PROOF OF WAGE PAYMENT

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 116960 April 2, 1996
BERNARDO JIMENEZ and JOSE JIMENEZ, as Operators of JJ's TRUCKING, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, PEDRO JUANATAS and FREDELITO
JUANATAS,respondents.
REGALADO, J.:p
This petition for certiorari seeks the annulment of the decision of respondent National Labor Relations
Commission (NLRC), dated May 27, 1994, as well as its resolution, dated August 8, 1994, denying
petitioners's motion for reconsideration, 1 which assailed decision affirmed with modifications the adverse
decision of the labor arbiter against herein petitioners.
On June 29, 1990, herein private respondent Pedro and Fredelito Juanatas, father and son, filed a claim for
unpaid wages/commissions, separation pay and damages against JJ's Trucking and/or Dr. Bernardo Jimenez.
Said respondents, as complainants therein, alleged that in December, 1987, they were hired by herein
petitioner Bernardo Jimenez as driver/mechanic and helper, respectively, in his trucking firm, JJ Trucking.
They were assigned to a ten-wheeler truck to haul soft drinks of Coca-Cola Bottling Company and paid on
commission basis, initially fixed at 17% but later increased to 20% in 1988.
Private respondents further alleged that for the years 1988 and 1989 they received only a partial
commission of P84,000.00 from petitioners' total gross income of almost P1,000,000.00 for the said two
years. Consequently, with their commission for that period being computed at 20% of said income, there
was an unpaid balance to them of P106,211.86; that until March, 1990 when their services were illegally
terminated, they were further entitled to P15,050.309 which, excluding the partial payment of P7,000.00,
added up to a grand total of P114,261.86 due and payable to them; and that petitioners' refusal to pay
their aforestated commission was a ploy to unjustly terminate them.
Disputing the complaint, petitioners contend that respondent Fredelito Juanatas was not an employee of
the firm but was merely a helper of his father Pedro; that all commissions for 1988 and 1989, as well as
those up to March, 1990, were duly paid; and that the truck driven by respondent Pedro Juanatas was sold
to one Winston Flores in 1991 and, therefore, private respondents were not illegally dismissed. 2
After hearings duly conducted, and with the submission of the parties' position/supporting papers, Labor
Arbiter Rogue B. de Guzman rendered a decision dated March 9, 1993, with this decretal portion:
WHEREFORE, decision is hereby issued ordering respondents JJ's Trucking and/or Dr.
Bernardo Jimenez to pay jointly and severally complainant Pedro Juanatas a separation pay
of FIFTEEN THOUSAND FIFTY (P15,050.00) PESOS, plus attorney's fee equivalent to ten
percent (10%) of the award. The complaint of Fredelito Juanatas is hereby dismissed for lack
of merit. 3
On appeal filed by private respondents, the NLRC modified the decision of the labor arbiter and disposed
as follows:
PREMISES CONSIDERED, the Decision of March 9, 1993 is hereby MODIFIED, to wit:
1. Complainant Fredelito Juanatas is hereby declared respondents' employee and shares in
(the) commission and separation pay awarded to complainant Pedro Juanatas, his father.
2. Respondent JJ's Trucking and Dr. Bernardo Jimenez are jointly and severally liable to pay
complainants their unpaid commissions in the total amount of Eighty Four Thousand Three
Hundred Eighty Seven Pesos and 05/100 (P84,387.05).
3. The award of attorney's fees is reduced accordingly to eight thousand four hundred thirty
eight pesos and 70/100 (P8,438.70).
4. The other findings stand affirmed. 4
Petitioners' motion for reconsideration having been denied thereafter in public respondent's resolution
dated August 8, 1994, 5 petitioners have come to us in this recourse, raising for resolution the issues as to
whether or not respondent NLRC committed grave abuse of discretion in ruling (a) that private respondents

were not paid their commissions in full, and (b) that respondent Fredelito Juanatas was an employee of JJ's
Trucking.
The review of labor cases elevated to us on certiorari is confined to questions of jurisdiction or grave abuse
of discretion. 6 As a rule, this Court does not review supposed errors in the decision of the NLRC which raise
factual issues, because factual findings of agencies exercising quasi-judicial functions are accorded not
only respect but even finality, 7aside from the consideration that the Court is essentially not a trier of facts.
However, in the case at bar, a review of the records thereof with an assessment of the facts is necessary
since the factual findings of the NLRC and the labor arbiter are at odds with each other. 8
On the first issue, we find no reason to disturb the findings of respondent NLRC that the entire amount of
commissions was not paid, this by reason of the evident failure of herein petitioners to present evidence
that fullpayment thereof has been made. It is a basic rule in evidence that each party must prove his
affirmative allegation. Since the burden of evidence lies with the party who asserts an affirmative
allegation, the plaintiff or complainant has to prove his affirmative allegations in the complaint and the
defendant or respondent has to prove the affirmative allegations in his affirmative defenses and
counterclaim. Considering that petitioners herein assert that the disputed commissions have been paid,
they have the bounden duty to prove that fact.
As a general rule, one who pleads payment has the burden of proving it. 9 Even where the plaintiff must
allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather
than on the plaintiff to prove non-payment. 10 The debtor has the burden of showing with legal certainty
that the obligation has been discharged by payment. 11
When the existence of a debt is fully established by the evidence contained in the record, the burden of
proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to
the claim of the creditor. 12 Where the debtor introduces some evidence of payment, the burden of going
forward with the evidence as distinct from the general burden of proof shifts to the creditor, who is
then under a duty of producing some evidence to show non-payment. 13
In the instant case, the right of respondent Pedro Juanatas to be paid a commission equivalent to 17%,
later increased to 20%, of the gross income is not disputed by petitioners. Although private respondents
admit receipt of partial payment, petitioners still have to present proof of full payment. Where the
defendant sued for a debt admits that the debt was originally owed, and pleads payment in whole or in
part, it is incumbent upon him to prove such payment. That a plaintiff admits that some payments have
been made does not change the burden of proof. The defendant still has the burden of establishing
payments beyond those admitted by plaintiff. 14
The testimony of petitioners which merely denied the claim of private respondents, unsupported by
documentary evidence, is not sufficient to establish payment. Although petitioners submitted a notebook
showing the allegedvales of private respondents for the year 1990, 15 the same is inadmissible and cannot
be given probative value considering that it is not properly accomplished, is undated and unsigned, and is
thus uncertain as to its origin and authenticity. 16
The positive testimony of a creditor may be sufficient of it self to show non-payment, even when met by
indefinite testimony of the debtor. Similarly, the testimony of the debtor may also be sufficient to show
payment, but, where his testimony is contradicted by the other party or by a disinterested witness, the
issue may be determined against the debtor since he has the burden of proof. The testimony of the debtor
creating merely an inference of payment will not be regarded as conclusive on that issue. 17
Hence, for failure to present evidence to prove payment, petitioners defaulted in their defense and in
effect admitted the allegations of private respondents.
With respect to the second issue, however, we agree with petitioners that the NLRC erred in holding that
the son, Fredelito, was an employee of petitioners.
We have consistently ruled that in determining the existence of an employer-employee relationship, the
elements that are generally considered are the following: (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, 18 with the control test assuming primacy in the overall consideration.
In the case at bar, the aforementioned elements are not present. The agreement was between petitioner
JJ's Trucking and respondent Pedro Juanatas. The hiring of a helper was discretionary on the part of Pedro.
Under their contract, should he employ a helper, he would be responsible for the latter's compensation.
With or without a helper, respondent Pedro Juanatas was entitled to the same percentage of commission.
Respondent Fredelito Juanatas was hired by his father, Pedro, and the compensation he received was paid

by his father out of the latter's commission. Further, Fredelito was not subject to the control and
supervision of and dismissal by petitioners but of and by his father.
Even the Solicitor General, in his comment, agreed with the finding of the labor arbiter that Fredelito was
not an employee of petitioners, to wit:
Public respondent committed grave abuse of discretion in holding that said private
respondent is an employee of JJ's Trucking on the ground that, citing Article 281 of the Labor
Code, "Fredelito's functions as helper was (sic) necessary and desirable to respondent's
trucking business".
In the first place, Article 281 of the Labor Code does not refer to the basic factors that must
underlie every existing employer-employee relationship, the absence of any of which will
negate such existence. It refers instead to the qualifications of "(A)n employee who is
allowed to work after a probationary period" and who, as a consequence, "shall be
considered a regular employee." Secondly, the test in determining the existence of an
employee-employer relationship is not the necessity and/or desirability of one's functions in
relation to an employer's business, but "(1) the selection and engagement of the employee;
(2) the payment of wages; (3) the power of dismissal; and (4) the power to control the
employee's conduct. The latter is the most important element" (Singer Sewing Machine
Company vs. Drilon, 193 SCRA 270, 275; Deferia vs. NLRC, 194 SCRA 531, 525; Ecal vs.
NLRC, 224, 228, Hijos De F. Escano, Inc vs. NLRC, 224 SCRA 781, 785). The aforequoted
pertinent findings of the Labor Arbiter indicate (that) the foregoing requirements do not exist
between petitioner and private respondent Fredelito Juanatas. Thus, the labor arbiter stated
that respondent Fredelito Juanatas was never hired by petitioners. Instead the former's
services were availed of by respondent Pedro Juanatas his father, who, at the same time,
supervised and controlled his work and paid his commissions. Respondent NLRC's ruling did
not traverse these findings of the labor arbiter. 19
WHEREFORE, the judgment of respondent National Labor Relations Commission is hereby AFFIRMED, with
the MODIFICATION that paragraph 1 thereof, declaring Fredelito Juanatas an employee of petitioners and
entitled to share in the award for commission and separation pay, is hereby DELETED.
SO ORDERED.
Romero, Puno and Mendoza, JJ., concur.
Torres, Jr., J., is on leave.
ARTICLE 106: LABOR ONLY CONTRACTING
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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. 9These 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, nonintegration of salary adjustments mandated by Wage Orders Nos. 5 & 6 and R.A. 6640 as well as for illegal
deduction 16against 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.
Cruz, Grio-Aquino, Davide, Jr. and Quiason, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 158255
July 8, 2004
MANILA WATER COMPANY, INC., petitioner,
vs.
HERMINIO D. PENA, ESTEBAN B. BALDOZA, JORGE D. CANONIGO, JR., IKE S. DELFIN, RIZALINO
M. INTAL, REY T. MANLEGRO, JOHN L. MARTEJA, MARLON B. MORADA, ALLAN D. ESPINA,
EDUARDO ONG, AGNESIO D. QUEBRAL, EDMUNDO B. VICTA, VICTOR C. ZAFARALLA, EDILBERTO
C. PINGUL and FEDERICO M. RIVERA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition assails the decision1 of the Court of Appeals dated November 29, 2002, in CA-G.R. SP No.
67134, which reversed the decision of the National Labor Relations Commission and reinstated the
decision of the Labor Arbiter with modification.
Petitioner Manila Water Company, Inc. is one of the two private concessionaires contracted by the
Metropolitan Waterworks and Sewerage System (MWSS) to manage the water distribution system in the
East Zone of Metro Manila, pursuant to Republic Act No. 8041, otherwise known as the National Water
Crisis Act of 1995. Under the Concession Agreement, petitioner undertook to absorb former employees of
the MWSS whose names and positions were in the list furnished by the latter, while the employment of
those not in the list was terminated on the day petitioner took over the operation of the East Zone, which
was on August 1, 1997. Private respondents, being contractual collectors of the MWSS, were among the
121 employees not included in the list; nevertheless, petitioner engaged their services without written
contract from August 1, 1997 to August 31, 1997. Thereafter, on September 1, 1997, they signed a threemonth contract to perform collection services for eight branches of petitioner in the East Zone. 2
Before the end of the three-month contract, the 121 collectors incorporated the Association Collectors
Group, Inc. (ACGI),3 which was contracted by petitioner to collect charges for the Balara Branch.
Subsequently, most of the 121 collectors were asked by the petitioner to transfer to the First Classic
Courier Services, a newly registered corporation. Only private respondents herein remained with ACGI.
Petitioner continued to transact with ACGI to do its collection needs until February 8, 1999, when petitioner
terminated its contract with ACGI.4
Private respondents filed a complaint for illegal dismissal and money claims against petitioner, contending
that they were petitioners employees as all the methods and procedures of their collections were
controlled by the latter.
On the other hand, petitioner asserts that private respondents were employees of ACGI, an independent
contractor. It maintained that it had no control and supervision over private respondents manner of
performing their work except as to the results. Thus, petitioner did not have an employer-employee
relationship with the private respondents, but only a service contractor-client relationship with ACGI.
On May 31, 2000, Labor Arbiter Eduardo J. Carpio rendered a decision finding the dismissal of private
respondents illegal. He held that private respondents were regular employees of petitioner not only

because the tasks performed by them were controlled by it but, also, the tasks were obviously necessary
and desirable to petitioners principal business. The dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered, finding that complainants were
employees of respondent [petitioner herein], that they were illegally dismissed, and respondent
[petitioner herein] is hereby ordered to pay their separation pay based on the following computed
amounts:

HERMINIO D. PENA

P15,000.00

ESTEBAN BALDOZA

P12,000.00

JORGE D. CANONIGO, JR.

P16,000.00

IKE S. DELFIN

P12,000.00

RIZALINO M. INTAL

P16,000.00

REY T. MANLEGRO

P16,000.00

JOHN L. MARTEJA

P12,000.00

MARLON B. MORADA

P16,000.00

ALLAN D. ESPINA

P14,000.00

EDUARDO ONG

P15,000.00

AGNESIO D. QUEBRAL

P16,000.00

EDMUNDO B. VICTA

P13,000.00

VICTOR P. ZAFARALLA

P15,000.00

EDILBERTO C. PINGUL

P19,500.00

FEDERICO M. RIVERA

TOTAL

P15,000.00

P222,500.0
0

Respondent [petitioner herein] is further directed to pay ten (10%) percent of the total award as
attorneys fee or the sum of P22,250.00.
SO ORDERED.5
Both parties appealed to the NLRC, which reversed the decision of the Labor Arbiter and ruled that the
documentary evidence, e.g., letters and memoranda by the petitioner to ACGI regarding the poor
performance of the collectors, did not constitute proof of control since these documents merely identified
the erring collectors; the appropriate disciplinary actions were left to the corporation to impose. 6 Further,
there was no evidence showing that the incorporation of ACGI was irregular.
Private respondents filed a petition for certiorari with the Court of Appeals, contending that the NLRC acted
with grave abuse of discretion amounting to lack or excess of jurisdiction when it reversed the decision of
the Labor Arbiter.
The Court of Appeals reversed the decision of the NLRC and reinstated with modification the decision of
the Labor Arbiter.7 It held that petitioner deliberately prevented the creation of an employment relationship
with the private respondents; and that ACGI was not an independent contractor. It likewise denied
petitioners motion for reconsideration.8
Hence, this petition for review raising the following errors:
THE HONORABLE COURT OF APPEALS IN RENDERING THE ASSAILED DECISION AND RESOLUTION
COMMITTED GRAVE REVERSIBLE ERRORS:
A. IN GOING BEYOND ITS JURISDICTION AND PROCEEDING TO GIVE DUE COURSE TO RESPONDENTS
PETITION FOR CERTIORARI UNDER RULE 65 OF THE RULES OF COURT, NOTWITHSTANDING THE
ABSENCE OF ANY PROOF OF GRAVE ABUSE OF DISCRETION ON THE PART OF THE NATIONAL LABOR
RELATIONS COMMISSION WHEN IT RENDERED THE DECISION ASSAILED BY HEREIN RESPONDENTS.
B. WHEN IT MANIFESTLY OVERLOOKED THE EVIDENCE PRESENTED BY THE PETITIONER COMPANY
AND RULING THAT THE PETITIONERS DEFENSE OF LACK OF EMPLOYER-EMPLOYEE RELATIONS IS
WITHOUT MERIT.
C. IN CONCLUDING THAT PETITIONER COMPANY REQUIRED RESPONDENTS TO INCORPORATE THE
ASSOCIATED COLLECTORS GROUP, INC. ["ACGI"] NOTWITHSTANDING ABSENCE OF ANY SPECIFIC
EVIDENCE IN SUPPORT OF THE SAME.
D. IN FINDING PETITIONER COMPANY GUILTY OF BAD FAITH NOTWITHSTANDING ABSENCE OF ANY
SPECIFIC EVIDENCE IN SUPPORT OF THE SAME, AND AWARDING MORAL AND EXEMPLARY DAMAGES
TO HEREIN RESPONDENTS.9
The pivotal issue to be resolved in this petition is whether or not there exists an employer-employee
relationship between petitioner and private respondents. Corollary thereto is the issue of whether or not
private respondents were illegally dismissed by petitioner.
The issue of whether or not an employer-employee relationship exists in a given case is essentially a
question of fact.10 As a rule, the Supreme Court is not a trier of facts, and this applies with greater force in
labor cases. Hence, factual findings of quasi-judicial bodies like the NLRC, particularly when they coincide
with those of the Labor Arbiter and if supported by substantial evidence, are accorded respect and even
finality by this Court.11However, a disharmony between the factual findings of the Labor Arbiter and the
National Labor Relations Commission opens the door to a review thereof by this Court. Factual findings of
administrative agencies are not infallible and will be set aside when they fail the test of arbitrariness.

Moreover, when the findings of the National Labor Relations Commission contradict with those of the labor
arbiter, this Court, in the exercise of its equity jurisdiction, may look into the records of the case and
reexamine the questioned findings.12
The resolution of the foregoing issues initially boils down to a determination of the true status of ACGI, i.e.,
whether it is an independent contractor or a labor-only contractor.
Petitioner asserts that ACGI, a duly organized corporation primarily engaged in collection services, is an
independent contractor which entered into a service contract for the collection of petitioners accounts
starting November 30, 1997 until the early part of February 1999. Thus, it has no employment relationship
with private respondents, being employees of ACGI.
The existence of an employment relationship between petitioner and private respondents cannot be
negated by simply alleging that the latter are employees of ACGI as an independent contractor, it being
crucial that ACGIs status, whether as "labor-only contractor" or "independent contractor", be measured in
terms of and determined by the criteria set by statute.
The case of De los Santos v. NLRC13 succinctly enunciates this statutory criteria
Job contracting is permissible only if the following conditions are met: 1) the contractor carries on
an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the
results thereof; and 2) the contractor has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are necessary in the conduct of
the business.
"Labor-only contracting" as defined in Section 5, Department Order No. 18-02, Rules Implementing Articles
106-109 of the Labor Code14 refers to an arrangement where the contractor or subcontractor merely
recruits, supplies or places workers to perform job, work or service for a principal, and any of the following
elements is 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.
Given the above criteria, we agree with the Labor Arbiter that ACGI was not an independent contractor.
First, ACGI does not have substantial capitalization or investment in the form of tools, equipment,
machineries, work premises, and other materials, to qualify as an independent contractor. While it has an
authorized capital stock of P1,000,000.00, only P62,500.00 is actually paid-in, which cannot be considered
substantial capitalization. The 121 collectors subscribed to four shares each and paid only the amount of
P625.00 in order to comply with the incorporation requirements. 15 Further, private respondents reported
daily to the branch office of the petitioner because ACGI has no office or work premises. In fact, the
corporate address of ACGI was the residence of its president, Mr. Herminio D. Pea. 16 Moreover, in dealing
with the consumers, private respondents used the receipts and identification cards issued by petitioner. 17
Second, the work of the private respondents was directly related to the principal business or operation of
the petitioner. Being in the business of providing water to the consumers in the East Zone, the collection of
the charges therefor by private respondents for the petitioner can only be categorized as clearly related to,
and in the pursuit of the latters business.
Lastly, ACGI did not carry on an independent business or undertake the performance of its service contract
according to its own manner and method, free from the control and supervision of its principal, petitioner.
Prior to private respondents alleged employment with ACGI, they were already working for petitioner,
subject to its rules and regulations in regard to the manner and method of performing their tasks. This
form of control and supervision never changed although they were already under the seeming employ of
ACGI. Petitioner issued memoranda regarding the billing methods and distribution of books to the
collectors;18 it required private respondents to report daily and to remit their collections on the same day to
the branch office or to deposit them with Bank of the Philippine Islands; it monitored strictly their
attendance as when a collector cannot perform his daily collection, he must notify petitioner or the branch
office in the morning of the day that he will be absent; and although it was ACGI which ultimately
disciplined private respondents, the penalty to be imposed was dictated by petitioner as shown in the
letters it sent to ACGI specifying the penalties to be meted on the erring private respondents. 19 These are
indications that ACGI was not left alone in the supervision and control of its alleged employees.
Consequently, it can be concluded that ACGI was not an independent contractor since it did not carry a
distinct business free from the control and supervision of petitioner.
Under this factual milieu, there is no doubt that ACGI was engaged in labor-only contracting, and as such,
is considered merely an agent of the petitioner. In labor-only contracting, the statute creates an employer-

employee 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.20 Since ACGI is only a labor-only contractor, the workers it supplied should be considered as
employees of the petitioner.
Even the "four-fold test" will show that petitioner is the employer of private respondents. 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 employers power to control
the employees conduct. The most important element is the employers control of the employees conduct,
not only as to the result of the work to be done, but also as to the means and methods to accomplish it. 21
We agree with the Labor Arbiter that in the three stages of private respondents services with the
petitioner, i.e., (1) from August 1, 1997 to August 31, 1997; (2) from September 1, 1997 to November 30,
1997; and (3) from December 1, 1997 to February 8, 1999, the latter exercised control and supervision
over the formers conduct.
Petitioner contends that the employment of private respondents from August 1, 1997 to August 30, 1997
was only temporary and done to accommodate their request to be absorbed since petitioner was still
undergoing a transition period. It was only when its business became settled that petitioner employed
private respondents for a fixed term of three months.
Although petitioner was not obliged to absorb the private respondents, by engaging their services, paying
their wages in the form of commission, subjecting them to its rules and imposing punishment in case of
breach thereof, and controlling not only the end result but the manner of achieving the same as well, an
employment relationship existed between them.
Notably, private respondents performed activities which were necessary or desirable to its principal trade
or business. Thus, they were regular employees of petitioner, regardless of whether the engagement was
merely an accommodation of their request, pursuant to Article 280 of the Labor Code which reads:
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.
As such regular employees, private respondents are entitled to security of tenure which may not be
circumvented by mere stipulation in a subsequent contract that their employment is one with a fixed
period. While this Court has upheld the legality of fixed-term employment, where from the circumstances it
is apparent that the periods have been imposed to preclude acquisition of tenurial security by the
employee, they should be struck down or disregarded as contrary to public policy and morals. 22
In the case at bar, we find that the term fixed in the subsequent contract was used to defeat the tenurial
security which private respondents already enjoy. Thus, we concur with the Labor Arbiter, as affirmed by
the Court of Appeals, when it held that:
The next question if whether, with respect to the period, the individual contracts are valid. Not all
contracts of employment fixing a period are invalid. Under Article 280, the evil sought to be
prevented is singled out: agreements entered into precisely to circumvent security of tenure. It has
no application where a fixed period of employment was agreed upon knowingly and voluntarily by
the parties, without any force, duress or improper pressure being brought upon the employee and
absent any circumstances vitiating his consent, or where it satisfactorily appears that the employer
and employee dealt with each other on more or less terms with no moral dominance whatever
being exercised by the former over the latter. That is the doctrine in Brent School, Inc. v. Zamora,
181 SCRA 702. The individual contracts in question were prepared by MWC in the form of the letter
addressed to complainants. The letter-contract is dated September 1, 1997, when complainants
were already working for MWC as collectors. With their employment as their means of survival,
there was no room then for complainants to disagree with the presented letter-contracts. Their
choice then was not to negotiate for the terms of the contract but to lose or not to lose their
employment employment which they already had at that time. The choice is obvious, as what
they did, to sign the ready made letter-contract to retain their employment, and survive. It is a
defiance of the teaching in Brent School, Inc. v. Zamora if this Office rules that the individual
contracts in question are valid, so, in deference to Brent School ruling, this Office rules they are null
and void.23
In view of the foregoing, we hold that an employment relationship exists between petitioner and private
respondents. We now proceed to ascertain whether private respondents were dismissed in accordance
with law.

