WAGES CASES

SONGCO v NLRC
FACTS:
Private respondent F.E. Zuellig (M), Inc.,
filed with the Department of Labor
(Regional Office No. 4) an application
seeking clearance to terminate the
services of petitioners Jose Songco,
Romeo Cipres, and Amancio Manuel
allegedly
on
the
ground
of
RETRENCHMENT due to financial
losses. This application was seasonably
opposed by petitioners alleging that the
company is not suffering from any losses.
They alleged further that they are
being dismissed because of their
membership in the union. At the last
hearing of the case, however, petitioners
manifested that they are no longer
contesting their dismissal. The parties
then agreed that the sole issue to be
resolved is the basis of the separation pay
due to petitioners. Petitioners, who were in
the sales force of Zuellig received
monthly salaries of at least P40,000.
In
addition,
they
received
commissions for every sale they
made.
The CBA entered into bet, Zuellig and the
Zuellig Assocn contains the ff:
Retirement Gratuity

Rule 1, Book VI of the Rules Implementing

the Labor Code provide:
Sec. 9(b). Where the termination of
employment is due to retrechment
initiated by the employer to prevent losses
or other similar causes, or where the
employee suffers from a disease and his
continued employment is prohibited by
law or is prejudicial to his health or to the
health
of
his
co-employees,
the
employee
shall
be
entitled
to
termination pay equivalent at least to
his one month salary, or to one-half
month pay for every year of service,
whichever is higher, a fraction of at
least six (6) months being considered
as one whole year.
LA: Ordered to pay the complainants
separation pay = their 1 month salary
(exclusive of commissions, allowances,
etc.) for every yr of service
NLRC: Dismissed for lack of merit,.
ISSUE: Whether or not earned sales
commissions and allowances should be
included in the monthly salary of
petitioners for the purpose of computation
of their separation pay.

Section l(a)-Any employee, who is

separated from employment due to old
age, sickness, death or permanent lay-off
not due to the fault of said employee
shall receive from the company a
retirement gratuity in an amount
equivalent
to
one
(1)
month's salary per year of service.

HELD:

Art. 284. Reduction of personnel.

The termination of employment of any
employee due to the installation of labor
saving-devices, redundancy, retrenchment
to prevent losses, and other similar
causes, shall entitle the employee
affected thereby to separation pay.

Article 97(f) by itself is explicit that

commission is included in the definition of
the term "wage". It has been repeatedly
declared by the courts that where the law
speaks in clear and categorical language,
there is no room for interpretation or
construction; there is only room for
application WAGE IN GENERIC SENSE

Yes.
Petitioners' position was that in arriving at
the correct and legal amount of separation
pay due them, whether under the Labor
Code or the CBA, their basic salary,
earned sales commissions and allowances
should be added together.

LA: We can say that commission by itself

may be considered a wage. This is not

something novel for it cannot be gainsaid

that certain types of employees like
agents, field personnel and salesmen do
not earn any regular daily, weekly or
monthly salaries, but rely mainly on
commission earned.
The ambiguity between Article 97(f),
which defines the term 'wage' and Article
XIV
of
the
Collective
Bargaining
Agreement, Article 284 of the Labor Code
and Sections 9(b) and 10 of the
Implementing Rules, which mention the
terms "pay" and "salary", is more
apparent than real. Broadly, the word
"salary" means a recompense or
consideration made to a person for
his pains or industry in another man's
business. Whether it be derived from
"salarium," or more fancifully from "sal,"
the pay of the Roman soldier, it carries
with
it
the
fundamental
idea
of
compensation for services rendered.
Indeed, there is eminent authority for
holding that the words "wages" and
"salary" are in essence synonymous
(Words and Phrases, Vol. 38 Permanent
Edition, p. 44 citing Hopkins vs. Cromwell,
85 N.Y.S. 839,841,89 App. Div. 481; 38
Am. Jur. 496). "Salary," the etymology
of which is the Latin word "salarium,"
is often used interchangeably with
"wage", the etymology of which is the
Middle English word "wagen". Both
words generally refer to one and the same
meaning, that is, a REWARD OR
RECOMPENSE FOR SERVICES performed.
Likewise, "pay" is the synonym of "wages"
and "salary" (Black's Law Dictionary, 5th
Ed.). Inasmuch as the words "wages",
"pay" and "salary" have the same
meaning, and commission is included
in the definition of "wage", the logical
conclusion, therefore, is, in the
computation of the separation pay of
petitioners, their salary base should
include also their earned sales
commissions.
PURPOSE. So that the petitioners would be
inspired to put a little more industry on
the jobs particularly assigned to them, still
these
commissions
are
direct
remuneration services rendered which
contributed to the increase of income of
Zuellig

WHAT IS COMMISSION? Commission is the

recompense, compensation or reward of
an agent, salesman, executor, trustees,
receiver, factor, broker or bailee, when the
same is calculated as a percentage on the
amount of his transactions or on the profit
to the principal (Black's Law Dictionary,
5th Ed.)
JUDICIAL
NOTICE:
that
some
salesmen do not receive any basic
salary but depend on commissions
and
allowances
or
commissions
alone, are part of petitioners' wage or
salary and although an employeremployee relationship exists. Bearing in
mind the preceeding dicussions, if we
adopt the opposite view that commissions,
do not form part of wage or salary, then,
in effect, We will be saying that this kind
of salesmen do not receive any salary and
therefore, not entitled to separation pay in
the event of discharge from employment.
Will this not be absurd? This narrow
interpretation is not in accord with
the liberal spirit of our labor laws and
considering
the
purpose
of
separation pay which is, to alleviate
the difficulties which confront a
dismissed employee thrown the the
streets to face the harsh necessities
of life.
COMPUTATION: Applying this by analogy,
since the commissions in the present case
were earned by actual market transactions
attributable to petitioners, these should be
included in their separation pay. In the
computation thereof, what should be
taken into account is the average
commissions earned during their last
year of employment.
RULING: GRANTED; INCLUDE ALLOWANCES
AND COMMISSIONS IN THE SEPARATION
PAY.

MILLARES v NLRC
FACTS:
Petitioners
numbering
one
hundred
sixteen (116)[1] occupied the positions of
Technical Staff, Unit Manager, Section
Manager, Department Manager, Division
Manager and Vice President in the mill site

of respondent Paper Industries Corporation

of the Philippines (PICOP) in Bislig, Surigao
del Sur. In 1992 PICOP suffered a major
financial setback allegedly brought about
by the joint impact of restrictive
government regulations on logging and
the economic crisis. To avert further
losses, it undertook a retrenchment
program and terminated the services of
petitioners. Accordingly,
petitioners
received separation pay computed at the
rate of one (1) month basic pay for every
year of service. Believing however that the
allowances they allegedly regularly
received on a monthly basis during
their employment should have been
included in the computation thereof
they
lodged
a
complaint
for
separation pay differentials.
ALLOWANCES:
Staff/Manager's Allowance
Respondent
PICOP provides free housing facilities to
supervisory and managerial employees
assigned in Bislig. The privilege includes
free
water
and
electric
consumption. Owing however to shortage
of such facilities, it was constrained to
grant Staff allowance instead to those who
live in rented houses outside but near the
vicinity of the mill site. But the allowance
ceases whenever a vacancy occurs in the
company's housing facilities.
Transportation Allowance - To relieve
respondent PICOP's motor pool in Bislig
from a barrage of requests for company
vehicles and to stabilize company vehicle
requirements it grants transportation
allowance to key officers and Managers
assigned in the mill site who use their own
vehicles in the performance of their
duties.
Bislig Allowance - The Bislig Allowance is
given to Division Managers and corporate
officers assigned in Bislig on account of
the
hostile
environment
prevailing
therein. But
once
the
recipient
is

transferred elsewhere outside Bislig, the

allowance ceases.
LA:
the subject allowances, being
customarily furnished by respondent
PICOP
and
regularly
received
by
petitioners, formed part of the latter's
wages. ordered to pay petitioners
separation pay differentials plus 10%
thereof.
NLRC: Allowances did NOT form part of
salary base
CONTENTION: In this petition for certiorari,
petitioners submit that their allowances
are included in the definition of "facilities"
in Art. 97, par. (f), of the Labor Code,
being necessary and indispensable for
their
existence
and
subsistence. Furthermore they claim that
their
availment
of
the
monetary
equivalent of those "facilities" on a
monthly basis was characterized by
permanency,
regularity
and
customariness.
ISSUE: W/N allowances be included in the
separation pay
HELD:
There is no showing of grave abuse of
discretion on the part of the NLRC. In case
of retrenchment to prevent losses, Art.
283 of the the Labor Code imposes on the
employer an obligation to grant to the
affected
employees
separation
pay
equivalent to one (1) month pay or at
least one-half (1/2) month pay for every
year of service, whichever is higher. Since
the law speaks of "pay," the question
arises, "What exactly does the term
connote?"
In order to ascertain whether the subject
allowances form part of petitioner's
"wages," we divide the discussion on the
following - "customarily furnished;"
"board, lodging or other facilities;"
and, "fair and reasonable value as

determined
Labor."

by

the

Secretary

of

case such benefits or allowances do

not constitute taxable income.

