3] which was delivered to him either at his residence or in a local restaurant.  The parties executed a retainer agreement, but such agreement was misplaced and can no longer be found.

The said arrangement continued for the next eleven years.

Sometime thereafter, since respondent was getting old, he requested that petitioner cause his registration with the Social Security System (SSS), but petitioner did not accede to his request.  He later reiterated his request but it was ignored by respondent considering that he was only a retainer/consultant.  On February 4, 2003, respondent filed a Complaint[4] with the SSS against petitioner for the latter's refusal to cause his registration with the SSS.

On the same date, Mario D. Cera, in his capacity as resident manager of petitioner, issued a Memorandum[5] advising respondent that within 30 days from receipt thereof, petitioner is terminating his retainer contract with the company since his services are no longer necessary.

On February 21, 2003, respondent filed a Complaint[6] for illegal dismissal, unfair labor practice, underpayment of wages, non-payment of 13th month pay, vacation pay, and sick leave pay with the National Labor Relations Commission (NLRC), Regional Arbitration Branch (RAB), Cordillera Administrative Region, against petitioner, Mario D. Cera, and Teofilo R. Asuncion, Jr.  The case was docketed as NLRC Case No. RAB-CAR-02-0098-03.

Respondent alleged that:

x x x [S]ometime in January 1992, Rutillo A. Torres, then the resident manager of respondent Atok Big Wedge Co., Inc., or Atok for brevity, approached him and asked him if he can help the company's problem involving the 700 million pesos crop damage claims of the residents living at the minesite of Atok. He participated in a series of dialogues conducted with the residents. Mr. Torres offered to pay him P3,000.00 per month plus representation expenses. It was also agreed upon by him and Torres that his participation in resolving the problem was temporary and there will be no employer-employee relationship between him and Atok. It was also agreed upon that his compensation, allowances and other expenses will be paid through disbursement vouchers.

On February 1, 1992 he joined Atok. One week thereafter, the aggrieved crop damage claimants barricaded the only passage to and from the minesite. In the early morning of February 1, 1992, a dialogue was made by Atok and the crop damage claimants. Unfortunately, Atok's representatives, including him, were virtually held hostage by the irate claimants who demanded on the spot payment of their claims. He was able to convince the claimants to release the company representatives pending referral of the issue to higher management.

A case was filed in court for the lifting of the barricades and the court ordered the lifting of the barricade. While Atok was prosecuting its case with the claimants, another case erupted involving its partner, Benguet Corporation. After Atok parted ways with Benguet Corporation, some properties acquired by the partnership and some receivables by Benguet Corporation was the problem. He was again entangled with documentation, conferences, meetings, planning, execution and clerical works. After two years, the controversy was resolved and Atok received its share of the properties of the partnership, which is about 5 million pesos worth of equipment and condonation of Atok's accountabilities with Benguet Corporation in the amount of P900,000.00.

In the meantime, crop damage claimants lost interest in pursuing their claims against Atok and Atok was relieved of the burden of paying 700 million pesos. In between attending the problems of the crop damage issue, he was also assigned to do liaison works with the SEC, Bureau of Mines, municipal government of

Itogon, Benguet, the Courts and other government offices.

After the crop damage claims and the controversy were resolved, he was permanently assigned by Atok to take charge of some liaison matters and public relations in Baguio and Benguet Province, and to report regularly to Atok's office in Manila to attend meetings and so he had to stay in Manila at least one week a month.

Because of his length of service, he invited the attention of the top officers of the company that he is already entitled to the benefits due an employee under the law, but management ignored his requests. However, he continued to avail of his representation expenses and reimbursement of company-related expenses. He also enjoyed the privilege of securing interest free salary loans payable in one year through salary deduction.

In the succeeding years of his employment, he was designated as liaison officer, public relation officer and legal assistant, and to assist in the ejection of illegal occupants in the mining claims of Atok.

Since he was getting older, being already 56 years old, he reiterated his request to the company to cause his registration with the SSS. His request was again ignored  and so he filed a complaint with the SSS. After filing his complaint with the SSS, respondents terminated his services.[7]

On September 26, 2003, after the parties have submitted their respective pleadings, Labor Arbiter Rolando D. Gambito rendered a Decision[8] ruling in favor of the petitioner. Finding no employer-employee relationship between petitioner and respondent, the Labor Arbiter dismissed the complaint for lack of merit.

Respondent then appealed the decision to the NLRC.

On July 30, 2004, the NLRC, Second Division, issued a Resolution[9] affirming the decision of the Labor Arbiter. Respondent filed a Motion for Reconsideration, but it was denied in the Resolution[10] dated September 30, 2004.

Aggrieved, respondent filed a petition for review under Rule 65 of the Rules of Court before the CA questioning the decision and resolution of the NLRC, which was later docketed as CA-G.R. SP No. 87846.  In support of his petition, respondent raised the following issues:

a)  Whether or not the Decision of the Honorable Labor Arbiter and the subsequent Resolutions of the Honorable Public Respondent affirming the same, are in harmony with the law and the facts of

the case;

b) Whether or not the Honorable Labor Arbiter Committed a Grave Abuse of Discretion in Dismissing the Complaint of Petitioner and whether or not the Honorable Public Respondent Committed a Grave Abuse of Discretion when it affirmed the said Decision.[11]

On May 31, 2005, the CA rendered the assailed Decision annulling and setting aside the decision of the NLRC, the decretal portion of which reads:

WHEREFORE, the petition is GRANTED.  The assailed Resolution of the National Labor Relations Commission dismissing petitioner's complaint for illegal dismissal is ANNULLED and SET ASIDE.  Private respondent Atok Big Wedge Company Incorporated is ORDERED to reinstate petitioner Jesus P. Gison to his former or equivalent position without loss of seniority rights and to pay him full backwages, inclusive of allowances and other benefits or their monetary equivalent computed from the time these were withheld from him up to the time of his actual and effective reinstatement. This case is ordered REMANDED to the Labor Arbiter for the proper computation of backwages, allowances and other benefits due to petitioner.  Costs against private respondent  Atok Big Wedge Company Incorporated.

SO ORDERED.[12]

In ruling in favor of the respondent, the CA opined, among other things, that both the Labor Arbiter and the NLRC may have overlooked Article 280 of the Labor Code, [13] or the provision which distinguishes between two kinds of employees, i.e., regular and casual employees.  Applying the provision to the respondent's case, he is deemed a regular employee of the petitioner after the lapse of one year from his employment.  Considering also that respondent had been performing services for the petitioner for eleven years, respondent is entitled to the rights and privileges of a regular employee.

The CA added that although there was an agreement between the parties that respondent's employment would only be temporary, it clearly appears that petitioner disregarded the same by repeatedly giving petitioner several tasks to perform.  Moreover, although respondent may have waived his right to attain a regular status of employment when he agreed to perform these tasks on a temporary employment status, still, it was the law that recognized and considered him a regular employee after his first year of rendering service to petitioner. As such, the waiver was ineffective.

Hence, the petition assigning the following errors:

I. WHETHER OR NOT THE COURT OF APPEALS DECIDED QUESTIONS OF SUBSTANCE CONTRARY TO LAW AND APPLICABLE RULINGS OF THIS HONORABLE COURT WHEN IT GAVE DUE COURSE TO THE PETITION FOR CERTIORARI DESPITE THE FACT THAT THERE WAS NO SHOWING THAT THE NATIONAL LABOR RELATIONS COMMISSION COMMITTED GRAVE ABUSE OF DISCRETION.

II. WHETHER OR NOT THE COURT OF APPEALS DECIDED QUESTIONS OF SUBSTANCE CONTRARY TO THE LAW AND APPLICABLE RULINGS OF THIS HONORABLE COURT WHEN IT BASED ITS FINDING THAT RESPONDENT IS ENTITLED TO REGULAR EMPLOYMENT ON A PROVISION OF LAW THAT THIS HONORABLE COURT HAS DECLARED TO BE INAPPLICABLE IN CASE THE EXISTENCE OF AN EMPLOYER-EMPLOYEE RELATIONSHIP IS IN DISPUTE OR IS THE FACT IN ISSUE.

III. WHETHER OR NOT THE COURT OF APPEALS DECIDED QUESTIONS OF SUBSTANCE CONTRARY TO LAW AND APPLICABLE RULINGS OF THIS HONORABLE COURT WHEN IT ERRONEOUSLY FOUND THAT RESPONDENT IS A REGULAR EMPLOYEE OF THE COMPANY.

IV. WHETHER OR NOT THE COURT OF APPEALS DECIDED QUESTIONS OF SUBSTANCE CONTRARY TO LAW AND APPLICABLE RULINGS OF THIS HONORABLE COURT WHEN IT ERRONEOUSLY DIRECTED RESPONDENT'S REINSTATEMENT DESPITE THE FACT THAT THE NATURE OF THE SERVICES HE PROVIDED TO THE COMPANY WAS SENSITIVE AND CONFIDENTIAL.[14]

Petitioner argues that since the petition filed by the respondent before the CA was a petition for certiorari under Rule 65 of the Rules of Court, the CA should have limited the issue on whether or not there was grave abuse of discretion on the part of the NLRC in rendering the resolution affirming the decision of the Labor Arbiter.

Petitioner also posits that the CA erred in applying Article 280 of the Labor Code in determining whether there was an employer-employee relationship between the petitioner and the respondent. Petitioner contends that where the existence

of an employer-employee relationship is in dispute, Article 280 of the Labor Code is inapplicable.  The said article only set the distinction between a casual employee from a regular employee for purposes of determining the rights of an employee to be entitled to certain benefits.

Petitioner insists that respondent is not a regular employee and not entitled to reinstatement.

On his part, respondent maintains that he is an employee of the petitioner and that the CA did not err in ruling in his favor.

The petition is meritorious.

At the outset, respondent's recourse to the CA was the proper remedy to question the resolution of the NLRC.  It bears stressing that there is no appeal from the decision or resolution of the NLRC.  As this Court enunciated in the case of St. Martin Funeral Home v. NLRC,[15] the special civil action of certiorari under Rule 65 of the Rules of Civil Procedure, which is filed before the CA, is the proper vehicle for judicial review of decisions of the NLRC. The petition should be initially filed before the Court of Appeals in strict observance of the doctrine on hierarchy of courts as the appropriate forum for the relief desired.[16]  This Court not being a trier of facts, the resolution of unclear or ambiguous factual findings should be left to the CA as it is procedurally equipped for that purpose. From the decision of the Court of Appeals, an ordinary appeal under Rule 45 of the Rules of Civil Procedure before the Supreme Court may be resorted to by  the parties.  Hence, respondent's resort to the CA was appropriate under the circumstances.

Anent the primordial issue of whether or not an employer-employee relationship exists between petitioner and respondent.

Well-entrenched is the doctrine that the existence of an employer-employee relationship is ultimately a question of fact and that the findings thereon by the Labor Arbiter and the NLRC shall be accorded not only respect but even finality when supported by substantial evidence.[17]  Being a question of fact, the determination whether such a relationship exists between petitioner and respondent was well within the province of the Labor Arbiter and the NLRC.  Being supported by substantial evidence, such determination should have been accorded great weight by the CA in resolving the issue.

To ascertain the existence of an employer-employee relationship jurisprudence has invariably adhered to the four-fold test, to wit: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct, or the so-called "control test."[18]  Of these four, the last one is the most important.[19]  The so-called "control test" is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. 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 achieved, but also the manner and means to be used in reaching that end.[20]

Applying the aforementioned test, an employer-employee

relationship is apparently absent in the case at bar.  Among other things, respondent was not required to report everyday during regular office hours of petitioner.  Respondent's monthly retainer fees were paid to him either at his residence or a local restaurant.  More importantly, petitioner did not prescribe the manner in which respondent would accomplish any of the tasks in which his expertise as a liaison officer was needed; respondent was left alone and given the freedom to accomplish the tasks using his own means and method.  Respondent was assigned tasks to perform, but petitioner did not control the manner and methods by which respondent performed these tasks. Verily, the absence of the element of control on the part of the petitioner engenders a conclusion that he is not an employee of the petitioner.

Moreover, the absence of the parties' retainership agreement notwithstanding, respondent clearly admitted that petitioner hired him in a limited capacity only and that there will be no employer-employee relationship between them.  As averred in respondent's Position Paper:[21]

2. For the participation of complainant regarding this particular problem of Atok, Mr. Torres offered him a pay in the amount of Php3,000.00 per month plus representation expenses.  It was also agreed by Mr. Torres and the complainant that his participation on this particular problem of Atok will be temporary since the problem was then contemplated to be limited in nature, hence, there will be no employer-employee relationship between him and Atok.  Complainant agreed on this arrangement.  It was also agreed that complainant's compensations, allowances, representation expenses and reimbursement of company- related expenses will be processed and paid through disbursement vouchers;[22]

Respondent was well aware of the agreement that he was hired merely as a liaison or consultant of the petitioner and he agreed to perform tasks for the petitioner on a temporary employment status only. However, respondent anchors his claim that he became a regular employee of the petitioner based on his contention that the "temporary" aspect of his job and its "limited" nature could not have lasted for eleven years unless some time during that period, he became a regular employee of the petitioner by continually performing services for the company.

Contrary to the conclusion of the CA, respondent is not an employee, much more a regular employee of petitioner.  The appellate court's premise that regular employees are those who perform activities which are desirable and necessary for the business of the employer is not determinative in this case.  In fact, any agreement may provide that one party

shall render services for and in behalf of another, no matter how necessary for the latter's business, even without being hired as an employee.[23]  Hence, respondent's length of service and petitioner's repeated act of assigning respondent some tasks to be performed did not result to respondent's entitlement to the rights and privileges of a regular employee.

Furthermore, despite the fact that petitioner made use of the services of respondent for eleven years, he still cannot be considered as a regular employee of petitioner.  Article 280 of the Labor Code, in which the lower court used to buttress its findings that respondent became a regular employee of the petitioner, is not applicable in the case at bar.  Indeed, the Court has ruled that said provision is not the yardstick for determining the existence of an employment relationship because it merely distinguishes between two kinds of employees, i.e., regular employees and casual employees, for purposes of determining the right of an employee to certain benefits, to join or form a union, or to security of tenure; it does not apply where the existence of an employment relationship is in dispute.[24]  It is, therefore, erroneous on the part of the Court of Appeals to rely on Article 280 in determining whether an employer-employee relationship exists between respondent and the petitioner

Considering that there is no employer-employee relationship between the parties, the termination of respondent's services by the petitioner after due notice did not constitute illegal dismissal warranting his reinstatement and the payment of full backwages, allowances and other benefits.

WHEREFORE, premises considered, the petition is GRANTED. The Decision and the Resolution of the Court of Appeals in CA-G.R. SP  No. 87846, are REVERSED and SET ASIDE.  The Resolutions dated July 30, 2004 and September 30, 2004 of the National Labor Relations Commission are REINSTATED.

SO ORDERED.

G.R. No. 170087 August 31, 2006

ANGELINA FRANCISCO, Petitioner, v. 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 cra

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 chanroblesvirtuallawlibary

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 cra

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 chanroblesvirtuallawlibary

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 cra

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 chanroblesvirtuallawlibary

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 chanroblesvirtuallawlibary

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. 12chanroblesvirtuallawlibary

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. 13chanroblesvirtuallawlibary

The Labor Arbiter found that petitioner was illegally dismissed, thus:cra:nad

WHEREFORE, premises considered, judgment is hereby rendered as follows:cra:nad

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:cra:nad

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 cra

On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the dispositive portion of which reads:cra:nad

PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:cra:nad

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 cra

On appeal, the Court of Appeals reversed the NLRC decision, thus:cra:nad

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 cra

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 cra

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. 23chanroblesvirtuallawlibary

The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his continued employment in that line of business. 24 In the United States, the touchstone of economic reality in analyzing possible employment relationships for purposes of the Federal Labor Standards Act is dependency. 25 By analogy, the benchmark of economic reality in analyzing possible employment relationships for purposes of the Labor Code ought to be the economic dependence of the worker on his employer.

By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation because she was under the direct control and supervision of Seiji Kamura, the corporation's Technical Consultant. She reported for work regularly and served in various capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate Secretary, with substantially the same job functions, that is, rendering accounting and tax services to the company and performing functions necessary and desirable for the proper operation of the corporation such as securing business permits and other licenses over an indefinite period of engagement.

Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation because she had served the company for six years before her dismissal, receiving check vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security contributions from August 1, 1999 to December 18, 2000. 26 When petitioner was designated General Manager, respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioner's membership in the SSS as manifested by a copy of the SSS specimen signature card which was signed by the President of Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces the existence of an employer-employee relationship between petitioner and respondent corporation. 27 cra

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 chanroblesvirtuallawlibary

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 cra

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 cra

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal. Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to when continued employment becomes impossible, unreasonable or unlikely; when there is a demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. Florendo-Flores, 36 we ruled that where an employee ceases to work due to a demotion of rank or a diminution of pay, an unreasonable situation arises which creates an adverse working environment rendering it impossible for such employee to continue working for her employer. Hence, her severance from the company was not of her own making and therefore amounted to an illegal termination of employment.

In affording full protection to labor, this Court must ensure equal work opportunities regardless of sex, race or creed. Even as we, in every case, attempt to carefully balance the fragile relationship between employees and employers, we are mindful of the fact that the policy of the law is to apply the Labor Code to a greater number of employees. This would enable employees to avail of the benefits accorded to them by law, in line with the constitutional mandate giving maximum aid and protection to labor, promoting their welfare and reaffirming it as a primary social economic force in furtherance of social justice and national development.

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET ASIDE. The Decision of the National Labor Relations Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The case is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina Francisco's full backwages from the time she was illegally terminated until the date of finality of this decision, and separation pay representing one-half month pay for every year of service, where a fraction of at least six months shall be considered as one whole year.

SO ORDERED.

G.R. No. 138051 : June 10, 2004

JOSE Y. SONZA, Petitioner, v. ABS-CBN BROADCASTING CORPORATION, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

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

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation (ABS-CBN) signed an Agreement (Agreement) with the Mel and Jay Management and Development Corporation (MJMDC).ABS-CBN was represented by its corporate officers while MJMDC was represented by SONZA, as President and General Manager, and Carmela Tiangco (TIANGCO), as EVP and Treasurer. Referred to in the Agreement as AGENT, MJMDC agreed to provide SONZAs services exclusively to ABS-CBN as talent for radio and television.The Agreement listed the services SONZA would render to ABS-CBN, as follows:

a.Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;

b.Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.3

ABS-CBN agreed to pay for SONZAs services a monthly talent fee of P310,000 for the first year and P317,000 for the second and third year of the Agreement.ABS-CBN would pay the talent fees on the 10th and 25th days of the month.

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

Dear Mr. Lopez,

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

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

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

Thank you for your attention.

Very truly yours,

(Sgd.)

JOSE Y. SONZA

President and Gen. Manager4

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

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

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

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

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

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

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

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

x x x

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

It must be noted that complainant was engaged by respondent by reason of his peculiar skills and talent as a TV host and a radio broadcaster.Unlike an ordinary employee, he was free to perform the services he undertook to render in accordance with his own style.The benefits conferred to complainant under the May 1994 Agreement are certainly very much higher than those generally given to employees.For one, complainant Sonzas monthly talent fees amount to a staggering P317,000.Moreover, his engagement as a talent was covered by a specific contract.Likewise, he was not bound to render eight (8) hours of work per day as he worked only for such number of hours as may be necessary.

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

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

x x x (Emphasis supplied)7

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

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

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

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

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

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

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

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

It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to the regular courts, the same being in the nature of an action for alleged breach of contractual obligation on the part of respondent-appellee.As squarely apparent from complainant-appellants Position Paper, his claims for compensation for services, 13th month pay, signing bonus and travel allowance against respondent-appellee are not based on the Labor Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds under Stock Purchase Agreement are based on the latter.A portion of the Position Paper of complainant-appellant bears perusal:

Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually bound itself to pay complainant a signing bonus consisting of shares of stockswith FIVE HUNDRED THOUSAND PESOS (P500,000.00).

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

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a commutable travel benefit amounting to at least One Hundred Fifty Thousand Pesos (P150,000.00) per year.

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

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

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

The Issue

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

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRCS DECISION AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEEN SONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING.14

The Courts Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming the NLRC ruling which upheld the Labor Arbiters dismissal of the case for lack of jurisdiction.

The present controversy is one of first impression.Although Philippine labor laws and jurisprudence define clearly the elements of an employer-employee relationship, this is the first time that the Court will resolve the nature of the relationship between a television and radio station and one of its talents.There is no case law stating that a radio and television program host is an employee of the broadcast station.

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

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

Employee or Independent Contractor?

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

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

A.Selection and Engagement of Employee

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

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

SONZA but would have hired him through its personnel department just like any other employee.

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

B.Payment of Wages

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

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the Agreement. If SONZA were ABS-CBNs employee, there would be no need for the parties to stipulate on benefits such as SSS, Medicare, x x x and 13th month pay20 which the law automatically incorporates into every employer-employee contract.21Whatever benefits SONZA enjoyed arose from contract and not because of an employer-employee relationship.22

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

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

C.Power of Dismissal

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

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

independent contractual relationship between SONZA and ABS-CBN.

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

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

D.Power of Control

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

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

Third, WIPR could not assign Alberty work in addition to filming Desde Mi Pueblo.Albertys contracts with WIPR specifically provided that WIPR hired her professional

services as Hostess for the Program Desde Mi Pueblo.There is no evidence that WIPR assigned Alberty tasks in addition to work related to these tapings.x x x28 (Emphasis supplied)

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

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

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

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

SONZA claims that ABS-CBNs power not to broadcast his shows proves ABS-CBNs power over the means and methods of the performance of his work.Although ABS-CBN did have the option not to broadcast SONZAs show, ABS-CBN was still obligated to pay SONZAs talent fees.

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

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

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

A radio broadcast specialist who works under minimal supervision is an independent contractor.40 SONZAs work as television and radio program host required special skills and talent, which SONZA admittedly possesses.The records do not show that ABS-CBN exercised any supervision and control over how SONZA utilized his skills and talent in his shows.

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

The Agreement stipulates that SONZA shall abide with the rules and standards of performance covering talents41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules and standards of performance prescribed for employees of ABS-CBN.The code of conduct imposed on SONZA under the Agreement refers to the Television and Radio Code of the Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code of Ethics.42 The KBP code applies to broadcasters, not to employees of radio and television stations.Broadcasters are not necessarily employees of radio and television stations.Clearly, the rules and standards of performance referred to in the Agreement are those applicable to talents and not to employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an employee of the former.43 In this case, SONZA failed to show that these rules controlled his performance. We find that these general rules are merely guidelines towards the achievement of the mutually desired result, which are top-rating television and radio programs that comply with standards of the industry.We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party in relation to the

services being rendered may be accorded the effect of establishing an employer-employee relationship. The facts of this case fall squarely with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we held that:

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

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

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

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

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

MJMDC as Agent of SONZA

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

In a labor-only contract, there are three parties involved:(1) the labor-only contractor; (2) the employee who is ostensibly under the employ of the labor-only contractor; and (3) the principal who is deemed the real employer.Under this scheme, the labor-only contractor is the agent of the principal.The law makes the principal responsible to the employees of the labor-only contractor as if the principal itself directly hired or employed the employees.48 These circumstances are not present in this case.

There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-CBN. MJMDC merely acted as SONZAs agent.The Agreement expressly states that MJMDC acted as the AGENT of SONZA. The records do not show that MJMDC acted as ABS-CBNs agent.MJMDC, which stands for Mel and Jay Management and Development Corporation, is a corporation organized and owned by SONZA and TIANGCO.The President and General Manager of MJMDC is SONZA himself.It is absurd to hold that MJMDC, which is owned, controlled, headed and managed by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, who himself is represented by MJMDC.That would make MJMDC the agent of both ABS-CBN and SONZA.

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

Policy Instruction No. 40

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

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

Affidavits of ABS-CBNs Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando Cruz without giving his counsel the opportunity to cross-examine these witnesses.SONZA brands these witnesses as incompetent to attest on the prevailing practice in the radio and television industry.SONZA views the affidavits of these witnesses as misleading and irrelevant.

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

Section 3.Submission of Position Papers/Memorandum

x x x

These verified position papers shall cover only those claims and causes of action raised in the complaint excluding those

that may have been amicably settled, and shall be accompanied by all supporting documents including the affidavits of their respective witnesses which shall take the place of the latters direct testimony.x x x

Section 4.Determination of Necessity of Hearing. Immediately after the submission of the parties of their position papers/memorandum, the Labor Arbiter shall motu propio determine whether there is need for a formal trial or hearing.At this stage, he may, at his discretion and for the purpose of making such determination, ask clarificatory questions to further elicit facts or information, including but not limited to the subpoena of relevant documentary evidence, if any from any party or witness.50

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

Talents as Independent Contractors

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

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

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

Different Tax Treatment of Talents and Broadcasters

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

Nature of SONZAs Claims

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

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

SO ORDERED.

G.R. No. 164652 June 8, 2007

THELMA DUMPIT-MURILLO vs COURT OF APPEALS, ASSOCIATED BROADCASTING COMPANY, JOSE JAVIER AND EDWARD TAN,

DECISION

QUISUMBING, J.:

This petition seeks to reverse and set aside both the Decisionhttp://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn2 dated January 30, 2004 of the Court of Appeals in CA-G.R. SP No. 63125 and its Resolutionhttp://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn3 dated June 23, 2004 denying the motion for reconsideration. The Court of Appeals had overturned the Resolutionhttp://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn4 dated August 30, 2000 of the National Labor Relations Commission (NLRC) ruling that petitioner was illegally dismissed.

The facts of the case are as follows:

On October 2, 1995, under Talent Contract No. NT95-1805,http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn5 private respondent Associated Broadcasting Company (ABC) hired petitioner Thelma

Dumpit-Murillo as a newscaster and co-anchor for Balitang-Balita, an early evening news program.  The contract was for a period of three months.  It was renewed under Talent Contracts Nos. NT95-1915, NT96-3002, NT98-4984 and NT99-5649.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn6  In addition, petitioner’s services were engaged for the program “Live on Five.”  On September 30, 1999, after four years of repeated renewals, petitioner’s talent contract expired.  Two weeks after the expiration of the last contract, petitioner sent a letter to Mr. Jose Javier, Vice President for News and Public Affairs of ABC, informing the latter that she was still interested in renewing her contract subject to a salary increase. Thereafter, petitioner stopped reporting for work.  On November 5, 1999, she wrote Mr. Javier another letter,http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn7 which we quote verbatim:

x x x x

Dear Mr. Javier:

On October 20, 1999, I wrote you a letter in answer to your query by way of a marginal note “what terms and conditions” in response to my first letter dated October 13, 1999. To date, or for more than fifteen (15) days since then, I have not received any formal written reply. xxx

In view hereof, should I not receive any formal response from you until Monday, November 8, 1999, I will deem it as a constructive dismissal of my services.

x x x x

A month later, petitioner sent a demand letterhttp://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn8 to ABC, demanding:  (a) reinstatement to her former position; (b) payment of unpaid wages for services rendered from September 1 to October 20, 1999 and full backwages; (c) payment of 13th month pay, vacation/sick/service incentive leaves and other monetary benefits due to a regular employee starting March 31, 1996. ABC replied that a check covering petitioner’s talent fees for September 16 to October 20, 1999 had been processed and prepared, but that the other claims of petitioner had no basis in fact or in law.

On December 20, 1999, petitioner filed a complainthttp://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn9 against ABC, Mr. Javier and Mr. Edward Tan, for illegal constructive dismissal, nonpayment of salaries, overtime pay, premium pay, separation pay, holiday pay, service incentive leave pay, vacation/sick leaves and 13th

month pay in NLRC-NCR Case No. 30-12-00985-99.  She likewise demanded payment for moral, exemplary and actual damages, as well as for attorney’s fees.

The parties agreed to submit the case for resolution after settlement failed during the mandatory conference/conciliation.  On March 29, 2000, the Labor Arbiter dismissed the

complaint.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn10

On appeal, the NLRC reversed the Labor Arbiter in a Resolution dated August 30, 2000.  The NLRC held that an employer-employee relationship existed between petitioner and ABC; that the subject talent contract was void; that the petitioner was a regular employee illegally dismissed; and that she was entitled to reinstatement and backwages or separation pay, aside from 13th month pay and service incentive leave pay, moral and exemplary damages and attorney’s fees.  It held as follows:

WHEREFORE, the Decision of the Arbiter dated 29 March 2000 is hereby REVERSED/SET ASIDE and a NEW ONE promulgated:

declaring respondents to have illegally dismissed complainant from her regular work therein and thus, ordering them to reinstate her in her former position without loss of seniority right[s] and other privileges and to pay her full backwages, inclusive of allowances and other benefits, including 13th month pay based on her said latest rate of P28,000.00/mo. from the date of her illegal dismissal on 21 October 1999 up to finality hereof, or at complainant’s option, to pay her separation pay of one (1) month pay per year of service based on said latest monthly rate, reckoned from date of hire on 30 September 1995 until finality hereof;

to pay complainant’s accrued SILP [Service Incentive Leave Pay] of 5 days pay per year and 13th month pay for the years 1999, 1998 and 1997 of P19,236.00 and P84,000.00, respectively and her accrued salary from 16 September 1999 to 20 October 1999 of P32,760.00 plus legal interest at 12% from date of judicial demand on 20 December 1999 until finality hereof;

to pay complainant moral damages of P500,000.00, exemplary damages of P350,000.00 and 10% of the total of the adjudged monetary awards as attorney’s fees.

            Other monetary claims of complainant are dismissed for lack of merit.

            SO ORDERED.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn11

After its motion for reconsideration was denied, ABC elevated the case to the Court of Appeals in a petition for certiorari under Rule 65.  The petition was first dismissed for failure to attach particular documents,http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn12 but was reinstated on grounds of

the higher interest of justice.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn13

Thereafter, the appellate court ruled that the NLRC committed grave abuse of discretion, and reversed the decision of the NLRC.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn14  The appellate court reasoned that petitioner should not be allowed to renege from the stipulations she had voluntarily and knowingly executed by invoking the security of tenure under the Labor Code. According to the appellate court, petitioner was a fixed-term employee and not a regular employee within the ambit of Article 280http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn15 of the Labor Code because her job, as anticipated and agreed upon, was only for a specified time.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn16

Aggrieved, petitioner now comes to this Court on a petition for review, raising issues as follows:

I.

THIS HONORABLE COURT CAN REVIEW THE FINDINGS OF THE HONORABLE COURT OF APPEALS, THE DECISION OF WHICH IS NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT[;]

II.

THE PRO-FORMA TALENT CONTRACTS, AS CORRECTLY FOUND BY THE NLRC – FIRST DIVISION, ARE “ANTI-REGULARIZATION DEVICES” WHICH MUST BE STRUCK DOWN FOR REASONS OF PUBLIC POLICY[;]III.

BY REASON OF THE CONTINUOUS AND SUCCESSIVE RENEWALS OF THE THREE-MONTH TALENT CONTRACTS, AN EMPLOYER-EMPLOYEE RELATIONSHIP WAS CREATED AS PROVIDED FOR UNDER ARTICLE 280 OF THE LABOR CODE[;]

IV.

BY THE CONSTRUCTIVE DISMISSAL OF HEREIN PETITIONER, AS A REGULAR EMPLOYEE, THERE WAS A DENIAL OF PETITIONER’S RIGHT TO DUE PROCESS THUS ENTITLING HER TO THE MONEY CLAIMS AS STATED IN THE COMPLAINT[.]http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn17

The issues for our disposition are: (1) whether or not this Court can review the findings of the Court of Appeals; and (2) whether or not under Rule 45 of the Rules of Court the Court of Appeals committed a reversible error in its Decision.

On the first issue, private respondents contend that the issues raised in the instant petition are mainly factual and that there is no showing that the said issues have been resolved arbitrarily and without basis. They add that the findings of the Court of Appeals are supported by overwhelming wealth of evidence on record as well as prevailing jurisprudence on the matter.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn18

Petitioner however contends that this Court can review the findings of the Court of Appeals, since the appellate court erred in deciding a question of substance in a way which is not in accord with law or with applicable decisions of this Court.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn19

We agree with petitioner. Decisions, final orders or resolutions of the Court of Appeals in any case — regardless of the nature of the action or proceeding involved — may be appealed to this Court through a petition for review.  This remedy is a continuation of the appellate process over the original case,http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn20 and considering there is no congruence in the findings of the NLRC and the Court of Appeals regarding the status of employment of petitioner, an exception to the general rule that this Court is bound by the findings of facts of the appellate court,http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn21 we can review such findings.

On the second issue, private respondents contend that the Court of Appeals did not err when it upheld the validity of the talent contracts voluntarily entered into by petitioner. It further stated that prevailing jurisprudence has recognized and sustained the absence of employer-employee relationship between a talent and the media entity which engaged the talent’s services on a per talent contract basis, citing the case of Sonza v. ABS-CBN Broadcasting Corporation.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn22

Petitioner avers however that an employer-employee relationship was created when the private respondents started to merely renew the contracts repeatedly fifteen times or for four consecutive years.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn23

Again, we agree with petitioner. The Court of Appeals committed reversible error when it held that petitioner was a fixed-term employee. Petitioner was a regular employee under contemplation of law. The practice of having fixed-term contracts in the industry does not automatically make all talent contracts valid and compliant with labor law. The assertion that a talent contract exists does not necessarily

prevent a regular employment status.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn24

Further, the Sonza case is not applicable. In Sonza, the television station did not instruct Sonza how to perform his job. How Sonza delivered his lines, appeared on television, and sounded on radio were outside the television station’s control. Sonza had a free hand on what to say or discuss in his shows provided he did not attack the television station or its interests. Clearly, the television station did not exercise control over the means and methods of the performance of Sonza’s work.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn25  In the case at bar, ABC had control over the performance of petitioner’s work. Noteworthy too, is the comparatively low P28,000 monthly pay of petitionerhttp://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn26 vis the P300,000 a month salary of Sonza,http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn27 that all the more bolsters the conclusion that petitioner was not in the same situation as Sonza.

The contract of employment of petitioner with ABC had the following stipulations:

x x x x

1. SCOPE OF SERVICES – TALENT agrees to devote his/her talent, time, attention and best efforts in the performance of his/her duties and responsibilities as Anchor/Program Host/Newscaster of the Program, in accordance with the direction of ABC and/or its authorized representatives.

 1.1.   DUTIES AND

RESPONSIBILITIES – TALENT shall:

 Render his/her services as a

newscaster on the Program;Be involved in news-gathering

operations by conducting interviews on- and off-the-air;

Participate in live remote coverages when called upon;

Be available for any other news assignment, such as writing, research or camera work;

Attend production meetings;On assigned days, be at the

studios at least one (1) hour before the live telecasts;

Be present promptly at the studios and/or other place of assignment at the time designated by ABC;

Keep abreast of the news;Give his/her full cooperation to

ABC and its duly authorized representatives in the

production and promotion of the Program; and

Perform such other functions as may be assigned to him/her from time to time.

x x x x

            1.3 COMPLIANCE WITH STANDARDS, INSTRUCTIONS AND OTHER RULES AND REGULATIONS – TALENT agrees that he/she will promptly and faithfully comply with the requests and instructions, as well as the program standards, policies, rules and regulations of ABC, the KBP and the government or any of its agencies and instrumentalities.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn28

x x x x

          In Manila Water Company, Inc. v. Pena,http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn29 we said that 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 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.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn30

The duties of petitioner as enumerated in her employment contract indicate that ABC had control over the work of petitioner.  Aside from control, ABC also dictated the work assignments and payment of petitioner’s wages. ABC also had power to dismiss her.  All these being present, clearly, there existed an employment relationship between petitioner and ABC.

Concerning regular employment, the law provides for two kinds of employees, namely:  (1) those who are engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer; and (2) those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn31  In other words, regular status arises from either the nature of work of the employee or the duration of his employment.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn32  In Benares v. Pancho,http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn33 we very succinctly said:

…[T]he primary standard for determining regular employment is the reasonable

connection between the particular activity performed by the employee vis-à-vis the usual trade or business of the employer. This connection can be determined by considering the nature of the work performed and its relation to the scheme of the particular business or trade in its entirety.  If the employee has been performing the job for at least a year, even if the performance is not continuous and merely intermittent, the law deems repeated and continuing need for its performance as sufficient evidence of the necessity if not indispensability of that activity to the business.  Hence, the employment is considered regular, but only with respect to such activity and while such activity exists.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn34

In our view, the requisites for regularity of employment have been met in the instant case.  Gleaned from the description of the scope of services aforementioned, petitioner’s work was necessary or desirable in the usual business or trade of the employer which includes, as a pre-condition for its enfranchisement, its participation in the government’s news and public information dissemination.  In addition, her work was continuous for a period of four years.  This repeated engagement under contract of hire is indicative of the necessity and desirability of the petitioner’s work in private respondent ABC’s business.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn35

The contention of the appellate court that the contract was characterized by a valid fixed-period employment is untenable.  For such contract to be valid, it should be shown that the fixed period was knowingly and voluntarily agreed upon by the parties.  There should have been no force, duress or improper pressure brought to bear upon the employee; neither should there be any other circumstance that vitiates the employee’s consent.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn36  It should satisfactorily appear that the employer and the employee dealt with each other on more or less equal terms with no moral dominance being exercised by the employer over the employee.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn37  Moreover, fixed-term employment will not be considered valid where, from the circumstances, it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn38

In the case at bar, it does not appear that the employer and employee dealt with each other on equal terms. Understandably, the petitioner could not object to the terms of her employment contract because she did not want to lose the job that she loved and the workplace that she had grown accustomed to,http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn39 which is exactly what happened when she finally manifested her intention to negotiate.  Being one of the

numerous newscasters/broadcasters of ABC and desiring to keep her job as a broadcasting practitioner, petitioner was left with no choice but to affix her signature of conformity on each renewal of her contract as already prepared by private respondents; otherwise, private respondents would have simply refused to renew her contract.  Patently, the petitioner occupied a position of weakness vis-à-vis the employer.  Moreover, private respondents’ practice of repeatedly extending petitioner’s 3-month contract for four years is a circumvention of the acquisition of regular status.  Hence, there was no valid fixed-term employment between petitioner and private respondents.

While this Court has recognized the validity of fixed-term employment contracts in a number of cases, it has consistently emphasized that when the circumstances of a case show that the periods were imposed to block the acquisition of security of tenure, they should be struck down for being contrary to law, morals, good customs, public order or public policy.http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/164652.htm - _ftn40    

As a regular employee, petitioner is entitled to security of tenure and can be dismissed only for just cause and after due compliance with procedural due process.  Since private respondents did not observe due process in constructively dismissing the petitioner, we hold that there was an illegal dismissal.

WHEREFORE, the challenged Decision dated January 30, 2004 and Resolution dated June 23, 2004 of the Court of Appeals in CA-G.R. SP No. 63125, which held that the petitioner was a fixed-term employee, are REVERSED and SET ASIDE.  The NLRC decision is AFFIRMED.

Costs against private respondents.

SO ORDERED.

G.R. No. 111870 June 30, 1994

AIR MATERIAL WING SAVINGS AND LOAN ASSOCIATION, INC., petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, et al., respondents.

Jerry D. Banares for petitioner.

Perdrelito Q. Aquino for private respondent.

CRUZ, J.:

Private respondent Luis S. Salas was appointed "notarial and legal counsel" for petitioner Air Material Wings Savings and Loan Association (AMWSLAI) in 1980. The appointment was renewed for three years in an implementing order dated January 23, 1987, reading as follows:

SUBJECT: Implementing Order on the Reappointment of the Legal Officer

TO: ATTY. LUIS S. SALAS

Per approval of the Board en banc in a regular meeting held on January 21, 1987, you are hereby reappointed as Notarial and Legal Counsel of this association for a term of three (3) years effective March 1, 1987, unless sooner terminated from office for cause or as may be deemed necessary by the Board for the interest and protection of the association.

Aside from notarization of loan & other legal documents, your duties and responsibilities are hereby enumerated in the attached sheet, per Articles IX, Section 1-d of the by-laws and those approved by the Board en banc.

Your monthly compensation/retainer's fee remains the same.This shall form part of your 201 file.

BY AUTHORITY OF THE BOARD:LUVIN S. MANAYPresident & Chief of the Board

On January 9, 1990, the petitioner issued another order reminding Salas of the approaching termination of his legal services under their contract. This prompted Salas to lodge a complaint against AMWSLAI for separation pay, vacation and sick leave benefits, cost of living allowances, refund of SSS premiums, moral and exemplary damages, payment of notarial services rendered from February 1, 1980 to March 2, 1990, and attorney's fees.

Instead of filing an answer, AMWSLAI moved to dismiss for lack of jurisdiction. It averred that there was no employer-employee relationship between it and Salas and that his monetary claims properly fell within the jurisdiction of the regular courts. Salas opposed the motion and presented documentary evidence to show that he was indeed an employee of AMWSLAI.

The motion was denied and both parties were required to submit their position papers. AMWSLAI filed a motion for reconsideration ad cautelam, which was also denied. The parties were again ordered to submit their position papers but AMWSLAI did not comply. Nevertheless, most of Salas' claims were dismissed by the labor arbiter in his decision dated November 21, 1991. 1

It was there held that Salas was not illegally dismissed and so not entitled to collect separation benefits. His claims for vacation leave, sick leave, medical and dental allowances and refund of SSS premiums were rejected on the ground that he was a managerial employee. He was also denied moral and exemplary damages for lack of evidence of bad faith on the part of AMWSLAI. Neither was he allowed to collect his notarial fees from 1980 up to 1986 because the claim therefor had already prescribed. However, the petitioner was ordered to pay Salas his notarial fees from 1987 up to March 2, 1990, and attorney's fee equivalent to 10% of the judgment award.

On appeal, the decision was affirmed in toto by the respondent Commission, prompting the petitioner to seek relief in this Court. 2

The threshold issue in this case is whether or not Salas can be considered an employee of the petitioner company.

We have held in a long line of decisions that the elements of an employer-employee relationship are: (1) selection and

engagement of the employee; (2) payment of wages; (3) power of dismissal; and (4) employer's own power to control employee's conduct. 3

The existence of such a relationship is essentially a factual question. The findings of the NLRC on this matter are accorded great respect and even finality when the same are supported by substantial evidence. 4

The terms and conditions set out in the letter-contract entered into by the parties on January 23, 1987, clearly show that Salas was an employee of the petitioner. His selection as the company counsel was done by the board of directors in one of its regular meetings. The petitioner paid him a monthly compensation/retainer's fee for his services.

Though his appointment was for a fixed term of three years, the petitioner reserved its power of dismissal for cause or as it might deem necessary for its interest and protection. No less importantly, AMWSLAI also exercised its power of control over Salas by defining his duties and functions as its legal counsel, to wit:1. To act on all legal matters pertinent to his Office.2. To seek remedies to effect collection of overdue accounts of members without prejudice to initiating court action to protect the interest of the association.3. To defend by all means all suit against the interest of the Association. 5

In the earlier case of Hydro Resources Contractors Corp. v.Pagalilauan, 6 this Court observed that:A lawyer, like any other professional, may very well be an employee of a private corporation or even of the government. It is not unusual for a big corporation to hire a staff of lawyers as its in-house counsel, pay them regular salaries, rank them in its table of organization, and otherwise treat them like its other officers and employees.

At the same time, it may also contract with a law firm to act as outside counsel on a retainer basis. The two classes of lawyers often work closely together but one group is made up of employees while the other is not. A similar arrangement may exist as to doctors, nurses, dentists, public relations practitioners and other professionals.

We hold, therefore, that the public respondent committed no grave abuse of discretion in ruling that an employer-employee relationship existed between the petitioner and the private respondent.

We must disagree with the NLRC, however, on Salas' claims for notarial fees.

The petitioner contends that the public respondents are not empowered to adjudicate claims for notarial fees. On the other hand, the Solicitor General believes that the NLRC acted correctly when it took cognizance of the claim because it arose out of Salas' employment contract with the petitioner which assigned him the duty to notarize loan agreements and other legal documents. Moreover, Section 9 of Rule 141 of the Rules of Court does not restrict or prevent the labor arbiter and the NLRC from determining claims for notarial fees.

Labor arbiters have the original and exclusive jurisdiction over money claims of workers when such claims have some

reasonable connection with the employer-employee relationship. The money claims of workers referred to in paragraph 3 of Article 217 of the Labor Code are those arising out of or in connection with the employer-employee relationship or some aspect or incident of such relationship.Salas' claim for notarial fees is based on his employment as a notarial officer of the petitioner and thus comes under the jurisdiction of the labor arbiter.

The public respondents agreed that Salas was entitled to collect notarial fees from 1987 to 1990 by virtue of his having been assigned as notarial officer. We feel, however, that there is no substantial evidence to support this finding.The letter-contract of January 23, 1987, does not contain any stipulation for the separate payment of notarial fees to Salas in addition to his basic salary. On the contrary, it would appear that his notarial services were part of his regular functions and were thus already covered by his monthly compensation. It is true that the notarial fees were paid by members-borrowers of the petitioner for its own account and not of Salas. However, this is not a sufficient basis for his claim to such fees in the absence of any agreement to that effect.

ACCORDINGLY, the appealed judgment of the NLRC is AFFIRMED, with the modification that the award of notarial fees and attorney's fees is disallowed. It is so ordered.Davide, Jr., Bellosillo, Quiason and Kapunan, JJ., concur.

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.

[G.R. No. 187320, January 26, 2011]

ATLANTA INDUSTRIES, INC. AND/OR ROBERT CHAN, PETITIONERS, VS. APRILITO R.

SEBOLINO, KHIM V. COSTALES, ALVIN V. ALMOITE, AND JOSEPH S. SAGUN,

RESPONDENTS.

D E C I S I O N

BRION, J.:

For resolution is the petition for review on certiorari[1] assailing the decision[2] and the resolution[3] of the Court of Appeals (CA) rendered on November 4, 2008 and March 25, 2009, respectively, in CA-G.R. SP. No. 99340.[4]

The Antecedents

The facts are summarized below.

In the months of February and March 2005, complainants Aprilito R. Sebolino, Khim V. Costales, Alvin V. Almoite, Joseph S. Sagun, Agosto D. Zaño, Domingo S. Alegria, Jr., Ronie Ramos, Edgar Villagomez, Melvin Pedregoza, Teofanes B. Chiong, Jr., Leonardo L. dela Cruz, Arnold A. Magalang, and Saturnino M. Mabanag filed several complaints for illegal dismissal, regularization, underpayment, nonpayment of wages and other money claims, as well as claims for moral and exemplary damages and attorney's fees against the petitioners Atlanta Industries, Inc. (Atlanta) and its President and Chief Operating Officer Robert Chan. Atlanta is a domestic corporation engaged in the manufacture of steel pipes.