As private respondents employer, petitioner has the burden of proving that the dismissal was for a cause
allowed under the law and that they were afforded procedural due process. 24 Petitioner failed to discharge
this burden by substantial evidence as it maintained the defense that it was not the employer of private
respondents. Having established that the schemes employed by petitioner were devious attempts to
defeat the tenurial rights of private respondents and that it failed to comply with the requirements of
termination under the Labor Code, the dismissal of the private respondent is tainted with illegality.
Under Article 279 of the Labor Code, an employee who is unjustly dismissed from work is entitled to
reinstatement without loss of seniority rights and other privileges, and to his full backwages, inclusive of
allowances, and to his other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual reinstatement. However, if reinstatement
is no longer possible, the employer has the alternative of paying the employee his separation pay in lieu of
reinstatement.25
This Court however cannot sustain the award of moral and exemplary damages in favor of private
respondents. Such an award cannot be justified solely upon the premise that the employer dismissed his
employee without just cause or due process. Additional facts must be pleaded and proved to warrant the
grant of moral damages under the Civil Code. The act of dismissal must be attended with bad faith, or
fraud, or was oppressive to labor or done in a manner contrary to morals, good customs or public policy
and, of course, that social humiliation, wounded feelings, or grave anxiety resulted therefrom. Similarly,
exemplary damages are recoverable only when the dismissal was effected in a wanton, oppressive or
malevolent manner.26 Those circumstances have not been adequately established.
However, private respondents are entitled to attorneys fees as they were compelled to litigate with
petitioners and incur expenses to enforce and protect their interests. 27 The award by the Labor Arbiter of
P22,250.00 as attorneys fees to private respondents, being reasonable, is sustained.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated November 29, 2002, in
CA-G.R. SP No. 67134, reversing the decision of the National Labor Relations Commission and reinstating
the decision of the Labor Arbiter is AFFIRMED with the MODIFICATION that the awards of P10,000.00 as
moral damages and P5,000.00 as exemplary damages are DELETED for lack of evidentiary basis.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 149011
June 28, 2005
SAN MIGUEL CORPORATION, petitioner
vs.
PROSPERO A. ABALLA, BONNY J. ABARING, EDWIN M. ADLA-ON, ALVIN C. ALCALDE, CELANIO D.
ARROLLADO, EDDIE A. ARROLLADO, REYNALDO T. ASONG, RENE A. ASPERA, JOEL D. BALATERIA,
JOSEPH D. BALATERIA, JOSE JOLLEN BALLADOS, WILFREDO B. BASAS, EDWIN E. BEATINGO,
SONNY V. BERONDO, CHRISTOPHER D. BRIONES, MARLON D. BRIONES, JOEL C. BOOC, ENRIQUE
CABALIDA, DIOSCORO R. CAHINOD, ERNESTO P. CAHINOD, RENANTE S. CAHINOD, RUDERICK R.
CALIXTON, RONILO C. CALVEZ, PANCHO CAETE, JUNNY CASTEL, JUDY S. CELESTE, ROMEO
CHUA, DANILO COBRA, ARMANDO C. DEDOYCO, JOEY R. DELA CRUZ, JOHN D. DELFIN, RENELITO
P. DEON, ARNEL C. DE PEDRO, ORLANDO DERDER, CLIFFORD A. DESPI, RAMIE A. DESPI, SR.,
VICTOR A. DESPI, ROLANDO L. DINGLE, ANTONIO D. DOLORFINO, LARRY DUMA-OP, NOEL
DUMOL, CHITO L. DUNGOG, RODERICK C. DUQUEZA, ROMMEL ESTREBOR, RIC E. GALPO,
MANSUETO GILLE, MAXIMO L. HILA-US, GERARDO J. JIMENEZ, ROBERTLY Y. HOFILEA, ROBERTO
HOFILEA, VICENTE INDENCIO, JONATHAN T. INVENTOR, PETER PAUL T. INVENTOR, JOEBERT G.
LAGARTO, RENATO LAMINA, ALVIN LAS POBRES, ALBERT LAS POBRES, LEONARD LEMONCHITO,
JERRY LIM, JOSE COLLY S. LUCERO, ROBERTO E. MARTIL, HERNANDO MATILLANO, VICENTE M.
MATILLANO, TANNY C. MENDOZA, WILLIAM P. NAVARRO, WILSON P. NAVARRO, LEO A. OLVIDO,
ROBERTO G. OTERO, BIENVENIDO C. PAROCHILIN, REYNALDO C. PAROCHILIN, RICKY PALANOG,
BERNIE O. PILLO, ALBERTO O. PILLO, JOE-MARIE S. PUGNA, EDWIN G. RIBON, RAUL A. RUBIO,
HENRY S. SAMILLANO, EDGAR SANTIAGO, ROLAND B. SANTILLANA, ROLDAN V. SAYAM, JOSEPH
S. SAYSON, RENE SUARNABA, ELMAR TABLIGAN, JERRY D. TALITE, OSCAR TALITE, WINIFREDO

TALITE, CAMILO N. TEMPOROSA, JOSE TEMPOROSA, RANDY TINGALA, TRISTAN A. TINGSON,

ROGELIO TOMESA, DIONISE A. TORMIS, ADELINO C. UNTAL, FELIX T. UNTAL, RONILO E. VISTA,
JOAN C. VIYO and JOSE JOFER C. VIYO and the COURT OF APPEALS, respondents.
DECISION
CARPIO-MORALES, J.:
Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and Visayas Area
Manager for Aquaculture Operations Leopoldo S. Titular, and Sunflower Multi-Purpose Cooperative
(Sunflower), represented by the Chairman of its Board of Directors Roy G. Asong, entered into a one-year
Contract of Services1 commencing on January 1, 1993, to be renewed on a month to month basis until
terminated by either party. The pertinent provisions of the contract read:
1. The cooperative agrees and undertakes to perform and/or provide for the company, on a nonexclusive basis for a period of one year the following services for the Bacolod Shrimp Processing
Plant:
A. Messengerial/Janitorial
B. Shrimp Harvesting/Receiving
C. Sanitation/Washing/Cold Storage2
2. To carry out the undertaking specified in the immediately preceding paragraph, the cooperative
shall employ the necessary personnel and provide adequate equipment, materials, tools and
apparatus, to efficiently, fully and speedily accomplish the work and services undertaken by the
cooperative. xxx
3. In consideration of the above undertaking the company expressly agrees to pay the cooperative
the following rates per activity:
A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand Five Hundred
Pesos Only (P19,500.00)
B. Harvesting/Shrimp Receiving. Piece rate of P0.34/kg. Or P100.00 minimum per
person/activity whichever is higher, with provisions as follows:
P25.00 Fixed Fee per person
Additional meal allowance P15.00 every meal time in case harvest duration exceeds one
meal.
This will be pre-set every harvest based on harvest plan approved by the Senior Buyer.
C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts.
One-half of the payment for all services rendered shall be payable on the fifteenth and the
other half, on the end of each month. The cooperative shall pay taxes, fees, dues and other
impositions that shall become due as a result of this contract.
The cooperative shall have the entire charge, control and supervision of the work and
services herein agreed upon. xxx
4. There is no employer-employee relationship between the company and the cooperative, or the
cooperative and any of its members, or the company and any members of the cooperative. The
cooperative is an association of self-employed members, an independent contractor, and an
entrepreneur. It is subject to the control and direction of the company only as to the result to be
accomplished by the work or services herein specified, and not as to the work herein contracted.
The cooperative and its members recognize that it is taking a business risk in accepting a fixed
service fee to provide the services contracted for and its realization of profit or loss from its
undertaking, in relation to all its other undertakings, will depend on how efficiently it deploys and
fields its members and how they perform the work and manage its operations.
5. The cooperative shall, whenever possible, maintain and keep under its control the premises
where the work under this contract shall be performed.
6. The cooperative shall have exclusive discretion in the selection, engagement and discharge of its
member-workers or otherwise in the direction and control thereof. The determination of the wages,
salaries and compensation of the member-workers of the cooperative shall be within its full control.
It is further understood that the cooperative is an independent contractor, and as such, the
cooperative agrees to comply with all the requirements of all pertinent laws and ordinances, rules
and regulations. Although it is understood and agreed between the parties hereto that the
cooperative, in the performance of its obligations, is subject to the control or direction of the
company merely as a (sic) result to be accomplished by the work or services herein specified, and
not as to the means and methods of accomplishing such result, the cooperative hereby warrants

that it will perform such work or services in such manner as will be consistent with the achievement
of the result herein contracted for.
xxx
8. The cooperative undertakes to pay the wages or salaries of its member-workers, as well as all
benefits, premiums and protection in accordance with the provisions of the labor code, cooperative
code and other applicable laws and decrees and the rules and regulations promulgated by
competent authorities, assuming all responsibility therefor.
The cooperative further undertakes to submit to the company within the first ten (10) days of every
month, a statement made, signed and sworn to by its duly authorized representative before a
notary public or other officer authorized by law to administer oaths, to the effect that the
cooperative has paid all wages or salaries due to its employees or personnel for services rendered
by them during the month immediately preceding, including overtime, if any, and that such
payments were all in accordance with the requirements of law.
xxx
12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall be for a
period of one (1) year commencing on January 1, 1993. Thereafter, this Contract will be deemed
renewed on a month-to-month basis until terminated by either party by sending a written notice to
the other at least thirty (30) days prior to the intended date of termination.
xxx3 (Underscoring supplied)
Pursuant to the contract, Sunflower engaged private respondents to, as they did, render services at SMCs
Bacolod Shrimp Processing Plant at Sta. Fe, Bacolod City. The contract was deemed renewed by the parties
every month after its expiration on January 1, 1994 and private respondents continued to perform their
tasks until September 11, 1995.
In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration Branch No. VI,
Bacolod City, praying to be declared as regular employees of SMC, with claims for recovery of all benefits
and privileges enjoyed by SMC rank and file employees.
Private respondents subsequently filed on September 25, 1995 an Amended Complaint 4 to include illegal
dismissal as additional cause of action following SMCs closure of its Bacolod Shrimp Processing Plant on
September 15, 19955 which resulted in the termination of their services.
SMC filed a Motion for Leave to File Attached Third Party Complaint6 dated November 27, 1995 to implead
Sunflower as Third Party Defendant which was, by Order7 of December 11, 1995, granted by Labor Arbiter
Ray Alan T. Drilon.
In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo City of the
Department of Labor and Employment (DOLE) a Notice of Closure 8 of its aquaculture operations effective
on even date, citing serious business losses.
By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents complaint for lack
of merit, ratiocinating as follows:
We sustain the stand of the respondent SMC that it could properly exercise its management prerogative to
contract out the preparation and processing aspects of its aquaculture operations. Judicial notice has
already been taken regarding the general practice adopted in government and private institutions and
industries of hiring independent contractors to perform special services. xxx
xxx
Indeed, the law allows job contracting. Job contracting is permissible under the Labor Code under specific
conditions and we do not see how this activity could not be legally undertaken by an independent service
cooperative like the third-party respondent herein.
There is no basis to the demand for regularization simply on the theory that complainants performed
activities which are necessary and desirable in the business of respondent. It has been held that the
definition of regular employees as those who perform activities which are necessary and desirable for the
business of the employer is not always determinative because any agreement may provide for one (1)
party to render services for and in behalf of another for a consideration even without being hired as an
employee.
The charge of the complainants that third-party respondent is a mere labor-only contractor is a sweeping
generalization and completely unsubstantiated. xxx In the absence of clear and convincing evidence
showing that third-party respondent acted merely as a labor only contractor, we are firmly convinced of
the legitimacy and the integrity of its service contract with respondent SMC.

In the same vein, the closure of the Bacolod Shrimp Processing Plant was a management decision purely
dictated by economic factors which was (sic) mainly serious business losses. The law recognizes the right
of the employer to close his business or cease his operations for bonafide reasons, as much as it
recognizes the right of the employer to terminate the employment of any employee due to closure or
cessation of business operations, unless the closing is for the purpose of circumventing the provisions of
the law on security of tenure. The decision of respondent SMC to close its Bacolod Shrimp Processing Plant,
due to serious business losses which has (sic) clearly been established, is a management prerogative
which could hardly be interfered with.
xxx The closure did affect the regular employees and workers of the Bacolod Processing Plant, who were
accordingly terminated following the legal requisites prescribed by law. The closure, however, in so far as
the complainants are concerned, resulted in the termination of SMCs service contract with their
cooperative xxx9(Underscoring supplied)
Private respondents appealed to the NLRC.
By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of merit, it finding that third
party respondent Sunflower was an independent contractor in light of its observation that "[i]n all the
activities of private respondents, they were under the actual direction, control and supervision of third
party respondent Sunflower, as well as the payment of wages, and power of dismissal." 10
Private respondents Motion for Reconsideration11 having been denied by the NLRC for lack of merit by
Resolution of September 10, 1999, they filed a petition for certiorari 12 before the Court of Appeals (CA).
Before the CA, SMC filed a Motion to Dismiss13 private respondents petition for non-compliance with the
Rules on Civil Procedure and failure to show grave abuse of discretion on the part of the NLRC.
SMC subsequently filed its Comment14 to the petition on March 30, 2000.
By Decision of February 7, 2001, the appellate court reversed the NLRC decision and accordingly found
for private respondents, disposing as follows:
WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby RENDERED: (1) REVERSING and
SETTING ASIDE both the 29 December 1998 decision and 10 September 1999 resolution of the National
Labor Relations Commission (NLRC), Fourth Division, Cebu City in NLRC Case No. V-0361-97 as well as the
23 September 1997 decision of the labor arbiter in RAB Case No. 06-07-10316-95; (2) ORDERING the
respondent, San Miguel Corporation, to GRANT petitioners: (a) separation pay in accordance with the
computation given to the regular SMC employees working at its Bacolod Shrimp Processing Plant with full
backwages, inclusive of allowances and other benefits or their monetary equivalent, from 11 September
1995, the time their actual compensation was withheld from them, up to the time of the finality of this
decision; (b) differentials pays (sic) effective as of and from the time petitioners acquired regular
employment status pursuant to the disquisition mentioned above, and all such other and further benefits
as provided by applicable collective bargaining agreement(s) or other relations, or by law, beginning such
time up to their termination from employment on 11 September 1995; and ORDERING private respondent
SMC to PAY unto the petitioners attorneys fees equivalent to ten (10%) percent of the total award.
No pronouncement as to costs.
SO ORDERED.15 (Underscoring supplied)
Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate court reasoned:
Although the terms of the non-exclusive contract of service between SMC and [Sunflower] showed a clear
intent to abstain from establishing an employer-employee relationship between SMC and [Sunflower] or
the latters members, the extent to which the parties successfully realized this intent in the light of the
applicable law is the controlling factor in determining the real and actual relationship between or among
the parties.
xxx
With respect to the power to control petitioners conduct, it appears that petitioners were under the direct
control and supervision of SMC supervisors both as to the manner they performed their functions and as to
the end results thereof. It was only after petitioners lodged a complaint to have their status declared as
regular employees of SMC that certain members of [Sunflower] began to countersign petitioners daily
time records to make it appear that they (petitioners) were under the control and supervision of
[Sunflower] team leaders (rollo, pp. 523-527). xxx
Even without these instances indicative of control by SMC over the petitioners, it is safe to assume that
SMC would never have allowed the petitioners to work within its premises, using its own facilities,
equipment and tools, alongside SMC employees discharging similar or identical activities unless it

exercised a substantial degree of control and supervision over the petitioners not only as to the manner
they performed their functions but also as to the end results of such functions.
xxx
xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent contractors.
[Sunflower] and the petitioners did not have substantial capital or investment in the form of tools,
equipment, implements, work premises, et cetera necessary to actually perform the service under their
own account, responsibility, and method. The only "work premises" maintained by [Sunflower] was a small
office within the confines of a small "carinderia" or refreshment parlor owned by the mother of its chair,
Roy Asong; the only equipment it owned was a typewriter (rollo, pp. 525-525) and, the only assets it
provided SMC were the bare bodies of its members, the petitioners herein (rollo, p. 523).
In addition, as shown earlier, petitioners, who worked inside the premises of SMC, were under the control
and supervision of SMC both as to the manner and method in discharging their functions and as to
the resultsthereof.
Besides, it should be taken into account that the activities undertaken by the petitioners as cleaners,
janitors, messengers and shrimp harvesters, packers and handlers were directly related to the aquaculture
business of SMC (See Guarin vs. NLRC, 198 SCRA 267, 273). This is confirmed by the renewal of the service
contract from January 1993 to September 1995, a period of close to three (3) years.
Moreover, the petitioners here numbering ninety seven (97), by itself, is a considerable workforce and
raises the suspicion that the non-exclusive service contract between SMC and [Sunflower] was "designed
to evade the obligations inherent in an employer-employee relationship" (See Rhone-Poulenc
Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249, 259).
Equally suspicious is the fact that the notary public who signed the by-laws of [Sunflower] and
its [Sunflower] retained counsel are both partners of the local counsel of SMC (rollo, p. 9).
xxx
With these observations, no other logical conclusion can be reached except that [Sunflower] acted as an
agent of SMC, facilitating the manpower requirements of the latter, the real employer of the petitioners.
We simply cannot allow these two entities through the convenience of a non-exclusive service contract to
stipulate on the existence of employer-employee relation. Such existence is a question of law which cannot
be made the subject of agreement to the detriment of the petitioners (Tabas vs. California Manufacturing,
Inc., 169 SCRA 497, 500).
xxx
There being a finding of "labor-only" contracting, liability must be shouldered either by SMC or [Sunflower]
or shared by both (See Tabas vs. California Manufacturing, Inc., supra, p. 502). SMC however should be
heldsolely liable for [Sunflower] became non-existent with the closure of the aquaculture
business of SMC.
Furthermore, since the closure of the aquaculture operations of SMC appears to be valid, reinstatement is
no longer feasible. Consistent with the pronouncement in Bustamante, et al., vs. NLRC, G.R. No. 111651,
28 November 1996, petitioners are thus entitled to separation pay (in the computation similar to those
given to regular SMC employees at its Bacolod Shrimp Processing Plant) "with full backwages, inclusive of
allowances and other benefits or their monetary equivalent, from the time their actual compensation was
withheld from them" up to the time of the finality of this decision. This is without prejudice to differentials
pays (sic) effective as of and from the time petitioners acquired regular employment status pursuant to the
discussion mentioned above, and all such other and further benefits as provided by applicable collective
bargaining agreement(s) or other relations, or by law, beginning such time up to their termination from
employment on 11 September 1995.16 (Emphasis and underscoring supplied)
SMCs Motion for Reconsideration17 having been denied for lack of merit by Resolution of July 11, 2001, it
comes before this Court via the present petition for review on certiorari assigning to the CA the following
errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE COURSE AND GRANTING RESPONDENTS
PATENTLY DEFECTIVE PETITION FOR CERTIORARI. IN DOING SO, THE COURT OF APPEALS DEPARTED FROM
THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.
II
THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE RESPONDENTS AS COMPLAINANTS IN
THE CASE BEFORE THE LABOR ARBITER. IN DOING SO, THE COURT OF APPEALS DECIDED THIS CASE IN A
MANNER NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT.