CUSTOMARY allowances were only

temporary, not regularly received by
petitioners. WHY? In the case of the
housing allowance, once a vacancy occurs
in
the
company-provided
housing
accommodations,
the
employee
concerned transfers to the company
premises and his housing allowance is
discontinued.

Petitioners' allowances do not represent

such fair and reasonable value as
determined by the proper authority simply
because the Staff/Manager's allowance
and
transportation
allowance
were
amounts given by respondent company in
lieu of actual provisions for housing and
transportation needs whereas the Bislig
allowance was given in consideration of
being assigned to the hostile environment
then prevailing in Bislig.

For transpo - petitioners' continuous

enjoyment of the disputed allowances was
based on contingencies the occurrence of
which wrote finis to such enjoyment.
BOARD AND LODGING v FACILITIES.
FACILITIES - articles or services for the
benefit of the employee or his family but
excluding tools of the trade or articles or
service primarily for the benefit of the
employer or necessary to the conduct of
the
employer's business. The
Staff
/Manager's allowance may fall under
"lodging" but the transportation and
Bislig allowances are not embraced in
"facilities" on the main consideration
that they are granted as well as the
Staff/Manager's
allowance
for
respondent
PICOP's
benefit
and
convenience, i.e., to insure that
petitioners
render
quality
performance. In determining whether a
privilege is a facility, the criterion is not so
much its kind but its PURPOSE.
Allowances were for the benefit and
convenience of respondent company was
supported by the circumstances that they
were NOT subjected to w/holding tax.
Board and lodging allowances furnished to
an employee not in excess of the latter's
needs and given free of charge,
constitute income to the latter except
if such allowances or benefits are
furnished to the employee for the
convenience of the employer and as
necessary
incident
to
proper
performance of his duties in which

The inevitable conclusion is that, as

reached by the NLRC, subject allowances
did not form part of petitioners' wages.
But in view of the previous discussion that
the
disputed
allowances
were not regularlyreceived by petitioners
herein, there was no reason at all for
petitioners to resort to the above cases.
RULING: PETITION DISMISSED; NOT PART
OF SEPARATION PAY
SLL INTERNATIONAL v NLRC
FACTS:
Sometime in 1996, and January 1997,
private respondents Roldan Lopez and
Danilo Caete
and Edgardo Zuiga
(Zuiga for brevity) respectively, were
hired by petitioner Lagon as apprentice
or trainee cable/lineman. The three
were paid the full minimum wage and
other benefits but since they were
only trainees, they did not report for
work regularly but came in as
SUBSTITUTES to the regular workers
or in undertakings that needed extra
workers to expedite completion of
work.
After their training, Zuiga, Caete and
Lopez were engaged as project employees
by the petitioners in their Islacom project

in Bohol. Private respondents started on

March 15, 1997 until December 1997.
Upon the completion of their project,
their
employment
was
also
terminated
Sometime in March 1998, Zuiga and
Caete were engaged again by Lagon as
project employees for its PLDT Antipolo,
Rizal project, which ended sometime in
(sic) the late September 1998. As a
consequence,
Zuiga
and
Caetes
employment was terminated. For this
project, Zuiga and Caete received only
the wage of P145.00 daily. The minimum
prescribed wage for Rizal at that time
was P160.00.
On May 21, 1999, private respondents for
the 4th time worked with Lagons project
in Camarin, Caloocan City with Furukawa
Corporation as the general contractor.
Their contract would expire on February
28, 2000, the period of completion of the
project. From May 21, 1997-December
1999, private respondents received the
wage ofP145.00. At this time, the
minimum prescribed rate for Manila
was P198.00. In January to February 28,
the three received the wage of P165.00.
The
existing
rate
at
that
time
was P213.00.
ECONOMIC
PROBLEMS.
Face[d]
with
economic
problem[s],
Lagon
was
constrained to cut down the overtime
work of its worker[s][,] including private
respondents. Thus, when requested by
private respondents on February 28, 2000
to work overtime, Lagon refused and
told private respondents that if they
insist, they would have to go home at
their own expense and that they
would not be given anymore time nor
allowed to stay in the quarters. This
prompted private respondents to leave
their work and went home to Cebu.
COMPLAINT. Private respondents filed a
complaint for illegal dismissal, nonpayment of wages, holiday pay, 13th

month pay for 1997 and 1998 and service

incentive leave pay as well as damages
and attorneys fees.
LA: Private employees are regular
employees bec of repeatedly hired by
petitioner; underpd; NOT illegal dismissal
NLRC: Affirmed decision of LA
CA: Regular employees; The CA also
stated that the failure of petitioners to
comply with the simple but compulsory
requirement to submit a report of
termination
to
the
nearest
Public
Employment Office every time private
respondents employment was terminated
was proof that the latter were not project
employees
but
regular
employees;
underpd. . It ruled that the board and
lodging, electricity, water, and food
enjoyed by the private respondents could
not be included in the computation of their
wages because these were given without
their written consent.
CONTENTION: Petitioners reiterated their
position that the value of the facilities that
the private respondents enjoyed should be
included in the computation of the
"wages" received by them.
ISSUE: whether or not there is evidence on
record to support the findings of the LA,
the NLRC and the CA that private
respondents were project or regular
employees
and
that
their
salary
differentials had been paid
HELD:
No merit in the petition.
Specifically with respect to labor cases,
the burden of proving payment of
monetary claims rests on the employer,
the rationale being that the pertinent
personnel
files,
payrolls,
records,
remittances and other similar documents
which will show that overtime,

differentials, service incentive leave and

other claims of workers have been paid
are not in the possession of the worker but
in the custody and absolute control of the
employer.
In this case, petitioners, aside from bare
allegations that private respondents
received wages higher than the prescribed
minimum, failed to present any evidence,
such as payroll or payslips, to support
their
defense
of
payment.
Thus,
petitioners utterly failed to discharge
the onus probandi.
MINIMUM WAGE. Private respondents, on
the other hand, are entitled to be paid the
minimum wage, whether they are regular
or non-regular employees.
Section 3, Rule VII of the Rules to
Implement the Labor Code19 specifically
enumerates those who are not covered by
the payment of minimum wage. Project
employees are not among them.
ON FACILITIES; ALLOWABLE DEDUCTIONS.
On whether the value of the facilities
should be included in the computation of
the
"wages"
received
by
private
respondents, Section 1
of
DOLE
Memorandum Circular No. 2 provides
that an employer may provide
subsidized meals and snacks to his
employees provided that the subsidy
shall not be less that 30% of the fair
and
reasonable
value
of
such
facilities. DEDUCTION: In such cases,
the employer may deduct from the wages
of the employees not more than 70% of
the value of the meals and snacks enjoyed
by the latter, provided that such
deduction
is
with
the
written
authorization
of
the
employees
concerned.

REQUISITES
BEFORE
CAN BE MADE:

DEDUCTIONS

(1) proof must be shown that such

facilities are customarily furnished by the
trade;

(2) the provision of deductible facilities

must be voluntarily accepted in writing by
the employee; and
(3) facilities must be charged at
reasonable value.20 Mere availment is not
sufficient to allow deductions from
employees wages.
NOTE: These requirements, however,
have not been met in this case. SLL failed
to present any company policy or
guideline showing that provisions for
meals and lodging were part of the
employees salaries. It also failed to
provide proof of the employees written
authorization, much less show how they
arrived at their valuations. At any rate, it
is not even clear whether private
respondents
actually
enjoyed
said
facilities.
FACILITIES v SUPPLEMENTS. It is of the
view that the food and lodging, or the
electricity and water allegedly consumed
by private respondents in this case were
not facilities but supplements.
In the case of Atok-Big Wedge Assn. v.
Atok-Big Wedge Co.,22 the two terms
were distinguished from one another in
this wise:
"Supplements," therefore, constitute
extra remuneration or special privileges or
benefits given to or received by the
laborers over and above their ordinary
earnings or wages. "Facilities," on the
other hand, are items of expense
necessary for the laborer's and his family's
existence and subsistence so that by
express provision of law (Sec. 2[g]), they
form part of the wage and when
furnished by the employer are
deductible therefrom, since if they
are not so furnished, the laborer
would spend and pay for them just
the same.
IN OTHER WORDS: In short, the benefit or
privilege given to the employee which
constitutes an extra remuneration
above and over his basic or ordinary
earning or wage is supplement; and
when said benefit or privilege is part of

the laborers' basic wages, it is a

facility.
In the case at bench, the items provided
were given freely by SLL for the purpose of
maintaining the efficiency and health of its
workers while they were working at their
respective projects.
RULING: PETITIION DENIED.

