THIRD DIVISION

[G.R. No. 157214. June 7, 2005]

PHILIPPINE GLOBAL COMMUNICATIONS, INC., petitioner,

vs. RICARDO DE VERA, respondent.

DECISION
GARCIA, J.:

Before us is this appeal by way of a petition for review on certiorarifrom the 12

September 2002 Decision[1] and the 13 February 2003 Resolution[2] of the Court of Appeals
in CA-G.R. SP No. 65178, upholding the finding of illegal dismissal by the National Labor
Relations Commission against petitioner.
As culled from the records, the pertinent facts are:
Petitioner Philippine Global Communications, Inc. (PhilCom), is a corporation
engaged in the business of communication services and allied activities, while respondent
Ricardo De Vera is a physician by profession whom petitioner enlisted to attend to the
medical needs of its employees. At the crux of the controversy is Dr. De Veras status vis
a vis petitioner when the latter terminated his engagement.
It appears that on 15 May 1981, De Vera, via a letter dated 15 May 1981,[3] offered
his services to the petitioner, therein proposing his plan of works required of a practitioner
in industrial medicine, to include the following:

1. Application of preventive medicine including periodic check-up of employees;

2. Holding of clinic hours in the morning and afternoon for a total of five (5)
hours daily for consultation services to employees;

3. Management and treatment of employees that may necessitate hospitalization

including emergency cases and accidents;

4. Conduct pre-employment physical check-up of prospective employees with no

additional medical fee;

5. Conduct home visits whenever necessary;

6. Attend to certain medical administrative function such as accomplishing

medical forms, evaluating conditions of employees applying for sick leave
 of absence and subsequently issuing proper certification, and all matters
referred which are medical in nature.

The parties agreed and formalized respondents proposal in a document denominated

as RETAINERSHIP CONTRACT[4] which will be for a period of one year subject to
renewal, it being made clear therein that respondent will cover the retainership the
Company previously had with Dr. K. Eulau and that respondents retainer fee will be at
P4,000.00 a month. Said contract was renewed yearly. [5] The retainership arrangement
went on from 1981 to 1994 with changes in the retainers fee. However, for the years 1995
and 1996, renewal of the contract was only made verbally.
The turning point in the parties relationship surfaced in December 1996 when
Philcom, thru a letter[6] bearing on the subject boldly written as TERMINATION
RETAINERSHIP CONTRACT, informed De Vera of its decision to discontinue the latters
retainers contract with the Company effective at the close of business hours of December
31, 1996 because management has decided that it would be more practical to provide
medical services to its employees through accredited hospitals near the company
premises.
On 22 January 1997, De Vera filed a complaint for illegal dismissal before the
National Labor Relations Commission (NLRC), alleging that that he had been actually
employed by Philcom as its company physician since 1981 and was dismissed without
due process. He averred that he was designated as a company physician on retainer
basis for reasons allegedly known only to Philcom. He likewise professed that since he
was not conversant with labor laws, he did not give much attention to the designation as
anyway he worked on a full-time basis and was paid a basic monthly salary plus fringe
benefits, like any other regular employees of Philcom.
On 21 December 1998, Labor Arbiter Ramon Valentin C. Reyes came out with a
decision[7] dismissing De Veras complaint for lack of merit, on the rationale that as a
retained physician under a valid contract mutually agreed upon by the parties, De Vera
was an independent contractor and that he was not dismissed but rather his contract with
[PHILCOM] ended when said contract was not renewed after December 31, 1996.
On De Veras appeal to the NLRC, the latter, in a decision [8] dated 23 October 2000,
reversed (the word used is modified) that of the Labor Arbiter, on a finding that De Vera
is Philcoms regular employee and accordingly directed the company to reinstate him to
his former position without loss of seniority rights and privileges and with full backwages
from the date of his dismissal until actual reinstatement. We quote the dispositive portion
of the decision:

WHEREFORE, the assailed decision is modified in that respondent is ordered to

reinstate complainant to his former position without loss of seniority rights and
privileges with full backwages from the date of his dismissal until his actual
reinstatement computed as follows:

Backwages:
 a) Basic Salary
From Dec. 31, 1996 to Apr. 10, 2000 = 39.33 mos.
P44,400.00 x 39.33 mos. P1,750,185.00
b) 13th Month Pay:
1/12 of P1,750,185.00 145,848.75
c) Travelling allowance:
P1,000.00 x 39.33 mos. 39,330.00

GRAND TOTAL P1,935,363.75

The decision stands in other aspects.

SO ORDERED.

With its motion for reconsideration having been denied by the NLRC in its order of 27
February 2001,[9] Philcom then went to the Court of Appeals on a petition for certiorari,
thereat docketed as CA-G.R. SP No. 65178, imputing grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the NLRC when it reversed the
findings of the labor arbiter and awarded thirteenth month pay and traveling allowance to
De Vera even as such award had no basis in fact and in law.
On 12 September 2002, the Court of Appeals rendered a decision,[10]modifying that of
the NLRC by deleting the award of traveling allowance, and ordering payment of
separation pay to De Vera in lieu of reinstatement, thus:

WHEREFORE, premises considered, the assailed judgment of public respondent,

dated 23 October 2000, is MODIFIED. The award of traveling allowance is deleted
as the same is hereby DELETED. Instead of reinstatement, private respondent shall be
paid separation pay computed at one (1) month salary for every year of service
computed from the time private respondent commenced his employment in 1981 up to
the actual payment of the backwages and separation pay. The awards of backwages
and 13th month pay STAND.

SO ORDERED.

In time, Philcom filed a motion for reconsideration but was denied by the appellate
court in its resolution of 13 February 2003.[11]
Hence, Philcoms present recourse on its main submission that -

THE COURT OF APPEALS ERRED IN SUSTAINING THE DECISION OF THE

NATIONAL LABOR RELATIONS COMMISSION AND RENDERING THE
QUESTIONED DECISION AND RESOLUTION IN A WAY THAT IS NOT IN
ACCORD WITH THE FACTS AND APPLICABLE LAWS AND
JURISPRUDENCE WHICH DISTINGUISH LEGITIMATE JOB CONTRACTING
AGREEMENTS FROM THE EMPLOYER-EMPLOYEE RELATIONSHIP.

We GRANT.
Under Rule 45 of the Rules of Court, only questions of law may be reviewed by this
Court in decisions rendered by the Court of Appeals. There are instances, however,
where the Court departs from this rule and reviews findings of fact so that substantial
justice may be served. The exceptional instances are where:

xxx xxx xxx (1) the conclusion is a finding grounded entirely on speculation, surmise
and conjecture; (2) the inference made is manifestly mistaken; (3) there is grave abuse
of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings
of fact are conflicting; (6) the Court of Appeals went beyond the issues of the case and
its findings are contrary to the admissions of both appellant and appellees; (7) the
findings of fact of the Court of Appeals are contrary to those of the trial court; (8) said
findings of facts are conclusions without citation of specific evidence on which they
are based; (9) the facts set forth in the petition as well as in the petitioners main and
reply briefs are not disputed by the respondents; and (10) the findings of fact of the
Court of Appeals are premised on the supposed absence of evidence and contradicted
by the evidence on record. [12]

As we see it, the parties respective submissions revolve on the primordial issue of
whether an employer-employee relationship exists between petitioner and respondent,
the existence of which is, in itself, a question of fact[13] well within the province of the NLRC.
Nonetheless, given the reality that the NLRCs findings are at odds with those of the labor
arbiter, the Court, consistent with its ruling in Jimenez vs. National Labor Relations
Commission,[14] is constrained to look deeper into the attendant circumstances obtaining
in this case, as appearing on record.
In a long line of decisions,[15] the Court, in determining the existence of an employer-
employee relationship, has invariably adhered to the four-fold test, to wit: [1] the selection
and engagement of the employee; [2] the payment of wages; [3] the power of dismissal;
and [4] the power to control the employees conduct, or the so-called control test,
considered to be the most important element.
Applying the four-fold test to this case, we initially find that it was respondent himself
who sets the parameters of what his duties would be in offering his services to petitioner.
This is borne by no less than his 15 May 1981 letter[16] which, in full, reads:

May 15, 1981

Mrs. Adela L. Vicente

Vice President, Industrial Relations
PhilCom, Paseo de Roxas
Makati, Metro Manila
 Madam:

I shall have the time and effort for the position of Company physician with your
corporation if you deemed it necessary. I have the necessary qualifications, training
and experience required by such position and I am confident that I can serve the best
interests of your employees, medically.

My plan of works and targets shall cover the duties and responsibilities required of a
practitioner in industrial medicine which includes the following:

1. Application of preventive medicine including periodic check-up of

employees;

2. Holding of clinic hours in the morning and afternoon for a total of five (5)
hours daily for consultation services to employees;

3. Management and treatment of employees that may necessitate

hospitalization including emergency cases and accidents;

4. Conduct pre-employment physical check-up of prospective employees with

no additional medical fee;

5. Conduct home visits whenever necessary;

6. Attend to certain medical administrative functions such as accomplishing

medical forms, evaluating conditions of employees applying for sick leave
of absence and subsequently issuing proper certification, and all matters
referred which are medical in nature.

On the subject of compensation for the services that I propose to render to the
corporation, you may state an offer based on your belief that I can very well qualify
for the job having worked with your organization for sometime now.

I shall be very grateful for whatever kind attention you may extend on this matter and
hoping that it will merit acceptance, I remain

Very truly yours,

(signed)
RICARDO V. DE VERA, M.D.

Significantly, the foregoing letter was substantially the basis of the labor arbiters
finding that there existed no employer-employee relationship between petitioner and
respondent, in addition to the following factual settings:
The fact that the complainant was not considered an employee was recognized by the
complainant himself in a signed letter to the respondent dated April 21, 1982 attached
as Annex G to the respondents Reply and Rejoinder. Quoting the pertinent portion of
said letter:

To carry out your memo effectively and to provide a systematic and workable time
schedule which will serve the best interests of both the present and absent employee,
may I propose an extended two-hour service (1:00-3:00 P.M.) during which period I
can devote ample time to both groups depending upon the urgency of the situation. I
shall readjust my private schedule to be available for the herein proposed extended
hours, should you consider this proposal.

As regards compensation for the additional time and services that I shall render to the
employees, it is dependent on your evaluation of the merit of my proposal and your
confidence on my ability to carry out efficiently said proposal.

The tenor of this letter indicates that the complainant was proposing to extend his time
with the respondent and seeking additional compensation for said extension. This
shows that the respondent PHILCOM did not have control over the schedule of the
complainant as it [is] the complainant who is proposing his own schedule and asking
to be paid for the same. This is proof that the complainant understood that his
relationship with the respondent PHILCOM was a retained physician and not as an
employee. If he were an employee he could not negotiate as to his hours of work.

The complainant is a Doctor of Medicine, and presumably, a well-educated person.

Yet, the complainant, in his position paper, is claiming that he is not conversant with
the law and did not give much attention to his job title- on a retainer basis. But the
same complainant admits in his affidavit that his service for the respondent was
covered by a retainership contract [which] was renewed every year from 1982 to
1994. Upon reading the contract dated September 6, 1982, signed by the complainant
himself (Annex C of Respondents Position Paper), it clearly states that is a
retainership contract. The retainer fee is indicated thereon and the duration of the
contract for one year is also clearly indicated in paragraph 5 of the Retainership
Contract. The complainant cannot claim that he was unaware that the contract was
good only for one year, as he signed the same without any objections. The
complainant also accepted its renewal every year thereafter until 1994. As a literate
person and educated person, the complainant cannot claim that he does not know what
contract he signed and that it was renewed on a year to year basis. [17]

The labor arbiter added the indicia, not disputed by respondent, that from the time he
started to work with petitioner, he never was included in its payroll; was never deducted
any contribution for remittance to the Social Security System (SSS); and was in fact
subjected by petitioner to the ten (10%) percent withholding tax for his professional fee,
in accordance with the National Internal Revenue Code, matters which are simply
inconsistent with an employer-employee relationship. In the precise words of the labor
arbiter:

xxx xxx xxx After more than ten years of services to PHILCOM, the complainant
would have noticed that no SSS deductions were made on his remuneration or that the
respondent was deducting the 10% tax for his fees and he surely would have
complained about them if he had considered himself an employee of PHILCOM. But
he never raised those issues. An ordinary employee would consider the SSS payments
important and thus make sure they would be paid. The complainant never bothered to
ask the respondent to remit his SSS contributions. This clearly shows that the
complainant never considered himself an employee of PHILCOM and thus,
respondent need not remit anything to the SSS in favor of the complainant. [18]

Clearly, the elements of an employer-employee relationship are wanting in this case.

We may add that the records are replete with evidence showing that respondent had to
bill petitioner for his monthly professional fees.[19] It simply runs against the grain of
common experience to imagine that an ordinary employee has yet to bill his employer to
receive his salary.
We note, too, that the power to terminate the parties relationship was mutually vested
on both. Either may terminate the arrangement at will, with or without cause.[20]
Finally, remarkably absent from the parties arrangement is the element of control,
whereby the employer has reserved the right to control the employee not only as to the
result of the work done but also as to the means and methods by which the same is to be
accomplished.[21]
Here, petitioner had no control over the means and methods by which respondent
went about performing his work at the company premises. He could even embark in the
private practice of his profession, not to mention the fact that respondents work hours and
the additional compensation therefor were negotiated upon by the parties. [22] In fine, the
parties themselves practically agreed on every terms and conditions of respondents
engagement, which thereby negates the element of control in their relationship. For sure,
respondent has never cited even a single instance when petitioner interfered with his
work.
Yet, despite the foregoing, all of which are extant on record, both the NLRC and the
Court of Appeals ruled that respondent is petitioners regular employee at the time of his
separation.
Partly says the appellate court in its assailed decision:

Be that as it may, it is admitted that private respondents written retainer contract was
renewed annually from 1981 to 1994 and the alleged renewal for 1995 and 1996,
when it was allegedly terminated, was verbal.
Article 280 of the Labor code (sic) provides:

The provisions of written agreement to the contrary notwithstanding and regardless

of the oral agreements of the parties, an employment shall be deemed to be regular
where the employee has been engaged to perform in the usual business or trade of the
employer, except where the employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time
of the engagement of the employee or where the work or services to be performed is
seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding

paragraph: Provided, That, any employee who has rendered at least one (1) year
of service, whether such is continuous or broken, shall be considered a regular with
respect to the activity in which he is employedand his employment shall continue
while such activity exists.

Parenthetically, the position of company physician, in the case of petitioner, is usually

necessary and desirable because the need for medical attention of employees cannot
be foreseen, hence, it is necessary to have a physician at hand. In fact, the importance
and desirability of a physician in a company premises is recognized by Art. 157 of the
Labor Code, which requires the presence of a physician depending on the number of
employees and in the case at bench, in petitioners case, as found by public respondent,
petitioner employs more than 500 employees.

Going back to Art. 280 of the Labor Code, it was made therein clear that the
provisions of a written agreement to the contrary notwithstanding or the existence of a
mere oral agreement, if the employee is engaged in the usual business or trade of the
employer, more so, that he rendered service for at least one year, such employee shall
be considered as a regular employee. Private respondent herein has been with
petitioner since 1981 and his employment was not for a specific project or
undertaking, the period of which was pre-determined and neither the work or service
of private respondent seasonal. (Emphasis by the CA itself).

We disagree to the foregoing ratiocination.

The appellate courts premise that regular employees are those who perform activities
which are desirable and necessary for the business of the employer is not determinative
in this case. For, we take it that any agreement may provide that one party shall render
services for and in behalf of another, no matter how necessary for the latters
business, even without being hired as an employee. This set-up is precisely true in the
case of an independent contractorship as well as in an agency agreement. Indeed, Article
280 of the Labor Code, quoted by the appellate court, is not the yardstick for determining
the existence of an employment relationship. As it is, the provision merely distinguishes
between two (2) kinds of employees, i.e., regular and casual. It does not apply where, as
here, the very existence of an employment relationship is in dispute. [23]
Buttressing his contention that he is a regular employee of petitioner, respondent
invokes Article 157 of the Labor Code, and argues that he satisfies all the requirements
thereunder. The provision relied upon reads:

ART. 157. Emergency medical and dental services. It shall be the duty of every
employer to furnish his employees in any locality with free medical and dental
attendance and facilities consisting of:

(a) The services of a full-time registered nurse when the number of employees
exceeds fifty (50) but not more than two hundred (200) except when the
employer does not maintain hazardous workplaces, in which case the
services of a graduate first-aider shall be provided for the protection of
the workers, where no registered nurse is available. The Secretary of
Labor shall provide by appropriate regulations the services that shall be
required where the number of employees does not exceed fifty (50) and
shall determine by appropriate order hazardous workplaces for purposes
of this Article;

(b) The services of a full-time registered nurse, a part-time physician and

dentist, and an emergency clinic, when the number of employees
exceeds two hundred (200) but not more than three hundred (300); and

(c) The services of a full-time physician, dentist and full-time registered nurse
as well as a dental clinic, and an infirmary or emergency hospital with
one bed capacity for every one hundred (100) employees when the
number of employees exceeds three hundred (300).

In cases of hazardous workplaces, no employer shall engage the services of a

physician or dentist who cannot stay in the premises of the establishment for at least
two (2) hours, in the case of those engaged on part-time basis, and not less than eight
(8) hours in the case of those employed on full-time basis. Where the undertaking is
nonhazardous in nature, the physician and dentist may be engaged on retained basis,
subject to such regulations as the Secretary of Labor may prescribe to insure
immediate availability of medical and dental treatment and attendance in case of
emergency.