The complaints were consolidated and were raffled to Labor Arbiter Daniel Cajilig, but were later transferred to Labor Arbiter Dominador B. Medroso, Jr.

The complainants alleged that they had attained regular status as they were allowed to work with Atlanta for more than six (6) months from the start of a purported apprenticeship agreement between them and the company. They claimed that they were illegally dismissed when the apprenticeship agreement expired.

In defense, Atlanta and Chan argued that the workers were not entitled to regularization and to their money claims because they were engaged as apprentices under a government-approved apprenticeship program. The company offered to hire them as regular employees in the event vacancies for regular positions occur in the section of the plant where they had trained. They also claimed that their names did not appear in the list of employees (Master List)[5] prior to their engagement as apprentices.

On May 24, 2005, dela Cruz, Magalang, Zaño and Chiong executed a Pagtalikod at Pagwawalang Saysay before Labor Arbiter Cajilig.

The Compulsory Arbitration Rulings

On April 24, 2006, Labor Arbiter Medroso dismissed the complaint with respect to dela Cruz, Magalang, Zaño and Chiong, but found the termination of service of the remaining nine to be illegal.[6] Consequently, the arbiter awarded the dismissed workers backwages, wage differentials, holiday pay and service incentive leave pay amounting to P1,389,044.57 in the aggregate.

Atlanta appealed to the National Labor Relations Commission (NLRC). In the meantime, or on October 10, 2006, Ramos, Alegria, Villagomez, Costales and Almoite

allegedly entered into a compromise agreement with Atlanta.[7] The agreement provided that except for Ramos, Atlanta agreed to pay the workers a specified amount as settlement, and to acknowledge them at the same time as regular employees.

On December 29, 2006,[8] the NLRC rendered a decision, on appeal, modifying the ruling of the labor arbiter, as follows: (1) withdrawing the illegal dismissal finding with respect to Sagun, Mabanag, Sebolino and Pedregoza; (2) affirming the dismissal of the complaints of dela Cruz, Zaño, Magalang and Chiong; (3) approving the compromise agreement entered into by Costales, Ramos, Villagomez, Almoite and Alegria, and (4) denying all other claims.

Sebolino, Costales, Almoite and Sagun  moved for the reconsideration of the decision, but the NLRC denied the motion in its March 30, 2007[9] resolution. The four then sought relief from the CA through a petition for certiorari under Rule 65 of the Rules of Court. They charged that the NLRC committed grave abuse of discretion in: (1) failing to recognize their prior employment with Atlanta; (2) declaring the second apprenticeship agreement valid; (3) holding that the dismissal of Sagun, Mabanag, Sebolino and Melvin Pedregoza is legal; and (4) upholding the compromise agreement involving Costales, Ramos, Villagomez, Almoite and Alegria.

The CA Decision

The CA granted the petition based on the following findings:[10]

1. The respondents were already employees of the company before they entered into the first and second apprenticeship agreements - Almoite and Costales were employed as early as December 2003 and, subsequently, entered into a first apprenticeship agreement from May 13, 2004 to October 12, 2004; before this first agreement expired, a second apprenticeship agreement, from October 9, 2004 to March 8, 2005 was executed. The same is true with Sebolino and Sagun, who were employed by Atlanta as early as March 3, 2004. Sebolino entered into his first apprenticeship agreement with the company from March 20, 2004 to August 19, 2004, and his second apprenticeship agreement from August 20, 2004 to January 19, 2005. Sagun, on the other hand, entered into his first agreement from May 28, 2004 to October 8, 2004, and the second agreement from October 9, 2004 to March 8, 2005.

2. The first and second apprenticeship agreements were defective as they were executed in violation of the law and the rules.[11] The agreements did not indicate the trade or occupation in which the apprentice would be trained; neither was the apprenticeship program approved by the Technical Education and Skills Development Authority (TESDA).

3. The positions occupied by the respondents - machine operator, extruder operator and scaleman - are usually necessary and desirable in the manufacture of plastic building materials, the company's main business. Costales, Almoite, Sebolino and Sagun were, therefore, regular employees whose dismissals were illegal for lack of a just or authorized cause and notice.

4. The compromise agreement entered into by Costales and

Almoite, together with Ramos, Villagomez and Alegria, was not binding on Costales and Almoite because they did not sign the agreement.

The petitioners themselves admitted that Costales and Almoite were initially planned to be a part of the compromise agreement, but their employment has been regularized as early as January 11, 2006; hence, the company did not pursue their inclusion in the compromise agreement.[12]

The CA faulted the NLRC for failing to appreciate the evidence regarding the respondents' prior employment with Atlanta. The NLRC recognized the prior employment of Costales and Almoite on Atlanta's monthly report for December 2003 for the CPS Department/Section dated January 6, 2004.[13] This record shows that Costales and Almoite were assigned to the company's first shift from 7:00 a.m. to 3:00 p.m. The NLRC ignored Sebolino and Sagun's prior employment under the company's Production and Work Schedule for March 7 to 12, 2005 dated March 3, 2004,[14]  as they had been Atlanta's employees as early as March 3, 2004, with Sebolino scheduled to work on March 7-12, 2005 at 7:00 a.m. to 7:00 p.m., while Sagun was scheduled to work for the same period but from 7:00 p.m. to 7:00 a.m. The CA noted that Atlanta failed to challenge the authenticity of the two documents before it and the labor authorities.

Atlanta and Chan moved for reconsideration, but the CA denied the motion in a resolution rendered on March 25, 2009.[15] Hence, the present petition.

The Petition

Atlanta seeks a reversal of the CA decision, contending that the appellate court erred in (1) concluding that Costales, Almoite, Sebolino and Sagun were employed by Atlanta before they were engaged as apprentices; (2) ruling that a second apprenticeship agreement is invalid; (3) declaring that the respondents were illegally dismissed; and (4) disregarding the compromise agreement executed by Costales and Almoite. It submits the following arguments:

First. The CA's conclusion that the respondent workers were company employees before they were engaged as apprentices was primarily based on the Monthly Report[16] and the Production and Work Schedule for March 7-12, 2005,[17] in total disregard of the Master List[18] prepared by the company accountant, Emelita M. Bernardo. The names of Costales, Almoite, Sebolino and Sagun do not appear as employees in the Master List which "contained the names of all the persons who were employed by and at petitioner."[19]

Atlanta faults the CA for relying on the Production and Work Schedule and the Monthly Report which were not sworn to, and in disregarding the Master List whose veracity was sworn to by Bernardo and by Alex Go who headed the company's accounting division. It maintains that the CA should have given more credence to the Master List.

Second. In declaring invalid the apprenticeship agreements it entered into with the respondent workers, the CA failed to recognize the rationale behind the law on apprenticeship. It submits that under the law,[20] apprenticeship agreements are valid, provided they do not exceed six (6) months and the

apprentices are paid the appropriate wages of at least 75% of the applicable minimum wage.

The respondents initially executed a five-month apprenticeship program with Atlanta, at the end of which, they "voluntarily and willingly entered into another apprenticeship agreement with the petitioner for the training of a second skill"[21] for five months; thus, the petitioners committed no violation of the apprenticeship period laid down by the law.

Further, the apprenticeship agreements, entered into by the parties, complied with the requisites under Article 62 of the Labor Code; the company's authorized representative and the respondents signed the agreements and these were ratified by the company's apprenticeship committee. The apprenticeship program itself was approved and certified by the TESDA.[22] The CA, thus, erred in overturning the NLRC's finding that the apprenticeship agreements were valid.

Third. There was no illegal dismissal as the respondent workers' tenure ended with the expiration of the apprenticeship agreement they entered into. There was, therefore, no regular employer-employee relationship between Atlanta and the respondent workers.

The Case for Costales, Almoite, Sebolino and Sagun

In a Comment filed on August 6, 2009,[23] Costales, Almoite, Sebolino and Sagun pray for a denial of the petition for being procedurally defective and for lack of merit.

The respondent workers contend that the petition failed to comply with Section 4, Rule 45 of the Rules of Court which requires that the petition be accompanied by supporting material portions of the records. The petitioners failed to attach to the petition a copy of the Production and Work Schedule despite their submission that the CA relied heavily on the document in finding the respondent workers' prior employment with Atlanta. They also did not attach a copy of the compromise agreement purportedly executed by Costales and Almoite. For this reason, the respondent workers submit that the petition should be dismissed.

The respondents posit that the CA committed no error in holding that they were already Atlanta's employees before they were engaged as apprentices, as confirmed by the company's Production and Work Schedule.[24] They maintain that the Production and Work Schedule meets the requirement of substantial evidence as the petitioners failed to question its authenticity. They  point out that the schedule was prepared by Rose A. Quirit and approved by Adolfo R. Lope, head of the company's PE/Spiral Section. They argue that it was highly unlikely that the head of a production section of the company would prepare and assign work to the complainants if the latter had not been company employees.

The respondent workers reiterate their mistrust of the Master List[25] as evidence that they were not employees of the company at the time they became apprentices. They label the Master List as "self-serving, dubious and even if considered as authentic, its content contradicts a lot of petitioner's claim and allegations,"[26] thus -

1. Aside from the fact that the Master List is not legible, it contains only the names of inactive employees. Even those found by the NLRC to have been employed in the company (such as Almoite, Costales and Sagun) do not appear in the list. If Costales and Almoite had been employed with Atlanta since January 11, 2006, as the company claimed,[27] their names would have been in the list, considering that the Master List accounts for all employees "as of May 2006" - the notation carried on top of each page of the document.

2. There were no entries of employees hired or resigned in the years 2005 and 2006 despite the "as of May 2006" notation; several pages making up the Master List contain names of employees for the years 1999 - 2004.

3. The fact that Atlanta presented the purported Master List instead of the payroll raised serious doubts on the authenticity of the list.

In sum, the respondent workers posit that the presentation of the Master List revealed the "intention of the herein petitioner[s] to perpetually hide the fact of [their] prior employment."[28]

On the supposed apprenticeship agreements they entered into, Costales, Almoite, Sebolino and Sagun refuse to accept the agreements' validity, contending that the company's apprenticeship program is merely a ploy "to continually deprive [them] of their rightful wages and benefits which are due them as regular employees."[29] They submit the following "indubitable facts and ratiocinations:"[30]

1. The apprenticeship agreements were submitted to TESDA only in 2005 (with dates of receipt on "1/4/05" & "2/22/05"[31]), when the agreements were supposed to have been executed in April or May 2004. Thus, the submission was made long after the starting date of the workers' apprenticeship or even beyond the agreement's completion/termination date, in violation of Section 23, Rule VI, Book II of the Labor Code.

2. The respondent workers were made to undergo apprenticeship for occupations different from those allegedly approved by TESDA. TESDA approved Atlanta's apprenticeship program on "Plastic Molder"[32] and not for extrusion molding process, engineering, pelletizing process and mixing process.

3. The respondents were already skilled workers prior to the apprenticeship program as they had been employed and made to work in the different job positions where they had undergone training. Sagun and Sebolino, together with Mabanag, Pedregoza, dela Cruz, Chiong, Magalang and Alegria were even given production assignments and work schedule at the PE/Spiral Section from May 11, 2004 to March 23, 2005, and some of them were even assigned to the 3:00 p.m. - 11:00 p.m. and graveyard shifts (11:00 p.m. - 7:00 a.m.) during the period.[33]

4. The respondent workers were required to continue as apprentices beyond six months. The TESDA certificate of completion indicates that the workers' apprenticeship had been completed after six months. Yet, they were suffered to work as apprentices beyond that period.

Costales, Almoite, Sebolino and Sagun resolutely maintain

that they were illegally dismissed, as the reason for the termination of their employment - notice of the completion of the second apprenticeship agreement - did not constitute either a just or authorized cause under Articles 282 and 283 of the Labor Code.

Finally, Costales and Almoite refuse to be bound by the compromise agreement[34] that Atlanta presented to defeat the two workers' cause of action. They claim that the supposed agreement is invalid as against them, principally because they did not sign it.

The Court's Ruling

The procedural issue

The respondent workers ask that the petition be dismissed outright for the petitioners' failure to attach to the petition a copy of the Production and Work Schedule and a copy of the compromise agreement Costales and Almoite allegedly entered into -- material portions of the record that should accompany and support the petition, pursuant to Section 4, Rule 45 of the Rules of Court.

In Mariners Polytechnic Colleges Foundation, Inc. v. Arturo J. Garchitorena[35] where the Court addressed essentially the same issue arising from Section 2(d), Rule 42 of the Rules of Court,[36] we held that the phrase "of the pleadings and other material portions of the record xxx as would support the allegation of the petition clearly contemplates the exercise of discretion on the part of the petitioner in the selection of documents that are deemed to be relevant to the petition. The crucial issue to consider then is whether or not the documents accompanying the petition sufficiently supported the allegations therein."[37]

As in Mariners, we find that the documents attached to the petition sufficiently support the petitioners' allegations. The accompanying CA decision[38] and resolution,[39] as well as those of the labor arbiter[40] and the NLRC,[41] referred to the parties' position papers and even to their replies and rejoinders. Significantly, the CA decision narrates the factual antecedents, defines the complainants' cause of action, and cites the arguments, including the evidence the parties adduced.  If any, the defect in the petition lies in the petitioners' failure to provide legible copies of some of the material documents mentioned, especially several pages in the decisions of the labor arbiter and of the NLRC. This defect, however, is not fatal as the challenged CA decision clearly summarized the labor tribunal's rulings.  We, thus, find no procedural obstacle in resolving the petition on the merits.

The merits of the case

We find no merit in the petition. The CA committed no reversible error in nullifying the NLRC decision[42] and in affirming the labor arbiter's ruling,[43] as it applies to Costales, Almoite, Sebolino and Sagun. Specifically, the CA correctly ruled that the four were illegally dismissed because (1) they were already employees when they were required to undergo apprenticeship and (2) apprenticeship agreements were invalid.

The following considerations support the CA ruling.

First. Based on company operations at the time material to the case, Costales, Almoite, Sebolino and Sagun were already rendering service to the company as employees before they were made to undergo apprenticeship. The company itself recognized the respondents' status through relevant operational records - in the case of Costales and Almoite, the CPS monthly report for December 2003[44] which the NLRC relied upon and, for Sebolino and Sagun, the production and work schedule for March 7 to 12, 2005[45]

cited by the CA.

Under the CPS monthly report, Atlanta assigned Costales and Almoite to the first shift (7:00 a.m. to 3:00 p.m.) of the Section's work. The Production and Work Schedules, in addition to the one noted by the CA, showed that Sebolino and Sagun were scheduled on different shifts vis-à-vis the production and work of the company's PE/Spiral Section for the periods July 5-10, 2004;[46] October 25-31, 2004;[47] November 8-14, 2004;[48] November 16-22, 2004;[49] January 3-9, 2005;[50] January 10-15, 2005;[51] March 7-12, 2005[52] and March 17-23, 2005.[53]

We  stress  that the  CA  correctly recognized  the  authenticity of the  operational  documents,  for the failure of Atlanta to raise a challenge against these  documents  before  the labor  arbiter, the NLRC and the CA itself. The  appellate  court,  thus, found the said  documents  sufficient  to establish the employment of the respondents before their engagement as apprentices.

Second. The Master List[54] (of employees) that the petitioners heavily rely upon as proof of their position that the respondents were not Atlanta's employees, at the time they were engaged as apprentices, is unreliable and does not inspire belief.

The list, consisting of several pages, is hardly legible. It requires extreme effort to sort out the names of the employees listed, as well as the other data contained in the list. For this reason alone, the list deserves little or no consideration. As the respondents also pointed out, the list itself contradicts a lot of Atlanta's claims and allegations, thus: it lists only the names of inactive employees; even the names of those the NLRC found to have been employed by Atlanta, like Costales and Almoite, and those who even Atlanta claims attained regular status on January 11, 2006,[55] do not appear in the list when it was supposed to account for all  employees "as of May 6, 2006."  Despite the "May 6, 2006" cut off date, the list contains no entries of employees who were hired or who resigned in 2005 and 2006. We note that the list contains the names of employees from 1999 to 2004.

We cannot fault the CA for ignoring the Master List even if Bernardo, its head office accountant, swore to its correctness and authenticity.[56] Its substantive unreliability gives it very minimal probative value. Atlanta would have been better served, in terms of reliable evidence, if true copies of the payroll (on which the list was based, among others, as Bernardo claimed in her affidavit) were presented instead.

Third. The fact that Costales, Almoite, Sebolino and Sagun were already rendering service to the company when they were made to undergo apprenticeship (as established by the evidence) renders the apprenticeship agreements irrelevant as far as the four are concerned. This reality is highlighted

by the CA finding that the respondents occupied positions such as machine operator, scaleman and extruder operator - tasks that are usually necessary and desirable in Atlanta's usual business or trade as manufacturer of plastic building materials.[57] These tasks and their nature characterized the four as regular employees under Article 280 of the Labor Code.  Thus, when they were dismissed without just or authorized cause, without notice, and without the opportunity to be heard, their dismissal was illegal under the law.[58]

Even if we recognize the company's need to train its employees through apprenticeship, we can only consider the first apprenticeship agreement for the purpose. With the expiration of the first agreement and the retention of the employees, Atlanta had, to all intents and purposes, recognized the completion of their training and their acquisition of a regular employee status. To foist upon them the second apprenticeship agreement for a second skill which was not even mentioned in the agreement itself,[59] is a violation of the Labor Code's implementing rules[60] and is an act manifestly unfair to the employees, to say the least. This we cannot allow.

Fourth. The compromise agreement[61] allegedly entered into by Costales and Almoite, together with Ramos, Villagomez and Alegria, purportedly in settlement of the case before the NLRC, is not binding on Costales and Almoite because they did not sign it. The company itself admitted[62] that while Costales and Almoite were initially intended to be a part of the agreement, it did not pursue their inclusion "due to their regularization as early as January 11, 2006."[63]

WHEREFORE, premises considered, we hereby DENY the petition for lack of merit. The assailed decision and resolution of the Court of Appeals are AFFIRMED. Costs against the petitioner Atlanta Industries, Inc.

SO ORDERED.[G.R. No. 179242, February 23, 2011]

AVELINA F. SAGUN, PETITIONER, VS. SUNACE INTERNATIONAL MANAGEMENT SERVICES,

INC., RESPONDENT.

RESOLUTION

NACHURA, J.:

This is a Petition for Review on certiorari under Rule 45 of the Rules of Court, seeking to reverse and set aside the Court of Appeals (CA) Decision[1] dated March 23, 2007 and Resolution[2] dated August 16, 2007 in CA-G.R. SP No. 89298.

The case arose from a complaint for alleged violation of Article 32 and Article 34(a) and (b) of the Labor Code, as amended, filed by petitioner Avelina F. Sagun against respondent Sunace International Management Services, Inc. and the latter's surety, Country Bankers Insurance Corporation, before the Philippine Overseas Employment Administration (POEA). The case was docketed as POEA Case No. RV 00-03-0261.[3]

Petitioner claimed that sometime in August 1998, she

applied with respondent for the position of caretaker in Taiwan. In consideration of her placement and employment, petitioner allegedly paid P30,000.00 cash, P10,000.00 in the form of a promissory note, and NT$60,000.00 through salary deduction, in violation of the prohibition on excessive placement fees. She also claimed that respondent promised to employ her as caretaker but, at  the job site, she worked as a domestic helper and, at the same time, in a poultry farm.[4]

Respondent, however, denied petitioner's allegations and maintained that it only collected P20,840.00, the amount authorized by the POEA and for which the corresponding official receipt was issued. It also stressed that it did not furnish or publish any false notice or information or document in relation to recruitment or employment as it was duly received, passed upon, and approved by the POEA.[5]

On December 27, 2001, POEA Administrator Rosalinda Dimapilis-Baldoz dismissed[6] the complaint for lack of merit. Specifically, the POEA Administrator found that petitioner failed to establish facts showing a violation of Article 32, since it was proven that the amount received by respondent as placement fee was covered by an official receipt; or of Article 34(a) as it was not shown that respondent charged excessive fees; and of Article 34(b) simply because respondent processed petitioner's papers as caretaker, the position she applied and was hired for.

Aggrieved, petitioner filed a Motion for Reconsideration[7] with the Office of the Secretary of Labor. The Secretary treated the motion as a Petition for Review. On January 13, 2004, then Secretary of Labor Patricia A. Sto. Tomas partially granted[8] petitioner's motion, the pertinent portion of which reads:

WHEREFORE, premises considered, the Motion for Reconsideration, herein treated as a petition for review, is PARTIALLY GRANTED. The Order dated December 27, 2001 of the POEA Administrator is partially MODIFIED, and SUNACE International Management Services, Inc. is held liable for collection of excessive placement fee in violation of Article 34 (a) of the Labor Code, as amended. The penalty of suspension of its license for two (2) months, or in lieu thereof, the penalty of fine in the amount of Twenty Thousand Pesos (P20,000.00) is hereby imposed upon SUNACE. Further, SUNACE and its surety, Country Bankers Insurance Corporation, are ordered to refund the petitioner the amounts of Ten Thousand Pesos (P10,000.00) and NT$65,000.00, representing the excessive placement fee exacted from her.

SO ORDERED.[9]

On appeal by respondent, the Office of the President (OP) affirmed[10] the Order of the Secretary of Labor. In resolving the case for petitioner, the OP emphasized the State's policy on the full protection to labor, local and overseas, organized and unorganized. It also held that it was impossible for

respondent to have extended a loan to petitioner since it was not in the business of lending money. It likewise found it immaterial that no evidence was presented to show the overcharging since the issuance of a receipt could not be expected.

Respondent's motion for reconsideration was denied in an Order[11] dated March 21, 2005, which prompted respondent to elevate the matter to the CA via a petition for review under Rule 43 of the Rules of Court.

On March 23, 2007, the CA decided in favor of respondent, disposing, as follows:

WHEREFORE, premises considered, the instant petition is GRANTED and the decision of the Office of the President dated 07 January 2005 is REVERSED and SET ASIDE for lack of sufficient evidence. The Order of the POEA Administrator dismissing the complaint of respondent for violation of Article 34(a) and (b) of the Labor Code is hereby AFFIRMED.

SO ORDERED.[12]

The appellate court reversed the rulings of the Secretary of Labor and the OP mainly because their conclusions were based not on evidence but on speculation, conjecture, possibilities, and probabilities.

Hence, this petition filed by petitioner, raising the sole issue of:

WHETHER THE COURT OF APPEALS ERRED IN GRANTING THE RESPONDENT'S PETITION FOR REVIEW REVERSING THE DECISION AND ORDER [OF THE] OFFICE OF THE PRESIDENT.[13]

The petition is without merit.

Respondent was originally charged with violation of Article 32 and Article 34(a) and (b) of the Labor Code, as amended. The pertinent provisions read:

ART. 32. Fees to be Paid by Workers. - Any person applying with a private fee charging employment agency for employment assistance shall not be charged any fee until he has obtained employment through its efforts or has actually commenced employment. Such fee shall be always covered with the appropriate receipt clearly showing the amount paid. The Secretary of Labor shall promulgate a schedule of allowable fees.

ART. 34. Prohibited Practices. - It shall be unlawful for any individual, entity, licensee, or holder of authority:

(a) To charge or accept, directly or indirectly, any amount greater than that specified in the schedule of allowable fees prescribed by the Secretary of Labor; or to make a worker pay any amount greater than that actually received by him as a loan or advance;

(b) To furnish or publish any false notice or information or document in relation to recruitment or employment.

The POEA, the Secretary of Labor, the OP, and the CA already absolved respondent of liability under Articles 32 and 34(b). As no appeal was interposed by petitioner when the Secretary of Labor freed respondent of said liabilities, the only issue left for determination is whether respondent is liable for collection of excess placement fee defined in Article 34(a) of the Labor Code, as amended.

Although initially, the POEA dismissed petitioner's complaint for lack of merit, the Secretary of Labor and the OP reached a different conclusion. On appeal to the CA, the appellate court, however, reverted to the POEA conclusion. Following this turn of events, we are constrained to look into the records of the case and weigh anew the evidence presented by the parties.

We find and so hold that the POEA and the CA are correct in dismissing the complaint for illegal exaction filed by petitioner against respondent.

In proceedings before administrative and quasi-judicial agencies, the quantum of evidence required to establish a fact is substantial evidence, or that level of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion.[14]

In this case, are the pieces of evidence presented by petitioner substantial to show that respondent collected from her more than the allowable placement fee? We answer in the negative.

To show the amount it collected as placement fee from petitioner, respondent presented an acknowledgment receipt showing that petitioner paid and respondent received P20,840.00. This notwithstanding, petitioner claimed that she paid more than this amount. In support of her allegation, she presented a photocopy of a promissory note she executed, and testified on the purported deductions made by her foreign employer. In the promissory note, petitioner promised to pay respondent the amount of P10,000.00 that she borrowed for only two weeks.[15] Petitioner also explained that her foreign employer deducted from her salary a total amount of NT$60,000.00. She claimed that the P10,000.00 covered by the promissory note was never obtained as a loan but as part of the placement fee collected by respondent. Moreover, she alleged that the salary deductions made by her foreign employer still formed part of the placement fee collected by respondent.

We are inclined to give more credence to respondent's evidence, that is, the acknowledgment receipt showing the amount paid by petitioner and received by respondent. A

receipt is a written and signed acknowledgment that money or goods have been delivered.[16] Although a receipt is not conclusive evidence, an exhaustive review of the records of this case fails to disclose any other evidence sufficient and strong enough to overturn the acknowledgment embodied in respondent's receipt as to the amount it actually received from petitioner. Having failed to adduce sufficient rebuttal evidence, petitioner is bound by the contents of the receipt issued by respondent. The subject receipt remains as the primary or best evidence.[17]

The promissory note presented by petitioner cannot be considered as adequate evidence to show the excessive placement fee. It must be emphasized that a promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender. A person who signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he affixes thereto as a token of his good faith.[18] Moreover, as held by the CA, the fact that respondent is not a lending company does not preclude it from extending a loan to petitioner for her personal use. As for the deductions purportedly made by petitioner's foreign employer, we reiterate the findings of the CA that "there is no single  piece of document or receipt showing that deductions have in fact been made, nor is there any proof that these deductions from the salary formed part of the subject placement fee."[19]

At this point, we would like to emphasize the well-settled rule that the factual findings of quasi-judicial agencies, like the POEA, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect, but at times even finality if such findings are supported by substantial evidence.[20] While the Constitution is committed to the policy of social justice and to the protection of the working class, it should not be presumed that every dispute will automatically be decided in favor of labor.[21]

To be sure, mere general allegations of payment of excessive placement fees cannot be given merit as the charge of illegal exaction is considered a grave offense which could cause the suspension or cancellation of the agency's license.  They should be proven and substantiated by clear, credible, and competent evidence.[22]

WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Court of Appeals Decision dated March 23, 2007 and Resolution dated August 16, 2007 in CA-G.R. SP No. 89298 are AFFIRMED.

SO ORDERED.

[G.R. No. 151833.  August 7, 2003]

ANTONIO M. SERRANO, petitioner, vs. GALANT MARITIME SERVICES, INC., MARLOW NAVIGATION CO., LTD. AND NATIONAL LABOR RELATIONS COMMISSION, respondents.

R E S O L U T I O N

SANDOVAL-GUTIERREZ, J.:

At bar is a petition for review on certiorari seeking the reversal of the Resolutions dated January 31, 2001http://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn1 and December 18, 2001http://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn2 of the Court of Appeals outrightly dismissing the petition for certiorari filed by Antonio M. Serrano, herein petitioner, for his failure to attach therewith copies of all relevant pleadings and documents necessary in resolving the merits of the petition.

The controversy stemmed from the complaint for illegal dismissal filed with the Office of the Labor Arbiter by petitioner against Galant Maritime Services, Inc. and Marlow Navigation Co., Ltd., respondents.  The complaint was docketed as NLRC NCR OCW (M)-98-07-0818.

After the submission of the parties’ respective position papers and other responsive pleadings, the Labor Arbiter rendered a decisionhttp://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn3 dated July 15, 1999 in favor of petitioner.  The dispositive portion reads:

“WHEREFORE, premises considered, judgment is hereby rendered declaring that the dismissal of the complainant by the respondents in the above-entitled case was illegal and the respondents are hereby ordered to pay the complainant, jointly and severally, in Philippine Currency, based on the rate of exchange prevailing at the time of payment, the amount of EIGHT THOUSAND SEVEN HUNDRED SEVENTY U.S. DOLLARS (US $8,770.00), representing the complainant’s salary for three (3) months of the unexpired portion of the aforesaid contract of employment.

“The respondents are likewise ordered to pay the complainant, jointly and severally, in Philippine Currency, based on the rate of exchange prevailing at the time of payment, the amount of FORTY FIVE U.S. DOLLARS (US $ 45.00), representing the complainant’s claim for a salary differential.  In addition, the respondents are hereby offered to pay the complainant, jointly and severally, in Philippine Currency, at the exchange rate prevailing at the time of payment, the complainant’s claim for attorney’s fees equivalent to ten percent (10%) of the total amount awarded to the aforesaid employee under this Decision.

“The claims of the complainant for moral and exemplary damages are hereby DISMISSED for lack of merit.

“All other claims are hereby DISMISSED.

“SO ORDERED.”

Both parties appealed to the National Labor Relations Commission (NLRC).

On June 15, 2000, the NLRC promulgated a decision affirming in part the Arbiter’s decision, thus:

“WHEREFORE, the Decision dated 15 July 1999 is MODIFIED.  Respondents are hereby ordered to pay complainant, jointly and severally, in Philippine currency, at the prevailing rate of exchange at the time of payment the following:

1. Three (3) months salary

     $1,400 x 3                                    US $4,200.00

2.   Salary differential                                     45.00

                                                          US $4,245.00

3.   10% Attorney’s fees                             424.50

                                  TOTAL            US $4,669.50

                                                          Vvvvvvvvvvvv

“The other findings are affirmed.

“SO ORDERED.”

Unsatisfied, petitioner filed a motion for partial reconsiderationhttp://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn4 but the NLRC, in a resolution dated July 31, 2000, denied the same.

As a consequence, petitioner filed with the Court of Appeals a petition for certiorari alleging that the NLRC committed grave abuse of discretion in limiting the award of backwages to three (3) months and deleting the award for overtime and vacation leave pay, in violation of his constitutional right to due process, equal protection and non-impairment of contract.

However, in a Resolution dated January 31, 2001, the Court of Appeals dismissed the petition outright for petitioner’s failure to attach therewith copies of all relevant and pertinent pleadings and documents necessary in the judicious resolution of its merits.

On February 28, 2001, petitioner filed a motion for reconsiderationhttp://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn5 but was denied.

Hence, this petition for review on certiorari alleging that the Appellate Court erred in dismissing the petition for certiorari on pure technicality.

In his comment, respondent averred that the Court of Appeals should not be faulted for dismissing the petition as it did not comply with the Rules.

It bears stressing at the outset that “(c)ertiorari, being an extraordinary remedy, the party who seeks to avail of the same must strictly observe the rules laid down by law.”http://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn6

In this regard, Section 1, Rule 65 of the 1997 Rules of Civil Procedure, as amended, provides:

“SECTION 1.  Petition for certiorari.-

“xxx   xxx       xxx

The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certification of non-forum shopping as provided in the third paragraph of Section 3, Rule 46.

“xxx   xxx       xxx.”

Collorarily, Section 3, Rule 46, provides:

“SECTION 3. Contents and filing of petition; effect of non-compliance with requirements. –

“xxx   xxx       xxx

“The failure of the petitioner to comply with any of the foregoing requirements shall be sufficient ground for the dismissal of the petition.”

Needless to state, the acceptance of a petition for certiorari as well as the grant of due course thereto is, in general, addressed to the sound discretion of the court.http://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn7Although the court has absolute discretion to reject and dismiss a petition for certiorari, in general, it does so only (1) when the petition fails to demonstrate grave abuse of discretion by any court, agency, or branch of the government;http://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn8 or (2) when there are procedural errors, like violations of the Rules of Court of Supreme Court Circulars.  One of these procedural errors is petitioner’s “failure to accompany the petition with copies of all pleadings and documents relevant and pertinent thereto,” the same procedural lapse committed by herein petitioner.

In any event, petitioner attached to his motion for reconsideration of the Court of Appeals’ Resolution (dismissing the petition for certiorari) the required copies of the pertinent and relevant pleadings and documents.  But despite such submission, still the Court of Appeals denied his motion.

We hold that petitioner substantially complied with the requirements set forth in Section 1, Rule 65 of the 1997 Rules of Civil Procedure.  Verily, in dismissing the petition outright, the Court of Appeals strongly placed a premium on technicalities at the expense of a just resolution of the case.

In Cusi-Hernandez vs. Diaz,http://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn9 this Court, speaking through Mr. Justice Artemio V. Panganiban, held that “cases should be determined on the merits, after full opportunity to all parties for ventilation of their causes and defenses, rather than on

technicality or some procedural imperfections.  In that way, the ends of justice would be served better.”

Indeed, “procedural rules are created not to hinder or delay but to facilitate and promote the administration of justice.  It is far better to dispose of the case on the merits which is primordial end rather than on a technicality, if it be the case, that may result in injustice.”http://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn10

In Paras vs. Baldado http://sc.judiciary.gov.ph/jurisprudence/2003/aug20 03/151833.htm - _ftn11 and Alberto vs. Court of Appeals,http://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151833.htm - _ftn12 this Court held that “(w)hat should guide judicial action is the principle that a party-litigant is to be given the fullest opportunity to establish the merits of his complaint or defense rather than for him to lose life, liberty, honor or property on technicalities.  x x x (T)he rules of procedure should be viewed as mere tools designed to facilitate the attainment of justice.  Their strict and rigid application, which would result in technicalities that tend to frustrate rather than promote substantial justice, must always be eschewed.”

Thus, we see no need to resolve the issues raised by petitioner.  They should be addressed to the Court of Appeals.

WHEREFORE, the petition is GRANTED and the assailed Resolutions dated January 31, 2001 and December 18, 2001 of the Court of Appeals are hereby REVERSED.  Let the case be REMANDED to that court further proceedings with dispatch.

SO ORDERED.

Puno, (Chairman), Panganiban, Corona, and Carpio-Morales, JJ., concur.

G.R. No. 167614               March 24, 2009

ANTONIO M. SERRANO, Petitioner, vs.Gallant MARITIME SERVICES, INC. and MARLOW NAVIGATION CO., INC., Respondents.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

For decades, the toil of solitary migrants has helped lift entire families and communities out of poverty. Their earnings have built houses, provided health care, equipped schools and planted the seeds of businesses. They have woven together the world by transmitting ideas and knowledge from country to country. They have provided the dynamic human link between cultures, societies and economies. Yet, only recently have we begun to understand not only how much international migration impacts development, but how smart public policies can magnify this effect.

United Nations Secretary-General Ban Ki-MoonGlobal Forum on Migration and DevelopmentBrussels, July 10, 20071

For Antonio Serrano (petitioner), a Filipino seafarer, the last clause in the 5th paragraph of Section 10, Republic Act (R.A.) No. 8042,2 to wit:

Sec. 10. Money Claims. - x x x In case of termination of overseas employment without just, valid or authorized cause as defined by law or contract, the workers shall be entitled to the full reimbursement of his placement fee with interest of twelve percent (12%) per annum, plus his salaries for the unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever is less.

x x x x (Emphasis and underscoring supplied)

does not magnify the contributions of overseas Filipino workers (OFWs) to national development, but exacerbates the hardships borne by them by unduly limiting their entitlement in case of illegal dismissal to their lump-sum salary either for the unexpired portion of their employment contract "or for three months for every year of the unexpired term, whichever is less" (subject clause). Petitioner claims that the last clause violates the OFWs' constitutional rights in that it impairs the terms of their contract, deprives them of equal protection and denies them due process.

By way of Petition for Review under Rule 45 of the Rules of Court, petitioner assails the December 8, 2004 Decision3 and April 1, 2005 Resolution4 of the Court of Appeals (CA), which applied the subject clause, entreating this Court to declare the subject clause unconstitutional.

Petitioner was hired by Gallant Maritime Services, Inc. and Marlow Navigation Co., Ltd. (respondents) under a Philippine Overseas Employment Administration (POEA)-approved Contract of Employment with the following terms and conditions:

Duration of contract 12 months

Position Chief Officer

Basic monthly salary US$1,400.00

Hours of work 48.0 hours per week

Overtime US$700.00 per month

Vacation leave with pay 7.00 days per month5

On March 19, 1998, the date of his departure, petitioner was constrained to accept a downgraded employment contract for the position of Second Officer with a monthly salary of US$1,000.00, upon the assurance and representation of respondents that he would be made Chief Officer by the end of April 1998.6

Respondents did not deliver on their promise to make petitioner Chief Officer.7 Hence, petitioner refused to stay

on as Second Officer and was repatriated to the Philippines on May 26, 1998.8

Petitioner's employment contract was for a period of 12 months or from March 19, 1998 up to March 19, 1999, but at the time of his repatriation on May 26, 1998, he had served only two (2) months and seven (7) days of his contract, leaving an unexpired portion of nine (9) months and twenty-three (23) days.

Petitioner filed with the Labor Arbiter (LA) a Complaint9 against respondents for constructive dismissal and for payment of his money claims in the total amount of US$26,442.73, broken down as follows:

May 27/31, 1998 (5 days) incl. Leave pay

June 01/30, 1998

July 01/31, 1998

August 01/31, 1998

Sept. 01/30, 1998

Oct. 01/31, 1998

Nov. 01/30, 1998

Dec. 01/31, 1998

Jan. 01/31, 1999

Feb. 01/28, 1999

Mar. 1/19, 1999 (19 days) incl. leave pay

 

 

Amount adjusted to chief mate's salary

(March 19/31, 1998 to April 1/30, 1998) +

 

TOTAL CLAIM

as well as moral and exemplary damages and attorney's fees.

The LA rendered a Decision dated July 15, 1999, declaring the dismissal of petitioner illegal and awarding him monetary benefits, to wit:

WHEREFORE, premises considered, judgment is hereby rendered declaring that the dismissal of the complainant (petitioner) by the respondents in the above-entitled case was illegal and the respondents are hereby ordered to pay the complainant [petitioner], jointly and severally, in Philippine

Currency, based on the rate of exchange prevailing at the time of payment, the amount of EIGHT THOUSAND SEVEN HUNDRED SEVENTY U.S. DOLLARS (US $8,770.00), representing the complainant’s salary for three (3) months of the unexpired portion of the aforesaid contract of employment.1avvphi1

The respondents are likewise ordered to pay the complainant [petitioner], jointly and severally, in Philippine Currency, based on the rate of exchange prevailing at the time of payment, the amount of FORTY FIVE U.S. DOLLARS (US$ 45.00),12 representing the complainant’s claim for a salary differential. In addition, the respondents are hereby ordered to pay the complainant, jointly and severally, in Philippine Currency, at the exchange rate prevailing at the time of payment, the complainant’s (petitioner's) claim for attorney’s fees equivalent to ten percent (10%) of the total amount awarded to the aforesaid employee under this Decision.

The claims of the complainant for moral and exemplary damages are hereby DISMISSED for lack of merit.

All other claims are hereby DISMISSED.

SO ORDERED.13 (Emphasis supplied)

In awarding petitioner a lump-sum salary of US$8,770.00, the LA based his computation on the salary period of three months only -- rather than the entire unexpired portion of nine months and 23 days of petitioner's employment contract - applying the subject clause. However, the LA applied the salary rate of US$2,590.00, consisting of petitioner's "[b]asic salary, US$1,400.00/month + US$700.00/month, fixed overtime pay, + US$490.00/month, vacation leave pay = US$2,590.00/compensation per month."14

Respondents appealed15 to the National Labor Relations Commission (NLRC) to question the finding of the LA that petitioner was illegally dismissed.

Petitioner also appealed16 to the NLRC on the sole issue that the LA erred in not applying the ruling of the Court in Triple Integrated Services, Inc. v. National Labor Relations Commission17 that in case of illegal dismissal, OFWs are entitled to their salaries for the unexpired portion of their contracts.18

In a Decision dated June 15, 2000, the NLRC modified the LA Decision, to wit:

WHEREFORE, the Decision dated 15 July 1999 is MODIFIED. Respondents are hereby ordered to pay complainant, jointly and severally, in Philippine currency, at the prevailing rate of exchange at the time of payment the following:

1. Three (3) months salary

$1,400 x 3 US$4,200.00

2. Salary differential 45.00

US$4,245.00

3. 10% Attorney’s fees 424.50

TOTAL US$4,669.50

The other findings are affirmed.

SO ORDERED.19

The NLRC corrected the LA's computation of the lump-sum salary awarded to petitioner by reducing the applicable salary rate from US$2,590.00 to US$1,400.00 because R.A. No. 8042 "does not provide for the award of overtime pay, which should be proven to have been actually performed, and for vacation leave pay."20

Petitioner filed a Motion for Partial Reconsideration, but this time he questioned the constitutionality of the subject clause.21 The NLRC denied the motion.22

Petitioner filed a Petition for Certiorari23 with the CA, reiterating the constitutional challenge against the subject clause.24 After initially dismissing the petition on a technicality, the CA eventually gave due course to it, as directed by this Court in its Resolution dated August 7, 2003 which granted the petition for certiorari, docketed as G.R. No. 151833, filed by petitioner.

In a Decision dated December 8, 2004, the CA affirmed the NLRC ruling on the reduction of the applicable salary rate; however, the CA skirted the constitutional issue raised by petitioner.25

His Motion for Reconsideration26 having been denied by the CA,27 petitioner brings his cause to this Court on the following grounds:

I

The Court of Appeals and the labor tribunals have decided the case in a way not in accord with applicable decision of the Supreme Court involving similar issue of granting unto the migrant worker back wages equal to the unexpired portion of his contract of employment instead of limiting it to three (3) months

II

In the alternative that the Court of Appeals and the Labor Tribunals were merely applying their interpretation of Section 10 of Republic Act No. 8042, it is submitted that the Court of Appeals gravely erred in law when it failed to discharge its judicial

duty to decide questions of substance not theretofore determined by the Honorable Supreme Court, particularly, the constitutional issues raised by the petitioner on the constitutionality of said law, which unreasonably, unfairly and arbitrarily limits payment of the award for back wages of overseas workers to three (3) months.

III

Even without considering the constitutional limitations [of] Sec. 10 of Republic Act No. 8042, the Court of Appeals gravely erred in law in excluding from petitioner’s award the overtime pay and vacation pay provided in his contract since under the contract they form part of his salary.28

On February 26, 2008, petitioner wrote the Court to withdraw his petition as he is already old and sickly, and he intends to make use of the monetary award for his medical treatment and medication.29 Required to comment, counsel for petitioner filed a motion, urging the court to allow partial execution of the undisputed monetary award and, at the same time, praying that the constitutional question be resolved.30

Considering that the parties have filed their respective memoranda, the Court now takes up the full merit of the petition mindful of the extreme importance of the constitutional question raised therein.

On the first and second issues

The unanimous finding of the LA, NLRC and CA that the dismissal of petitioner was illegal is not disputed. Likewise not disputed is the salary differential of US$45.00 awarded to petitioner in all three fora. What remains disputed is only the computation of the lump-sum salary to be awarded to petitioner by reason of his illegal dismissal.

Applying the subject clause, the NLRC and the CA computed the lump-sum salary of petitioner at the monthly rate of US$1,400.00 covering the period of three months out of the unexpired portion of nine months and 23 days of his employment contract or a total of US$4,200.00.

Impugning the constitutionality of the subject clause, petitioner contends that, in addition to the US$4,200.00 awarded by the NLRC and the CA, he is entitled to US$21,182.23 more or a total of US$25,382.23, equivalent to his salaries for the entire nine months and 23 days left of his employment contract, computed at the monthly rate of US$2,590.00.31

The Arguments of Petitioner

Petitioner contends that the subject clause is unconstitutional because it unduly impairs the freedom of OFWs to negotiate for and stipulate in their overseas employment contracts a determinate employment period and a fixed salary

package.32 It also impinges on the equal protection clause, for it treats OFWs differently from local Filipino workers (local workers) by putting a cap on the amount of lump-sum salary to which OFWs are entitled in case of illegal dismissal, while setting no limit to the same monetary award for local workers when their dismissal is declared illegal; that the disparate treatment is not reasonable as there is no substantial distinction between the two groups;33 and that it defeats Section 18,34 Article II of the Constitution which guarantees the protection of the rights and welfare of all Filipino workers, whether deployed locally or overseas.35

Moreover, petitioner argues that the decisions of the CA and the labor tribunals are not in line with existing jurisprudence on the issue of money claims of illegally dismissed OFWs. Though there are conflicting rulings on this, petitioner urges the Court to sort them out for the guidance of affected OFWs.36

Petitioner further underscores that the insertion of the subject clause into R.A. No. 8042 serves no other purpose but to benefit local placement agencies. He marks the statement made by the Solicitor General in his Memorandum, viz.:

Often, placement agencies, their liability being solidary, shoulder the payment of money claims in the event that jurisdiction over the foreign employer is not acquired by the court or if the foreign employer reneges on its obligation. Hence, placement agencies that are in good faith and which fulfill their obligations are unnecessarily penalized for the acts of the foreign employer. To protect them and to promote their continued helpful contribution in deploying Filipino migrant workers, liability for money claims was reduced under Section 10 of R.A. No. 8042. 37 (Emphasis supplied)

Petitioner argues that in mitigating the solidary liability of placement agencies, the subject clause sacrifices the well-being of OFWs. Not only that, the provision makes foreign employers better off than local employers because in cases involving the illegal dismissal of employees, foreign employers are liable for salaries covering a maximum of only three months of the unexpired employment contract while local employers are liable for the full lump-sum salaries of their employees. As petitioner puts it:

In terms of practical application, the local employers are not limited to the amount of backwages they have to give their employees they have illegally dismissed, following well-entrenched and unequivocal jurisprudence on the matter. On the other hand, foreign employers will only be limited to giving the illegally dismissed migrant workers the maximum of three (3) months unpaid salaries notwithstanding the unexpired term of the contract that can be more than three (3) months.38

Lastly, petitioner claims that the subject clause violates the due process clause, for it deprives him of the salaries and other emoluments he is entitled to under his fixed-period employment contract.39

The Arguments of Respondents

In their Comment and Memorandum, respondents contend that the constitutional issue should not be entertained, for this was belatedly interposed by petitioner in his appeal before the CA, and not at the earliest opportunity, which was when he filed an appeal before the NLRC.40

The Arguments of the Solicitor General

The Solicitor General (OSG)41 points out that as R.A. No. 8042 took effect on July 15, 1995, its provisions could not have impaired petitioner's 1998 employment contract. Rather, R.A. No. 8042 having preceded petitioner's contract, the provisions thereof are deemed part of the minimum terms of petitioner's employment, especially on the matter of money claims, as this was not stipulated upon by the parties.42

Moreover, the OSG emphasizes that OFWs and local workers differ in terms of the nature of their employment, such that their rights to monetary benefits must necessarily be treated differently. The OSG enumerates the essential elements that distinguish OFWs from local workers: first, while local workers perform their jobs within Philippine territory, OFWs perform their jobs for foreign employers, over whom it is difficult for our courts to acquire jurisdiction, or against whom it is almost impossible to enforce judgment; and second, as held in Coyoca v. National Labor Relations Commission43 and Millares v. National Labor Relations Commission,44 OFWs are contractual employees who can never acquire regular employment status, unlike local workers who are or can become regular employees. Hence, the OSG posits that there are rights and privileges exclusive to local workers, but not available to OFWs; that these peculiarities make for a reasonable and valid basis for the differentiated treatment under the subject clause of the money claims of OFWs who are illegally dismissed. Thus, the provision does not violate the equal protection clause nor Section 18, Article II of the Constitution.45

Lastly, the OSG defends the rationale behind the subject clause as a police power measure adopted to mitigate the solidary liability of placement agencies for this "redounds to the benefit of the migrant workers whose welfare the government seeks to promote. The survival of legitimate placement agencies helps [assure] the government that migrant workers are properly deployed and are employed under decent and humane conditions."46

The Court's Ruling

The Court sustains petitioner on the first and second issues.