OUR HAUS
PARLAN

REALTY

DEVT

CORP.

FACTS:
Respondents Alexander Parian, Jay Erinco,
Alexander Canlas, Jerry Sabulao and
Bernardo
Tenederowere
all
laborers
working for petitioner Our Haus Realty
Development Corporation (Our Haus), a
company engaged in the construction
business.
Sometime in May 2010, Our Haus
experienced financial distress. To alleviate
its condition, Our Haus suspended
some of its construction projects and
asked the affected workers, including
the respondents, to take vacation
leaves.
COMPLAINT. Eventually, the respondents
were asked to report back to work but
instead of doing so, they filed with the LA
a complaint for underpayment of their
daily wages based on the new wage
orders. The respondents also alleged.
LA: Employer complied w/ the laws
minimum reqt. Aside from paying the
monetary amount of the respondents
wages, Our Haus also subsidized their
meals (3 times a day), and gave them free
lodging near the construction project they
were assigned to.
NLRC:
reversed;
noted
that
the
respondents did not authorize Our Haus in
writing to charge the values of their board
and lodging to their wages. Thus, the
samecannot be credited.
CA: dismissed the petition of Our Haus and
affirmed the decision of NLRC in toto.
ISSUE: W/N the charging or deduction of a
facilitys val.to wages are same

HELD:
The Court resolves to deny the petition.
No
substantial
distinction
between
deducting and charging a facilitys value
from the employees wage; the legal
requirements for creditability apply to
both.
NON-COMPLIANCE W/ THE REQT. To justify
its non-compliance with the requirements
for the deductibility of a facility, Our
Haus asks us to believe that there is
a substantial distinction between the
deduction and the charging of a
facilitys value to the wages. Our Haus
explains that in deduction, the amount of
the wage (which may already be below
the minimum) would still be lessened by
the facilitys value, thus needing the
employees consent. On the other hand,
in charging, there is no reduction of
the employees wage since the
facilitys
value
will
just
be
theoretically added to the wage for
purposes of complying with the
minimum wage requirement.
Our Haus argument is a vain attempt to
circumvent the minimum wage law by
trying to create a distinction where none
exists.
THEY ARE THE SAME. In reality,
deduction and charging both operate
to lessen the actual take-home pay of
an employee; they are two sides of
the same coin. In both, the employee
receives a lessened amount because
supposedly, the facilitys value, which is
part of his wage, had already been paid to
him in kind. As there is no substantial
distinction
between
the
two,
the
requirements set by law must apply to
both.
These requirements, as summarized in
Mabeza, are the following:
a. proof must be shown that such facilities
are customarily furnished by the trade;
b. the provision of deductible facilities
must be voluntarily accepted in writing by
the employee; and

c. The facilities must be charged at fair

and reasonable value
EXAMINATION:
a. The facility must be customarily
furnished by the trade. In a string of
cases, we have concluded that one of the
badges to show that a facility is
customarily furnished by the trade is the
existence of a company policy or guideline
showing that provisions for a facility were
designated as part of the employees
salaries.41 ER showed Sinumpang
Salaysay
SC: We agree with the NLRCs finding that
the sinumpaang salaysay statements
submitted by Our Haus are self-serving.
Our Haus only produced the documents
when the NLRC had already earlier
determined that Our Haus failed to prove
that it was traditionally giving the
respondents their board and lodging. This
document did not state whether these
benefits had been consistently enjoyed by
the rest of Our Haus employees.
Moreover, the records reveal that the
board and lodging were given on a per
project basis.
MOREOVER,
even
assuming
the
sinumpaang salaysay to be true, this
document would still work against Our
Haus case. If Our Haus really had the
practice of freely giving lodging,
electricity and water provisions to its
employees, then Our Haus should not
deduct
its
values
from
the
respondents wages. Otherwise, this
will run contrary to the affiants claim that
these benefits were traditionally given free
of charge.

construction business are the occupational

safety and health (OSH) services which
the law itself mandates employers to
provide to their workers. This is to
ensure the humane working conditions of
construction employees despite their
constant exposure to hazardous working
environments.
As part of the project cost that
construction companies already charge to
their clients, the value of the housing of
their workers cannot be charged again to
their employees salaries. Our Haus
cannot pass the burden of the OSH costs
of its construction projects to its
employees by deducting it as facilities.
This is Our Haus obligation under the law.
Lastly, even if a benefit is customarily
provided by the trade, it must still
pass
the
purpose
testset
by
jurisprudence. Under this test, if a
benefit or privilege granted to the
employee
is
clearly
for
the
employers convenience, it will not be
considered as a facility but a
supplement
PURPOSE TEST
Under the law,46 only the value of the
facilities may be deducted from the
employees wages but not the value of
supplements. Facilities include articles or
services for the benefit of the employee or
his family but exclude tools of the trade or
articles or services primarily for the
benefit of the employer or necessary to
the conduct of the employers business.

EVIDENCE: , the employer may also prove

compliance with the first requirement by
showing the existence of an industry-wide
practice of furnishing the benefits in
question among enterprises engaged in
the same line of business.

SUPPLEMENT NOT CONSIDERED IN MIN

WAGE. The law also prescribes that the
computation of wages shall exclude
whatever
benefits,
supplementsor
allowances
given
to
employees.
Supplements are paid to employees on top
of their basic pay and are free of
charge.48 Since it does not form part of the
wage, a supplements value may not be
includedin the determination of whether
an employer complied with the prescribed
minimum wage rates.

However, Our Haus could not really be

expected to prove compliance with the
first
requirement
since
the
living
accommodation
of
workers
in
the
construction industry is not simply a
matter of business practice. Peculiar to the

In the present case, the board and lodging

provided by Our Haus cannot be
categorized
asfacilities
but
as
supplements. . In SLL International Cables
Specialist v. National Labor Relations

Commission,49 this Court was confronted

with
the
issue
on
the
proper
characterization of the free board and
lodging provided by the employer. We
explained:
The Court, at this point, makes a
distinction
between
"facilities"
and
"supplements". It is of the view that the
food and lodging, or the electricity and
water allegedly consumed by private
respondents in this case were not facilities
but
supplements.
"Supplements",
therefore, constitute extra remuneration
or special privileges or benefits given to or
received by the laborers overand above
their ordinary earnings or wages
PURPOSE IS MATERIAL. Ultimately, the real
difference lies not on the kind of the
benefit but on the purpose why it was
given by the employer. If it is primarily
for the employees gain, then the
benefit is a facility; if its provision is
mainly for the employers advantage,
then it is a supplement. Again, this is to
ensure that employees are protected in
circumstances
where
the
employer
designates a benefit as deductible from
the wages even though it clearly works to
the employers greater convenience or
advantage.
Under the purpose test, substantial
consideration must be given to the
NATURE of the employers business in
relation to the character or type of
work performed by the employees
involved.
NATURE OF ERs BUSINESS. Our Haus is
engaged in the construction business, a
laborintensive enterprise. The success
of its projects is largely a function of the
physical strength, vitality and efficiency of
its laborers. Its business will be
jeopardized if its workers are weak,
sickly, and lack the required energy
to
perform
strenuous
physical
activities. Thus, by ensuring that the
workers are adequately and well fed,

the employer is actually investing on

its business.
TARGET DEADLINES. Work is performed
continuously, day and night, in order to
finish the project on the designated turnover date. Thus, it will be more
convenient
to
the
employer
if
itsworkers are housed near the
construction site to ensure their
ready availability during urgent or
emergency circumstances.
b.
The
provision
of
deductible
facilities
must
be
voluntarily
accepted in writing by the employee.
Moreover, in the earlier sinumpaang
salaysay by Our Haus four employees, it
was not mentioned that they also
executed a kasunduanfor their board and
lodging benefits. Because of these
surrounding
circumstances
and
the
suspicious
timing
when
the
five
kasunduanswere submitted as evidence,
we agree withthe CA that the NLRC
committed no grave abuse of discretion in
disregarding these documents for being
self serving.
c. The facility must be charged at a
fair and reasonable value Our Haus
admitted that it deducted the amount
of P290.00 per week from each of the
respondents for their meals (W/IN THE
REQD AMOUNT). However, Our Haus
valuation cannotbe plucked out of
thin air. The valuation of a facility
MUST be supported by relevant
documents such as receipts and
company records for it to be
considered as fair and reasonable
IN THE CASE AT BAR: Our Haus never
explained how it came up with the valuesit
assigned for the benefits it provided; it
merely listed its supposed expenses
without any supporting document.
Since Our Haus is using these additional
expenses (cooks salary, water and LPG)
to support its claim that it did not withhold
the full amount of the meals value, Our

Haus is burdened to present evidence to

corroborate its claim.
RULING: PETITION DENIED; CA DECISION
AFFIRMED.