Had only respondent read carefully the very statutory provision invoked by him, he
would have noticed that in non-hazardous workplaces, the employer may engage the
services of a physician on retained basis. As correctly observed by the petitioner, while it
is true that the provision requires employers to engage the services of medical
practitioners in certain establishments depending on the number of their employees,
nothing is there in the law which says that medical practitioners so engaged be actually
hired as employees,[24]adding that the law, as written, only requires the employer to retain,
not employ, a part-time physician who needed to stay in the premises of the non-
hazardous workplace for two (2) hours.[25]
Respondent takes no issue on the fact that petitioners business of
telecommunications is not hazardous in nature. As such, what applies here is the last
paragraph of Article 157 which, to stress, provides that the employer may engage the
services of a physician and dentist on retained basis, subject to such regulations as the
Secretary of Labor may prescribe. The successive retainership agreements of the parties
definitely hue to the very statutory provision relied upon by respondent.
Deeply embedded in our jurisprudence is the rule that courts may not construe a
statute that is free from doubt. Where the law is clear and unambiguous, it must be taken
to mean exactly what it says, and courts have no choice but to see to it that the mandate
is obeyed.[26]As it is, Article 157 of the Labor Code clearly and unequivocally allows
employers in non-hazardous establishments to engage on retained basis the service of a
dentist or physician. Nowhere does the law provide that the physician or dentist so
engaged thereby becomes a regular employee. The very phrase that they may be
engaged on retained basis, revolts against the idea that this engagement gives rise to an
employer-employee relationship.
With the recognition of the fact that petitioner consistently engaged the services of
respondent on a retainer basis, as shown by their various retainership contracts, so can
petitioner put an end, with or without cause, to their retainership agreement as therein
provided.[27]
We note, however, that even as the contracts entered into by the parties invariably
provide for a 60-day notice requirement prior to termination, the same was not complied
with by petitioner when it terminated on 17 December 1996 the verbally-renewed
retainership agreement, effective at the close of business hours of 31 December 1996.
Be that as it may, the record shows, and this is admitted by both parties,[28] that
execution of the NLRC decision had already been made at the NLRC despite the
pendency of the present recourse. For sure, accounts of petitioner had already been
garnished and released to respondent despite the previous Status Quo Order [29] issued by
this Court. To all intents and purposes, therefore, the 60-day notice requirement has
become moot and academic if not waived by the respondent himself.
WHEREFORE, the petition is GRANTED and the challenged decision of the Court of
Appeals REVERSED and SET ASIDE. The 21 December 1998 decision of the labor
arbiter is REINSTATED.
No pronouncement as to costs.
SO ORDERED.
Panganiban, (Chairman), Corona, and Carpio-Morales, JJ., concur.
Sandoval-Gutierrez, J., on official leave.
[1]
Penned by Associate Justice Edgardo F. Sundiam, and concurred in by Associate Justices Bennie A.
Adefuin - De La Cruz (ret.) and Wenceslao I. Agnir, Jr. (ret.)
[2]
Rollo at p. 62.
[3]
Id. at p.98.
[4]
Id. at p. 100.
[5]
Id. at pp. 101-112.
[6]
Id. at p. 116.
[7]
Id. at pp. 276-285.
[8]
Id. at pp. 327-333.
[9]
Id. at pp. 360-363.
[10]
Id. at pp. 735-743.
[11]
Id. at p. 746.
[12]
Bautista v. Mangaldan Rural Bank, Inc., 230 SCRA 16 [1994] citing De la Puerta v. Court of Appeals,
181 SCRA 861 [1990].
[13]
Mainland Construction Company, Inc. v. Movilla, 250 SCRA 290 [1995].
[14]
256 SCRA 84 [1996].
[15]
MAM Realty Development Corporation v. National Labor Relations Commission, 244 SCRA 797
[1995]; Zanotte Shoes v. National Labor Relations Commission, 241 SCRA 261 [1995]; Singer
Sewing Machine Company v. Drilon, 193 SCRA 270 [1991]; Development Bank of the Philippines
v. National Labor Relations Commission 175 SCRA 537 [1989]; Broadway Motors, Inc. v. National
Labor Relations Commission, 156 SCRA 522 [1987]; Brotherhood Labor Unity Movement in the
Philippines v. Zamora, 147 SCRA 49 [1986]; Rosario Brothers, Inc. v. Ople, 131 SCRA 72
[1984]; SSS v. Cosmos Aerated Water Factory, Inc., 112 SCRA 47 [1982] and Mafinco Trading
Corporation v. Ople, 70 SCRA 139 [1976].
[16]
Rollo, p. 98.
[17]
Rollo, at pp. 279-280.
[18]
Id. at pp. 280-281.
[19]
Id. at pp. 181-187.
[20]
Item No. 5 of the Retainership Contract which reads: 5. This contract will be for a period of one year
subject to renewal between you and the Company. If either you or the Company will terminate this
Agreement at anytime before its expiry date, an advance notice of 60 days is required to be served
by the concerned party to the other to avoid unnecessary adjustment problems.
[21]
Sara v. Agarrado, 166 SCRA 625 [1988] citing LVN Pictures, Inc. v. Phil. Musicians Guild, 1 SCRA 312
[1961]; Investment Planning Corp. v. SSS, 21 SCRA 924 [1967]; SSS v. Court of Appeals, 30
SCRA 210 [1968]; and Philippine Refining Co., Inc. v. Court of Appeals, 117 SCRA 84 [1982].
[22]
Rollo, at p. 191.
[23]
Singer Sewing Machine Company v. Drilon, 193 SCRA 270 [1991].
[24]
Rollo, at p. 774.
[25]
Id., at p. 777.
[26]
Ramos v. Court of Appeals, 108 SCRA 728 [1981]; Banawa v. Mirano, 97 SCRA 517 [1980]; Espiritu v.
Cipriano, 55 SCRA 533 [1974] and Republic Flour Mills, Inc. v. Commissioner of Customs, 39
SCRA 269 [1971].
[27]
Supra, See footnote 21.
[28]
Philcoms Memorandum, Rollo at p. 779 and De Veras Memorandum, Rollo at p. 708.
[29]
Dated 09 June 2003, Rollo at pp. 576-578.

SECOND DIVISION

RAMY GALLEGO, G.R. No. 179807

Petitioner,
Present:

QUISUMBING, J., Chairperson,

- versus - CARPIO MORALES,
CHICO-NAZARIO,*
LEONARDO-DE CASTRO,** and
PERALTA,*** JJ.
BAYER PHILIPPINES, INC., DANPIN
GUILLERMO, PRODUCT IMAGE
MARKETING, INC., and EDGARDO
BERGONIA, Promulgated:

Respondents. July 31, 2009

x--------------------------------------------------x
 DECISION

CARPIO MORALES, J.:

Ramy Gallego (petitioner) was contracted in April 1992 by Bayer Philippines, Inc.
(BAYER) as crop protection technician to promote and market BAYER
products.[1] Under the supervision of Aristeo Filipino, BAYER sales representative
for Panay Island, petitioner made farm visits to different municipalities in Panay
Island to convince farmers to buy BAYER products.[2]

In 1996, petitioners employment with BAYER came to a halt, prompting him to seek
employment with another company.BAYER eventually reemployed petitioner,
however, in 1997 through Product Image and Marketing Services, Inc. (PRODUCT
IMAGE) of which respondent Edgardo Bergonia (Bergonia) was the President and
General Manager, performing the same task as that of crop protection technician
promoting BAYER products to farmers and dealers in Panay Island solely for the
benefit of BAYER.[3]

By petitioners claim, in October, 2001, he was directed by Pet Pascual, the newly
assigned BAYER sales representative, to submit a resignation letter, but he refused;
and that in January, 2002, he was summoned by his immediate supervisors
including respondent Danpin Guillermo (Guillermo), BAYER District Sales Manager
for Panay, and was ordered to quit his employment which called for him to return
all pieces of service equipment issued to him, but that again he refused.[4]

Still by petitioners claim, he continued performing his duties and receiving

compensation until the end of January, 2002;that on April 7, 2002, he received a
memorandum that his area of responsibility would be transferred to Luzon, of
which memorandum he sought reconsideration but to no avail; and that Guillermo
and Bergonia spread rumors that reached the dealers in Antique to the effect that
he was not anymore connected with BAYER and any transaction with him would no
longer be honored as of April 30, 2002.[5]

Believing that his employment was terminated, petitioner lodged on June 6, 2002
a complaint for illegal dismissal with the National Labor Relations Commission
(NLRC) against herein respondents BAYER, Guillermo, PRODUCT IMAGE, and
Bergonia, with claims for reinstatement, backwages and/or separation pay, unpaid
wages, holiday pay, premium pay, service incentive leave and allowances, damages
and attorneys fees.[6]

Respondents BAYER and Guillermo denied the existence of an employer-employee

relationship between BAYER and petitioner, explaining that petitioners work at
BAYER was simply occasioned by the Contract of Promotional Services that BAYER
had executed with PRODUCT IMAGE whereby PRODUCT IMAGE was to promote
and market BAYER products on its (PRODUCT IMAGE) own account and in its own
manner and method. They added that as an independent contractor, PRODUCT
IMAGE retained the exclusive power of control over petitioner as it assigned full-
time supervisors to exercise control and supervision over its employees assigned at
BAYER.[7]

Respondents PRODUCT IMAGE and Bergonia, on the other hand, admitted that
petitioner was hired as an employee of PRODUCT IMAGE on April 7, 1997 on a
contractual basis to promote and market BAYER products pursuant to the Contract
of Promotional Services forged between it and BAYER. They alleged that petitioner
was a field worker who had no fixed hours and worked under minimal supervision,
his performance being gauged only by his accomplishment reports duly certified to
by BAYER acting as his de facto supervisor;[8]that petitioner was originally assigned
to Iloilo but later transferred to Antique; that petitioner was not dismissed, but
went on official leave from January 23 to 31, 2002, and stopped reporting for work
thereafter; and that petitioner was supposed to have been reassigned to South
Luzon effective March 15, 2002 in accordance with a personnel reorganization
program, but he likewise failed to report to his new work station.[9]
By Decision of May 6, 2004,[10] the Labor Arbiter declared respondents guilty of
illegal dismissal, disposing as follows:

WHEREFORE, judgment is rendered declaring respondents, Bayer Phil. Inc./Danpin

Guillermo and Product Image Marketing Services, Inc./Edgardo Begornia [sic] guilty of
Illegal Dismissal and is hereby ORDERED to Reinstate complainant to his former or
equivalent position ten (10) days from receipt hereof and to immediately pay
complainant upon receipt of this decision the following:

Backwages Php 228,000.00

13th Month Pay Php 19,000.00

Holiday Pay Php 9,500.00

Service Incentive Leave Pay Php 4,750.00

Attorneys Fees ` Php 26,125.00

Total: Php 287,375.00

In so deciding, the Labor Arbiter found, among other things, that there was an
employer-employee relationship between BAYER and petitioner since BAYER
furnished petitioner the needed facilities and paraphernalia, and fixed the
methodology to be used in the performance of his work.

On appeal by respondents, the NLRC reversed the Decision of the Labor Arbiter and
dismissed petitioners complaint by Decision of February 22, 2006,[11] holding that
as an independent contractor, PRODUCT IMAGE was the employer of petitioner
but there was no evidence that petitioner was dismissed by either PRODUCT
IMAGE or BAYER. Sustaining PRODUCT IMAGEs claim of abandonment, it held that
an employee is deemed to have abandoned his job if he failed to report for work
after the expiration of a duly approved leave of absence or if, after being
transferred to a new assignment, he did not report for work anymore.
Petitioners Motion for Reconsideration having been denied by Resolution of May
25, 2006,[12] he appealed to the Court of Appeals via Certiorari.[13]

By Resolution of September 25, 2006, the appellate court dismissed petitioners

petition for failure to attach to it the complaint and the parties respective position
papers filed with the Labor Arbiter.[14] His Motion for Reconsideration having been
denied by Resolution of August 14, 2007,[15] petitioner comes before this Court via
the present Petition for Review on Certiorari.

Petitioner argues that the appellate court erred in dismissing his petition outright
considering that it had previously allowed subsequent submission of required
documents not attached to a petition for certiorari; and that he attached the
required pleadings to his Motion for Reconsideration with the appellate
court. Moreover, he contends that respondents failed to discharge the burden of
proving the validity of his dismissal in order to overturn the finding of the Labor
Arbiter that he was illegally dismissed.[16]

BAYER and Guillermo counter that petitioner raised factual issues in his petition
before the appellate court which are not reviewable by certiorari; that petitioners
failure to attach the required pleadings to his petition before the appellate court,
coupled with his failure to offer any justification therefor, provides no occasion for
a liberal application of the rules in his favor; that petitioner has no cause of action
against them as his employer is PRODUCT IMAGE; and that assuming that
petitioner is entitled to his money claims, the same should be enforced against the
performance bond posted by PRODUCT IMAGE to cover the claims of its employees
assigned at BAYER.[17]

PRODUCT IMAGE and Bergonia postulate in their Comment that the appellate
courts outright dismissal of petitioners appeal was proper in view of, among other
things, the summary nature of proceedings in labor cases. They also contend that
petitioners present petition suffers from the following infirmities: (1) it does not
contain an affidavit of service; (2) it is not accompanied by petitioners Petition for
Certiorari before the appellate court; (3) it does not specify the errors of law
allegedly committed by the appellate court; (4) it is not accompanied by proof of
service upon the adverse party of a copy of the payment of docket fees; (5) it raises
questions of fact; and (6) it impleads the NLRC and imputes grave abuse of
discretion to the appellate court, thereby implying that the petition is likewise
made under Rule 65 of the Rules of Court.Lastly, they maintain that petitioner was
not dismissed as he actually abandoned his job.[18]

The Court shall first resolve the procedural issues.

Only errors of law are generally reviewed by this Court in petitions for review on
certiorari of the appellate courts decisions,[19] and the question of whether an
employer-employee relationship exists in a given case is essentially a question of
fact.[20] Be that as it may, when, as here, the findings of the NLRC contradict 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.[21]

Respecting the appellate courts dismissal of petitioners Petition for Certiorari for
his failure to attach thereto the relevant pleadings filed with the Labor Arbiter, the
requirement to attach the same under Section 1, Rule 65[22] is considered vis a
vis Section 3, Rule 46[23] which states that the failure of the petitioner to comply
with any of the documentary requirements, such as the attachment of relevant
pleadings, shall be sufficient ground for the dismissal of the petition. By and large,
the outright dismissal of a petition for failure to comply with said requirement
cannot be assailed as constituting either grave abuse of discretion or reversible
error of law.[24]

The Court, however, is inclined to, as it does, overlook petitioners failure to

attach the subject relevant pleadings to his Petition for Certiorari before the
appellate court in view of the serious matters dealt with in this case. That brings
the Court to consider the substantial merits of the case, thus rendering it
unnecessary to still discuss the other procedural matters raised by respondents.
In the main, the substantive issues are: whether PRODUCT IMAGE is a labor-
only contactor and BAYER should be deemed petitioners principal employer; and
whether petitioner was illegally dismissed from his employment.

Permissible job contracting or subcontracting refers to an arrangement

whereby a principal agrees to farm out with a contractor or subcontractor the
performance of a specific job, work, or service within a definite or predetermined
period, regardless of whether such job, work or, service is to be performed or
completed within or outside the premises of the principal.[25] Under this
arrangement, the following conditions must be met: (a) the contractor carries on a
distinct and independent business and undertakes the contract work on his account
under his own responsibility according to his own manner and method, free from
the control and direction of his employer or principal in all matters connected with
the performance of his work except as to the results thereof; (b) the contractor
has substantial capital or investment; and (c)the agreement between the principal
and contractor or subcontractor assures the contractual employees entitlement to
all labor and occupational safety and health standards, free exercise of the right to
self-organization, security of tenure, and social welfare benefits.[26]

In distinguishing between permissible job contracting and prohibited labor-

only contracting,[27] the totality of the facts and the surrounding circumstances of
the case are to be considered,[28] each case to be determined by its own facts, and
all the features of the relationship assessed.[29]

In the case at bar, the Court finds substantial evidence to support the finding
of the NLRC that PRODUCT IMAGE is a legitimate job contractor.

The Court notes that PRODUCT IMAGE was issued by the Department of
Labor and Employment (DOLE) Certificate of Registration Numbered NCR-8-0602-
176 reading:
 CERTIFICATE OF REGISTRATION

Numbered NCR-8-0602-176

issued to

Mr. Edgardo V. Bergonia

President

PRODUCT IMAGE & MARKETING SERVICES, INC.

Unit 5& 6 GF J & L Bldg., 251 EDSA Greenhills,

Mandaluyong City

for having complied with the requirements as provided for under the Labor Code, as
amended, and its implementing Rules and having paid the registration fee in the amount
of ONE HUNDRED (P100) PESOS per Official Receipt Number 6530485Y, dated 21 June
2002.[30]

The DOLE certificate having been issued by a public officer, it carries with it
the presumption that it was issued in the regular performance of official
duty.[31] Petitioners bare assertions fail to rebut this presumption. Further, since
the DOLE is the agency primarily responsible for regulating the business of
independent job contractors, the Court can presume, in the absence of evidence to
the contrary, that it had thoroughly evaluated the requirements submitted by
PRODUCT IMAGE before issuing the Certificate of Registration.
Independently of the DOLEs Certification, among the circumstances that establish
the status of PRODUCT IMAGE as a legitimate job contractor are: (1) PRODUCT
IMAGE had, during the period in question, a contract with BAYER for the promotion
and marketing of BAYER products;[32] (2) PRODUCT IMAGE has an independent
business and provides services nationwide to big companies such as Ajinomoto
Philippines and Procter and Gamble Corporation;[33] and (3) PRODUCT IMAGEs total
assets from 1998 to 2000 amounted to P405,639, P559,897, and P644,728,
respectively.[34] PRODUCT IMAGE also posted a bond in the amount of P100,000 to
answer for any claim of its employees for unpaid wages and other benefits that
may arise out of the implementation of its contract with BAYER.[35]

PRODUCT IMAGE cannot thus be considered a labor-only contractor.