III
THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE EMPLOYEES OF SMC.
IV
THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic) THAT RESPONDENTS ARE NOT ENTITLED TO
ANY RELIEF. THE CLOSURE OF THE BACOLOD SHRIMP PROCESSING PLANT WAS DUE TO SERIOUS BUSINESS
LOSSES.18 (Underscoring supplied)
SMC bewails the failure of the appellate court to outrightly dismiss the petition for certiorari as only three
out of the ninety seven named petitioners signed the verification and certification against forum-shopping.
While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs or
petitioners in a case and the signature of only one of them is insufficient, 19 this Court has stressed that the
rules on forum shopping, which were designed to promote and facilitate the orderly administration of
justice, should not be interpreted with such absolute literalness as to subvert its own ultimate and
legitimate objective.20 Strict compliance with the provisions regarding the certificate of non-forum
shopping merely underscores its mandatory nature in that the certification cannot be altogether dispensed
with or its requirements completely disregarded.21It does not, however, thereby interdict substantial
compliance with its provisions under justifiable circumstances. 22
Thus in the recent case of HLC Construction and Development Corporation v. Emily Homes Subdivision
Homeowners Association,23 this Court held:
Respondents (who were plaintiffs in the trial court) filed the complaint against petitioners as a group,
represented by their homeowners association president who was likewise one of the plaintiffs, Mr. Samaon
M. Buat.Respondents raised one cause of action which was the breach of contractual obligations and
payment of damages. They shared a common interest in the subject matter of the case, being the
aggrieved residents of the poorly constructed and developed Emily Homes Subdivision. Due to the
collective nature of the case, there was no doubt that Mr. Samaon M. Buat could validly sign the certificate
of non-forum shopping in behalf of all his co-plaintiffs. In cases therefore where it is highly impractical to
require all the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order not to defeat
the ends of justice, for one of the plaintiffs, acting as representative, to sign the certificate provided that
xxx the plaintiffs share a common interest in the subject matter of the case or filed the case as
a "collective," raising only one common cause of action or defense.24 (Emphasis and underscoring
supplied)
Given the collective nature of the petition filed before the appellate court by herein private respondents,
raising one common cause of action against SMC, the execution by private respondents Winifredo Talite,
Renelito Deon and Jose Temporosa in behalf of all the other private respondents of the certificate of nonforum shopping constitutes substantial compliance with the Rules. 25 That the three indeed represented
their co-petitioners before the appellate court is, as it correctly found, "subsequently proven to be true as
shown by the signatures of the majority of the petitioners appearing in their memorandum filed before
Us."26
Additionally, the merits of the substantive aspects of the case may also be deemed as "special
circumstance" or "compelling reason" to take cognizance of a petition although the certification against
forum shopping was not executed and signed by all of the petitioners. 27
SMC goes on to argue that the petition filed before the CA is fatally defective as it was not accompanied by
"copies of all pleadings and documents relevant and pertinent thereto" in contravention of Section 1, Rule
65 of the Rules of Court.28
This Court is not persuaded. The records show that private respondents appended the following documents
to their petition before the appellate court: the September 23, 1997 Decision of the Labor
Arbiter,29 their Notice of Appeal with Appeal Memorandum dated October 16, 1997 filed before the
NLRC,30 the December 29, 1998NLRC D E C I S I O N,31 their Motion for Reconsideration dated March 26,
1999 filed with the NLRC32 and the September 10, 1999 NLRC Resolution.33
It bears stressing at any rate that it is the appellate court which ultimately determines if the supporting
documents are sufficient to make out a prima facie case.34 It discerns whether on the basis of what have
been submitted it could already judiciously determine the merits of the petition. 35 In the case at bar, the
CA found that the petition was adequately supported by relevant and pertinent documents.
At all events, this Court has allowed a liberal construction of the rule on the accomplishment of a
certificate of non-forum shopping in the following cases: (1) where a rigid application will result in manifest
failure or miscarriage of justice; (2) where the interest of substantial justice will be served; (3) where the

resolution of the motion is addressed solely to the sound and judicious discretion of the court; and (4)
where the injustice to the adverse party is not commensurate with the degree of his thoughtlessness in not
complying with the procedure prescribed. 36
Rules of procedure should indeed 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. 37
SMC further argues that the appellate court exceeded its jurisdiction in reversing the decisions of the labor
arbiter and the NLRC as "findings of facts of quasi-judicial bodies like the NLRC are accorded great respect
and finality," and that this principle acquires greater weight and application in the case at bar as the labor
arbiter and the NLRC have the same factual findings.
The general rule, no doubt, is that findings of facts of an administrative agency which has acquired
expertise in the particular field of its endeavor are accorded great weight on appeal. 38 The rule is not
absolute and admits of certain well-recognized exceptions, however. Thus, when the findings of fact of the
labor arbiter and the NLRC are not supported by substantial evidence or their judgment was based on a
misapprehension of facts, the appellate court may make an independent evaluation of the facts of the
case.39
SMC further faults the appellate court in giving due course to private respondents petition despite the fact
that the complaint filed before the labor arbiter was signed and verified only by private respondent
Winifredo Talite; that private respondents position paper40 was verified by only six41 out of the ninety
seven complainants; and that their Joint-Affidavit42 was executed only by twelve43 of the complainants.
Specifically with respect to the Joint-Affidavit of private respondents, SMC asserts that it should not have
been considered by the appellate court in establishing the claims of those who did not sign the same,
citing this Courts ruling in Southern Cotabato Development and Construction, Inc. v. NLRC.44
SMCs position does not lie.
A perusal of the complaint shows that the ninety seven complainants were being represented by their
counsel of choice. Thus the first sentence of their complaint alleges: "xxx complainants, by counsel and
unto this Honorable Office respectfully state xxx." And the complaint was signed by Atty. Jose Max S. Ortiz
as "counsel for the complainants." Following Section 6, Rule III of the 1990 Rules of Procedure of the NLRC,
now Section 7, Rule III of the 1999 NLRC Rules, Atty. Ortiz is presumed to be properly authorized by private
respondents in filing the complaint.
That the verification wherein it is manifested that private respondent Talite was one of the complainants
and was causing the preparation of the complaint "with the authority of my co-complainants" indubitably
shows that Talite was representing the rest of his co-complainants in signing the verification in accordance
with Section 7, Rule III of the 1990 NLRC Rules, now Section 8, Rule 3 of the 1999 NLRC Rules, which states:
Section 7. Authority to bind party. Attorneys and other representatives of parties shall have authority to
bind their clients in all matters of procedure; but they cannot, without a special power of attorney or
express consent, enter into a compromise agreement with the opposing party in full or partial discharge of
a clients claim. (Underscoring supplied)
As regards private respondents position paper which bore the signatures of only six of them, appended to
it was an Authority/Confirmation of Authority45 signed by the ninety one others conferring authority to their
counsel "to file RAB Case No. 06-07-10316-95, entitled Winifredo Talite et al. v. San Miguel Corporation
presently pending before the sala of Labor Arbiter Ray Alan Drilon at the NLRC Regional Arbitration Branch
No. VI in Bacolod City" and appointing him as their retained counsel to represent them in the said case.
That there has been substantial compliance with the requirement on verification of position papers under
Section 3, Rule V of the 1990 NLRC Rules of Procedure 46 is not difficult to appreciate in light of the provision
of Section 7, Rule V of the 1990 NLRC Rules, now Section 9, Rule V of the 1999 NLRC Rules which reads:
Section 7. Nature of Proceedings. The proceedings before a Labor Arbiter shall be non-litigious in nature.
Subject to the requirements of due process, the technicalities of law and procedure and the rules obtaining
in the courts of law shall not strictly apply thereto. The Labor Arbiter may avail himself of all reasonable
means to ascertain the facts of the controversy speedily, including ocular inspection and examination of
well-informed persons. (underscoring supplied)
As regards private respondents Joint-Affidavit which is being assailed in view of the failure of some
complainants to affix their signatures thereon, this Court quotes with approval the appellate courts
ratiocinations:

A perusal of the Southern Cotabato Development Case would reveal that movant did not quote the whole
text of paragraph 5 on page 865 of 280 SCRA. The whole paragraph reads:
"Clearly then, as to those who opted to move for the dismissal of their complaints, or did not submit their
affidavits nor appear during trial and in whose favor no other independent evidence was adduced, no
award for back wages could have been validly and properly made for want of factual basis. There is no
showing at all that any of the affidavits of the thirty-four (34) complainants were offered as evidence for
those who did not submit their affidavits, or that such affidavits had any bearing at all on the rights and
interest of the latter. In the same vein, private respondents position paper was not of any help to these
delinquent complainants.
The implication is that as long as the affidavits of the complainants were offered as evidence for
those who did not submit theirs, or the affidavits were material and relevant to the rights and
interest of the latter, such affidavits may be sufficient to establish the claims of those who did
not give their affidavits.
Here, a reading of the joint affidavit signed by twelve (12) of the ninety-seven (97) complainants
(petitioners herein) would readily reveal that the affidavit was offered as evidence not only for the
signatories therein but for all of the complainants. (These ninety-seven (97) individuals were previously
identified during the mandatory conference as the only complainants in the proceedings before the labor
arbiter) Moreover, the affidavit touched on the common interest of all of the complainants as it supported
their claim of the existence of an employer-employee relationship between them and respondent SMC.
Thus, the said affidavit was enough to prove the claims of the rest of the complainants. 47 (Emphasis
supplied, underscoring in the original)
In any event, SMC is reminded that the rules of evidence prevailing in courts of law or equity do not control
proceedings before the Labor Arbiter. So Article 221 of the Labor Code enjoins:
ART. 221. Technical rules not binding and prior resort to amicable settlement. In any
proceeding before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in courts
of law or equity shall not be controlling and it is the spirit and intention of this Code that the Commission
and its members and the Labor Arbiters shall use every and all reasonable means to ascertain the facts in
each case speedily and objectively and without regard to technicalities of law or procedure, all in the
interest of due process. xxx
As such, their application may be relaxed to serve the demands of substantial justice. 48
On the merits, the petition just the same fails.
SMC insists that private respondents are the employees of Sunflower, an independent contractor. On the
other hand, private respondents assert that Sunflower is a labor-only contractor.
Article 106 of the Labor Code provides:
ART. 106. Contractor or subcontracting. Whenever an employer enters into a contract with another
person for the performance of the formers work, the employees of the contractor and of the latters
subcontractor, if any shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance
with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to
such employees to the extent of the work performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him.
The Secretary of Labor 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.
Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order
No. 18, distinguishes between legitimate and labor-only contracting:

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.
Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis hereby declared
prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal,
and any of the following elements are present:
i) The contractor or subcontractor does not have substantial capital or investment which relates to
the job, work or service to be performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are directly related to the main business
of the principal, or
ii) The contractor does not exercise the right to control over the performance of the work of the
contractual employee.
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.
The test to determine the existence of independent contractorship is whether one claiming to be an
independent contractor has contracted to do the work according to his own methods and
without being subject to the control of the employer, except only as to the results of the
work.49
In legitimate labor contracting, the law creates an employer-employee relationship for a limited
purpose, i.e., to ensure that the employees are paid their wages. The principal employer becomes jointly
and severally liable with the job contractor, only for the payment of the employees wages whenever the
contractor fails to pay the same. Other than that, the principal employer is not responsible for any claim
made by the employees.50
In labor-only contracting, the statute creates an employer-employee 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. 51
The Contract of Services between SMC and Sunflower shows that the parties clearly disavowed the
existence of an employer-employee relationship between SMC and private respondents. The language of a
contract is not, however, determinative of the parties relationship; rather it is the totality of the facts and
surrounding circumstances of the case.52 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 job
contractor, it being crucial that its character be measured in terms of and determined by the criteria set by
statute.53
SMC argues that Sunflower could not have been issued a certificate of registration as a cooperative if it
had no substantial capital.54
While indeed Sunflower was issued Certificate of Registration No. IL0-875 55 on February 10, 1992 by the
Cooperative Development Authority, this merely shows that it had at least P2,000.00 in paid-up share
capital as mandated by Section 5 of Article 1456 of Republic Act No. 6938, otherwise known as the
Cooperative Code, which amount cannot be considered substantial capitalization.
What appears is that Sunflower does not have substantial capitalization or investment in the form of tools,
equipment, machineries, work premises and other materials to qualify it as an independent contractor.

On the other hand, it is gathered that the lot, building, machineries and all other working tools utilized by
private respondents in carrying out their tasks were owned and provided by SMC. Consider the following
uncontroverted allegations of private respondents in the Joint Affidavit:
[Sunflower], during the existence of its service contract with respondent SMC, did not own a single
machinery, equipment, or working tool used in the processing plant. Everything was owned and provided
by respondent SMC. The lot, the building, and working facilities are owned by respondent SMC. The
machineries and equipments (sic) like washer machine, oven or cooking machine, sizer machine, freezer,
storage, and chilling tanks, push carts, hydrolic (sic) jack, tables, and chairs were all owned by respondent
SMC. All the boxes, trays, molding pan used in the processing are also owned by respondent SMC. The
gloves and boots used by the complainants were also owned by respondent SMC. Even the mops, electric
floor cleaners, brush, hoose (sic), soaps, floor waxes, chlorine, liquid stain removers, lysol and the like used
by the complainants assigned as cleaners were all owned and provided by respondent SMC.
Simply stated, third-party respondent did not own even a small capital in the form of tools, machineries, or
facilities used in said prawn processing
xxx
The alleged office of [Sunflower] is found within the confines of a small "carinderia" or "refreshment" (sic)
owned by the mother of the Cooperative Chairman Roy Asong.
xxx In said . . . office, the only equipment used and owned by [Sunflower] was a typewriter. 57
And from the job description provided by SMC itself, the work assigned to private respondents
was directly relatedto the aquaculture operations of SMC. Undoubtedly, the nature of the work performed
by private respondents in shrimp harvesting, receiving and packing formed an integral part of the shrimp
processing operations of SMC. As for janitorial and messengerial services, that they are considered directly
related to the principal business of the employer58 has been jurisprudentially recognized.
Furthermore, Sunflower did not carry on an independent business or undertake the performance of its
service contract according to its own manner and method, free from the control and supervision of its
principal, SMC, its apparent role having been merely to recruit persons to work for SMC.
Thus, it is gathered from the evidence adduced by private respondents before the labor arbiter that
their daily time records were signed by SMC supervisors Ike Puentebella, Joemel Haro, Joemari Raca, Erwin
Tumonong, Edison Arguello, and Stephen Palabrica, which fact shows that SMC exercised the power of
control and supervision over its employees.59 And control of the premises in which private respondents
worked was by SMC. These tend to disprove the independence of the contractor. 60
More. Private respondents had been working in the aqua processing plant inside the SMC compound
alongside regular SMC shrimp processing workers performing identical jobs under the same SMC
supervisors.61 This circumstance is another indicium of the existence of a labor-only contractorship. 62
And as private respondents alleged in their Joint Affidavit which did not escape the observation of the CA,
no showing to the contrary having been proffered by SMC, Sunflower did not cater to clients other than
SMC,63 and with the closure of SMCs Bacolod Shrimp Processing Plant, Sunflower likewise ceased to exist.
This Courts ruling in San Miguel Corporation v. MAERC Integrated Services, Inc.64 is thus instructive.
xxx Nor do we believe MAERC to have an independent business. Not only was it set up to specifically meet
the pressing needs of SMC which was then having labor problems in its segregation division, none of its
workers was also ever assigned to any other establishment, thus convincing us that it was created solely
to service the needs of SMC. Naturally, with the severance of relationship between MAERC and SMC
followed MAERCs cessation of operations, the loss of jobs for the whole MAERC workforce and the resulting
actions instituted by the workers.65(Underscoring supplied)
All the foregoing considerations affirm by more than substantial evidence the existence of an employeremployee relationship between SMC and private respondents.
Since private respondents who were engaged in shrimp processing performed tasks usually necessary or
desirable in the aquaculture business of SMC, they should be deemed regular employees of the latter 66 and
as such are entitled to all the benefits and rights appurtenant to regular employment. 67 They should thus
be awarded differential pay corresponding to the difference between the wages and benefits given them
and those accorded SMCs other regular employees.1awphi1.zw+
Respecting the private respondents who were tasked with janitorial and messengerial duties, this Court
quotes with approval the appellate courts ruling thereon:
Those performing janitorial and messengerial services however acquired regular status only after
rendering one-year service pursuant to Article 280 of the Labor Code. Although janitorial and messengerial

services are considered directly related to the aquaculture business of SMC, they are deemed unnecessary
in the conduct of its principal business; hence, the distinction (See Coca Cola Bottlers Phils., Inc. v. NLRC,
307 SCRA 131, 136-137 and Philippine Bank of Communications v. NLRC, supra, p. 359).68
The law of course provides for two kinds of regular 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.69
As for those of private respondents who were engaged in janitorial and messengerial tasks, they fall under
the second category and are thus entitled to differential pay and benefits extended to other SMC regular
employees from the day immediately following their first year of service. 70
Regarding the closure of SMCs aquaculture operations and the consequent termination of private
respondents, Article 283 of the Labor Code provides:
ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate
the employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment
or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving
a written notice on the workers and the Department 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 to 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. (Underscoring supplied)
In the case at bar, a particular department under the SMC group of companies was closed allegedly due to
serious business reverses. This constitutes retrenchment by, and not closure of, the enterprise or the
company itself as SMC has not totally ceased operations but is still very much an on-going and highly
viable business concern.71
Retrenchment is a management prerogative consistently recognized and affirmed by this Court. It is,
however, subject to faithful compliance with the substantive and procedural requirements laid down by law
and jurisprudence.72
For retrenchment to be considered valid the following substantial requirements must be met: (a) the losses
expected should be substantial and not merely de minimis in extent; (b) the substantial losses
apprehended must be reasonably imminent such as can be perceived objectively and in good faith by the
employer; (c) the retrenchment must be reasonably necessary and likely to effectively prevent the
expected losses; and (d) the alleged losses, if already incurred, and the expected imminent losses sought
to be forestalled, must be proved by sufficient and convincing evidence. 73
In the discharge of these requirements, it is the employer who has the onus, being in the nature of an
affirmative defense.74
Normally, the condition of business losses is shown by audited financial documents like yearly balance
sheets, profit and loss statements and annual income tax returns. The financial statements must be
prepared and signed by independent auditors failing which they can be assailed as self-serving
documents.75
In the case at bar, company losses were duly established by financial documents audited by Joaquin
Cunanan & Co. showing that the aquaculture operations of SMCs Agribusiness Division accumulated losses
amounting toP145,848,172.00 in 1992 resulting in the closure of its Calatrava Aquaculture Center in
Negros Occidental,P11,393,071.00 in 1993 and P80,325,608.00 in 1994 which led to the closure of its San
Fernando Shrimp Processing Plant in Pampanga and the Bacolod Shrimp Processing Plant in 1995.
SMC has thus proven substantial business reverses justifying retrenchment of its employees.
For termination due to retrenchment to be valid, however, the law requires that written notices of the
intended retrenchment be served by the employer on the worker and on the DOLE at least one (1) month
before the actual date of the retrenchment, 76 in order to give employees some time to prepare for the
eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the verity of the alleged
cause of termination.77

Private respondents, however, were merely verbally informed on September 10, 1995 by SMC Prawn
Manager Ponciano Capay that effective the following day or on September 11, 1995, they were no longer
to report for work as SMC would be closing its operations.78
Where the dismissal is based on an authorized cause under Article 283 of the Labor Code but the employer
failed to comply with the notice requirement, the sanction should be stiff as the dismissal process was
initiated by the employers exercise of his management prerogative, as opposed to a dismissal based on a
just cause under Article 282 with the same procedural infirmity where the sanction to be imposed upon the
employer should be tempered as the dismissal process was, in effect, initiated by an act imputable to the
employee.79
In light of the factual circumstances of the case at bar, this Court awards P50,000.00 to each private
respondent as nominal damages.
The grant of separation pay as an incidence of termination of employment due to retrenchment to prevent
losses is a statutory obligation on the part of the employer and a demandable right on the part of the
employee. Private respondents should thus be awarded separation pay equivalent to at least one (1)
month pay or to at least one-half month pay for every year of service, whichever is higher, as mandated by
Article 283 of the Labor Code or the separation pay awarded by SMC to other regular SMC employees that
were terminated as a result of the retrenchment, depending on which is most beneficial to private
respondents.
Considering that private respondents were not illegally dismissed, however, no backwages need be
awarded. It is well settled that backwages may be granted only when there is a finding of illegal
dismissal.80 The appellate court thus erred in awarding backwages to private respondents upon the
authority of Bustamante v. NLRC,81 what was involved in that case being one of illegal dismissal.
With respect to attorneys fees, in actions for recovery of wages or where an employee was forced to
litigate and thus incurred expenses to protect his rights and interests, 82 a maximum of ten percent (10%)
of the total monetary award83 by way of attorneys fees is justifiable under Article 111 of the Labor
Code,84 Section 8, Rule VIII, Book III of its Implementing Rules, 85 and paragraph 7, Article 2208 of the Civil
Code.86 Although an express finding of facts and law is still necessary to prove the merit of the award,
there need not be any showing that the employer acted maliciously or in bad faith when it withheld the
wages. There need only be a showing that the lawful wages were not paid accordingly, as in this case. 87
Absent any evidence showing that Sunflower has been dissolved in accordance with law, pursuant to Rule
VIII-A, Section 1988 of the Omnibus Rules Implementing the Labor Code, Sunflower is held solidarily liable
with SMC for all the rightful claims of private respondents.
WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001 and Resolution dated
July 11, 2001 of the Court of Appeals are AFFIRMED with MODIFICATION.
Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby ORDERED to jointly
and severally pay each private respondent differential pay from the time they became regular employees
up to the date of their termination; separation pay equivalent to at least one (1) month pay or to at least
one-half month pay for every year of service, whichever is higher, as mandated by Article 283 of the Labor
Code or the separation pay awarded by SMC to other regular SMC employees that were terminated as a
result of the retrenchment, depending on which is most beneficial to private respondents; and ten percent
(10%) attorneys fees based on the herein modified award.
Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount
ofP50,000.00, representing nominal damages for non-compliance with statutory due process.
The award of backwages is DELETED.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
G.R. No. L-66598 December 19, 1986