PROHIBITION AGAINST
OF BENEFITS CASES

DIMINUTION

AMERICAN WIRE AND CABLE DAILY

RATED
EMPLOYEES
UNION
v
AMERICAN WIRE CABLE
FACTS:
American Wire and Cable Co., Inc., is a
corporation engaged in the manufacture
of wires and cables. There are two
unions in this company, the American
Wire
and
Cable
Monthly-Rated
Employees
Union
(Monthly-Rated
Union) and the American Wire and
Cable Daily-Rated Employees Union
(Daily-Rated Union).

CONTENTION: Filed an MR alleging that

there was violation of Art. 100 of the LC;
MR denied
RESPONDENT CORP ANSWER: In answer to
all these, the respondent corporation
avers that the grant of all subject benefits
has not ripened into practice that the
employees concerned can claim a
demandable right over them. The grant of
these benefits was conditional based upon
the financial performance of the company
and that conditions/circumstances that
existed before have indeed substantially
changed
thereby
justifying
the
discontinuance of said grants. The
companys financial performance was
affected by the recent political
turmoil and instability that led the
entire nation to a bleeding economy.
CA: in favor of respondent Company
ISSUE: W/N the Company violated Art.
100, as amended
HELD:

On 16 February 2001, an original action

was filed before the NCMB of the
Department of Labor and Employment
(DOLE) by the two unions for voluntary
arbitration. They alleged that the private
respondent,
without
valid
cause,
suddenly and unilaterally withdrew
and denied certain benefits and
entitlements which they have long
enjoyed. These are the following:
a. Service Award; b. 35% premium pay of
an employees basic pay for the work
rendered during Holy Monday, Holy
Tuesday, Holy Wednesday, December 23,
26, 27, 28 and 29; c. Christmas Party; and
d. Promotional Increase.
Voluntary arbitrator: In favor of respondent
Company but directed to grant service
award to deserving employees

It appears that for the Court to resolve the

issue presented, it is critical that a
determination must be first made on
whether the benefits/entitlements
are in the nature of a bonus or not,
and assuming they are so, whether they
are demandable and enforceable
obligations.
BONUS - an amount granted and paid to
an employee for his industry and loyalty
which contributed to the success of the
employers business and made possible
the realization of profits. It is an act of
generosity granted by an enlightened
employer to spur the employee to greater
efforts for the success of the business and
realization of bigger profits. MGT
PREROG. (Thus, a bonus is not a
demandable
and
enforceable
obligation, except when it is made
part
of
the
wage,
salary
or
compensation of the employee.)

Based on the foregoing pronouncement, it

is obvious that the benefits/entitlements
subjects of the instant case are all
bonuses which were given by the private
respondent out of its generosity and
munificence.
Q: Can these bonuses be considered part
of the wage or salary or compensation
making them enforceable obligations?
SC: NO.
For a bonus to be enforceable:

deliberate.[36] The downtrend in the grant

of these two bonuses over the years
demonstrates that there is nothing
consistent about it.
To hold that an employer should be
forced to distribute bonuses which it
granted out of kindness is to penalize
him for his past generosity.
RULING: CA DECISION AFFIRMED.

TSPIC CORP.
UNION

TSPIC

EMPLOYEES

FACTS:
(a) it must have been promised by the
employer and expressly agreed
upon by the parties,[30]
(b) or it must have had a fixed
amount[31] and had been a long
and regular practice on the part of
the employer.[32]
IN
THE
CASE
AT
BAR:
The
benefits/entitlements in question were
never subjects of any express agreement
between the parties. They were never
incorporated in the Collective Bargaining
Agreement (CBA).
The
records
reveal
that
these
benefits/entitlements have not been
subjects of any express agreement
between the union and the company, and
have not yet been incorporated in the
CBA.
NO FIXED AMOUNT. The Christmas
parties and its incidental benefits, and the
giving of cash incentive together with the
service award cannot be said to have fixed
amounts. What is clear from the records is
that over the years, there had been a
downtrend in the amount given as service
award.
NOT A LONG PRACTICE. Also, the grant of
these two aforementioned bonuses cannot
be considered to have been the private
respondents long and regular practice. To
be considered a regular practice, the
giving of the bonus should have been
done over a long period of time, and must
be shown to have been consistent and

TSPIC is engaged in the business of

designing, manufacturing, and marketing
integrated
circuits
to
serve
the
communication,
automotive,
data
processing, and aerospace industries.
Respondent TSPIC Employees Union (FFW)
(Union), on the other hand, is the
registered bargaining agent of the rankand-file
employees
of
TSPIC.
The
respondents are all mems of the Union.
In 1999, TSPIC and the Union entered into
a Collective Bargaining Agreement (CBA)
[8]
for the years 2000 to 2004. The CBA
included a provision on yearly salary
increases starting January 2000 until
January 2002.
Consequently, on January 1, 2000, all the
regular rank-and-file employees of TSPIC
received a 10% increase in their salary.
Accordingly, the following nine (9)
respondents (first group) who were
already regular employees received the
said increase in their salary. The CBA also
provided that employees who acquire
regular employment status within the year
but after the effectivity of a particular
salary
increase
shall
receive
a
proportionate part of the increase upon
attainment of their regular status
NEW WAGE ORDER. Then on October 6,
2000, the Regional Tripartite Wage and
Productivity
Board,
National
Capital
Region, issued Wage Order No. NCR08[10] (WO No. 8) which raised the daily
minimum wage from PhP 223.50 to
PhP 250 effective November 1, 2000.

In January 2001, TSPIC implemented the

new wage rates as mandated by the CBA.
As a result, the nine employees (first
group), who were senior to the abovelisted recently regularized employees,
received less wages.
On January 19, 2001, a few weeks after
the salary increase for the year 2001
became
effective,
TSPICs
Human
Resources
Department
notified
24
employees.
that due to an error in the automated
payroll system, they were overpaid and
the overpayment would be deducted from
their salaries in a staggered basis, starting
February 2001. TSPIC explained that the
correction of the erroneous computation
was based on the crediting provision of
Sec. 1, Art. X of the CBA.
UNION: The Union, on the other hand,
asserted that there was no error and the
deduction of the alleged overpayment
from employees constituted diminution of
pay. The issue was brought to the
grievance machinery, but TSPIC and
the Union failed
to
reach
an
agreement.
VOLUNTARY ARBITRATION: W/N the acts of
the mgt of making deductions from the
salary of the employee constituted
diminution of pay.
Voluntary Arbitrator: There was violation of
Art. 100
CA: Affirmed in too
ISSUE: Does the TSPICs decision to deduct
the alleged overpayment from the salaries
of
the
affected
members
of
the Union constitute diminution of benefits
in violation of the Labor Code?
HELD:
It is familiar and fundamental doctrine in
labor law that the CBA is the law between
the parties and they are obliged to comply
with its provision
A collective bargaining agreement or CBA
refers to the negotiated contract between
a legitimate labor organization and the
employer concerning wages, hours of work
and all other terms and conditions of
employment in a bargaining unit.