The existence of an employer-employee relationship is determined on the

basis of four standards, namely: (a) the manner of selection and engagement of the
putative employee; (b) the mode of payment of wages; (c) the presence or absence
of power of dismissal; and (d) the presence or absence of control of the putative
employees conduct. Most determinative among these factors is the so-
called control test.[36]

The presence of the first requisite which refers to selection and engagement is
evidenced by a document entitled Job Offer, whereby PRODUCT IMAGE offered to
hire petitioner as crop protection technician effective April 7, 1997, which offer
petitioner accepted.[37]

On the second requisite regarding the payment of wages, it was PRODUCT

IMAGE that paid the wages and other benefits of petitioner, pursuant to the
stipulation in the contract between PRODUCT IMAGE and BAYER that BAYER shall
pay PRODUCT IMAGE an amount based on services actually rendered without
regard to the number of personnel employed by PRODUCT IMAGE; and that
PRODUCT IMAGE shall faithfully comply with the provisions of the Labor Code and
hold BAYER free and harmless from any claim of its employees arising from the
contract.[38]

As to the third requisite which relates to the power of dismissal, and the fourth
requisite which relates to the power of control, both powers are vested in
PRODUCT IMAGE. The Contract of Promotional Services provides that PRODUCT
IMAGE shall have the power to discipline its employees assigned at BAYER, such
that no control whatsoever shall be exercised by BAYER over those personnel on
the manner and method by which they perform their duties,[39] and that all
directives, complaints, or observations of BAYER relating to the performance of the
employees of PRODUCT IMAGE shall be addressed to the latter.[40]

If at all, the only control measure retained by BAYER over petitioner was to act as
his de facto supervisor in certifying to the veracity of the accomplishment reports
he submitted to PRODUCT IMAGE. This is by no means the kind of control that
establishes an employer-employee relationship as it pertains only to the results
and not the manner and method of doing the work. 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.[41] Surely, it would
be foolhardy for any company to completely give the reins and totally ignore the
operations it has contracted out.[42]

In fine, PRODUCT IMAGE is ineluctably the employer of petitioner.

Respecting the issue of illegal dismissal, the Court appreciates no evidence that
petitioner was dismissed. What it finds is that petitioner unilaterally stopped
reporting for work before filing a complaint for illegal dismissal, based on his belief
that Guillermo and Bergonia had spread rumors that his transactions on behalf of
BAYER would no longer be honored as of April 30, 2002. This belief remains just
that it is unsubstantiated. While in cases of illegal dismissal, the employer bears the
burden of proving that the dismissal is for a valid or authorized cause, the employee
must first establish by substantial evidence the fact of dismissal.[43]

WHEREFORE, the petition is, in light of the foregoing, DENIED.

SO ORDERED.
 CONCHITA CARPIO MORALES
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

MINITA V. CHICO NAZARIO TERESITA J. LEONARDO-DE CASTRO

Associate Justice Associate Justice

DIOSDADO M. PERALTA
Associate Justice
 ATTESTATION

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

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

*
Additional member per Special Order No. 658.
**
Additional member per Special Order No. 635.
***
Additional member per Special Order No. 664.
[1]
NLRC records, p. 42.
[2]
Id. at 42-43.
[3]
Ibid.
[4]
Id. at 44-45.
[5]
Ibid.
[6]
Id. at 1.
[7]
Vide Position Paper for BAYER and Mr. Guillermo, id. at 51-88.
[8]
Vide Position Paper for PRODUCT IMAGE and Mr. Bergonia, id. at 315-326.
[9]
Ibid.
[10]
Id. at 459-468.
[11]
Id. at 717-721.
[12]
Id. at 769.
[13]
CA rollo, pp. 3-11.
[14]
Id. at 43.
[15]
Id. at 249-251.
[16]
Vide Petition for Review, rollo, pp. 4-17.
[17]
Vide Comment of BAYER and Mr. Guillermo, id. at 135-182.
[18]
Vide Comment of PRODUCT IMAGE and Mr. Bergonia, id. at 369-380.
[19]
Mitsubishi Motors Philippines Corporation v. Chrysler Philippines Labor Union, G.R. No. 148738, June 29, 2004,
433 SCRA 206, 217.
[20]
Manila Water Company, Inc. v. Pena, G.R. No. 158255, July 8, 2004, 434 SCRA 53, 58.
[21]
Diamond Motors Corporation v. Court of Appeals, 462 Phil. 452, 458 (2003).
[22]
SECTION 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial functions
has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or
excess of [its or his] jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the
facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such
tribunal, board or officer, and granting such incidental reliefs as law and justice may require.

The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject
thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certification of non-
forum shopping as provided in the third paragraph of Section 3, Rule 46.
[23]
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The petition shall contain the
full names and actual addresses of all the petitioners and respondents, a concise statement of the matters
involved, the factual background of the case, and the grounds relied upon for the relief prayed for.

In actions filed under Rule 65, the petition shall further indicate the material dates showing when notice
of the judgment or final order or resolution subject thereof was received, when a motion for new trial or
reconsideration, if any, was filed and when notice of the denial thereof was received.

It shall be filed in seven (7) clearly legible copies together with proof of service thereof on the
respondent with the original copy intended for the court indicated as such by the petitioner and shall be
 accompanied by a clearly legible duplicate original or certified true copy of the judgment, order, resolution, or
ruling subject thereof, such material portions of the record as are referred to therein, and other documents
relevant or pertinent thereto. The certification shall be accomplished by the proper clerk of court or by his duly-
authorized representative, or by the proper officer of the court, tribunal, agency or office involved or by his duly
authorized representative. The other requisite number of copies of the petition shall be accompanied by clearly
legible plain copies of all documents attached to the original.

xxxx

The failure of the petitioner to comply with any of the foregoing requirements shall be sufficient ground
for the dismissal of the petition.
[24]
Vide Philippine Agila Satellite Inc. v. Trinidad-Lichauco, G.R. No. 142362, May 3, 2006, 489 SCRA 22, 34.
[25]
Acevedo v. Advanstar Company, Inc., G.R. No. 157656, November 11, 2005, 474 SCRA 656, 667.
[26]
Vide Purefoods Corporation v. National Labor Relations Commission, G.R. No. 172241, November 20, 2008.
[27]
In legitimate job 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.

On the other hand, 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. The principal employer therefore
becomes solidarity liable with the labor-only contractor for all the rightful claims of the employees. [San Miguel
Corporation v. MAERC Integrated Services, Inc., 453 Phil. 543, 566-567 (2003)]
[28]
Sasan, Sr., et. al. v. National Labor Relations Commission, G.R. No. 176240, October 17, 2008.
[29]
Encyclopaedia Britannica (Phils.), Inc. v. National Labor Relations Commission, 332 Phil. 1, 9 (1996).
[30]
Rollo, p. 244.
[31]
Vide RULES OF COURT, Rule 131 Section 3(m).
[32]
NLRC Records, pp. 116-122.
[33]
Id. at 53-54.
[34]
Id. at 96-113.
[35]
Id. at 123-124.
[36]
De los Santos v. National Labor Relations Commission, 423 Phil. 1020, 1029 (2001).
[37]
NLRC Records, p. 362.
[38]
Id. at 117.
[39]
Ibid.
[40]
Ibid.
[41]
Insular Life Assurance Co., Ltd. v. NLRC, G.R. No. 84484, November 15, 1989, 179 SCRA 459, 464-465.
[42]
Purefoods Corporation v. National Labor Relations Commission, supra note 26.
[43]
Vide Ledesma, Jr. v. National Labor Relations Commission, G.R. No. 174585, October 19, 2007, 537 SCRA 358,
370.

THIRD DIVISION

[G.R. No. 148508. May 20, 2004]

R TRANSPORT CORPORATION, petitioner, vs. ROGELIO
EJANDRA, respondent.

DECISION
CORONA, J.:

Before us is a petition for review of the decision[1] of the Court of

Appeals[2] dated December 22, 2000 dismissing the petition for certiorari of the decision
of the National Labor Relations Commission[3] (NLRC) dated May 30, 1997. The latter
affirmed the decision[4] of the labor arbiter dated February 27, 1997 holding petitioner
liable for illegal dismissal and directing private respondents reinstatement.
Private respondent Rogelio Ejandra alleged that, for almost six years, from July 15,
1990 to January 31, 1996, he worked as a bus driver of petitioner R Transport
Corporation. He plied the route Muntilupa-Alabang-Malanday-Monumento-UE-Letre-
Sangandaan from 5:00 a.m. up to 2:00 a.m. the next day and was paid 10% of his daily
earnings.
On January 31, 1996, an officer of the Land Transportation Office (LTO), Guadalupe
Branch, Makati City, apprehended him for obstruction of traffic for which his license was
confiscated. Upon his arrival at petitioners garage, he immediately reported the incident
to his manager, Mr. Oscar Pasquin, who gave him P500 to redeem his license. The
following day, he went to LTO, Guadalupe Branch, to claim it but he was told that it had
not yet been turned over by the officer who apprehended him. He was able to retrieve his
license only after a week.
On February 8, 1996, private respondent informed Mr. Pasquin that he was ready to
report for work. However, he was told that the company was still studying whether to allow
him to drive again.Private respondent was likewise accused of causing damage to the
bus he used to drive. Denying the charge, private respondent blamed the person who
drove the said bus during his absence, considering that the damage was sustained during
the week that he did not drive the bus. Mr. Pacquin nonetheless told him Magpahinga ka
muna at tatawagin ka na lang namin kung kailangan ka na para magmaneho.
Magbakasyon ka muna, bata. When respondent asked how long he had to rest, the
manager did not give a definite time.
Petitioner denied private respondents allegations and claimed that private
respondent, a habitual absentee, abandoned his job. To belie private respondents
allegation that his license had been confiscated, petitioner asserted that, had it been true,
he should have presented an apprehension report and informed petitioner of his problems
with the LTO. But he did not. Petitioner further argued that private respondent was not an
employee because theirs was a contract of lease and not of employment, with petitioner
being paid on commission basis.
On February 23, 1997, labor arbiter Rogelio Yulo rendered his decision in favor of
private respondent. The dispositive portion of the decision read:
PREMISES CONSIDERED, judgment is hereby rendered finding the dismissal of Rogelio
Ejandra to be without just cause and, therefore, illegal and ORDERING R-Transport to
REINSTATE him to his former position without loss of seniority and other benefits and to pay
him backwages from the time of his dismissal until actual reinstatement.

SO ORDERED.[5]

Labor arbiter Yulo gave no weight to petitioners claim that private respondent
abandoned his work. His one-week absence did not constitute abandonment of work
considering that it took him the whole week to reclaim his license. Private respondent
could not retrieve it unless and until the apprehending officer first transmitted it to their
office. His inability to drive for petitioner that whole week was therefore not his fault and
petitioner could be held liable for illegal dismissal. Due process was not accorded to
private respondent who was never given the opportunity to contest the charge of
abandonment. Moreover, assuming actual abandonment, petitioner should have reported
such fact to the nearest employment office of the Department of Labor and Employment.
But no such report was ever made.
On May 30, 1997, the NLRC rendered a decision affirming the decision of the labor
arbiter:

WHEREFORE, premises considered, the appeal is hereby DISMISSED and the appealed
decision AFFIRMED in toto.

SO ORDERED.[6]

In disputing petitioners claim that private respondent was not its employee and was
not therefore entitled to notice and hearing before termination, the NLRC held that:

It is very clear that (sic) from no less than appellants admission, that complainant was not
afforded his right to due process prior to the severance of his employment with respondents.
(First par. p.3, respondents Appeal Memorandum, p. 45, Rollo)

Appellants defense of denying the existence of employer-employee relationship with the

complainant based on the manner by which complainant was being paid his salary, cannot hold
water.

xxx xxx xxx

While employees paid on piece-rate and commission basis are not covered by the provisions of
the Labor Code, as amended, on hours of work, these employees however, for all intents and
purposes, are employees of their employers.

xxx xxx xxx[7]

Petitioner filed in the Court of Appeals a petition for certiorari on the ground that the
NLRC committed grave abuse of discretion in affirming the decision of the labor
arbiter. On December 22, 2000, the Court of Appeals rendered a decision, the dispositive
portion of which read:

WHEREFORE, the instant petition is hereby DENIED for lack of merit.

SO ORDERED.[8]

Categorizing the issues raised by petitioner as factual, the appellate court held that
the findings of fact of the labor arbiter (affirmed by the NLRC) were entitled to great
respect because they were supported by substantial evidence. The Court of Appeals also
ruled that petitioner was barred from denying the existence of an employer-employee
relationship because petitioner invoked its rights under the law and jurisprudence as an
employer in dismissing private respondent.
Hence, this appeal based on the following assignments of errors:

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS, TENTH DIVISION

COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT AFFIRMED/ADOPTED IN
TOTO THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION (NLRC)
BASED PURELY ON A SPECULATION, SURMISE OR CONJECTURE.

THE FINDINGS OF FACTS ARE MERE CONCLUSIONS WITHOUT CITATION OR

SPECIFIC EVIDENCE ON WHICH THEY ARE BASED.

FURTHER, THE HONORABLE COURT OF APPEALS, TENTH DIVISION COMMITTED

GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN NOT
RULING THAT THE RELATIONSHIP IN LAW OCCURRING BETWEEN THE
PETITIONER R TRANSPORT CORPORATION AND THE PRIVATE RESPONDENT WAS
IN A NATURE OF LESSOR AND LESSEE.

MOREOVER, THERE IS A NEED BY THIS HONORABLE COURT TO GIVE A SECOND

LOOK ON THE RECORDS OF NLRC NCR CASE RAB NO. IV-2-7910-R / NLRC NCR CA-
012-605-97 TO AVOID MISCARRIAGE OF JUSTICE AND FURTHERANCE OF THE
STATUTORY REQUIREMENTS OF DUE PROCESS.

FINALLY, THE HONORABLE COURT OF APPEALS, TENTH DIVISION GRAVELY

ERRED IN DENYING THE PETITION IN CA-G.R. SP. NO. 51962 IN ITS DECISION
PROMULGATED ON DECEMBER 22, 2000 (ANNEXES G AND G-1) AND IN ITS
RESOLUTION DATED JUNE 4, 2001 (ANNEX B), HAS ACTED CONTRARY TO LAW
AND THE RULES OF COURT.[9]

According to the petitioner, the appellate court erred in not finding that private
respondent abandoned his work; that petitioner was not the lessor of private respondent;
that, as such, the termination of the contract of lease of services did not require petitioner
to respect private respondents rights to notice and hearing; and, that private respondents
affidavit was hearsay and self-serving.
We deny the appeal.
Under Section 1, Rule 45 of the 1997 Rules of Civil Procedure, a petition for review
shall only raise questions of law considering that the findings of fact of the Court of
Appeals are, as a general rule, conclusive upon and binding on this Court.[10] This doctrine
applies with greater force in labor cases where the factual findings of the labor tribunals
are affirmed by the Court of Appeals. The reason is because labor officials are deemed
to have acquired expertise in matters within their jurisdiction and therefore, their factual
findings are generally accorded not only respect but also finality, and are binding on this
Court.[11]
In the case at bar, the labor arbiter, the NLRC and the Court of Appeals were
unanimous in finding that private respondent worked as a driver of one of the buses of
petitioner and was paid on a 10% commission basis. After he was apprehended for a
traffic violation, his license was confiscated. When he informed petitioners general
manager of such fact, the latter gave him money to redeem his license. He went to the
LTO office everyday but it was only after a week that he was able to get back his
license. When he reported back to work, petitioners manager told him to wait until his
services were needed again. Considering himself dismissed, private respondent filed a
complaint for illegal dismissal against petitioner.
We have no reason to disturb all these factual findings because they are amply
supported by substantial evidence.
Denying the existence of an employer-employee relationship, petitioner insists that
the parties agreement was for a contract of lease of services. We disagree. Petitioner is
barred to negate the existence of an employer-employee relationship. In its petition filed
before this Court, petitioner invoked our rulings on the right of an employer to dismiss an
employee for just cause.[12] Petitioner maintained that private respondent was justifiably
dismissed due to abandonment of work. By adopting said rulings, petitioner impliedly
admitted that it was in fact the employer of private respondent.According to the control
test, the power to dismiss an employee is one of the indications of an employer-employee
relationship.[13]Petitioners claim that private respondent was legally dismissed for
abandonment was in fact a negative pregnant:[14] an acknowledgement that there was no
mutual termination of the alleged contract of lease and that private respondent was its
employee. The fact that petitioner paid private respondent on commission basis did not
rule out the presence of an employee-employer relationship.Article 97(f) of the Labor
Code clearly provides that an employees wages can be in the form of commissions.
 We now ask the next question: was private respondent, an employee of petitioner,
dismissed for just cause? We do not think so.
According to petitioner, private respondent abandoned his job and lied about the
confiscation of his license. To constitute abandonment, two elements must concur: (1)
the failure to report for work or absence without valid or justifiable reason and (2) a clear
intention to sever the employer-employee relationship. Of the two, the second element is
the more determinative factor and should be manifested by some overt acts. Mere
absence is not sufficient. It is the employer who has the burden of proof to show a
deliberate and unjustified refusal of the employee to resume his employment without any
intention of returning.[15]
In the instant case, petitioner fell short of proving the requisites. To begin with,
petitioners absence was justified because the LTO, Guadalupe Branch, did not release
his license until after a week. This was the unanimous factual finding of the labor tribunals
and the Court of Appeals. As aptly held by labor arbiter Yulo, the process of redeeming a
confiscated license, based on common experience, depended on when the apprehending
officer turned over the same.Second, private respondent never intended to sever his
employment as he in fact reported for work as soon as he got his license back.Petitioner
offered no evidence to rebut these established facts. Third, labor arbiter Yulo correctly
observed that, if private respondent really abandoned his work, petitioner should have
reported such fact to the nearest Regional Office of the Department of Labor and
Employment in accordance with Section 7, Rule XXIII, Book V of Department Order No.
9, series of 1997[16] (Rules Implementing Book V of the Labor Code). Petitioner made no
such report.
In addition to the fact that petitioner had no valid cause to terminate private
respondent from work, it violated the latters right to procedural due process by not giving
him the required notice and hearing. Section 2, Rule XXIII, Book V of Department Order
No. 9 provides for the procedure for dismissal for just or authorized cause:

SEC. 2. Standards of due process; requirement of notice. In all cases of termination of

employment, the following standards of due process shall be substantially observed:

I. For termination of employment based on just causes as defined in Article 282 of the Code:

(a) A written notice served on the employee specifying the ground or grounds for termination,
and giving to said employee reasonable opportunity within which to explain his side;

(b) A hearing or conference during which the employee concerned, with the assistance of
counsel if the employee so desires, is given opportunity to respond to the charge, present his
evidence or rebut the evidence presented against him; and

(c ) A written notice of termination served on the employee indicating that upon due
consideration of all the circumstances, grounds have been established to justify his termination.
In case of termination, the foregoing notices shall be served on the employees last known
address.
II. For termination of employment as based on authorized causes defined in Article 283 of the
Code, the requirements of due process shall be deemed complied with upon service of a written
notice to the employee and the appropriate Regional Office of the Department at least thirty days
before the effectivity of the termination, specifying the ground or grounds for termination.