When the Court is called upon to exercise its power of judicial review of the acts of its co-equals, such as the Congress, it does so only when these conditions obtain: (1) that there is an actual case or controversy involving a conflict of rights susceptible of judicial determination;47 (2) that the constitutional question is raised by a proper party48 and at the earliest opportunity;49 and (3) that the constitutional question is the very lis mota of the case,50 otherwise the Court will dismiss the case or decide the same on some other ground.51

Without a doubt, there exists in this case an actual controversy directly involving petitioner who is personally aggrieved that the labor tribunals and the CA computed his monetary award based on the salary period of three months only as provided under the subject clause.

The constitutional challenge is also timely. It should be borne in mind that the requirement that a constitutional issue be raised at the earliest opportunity entails the interposition of the issue in the pleadings before a competent court, such that, if the issue is not raised in the pleadings before that competent court, it cannot be considered at the trial and, if not considered in the trial, it cannot be considered on appeal.52 Records disclose that the issue on the constitutionality of the subject clause was first raised, not in petitioner's appeal with the NLRC, but in his Motion for Partial Reconsideration with said labor tribunal,53 and reiterated in his Petition for Certiorari before the CA.54 Nonetheless, the issue is deemed seasonably raised because it is not the NLRC but the CA which has the competence to resolve the constitutional issue. The NLRC is a labor tribunal that merely performs a quasi-judicial function – its function in the present case is limited to determining questions of fact to which the legislative policy of R.A. No. 8042 is to be applied and to resolving such questions in accordance with the standards laid down by the law itself;55 thus, its foremost function is to administer and enforce R.A. No. 8042, and not to inquire into the validity of its provisions. The CA, on the other hand, is vested with the power of judicial review or the power to declare unconstitutional a law or a provision thereof, such as the subject clause.56 Petitioner's interposition of the constitutional issue before the CA was undoubtedly seasonable. The CA was therefore remiss in failing to take up the issue in its decision.

The third condition that the constitutional issue be critical to the resolution of the case likewise obtains because the monetary claim of petitioner to his lump-sum salary for the entire unexpired portion of his 12-month employment contract, and not just for a period of three months, strikes at the very core of the subject clause.

Thus, the stage is all set for the determination of the constitutionality of the subject clause.

Does the subject clause violate Section 10,Article III of the Constitution on non-impairmentof contracts?

The answer is in the negative.

Petitioner's claim that the subject clause unduly interferes with the stipulations in his contract on the term of his employment and the fixed salary package he will receive57 is not tenable.

Section 10, Article III of the Constitution provides:

No law impairing the obligation of contracts shall be passed.

The prohibition is aligned with the general principle that laws newly enacted have only a prospective operation,58 and cannot affect acts or contracts already perfected;59 however,

as to laws already in existence, their provisions are read into contracts and deemed a part thereof.60 Thus, the non-impairment clause under Section 10, Article II is limited in application to laws about to be enacted that would in any way derogate from existing acts or contracts by enlarging, abridging or in any manner changing the intention of the parties thereto.

As aptly observed by the OSG, the enactment of R.A. No. 8042 in 1995 preceded the execution of the employment contract between petitioner and respondents in 1998. Hence, it cannot be argued that R.A. No. 8042, particularly the subject clause, impaired the employment contract of the parties. Rather, when the parties executed their 1998 employment contract, they were deemed to have incorporated into it all the provisions of R.A. No. 8042.

But even if the Court were to disregard the timeline, the subject clause may not be declared unconstitutional on the ground that it impinges on the impairment clause, for the law was enacted in the exercise of the police power of the State to regulate a business, profession or calling, particularly the recruitment and deployment of OFWs, with the noble end in view of ensuring respect for the dignity and well-being of OFWs wherever they may be employed.61 Police power legislations adopted by the State to promote the health, morals, peace, education, good order, safety, and general welfare of the people are generally applicable not only to future contracts but even to those already in existence, for all private contracts must yield to the superior and legitimate measures taken by the State to promote public welfare.62

Does the subject clause violate Section 1,Article III of the Constitution, and Section 18,Article II and Section 3, Article XIII on laboras a protected sector?

The answer is in the affirmative.

Section 1, Article III of the Constitution guarantees:

No person shall be deprived of life, liberty, or property without due process of law nor shall any person be denied the equal protection of the law.

Section 18,63 Article II and Section 3,64 Article XIII accord all members of the labor sector, without distinction as to place of deployment, full protection of their rights and welfare.

To Filipino workers, the rights guaranteed under the foregoing constitutional provisions translate to economic security and parity: all monetary benefits should be equally enjoyed by workers of similar category, while all monetary obligations should be borne by them in equal degree; none should be denied the protection of the laws which is enjoyed by, or spared the burden imposed on, others in like circumstances.65

Such rights are not absolute but subject to the inherent power of Congress to incorporate, when it sees fit, a system of classification into its legislation; however, to be valid, the classification must comply with these requirements: 1) it is

based on substantial distinctions; 2) it is germane to the purposes of the law; 3) it is not limited to existing conditions only; and 4) it applies equally to all members of the class.66

There are three levels of scrutiny at which the Court reviews the constitutionality of a classification embodied in a law: a) the deferential or rational basis scrutiny in which the challenged classification needs only be shown to be rationally related to serving a legitimate state interest;67 b) the middle-tier or intermediate scrutiny in which the government must show that the challenged classification serves an important state interest and that the classification is at least substantially related to serving that interest;68 and c) strict judicial scrutiny69 in which a legislative classification which impermissibly interferes with the exercise of a fundamental right70 or operates to the peculiar disadvantage of a suspect class71 is presumed unconstitutional, and the burden is upon the government to prove that the classification is necessary to achieve a compelling state interest and that it is the least restrictive means to protect such interest.72

Under American jurisprudence, strict judicial scrutiny is triggered by suspect classifications73 based on race74 or gender75 but not when the classification is drawn along income categories.76

It is different in the Philippine setting. In Central Bank (now Bangko Sentral ng Pilipinas) Employee Association, Inc. v. Bangko Sentral ng Pilipinas,77 the constitutionality of a provision in the charter of the Bangko Sentral ng Pilipinas (BSP), a government financial institution (GFI), was challenged for maintaining its rank-and-file employees under the Salary Standardization Law (SSL), even when the rank-and-file employees of other GFIs had been exempted from the SSL by their respective charters. Finding that the disputed provision contained a suspect classification based on salary grade, the Court deliberately employed the standard of strict judicial scrutiny in its review of the constitutionality of said provision. More significantly, it was in this case that the Court revealed the broad outlines of its judicial philosophy, to wit:

Congress retains its wide discretion in providing for a valid classification, and its policies should be accorded recognition and respect by the courts of justice except when they run afoul of the Constitution. The deference stops where the classification violates a fundamental right, or prejudices persons accorded special protection by the Constitution. When these violations arise, this Court must discharge its primary role as the vanguard of constitutional guaranties, and require a stricter and more exacting adherence to constitutional limitations. Rational basis should not suffice.

Admittedly, the view that prejudice to persons accorded special protection by the Constitution requires a stricter judicial scrutiny finds no support in American or English jurisprudence. Nevertheless, these foreign decisions and authorities are not per se controlling in this jurisdiction. At best, they are persuasive and have been used to support many of our decisions. We should not place undue and fawning reliance upon them and regard them as indispensable mental crutches without which we cannot come to our own decisions through the employment of our

own endowments. We live in a different ambience and must decide our own problems in the light of our own interests and needs, and of our qualities and even idiosyncrasies as a people, and always with our own concept of law and justice. Our laws must be construed in accordance with the intention of our own lawmakers and such intent may be deduced from the language of each law and the context of other local legislation related thereto. More importantly, they must be construed to serve our own public interest which is the be-all and the end-all of all our laws. And it need not be stressed that our public interest is distinct and different from others.

x x x x

Further, the quest for a better and more "equal" world calls for the use of equal protection as a tool of effective judicial intervention.

Equality is one ideal which cries out for bold attention and action in the Constitution. The Preamble proclaims "equality" as an ideal precisely in protest against crushing inequities in Philippine society. The command to promote social justice in Article II, Section 10, in "all phases of national development," further explicitated in Article XIII, are clear commands to the State to take affirmative action in the direction of greater equality. x x x [T]here is thus in the Philippine Constitution no lack of doctrinal support for a more vigorous state effort towards achieving a reasonable measure of equality.

Our present Constitution has gone further in guaranteeing vital social and economic rights to marginalized groups of society, including labor. Under the policy of social justice, the law bends over backward to accommodate the interests of the working class on the humane justification that those with less privilege in life should have more in law. And the obligation to afford protection to labor is incumbent not only on the legislative and executive branches but also on the judiciary to translate this pledge into a living reality. Social justice calls for the humanization of laws and the equalization of social and economic forces by the State so that justice in its rational and objectively secular conception may at least be approximated.

x x x x

Under most circumstances, the Court will exercise judicial restraint in deciding questions of constitutionality, recognizing the broad discretion given to Congress in exercising its legislative power. Judicial scrutiny would be based on the "rational basis" test, and the legislative discretion would be given deferential treatment.

But if the challenge to the statute is premised on the denial of a fundamental right, or the perpetuation of prejudice against persons favored by the Constitution with special protection, judicial scrutiny ought to be more strict. A weak and watered down view would call for the abdication of this Court’s solemn duty to strike down any law repugnant to the Constitution and the rights it enshrines. This is true whether the actor committing the unconstitutional act is a private person or the government itself or one of its instrumentalities. Oppressive acts will be

struck down regardless of the character or nature of the actor.

x x x x

In the case at bar, the challenged proviso operates on the basis of the salary grade or officer-employee status. It is akin to a distinction based on economic class and status, with the higher grades as recipients of a benefit specifically withheld from the lower grades. Officers of the BSP now receive higher compensation packages that are competitive with the industry, while the poorer, low-salaried employees are limited to the rates prescribed by the SSL. The implications are quite disturbing: BSP rank-and-file employees are paid the strictly regimented rates of the SSL while employees higher in rank - possessing higher and better education and opportunities for career advancement - are given higher compensation packages to entice them to stay. Considering that majority, if not all, the rank-and-file employees consist of people whose status and rank in life are less and limited, especially in terms of job marketability, it is they - and not the officers - who have the real economic and financial need for the adjustment . This is in accord with the policy of the Constitution "to free the people from poverty, provide adequate social services, extend to them a decent standard of living, and improve the quality of life for all." Any act of Congress that runs counter to this constitutional desideratum deserves strict scrutiny by this Court before it can pass muster. (Emphasis supplied)

Imbued with the same sense of "obligation to afford protection to labor," the Court in the present case also employs the standard of strict judicial scrutiny, for it perceives in the subject clause a suspect classification prejudicial to OFWs.

Upon cursory reading, the subject clause appears facially neutral, for it applies to all OFWs. However, a closer examination reveals that the subject clause has a discriminatory intent against, and an invidious impact on, OFWs at two levels:

First, OFWs with employment contracts of less than one year vis-à-vis OFWs with employment contracts of one year or more;

Second, among OFWs with employment contracts of more than one year; and

Third, OFWs vis-à-vis local workers with fixed-period employment;

OFWs with employment contracts of less than one year vis-à-vis OFWs with employment contracts of one year or more

As pointed out by petitioner,78 it was in Marsaman Manning Agency, Inc. v. National Labor Relations Commission79 (Second Division, 1999) that the Court laid down the following rules on the application of the periods prescribed under Section 10(5) of R.A. No. 804, to wit:

A plain reading of Sec. 10 clearly reveals that the choice of which amount to award an illegally dismissed overseas

contract worker, i.e., whether his salaries for the unexpired portion of his employment contract or three (3) months’ salary for every year of the unexpired term, whichever is less, comes into play only when the employment contract concerned has a term of at least one (1) year or more. This is evident from the words "for every year of the unexpired term" which follows the words "salaries x x x for three months." To follow petitioners’ thinking that private respondent is entitled to three (3) months salary only simply because it is the lesser amount is to completely disregard and overlook some words used in the statute while giving effect to some. This is contrary to the well-established rule in legal hermeneutics that in interpreting a statute, care should be taken that every part or word thereof be given effect since the law-making body is presumed to know the meaning of the words employed in the statue and to have used them advisedly. Ut res magis valeat quam pereat.80 (Emphasis supplied)

In Marsaman, the OFW involved was illegally dismissed two months into his 10-month contract, but was awarded his salaries for the remaining 8 months and 6 days of his contract.

Prior to Marsaman, however, there were two cases in which the Court made conflicting rulings on Section 10(5). One was Asian Center for Career and Employment System and Services v. National Labor Relations Commission (Second Division, October 1998),81 which involved an OFW who was awarded a two-year employment contract, but was dismissed after working for one year and two months. The LA declared his dismissal illegal and awarded him SR13,600.00 as lump-sum salary covering eight months, the unexpired portion of his contract. On appeal, the Court reduced the award to SR3,600.00 equivalent to his three months’ salary, this being the lesser value, to wit:

Under Section 10 of R.A. No. 8042, a worker dismissed from overseas employment without just, valid or authorized cause is entitled to his salary for the unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever is less.

In the case at bar, the unexpired portion of private respondent’s employment contract is eight (8) months. Private respondent should therefore be paid his basic salary corresponding to three (3) months or a total of SR3,600.82

Another was Triple-Eight Integrated Services, Inc. v. National Labor Relations Commission (Third Division, December 1998),83 which involved an OFW (therein respondent Erlinda Osdana) who was originally granted a 12-month contract, which was deemed renewed for another 12 months. After serving for one year and seven-and-a-half months, respondent Osdana was illegally dismissed, and the Court awarded her salaries for the entire unexpired portion of four and one-half months of her contract.

The Marsaman interpretation of Section 10(5) has since been adopted in the following cases:

Case Title Contract Period Period of Service

Skippers v. Maguad84 6 months 2 months

Bahia Shipping v. Reynaldo Chua 85

9 months 8 months

Centennial Transmarine v. dela Cruz l86

9 months 4 months

Talidano v. Falcon87 12 months 3 months

Univan v. CA 88 12 months 3 months

Oriental v. CA 89 12 months more than 2 months

PCL v. NLRC90 12 months more than 2 months

Olarte v. Nayona91 12 months 21 days

JSS v.Ferrer92 12 months 16 days

Pentagon v. Adelantar93 12 months 9 months and 7 days

Phil. Employ v. Paramio, et al.94

12 months 10 months

Flourish Maritime v. Almanzor 95

2 years 26 days

Athenna Manpower v. Villanos 96

1 year, 10 months and 28 days

1 month

As the foregoing matrix readily shows, the subject clause classifies OFWs into two categories. The first category includes OFWs with fixed-period employment contracts of less than one year; in case of illegal dismissal, they are entitled to their salaries for the entire unexpired portion of their contract. The second category consists of OFWs with fixed-period employment contracts of one year or more; in case of illegal dismissal, they are entitled to monetary award equivalent to only 3 months of the unexpired portion of their contracts.

The disparity in the treatment of these two groups cannot be discounted. In Skippers, the respondent OFW worked for only 2 months out of his 6-month contract, but was awarded his salaries for the remaining 4 months. In contrast, the respondent OFWs in Oriental and PCL who had also worked for about 2 months out of their 12-month contracts were awarded their salaries for only 3 months of the unexpired portion of their contracts. Even the OFWs involved in Talidano and Univan who had worked for a longer period of 3 months out of their 12-month contracts before being illegally dismissed were awarded their salaries for only 3 months.

To illustrate the disparity even more vividly, the Court assumes a hypothetical OFW-A with an employment contract of 10 months at a monthly salary rate of US$1,000.00 and a hypothetical OFW-B with an

employment contract of 15 months with the same monthly salary rate of US$1,000.00. Both commenced work on the same day and under the same employer, and were illegally dismissed after one month of work. Under the subject clause, OFW-A will be entitled to US$9,000.00, equivalent to his salaries for the remaining 9 months of his contract, whereas OFW-B will be entitled to only US$3,000.00, equivalent to his salaries for 3 months of the unexpired portion of his contract, instead of US$14,000.00 for the unexpired portion of 14 months of his contract, as the US$3,000.00 is the lesser amount.

The disparity becomes more aggravating when the Court takes into account jurisprudence that, prior to the effectivity of R.A. No. 8042 on July 14, 1995,97 illegally dismissed OFWs, no matter how long the period of their employment contracts, were entitled to their salaries for the entire unexpired portions of their contracts. The matrix below speaks for itself:

Case Title Contract Period Period of Service

ATCI v. CA, et al.98 2 years 2 months

Phil. Integrated v. NLRC99

2 years

JGB v. NLC100 2 years

Agoy v. NLRC101 2 years

EDI v. NLRC, et al.102 2 years

Barros v. NLRC, et al.103 12 months

Philippine Transmarine v. Carilla104

12 months 6 months and 22

It is plain that prior to R.A. No. 8042, all OFWs, regardless of contract periods or the unexpired portions thereof, were treated alike in terms of the computation of their monetary benefits in case of illegal dismissal. Their claims were subjected to a uniform rule of computation: their basic salaries multiplied by the entire unexpired portion of their employment contracts.

The enactment of the subject clause in R.A. No. 8042 introduced a differentiated rule of computation of the money claims of illegally dismissed OFWs based on their employment periods, in the process singling out one category whose contracts have an unexpired portion of one year or more and subjecting them to the peculiar disadvantage of having their monetary awards limited to their salaries for 3 months or for the unexpired portion thereof, whichever is less, but all the while sparing the other category from such prejudice, simply because the latter's unexpired contracts fall short of one year.

Among OFWs With Employment Contracts of More Than One Year

Upon closer examination of the terminology employed in the subject clause, the Court now has misgivings on the accuracy of the Marsaman interpretation.

The Court notes that the subject clause "or for three (3) months for every year of the unexpired term, whichever is less" contains the qualifying phrases "every year" and "unexpired term." By its ordinary meaning, the word "term" means a limited or definite extent of time.105 Corollarily, that "every year" is but part of an "unexpired term" is significant in many ways: first, the unexpired term must be at least one year, for if it were any shorter, there would be no occasion for such unexpired term to be measured by every year; and second, the original term must be more than one year, for otherwise, whatever would be the unexpired term thereof will not reach even a year. Consequently, the more decisive factor in the determination of when the subject clause "for three (3) months for every year of the unexpired term, whichever is less" shall apply is not the length of the original contract period as held in Marsaman,106 but the length of the unexpired portion of the contract period -- the subject clause applies in cases when the unexpired portion of the contract period is at least one year, which arithmetically requires that the original contract period be more than one year.

Viewed in that light, the subject clause creates a sub-layer of discrimination among OFWs whose contract periods are for more than one year: those who are illegally dismissed with less than one year left in their contracts shall be entitled to their salaries for the entire unexpired portion thereof, while those who are illegally dismissed with one year or more remaining in their contracts shall be covered by the subject clause, and their monetary benefits limited to their salaries for three months only.

To concretely illustrate the application of the foregoing interpretation of the subject clause, the Court assumes hypothetical OFW-C and OFW-D, who each have a 24-month contract at a salary rate of US$1,000.00 per month. OFW-C is illegally dismissed on the 12th month, and OFW-D, on the 13th month. Considering that there is at least 12 months remaining in the contract period of OFW-C, the subject clause applies to the computation of the latter's monetary benefits. Thus, OFW-C will be entitled, not to US$12,000,00 or the latter's total salaries for the 12 months unexpired portion of the contract, but to the lesser amount of US$3,000.00 or the latter's salaries for 3 months out of the 12-month unexpired term of the contract. On the other hand, OFW-D is spared from the effects of the subject clause, for there are only 11 months left in the latter's contract period. Thus, OFW-D will be entitled to US$11,000.00, which is equivalent to his/her total salaries for the entire 11-month unexpired portion.

OFWs vis-à-vis Local WorkersWith Fixed-Period Employment

As discussed earlier, prior to R.A. No. 8042, a uniform system of computation of the monetary awards of illegally dismissed OFWs was in place. This uniform system was

applicable even to local workers with fixed-term employment.107

The earliest rule prescribing a uniform system of computation was actually Article 299 of the Code of Commerce (1888),108 to wit:

Article 299. If the contracts between the merchants and their shop clerks and employees should have been made of a fixed period, none of the contracting parties, without the consent of the other, may withdraw from the fulfillment of said contract until the termination of the period agreed upon.

Persons violating this clause shall be subject to indemnify the loss and damage suffered, with the exception of the provisions contained in the following articles.

In Reyes v. The Compañia Maritima,109 the Court applied the foregoing provision to determine the liability of a shipping company for the illegal discharge of its managers prior to the expiration of their fixed-term employment. The Court therein held the shipping company liable for the salaries of its managers for the remainder of their fixed-term employment.

There is a more specific rule as far as seafarers are concerned: Article 605 of the Code of Commerce which provides:

Article 605. If the contracts of the captain and members of the crew with the agent should be for a definite period or voyage, they cannot be discharged until the fulfillment of their contracts, except for reasons of insubordination in serious matters, robbery, theft, habitual drunkenness, and damage caused to the vessel or to its cargo by malice or manifest or proven negligence.

Article 605 was applied to Madrigal Shipping Company, Inc. v. Ogilvie,110 in

which the Court held the shipping company liable for the salaries and subsistence allowance of its illegally dismissed employees for the entire unexpired portion of their employment contracts.

While Article 605 has remained good law up to the present,111 Article 299 of the Code of Commerce was replaced by Art. 1586 of the Civil Code of 1889, to wit:

Article 1586. Field hands, mechanics, artisans, and other laborers hired for a certain time and for a certain work cannot leave or be dismissed without sufficient cause, before the fulfillment of the contract. (Emphasis supplied.)

Citing Manresa, the Court in Lemoine v. Alkan112 read the disjunctive "or" in Article 1586 as a conjunctive "and" so as to apply the provision to local workers who are employed for a time certain although for no particular skill. This interpretation of Article 1586 was reiterated in Garcia Palomar v. Hotel de France Company.113 And in both Lemoine and Palomar, the Court adopted the general principle that in actions for wrongful discharge founded on Article 1586, local workers are entitled to recover damages

to the extent of the amount stipulated to be paid to them by the terms of their contract. On the computation of the amount of such damages, the Court in Aldaz v. Gay114 held:

The doctrine is well-established in American jurisprudence, and nothing has been brought to our attention to the contrary under Spanish jurisprudence, that when an employee is wrongfully discharged it is his duty to seek other employment of the same kind in the same community, for the purpose of reducing the damages resulting from such wrongful discharge. However, while this is the general rule, the burden of showing that he failed to make an effort to secure other employment of a like nature, and that other employment of a like nature was obtainable, is upon the defendant. When an employee is wrongfully discharged under a contract of employment his prima facie damage is the amount which he would be entitled to had he continued in such employment until the termination of the period. (Howard vs. Daly, 61 N. Y., 362; Allen vs. Whitlark, 99 Mich., 492; Farrell vs. School District No. 2, 98 Mich., 43.)115 (Emphasis supplied)

On August 30, 1950, the New Civil Code took effect with new provisions on fixed-term employment: Section 2 (Obligations with a Period), Chapter 3, Title I, and Sections 2 (Contract of Labor) and 3 (Contract for a Piece of Work), Chapter 3, Title VIII, Book IV.116 Much like Article 1586 of the Civil Code of 1889, the new provisions of the Civil Code do not expressly provide for the remedies available to a fixed-term worker who is illegally discharged. However, it is noted that in Mackay Radio & Telegraph Co., Inc. v. Rich,117 the Court carried over the principles on the payment of damages underlying Article 1586 of the Civil Code of 1889 and applied the same to a case involving the illegal discharge of a local worker whose fixed-period employment contract was entered into in 1952, when the new Civil Code was already in effect.118

More significantly, the same principles were applied to cases involving overseas Filipino workers whose fixed-term employment contracts were illegally terminated, such as in First Asian Trans & Shipping Agency, Inc. v. Ople,119 involving seafarers who were illegally discharged. In Teknika Skills and Trade Services, Inc. v. National Labor Relations Commission,120 an OFW who was illegally dismissed prior to the expiration of her fixed-period employment contract as a baby sitter, was awarded salaries corresponding to the unexpired portion of her contract. The Court arrived at the same ruling in Anderson v. National Labor Relations Commission,121 which involved a foreman hired in 1988 in Saudi Arabia for a fixed term of two years, but who was illegally dismissed after only nine months on the job -- the Court awarded him salaries corresponding to 15 months, the unexpired portion of his contract. In Asia World Recruitment, Inc. v. National Labor Relations Commission,122 a Filipino working as a security officer in 1989 in Angola was awarded his salaries for the remaining period of his 12-month contract after he was wrongfully discharged. Finally, in Vinta Maritime Co., Inc. v. National Labor Relations Commission,123 an OFW whose 12-month contract was illegally cut short in the second month was declared entitled to his salaries for the remaining 10 months of his contract.

In sum, prior to R.A. No. 8042, OFWs and local workers with fixed-term employment who were illegally discharged were treated alike in terms of the computation of their money claims: they were uniformly entitled to their salaries for the entire unexpired portions of their contracts. But with the enactment of R.A. No. 8042, specifically the adoption of the subject clause, illegally dismissed OFWs with an unexpired portion of one year or more in their employment contract have since been differently treated in that their money claims are subject to a 3-month cap, whereas no such limitation is imposed on local workers with fixed-term employment.

The Court concludes that the subject clause contains a suspect classification in that, in the computation of the monetary benefits of fixed-term employees who are illegally discharged, it imposes a 3-month cap on the claim of OFWs with an unexpired portion of one year or more in their contracts, but none on the claims of other OFWs or local workers with fixed-term employment. The subject clause singles out one classification of OFWs and burdens it with a peculiar disadvantage.

There being a suspect classification involving a vulnerable sector protected by the Constitution, the Court now subjects the classification to a strict judicial scrutiny, and determines whether it serves a compelling state interest through the least restrictive means.

What constitutes compelling state interest is measured by the scale of rights and powers arrayed in the Constitution and calibrated by history.124 It is akin to the paramount interest of the state125 for which some individual liberties must give way, such as the public interest in safeguarding health or maintaining medical standards,126 or in maintaining access to information on matters of public concern.127

In the present case, the Court dug deep into the records but found no compelling state interest that the subject clause may possibly serve.

The OSG defends the subject clause as a police power measure "designed to protect the employment of Filipino seafarers overseas x x x. By limiting the liability to three months [sic], Filipino seafarers have better chance of getting hired by foreign employers." The limitation also protects the interest of local placement agencies, which otherwise may be made to shoulder millions of pesos in "termination pay."128

The OSG explained further:

Often, placement agencies, their liability being solidary, shoulder the payment of money claims in the event that jurisdiction over the foreign employer is not acquired by the court or if the foreign employer reneges on its obligation. Hence, placement agencies that are in good faith and which fulfill their obligations are unnecessarily penalized for the acts of the foreign employer. To protect them and to promote their continued helpful contribution in deploying Filipino migrant workers, liability for money are reduced under Section 10 of RA 8042.

This measure redounds to the benefit of the migrant workers whose welfare the government seeks to promote. The survival of legitimate placement agencies helps [assure] the government that migrant workers are properly deployed and are employed under decent and humane conditions.129 (Emphasis supplied)

However, nowhere in the Comment or Memorandum does the OSG cite the source of its perception of the state interest sought to be served by the subject clause.

The OSG locates the purpose of R.A. No. 8042 in the speech of Rep. Bonifacio Gallego in sponsorship of House Bill No. 14314 (HB 14314), from which the law originated;130 but the speech makes no reference to the underlying reason for the adoption of the subject clause. That is only natural for none of the 29 provisions in HB 14314 resembles the subject clause.

On the other hand, Senate Bill No. 2077 (SB 2077) contains a provision on money claims, to wit:

Sec. 10. Money Claims. - Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee relationship or by virtue of the complaint, the claim arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas employment including claims for actual, moral, exemplary and other forms of damages.

The liability of the principal and the recruitment/placement agency or any and all claims under this Section shall be joint and several.

Any compromise/amicable settlement or voluntary agreement on any money claims exclusive of damages under this Section shall not be less than fifty percent (50%) of such money claims: Provided, That any installment payments, if applicable, to satisfy any such compromise or voluntary settlement shall not be more than two (2) months. Any compromise/voluntary agreement in violation of this paragraph shall be null and void.

Non-compliance with the mandatory period for resolutions of cases provided under this Section shall subject the responsible officials to any or all of the following penalties:

(1) The salary of any such official who fails to render his decision or resolution within the prescribed period shall be, or caused to be, withheld until the said official complies therewith;

(2) Suspension for not more than ninety (90) days; or

(3) Dismissal from the service with disqualification to hold any appointive public office for five (5) years.

Provided, however, That the penalties herein provided shall be without prejudice to any liability which any such official may have incurred under other existing laws or rules and regulations as a consequence of violating the provisions of this paragraph.

But significantly, Section 10 of SB 2077 does not provide for any rule on the computation of money claims.

A rule on the computation of money claims containing the subject clause was inserted and eventually adopted as the 5th paragraph of Section 10 of R.A. No. 8042. The Court examined the rationale of the subject clause in the transcripts of the "Bicameral Conference Committee (Conference Committee) Meetings on the Magna Carta on OCWs (Disagreeing Provisions of Senate Bill No. 2077 and House Bill No. 14314)." However, the Court finds no discernible state interest, let alone a compelling one, that is sought to be protected or advanced by the adoption of the subject clause.

In fine, the Government has failed to discharge its burden of proving the existence of a compelling state interest that would justify the perpetuation of the discrimination against OFWs under the subject clause.

Assuming that, as advanced by the OSG, the purpose of the subject clause is to protect the employment of OFWs by mitigating the solidary liability of placement agencies, such callous and cavalier rationale will have to be rejected. There can never be a justification for any form of government action that alleviates the burden of one sector, but imposes the same burden on another sector, especially when the favored sector is composed of private businesses such as placement agencies, while the disadvantaged sector is composed of OFWs whose protection no less than the Constitution commands. The idea that private business interest can be elevated to the level of a compelling state interest is odious.

Moreover, even if the purpose of the subject clause is to lessen the solidary liability of placement agencies vis-a-vis their foreign principals, there are mechanisms already in place that can be employed to achieve that purpose without infringing on the constitutional rights of OFWs.

The POEA Rules and Regulations Governing the Recruitment and Employment of Land-Based Overseas Workers, dated February 4, 2002, imposes administrative disciplinary measures on erring foreign employers who default on their contractual obligations to migrant workers and/or their Philippine agents. These disciplinary measures range from temporary disqualification to preventive suspension. The POEA Rules and Regulations Governing the Recruitment and Employment of Seafarers, dated May 23, 2003, contains similar administrative disciplinary measures against erring foreign employers.

Resort to these administrative measures is undoubtedly the less restrictive means of aiding local placement agencies in enforcing the solidary liability of their foreign principals.

Thus, the subject clause in the 5th paragraph of Section 10 of R.A. No. 8042 is violative of the right of petitioner and other OFWs to equal protection.1avvphi1

Further, there would be certain misgivings if one is to approach the declaration of the unconstitutionality of the subject clause from the lone perspective that the clause directly violates state policy on labor under Section 3,131 Article XIII of the Constitution.

While all the provisions of the 1987 Constitution are presumed self-executing,132 there are some which this Court has declared not judicially enforceable, Article XIII being one,133 particularly Section 3 thereof, the nature of which, this Court, in Agabon v. National Labor Relations Commission,134 has described to be not self-actuating:

Thus, the constitutional mandates of protection to labor and security of tenure may be deemed as self-executing in the sense that these are automatically acknowledged and observed without need for any enabling legislation. However, to declare that the constitutional provisions are enough to guarantee the full exercise of the rights embodied therein, and the realization of ideals therein expressed, would be impractical, if not unrealistic. The espousal of such view presents the dangerous tendency of being overbroad and exaggerated. The guarantees of "full protection to labor" and "security of tenure", when examined in isolation, are facially unqualified, and the broadest interpretation possible suggests a blanket shield in favor of labor against any form of removal regardless of circumstance. This interpretation implies an unimpeachable right to continued employment-a utopian notion, doubtless-but still hardly within the contemplation of the framers. Subsequent legislation is still needed to define the parameters of these guaranteed rights to ensure the protection and promotion, not only the rights of the labor sector, but of the employers' as well. Without specific and pertinent legislation, judicial bodies will be at a loss, formulating their own conclusion to approximate at least the aims of the Constitution.

Ultimately, therefore, Section 3 of Article XIII cannot, on its own, be a source of a positive enforceable right to stave off the dismissal of an employee for just cause owing to the failure to serve proper notice or hearing. As manifested by several framers of the 1987 Constitution, the provisions on social justice require legislative enactments for their enforceability.135 (Emphasis added)

Thus, Section 3, Article XIII cannot be treated as a principal source of direct enforceable rights, for the violation of which the questioned clause may be declared unconstitutional. It may unwittingly risk opening the floodgates of litigation to every worker or union over every conceivable violation of so broad a concept as social justice for labor.

It must be stressed that Section 3, Article XIII does not directly bestow on the working class any actual enforceable right, but merely clothes it with the status of a sector for whom the Constitution urges protection through executive or legislative action and judicial recognition. Its utility is best limited to being an impetus not just for the executive and legislative departments, but for the judiciary as well, to

protect the welfare of the working class. And it was in fact consistent with that constitutional agenda that the Court in Central Bank (now Bangko Sentral ng Pilipinas) Employee Association, Inc. v. Bangko Sentral ng Pilipinas, penned by then Associate Justice now Chief Justice Reynato S. Puno, formulated the judicial precept that when the challenge to a statute is premised on the perpetuation of prejudice against persons favored by the Constitution with special protection -- such as the working class or a section thereof -- the Court may recognize the existence of a suspect classification and subject the same to strict judicial scrutiny.

The view that the concepts of suspect classification and strict judicial scrutiny formulated in Central Bank Employee Association exaggerate the significance of Section 3, Article XIII is a groundless apprehension. Central Bank applied Article XIII in conjunction with the equal protection clause. Article XIII, by itself, without the application of the equal protection clause, has no life or force of its own as elucidated in Agabon.

Along the same line of reasoning, the Court further holds that the subject clause violates petitioner's right to substantive due process, for it deprives him of property, consisting of monetary benefits, without any existing valid governmental purpose.136

The argument of the Solicitor General, that the actual purpose of the subject clause of limiting the entitlement of OFWs to their three-month salary in case of illegal dismissal, is to give them a better chance of getting hired by foreign employers. This is plain speculation. As earlier discussed, there is nothing in the text of the law or the records of the deliberations leading to its enactment or the pleadings of respondent that would indicate that there is an existing governmental purpose for the subject clause, or even just a pretext of one.

The subject clause does not state or imply any definitive governmental purpose; and it is for that precise reason that the clause violates not just petitioner's right to equal protection, but also her right to substantive due process under Section 1,137 Article III of the Constitution.

The subject clause being unconstitutional, petitioner is entitled to his salaries for the entire unexpired period of nine months and 23 days of his employment contract, pursuant to law and jurisprudence prior to the enactment of R.A. No. 8042.

On the Third Issue

Petitioner contends that his overtime and leave pay should form part of the salary basis in the computation of his monetary award, because these are fixed benefits that have been stipulated into his contract.

Petitioner is mistaken.

The word salaries in Section 10(5) does not include overtime and leave pay. For seafarers like petitioner, DOLE Department Order No. 33, series 1996, provides a Standard Employment Contract of Seafarers, in which salary is understood as the basic wage, exclusive of overtime, leave

pay and other bonuses; whereas overtime pay is compensation for all work "performed" in excess of the regular eight hours, and holiday pay is compensation for any work "performed" on designated rest days and holidays.

By the foregoing definition alone, there is no basis for the automatic inclusion of overtime and holiday pay in the computation of petitioner's monetary award, unless there is evidence that he performed work during those periods. As the Court held in Centennial Transmarine, Inc. v. Dela Cruz,138

However, the payment of overtime pay and leave pay should be disallowed in light of our ruling in Cagampan v. National Labor Relations Commission, to wit:

The rendition of overtime work and the submission of sufficient proof that said was actually performed are conditions to be satisfied before a seaman could be entitled to overtime pay which should be computed on the basis of 30% of the basic monthly salary. In short, the contract provision guarantees the right to overtime pay but the entitlement to such benefit must first be established.

In the same vein, the claim for the day's leave pay for the unexpired portion of the contract is unwarranted since the same is given during the actual service of the seamen.

WHEREFORE, the Court GRANTS the Petition. The subject clause "or for three months for every year of the unexpired term, whichever is less" in the 5th paragraph of Section 10 of Republic Act No. 8042 is DECLARED UNCONSTITUTIONAL; and the December 8, 2004 Decision and April 1, 2005 Resolution of the Court of Appeals are MODIFIED to the effect that petitioner is AWARDED his salaries for the entire unexpired portion of his employment contract consisting of nine months and 23 days computed at the rate of US$1,400.00 per month.

No costs.

SO ORDERED.

G.R. No. 179532               May 30, 2011

CLAUDIO S. YAP, Petitioner, vs.THENAMARIS SHIP'S MANAGEMENT and INTERMARE MARITIME AGENCIES, INC., Respondents.

D E C I S I O N

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure, seeking the reversal of the Court of Appeals (CA) Decision2 dated February 28, 2007, which affirmed with modification the National Labor Relations Commission (NLRC) resolution3 dated April 20, 2005.

The undisputed facts, as found by the CA, are as follows:

[Petitioner] Claudio S. Yap was employed as electrician of the vessel, M/T SEASCOUT on 14 August 2001 by Intermare Maritime Agencies, Inc. in behalf of its principal, Vulture Shipping Limited. The contract of employment entered into by Yap and Capt. Francisco B. Adviento, the General Manager of Intermare, was for a duration of 12 months. On 23 August 2001, Yap boarded M/T SEASCOUT and commenced his job as electrician. However, on or about 08 November 2001, the vessel was sold. The Philippine Overseas Employment Administration (POEA) was informed about the sale on 06 December 2001 in a letter signed by Capt. Adviento. Yap, along with the other crewmembers, was informed by the Master of their vessel that the same was sold and will be scrapped. They were also informed about the Advisory sent by Capt. Constatinou, which states, among others:

" …PLEASE ASK YR OFFICERS AND RATINGS IF THEY WISH TO BE TRANSFERRED TO OTHER VESSELS AFTER VESSEL S DELIVERY (GREEK VIA ATHENS-PHILIPINOS VIA MANILA…

…FOR CREW NOT WISH TRANSFER TO DECLARE THEIR PROSPECTED TIME FOR REEMBARKATION IN ORDER TO SCHEDULE THEM ACCLY…"

Yap received his seniority bonus, vacation bonus, extra bonus along with the scrapping bonus. However, with respect to the payment of his wage, he refused to accept the payment of one-month basic wage. He insisted that he was entitled to the payment of the unexpired portion of his contract since he was illegally dismissed from employment. He alleged that he opted for immediate transfer but none was made.

[Respondents], for their part, contended that Yap was not illegally dismissed. They alleged that following the sale of the M/T SEASCOUT, Yap signed off from the vessel on 10 November 2001 and was paid his wages corresponding to the months he worked or until 10 November 2001 plus his seniority bonus, vacation bonus and extra bonus. They further alleged that Yap’s employment contract was validly terminated due to the sale of the vessel and no arrangement was made for Yap’s transfer to Thenamaris’ other vessels.4

Thus, Claudio S. Yap (petitioner) filed a complaint for Illegal Dismissal with Damages and Attorney’s Fees before the Labor Arbiter (LA). Petitioner claimed that he was entitled to the salaries corresponding to the unexpired portion of his contract. Subsequently, he filed an amended complaint, impleading Captain Francisco Adviento of respondents Intermare Maritime Agencies, Inc. (Intermare) and Thenamaris Ship’s Management (respondents), together with C.J. Martionos, Interseas Trading and Financing Corporation, and Vulture Shipping Limited/Stejo Shipping Limited.

On July 26, 2004, the LA rendered a decision5 in favor of petitioner, finding the latter to have been constructively and illegally dismissed by respondents. Moreover, the LA found that respondents acted in bad faith when they assured petitioner of re-embarkation and required him to produce an electrician certificate during the period of his contract, but actually he was not able to board one despite of respondents’

numerous vessels. Petitioner made several follow-ups for his re-embarkation but respondents failed to heed his plea; thus, petitioner was forced to litigate in order to vindicate his rights. Lastly, the LA opined that since the unexpired portion of petitioner’s contract was less than one year, petitioner was entitled to his salaries for the unexpired portion of his contract for a period of nine months. The LA disposed, as follows:

WHEREFORE, in view of the foregoing, a decision is hereby rendered declaring complainant to have been constructively dismissed. Accordingly, respondents Intermare Maritime Agency Incorporated, Thenamaris Ship’s Mgt., and Vulture Shipping Limited are ordered to pay jointly and severally complainant Claudio S. Yap the sum of $12,870.00 or its peso equivalent at the time of payment. In addition, moral damages of ONE HUNDRED THOUSAND PESOS (P100,000.00) and exemplary damages of FIFTY THOUSAND PESOS (P50,000.00) are awarded plus ten percent (10%) of the total award as attorney’s fees.

Other money claims are DISMISSED for lack of merit.

SO ORDERED.6

Aggrieved, respondents sought recourse from the NLRC.

In its decision7 dated January 14, 2005, the NLRC affirmed the LA’s findings that petitioner was indeed constructively and illegally dismissed; that respondents’ bad faith was evident on their wilful failure to transfer petitioner to another vessel; and that the award of attorney’s fees was warranted. However, the NLRC held that instead of an award of salaries corresponding to nine months, petitioner was only entitled to salaries for three months as provided under Section 108 of Republic Act (R.A.) No. 8042,9 as enunciated in our ruling in Marsaman Manning Agency, Inc. v. National Labor Relations Commission.10 Hence, the NLRC ruled in this wise:

WHEREFORE, premises considered, the decision of the Labor Arbiter finding the termination of complainant illegal is hereby AFFIRMED with a MODIFICATION. Complainant[’s] salary for the unexpired portion of his contract should only be limited to three (3) months basic salary.

Respondents Intermare Maritime Agency, Inc.[,] Vulture Shipping Limited and Thenamaris Ship Management are hereby ordered to jointly and severally pay complainant, the following:

1. Three (3) months basic salary – US$4,290.00 or its peso equivalent at the time of actual payment.

2. Moral damages – P100,000.00

3. Exemplary damages – P50,000.00

4. Attorney’s fees equivalent to 10% of the total monetary award.

SO ORDERED.11

Respondents filed a Motion for Partial Reconsideration,12 praying for the reversal and setting aside of the NLRC decision, and that a new one be rendered dismissing the complaint. Petitioner, on the other hand, filed his own Motion for Partial Reconsideration,13 praying that he be paid the nine (9)-month basic salary, as awarded by the LA.

On April 20, 2005, a resolution14 was rendered by the NLRC, affirming the findings of Illegal Dismissal and respondents’ failure to transfer petitioner to another vessel. However, finding merit in petitioner’s arguments, the NLRC reversed its earlier Decision, holding that "there can be no choice to grant only three (3) months salary for every year of the unexpired term because there is no full year of unexpired term which this can be applied." Hence –

WHEREFORE, premises considered, complainant’s Motion for Partial Reconsideration is hereby granted. The award of three (3) months basic salary in the sum of US$4,290.00 is hereby modified in that complainant is entitled to his salary for the unexpired portion of employment contract in the sum of US$12,870.00 or its peso equivalent at the time of actual payment.

All aspect of our January 14, 2005 Decision STANDS.

SO ORDERED.15

Respondents filed a Motion for Reconsideration, which the NLRC denied.

Undaunted, respondents filed a petition for certiorari16 under Rule 65 of the Rules of Civil Procedure before the CA. On February 28, 2007, the CA affirmed the findings and ruling of the LA and the NLRC that petitioner was constructively and illegally dismissed. The CA held that respondents failed to show that the NLRC acted without statutory authority and that its findings were not supported by law, jurisprudence, and evidence on record. Likewise, the CA affirmed the lower agencies’ findings that the advisory of Captain Constantinou, taken together with the other documents and additional requirements imposed on petitioner, only meant that the latter should have been re-embarked. In the same token, the CA upheld the lower agencies’ unanimous finding of bad faith, warranting the imposition of moral and exemplary damages and attorney’s fees. However, the CA ruled that the NLRC erred in sustaining the LA’s interpretation of Section 10 of R.A. No. 8042. In this regard, the CA relied on the clause "or for three months for every year of the unexpired term, whichever is less" provided in the 5th paragraph of Section 10 of R.A. No. 8042 and held:

In the present case, the employment contract concerned has a term of one year or 12 months which commenced on August 14, 2001. However, it was preterminated without a valid cause. [Petitioner] was paid his wages for the corresponding months he worked until the 10th of November. Pursuant to the provisions of Sec. 10, [R.A. No.] 8042, therefore, the option of "three months for every year of the unexpired term" is applicable.17

Thus, the CA provided, to wit:

WHEREFORE, premises considered, this Petition for Certiorari is DENIED. The Decision dated January 14, 2005, and Resolutions, dated April 20, 2005 and July 29, 2005, respectively, of public respondent National Labor Relations Commission-Fourth Division, Cebu City, in NLRC No. V-000038-04 (RAB VIII (OFW)-04-01-0006) are hereby AFFIRMED with the MODIFICATION that private respondent is entitled to three (3) months of basic salary computed at US$4,290.00 or its peso equivalent at the time of actual payment.