Diminution of benefits
TSPIC also maintains that charging the
overpayments
made
to
the
16
respondents
through
staggered
deductions from their salaries does not
constitute diminution of benefits.
We agree with TSPIC.
Diminution
of
benefits
is
the
unilateral
withdrawal
by
the
employer of benefits already enjoyed
by the employees. There is diminution
of benefits when it is shown that:
(1) the grant or benefit is founded on a
policy or has ripened into a practice over a
long period;
(2) the practice is consistent and
deliberate;
(3) the practice is not due to error in the
construction or application of a doubtful or
difficult question of law; and
(4) the diminution or discontinuance is
done unilaterally by the ER.
IN THE CASE AT BAR: As correctly
pointed out by TSPIC, the overpayment of
its employees was a result of an error. This
error was immediately rectified by TSPIC
upon its discovery. We have ruled before
that an erroneously granted benefit may
be withdrawn without violating the
prohibition against non-diminution of
benefits.
Here, no vested right accrued to individual
respondents when TSPIC corrected its
error by crediting the salary increase for
the year 2001 against the salary increase
granted under WO No. 8, all in accordance
with the CBA.
Hence, any amount given to the
employees in excess of what they were
entitled to, as computed above, may be
legally deducted by TSPIC from the
employees
salaries. It
was
also
compassionate and fair that TSPIC
deducted the overpayment in installments
over a period of 12 months starting from
the date of the initial deduction to lessen
the
burden
on
the
overpaid
employees. TSPIC, in turn, must refund to
individual respondents
any
amount
deducted from their salaries which was in
excess of what TSPIC is legally allowed to

deduct from the salaries based on the

computations discussed in this Decision.
RULING: AFFIRMED W/ MODIFICATIONS
LEPANTO
CERAMICS
v
LEPANTO
CERAMICS EMPLOYEES ASSOCIATION
FACTS:
Petitioner Lepanto Ceramics business is
primarily to manufacture, make, buy and
sell, on wholesale basis, among others,
tiles, marbles,
mosaics and other similar products.

alleging the violation of the CBA. The case

was
placed
under
preventive
mediation. The efforts to conciliate failed.
In support of its claim, respondent
Association insisted that it has been the
traditional practice of the company to
grant its members Christmas bonuses
during the end of the calendar year, each
in the amount of P3,000.00 as an
expression of gratitude to the employees
for their participation in the companys
continued existence in the market.
VOLUNTARY ARBITRATOR: bound to grant
each worker Christmas bonus of P3K

Respondent Lepanto Ceramics Employees

Association (respondent Association) is a
legitimate
labor
organization
duly
registered with the Department of Labor
and Employment. It is the sole and
exclusive
bargaining
agent
in
the
establishment of petitioner.

CA: Affirmed in toto

In Dec., Lepanto gave P3,000 bonus to its

employees.

Upheld the rulings of voluntary arbitrator

and the CA.

Subsequently, in
September
1999,
petitioner and respondent Association
entered into a Collective Bargaining
Agreement (CBA) which provides for,
among others, the grant of a Christmas
gift package/bonus to the members of the
respondent Association.

By definition, a bonus is a gratuity or act

of liberality of the giver. It is something
given in addition to what is ordinarily
received by or strictly due the recipient. A
bonus is granted and paid to an employee
for his industry and loyalty which
contributed to the success of the
employers business and made possible
the realization of profits

In the succeeding years, 1999, 2000 and

2001, the bonus was not in cash. Instead,
petitioner gave each of the members of
respondent Association Tile Redemption
Certificates equivalent to P3,000.00.
The bonus for the year 2002 is the root of
the present dispute. Petitioner gave a
year-end cash benefit of Six Hundred
Pesos (P600.00) and offered a cash
advance
to
interested
employees
equivalent to one (1) month salary
payable in one year. [10] The respondent
Association objected to the P600.00 cash
benefit and argued that this was in
violation of the CBA it executed with the
petitioner.
PARTIES FAILED TO SETTLE DISPUTE. The
respondent Association filed a Notice of
Strike with the National Conciliation
Mediation Board, Regional Branch No. IV,

ISSUE: W/N the company is obliged to give

the mems of the respondent association a
Christmas bonus
HELD:

BONUS AS PART OF CBA; LEGALLY

DEMANDABLE. Generally, a bonus is not a
demandable and enforceable obligation.
For a bonus to be enforceable, it must
have been promised by the employer and
expressly agreed upon by the parties.
[21]
Given that the bonus in this case
is integrated in the CBA, the same
partakes the nature of a demandable
obligation. Verily, by virtue of its
incorporation in the CBA, the Christmas
bonus due to respondent Association has
become more than just an act of
generosity on the part of the
petitioner
but
a
contractual
obligation it has undertaken
A reading of the provision of the
CBA reveals that the same provides for the
giving of a Christmas gift package/bonus

without qualification. Terse and clear, the

said provision did not state that the
Christmas package shall be made to
depend on the petitioners financial
standing. The records are also bereft of
any showing that the petitioner made it
clear during CBA negotiations that the
bonus was dependent on any condition.
Indeed, if the petitioner and respondent
Association intended that theP3,000.00
bonus would be dependent on the
company earnings, such intention should
have been expressed in the CBA.
ON FINANCIAL CRISIS. Despite the Asian
Financial Crisis in 1998-1999, petitioner
CANNOT insist business losses as basis
for disregarding its undertaking. In 1998,
petitioner suffered net loss of more than
P14M and yet it gave a P3000 bonus to
the mems of the respondent assocn.
Also, in 2000- 2001 despite negative FS,
still it managed to give employees the
said bonus.
All given, business losses are a feeble
ground for petitioner to repudiate its
obligation under the CBA. The rule is
settled that any benefit and supplement
being enjoyed by the employees cannot
be reduced, diminished, discontinued or
eliminated by the employer. The principle
of non-diminution of benefits is founded
on the constitutional mandate to protect
the rights of workers and to promote their
welfare and to afford labor full protection.
RULING: PETITION DENIED.
EASTERN TELECON PHILS. v EASTERN
TELECOMS EMPLOYEES UNION
FACTS:
Eastern Telecommunications Phils., Inc.
(ETPI) is a corporation engaged in the
business of providing telecommunications
facilities, particularly leasing international
date lines or circuits, regular landlines,
internet and data services, employing
approximately 400 employees.
Eastern Telecoms Employees Union (ETEU)
is the certified exclusive bargaining agent
of the companys rank and file employees
with a strong following of 147 regular
members. It has an existing collecti[ve]
bargaining agreement with the company

to expire in the year 2004 with a Side

Agreement signed on September 3, 2001.
LABOR DISPUTE. In essence, the labor
dispute was a spin-off of the companys
plan to defer payment of the 2003
14th, 15th and 16th month bonuses
sometime in April 2004. The companys
main ground in postponing the payment of
bonuses is due to allege continuing
deterioration
of
companys
financial
position which started in the year 2000.
However, ETPI while postponing payment
of bonuses sometime in April 2004, such
payment would also be subject to
availability of funds.
Invoking the Side Agreement of the
existing Collective Bargaining Agreement
for the period 2001-2004 between ETPI
and ETEU which stated as follows:
4. Employment Related Bonuses. The
Company confirms that the 14th, 15thand
16th month
bonuses
(other
than
13th month pay) are granted.
COMPLAINT. The union strongly opposed
the deferment in payment of the bonuses
by filing a preventive mediation complaint
with the NCMB on July 3, 2003, the
purpose of which complaint is to
determine the date when the bonus
should be paid.
Thus, on April 26, 2004, ETEU filed a
Notice of Strike on the ground of unfair
labor practice for failure of ETPI to pay the
bonuses in gross violation of the economic
provision of the existing CBA.
In its position paper,[5] the Eastern
Telecoms Employees Union (ETEU) claimed
that
Eastern
Telecommunications
Philippines, Inc. (ETPI) had consistently
and voluntarily been giving out 14thmonth
bonus during the month of April, and
15th and
16th month
bonuses
every
December
of
each
year(subject
bonuses) to its employees from 1975 to
2002, even when it did not realize any net
profits.
ETEU posited that by reason of its long
and regular concession, the payment of
these monetary benefits had ripened into