III. If termination is brought about by the completion of the contract or phase thereof, no prior
notice is required. If the termination is brought about by the failure of an employee to meet the
standards of the employer in case of probationary employment, it shall be sufficient that a written
notice is served the employee within a reasonable time from the effective date of termination.

WHEREFORE, premises considered, the petition is hereby DENIED.Costs against

the petitioner.
SO ORDERED.
Vitug, (Chairman and Acting Chief Justice), Sandoval-Gutierrez, and Carpio-
Morales, JJ., concur.

[1]
Penned by Associate Justice Ramon C. Barcelona and concurred in by Associate Justices
Rodrigo V. Cosico and Bienvenido L. Reyes; Rollo, pp. 29-34.
[2]
Tenth Division.
[3]
Penned by Commissioner Rogelio I. Rayala and concurred in by Presiding Commissioner Raul Aquino
and Commissioner Victoriano Calycay; Rollo, pp. 93-98.
[4]
Penned by Labor Arbiter Gerardo A. Yulo; Rollo, pp. 63-67.
[5]
Rollo, p. 67.
[6]
Rollo, p. 98.
[7]
Rollo, pp. 96-98.
[8]
Rollo, p. 34.
[9]
Rollo, p. 13.
[10]
Herbosa, et. al. vs. Court of Appeals, 374 SCRA 578, 591 [2001].
[11]
Alfaro vs. Court of Appeals, 363 SCRA 799 [2001].
[12]
Rollo, p. 19-20.
[13]
Jimenez vs. National Labor Relations Commission, 256 SCRA 84 [1996].
[14]
A negative pregnant is a form of negative expression which carries with it an affirmation or at least an
implication of some kind favorable to the adverse party. It is a denial pregnant with an admission
of the substantial facts alleged in the pleading. Where a fact is alleged with qualifying or modifying
language and the words of the allegation as so qualified or modified are literally denied, has been
held that the qualifying circumstances alone are denied while the fact itself is admitted.
(Republic vs. Sandiganbayan, et. al., G.R. No. 152154, July 15, 2003)
[15]
Millares, et. al., vs. National Labor Relations Commission, 328 SCRA 79 [2000].
[16]
SEC. 7. Report of dismissal. The employer shall submit a monthly report to the Regional Office having
jurisdiction over the place of work all dismissals effected by it during the month, specifying therein
the names of the dismissed workers, the reasons for their dismissal, the dates of commencement
and termination of employment, the positions last held by them and such other information as may
be required by the Department for policy guidance and statistical purposes.

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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-19124 November 18, 1967

INVESTMENT PLANNING CORPORATION OF THE PHILIPPINES, petitioner-appellant,

vs.

SOCIAL SECURITY SYSTEM, respondent-appellee.

MAKALINTAL, J.:

Petitioner is a domestic corporation engaged in business management and the sale of securities. It has
two classes of agents who sell its investment plans: (1) salaried employees who keep definite hours and
work under the control and supervision of the company; and (2) registered representatives who work on
commission basis.
On August 27, 1960 petitioner, through counsel, applied to respondent Social Security Commission for
exemption of its so-called registered representatives from the compulsory coverage of the Social
Security Act. The application was denied in a letter signed by the Secretary to the Commission on
January 16, 1961. A motion to reconsider was filed and also denied, after hearing, by the Commission
itself in its resolution dated September 8, 1961. The matter was thereafter elevated to this Court for
review.

The issue submitted for decision here is whether petitioner's registered representatives are employees
within the meaning of the Social Security Act (R.A. No. 1161 as amended). Section 8 (d) thereof defines
the term "employee" for purposes of the Act as "any person who performs services for an
'employer' in which either or both mental and physical efforts are used and who receives compensation
for such services, where there is, employer-employee relationship." (As amended by Sec.4, R.A. No.
2658). These representatives are in reality commission agents. The uncontradicted testimony of
petitioner's lone witness, who was its assistant sales director, is that these agents are recruited and
trained by him particularly for the job of selling "'Filipinos Mutual Fund" shares, made to undergo a test
after such training and, if successful, are given license to practice by the Securities and Exchange
Commission. They then execute an agreement with petitioner with respect to the sale of FMF shares to
the general public. Among the features of said agreement which respondent Commission considered
pertinent to the issue are: (a) an agent is paid compensation for services in the form of commission; (b)
in the event of death or resignation he or his legal representative shall be paid the balance of the
commission corresponding to him; (c) he is subject to a set of rules and regulations governing the
performance of his duties under the agreement; (d) he is required to put up a performance bond; and
(e) his services may be terminated for certain causes. At the same time the Commission found from the
evidence and so stated in its resolution that the agents "are not required to report (for work) at any
time; they do not have to devote their time exclusively to or work solely for petitioner; the time and the
effort they spend in their work depend entirely upon their own will and initiative; they are not required
to account for their time nor submit a record of their activities; they shoulder their own selling expenses
as well as transportation; and they are paid their commission based on a certain percentage of their
sales." The record also reveals that the commission earned by an agent on his sales is directly deducted
by him from the amount he receives from the investor and turns over to the company the amount
invested after such deduction is made. The majority of the agents are regularly employed elsewhere
either in the government or in private enterprises.

Of the three requirements under Section 8 (d) of the Social Security Act it is admitted that the first is
present in respect of the agents whose status is in question. They exert both mental and physical efforts
in the performance of their services. The compensation they receive, however, is not necessarily for
those efforts but rather for the results thereof, that is, for actual sales that they make. This point is
relevant in the determination of whether or not the third requisite is also present, namely, the existence
of employer-employee relationship. Petitioner points out that in effect such compensation is paid not by
it but by the investor, as shown by the basis on which the amount of the commission is fixed and the
manner in which it is collected.
Petitioner submits that its commission agents, engaged under the terms and conditions already
enumerated, are not employees but independent contractors, as defined in Article 1713 of the Civil
Code, which provides:

Art. 1713. By the contract for a piece of work the contractor binds himself to execute a piece of
work for the employer, in consideration of a certain price or compensation. The contractor may either
employ only his labor or skill, or also furnish the material.

We are convinced from the facts that the work of petitioner's agents or registered representatives more
nearly approximates that of an independent contractor than that of an employee. The latter is paid for
the labor he performs, that is, for the acts of which such labor consists; the former is paid for the result
thereof. This Court has recognized the distinction in Chartered Bank, et al. vs. Constantino, 56 Phil. 717,
where it said:

On this point, the distinguished commentator Manresa in referring to Article 1588 of the (Spanish) Civil
Code has the following to say. . . .

The code does not begin by giving a general idea of the subject matter, but by fixing its two
distinguishing characteristics.

But such an idea was not absolutely necessary because the difference between the lease of work by
contract or for a fixed price and the lease of services of hired servants or laborers is sufficiently clear. In
the latter, the direct object of the contract is the lessor's labor; the acts in which such labor consists,
performed for the benefit of the lessee, are taken into account immediately. In work done by contract
or for a fixed price, the lessor's labor is indeed an important, a most important factor; but it is not the
direct object of the contract, nor is it immediately taken into account. The object which the parties
consider, which they bear in mind in order to determine the cause of the contract, and upon which they
really give their consent, is not the labor but its result, the complete and finished work, the aggregate of
the lessor's acts embodied in something material, which is the useful object of the contract. . . .
(Manresa Commentarios al Codigo Civil, Vol. X, ed., pp. 774-775.)

Even if an agent of petitioner should devote all of his time and effort trying to sell its investment plans
would not necessarily be entitled to compensation therefor. His right to compensation depends upon
and is measured by the tangible results he produces.

The specific question of when there is "employer-employee relationship" for purposes of the Social
Security Act has not yet been settled in this jurisdiction by any decision of this Court. But in other
connections wherein the term is used the test that has been generally applied is the so-called control
test, that is, whether the "employer" controls or has reserved the right to control the "employee" not
only as to the result of the work to be done but also as to the means and methods by which the same is
to be accomplished.

Thus in Philippine Manufacturing Company vs. Geronimo, et al., L-6968, November 29, 1954, involving
the Workmen's Compensation Act, we read:

. . . Garcia, a painting contractor, had a contract undertaken to paint a water tank belonging to the
Company "in accordance with specifications and price stipulated," and with "the actual supervision of
the work (being) taken care of by" himself. Clearly, this made Garcia an independent contractor, for
while the company prescribed what should be done, the doing of it and the supervision thereof was left
entirely to him, all of which meant that he was free to do the job according to his own method without
being subject to the control of the company except as to the result.

Cruz, et al. vs. The Manila Hotel Company, L-9110, April 30, 1957, presented the issue of who were to be
considered employees of the defendant firm for purposes of separation gratuity. LVN Pictures, Inc. vs.
Phil. Musicians Guild, et al., L-12582, January 28, 1961, involved the status of certain musicians for
purposes of determining the appropriate bargaining representative of the employees. In both instances
the "control" test was followed. (See also Mansal vs. P.P. Gocheco Lumber Co., L-8017, April 30, 1955;
and Viana vs. Allagadan, et al., L-8967, May 31, 1956.)

In the United States, the Federal Social Security Act of 1935 set forth no definition of the term
'employee' other than that it 'includes an officer of a corporation.' Under that Act the U.S. Supreme
Court adopted for a time and in several cases the so-called 'economic-reality' test instead of the 'control'
test. (U.S. vs. Silk and Harrison, 91 Law Ed. 1757; Bartels vs. Birmingham, Ibid, 1947, both decided in
June 1947). In the Bartels case the Court said:

In United States v. Silk, No. 312, 331 US 704, ante, 1957, 67 SCt 1463, supra, we held that the
relationship of employer-employee, which determines the liability for employment taxes under the
Social Security Act was not to be determined solely by the idea of control which an alleged employer
may or could exercise over the details of the service rendered to his business by the worker or workers.
Obviously control is characteristically associated with the employer-employee relationship, but in the
application of social legislation employees are those who as a matter of economic reality are dependent
upon the business to which they render service. In Silk, we pointed out that permanency of the relation,
the skill required, the investment in the facilities for work and opportunities for profit or less from the
activities were also factors that should enter into judicial determination as to the coverage of the Social
Security Act. It is the total situation that controls. The standards are as important in the entertainment
field as we have just said, in Silk, that they were in that of distribution and transportation. (91 Law, Ed.
1947, 1953;)

However, the 'economic-reality' test was subsequently abandoned as not reflective of the intention of
Congress in the enactment of the original Security Act of 1935. The change was accomplished by means
of an amendatory Act passed in 1948, which was construed and applied in later cases. In Benson vs.
Social Security Board, 172 F. 2d. 682, the U.S. Supreme Court said:

After the decision by the Supreme Court in the Silk case, the Treasury Department revamped its
Regulation, 12 Fed. Reg. 7966, using the test set out in the Silk case for determining the existence of an
employer-employee relationship. Apparently this was not the concept of such a relationship that
Congress had in mind in the passage of such remedial acts as the one involved here because thereafter
on June 14, 1948, Congress enacted Public Law 642, 42 U.S C.A. Sec. 1301 (a) (6). Section 1101(a) (6) of
the Social Security Act was amended to read as follows:

The term "employee" includes an officer of a corporation, but such term does not include (1) any
individual who, under the usual common-law rules applicable in determining the employer-employee
relationship, has the status of an independent contractor or (2) any individual (except an officer of a
corporation) who is not an employee under such common law rules.

While it is not necessary to explore the full effect of this enactment in the determination of the
existence of employer-employee relationships arising in the future, we think it can fairly be said that the
intent of Congress was to say that in determining in a given case whether under the Social Security Act
such a relationship exists, the common-law elements of such a relationship, as recognized and applied
by the courts generally at the time of the passage of the Act, were the standard to be used . . . .

The common-law principles expressly adopted by the United States Congress are summarized in Corpus
Juris Secundum as follows:

Under the common-law principles as to tests of the independent contractor relationship, discussed in
Master and Servant, and applicable in determining coverage under the Social Security Act and related
taxing provisions, the significant factor in determining the relationship of the parties is the presence or
absence of a supervisory power to control the method and detail of performance of the service, and the
degree to which the principal may intervene to exercise such control, the presence of such power of
control being indicative of an employment relationship and the absence of such power being indicative
of the relationship of independent contractor. In other words, the test of existence of the relationship of
independent contractor, which relationship is not taxable under the Social Security Act and related
provisions, is whether the one who is claimed 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 as
to the result of the work. (81 C.J.S. Sec. 5, pp. 24-25); See also Millard's Inc. vs. United States, 46 F. Supp.
385; Schmidt vs. Ewing, 108 F. Supp. 505; Ramblin vs. Ewing, 106 F. Supp. 268.

In the case last cited (Rambin v. Ewing) the question presented was whether the plaintiff there, who was
a sales representative of a cosmetics firm working on a commission basis, was to be considered an
employee. Said the Court:

Plaintiff's only remuneration was her commission of 40%, plus $5 extra for every $250 of sales. Plaintiff
was not guaranteed any minimum compensation and she was not allowed a drawing account or
advance of any kind against unearned commissions. Plaintiff paid all of her traveling expenses and she
even had to pay the postage for sending orders to Avon.

The only office which Avon maintained in Shreveport was an office for the city manager. Plaintiff worked
from her own home and she was never furnished any leads. The relationship between plaintiff and Avon
was terminable at will . . .

xxx xxx xxx

. . . A long line of decisions holds that commission sales representatives are not employees within the
coverage of the Social Security Act. The underlying circumstances of the relationship between the sales
representatives and company often vary widely from case to case, but commission sales representatives
have uniformly been held to be outside the Social Security Act.

Considering the similarity between the definition of "employee" in the Federal Social Security Act (U.S.)
as amended and its definitions in our own Social Security Act, and considering further that the local
statute is admittedly patterned after that of the United States, the decisions of American courts on the
matter before us may well be accorded persuasive force. The logic of the situation indeed dictates that
where the element of control is absent; where a person who works for another does so more or less at
his own pleasure and is not subject to definite hours or conditions of work, and in turn is compensated
according to the result of his efforts and not the amount thereof, we should not find that the
relationship of employer and employee exists.

We have examined the contract form between petitioner and its registered representatives and found
nothing therein which would indicate that the latter are under the control of the former in respect of
the means and methods they employ in the performance of their work. The fact that for certain
specified causes the relationship may be terminated (e.g., failure to meet the annual quota of sales,
inability to make any sales production during a six-month period, conduct detrimental to petitioner,
etc.) does not mean that such control exists, for the causes of termination thus specified have no
relation to the means and methods of work that are ordinarily required of or imposed upon employees.

In view of the foregoing considerations, the resolution of respondent Social Security Commission subject
of this appeal is reversed and set aside, without pronouncement as to costs.

Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

Concepcion, C.J., took no part part.

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Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 176419 November 27, 2013

GMA NETWORK, INC., Petitioner,

vs.

CARLOS P. PABRIGA, GEOFFREY F. ARIAS, KIRBY N. CAMPO, ARNOLD L. LAGAHIT, and ARMANDO A.
CATUBIG, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari filed by petitioner GMA Network Inc. assailing the Decision1 of
the Court of Appeals dated September 8, 2006 and the subsequent Resolution2 dated January 22 2007
denying reconsideration in CA-G.R. SP No. 73652.