Costs against Petitioners.18

Both parties filed their respective motions for reconsideration, which the CA, however, denied in its Resolution19 dated August 30, 2007.

Unyielding, petitioner filed this petition, raising the following issues:

1) Whether or not Section 10 of R.A. [No.] 8042, to the extent that it affords an illegally dismissed migrant worker the lesser benefit of – "salaries for [the] unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever is less" – is constitutional; and

2) Assuming that it is, whether or not the Court of Appeals gravely erred in granting petitioner only three (3) months backwages when his unexpired term of 9 months is far short of the "every year of the unexpired term" threshold.20

In the meantime, while this case was pending before this Court, we declared as unconstitutional the clause "or for three months for every year of the unexpired term, whichever is less" provided in the 5th paragraph of Section 10 of R.A. No. 8042 in the case of Serrano v. Gallant Maritime Services, Inc.21 on March 24, 2009.

Apparently, unaware of our ruling in Serrano, petitioner claims that the 5th paragraph of Section 10, R.A. No. 8042, is violative of Section 1,22 Article III and Section 3,23 Article XIII of the Constitution to the extent that it gives an erring employer the option to pay an illegally dismissed migrant worker only three months for every year of the unexpired term of his contract; that said provision of law has long been a source of abuse by callous employers against migrant workers; and that said provision violates the equal protection clause under the Constitution because, while illegally dismissed local workers are guaranteed under the Labor Code of reinstatement with full backwages computed from the time compensation was withheld from them up to their actual reinstatement, migrant workers, by virtue of Section 10 of R.A. No. 8042, have to waive nine months of their collectible backwages every time they have a year of unexpired term of contract to reckon with. Finally, petitioner posits that, assuming said provision of law is constitutional, the CA gravely abused its discretion when it reduced petitioner’s backwages from nine months to three months as his nine-month unexpired term cannot accommodate the lesser relief of three months for every year of the unexpired term.24

On the other hand, respondents, aware of our ruling in Serrano, aver that our pronouncement of unconstitutionality of the clause "or for three months for every year of the unexpired term, whichever is less" provided in the 5th paragraph of Section 10 of R.A. No. 8042 in Serrano should not apply in this case because Section 10 of R.A. No. 8042 is a substantive law that deals with the rights and obligations of the parties in case of Illegal Dismissal of a migrant worker and is not merely procedural in character. Thus, pursuant to the Civil Code, there should be no retroactive application of the law in this case. Moreover, respondents asseverate that petitioner’s tanker allowance of US$130.00 should not be included in the computation of the award as petitioner’s basic salary, as provided under his contract, was only US$1,300.00. Respondents submit that the CA erred in its computation since it included the said tanker allowance. Respondents opine that petitioner should be entitled only to US$3,900.00 and not to US$4,290.00, as granted by the CA. Invoking Serrano, respondents claim that the tanker allowance should be excluded from the definition of the term "salary." Also, respondents manifest that the full sum of P878,914.47 in Intermare’s bank account was garnished and subsequently withdrawn and deposited with the NLRC Cashier of Tacloban City on February 14, 2007. On February 16, 2007, while this case was pending before the CA, the LA issued an Order releasing the amount of P781,870.03 to petitioner as his award, together with the sum of P86,744.44 to petitioner’s former lawyer as attorney’s fees, and the amount of P3,570.00 as execution and deposit fees. Thus, respondents pray that the instant petition be denied and that petitioner be directed to return to Intermare the sum of US$8,970.00 or its peso equivalent.25

On this note, petitioner counters that this new issue as to the inclusion of the tanker allowance in the computation of the award was not raised by respondents before the LA, the NLRC and the CA, nor was it raised in respondents’ pleadings other than in their Memorandum before this Court, which should not be allowed under the circumstances.26

The petition is impressed with merit.

Prefatorily, it bears emphasis that the unanimous finding of the LA, the NLRC and the CA that the dismissal of petitioner was illegal is not disputed. Likewise not disputed is the tribunals’ unanimous finding of bad faith on the part of respondents, thus, warranting the award of moral and exemplary damages and attorney’s fees. What remains in issue, therefore, is the constitutionality of the 5th paragraph of Section 10 of R.A. No. 8042 and, necessarily, the proper computation of the lump-sum salary to be awarded to petitioner by reason of his illegal dismissal.

Verily, we have already declared in Serrano that the clause "or for three months for every year of the unexpired term, whichever is less" provided in the 5th paragraph of Section 10 of R.A. No. 8042 is unconstitutional for being violative of the rights of Overseas Filipino Workers (OFWs) to equal protection of the laws. In an exhaustive discussion of the intricacies and ramifications of the said clause, this Court, in Serrano, pertinently held:

The Court concludes that the subject clause contains a suspect classification in that, in the computation of the

monetary benefits of fixed-term employees who are illegally discharged, it imposes a 3-month cap on the claim of OFWs with an unexpired portion of one year or more in their contracts, but none on the claims of other OFWs or local workers with fixed-term employment. The subject clause singles out one classification of OFWs and burdens it with a peculiar disadvantage.27

Moreover, this Court held therein that the subject clause does not state or imply any definitive governmental purpose; hence, the same violates not just therein petitioner’s right to equal protection, but also his right to substantive due process under Section 1, Article III of the Constitution.28 Consequently, petitioner therein was accorded his salaries for the entire unexpired period of nine months and 23 days of his employment contract, pursuant to law and jurisprudence prior to the enactment of R.A. No. 8042.

We have already spoken. Thus, this case should not be different from Serrano.

As a general rule, an unconstitutional act is not a law; it confers no rights; it imposes no duties; it affords no protection; it creates no office; it is inoperative as if it has not been passed at all. The general rule is supported by Article 7 of the Civil Code, which provides:

Art. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by disuse or custom or practice to the contrary.

The doctrine of operative fact serves as an exception to the aforementioned general rule. In Planters Products, Inc. v. Fertiphil Corporation,29 we held:

The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair play. It nullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to a determination of unconstitutionality is an operative fact and may have consequences which cannot always be ignored. The past cannot always be erased by a new judicial declaration.

The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on those who have relied on the invalid law. Thus, it was applied to a criminal case when a declaration of unconstitutionality would put the accused in double jeopardy or would put in limbo the acts done by a municipality in reliance upon a law creating it.30

Following Serrano, we hold that this case should not be included in the aforementioned exception. After all, it was not the fault of petitioner that he lost his job due to an act of illegal dismissal committed by respondents. To rule otherwise would be iniquitous to petitioner and other OFWs, and would, in effect, send a wrong signal that principals/employers and recruitment/manning agencies may violate an OFW’s security of tenure which an employment contract embodies and actually profit from such violation based on an unconstitutional provision of law.

In the same vein, we cannot subscribe to respondents’ postulation that the tanker allowance of US$130.00 should not be included in the computation of the lump-sum salary to be awarded to petitioner.

First. It is only at this late stage, more particularly in their Memorandum, that respondents are raising this issue. It was not raised before the LA, the NLRC, and the CA. They did not even assail the award accorded by the CA, which computed the lump-sum salary of petitioner at the basic salary of US$1,430.00, and which clearly included the US$130.00 tanker allowance. Hence, fair play, justice, and due process dictate that this Court cannot now, for the first time on appeal, pass upon this question. Matters not taken up below cannot be raised for the first time on appeal. They must be raised seasonably in the proceedings before the lower tribunals. Questions raised on appeal must be within the issues framed by the parties; consequently, issues not raised before the lower tribunals cannot be raised for the first time on appeal.311avvphi1

Second. Respondents’ invocation of Serrano is unavailing. Indeed, we made the following pronouncements in Serrano, to wit:

The word salaries in Section 10(5) does not include overtime and leave pay. For seafarers like petitioner, DOLE Department Order No. 33, series 1996, provides a Standard Employment Contract of Seafarers, in which salary is understood as the basic wage, exclusive of overtime, leave pay and other bonuses; whereas overtime pay is compensation for all work "performed" in excess of the regular eight hours, and holiday pay is compensation for any work "performed" on designated rest days and holidays.32

A close perusal of the contract reveals that the tanker allowance of US$130.00 was not categorized as a bonus but was rather encapsulated in the basic salary clause, hence, forming part of the basic salary of petitioner. Respondents themselves in their petition for certiorari before the CA averred that petitioner’s basic salary, pursuant to the contract, was "US$1,300.00 + US$130.00 tanker allowance."33 If respondents intended it differently, the contract per se should have indicated that said allowance does not form part of the basic salary or, simply, the contract should have separated it from the basic salary clause.

A final note.

We ought to be reminded of the plight and sacrifices of our OFWs. In Olarte v. Nayona,34 this Court held that:

Our overseas workers belong to a disadvantaged class. Most of them come from the poorest sector of our society. Their profile shows they live in suffocating slums, trapped in an environment of crimes. Hardly literate and in ill health, their only hope lies in jobs they find with difficulty in our country. Their unfortunate circumstance makes them easy prey to avaricious employers. They will climb mountains, cross the seas, endure slave treatment in foreign lands just to survive. Out of despondence, they will work under sub-human conditions and accept salaries below the minimum. The least we can do is to protect them with our laws.

WHEREFORE, the Petition is GRANTED. The Court of Appeals Decision dated February 28, 2007 and Resolution dated August 30, 2007 are hereby MODIFIED to the effect that petitioner is AWARDED his salaries for the entire unexpired portion of his employment contract consisting of nine months computed at the rate of US$1,430.00 per month. All other awards are hereby AFFIRMED. No costs.

SO ORDERED.

G.R. No. 80770 August 10, 1989

INTERNATIONAL HARDWARE, INC., petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) and BONIFACIO PEDROSO, respondents.

Pepino Law Office for petitioner.

Puerto, Falcon and Associates Labor and Law Offices for private respondent.

 

GANCAYCO, J.:

The singular issue in this case is whether or not an employee who had been retrenched or otherwise separated from the service of an employer who, in turn, suffered financial losses and revenues is entitled to separation pay.

Private respondent Bonifacio Pedroso was employed by petitioner first, as a truck helper, and later as a delivery truck driver with a monthly salary of P900.00 starting from 1966 until December 1984 when the number of working days of private respondent was reduced to just two days a week due to the financial losses suffered by the business of petitioner. Thus, private respondent filed a complaint for illegal dismissal and the payment of separation pay in the Department of Labor and Employment (DOLE).

In a decision dated September 12, 1985, the labor arbiter ruled that inasmuch as the working arrangement of private respondent was rotated in such a way that the number of his working days had been substantially reduced for more than six (6) months since December, 1984 and considering that the financial crisis of petitioner has not eased, private respondent is entitled to the payment of separation pay as if he was actually retrenched, in the amount of P8,100.00.

Petitioner brought an appeal to the respondent National Labor Relations Commission (NLRC). In a decision dated July 3, 1987, the NLRC affirmed the said decision of the labor arbiter. The NLRC held that there was in effect a "constructive dismissal" of private respondent considering that his rotation of work was not with his consent and that the same was not reported to the DOLE, and considering further that more than six (6) months have already lapsed but the financial crisis of petitioner had not been adverted to.

Petitioner now filed this petition for review which should have been be a petition for certiorari under Rule 65 of the

Rules of Court, wherein it is alleged that the NLRC committed a grave abuse of discretion in affirming the payment of separation pay to private respondent when he had not been actually dismissed from the service.

Article 283 of the Labor Code provides as follows:

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

Under the foregoing provision of law, an employer may terminate the employment of any employee due to the following causes: (1) installation of labor-saving devices; (2) redundancy; (3) retrenchment to prevent losses; and (4) the closing or cessation of operation of the establishment or undertaking, unless the closing is for the purpose of circumventing the provisions of law. It is required that to effect such termination of any employee, the employer must serve a written notice on the workers and the DOLE at least one (1) month before the intended date thereof. The purpose of such previous notice to DOLE must be to enable it to ascertain the verity of the cause for termination of employment.

In case of termination due to the installation of labor-saving devices or redundancy the worker affected thereby shall be entitled to separation pay equivalent to at least one (1) month pay or to at least one month pay for every year of service, whichever is higher. However, in case of retrenchment to prevent losses and in cases of closure or cessation of operations of the establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher.

In this case, it is admitted that private respondent had not been terminated or retrenched by petitioner but that due to financial crisis the number of working days of private respondent was reduced to just two days a week. Petitioner could not have been expected to notify DOLE of the retrenchment of private respondent under the circumstances for there was no intention to do so on the part of petitioner.

By the same token, if an employee consented to his retrenchment or voluntarily applied for retrenchment with the employer due to the installation of labor-saving devices, redundancy, closure or cessation of operation or to prevent financial losses to the business of the employer, the required previous notice to the DOLE is not necessary as the employee thereby acknowledged the existence of a valid cause for termination of his employment.

Nevertheless, considering that private respondent had been rotated by petitioner for over six (6) months due to the serious losses in the business so that private respondent had been effectively deprived a gainful occupation thereby, and considering further that the business of petitioner was ultimately closed and sold off, the Court finds, and so holds that the NLRC correctly ruled that private respondent was thereby constructively dismissed or retrenched from employment. Under Article 286 of the Labor Code, it is provided as follows:

ART. 286. When employment not deemed terminated. — The bonafide suspension of the operation of a business or undertaking for a period not exceeding six months, or the fulfillment by the employee of a military or civic duty shall not terminate employment in all such cases, the employer shall reinstate the employee to his former position without loss of seniority rights if he indicates his desire to resume his work not later than one month from the resumption of operations of his employer or from his relief from the military or civic duty.

From the foregoing it is clear that when the bona fide suspension of the operation of a business or undertaking exceeds six (6) months then the employment of the employee shall be deemed terminated.

Thus, private respondent is entitled to one (1) month pay or at least (1/2) month pay for every year of service, whichever is higher. The Court assumes that the award of P8,100.00 separation pay in favor of the private respondent was computed in accordance with the foregoing formula as provided by law. Otherwise, it should be recomputed accordingly.

WHEREFORE, the petition is DISMISSED for lack of merit, without pronouncement as to costs. This decision is immediately executory.

SO ORDERED.

[G.R. No. 151309, October 15, 2008]

BISIG MANGGAGAWA SA TRYCO AND/OR FRANCISCO SIQUIG, AS UNION PRESIDENT,

JOSELITO LARIÑO, VIVENCIO B. BARTE, SATURNINO EGERA AND SIMPLICIO AYA-AY,

PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, TRYCO PHARMA

CORPORATION, AND/OR WILFREDO C. RIVERA, RESPONDENTS.

DECISION

NACHURA, J.:

This petition seeks a review of the Decision[1] of the Court of Appeals (CA) dated July 24, 2001 and Resolution dated December 20, 2001, which affirmed the finding of the National Labor Relations Commission (NLRC) that the petitioners' transfer to another workplace did not amount to a constructive dismissal and an unfair labor practice.

The pertinent factual antecedents are as follows:

Tryco Pharma Corporation (Tryco) is a manufacturer of veterinary medicines and its principal office is located in Caloocan City. Petitioners Joselito Lariño, Vivencio Barte, Saturnino Egera and Simplicio Aya-ay are its regular employees, occupying the positions of helper, shipment helper and factory workers, respectively, assigned to the Production Department. They are members of Bisig Manggagawa sa Tryco (BMT), the exclusive bargaining representative of the rank-and-file employees.

Tryco and the petitioners signed separate Memorand[a] of Agreement[2] (MOA), providing for a compressed workweek schedule to be implemented in the company effective May 20, 1996. The MOA was entered into pursuant to Department of Labor and Employment Department Order (D.O.) No. 21, Series of 1990, Guidelines on the Implementation of Compressed Workweek. As provided in the MOA, 8:00 a.m. to 6:12 p.m., from Monday to Friday, shall be considered as the regular working hours, and no overtime pay shall be due and payable to the employee for work rendered during those hours. The MOA specifically stated that the employee waives the right to claim overtime pay for work rendered after 5:00 p.m. until 6:12 p.m. from Monday to Friday considering that the compressed workweek schedule is adopted in lieu of the regular workweek schedule which also consists of 46 hours. However, should an employee be permitted or required to work beyond 6:12 p.m., such employee shall be entitled to overtime pay.

Tryco informed the Bureau of Working Conditions of the Department of Labor and Employment of the implementation of a compressed workweek in the company.[3]

In January 1997, BMT and Tryco negotiated for the renewal of their collective bargaining agreement (CBA) but failed to arrive at a new agreement.

Meantime, Tryco received the Letter dated March 26, 1997 from the Bureau of Animal Industry of the Department of Agriculture reminding it that its production should be conducted in San Rafael, Bulacan, not in Caloocan City:

MR. WILFREDO C. RIVERAPresident, Tryco Pharma CorporationSan Rafael, Bulacan

Subject: LTO as VDAP Manufacturer at San Rafael, Bulacan

Dear Mr. Rivera:

This is to remind you that your License to Operate as Veterinary Drug and Product Manufacturer is addressed at San Rafael, Bulacan, and so, therefore, your production should be done at the above mentioned address only. Further, production of a drug includes propagation, processing, compounding, finishing, filling, repacking, labeling, advertising, storage, distribution or sale of the veterinary drug product. In no instance, therefore, should any of the above be done at your business office at 117 M. Ponce St., EDSA, Caloocan City.

Please be guided accordingly.

Thank you.

Very truly yours,

(sgd.)EDNA ZENAIDA V. VILLACORTE, D.V.M.Chief, Animal Feeds Standard Division[4]

Accordingly, Tryco issued a Memorandum[5] dated April 7, 1997 which directed petitioner Aya-ay to report to the company's plant site in Bulacan. When petitioner Aya-ay refused to obey, Tryco reiterated the order on April 18, 1997.[6] Subsequently, through a Memorandum[7] dated May 9, 1997, Tryco also directed petitioners Egera, Lariño and Barte to report to the company's plant site in Bulacan.

BMT opposed the transfer of its members to San Rafael, Bulacan, contending that it constitutes unfair labor practice. In protest, BMT declared a strike on May 26, 1997.

In August 1997, petitioners filed their separate complaints[8] for illegal dismissal, underpayment of wages, nonpayment of overtime pay and service incentive leave, and refusal to bargain against Tryco and its President, Wilfredo C. Rivera. In their Position Paper,[9] petitioners alleged that the company acted in bad faith during the CBA negotiations because it sent representatives without authority to bind the company, and this was the reason why the negotiations failed. They added that the management transferred petitioners Lariño, Barte, Egera and Aya-ay from Caloocan to San Rafael, Bulacan to paralyze the union. They prayed for the company to pay them their salaries from May 26 to 31, 1997, service incentive leave, and overtime pay, and to implement Wage Order No. 4.

In their defense, respondents averred that the petitioners were not dismissed but they refused to comply with the

management's directive for them to report to the company's plant in San Rafael, Bulacan. They denied the allegation that they negotiated in bad faith, stating that, in fact, they sent the Executive Vice-President and Legal Counsel as the company's representatives to the CBA negotiations. They claim that the failure to arrive at an agreement was due to the stubbornness of the union panel.

Respondents further averred that, long before the start of the negotiations, the company had already been planning to decongest the Caloocan office to comply with the government policy to shift the concentration of manufacturing activities from the metropolis to the countryside. The decision to transfer the company's production activities to San Rafael, Bulacan was precipitated by the letter-reminder of the Bureau of Animal Industry.

On February 27, 1998, the Labor Arbiter dismissed the case for lack of merit.[10] The Labor Arbiter held that the transfer of the petitioners would not paralyze or render the union ineffective for the following reasons: (1) complainants are not members of the negotiating panel; and (2) the transfer was made pursuant to the directive of the Department of Agriculture.

The Labor Arbiter also denied the money claims, ratiocinating that the nonpayment of wages was justified because the petitioners did not render work from May 26 to 31, 1997; overtime pay is not due because of the compressed workweek agreement between the union and management; and service incentive leave pay cannot be claimed by the complainants because they are already enjoying vacation leave with pay for at least five days. As for the claim of noncompliance with Wage Order No. 4, the Labor Arbiter held that the issue should be left to the grievance machinery or voluntary arbitrator.

On October 29, 1999, the NLRC affirmed the Labor Arbiter's Decision, dismissing the case, thus:

PREMISES CONSIDERED, the Decision of February 27, 1998 is hereby AFFIRMED and complainants' appeal therefrom DISMISSED for lack of merit. Complainants Joselito Lariño, Vivencio Barte, Saturnino Egera and Simplicio Aya-ay are directed to report to work at respondents' San Rafael Plant, Bulacan but without backwages. Respondents are directed to accept the complainants back to work.

SO ORDERED.[11]

On December 22, 1999, the NLRC denied the petitioners' motion for reconsideration for lack of merit.[12]

Left with no recourse, petitioners filed a petition for certiorari with the CA.

On July 24, 2001, the CA dismissed the petition for certiorari and ruled that the transfer order was a management prerogative not amounting to a constructive dismissal or an unfair labor practice. The CA further sustained the enforceability of the MOA, particularly the

waiver of overtime pay in light of this Court's rulings upholding a waiver of benefits in exchange of other valuable privileges. The dispositive portion of the said CA decision reads:

WHEREFORE, the instant petition is DISMISSED. The Decision of the Labor Arbiter dated February 27, 1998 and the Decision and Resolution of the NLRC promulgated on October 29, 1999 and December 22, 1999, respectively, in NLRC-NCR Case Nos. 08-05715-97, 08-06115-97 and 08-05920-97, are AFFIRMED.

SO ORDERED.[13]

The CA denied the petitioners' motion for reconsideration on December 20, 2001.[14]

Dissatisfied, petitioners filed this petition for review raising the following issues:

-A-

THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE PATENTLY ERRONEOUS RULING OF THE LABOR ARBITER AND THE COMMISSION THAT THERE WAS NO DISMISSAL, MUCH LESS ILLEGAL DISMISSAL, OF THE INDIVIDUAL PETITIONERS.

-B-

THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING AND CONCLUDING THAT PRIVATE RESPONDENTS COMMITTED ACTS OF UNFAIR LABOR PRACTICE.

-C-

THE COURT OF APPEALS ERRED IN NOT FINDING AND CONCLUDING THAT PETITIONERS ARE ENTITLED TO THEIR MONEY CLAIMS AND TO DAMAGES, AS WELL AS LITIGATION COSTS AND ATTORNEY'S FEES.[15]

The petition has no merit.

We have no reason to deviate from the well-entrenched rule that findings of fact of labor officials, who are deemed to have acquired expertise in matters within their respective jurisdiction, are generally accorded not only respect but even finality, and bind us when supported by substantial evidence.[16] This is particularly true when the findings of the Labor Arbiter, the NLRC and the CA are in absolute

agreement.[17] In this case, the Labor Arbiter, the NLRC, and the CA uniformly agreed that the petitioners were not constructively dismissed and that the transfer orders did not amount to an unfair labor practice. But if only to disabuse the minds of the petitioners who have persistently pursued this case on the mistaken belief that the labor tribunals and the appellate court committed grievous errors, this Court will go over the issues raised in this petition.

Petitioners mainly contend that the transfer orders amount to a constructive dismissal. They maintain that the letter of the Bureau of Animal Industry is not credible because it is not authenticated; it is only a ploy, solicited by respondents to give them an excuse to effect a massive transfer of employees. They point out that the Caloocan City office is still engaged in production activities until now and respondents even hired new employees to replace them.

We do not agree.

We refuse to accept the petitioners' wild and reckless imputation that the Bureau of Animal Industry conspired with the respondents just to effect the transfer of the petitioners. There is not an iota of proof to support this outlandish claim. Absent any evidence, the allegation is not only highly irresponsible but is grossly unfair to the government agency concerned. Even as this Court has given litigants and counsel a relatively wide latitude to present arguments in support of their cause, we will not tolerate outright misrepresentation or baseless accusation. Let this be fair warning to counsel for the petitioners.

Furthermore, Tryco's decision to transfer its production activities to San Rafael, Bulacan, regardless of whether it was made pursuant to the letter of the Bureau of Animal Industry, was within the scope of its inherent right to control and manage its enterprise effectively. While the law is solicitous of the welfare of employees, it must also protect the right of an employer to exercise what are clearly management prerogatives. The free will of management to conduct its own business affairs to achieve its purpose cannot be denied.[18]

This prerogative extends to the management's right to regulate, according to its own discretion and judgment, all aspects of employment, including the freedom to transfer and reassign employees according to the requirements of its business.[19] Management's prerogative of transferring and reassigning employees from one area of operation to another in order to meet the requirements of the business is, therefore, generally not constitutive of constructive dismissal.[20] Thus, the consequent transfer of Tryco's personnel, assigned to the Production Department was well within the scope of its management prerogative.

When the transfer is not unreasonable, or inconvenient, or prejudicial to the employee, and it does not involve a demotion in rank or diminution of salaries, benefits, and other privileges, the employee may not complain that it amounts to a constructive dismissal.[21] However, the employer has the burden of proving that the transfer of an employee is for valid and legitimate grounds. The employer must 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.[22]

Indisputably, in the instant case, the transfer orders do not entail a demotion in rank or diminution of salaries, benefits and other privileges of the petitioners. Petitioners, therefore, anchor their objection solely on the ground that it would cause them great inconvenience since they are all residents of Metro Manila and they would incur additional expenses to travel daily from Manila to Bulacan.

The Court has previously declared that mere incidental inconvenience is not sufficient to warrant a claim of constructive dismissal.[23] Objection to a transfer that is grounded solely upon the personal inconvenience or hardship that will be caused to the employee by reason of the transfer is not a valid reason to disobey an order of transfer.[24]

Incidentally, petitioners cite Escobin v. NLRC[25] where the Court held that the transfer of the employees therein was unreasonable. However, the distance of the workplace to which the employees were being transferred can hardly compare to that of the present case. In that case, the employees were being transferred from Basilan to Manila; hence, the Court noted that the transfer would have entailed the separation of the employees from their families who were residing in Basilan and accrual of additional expenses for living accommodations in Manila. In contrast, the distance from Caloocan to San Rafael, Bulacan is not considerably great so as to compel petitioners to seek living accommodations in the area and prevent them from commuting to Metro Manila daily to be with their families.

Petitioners, however, went further and argued that the transfer orders amounted to unfair labor practice because it would paralyze and render the union ineffective.

To begin with, we cannot see how the mere transfer of its members can paralyze the union. The union was not deprived of the membership of the petitioners whose work assignments were only transferred to another location.

More importantly, there was no showing or any indication that the transfer orders were motivated by an intention to interfere with the petitioners' right to organize. Unfair labor practice refers to acts that violate the workers' right to organize. With the exception of Article 248(f) of the Labor Code of the Philippines, the prohibited acts are related to the workers' right to self-organization and to the observance of a CBA. Without that element, the acts, no matter how unfair, are not unfair labor practices.[26]

Finally, we do not agree with the petitioners' assertion that the MOA is not enforceable as it is contrary to law. The MOA is enforceable and binding against the petitioners. Where it is shown that the person making the waiver did so voluntarily, with full understanding of what he was doing, and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as a valid and binding undertaking.[27]

D.O. No. 21 sanctions the waiver of overtime pay in consideration of the benefits that the employees will derive from the adoption of a compressed workweek scheme, thus:

The compressed workweek scheme was originally conceived for establishments

wishing to save on energy costs, promote greater work efficiency and lower the rate of employee absenteeism, among others. Workers favor the scheme considering that it would mean savings on the increasing cost of transportation fares for at least one (1) day a week; savings on meal and snack expenses; longer weekends, or an additional 52 off-days a year, that can be devoted to rest, leisure, family responsibilities, studies and other personal matters, and that it will spare them for at least another day in a week from certain inconveniences that are the normal incidents of employment, such as commuting to and from the workplace, travel time spent, exposure to dust and motor vehicle fumes, dressing up for work, etc. Thus, under this scheme, the generally observed workweek of six (6) days is shortened to five (5) days but prolonging the working hours from Monday to Friday without the employer being obliged for pay overtime premium compensation for work performed in excess of eight (8) hours on weekdays, in exchange for the benefits abovecited that will accrue to the employees.

Moreover, the adoption of a compressed workweek scheme in the company will help temper any inconvenience that will be caused the petitioners by their transfer to a farther workplace.

Notably, the MOA complied with the following conditions set by the DOLE, under D.O. No. 21, to protect the interest of the employees in the implementation of a compressed workweek scheme:

1. The employees voluntarily agree to work more than eight (8) hours a day the total in a week of which shall not exceed their normal weekly hours of work prior to adoption of the compressed workweek arrangement;

2. There will not be any diminution whatsoever in the weekly or monthly take-home pay and fringe benefits of the employees;

3. If an employee is permitted or required to work in excess of his normal weekly hours of work prior to the adoption of the compressed workweek scheme, all such excess hours shall be considered overtime work and shall be compensated in accordance with the provisions of the Labor Code or applicable Collective Bargaining Agreement (CBA);

4. Appropriate waivers with respect to overtime premium pay for

work performed in excess of eight (8) hours a day may be devised by the parties to the agreement.

5. The effectivity and implementation of the new working time arrangement shall be by agreement of the parties.

PESALA v. NLRC,[28] cited by the petitioners, is not applicable to the present case. In that case, an employment contract provided that the workday consists of 12 hours and the employee will be paid a fixed monthly salary rate that was above the legal minimum wage. However, unlike the present MOA which specifically states that the employee waives his right to claim overtime pay for work rendered beyond eight hours, the employment contract in that case was silent on whether overtime pay was included in the payment of the fixed monthly salary. This necessitated the interpretation by the Court as to whether the fixed monthly rate provided under the employment contract included overtime pay. The Court noted that if the employee is paid only the minimum wage but with overtime pay, the amount is still greater than the fixed monthly rate as provided in the employment contract. It, therefore, held that overtime pay was not included in the agreed fixed monthly rate.

Considering that the MOA clearly states that the employee waives the payment of overtime pay in exchange of a five-day workweek, there is no room for interpretation and its terms should be implemented as they are written.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated July 24, 2001 and Resolution dated December 20, 2001 are AFFIRMED.

SO ORDERED.

G.R. No. 188949               July 26, 2010

CENTRAL AZUCARERA DE TARLAC, Petitioner, vs.CENTRAL AZUCARERA DE TARLAC LABOR UNION-NLU, Respondent.

D E C I S I O N

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision1 dated May 28, 2009, and the Resolution2 dated July 28, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 106657.

The factual antecedents of the case are as follows:

Petitioner is a domestic corporation engaged in the business of sugar manufacturing, while respondent is a legitimate labor organization which serves as the exclusive bargaining representative of petitioner’s rank-and-file employees. The controversy stems from the interpretation of the term "basic pay," essential in the computation of the 13th-month pay.

The facts of this case are not in dispute. In compliance with Presidential Decree (P.D.) No. 851, petitioner granted its employees the mandatory thirteenth (13th) - month pay since 1975. The formula used by petitioner in computing the 13th-month pay was: Total Basic Annual Salary divided by twelve (12). Included in petitioner’s computation of the Total Basic Annual Salary were the following: basic monthly salary; first eight (8) hours overtime pay on Sunday and legal/special holiday; night premium pay; and vacation and sick leaves for each year. Throughout the years, petitioner used this computation until 2006.3

On November 6, 2004, respondent staged a strike. During the pendency of the strike, petitioner declared a temporary cessation of operations. In December 2005, all the striking union members were allowed to return to work. Subsequently, petitioner declared another temporary cessation of operations for the months of April and May 2006. The suspension of operation was lifted on June 2006, but the rank-and-file employees were allowed to report for work on a fifteen (15) day-per-month rotation basis that lasted until September 2006. In December 2006, petitioner gave the employees their 13th-month pay based on the employee’s total earnings during the year divided by 12.4

Respondent objected to this computation. It averred that petitioner did not adhere to the usual computation of the 13th-month pay. It claimed that the divisor should have been eight (8) instead of 12, because the employees worked for only 8 months in 2006. It likewise asserted that petitioner did not observe the company practice of giving its employees the guaranteed amount equivalent to their one month pay, in instances where the computed 13th-month pay was less than their basic monthly pay.5

Petitioner and respondent tried to thresh out their differences in accordance with the grievance procedure as provided in their collective bargaining agreement. During the grievance meeting, the representative of petitioner explained that the change in the computation of the 13th-month pay was intended to rectify an error in the computation, particularly the concept of basic pay which should have included only the basic monthly pay of the employees.6

For failure of the parties to arrive at a settlement, respondent applied for preventive mediation before the National Conciliation and Mediation Board. However, despite four (4) conciliatory meetings, the parties still failed to settle the dispute. On March 29, 2007, respondent filed a complaint against petitioner for money claims based on the alleged diminution of benefits/erroneous computation of 13th-month pay before the Regional Arbitration Branch of the National Labor Relations Commission (NLRC).7

On October 31, 2007, the Labor Arbiter rendered a Decision8 dismissing the complaint and declaring that the petitioner had the right to rectify the error in the computation of the 13th-month pay of its employees.9 The fallo of the Decision reads:

WHEREFORE, premises considered, the complaint filed by the complainants against the respondents should be DISMISSED with prejudice for utter lack of merit.

SO ORDERED.10

Respondents filed an appeal. On August 14, 2008, the NLRC rendered a Decision11 reversing the Labor Arbiter. The dispositive portion of the Decision reads:

WHEREFORE, the decision appealed is reversed and set aside and respondent-appellee Central Azucarera de Tarlac is hereby ordered to adhere to its established practice of granting 13th[-] month pay on the basis of gross annual basic which includes basic pay, premium pay for work in rest days and special holidays, night shift differential and paid vacation and sick leaves for each year.

Additionally, respondent-appellee is ordered to observe the guaranteed one[-]month pay by way of 13th month pay.

SO ORDERED. 12

Petitioner filed a motion for reconsideration. However, the same was denied in a Resolution dated November 27, 2008. Petitioner then filed a petition for certiorari under Rule 65 of the Rules of Court before the CA.13

On May 28, 2009, the CA rendered a Decision14 dismissing the petition, and affirming the decision and resolution of the NLRC, viz.:

WHEREFORE, the foregoing considered, the petition is hereby DISMISSED and the assailed August 14, 2008 Decision and November 27, 2008 Resolution of the NLRC, are hereby AFFIRMED. No costs.

SO ORDERED.15

Aggrieved, petitioner filed the instant petition, alleging that the CA committed a reversible error in affirming the Decision of the NLRC, and praying that the Decision of the Labor Arbiter be reinstated.

The petition is denied for lack of merit.

The 13th-month pay mandated by Presidential Decree (P.D.) No. 851 represents an additional income based on wage but not part of the wage. It is equivalent to one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year. All rank-and-file employees, regardless of their designation or employment status and irrespective of the method by which their wages are paid, are entitled to this benefit, provided that they have worked for at least one month during the calendar year. If the employee worked for only a portion of the year, the 13th-month pay is computed pro rata.16

Petitioner argues that there was an error in the computation of the 13th-month pay of its employees as a result of its mistake in implementing P.D. No. 851, an error that was discovered by the management only when respondent raised a question concerning the computation of the employees’

13th-month pay for 2006. Admittedly, it was an error that was repeatedly committed for almost thirty (30) years. Petitioner insists that the length of time during which an

employer has performed a certain act beneficial to the employees, does not prove that such an act was not done in error. It maintains that for the claim of mistake to be negated, there must be a clear showing that the employer had freely, voluntarily, and continuously performed the act, knowing that he is under no obligation to do so. Petitioner asserts that such voluntariness was absent in this case.17

The Rules and Regulations Implementing P.D. No. 851, promulgated on December 22, 1975, defines 13th-month pay and basic salary as follows:

Sec. 2. Definition of certain terms. - As used in this issuance:

(a) "Thirteenth-month pay" shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year; (b) "Basic salary" shall include all remunerations or earnings paid by an employer to an employee for services rendered but may not include cost-of-living allowances granted pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174, profit-sharing payments, and all allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary of the employee at the time of the promulgation of the Decree on December 16, 1975.

On January 16, 1976, the Supplementary Rules and Regulations Implementing P.D. No. 851 was issued. The Supplementary Rules clarifies that overtime pay, earnings, and other remuneration that are not part of the basic salary shall not be included in the computation of the 13th-month pay.

On November 16, 1987, the Revised Guidelines on the Implementation of the 13th-Month Pay Law was issued. Significantly, under this Revised Guidelines, it was specifically stated that the minimum 13th-month pay required by law shall not be less than one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year.1avvphi1

Furthermore, the term "basic salary" of an employee for the purpose of computing the 13th-month pay was interpreted to include all remuneration or earnings paid by the employer for services rendered, but does not include allowances and monetary benefits which are not integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances. However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th-month pay if, by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees.

Based on the foregoing, it is clear that there could have no erroneous interpretation or application of what is included in the term "basic salary" for purposes of computing the 13th-month pay of employees. From the inception of P.D. No. 851 on December 16, 1975, clear-cut administrative guidelines have been issued to insure uniformity in the

interpretation, application, and enforcement of the provisions of P.D. No. 851 and its implementing regulations.

As correctly ruled by the CA, the practice of petitioner in giving 13th-month pay based on the employees’ gross annual earnings which included the basic monthly salary, premium pay for work on rest days and special holidays, night shift differential pay and holiday pay continued for almost thirty (30) years and has ripened into a company policy or practice which cannot be unilaterally withdrawn.

Article 100 of the Labor Code, otherwise known as the Non-Diminution Rule, mandates that benefits given to employees cannot be taken back or reduced unilaterally by the employer because the benefit has become part of the employment contract, written or unwritten. 18 The rule against diminution of benefits applies if it is shown that the grant of the benefit is based on an express policy or has ripened into a practice over a long period of time and that the practice is consistent and deliberate. Nevertheless, the rule will not apply if the practice is due to error in the construction or application of a doubtful or difficult question of law. But even in cases of error, it should be shown that the correction is done soon after discovery of the error.19

The argument of petitioner that the grant of the benefit was not voluntary and was due to error in the interpretation of what is included in the basic salary deserves scant consideration. No doubtful or difficult question of law is involved in this case. The guidelines set by the law are not difficult to decipher. The voluntariness of the grant of the benefit was manifested by the number of years the employer had paid the benefit to its employees. Petitioner only changed the formula in the computation of the 13th-month pay after almost 30 years and only after the dispute between the management and employees erupted. This act of petitioner in changing the formula at this time cannot be sanctioned, as it indicates a badge of bad faith.

Furthermore, petitioner cannot use the argument that it is suffering from financial losses to claim exemption from the coverage of the law on 13th-month pay, or to spare it from its erroneous unilateral computation of the 13th-month pay of its employees. Under Section 7 of the Rules and Regulations Implementing P.D. No. 851, distressed employers shall qualify for exemption from the requirement of the Decree only upon prior authorization by the Secretary of Labor.20 In this case, no such prior authorization has been obtained by petitioner; thus, it is not entitled to claim such exemption.

WHEREFORE, the Decision dated May 28, 2009 and the Resolution dated July 28, 2009 of the Court of Appeals in CA-G.R. SP No. 106657 are hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. Nos. 82763-64 March 19, 1990

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION,

LABOR ARBITER ISABEL P. ORTIGUERRA, and LABOR ALLIANCE FOR NATIONAL DEVELOPMENT, respondents.

The Legal Counsel for petitioner.

Piorello E. Azura, Errol Ismael, B. Palaci and Maria Lourdes C. Legaspi for APT.

Pablo B. Castillon for respondent LAND.

 

MELENCIO-HERRERA, J.:

This Petition for Certiorari addresses itself to the 12 February 1986 Order of the National Labor Relations Commission directing petitioner Development Bank of the Philippines (DBP) to remit the sum of P6,292,380.00 "out of proceeds of the foreclosed properties of Lirag Textile Mills Inc., sold at public auction in order to satisfy the judgment" in NLRC Cases Nos. NCR-3-2581-82 and 2-2090-82.

The background facts of these two cases may be summarized as follows:

The complainants in the two cases filed below were former employees of Lirag Textile Mills, Inc. (LIRAG, for short). LIRAG was a mortgage debtor of DBP. Private respondent Labor Alliance for National Development (LAND, for brevity) was the bargaining representative of the more or less 800 former rank and file employees of LIRAG. Around September 1981, LIRAG started terminating the services of its employees on the ground of retrenchment. By December of the said year there were already 180 regular employees separated from the service. LIRAG has since ceased operations presumably due to financial reverses.

In February 1982, Joselito Albay, one of the employees dismissed in September 1981, filed a complaint before the National Labor Relations Commission (NLRC) against LIRAG for illegal dismissal (Case No. 2-2090-82). On 1 March 1982, LAND, on behalf of 180 dismissed members, also filed a Complaint against LIRAG seeking separation pay, 13th month pay, gratuity pay, sick leave and vacation leave pay and emergency allowance (Case No. 3-2581-82). These two cases were consolidated and jointly heard by the NLRC. Said complainants have since been joined by supervisors and managers.

In a Decision, dated 30 July 1982, Labor Arbiter Apolinar L. Sevilla ordered LIRAG to pay the individual complainants. The NLRC (Third Division) affirmed the same on 28 March 1982. That judgment became final and executory.

On 15 April 1983, a Writ of Execution was issued. On the same day, DBP extrajudicially foreclosed the mortgaged properties for failure of LIRAG to pay its mortgage obligation. As the only bidder at the foreclosure sale, DBP acquired said mortgaged properties for P31,346,462.90. Since DBP was the sole mortgagee, no actual payment was made, the amount of the bid having been merely credited in partial satisfaction of LIRAG's indebtedness.

By reason of said foreclosure, the Writ of Execution issued in favor of the complainants remained unsatisfied. A Notice of Levy on Execution on the properties of LIRAG was then entered.

On 7 December 1984, LAND filed a "Motion for Writ of Execution and Garnishment" of the proceeds of the foreclosure sale.

On 30 May 1985, upon motion of LAND, Labor Arbiter Apolinar L. Sevilla ordered the DBP impleaded "in the interest of justice and due process," and required it to intervene.

On 12 February 1986, and over the opposition of DBP, Labor Arbiter Sevilla granted the Writ of Garnishment and directed DBP to remit to the NLRC the sum of P6,292,380.00 out of the proceeds of the foreclosed properties of LIRAG sold at public auction in order to satisfy the judgment previously rendered.

DBP sought reconsideration of the above Order on the grounds of NLRC's lack of jurisdiction over it since it was not a party to the case, and that it was deprived of its property without due process of law. Public respondent, Labor Arbiter Isabel P. Ortiguerra denied reconsideration on 25 May 1987. DBP appealed that denial to the NLRC.

In the meantime, on 3 February 1987, by virtue of Proclamation Nos. 50 and 50-A, the Asset Privatization Trust (APT) became the transferee of the DBP foreclosed assets of LIRAG. On 12 July 1989, by virtue of that transfer, we deemed APT impleaded as a party-petitioner and gave it time within which to file its pleading. It submitted a Memorandum on 22 November 1989.

It appears that on 21 December 1987, a partial Compromise Agreement was entered into between APT and LAND (Litex Chapter) whereby APT paid the complainants-employees, ex gratia, the sum of P750,000.00 "in full settlement of their claims, past and present, with respect to all assets of LITEX transferred by DBP to APT." That amount was received by LAND's local President. Apparently, however, on 25 January 1988, LAND, through its national President, filed its opposition to the Compromise Agreement for being contrary to law, morals and public policy.

On 25 March 1988, the NLRC (First Division) affirmed the appealed Order and dismissed the DBP appeal.

DBP is now before us seeking a review and reversal. On 30 January 1989, the Court resolved to give due course to the petition and to require the parties to submit simultaneous memoranda. On 1 February 1990, the Court's Second Division referred the case to the Court en banc, which the latter accepted on the same date.

It is true that DBP was not an original party and that it was ordered impleaded only after the Writs of Execution were not satisfied because the properties levied upon on execution had been foreclosed extrajudicially by it. DBP had to be impleaded, however, for the proper satisfaction of a final judgment. Being an incident in the execution of the final judgment award, NLRC retained jurisdiction and control

over the case and could issue such orders as were necessary for the implementation of that award. Its inclusion as a party could not have been accomplished at the earlier stages of the proceedings because at the time of the filing of the Complaint, private respondents' cause of action was only against LIRAG.

DBP cannot rightfully contend that it was deprived of due process. It was given the opportunity to be heard and to present its evidence. It had actually filed its Opposition to the Motion for Execution and Garnishment filed by LAND on 7 January 1985, and the Order granting the Motion was issued only after hearing. DBP had also addressed an appeal to the NLRC. It had submitted, therefore, to the jurisdiction of the NLRC.

Now, for the core issue — whether or not the NLRC gravely abused its discretion in affirming the Order of the Labor Arbiter granting the Writ of Garnishment out of the proceeds of LIRAG's properties foreclosed by DBP to satisfy the judgment in these cases.

We are constrained to rule in the affirmative.

Article 110 of the Labor Code provides:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.

In implementation of the foregoing, Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code, as amended, provides:

Sec. 10. Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. (Emphasis supplied).

In interpreting the foregoing provisions, the Court, in Development Bank of the Philippines vs. Santos (G.R. Nos. 78261-62, 8 March 1989), categorically stated:

It is quite clear from the provision that a declaration of bankruptcy or a judicial liquidation must be present before the workers preference may be enforced. Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by the respondents in this case absent a

formal declaration of bankruptcy or a liquidation order. . . .

Since then, however, Article 110 has been amended by Republic Act No. 6715 and now reads as follows:

Sec. 1. Article 110 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby further amended to read as follows:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid. (Amendments emphasized).

The amendment expands worker preference to cover not only unpaid wages but also other monetary claims to which even claims of the Government must be deemed subordinate.

Section 10, Rule III, Book III of the Omnibus Rules Implementing the Labor Code has also been amended by Section 1 of the Rules and Regulations Implementing RA 6715 as approved by the then Secretary of Labor and Employment on 24 May 1989, and now provides:

Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. — In case of bankruptcy or liquidation of the employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of government and other creditors may be paid.

Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have been eliminated. Does this mean then that liquidation proceedings have been done away with?

We opine in the negative, upon the following considerations:

1. Because of its impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code scheme on classification and preference of credits.

Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather, Article 110 must be read in relation to the provisions of the Civil Code concerning the classification, concurrence and preference of credits, which provisions find particular application in insolvency proceedings

where the claims of all creditors, preferred or non-preferred, may be adjudicated in a binding manner. . . . Republic vs. Peralta (G.R. No. L-56568, May 20, 1987, 150 SCRA 37).

2. In the same way that the Civil Code provisions on classification of credits and the Insolvency Law have been brought into harmony, so also must the kindred provisions of the Labor Law be made to harmonize with those laws.

3. In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvent's property among his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvents's creditors may be given and where the claims of preferred creditors may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). The rationale therefore has been expressed in the recent case of DBP vs. Secretary of Labor (G.R. No. 79351, 28 November 1989), which we quote:

A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other claims which may be established against the debtor. Logically, it becomes material only when the properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay his various creditors in full, how can the necessity exist to determine which of his creditors shall be paid first or whether they shall be paid out of the proceeds of the sale the debtor's specific property? Indubitably, the preferential right of credit attains significance only after the properties of the debtor have been inventoried and liquidated, and the claims held by his various creditors have been established (Kuenzle & Streiff (Ltd.) vs. Villanueva, 41 Phil 611 (1916); Barretto vs. Villanueva, G.R. No. 14938, 29 December 1962, 6 SCRA 928; Philippine Savings Bank vs. Lantin, G.R. 33929, 2 September 1983, 124 SCRA 476).

4. A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first preference in the discharge of the funds of the judgment debtor.

In the words of Republic vs. Peralta, supra:

Article 110 of the Labor Code does not purport to create a lien in favor of workers

or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such complaints for unpaid wages are already covered by Article 2241, number 6: "claims for laborers wages, on the goods manufactured or the work done;" or by Article 2242, number 3: "claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals and other works, upon said buildings, canals and other works." To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits under Article 2244.

5. The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Article 2176, Civil Code). It creates a real right which is enforceable against the whole world. It is a lien on an identified immovable property, which a preference is not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code on classification of credits. The preference given by Article 110, when not falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an ordinary preferred credit although its impact is to move it from second priority to first priority in the order of preference established by Article 2244 of the Civil Code (Republic vs. Peralta, supra).

In fact, under the Insolvency Law (Section 29) a creditor holding a mortgage or lien of any kind as security is not permitted to vote in the election of the assignee in insolvency proceedings unless the value of his security is first fixed or he surrenders all such property to the receiver of the insolvent's estate.

6. Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean "absolute preference," the same should be given only prospective effect in line with the cardinal rule that laws shall have no retroactive effect, unless the contrary is provided (Article 4, Civil Code). Thereby, any infringement on the constitutional guarantee on non-impairment of the obligation of contracts (Section 10, Article III, 1987 Constitution) is also avoided. In point of fact, DBP's mortgage credit antedated by several years the amendatory law, RA No. 6715. To give Article 110 retroactive effect would be to wipe out the mortgage in DBP's favor and expose it to a risk which it sought to protect itself against by requiring a collateral in the form of real property.

In fine, the right to preference given to workers under Article 110 of the Labor Code cannot exist in any effective way prior to the time of its presentation in distribution proceedings. It will find application when, in proceedings such as insolvency, such unpaid wages shall be paid in full before the "claims of the Government and other creditors" may be paid. But, for an orderly settlement of a debtor's assets, all creditors must be convened, their claims ascertained and inventoried, and thereafter the preferences determined in the course of judicial proceedings which have for their object the subjection of the property of the debtor to the payment of his debts or other lawful obligations. Thereby, an orderly determination of preference of creditors' claims is assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the adjudication made will be binding on all parties-in-interest, since those proceedings are proceedings in rem; and the legal scheme of classification, concurrence and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony.

WHEREFORE, Certiorari is GRANTED, and the assailed Decision of public respondent, the National Labor Relations Commission (NLRC), dated 25 March 1988, is hereby SET ASIDE.

The Development Bank of the Philippines, the Asset Privatization Trust, the Labor Alliance for National Development (LAND), and other creditors who may be so minded, are hereby directed, within sixty (60) days from notice, to institute involuntary insolvency proceedings before the proper Court where all the assets of Lirag Textile Mills, Inc., may be inventoried, the preferences of all its creditors determined, and their claims discharged in a binding and conclusive manner. No costs.

SO ORDERED.

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

 

 

 

Separate Opinions

 

CRUZ, J., dissenting:

I was the lone dissenter in Republic v. Peralta, 150 SCRA 37, which is the mainstay of the present majority ponencia. Even then, I was convinced that it was the intention of the legislature to give absolute preference to the workers' claims pursuant to the social justice policy. The amendment of Article 110 of the Labor Code only strengthens that conviction and, I like to think, vindicates my original position. I reiterate it now and repeat that:

Social Justice is not a mere catch phrase to be mouthed with sham fervor in Labor Day celebrations for the delectation and seduction of the working class. It is a mandate we should pursue with energy and sincerity if we are to truly insure the dignity and well-being of the laborer.

I am proud to dissent once again on the side of labor.

 

PADILLA, J., dissenting:

The material facts are riot disputed. Lirag Textile (LIRAG) ceased operations by early 1982. Pursuant to a final and executory judgment of the NLRC, dated 20 March 1983, LIRAG was adjudged liable to its workers for unpaid wages and salaries which, as of 12 February 1986, amounted to P6,292,380.00.

LIRAG's only remaining asset was mortgaged to Development Bank of the Philippines (DBP) which on 15 April 1983 foreclosed the mortgage and acquired said property at public auction for P31,346.462.90, in partial satisfaction of LIRAG's indebtedness to DBP. LIRAG's workers through their union (LAND) thereupon sought to garnish on DBP the proceeds of the foreclosure sale, to the extent of their adjudged unpaid wages (P6,292,380.00). The NLRC ruled for LAND over DBP's objection. The issue therefore, in practical terms, is whether P6,292,380.00 should be deducted from the P31,346,462.90 realized by DBP from the foreclosure sale of LIRAG's property, to fully satisfy LAND's claim for LIRAG workers' unpaid wages, thereby leaving a balance of P25,054,082.90 only in partial satisfaction of LIRAG's debt to DBP.

The majority holds that LAND may not enforce its first preference in the satisfaction of unpaid monetary claims of its members, viz. LIRAG's workers, over that of DBP, in the absence of a formal declaration of bankruptcy or judicial liquidation of LIRAG's business.

I regret that I cannot join the majority ruling in the light of the amendment to Article 110 of the Labor Code by Republic Act 6715, approved on 2 March 1989, and the resultant amendment of Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code.

Before its amendment by Republic Act 6715, Article 110 of the Labor Code provided —

Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.

After Republic Act 6715, Art. 110 now provides:

Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards their wages and other monetary claims, any provisions of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims of the government and other creditors may be paid.

Section 10 of the Implementing Rules, before Republic Act 6715 provided:

Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.

After Republic Act 6715, Section 10 of the Rules now provides:

Payment of wages and other monetary claims in case of bankruptcy. — In case of bankruptcy or liquidation of the employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of government and other creditors may be paid.

The majority, in my considered opinion, has failed to fully take into account the radical change introduced by Republic Act 6715 into the system of priorities or preferences among credits or creditors ordained by the Civil Code.

Under the provisions of the Civil Code, specifically, Articles 2241 and 2242, jointly with Articles 2246 to 2249, a two-tier order of preference of credits is established. The first tier includes only taxes, duties and fees on specific movable or immovable property. All other special preferred credits stand on a second tier. 1

Under the system of preferences in the Civil Code, only taxes enjoy absolute preference i.e., they exclude the credits of the lower order until such taxes are fully satisfied out of the proceeds of the sale of the property subject of the preference, and taxes can even exhaust such proceeds. All other special preferred credits enjoy no priority among themselves but must be paid or satisfied pro rata. To make the prorating fully effective, the preferred creditors enumerated in Nos. 2 to 13 of Article 2241 and Nos. 2 to 10 of Article 2242 must be convened and the import of their claims ascertained in some proceeding where the claims of all may be bindingly adjudicated.

With the amendment of Article 110 of the Labor Code by Republic Act 6715, a three-tier order of preference is established wherein unpaid wages and other monetary claims of workers enjoy absolute preference over all other claims, including those of the Government, in cases where a debtor-employer is unable to pay in full all his obligations. The absolute preference given to monetary claims of workers, to which claims of the Government, i.e., taxes, are now subordinated, manifests the clear and deliberate intent of our lawmaker to put flesh and blood into the expressed Constitutional policy of protecting the rights of workers and promoting their welfare. 2

I thus take exception to the proposition that a prior formal declaration of insolvency or bankruptcy or a judicial liquidation of the employer's business is a condition sine qua non to the operation of the preference accorded to workers under Article 110 of the Labor Code, for the following specific reasons:

First, the majority reads into the aforesaid law and implementing rule a qualification that is not there. Nowhere is it stated in the present law and its new implementing rule that a prior declaration of bankruptcy or judicial liquidation is a condition sine qua non to the operation of Article 110. In fact, it will be noted that the phrase declaration of bankruptcy or judicial liquidation of the employer's business, which formerly appeared in Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code has been deleted in the new implementing rule. What is to me even more obvious and, therefore, significant in the present law and implementing new rule is the unconditional and unqualified grant of priority to workers' monetary claims over and above all other claims as against all the assets of an employer incapable of fully paying his obligations.

Second, a proceeding in rem, by its nature, seeks to bar any other person who claims any interest in the property or right subject of the suit. To my mind, such a proceeding is not essential or necessary to enforce the workers' preferential right over the assets of the insolvent debtor as against other creditors of the lower tier, as Article 110 of the Labor Code itself bars the satisfaction of claims of other creditors, including the Government, until unpaid wages and monetary claims of the workers are first satisfied in full. Further, it appears that such a proceeding is essential only where the credits are concurring and enjoy no preference over one another, but not when the law accords to one of the credits absolute priority and undisputed supremacy. This submission finds support, by analogy, in the case of De Barreto vs. Villanueva, where the Court stated:

Thus it becomes evident that one preferred creditor's third party claim to the proceeds of the foreclosure (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preference under Article 2242, unless the claimant were enforcing credit for taxes that enjoy absolute priority. If none of the claim is for taxes, a dispute between two creditors will not enable the court to ascertain the prorata dividend corresponding to each, because the rights

of other creditors likewise enjoying preference under Article 2242 cannot be ascertained. 3 (Emphasis ours)

In sum, it is to me clear that, whether or not there be a judicial proceeding in rem, i.e., insolvency, bankruptcy or liquidation proceedings, the fact remains that Congress intends that the assets of the insolvent debtor be held, first and above all else, to satisfy in full the unpaid wages and monetary claims of its workers. Translated into the case at bar, a formal declaration of insolvency or bankruptcy or judicial liquidation of the employer's business should not be a price imposed upon the workers to enable them to get their much needed and already adjudicated unpaid wages. This position, I believe, is only in keeping with a fundamental state policy enshrined in the Constitutional mandate to accord protection to labor. The legislative intent being clear and manifest, it is the duty of this Court, I submit, not to decimate but to give it breath and life.

ACCORDINGLY, I vote to DISMISS the DBP petition and to AFFIRM the resolution of the NLRC in favor of LAND.

Paras, J., concur.

 

SARMIENTO, J., dissenting:

I join Mr. Justice Teodoro Padilla in his dissent. It is also my considered opinion that under Republic Act No. 6715, the payment of unpaid wages and other benefits to labor enjoys preference over all other indebtedness, including taxes, of management, with or without a declaration of insolvency.

It is likewise so, because labor enjoys protection not only from statute but from the very Constitution. Thus:

Sec. 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers and promote their welfare. (Article II)

xxx xxx xxx

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

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments, and to expansion and growth. (Article XIII)

On the other hand, under the Labor Code:

Art. 3. Declaration of basic policy — The State shall afford protection to labor, promote full employment, ensure equal work opportunities regardless of sex, race or creed and regulate the relations between workers and employers. The State shall assure the rights of workers to self-organization, collective bargaining security of tenure, and just and humane conditions of work.

Art. 4. Construction in favor of labor — All doubts in the implementation and interpretation of the provisions of this code, including its implementing rules and regulations, shall be resolved in favor of labor.

Under the Civil Code:

Art. 1700. The relations between capital and labor are not merely contractual. They are so impressed with public interest that labor contracts must yield to the common good. Therefore, such contracts are subject to the special laws on labor unions, collective bargaining, strikes and lockouts, closed shop, wages, working conditions, hours of labor and similar subjects.

xxx xxx xxx

Art. 1702. In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer.

It is true that under the Charter, "[n]o person shall be deprived," among other things, "of property without due process of law," however, the basic document also states, that:

Sec. 6. The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including

corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands. (Article XII)

Pascual says that in any productive economy, the first factor is labor. [PASCUAL, LABOR AND TENANCY RELATIONS LAW 2 (1975 ed.)]. I agree with him. For in any enterprise, it is labor on which management depends to run its business, to till its land, and to make its money. Yet, labor has been the doormat of the economy when it should be its hub. And now, we will make them fall in line along with creditors of management in collecting what it (labor) already owns — its just wages. I do not think that this is in accord with established State policies.

 

 

Separate Opinions

CRUZ, J., dissenting:

I was the lone dissenter in Republic v. Peralta, 150 SCRA 37, which is the mainstay of the present majority ponencia. Even then, I was convinced that it was the intention of the legislature to give absolute preference to the workers' claims pursuant to the social justice policy. The amendment of Article 110 of the Labor Code only strengthens that conviction and, I like to think, vindicates my original position. I reiterate it now and repeat that:

Social Justice is not a mere catch phrase to be mouthed with sham fervor in Labor Day celebrations for the delectation and seduction of the working class. It is a mandate we should pursue with energy and sincerity if we are to truly insure the dignity and well-being of the laborer.

I am proud to dissent once again on the side of labor.

 

PADILLA, J., dissenting:

The material facts are riot disputed. Lirag Textile (LIRAG) ceased operations by early 1982. Pursuant to a final and executory judgment of the NLRC, dated 20 March 1983, LIRAG was adjudged liable to its workers for unpaid wages and salaries which, as of 12 February 1986, amounted to P6,292,380.00.

LIRAG's only remaining asset was mortgaged to Development Bank of the Philippines (DBP) which on 15 April 1983 foreclosed the mortgage and acquired said property at public auction for P31,346.462.90, in partial satisfaction of LIRAG's indebtedness to DBP. LIRAG's workers through their union (LAND) thereupon sought to

garnish on DBP the proceeds of the foreclosure sale, to the extent of their adjudged unpaid wages (P6,292,380.00). The NLRC ruled for LAND over DBP's objection. The issue therefore, in practical terms, is whether P6,292,380.00 should be deducted from the P31,346,462.90 realized by DBP from the foreclosure sale of LIRAG's property, to fully satisfy LAND's claim for LIRAG workers' unpaid wages, thereby leaving a balance of P25,054,082.90 only in partial satisfaction of LIRAG's debt to DBP.

The majority holds that LAND may not enforce its first preference in the satisfaction of unpaid monetary claims of its members, viz. LIRAG's workers, over that of DBP, in the absence of a formal declaration of bankruptcy or judicial liquidation of LIRAG's business.

I regret that I cannot join the majority ruling in the light of the amendment to Article 110 of the Labor Code by Republic Act 6715, approved on 2 March 1989, and the resultant amendment of Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code.

Before its amendment by Republic Act 6715, Article 110 of the Labor Code provided —

Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.

After Republic Act 6715, Art. 110 now provides:

Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards their wages and other monetary claims, any provisions of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims of the government and other creditors may be paid.

Section 10 of the Implementing Rules, before Republic Act 6715 provided:

Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.

After Republic Act 6715, Section 10 of the Rules now provides:

Payment of wages and other monetary claims in case of bankruptcy. — In case of bankruptcy or liquidation of the employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of government and other creditors may be paid.

The majority, in my considered opinion, has failed to fully take into account the radical change introduced by Republic Act 6715 into the system of priorities or preferences among credits or creditors ordained by the Civil Code.

Under the provisions of the Civil Code, specifically, Articles 2241 and 2242, jointly with Articles 2246 to 2249, a two-tier order of preference of credits is established. The first tier includes only taxes, duties and fees on specific movable or immovable property. All other special preferred credits stand on a second tier. 1

Under the system of preferences in the Civil Code, only taxes enjoy absolute preference i.e., they exclude the credits of the lower order until such taxes are fully satisfied out of the proceeds of the sale of the property subject of the preference, and taxes can even exhaust such proceeds. All other special preferred credits enjoy no priority among themselves but must be paid or satisfied pro rata. To make the prorating fully effective, the preferred creditors enumerated in Nos. 2 to 13 of Article 2241 and Nos. 2 to 10 of Article 2242 must be convened and the import of their claims ascertained in some proceeding where the claims of all may be bindingly adjudicated.

With the amendment of Article 110 of the Labor Code by Republic Act 6715, a three-tier order of preference is established wherein unpaid wages and other monetary claims of workers enjoy absolute preference over all other claims, including those of the Government, in cases where a debtor-employer is unable to pay in full all his obligations. The absolute preference given to monetary claims of workers, to which claims of the Government, i.e., taxes, are now subordinated, manifests the clear and deliberate intent of our lawmaker to put flesh and blood into the expressed Constitutional policy of protecting the rights of workers and promoting their welfare. 2

I thus take exception to the proposition that a prior formal declaration of insolvency or bankruptcy or a judicial liquidation of the employer's business is a condition sine qua non to the operation of the preference accorded to workers under Article 110 of the Labor Code, for the following specific reasons:

First, the majority reads into the aforesaid law and implementing rule a qualification that is not there. Nowhere is it stated in the present law and its new implementing rule that a prior declaration of bankruptcy or judicial liquidation is a condition sine qua non to the operation of Article 110. In fact, it will be noted that the phrase declaration of

bankruptcy or judicial liquidation of the employer's business, which formerly appeared in Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code has been deleted in the new implementing rule. What is to me even more obvious and, therefore, significant in the present law and implementing new rule is the unconditional and unqualified grant of priority to workers' monetary claims over and above all other claims as against all the assets of an employer incapable of fully paying his obligations.

Second, a proceeding in rem, by its nature, seeks to bar any other person who claims any interest in the property or right subject of the suit. To my mind, such a proceeding is not essential or necessary to enforce the workers' preferential right over the assets of the insolvent debtor as against other creditors of the lower tier, as Article 110 of the Labor Code itself bars the satisfaction of claims of other creditors, including the Government, until unpaid wages and monetary claims of the workers are first satisfied in full. Further, it appears that such a proceeding is essential only where the credits are concurring and enjoy no preference over one another, but not when the law accords to one of the credits absolute priority and undisputed supremacy. This submission finds support, by analogy, in the case of De Barreto vs. Villanueva, where the Court stated:

Thus it becomes evident that one preferred creditor's third party claim to the proceeds of the foreclosure (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preference under Article 2242, unless the claimant were enforcing credit for taxes that enjoy absolute priority. If none of the claim is for taxes, a dispute between two creditors will not enable the court to ascertain the prorata dividend corresponding to each, because the rights of other creditors likewise enjoying preference under Article 2242 cannot be ascertained. 3 (Emphasis ours)

In sum, it is to me clear that, whether or not there be a judicial proceeding in rem, i.e., insolvency, bankruptcy or liquidation proceedings, the fact remains that Congress intends that the assets of the insolvent debtor be held, first and above all else, to satisfy in full the unpaid wages and monetary claims of its workers. Translated into the case at bar, a formal declaration of insolvency or bankruptcy or judicial liquidation of the employer's business should not be a price imposed upon the workers to enable them to get their much needed and already adjudicated unpaid wages. This position, I believe, is only in keeping with a fundamental state policy enshrined in the Constitutional mandate to accord protection to labor. The legislative intent being clear and manifest, it is the duty of this Court, I submit, not to decimate but to give it breath and life.

ACCORDINGLY, I vote to DISMISS the DBP petition and to AFFIRM the resolution of the NLRC in favor of LAND.

Paras, J., concur. 

SARMIENTO, J., dissenting:

I join Mr. Justice Teodoro Padilla in his dissent. It is also my considered opinion that under Republic Act No. 6715, the payment of unpaid wages and other benefits to labor enjoys preference over all other indebtedness, including taxes, of management, with or without a declaration of insolvency.

It is likewise so, because labor enjoys protection not only from statute but from the very Constitution. Thus:

Sec. 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers and promote their welfare. (Article II)

xxx xxx xxx

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

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments, and to expansion and growth. (Article XIII)

On the other hand, under the Labor Code:

Art. 3. Declaration of basic policy — The State shall afford protection to labor, promote full employment, ensure equal work opportunities regardless of sex, race or creed and regulate the relations between workers and employers. The State shall assure the rights of workers to self-organization, collective bargaining security of tenure, and just and humane conditions of work.

Art. 4. Construction in favor of labor — All doubts in the implementation and interpretation of the provisions of this code, including its implementing rules and regulations, shall be resolved in favor of labor.

Under the Civil Code:

Art. 1700. The relations between capital and labor are not merely contractual. They are so impressed with public interest tha

[G.R. No. 156225, January 29, 2008]

LETRAN CALAMBA FACULTY and EMPLOYEES ASSOCIATION, Petitioner, vs. NATIONAL LABOR

RELATIONS COMMISSION and COLEGIO DE SAN JUAN DE LETRAN CALAMBA, INC., Respondents.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Assailed in the present Petition for Review on Certiorari under Rule 45 of the Rules of Court is the Decision[1] of the Court of Appeals (CA) promulgated on May 14, 2002 in CA-G.R. SP No. 61552 dismissing the special civil action for certiorari filed before it; and the Resolution[2] dated November 28, 2002, denying petitioner's Motion for Reconsideration.

The facts of the case are as follows:

On October 8, 1992, the Letran Calamba Faculty and Employees Association (petitioner) filed with Regional Arbitration Branch No. IV of the National Labor Relations Commission (NLRC) a Complaint[3] against Colegio de San Juan de Letran, Calamba, Inc. (respondent) for collection of various monetary claims due its members. Petitioner alleged in its Position Paper that:

x x x x

2) [It] has filed this complaint in behalf of its members whose names and positions appear in the list hereto attached as Annex “A”.

3) In the computation of the thirteenth month pay of its academic personnel, respondent does not include as basis therefor their compensation for overloads. It only takes into account the pay the faculty members receive for their teaching loads not exceeding eighteen (18) units. The teaching overloads are rendered within eight (8) hours a day.

4) Respondent has not paid the wage increases required by Wage Order No. 5 to its employees who qualify thereunder.

5) Respondent has not followed the formula prescribed by DECS

Memorandum Circular No. 2 dated March 10, 1989 in the computation of the compensation per unit of excess load or overload of faculty members. This has resulted in the diminution of the compensation of faculty members.

6) The salary increases due the non-academic personnel as a result of job grading has not been given. Job grading has been an annual practice of the school since 1980; the same is done for the purpose of increasing the salaries of non-academic personnel and as the counterpart of the ranking systems of faculty members.

7) Respondent has not paid to its employees the balances of seventy (70%) percent of the tuition fee increases for the years 1990, 1991 and 1992.

8) Respondent has not also paid its employees the holiday pay for the ten (10) regular holidays as provided for in Article 94 of the Labor Code.

9) Respondent has refused without justifiable reasons and despite repeated demands to pay its obligations mentioned in paragraphs 3 to 7 hereof.

x x x x[4]

The complaint was docketed as NLRC Case No. RAB-IV-10-4560-92-L.

On January 29, 1993, respondent filed its Position Paper denying all the allegations of petitioner.

On March 10, 1993, petitioner filed its Reply.

Prior to the filing of the above-mentioned complaint, petitioner filed a separate complaint against the respondent for money claims with Regional Office No. IV of the Department of Labor and Employment (DOLE).

On the other hand, pending resolution of NLRC Case No. RAB-IV-10-4560-92-L, respondent filed with Regional Arbitration Branch No. IV of the NLRC a petition to declare as illegal a strike staged by petitioner in January 1994.

Subsequently, these three cases were consolidated. The case for money claims originally filed by petitioner with the DOLE was later docketed as NLRC Case No. RAB-IV-11-4624-92-L, while the petition to declare the subject strike illegal filed by respondent was docketed as NLRC Case No. RAB-IV-3-6555-94-L.

On September 28, 1998, the Labor Arbiter (LA) handling the consolidated cases rendered a Decision with the following dispositive portion:

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

1. The money claims cases (RAB-IV-10-4560-92-L and RAB-IV-11-4624-92-L) are hereby dismissed for lack of merit;

2. The petition to declare strike illegal (NLRC Case No. RAB-IV-3-6555-94-L) is hereby dismissed, but the officers of the Union, particularly its President, Mr. Edmundo F. Marifosque, Sr., are hereby reprimanded and sternly warned that future conduct similar to what was displayed in this case will warrant a more severe sanction from this Office.

SO ORDERED.[5]

Both parties appealed to the NLRC.

On July 28, 1999, the NLRC promulgated its Decision[6] dismissing both appeals. Petitioner filed a Motion for Reconsideration[7] but the same was denied by the NLRC in its Resolution[8] dated June 21, 2000.

Petitioner then filed a special civil action for certiorari with the CA assailing the above-mentioned NLRC Decision and Resolution.

On May 14, 2002, the CA rendered the presently assailed judgment dismissing the petition.

Petitioner filed a Motion for Reconsideration but the CA denied it in its Resolution promulgated on November 28, 2002.

Hence, herein petition for review based on the following assignment of errors:

I

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE FACTUAL FINDINGS OF THE NATIONAL LABOR RELATIONS COMMISSION CANNOT BE REVIEWED IN CERTIORARI PROCEEDINGS.

II

THE COURT OF APPEALS GRAVELY ERRED IN REFUSING TO RULE SQUARELY ON THE ISSUE OF WHETHER OR NOT THE PAY OF FACULTY MEMBERS FOR TEACHING OVERLOADS SHOULD BE INCLUDED AS BASIS IN THE

COMPUTATION OF THEIR THIRTEENTH MONTH PAY.

III

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION IS SUPPORTED BY SUBSTANTIAL EVIDENCE AND IN NOT GRANTING PETITIONER'S MONETARY CLAIMS.[9]

Citing Agustilo v. Court of Appeals,[10] petitioner contends that in a special civil action for certiorari brought before the CA, the appellate court can review the factual findings and the legal conclusions of the NLRC.

As to the inclusion of the overloads of respondent's faculty members in the computation of their 13th-month pay, petitioner argues that under the Revised Guidelines on the Implementation of the 13th-Month Pay Law, promulgated by the Secretary of Labor on November 16, 1987, the basic pay of an employee includes remunerations or earnings paid by his employer for services rendered, and that excluded therefrom are the cash equivalents of unused vacation and sick leave credits, overtime, premium, night differential, holiday pay and cost-of-living allowances. Petitioner claims that since the pay for excess loads or overloads does not fall under any of the enumerated exclusions and considering that the said overloads are being performed within the normal working period of eight hours a day, it only follows that the overloads should be included in the computation of the faculty members' 13th-month pay.

To support its argument, petitioner cites the opinion of the Bureau of Working Conditions of the DOLE that payment of teaching overload performed within eight hours of work a day shall be considered in the computation of the 13th-month pay.[11]

Petitioner further contends that DOLE-DECS-CHED-TESDA Order No. 02, Series of 1996 (DOLE Order) which was relied upon by the LA and the NLRC in their respective Decisions cannot be applied to the instant case because the DOLE Order was issued long after the commencement of petitioner's complaints for monetary claims; that the prevailing rule at the time of the commencement of petitioner's complaints was to include compensations for overloads in determining a faculty member's 13th-month pay; that to give retroactive application to the DOLE Order issued in 1996 is to deprive workers of benefits which have become vested and is a clear violation of the constitutional mandate on protection of labor; and that, in any case, all doubts in the implementation and interpretation of labor laws, including implementing rules and regulations, should be resolved in favor of labor.

Lastly, petitioner avers that the CA, in concluding that the NLRC Decision was supported by substantial evidence, failed to specify what constituted said evidence. Thus, petitioner asserts that the CA acted arbitrarily in affirming the Decision of the NLRC.

In its Comment, respondent contends that the ruling in Agustilo is an exception rather than the general rule; that the general rule is that in a petition for certiorari, judicial review by this Court or by the CA in labor cases does not go so far as to evaluate the sufficiency of the evidence upon which the proper labor officer or office based his or its determination but is limited only to issues of jurisdiction or grave abuse of discretion amounting to lack of jurisdiction; that before a party may ask that the CA or this Court review the factual findings of the NLRC, there must first be a convincing argument that the NLRC acted in a capricious, whimsical, arbitrary or despotic manner; and that in its petition for certiorari filed with the CA, herein petitioner failed to prove that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion.

Respondent argues that Agustilo is not applicable to the present case because in the former case, the findings of fact of the LA and the NLRC are at variance with each other; while in the present case, the findings of fact and conclusions of law of the LA and the NLRC are the same.

Respondent also avers that in a special civil action for certiorari, the discretionary power to review factual findings of the NLRC rests upon the CA; and that absent any findings by the CA of the need to resolve any unclear or ambiguous factual findings of the NLRC, the grant of the writ of certiorari is not warranted.

Further, respondent contends that even granting that the factual findings of the CA, NLRC and the LA may be reviewed in the present case, petitioner failed to present valid arguments to warrant the reversal of the assailed decision.

Respondent avers that the DOLE Order is an administrative regulation which interprets the 13th-Month Pay Law (P.D. No. 851) and, as such, it is mandatory for the LA to apply the same to the present case.

Moreover, respondent contends that the Legal Services Office of the DOLE issued an opinion dated March 4, 1992,[12] that remunerations for teaching in excess of the regular load, which includes overload pay for work performed within an eight-hour work day, may not be included as part of the basic salary in the computation of the 13th-month pay unless this has been included by company practice or policy; that petitioner intentionally omitted any reference to the above-mentioned opinion of the Legal Services Office of the DOLE because it is fatal to its cause; and that the DOLE Order is an affirmation of the opinion rendered by the said Office of the DOLE.

Furthermore, respondent claims that, contrary to the asseveration of petitioner, prior to the issuance of the DOLE Order, the prevailing rule is to exclude excess teaching load, which is akin to overtime, in the computation of a teacher's basic salary and, ultimately, in the computation of his 13th-month pay.

As to respondent's alleged non-payment of petitioner's consolidated money claims, respondent contends that the findings of the LA regarding these matters, which were affirmed by the NLRC and the CA, have clear and convincing factual and legal bases to stand on.

The Court’s Ruling

The Court finds the petition bereft of merit.

As to the first and third assigned errors, petitioner would have this Court review the factual findings of the LA as affirmed by the NLRC and the CA, to wit.

With respect to the alleged non-payment of benefits under Wage Order No. 5, this Office is convinced that after the lapse of the one-year period of exemption from compliance with Wage Order No. 5 (Exhibit “1-B), which exemption was granted by then Labor Minister Blas Ople, the School settled its obligations to its employees, conformably with the agreement reached during the management-employees meeting of June 26, 1985 (Exhibits “4-B” up to “4-D”, also Exhibit “6-x-1”). The Union has presented no evidence that the settlement reached during the June 26, 1985 meeting was the result of coercion. Indeed, what is significant is that the agreement of June 26, 1985 was signed by Mr. Porferio Ferrer, then Faculty President and an officer of the complaining Union. Moreover, the samples from the payroll journal of the School, identified and offered in evidence in these cases (Exhibits “1-C” and 1-D”), shows that the School paid its employees the benefits under Wage Order No. 5 (and even Wage Order No. 6) beginning June 16, 1985.

Under the circumstances, therefore, the claim of the Union on this point must likewise fail.

The claim of the Union for salary differentials due to the improper computation of compensation per unit of excess load cannot hold water for the simple reason that during the Schoolyears in point there were no classes from June 1-14 and October 17-31. This fact was not refuted by the Union. Since extra load should be paid only when actually performed by the employees, no salary differentials are due the Union members.

The non-academic members of the Union cannot legally insist on wage increases due to “Job Grading”. From the records it appears that “Job Grading” is a system adopted by the School by which positions are classified and evaluated according to the prescribed qualifications therefor. It is akin to a merit system whereby salary increases are made dependent upon the classification, evaluation and grading of the position held by an employee.

The system of Job Grading was initiated

by the School in Schoolyear 1989-1990. In 1992, just before the first of the two money claims was filed, a new Job Grading process was initiated by the School.

Under the circumstances obtaining, it cannot be argued that there were repeated grants of salary increases due to Job Grading to warrant the conclusion that some benefit was granted in favor of the non-academic personnel that could no longer be eliminated or banished under Article 100 of the Labor Code. Since the Job Grading exercises of the School were neither consistent nor for a considerable period of time, the monetary claims attendant to an increase in job grade are non-existent.

The claim of the Union that its members were not given their full share in the tuition fee increases for the Schoolyears 1989-1990, 1990-1991 and 1991-1992 is belied by the evidence presented by the School which consists of the unrefuted testimony of its Accounting Coordinator, Ms. Rosario Manlapaz, and the reports extrapolated from the journals and general ledgers of the School (Exhibits “2”, “2-A” up to “2-G”). The evidence indubitably shows that in Schoolyear 1989-1990, the School incurred a deficit of P445,942.25, while in Schoolyears 1990-1991 and 1991-1992, the School paid out, 91% and 77%, respectively, of the increments in the tuition fees collected.

As regards the issue of non-payment of holiday pay, the individual pay records of the School's employees, a sample of which was identified and explained by Ms. Rosario Manlapaz (Exhibit “3”), shows that said School employees are paid for all days worked in the year. Stated differently, the factor used in computing the salaries of the employees is 365, which indicates that their regular monthly salary includes payment of wages during all legal holidays.[13]

This Court held in Odango v. National Labor Relations Commission[14] that:

The appellate court’s jurisdiction to review a decision of the NLRC in a petition for certiorari is confined to issues of jurisdiction or grave abuse of discretion. An extraordinary remedy, a petition for certiorari is available only and restrictively in truly exceptional cases. The sole office of the writ of certiorari is the correction of errors of jurisdiction including the commission of grave abuse of discretion amounting to lack or excess

of jurisdiction. It does not include correction of the NLRC’s evaluation of the evidence or of its factual findings. Such findings are generally accorded not only respect but also finality. A party assailing such findings bears the burden of showing that the tribunal acted capriciously and whimsically or in total disregard of evidence material to the controversy, in order that the extraordinary writ of certiorari will lie.[15]

In the instant case, the Court finds no error in the ruling of the CA that since nowhere in the petition is there any acceptable demonstration that the LA or the NLRC acted either with grave abuse of discretion or without or in excess of its jurisdiction, the appellate court has no reason to look into the correctness of the evaluation of evidence which supports the labor tribunals' findings of fact.

Settled is the rule that the findings of the LA, when affirmed by the NLRC and the CA, are binding on the Supreme Court, unless patently erroneous.[16] It is not the function of the Supreme Court to analyze or weigh all over again the evidence already considered in the proceedings below.[17] In a petition for review on certiorari, this Court’s jurisdiction is limited to reviewing errors of law in the absence of any showing that the factual findings complained of are devoid of support in the records or are glaringly erroneous.[18] Firm is the doctrine that this Court is not a trier of facts, and this applies with greater force in labor cases.[19] Findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only great respect but even finality.[20] They are binding upon this Court unless there is a showing of grave abuse of discretion or where it is clearly shown that they were arrived at arbitrarily or in utter disregard of the evidence on record.[21] We find none of these exceptions in the present case.

In petitions for review on certiorari like the instant case, the Court invariably sustains the unanimous factual findings of the LA, the NLRC and the CA, specially when such findings are supported by substantial evidence and there is no cogent basis to reverse the same, as in this case.[22]

The second assigned error properly raises a question of law as it involves the determination of whether or not a teacher's overload pay should be considered in the computation of his or her 13th-month pay. In resolving this issue, the Court is confronted with conflicting interpretations by different government agencies.

On one hand is the opinion of the Bureau of Working Conditions of the DOLE dated December 9, 1991, February 28, 1992 and November 19, 1992 to the effect that if overload is performed within a teacher's normal eight-hour work per day, the remuneration that the teacher will get from the additional teaching load will form part of the basic wage.[23]

This opinion is affirmed by the Explanatory Bulletin on the Inclusion of Teachers' Overload Pay in the 13th-Month Pay Determination issued by the DOLE on December 3, 1993 under then Acting DOLE Secretary Cresenciano B. Trajano. Pertinent portions of the said Bulletin read as follows:

1. Basis of the 13th-month pay computation

The Revised Implementing Guidelines of the 13th-Month Pay Law (P.D. 851, as amended) provides that an employee shall be entitled to not less than 1/12 of the total basic salary earned within a calendar year for the purpose of computing such entitlement. The basic wage of an employee shall include:

“x x x all remunerations or earnings paid by his employer for services rendered but do not include allowances or monetary benefits which are not considered or integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances. However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees.”

Basic wage is defined by the Implementing Rules of RA 6727 as follows:

“Basic Wage” means all remuneration or earnings paid by an employer to a worker for services rendered on normal working days and hours but does not include cost of living allowances, 13th-month pay or other monetary benefits which are not considered as part of or integrated into the regular salary of the workers xxx.

The foregoing definition was based on Article 83 of the Labor Code which provides that “the normal hours of work of any employee shall not exceed eight (8) hours a day.” This means that the basic salary of an employee for the purpose of computing the 13th-month pay shall include all remunerations or earnings paid by an employer for services rendered during normal working hours.

2. Overload work/pay

Overload on the other hand means “the load in excess of the normal load of private school teachers as prescribed by the Department of Education, Culture and Sports (DECS) or the policies, rules and standards of particular private schools.” In recognition of the peculiarities of the teaching profession, existing DECS and School Policies and Regulations for different levels of instructions prescribe a regular teaching load, the total actual teaching or classroom hours of which a teacher can generally perform in less than eight (8) hours per working day. This is because teaching may also require the teacher to do additional work such as handling an advisory class, preparation of lesson plans and teaching aids, evaluation of students and other related activities. Where, however a teacher is engaged to undertake actual additional teaching work after completing his/her regular teaching load, such additional work is generally referred to as overload. In short, additional work in excess of the regular teaching load is overload work. Regular teaching load and overload work, if any, may constitute a teacher's working day.

Where a teacher is required to perform such overload within the eight (8) hours normal working day, such overload compensation shall be considered part of the basic pay for the purpose of computing the teacher's 13th-month pay. “Overload work” is sometimes misunderstood as synonymous to “overtime work” as this term is used and understood in the Labor Code. These two terms are not the same because overtime work is work rendered in excess of normal working hours of eight in a day (Art. 87, Labor Code). Considering that overload work may be performed either within or outside eight hours in a day, overload work may or may not be overtime work.

3. Concluding Statement

In the light of the foregoing discussions, it is the position of this Department that all basic salary/wage representing payments earned for actual work performed during or within the eight hours in a day, including payments for overload work within eight hours, form part of basic wage and therefore are to be included in the computation of 13th-month pay mandated by PD 851, as amended.[24] (Underscoring supplied)

On the other hand, the Legal Services Department of the DOLE holds in its opinion of March 4, 1992 that remunerations for teaching in excess of the regular load shall be excluded in the computation of the 13th-month pay unless, by school policy, the same are considered as part of the basic salary of the qualified teachers.[25]

This opinion is later affirmed by the DOLE Order, pertinent portions of which are quoted below:

x x x x

2. In accordance with Article 83 of the Labor Code of the Philippines, as amended, the normal hours of work of school academic personnel shall not exceed eight (8) hours a day. Any work done in addition to the eight (8) hours daily work shall constitute overtime work.

3. The normal hours of work of teaching or academic personnel shall be based on their normal or regular teaching loads. Such normal or regular teaching loads shall be in accordance with the policies, rules and standards prescribed by the Department of Education, Culture and Sports, the Commission on Higher Education and the Technical Education and Skills Development Authority. Any teaching load in excess of the normal or regular teaching load shall be considered as overload. Overload partakes of the nature of temporary extra assignment and compensation therefore shall be considered as an overload honorarium if performed within the 8-hour work period and does not form part of the regular or basic pay. Overload performed beyond the eight-hour daily work is overtime work.[26] (Emphasis supplied)

It was the above-quoted DOLE Order which was used by the LA as basis for ruling against herein petitioner.

The petitioner’s claim that the DOLE Order should not be made to apply to the present case because said Order was issued only in 1996, approximately four years after the present case was initiated before the Regional Arbitration Branch of the NLRC, is not without basis. The general rule is that administrative rulings and circulars shall not be given retroactive effect.[27]

Nevertheless, it is a settled rule that when an administrative or executive agency renders an opinion or issues a statement of policy, it merely interprets a pre-existing law and the administrative interpretation is at best advisory for it is the courts that finally determine what the law means.[28]

In the present case, while the DOLE Order may not be applicable, the Court finds that overload pay should be excluded from the computation of the 13th-month pay of petitioner's members.

In resolving the issue of the inclusion or exclusion of overload pay in the computation of a teacher's 13th-month pay, it is decisive to determine what “basic salary” includes and excludes.

In this respect, the Court's disquisition in San Miguel Corporation v. Inciong[29] is instructive, to wit:

Under Presidential Decree 851 and its implementing rules, the basic salary of an employee is used as the basis in the determination of his 13th month pay. Any compensations or remunerations which are deemed not part of the basic pay is excluded as basis in the computation of the mandatory bonus.

Under the Rules and Regulations Implementing Presidential Decree 851, the following compensations are deemed not part of the basic salary:

a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of Instruction No. 174;

b) Profit sharing payments;

c) All allowances and monetary benefits which are not considered or integrated as part of the regular basic salary of the employee at the time of the promulgation of the Decree on December 16, 1975.

Under a later set of Supplementary Rules and Regulations Implementing Presidential Decree 851 issued by the then Labor Secretary Blas Ople, overtime pay, earnings and other remunerations are excluded as part of the basic salary and in the computation of the 13th-month pay.

The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter of Instruction No. 174 and profit sharing payments indicate the intention to strip

basic salary of other payments which are properly considered as “fringe” benefits. Likewise, the catch-all exclusionary phrase “all allowances and monetary benefits which are not considered or integrated as part of the basic salary” shows also the intention to strip basic salary of any and all additions which may be in the form of allowances or “fringe” benefits.

Moreover, the Supplementary Rules and Regulations Implementing Presidential Decree 851 is even more emphatic in declaring that earnings and other remunerations which are not part of the basic salary shall not be included in the computation of the 13th-month pay.

While doubt may have been created by the prior Rules and Regulations Implementing Presidential Decree 851 which defines basic salary to include all remunerations or earnings paid by an employer to an employee, this cloud is dissipated in the later and more controlling Supplementary Rules and Regulations which categorically, exclude from the definition of basic salary earnings and other remunerations paid by employer to an employee. A cursory perusal of the two sets of Rules indicates that what has hitherto been the subject of a broad inclusion is now a subject of broad exclusion. The Supplementary Rules and Regulations cure the seeming tendency of the former rules to include all remunerations and earnings within the definition of basic salary.

The all-embracing phrase “earnings and other remunerations” which are deemed not part of the basic salary includes within its meaning payments for sick, vacation, or maternity leaves, premium for works performed on rest days and special holidays, pay for regular holidays and night differentials. As such they are deemed not part of the basic salary and shall not be considered in the computation of the 13th-month pay. If they were not so excluded, it is hard to find any “earnings and other remunerations” expressly excluded in the computation of the 13th-month pay. Then the exclusionary provision would prove to be idle and with no purpose.

This conclusion finds strong support under the Labor Code of the Philippines. To cite a few provisions:

“Art. 87 – Overtime work. Work may be performed beyond eight (8) hours a day provided that the employee is paid for the overtime work, additional compensation

equivalent to his regular wage plus at least twenty-five (25%) percent thereof.”

It is clear that overtime pay is an additional compensation other than and added to the regular wage or basic salary, for reason of which such is categorically excluded from the definition of basic salary under the Supplementary Rules and Regulations Implementing Presidential Decree 851.

In Article 93 of the same Code, paragraph

“c.) work performed on any special holiday shall be paid an additional compensation of at least thirty percent (30%) of the regular wage of the employee.”

It is likewise clear that premium for special holiday which is at least 30% of the regular wage is an additional compensation other than and added to the regular wage or basic salary. For similar reason it shall not be considered in the computation of the 13th -month pay.[30]

In the same manner that payment for overtime work and work performed during special holidays is considered as additional compensation apart and distinct from an employee's regular wage or basic salary, an overload pay, owing to its very nature and definition, may not be considered as part of a teacher's regular or basic salary, because it is being paid for additional work performed in excess of the regular teaching load.

The peculiarity of an overload lies in the fact that it may be performed within the normal eight-hour working day. This is the only reason why the DOLE, in its explanatory bulletin, finds it proper to include a teacher's overload pay in the determination of his or her 13th-month pay. However, the DOLE loses sight of the fact that even if it is performed within the normal eight-hour working day, an overload is still an additional or extra teaching work which is performed after the regular teaching load has been completed. Hence, any pay given as compensation for such additional work should be considered as extra and not deemed as part of the regular or basic salary.

Moreover, petitioner failed to refute private respondent's contention that excess teaching load is paid by the hour, while the regular teaching load is being paid on a monthly basis; and that the assignment of overload is subject to the availability of teaching loads. This only goes to show that overload pay is not integrated with a teacher's basic salary for his or her regular teaching load. In addition, overload varies from one semester to another, as it is dependent upon the availability of extra teaching loads. As such, it is not legally feasible to consider payments for such overload as part of a teacher's regular or basic salary. Verily, overload pay may not be included as basis for determining a teacher's 13th-month pay.

WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of the Court of Appeals

are AFFIRMED.

SO ORDERED.

G.R. No. 160506 : March 9, 2010

JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO PLATON, JOSE FERNANDO GUTIERREZ, ESTANISLAO BUENAVENTURA, LOPE SALONGA, FRANZ DAVID, NESTOR IGNACIO, JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO CALANAO, ROLANDO ROMASANTA, RHUEL AGOO, BONIFACIO ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA, ROBERTO ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN GARCIA, ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J. GARCIA, FERNANDO MACABENTE, MELECIO CASAPAO, REYNALDO JACABAN, FERDINAND SALVO, ALSTANDO MONTOS, RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY, LEONARDO P. TALLEDO, ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL BILLONES, ALLAN BALTAZAR, NOLI GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL DULAY, TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES, ANTONIO DACUNA, RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO, WILFREDO TORRES, MELCHOR CARDANO, MARIANO NARANIAN, JOHN SUMERGIDO, ROBERTO ROSALES, GERRY C. GATPO, GERMAN N. GUEVARRA, GILBERT Y. MIRANDA, RODOLFO C. TOLEDO, ARNOLD D. LASTONA, PHILIP M. LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ, FRED P. JIMENEZ, RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ BUSTENERA, ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, ALEJANDRINO ABATON, and ORLANDO S. BALANGUE, Petitioners, vs. PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents.