a company practice which could no longer

be unilaterally withdrawn by ETPI.
NLRC: Complaint of union dismissed; ER
cannot be forced to pay the Union mems
the 14th, 15th, and 16th month bonuses for
the year of 2014 since it was basically a
mgt prerog.
CA: declared that the Side Agreements
of the 1998 and 2001 CBA created a
contractual obligation on ETPI to
confer the subject bonuses to its
employees without qualification or
condition. It also found that the grant of
said bonuses has already ripened into a
company practice and their denial would
amount to diminution of the employees
benefits.
ISSUE: Whether or not petitioner ETPI is
liable to pay 14th, 15th and 16th month
bonuses for the year 2003 and 14th month
bonus for the year 2004 to the members
of respondent union
HELD:
No merit in the petition.
The consequential question that
needs to be settled, therefore, is whether
the subject bonuses are demandable or
not. Stated differently, can these bonuses
be considered part of the wage, salary or
compensation making them enforceable
obligations?
The Court believes so.
In the case at bench, it is indubitable that
ETPI and ETEU agreed on the inclusion of a
provision for the grant of 14 th, 15th and
16th month bonuses in the 1998-2001 CBA
Side Agreement,[16] as well as in the 20012004.
SIDE AGREEMENT W/O CONDITION OR
QUAL. A reading of the above provision
reveals that the same provides for the
giving
of 14th,
15th and
16th month
bonuses without qualification. The wording
of the provision does not allow any other
interpretation. There were no conditions
specified in the CBA Side Agreements for
the grant of the benefits contrary to the
claim of ETPI that the same is justified
only when there are profits earned by the
company. Terse and clear, the said

provision does not state that the subject

bonuses shall be made to depend on
the ETPIs financial standing or that
their payment was contingent upon
the realization of profits.
From the foregoing, ETPI cannot insist on
business losses as a basis for disregarding
its undertaking. It is manifestly clear that
although it incurred business losses of
149,068,063.00 in the year 2000, it
continued to distribute 14th, 15th and
16th month
bonuses
for
said
year.
Notwithstanding
such
huge
losses,
ETPI entered into the 2001-2004 CBA Side
Agreement
on September
3,
2001 whereby it contracted to grant the
subject bonuses to ETEU in no uncertain
terms. ETPI continued to sustain losses for
the succeeding years of 2001 and 2002 in
the amounts of 348,783,013.00 and
315,474,444.00, respectively. Still and
all, this did not deter it from honoring the
bonus provision in the Side Agreement as
it continued to give the subject bonuses to
each of the union members in 2001 and
2002 despite its alleged precarious
financial condition.
RULING: PETITION DENIED.
CONTRACTOR/SUBCON CASES
GSIS v NLRC
FACTS:
Respondents Dionisio Banlasan, Alfredo T.
Tafalla, Telesforo D. Rubia, Rogelio A.
Alvarez, Dominador A. Escobal, and
Rosauro Panis were employed as security
guards by DNL Security Agency (DNL
Security). By virtue of the service
contract entered into by DNL Security
and petitioner Government Service
Insurance System on May 1, 1978,
respondents
were
assigned
to
petitioners Tacloban Cityoffice,
each
receiving a monthly income of P1,400.00.
Sometime
in
July
1989,
petitioner
voluntarily increased respondents monthly
salary to P3,000.00.
Security informed respondents that its
service contract with petitioner was
terminated. This notwithstanding, DNL
Security
instructed
respondents
to
continue reporting for work to petitioner.

Respondents worked as instructed

until April 20, 1993, but without
receiving their wages; after which,
they
were
terminated
from
employment.
COMPLAINT. Against DNL Security and
petitioner for illegal dismissal, separation
pay, salaray differential,
13th month
pay,etc.
LA: Against DNL and petitioner; ordered
sep pay but NOT illegally dismissed
ISSUE: W/N CA erred in making petitioner
liable solidarily w/ DNL
HELD:
Partly granted.
We need not discuss DNL Securitys
responsibility
as
respondents
direct
employer because DNL Securitys failure
to interpose an appeal from the LA
decision has resulted in the finality of the
LA decision. The only issue that we should
resolve is the matter of petitioners liability
as indirect employer.
NOTE: The fact that there is no actual
and direct employer-employee relationship
between petitioner and respondents does
NOT absolve the former from liability
for the latters monetary claims. When
petitioner
contracted DNL
Securitys
services, petitioner became an indirect
employer of respondents, pursuant to
Article 107 of the Labor Code,
SOLIDARY LIAB. After DNL Security failed
to pay respondents the correct wages and
other monetary benefits, petitioner, as
principal, became jointly and severally
liable, as provided in Articles 106 and 109
of the Labor Code.
RATIONALE. This statutory scheme is
designed to give the workers ample
protection, consonant with labor and
social justice provisions of the 1987
Constitution.
PETITIONERS LIAB. Covers the payment of
respondents
salary
differential
and
13th month pay during the time they
worked
for
petitioner.
In
addition,
petitioner is solidarily liable with DNL
Security
for
respondents
unpaid

wages from February 1993 until April 20,

1993. While it is true that respondents
continued working for petitioner after the
expiration of their contract, based on the
instruction of DNL Security, petitioner did
not object to such assignment and allowed
respondents to render service. Thus,
petitioner impliedly approved the
extension of respondents services.
COVERAGE OF LIABILITY. Petitioner
cannot be allowed to deny its obligation to
respondents after it had benefited from
their services. So long as the work, task,
job, or project has been performed for
petitioners benefit or on its behalf, the
liability accrues for such services.[21] The
principal is made liable to its indirect
employees because, after all, it can
protect
itself
from
irresponsible
contractors by withholding payment
of such sums that are due the
employees
and
by
paying
the
employees directly, or by requiring a
bond
from
the
contractor
or
subcontractor for this purpose.
NOT TO PAYMT OF SEPARATION PAY. An
order to pay separation pay is invested
with a punitive character, such that an
indirect employer should not be made
liable without a finding that it had
conspired in the illegal dismissal of the
employees.
PETITIONER
has
the
reimbursement against DNL

right

of

RULING: AFFIRMED W/ MODIF.

ALIVIADO v PROCTER AND GAMBLE
FACTS:
Labor laws expressly prohibit labor-only
contracting. To prevent its circumvention, the
Labor
Code establishes
an
employeremployee relationship between the employer
and the employees of the labor-only
contractor.
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
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 PrommGem or SAPS.
COMPLAINT. against P&G for regularization,
service incentive leave pay and other benefits
with damages. The complaint was later
amended[11] to include the matter of their
subsequent dismissal.
ISSUE: whether P&G is the employer of
petitioners
HELD:
Petition has merit.
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.
Rule VIII-A, Book III of the Omnibus Rules
Implementing the Labor Code:
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.
Section 5. Prohibition against labor-only
contracting. Labor-only contracting is hereby
declared prohibited. For this purpose, laboronly 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.

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.
On the other hand, the Articles of
Incorporation of SAPS shows that it has a
paid-in capital of onlyP31,250.00. 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 labor-only contractor
NOTE: Where labor-only contracting exists,
the Labor Code itself establishes an employeremployee relationship between the employer
and the employees of the labor-only
contractor
In the Decision, the SC ruled that (a) that
Promm-Gem, Inc. (Promm-Gem) is a
legitimate independent contractor; (b) that
Sales and Promotions Services (SAPS) is a
labor-only
contractor
consequently
its
employees are considered employees of
Procter & Gamble Phils., Inc. (P&G); (c) that
Promm-Gem is guilty of illegal dismissal; (d)
that SAPS/P&G is likewise guilty of illegal
dismissal; (e) that petitioners are entitled to
reinstatement; and (f) that the dismissed
employees of SAPS/P&G are entitled to moral
damages and attorneys fees there being bad
faith in their dismissal.
RESOLUTION
Procter and Gamble filed an MR.
The March 9, 2010 Decision has attained
finality; it is therefore immutable. Thus a
2nd MR is a PROHIBITED pleading.
The Court correctly determined that
SAPS is a labor-only contractor. There is
no basis for P&G's claim that the Court erred
in not applying the four-fold test, particularly
the control test in determining whether SAPS
is a legitimate independent contractor or a
labor-only contractor. As discussed in our
March 9, 2010 Decision, the applicable rules
are Article 106 of the Labor Code and Rule

VIII-A, Book III of the Omnibus Rules

Implementing the Labor Code, as amended
by Department Order No. 18-02.[26]
Therefore, the control test is merely one of the
factors to consider. This is clearly deduced
from the above-provision which states that
labor-only contracting exists when any of the
two elements is present. In our March 9, 2010
Decision, it was established that SAPS has no
substantial
capitalization
and
it was
performing merchandising and promotional
activities which are directly related to P&G's
business. Since SAPS met one of the
requirements, it was enough basis for us to
hold that it is a labor-only contractor.
Consequently, its principal, P&G, is considered
the employer of its employee.
JUSTIFICATION FOR LACK OF SUB.CAPITAL.
SAPS having a paid-in capital of
only P31,250 has no substantial capital.
SAPS' lack of substantial capital is
underlined by the records which show
that its payroll for its merchandisers
alone for one month would already
total P44,561.00. It
has
6-month
contracts with P&G. 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.
RULING: DENIED W/ FINALITY.
MANDAUE
ANDALES