The Court of Appeals summarized the facts of the case as follows:

On July 19 1999 due to the miserable working conditions private respondents were forced to file a
complaint against petitioner before the National Labor Relations Commission Regional Arbitration
Branch No. VII Cebu City assailing their respective employment circumstances as follows:

NAME DATE HIRED POSITION

Carlos Pabriga 2 May 1997 Television Technicians

Geoffrey Arias 2 May 1997 Television Technicians

Kirby Campo 1 Dec. 1993 Television Technicians

Arnold Laganit 11 Feb. 1996 Television Technicians

Armand Catubig 2 March 1997 Television Technicians

Private respondents were engaged by petitioner to perform the following activities, to wit:

1) Manning of Technical Operations Center:

(a) Responsible for the airing of local commercials; and

(b) Logging/monitoring of national commercials (satellite)

2) Acting as Transmitter/VTR men:

(a) Prepare tapes for local airing;

(b) Actual airing of commercials;

(c) Plugging of station promo;

(d) Logging of transmitter reading; and

(e) In case of power failure, start up generator set to resume program;

3) Acting as Maintenance staff;

(a) Checking of equipment;

(b) Warming up of generator;

(c) Filling of oil, fuel, and water in radiator; and

4) Acting as Cameramen

On 4 August 1999, petitioner received a notice of hearing of the complaint. The following day,
petitioners Engineering Manager, Roy Villacastin, confronted the private respondents about the said
complaint.

On 9 August 1999, private respondents were summoned to the office of petitioners Area Manager, Mrs.
Susan Alio, and they were made to explain why they filed the complaint. The next day, private
respondents were barred from entering and reporting for work without any notice stating the reasons
therefor.

On 13 August 1999, private respondents, through their counsel, wrote a letter to Mrs. Susan Alio
requesting that they be recalled back to work.

On 23 August 1999, a reply letter from Mr. Bienvenido Bustria, petitioners head of Personnel and Labor
Relations Division, admitted the non-payment of benefits but did not mention the request of private
respondents to be allowed to return to work.

On 15 September 1999, private respondents sent another letter to Mr. Bustria reiterating their request
to work but the same was totally ignored. On 8 October 1999, private respondents filed an amended
complaint raising the following additional issues: 1) Unfair Labor Practice; 2) Illegal dismissal; and 3)
Damages and Attorneys fees.

On 23 September 1999, a mandatory conference was set to amicably settle the dispute between the
parties, however, the same proved to be futile. As a result, both of them were directed to file their
respective position papers.

On 10 November 1999, private respondents filed their position paper and on 2 March 2000, they
received a copy of petitioners position paper. The following day, the Labor Arbiter issued an order
considering the case submitted for decision.3

In his Decision dated August 24, 2000, the Labor Arbiter dismissed the complaint of respondents for
illegal dismissal and unfair labor practice, but held petitioner liable for 13th month pay. The dispositive
portion of the Labor Arbiters Decision reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered dismissing the
complaints for illegal dismissal and unfair labor practice.

Respondents are, however, directed to pay the following complainants their proportionate 13th month
pay, to wit:

1. Kirby Campo P 7,716.04

2. Arnold Lagahit 7,925.98

3. Armand Catubig 4,233.68

4. Carlos Pabriga 4,388.19

5. Geoffrey Arias 4,562.01

P28,826.14

10% Attorneys fees 2,882.61

GRAND TOTAL P31,708.75

All other claims are, hereby, dismissed for failure to substantiate the same.4

Respondents appealed to the National Labor Relations Commission (NLRC). The NLRC reversed the
Decision of the Labor Arbiter, and held thus:

WHEREFORE, we make the following findings:

a) All complainants are regular employees with respect to the particular activity to which they were
assigned, until it ceased to exist. As such, they are entitled to payment of separation pay computed at
one (1) month salary for every year of service;

b) They are not entitled to overtime pay and holiday pay; and

c) They are entitled to 13th month pay, night shift differential and service incentive leave pay.

For purposes of accurate computation, the entire records are REMANDED to the Regional Arbitration
Branch of origin which is hereby directed to require from respondent the production of additional
documents where necessary.

Respondent is also assessed the attorneys fees of ten percent (10%) of all the above awards.5

Petitioner elevated the case to the Court of Appeals via a Petition for Certiorari. On September 8, 2006,
the appellate court rendered its Decision denying the petition for lack of merit.
Petitioner filed the present Petition for Review on Certiorari, based on the following grounds:

I.

THE COURT OF APPEALS GRAVELY ERRED FINDING RESPONDENTS ARE REGULAR EMPLOYEES OF THE
PETITIONER AND ARE NOT PROJECT EMPLOYEES.

II.

THE COURT OF APPEALS GRAVELY ERRED IN AWARDING SEPARATION PAY TO RESPONDENTS ABSENT A
FINDING THAT RESPONDENTS WERE ILLEGALLY DISMISSED.

III.

THE COURT OF APPEALS GRAVELY ERRED IN AWARDING NIGHT SHIFT DIFFERENTIAL PAY CONSIDERING
THE ABSENCE OF EVIDENCE WHICH WOULD ENTITLE THEM TO SUCH AN AWARD.

IV.

THE COURT OF APPEALS GRAVELY ERRED IN AWARDING ATTORNEYS FEES TO RESPONDENTS.6

The parties having extensively elaborated on their positions in their respective memoranda, we proceed
to dispose of the issues raised.

Five Classifications of Employment

At the outset, we should note that the nature of the employment is determined by law, regardless of
any contract expressing otherwise. The supremacy of the law over the nomenclature of the contract and
the stipulations contained therein is to bring to life the policy enshrined in the Constitution to afford full
protection to labor. Labor contracts, being imbued with public interest, are placed on a higher plane
than ordinary contracts and are subject to the police power of the State.7
Respondents claim that they are regular employees of petitioner GMA Network, Inc. The latter, on the
other hand, interchangeably characterize respondents employment as project and fixed period/fixed
term employment. There is thus the need to clarify the foregoing terms.

The terms regular employment and project employment are taken from Article 280 of the Labor Code,
which also speaks of casual and seasonal employment:

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

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided,
That, any employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered a regular employee with respect to the activity in which he is employed and
his employment shall continue while such activity actually exist.

A fifth classification, that of a fixed term employment, is not expressly mentioned in the Labor Code.
Nevertheless, this Court ruled in Brent School, Inc. v. Zamora,8 that such a contract, which specifies that
employment will last only for a definite period, is not per se illegal or against public policy.

Whether respondents are regular or project employees

Pursuant to the above-quoted Article 280 of the Labor Code, employees performing activities which are
usually necessary or desirable in the employers usual business or trade can either be regular, project or
seasonal employees, while, as a general rule, those performing activities not usually necessary or
desirable in the employers usual business or trade are casual employees. The reason for this distinction
may not be readily comprehensible to those who have not carefully studied these provisions: only
employers who constantly need the specified tasks to be performed can be justifiably charged to uphold
the constitutionally protected security of tenure of the corresponding workers. The consequence of the
distinction is found in Article 279 of the Labor Code, which provides:

ARTICLE 279. Security of tenure. In cases of regular employment, the employer shall not terminate the
services of an employee except for a just cause or when authorized by this Title. An employee who is
unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other
privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld from him up to the time of his
actual reinstatement.

On the other hand, the activities of project employees may or may not be usually necessary or desirable
in the usual business or trade of the employer, as we have discussed in ALU-TUCP v. National Labor
Relations Commission,9 and recently reiterated in Leyte Geothermal Power Progressive Employees
Union-ALU-TUCP v. Philippine National Oil Company-Energy Development Corporation.10 In said cases,
we clarified the term "project" in the test for determining whether an employee is a regular or project
employee:

It is evidently important to become clear about the meaning and scope of the term "project" in the
present context. The "project" for the carrying out of which "project employees" are hired would
ordinarily have some relationship to the usual business of the employer. Exceptionally, the "project"
undertaking might not have an ordinary or normal relationship to the usual business of the employer. In
this latter case, the determination of the scope and parameters of the "project" becomes fairly easy. It is
unusual (but still conceivable) for a company to undertake a project which has absolutely no relationship
to the usual business of the company; thus, for instance, it would be an unusual steel-making company
which would undertake the breeding and production of fish or the cultivation of vegetables. From the
viewpoint, however, of the legal characterization problem here presented to the Court, there should be
no difficulty in designating the employees who are retained or hired for the purpose of undertaking fish
culture or the production of vegetables as "project employees," as distinguished from ordinary or
"regular employees," so long as the duration and scope of the project were determined or specified at
the time of engagement of the "project employees." For, as is evident from the provisions of Article 280
of the Labor Code, quoted earlier, the principal test for determining whether particular employees are
properly characterized as "project employees" as distinguished from "regular employees," is whether or
not the "project employees" were assigned to carry out a "specific project or undertaking," the duration
(and scope) of which were specified at the time the employees were engaged for that project.

In the realm of business and industry, we note that "project" could refer to one or the other of at least
two (2) distinguishable types of activities. Firstly, a project could refer to a particular job or undertaking
that is within the regular or usual business of the employer company, but which is distinct and separate,
and identifiable as such, from the other undertakings of the company. Such job or undertaking begins
and ends at determined or determinable times. The typical example of this first type of project is a
particular construction job or project of a construction company. A construction company ordinarily
carries out two or more [distinct] identifiable construction projects: e.g., a twenty-five-storey hotel in
Makati; a residential condominium building in Baguio City; and a domestic air terminal in Iloilo City.
Employees who are hired for the carrying out of one of these separate projects, the scope and duration
of which has been determined and made known to the employees at the time of employment, are
properly treated as "project employees," and their services may be lawfully terminated at completion of
the project.

The term "project" could also refer to, secondly, a particular job or undertaking that is not within the
regular business of the corporation. Such a job or undertaking must also be identifiably separate and
distinct from the ordinary or regular business operations of the employer. The job or undertaking also
begins and ends at determined or determinable times. x x x.11 (Emphases supplied, citation omitted.)

Thus, in order to safeguard the rights of workers against the arbitrary use of the word "project" to
prevent employees from attaining the status of regular employees, employers claiming that their
workers are project employees should not only prove that the duration and scope of the employment
was specified at the time they were engaged, but also that there was indeed a project. As discussed
above, the project could either be (1) a particular job or undertaking that is within the regular or usual
business of the employer company, but which is distinct and separate, and identifiable as such, from the
other undertakings of the company; or (2) a particular job or undertaking that is not within the regular
business of the corporation. As it was with regard to the distinction between a regular and casual
employee, the purpose of this requirement is to delineate whether or not the employer is in constant
need of the services of the specified employee. If the particular job or undertaking is within the regular
or usual business of the employer company and it is not identifiably distinct or separate from the other
undertakings of the company, there is clearly a constant necessity for the performance of the task in
question, and therefore said job or undertaking should not be considered a project.

Brief examples of what may or may not be considered identifiably distinct from the business of the
employer are in order. In Philippine Long Distance Telephone Company v. Ylagan,12 this Court held that
accounting duties were not shown as distinct, separate and identifiable from the usual undertakings of
therein petitioner PLDT. Although essentially a telephone company, PLDT maintains its own accounting
department to which respondent was assigned. This was one of the reasons why the Court held that
respondent in said case was not a project employee. On the other hand, in San Miguel Corporation v.
National Labor Relations Commission,13 respondent was hired to repair furnaces, which are needed by
San Miguel Corporation to manufacture glass, an integral component of its packaging and
manufacturing business. The Court, finding that respondent is a project employee, explained that San
Miguel Corporation is not engaged in the business of repairing furnaces. Although the activity was
necessary to enable petitioner to continue manufacturing glass, the necessity for such repairs arose only
when a particular furnace reached the end of its life or operating cycle. Respondent therein was
therefore considered a project employee.

In the case at bar, as discussed in the statement of facts, respondents were assigned to the following
tasks:
1) Manning of Technical Operations Center:

(a) Responsible for the airing of local commercials; and

(b) Logging/monitoring of national commercials (satellite)

2) Acting as Transmitter/VTR men:

(a) Prepare tapes for local airing;

(b) Actual airing of commercials;

(c) Plugging of station promo;

(d) Logging of transmitter reading; and

(e) In case of power failure, start up generator set to resume program;

3) Acting as Maintenance staff;

(a) Checking of equipment;

(b) Warming up of generator;

(c) Filling of oil, fuel, and water in radiator; and

4) Acting as Cameramen14
These jobs and undertakings are clearly within the regular or usual business of the employer company
and are not identifiably distinct or separate from the other undertakings of the company. There is no
denying that the manning of the operations center to air commercials, acting as transmitter/VTR men,
maintaining the equipment, and acting as cameramen are not undertakings separate or distinct from
the business of a broadcasting company.

Petitioners allegation that respondents were merely substitutes or what they call pinch-hitters (which
means that they were employed to take the place of regular employees of petitioner who were absent
or on leave) does not change the fact that their jobs cannot be considered projects within the purview
of the law. Every industry, even public offices, has to deal with securing substitutes for employees who
are absent or on leave. Such tasks, whether performed by the usual employee or by a substitute, cannot
be considered separate and distinct from the other undertakings of the company. While it is
managements prerogative to device a method to deal with this issue, such prerogative is not absolute
and is limited to systems wherein employees are not ingeniously and methodically deprived of their
constitutionally protected right to security of tenure. We are not convinced that a big corporation such
as petitioner cannot device a system wherein a sufficient number of technicians can be hired with a
regular status who can take over when their colleagues are absent or on leave, especially when it
appears from the records that petitioner hires so-called pinch-hitters regularly every month.

In affirming the Decision of the NLRC, the Court of Appeals furthermore noted that if respondents were
indeed project employees, petitioner should have reported the completion of its projects and the
dismissal of respondents in its finished projects:

There is another reason why we should rule in favor of private respondents. Nowhere in the records is
there any showing that petitioner reported the completion of its projects and the dismissal of private
respondents in its finished projects to the nearest Public Employment Office as per Policy Instruction No.
2015 of the Department of Labor and Employment [DOLE]. Jurisprudence abounds with the consistent
rule that the failure of an employer to report to the nearest Public Employment Office the termination
of its workers services everytime a project or a phase thereof is completed indicates that said workers
are not project employees.

In the extant case, petitioner should have filed as many reports of termination as there were projects
actually finished if private respondents were indeed project employees, considering that the latter were
hired and again rehired from 1996 up to 1999. Its failure to submit reports of termination cannot but
sufficiently convince us further that private respondents are truly regular employees. Important to note
is the fact that private respondents had rendered more than one (1) year of service at the time of their
dismissal which overturns petitioners allegations that private respondents were hired for a specific or
fixed undertaking for a limited period of time.16 (Citations omitted.)
We are not unaware of the decisions of the Court in Philippine Long Distance Telephone Company v.
Ylagan17 and ABS-CBN Broadcasting Corporation v. Nazareno18 which held that the employers failure
to report the termination of employees upon project completion to the DOLE Regional Office having
jurisdiction over the workplace within the period prescribed militates against the employers claim of
project employment, even outside the construction industry. We have also previously stated in another
case that the Court should not allow circumvention of labor laws in industries not falling within the
ambit of Policy Instruction No. 20/Department Order No. 19, thereby allowing the prevention of
acquisition of tenurial security by project employees who have already gained the status of regular
employees by the employers conduct.19

While it may not be proper to revisit such past pronouncements in this case, we nonetheless find that
petitioners theory of project employment fails the principal test of demonstrating that the alleged
project employee was assigned to carry out a specific project or undertaking, the duration and scope of
which were specified at the time the employee is engaged for the project.20

The Court of Appeals also ruled that even if it is assumed that respondents are project employees, they
would nevertheless have attained regular employment status because of their continuous rehiring:

Be that as it may, a project employee may also attain the status of a regular employee if there is a
continuous rehiring of project employees after the stoppage of a project; and the activities performed
are usual [and] customary to the business or trade of the employer. The Supreme Court ruled that a
project employee or a member of a work pool may acquire the status of a regular employee when the
following concur:

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

2) The tasks performed by the alleged project employee are vital, necessary and indispensable to the
usual business or trade of the employer.

The circumstances set forth by law and the jurisprudence is present in this case. In fine, even if private
respondents are to be considered as project employees, they attained regular employment status, just
the same.21 (Citation omitted.)

Anent this issue of attainment of regular status due to continuous rehiring, petitioner advert to the fixed
period allegedly designated in employment contracts and reflected in vouchers. Petitioner cites our
pronouncements in Brent, St. Theresas School of Novaliches Foundation v. National Labor Relations
Commission,22 and Fabela v. San Miguel Corporation,23 and argues that respondents were fully aware
and freely entered into agreements to undertake a particular activity for a specific length of time.24
Petitioner apparently confuses project employment from fixed term employment. The discussions cited
by petitioner in Brent, St. Theresas and Fabela all refer to fixed term employment, which is subject to a
different set of requirements.

Whether the requisites of a valid fixed term employment are met

As stated above, petitioner interchangeably characterizes respondents service as project and fixed term
employment. These types of employment, however, are not the same. While the former requires a
project as restrictively defined above, the duration of a fixed-term employment agreed upon by the
parties may be any day certain, which is understood to be "that which must necessarily come although it
may not be known when."25 The decisive determinant in fixed-term employment is not the activity that
the employee is called upon to perform but the day certain agreed upon by the parties for the
commencement and termination of the employment relationship.26

Cognizant of the possibility of abuse in the utilization of fixed-term employment contracts, we

emphasized in Brent that 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 as
contrary to public policy or morals.27 We thus laid down indications or criteria under which "term
employment" cannot be said to be in circumvention of the law on security of tenure, namely:

1) The fixed period of employment was knowingly and voluntarily agreed upon by the parties without
any force, duress, or improper pressure being brought to bear upon the employee and absent any other
circumstances vitiating his consent; or

2) It satisfactorily appears that the employer and the employee dealt with each other on more or less
equal terms with no moral dominance exercised by the former or the latter.28 (Citation omitted.)