D E C I S I O N

DEL CASTILLO, J.:

Labor laws expressly prohibit "labor-only" contracting. To prevent its circumvention, the Labor Code establishes an employer-employee relationship between the employer and the employees of the labor-only contractor. chanroblesvirtua|awlibary

The instant petition for review assails the March 21, 2003 Decision1cЃacЃaląw of the Court of Appeals (CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution2cЃacЃaląw denying the motions for reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc. (P&G). The appellate court affirmed the July 27, 1998 Decision of the

National Labor Relations Commission (NLRC), which in turn affirmed the November 29, 1996 Decision3cЃacЃaląw of the Labor Arbiter. All these decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be legitimate independent contractors and the employers of the petitioners.

Factual Antecedents

Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:

NameDate

EmployedDate Dismissed

1. Joeb M. Aliviado

November, 1985

May 5, 1992

2. Arthur Corpuz

1988 March 11, 1993

3. Eric Aliviado 1985 March 11, 1993

4. Monchito Ampeloquio September,

1988 March 11, 1993

5. Abraham Basmayor[, Jr.]

1987 March 11, 1993

6. Jonathan Mateo May,

1988 March 11, 1993

7. Lorenzo Platon

1985 March 11, 1993

8. Jose Fernando Gutierrez

1988 May 5, 1992

9. Estanislao Buenaventura

June, 1988 March 11, 1993

10. Lope Salonga

1982 March 11, 1993

11. Franz David 1989 March 11, 1993

12. Nestor Ignacio

1982 March 11, 1993

13. Julio Rey 1989 May 5, 1992

14. Ruben [Vasquez], Jr.

1985 May 5, 1992

15. Maximino Pascual

1990 May 5, 1992

16. Ernesto Calanao[, Jr.]

1987 May 5, 1992

17. Rolando Romasanta

1983 March 11, 1993

18. [Roehl] Agoo

1988 March 11, 1993

19. Bonifacio Ortega

1988 March 11, 1993

20. Arsenio Soriano, Jr.

1985 March 11, 1993

21. Arnel Endaya

1983 March 11, 1993

22. Roberto Enriquez December,

1988 March 11, 1993

23. Nestor [Es]quila

1983 May 5, 1992

24. Ed[g]ardo Quiambao

1989 March 11, 1993

25. Santos Bacalso

1990 March 11, 1993

26. Samson Basco

1984 March 11, 1993

27. Aladino Gregor[e], Jr.

1980 May 5, 1992

28. Edwin Garcia

1987 May 5, 1992

29. Armando Villar

1990 May 5, 1992

30. Emil Tawat 1988 March 11, 1993

31. Mario P. Liongson

1991 May 5, 1992

32. Cresente J. Garcia

1984 March 11, 1993

33. Fernando Macabent[a]

1990 May 5, 1992

34. Melecio Casapao

1987 March 11, 1993

35. Reynaldo Jacaban

1990 May 5, 1992

36. Ferdinand Salvo

1985 May 5, 1992

37. Alstando Montos

1984 March 11, 1993

38. Rainer N. Salvador

1984 May 5, 1992

39. Ramil Reyes

1984 March 11, 1993

40. Pedro G. Roy

1987

41. Leonardo [F]. Talledo

1985 March 11, 1993

42. Enrique [F]. Talledo

1988 March 11, 1993

43. Willie Ortiz 1987 May 5, 1992

44. Ernesto Soyosa

1988 May 5, 1992

45. Romeo Vasquez

1985 March 11, 1993

46. Joel Billones

1987 March 11, 1993

47. Allan Baltazar

1989 March 11, 1993

48. Noli Gabuyo

1991 March 11, 1993

49. Emmanuel E. Laban

1987 May 5, 1992

50. Ramir[o] E. [Pita]

1990 May 5, 1992

51. Raul Dulay 1988 May 5, 1992

52. Tadeo Duran[o]

1988 May 5, 1992

53. Joseph Banico

1988 March 11, 1993

54. Albert Leynes

1990 May 5, 1992

55. Antonio Dacu[m]a

1990 May 5, 1992

56. Renato dela Cruz

1982

57. Romeo Viernes, Jr.

1986

58. El[ia]s Bas[c]o

1989

59. Wilfredo Torres

1986 May 5, 1992

60. Melchor Carda[ñ]o

1991 May 5, 1992

61. [Marino] [Maranion]

1989 May 5, 1992

62. John Sumergido

1987 May 5, 1992

63. Roberto Rosales May,

1987 May 5, 1992

64. Gerry [G]. November, March 11, 1993

Gatpo 1990

65. German N. Guevara

May, 1990 March 11, 1993

66. Gilbert Y. Miranda

June, 1991 March 11, 1993

67. Rodolfo C. Toledo[, Jr.]

May 14, 1991

March 11, 1993

68. Arnold D. [Laspoña]

June 1991 March 11, 1993

69. Philip M. Loza

March 5, 1992

March 11, 1993

70. Mario N. C[o]ldayon

May 14, 1991

March 11, 1993

71. Orlando P. Jimenez

November 6, 1992

March 11, 1993

72. Fred P. Jimenez

September, 1991

March 11, 1993

73. Restituto C. Pamintuan, Jr.

March 5, 1992

March 11, 1993

74. Rolando J. de Andres

June, 1991 March 11, 1993

75. Artuz Bustenera[, Jr.]

December, 1989

March 11, 1993

76. Roberto B. Cruz

May 4, 1990

March 11, 1993

77. Rosedy O. Yordan

June, 1991 May 5, 1992

78. Dennis Dacasin

May. 1990 May 5, 1992

79. Alejandrino Abaton

1988 May 5, 1992

80. Orlando S. Balangue

March, 1989

March 11, 19934cЃacЃaląw

They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time.5cЃacЃaląw They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G. They received their wages from Promm-Gem or SAPS.6cЃacЃaląw

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.7cЃacЃaląw

P&G is principally engaged in the manufacture and production of different consumer and health products, which it sells on a wholesale basis to various supermarkets and distributors.8cЃacЃaląw To enhance consumer awareness

and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products.9cЃacЃaląw

In December 1991, petitioners filed a complaint10cЃacЃaląw against P&G for regularization, service incentive leave pay and other benefits with damages. The complaint was later amended11cЃacЃaląw to include the matter of their subsequent dismissal.

Ruling of the Labor Arbiter

On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled that there was no employer-employee relationship between petitioners and P&G. He found that the selection and engagement of the petitioners, the payment of their wages, the power of dismissal and control with respect to the means and methods by which their work was accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that Promm-Gem and SAPS were legitimate independent job contractors. The dispositive portion of his Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit.

SO ORDERED.12cЃacЃaląw

Ruling of the NLRC

Appealing to the NLRC, petitioners disputed the Labor Arbiters findings. On July 27, 1998, the NLRC rendered a Decision13cЃacЃaląw disposing as follows:

WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the decision appealed from AFFIRMED.

SO ORDERED.14cЃacЃaląw

Petitioners filed a motion for reconsideration but the motion was denied in the November 19, 1998 Resolution.15cЃacЃaląw

Ruling of the Court of Appeals

Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the NLRC. However, said petition was also denied by the CA which disposed as follows:

WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998 is AFFIRMED with the MODIFICATION that respondent Procter & Gamble Phils., Inc. is ordered to pay service incentive leave pay to petitioners. chanroblesvirtua|awlibary

SO ORDERED.16cЃacЃaląw

Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this petition.

Issues

Petitioners now come before us raising the following issues:

I. chanroblesvirtua|awlibary

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN RENDERING THE QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY DISMISSED BY THE FORMER.

II. chanroblesvirtua|awlibary

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT DECLARE THAT THE PUBLIC RESPONDENTS HAD ACTED WITH GRAVE ABUSE OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS LITIGATION COSTS AND ATTORNEYS FEES.17cЃacЃaląw

Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether petitioners were illegally dismissed; and (3) whether petitioners are entitled for payment of actual, moral and exemplary damages as well as litigation costs and attorneys fees.

Petitioners Arguments

Petitioners insist that they are employees of P&G. They claim that they were recruited by the salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the existence of Promm-Gem and/or SAPS. They further claim that when the latter had its so-called re-alignment program, petitioners were instructed to fill up application forms and report to the agencies which P&G created.18cЃacЃaląw

Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its letter19cЃacЃaląw to SAPS dated February 24, 1993, informing the latter that their Merchandising Services Contract will no longer be renewed. chanroblesvirtua|awlibary

Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their client. They claim that the contractors have neither substantial capital nor tools and equipment to undertake independent labor contracting. Petitioners insist that since they had been engaged to perform activities which are necessary or desirable in the usual business or trade of P&G, then they are its regular employees.20cЃacЃaląw

Respondents Arguments

On the other hand, P&G points out that the instant petition raises only questions of fact and should thus be thrown out as the Court is not a trier of facts. It argues that findings of facts of the NLRC, particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding and conclusive on the Supreme Court. chanroblesvirtua|awlibary

P&G further argues that there is no employment relationship between it and petitioners. It was Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of work. chanroblesvirtua|awlibary

P&G also contends that the Labor Code neither defines nor limits which services or activities may be validly outsourced. Thus, an employer can farm out any of its activities to an independent contractor, regardless of whether such activity is peripheral or core in nature. It insists that the determination of whether to engage the services of a job contractor or to engage in direct hiring is within the ambit of management prerogative. chanroblesvirtua|awlibary

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the filing of the Comment of Promm-Gem on the petition.21cЃacЃaląw Also, although SAPS was impleaded as a party in the proceedings before the Labor Arbiter and the NLRC, it was no longer impleaded as a party in the proceedings before the CA.22cЃacЃaląw Hence, our pronouncements with regard to SAPS are only for the purpose of determining the obligations of P&G, if any.

Our Ruling

The petition has merit. chanroblesvirtua|awlibary

As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is constrained to wade into factual matters when there is insufficient or insubstantial evidence on record to support those factual findings; or when too much is concluded, inferred or deduced from the bare or incomplete facts appearing on record.23cЃacЃaląw In the present case, we find the need to review the records to ascertain the facts.

Labor-only contracting and job contracting

In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors.

The pertinent Labor Code provision on the matter states:

ART. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall be

paid in accordance with the provisions of this Code. chanroblesvirtua|awlibary

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

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

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

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18-02,24cЃacЃaląw distinguishes between legitimate and labor-only contracting:

x x x x

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job[,] work or service. chanroblesvirtua|awlibary

x x x x

Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service

for a principal, and any of the following elements are present:

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

ii) [T]he contractor does not exercise the right to control over the performance of the work of the contractual employee. chanroblesvirtua|awlibary

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

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

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

x x x x (Underscoring supplied.)

Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or services. Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature. However, in order for such outsourcing to be valid, it must be made to an independent contractor because the current labor rules expressly prohibit labor-only contracting. chanroblesvirtua|awlibary

To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places workers to perform a job, work or service for a principal25cЃacЃaląw and any of the following elements are present:

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

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

In the instant case, the financial statements26cЃacЃaląw of Promm-Gem show that it

has authorized capital stock of P1 million and a paid-in capital, or capital available for operations, of P500,000.00 as of 1990.27cЃacЃaląw It also has long term assets worth P432,895.28 and current assets of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space with a floor area of 870 square meters.28cЃacЃaląw It also had under its name three registered vehicles which were used for its promotional/merchandising business.29cЃacЃaląw Promm-Gem also has other clients30cЃacЃaląw aside from P&G.31cЃacЃaląw Under the circumstances, we find that Promm-Gem has substantial investment which relates to the work to be performed. These factors negate the existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02. chanroblesvirtua|awlibary

The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their work. Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already considered the complainants working under it as its regular, not merely contractual or project, employees.32cЃacЃaląw This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates on the part of Promm-Gem bad faith and intent to circumvent labor laws which factors have often been tipping points that lead the Court to strike down the employment practice or agreement concerned as contrary to public policy, morals, good customs or public order.33cЃacЃaląw

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find that it is a legitimate independent contractor. chanroblesvirtua|awlibary

On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250.00. There is no other evidence presented to show how much its working capital and assets are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets. chanroblesvirtua|awlibary

In Vinoya v. National Labor Relations Commission,34cЃacЃaląw the Court held that "[w]ith the current economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as an independent contractor."35cЃacЃaląw Applying the same rationale to the present case, it is clear that SAPS having a paid-in capital of only P31,250 - has no substantial capital. SAPS lack of substantial capital is underlined by the records36cЃacЃaląw which show that its payroll for its merchandisers alone for one month would already total P44,561.00. It had 6-month contracts with P&G.37cЃacЃaląw Yet SAPS failed to show that it could complete the 6-month contracts using its own capital and investment. Its capital is not even sufficient for one months payroll. SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for the period required for it to generate its needed revenue to sustain its operations independently. Substantial capital refers to capitalization used in the performance or completion of the job, work or service contracted out. In the present case, SAPS has failed to show substantial capital. chanroblesvirtua|awlibary

Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity that has already been considered by the Court as doubtlessly directly related to the manufacturing business,38cЃacЃaląw which is the principal business of P&G. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal business of P&G, we find that the former is engaged in "labor-only contracting". chanroblesvirtua|awlibary

"Where labor-only contracting exists, the Labor Code itself establishes an employer-employee relationship between the employer and the employees of the labor-only contractor."39cЃacЃaląw The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.40cЃacЃaląw

Consequently, the following petitioners, having been recruited and supplied by SAPS41cЃacЃaląw -- which engaged in labor-only contracting -- are considered as the employees of P&G: Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin. chanroblesvirtua|awlibary

The following petitioners, having worked under, and been dismissed by Promm-Gem, are considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado.42cЃacЃaląw

Termination of services

We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular employment, the employer shall not terminate the services of an employee except for a just43cЃacЃaląw or authorized44cЃacЃaląw cause. chanroblesvirtua|awlibary

In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified the cause of dismissal as grave misconduct and breach of trust, as follows:

x x x x

This informs you that effective May 5, 1992, your employment with our company, Promm-Gem, Inc. has been terminated. We find your expressed admission, that you considered yourself as an employee of Procter & Gamble Phils., Inc. and assailing the integrity of the Company as legitimate and independent promotion firm, is deemed as an act of disloyalty prejudicial to the interests of our Company: serious misconduct and breach of trust reposed upon you as employee of our Company which [co]nstitute just cause for the termination of your employment. chanroblesvirtua|awlibary

x x x x45cЃacЃaląw

Misconduct has been defined as improper or wrong conduct; the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character implying wrongful intent and not mere error of judgment. The misconduct to be serious must be of such grave and aggravated character and not merely trivial and unimportant.46cЃacЃaląw To be a just cause for dismissal, such misconduct (a) must be serious; (b) must relate to the performance of the employees duties; and (c) must show that the employee has become unfit to continue working for the employer.47cЃacЃaląw

In other words, in order to constitute serious misconduct which will warrant the dismissal of an employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or conduct complained of has violated some established rules or policies. It is equally important and required that the act or conduct must have been performed with wrongful intent.48cЃacЃaląw In the instant case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so. As such, we find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm. A misconduct which is not serious or grave, as that existing in the instant case, cannot be a valid basis for dismissing an employee. chanroblesvirtua|awlibary

Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the trust reposed in the employee by his employer. Ordinary breach will not suffice. A breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.49cЃacЃaląw

Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that the employee concerned holds a position of responsibility or of trust and confidence. As such, he must be invested with confidence on delicate matters, such as custody, handling or care and protection of the property and assets of the employer. And,

in order to constitute a just cause for dismissal, the act complained of must be work-related and must show that the employee is unfit to continue to work for the employer.50cЃacЃaląw In the instant case, the petitioners-employees of Promm-Gem have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is there any evidence to show that they are unfit to continue to work as merchandisers for Promm-Gem. chanroblesvirtua|awlibary

All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem. chanroblesvirtua|awlibary

While Promm-Gem had complied with the procedural aspect of due process in terminating the employment of petitioners-employees, i.e., giving two notices and in between such notices, an opportunity for the employees to answer and rebut the charges against them, it failed to comply with the substantive aspect of due process as the acts complained of neither constitute serious misconduct nor breach of trust. Hence, the dismissal is illegal. chanroblesvirtua|awlibary

With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal. The records show that upon receipt by SAPS of P&Gs letter terminating their "Merchandising Services Contact" effective March 11, 1993, they in turn verbally informed the concerned petitioners not to report for work anymore. The concerned petitioners related their dismissal as follows:

x x x x

5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr. Saturnino A. Ponce that we should already stop working immediately because that was the order of Procter and Gamble. According to him he could not do otherwise because Procter and Gamble was the one paying us. To prove that Procter and Gamble was the one responsible in our dismissal, he showed to us the letter51cЃacЃaląw dated February 24, 1993, x x x

February 24, 1993

Sales and Promotions ServicesArmons Bldg., 142 Kamias Road,Quezon City

Attention: Mr. Saturnino A. Ponce

President & General Manager

Gentlemen:

Based on our discussions last 5 and 19 February 1993, this formally informs you that we will not be renewing our Merchandising Services Contract with your agency. chanroblesvirtua|awlibary

Please immediately undertake efforts to ensure that your services to the Company

will terminate effective close of business hours of 11 March 1993.

This is without prejudice to whatever obligations you may have to the company under the abovementioned contract.

Very truly yours,

(Sgd.)EMMANUEL M. NONSales Merchandising III

6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no longer allowed to work and we were refused entrance by the security guards posted. According to the security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case in the Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February 25, 1993. x x x52cЃacЃaląw

Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS does not carry on its own business because the termination of its contract with P&G automatically meant for it also the termination of its employees services. It is obvious from its act that SAPS had no other clients and had no intention of seeking other clients in order to further its merchandising business. From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in the latters merchandising concerns only. Under the circumstances prevailing in the instant case, we cannot consider SAPS as an independent contractor. chanroblesvirtua|awlibary

Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the lawfulness of the dismissal rests with the employer.53cЃacЃaląw In termination cases, the burden of proof rests upon the employer to show that the dismissal is for just and valid cause.54cЃacЃaląw In the instant case, P&G failed to discharge the burden of proving the legality and validity of the dismissals of those petitioners who are considered its employees. Hence, the dismissals necessarily were not justified and are therefore illegal.

Damages

We now go to the issue of whether petitioners are entitled to damages. Moral

and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to morals, good customs or public policy.55cЃacЃaląw

With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any oppressive act on the part of the latter, we find no support for the award of damages. chanroblesvirtua|awlibary

As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor. The sudden and peremptory barring of the concerned petitioners from work, and from admission to the work place, after just a one-day verbal notice, and for no valid cause bellows oppression and utter disregard of the right to due process of the concerned petitioners. Hence, an award of moral damages is called for. chanroblesvirtua|awlibary

Attorneys fees may likewise be awarded to the concerned petitioners who were illegally dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights by reason of the oppressive acts56cЃacЃaląw of P&G. chanroblesvirtua|awlibary

Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges, inclusive of allowances, and other benefits or their monetary equivalent from the time the compensation was withheld up to the time of actual reinstatement.57cЃacЃaląw Hence, all the petitioners, having been illegally dismissed are entitled to reinstatement without loss of seniority rights and with full back wages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.

WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003 are REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc. are ORDERED to reinstate their respective employees immediately without loss of seniority rights and with full backwages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to pay each of those petitioners considered as its employees, namely Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, P25,000.00 as moral damages plus ten percent of the total sum as and for attorneys fees. chanroblesvirtua|awlibary

Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from receipt of this Decision, of petitioners backwages and other benefits; and ten percent of the total sum as and for attorneys fees as stated above; and for immediate execution.

SO ORDERED.

G.R. No. 160506               June 6, 2011

JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO PLATON, JOSE FERNANDO GUTIERREZ, ESTANISLAO BUENAVENTURA, LOPE SALONGA, FRANZ DAVID, NESTOR IGNACIO, JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO CALANAO, ROLANDO ROMASANTA, RHUEL AGOO, BONIFACIO ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA, ROBERTO ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN GARCIA, ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J. GARCIA, FERNANDO MACABENTE, MELECIO CASAPAO, REYNALDO JACABAN, FERDINAND SALVO, ALSTANDO MONTOS, RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY, LEONARDO P. TALLEDO, ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL BILLONES, ALLAN BALTAZAR, NOLI GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL DULAY, TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES, ANTONIO DACUNA, RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO, WILFREDO TORRES, MELCHOR CARDANO, MARIANO NARANIAN, JOHN SUMERGIDO, ROBERTO ROSALES, GERRY C. GATPO, GERMAN N. GUEVARRA, GILBERT Y. MIRANDA, RODOLFO C. TOLEDO, ARNOLD D. LASTONA, PHILIP M. LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ, FRED P. JIMENEZ, RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ BUSTENERA, ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, ALEJANDRINO ABATON, and ORLANDO S. BALANGUE, Petitioners, vs.PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents.

D E C I S I O N

DEL CASTILLO, J.:

Labor laws expressly prohibit "labor-only" contracting. To prevent its circumvention, the Labor Code establishes an employer-employee relationship between the employer and the employees of the ‘labor-only’ contractor.

The instant petition for review assails the March 21, 2003 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution2 denying the motions for reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc. (P&G). The appellate court affirmed the July 27, 1998 Decision of the National Labor Relations Commission (NLRC), which in turn affirmed the November 29, 1996 Decision3 of the Labor Arbiter. All these decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be legitimate independent contractors and the employers of the petitioners.

Factual Antecedents

Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:

NameDate

EmployedDate

Dismissed

1. Joeb M. AliviadoNovember, 1985

May 5, 1992

2. Arthur Corpuz 1988March 11, 1993

3. Eric Aliviado 1985March 11, 1993

4. Monchito Ampeloquio

September, 1988

March 11, 1993

5. Abraham Basmayor[, Jr.]

1987March 11, 1993

6. Jonathan Mateo May,

1988March 11, 1993

7. Lorenzo Platon 1985March 11, 1993

8. Jose Fernando Gutierrez

1988 May 5, 1992

9. Estanislao Buenaventura

June, 1988March 11, 1993

10. Lope Salonga 1982March 11, 1993

11. Franz David 1989March 11, 1993

12. Nestor Ignacio 1982March 11, 1993

13. Julio Rey 1989 May 5, 1992

14. Ruben [Vasquez], Jr.

1985 May 5, 1992

15. Maximino Pascual

1990 May 5, 1992

16. Ernesto Calanao[, Jr.]

1987 May 5, 1992

17. Rolando Romasanta

1983March 11, 1993

18. [Roehl] Agoo 1988March 11, 1993

19. Bonifacio Ortega

1988March 11, 1993

20. Arsenio Soriano, Jr.

1985March 11, 1993

21. Arnel Endaya 1983March 11, 1993

22. Roberto Enriquez December,

1988March 11, 1993

23. Nestor [Es]quila 1983 May 5, 1992

24. Ed[g]ardo Quiambao

1989March 11, 1993

25. Santos Bacalso 1990March 11, 1993

26. Samson Basco 1984March 11, 1993

27. Aladino Gregor[e], Jr.

1980 May 5, 1992

28. Edwin Garcia 1987 May 5, 1992

29. Armando Villar 1990 May 5, 1992

30. Emil Tawat 1988March 11, 1993

31. Mario P. Liongson

1991 May 5, 1992

32. Cresente J. Garcia

1984March 11, 1993

33. Fernando Macabent[a]

1990 May 5, 1992

34. Melecio Casapao

1987March 11, 1993

35. Reynaldo Jacaban

1990 May 5, 1992

36. Ferdinand Salvo 1985 May 5, 1992

37. Alstando Montos

1984March 11, 1993

38. Rainer N. Salvador

1984 May 5, 1992

39. Ramil Reyes 1984March 11, 1993

40. Pedro G. Roy 1987

41. Leonardo [F]. Talledo

1985March 11, 1993

42. Enrique [F]. Talledo

1988March 11, 1993

43. Willie Ortiz 1987 May 5, 1992

44. Ernesto Soyosa 1988 May 5, 1992

45. Romeo Vasquez 1985March 11, 1993

46. Joel Billones 1987March 11, 1993

47. Allan Baltazar 1989March 11, 1993

48. Noli Gabuyo 1991March 11, 1993

49. Emmanuel E. Laban

1987 May 5, 1992

50. Ramir[o] E. [Pita]

1990 May 5, 1992

51. Raul Dulay 1988 May 5, 1992

52. Tadeo Duran[o] 1988 May 5, 1992

53. Joseph Banico 1988March 11, 1993

54. Albert Leynes 1990 May 5, 1992

55. Antonio Dacu[m]a

1990 May 5, 1992

56. Renato dela Cruz

1982

57. Romeo Viernes, Jr.

1986

58. El[ia]s Bas[c]o 1989

59. Wilfredo Torres 1986 May 5, 1992

60. Melchor Carda[ñ]o

1991 May 5, 1992

61. [Marino] [Maranion]

1989 May 5, 1992

62. John Sumergido 1987 May 5, 1992

63. Roberto Rosales May, 1987 May 5, 1992

64. Gerry [G]. Gatpo

November, 1990

March 11, 1993

65. German N. Guevara

May, 1990March 11, 1993

66. Gilbert Y. Miranda

June, 1991March 11, 1993

67. Rodolfo C. Toledo[, Jr.]

May 14, 1991March 11, 1993

68. Arnold D. [Laspoña]

June 1991March 11, 1993

69. Philip M. LozaMarch 5, 1992

March 11, 1993

70. Mario N. C[o]ldayon

May 14, 1991March 11, 1993

71. Orlando P. Jimenez

November 6, 1992

March 11, 1993

72. Fred P. JimenezSeptember, 1991

March 11, 1993

73. Restituto C. Pamintuan, Jr.

March 5, 1992

March 11, 1993

74. Rolando J. de Andres

June, 1991March 11, 1993

75. Artuz Bustenera[, Jr.]

December, 1989

March 11, 1993

76. Roberto B. Cruz May 4, 1990March 11, 1993

77. Rosedy O. Yordan

June, 1991 May 5, 1992

78. Dennis Dacasin May. 1990 May 5, 1992

79. Alejandrino Abaton

1988 May 5, 1992

80. Orlando S. Balangue

March, 1989March 11, 19934

They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time.5 They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G. They received their wages from Promm-Gem or SAPS.6

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.7

P&G is principally engaged in the manufacture and production of different consumer and health products, which it sells on a wholesale basis to various supermarkets and distributors.8 To enhance consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products.9

In December 1991, petitioners filed a complaint10 against P&G for regularization, service incentive leave pay and other benefits with damages. The complaint was later amended11 to include the matter of their subsequent dismissal.

Ruling of the Labor Arbiter

On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled that there was no employer-employee relationship between petitioners and P&G. He found that the selection and engagement of the petitioners, the payment of their wages, the power of

dismissal and control with respect to the means and methods by which their work was accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that Promm-Gem and SAPS were legitimate independent job contractors. The dispositive portion of his Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit.

SO ORDERED.12

Ruling of the NLRC

Appealing to the NLRC, petitioners disputed the Labor Arbiter’s findings. On July 27, 1998, the NLRC rendered a Decision13 disposing as follows:

WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the decision appealed from AFFIRMED.

SO ORDERED.14

Petitioners filed a motion for reconsideration but the motion was denied in the November 19, 1998 Resolution.15

Ruling of the Court of Appeals

Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the NLRC. However, said petition was also denied by the CA which disposed as follows:

WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998 is AFFIRMED with the MODIFICATION that respondent Procter & Gamble Phils., Inc. is ordered to pay service incentive leave pay to petitioners.

SO ORDERED.16

Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this petition.

Issues

Petitioners now come before us raising the following issues:

I.

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN RENDERING THE QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND ESTABLISH

THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY DISMISSED BY THE FORMER.

II.

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT DECLARE THAT THE PUBLIC RESPONDENTS HAD ACTED WITH GRAVE ABUSE OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS LITIGATION COSTS AND ATTORNEY’S FEES.17

Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether petitioners were illegally dismissed; and (3) whether petitioners are entitled for payment of actual, moral and exemplary damages as well as litigation costs and attorney’s fees.

Petitioners’ Arguments

Petitioners insist that they are employees of P&G. They claim that they were recruited by the salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the existence of Promm-Gem and/or SAPS. They further claim that when the latter had its so-called re-alignment program, petitioners were instructed to fill up application forms and report to the agencies which P&G created.18

Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its letter19 to SAPS dated February 24, 1993, informing the latter that their Merchandising Services Contract will no longer be renewed.

Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their client. They claim that the contractors have neither substantial capital nor tools and equipment to undertake independent labor contracting. Petitioners insist that since they had been engaged to perform activities which are necessary or desirable in the usual business or trade of P&G, then they are its regular employees.20

Respondents’ Arguments

On the other hand, P&G points out that the instant petition raises only questions of fact and should thus be thrown out as the Court is not a trier of facts. It argues that findings of facts of the NLRC, particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding and conclusive on the Supreme Court.

P&G further argues that there is no employment relationship between it and petitioners. It was Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid

their salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of work.

P&G also contends that the Labor Code neither defines nor limits which services or activities may be validly outsourced. Thus, an employer can farm out any of its activities to an independent contractor, regardless of whether such activity is peripheral or core in nature. It insists that the determination of whether to engage the services of a job contractor or to engage in direct hiring is within the ambit of management prerogative.

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the filing of the Comment of Promm-Gem on the petition.21 Also, although SAPS was impleaded as a party in the proceedings before the Labor Arbiter and the NLRC, it was no longer impleaded as a party in the proceedings before the CA.22 Hence, our pronouncements with regard to SAPS are only for the purpose of determining the obligations of P&G, if any.

Our Ruling

The petition has merit.

As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is constrained to wade into factual matters when there is insufficient or insubstantial evidence on record to support those factual findings; or when too much is concluded, inferred or deduced from the bare or incomplete facts appearing on record.23 In the present case, we find the need to review the records to ascertain the facts.

Labor-only contracting and job contracting

In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors.

The pertinent Labor Code provision on the matter states:

ART. 106. Contractor or subcontractor. – Whenever an employer enters into a contract with another person for the performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this Code.

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

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job

contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code.

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

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18-02,24 distinguishes between legitimate and labor-only contracting:

x x x x

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job[,] work or service.

x x x x

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

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

ii) [T]he contractor does not exercise the right to control over the performance of the work of the contractual employee.

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

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

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

x x x x (Underscoring supplied.)

Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or services. Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature. However, in order for such outsourcing to be valid, it must be made to an independent contractor because the current labor rules expressly prohibit labor-only contracting.

To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places workers to perform a job, work or service for a principal25 and any of the following elements are present:

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

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

In the instant case, the financial statements26 of Promm-Gem show that it

has authorized capital stock of P1 million and a paid-in capital, or capital available for operations, of P500,000.00 as of 1990.27 It also has long term assets worth P432,895.28 and current assets of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space with a floor area of 870 square meters.28 It also had under its name three registered vehicles which were used for its promotional/merchandising business.29 Promm-Gem also has other clients30 aside from P&G.31 Under the circumstances, we find that Promm-Gem has substantial investment which relates to the work to be performed. These factors negate the existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their work. Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already considered the complainants working under it as its regular, not merely contractual or project, employees.32 This

circumstance negates the existence of element (ii) as stated in Section 5 of DOLE Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates – on the part of Promm-Gem – bad faith and intent to circumvent labor laws which factors have often been tipping points that lead the Court to strike down the employment practice or agreement concerned as contrary to public policy, morals, good customs or public order.33

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find that it is a legitimate independent contractor.

On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250.00. There is no other evidence presented to show how much its working capital and assets are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets.

In Vinoya v. National Labor Relations Commission,34 the Court held that "[w]ith the current economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as an independent contractor."35 Applying the same rationale to the present case, it is clear that SAPS – having a paid-in capital of only P31,250 - has no substantial capital. SAPS’ lack of substantial capital is underlined by the records36 which show that its payroll for its merchandisers alone for one month would already total P44,561.00. It had 6-month contracts with P&G.37 Yet SAPS failed to show that it could complete the 6-month contracts using its own capital and investment. Its capital is not even sufficient for one month’s payroll. SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for the period required for it to generate its needed revenue to sustain its operations independently. Substantial capital refers to capitalization used in the performance or completion of the job, work or service contracted out. In the present case, SAPS has failed to show substantial capital.

Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity that has already been considered by the Court as doubtlessly directly related to the manufacturing business,38 which is the principal business of P&G. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal business of P&G, we find that the former is engaged in "labor-only contracting".

"Where ‘labor-only’ contracting exists, the Labor Code itself establishes an employer-employee relationship between the employer and the employees of the ‘labor-only’ contractor."39 The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.40

Consequently, the following petitioners, having been recruited and supplied

by SAPS41 -- which engaged in labor-only contracting -- are considered as the employees of P&G: Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin.

The following petitioners, having worked under, and been dismissed by Promm-Gem, are considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado.42

Termination of services

We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular employment, the employer shall not terminate the services of an employee except for a just43 or authorized44 cause.

In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified the cause of dismissal as grave misconduct and breach of trust, as follows:

x x x x

This informs you that effective May 5, 1992, your employment with our company, Promm-Gem, Inc. has been terminated. We find your expressed admission, that you considered yourself as an employee of Procter & Gamble Phils., Inc…. and assailing the integrity of the Company as legitimate and independent promotion firm, is deemed as an act of disloyalty prejudicial to the interests of our Company: serious misconduct and breach of trust reposed upon you as employee of our Company which [co]nstitute just cause for the termination of your employment.

x x x x45

Misconduct has been defined as improper or wrong conduct; the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character implying wrongful intent and not mere error of judgment. The misconduct to be serious must be of such

grave and aggravated character and not merely trivial and unimportant.46 To be a just cause for dismissal, such misconduct (a) must be serious; (b) must relate to the performance of the employee’s duties; and (c) must show that the employee has become unfit to continue working for the employer.47

In other words, in order to constitute serious misconduct which will warrant the dismissal of an employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or conduct complained of has violated some established rules or policies. It is equally important and required that the act or conduct must have been performed with wrongful intent.48 In the instant case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so. As such, we find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm. A misconduct which is not serious or grave, as that existing in the instant case, cannot be a valid basis for dismissing an employee.

Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the trust reposed in the employee by his employer. Ordinary breach will not suffice. A breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.49

Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that the employee concerned holds a position of responsibility or of trust and confidence. As such, he must be invested with confidence on delicate matters, such as custody, handling or care and protection of the property and assets of the employer. And, in order to constitute a just cause for dismissal, the act complained of must be work-related and must show that the employee is unfit to continue to work for the employer.50 In the instant case, the petitioners-employees of Promm-Gem have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is there any evidence to show that they are unfit to continue to work as merchandisers for Promm-Gem.

All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem.

While Promm-Gem had complied with the procedural aspect of due process in terminating the employment of petitioners-employees, i.e., giving two notices and in between such notices, an opportunity for the employees to answer and rebut the charges against them, it failed to comply with the substantive aspect of due process as the acts complained of neither constitute serious misconduct nor breach of trust. Hence, the dismissal is illegal.

With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal. The records show that upon receipt by SAPS of P&G’s letter terminating their "Merchandising Services Contact" effective March 11, 1993, they in turn verbally informed the concerned

petitioners not to report for work anymore. The concerned petitioners related their dismissal as follows:

x x x x

5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr. Saturnino A. Ponce that we should already stop working immediately because that was the order of Procter and Gamble. According to him he could not do otherwise because Procter and Gamble was the one paying us. To prove that Procter and Gamble was the one responsible in our dismissal, he showed to us the letter51 dated February 24, 1993, x x x

February 24, 1993

Sales and Promotions ServicesArmon’s Bldg., 142 Kamias Road,Quezon City

Attention: Mr. Saturnino A. PoncePresident & General Manager

Gentlemen:

Based on our discussions last 5 and 19 February 1993, this formally informs you that we will not be renewing our Merchandising Services Contract with your agency.

Please immediately undertake efforts to ensure that your services to the Company will terminate effective close of business hours of 11 March 1993.

This is without prejudice to whatever obligations you may have to the company under the abovementioned contract.

Very truly yours,

(Sgd.)EMMANUEL M. NONSales Merchandising III

6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no longer allowed to work and we were refused entrance by the security guards posted. According to the security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case in the Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February 25, 1993. x x x52

Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS does not carry on its own business because the termination of its contract with P&G automatically meant for it also the termination of its employees’ services. It is obvious from its act that SAPS had no other clients and had no intention of seeking other

clients in order to further its merchandising business. From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in the latter’s merchandising concerns only. Under the circumstances prevailing in the instant case, we cannot consider SAPS as an independent contractor.

Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the lawfulness of the dismissal rests with the employer.53 In termination cases, the burden of proof rests upon the employer to show that the dismissal is for just and valid cause.54 In the instant case, P&G failed to discharge the burden of proving the legality and validity of the dismissals of those petitioners who are considered its employees. Hence, the dismissals necessarily were not justified and are therefore illegal.

Damages

We now go to the issue of whether petitioners are entitled to damages. Moral

and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to morals, good customs or public policy.55

With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any oppressive act on the part of the latter, we find no support for the award of damages.

As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor. The sudden and peremptory barring of the concerned petitioners from work, and from admission to the work place, after just a one-day verbal notice, and for no valid cause bellows oppression and utter disregard of the right to due process of the concerned petitioners. Hence, an award of moral damages is called for.

Attorney’s fees may likewise be awarded to the concerned petitioners who were illegally dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights by reason of the oppressive acts56 of P&G.

Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges, inclusive of allowances, and other benefits or their monetary equivalent from the time the compensation was withheld up to the time of actual reinstatement.57 Hence, all the petitioners, having been illegally dismissed are entitled to reinstatement without loss of seniority rights and with full back wages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.1avvphi1

WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003 are REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc. are ORDERED to reinstate their respective employees immediately without

loss of seniority rights and with full backwages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to pay each of those petitioners considered as its employees, namely Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, P25,000.00 as moral damages plus ten percent of the total sum as and for attorney’s fees.

Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from receipt of this Decision, of petitioners’ backwages and other benefits; and ten percent of the total sum as and for attorney’s fees as stated above; and for immediate execution.

SO ORDERED.

G.R. No. 146408             February 29, 2008

PHILIPPINE AIRLINES, INC., petitioner, vs.ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, BENEDICTO AUXTERO, EDUARDO MAGDADARAUG, NELSON M. DULCE, and ALLAN BENTUZAL, respondents.

D E C I S I O N

CARPIO MORALES, J.:

Petitioner Philippine Airlines as Owner, and Synergy Services Corporation (Synergy) as Contractor, entered into an Agreement1 on July 15, 1991 whereby Synergy undertook to "provide loading, unloading, delivery of baggage and cargo and other related services to and from [petitioner]'s aircraft at the Mactan Station."2

The Agreement specified the following "Scope of Services" of Contractor Synergy:

1.2 CONTRACTOR shall furnish all the necessary capital, workers, loading, unloading and delivery materials, facilities, supplies, equipment and tools for the satisfactory performance and execution of the following services (the Work):

a. Loading and unloading of baggage and cargo to and from the aircraft;

b. Delivering of baggage from the ramp to the baggage claim area;

c. Picking up of baggage from the baggage sorting area to the designated parked aircraft;

d. Delivering of cargo unloaded from the flight to cargo terminal;

e. Other related jobs (but not janitorial functions) as may be required and necessary;

CONTRACTOR shall perform and execute the aforementioned Work at the following areas located at Mactan Station, to wit:

a. Ramp Area

b. Baggage Claim Area

c. Cargo Terminal Area, and

d. Baggage Sorting Area3 (Underscoring supplied)

And it expressly provided that Synergy was "an independent contractor and . . . that there w[ould] be no employer-employee relationship between CONTRACTOR and/or its employees on the one hand, and OWNER, on the other."4

On the duration of the Agreement, Section 10 thereof provided:

10. 1 Should at any time OWNER find the services herein undertaken by CONTRACTOR to be unsatisfactory, it shall notify CONTRACTOR who shall have fifteen (15) days from such notice within which to improve the services. If CONTRACTOR fails to improve the services under this Agreement according to OWNER'S specifications and standards, OWNER shall have the right to terminate this Agreement immediately and without advance notice.

10.2 Should CONTRACTOR fail to improve the services within the period stated above or should CONTRACTOR breach the terms of this Agreement and fail or refuse to perform the Work in such a manner as will be consistent with the achievement of the result therein contracted for or in any other way fail to comply strictly with any terms of this Agreement, OWNER at its option, shall have the right to terminate this Agreement and to make other arrangements for having said Work

performed and pursuant thereto shall retain so much of the money held on the Agreement as is necessary to cover the OWNER's costs and damages, without prejudice to the right of OWNER to seek resort to the bond furnished by CONTRACTOR should the money in OWNER's possession be insufficient.

x x x x (Underscoring supplied)

Except for respondent Benedicto Auxtero (Auxtero), the rest of the respondents, who appear to have been assigned by Synergy to petitioner following the execution of the July 15, 1991 Agreement, filed on March 3, 1992 complaints before the NLRC Regional Office VII at Cebu City against petitioner, Synergy and their respective officials for underpayment, non-payment of premium pay for holidays, premium pay for rest days, service incentive leave pay, 13 th month pay and allowances, and for regularization of employment status with petitioner, they claiming to be "performing duties for the benefit of [petitioner] since their job is directly connected with [its] business x x x."5

Respondent Auxtero had initially filed a complaint against petitioner and Synergy and their respective officials for regularization of his employment status. Later alleging that he was, without valid ground, verbally dismissed, he filed a complaint against petitioner and Synergy and their respective officials for illegal dismissal and reinstatement with full backwages.6

The complaints of respondents were consolidated.

By Decision7 of August 29, 1994, Labor Arbiter Dominador Almirante found Synergy an independent contractor and dismissed respondents' complaint for regularization against petitioner, but granted their money claims. The fallo of the decision reads:

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

(1) Ordering respondents PAL and Synergy jointly and severally to pay all the complainants herein their 13th month pay and service incentive leave benefits;

x x x x

(3) Ordering respondent Synergy to pay complainant Benedicto Auxtero a financial assistance in the amount of P5,000.00.

The awards hereinabove enumerated in the aggregate total amount of THREE HUNDRED TWENTY-TWO THOUSAND THREE HUNDRED FIFTY NINE PESOS AND EIGHTY SEVEN CENTAVOS (P322,359.87) are computed in detail by our Fiscal Examiner which computation is hereto attached to form part of this decision.

The rest of the claims are hereby ordered dismissed for lack of merit.8 (Underscoring supplied)

On appeal by respondents, the NLRC, Fourth Division, Cebu City, vacated and set aside the decision of the Labor Arbiter by Decision9 of January 5, 1996, the fallo of which reads:

WHEREFORE, the Decision of the Labor Arbiter Dominador A. Almirante, dated August 29, 1994, is hereby VACATED and SET ASIDE and judgment is hereby rendered:

1. Declaring respondent Synergy Services Corporation to be a 'labor-only' contractor;

2. Ordering respondent Philippine Airlines to accept, as its regular employees, all the complainants, . . . and to give each of them the salaries, allowances and other employment benefits and privileges of a regular employee under the Collective Bargaining Agreement subsisting during the period of their employment;

x x x x

4. Declaring the dismissal of complainant Benedicto Auxtero to be illegal and ordering his reinstatement as helper or utility man with respondent Philippine Airlines, with full backwages, allowances and other benefits and privileges from the time of his dismissal up to his actual reinstatement; and

5. Dismissing the appeal of respondent Synergy Services Corporation, for lack of merit.10 (Emphasis and underscoring supplied)

Only petitioner assailed the NLRC decision via petition for certiorari before this Court.

By Resolution11 of January 25, 1999, this Court referred the case to the Court of Appeals for appropriate action and disposition, conformably with St. Martin Funeral Homes v. National Labor Relations Commission which was promulgated on September 16, 1998.

The appellate court, by Decision of September 29, 2000, affirmed the Decision of the NLRC.12 Petitioner's motion for reconsideration having been denied by Resolution of December 21, 2000,13 the present petition was filed, faulting the appellate court

I.

. . . IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION DECISION WHICH IMPOSED THE RELATIONSHIP OF EMPLOYER-EMPLOYEE BETWEEN PETITIONER AND THE RESPONDENTS HEREIN.

II.

. . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR RELATIONS COMMISSION ORDERING THE REINSTATEMENT OF RESPONDENT AUXTERO DESPITE THE ABSENCE [OF] ANY FACTUAL FINDING IN THE DECISION THAT PETITIONER ILLEGALLY TERMINATED HIS EMPLOYMENT.

III.

. . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND GRAVE ERROR IN UPHOLDING THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION WHICH COMPELLED THE PETITIONER TO EMPLOY THE RESPONDENTS AS REGULAR EMPLOYEES DESPITE THE FACT THAT THEIR SERVICES ARE IN EXCESS OF PETITIONER COMPANY'S OPERATIONAL REQUIREMENTS.14 (Underscoring supplied)

Petitioner argues that the law does not prohibit an employer from engaging an independent contractor, like Synergy, which has substantial capital in carrying on an independent business of contracting, to perform specific jobs.

Petitioner further argues that its contracting out to Synergy various services like janitorial, aircraft cleaning, baggage-handling, etc., which are directly related to its business, does not make respondents its employees.

Petitioner furthermore argues that none of the four (4) elements of an employer-employee relationship between petitioner and respondents, viz: selection and engagement of an employee, payment of wages, power of dismissal, and the power to control employee's conduct, is present in the case.15

Finally, petitioner avers that reinstatement of respondents had been rendered impossible because it had reduced its personnel due to heavy losses as it had in fact terminated its service agreement with Synergy effective June 30, 199816 as a cost-saving measure.

The decision of the case hinges on a determination of whether Synergy is a mere job-only contractor or a legitimate contractor. If Synergy is found to be a mere job-only contractor, respondents could be considered as regular employees of petitioner as Synergy would then be a mere agent of petitioner in which case respondents would be entitled to all the benefits granted to petitioner's regular employees; otherwise, if Synergy is found to be a legitimate contractor, respondents' claims against petitioner must fail as they would then be considered employees of Synergy.