GALLEON

TRADE

INC

sanders and finishers; sometime in August

1998,
workers
in
the
Finishing
Department were told that they would
be transferred to a contractor and they
were given Visitor Identification Cards (IDs),
while
workers
in
the
Weaving
Department were told to look for work
elsewhere as the company had no work
for them; sometime in September 1998,
workers in the Grinding Department
were not allowed to enter the company
premises, while workers in the Sanding
Department were told that they could no
longer work since there was no work
available; workers who were issued IDs were
allowed to go inside the premises; and they
were dismissed without notice and just cause.
They further alleged that they are regular
employees of MGTI
LA: workers are piece-rate employees of the
ER since they were made to perform functions
necessary to MGTIs rattan furniture mftg
business
NLRC: Affirmed; ER-EE rel exists; It held that
labor-only contracting and not job-contracting
was present since the alleged contractors did
not have substantial capital in the form of
equipment, machineries and work premises.
There was constructive dismissal contrary to
the ruling of LA.
ISSUE: W/N ER-EE rel. exists bet the parties
and w/o any contractor involved
HELD:

FACTS:

Bereft of merit.

Petitioners Mandaue Galleon Trade, Inc. (MGTI)

and Gamallosons Traders,
Inc.[4] (GTI)
are
business entities engaged in rattan furniture
manufacturing for export, with principal place
of business at Cabangcalan, MandaueCity.

Article 106 of the Labor Code explains the

relations which may arise between an
employer, a contractor and the contractors
employees.
The first two paragraphs of Article 106 set the
general rule that a principal is permitted by law
to engage the services of a contractor for the
performance of a particular job, but the
principal,
nevertheless,
becomes solidarilyliable with the contractor for
the wages of the contractors employees. The
third paragraph of Article 106, however,
empowers the Secretary of Labor to make
distinctions
between
permissible
job
contracting and labor-only contracting, which is
a prohibited act further defined under the last
paragraph. A finding that a contractor is a

COMPLAINT.
Respondent
Vicente Andales[5] (Andales) filed a complaint
with the Labor Arbiter (LA) against both
petitioners for illegal dismissal and nonpayment of 13th month pay and service
incentive leave pay. His other co-workers
numbering 260 filed a similar complaint
against petitioner MGTI only.
The complainants alleged that MGTI hired
them on various dates as weavers, grinders,

labor-only contractor is equivalent to declaring

that
there
is
an
employer-employee
relationship between the principal and the
employees of the supposed contractor, and the
labor-only contractor is considered as a mere
agent of the principal, the real employer.
NO BASIS. In the present case, petitioners
claim that their contractors are independent
contractors, and, therefore, this case is one of
permissible job contracting, is without basis.
First, respondents work as weavers, grinders,
sanders and finishers is directly related
to MGTI's principal business of rattan furniture
manufacturing. Where the employees are
tasked to undertake activities usually
desirable or necessary in the usual
business of the employer, the contractor
is considered as a labor-only contractor
and such employees are considered as
regular employees of ER.
Second, MGTI was unable to present any
proof that its contractors had substantial
capital.
There
was
no
evidence
pertaining
to
the
contractors'
capitalization; nor to their investment in
tools, equipment or implements actually used
in the performance or completion of the job,
work, or service that they were contracted to
render. The law casts the burden on the
contractor to prove that it has substantial
capital, investment, tools, etc. Employees, on
the other hand, need not prove that the
contractor does not have substantial capital,
investment, and tools to engage in jobcontracting.
Thus, the contractors are labor-only contractors
since they do not have substantial capital or
investment which relates to the service
performed and respondents performed
activities which were directly related
to MGTI'smain business.
SOLIIDARY LIAB. MGTI, the principal
employer, is solidarily liable with the laboronly contractors, for the rightful claims of the
employees. Under
this
set-up, laboronly contractors are deemed agents of the
principal, MGTI, and the law makes the
principal responsible to the employees of
the labor-only contractor as if the principal
itself directly hired or employed the
employees.
RULING: PETITION DENIED.

SPIC N SPAN v PAJE

FACTS:
Swift Foods, Inc. (Swift) is a subsidiary of
RFM Corporation that manufactures and
processes meat products and other food
products. SNSs business is to supply
manpower services to its clients for a
fee.Swift and SNS have a contract to
promote Swift products.
Paje, among others, worked as Deli/Promo
Girls of Swift products in various
supermarkets in Tarlac and Pampanga.
COMPLAINT. They were all dismissed from
their employment on February 28,
1998. They filed two complaints for illegal
dismissal against SNS and Swift before the
National Labor Relations Commission
(NLRC).
LA: found SNS to be the agent of Swift;
solidarily liable
NLRC: dismissed appeal for lack of merit
ISSUE: W/N SNS is solidarily liable
HELD:
Petition unmeritorious.
In order that a labor relationship can be
categorized as legitimate/permissible job
contracting or as prohibited labor-only
contracting, the totality of the facts and
the surrounding circumstances of the
relationship ought to be considered.
In permissible job contracting, the
principal agrees to put out or farm out
with a contractor or subcontractor the
performance or completion of a specific
job, work or service within a definite or
predetermined period,
regardless of
whether such job, work or service is to be
performed or completed within or outside
the premises of the principal.
TEST:
The test is whether the
independent contractor has contracted to
do the work according to his own methods
and without being subject to the principals
control except only as to the results, he

has substantial capital, and he has

assured
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

application with respondent school, that

they were under MBMSI, a corporation
engaged
in
providing
janitorial
services to clients. Atty. Seril is also
the President and General Manager
of MBMSI.

REQUISITES OF LEGITIMATE JOBCONTRACTING:

1) 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
manners and methods, 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;

PCCr discovered that the Certificate of

Incorporation of MBMSI had been
revoked as of July 2, 2003. On March
16, 2009, PCCr, through its President,
respondent Gregory Alan F. Bautista
(Bautista),
citing
the
revocation,
terminated the schools relationship
with MBMSI, resulting in the dismissal
of the employees or maintenance
personnel
under
MBMSI,
except
Alfonso Bongot (Bongot) who was
retired.

2) the contractor or subcontractor has

substantial capital or investment; and

COMPLAINT. The dismissed employees, led

by their supervisor, Benigno Vigilla
(Vigilla), filed their respective complaints
for illegal dismissal, reinstatement, back
wages, separation pay (for Bongot),
underpayment of salaries, overtime pay,
holiday pay, service incentive leave, and
13th month pay against MBMSI, Atty. Seril,
PCCr, and Bautista.

3) 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 right to
self-organization, security of tenure, and
social and welfare benefit
Moreover, as found by the Labor Arbiter,
there was no evidence that SNS has
substantial capital or investment.
In view of the foregoing, we conclude that
the requisites above-mentioned are not
obtaining in the present case. Hence, SNS
is considered merely an agent of Swift
which does not exempt the latter from
liability.
RULING: CA DECISION AFFIRMED.
VIGILLA v PCCI (PHIL. COLLEGE OF
CRIMINOLOGY, INC.)
FACTS:
PCCr is a non-stock educational institution,
while the petitioners were janitors,
janitresses
and
supervisor
in
the
Maintenance Department of PCCr under
the supervision and control of Atty.
Florante A. Seril (Atty. Seril), PCCrs
Senior
Vice
President
for
Administration.
The
petitioners,
however, were made to understand, upon

CONTENTION: they alleged that it was

the school, not MBMSI, which was their
real employer because (a) MBMSIs
certification had been revoked; (b) PCCr
had
direct
control
over
MBMSIs
operations; (c) there was no contract
between MBMSI and PCCr; and (d) the
selection and hiring of employees were
undertaken by PCCr.
LA: (a) PCCr was the real principal
employer of the complainants ; (b) MBMSI
was a mere adjunct or alter ego/labor-only
contractor; (c) the complainants were
regular employees of PCCr; and (d)
PCCr/Bautista were in bad faith in
dismissing the complainants.
NLRC: Affirmed; respondent MBMSI and
Atty.Seril are found to be labor only
contractor.
CA: Affirmed but absolved respondent
from their liability due to respective
releases, waivers and quitclaims in favor
of MBMSI and Atty. Seril redounded to the
benefit of the respondents.