These indications, which must be read together, make the Brent doctrine applicable only in a few special
cases wherein the employer and employee are on more or less in equal footing in entering into the
contract. The reason for this is evident: when a prospective employee, on account of special skills or
market forces, is in a position to make demands upon the prospective employer, such prospective
employee needs less protection than the ordinary worker. Lesser limitations on the parties freedom of
contract are thus required for the protection of the employee. These indications were applied in Pure
Foods Corporation v. National Labor Relations Commission,29 where we discussed the patent inequality
between the employer and employees therein:
[I]t could not be supposed that private respondents and all other so-called "casual" workers of [the
petitioner] KNOWINGLY and VOLUNTARILY agreed to the 5-month employment contract. Cannery
workers are never on equal terms with their employers. Almost always, they agree to any terms of an
employment contract just to get employed considering that it is difficult to find work given their
ordinary qualifications. Their freedom to contract is empty and hollow because theirs is the freedom to
starve if they refuse to work as casual or contractual workers. Indeed, to the unemployed, security of
tenure has no value. It could not then be said that petitioner and private respondents "dealt with each
other on more or less equal terms with no moral dominance whatever being exercised by the former
over the latter.

To recall, it is doctrinally entrenched that in illegal dismissal cases, the employer has the burden of
proving with clear, accurate, consistent, and convincing evidence that the dismissal was valid.30 It is
therefore the employer which must satisfactorily show that it was not in a dominant position of
advantage in dealing with its prospective employee. Thus, in Philips Semiconductors (Phils.), Inc. v.
Fadriquela,31 this Court rejected the employers insistence on the application of the Brent doctrine
when the sole justification of the fixed terms is to respond to temporary albeit frequent need of such
workers:

We reject the petitioners submission that it resorted to hiring employees for fixed terms to augment or
supplement its regular employment "for the duration of peak loads" during short-term surges to
respond to cyclical demands; hence, it may hire and retire workers on fixed terms, ad infinitum,
depending upon the needs of its customers, domestic and international. Under the petitioner's
submission, any worker hired by it for fixed terms of months or years can never attain regular
employment status. x x x.

Similarly, in the case at bar, we find it unjustifiable to allow petitioner to hire and rehire workers on
fixed terms, ad infinitum, depending upon its needs, never attaining regular employment status. To
recall, respondents were repeatedly rehired in several fixed term contracts from 1996 to 1999. To prove
the alleged contracts, petitioner presented cash disbursement vouchers signed by respondents, stating
that they were merely hired as pinch-hitters. It is apparent that respondents were in no position to
refuse to sign these vouchers, as such refusal would entail not getting paid for their services. Plainly,
respondents as "pinch-hitters" cannot be considered to be in equal footing as petitioner corporation in
the negotiation of their employment contract.

In sum, we affirm the findings of the NLRC and the Court of Appeals that respondents are regular
employees of petitioner.1wphi1 As regular employees, they are entitled to security of tenure and
therefore their services may be terminated only for just or authorized causes. Since petitioner failed to
prove any just or authorized cause for their termination, we are constrained to affirm the findings of the
NLRC and the Court of Appeals that they were illegally dismissed.
Separation Pay, Night Shift Differential and Attorneys Fees

Petitioner admits that respondents were not given separation pay and night shift differential. Petitioner,
however, claims that respondents were not illegally dismissed and were therefore not entitled to
separation pay. As regards night shift differential, petitioner claims that its admission in its August 23,
1999 letter as to the nonpayment thereof is qualified by its allegation that respondents are not entitled
thereto. Petitioner points out that respondents failed to specify the period when such benefits are due,
and did not present additional evidence before the NLRC and the Court of Appeals.32

In light, however, of our ruling that respondents were illegally dismissed, we affirm the findings of the
NLRC and the Court of Appeals that respondents are entitled to separation pay in lieu of reinstatement.
We quote with approval the discussion of the Court of Appeals:

However, since petitioner refused to accept private respondents back to work, reinstatement is no
longer practicable. Allowing private respondents to return to their work might only subject them to
further embarrassment, humiliation, or even harassment.

Thus, in lieu of reinstatement, the grant of separation pay equivalent to one (1) month pay for every
year of service is proper which public respondent actually did. Where the relationship between private
respondents and petitioner has been severely strained by reason of their respective imputations of
accusations against each other, to order reinstatement would no longer serve any purpose. In such
situation, payment of separation pay instead of reinstatement is in order.33 (Citations omitted.)

As regards night shift differential, the Labor Code provides that every employee shall be paid not less
than ten percent (10%) of his regular wage for each hour of work performed between ten oclock in the
evening and six oclock in the morning.34 As employees of petitioner, respondents are entitled to the
payment of this benefit in accordance with the number of hours they worked from 10:00 p.m. to 6:00
a.m., if any. In the Decision of the NLRC affirmed by the Court of Appeals, the records were remanded to
the Regional Arbitration Branch of origin for the computation of the night shift differential and the
separation pay. The Regional Arbitration Branch of origin was likewise directed to require herein
petitioner to produce additional documents where necessary. Therefore, while we are affirming that
respondents are entitled to night shift differential in accordance with the number of hours they worked
from 10:00 p.m. to 6:00 a.m., it is the Regional Arbitration Branch of origin which should determine the
computation thereof for each of the respondents, and award no night shift differential to those of them
who never worked from 10:00 p.m. to 6:00 a.m.
It is also worthwhile to note that in the NLRC Decision, it was herein petitioner GMA Network, Inc.
(respondent therein) which was tasked to produce additional documents necessary for the computation
of the night shift differential. This is in accordance with our ruling in Dansart Security Force & Allied
Services Company v. Bagoy,35 where we held that it is entirely within the employer's power to present
such employment records that should necessarily be in their possession, and that failure to present such
evidence must be taken against them.

Petitioner, however, is correct that the award of attorney's fees is contrary to jurisprudence. In De las
Santos v. Jebsen Maritime Inc.,36 we held:

Likewise legally correct is the deletion of the award of attorney's fees, the NLRC having failed to explain
petitioner's entitlement thereto. As a matter of sound policy, an award of attorney's fees remains the
exception rather than the rule. It must be stressed, as aptly observed by the appellate court, that it is
necessary for the trial court, the NLRC in this case, to make express findings of facts and law that would
bring the case within the exception. In fine, the factual, legal or equitable justification for the award
must be set forth in the text of the decision. The matter of attorney's fees cannot be touched once and
only in the fallo of the decision, else, the award should be thrown out for being speculative and
conjectural. In the absence of a stipulation, attorney's fees are ordinarily not recoverable; otherwise a
premium shall be placed on the right to litigate. They are not awarded every time a party wins a suit.
(Citations omitted.)

In the case at bar, the factual basis for the award of attorney's fees was not discussed in the text of NLRC
Decision. We are therefore constrained to delete the same.

WHEREFORE the Decision of the Court of Appeals dated September 8, 2006 and the subsequent
Resolution denying reconsideration dated January 22, 2007 in CA-G.R. SP No. 73652, are hereby
AFFIRMED with the MODIFICATION that the award of attorney's fees in the affirmed Decision of the
National Labor Relations Commission is hereby DELETED.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:
MARIA LOURDES P. A. SERENO

Chief Justice

Chairperson

LUCAS P. BERSAMIN

Associate Justice MARTIN S. VILLARAMA, JR.

Associate Justice

BIENVENIDO L. REYES

Associate Justice

CERTIFICATION

Pursuant to Section 13 Article VIII of the Constitution, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

1 Rollo, pp. 9-23; penned by Associate Justice Priscilla Baltazar-Padilla with Associate Justices Isaias P.
Dicdican and Romeo F. Barza concurring.

2 Id. at 25-26.

3 Id. at 10-12.
4 Id. at 188-189.

5 Id. at 175-176.

6 Id. at 42-43.

7 Leyte Geothermal Power Progressive Employees Union-ALU-TUCP v. Philippine National Oil Company-
Energy Development Corporation, G.R. No. 170351, March 30, 2011, 646 SCRA 658, 665.

8 260 Phil. 747 (1990).

9 G.R. No. 109902, August 2, 1994, 234 SCRA 678, 684-686.

10 Supra note 7 at 668-669.

11 ALU-TUCP v. National Labor Relations Commission, supra note 9 at 684-685.

12 537 Phil. 840 (2006).

13 357 Phil. 954 (1998).

14 Rollo, pp. 10-11.

15 This has been superseded by Department Order No. 19, series of 1993, which likewise imposed on
the employer a duty to report terminations of project employment in the construction industry to the
DOLE.

16 Rollo, p. 17.

17 Supra note 12.

18 534 Phil. 306 (2006).

19 Maraguinot, Jr. v. National Labor Relations Commission, 348 Phil. 580, 606 (1998).

20 Pasos v. Philippine National Construction Corporation, G.R. No. 192394, July 3, 2013.

21 Rollo, pp. 17-18.

22 351 Phil. 1038 (1998).

23 544 Phil. 223 (2007).

24 Rollo, pp. 378-382.

25 Brent School, Inc. v. Zamora, supra note 8 at 757.

26 Philips Semiconductors (Phils.), Inc. v. Fadriquela, 471 Phil. 355, 372 (2004).

27 Id.

28 Romares v. National Labor Relations Commission, 355 Phil. 835, 847 (1998); Philips Semiconductors
(Phils.), Inc. v. Fadriquela, id. at 372-373.

29 347 Phil. 434, 444 (1997).

30 Dacuital v. L.M. Camus Engineering Corporation, G.R. No. 176748, September 1, 2010, 629 SCRA 702,
716.
31 Supra note 25 at 373.

32 Rollo, pp. 384-387.

33 Id. at 20.

34 LABOR CODE, Article 86.

35 G.R. No. 168495, July 2, 2010, 622 SCRA 694.

36 512 Phil. 301, 315-316 (2005).

The Lawphil Project - Arellano Law Foundation

THIRD DIVISION

[G.R. No. 149440. January 28, 2003]

HACIENDA FATIMA and/or PATRICIO VILLEGAS, ALFONSO VILLEGAS and CRISTINE SEGURA, petitioners,
vs. NATIONAL FEDERATION OF SUGARCANE WORKERS-FOOD AND GENERAL TRADE, respondents.

DECISION

PANGANIBAN, J.:

Although the employers have shown that respondents performed work that was seasonal in nature,
they failed to prove that the latter worked only for the duration of one particular season. In fact,
petitioners do not deny that these workers have served them for several years already. Hence, they are
regular -- not seasonal -- employees.

The Case

Before the Court is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the
February 20, 2001 Decision of the Court of Appeals[1] (CA) in CA-GR SP No. 51033. The dispositive part
of the Decision reads:
WHEREFORE, premises considered, the instant special civil action for certiorari is hereby DENIED. [2]

On the other hand, the National Labor Relations Commission (NLRC) Decision,[3] upheld by the CA,
disposed in this wise:

WHEREFORE, premises considered, the decision of the Labor Arbiter is hereby SET ASIDE and VACATED
and a new one entered declaring complainants to have been illegally dismissed. Respondents are hereby
ORDERED to reinstate complainants except Luisa Rombo, Ramona Rombo, Bobong Abriga and Boboy
Silva to their previous position and to pay full backwages from September 1991 until reinstated.
Respondents being guilty of unfair labor practice are further ordered to pay complainant union the sum
of P10,000.00 as moral damages and P5,000.00 as exemplary damages.[4]

The Facts

The facts are summarized in the NLRC Decision as follows:

Contrary to the findings of the Labor Arbiter that complainants [herein respondents] refused to work
and/or were choosy in the kind of jobs they wanted to perform, the records is replete with complainants
persistence and dogged determination in going back to work.

Indeed, it would appear that respondents did not look with favor workers having organized themselves
into a union. Thus, when complainant union was certified as the collective bargaining representative in
the certification elections, respondents under the pretext that the result was on appeal, refused to sit
down with the union for the purpose of entering into a collective bargaining agreement. Moreover, the
workers including complainants herein were not given work for more than one month. In protest,
complainants staged a strike which was however settled upon the signing of a Memorandum of
Agreement which stipulated among others that:

a) The parties will initially meet for CBA negotiations on the 11th day of January 1991 and will endeavor
to conclude the same within thirty (30) days.

b) The management will give priority to the women workers who are members of the union in case work
relative x x x or amount[ing] to gahit and [dipol] arises.

c) Ariston Eruela Jr. will be given back his normal work load which is six (6) days in a week.
d) The management will provide fifteen (15) wagons for the workers and that existing workforce prior to
the actual strike will be given priority. However, in case the said workforce would not be enough, the
management can hire additional workers to supplement them.

e) The management will not anymore allow the scabs, numbering about eighteen (18) workers[,] to
work in the hacienda; and

f) The union will immediately lift the picket upon signing of this agreement.

However, alleging that complainants failed to load the fifteen wagons, respondents reneged on its
commitment to sit down and bargain collectively. Instead, respondent employed all means including the
use of private armed guards to prevent the organizers from entering the premises.

Moreover, starting September 1991, respondents did not any more give work assignments to the
complainants forcing the union to stage a strike on January 2, 1992. But due to the conciliation efforts
by the DOLE, another Memorandum of Agreement was signed by the complainants and respondents
which provides:

Whereas the union staged a strike against management on January 2, 1992 grounded on the dismissal of
the union officials and members;

Whereas parties to the present dispute agree to settle the case amicably once and for all;

Now therefore, in the interest of both labor and management, parties herein agree as follows:

1. That the list of the names of affected union members hereto attached and made part of this
agreement shall be referred to the Hacienda payroll of 1990 and determine whether or not this
concerned Union members are hacienda workers;

2. That in addition to the payroll of 1990 as reference, herein parties will use as guide the subjects of a
Memorandum of Agreement entered into by and between the parties last January 4, 1990;
3. That herein parties can use other employment references in support of their respective claims
whether or not any or all of the listed 36 union members are employees or hacienda workers or not as
the case may be;

4. That in case conflict or disagreement arises in the determination of the status of the particular
hacienda workers subject of this agreement herein parties further agree to submit the same to
voluntary arbitration;

5. To effect the above, a Committee to be chaired by Rose Mengaling is hereby created to be composed
of three representatives each and is given five working days starting Jan. 23, 1992 to resolve the status
of the subject 36 hacienda workers. (Union representatives: Bernardo Torres, Martin Alas-as, Ariston
Arulea Jr.)

Pursuant thereto, the parties subsequently met and the Minutes of the Conciliation Meeting showed as
follows:

The meeting started at 10:00 A.M. A list of employees was submitted by Atty. Tayko based on who
received their 13th month pay. The following are deemed not considered employees:

1. Luisa Rombo

2. Ramona Rombo

3. Bobong Abrega

4. Boboy Silva

The name Orencio Rombo shall be verified in the 1990 payroll.

The following employees shall be reinstated immediately upon availability of work:

1. Jose Dagle 7. Alejandro Tejares

2. Rico Dagle 8. Gaudioso Rombo

3. Ricardo Dagle 9. Martin Alas-as Jr.

4. Jesus Silva 10. Cresensio Abrega

5. Fernando Silva 11. Ariston Eruela Sr.

6. Ernesto Tejares 12. Ariston Eruela Jr.

When respondents again reneged on its commitment, complainants filed the present complaint.

But for all their persistence, the risk they had to undergo in conducting a strike in the face of
overwhelming odds, complainants in an ironic twist of fate now find themselves being accused of
refusing to work and being choosy in the kind of work they have to perform.[5] (Citations omitted)

Ruling of the Court of Appeals

The CA affirmed that while the work of respondents was seasonal in nature, they were considered to be
merely on leave during the off-season and were therefore still employed by petitioners. Moreover, the
workers enjoyed security of tenure. Any infringement upon this right was deemed by the CA to be
tantamount to illegal dismissal.

The appellate court found neither rhyme nor reason in petitioners argument that it was the workers
themselves who refused to or were choosy in their work. As found by the NLRC, the record of this case is
replete with complainants persistence and dogged determination in going back to work.[6]

The CA likewise concurred with the NLRCs finding that petitioners were guilty of unfair labor practice.

Hence this Petition.[7]

Issues

Petitioners raise the following issues for the Courts consideration:

A. Whether or not the Court of Appeals erred in holding that respondents, admittedly seasonal workers,
were regular employees, contrary to the clear provisions of Article 280 of the Labor Code, which
categorically state that seasonal employees are not covered by the definition of regular employees
under paragraph 1, nor covered under paragraph 2 which refers exclusively to casual employees who
have served for at least one year.

B. Whether or not the Court of Appeals erred in rejecting the ruling in Mercado, xxx, and relying instead
on rulings which are not directly applicable to the case at bench, viz, Philippine Tobacco, Bacolod-
Murcia, and Gaco, xxx.

C. Whether or not the Court of Appeals committed grave abuse of discretion in upholding the NLRCs
conclusion that private respondents were illegally dismissed, that petitioner[s were] guilty of unfair
labor practice, and that the union be awarded moral and exemplary damages.[8]

Consistent with the discussion in petitioners Memorandum, we shall take up Items A and B as the first
issue and Item C as the second.

The Courts Ruling

The Petition has no merit.

First Issue:

Regular Employment

At the outset, we must stress that only errors of law are generally reviewed by this Court in petitions for
review on certiorari of CA decisions.[9] Questions of fact are not entertained.[10] The Court is not a trier
of facts and, in labor cases, this doctrine applies with greater force.[11] Factual questions are for labor
tribunals to resolve.[12] In the present case, these have already been threshed out by the NLRC. Its
findings were affirmed by the appellate court.

Contrary to petitioners contention, the CA did not err when it held that respondents were regular
employees.