The statutory basis of legitimate contracting or subcontracting is provided in Article 106 of the Labor Code which reads:

ART. 106. CONTRACTOR OR SUBCONTRACTOR. - Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of

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

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

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

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

Legitimate contracting and labor-only contracting are defined in Department Order (D.O.) No. 18-02, Series of 2002 (Rules Implementing Articles 106 to 109 of the Labor Code, as amended) as follows:

Section 3. Trilateral relationship in contracting arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job, work or service. (Emphasis and underscoring supplied)

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

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

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

(ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee. (Emphasis, underscoring and capitalization supplied)

"Substantial capital or investment" and the "right to control" are defined in the same Section 5 of the Department Order as follows:

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

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

From the records of the case, it is gathered that the work performed by almost all of the respondents - loading and unloading of baggage and cargo of passengers - is directly related to the main business of petitioner. And the equipment used by respondents as station loaders, such as trailers and conveyors, are owned by petitioner.17

Petitioner asserts, however, that mere compliance with substantial capital requirement suffices for Synergy to be considered a legitimate contractor, citing Neri v. National Labor Relations Commission.18 Petitioner's reliance on said case is misplaced.

In Neri, the Labor Arbiter and the NLRC both determined that Building Care Corporation had a capital stock of P1 million fully subscribed and paid for.19 The corporation's status as independent contractor had in fact been previously confirmed in an earlier case20 by this Court which found it to be serving, among others, a university, an international bank, a big local bank, a hospital center, government agencies, etc."

In stark contrast to the case at bar, while petitioner steadfastly asserted before the Labor Arbiter and the NLRC that Synergy has a substantial capital to engage in legitimate

contracting, it failed to present evidence thereon. As the NLRC held:

The decision of the Labor Arbiter merely mentioned on page 5 of his decision that respondent SYNERGY has substantial capital, but there is no showing in the records as to how much is that capital. Neither had respondents shown that SYNERGY has such substantial capital. x x x21 (Underscoring supplied)

It was only after the appellate court rendered its challenged Decision of September 29, 2002 when petitioner, in its Motion for Reconsideration of the decision, sought to prove, for the first time, Synergy's substantial capitalization by attaching photocopies of Synergy's financial statements, e.g., balance sheets, statements of income and retained earnings, marked as "Annexes 'A' - 'A-4.'"22

More significantly, however, is that respondents worked alongside petitioner's regular employees who were performing identical work.23 As San Miguel Corporation v. Aballa24 and Dole Philippines, Inc. v. Esteva, et al.25 teach, such is an indicium of labor-only contracting.

For labor-only contracting to exist, Section 5 of D.O. No. 18-02 which requires any of two elements to be present is, for convenience, re-quoted:

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

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

Even if only one of the two elements is present then, there is labor-only contracting.

The control test element under the immediately-quoted paragraph (ii), which was not present in the old Implementing Rules (Department Order No. 10, Series of 1997),26 echoes the prevailing jurisprudential trend27 elevating such element as a primary determinant of employer-employee relationship in job contracting agreements.

One who claims to be an independent contractor has to prove that he contracted to do the work according to his own methods and without being subject to the employer's control except only as to the results.28

While petitioner claimed that it was Synergy's supervisors who actually supervised respondents, it failed to present evidence thereon. It did not even identify who were the Synergy supervisors assigned at the workplace.

Even the parties' Agreement does not lend support to petitioner's claim, thus:

Section 6. Qualified and Experienced Worker: Owner's Right to Dismiss Workers.

CONTRACTOR shall employ capable and experienced workers and foremen to carry out the loading, unloading and delivery Work as well as provide all equipment, loading, unloading and delivery equipment, materials, supplies and tools necessary for the performance of the Work. CONTRACTOR shall upon OWNER'S request furnish the latter with information regarding the qualifications of the former's workers, to prove their capability and experience. Contractor shall require all its workers, employees, suppliers and visitors to comply with OWNER'S rules, regulations, procedures and directives relative to the safety and security of OWNER'S premises, properties and operations. For this purpose, CONTRACTOR shall furnish its employees and workers identification cards to be countersigned by OWNER and uniforms to be approved by OWNER. OWNER may require CONTRACTOR to dismiss immediately and prohibit entry into OWNER'S premises of any person employed therein by CONTRACTOR who in OWNER'S opinion is incompetent or misconducts himself or does not comply with OWNER'S reasonable instructions and requests regarding security, safety and other matters and such person shall not again be employed to perform the services hereunder without OWNER'S permission.29 (Underscoring partly in the original and partly supplied; emphasis supplied)

Petitioner in fact admitted that it fixes the work schedule of respondents as their work was dependent on the frequency of plane arrivals.30 And as the NLRC found, petitioner's managers and supervisors approved respondents' weekly work assignments and respondents and other regular PAL employees were all referred to as "station attendants" of the cargo operation and airfreight services of petitioner.31

Respondents having performed tasks which are usually necessary and desirable in the air transportation business of petitioner, they should be deemed its regular employees and Synergy as a labor-only contractor.32

The express provision in the Agreement that Synergy was an independent contractor and there would be "no employer-employee relationship between [Synergy] and/or its employees on one hand, and [petitioner] on the other hand" is not legally binding and conclusive as contractual provisions are not valid determinants of the existence of such relationship. For it is the totality of the facts and surrounding circumstances of the case33 which is determinative of the parties' relationship.

Respecting the dismissal on November 15, 199234 of Auxtero, a regular employee of petitioner who had been working as utility man/helper since November 1988, it is not legally justified for want of just or authorized cause therefor

and for non-compliance with procedural due process. Petitioner's claim that he abandoned his work does not persuade.35 The elements of abandonment being (1) the failure to report for work or absence without valid or justifiable reason, and (2) a clear intention to sever the employer-employee relationship manifested by some overt acts,36 the onus probandi lies with petitioner which, however, failed to discharge the same.

Auxtero, having been declared to be a regular employee of petitioner, and found to be illegally dismissed from employment, should be entitled to salary differential37 from the time he rendered one year of service until his dismissal, reinstatement plus backwages until the finality of this decision.38 In view, however, of the long period of time39 that had elapsed since his dismissal on November 15, 1992, it would be appropriate to award separation pay of one (1) month salary for each year of service, in lieu of reinstatement.40

As regards the remaining respondents, the Court affirms the ruling of both the NLRC and the appellate court, ordering petitioner to accept them as its regular employees and to give each of them the salaries, allowances and other employment benefits and privileges of a regular employee under the pertinent Collective Bargaining Agreement.

Petitioner claims, however, that it has become impossible for it to comply with the orders of the NLRC and the Court of Appeals, for during the pendency of this case, it was forced to reduce its personnel due to heavy losses caused by economic crisis and the pilots' strike of June 5, 1998.41 Hence, there are no available positions where respondents could be placed.

And petitioner informs that "the employment contracts of all if not most of the respondents . . . were terminated by Synergy effective 30 June 1998 when petitioner terminated its contract with Synergy."42

Other than its bare allegations, petitioner presented nothing to substantiate its impossibility of compliance. In fact, petitioner waived this defense by failing to raise it in its Memorandum filed on June 14, 1999 before the Court of Appeals.43 Further, the notice of termination in 1998 was in disregard of a subsisting temporary restraining order44 to preserve the status quo, issued by this Court in 1996 before it referred the case to the Court of Appeals in January 1999. So as to thwart the attempt to subvert the implementation of the assailed decision, respondents are deemed to be continuously employed by petitioner, for purposes of computing the wages and benefits due respondents.

Finally, it must be stressed that respondents, having been declared to be regular employees of petitioner, Synergy being a mere agent of the latter, had acquired security of tenure. As such, they could only be dismissed by petitioner, the real employer, on the basis of just or authorized cause, and with observance of procedural due process.

WHEREFORE, the Court of Appeals Decision of September 29, 2000 is AFFIRMED with MODIFICATION.

Petitioner PHILIPPINE AIRLINES, INC. is ordered to:

(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL as its regular employees in their same or substantially equivalent positions, and pay the wages and benefits due them as regular employees plus salary differential corresponding to the difference between the wages and benefits given them and those granted to petitioner's other regular employees of the same rank; and

(b) pay respondent BENEDICTO AUXTERO salary differential; backwages from the time of his dismissal until the finality of this decision; and separation pay, in lieu of reinstatement, equivalent to one (1) month pay for every year of service until the finality of this decision.

There being no data from which this Court may determine the monetary liabilities of petitioner, the case is REMANDED to the Labor Arbiter solely for that purpose.

SO ORDERED.

G.R. No. 146408               April 30, 2009

PHILIPPINE AIRLINES, INC., Petitioner, vs.ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARISUSA, JEFFREY LLENES, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERIE ALEGRES, BENEDICTO AUXTERO, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL, Respondents.

R E S O L U T I O N

CARPIO MORALES, J.:

Before the Court are petitioner’s Motion for Reconsideration and respondents’ Motion for Clarification and/or Reconsideration of the Court’s February 29, 2008 Decision in light of incidents bearing on the present case which were not brought to light by them before the Court promulgated said Decision.

The Decision of the Court affirmed with modification the appellate court’s September 29, 2000 Decision and directed petitioner Philippine Airlines, Inc. to:

(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL as its regular employees in their same or substantially equivalent positions, and pay the wages and benefits due them as regular employees plus salary differential corresponding to the difference between the wages and benefits given them and those granted to petitioner’s other regular employees of the same rank; and

(b) pay respondent BENEDICTO AUXTERO salary differential; backwages from the time of his dismissal until the finality of this decision; and separation pay, in lieu of reinstatement, equivalent to one (1) month pay for every year of service until the finality of this decision.

There being no data from which this Court may determine the monetary liabilities of petitioner, the case is REMANDED to the Labor Arbiter solely for that purpose.

SO ORDERED.1

Synergy Services Corporation (Synergy) having been found to be a labor-only contractor, respondents were consequently declared as petitioner’s regular employees who are entitled to the salaries, allowances, and other employment benefits under the pertinent Collective Bargaining Agreement.

Petitioner prays for a reconsideration of the Decision, maintaining its position that respondents were employed by Synergy, and to "reinstate" respondents as regular employees is iniquitous since it would be compelled to employ personnel more than what its operations require. It adds that the Court should declare that reinstatement is no longer an appropriate relief in view of the long period of time that had elapsed.

For their part, respondents, deducing from the Decision that their termination was found to be illegal, posit that the portion of the Decision ordering petitioner to "accept" them should also mean to "reinstate" them with backwages.2 Respondents additionally pray for the award to them of attorney’s fees, albeit they admit that they failed to raise it as an issue.

Both parties point out that the Court’s Decision "presupposes" or "was based on the erroneous assumption" that respondents are still in the actual employ of petitioner.

Respondents disclose that except for those who have either died, accepted settlement earlier, or declared as employee of Synergy, the remaining respondents have all been terminated in the guise of retrenchment. Joining such

account, petitioner reveals that 13 out of the 25 respondents filed an illegal dismissal case, which is pending before the appellate court stationed at Cebu City as CA-G.R. SP No. 00922.3

Respondents add that the appellate court, by Resolution of April 22, 2008, held the illegal dismissal case in abeyance until after this Court rules on the present case.4

Petitioner also urges the Court to examine the cases of respondents Roque Pilapil (Pilapil) and Benedicto Auxtero (Auxtero) in light of the following information, viz: Pilapil entered petitioner’s pool of regular employees on September 1, 19915 but was later terminated for submitting falsified academic credentials. Pilapil’s complaint for illegal dismissal was dismissed by the labor arbiter, whose decision was reinstated with modification by the appellate court by Decision of March 7, 2001 in CA-G.R. SP No. 50578. On Pilapil’s appeal, this Court, by Resolution of September 19, 2001 in G.R. No. 147853, declared the case terminated when Pilapil failed to file his intended petition.

Given its information in the immediately foregoing paragraph, petitioner claims that it already complied with the judgment awarding separation pay representing financial assistance to Pilapil on September 23, 2003, during the pendency of the present case.6 Respondents do not dispute petitioner’s information.7

Petitioner also informs the Court that Auxtero already secured a favorable judgment from this Court in G.R. No. 158710 which effectively affirmed the appellate court’s Decision of February 26, 2003 in CA-G.R. SP No. 50480.8 It appears from the "Joint Declaration of Satisfaction of Judgment"9 with "Release and Quitclaim and Waiver,"10 both dated November 29, 2007, that petitioner already satisfied the judgment rendered in said G.R. No. 158710 in favor of Auxtero in the amount of P1.3 Million, and that Auxtero had waived reinstatement. Respondents essentially corroborate this information of petitioner.11

In light of these recent manifestations-informations of the parties, the Court finds that a modification of the Decision is in order, the claims with respect to Pilapil and Auxtero having been deemed extinguished even before the promulgation of the Decision. That Pilapil was a regular employee yields to the final finding of a valid dismissal in the supervening case involving his own misconduct, while Auxtero’s attempt at forum-shopping should not be countenanced.

IN ALL OTHER RESPECTS, the Court finds no sufficient reason to deviate from its Decision, but proceeds, nonetheless, to clarify a few points.

While this Court’s Decision ruled on the regular status of respondents, it must be deemed to be without prejudice to the resolution of the issue of illegal dismissal in the proper case. The Decision thus expressly stated:

Finally, it must be stressed that respondents, having been declared to be regular employees of petitioner, Synergy being a mere agent of the latter, had acquired security of tenure. As such, they could only be dismissed by petitioner,

the real employer, on the basis of just or authorized cause, and with observance of procedural due process.12 (Underscoring supplied)

Notably, subject of the Decision was respondents’ complaints13 for regularization and under-/non-payment of benefits. The Court did not and could not take cognizance of the validity of the eventual dismissal of respondents because the matter of just or authorized cause is beyond the issues of the case. That is why the Court did not order reinstatement for such relief presupposes a finding of illegal dismissal14 in the proper case which, as the parties now manifest, pends before the appellate court.

Respecting petitioner’s allegation of financial woes that led to the June 30, 1998 lay-off of respondents, as the Court held in its Decision, petitioner failed to establish such economic losses which rendered impossible the compliance with the order to accept respondent as regular employees. Thus the Decision reads:

Other than its bare allegations, petitioner presented nothing to substantiate its impossibility of compliance. In fact, petitioner waived this defense by failing to raise it in its Memorandum filed on June 14, 1999 before the Court of Appeals. x x x15 (Underscoring supplied)

Petitioner, for the first time, revealed the matter of termination and the allegation of financial woes in its Motion for Reconsideration of October 10, 2000 before the appellate court,16 not by way of defense to a charge of illegal dismissal but to manifest that supervening events have rendered it impossible for petitioner to comply with the order to accept respondents as regular employees.17 Moreover, the issue of economic losses as a ground for dismissing respondents is factual in nature, hence, it may be determined in the proper case.

All told, the pending illegal dismissal case in CA-G.R. SP No. 00922 may now take its course. The Court’s finding that respondents are regular employees of petitioner neither frustrates nor preempts the appellate court’s proceedings in resolving the issue of retrenchment as an authorized cause for termination. If an authorized cause for dismissal is later found to exist, petitioner would still have to pay respondents their corresponding benefits and salary differential up to June 30, 1998. Otherwise, if there is a finding of illegal dismissal, an order for reinstatement with full backwages does not conflict with the Court’s declaration of the regular employee status of respondents.

As to the belated plea of respondents for attorney’s fees, suffice it to state that parties who have not appealed cannot obtain from the appellate court any affirmative reliefs other than those granted, if any, in the decision of the lower tribunal.18 Since respondents did not file a motion for reconsideration of the appellate court’s decision, much less appeal therefrom, they can advance only such arguments as may be necessary to defeat petitioner’s claims or to uphold the appealed decision, and cannot ask for a modification of the judgment in their favor in order to obtain other positive reliefs.19

WHEREFORE, the Decision of February 29, 2008 is, in light of the foregoing discussions, MODIFIED. As MODIFIED, the dispositive portion of the Decision reads:

WHEREFORE, the Court of Appeals Decision of September 29, 2000 is AFFIRMED with MODIFICATION.

Petitioner PHILIPPINE AIRLINES, INC., is ordered to recognize respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARISUSA, JEFFREY LLENES, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERIE ALEGRES, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL as its regular employees in their same or substantially equivalent positions, and pay the wages and benefits due them as regular employees plus salary differential corresponding to the difference between the wages and benefits given them and those granted to petitioner’s other regular employees of the same or substantially equivalent rank, up to June 30, 1998, without prejudice to the resolution of the illegal dismissal case.

There being no data from which this Court may determine the monetary liabilities of petitioner, the case is REMANDED to the Labor Arbiter solely for that purpose.

SO ORDERED.

[G.R. No. 177785, September 03, 2008]

RANDY ALMEDA, EDWIN M. AUDENCIAL, NOLIE D. RAMIREZ, ERNESTO M. CALICAGAN AND

REYNALDO M. CALICAGAN, PETITIONERS, VS. ASAHI GLASS PHILIPPINES, INC., RESPONDENT.

D E C I S I O N

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioners Randy Almeda, Edwin Audencial, Nolie Ramirez, Ernesto Calicagan and Reynaldo Calicagan, seeking to reverse and set aside the Decision[1] dated 10 November 2006 and the Resolution[2] dated 27 April 2007 of the Court of Appeals in CA-G.R. SP No. 93291. The appellate court reversed and set aside the Decision dated 29 June 2005 and Resolution dated 24 November 2005 of the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 039768-04 finding respondent Asahi Glass Philippines, Inc. jointly and severally liable with San Sebastian Allied Services, Inc. (SSASI) for illegal dismissal, and ordering both respondent and SSASI to reinstate petitioners to their former positions and to pay their backwages from 2 December 2002 up to the date of their actual reinstatement. Instead, the Court of Appeals reinstated the Decision dated 18 February 2004 of the Labor Arbiter dismissing petitioners' complaint for illegal dismissal against respondent and SSASI, but ordering the payment of separation benefits to petitioners.

The present Petition arose from a complaint for illegal dismissal with claims for moral and exemplary damages and attorney's fees filed by petitioners against respondent and SSASI.

In their Complaint[3] filed before the Labor Arbiter, petitioners alleged that respondent (a domestic corporation engaged in the business of glass manufacturing) and SSASI (a labor-only contractor) entered into a service contract on 5 March 2002 whereby the latter undertook to provide the former with the necessary manpower for its operations. Pursuant to such a contract, SSASI employed petitioners Randy Almeda, Edwin Audencial, Nolie Ramirez and Ernesto Calicagan as glass cutters, and petitioner Reynaldo Calicagan as Quality Controller,[4] all assigned to work for respondent. Petitioners worked for respondent for periods ranging from three to 11 years.[5] On 1 December 2002, respondent terminated its service contract with SSASI, which in turn, terminated the employment of petitioners on the same date. Believing that SSASI was a labor-only contractor, and having continuously worked as glass cutters and quality controllers for the respondent - functions which are directly related to its main line of business as glass manufacturer - for three to 11 years, petitioners asserted that they should be considered regular employees of the respondent; and that their dismissal from employment without the benefit of due process of law was unlawful. In support of their complaint, petitioners submitted a copy of their work schedule to show that they were under the direct control of the respondent which dictated the time and manner of performing their jobs.

Respondent, on the other hand, refuted petitioners' allegations that they were its regular employees. Instead, respondent claimed that petitioners were employees of SSASI and were merely assigned by SSASI to work for respondent to perform intermittent services pursuant to an Accreditation Agreement, dated 5 March 2002, the validity of which was never assailed by the petitioners. Respondent contested petitioners' contention that they were performing functions that were directly related to respondent's main business since petitioners were simply tasked to do mirror cutting, an activity occasionally performed upon a customer's order. Respondent likewise denied exercising control over petitioners and asserted that such was wielded by SSASI. Finally, respondent maintained that SSASI was engaged in legitimate job contracting and was licensed by the Department of Labor and Employment (DOLE) to engage in such activity as shown in its Certificate of Registration.[6] Respondent presented before the Labor Arbiter copies of the Opinion dated 18 February 2003 of DOLE Secretary Patricia Sto. Tomas authorizing respondent to contract out certain activities not necessary or desirable to the business of the company; and the Opinion dated 10 July 2003 of DOLE Bureau of Labor Relations (DOLE-BLR) Director Hans Leo Cacdac allowing respondent to contract out even services that were not directly related to its main line of business.

SSASI, for its part, claimed that it was a duly registered independent contractor as evidenced by the Certificate of Registration issued by the DOLE on 3 January 2003. SSASI averred that it was the one who hired petitioners and assigned them to work for respondent on occasions that the latter's work force could not meet the demands of its

customers. Eventually, however, respondent ceased to give job orders to SSASI, constraining the latter to terminate petitioners' employment.

On 18 February 2004, the Labor Arbiter promulgated his Decision[7] finding that respondent submitted overwhelming documentary evidence to refute the bare allegations of the petitioners and accordingly dismissing the complaint for lack of merit. However, he also ordered the payment of separation benefits to petitioners. The Labor Arbiter thus decreed:

WHEREFORE, premises considered, judgment is hereby rendered declaring that the instant case should be, as it is hereby DISMISSED for lack of merit. However, the respondent San Sebastian Allied Services, Inc. is hereby ordered to pay the [herein petitioners] Edwin M. Audencial, Reynaldo Calicagan, Randy Almeda, Nolie D. Ramirez and Ernesto Calicagan their respective separation benefits in the following specified amounts:

(1) Edwin Audencial P 41,327.00

(2) Reynaldo M. Calicagan

15,860.00

(3) Randy V. Almeda 45,084.00(4) Nolie Ramirez 15,028.00(5) Ernesto Calicagan 22,542.00

All other claims are dismissed.

On appeal, the NLRC reversed the afore-quoted Decision of the Labor Arbiter, giving more evidentiary weight to petitioners' testimonies. It appeared to the NLRC that SSASI was engaged in labor-only contracting since it did not have substantial capital and investment in the form of tools, equipment and machineries. The petitioners were recruited and assigned by SSASI to respondent as glass cutters, positions which were directly related to respondent's principal business of glass manufacturing. In light of the factual circumstances of the case, the NLRC declared that petitioners were employees of respondent and not of SSASI. Hence, the NLRC ruled in its Decision[8] dated 29 June 2005:

WHEREFORE, the decision appealed from is hereby VACATED and SET ASIDE. [Herein respondent] and [SSASI] are hereby ordered to: (1) reinstate the [herein petitioners] to their former position as glass cutters; and (2) pay [petitioners'] full backwages from December 2, 2002 up to the date of their actual reinstatement. The liability of [respondent] and [SSASI] for [petitioners'] backwages is further declared to be joint and several.

Only respondent moved for the reconsideration of the foregoing NLRC Decision. Respondent prayed that the NLRC vacate its previous finding that SSASI was a labor-only contractor and that it was guilty of the illegal dismissal

of petitioners. In a Resolution[9] dated 24 November 2005, the NLRC denied the Motion for Reconsideration of respondent for lack of compelling justification to modify, alter or reverse its earlier Decision.

This prompted respondent to elevate its case to the Court of Appeals by the filing of a Petition for Certiorari with Application for the Issuance of Temporary Restraining Order (TRO),[10] alleging that the NLRC abused its discretion in ignoring the established facts and legal principles fully substantiated by the documentary evidence on record and legal opinions of labor officials, and in giving more credence to the empty allegations advanced by petitioners.

To prevent the execution of the Decision dated 25 June 2005 and Resolution dated 24 November 2005 of the NLRC, respondent included in its Petition a prayer for the issuance of a TRO, which it reiterated in a motion filed on 29 August 2006. Acting on respondent's motion, the Court of Appeals issued a TRO on 11 September 2006 enjoining the NLRC from enforcing its 25 June 2005 Decision and 24 November 2005 Resolution.[11]

On 10 November 2006, the Court of Appeals rendered a Decision granting respondent's Petition for Certiorari and reversing the NLRC Decision dated 25 June 2005. The appellate court found merit in respondent's argument that the NLRC gravely abused its discretion in not finding that there was a legitimate job contracting between respondent and SSASI. SSASI is a legitimate job contractor as proven by its Certificate of Registration issued by the DOLE. Respondent entered into a valid service contract with SSASI, by virtue of which petitioners were assigned by SSASI to work for respondent. The service contract itself, which was duly approved by the DOLE, defined the relationship between SSASI and petitioners as one of employer-employees. It was SSASI which exercised the power of control over petitioners. Petitioners were merely allowed to work at respondent's premises for reasons of efficiency. Moreover, it was SSASI, not respondent, who terminated petitioners' services. The fallo of the Decision of the Court of Appeals state:

WHEREFORE, premises considered, the petition is GRANTED and [NLRC's] assailed 29 June 2005 Decision is, accordingly, REVERSED and SET ASIDE. In lieu thereof, the 18 February 2004 Decision rendered in the case by Labor Arbiter Francisco A. Robles is REINSTATED.[12]

The Court of Appeals denied petitioners' Motion for Reconsideration in a Resolution dated 27 April 2007.

Hence, petitioners come before this Court via the instant Petition for Review on Certiorari assailing the 10 November 2006 Decision and 27 April 2007 Resolution of the Court of Appeals based on the following assignment of errors:

I.

THE COURT OF APPEALS

COMMITTED AN ERROR OF LAW IN REVERSING THE FINDING OF THE NLRC THAT RESPONDENT COMPANY IS ENGAGED IN LABOR-ONLY CONTRACTING.

II.

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REVERSING THE RULING OF THE NLRC THAT SAN SEBASTIAN ALLIED SERVICES, INC. IS MERELY RESPONDENT'S AGENT AND RESPONDENT IS PETITIONERS' REAL EMPLOYER.

III.

THE COURT OF APPEALS COMMITTED AN ERROR IN DISMISSING PETITIONERS' COMPLAINT FOR ILLEGAL DISMISSAL.

It is apparent to this Court that the judicious resolution of the Petition at bar hinges on two elemental issues: (1) whether petitioners were employees of respondent; and (2) if they were, whether they were illegally dismissed.

Respondent adamantly insists that petitioners were not its employees but those of SSASI, a legitimate job contractor duly licensed by the DOLE to undertake job contracting activities. The job performed by petitioners were not directly related to respondent's primary venture as flat glass manufacturer, for they were assigned to the mirroring line to perform glass cutting on occasions when the employees of respondent could not comply with the market's intermittent increased demand. And even if petitioners were working at respondent's premises, it was SSASI which effectively supervised the manner and method petitioners performed their jobs, except as to the result thereof.

The Court would only be able to deem petitioners as employees of respondent if it is established that SSASI was a labor-only contractor, and not a legitimate job contractor or subcontractor.

Permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out to a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal.[13] A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:

(a) The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work or service on its own account and under its

own responsibility according to its own manner and method, and free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof;

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

(c) The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits.[14]

On the other hand, labor-only contracting, a prohibited act, is an arrangement in which the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal.[15] In labor-only contracting, the following elements are present:

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

(b) The employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal.[16]

In labor-only contracting, the statutes create an employer-employee relationship for a comprehensive purpose: to prevent circumvention of labor laws. The contractor is considered as merely the agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees are directly employed by the principal employer.[17] Therefore, if SSASI was a labor-only contractor, then respondent shall be considered as the employer of petitioners who must bear the liability for the dismissal of the latter, if any.

An important element of legitimate job contracting is that the contractor has substantial capital or investment, which respondent failed to prove. There is a dearth of evidence to prove that SSASI possessed substantial capital or investment when respondent began contractual relations with it more than a decade before 2003. Respondent's bare allegations, without supporting proof that SSASI had substantial capital or investment, do not sway this Court. The Court did not find a single financial statement or record to attest to the economic status and financial capacity of SSASI to venture into and sustain its own business independent from petitioner.

Furthermore, the Court is unconvinced by respondent's argument that petitioners were performing jobs that were not directly related to respondent's main line of business. Respondent is engaged in glass manufacturing. One of the petitioners served as a quality controller, while the rest were glass cutters. The only excuse offered by respondent - that

petitioners' services were required only when there was an increase in the market's demand with which respondent could not cope - only prove even more that the services rendered by petitioners were indeed part of the main business of respondent. It would mean that petitioners supplemented the regular workforce when the latter could not comply with the market's demand; necessarily, therefore, petitioners performed the same functions as the regular workforce. Even respondent's claim that petitioners' services were required only intermittently, depending on the market, deserves scant credit. The indispensability of petitioners' services was fortified by the length and continuity of their performance, lasting for periods ranging from three to 11 years.

More importantly, the Court finds that the crucial element of control over petitioners rested in respondent. The power of control refers to the authority of the employer to control the employee not only with regard to the result of work to be done, but also to the means and methods by which the work is to be accomplished. It should be borne in mind that the power of control refers merely to the existence of the power and not to the actual exercise thereof. It is not essential for the employer to actually supervise the performance of duties of the employee; it is enough that the former has a right to wield the power.[18]

In the instant case, petitioners worked at the respondent's premises, and nowhere else. Petitioners followed the work schedule prepared by respondent. They were required to observe all rules and regulations of the respondent pertaining to, among other things, the quality of job performance, regularity of job output, and the manner and method of accomplishing the jobs. Obscurity hounds respondent's argument that even if petitioners were working under its roof, it was still SSASI which exercised control over the manner in which they accomplished their work. There was no showing that it was SSASI who established petitioners' working procedure and methods, or who supervised petitioners in their work, or who evaluated the same. Other than being the one who hired petitioners, there was absolute lack of evidence that SSASI exercised control over them or their work.

The fact that it was SSASI which dismissed petitioners from employment is irrelevant. It is hardly proof of control, since it was demonstrated only at the end of petitioners' employment. What is more, the dismissal of petitioners by SSASI was a mere result of the termination by respondent of its contractual relations with SSASI.

Despite respondent's disavowal of the existence of an employer-employee relationship between it and petitioners and its unyielding insistence that petitioners were employees of SSASI, the totality of the facts and the surrounding circumstances of the case convey otherwise. SSASI is a labor-only contractor; hence, it is considered as the agent of respondent. Respondent is deemed by law as the employer of petitioners. Surely, respondent cannot expect this Court to sustain its stance and accord full evidentiary weight to the documentary evidence belatedly procured in its vain attempt to evade liability as petitioners' employer.

The Certificate of Registration presented by respondent to buttress its position that SSASI is a duly registered job contractor is of little significance, considering that it were

issued only on 3 January 2003. There is no further proof that prior to said date, SSASI had already registered with and had been recognized by the DOLE as a job contractor.

Verily, the Certificate of Registration of SSASI, instead of supporting respondent's case, only served to raise more doubts. The timing of the registration of SSASI is highly suspicious. It is important to note that SSASI was already providing respondent with workers, including petitioners, long before SSASI was registered with the DOLE as a job contractor. Some of the petitioners were hired by SSASI and made to work for respondent for 11 years. Petitioners were also dismissed from service only a month prior to the issuance of the Certificate of Registration of SSASI. Neither respondent nor SSASI exerted any effort to explain the reason for the belated registration with the DOLE by SSASI as a purported job contractor. It may be safely discerned from the surrounding circumstances that the Certificate of Registration of SSASI was merely secured in order to blanket the previous relations between SSASI and respondent with legality.

Moreover, the Certificate of Registration issued by the DOLE recognized that SSASI was a legitimate job contractor only as of the date of its issuance, 3 January 2003. There is no basis whatsoever to give the said Certificate any retroactive effect. The Certificate can only be used as reference by persons who would consider the services offered by SSASI subsequent to its issuance. Respondent, who entered into contractual relations with SSASI way before the said Certificate, cannot claim that it relied thereon.

Hence, the status of SSASI as a job contractor previous to its registration with the DOLE on 3 January 2003 is still refutable. It can only be determined upon an evaluation of its activities as contractor prior to the issuance of its Certificate of Registration.

For the same reasons, this Court cannot give much weight to the Opinions dated 18 February 2003 and 10 July 2003 of DOLE Secretary Sto. Tomas and DOLE-BLR Director Cacdac, respectively, allowing respondent to contract out certain services. The said Opinions were noticeably issued only after the hiring and termination of petitioners. And, although the Opinions allow respondent to contract out certain services, they do not necessarily prove that the services respondent contracted to SSASI were actually among those it was allowed to contract out; or that SSASI was a legitimate job contractor, thus, relieving respondent of any liability for the dismissal of petitioners by SSASI.

Equally unavailing is respondent's stance that its relationship with petitioners should be governed by the Accreditation Agreement stipulating that petitioners were to remain employees of SSASI and shall not become regular employees of the respondent. To permit respondent to disguise the true nature of its transactions with SSASI by the terms of its contract, for the purpose of evading its liabilities under the law, would seriously impair the administration of justice. A party cannot dictate, by the mere expedient of a unilateral declaration in a contract, the character of its business, i.e., whether as labor-only contractor or as job contractor, it being crucial that its character be measured in terms of and determined by the criteria set by statute.[19]

Having established that respondent was petitioners' employer, the Court now proceeds to determining whether petitioners were dismissed in accordance with law.

Article 280 of the Labor Code, as amended, reads -

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

An employment shall be deemed to be casual if its is not covered by the preceding paragraph: Provided, That, any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists.

This Court expounded on the afore-quoted provision, thus -

The primary standard, therefore, of determining a regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual business or trade of the employer. x x x The connection can be determined by considering the nature of the work performed and its relation to the scheme of the particular business or trade in its entirety. Also, if the employee has been performing the job for at least one year, even if the performance is not continuous or merely intermittent, the law deems the repeated and continuing need for its performance as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence, the employment is also considered regular, but only with respect to such activity and while such activity exists.[20]

In the instant Petition, the Court has already declared that petitioners' employment as quality controllers and glass cutters are directly related to the usual business or trade of respondent as a glass manufacturer. Respondent would have wanted this Court to believe that petitioners' employment was dependent on the increased market demand. However,

bearing in mind that petitioners have worked for respondent for not less than three years and as much as 11 years, which respondent did not refute, then petitioners' continued employment clearly demonstrates its continuing necessity and indispensability to the business of respondent, raising their employment to regular status. Thus, having gained regular status, petitioners were entitled to security of tenure and could only be dismissed on just or authorized causes and after they had been accorded due process.[21]

As petitioners' employer, respondent has the burden of proving that the dismissal was for a cause allowed under the law, and that they were afforded procedural due process.[22] However, respondent failed to discharge this burden with substantial evidence as it noticeably narrowed its defense to the denial of any employer-employee relationship between it and petitioners.

The sole reason given for the dismissal of petitioners by SSASI was the termination of its service contract with respondent. But since SSASI was a labor-only contractor, and petitioners were to be deemed the employees of respondent, then the said reason would not constitute a just or authorized cause[23] for petitioners' dismissal. It would then appear that petitioners were summarily dismissed based on the afore-cited reason, without compliance with the procedural due process for notice and hearing.

Herein petitioners, having been unjustly dismissed from work, are entitled to reinstatement without loss of seniority rights and other privileges and to full back wages, inclusive of allowances, and to other benefits or their monetary equivalents computed from the time compensation was withheld up to the time of actual reinstatement.[24] Their earnings elsewhere during the periods of their illegal dismissal shall not be deducted therefrom.[25]

WHEREFORE, premises considered, the instant Petition is GRANTED. The Decision dated 10 November 2006 and Resolution dated 27 April 2007 of the Court of Appeals in CA-G.R. SP No. 93291 are REVERSED and SET ASIDE. The Decision dated 29 June 2005 of the National Labor Relations Commission in NLRC-NCR CA No. 039768-04 is thereby REINSTATED. Let the records of this case be remanded to the Computation and Examination Unit of the NLRC for the proper computation of subject money claims as above-discussed. No costs.

SO ORDERED.

G.R. Nos. 97008-09 July 23, 1993

VIRGINIA G. NERI and JOSE CABELIN, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK & TRUST COMPANY (FEBTC) and BUILDING CARE CORPORATION, respondents.

R.L. Salcedo & Improso Law Office for petitioners.

Bengzon, Zarnaga, Narciso, Cudala, Pecson, Bengzon & Jimenez for Bldg. Care Corp.

Bautista, Picaso, Buyco, Tan & Fider for respondent FEBTC.

 

BELLOSILLO, J.:

Respondents are sued by two employees of Building Care Corporation, which provides janitorial and other specific services to various firms, to compel Far Bast Bank and Trust Company to recognize them as its regular employees and be paid the same wages which its employees receive.

Building Care Corporation (BCC, for brevity), in the proceedings below, established that it had substantial capitalization of P1 Million or a stockholders equity of P1.5 Million. Thus the Labor Arbiter ruled that BCC was only job contracting and that consequently its employees were not employees of Far East Bank and Trust Company (FEBTC, for brevity). on appeal, this factual finding was affirmed by respondent National Labor Relations Commission (NLRC, for brevity). Nevertheless, petitioners insist before us that BCC is engaged in "labor-only" contracting hence, they conclude, they are employees of respondent FEBTC.

Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, and were hired by, respondent BCC, a corporation engaged in providing technical, maintenance, engineering, housekeeping, security and other specific services to its clientele. They were assigned to work in the Cagayan de Oro City Branch of respondent FEBTC on 1 May 1979 and 1 August 1980, respectively, Neri an radio/telex operator and Cabelin as janitor, before being promoted to messenger on 1 April 1989.

On 28 June 1989, petitioners instituted complaints against FEBTC and BCC before Regional Arbitration Branch No. 10 of the Department of Labor and Employment to compel the bank to accept them as regular employees and for it to pay the differential between the wages being paid them by BCC and those received by FEBTC employees with similar length of service.

On 16 November 1989, the Labor Arbiter dismissed the complaint for lack of merit. 1 Respondent BCC was considered an independent contractor because it proved it had substantial capital. Thus, petitioners were held to be regular employees of BCC, not FEBTC. The dismissal was appealed to NLRC which on 28 September 1990 affirmed the decision on appeal. 2 On 22 October 1990, NLRC denied reconsideration of its affirmance, 3 prompting petitioners to seek redress from this Court.

Petitioners vehemently contend that BCC in engaged in "labor-only" contracting because it failed to adduce evidence purporting to show that it invested in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of its business. Moreover, petitioners argue that they perform duties which are directly related to the principal business or operation of FEBTC. If the definition of "labor-only" contracting 4 is to be read in conjunction with job contracting, 5 then the only logical conclusion is that BCC is a "labor only" contractor.

Consequently, they must be deemed employees of respondent bank by operation of law since BCC is merely an agent of FEBTC following the doctrine laid down in Philippine Bank of Communications v. National Labor Relations Commission 6 where we ruled that where "labor-only" contracting exists, the Labor Code itself establishes an employer-employee relationship between the employer and the employees of the "labor-only" contractor; hence, FEBTC should be considered the employer of petitioners who are deemed its employees through its agent, "labor-only" contractor BCC.

We cannot sustain the petition.

Respondent BCC need not prove that it made investments in the form of tools, equipment, machineries, work premises, among others, because it has established that it has sufficient capitalization. The Labor Arbiter and the NLRC both determined that BCC had a capital stock of P1 million fully subscribed and paid for. 7 BCC is therefore a highly capitalized venture and cannot be deemed engaged in "labor-only" contracting.

It is well-settled that there is "labor-only" contracting where: (a) the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others; and, (b) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. 8

Article 106 of the Labor Code defines "labor-only" contracting thus —

Art. 106. Contractor or subcontractor. — . . . . There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited by such persons are performing activities which are directly related to the principal business of such employer . . . . (emphasis supplied).

Based on the foregoing, BCC cannot be considered a "labor-only" contractor because it has substantial capital. While there may be no evidence that it has investment in the form of tools, equipment, machineries, work premises, among others, it is enough that it has substantial capital, as was established before the Labor Arbiter as well as the NLRC. In other words, the law does not require both substantial capital and investment in the form of tools, equipment, machineries, etc. This is clear from the use of the conjunction "or". If the intention was to require the contractor to prove that he has both capital and the requisite investment, then the conjunction "and" should have been used. But, having established that it has substantial capital, it was no longer necessary for BCC to further adduce evidence to prove that it does not fall within the purview of "labor-only" contracting. There is even no need for it to refute petitioners' contention that the activities they perform are directly related to the principal business of respondent bank.

Be that as it may, the Court has already taken judicial notice of the general practice adopted in several government and private institutions and industries of hiring independent contractors to perform special services. 9 These services range from janitorial, 10 security 11 and even technical or other specific services such as those performed by petitioners Neri and Cabelin. While these services may be considered directly related to the principal business of the employer, 12 nevertheless, they are not necessary in the conduct of the principal business of the employer.

In fact, the status of BCC as an independent contractor was previously confirmed by this Court in Associated Labor Unions-TUCP v. National Labor Relations Commission, 13 where we held thus —

The public respondent ruled that the complainants are not employees of the bank but of the company contracted to serve the bank. Building Care Corporation is a big firm which services, among others, a university, an international bank, a big local bank, a hospital center, government agencies, etc. It is a qualified independent contractor. The public respondent correctly ruled against petitioner's contentions . . . . (Emphasis supplied).

Even assuming ex argumenti that petitioners were performing activities directly related to the principal business of the bank, under the "right of control" test they must still be considered employees of BCC. In the case of petitioner Neri, it is admitted that FEBTC issued a job description which detailed her functions as a radio/telex operator. However, a cursory reading of the job description shows that what was sought to be controlled by FEBTC was actually the end-result of the task, e.g., that the daily incoming and outgoing telegraphic transfer of funds received and relayed by her, respectively, tallies with that of the register. The guidelines were laid down merely to ensure that the desired end-result was achieved. It did not, however, tell Neri how the radio/telex machine should be operated. In the Shipside case, 14 we ruled —

. . . . If in the course of private respondents' work (referring to the workers), SHIPSIDE occasionally issued instructions to them, that alone does not in the least detract from the fact that only STEVEDORES is the employer of the private respondents, for in legal contemplation, such instructions carry no more weight than mere requests, the privity of contract being between SHIPSIDE and STEVEDORES . . . .

Besides, petitioners do not deny that they were selected and hired by BCC before being assigned to work in the Cagayan de Oro Branch of FFBTC. BCC likewise acknowledges that petitioners are its employees. The record is replete with evidence disclosing that BCC maintained supervision and control over petitioners through its Housekeeping and Special Services Division: petitioners reported for work wearing the prescribed uniform of BCC; leaves

of absence were filed directly with BCC; and, salaries were drawn only from BCC. 15

As a matter of fact, Neri even secured a certification from BCC on 16 May 1986 that she was employed by the latter. On the other hand, on 24 May 1988, Cabelin filed a complaint for underpayment of wages, non-integration of salary adjustments mandated by Wage Orders Nos. 5 & 6 and R.A. 6640 as well as for illegal deduction 16 against BCC alone which was provisionally dismissed on 19 August 1988 upon Cabelin's manifestation that his money claim was negligible. 17

More importantly, under the terms and conditions of the contract, it was BCC alone which had the power to reassign petitioners. Their deployment to FEBTC was not subject to the bank's acceptance. Cabelin was promoted to messenger because the FEBTC branch manager promised BCC that two (2) additional janitors would be hired from the company if the promotion was to be effected. 18 Furthermore, BCC was to be paid in lump sum unlike in the situation in Philippine Bank of Communications 19 where the contractor, CESI, was to be paid at a daily rate on a per person basis. And, the contract therein stipulated that the CESI was merely to provide manpower that would render temporary services. In the case at bar, Neri and Cabelin were to perform specific special services. Consequently, petitioners cannot be held to be employees of FEBTC as BCC "carries an independent business" and undertaken the performance of its contract with various clients according to its "own manner and method, free from the control and supervision" of its principals in all matters "except as to the results thereof." 20

Indeed, the facts in Philippine Bank of Communications do not square with those of the instant case. Therein, the Court ruled that CESI was a "labor-only" contractor because upholding the contract between the contractor and the bank would in effect permit employers to avoid the necessity of hiring regular or permanent employees and would enable them to keep their employees indefinitely on a temporary or casual basis, thus denying them security of tenure in their jobs. This of course violates the Labor Code. BCC has not committed any violation. Also, the former case was for illegal dismissal; this case, on the other hand, is for conversion of employment status so that petitioners can receive the same salary being given to regular employees of FEBTC. But, as herein determined, petitioners are not regular employees of FEBTC but of BCC. At any rate, the finding that BCC in a qualified independent contractor precludes us from applying the Philippine Bank of Communications doctrine to the instant petition.

The determination of employer-employee relationship involves factual findings. 21 Absent any grave abuse of discretion, and we find none in the case before us, we are bound by the findings of the Labor Arbiter as affirmed by respondent NLRC.

IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED.

SO ORDERED.

G.R. No. 178647               February 13, 2009

GENERAL SANTOS COCA-COLA PLANT FREE WORKERS UNION-TUPAS, Petitioner, vs.COCA-COLA BOTTLERS PHILS., INC. (GENERAL SANTOS CITY), THE COURT OF APPEALS and THE NATIONAL LABOR RELATIONS COMMISSION, Respondents.

R E S O L U T I O N

NACHURA, J.:

In this Petition for Review on Certiorari under Rule 45 of the Revised Rules on Civil Procedure, petitioner General Santos Coca-Cola Plant Free Workers Union-Tupas (Union) is seeking the reversal of the April 18, 2006 Decision1 and May 30, 2007 Resolution2 of the Court of Appeals in CA-G.R. SP No. 80916. The CA affirmed the January 31, 2003 and August 29, 2003 Resolutions3 of the National Labor Relations Commission (NLRC) in favor of respondent Coca-Cola Bottlers Phil., Inc. (CCBPI).

Sometime in the late 1990s, CCBPI experienced a significant decline in profitability due to the Asian economic crisis, decrease in sales, and tougher competition. To curb the negative effects on the company, it implemented three (3) waves of an Early Retirement Program.4 Meanwhile, there was an inter-office memorandum sent to all of CCBPI’s Plant Human Resources Managers/Personnel Officers, including those of the CCBPI General Santos Plant (CCBPI Gen San) mandating them to put on hold "all requests for hiring to fill in vacancies in both regular and temporary positions in [the] Head Office and in the Plants." Because several employees availed of the early retirement program, vacancies were created in some departments, including the production department of CCBPI Gen San, where members of petitioner Union worked. This prompted petitioner to negotiate with the Labor Management Committee for filling up the vacancies with permanent employees. No resolution was reached on the matter.5

Faced with the "freeze hiring" directive, CCBPI Gen San engaged the services of JLBP Services Corporation (JLBP), a company in the business of providing labor and manpower services, including janitorial services, messengers, and office workers to various private and government offices.6

On January 21, 2002, petitioner filed with the National Conciliation and Mediation Board (NCMB), Regional Branch 12, a Notice of Strike on the ground of alleged unfair labor practice committed by CCBPI Gen San for contracting-out services regularly performed by union members ("union busting"). After conciliation and mediation proceedings before the NCMB, the parties failed to come to an amicable settlement. On July 3, 2002, CCBPI filed a Petition for Assumption of Jurisdiction with the Office of the Secretary of Labor and Employment. On July 26, 2002, the Secretary of Labor issued an Order enjoining the threatened strike and certifying the dispute to the NLRC for compulsory arbitration.71avvphi1

In a Resolution8 dated January 31, 2003, the NLRC ruled that CCBPI was not guilty of unfair labor practice for contracting out jobs to JLBP. The NLRC anchored its ruling

on the validity of the "Going-to-the-Market" (GTM) system implemented by the company, which called for restructuring its selling and distribution system, leading to the closure of certain sales offices and the elimination of conventional sales routes. The NLRC held that petitioner failed to prove by substantial evidence that the system was meant to curtail the right to self-organization of petitioner’s members. Petitioner filed a motion for reconsideration, which the NLRC denied in a Resolution9 dated August 29, 2003. Hence, petitioner filed a Petition for Certiorari before the CA.