Hence this petition.

ISSUE: whether or not their claims against
the respondents were amicably settled by
virtue of the releases, waivers and
quitclaims which they had executed in
favor of MBMSI.
HELD:
We
noted
that
the
individual
quitclaims, waivers and releases
executed
by
the
complainants
showing that they received their
separation pay from MBMSI were duly
notarized by a Notary Public. Such
notarization gives prima facie evidence
of their due execution. Further, said
releases, waivers, and quitclaims were not
refuted nor disputed by complainants
herein, thus, we have no recourse but to
uphold their due execution.
As correctly found by the CA: "petitioners
have not offered concrete proof to
substantiate their claim of forgery.
Allegations are not evidence.
THEY WERE PAID SEPARATION PAY. On the
contrary, the records confirm that
petitioners
were
really
paid
their
separation pay and had executed releases,
waivers and quitclaims in return.
The executed releases, waivers and
quitclaims
are
valid
and
binding
notwithstanding the revocation of MBMSIs
Certificate of Incorporation. The revocation
does NOT result in the termination of its
liabilities.
A Labor-only Contractor is Solidarily
Liable with the Employer
The issue of whether there is solidary
liability
between
the
labor-only
contractor and the employer is crucial
in this case. If a labor-only contractor
is solidarily liable with the employer,
then the releases, waivers and
quitclaims in favor of MBMSI will
redound to the benefit of PCCr. On the
other hand, if a labor-only contractor is not
solidarily liable with the employer, the
latter being directly liable, then the
releases, waivers and quitclaims in favor
of MBMSI will not extinguish the liability of
PCCr.

Hence, the said releases, waivers and

quitclaims which they purportedly issued
in favor of MBMSI and Atty. Seril do not
automatically release respondents from
their liability.
Again, the Court disagrees.
The NLRC and the CA correctly ruled
that the releases, waivers and
quitclaims executed by petitioners in
favor of MBMSI redounded to the
benefit of PCCr pursuant to Article
1217 of the New Civil Code. The reason
is that MBMSI is solidarily liable with the
respondents for the valid claims of
petitioners pursuant to Article 109 of the
Labor Code.
Jurisprudence
is
also
replete
with
pronouncements that a job-only contractor
is solidarily liable with the employer. One
of these is the case of Philippine Bank of
Communications v. NLRC
SOLIDARY LIAB. EXT DUE TO PAYMENT
OF SOLIDARY DEBTOR. Considering
that
MBMSI,
as
the
labor-only
contractor, is solidarily liable with the
respondents, as the principal employer,
then the NLRC and the CA correctly held
that the respondents solidary liability
was already expunged by virtue of
the releases, waivers and quitclaims
executed by each of the petitioners in
favor of MBMSI pursuant to Article 1217
of the Civil Code which provides that
"payment made by one of the solidary
debtors extinguishes the obligation."
In light of these conclusions, the Court
holds that the releases, waivers and
quitclaims executed by petitioners in favor
of MBMSI redounded to the respondents'
benefit. The liabilities of the respondents
to
petitioners
are
now
deemed
extinguished. The Court cannot allow
petitioners to reap the benefits given to
them by MBMSI in exchange for the
releases, waivers and quitclaims and,
again, claim the same benefits from PCCr.

RULING: PETITION DENIED.

BABAS v LORENZO SHIPPING CORP.

FACTS:
Respondent Lorenzo Shipping Corporation
(LSC) is a duly organized domestic
corporation engaged in the shipping
industry; it owns several equipment
necessary for its business. On September
29, 1997, LSC entered into a General
Equipment Maintenance Repair and
Management Services Agreement[3]
(Agreement) with Best Manpower
Services,
Inc.
(BMSI). Under
the Agreement, BMSI undertook to provide
maintenance and repair services to LSCs
container vans, heavy equipment, trailer
chassis,
and
generator
sets. BMSI
further
undertook
to
provide
checkers to inspect all containers
received
for
loading
to
and/or
unloading from its vessels.

petitioners who were willing to accept

reassignment. BMSI denied petitioners
claim for underpayment of wages and
non-payment of 13th month pay and other
benefits.
LA: Dismissed petitioners complaint.
Petitioners were EEs of BMSI; It was BMSI
which hired petitioners, paid their wages,
and exercised control over them.
APPEAL: Petitioners appealed to the
National Labor Relations Commission
(NLRC), arguing that BMSI was engaged in
labor-only contracting. They insisted that
their employer was LSC.
NLRC: Petition GRANTED; BMSI
engaged in leg. job contracting.

NOT

LSC went to CA via certiorari. BMSI was an

independent contractor
CA: Reversed; the CA relied on the
provisions of the Agreement, wherein
BMSI warranted that it is an independent
contractor,
with
adequate
capital,
expertise, knowledge, equipment, and
personnel necessary for the services
rendered to LS.
HELD:

LEASE. LSC leased its equipment, tools,

and tractors to BMSI.[4] The period of lease
was coterminous with the Agreement.
BMSI then hired petitioners on
various dates to work at LSC as
checkers, welders, utility men, clerks,
forklift operators, motor pool and
machine shop workers, technicians,
trailer drivers, and mechanics. Six
years later, or on May 1, 2003, LSC
entered into another contract with BMSI,
this time, a service contract.
COMPLAINT. Petitioners filed with the
Labor Arbiter (LA) a complaint for
regularization against LSC and BMSI. On
October
1,
2003,
LSC
terminated
the Agreement, effective October 31,
2003.Consequently, petitioners lost their
employment.
BMSI asserted that it is an independent
contractor. It averred that it was willing to
regularize petitioners; however, some of
them lacked the requisite qualifications for
the job. BMSI was willing to reassign

Thus, in distinguishing between prohibited

labor-only contracting and permissible job
contracting, the totality of the facts and
the surrounding circumstances of the case
are to be considered.
Labor-only contracting, a prohibited act, is
an arrangement where the contractor or
subcontractor merely recruits, supplies, or
places workers to perform a job, work, or
service for a principal. In labor-only
contracting, the following elements are
present: (a)
the
contractor
or
subcontractor does not have substantial
capital or investment to actually perform
the job, work, or service under its own
account and responsibility; and (b) the
employees recruited, supplied, or placed
by such contractor or subcontractor
perform activities which are directly
related to the main business of the
principal.
REQUISITES. A person is considered
engaged in legitimate job contracting or

subcontracting if the following conditions

concur:
(a) The contractor carries on a distinct and
independent business and undertakes the
contract work on his account under his
own responsibility according to his own
manner and method, free from the control
and direction of his employer or principal
in all matters connected with the
performance of his work except as to the
results thereof;
(b) The contractor has substantial capital
or investment; and
(c) The agreement between the principal
and
the
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 welfare benefits.[22]
Given the above standards, we
sustain the petitioners contention
that BMSI is engaged in labor-only
contracting.
First, petitioners worked at LSCs premises,
and nowhere else. Other than the
provisions of theAgreement, there was
no showing that it was BMSI which
established
petitioners
working
procedure
and
methods,
which
supervised petitioners in their work,
or which evaluated the same. There
was absolute lack of evidence that
BMSI exercised control over them or
their work, except for the fact that
petitioners were hired by BMSI.
Second, LSC was unable to present
proof that BMSI had substantial
capital. The record before us is bereft of
any proof pertaining to the contractors

capitalization, nor to its investment in

tools, equipment, or implements actually
used in the performance or completion of
the job, work, or service that it was
contracted to render. What is clear was
that the equipment used by BMSI
were owned by, and merely rented
from, LSC.
Third, petitioners performed activities
which were directly related to the
main business of LSC. The work of
petitioners as checkers, welders, utility
men, drivers, and mechanics could only be
characterized as part of, or at least clearly
related to, and in the pursuit of, LSCs
business. Logically, when petitioners were
assigned by BMSI to LSC, BMSI acted
merely as a labor-only contractor.
Lastly, as found by the NLRC, BMSI had no
other client except for LSC, and neither
BMSI nor LSC refuted this finding, thereby
bolstering the NLRC finding that BMSI is a
labor-only contractor.
Consequently, the workers that BMSI
supplied
to
LSC
became
regular
employees of the latter.
Having gained regular status, petitioners
were entitled to security of tenure and
could only be dismissed for just or
authorized causes and after they had been
accorded due process.
RULING: PETITION GRANTED.