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION, HONORABLE ARBITER TEODORICO L. DOGELIO
and RICARDO ORPIADA respondents.
Marcelino Lontok, Jr. for respondents.
FELICIANO, J.:
Petitioner Philippine Bank of Communications and the Corporate Executive Search Inc. (CESI) entered into
a letter agreement dated January 1976 under which (CESI) undertook to provide "Tempo[rary] Services" to
petitioner Consisting of the "temporary services" of eleven (11) messengers. The contract period is
described as being "from January 1976." The petitioner in truth undertook to pay a "daily service rate of
P18, " on a per person basis.
Attached to the letter agreement was a "List of Messengers assigned at Philippine Bank of
Communications" which list included, as item No. 5 thereof, the name of private respondent Ricardo
Orpiada.
Ricardo Orpiada was thus assigned to work with the petitioner bank. As such, he rendered services to the
bank, within the premises of the bank and alongside other people also rendering services to the bank.
There was some question as to when Ricardo Orpiada commenced rendering services to the bank. As
noted above, the letter agreement was dated January 1976. However, the position paper submitted by
(CESI) to the National Labor Relations Commission stated that (CESI) hired Ricardo Orpiada on 25 June
1975 as a Tempo Service employee, and assigned him to work with the petitioner bank "as evidenced by
the appointment memo issued to him on 25 June 1975. " Be that as it may, on or about October 1976, the
petitioner requested (CESI) to withdraw Orpiada's assignment because, in the allegation of the bank,
Orpiada's services "were no longer needed."
On 29 October 1976, Orpiada instituted a complaint in the Department of Labor (now Ministry of Labor and
Employment) against the petitioner for illegal dismissal and failure to pay the 13th month pay provided for
in Presidential Decree No. 851. This complaint was docketed as Case No. R04-1010184-76-E. After
investigation, the Office of the Regional Director, Regional Office No. IV of the Department of Labor, issued
an order dismissing Orpiada's complaint for failure of Mr. Orpiada to show the existence of an employeremployee relationship between the bank and himself.
Despite the foregoing order, Orpiada succeeded in having his complaint certified for compulsory arbitration
in Case No. RB-IV-11187-77 entitled "Ricardo Orpiada, complaint vs. Philippine Bank of Communications,
respondent." During the compulsory arbitration proceedings, CE SI was brought into the picture as an
additional respondent by the bank. Both the bank and (CESI) stoutly maintained that (CESI) (and not the
bank) was the employer of Orpiada.
On 12 September 1977, respondent Labor Arbiter Dogelio rendered a decision in Case No. RB-IV-11187-77,
the dispositive portion of which read as follows:
WHEREFORE, premises considered, respondent bank is hereby ordered to reinstate complainant to
the same or equivalent position with full back wages and to pay the latter's 13th month pay for the
year 1976.
On 26 October 1977, the bank appealed the decision of the Labor Arbiter to the respondent NLRC. More
than six years laterand the record is silent on why the proceeding in the NLRC should have taken more
than six years to resolve the NLRC promulgated its decision affirming the award of the Labor Arbiter and
stating as follows:
WHEREFORE, except for the modification reducing the complainant's back wages to two (2) years
without qualification, the Decision appealed from is hereby AFFIRMED in an other respects.
Accordingly, on 2 April 1984, the bank filed the present petition for certiorari with this Court seeking to
annul and set aside (a) the decision of respondent Labor Arbiter Dogelio dated 12 September 1977 in
Labor Case No. RB-IV-1118-77 and (b) the decision of the NLRC promulgated on 29 December 1983
affirming with some modifications the decision of the Labor Arbiter. This Court granted a temporary
restraining order on 11 April 1984. The main issue as litigated by the parties in this case relates to whether
or not an employer-employee relationship existed between the petitioner bank and private respondent
Ricardo Orpiada. The petitioner bank maintains that no employer-employee relationship was established
between itself and Ricardo Orpiada and that Ricardo Orpiada was an employee of (CESI) and not of the

bank. The bank documents its position by pointing to the following provisions of its letter agreement with
CE SI
1. The individual/s you i.e. (CESI) will assign to us i.e. petitioner) will be subject to our acceptance
and will observe work-days, hours, and methods of work (sic); on the other hand, they will not be
asked to perform job (sic) not normally related to the position/s for which Tempo Services were
contracted.
2. Such individuals will nevertheless remain your own employees and you will therefore, retain all
liabilities arising from the new Labor Code as amended Social Security Act and other applicable
Governmental decrees, rules and regulations, provided that, on our part, we shaIl
a. Require your employers assigned to us to properly accomplish your daily time record, to
faithfully reflect all hours worked in our behalf whether such work be within or beyond eight
hours of any day.
b. Notify you of any change in the work assignment or contract period affecting any of your
employers assigned to us within 24 hours, after such change is made.
(Emphasis supplied)
The above language of the agreement between the bank and CE SI is of course relevant and important as
manifesting an intent to refrain from constituting an employer-employee relationship between the bank
and the persons assigned or seconded to the bank by (CESI) That extent to which the parties were
successful in realizing their intent is another matter, one that is dependent upon applicable law and not
merely upon the terms of their contract.
In the case of Viana vs. AI-Lagdan and Pica, 99 Phil. 408 (1956), this Court listed certain factors to be taken
into account in determining the existence of an employer-employee relationship. These factors are:
1) The selection and engagement of the putative employee;
2) The payment of wages;
3) The power of dismissal- and
4) The power to control the putative employees' conduct, although the latter is the most important
element. ... (99 Phil. at 411- 412; Emphasis supplied)
In the present case, Orpiada was not previously selected by the bank. Rather, Orpiada was assigned to
work in the bank by (CESI) Orpiada could not have found his way to the bank's offices had he not been first
hired by (CESI) and later assigned to work in the bank's offices. The selection of Orpiada by (CESI) was,
however, subject to the acceptance of the bank and the bank did accept him As will be seen shortly, (CESI)
had hired Orpiada from the outside world precisely for the purpose of assigning or seconding him to the
bank.
With respect to the payment of Orpiada's wages, the bank remitted to CE SI amounts corresponding to the
"daily service rate" of Orpiada and the others similarly assigned by (CESI) to the bank, and (CESI) paid to
Orpiada and the others the wages pertaining to to them. It is not clear from the record whether the
amounts remitted to (CESI) included some factor for CESIs fees; it seems safe to assume that (CESI) had
required some amount in excess of the wages paid by (CESI) to Orpiada and the others to cover its own
overhead expenses and provide some contribution to profit. The bank alleged that Orpiada did not appear
in its payroll and this allegation was not denied by Orpiada. Indeed, the Labor Arbiter in Case No. R04-18476-B found that Orpiada was listed in the payroll of (CESI) with (CESI) deducting amounts representing his
Medicare and Social Security System premiums. A copy of the (CESI) payroll was presented, strangely
enough, by Orpiada himself to Regional Office No. IV.
In respect of the power of dismissal we note that the bank requested (CESI) to withdraw Orpiada's
assignment and that (CESI) did, in fact, withdraw such assignment. Upon such withdrawal from his
assignment with the bank, Orpiada was also terminated by (CESI) Indeed, it appears clear that Orpiada
was hired by (CESI) specifically for assignment with the bank and that upon his withdrawal from such
assignment upon request of the bank, Orpiada's employment with (CESI) was also severed, until some
other client of (CESI) showed up in the horizon to which Orpiada could once more be assigned. In the
position paper dated August 5, 1977 submitted by (CESI) before the NLRC, (CESI) explained the
relationship between itself and Orpiada in lucid terms:
5. That as Petitioner herein was very well aware of from the very beginning, he was hired by
Corporate Executive Search, Inc. as a temporary employee and as such, was being assigned to
work with the latter's client Respondent herein that the rationale behind his hiring was the
existence of a service contract between Corporate Executive Search Inc. and its client-company,

the Philippine Bank of Communications, the herein Respondent, and that when this service contract
was 0terminated, then the reason for his employment with Corporate Executive Search, Inc.,
ceased to exist and that therefore Corporate Executive Search Inc. had no alternative but to
discontinue his employment until another opportune time for his hiring would present itself;
6. That Petitioner was not given his 13th-month pay under P.D. 851, because Corporate Executive
Search Inc. gave the 13th month pay for 1976 to its employees in December 1976, and since the
company had lost contact with the Petitioner by reason of his having ceased to be connected with it
as of 22 October 1976, he was not among those given the 13th-month pay. (Emphasis supplied)
Turning to the power to control Orpiada's conduct, it should be noted immediately that Orpiada performed
his sections within the bank's premises, and not within the office premises of (CESI) As such, Orpiada must
have been subject to at least the same control and supervision that the bank exercises over any other
person physically within its premises and rendering services to or for the bank, in other words, any
employee or staff member of the bank. It seems unreasonable to suppose that the bank would have
allowed Orpiada and the other persons assigned to the bank by CE SI to remain within the bank's premises
and there render services to the bank, without subjecting them to a substantial measure of control and
supervision, whether in respect of the manner in which they discharged their functions, or in respect of the
end results of their functions or activities, or both.
Application of the above factors in the specific context of this case appears to yield mixed results so far as
concerns the existence of an employer- employer relationship between the bank and Orpiada. The second
("payment of wages") and third ("power of dismissal") factors suggest that the relevant relationship was
that subsisting between (CESI) and Orpiada, a relationship conceded by (CESI) to be one between
employer and employee. Upon the other hand, the first ("selection and engagement") and fourth ("control
of employee's conduct") factors indicate that some direct relationship did exist between Orpiada and the
bank and that such relationship may be assimilated to employment. Perhaps the most important
circumstance which emerges from an examination of the facts of the tri-lateral relationship between the
bank, (CESI) and Orpiada is that the employer-employee relationship between (CESI) and Orpiada was
established precisely in anticipation of, and for the very purpose of making possible, the secondment of
Orpiada to the bank. It is therefore necessary to confront the task of determining the appropriate
characterization of the relationship between the bank and (CESI) was that relationship one of employer
and job (independent) contractor or one of employer and "labor-only" contractor?
Articles 106 and 107 of the Labor Code of the Philippines (Presidential Decree No. 442, as amended)
provides as follows:
ART. 106. Contractor or sub-contractor.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 in this Code.
In the event that the contractor or sub-contractor 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
sub-contructor to such employees to the extent of the work performed under the contract in the
same manner and extent that he is liable to employees directly employed by him
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of
labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he
may make appropriate distinctions between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to prevent any violation or
circumvention of any provisions of this Code.
There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises,
among others, and the workers recruited and placed by such person are performing activities which
are directly related to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who shall be responsible to
the workers in the same manner and extent as if the latter were directly employed by him.
ART. 107. Indirect employer. The provisions of the immediately preceding Article shall likewise
apply to any person, part, nership association or corporation which, not being an employer,
contracts with an independent contractor for the performance of any work, task, job or project.
(Emphasis supplied)

Under the general rule set out in the first and second paragraphs of Article 106, an employer who enters
into a contract with a contractor for the performance of work for the employer, does not thereby create an
employer-employes relationship between himself and the employees of the contractor. Thus, the
employees of the contractor remain the contractor's employees and his alone. Nonetheless when a
contractor fails to pay the wages of his employees in accordance with the Labor Code, the employer who
contracted out the job to the contractor becomes jointly and severally liable with his contractor to the
employees of the latter "to the extent of the work performed under the contract" as such employer were
the employer of the contractor's employees. The law itself, in other words, establishes an employeremployee relationship between the employer and the job contractor's employees for a limited purpose,
i.e., in order to ensure that the latter get paid the wages due to them.
A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor-i.e "the
person or intermediary" is considered "merely as an agent of the employer. " The employer is made by the
statute responsible to the employees of the "labor only" contractor as if such employees had been directly
employed by the employer. Thus, where "labor only" contracting exists in a given case, the statute itself
implies or establishes an employer-employee relationship between the employer (the owner of the project)
and the employees of the "labor only" contractor, this time for a comprehensive purpose: "employer for
purposes of this Code, to prevent any violation or circumvention of any provision of this Code. " The law in
effect holds both the employer and the "labor-only" contractor responsible to the latter's employees for the
more effective safeguarding of the employees' rights under the Labor Code.
Both the petitioner bank and (CESI) have insisted that (CESI) was not a "labor only" contractor. Section 9 of
Rule VIII of Book III entitled "Conditions of Employment," of the Omnibus Rules Implementing the Labor
Code provides as follows:
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an employer
shag be deemed to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials; and
(2) The workers recruited and placed by such person are performing activities which are to
the principal business or operations of the c workers are habitually employed,
(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as
contractor shall be considered merely as an agent or intermediary of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him
(c) For cases not file under this Article, the Secretary of Labor shall determine through appropriate
orders whether or not the contracting out of labor is permissible in the light of the circumstances of
each case and after considering the operating needs of the employer and the rights of the workers
involved. In such case, he may prescribe conditions and restrictions to insure the protection and
welfare of the workers. (Emphasis supplied)
In contrast, job contracting-contracting out a particular job to an independent contractor is defined by the
Implementing Rules as follows:
Sec. 8. Job contracting. There is job contracting permissible under the Code if the following
conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on his own
account under his own responsibility according to his own manner and method free from the
control and direction of his employer or principal in all matters connected with the performance of
the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business. (Emphasis supplied)
The bank and (CESI) urge that (CESI) is not properly regarded as a "labor-only" contractor upon n the
ground that (CESI) is possessed of substantial capital or investment in the form of office equipment, tools
and trained service personnel.
We are unable to agree with the bank and (CESI) on this score. The definition of "labor-only" contracting in
Rule VIII, Book III of the Implementing Rules must be read in conjunction with the definition of job
contracting given in Section 8 of the same Rules. The undertaking given by CESI in favor of the bank was
not the performance of a specific job for instance, the carriage and delivery of documents and parcels to

the addresses thereof. There appear to be many companies today which perform this discrete service,
companies with their own personnel who pick up documents and packages from the offices of a client or
customer, and who deliver such materials utilizing their own delivery vans or motorcycles to the
addresses. In the present case, the undertaking of (CESI) was toprovide its client-thebank-with a certain
number of persons able to carry out the work of messengers. Such undertaking of CESI was complied with
when the requisite number of persons were assigned or seconded to the petitioner bank. Orpiada utilized
the premises and office equipment of the bank and not those of (CESI) Messengerial work-the delivery of
documents to designated persons whether within or without the bank premises is of course directly
related to the day-to-day operations of the bank. Section 9(2) quoted above does notrequire for its
applicability that the petitioner must be engaged in the delivery of items as a distinct and separate line of
business.
Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and
placement corporation placing bodies, as it were, in d ifferent client companies for longer or shorter
periods of time. It is this factor that, to our mind, distinguishes this case from American President v. Clave
et al, 114 SCRA 826 (1982) if indeed distinguishing way is needed.
The bank urged that the letter agreement entered into with CESI was designed to enable the bank to
obtain the temporary services of people necessary to enable the bank to cope with peak loads, to replace
temporary workers who were out on vacation or sick leave, and to handle specialized work. There is, of
course, nothing illegal about hiring persons to carry out "a specific project or undertaking the completion
or termination of which [was] determined at the time of the engagement of [the] employee, or where the
work or service to be performed is seasonal in nature and the employment is for the duration of the
season" (Article 281, Labor Code).<re||an1w> The letter agreement itself, however, merely required
(CESI) to furnish the bank with eleven 11) messengers for " a contract period from January 19, 1976 ."
The eleven (11) messengers were thus supposed to render "temporary" services for an indefinite or
unstated period of time. Ricardo Orpiada himself was assigned to the bank's offices from 25 June 1975 and
rendered services to the bank until sometime in October 1976, or a period of about sixteen months. Under
the Labor Code, however, any employee who has rendered at least one year of service, whether such
service is continuous or not, shall be considered a regular employee (Article 281, Second paragraph).
Assuming, therefore, that Orpiada could properly be regarded as a casual (as distinguished from a regular)
employee of the bank, he became entitled to be regarded as a regular employee of the bank as soon as he
had completed one year of service to the bank. Employers may not terminate the service of a regular
employee except for a just cause or when authorized under the Labor Code (Article 280, Labor Code). It is
not difficult to see that to uphold the contractual arrangement between the bank and (CESI) would in effect
be to permit employers to avoid the necessity of hiring regular or permanent employees and to enable
them to keep their employees indefinitely on a temporary or casual status, thus to deny them security of
tenure in their jobs. Article 106 of the Labor Code is precisely designed to prevent such a result.
We hold that, in the circumstances 'instances of this case, (CESI) was engaged in "labor-only" or attracting
vis-a-vis the petitioner and in respect c Ricardo Orpiada, and that consequently, the petitioner bank is
liable to Orpiada as if Orpiada had been directly, employed not only by (CESI) but also by the bank. It may
well be that the bank may in turn proceed against (CESI) to obtain reimbursement of, or some contribution
to, the amounts which the bank will have to pay to Orpiada; but this it is not necessary to determine here.
WHEREFORE, the petition for certiorari is DENIED and the decision promulgated on 29 December 1983 of
the National Labor Relations Commission is AFFIRMED. The Temporary Restraining Order issued by this
Court on 11 April 1984 is hereby lifted. Costs against petitioner.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera and Cruz, JJ., concur.

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

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R. ERISPE, JOEL

MADRIAGA, ARTHUR M. ESPINO, AMARO BONA, FERDINAND CRUZ, FEDERICO A. BELITA,
ROBERTO P. ISLES, ELMER ARMADA, EDUARDO UDOG, PETER TIANSING, MIGUELITA QUIAMBOA,
NOMER MATAGA, VIOLY ESTEBAN and LYDIA ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON, NATIONAL LABOR
RELATIONS COMMISSION, and HON. EMERSON C. TUMANON, respondents.
V.E. Del Rosario & Associates for respondent CMC.
The Solicitor General for public respondent.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.
Mildred A. Ramos for respondent Lily Victoria A. Azarcon.
SARMIENTO, J.:
On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the National Labor Relations
Commission for reinstatement and payment of various benefits, including minimum wage, overtime pay,
holiday pay, thirteen-month pay, and emergency cost of living allowance pay, against the respondent, the
California Manufacturing Company. 1
On October 7, 1986, after the cases had been consolidated, the California Manufacturing Company
(California) filed a motion to dismiss as well as a position paper denying the existence of an employeremployee relation between the petitioners and the company and, consequently, any liability for payment
of money claims. 2 On motion of the petitioners, Livi Manpower Services, Inc. was impleaded as a partyrespondent.
It appears that the petitioners were, prior to their stint with California, employees of Livi Manpower
Services, Inc. (Livi), which subsequently assigned them to work as "promotional merchandisers" 3 for the
former firm pursuant to a manpower supply agreement. Among other things, the agreement provided that
California "has no control or supervisions whatsoever over [Livi's] workers with respect to how they
accomplish their work or perform [Californias] obligation"; 4 the Livi "is an independent contractor and
nothing herein contained shall be construed as creating between [California] and [Livi] . . . the relationship
of principal[-]agent or employer[-]employee'; 5 that "it is hereby agreed that it is the sole responsibility of
[Livi] to comply with all existing as well as future laws, rules and regulations pertinent to employment of
labor" 6 and that "[California] is free and harmless from any liability arising from such laws or from any
accident that may befall workers and employees of [Livi] while in the performance of their duties for
[California]. 7
It was further expressly stipulated that the assignment of workers to California shall be on a "seasonal and
contractual basis"; that "[c]ost of living allowance and the 10 legal holidays will be charged directly to
[California] at cost "; and that "[p]ayroll for the preceeding [sic] week [shall] be delivered by [Livi] at
[California's] premises." 8
The petitioners were then made to sign employment contracts with durations of six months, upon the
expiration of which they signed new agreements with the same period, and so on. Unlike regular California
employees, who received not less than P2,823.00 a month in addition to a host of fringe benefits and
bonuses, they received P38.56 plus P15.00 in allowance daily.
The petitioners now allege that they had become regular California employees and demand, as a
consequence whereof, similar benefits. They likewise claim that pending further proceedings below, they
were notified by California that they would not be rehired. As a result, they filed an amended complaint
charging California with illegal dismissal.
California admits having refused to accept the petitioners back to work but deny liability therefor for the
reason that it is not, to begin with, the petitioners' employer and that the "retrenchment" had been forced
by business losses as well as expiration of contracts. 9 It appears that thereafter, Livi re-absorbed them into
its labor pool on a "wait-in or standby" status. 10
Amid these factual antecedents, the Court finds the single most important issue to be: Whether the
petitioners are California's or Livi's employees.
The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the existence of any
employer-employee relation between the petitioners and California ostensibly in the light of the manpower
supply contract, supra, and consequently, against the latter's liability as and for the money claims
demanded. In the same breath, however, the labor arbiter absolved Livi from any obligation because the

"retrenchment" in question was allegedly "beyond its control ." 13 He assessed against the firm,
nevertheless, separation pay and attorney's fees.
We reverse.
The existence of an employer-employees relation is a question of law and being such, it cannot be made
the subject of agreement. Hence, the fact that the manpower supply agreement between Livi and
California had specifically designated the former as the petitioners' employer and had absolved the latter
from any liability as an employer, will not erase either party's obligations as an employer, if an employeremployee relation otherwise exists between the workers and either firm. At any rate, since the agreement
was between Livi and California, they alone are bound by it, and the petitioners cannot be made to suffer
from its adverse consequences.
This Court has consistently ruled that the determination of whether or not there is an employer-employee
relation depends upon four standards: (1) the manner of selection and engagement of the putative
employee; (2) the mode of payment of wages; (3) the presence or absence of a power of dismissal; and (4)
the presence or absence of a power to control the putative employee's conduct. 14 Of the four, the right-ofcontrol test has been held to be the decisive factor. 15
On the other hand, we have likewise held, based on Article 106 of the Labor Code, hereinbelow
reproduced:
ART. 106. Contractor or sub-contractor. Whenever an employee enters into a contract with
another person for the performance of the former's work, the employees of the contractor
and of the latter's sub-contractor, if any, shall be paid in accordance with the provisions of
this Code.
In the event that the contractor or sub-contractor fails to pay wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his
contractor or sub-contractor to such employees to the extent of the work performed under
the contract, in the same manner and extent that he is liable to employees directly
employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting
out of labor to protect the rights of workers established under this Code. In so prohibiting or
restricting, he may make appropriate distinctions between labor-only contracting and job
contracting as well as differentiations within these types of contracting and determine who
among the parties involved shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provisions of this Code.
There is 'labor-only' contracting where the person supplying workers to an employer does
not have substantial capital or investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and placed by such person are
performing activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him.
that notwithstanding the absence of a direct employer-employee relationship between the employer in
whose favor work had been contracted out by a "labor-only" contractor, and the employees, the former has
the responsibility, together with the "labor-only" contractor, for any valid labor claims, 16 by operation of
law. The reason, so we held, is that the "labor-only" contractor is considered "merely an agent of the
employer," 17 and liability must be shouldered by either one or shared by both. 18
There is no doubt that in the case at bar, Livi performs "manpower services", 19 meaning to say, it
contracts out labor in favor of clients. We hold that it is one notwithstanding its vehement claims to the
contrary, and notwithstanding the provision of the contract that it is "an independent contractor." 20 The
nature of one's business is not determined by self-serving appellations one attaches thereto but by the
tests provided by statute and prevailing case law. 21 The bare fact that Livi maintains a separate line of
business does not extinguish the equal fact that it has provided California with workers to pursue the
latter's own business. In this connection, we do not agree that the petitioners had been made to perform
activities 'which are not directly related to the general business of manufacturing," 22 California's purported
"principal operation activity. " 23 The petitioner's had been charged with "merchandizing [sic] promotion or
sale of the products of [California] in the different sales outlets in Metro Manila including task and
occational [sic] price tagging," 24 an activity that is doubtless, an integral part of the manufacturing

business. It is not, then, as if Livi had served as its (California's) promotions or sales arm or agent, or
otherwise, rendered a piece of work it (California) could not have itself done; Livi, as a placement agency,
had simply supplied it with the manpower necessary to carry out its (California's) merchandising activities,
using its (California's) premises and equipment. 25
Neither Livi nor California can therefore escape liability, that is, assuming one exists.
The fact that the petitioners have allegedly admitted being Livi's "direct employees" 26 in their complaints
is nothing conclusive. For one thing, the fact that the petitioners were (are), will not absolve California
since liability has been imposed by legal operation. For another, and as we indicated, the relations of
parties must be judged from case to case and the decree of law, and not by declarations of parties.
The fact that the petitioners have been hired on a "temporary or seasonal" basis merely is no argument
either. As we held in Philippine Bank of Communications v. NLRC, 27 a temporary or casual employee, under
Article 218 of the Labor Code, becomes regular after service of one year, unless he has been contracted
for a specific project. And we cannot say that merchandising is a specific project for the obvious reason
that it is an activity related to the day-to-day operations of California.
It would have been different, we believe, had Livi been discretely a promotions firm, and that California
had hired it to perform the latter's merchandising activities. For then, Livi would have been truly the
employer of its employees, and California, its client. The client, in that case, would have been a mere
patron, and not an employer. The employees would not in that event be unlike waiters, who, although at
the service of customers, are not the latter's employees, but of the restaurant. As we pointed out in
the Philippine Bank of Communicationscase:
xxx xxx xxx
... The undertaking given by CESI in favor of the bank was not the performance of a specific
job for instance, the carriage and delivery of documents and parcels to the addresses
thereof. There appear to be many companies today which perform this discrete service,
companies with their own personnel who pick up documents and packages from the offices
of a client or customer, and who deliver such materials utilizing their own delivery vans or
motorcycles to the addressees. In the present case, the undertaking of CESI was to provide
its client the bank with a certain number of persons able to carry out the work of
messengers. Such undertaking of CESI was complied with when the requisite number of
persons were assigned or seconded to the petitioner bank. Orpiada utilized the premises and
office equipment of the bank and not those of CESI. Messengerial work the delivery of
documents to designated persons whether within or without the bank premises-is of course
directly related to the day-to-day operations of the bank. Section 9(2) quoted above does
not require for its applicability that the petitioner must be engaged in the delivery of items
as a distinct and separate line of business.
Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a
recruitment and placement corporation placing bodies, as it were, in different client
companies for longer or shorter periods of time, ... 28
In the case at bar, Livi is admittedly an "independent contractor providing temporary services of
manpower to its client. " 29 When it thus provided California with manpower, it supplied California with
personnel, as if such personnel had been directly hired by California. Hence, Article 106 of the Code
applies.
The Court need not therefore consider whether it is Livi or California which exercises control over the
petitioner vis-a-vis the four barometers referred to earlier, since by fiction of law, either or both shoulder
responsibility.
It is not that by dismissing the terms and conditions of the manpower supply agreement, we have, hence,
considered it illegal. Under the Labor Code, genuine job contracts are permissible, provided they are
genuine job contracts. But, as we held in Philippine Bank of Communications, supra, when such
arrangements are resorted to "in anticipation of, and for the very purpose of making possible, the
secondment" 30 of the employees from the true employer, the Court will be justified in expressing its
concern. For then that would compromise the rights of the workers, especially their right to security of
tenure.
This brings us to the question: What is the liability of either Livi or California?