The CA issued the assailed Decision10 on April 18, 2006 upholding the NLRC’s finding that CCBPI was not guilty of unfair labor practice. The CA based its decision on the validity of CCBPI’s contracting out of jobs in its production department. It held that the contract between CCBPI and JLBP did not amount to labor-only contracting. It found that JLBP was an independent contractor and that the decision to contract out jobs was a valid exercise of management prerogative to meet exigent circumstances. On the other hand, petitioner failed to adduce evidence to prove that contracting out of jobs by the company resulted in the dismissal of petitioner’s members, prevented them from exercising their right to self-organization, led to the Union’s demise or that their group was singled out by the company. Consequently, the CA declared that CCBPI was not guilty of unfair labor practice.

Its motion for reconsideration having been denied,11 petitioner now comes to this Court seeking the reversal of the CA Decision.

The petition is bereft of merit. Hence, we deny the Petition.

Under Rule 45 of the Revised Rules on Civil Procedure, only questions of law may be raised in a Petition for Review on Certiorari.12

There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of the evidence. The resolution of the issue must rest solely on what the law provides on a given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. If the query requires a re-evaluation of the credibility of witnesses, or the existence or relevance of surrounding circumstances and their relation to one another, the issue in that query is factual.13

An examination of the issues raised by petitioner reveals that they are questions of fact. The issues raised, i.e., whether JLBP is an independent contractor, whether CCBPI’s contracting-out of jobs to JLBP amounted to unfair labor practice, and whether such action was a valid exercise of management prerogative, call for a re-examination of evidence, which is not within the ambit of this Court’s jurisdiction.

Moreover, factual findings of the NLRC, an administrative agency deemed to have acquired expertise in matters within its jurisdiction, are generally accorded not only respect but finality especially when such factual findings are affirmed by the CA.14

Furthermore, we find no reversible error in the assailed Decision.1avvphi1

It is true that the NLRC erroneously concluded that the contracting- out of jobs in CCBPI Gen San was due to the GTM system, which actually affected CCBPI’s sales and marketing departments, and had nothing to do with petitioner’s complaint. However, this does not diminish the NLRC’s finding that JLBP was a legitimate, independent contractor and that CCBPI Gen San engaged the services of JLBP to meet business exigencies created by the freeze-hiring directive of the CCBPI Head Office.

On the other hand, the CA squarely addressed the issue of job contracting in its assailed Decision and Resolution. The CA itself examined the facts and evidence of the parties15 and found that, based on the evidence, CCBPI did not engage in labor-only contracting and, therefore, was not guilty of unfair labor practice.

The NLRC found – and the same was sustained by the CA – that the company’s action to contract-out the services and functions performed by Union members did not constitute unfair labor practice as this was not directed at the members’ right to self-organization.

Article 248 of the Labor Code provides:

ART. 248. UNFAIR LABOR PRACTICE OF EMPLOYERS. – It shall be unlawful for an employer to commit any of the following unfair labor practices:

x x x

(c) To contract out services or functions being performed by union members when such will interfere with, restrain or coerce employees in the exercise of their right to self-organization;

x x x

Unfair labor practice refers to "acts that violate the workers’ right to organize." The prohibited acts are related to the workers’ right to self-organization and to the observance of a CBA. Without that element, the acts, even if unfair, are not unfair labor practices.16

Both the NLRC and the CA found that petitioner was unable to prove its charge of unfair labor practice. It was the Union that had the burden of adducing substantial evidence to support its allegations of unfair labor practice,17 which burden it failed to discharge.

WHEREFORE, the foregoing premises considered, the Petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 80916 are AFFIRMED.

SO ORDERED.

ANTONIO EDUARDO B. NACHURAAssociate Justice

G.R. No. 173231               December 28, 2007

RUBEN L. ANDRADA, BERNALDO V. DELOS SANTOS, JOVEN M. PABUSTAN, FILAMER ALFONSO, VICENTE A. MANTALA, JR., HARVEY D. CAYETANO, and JOVENCIO L. POBLETE, Petitioners, vs.NATIONAL LABOR RELATIONS VELASCO, JR., COMMISSION, SUBIC LEGEND RESORTS AND CASINO, INC., and/or MR. HWA PUAY, MS. FLORDELIZA MARIA REYES RAYEL, and its CORPORATE OFFICERS, Respondents.

D E C I S I O N

VELASCO, JR., J.:

To provide full protection to labor, the employers’ prerogative to bring down labor costs through retrenchment must be exercised carefully and essentially as a measure of last resort. So should managements’ prerogative to declare the employees’ services redundant not be used a weapon to frustrate labor. This case brings to fore the continuing labor-management struggle for mutual survival.

Petitioners Ruben Andrada, Jovencio Poblete, Filamer Alfonso, Harvey Cayetano, Vicente Mantala, Jr., Bernaldo delos Santos, and Joven Pabustan were hired on various dates from 1995 up to 1997 and worked as architects, draftsmen, operators, engineers, and surveyors in the Subic Legend Resorts and Casino, Inc. (Legend) Project Development Division on various projects. Hwa Puay, Flordeliza Maria Reyes Rayel, and other corporate officers are impleaded in this case in their official capacities as officers of Legend.

On January 6, 1998, Legend sent notice to the Department of Labor and Employment of its intention to retrench and terminate the employment of thirty-four (34) of its employees, which include petitioners, in the Project Development Division. Legend explained that it would be retrenching its employees on a last-in-first-out basis on the strength of the updated status report of its Project Development Division, as follows: (1) shelving of the condotel project until economic conditions in the Philippines improve; (2) completion of the temporary casino in Cubi by mid-February 1998; (3) subcontracting the super structure work of Grand Legend to a third party; (4) completion of most of the rectification work at the Legenda Hotel; (5) completion of the temporary casino in Cubi; and (6) abolition of the Personnel and Administrative Department of the Project Development Division and transfer of its function back to Legend’s Human Resources Department.

The following day, on January 7, 1998, Legend sent the 34 employees their respective notices of retrenchment, stating the same reasons for their retrenchment. It also offered the employees the following options, to wit:

1. Temporary retrenchment/lay-off for a period not to exceed six months within which we shall explore your possible reassignment to other departments or affiliates, after six months and redeployment and/or

matching are unsuccessful, permanent retrenchment takes place and separation pay is released.

2. Permanent retrenchment and payment of separation pay and other benefits after the thirty (30) days notice has lapsed; or

3. Immediate retrenchment and payment of separation pay, benefits and one month’s salary in lieu of notice to allow you to look for other employment opportunities.1

Legend gave said employees a period of one week or until January 14, 1998 to choose their option, with option number 2 (permanent retrenchment) as the default choice in case they failed to express their preferences. After the employees made their choices, they also expressed their reservation that their choice should not be deemed as waiver of their rights granted under the Labor Code or their right to question the validity of their retrenchment should their separation benefits not be settled by January 30, 1998.

Curiously, on the same day, the Labor and Employment Center of the Subic Bay Metropolitan Authority advertised that Legend International Resorts, Inc. was in need of employees for positions similar to those vacated by petitioners.2

Afterwards, on February 6, 1998, Legend informed the retrenched employees of their permanent retrenchment and/or their options. Legend paid the retrenched employees their salaries up to February 6, 1998, separation pay, pro-rated 13th-month pay, ex-gratia, meal allowance, unused vacation leave credits, and tax refund. Petitioners, in turn, signed quitclaims but reserved their right to sue Legend.

Subsequently, on March 3, 1998, 143 of the 34 retrenched employees filed before the Regional Arbitration Branch of the National Labor Relations Commission (NLRC) in San Fernando City, Pampanga, a complaint for illegal dismissal and money claims for the payment of their share in the service charges, unused leaves, and their salaries for the unexpired portion of their respective employment contracts, damages, and attorney’s fees against Legend and its officials, Hwa Puay and Flordeliza Maria Reyes Rayel. The complaint was docketed as NLRC RAB III-03-9080-98.

Before the Labor Arbiter, complainants alleged that they were illegally dismissed because Legend, after giving retrenchment as the reason for their termination, created new positions similar to those they had just vacated. Legend, on the other hand, invoked management prerogative when it terminated the retrenched employees; and said that complainants voluntarily signed quitclaims so that they were already barred from suing Legend.

On February 7, 2000, the Labor Arbiter rendered a Decision, the fallo of which reads:

WHEREFORE, premises considered, respondents are hereby adjudged guilty of Illegal dismissal, and they are ordered to immediately reinstate the complainants without loss of seniority rights and to pay to them the following:

1. Ruben Andrada:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P14,300.00 and the same amount every month thereafter until reinstated --------- P343,200.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated -----------P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P28,600.00

d) 14th month pay for 2 years (1998 to 1999) ------ P28,600.00

e) Damages -------------------------------------------- P100,000.00

T O T A L -------------------------------- P519,600.00

2. Darryl Bautista:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P11,200.00 and the same amount every month thereafter until reinstated --------- P268,800.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P22,400.00

d) 14th month pay for 2 years (1998 to 1999) ------ P22,400.00

T O T A L -------------------------------- P332,800.00

3. Jovencio Poblete

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P12,000.00 and the same amount every

month thereafter until reinstated --------- P288,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P24,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P24,000.00

e) Damages -------------------------------------------- P100,000.00

T O T A L -------------------------------- P455,200.00

4) Renato Pangilinan:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P17,000.00 and the same amount every month thereafter until reinstated --------- P408,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P34,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P34,000.00

T O T A L -------------------------------- P495,200.00

5) Dario Rapada:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P10,000.00 and the same amount every month thereafter until reinstated --------- P240,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every

month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P20,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P20,000.00

T O T A L -------------------------------- P299,200.00

6) Adrian Camacho:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P7,000.00 and the same amount every month thereafter until reinstated --------- P168,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P14,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P14,000.00

T O T A L -------------------------------- P215,200.00

7) Marvin Samaniego:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P7,000.00 and the same amount every month thereafter until reinstated --------- P168,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P14,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P14,000.00

T O T A L -------------------------------- P215,200.00

8) Filamer Alfonso:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P10,000.00 and the same amount every month thereafter until reinstated --------- P240,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P20,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P20,000.00

T O T A L -------------------------------- P299,200.00

9) Milton Maravilla:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P13,000.00 and the same amount every month thereafter until reinstated --------- P312,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P26,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P26,000.00

e) Damages -------------------------------------------- P100,000.00

T O T A L -------------------------------- P483,200.00

10) Harvey Cayetano:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P8,000.00 and the same amount every month thereafter until reinstated --------- P192,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P16,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P16,000.00

e) Damages -------------------------------------------- P100,000.00

T O T A L -------------------------------- P343,200.00

11) Vicente Mantala, Jr.:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P5,500.00 and the same amount every month thereafter until reinstated --------- P132,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P11,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P11,000.00

e) Damages -------------------------------------------- P100,000.00

T O T A L -------------------------------- P273,200.00

12) Carlos Mananquil:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P30,000.00

and the same amount every month thereafter until reinstated --------- P720,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P60,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P60,000.00

e) Damages -------------------------------------------- P100,000.00

T O T A L -------------------------------- P959,200.00

13) Bernaldo delos Santos:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P18,500.00 and the same amount every month thereafter until reinstated --------- P444,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P37,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P37,000.00

e) Damages -------------------------------------------- P100,000.00

f) Service charge at P1,500.00 a month from May 15, 1996 to February 6, 2000 (44 months) and every month thereafter until reinstated -------------------------------------- P72,000.00

T O T A L -------------------------------- P709,200.00

14) Joven Pabustan:

a) Back salaries from February 6, 1998 to February 6, 2000 (24 months) in the sum of P10,000.00 and the same amount every month thereafter until reinstated --------- P240,000.00

b) Meal allowance at P800.00 a month from February 6, 1998 to February 6, 2000 (24 months) and the same amount every month thereafter until reinstated ---------- P19,200.00

c) 13th month pay for 2 years (1998 to 1999) ------ P20,000.00

d) 14th month pay for 2 years (1998 to 1999) ------ P20,000.00

e) Damages -------------------------------------------- P100,000.00

T O T A L -------------------------------- P399,200.00

The respondents are further ordered to pay to the complainants attorney’s fees equivalent to ten (10%) percent of the total award due the complainants. The payment of back salary, 13th month pay and 14th month pay, meal allowance and service charge shall be computed up to the date of the finality of this decision.

SO ORDERED.4

The Labor Arbiter stated that the documents submitted by Legend to justify the retrenchment of its personnel were insufficient because the documents failed to show that Legend was suffering from actual losses or that there was redundancy in the positions occupied by petitioners. The Labor Arbiter also attributed bad faith on the part of Legend when it advertised openings for positions similar to those occupied by the retrenched employees at the same time the retrenchment program was being implemented.

The Labor Arbiter gave no evidentiary weight to complainants’ quitclaims because, according to the Labor Arbiter, these quitclaims were part of the clearance forms prepared and imposed by Legend on the retrenched employees before their clearances could be approved. The Labor Arbiter also found that in the conference held on January 28, 1998 between complainants and Legend’s management, complainants inscribed their reservations at the bottom of their clearance forms, stating that they would accept Legend’s offer on the condition that they reserved the option to later file their respective claims with the NLRC.

With regard to the issue of damages, the Labor Arbiter observed that complainants, who were licensed

professionals, had sufficiently proven that they suffered social humiliation and mental trauma because their dismissal was clearly attended by bad faith and contrary to laws and public policy. On account of Legend’s bad faith, the Labor Arbiter awarded attorney’s fees equivalent to ten percent (10%) of the total amount awarded to complainants.

On April 7, 2000, Legend filed an appeal with the NLRC. Notably, its new counsel did not submit his formal substitution as counsel. Complainants consequently filed their Memorandum on Appeal with a prayer to declare the Labor Arbiter’s decision final. They aver that since there was no formal substitution of counsel, Legend’s new counsel had no personality to file an appeal; and because no appeal was perfected within the reglementary period, the Labor Arbiter’s decision should be deemed final and executory.

After three years, the NLRC rendered its June 23, 2003 Decision which reversed the Labor Arbiter. The NLRC held that the Labor Arbiter erred when he failed to consider the numerous documents presented and submitted by Legend to prove that it was suffering from actual losses, and that there was redundancy in the work of the retrenched employees. The NLRC also gave credence to Legend’s claim that it was Yap Yuen Khong, and not Legend, who asked for Subic Bay Metropolitan Authority’s help in recruiting personnel for Gaehin International Inc. (Gaehin) as the sub-contractor for the construction of the Grand Legenda Hotel and Casino. The NLRC observed that Gaehin was an entity distinct and separate from Legend.

With regard to the Labor Arbiter’s award of payment of service charges to Bernaldo delos Santos and Carlos Mananquil, the NLRC held that the award was improper since delos Santos and Mananquil’s employment contracts did not provide for the payment of service charges. According to the NLRC, though they previously received this benefit, it was because of an error in the administrative system; and since the benefits were paid by mistake, these did not ripen into a company practice.

The NLRC likewise held that the Labor Arbiter erred when it awarded the retrenched employees 14th month pay, or ex-gratia payment. The NLRC explained that this was a one-time bonus for the year 1997 given for the employees’ hard work and contribution for the year 1997. Further, no evidence suggested that this was done in the past or subsequent years.

The NLRC also held that Legend fully and properly complied with the 30-day notice requirements to the DOLE and to the retrenched employees.

The NLRC Decision’s fallo reads:

WHEREFORE, premises considered, the assailed decision is hereby reversed and set aside. Respondents are adjudged not guilty of illegal dismissal. The order of reinstatement as well as all monetary awards are deleted from the decision.

SO ORDERED.5

Complainants moved for the reconsideration of the NLRC’s Decision, but their motion was denied by the NLRC. Consequently, 106 out of the 147 original complainants filed a Petition for Certiorari with the Court of Appeals (CA), docketed as CA-G.R. SP No. 81701. This petition was, however, denied by the CA for lack of merit in its April 28, 2006 Decision.8

The CA held that the retrenched employees were validly dismissed from employment due to redundancy and not retrenchment. The CA ratiocinated that Legend had validly terminated the employment of its employees since it had proven that complainants’ positions were superfluous and that there was an oversupply of employees; more than what its projects needed.

On the issue of Legend’s recruitment of new personnel after terminating complainants’ employment, the CA held that the NLRC had sufficiently explained that it was not Legend but Gaehin, through Mr. Khong, which was recruiting for personnel.

Aggrieved by the CA Decision, seven9 out of the 14 original complainants filed the present petition. They raise the following issues:

1. Did Legend perfect its appeal before the NLRC, though it had not formally and properly substituted its counsel?

2. Were complainants illegally dismissed? Corrollarily, was there a valid retrenchment? Or, did Legend prove the existence of redundancy in its Project Development Division?

Petitioners argue that the Labor Arbiter’s decision should be deemed final and executory since Legend failed to formally substitute its counsel, and, thus, failed to perfect its appeal.

Legend, on the other hand, relies heavily on the CA’s ruling, which held that lack of proper substitution is not a sufficient ground to arrive at a finding of grave abuse of discretion. Even without substitution, private respondent’s new lawyer could still be considered a collaborating counsel. A party may have two or more lawyers working in collaboration in a given litigation.

We rule for Legend.

The CA correctly held in this case that Legend perfected its appeal, albeit, through a new counsel. It has long been settled that the NLRC is not bound by the strict technical rules of procedure of the Rules of Court. The CA had correctly held that as a general rule, our policy towards invocation of the right to appeal has been one of liberality, since it is an essential part of the judicial system. In line with this principle, courts have been advised to proceed with caution so as not to deprive a party of the right to appeal. Every party litigant should be given the amplest opportunity for the proper and just disposition of his/her cause freed from the constraints of technicalities. Thus, the NLRC did not commit grave abuse of discretion when it decided the case on the merits instead of dismissing the appeal on a mere technicality.

With regard to the issue of the legality of the dismissals, petitioners argue that Legend failed to prove the legal and factual existence of the cause for dismissal, and that it failed to comply with the requirements for the implementation of retrenchment. Petitioners further argue that the CA abused its discretion in ruling that the employees were validly dismissed not because of retrenchment but for redundancy. Legend, in contrast, relies on its management prerogative to justify the termination of petitioners’ employment. Legend also relies on the CA’s ruling that Legend sufficiently proved the existence of redundancy that justified petitioners’ dismissal from service.

On this issue, we rule for petitioners.

A company’s exercise of its management prerogatives is not absolute. It cannot exercise its prerogative in a cruel, repressive, or despotic manner. We held in F.F. Marine Corp. v. NLRC:

This Court is not oblivious of the significant role played by the corporate sector in the country’s economic and social progress. Implicit in turn in the success of the corporate form in doing business is the ethos of business autonomy which allows freedom of business determination with minimal governmental intrusion to ensure economic independence and development in terms defined by businessmen. Yet, this vast expanse of management choices cannot be an unbridled prerogative that can rise above the constitutional protection to labor. Employment is not merely a lifestyle choice to stave off boredom. Employment to the common man is his very life and blood, which must be protected against concocted causes to legitimize an otherwise irregular termination of employment. Imagined or undocumented business losses present the least propitious scenario to justify retrenchment.10

Under the Labor Code, retrenchment and redundancy are authorized causes for separation from service. However, to protect labor, dismissals due to retrenchment or redundancy are subject to strict requirements under Article 283 of the Labor Code, to wit:

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

Retrenchment is an exercise of management’s prerogative to terminate the employment of its employees en masse, to either minimize or prevent losses, or when the company is about to close or cease operations for causes not due to business losses.

In Lopez Sugar Corporation v. Federation of Free Workers,11 this Court had the opportunity to lay down the following standards that a company must meet to justify retrenchment to prevent abuse by employers:

Firstly, the losses expected should be substantial and not merely de minimis in extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown to be insubstantial and inconsequential in character, the bona fide nature of retrenchment would appear to be seriously in question. Secondly, the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer. There should, in other words, be a certain degree of urgency for the retrenchment, which is after all a drastic recourse with serious consequences for the livelihood of the employees retired or otherwise laid-off. Because of the consequential nature of retrenchment, it must, thirdly, be reasonably necessary and likely to effectively prevent the expected losses. The employer should have taken other measures prior or parallel to retrenchment to forestall losses, i.e., cut other costs other than labor costs. An employer who, for instance, lays off substantial numbers of workers while continuing to dispense fat executive bonuses and perquisites or so-called "golden parachutes," can scarcely claim to be retrenching in good faith to avoid losses. To impart operational meaning to the constitutional policy of providing "full protection" to labor, the employer’s prerogative to bring down labor costs by retrenching must be exercised essentially as a measure of last resort, after less drastic means – e.g., reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing efficiencies, trimming of marketing and advertising costs, etc. – have been tried and found wanting.

Lastly, but certainly not the least important, alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for requiring this quantum of proof is readily apparent: any less exacting standard of proof would render too easy the abuse of this ground for termination of services of employees.

In Ariola v. Philex Mining Corporation,12 the Court summarized the requirements for retrenchment, as follows:

Thus, the requirements for retrenchment are: (1) it is undertaken to prevent losses, which are not merely de minimis, but substantial, serious, actual, and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer; (2) the employer serves written notice both to the employees and the DOLE at least one month prior to the intended date of retrenchment; and (3) the employer pays the retrenched employees separation pay equivalent to one month pay or at least ½ month pay for every year of service, whichever is higher. The Court later added the requirements that the employer must use fair and reasonable criteria in ascertaining who would be dismissed and x x x retained among the employees and that the

retrenchment must be undertaken in good faith. Except for the written notice to the affected employees and the DOLE, non-compliance with any of these requirements render[s] the retrenchment illegal.

In the present case, Legend glaringly failed to show its financial condition prior to and at the time it enforced its retrenchment program. It failed to submit audited financial statements regarding its alleged financial losses. Though Legend complied with the notice requirements and the payment of separation benefits to the retrenched employees, its failure to establish the basis for the retrenchment of its employees constrains us to declare the retrenchment illegal.

However, the CA in its decision ruled that the petitioners were validly dismissed not for retrenchment but for redundancy. The CA explained that Legend mistakenly used the term retrenchment when all its reasons and justifications for the dismissal of its employees point to redundancy.

Were petitioners’ positions redundant? Had Legend sufficiently established the fact of redundancy?

Petitioners claim that the CA erred in concluding that Legend substantially established redundancy as the authorized cause underlying their dismissal from service. They aver that retrenchment and redundancy are not interchangeable, and both were not proven by Legend to justify their dismissal.

Legend, on the other hand, claims that petitioners never refuted the causes for termination contained in the notice of retrenchment. It further explains that it really had intended redundancy as the basis for the termination of the employees, as seen in its arguments before the Labor Arbiter, NLRC, and CA, where it claimed that before the retrenched employees were actually dismissed, the retrenched employees were not doing any work; that the work of the Project Development Division had already been completed and accomplished; and that the Engineering Services Division and the Project Development Division performed overlapping functions. Legend points out that it had really intended redundancy as the basis for the termination of the employees, that is why it had paid one month’s pay instead of one-half month’s pay for every year of service.

We rule that Legend failed to establish redundancy.

Retrenchment and redundancy are two different concepts; they are not synonymous and therefore should not be used interchangeably. This Court explained in detail the difference between the two concepts in Sebuguero v. NLRC:13

Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. A position is redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as over hiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise.

Retrenchment, on the other hand, is used interchangeably with the term "lay-off." It is the termination of employment initiated by the employer through no fault of the employee’s and without prejudice to the latter, resorted to by management during periods of business recession, industrial depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery, or of automation. Simply put, it is an act of the employer of dismissing employees because of losses in the operation of a business, lack of work, and considerable reduction on the volume of his business, a right consistently recognized and affirmed by this Court.

Thus, simply put, redundancy exists when the number of employees is in excess of what is reasonably necessary to operate the business. The declaration of redundant positions is a management prerogative. The determination that the employee’s services are no longer necessary or sustainable and therefore properly terminable is an exercise of business judgment by the employer. The wisdom or soundness of this judgment is not subject to the discretionary review of the Labor Arbiter and NLRC.14

It is however not enough for a company to merely declare that positions have become redundant. It must produce adequate proof of such redundancy to justify the dismissal of the affected employees.15 In Panlilio v. NLRC,16 we said that the following evidence may be proffered to substantiate redundancy: "the new staffing pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and the approval by the management of the restructuring." In another case, it was held that the company sufficiently established the fact of redundancy through "affidavits executed by the officers of the respondent PLDT, explaining the reasons and necessities for the implementation of the redundancy program."17

According to the CA, Legend proved the existence of redundancy when it submitted a status review of its project division where it reported that the 78-man personnel exceeded the needs of the company. The report further stated that there was duplication of functions and positions, or an over supply of employees, especially among architects, engineers, draftsmen, and interior designers.

We cannot agree with the conclusion of the CA.

The pieces of evidence submitted by Legend are mere allegations and conclusions not supported by other evidence.1awphi1 Legend did not even bother to illustrate or explain in detail how and why it considered petitioners’ positions superfluous or unnecessary. The CA puts too much weight on petitioners’ failure to refute Legend’s allegations contained in the document it submitted. However, it must be remembered that the employer bears the burden of proving the cause or causes for termination. Its failure to do so would necessarily lead to a judgment of illegal dismissal.

Again, it bears stressing that substantial evidence is the question of evidence required to establish a fact in cases before administrative and quasi-judicial bodies. Substantial evidence, as amply explained in numerous cases, is that

amount of "relevant evidence which a reasonable mind might accept as adequate to support a conclusion."18

Thus, in the same way, we held that the basis for retrenchment was not established by substantial evidence, we also rule that Legend failed to establish by the same quantum of proof the fact of redundancy; hence, petitioners’ termination from employment was illegal.

WHEREFORE, the petition is GRANTED. The April 28, 2006 Decision of the CA in CA-G.R. SP No. 81701 and the June 23, 2003 Decision of the NLRC in NLRC NCR CA No. 024306-2000 are hereby REVERSED and SET ASIDE. The February 7, 2000 Decision of Labor Arbiter Elias H. Salinas in NLRC RAB III-03-9080-98 is hereby REINSTATED with the MODIFICATION that the award for 14th-month pay or ex-gratia payment to all complainants in NLRC RAB III-03-9080-98 and the award for service charges to Bernaldo delos Santos and Carlos Mananquil are hereby DELETED.

SO ORDERED.

G.R. No. 168537             December 11, 2008

DAMIAN AKLAN, JUANITO AMIDO, REYNALDO BATICA, RAMIL BAUTISTA, WELARD BAUTISTA, MAMERTO BRIGOLI, ELMER CABOTEJA, JOEL CAMMAYO, WELFREDO CARIO, RODOLFO CINCO, ARWEN DABLO, RUBEN DE CASTRO, ROMEO DEL ROSARIO, RODERICK DELA CRUZ, ALEX DELA VEGA, JOAN ERICO DUMALAGAN, JULITO DURIAN, JOSELITO DUYANEN, REX FARNACIO, ROLANDO FELIZARDO, EFREN FERNANDEZ, BERNARDO GALLOGO, EDUARDO GARCIA, REX IGNACIO, DANIEL JAMISOLA, NOEL JANER, RAQUEL JANER, ROWAN JANER, CONSORCIO LIÑAN, BERNARD MACARAEG, DARIO MACARAEG, JESUS MACARAEG, EDGARDO MAHAGUAY, IRENEO ODIAMAR, ALEXIS OLIVAR, ARNEL OLIVAR, EDUARDO PEREMNE, ALAN QUILES, JOSEPH QUILES, RHONNEL RODIL, RONALDO SALVADOR, RAMIL SANTIAGO, FRANCIS SUPRINO, REXES SUPRINO, RODRIGO SUPRINO, RONALD SUPRINO, EDUARDO TIONGSON, petitioners, vs.SAN MIGUEL CORPORATION, BMA PHILASIA, INC., and ARLENE EUSEBIO, respondents.

D E C I S I O N

REYES, R.T., J.:

WE tackle in this labor case the dichotomy between impermissible labor-only contracting and legitimate job contracting.

This is a review on certiorari of the Decision1 of the Court of Appeals (CA) upholding that of the National Labor Relations Commission (NLRC), finding the dismissal of petitioners justified.

The Facts

Respondent BMA Philasia, Inc. (BMA) is a domestic corporation engaged in the business of transporting and hauling of cargoes, goods, and commodities of all kinds. Respondent Arlene Eusebio is the president of BMA.

Petitioners, numbering forty-seven (47) in all, are the former employees of respondent BMA at respondent San Miguel Corporation’s (SMC) warehouse in Pasig City. They were hired under fixed-term contracts beginning October 1999.

On July 31, 2001, a number of petitioners went to the Department of Labor and Employment (DOLE) District Office to file a complaint against BMA and Eusebio for underpayment of wages and non-payment of premium pay for rest day, 13th month pay, and service incentive leave pay.2

On August 14, 2001, petitioner Elmer Caboteja was charged with insubordination and disrespect to superior, failure to properly perform his job assignment, and unauthorized change of schedule. He was directed to submit his written explanation within forty-eight (48) hours. On August 17, 2001, Caboteja was terminated for the offenses of disregard of company rules and regulations and rude attitude to supervisors. On August 27, 2001, he filed a complaint for illegal dismissal against BMA.3

On various dates thereafter, BMA agreed to a settlement with some of the complainants in the case4 for underpayment of wages.5 Eleven of the present petitioners executed quitclaims and releases in favor of BMA and Eusebio in the presence of DOLE district officers. BMA refused to settle the claim of other complainants.

On September 13, 2001, petitioners Joan Erico Dumalagan and Ronaldo Salvador were also terminated for failure to perform their job responsibilities. On September 17, 2001, Dumalagan and Salvador filed complaints for illegal dismissal against BMA.6

On October 18, 2001, petitioners held a picket at the warehouse premises to protest BMA’s refusal to pay the claim for underpayment of the rest of the workers. This picket disrupted the business operations of private respondents, prompting BMA to terminate their services. Subsequently, petitioners filed separate complaints against BMA, Eusebio, and SMC for illegal dismissal.7 All the complaints for illegal dismissal were consolidated.

Petitioners alleged that they were illegally dismissed after filing a complaint for underpayment of wages and non-payment of benefits before the DOLE; they were terminated after staging a peaceful picket to protest the non-payment of their claims. According to them, BMA is a labor-only contractor. SMC was not only the owner of the warehouse and equipment used by BMA, it was their true employer. The manner and means by which they performed their work were controlled by SMC through its Sales Logistic Coordinator who was overseeing their performance everyday.

Private respondents BMA and Eusebio countered that petitioners Caboteja, Dumalagan, and Salvador were validly and justly dismissed. They were among the eleven who

already signed quitclaims and releases before the DOLE district office after receiving an amount in settlement of their claims. As for the rest of petitioners (36 complainants), there was no illegal dismissal to speak of. Said employees simultaneously did not go back to work for no apparent reason on October 18, 2001.

Private respondent SMC maintained that it had no employer-employee relationship with petitioners who were hired and supervised exclusively by BMA pursuant to a warehousing and delivery agreement in consideration of a fixed monthly fee. SMC argued that BMA is a legitimate and independent contractor, duly registered with the Securities and Exchange Commission (SEC) as a separate and distinct corporation with substantial capitalization, investment, equipment, and tools. It submitted documentary evidence proving that BMA engaged the services of petitioners, paid for their wages and benefits, and exercised exclusive control and supervision over them.

SMC showed that under their contract, BMA provided delivery trucks, drivers, and helpers in the storage and distribution of SMC products. On a day-to-day basis, after the routes were made by SMC salesmen, they would book the orders they obtained. In turn, BMA’s Schedular Planner, detailed at the Pasig Warehouse, downloaded these booked orders from the computer and processed the necessary documents to be forwarded to the Warehouse Checker, also an employee of BMA. SMC contended that petitioners were dismissed by BMA for staging a two-hour strike without complying with the mandatory requirements for a valid strike. As a result, BMA had to come up with ways and means in order to avoid the disruption of delivery operations.

Labor Arbiter and NLRC Dispositions

After due hearings, Labor Arbiter Veneranda C. Guerrero found respondent BMA liable for illegal dismissal and ordered the reinstatement of petitioners. She ruled that the evidence presented duly established that BMA was a legitimate independent contractor and the actual employer of petitioners. Its failure, however, to comply with the registration and reportorial requirements of the DOLE rendered SMC, its principal, directly liable to the claims of petitioners.8 Thus, BMA and SMC were found jointly and severally liable for the payment of petitioners’ backwages and money claims. The dispositive part of the Arbiter ruling runs in this wise:

WHEREFORE, all the foregoing considered, judgment is hereby rendered finding respondent BMA Philasia, Inc., liable for illegal dismissal. Accordingly, is it hereby ordered to reinstate all of the complainants to their previous positions, and to pay jointly and severally with respondent San Miguel the complainants’ backwages reckoned from the time of their illegal dismissal up to their actual/payroll reinstatement, the aggregate amount of which as of this date amounts to SEVEN MILLION FIVE HUNDRED EIGHTEEN THOUSAND TWO HUNDRED FIFTY-TWO AND 89/100 PESOS (P7,518,252.89). In addition respondents are solidarily held liable to pay the complainants’ Daniel Jamisola, Rodolfo Cinco,

Eduardo Garcia, Dario Macaraeg, Romeo Del Rosario, Alan Quiles, Joseph Quiles, Ronald Suprino, Rolando Felizardo, Efren Fernandez, Damian Aklan, Welard Bautista, Rodrigo Suprino, Noel Janer, Jesus Macaraeg, Reynaldo Batica, Rhonnel Rodil, Eduardo Peremne, Mamerto Brigoli, Ireneo Odiamar, Rex Ignacio, Edgardo Mahaguay, Reyes Suprino, Rodrigo Dela Cruz, Ramil Bautista, Francis Suprino, Eduardo Tiongson, Joel Cammayo, Arwen Dablo, Alex Dela Vega, Bernard Gallogo, Rex Farnacio, Ruben De Castro, Rowan Janer, Raquel Janer, and Bernardo Macaraeg their salary differentials, service incentive leave pay and 13th month pay in the aggregate amount of ONE MILLION TWO HUNDRED FIFTY-SIX THOUSAND THREE HUNDRED SIXTY-SIX and 80/100 PESOS (P1,256,366.80).

Respondents are further assessed the amount equivalent to ten percent (10%) of the total award, as and for attorney’s fees.

The computation of the complainants’ individually adjudged benefits shall form part of this Decision as Annex "A" hereof.

All other claims are DISMISSED for lack of merit.

SO ORDERED.9 (Emphasis supplied)

Respondents appealed the decision of the Labor Arbiter to the NLRC. On December 19, 2003, the NLRC reversed the Labor Arbiter disposition and ruled that there was no illegal dismissal. The fallo of the NLRC decision reads:

WHEREFORE, in view of all the foregoing, the appealed decision of the Labor Arbiter is hereby REVERSED and SET ASIDE and a new decision is hereby rendered finding that there was no illegal dismissal committed by respondents, hence, no liability for backwages. However, complainants are awarded their salary differentials, service incentive leave pay and 13th month pay except for the year 2000 in the aggregate amount of ONE MILLION TWO HUNDRED FIFTY-SIX THOUSAND THREE HUNDRED SIXTY-SIX AND 80/100 (P1,256,366.80) and 10% ATTORNEY’s FEES based on the salary differentials, SILP and 13th month pay.

SO ORDERED.10

The NLRC found that petitioners Caboteja, Dumalagan, and Salvador were separated from their jobs for just and valid causes. They were given the opportunity to explain their sides. As for the quitclaims previously executed by the other petitioners, the NLRC ruled that these were sufficient basis to release respondent BMA from liability.

With respect to the first and second assigned errors, the records show that complainants Elmer Caboteja, Erico "Jojo" Dumalagan and Ronaldo Salvador were separated from their jobs for just and

valid causes and after they were given the chance to explain their sides. Copies of memoranda were served upon them advising their violation of company rules and regulations and rude attitude and disrespect to superiors and disrespect to superiors in the case of Caboteja and failure to perform duties and responsibilities in the case of Dumalagan and Salvador. They were asked to explain and finding their explanations unacceptable, respondents dismissed them. Hence, they are not entitled to separation pay.

As regards the other complainants, there is no showing that they were illegally dismissed from their jobs by BMA. They have not given details on to whom they reported for work, who barred them from entering the respondents’ premises and from working, in so many words how they were told that they were already dismissed. The only evident fact is that they just stopped reporting for work beginning October 18, 2001 without informing BMA why there were doing so. Their claim that they were not allowed by the respondents to return to their work is hard to believe. Why should the respondents terminate simultaneously the services of the complainants and completely paralyze respondents’ business operation, particularly their service contract with SMC? Complainants have not shown any reason which would compel the respondents to resort to mass dismissal. On the other hand, complainants have strong reason to paralyze respondents’ operation in order to force compliance to their demands.

x x x x

In fact, the records of this case also disclose that during the mandatory conciliation proceedings, BMA urged these complainants to go back to work, but may refused to do so. Obviously, their refusal to go back to their work was a deliberate move to force respondents to give in to their demands. Considering this refusal, it is not hard to believe that complainants were not dismissed but rather they refused to work in order to paralyze respondents’ operations and force them to give in to complainants’ demands.11 (Emphasis supplied)

CA Disposition

Aggrieved, petitioners filed a Rule 65 petition with the CA. The following grounds were interposed: (1) that the NLRC gravely abused its discretion in holding that Caboteja, Dumalagan, and Salvador were validly dismissed; (2) that the other petitioners were not dismissed but were guilty of abandonment; and (3) that the quitclaims executed by eleven of the petitioners barred the complaint for illegal dismissal.12

On April, 15, 2005, the CA denied the petition, affirming in full the NLRC disposition, thus:

WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE and accordingly DISMISSED, for lack of merit. The

assailed Decision dated December 19, 2003 and Resolution dated July 20, 2004 of the National Labor Relations Commission in the consolidated cases, NLRC Case No. CN 08-04522-01-CA No. 036856-03 (NLRC NCR North Sector Case Nos. 08-04522-2001, 09-04941-2001, 00-11-05023-2001, 00-11-05969-2001, 11-01-00450-2002, 02-00934-2002, 12-06288-2001, and 12-06320-2001), are hereby AFFIRMED and UPHELD.

No pronouncement as to costs.

SO ORDERED.13

In ruling against petitioners, the CA found that the NLRC committed no reversible error or grave abuse of discretion in ruling that petitioners were not illegally dismissed but actually refused to report back to work after staging a surprise stoppage that paralyzed respondent BMA’s business operations at the Pasig warehouse on October 18, 2001.

Issues

Undaunted, petitioners resorted to this review on certiorari, anchored on the following grounds:

The CA committed a serious legal error in not ruling that respondent San Miguel Corporation (principal of respondent BMA Philasia), and respondent Arlene Eusebio, (president and owner of respondent BMA Philasia) are all solidarily liable for petitioners’ money claims.

The CA committed a serious legal error in ruling that the quitclaims executed by eleven (11) of the petitioners, in relation to their claims for underpayment of wages before the DOLE, also barred their subsequent complaint for illegal dismissal, despite the fact that the said complaint was not yet in existence at the time the quitclaims were executed.

The CA committed a serious legal error in refusing to hold that respondent San Miguel Corporation was petitioners’ real employer despite the fact that respondent BMA Philasia was not duly registered with the DOLE and caused the workers to perform tasks directly related to the business of respondent San Miguel Corporation and under the latter’s supervision.

The CA committed a legal error and acted with grave abuse of discretion in holding that petitioners Elmer Caboteja, Joan Erico Dumalagan, and Ronaldo Salvador were not illegally dismissed from their jobs, despite a previous ruling of the Labor Arbiter to the contrary.

The CA committed a serious legal error in not awarding damages, at the very least, to petitioners Joan Erico Dumalagan, and Ronaldo Salvador for violation of their right to due process.

The CA seriously committed an error of law in holding that the rest of the petitioners abandoned their jobs and were not dismissed therefrom, contrary to the findings of the Labor Arbiter who heard the case.14 (Underscoring supplied)

Our Ruling

Petitioners argue mainly that their employer is, in fact, respondent SMC, not respondent BMA. They contend that BMA is a labor-only contractor and SMC, as their true employer, should be held directly liable for their money claims.

A finding that a contractor is a "labor-only" contractor, as opposed to permissible job contracting, is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor, and the "labor-only" contractor is considered as a mere agent of the principal, the real employer.15

Both the Labor Arbiter and the NLRC found that the employment contracts of petitioners duly prove that an employer-employee relationship existed between petitioners and BMA. We hasten to add that the existence of an employer-employee relationship is ultimately a question of fact and the findings by the Labor Arbiter and the NLRC on that score shall be accorded not only respect but even finality when supported by ample evidence.16

In its ruling, the NLRC considered the following elements to determine the existence of an employer-employee relationship: (1) the selection and engagement of the workers; (2) power of dismissal; (3) the payment of wages by whatever means; and (4) the power to control the worker’s conduct.17 All four elements were found by the NLRC to be vested in BMA. This NLRC finding was affirmed by the CA:

x x x It is the BMA which actually conducts the hauling, storage, handling, transporting, and delivery operations of SMC’s products pursuant to their warehousing and Delivery Agreement. BMA itself hires and supervises its own workers to carry out the aforesaid business activities. Apart from the fact that it was BMA which paid for the wages and benefits, as well as SSS contributions of petitioners, it was also the management of BMA which directly supervised and imposed disciplinary actions on the basis of established rules and regulations of the company. The documentary evidence consisting of numerous memos throughout the period of petitioners’ employment leaves no doubt in the mind of this Court that petitioners are only too aware of who is their true employer. Petitioners received daily instructions on their tasks form BMA management, particularly, private respondent Arlene C. Eusebio, and whenever they committed lapses or offenses in connection with their work, it was to said officer that they submitted compliance such as written explanations, and brought matters connected with their specific responsibilities.18

The employer-employee relationship between BMA and petitioners is not tarnished by the absence of registration with DOLE as an independent job contractor on the part of BMA. The absence of registration only gives rise to the presumption that the contractor is engaged in labor-only contracting, a presumption that respondent BMA ably refuted.

Thus, We find no grave abuse of discretion in the CA observation that respondent BMA is the true employer of petitioners who should be held directly liable for their claims. Likewise, no grave abuse of discretion can be ascribed to the CA when it ruled that illegal dismissal was absent.

The records fully disclose that petitioners Caboteja, Dumalagan, and Salvador were separated from their jobs for just and valid causes. Caboteja was cited for violation of company rules and regulations and disrespectful conduct. Dumalagan and Salvador were investigated for failure to perform duties and responsibilities. After their explanations were found unacceptable, they were accordingly dismissed.

As for the other petitioners, they contend that they were illegally dismissed when respondent BMA barred them from entering the work premises and from performing their work. Both the NLRC and the CA found that petitioners failed to substantiate this contention. Rather, what was shown in the records was that they simply stopped reporting for work starting October 18, 2001 when they staged a picket. The CA observation along this line is worth restating:

x x x petitioners failed to substantiate their claim that they had been prevented from entering the work premises after staging a "picket" on October 18, 2001 to further press their demands for payment of their money claims. At this time, the labor standards case was already pending with the DOLE District Office and petitioners could have availed of said proceedings with the intervention of DOLE officials. Instead, however, they resorted to an illegal stoppage of work that paralyzed the business operations of BMA. As aptly noted by the NLRC, there is simply no probable or logical reason for private respondent BMA to simultaneously dismiss its workers that will disrupt business operations at the warehouse. Under the factual circumstances, it clearly appears that petitioners refused to report back to their work in order to force their employer BMA to give in to their immediate demand for the salary differentials and unpaid benefits subject of their complaint with the DOLE. Hence, BMA cannot be held liable for illegal dismissal.

While it is true that the defense of abandonment may not be given credence or is negated by the immediate filing of illegal dismissal cases by the affected employees, records clearly reveal that as of October 18, 2001, petitioners without justifiable cause failed and refused to report back to their work. Their claim of having been prevented from entering the work premises was not given due weight for no particulars was even alleged by them in their report back to their jobs, who prevented

their entry to the company premises and details as to what steps they took to bring the matter to the attention of DOLE District Office wherein their complaint for labor standards violation was already pending.19 (Emphasis supplied)

Moreover, eleven of petitioners contend that their quitclaims should not be considered as a bar to their complaint for illegal dismissal because that complaint was not yet in existence at the time the quitclaims were executed. That the quitclaims were executed voluntarily is not denied by petitioners. They, however, contend that the quitclaims should be construed as limited to the money claims in connection with the first labor standards complaint20 they had filed before the DOLE district office.

Unless there is a showing that the employee signed involuntarily or under duress, quitclaims and releases are upheld by this Court as the law between the parties.21

If the agreement was voluntarily entered into by the employee, with full understanding of what he was doing, and represents a reasonable settlement of the claims of the employee, it is binding on the parties and may not be later disowned simply because of a change of mind.22 In the case under review, the quitclaims and releases signed by petitioners stated:

That for and in consideration of the sum of FIFTY-THREE THOUSAND PESOS (P53,000.00)23 in settlement of my/our claim/s as financial assistance and/or gratuitously given by my/our employer receipt of which is hereby acknowledge to my/our complete and full satisfaction, I/we hereby release and discharge the above respondent and/or its officers from any and all claims by way of wages, overtime pay, differential pay, or otherwise as may be due me/us incident to my/our past employment with said establishment. I/we hereby state further that I/we have no more claim, right or action of whatsoever nature whether past, present or contingent against the said respondent and/or its officers.24 (Emphasis supplied)

As correctly observed by the NLRC, the language employed by the above quitclaims and releases indicates in no uncertain terms that petitioners voluntarily and freely acknowledged receipt of full satisfaction of all claims against respondents. Thus, the quitclaims effectively barred petitioners from questioning their dismissal.

Social justice must be founded on the recognition of the necessity of interdependence among diverse units of a society and of the protection that should be equally and evenly extended to all groups as a combined force in our social and economic life.25 While labor should be protected at all times, this protection must not be at the expense of capital.

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED.

SO ORDERED.