Article 280 of the Labor Code, as amended, states:

Art. 280. Regular and Casual Employment. - The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to
be regular where the employee has been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer, except where the employment has been fixed
for a specific project or undertaking the completion or termination of which has been determined at the
time of the engagement of the employee or where the work or services to be performed is seasonal in
nature and the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided,
That, any employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered a regular employee with respect to the activity in which he is employed and
his employment shall continue while such activity exist. (Italics supplied)

For respondents to be excluded from those classified as regular employees, it is not enough that they
perform work or services that are seasonal in nature. They must have also been employed only for the
duration of one season. The evidence proves the existence of the first, but not of the second, condition.
The fact that respondents -- with the exception of Luisa Rombo, Ramona Rombo, Bobong Abriga and
Boboy Silva -- repeatedly worked as sugarcane workers for petitioners for several years is not denied by
the latter. Evidently, petitioners employed respondents for more than one season. Therefore, the
general rule of regular employment is applicable.

In Abasolo v. National Labor Relations Commission,[13] the Court issued this clarification:

[T]he test of whether or not an employee is a regular employee has been laid down in De Leon v. NLRC,
in which this Court held:

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

xxxxxxxxx

x x x [T]he fact that [respondents] do not work continuously for one whole year but only for the duration
of the x x x season does not detract from considering them in regular employment since in a litany of
cases this Court has already settled that seasonal workers who are called to work from time to time and
are temporarily laid off during off-season are not separated from service in said period, but merely
considered on leave until re-employed.[14]

The CA did not err when it ruled that Mercado v. NLRC[15] was not applicable to the case at bar. In the
earlier case, the workers were required to perform phases of agricultural work for a definite period of
time, after which their services would be available to any other farm owner. They were not hired
regularly and repeatedly for the same phase/s of agricultural work, but on and off for any single phase
thereof. On the other hand, herein respondents, having performed the same tasks for petitioners every
season for several years, are considered the latters regular employees for their respective tasks.
Petitioners eventual refusal to use their services -- even if they were ready, able and willing to perform
their usual duties whenever these were available -- and hiring of other workers to perform the tasks
originally assigned to respondents amounted to illegal dismissal of the latter.

The Court finds no reason to disturb the CAs dismissal of what petitioners claim was their valid exercise
of a management prerogative. The sudden changes in work assignments reeked of bad faith. These
changes were implemented immediately after respondents had organized themselves into a union and
started demanding collective bargaining. Those who were union members were effectively deprived of
their jobs. Petitioners move actually amounted to unjustified dismissal of respondents, in violation of
the Labor Code.

Where there is no showing of clear, valid and legal cause for the termination of employment, the law
considers the matter a case of illegal dismissal and the burden is on the employer to prove that the
termination was for a valid and authorized cause.[16] In the case at bar, petitioners failed to prove any
such cause for the dismissal of respondents who, as discussed above, are regular employees.

Second Issue:

Unfair Labor Practice

The NLRC also found herein petitioners guilty of unfair labor practice. It ruled as follows:

Indeed, from respondents refusal to bargain, to their acts of economic inducements resulting in the
promotion of those who withdrew from the union, the use of armed guards to prevent the organizers to
come in, and the dismissal of union officials and members, one cannot but conclude that respondents
did not want a union in their haciendaa clear interference in the right of the workers to self-
organization.[17]

We uphold the CAs affirmation of the above findings. Indeed, factual findings of labor officials, who are
deemed to have acquired expertise in matters within their respective jurisdictions, are generally
accorded not only respect but even finality. Their findings are binding on the Supreme Court.[18] Verily,
their conclusions are accorded great weight upon appeal, especially when supported by substantial
evidence.[19] Consequently, the Court is not duty-bound to delve into the accuracy of their factual
findings, in the absence of a clear showing that these were arbitrary and bereft of any rational basis.[20]

The finding of unfair labor practice done in bad faith carries with it the sanction of moral and exemplary
damages.[21]

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.

SO ORDERED.

Puno, J., (Chairman), Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.

[1] Eighth Division, composed of Justices Ramon A. Barcelona (chairman and ponente), Rodrigo V. Cosico
and Alicia L. Santos (members).

[2] Assailed CA Decision, p. 7; rollo, p. 36.

[3] Fourth Division, composed of Commissioner Bernabe S. Batuhan (ponente), Presiding Commissioner
Irenea E. Ceniza and Commissioner Amorito V. Canete.

[4] NLRC Decision, pp. 9-10; rollo, pp. 63-64; records, pp. 28-29.

[5] NLRC Decision, pp. 5-9; rollo, pp. 59-63; records, pp. 24-28. Italics provided.

[6] Assailed CA Decision, p. 6; rollo, p. 35.

[7] This case was deemed submitted for resolution on April 30, 2002, upon receipt by the Court of
petitioners Memorandum, which was signed by Atty. Teodoro V. Cortes. Respondents Memorandum,
signed by Attys. Francisco D. Yap and Whelma F. Siton-Yap, was received by the Court on March 7, 2002.

[8] Petitioners Memorandum, p. 6; rollo, p. 275.

[9] Viloria v. Court of Appeals, 309 SCRA 529, June 30, 1999.

[10] Cebu Shipyard and Engineering Works, Inc. v. William Lines, Inc., 306 SCRA 762, May 5, 1999;
Villarico v. Court of Appeals, 309 SCRA 193, June 28, 1999; Alipoon v. Court of Appeals, 305 SCRA 118,
March 22, 1999; Baguio v. Republic, 301 SCRA 450, January 21, 1999.

[11] Ropali Trading Corporation v. National Labor Relations Commission, 296 SCRA 309, September 25,
1998.

[12] Chua v. National Labor Relations Commission, 267 SCRA 196, January 30, 1997.

[13] 346 SCRA 293, November 29, 2000.

[14] Id., pp. 304-305, per De Leon Jr., J.

[15] 201 SCRA 332, September 5, 1991.

[16] Valiant Machinery and Metal Corp. v. National Labor Relations Commission, 252 SCRA 369, January
25, 1996, per Mendoza, J.

[17] NLRC Decision, p. 9; rollo, p. 63; records, p. 28.

[18] C. Planas Commercial v. National Labor Relations Commission, 303 SCRA 49, February 11, 1999.

[19] Barros v. National Labor Relations Commission, 315 SCRA 23, September 22, 1999.

[20] Tan v. National Labor Relations Commission, supra.

[21] Nueva Ecija I Electric Cooperative, Inc. v. National Labor Relations Commission, 323 SCRA 86,
January 24, 2000.
Today is Thursday, June 08, 2017

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-63316 July 31, 1984

ILUMINADA VER BUISER, MA. CECILIA RILLOACUA and MA. MERCEDES P. INTENGAN, petitioners,

vs.

HON. VICENTE LEOGARDO, JR., in his capacity as Deputy Minister of the Ministry of Labor &
Employment, and GENERAL TELEPHONE DIRECTORY, CO., respondents.

Jimenez, Apolo & Leynes Law Office for petitioners.

The Solicitor General for respondent Deputy Minister.

Abad, Legayada & Associates for private respondent.

GUERRERO, J.:

This is a petition for certiorari seeking to set aside the Order of the Deputy Minister of Labor and
Employment, affirming the Order of the Regional Director, National Capital Region, in Case No. NCR-STF-
5-2851-81, which dismissed the petitioners' complainant for alleged illegal dismissal and unpaid
commission.

Petitioners were employed by the private respondent GENERAL TELEPHONE DIRECTORY COMPANY as
sales representatives and charged with the duty of soliciting advertisements for inclusion in a telephone
directory.

The records show that petitioners Iluminada Ver Buiser and Ma. Mercedes P. Intengan entered into an
"Employment Contract (on Probationary Status)" on May 26, 1980 with private respondent, a
corporation engaged in the business of publication and circulation of the directory of the Philippine Long
Distance Telephone Company. Petitioner Ma. Cecilia Rillo-Acuna entered into the same employment
contract on June 11, 1980 with the private respondent.

Among others, the "Employment Contract (On Probationary Status)" included the following common
provisions:

l. The company hereby employs the employee as telephone representative on a probationary

status for a period of eighteen (18) months, i.e. from May 1980 to October 1981, inclusive. It is
understood that darung the probationary period of employment, the Employee may be terminated at
the pleasure of the company without the necessity of giving notice of termination or the payment of
termination pay.

The Employee recognizes the fact that the nature of the telephone sales representative's job is such that
the company would be able to determine his true character, conduct and selling capabilities only after
the publication of the directory, and that it takes about eighteen (18) months before his worth as a
telephone saw representative can be fully evaluated inasmuch as the advertisement solicited by him for
a particular year are published in the directory only the following year.

Corollary to this, the private respondent prescribed sales quotas to be accomplished or met by the
petitioners. Failing to meet their respective sales quotas, the petitioners were dismissed from the
service by the private respondent. The records show that the private respondent terminated the
services of petitioners Iluminada Ver Buiser and Cecilia Rillo-Acuna on May 14, 1981 and petitioner Ma.
Mercedes P. Intengan on May 18, 1981 for their failure to meet their sales quotas.

Thus, on May 27, 1981, petitioners filed with the National Capital Region, Ministry of Labor and
Employment, a complaint for illegal dismissal with claims for backwages, earned commissions and other
benefits, docketed as Case No. NCR-STF-5-2851-81.
The Regional Director of said ministry, in an Order dated September 21, 1982, dismissed the complaints
of the petitioners, except the claim for allowances which private respondent was ordered to pay. A
reconsideration of the Order was sought by the petitioners in a motion filed on September 30, 1982.
This motion, however, was treated as an appeal to the Minister of Labor.

On appeal, Deputy Minister Vicente Leogardo, Jr. of the Ministry of Labor issued an Order dated January
7, 1983, affirming the Regional Director's Order dated September 21, 1982, wherein it ruled that the
petitioners have not attained permanent status since private respondent was justified in requiring a
longer period of probation, and that the termination of petitioners' services was valid since the latter
failed to meet their sales quotas.

Hence, this petition for certiorari on the alleged ground that public respondent committed grave abuse
of discretion amounting to lack of jurisdiction. Specifically, petitioners submit that:

1. The Hon. Regional Director and the Hon. Deputy Minister committed grave abuse of discretion
amounting to lack of jurisdiction in ruling that the probationary employment of petitioners herein is
eighteen (18) months instead of the mandated six (6) months under the Labor Code, and in
consequently further ruling that petitioners are not entitled to security of tenure while under said
probation for 18 months.

2. The Hon. Regional Director and the Hon. Deputy Minister committed grave abuse of discretion
amounting to lack of jurisdiction in ruling that petitioners were dismissed for a just and valid cause.

3. The Hon. Regional Director and the Hon. Deputy Minister committed grave abuse of discretion
amounting to lack of jurisdiction in ruling that petitioners are not entitled to the commissions they have
earned and accrued during their period of employment.

Petitioners contend that under Articles 281-282 of the Labor Code, having served the respondent
company continuously for over six (6) months, they have become automatically regular employees
notwithstanding an agreement to the contrary. Articles 281-282 read thus:

Art. 282. Probationary Employment. Probationary employment shall not exceed six (6) months from
the date the employee started working, unless it iscCovered by an apprenticeship agreement stipulating
a longer period. The services of an employee who has been engaged on a probationary basis may be
terminated for a just cause or when he fails to qualify as a regular employee in accordance with
reasonable standards made known by the employer to the employee at the time of his engagement. An
employee who is allowed to work after a probationary period shall be considered a regular employee.
(As amended by PD 850).

Art. 281. Regular and Casual Employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreements of the parties, an employment shall be deemed
to be regular where the employee has been engaged to perform activities which are usually necessary
or desirable in the usual business or trade of the employer, except where the employment has been
fixed for a specific project or undertaking the completion or termination of which has been determined
at the time of the engagement of the employee or where the work or services to be performed is
seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceeding paragraph. Provided,
That, any employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered a regular employee with respect to the activity in which he is employed and
his employment shall continue while such actually exists. (As amended by PD 850).

It is petitioners' submission that probationary employment cannot exceed six (6) months, the only
exception being apprenticeship and learnership agreements as provided in the Labor Code; that the
Policy Instruction of the Minister of Labor and Employment nor any agreement of the parties could
prevail over this mandatory requirement of the law; that this six months prescription of the Labor Code
was mandated to give further efficacy to the constitutionally-guaranteed security of tenure of workers;
and that the law does not allow any discretion on the part of the Minister of Labor and Employment to
extend the probationary period for a longer period except in the aforecited instances. Finally, petitioners
maintain that since they are regular employees, they can only be removed or dismissed for any of the
just and valid causes enumerated under Article 283 of the Labor Code.

We reject petitioners' contentions. They have no basis in law.

Generally, the probationary period of employment is limited to six (6) months. The exception to this
general rule is When the parties to an employment contract may agree otherwise, such as when the
same is established by company policy or when the same is required by the nature of work to be
performed by the employee. In the latter case, there is recognition of the exercise of managerial
prerogatives in requiring a longer period of probationary employment, such as in the present case
where the probationary period was set for eighteen (18) months, i.e. from May, 1980 to October, 1981
inclusive, especially where the employee must learn a particular kind of work such as selling, or when
the job requires certain qualifications, skills, experience or training.
Policy Instruction No. 11 of the Minister of Labor and Employment has clarified any and all doubts on
the period of probationary employment. It states as follows:

Probationary Employment has been the subject of misunderstanding in some quarter. Some people
believe six (6) months is the probationary period in all cases. On the other hand employs who have
already served the probationary period are sometimes required to serve again on probation.

Under the Labor Code, six (6) months is the general probationary period ' but the probationary period is
actually the period needed to determine fitness for the job. This period, for lack of a better
measurement is deemed to be the period needed to learn the job.

The purpose of this policy is to protect the worker at the same time enable the employer to make a
meaningful employee selection. This purpose should be kept in mind in enforcing this provision of the
Code. This issuance shall take effect immediately.

In the case at bar, it is shown that private respondent Company needs at least eighteen (18) months to
determine the character and selling capabilities of the petitioners as sales representatives. The Company
is engaged in advertisement and publication in the

Today is Thursday, June 08, 2017

Search

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. Nos. 184903 October 10, 2012

DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC., Petitioner,

vs.

DIGITEL EMPLOYEES UNION (DEU), ARCELO RAFAEL A. ESPLANA, ALAN D. LICANDO, FELICITO C.
ROMERO, JR., ARNOLD D. GONZALES, REYNEL FRANCISCO B. GARCIA, ZOSIMO B. PERALTA, REGINO T.
UNIDAD and JIM L. JAVIER, Respondents.

DECISION

PEREZ, J.:

This treats of the petition for review filed by Digital Telecommunications Philippines, Inc. (Digitel)
assailing the 18 June 2008 Decision1 and 9 October 2008 Resolution of the Court of Appeals 10th
Division in CA-G.R. SP No. 91719, which affirms the Order of the Secretary of Labor and Employment
directing Digitel to commence Collective Bargaining Agreement (CBA) negotiations and in CA-G.R. SP No.
94825, which declares the dismissal of affected Digitel employees as illegal.

The facts, as borne by the records, follow.

By virtue of a certification election, Digitel Employees Union (Union) became the exclusive bargaining
agent of all rank and file employees of Digitel in 1994. The Union and Digitel then commenced collective
bargaining negotiations which resulted in a bargaining deadlock. The Union threatened to go on strike,
but then Acting Labor Secretary Bienvenido E. Laguesma assumed jurisdiction over the dispute and
eventually directed the parties to execute a CBA.2

However, no CBA was forged between Digitel and the Union. Some Union members abandoned their
employment with Digitel. The Union later became dormant.

Ten (10) years thereafter or on 28 September 2004, Digitel received from Arceo Rafael A. Esplana
(Esplana), who identified himself as President of the Union, a letter containing the list of officers, CBA
proposals and ground rules.3 The officers were respondents Esplana, Alan D. Licando (Vice-President),
Felicito C. Romero, Jr. (Secretary), Arnold D. Gonzales (Treasurer), Reynel Francisco B. Garcia (Auditor),
Zosimo B. Peralta (PRO), Regino T. Unidad (Sgt. at Arms), and Jim L. Javier (Sgt. at Arms).
Digitel was reluctant to negotiate with the Union and demanded that the latter show compliance with
the provisions of the Unions Constitution and By-laws on union membership and election of officers.

On 4 November 2004, Esplana and his group filed a case for Preventive Mediation before the National
Conciliation and Mediation Board based on Digitels violation of the duty to bargain. On 25 November
2004, Esplana filed a notice of strike.

On 10 March 2005, then Labor Secretary Patricia A. Sto. Tomas issued an Order4 assuming jurisdiction
over the labor dispute.

During the pendency of the controversy, Digitel Service, Inc. (Digiserv), a non-profit enterprise engaged
in call center servicing, filed with the Department of Labor and Employment (DOLE) an Establishment
Termination Report stating that it will cease its business operation. The closure affected at least 100
employees, 42 of whom are members of the herein respondent Union.

Alleging that the affected employees are its members and in reaction to Digiservs action, Esplana and
his group filed another Notice of Strike for union busting, illegal lock-out, and violation of the
assumption order.

On 23 May 2005, the Secretary of Labor ordered the second notice of strike subsumed by the previous
Assumption Order.5

Meanwhile, on 14 March 2005, Digitel filed a petition with the Bureau of Labor Relations (BLR) seeking
cancellation of the Unions registration on the following grounds: 1) failure to file the required reports
from 1994-2004; 2) misrepresentation of its alleged officers; 3) membership of the Union is composed
of rank and file, supervisory and managerial employees; and 4) substantial number of union members
are not Digitel employees.6

In a Decision dated 11 May 2005, the Regional Director of the DOLE dismissed the petition for
cancellation of union registration for lack of merit. The Regional Director ruled that it does not have
jurisdiction over the issue of non-compliance with the reportorial requirements. He also held that Digitel
failed to adduce substantial evidence to prove misrepresentation and the mixing of non-Digitel
employees with the Union. Finally, he declared that the inclusion of supervisory and managerial
employees with the rank and file employees is no longer a ground for cancellation of the Unions
certificate of registration.7
The appeal filed by Digitel with the BLR was eventually dismissed for lack of merit in a Resolution dated
9 March 2007, thereby affirming the 11 May 2005 Decision of the Regional Director.