The records show that the petitioners bad been given an initial six-month contract, renewed for another six
months. Accordingly, under Article 281 of the Code, they had become regular employees-of-California-and
had acquired a secure tenure. Hence, they cannot be separated without due process of law.
California resists reinstatement on the ground, first, and as we Id, that the petitioners are not its
employees, and second, by reason of financial distress brought about by "unfavorable political and
economic atmosphere" 31"coupled by the February Revolution." 32 As to the first objection, we reiterate that
the petitioners are its employees and who, by virtue of the required one-year length-of-service, have
acquired a regular status. As to the second, we are not convinced that California has shown enough
evidence, other than its bare say so, that it had in fact suffered serious business reverses as a result alone
of the prevailing political and economic climate. We further find the attribution to the February Revolution
as a cause for its alleged losses to be gratuitous and without basis in fact.
California should be warned that retrenchment of workers, unless clearly warranted, has serious
consequences not only on the State's initiatives to maintain a stable employment record for the country,
but more so, on the workingman himself, amid an environment that is desperately scarce in jobs. And, the
National Labor Relations Commission should have known better than to fall for such unwarranted excuses
and nebulous claims.
WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): SETTING ASIDE the decision,
dated March 20, 1987, and the resolution, dated August 19, 1987; (2) ORDERING the respondent, the
California Manufacturing Company, to REINSTATE the petitioners with full status and rights of regular
employees; and (3) ORDERING the respondent, the California Manufacturing Company, and the
respondents, Livi Manpower Service, Inc. and/or Lily-Victoria Azarcon, to PAY, jointly and severally, unto the
petitioners: (a) backwages and differential pays effective as and from the time they had acquired a regular
status under the second paragraph, of Section 281, of the Labor Code, but not to exceed three (3) years,
and (b) all such other and further benefits as may be provided by existing collective bargaining
agreement(s) or other relations, or by law, beginning such time; and (4) ORDERING the private
respondents to PAY unto the petitioners attorney's fees equivalent to ten (10%) percent of all money
claims hereby awarded, in addition to those money claims. The private respondents are likewise ORDERED
to PAY the costs of this suit.
IT IS SO ORDERED.
Melencio-Herrera, (Chairperson), Paras, Padilla and Regalado, JJ., concur.

INDEPENDENT CONTRACTOR
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-37790 March 25, 1976

MAFINCO TRADING CORPORATION, petitioner,
vs.
THE HON. BLAS F. OPLE, in his capacity as Secretary of Labor, The NATIONAL LABOR RELATIONS
COMMISSION RODRIGO REPOMANTA and REY MORALDE, respondents.
Tanada, Sanchez, Tanada & Tanada for petitioner.
Jose T. Maghari for private respondents.
Solicitor General Estelito P. Mendoza for all other respondents.
AQUINO, J.:
Mafinco Trading Corporation (Mafinco for short) filed these special civil actions of certiorari and prohibition
in order to annul the decision of the Secretary of Labor dated April 16, 1973. In that decision the Secretary
reversed an order of the old National Labor Relations Commission (NLRC) and held that the NLRC had
jurisdiction over the complaint lodged by the Federacion Obrera de la Industria Tabaquera y Otros
Trabajadores de Filipinas (FOITAF) against Mafinco for having dismissed Rodrigo Repomanta and Rey
Moralde (NLRC Case No. LR-086). The voluminous record reveals the following facts:

Peddling contracts and their termination. On April 30, 1968 Cosmos Aerated Water Factory, Inc.,
hereinafter called Cosmos, a firm based at Malabon, Rizal, appointed Mafinco as its sole distributor of
Cosmos soft drinks in Manila. On May 31, 1972 Rodrigo Repomanta and Mafinco executed a peddling
contract whereby Repomanta agreed to "buy and sell" Cosmos soft drinks. Rey Moralde entered into a
similar contract. The contracts were to remain in force for one year unless sooner terminated by either
party upon five days notice to the other. 1 The contract with Repomanta reads as follows:
PEDDLING CONTRACT
KNOW ALL MEN BY THESE PRESENTS:
This CONTRACT, entered into by and between:
The MAFINCO TRADING CORPORATION, a domestic corporation duly organized and existing
under the laws of the Philippines, doing business at Rm. 715 Equitable Bank Bldg., Juan Luna
St., Manila, under the style MAFINCO represented in this act by its General Manager,
SALVADOR C. PICA, duly authorized for the purpose and hereinafter referred to as MAFINCO,
and RODRIGO REPOMANTA, married/single, of legal age, and a resident of 70-D Bo. Potrero,
MacArthur Highway, Malabon, Rizal hereinafter referred to as PEDDLER, WITNESSETH:
WHEREAS, MAFINCO has been appointed as the exclusive distributor of 'COSMOS' Soft Drink
Products for and within the City of Manila;
WHEREAS, the PEDDLER is desirous of buying and selling in Manila the 'COSMOS' Soft Drink
Products handled by MAFINCO;
NOW THEREFORE, for and in consideration of the foregoing premises and the covenants and
conditions hereinafter set forth, the parties hereto has agreed as follows:
1. That in consideration of the competence of the PEDDLER and his ability to promote mutual benefits for
the parties hereto, MAFINCO shall provide the PEDDLER with a delivery truck with which the latter shall
exclusively peddle the soft drinks of the former, under the terms set forth herein;
2. The PEDDLER himself shall, carefully and in strict observance to traffic regulations, drive the truck
furnished him by MAFINCO or should he employ a driver or helpers such driver or helpers shall be his
employees under his direction and responsibility and not that of MAFINCO, and their compensation
including salaries, wages, overtime pay, separation pay, bonus or other remuneration and privileges shall
be for the PEDDLER'S own account; The PEDDLER shall likewise bind himself to comply with the provisions
of the Social Security Act and all the applicable labor laws in relation to his employees;
3. The PEDDLER shall be responsible for any damage to property, death or injuries to persons or damage
to the truck used by him caused by his own acts or omission or that of his driver and helpers;
4. MAFINCO shall furnish the gasoline and oil to run the said truck in business trips, bear the cost of
maintenance and repairs of the said truck arising from ordinary wear and tear;
5. The PEDDLER shall secure at his own expense all necessary licenses and permits required by law or
ordinance and shall bear any and all expenses which may be incurred by him in the sales of the soft drink
products covered by the contract;
6. All purchases by the PEDDLER shall be charged to him at a price of P2.52 per case of 24 bottles, exwarehouse; PROVIDED, However, that if the PEDDLER purchases a total of not less than 250 cases a day,
he shall be entitled further to a Peddler's Discount of P11.00;
7. Upon the execution of this contract, the PEDDLER shall give a cash bond in the amount of P1,500.00
against which MAFINCO shall charge the PEDDLER with any unpaid account at the end of each day or with
any damage to the truck of other account which is properly chargeable to the PEDDLER; within 30 days
after the termination of this contract, the cash bond, after deducting proper charges, shall be returned to
the PEDDLER;
8. The PEDDLER shall liquidate and pay all his accounts to MAFINCO'S authorized representative at the end
of each day, and his failure to do so shall subject his cash bond at once to answer for any unliquidated
accounts;
9. This contract shall be effective up to May 31, 1973 and supersedes any or all other previous contracts, if
any, that may have been entered into between the parties; However, either of the parties may terminate
the same upon five (5) days prior notice to the other;
10. Upon the. termination of this contract, unless the same is renewed, the delivery truck and such other
equipment furnished by MAFINCO to the PEDDLER shall be returned by the latter in good order and
workable condition, ordinary wear and tear excepted, und shall promptly settle his outstanding account if
any, with MAFINCO;

11. To assure performance by the PEDDLER of his obligation to his employees under the Social Security
Act, the applicable labor laws and for damages suffered by third persons, PEDDLER shall furnish a
performance bond of P1,000.00 in favor of MAFINCO from a SURETY COMPANY acceptable to MAFINCO.
IN WITNESS WHEREOF, the parties hereto have signed this instrument at the City of Manila,
Philippines, this May 31, 1972.
MAFINCO TRADING CORPORATION
By:
(Sgd.) RODRIGO REPOMANTA (Sgd.) SALVADOR C. PICA
Peddler General Manager
(Witnesses and notarial acknowledgment are omitted)
On December 7, 1972 Mafinco, pursuant to section 9 of the contract, terminated the same. The notice to
Repomanta reads as follows:
Dear Mr. Repomanta:
This has reference to the Peddling Contract you executed with the Mafinco Trading
Corporation on May 31, 1972. Please be informed that in accordance with the provisions of
paragraph 9 of the said peddling contract, we are hereby serving notice of termination
thereof effective on December 12, 1972.
Yours truly,
(Sgd.) SALVADOR C. PICA
General Manager
Complaints of Repomanta and Moralde and NLRCs dismissal thereof. Four days later or on December 11,
1972 Repomanta and Moralde, through their union, the FOITAF, filed a complaint with the NLRC, charging
the general manager of Mafinco with having violated Presidential Decree No. 21, issued on October 14,
1972, which created the NLRC and which was intended "to promote industrial peace, maximize
productivity and secure social justice for all". The brief complaint reads as follows:
Hon. Amado Gat Inciong, Chairman
National Labor Relations Commission
Phoenix Bldg., Intramuros,
Manila
Sir:
Pursuant to the Presidential Decree No. 21, Sections 2 and 11, the FOITAF files a complaint
against SALVADOR C. PICA, General Manager of MAFINCO TRADING CORP. located at Room
715, Equitable Bank Bldg., Juan Luna, Manila, for terminating union officials (sic), Mr. Rodrigo
Refumanta and Mr. Rey Moralde, which is a violation of the above mentioned decree.
Notice of termination is herewith attach (sic).
We anticipate your due attention and assistance.
Respectfully yours,
(Signed by National Secretary of FOITAF)
Mafinco filed a motion to dismiss the complaint on the ground that the NLRC had no jurisdiction because
Repomanta and Moralde were not its employees but were independent contractors. It stressed that there
was termination of the contract, not a dismissal of an employee. In Repomanta's case, it pointed out that
he was registered with the Social Security System as an employer who, as a peddler, paid premiums for his
employees; that he secured the mayor's permit to do business and the corresponding peddler's license and
paid the privilege tax and that he obtained workmen's compensation insurance for his own employees or
helpers. It alleged that Moralde was in the same situation as Repomanta.
Mafinco further alleged that the Bureau of Labor Relations denied the application of peedlers for
registration as a labor union because they were not employees but employers in their own right of delivery
helpers (Decision dated January 4, 1966 by the Registrar of Labor Organizations in Registration Proceeding
No. 4, In the Matter of Cosmos Supervisors Association-PTGWO); that the Court of Industrial Relations in
Case No. 4399-ULP, Cosmos Supervisors' Association PTGWO vs. Manila Cosmos Aerated Water Factory,
Inc., held in its decision dated July 17, 1967 that the peddlers were not employees of Cosmos, and that the
Court of Appeals held in Rapajon vs. Fong Kui and Figueras vs. Asierto, CA-G.R. No. 19477-R and 21397-R,
March 18, 1958 that the delivery helpers of the peddlers were not employees of Cosmos, a ruling which
this Court refused to review (L-14072-74, Rapajon vs. Fung Kui, Resolution dated July 16, 1958).
The complaint was referred to a factfinder who in a lengthy report dated January 22, 1973 found, after
"exhaustively and impartially" considering the contentions of the parties, that the peddlers were
employers or "independent businessmen', as held by the Court of Industrial Relations and the Court of

Appeals, and that that holding has the force of res judicata. The factfinder recommended the dismissal of
the complaint.
The old NLRC, composed of Amado G. Inciong, Diego P. Atienza and Ricardo O. Castro, adopted that
recommendation in its order dated February 2, 1973. That order, which analyzes the peddling contract and
reviews the court rulings on the matter, is quoted below:
The question of whether peddling contracts of the kind entered into between the parties
give rise to an employer-employee relationship is not new. Nor are the contracts themselves
of recent vintage.
For at least twenty years respondent MAFINCO and its predecessor and/or principal, the
Manila-Cosmos Aerated Water Factory, have entered into contracts with peddlers, under the
terms of which the latter buy from the former at a special price, and sell in Manila, the
former's soft drink products. The distributor provides the peddler with a delivery truck with
the distributor answering for the cost of fuel and maintenance. If a peddler buys a certain
number of cases or more a day, he is entitled to a fixed amount of peddler's discount.
The peddler himself drives the truck but if he engages a driver or helpers, the latter are his
employees and he assumes all the responsibilities of an employer in relation to them. He
also obtains at his own expense all licenses and permits required by law of salesmen.
The peddler clears his accounts with the distributor at the end of each day, and unpaid
accounts are charged against the cash deposit or bond which he gives the distributor upon
the execution of the peddling contract. He answers for damages caused by him or his
employees to third persons.
Ruling upon this type of contracts, and the practices and relationships that attended its
implementation, the Court of Appeals, in CA-G.R. No. 19477-R, said that it did not create a
relationship of employer and employee; that the peddlers under such contract were not
employees of the manufacturer or distributor, and accordingly dismissed the complaints in
the said case. (The peddler-complainants in that case were claiming overtime pay and
damages, among others.) Elevated to the Supreme Court on review (G.R. Nos.
L-14072 to L-14074, 2 August 1958), the decision of the Court of Appeals was in effect
affirmed, for the petition for review was dismissed by the Supreme Court 'for being factual
and for lack of merit!
The Court of Industrial Relations is of the same persuasion. After inquiring extensively into
substantially the same terms and conditions of peddling contracts and the practices and
relationships that went into their implementation, the Court said in Case No. 4399ULP that
the peddlers of the Manila-Cosmos Aerated Water Factory were not employees of the latter.
These precedents apply squarely to the case at hand. The complainants here have not
shown that their peddling contracts with the respondent differ in any substantial degree
from those that were at issue in the Court of Industrial Relations, the Court of Appeals and
the Supreme Court in the cases cited above. Indeed, a comparison between the contracts
involved in those cases and those in the instant litigation do not show any difference that
would warrant a different conclusion than that reached by those courts. If at all, the
additional stipulations in the present contracts strengthen the position that the complainant
peddlers are independent contractors or businessman, not employees of the respondent.
Nor has there been shown any substantial change in the old practices of peddlers vis-a-vis
the distributor or manufacturer. The points raised by the complainants in their pleadings
regarding these practices were extensively discussed by the CIR in the ULP case above
referred to.
We are not prepared to depart from this rule of long standing. It is the law of the case.
We therefore hold that the complainants in this case were not employees of MAFINCO and
Presidential Decree No. 21 does not I apply to them.
Complainants' appeal and the Labor Secretary's decision that they were employees of Mafinco.
Complainants Repomanta and Moralde appealed to the Secretary of Labor. They argued that the NLRC
erred (1) in holding that they were independent contractors and not employees; (2) in relying on the
peddler's contract to determine the existence of employer-employee relationship; (3) in anchoring its
decisions on precedents which have only persuasive force and which did not rule squarely on the issue of
employer-employee relationship, and (4) in dismissing their complaint.

As stated at the outset, the Secretary in his decision reversed al the NLRC order. He ruled that Repomanta
and Moralde were employees of Mafinco and that, consequently, the NLRC had jurisdiction over their
complaint. The Secretary directed the NLRC to hear the case on the merits.
The Secretary found that the complainants "were driver-salesmen of the company, driving the trucks and
distributing the products of the company" and that they were not independent contractors because they
had no capital of their own. That finding was based on the following considerations:
(1) That the contracts are Identical; (2) that the complainants were originally plant drivers' of
the company; (3) that the complainants had no capital of their own; (4) that their delivery
trucks were provided by the company; (5) that the use of the trucks were 'exclusively' for
peddling the products of the company; (6) that they were required to observe regulations;
(7) that they were required to drive the trucks; (8) that the company furnished the gasoline
and oil to run the said trucks in business trips; (9) that the company shouldered the cost of
maintenance and repair of the said trucks arising from an ordinary wear and tear; (10) that
the company required them to secure the necessary licenses and permits; (11) that the
company prohibited them from selling the company's products higher than the fixed price of
the company; and (12) that they and their helpers were paid on commission basis.
The Secretary relied on this Court's ruling that a person who possesses no capital or money of his own to
pay his obligations to his workers but relies-entirely upon the contract price to be paid by the company,
falls short of the requisites or conditions necessary for an independent contractor (Mansal vs. Gocheco
Lumber Co., 96 Phil. 941).
He observed that "behind the peddling cloak there was in fact employee-employer relationship". He said:
While, generally, written employment contracts are held sufficient in determining the nature
of employment, such contracts, however, cannot be always held conclusive where the actual
circumstances of employment indicate otherwise. For example, some employers, in order to
avoid or evade coverage of the Workmen's Compensation Act, enter into pseudo contracts
with their employees who are named as 'employers' or 'independent contractors'. Such
'written contracts as distinguished from oral Agreements, purporting to make persons
independent contractors, no matter how 'adroitly framed', can be carefully scanned and the
real relationship ascertained' (Glielmi vs. Netherlands Dairy Co., 254 N.Y. 60 (1930), Morabe
& Inton, Workmen's Compensation Act. p. 69).
If the Peddling Contract were carefully scanned, the conclusion may be drawn that the
contract is but a device and subterfuge to evade coverage under the labor laws. There is
more than meets the eye in item 2 of the Peddling Contract which required the peddlers to
do that which the law intends the employer to have done.
In fact, such contracts, as the one in question, exempting or tending to exempt the
employers from their legal obligations to their workers are null and void under Sec. 7 of the
Workmen's Compensation Act, as amended, which states:
Any contract, regulation or device of any sort intended to exempt the employer from all or
part of the liability created by this Act shall be null and void.
To rule otherwise would be to open the floodgate to employers in this territory to evade
liabilities to their workers by simply letting contracts for the doing of their business. 'Such
construction could not only narrow the provisions of the Act, but would defeat its intent and
purposes in their entirety. (Andoyo vs. Manila Railroad Co., supra).
The motion for the reconsideration of the decision was denied by the Secretary in his order of July 16,1973.
The Committee's report that the peddlers are independent contractors. On July 25, 1973 Mafinco moved
for the clarification of the decision by inquiring whether the question of employee-employer relationship
would be included in the hearing on the merits.
Action on the said motion was deferred until the receipt of the report of the committee created to study
the status of peddlers of Cosmos products. On September 3, 1973- the Secretary directed the committee
composed of Ernesto Valencia, Vicente R. Guzman and Eleo Cayapas to conduct an in-depth study of the
actual relationship existing between the Cosmos Bottling Co. and its peddlers.
The committee in its report dated September 17, 1973 arrived at the conclusion that the relationship
actually existing between Cosmos and Mafinco, on one hand, and the peddlers of Cosmos products, on the
other, is not one of employer and employee and "that the peddlers are independent contractors".

The committee after a perusal of the record of NLRC Case No. LR-086 interviewed twenty peddlers, an
officer of Cosmos and an officer of Mafinco. In the conduct of the interviews it 44 observed judicious
adherence to impartiality and openmindedness but with a modicum of friendliness and much of
informality". The report reads in part as follows:
(1) Implications of the 'Agreement To Peddler Soft Drinks'. Of vital importance to the mind of your
committee is the fact that this Agreement entered into between Cosmos and the Peddlers has, as its
prefatory statement but before the enumeration of its terms and conditions, the following:
That the Peddler has agreed to buy and sell the products of the MANUFACTURER under the
following conditions:
Similarly, the 'Peddling Contract' entered into between Mafinco and the Peddlers. contains
peculiarly Identical wordings. viz:
WHEREAS, the PEDDLER is desirious of buying and selling in Manila the 'COSMOS' Soft Drink
Products handled by
MAFINCO:
It is immediately clear from the beginning that the relationship that the parties would want
to establish between them is one of buyer and seller of the Cosmos Products. Moreover, this
type of Agreement or Contract has its roots since some twenty (20) years earlier, with
modifications only with respect to the factory price, the amount of over prices or what the
peddlers refer to as commission, and the amount pertaining to the dealer's discount. which
appear to vary depending upon the market demands.
We are, however, tempted to argue, as did the Peddlers, that this Agreement or Contract
might have been contrived as a device to evade responsibilities imposed upon Cosmos or
Mafinco under our labor laws as well as under other national or municipal laws.
Nevertheless, a close reading thereof will show a flaw in this line of insistence, when we
consider that this type of Agreement or Contract has been substantially the same since the
beginning of this relationship. More than this, it has withstood the test of time by
pronouncements of the CIR in ULP Case No. 4399, Cosmos Supervisors Association vs.
Manila Cosmos Aerated Water Factory, Inc.' July 17, 1967; by judicial review of the Court of
Appeals in CA-G.R. Nos. 19477-R, 19478-R and 21397-R, 'Eustaquio Repajon, et al. vs.
Manila Cosmos Aerated Water Factory, Inc.', promulgated on March 18, 1958; and impliedly
by resolution of the Supreme Court in G.R. Nos. L-14072 to L-14074 when the Court of
Appeals cases were appealed to that Tribunal.
But the more basic and indeed forceful ratiocination in favor of the validity of the Agreement
or Contract which covenants that the relationship between the Peddlers and Cosmos or
Mafinco is one of buyer and seller of the Cosmos Products on the part of the Peddlers, and,
therefore, one of an independent contractorship, finds substantive support in our Civil Code
which provides: (here arts. 1370 and 1374 of the Civil Code regarding interpretation of
contracts are quoted).
For its adjective interpretation, our Rules of Court specifically provides: (Here parol evidence
rule in see. 7, Rule 130, Rules of Court is quoted)
It must b restated at this point for purposes of emphasis that the validity of the aforesaid
Agreement or Contract has not been seriously assailed by the parties. In fact, their rallying
cause was the Agreement or Contract itself. To strengthen these provisions of the Civil Code
and the Rules of Court, stabilized jurisprudence have held that it is elementary rule of
contract that the laws in force at the time the contract was made must govern its
interpretation and application; that the terms of the contract, where unambiguous, are
conclusive, in the absence of averment and proof of mistake, the question being, not what
intention existed in the minds of the parties, but what intention is expressed by the
language used; that interpretation of an agreement does not include its modifications or the
creation of a new or different one; that Courts cannot make for the parties better
agreements than they themselves have been satisfied to make, or rewrite contracts because
they operate harshly or inequitably as to one of the parties; and that there is no right to
interpret an agreement as meaning something different from what the parties intended as
expressed by the language they saw fit to employ.
xxx xxx xxx

(1) The selection and engagement of the employees.-Nothing in the Agreement to Peddler Soft Drinks in
the case of Cosmos and in the Peddling Contract in the case of Mafinco, will reveal and we cannot logically
infer therefrom, that the Peddlers were engaged as employees of Cosmos or Mafinco. The selection of the
Peddlers who will buy and sell Cosmos products is left entirely between the parties; it is not the sole
prerogative of either one of the parties. There must be meeting of the minds in order to consummate the
Agreement or Contract and no evidence of coercion or imposition of the will of one over the other is
evident or apparent from the Peddlers' or Managements' interviews had by the members of your
Committee. This test, therefore, cannot be invoked by the Peddlers in their attempt at presenting
arguments to the effect that they are employees of Cosmos or Mafinco. Upon the other hand, the
Agreement or Contract itself provides that the Peddlers can hire helpers and drivers under their direction
and responsibility, and to whom they shall be liable for payment of 'salaries, wages, overtime pay,
separation pay, bonus and other remuneration and privileges.' As a matter of fact, drivers were employed
by Mrs. Victoria Ariz and M. Fong Kui, who are peddlers in their own right. This evidently shows the
discretion granted the peddlers to hire employees of their own.
(2) The payment of wages. On the basis of the clear terms of the Agreement or Contract, no mention is
made of the wages of the Peddlers; neither can an inference be made that any salary or wage is given to
Peddlers. In the interviews, however, with the Peddlers, they vehemently take the position that the
'dealer's discount' which was given to them at the rate of Pll.50 in excess of 200 cases of Cosmos products
they sell a day, constitutes their 'wages'. The term 'wages' as defined in Section 2 of the Minimum Wage
Law (Rep. Act No. 602, as amended) is as follows:
(g) 'Wage' paid to any employee shall mean the remuneration or earnings, however designated, capable of
being expressed in terms of money whether fixed or ascertained on a time, task, piece, commission basis,
or other method of calculating the same, which is payable by an employer to an under a written or
unwritten contract of employement for work done or to be done or for services rendered or to be rendered,
and includes the fair and reasonable value, as determined by the Secretary of Labor, of board, lodging, or
other facilities customarily furnished by the employer to the employee. ...
Section 10 (k) of the same law provides as follows:
(k) Notification of wage conditions. It shall be the duty of every employer to notify his employees at the
time of hiring of the wage conditions under which they are employed, which shall include the following
particulars:
(1) The rate of wages payable;
(2) The method of calculation of wages;
(3) The periodicity of wage payment; the day, the hour and pIace of payment; and
(4) Any change with respect to any of the foregoing items.
To the Committee's mind, all these requirements have not been shown to exist in the
relationship between the Peddlers and the Cosmos or Mafinco. If it were true that the
Pedders' 'dealer's discount' is in the nature of wages, then they must be notifed fully of the
wage conditions. Moreover, such 'wages' must be paid to them periodically at least once
every two weeks or twice a month. (See Par. (h) of See. 10 of Act No. 602, as amended). The
absence of such notification to the Peddlers and the lack of periodicity of such payment in
the manner and procedure contemplated in the Minimum Wage Law destroy, quiet evidently,
their allegation that the 'dealer's discount' was their 'wage'. Take note that the 'dealer's
discount' was given only about a week after the end of the month, and from the evidence
submitted by Cosmos, it appears clearly that the 'dealer's discount' varies from month to
month. Thus, the earnings of Mr. Salvador Abonales, who is a Peddler, from January to
August, 1973, amounted to P12,520.70, while that of Mr. Alberto S. Garcia, for the same
period, amounted to P13,633.42, and 4 their earnings every month vary decisively. This
factor defeats factually the insistence of the Peddlers that they are employees of Cosmos or
Mafinco.
Upon the other hand, the Peddlers' declarations reveal that the wages of their helpers are
taken from the overprice or what is ordinarily termed as 'commission' of ten centavos
(P0.10) per case that they get-a factor which indicates that they are themselves employers
of their helpers. In addition, the Peddlers are reported as Employers of these helpers with
the Social Security System, and that they also purchase workmen's compensation policies in
their names as Employers of their own helpers for purposes of workmen's compensation

insurance of their liabilities, which are all in accordance with the terms and conditions of the
Agreement or Contract and indicative of an attribute of one who is an independent
merchant.
(3) The power of dismissal. In the case of 'Rodrigo Repomanta and Rey Moralde vs. Mafinco Trading
Corp.,' NLRC Case No. LR-086, which served as one of our bases for this study, the complainants therein
appear to have complained before the National Labor Relations Commission for being allegedly illegally
dismissed or that their services were terminated without cause. A search of the alleged dismissal however
shows that the Identical letters both dated December 7, 1972 addressed to the said complainants were not
actually what complainants pictured them to be, but the termination of the peddling in accordance with
paragraph 9 of said Contract.
xxx xxx xxx
Thus, complainants' services were not terminated, only their Peddling Contracts with
Mafinco were. The power of dismissal is not lodged with either Mafinco or Cosmos, for based
on the Agreement or Contract none whatsoever exists. Certainly, to attribute a power of
dismissal to Cosmos or Mafinco where none exists is careless imprudence and a height of
inaccuracy. This power of dismissal by Cosmos or Mafinco is not countenanced in the
Agreement or Contract.
There is, however, an allegation by the Peddlers that the hiring and firing of the helpers
ultimately rest on Cosmos or Mafinco. This allegation nevertheless, is controverted by
Cosmos and Mafinco. Nonetheless, we checked the basic document the Agreement or
Contract and we find that the hiring and, impliedly firing, we is a prerogative of the
Peddlers and not of Cosmos or Mafinco.
(4) The power to control the employee's conduct. From the interviews had by your Committee with both
the Peddlers and the representatives of Cosmos and Mafinco, we gather that the following findings on the
power of control are substantially correct:
(a) That the delivery trucks assigned to the Peddlers are available to them early in the
morning and are free to get them, which they usually do between 5:30 A.M. to 6:30 A.M.
There was no compulsion on the part of the Peddlers to report for work at that time, as in
fact, they did not sign any time record. The practice of getting the delivery trucks early in
the morning is more beneficial to the Peddlers than to Cosmos or Mafinco since they can
finish the peddling of Cosmos products much earlier and spend the rest of the day at their
own pleasure. The signing of the 'logbooks' is both pertinent and necessary since the trucks
used in the delivery of Cosmos products are owned by Cosmos or Mafinco and are simply
utilized by Peddlers as a measure of convenience and for advertising purposes. But peddlers
are not precluded from getting trucks of their own should they so desire.
(b) That liaison officers (supervisors) are assigned by Cosmos or Mafinco in definite areas
routes or zones, not so much of supervision over Peddlers, since their areas, routes or zones
were already agreed upon or pre-arranged among them through the Cosmos Peddlers
Association, Inc. of which all Peddlers are members, as principally for market analysis since
soft drinks selling is a highly competitive business, and also to inquire or check on sales, and
the result of which, report is made direct to the Office of Cosmos or Mafinco.
(c) That the use of the uniform does not seem to be an imposition by management of
Cosmos or Mafinco upon the Peddlers, but a voluntary arrangement among the Peddlers
themselves. For, from the documents submitted to this Committee, it appears that the
Cosmos Peddlers Association, in a meeting held on August 5, 1967, adopted a resolution to
'always wear their uniform while in the performance of their sales work,' and in their
meeting on January 25, 1969, it adopted another resolution penalizing Peddlers who failed to
wear their uniform in the amount of P2.00 per violation. Certainly, the resolutions of the
Cosmos Peddlers Association, an independent association of Peddlers and duly registered
with the Securities and Exchange Commission, and possessing an entirely distinct existence,
cannot be taken as impositions from Cosmos or Mafinco.
(d) That the matter of turning in of sales of collection which, if found short, is charged
against the Peddler's cash bond, is to the mind of the Committee, giving effect to the valid
terms and conditions of the Agreement or Contract, and also an ordinary business practice
which necessarily requires liquidation of the day's accounts. We do not see any evidence of

control on the part of Cosmos or Mafinco over the activities, including the sales, of the
Cosmos products by the Peddlers themselves who are, apparently, left to their own choices
of routes, areas or zones as pre-arranged, with no definite, much less supervised, time
schedule.
(e) That in the matter of reprimand or discipline which the peddlers attempt to project when
they failed to report for work, your Committee found no substantial evidence on this point.
The evidence shows that the peddlers are free to choose their time. Obviously, any absence
that they may incur means so much reduction from their earnings. Thus, if their attention is
incidentally called on this matter it is for the observance of their agreements which is
present in any contractual relations.
As to the aspect of employer-employee relation, therefore, between Cosmos or Mafinco and
the Peddlers, your Committee does not have sufficient basis to reasonably sustain the stand
of the Peddlers that there is such relationship.
(c) Attributes of an independent contractor. As a countercheck, as it were, to the issue of
employer-employee relationship your committee has taken the task of testing such
relationship against the attributes of an independent contractor which, from the interviews
and documents submitted by the parties, appear to exists on the part of the Peddlers. The
earlier case of Andoyo vs. Manila Railroad Co., G.R. No. 34722, promulgated on March 28,
1932, furnishes us the definition of an 'independent contractor.' Our Supreme Court of prewar composition, ruled:
An independent contractor is one who exercises independent employment and contracts to
do a piece of work according to his own methods and without being subject to control of his
employer except as to the resuIt of thework. A person who has no capital or money of his
own to pay his laborers or to comply with his obligations to them, who files no bond to
answer for the fulfillment of his contract with his employer, falls short of the requisites or
conditions necessary to classify him as independent contractor.
These requisites and conditions were reiterated in the postwar cases of Philippine
Manufacturing Co., Inc. vs. Geronimo, G. R. No. L-6968, promulgated on November 29, 1954,
and Koppel (Phil.), Inc. vs. Darlucio et, al., G.R. No. L-14903, promulgated on August. 29,
1960. Analyzing the definition of 'independent contractor', the following may be gathered
from the relationship between the Peddlers, on the one hand, and Cosmos or Mafinco, on the
other:
(1) Peddlers contract to sell and buy Cosmos products from Cosmos or Mafinco, the latter furnishing the
delivery truck, but the former sell Cosmos products according to their own methods, subject to the prearranged routes, areas and zones, and go back to the Company compound to return the delivery truck and
to make accounting of the day's sales collection at any time in the morning or in the afternoon. Essentially,
control, if at all, extends only as to observance of traffic regulations which is inherent in ownership of the
delivery truck by Cosmos or Mafinco and the end result which is the liquidation of the sales collection.
Control over the details of the Peddlers' sales activities seems to be farfetched in this case.
(2) Capital or money of the Peddlers to pay their own helpers is evidently within their prerogative, although
it appears that the wages of helpers are uniform at P6.00 per trip. But can we safely say that the cash
bond of Pl,500.00 by the Peddlers constitute their capital? For big-time businessmen, this small amount
may not be considered capital, but when it is taken as a 'deposit on consignment' since the same answers
for any deficiencies that the Peddlers may incur during the day's sales collection, then it can be taken to
mean 'capital' within its signification that it allocates to every day business dealing. The amount of capital,
to us, is immaterial; it is the purpose for which the same is deposited that is most significant.
(3) The Peddlers are required under the Agreement to Peddler Soft Drinks and Peddling Contract to put up
not only the cash bond of P1,500.00, but also a performance bond of P1,000.00 as embodied in said
Agreement to Peddler Soft Drinks as follows:
(4) To assure performance by the PEDDLER of his obligation to his employees under the Social Security Act,
the applicable labor laws, and for damages suffered by third persons PEDDLER shall furnish a performance
bond of P1,000.00 in favor of the MANUFACTURER from a surety Company acceptable to the
MANUFACTURER. And, in case Performance Bond within 30 days from the date of signing of this Contract,
such failure shall be sufficient ground for the MANUFACTURER to suspend the business relationship with
the Peddler until the Peddler complies with this provision.

Again, to the mind of your Committee, the amount of the Performance Bond is not so
relevant and material as to the purpose for which the same is executed- which is to assure
performance of the Peddlers' obligations as employer of his helpers. This is an attribute of an
independent contractor to which the Peddlers are bound under the Agreement or Contract.
(4) Peddlers are doing business for themselves since they took out licenses in the City of
Manila, and have paid their corresponding professional or occupation tax to the Bureau of
Internal Avenue. This fact strengthens the Committee findings that the peddlers are carrying
on a business as independent merchants.
The Secretary in his resolution of October 18, 1973 ignored the committee's conclusion. He clarified that
the NLRC should determine whether the two complainants were illegally dismissed and that the
jurisdictional issue should not be taken up anymore.
The instant petition; the issue and the ruling thereon. Mafinco filed the instant actions on November 14,
1973. It prayed for a declaration that the Secretary of Labor and the NLRC had no jurisdiction to entertain
the complaints of Repomanta and Moralde; that the Secretary's decision should be set aside, and that the
NLRC and the Secretary be enjoined from further proceeding in NLRC Case No. LR-086.
Parenthetically, it should be noted that under section 5 of Presidential Decree No. 21 the Secretary's
decision "is appealable" to the President of the Philippines (Nation Multi Service Labor Union vs. Agcaoili, L39741, May 30, 1975, 64 SCRA 274). However, under section 22 of the old NLRC regulations, an appeal to
the President should be made only "in national interest cases".
On the other hand, judicial review of the decision of an administrative agency or official exercising quasijudicial functions is proper in cases of lack of jurisdiction, error of law, grave abuse of discretion, fraud or
collusion or in case the administrative action or resolution is "corrupt, arbitrary or capricious (San Miguel
Corporation vs. Secretary of Labor, L-39195, May 16, 1975, 64 SCRA 56; Commissioner of Customs vs.
Valencia, 100 Phil. 165; Villegas vs. Auditor General, L-21352, November 29, 1966, 18 SCRA 877, 891).
After the parties had submitted their illuminating memoranda, Mafinco filed a motion in this Court for the
dismissal of the complaint in the defunct NLRC on three grounds, to wit: (1) that the NLRC had no
jurisdiction over the case because Repomanta and Moralde had not sought reinstatement or backwages;
(2) that the employer's failure to secure written clearance from the Secretary of Labor before dismissing an
employee might constitute a crime punishable under article 327 of the Labor Code and not mere
contempt, as contemplated in section 10 of Presidential Decree No. 21, and (3) that the contempt
provisions of that decree were abrogated by the Labor Code.
Mafinco in support of its motion for dismissal cited Quisaba vs. Sta. Ines-Melale Veneer & Plywood, Inc., L38088, August 30, 1974, 58 SCRA 771, where it was held that the regular court, not the NLRC, has
jurisdiction over an employee's action for damages against his employer's act of demoting him.
Respondent Repomanta and Moralde opposed that motion to dismiss. They Pointed out that, inasmuch as
their complaint is pending in the new NLRC, this Court cannot dismiss it. They also observed that article
327 was eliminated from the Labor Code which, as amended by Presidential Decrees Nos. 570-A, 626 and
643, contains only 292 articles. Article 327 was superseded by article 278 of the amended Code.
The truth is that Mafinco's motion merely adduced additional grounds to support its stand that the
Secretary of Labor had no jurisdiction over the complaint of Repomanta and Moralde.
This case was not rendered moot by the Labor Code. Although the Code abolished the old NLRC (Art. 289),
it created a new NLRC (Art. 213) and provided that cases pending before the old NLRC should be
transferred to, and processed by, the corresponding labor relations division or the new NLRC and should be
decided in accordance with Presidential Decree No. 21 and the rules and regulations adopted thereunder
(Art. 290. See Sec. 5, P.D. No. 626).
The issue is whether the dismissal of Repomanta and Moralde was within the jurisdiction of the old NLRC.
If, as held by the old NLRC, it had no jurisdiction over their complaint because they were not employees of
Mafinco but independent contractors, then the Secretary of Labor had no jurisdiction to remand the case to
the NLRC for a hearing on the merits of the complaint.
Hence, the crucial issue is whether Repomanta and Moralde were employees of Mafinco under the
peddling contract already quoted. Is the contract an employment contract or a contract to sell or distribute
Cosmos products?
The question of whether an employer-employee relationship exists in a certain situation has bedevilled the
courts. Businessmen, with the aid of lawyers, have tried to avoid the bringing about of an employeremployee relationship in some of their enterprises because that juridical relation spawns obligations

connected with workmen's compensation, social security, medicare, minimum wage, termination pay and
unionism.
Presidential Decree No. 21 provides:
SEC. 2. The Commission shall have original and exclusive jurisdiction over the following:
1) All matters involving employee-employer relations including all disputes and grievances which may
otherwise lead to strikes and lockouts under Republic Act No. 875;
xxx xxx xxx
SEC. 10. The President of the Philippines, on recommendation of the Commission and the
Secretary of Labor, may order the arrest and detention of any person held in contempt by
the Commission for non-compliance and defiance of any subpoena, order or decision duly
issued by the Commission in accordance with this Decree and its implementing rules and
regulations and for any violation of the provisions of this Decree.
SEC. 11. No employer may shut down his establishment or dismiss or terminate the services
of regular employees with at least one year of service without the written clearance of the
Secretary of , Labor.
The Solicitor General, as counsel for the old NLRC and the Secretary of Labor, argues that the question of
whether Repomanta and Morale are independent contractors or employees is factual in character and
cannot be resolved by merely construing the peddling contracts; that other relevant facts aliunde or
dehors the said contracts should be taken into account, and that the contracts were a part of an "intricate
network of devices (of Mafinco and Cosmos) developed. and perfected through the years to conceal the
true nature of their relationship to their sales agents".
Repomanta and Moralde contend that their peddling contracts were terminated because of their activities
in organizing a union among the peddlers. Annexed to their memorandum is a joint affidavit of sixty-three
sales agents of Cosmos products who described therein the nature of their work, the organization of their
union and the dismissal of Repomanta and Moralde. Annexed to their answer is Resolution No. 921 of the
Social Security Commission dated November 16, 1972 in SSS Case No. 602 wherein it was held that
peddlers and their helpers were employees of Cosmos.
Like the Solicitor General, Repomanta and Moralde harp on the argument that the peddling contracts were
a scheme to camouflage an employer-employee relationship and thus evade the coverage of labor laws.
The parties in their pleadings and memoranda injected conflicting factual allegations to support their
diametrically opposite contentions. From the factual angle, the case has become highly controversial.
In a certiorari and prohibition case, like the instant case, only legal issues affecting the jurisdiction of the
tribunal, board or officer involved may be resolved on the basis of undisputed facts. Sections 1, 2 and 3,
Rule 65 of the Rules of Court require that in the verified petition for certiorari, mandamus and prohibition
the petitioner should allege "facts with certainty".
In this case the facts have become uncertain. Controversial evidentiary facts have been alleged. What is
certain and indubitable is that a notarized peddling contract was executed.
This Court is not a trier of facts. It would be difficult, if not anomalous, to decide the jurisdictional issue on
the basis of the parties' contradictory factual submissions. The record has become voluminous because of
their efforts to persuade this Court to accept their discordant factual statements.
Pro hac vice the issue of whether Repomanta and Moralde were employees of Mafinco or were independent
contractors should be resolved mainly in the light of their peddling contracts. A different approach would
lead this Court astray into the field of factual controversy where its legal pronouncements would not rest
on solid grounds.
A restatement of the provisions of the peddling contract is necessary in order to find out whether under
that instrument Repomanta and Moralde were independent contractors or mere employees of Mafinco.
Under the peddling contract, Mafinco would provide the peddler with a delivery truck to be used in the
distribution of Cosmos soft drinks (Par. 1). Should the peddler employ a driver and helpers, he would be
responsible for their compensation and social security contributions and he should comply with applicable
labor laws "in relation to his employees" (Par. 2).
The peddler would be responsible for any damage to persons or property or to the truck caused by his own
acts or omissions or those of his driver and helpers (Par. 3). Mafinco would bear the cost of gasoline and
maintenance of the truck (Par. 4). The peddler would secure at his own expense the necessary licenses and
permits and bear the expenses to be incurred in the sale of Cosmos products (Par. 5).
The soft drinks would be charged to the peddler at P2.52 per case of 24 bottles, ex-warehouse. Should he
purchase at least 250 cases a day, he would be entitled to a peddler's discount of eleven pesos (Par. 6).

The peddler would post a cash bond in the sum of P1,500 to answer for his obligations to Mafinco (Par. 7)
and another cash bond of P1,000 to answer for his obligations to his employees (Par. 11). He should
liquidate his accounts at the end of each day (Par. 8). The contract would be effective up to May 31, 1973.
Either party might terminate it upon five days' prior notice to the other (Par. 9).
We hold that under their peddling contracts Repomanta and Moralde were not employees of Mafinco but
were independent contractors as found by the NLRC and its fact-finder and by the committee appointed by
the Secretary of Labor to look into the status of Cosmos and Mafinco peddlers. They were distributors of
Cosmos soft drinks with their own capital and employees. Ordinarily, an employee or a mere peddler does
not execute a formal contract of employment. He is simply hired and he works under the direction and
control of the employer.
Repomanta and Moralde voluntarily executed with Mafinco formal peddling contracts which indicate the
manner in which they would sell Cosmos soft drinks. That Circumstance signifies that they were acting as
independent businessmen. They were to sign or not to sign that contract. If they did not want to sell
Cosmos products under the conditions defined in that contract; they were free to reject it.
But having signed it, they were bound by its stipulations and the consequences thereof under existing
labor laws. One such stipulation is the right of the parties to terminate the contract upon five days' prior
notice (Par. 9). Whether the termination in this case was an unwarranted dismissal of an employee, as
contended by Repomanta and Moralde, is a point that cannot be resolved without submission of evidence.
Using the contract itself as the sole criterion, the termination should perforce be characterized as simply
the exercise of a right freely stipulated upon by the parties.
"In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employees' conduct-although the latter is the most
important element" (Viana vs. Al-Lagadan and Piga, 99 Phil. 408, 411, citing 35 Am. Jur. 445).
On the other hand, an independent contractor is "one who exercises independent employment and
contracts to do a piece of work according to his own methods and without being subject to control of his
employer except as to the result of the work" (Mansal vs. P.P. Gocheco Lumber Co., supra).
Among the factors to be considered are whether the contractor is carrying on an
independent business; whether the work is part of the employer's general business; the
nature and extent of the work; the skill required; the term and duration of the relationship;
the right to assign the performance of the work to another; the power to terminate the
relationship; the existence of a contract for the performance of a specified piece of work; the
control and supervision of the work; the employer's powers and duties with respect to the
hiring, firing, and payment of the contractor's servants; the control of the premises; the duty
to supply the premises, tools, appliances, material and labor; and the mode, manner, and
terms of payment. (56 C.J.S. 46).
Those tests to determine the existence of an employer-employee relationship or whether the person doing
a particular work for another is an independent contractor cannot be satisfactorily applied in the instant
case. It should be obvious by now that the instant case is a penumbral, sui generis case lying on the
shadowy borderline that separates an employee from an independent contractor.
In determining whether the relationship is that of employer and employee or whether one is an
independent contractor, "each case must be determined on its own facts and all the features of the
relationship are to be considered" (56 C.J.S. 45). We are convinced that on the basis of the peddling
contract, no employer-employee relationship was created. Hence, the old NLRC had no jurisdiction over the
termination of the peddling contract.
However, this ruling is without prejudice to the right of Repomanta and Moralde and the other peddlers to
sue in the proper Court of First Instance and to ask for a reformation of the instrument evidencing the
contract or for its annulment or to secure a declaration that, disregarding the peddling contract, the actual
juridical relationship between them and Mafinco or Cosmos is that of employer and employee. In that
action a fulldress trial may be held and the parties may introduce the evidence necessary to sustain their
respective contentions.
Paragphrasing the dictum in the Quisaba case, supra, if Mafinco and Cosmos had acted oppressively
towards their peddlers, as contemplated in article 1701 of the Civil Code, then they should file the proper
action for damages in the regular courts. Where there is a right, there is a remedy (Ubi jus, ubi remedium).

WHEREFORE, the decision, order and resolution of the Secretary of Labor in NLRC Case No. LR-086 dated
April 16, July 16 and October 18, 1973, respectively, are set aside and the order of the NLRC dated
February 2, 1973, dismissing the case for lack of jurisdiction, is affirmed. No costs.
SO ORDERED.
Barredo, Antonio, Concepcion, Jr. and Martin, JJ., concur.
Mr. Justice Fernando is on leave.
Mr. Justice Martin was designated to sit in the Second Division.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 84484 November 15, 1989

INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.
Tirol & Tirol for petitioner.
Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.
NARVASA, J.:
On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and Melecio T.
Basiao entered into a contract 1 by which:
1. Basiao was "authorized to solicit within the Philippines applications for insurance policies
and annuities in accordance with the existing rules and regulations" of the Company;
2. he would receive "compensation, in the form of commissions ... as provided in the
Schedule of Commissions" of the contract to "constitute a part of the consideration of ...
(said) agreement;" and
3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well as all its
circulars ... and those which may from time to time be promulgated by it, ..." were made part
of said contract.
The contract also contained, among others, provisions governing the relations of the parties, the duties of
the Agent, the acts prohibited to him, and the modes of termination of the agreement, viz.:
RELATION WITH THE COMPANY. The Agent shall be free to exercise his own judgment as to
time, place and means of soliciting insurance. Nothing herein contained shall therefore be
construed to create the relationship of employee and employer between the Agent and the
Company. However, the Agent shall observe and conform to all rules and regulations which
the Company may from time to time prescribe.
ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving, directly or
indirectly, rebates in any form, or from making any misrepresentation or over-selling, and, in
general, from doing or committing acts prohibited in the Agent's Manual and in circulars of
the Office of the Insurance Commissioner.
TERMINATION. The Company may terminate the contract at will, without any previous notice
to the Agent, for or on account of ... (explicitly specified causes). ...
Either party may terminate this contract by giving to the other notice in writing to that
effect. It shall become ipso facto cancelled if the Insurance Commissioner should revoke a
Certificate of Authority previously issued or should the Agent fail to renew his existing
Certificate of Authority upon its expiration. The Agent shall not have any right to any
commission on renewal of premiums that may be paid after the termination of this
agreement for any cause whatsoever, except when the termination is due to disability or
death in line of service. As to commission corresponding to any balance of the first year's
premiums remaining unpaid at the termination of this agreement, the Agent shall be entitled
to it if the balance of the first year premium is paid, less actual cost of collection, unless the
termination is due to a violation of this contract, involving criminal liability or breach of trust.

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

compensations shall be valid without the prior consent in writing of the Company. ...
Some four years later, in April 1972, the parties entered into another contract an Agency Manager's
Contract and to implement his end of it Basiao organized an agency or office to which he gave the name
M. Basiao and Associates, while concurrently fulfilling his commitments under the first contract with the
Company. 2
In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking a
reconsideration, Basiao sued the Company in a civil action and this, he was later to claim, prompted the
latter to terminate also his engagement under the first contract and to stop payment of his commissions
starting April 1, 1980. 3
Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and its president.
Without contesting the termination of the first contract, the complaint sought to recover commissions
allegedly unpaid thereunder, plus attorney's fees. The respondents disputed the Ministry's jurisdiction over
Basiao's claim, asserting that he was not the Company's employee, but an independent contractor and
that the Company had no obligation to him for unpaid commissions under the terms and conditions of his
contract. 5
The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting
agreement had established an employer-employee relationship between him and the Company, and this
conferred jurisdiction on the Ministry of Labor to adjudicate his claim. Said official's decision directed
payment of his unpaid commissions "... equivalent to the balance of the first year's premium remaining
unpaid, at the time of his termination, of all the insurance policies solicited by ... (him) in favor of the
respondent company ..." plus 10% attorney's fees. 6
This decision was, on appeal by the Company, affirmed by the National Labor Relations
Commission. 7 Hence, the present petition for certiorari and prohibition.
The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the Company's
employee by virtue of the contract invoked by him, thereby placing his claim for unpaid commissions
within the original and exclusive jurisdiction of the Labor Arbiter under the provisions of Section 217 of the
Labor Code, 8 or, contrarily, as the Company would have it, that under said contract Basiao's status was
that of an independent contractor whose claim was thus cognizable, not by the Labor Arbiter in a labor
case, but by the regular courts in an ordinary civil action.
The Company's thesis, that no employer-employee relation in the legal and generally accepted sense
existed between it and Basiao, is drawn from the terms of the contract they had entered into, which, either
expressly or by necessary implication, made Basiao the master of his own time and selling methods, left to
his judgment the time, place and means of soliciting insurance, set no accomplishment quotas and
compensated him on the basis of results obtained. He was not bound to observe any schedule of working
hours or report to any regular station; he could seek and work on his prospects anywhere and at anytime
he chose to, and was free to adopt the selling methods he deemed most effective.
Without denying that the above were indeed the expressed implicit conditions of Basiao's contract with the
Company, the respondents contend that they do not constitute the decisive determinant of the nature of
his engagement, invoking precedents to the effect that the critical feature distinguishing the status of an
employee from that of an independent contractor is control, that is, whether or not the party who engages
the services of another has the power to control the latter's conduct in rendering such services. Pursuing
the argument, the respondents draw attention to the provisions of Basiao's contract obliging him to "...
observe and conform to all rules and regulations which the Company may from time to time prescribe ...,"
as well as to the fact that the Company prescribed the qualifications of applicants for insurance, processed
their applications and determined the amounts of insurance cover to be issued as indicative of the control,
which made Basiao, in legal contemplation, an employee of the Company. 9
It is true that the "control test" expressed in the following pronouncement of the Court in the 1956 case
of Viana vs. Alejo Al-Lagadan 10
... In determining the existence of employer-employee relationship, the following elements
are generally considered, namely: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the power to control the
employees' conduct although the latter is the most important element (35 Am. Jur.
445). ...

has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a valid
test of the character of a contract or agreement to render service. It should, however, be obvious that not
every form of control that the hiring party reserves to himself over the conduct of the party hired in
relation to the services rendered may be accorded the effect of establishing an employer-employee
relationship between them in the legal or technical sense of the term. A line must be drawn somewhere, if
the recognized distinction between an employee and an individual contractor is not to vanish altogether.
Realistically, it would be a rare contract of service that gives untrammelled freedom to the party hired and
eschews any intervention whatsoever in his performance of the engagement.
Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement
of the mutually desired result without dictating the means or methods to be employed in attaining it, and
those that control or fix the methodology and bind or restrict the party hired to the use of such means. The
first, which aim only to promote the result, create no employer-employee relationship unlike the second,
which address both the result and the means used to achieve it. The distinction acquires particular
relevance in the case of an enterprise affected with public interest, as is the business of insurance, and is
on that account subject to regulation by the State with respect, not only to the relations between insurer
and insured but also to the internal affairs of the insurance company. 12 Rules and regulations governing
the conduct of the business are provided for in the Insurance Code and enforced by the Insurance
Commissioner. It is, therefore, usual and expected for an insurance company to promulgate a set of rules
to guide its commission agents in selling its policies that they may not run afoul of the law and what it
requires or prohibits. Of such a character are the rules which prescribe the qualifications of persons who
may be insured, subject insurance applications to processing and approval by the Company, and also
reserve to the Company the determination of the premiums to be paid and the schedules of payment.
None of these really invades the agent's contractual prerogative to adopt his own selling methods or to sell
insurance at his own time and convenience, hence cannot justifiably be said to establish an employeremployee relationship between him and the company.
There is no dearth of authority holding persons similarly placed as respondent Basiao to be independent
contractors, instead of employees of the parties for whom they worked. In Mafinco Trading Corporation vs.
Ople,13 the Court ruled that a person engaged to sell soft drinks for another, using a truck supplied by the
latter, but with the right to employ his own workers, sell according to his own methods subject only to
prearranged routes, observing no working hours fixed by the other party and obliged to secure his own
licenses and defray his own selling expenses, all in consideration of a peddler's discount given by the other
party for at least 250 cases of soft drinks sold daily, was not an employee but an independent contractor.
In Investment Planning Corporation of the Philippines us. Social Security System 14 a case almost on all
fours with the present one, this Court held that there was no employer-employee relationship between a
commission agent and an investment company, but that the former was an independent contractor where
said agent and others similarly placed were: (a) paid compensation in the form of commissions based on
percentages of their sales, any balance of commissions earned being payable to their legal representatives
in the event of death or registration; (b) required to put up performance bonds; (c) subject to a set of rules
and regulations governing the performance of their duties under the agreement with the company and
termination of their services for certain causes; (d) not required to report for work at any time, nor to
devote their time exclusively to working for the company nor to submit a record of their activities, and
who, finally, shouldered their own selling and transportation expenses.
More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller to buy and
sell rice and palay without compensation except a certain percentage of what he was able to buy or sell,
did work at his own pleasure without any supervision or control on the part of his principal and relied on his
own resources in the performance of his work, was a plain commission agent, an independent contractor
and not an employee.
The respondents limit themselves to pointing out that Basiao's contract with the Company bound him to
observe and conform to such rules and regulations as the latter might from time to time prescribe. No
showing has been made that any such rules or regulations were in fact promulgated, much less that any
rules existed or were issued which effectively controlled or restricted his choice of methods or the
methods themselves of selling insurance. Absent such showing, the Court will not speculate that any
exceptions or qualifications were imposed on the express provision of the contract leaving Basiao "... free
to exercise his own judgment as to the time, place and means of soliciting insurance."

The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with the
Company for twenty-five years. Whatever this is meant to imply, the obvious reply would be that what is
germane here is Basiao's status under the contract of July 2, 1968, not the length of his relationship with
the Company.
The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of the
petitioner, but a commission agent, an independent contractor whose claim for unpaid commissions should
have been litigated in an ordinary civil action. The Labor Arbiter erred in taking cognizance of, and
adjudicating, said claim, being without jurisdiction to do so, as did the respondent NLRC in affirming the
Arbiter's decision. This conclusion renders it unnecessary and premature to consider Basiao's claim for
commissions on its merits.
WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside, and that
complaint of private respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is dismissed. No
pronouncement as to costs.
SO ORDERED.
Cruz, Gancayco, Grio-Aquino, and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 102633-35 January 19, 1993
RHONE-POULENC AGROCHEMICALS PHILIPPINES, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, URCISIO A. ORAIN, and PAULINO G.
ROMAN, respondents.
Francis V. Sobrevinas and Divinagracia S. San Juan for petitioner.
GUTIERREZ, JR., J.:
Petitioner Rhone-Poulenc Agrochemicals Philippines, Inc. (Rhone-Poulenc for brevity) assails the finding by
the National Labor Relations Commission (NLRC) that Contemporary Services, Inc. (CSI), a supplier of
janitorial services, is a labor-only contractor.
The petitioner is a domestic corporation engaged in the manufacture of agro-chemicals. Its business
operations involve the formulation, production, distribution and sale in the local market of its agrochemical products.
On January 1, 1988, as a consequence of the sale by Union Carbide, Inc. of all its agricultural-chemical
divisions worldwide in favor of Rhone-Poulenc Agrochemie, France, the petitioner's mother corporation, the
petitioner acquired from Union Carbide Philippines Far East, Inc. (Union Carbide for short) the latter's agrochemical formulation plant in Namayan, Mandaluyong, Metro Manila.
Rhone-Poulenc and Union Carbide agreed on a three-month transition period for the turnover of the
Namayan plant to the former. Hence, from January 1 to March 31, 1988, both Union Carbide and RhonePoulenc shared and operated the same facilities.
In 1987, prior to the sale, Union Carbide had entered into a contract with CSI for the latter's supply of
janitorial services. During the transition period, Union Carbide continued to avail itself of CSI's janitorial
services. Thus, petitioner Rhone-Poulenc found itself sharing the Namayan plant with Union Carbide while
the factory was being serviced and maintained by janitors supplied by CSI.
Midway through the transition period, Union Carbide instructed CSI to reduce the number of janitors
working at the plant from eight (8) to seven (7). Private respondent Paulino Roman, one of the janitors, was
recalled by CSI on February 15, l988 for reassignment. However, Roman refused to acknowledge receipt of
the recall memorandum.
On March 9, 1988, Union Carbide formally notified CSI of the termination of their janitorial service
agreement, effective April 1, 1988, citing as reason the global buy-out by Rhone-Poulenc, Agrochemie,
France of Union Carbides Inc.'s agro-chemical business. CSI thereafter issued a memorandum dated March

20, 1988 to the seven remaining janitors assigned to the Namayan plant, including respondent Urcisio
Orain, recalling and advising them to report to the CSI office for reassignment. Like Roman, the janitors
refused to acknowledge receipt of the recall memorandum.
Meanwhile, in anticipation of the March 31, 1988 pull-out by Union Carbide, the petitioner started
screening proposals by prospective service contractors. Rhone-Poulenc likewise invited CSI to submit to its
Bidding Committee a cost quotation of its janitorial services. However, another contractor, the Marilag
Business and Industrial Services, Inc. passed the bidding committee's standards and obtained the janitorial
services contract.
On April 1, 1988, the eight janitors reported for work at the Namayan plant but were refused admission
and were told that another group of janitors had replaced them. These janitors then filed separate
complaints for illegal dismissal, payment of 13th month salary, service leave and overtime pay against
Union Carbide, Rhone-Poulenc and CSI. These cases were consolidated by order of Labor Arbiter Manuel
Asuncion dated May 23, 1988.
Trial on the merits ensued wherein the labor arbiter conducted full-blown hearings on factual issues. After
the cases were submitted for decision, six of the original complainants tendered their resignations to CSI in
consideration of the latter's settlement of all their claims. Hence, only the claims of respondents Roman
and Orain remained unsettled.
On November 8, 1989, Labor Arbiter Asuncion ruled that CSI is a legitimate service contractor and that
Roman and Orain were employees of CSI. The dispositive portion of the labor arbiter's decision is quoted
below:
WHEREFORE, the respondent CSI is ordered to pay the complainants Orain and Roman their
separation pays computed at one-half of their salaries for every year of service. The rest of
the claims are dismissed for lack of merit.
The respondents UCFEI and RPAPI were (sic) absolved from any liability it being shown that
they were not the employers of the complainants. (Rollo, p. 52).
Respondents Roman and Orain appealed the decision to the NLRC. In a resolution dated March 13, 1991,
the NLRC reversed the labor arbiter's ruling, found that CSI was a mere agent of Union Carbide and RhonePoulenc and held that Rhone-Poulenc was guilty of illegal dismissal. Respondent NLRC cited the case
of Guarin v. NLRC, 178 SCRA 267 (1987), which according to it "involves circumstances similar, if not
identical, to the circumstances obtaining in the case at bar."
In that case, Novelty Philippines, Inc., a domestic corporation engaged in garment manufacturing, entered
into a contract with Lipercon Services, Inc., a service contractor. The agreement provided, among others,
that there was no employer-employee relationship between Novelty and the workers assigned by Lipercon
to the former, and that Lipercon shall have exclusive discretion in the selection, engagement and
discharge of its employees and shall have full control over said employees. The one hundred twenty (120)
petitioners in Guarin were hired by Lipercon and assigned to Novelty as helpers, janitors, firemen and
mechanics until the termination by Novelty of the service agreement resulting in their dismissal. They sued
both Novelty and Lipercon for illegal dismissal.
The labor arbiter adjudged that the petitioners were regular employees of Novelty and declared their
dismissal illegal. The NLRC reversed this decision and declared that Lipercon was an independent
contractor and that the petitioners were its employees.
The Court, in a petition for certiorari, upheld the labor arbiter's decision and ruled:
The jobs assigned to the petitioners as mechanics, janitors, gardeners, firemen and
grasscutters were directly related to the business of Novelty as a garment manufacturer. In
the case of Philippine Bank of Communications v. NLRC, 146 SCRA 347, we ruled that the
work of a messenger is directly related to a bank's operations. In its Comment, Novelty
contends that the services which are directly related to manufacturing garments are sewing,
textile cutting, designs, dyeing, quality control, personnel, administration, accounting,
finance, customs, delivery and similar activities; and that allegedly, "[i]t is only by stretching
the imagination that one may conclude that the services of janitors, janitresses, firemen,
grasscutters, mechanics and helpers are directly related to the business of manufacturing
garments" (p. 78, Rollo). Not so, for the work of gardeners in maintaining clean and well-kept
grounds around the factory, mechanics to keep the machines functioning properly, and
firemen to look out for fires, are directly related to the daily operations of a garment factory.
That fact is confirmed by Novelty's rehiring the workers or renewing the contract with

Lipercon every year from 1983 to 1986, a period of three (3) years. (Guarin v. National Labor
Relations Commission, 178 SCRA 267, at p. 273).
Applying the Guarin ruling to the case at bar, the NLRC pronounced:
It is in the light of the foregoing that we are constrained to rule, and so hold, that respondent
CSI is a mere agent of respondent UCFEI and RPAPI who, in the context of the aforecited
pronouncement of the Supreme Court, were the real employers of the complainants.
Consequently, respondent RPAPI's (the successor-in-interest by sale of respondent UCFEI)
refusal to take in the complainants (after admittedly absorbing or utilizing their services
during the transition period from 04 January to 31 March 1988) on the ground that it already
had engaged the services of another service contractor, constitutes an illegal dismissal plain
and simple.
For while it is true that there is no law requiring that a purchaser should absorb the
employees of the selling company (Central Azucarera del Davao v. CA, 137 SCRA 295); and
unless expressly assumed, labor contracts are not enforceable against a transferee of an
enterprise (Fernando v. Angat Labor Union, 5 SCRA 249; and Visayan Trans. Co. v. Java, 93
Phil. 962), it is equally true that employees absorbed by the successor-employers enjoy
continuity of employment status (Cruz v. PAFLU, 42 SCRA 68; PAFLU v. CIR, 4 SCRA 457;
Guerrero's Transport Services v. Blaylocks , 30 June 1976, 71 SCRA 621; and Sumandi v.
Leogardo, et al., G.R. No. 67635, 17 Jan. 1985).
As we have stated earlier, respondent RPAPI admits in its opposition to the appeal (p. 4) that
it made use of the services of the complainants during its transition period from 04 January
to 31 March 1983. Said act of utilizing, temporarily though, the services of the complainants
(which, in a way, attests to the necessity or desirability of the complainants' service to the
operation of the respondent's business) constitutes an absorption that gave them the right
to be retained. Its refusal to readmit the complainants constitutes an illegal dismissal.
Under these conditions, the mandate to reinstate the complainants should, therefore, be
addressed to the respondent RPAPI and not to the respondent CSI, a "labor only" contractor,
nor to the UCFEI which had ceased to be the employer of the complainants because of the
sale of its business. (Rollo, pp. 39-40).
The NLRC then ordered the petitioner to reinstate respondents Roman and Orain and to pay one year
backwages, or to grant them separation pay if reinstatement was not feasible. As to the respondents' claim
for 13th month pay, incentive leave and overtime pay, these were dismissed by the NLRC for lack of
sufficient factual basis.
Rhone-Poulenc filed a motion for reconsideration which was denied by the public respondent in its
resolution of September 11, 199l. Hence, this petition for certiorari.
On December 2, 1991, the Court resolved to issue a temporary restraining order enjoining the NLRC from
enforcing and/or carrying out its resolutions dated March 13, 1991 and September 11, 1991. (Rollo, pp. 5456)
Petitioner Rhone-Poulenc maintains that it is CSI, and not Union Carbide and Rhone-Poulenc, as successor,
which is the actual employer of the respondent janitors. Rhone-Poulenc insists that, contrary to the NLRC's
findings, CSI is a legitimate independent contractor providing janitorial services to a wide range of clientele
including Union Carbide. Moreover, the petitioner avers that it was grave abuse of discretion on the part of
the public respondent to conclude that Rhone-Poutlenc absorbed Roman and Orain into its workforce.
The issues to be resolved in this petition are:
(1) Whether or not the janitors were employees of Union Carbide;
(2) Whether or not CSI is a labor-only contractor; and
(3) Whether or not petitioner Rhone-Poulenc absorbed the janitors into its workforce.
In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of employees (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employee's conduct although the latter is the most
important element. (See Ecal V. NLRC, 195 SCRA 224 [1991]; Singer Sewing Machine Company v. Drilon,
193 SCRA 270 [1991]; Brotherhood Labor Unity Movement in the Philippines v. Zamora, 147 SCRA 49
[1986]; Social Security System v. Court of Appeals, 39 SCRA 629 [1971]; Viaa v. Al-Lagadan and Piga, 99
Phil. 408 [1956]).

Where the employer-employee relationship has been ascertained, the employer becomes bound by the
statutory requirements pertaining, though not limited, to terms and conditions of employment, labor
relations and
post-employment. But the law has likewise provided for situations where, although the application of the
aforementioned four-fold test will not establish an employer-employee relationship, a person or employer
who contracts with another for the performance of the former's work or of any work, nevertheless becomes
liable to the employees of the contractor. Articles 106, 107 and 109 of the Labor Code provide:
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.
xxx xxx xxx
There is labor-only contracting where the person supplying workers to an employer does not
have substantial capital or investment, in the form of tools, equipment, machineries, work
premises, among others and the workers recruited and placed by such persons, are
performing activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him.
Art. 107. Indirect employer. The provisions of the immediately preceding Article shall
likewise apply to any person, partnership, association or corporation which, not being an
employer, contracts with an independent contractor for the performance of any work, task,
job or project.
Art. 109. Solidary liability The provisions of existing laws to the contrary notwithstanding,
every employer or indirect employer shall be held responsible with his contractor or
subcontractor for any violation of any provision of this Code. For purposes of determining the
extent of their civil liability under this Chapter, they shall be considered as direct employers.
The import Of the foregoing provisions was enunciated in the case of Philippine Bank of Communications v.
National Labor Relations Commission, 146 SCRA 347 (1986):
Under the general rule set out in the first and second paragraphs of Article 106, an employer
who enter's into a contract with a contractor for the performance of work for the employer,
does not thereby create an employer-employee relationship between himself and the
employees of the contractor. Thus, the employees of the contractor remain the contractor's
employees and his alone. Nonetheless, when a contractor fails to pay the wages of his
employees in accordance with the Labor Code, the employer who contracted out the job to
the contractor becomes jointly and severally liable with his contractor to the employees of
the latter "to the extent of work performed under the contract" as if such employer were the
employer of the contractor's employees. The law itself, in other words, establishes an
employer-employee relationship between the employer and the job contractor's employees
for a limited purpose, i.e., in order to ensure that the latter get paid the wages due to them.
A similar situation obtains where there is "labor only" contracting. The "labor-only"
contractor i.e."the person or intermediary" is considered "merely as an agent of the
employer." The employer is made by the statute responsible to the employees of the "labor
only" contractor as if such employees had been directly employed by the employer. Thus,
where "labor only" contracting exists in a given case, the statute itself implies or establishes
an employer-employee relationship between the employer (the owner of the project) and the
employees of the "labor only" contractor, this time for acomprehensive purpose: "employer
for purposes of this Code, to prevent any violation or circumvention of any provision of this
Code." The law in effect holds both the employer and the "labor only" contractor responsible

to the latter's employees for the more effective safeguarding of the employees' rights under
the Labor Code. (at p. 356; emphasis supplied)
And in determining whether a contractor is engaged in labor-only contracting or in job contracting,
reference may be made to Sections 8 and 9 of the Implementing Rules, which provide:
Sec. 8. Job contracting. There is job contracting permissible under the Code if the
following conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on
his own account under his own responsibility according to his own manner and method, free
from the control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an
employer shall be deemed to be engaged in labor-only contracting where such person;
(1) Does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials; and
(2) The workers recruited and placed by such person are performing activities which are
directly related to the principal business or operations of the employer in which workers are
habitually employed.
(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as
contractor shall be considered merely as an agent or intermediary of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were directly
employed by him.
xxx xxx xxx
Applying the foregoing principles to the case at bar, the Court is constrained to rule for the petitioner.
There is no employer-employee relationship between Union Carbide and the respondent janitors. The
respondents themselves admitted that they were selected and hired by CSI and were assigned to Union
Carbide. CSI likewise acknowledged that the two janitors were its employees. The janitors drew their
salaries from CSI and not from Union Carbide. CSI exercised control over these janitors through Richard
Barroga, also a CSI employee, who gave orders and instructions to CSI janitors assigned to the Namayan
plant. Moreover, CSI had the power to assign its janitors to various clients and to pull out, as it had done in
a number of occasions, any of its janitors working at Union Carbide.
As to whether CSI is engaged in labor-only contracting or in job contracting, applying the test prescribed by
the Labor Code and the implementing rules, we find sufficient basis from the records to conclude that CSI
is engaged in job contracting. As correctly declared by the labor arbiter:
Moreover, CSI is a legitimate service contractor. It is registered as one and doing business as
such with a number of known companies in the country. It has a contract with UCFEI to
assign janitorial and ground services to the latter for a fee. The complainants' work were
basically janitorial and gardening chores. The tools of their trade were supplied by CSI. Of
course, we are aware of the complainants' claim that they were made to do chores which are
production jobs. Yet, there is no showing of regularity or permanence of such assignment.
Those occasional errands cannot be considered as genuine control of UCFEI over the
complainants. (Rollo, pp. 51-52)
Moreover, in Kimberly Independent Labor Union v. Drilon, 185 SCRA 190 [1990], the Court took judicial
notice of the general practice adopted in several government and private institutions and industries of
hiring a janitorial service on an independent contractor basis.
It must be stressed that the janitorial service agreement between Union Carbide and CSI binds only the
two, and not petitioner Rhone-Poulenc. As new owner, Rhone-Poulenc had every right to choose its own
service contractor.
Respondent NLRC relied heavily on the ruling in Guarin, supra, in deducing that CSI was a labor-only
contractor. The facts in Guarin, however, are different from those obtaining in the present case. In Guarin,
the contractor failed to prove that it had substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials. In the case at bar, it has been established that CSI, the
contractor, owns and maintains its own office; that it owns office equipment such as, but not limited to,
typewriters, calculators, xerox machines, mimeographing machines, airconditioning units and

transportation vehicles; and that it furnishes its janitors the cleaning equipment such as carpet vacuums
and polishing machines. Moreover, the petitioners inGuarin, who were assigned as helpers, janitors,
firemen and mechanics, numbered one hundred twenty (120) in all which, by itself, amounts to a
considerable workforce and gives rise to the suspicion that the service agreement between Novelty and
Lipercon was designed to evade the obligations inherent in an employer-employee relationship. In
contrasts there were only eight (8) janitors supplied by CSI to Union Carbide.
These two substantial differences, taken together, are sufficient to remove the present case from the ambit
of the Guarin ruling.
Even on the supposition that the janitors were, indeed, employees of Union Carbide or that CSI is a laboronly contractor, thus making Union Carbide a direct employer of these janitors, petitioner Rhone-Poulenc,
as purchaser of Union Carbide's business is not compelled to absorb these janitors into its workforce. An
innocent transferee of a business establishment has no liability to the employees of the transferor to
continue employing them. (Central Azucarera del Davao v. Court of Appeals, 137 SCRA 295 [1985]).
The NLRC, however, concluded that since Rhone-Poulenc made use of the services of the janitors during
the three-month transition period, then said act of utilizing their services constitutes absorption of the
janitors into the petitioner's workforce which gives them the right to be retained. This ratiocination is not
correct. The public respondent failed to consider the fact that during the three-month transition period
prior to Union Carbide's turnover of the facilities, the service contract between Union Carbide and CSI was
still in force. Whatever benefit the petitioner derived from the continuous availment by Union Carbide of
the services of CSI's janitors was merely incidental. The NLRC also overlooked the fact that it was still
Union Carbide who paid CSI for the services of these janitors. Also, even prior to the expiration of the
transition period, the petitioner, in anticipation of the pullout of Union Carbide and its hired service
agencies, started screening its own service contractors. Under these circumstances, the petitioner may not
be deemed to have absorbed the respondent janitors as its own employees.
WHEREFORE, the resolutions of the respondent National Labor Relations Commission dated March 13,
1991 and September 11, 1991 are SET ASIDE. The decision of the labor arbiter dated November 8, 1989 is
hereby REINSTATED.
The temporary restraining order issued by this Court on December 2, 1991 is made PERMANENT.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.

FIRST DIVISION
[G.R. No. 124055. June 8, 2000]
ROLANDO E. ESCARIO, NESTOR ANDRES, CESAR AMPER, LORETO BALDEMOR, EDUARDO
BOLONIA, ROMEO E. BOLONIA, ANICETO CADESIM, JOEL CATAPANG, NESTOR DELA CRUZ,
EDUARDO DUNGO ESCARIO REY, ELIZALDE ESTASIO, CAROLINO M. FABIAN, RENATO JANER,
EMER B. LIQUIGAN, ALEJANDRO MABAWAD, FERNANDO M. MAGTIBAY, DOMINADOR B.
MALLILLIN, NOEL B. MANILA, VIRGILIO A. MANIO, ROMEO M. MENDOZA, TIMOTEO NOTARION,
FREDERICK RAMOS, JOSEPH REYES, JESSIE SEVILLA, NOEL STO. DOMINGO, DODJIE TAJONERA,
JOSELITO TIONLOC, ARNEL UMALI, MAURLIE C. VIBAR, ROLANDO ZALDUA, RODOLFO TUAZON,
TEODORO LUGADA, MAURING MANUEL, MARCIANO VERGARA, JR., ARMANDO IBASCO,
CAYETANO IBASCO, LEONILO MEDINA, JOSELITO ODO, MELCHOR BUELA, GOMER GOMEZ, HENRY
PONCE, RAMON ORTIZ, JR., ANTONIO MIJARES, JR., MARIO DIZER, REYNANTE PEJO, ARNALDO
RAFAEL, NELSON BERUELA, AUGUSTO RAMOS, RODOLFO VALENTIN, ANTONIO CACAM, VERNON
VELASQUEZ, NORMAN VALLO, ALEJANDRO ORTIZ, ROSANO VALLO, ANDREW ESPINOSA, EDGAR
CABARDO, FIDELES REYES, EDGARDO FRANCISCO, FERNANDO VILLARUEL, LEOPOLDO
OLEGARIO, OSCAR SORIANO, GARY RELOS, DANTE IRANZO, RONALDO BACOLOR, RONALD
ESGUERA, VICTOR ALVAREZ, JOSE MARCELO, DANTE ESTRELLADO, MELQUIADES ANGELES,
GREGORIO TALABONG, ALBERT BALAO, ALBERT CANLAS, CAMILO VELASCO, PONTINO
CHRISTOPHER, WELFREDO RAMOS, REYNALDO RODRIGUEZ, RAZ GARIZALDE, MIGUEL TUAZON,
ROBERTO SANTOS, AND RICARDO MORTEL, petitioners, vs. NATIONAL LABOR RELATIONS

COMMISSION, CALIFORNIA MANUFACTURING CO. INC. AND DONNA LOUISE ADVERTISING AND
MARKETING ASSOCIATES INCORPORATED, respondents.
DECISION
KAPUNAN, J.:
Before this Court is a petition for certiorari under Rule 65, which seeks to annul and set aside the decision,
promulgated on 10 May 1995, of the National Labor Relations Commission (NLRC). The assailed decision
reversed the decision of the Labor Arbiter, and ruled that the petitioners are employees of Donna Louise
Advertising and Marketing Associates, Inc. and ordered the reinstatement of petitioners and the payment
of backwages.
Private respondent California Marketing Co. Inc. (CMC) is a domestic corporation principally engaged in the
manufacturing of food products and distribution of such products to wholesalers and retailers. Private
respondent Donna Louise Advertising and Marketing Associates, Inc. (D.L. Admark) is a duly registered
promotional firm.
Petitioners worked as merchandisers for the products of CMC. Their services were terminated on 16 March
1992.
The parties presented conflicting versions of the facts.
Petitioners allege that they were employed by CMC as merchandisers. Among the tasks assigned to them
were the withdrawing of stocks from the warehouse, the fixing of prices, price-tagging, displaying of
merchandise, and the inventory of stocks. These were done under the control, management and
supervision of CMC. The materials and equipment necessary in the performance of their job, such as price
markers, gun taggers, toys, pentel pen, streamers and posters were provided by CMC. Their salaries were
being paid by CMC. According to petitioners, the hiring, control and supervision of the workers and the
payment of salaries, were all coursed by CMC through its agent D.L. Admark in order for CMC to avoid its
liability under the law.
On 7 February 1992, petitioners filed a case against CMC before the Labor Arbiter for the regularization of
their employment status. During the pendency of the case before the Labor Arbiter, D.L. Admark sent to
petitioners notice of termination of their employment effective 16 March 1992. Hence, their complaint was
amended so as to include illegal dismissal as cause of action. Thereafter, twenty-seven more persons
joined as complainants. CMC filed a motion to implead as party-defendant D. L. Admark and at the same
time the latter filed a motion to intervene. Both motions were granted.
CMC, on the other hand, denied the existence of an employer-employee relationship between petitioner
and itself. Rather, CMC contended that it is D.L. Admark who is the employer of the petitioners. While CMC
is engaged in the manufacturing of food products and distribution of such to wholesalers and retailers, it is
not allowed by law to engage in retail or direct sales to end consumers. It, however, hired independent job
contractors such as D.L. Admark, to provide the necessary promotional activities for its product lines.
For its part, D.L. Admark asserted that it is the employer of the petitioners. Its primary purpose is to carry
on the business of advertising, promotion and publicity, the sales and merchandising of goods and services
and conduct survey and opinion polls. As an independent contractor it serves several clients among which
include Purefoods, Corona Supply, Firstbrand, Splash Cosmetics and herein private respondent California
Marketing.
On 29 July 1994, the Labor Arbiter rendered a decision finding that petitioners are the employees of CMC
as they were engaged in activities that are necessary and desirable in the usual business or trade of CMC.
[1]
In justifying its ruling, the Labor Arbiter cited the case of Tabas vs. CMC which, likewise, involved private
respondent CMC. In the Tabas case, this Court ruled that therein petitioner merchandisers were employees
of CMC, to wit:
There is no doubt that in the case at bar, Livi performs "manpower services," meaning to
say, it contracts out labor in favor of clients. We hold that it is one not withstanding its
vehement claims to the contrary and not- withstanding its vehement claims to the contrary,
and notwithstanding the provision of the contract that it is "an independent contractor." The
nature of ones business is not determined by self-serving appellations one attaches thereto
but by the tests provided by statute and prevailing case law. The bare fact that Livi
maintains a separate line of business does not extinguish the equal fact that it has provided
California with workers to pursue the latters own business. In this connection, we do not
agree that the petitioner has been made to perform activities "which are not directly related
to the general business of manufacturing," Californias purported "principal operation activity.

The petitioners had been charged with merchandising [sic] promotion or sale of the products
of [California] in the different sales outlets in Metro Manila including task and occational [sic]
price tagging," an activity that is doubtless, an integral part of the manufacturing business.
It is not, then, as if Livi had served as its (Californias) promotions or sales arm or agent, or
otherwise rendered a piece of work it (California) could not itself have done; Livi as a
placement agency, had simply supplied it with manpower necessary to carry out its
(Californias) merchandising activities, using its (Californias) premises and equipment. [2]
On appeal, the NLRC set aside the decision of the Labor Arbiter. It ruled that no employer-employee
relationship existed between the petitioners and CMC. It, likewise, held that D.L. Admark is a legitimate
independent contractor, hence, the employer of the petitioners. Finding no valid grounds existed for the
dismissal of the petitioners by D.L. Admark, it ordered their reinstatement. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, the appealed judgment is modified. Intervenor DL
ADMARK is ordered to reinstate the eighty one (81) complainants mentioned in the appealed
decision to their former positions with backwages from March 16, 1992 until they are
actually reinstated. The award of attorneys fees equivalent to ten (10%) of the award is
deleted for lack of basis.[3]
Petitioners filed a motion for reconsideration but the same was denied by the NLRC for lack of merit. [4]
Hence, this petition.
In the main, the issue brought to fore is whether petitioners are employees of CMC or D.L. Admark. In
resolving this, it is necessary to determine whether D.L. Admark is a labor-only contractor or an
independent contractor.
Petitioners are of the position that D.L. Admark is a labor-only contractor and cites this Courts ruling in the
case of Tabas, which they claim is applicable to the case at bar for the following reasons:
1. The petitioners are merchandisers and the petitioners in the Tabas case are also
merchandisers who have the same nature of work.
2. The respondent in this case is California Manufacturing Co. Inc. while respondent in the
Tabas case is the same California Manufacturing Co. Inc.
3. The agency in the Tabas case is Livi Manpower Services. In this case, there are at least,
three (3) agencies namely: the same Livi Manpower Services; the Rank Manpower Services
and D.L. Admark whose participation is to give and pay the salaries of the petitioners and
that the money came from the respondent CMC as in the Tabas case.
4. The supervision, management and/or control rest upon respondent California
Manufacturing Co. Inc. as found by the Honorable Labor Arbiter which is also, true in the
Tabas Case.[5]
We cannot sustain the petition.
Petitioners reliance on the Tabas case is misplaced. In said case, we ruled that therein contractor Livi
Manpower Services was a mere placement agency and had simply supplied herein petitioner with the
manpower necessary to carry out the companys merchandising activity. We, however, further stated that :
It would have been different, we believe, had Livi been discretely a promotions firm, and that
California had hired it to perform the latters merchandising activities. For then, Livi would
have been truly the employer of its employees and California, its client. x x x. [6]
In other words, CMC can validly farm out its merchandising activities to a legitimate independent
contractor.
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 principal. In labor-only contracting, the following elements
are present:
(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. [7]
In contrast, there is permissible job contracting when a principal agrees to put out or farm out with a
contractor or a subcontractor the performance or completion of a specific job, work or service within a
definite or predetermined period, regardless of whether such job or work or service is to be performed or
completed within or outside the premises of the principal. In this arrangement, the following conditions
must 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; and
(b)....The contractor has substantial capital or investment in the form of tools, equipment,
machineries (sic), work premises, and other materials which are necessary in the conduct of
his business.[8]
In the recent case of Alexander Vinoya vs. NLRC et al.,[9] this Court ruled that in order to be considered an
independent contractor it is not enough to show substantial capitalization or investment in the form of
tools, equipment, machinery and work premises. In addition, the following factors need be considered: (a)
whether the contractor is carrying on an independent business; (b) the nature and extent of the work; (c)
the skill required; (d) the term and duration of the relationship; (e) the right to assign the performance of
specified pieces of work; (f) the control and supervision of the workers; (g) the power of the employer with
respect to the hiring, firing and payment of workers of the contractor; (h) the control of the premises; (i)
the duty to supply premises, tools, appliances, materials, and labor; and (j) the mode, manner and terms
of payment.[10]
Based on the foregoing criterion, we find that D.L. Admark is a legitimate independent contractor.
Among the circumstances that tend to establish the status of D.L. Admark as a legitimate job contractor
are:
1) The SEC registration certificate of D.L. Admark states that it is a firm engaged in
promotional, advertising, marketing and merchandising activities.
2) The service contract between CMC and D.L. Admark clearly provides that the agreement
is for the supply of sales promoting merchandising services rather than one of manpower
placement.[11]
3) D.L. Admark was actually engaged in several activities, such as advertising, publication,
promotions, marketing and merchandising. It had several merchandising contracts with
companies like Purefoods, Corona Supply, Nabisco Biscuits, and Licron. It was likewise
engaged in the publication business as evidenced by it magazine the "Phenomenon." [12]
4) It had its own capital assets to carry out its promotion business. It then had current assets
amounting to P6 million and is therefore a highly capitalized venture. [13] It had an authorized
capital stock of P500,000.00. It owned several motor vehicles and other tools, materials and
equipment to service its clients. It paid rentals of P30,020 for the office space it occupied.
Moreover, by applying the four-fold test used in determining employer-employee relationship, the status of
D.L. Admark as the true employer of petitioners is further established. The elements of this test are (1) the
selection and engagement of employee; (2) the payment of wages; (3) the power of dismissal; and (4) the
power to control the employees conduct.[14]
As regards the first element, petitioners themselves admitted that they were selected and hired by D.L.
Admark.[15]
As to the second element, the NLRC noted that D.L. Admark was able to present in evidence the payroll of
petitioners, sample SSS contribution forms filed and submitted by D.L. Admark to the SSS, and the
application for employment by R. de los Reyes, all tending to show that D.L. Admark was paying for the
petitioners salaries. In contrast, petitioners did not submit an iota of evidence that it was CMC who paid for
their salaries. The fact that the agreement between CMC and D.L. Admark contains the billing rate and cost
breakdown of payment for core merchandisers and coordinators does not in any way establish that it was
CMC who was paying for their salaries. As correctly pointed out by both CMC [16] and the Office of the
Solicitor General,[17] such cost breakdown is a standard content of service contracts designed to insure that
under the contract, employees of the job contractor will receive benefits mandated by law.
Neither did the petitioners prove the existence of the third element. Again petitioners admitted that it was
D.L. Admark who terminated their employment.[18]
To prove the fourth and most important element of control, petitioners presented the memoranda of CMCs
sales and promotions manager. The Labor Arbiter found that these memos "indubitably show that the
complainants were under the supervision and control of the CMC people." [19] However, as correctly pointed
out by the NLRC, a careful scrutiny of the documents adverted to, will reveal that nothing therein would
remotely suggest that CMC was supervising and controlling the work of the petitioners:

x x x The memorandums (Exhibit "B") were addressed to the store or grocery owners telling
them about the forthcoming sales promotions of CMC products. While in one of the
memorandums a statement is made that "our merchandisers and demonstrators will be
assigned to pack the premium with your stocks in the shelves x x x, yet it does not
necessarily mean to refer to the complainants, as they claim, since CMC has also regular
merchandisers and demonstrators. It would be different if in the memorandums were sent or
given to the complainants and their duties or roles in the said sales campaign are therein
defined. It is also noted that in one of the memorandums it was addressed to: "All regular
merchandisers/demonstrators." x x x we are not convinced that the documents sufficiently
prove employer-employee relationship between complainants and respondents CMC. [20]
The Office of the Solicitor General, likewise, notes that the documents fail to show anything that would
remotely suggest control and supervision exercised by CMC over petitioners on the matter on how they
should perform their work. The memoranda were addressed either to the store owners or "regular"
merchandisers and demonstrators of CMC. Thus, petitioners, who filed a complaint for regularization
against respondent CMC, thereby, conceding that they are not regular employees of the latter, cannot
validly claim to be the ones referred to in said memos. [21]
Having proven the existence of an employer-employee relationship between D.L. Admark and petitioners,
it is no longer relevant to determine whether the activities performed by the latter are necessary or
desirable to the usual business or trade of CMC.
On the issue of illegal dismissal, we agree with the findings of the NLRC that D.L. Admark "admits having
dismissed the petitioners for allegedly disowning and rejecting them as their employer." Undoubtedly, the
reason given is not just cause to terminate petitioners.[22] D.L. Admarks belated claim that the petitioners
were not terminated but simply did not report to work[23] is not supported by the evidence on record.
Moreover, there is no showing that due process was afforded the petitioners.
IN VIEW OF THE FOREGOING, finding no grave abuse of discretion on the part of the National Labor
Relations Commission, the assailed decision is AFFIRMED in toto.
SO ORDERED.
Puno, Pardo, and Ynares-Santiago, JJ., concur.
Davide, Jr., C.J., (Chairman), on official leave abroad.