CA-G.R. SP No. 91719

In an Order dated 13 July 2005, the Secretary of Labor directed Digitel to commence the CBA
negotiation with the Union. Thus:

WHEREFORE, all the foregoing premises considered, this Office hereby orders:

1. DIGITEL to commence collective bargaining negotiation with DEU without further delay; and,

2. The issue of unfair labor practice, consisting of union-busting, illegal termination/lockout and
violation of the assumption of jurisdiction, specifically the return-to-work aspect of the 10 March 2005
and 03 June 2005 orders, be CERTIFIED for compulsory arbitration to the NLRC.8

Digitel moved for reconsideration on the contention that the pendency of the petition for cancellation
of the Unions certificate of registration is a prejudicial question that should first be settled before the
DOLE could order the parties to bargain collectively. On 19 August 2005, then Acting Secretary Manuel
G. Imson of DOLE denied the motion for reconsideration, affirmed the 13 July 2005 Order and reiterated
the order directing parties to commence collective bargaining negotiations.9

On 14 October 2005, Digitel filed a petition, docketed as CA-G.R. SP No. 91719, before the Court of
Appeals assailing the 13 July and 19 August 2005 Orders of the DOLE Secretary and attributing grave
abuse of discretion on the part of the DOLE Secretary for ordering Digitel to commence bargaining
negotiations with the Union despite the pendency of the issue of union legitimacy.

CA-G.R. SP No. 94825

In accordance with the 13 July 2005 Order of the Secretary of Labor, the unfair labor practice issue was
certified for compulsory arbitration before the NLRC, which, on 31 January 2006, rendered a Decision
dismissing the unfair labor practice charge against Digitel but declaring the dismissal of the 13
employees of Digiserv as illegal and ordering their reinstatement. The Union manifested that out of 42
employees, only 13 remained, as most had already accepted separation pay. The dispositive portion of
the Decision reads:

WHEREFORE, premises considered, the charge of unfair labor practice is hereby DISMISSED for lack of
merit. However, the dismissal of the remaining thirteen (13) affected employees is hereby declared
illegal and DIGITEL is hereby ORDERED to reinstate them to their former position with full backwages up
to the time they are reinstated, computed as follows:

x x x x.10

Upon motion for reconsideration filed by Digitel, four (4) affected employees, namely Ma. Loreta Eser,
Marites Jereza, Leonore Tuliao and Aline G. Quillopras, were removed from entitlement to the awards
pursuant to the deed of quitclaim and release which they all signed.11

In view of this unfavorable decision, Digitel filed another petition on 9 June 2006 in CA-G.R. SP No.
94825 before the Court of Appeals, challenging the above NLRC Decision and Resolution and arguing
mainly that Digiserv employees are not employees of Digitel.

Ruling of the Court of Appeals

On 18 June 2008, the Tenth Division of the Court of Appeals consolidated the two petitions in CA-G.R. SP
No. 91719 and CA-G.R. SP No. 94825, and disposed as follows:

WHEREFORE, the petition in CA-G.R. SP No. 91719 is DISMISSED. The July 13, 2005 Order and the August
19, 2005 Resolution of the DOLE Secretary are AFFIRMED in toto. With costs.

The petition in CA-G.R. SP No. 94825 is partially GRANTED, with the effect that the assailed dispositions
must be MODIFIED, as follows:

1) In addition to the order directing reinstatement and payment of full backwages to the nine (9)
affected employees, Digital Telecommunications Philippines, Inc. is furthered ORDERED, should
reinstatement is no longer feasible, to pay separation pay equivalent to one (1) month pay, or one-half
(1/2) month pay for every year of service, whichever is higher.
2) The one hundred thousand (PhP 100,000.00) peso-fine imposed on Digital Telecommunications
Philippines, Inc. is DELETED. No costs.12

The Court of Appeals upheld the Secretary of Labors Order for Digitel to commence CBA negotiations
with the Union and emphasized that the pendency of a petition for the cancellation of a unions
registration does not bar the holding of negotiations for a CBA. The Court of Appeals sustained the
finding that Digiserv is engaged in labor-only contracting and that its employees are actually employees
of Digitel.

Digitel filed a motion for reconsideration but was denied in a Resolution dated 9 October 2008.

Hence, this petition for review on certiorari.

Digitel argues that the Court of Appeals seriously erred when it condoned the act of the Secretary of
Labor in issuing an assumption order despite the pendency of an appeal on the issue of union
registration. Digitel maintains that it cannot be compelled to negotiate with a union for purposes of
collective bargaining when the very status of the same as the exclusive bargaining agent is in question.

Digitel insists that had the Court of Appeals considered the nature of the activities performed by
Digiserv, it would reach the conclusion that Digiserv is a legitimate contractor. To bolster its claim,
Digitel asserts that the affected employees are registered with the Social Security System, Pag-ibig,
Bureau of Internal Revenue and Philhealth with Digiserv as their employer. Digitel further contends that
assuming that the affected Digiserv employees are employees of Digitel, they were nevertheless validly
dismissed on the ground of closure of a department or a part of Digitels business operation.

The three issues raised in this petition are: 1) whether the Secretary of Labor erred in issuing the
assumption order despite the pendency of the petition for cancellation of union registration; 2) whether
Digiserv is a legitimate contractor; and 3) whether there was a valid dismissal.

The pendency of a petition

for cancellation of union

registration does not preclude

collective bargaining.
The first issue raised by Digitel is not novel. It is well-settled that the pendency of a petition for
cancellation of union registration does not preclude collective bargaining.

The 2005 case of Capitol Medical Center, Inc. v. Hon. Trajano13 is apropos. The respondent union
therein sent a letter to petitioner requesting a negotiation of their CBA. Petitioner refused to bargain
and instead filed a petition for cancellation of the unions certificate of registration. Petitioners refusal
to bargain forced the union to file a notice of strike. They eventually staged a strike. The Secretary of
Labor assumed jurisdiction over the labor dispute and ordered all striking workers to return to work.
Petitioner challenged said order by contending that its petition for cancellation of unions certificate of
registration involves a prejudicial question that should first be settled before the Secretary of Labor
could order the parties to bargain collectively. When the case eventually reached this Court, we agreed
with the Secretary of Labor that the pendency of a petition for cancellation of union registration does
not preclude collective bargaining, thus:

That there is a pending cancellation proceeding against the respondent Union is not a bar to set in
motion the mechanics of collective bargaining. If a certification election may still be ordered despite the
pendency of a petition to cancel the unions registration certificate (National Union of Bank Employees
vs. Minister of Labor, 110 SCRA 274), more so should the collective bargaining process continue despite
its pendency. We must emphasize that the majority status of the respondent Union is not affected by
the pendency of the Petition for Cancellation pending against it. Unless its certificate of registration and
its status as the certified bargaining agent are revoked, the Hospital is, by express provision of the law,
duty bound to collectively bargain with the Union.14

Trajano was reiterated in Legend International Resorts Limited v. Kilusang Manggagawa ng Legenda
(KML-Independent).15 Legend International Resorts reiterated the rationale for allowing the
continuation of either a CBA process or a certification election even during the pendency of proceedings
for the cancellation of the unions certificate of registration. Citing the cases of Association of Court of
Appeals Employees v. Ferrer- Calleja16 and Samahan ng Manggagawa sa Pacific Plastic v. Hon.
Laguesma,17 it was pointed out at the time of the filing of the petition for certification election or a
CBA process as in the instant case the union still had the personality to file a petition for certification
or to ask for a CBA negotiation as in the present case.

Digiserv is a labor-only contractor.

Labor-only contracting is expressly prohibited by our labor laws. Article 106 of the Labor Code defines
labor-only contracting as "supplying workers to an employer [who] 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."
Section 5, Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code (Implementing Rules),
as amended by Department Order No. 18-02, expounds on the prohibition against labor-only
contracting, thus:

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

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

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

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

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor
Code, as amended.

xxxx

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 law and its implementing rules allow contracting arrangements for the performance of specific jobs,
works or services. Indeed, it is management prerogative to farm out any of its activities, regardless of
whether such activity is peripheral or core in nature. However, in order for such outsourcing to be valid,
it must be made to an independent contractor because the current labor rules expressly prohibit labor-
only contracting.18

After an exhaustive review of the records, there is no showing that first, Digiserv has substantial
investment in the form of capital, equipment or tools. Under the Implementing Rules, 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 NLRC,
as echoed by the Court of Appeals, did not find substantial Digiservs authorized capital stock of One
Million Pesos (P 1,000,000.00). It pointed out that only Two Hundred Fifty Thousand Pesos (P
250,000.00) of the authorized capital stock had been subscribed and only Sixty-Two Thousand Five
Hundred Pesos (P 62,500.00) had been paid up. There was no increase in capitalization for the last ten
(10) years.19

Moreover, in the Amended Articles of Incorporation, as well as in the General Information Sheets for the
years 1994, 2001 and 2005, the primary purpose of Digiserv is to provide manpower services. In PCI
Automation Center, Inc. v. National Labor Relations Commission,20 the Court made the following
distinction: "the legitimate job contractor provides services while the labor-only contractor provides
only manpower. The legitimate job contractor undertakes to perform a specific job for the principal
employer while the labor-only contractor merely provides the personnel to work for the principal
employer." The services provided by employees of Digiserv are directly related to the business of Digitel,
as rationalized by the NLRC in this wise:

It is undisputed that as early as March 1994, the affected employees, except for two, were already
performing their job as Traffic Operator which was later renamed as Customer Service Representative
(CSR). It is equally undisputed that all throughout their employment, their function as CSR remains the
same until they were terminated effective May 30, 2005. Their long period of employment as such is an
indication that their job is directly related to the main business of DIGITEL which is telecommunications.
Because, if it was not, DIGITEL would not have allowed them to render services as Customer Service
Representative for such a long period of time.21

Furthermore, Digiserv does not exercise control over the affected employees. The NLRC highlighted the
fact that Digiserv shared the same Human Resources, Accounting, Audit and Legal Departments with
Digitel which manifested that it was Digitel who exercised control over the performance of the affected
employees. The NLRC also relied on the letters of commendation, plaques of appreciation and
certification issued by Digitel to the Customer Service Representatives as evidence of control.

Considering that Digiserv has been found to be engaged in labor-only contracting, the dismissed
employees are deemed employees of Digitel.

Section 7 of the Implementing Rules holds that labor-only contracting would give rise to: (1) the creation
of an employer-employee relationship between the principal and the employees of the contractor or
sub-contractor; and (2) the solidary liability of the principal and the contractor to the employees in the
event of any violation of the Labor Code.
Accordingly, Digitel is considered the principal employer of respondent employees.

The affected employees were

illegally dismissed.

In addition to finding that Digiserv is a labor-only contractor, records teem with proof that its dismissed
employees are in fact employees of Digitel. The NLRC enumerated these evidences, thus:

That the remaining thirteen (13) affected employees are indeed employees of DIGITEL is sufficiently
established by the facts and evidence on record.

It is undisputed that the remaining affected employees, except for two (2), were already hired by
DIGITEL even before the existence of DIGISERV. (The other two (2) were hired after the existence of
DIGISERV). The UNION submitted a sample copy of their appointment paper (Annex "A" of UNIONs
Position Paper, Records, Vol. 1, p. 100) showing that they were appointed on March 1, 1994, almost
three (3) months before DIGISERV came into existence on May 30, 1994 (Annex "B", Ibid, Records, Vol.
1, p. 101). On the other hand, not a single appointment paper was submitted by DIGITEL showing that
these remaining affected employees were hired by DIGISERV.

It is equally undisputed that the remaining, affected employees continuously held the position of
Customer Service Representative, which was earlier known as Traffic Operator, from the time they were
appointed on March 1, 1994 until they were terminated on May 30, 2005. The UNION alleges that these
Customer Service Representatives were under the Customer Service Division of DIGITEL. The UNIONs
allegation is correct. Sample of letter of commendations issued to Customer Service Representatives
(Annexes "C" and "C-1" of UNIONs Position Paper, Records, p. 100 and 111) indeed show that DIGITEL
has a Customer Service Division which handles its Call Center operations.

Further, the Certificates issued to Customer Service Representative likewise show that they are
employees of DIGITEL (Annexes "C-5", "C-6" - "C-7" of UNIONs Position Paper, Records, Vol. 1, pp. 115
to 117), Take for example the "Service Award" issued to Ma. Loretta C. Esen, one of the remaining
affected employees (Annex "C-5", Supra). The "Service Award" was signed by the officers of DIGITEL
the VP-Customer Services Division, the VP-Human Resources Division and the Group Head-Human
Resources Division. It was issued by DIGITEL to Esen thru the above named officers "In recognition of her
seven (7) years continuous and valuable contributions to the achievement of Digitels organization
objectives". It cannot be gainsaid that it is only the employer that issues service award to its
employees.22 (Emphasis not supplied)
As a matter of fact, even before the incorporation of Digiserv, the affected employees were already
employed by Digitel as Traffic Operators, later renamed as Customer Service Representatives.

As an alternative argument, Digitel maintains that the affected employees were validly dismissed on the
grounds of closure of Digiserv, a department within Digitel.

In the recent case of Waterfront Cebu City Hotel v. Jimenez,23 we referred to the closure of a
department or division of a company as retrenchment. The dismissed employees were undoubtedly
retrenched with the closure of Digiserv.

For a valid retrenchment, the following elements must be present:

(1) That retrenchment is reasonably necessary and likely to prevent business losses which, if already
incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are
reasonably imminent as perceived objectively and in good faith by the employer;

(2) That the employer served written notice both to the employees and to the Department of Labor and
Employment at least one month prior to the intended date of retrenchment;

(3) That the employer pays the retrenched employees separation pay equivalent to one (1) month pay
or at least month pay for every year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees in good faith for the advancement
of its interest and not to defeat or circumvent the employees right to security of tenure; and

(5) That the employer used fair and reasonable criteria in ascertaining who would be dismissed and who
would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and
financial hardship for certain workers.24

Only the first 3 elements of a valid retrenchment had been here satisfied. Indeed, it is management
prerogative to close a department of the company. Digitels decision to outsource the call center
operation of the company is a valid reason to close down the operations of a department under which
the affected employees were employed. Digitel cited the decline in the volume of transaction of
operator-assisted call services as supported by Financial Statements for the years 2003 and 2004, during
which Digiserv incurred a deficit of P 163,624.00 and P 164,055.00, respectively.25 All affected
employees working under Digiserv were served with individual notices of termination. DOLE was
likewise served with the corresponding notice. All affected employees were offered separation pay. Only
9 out of the 45 employees refused to accept the separation pay and chose to contest their dismissal
before this Court.

The fifth element regarding the criteria to be observed by Digitel clearly does not apply because all
employees under Digiserv were dismissed. The instant case is all about the fourth element, that is,
whether or not the affected employees were dismissed in good faith. We find that there was no good
faith in the retrenchment.

Prior to the cessation of Digiservs operations, the Secretary of Labor had issued the first assumption
order to enjoin an impending strike. When Digiserv effected the dismissal of the affected employees,
the Union filed another notice of strike. Significantly, the Secretary of Labor ordered that the second
notice of strike be subsumed by the previous assumption order. Article 263(g) of the Labor Code
provides:

When, in his opinion, there exists a labor dispute causing or likely to cause a strike or lockout in an
industry indispensable to the national interest, the Secretary of Labor and Employment may assume
jurisdiction over the dispute and decide it or certify the same to the Commission for compulsory
arbitration. Such assumption or certification shall have the effect of automatically enjoining the
intended or impending strike or lockout as specified in the assumption or certification order. If one has
already taken place at the time of assumption or certification, all striking or locked out employees shall
immediately return to work and the employer shall immediately resume operations and readmit all
workers under the same terms and conditions prevailing before the strike or lockout. The Secretary of
Labor and Employment or the Commission may seek the assistance of law enforcement agencies to
ensure the compliance with this provision as well as with such orders as he may issue to enforce the
same.

The effects of the assumption order issued by the Secretary of Labor are two-fold. It enjoins an
impending strike on the part of the employees and orders the employer to maintain the status quo.

There is no doubt that Digitel defied the assumption order by abruptly closing down Digiserv. The
closure of a department is not illegal per se. What makes it unlawful is when the closure is undertaken in
bad faith. In St. John Colleges, Inc. v. St. John Academy Faculty and Employees Union,26 bad faith was
evidenced by the timing of and reasons for the closure and the timing of and reasons for the subsequent
opening. There, the collective bargaining negotiations between St. John and the Union resulted in a
bargaining deadlock that led to the filing of a notice of strike. The labor dispute was referred to the
Secretary of Labor who assumed jurisdiction.

Pending resolution of the dispute, St. John closed the school prompting the Union to file a complaint for
illegal dismissal and unfair labor practice. The Union members alleged that the closure of the high school
was done in bad faith in order to get rid of the Union and render useless any decision of the SOLE on the
CBA deadlocked issues. We held that closure was done to defeat the affected employees security of
tenure, thus:

The determination of whether SJCI acted in bad faith depends on the particular facts as established by
the evidence on record. Bad faith is, after all, an inference which must be drawn from the peculiar
circumstances of a case. The two decisive factors in determining whether SJCI acted in bad faith are (1)
the timing of, and reasons for the closure of the high school, and (2) the timing of, and the reasons for
the subsequent opening of a college and elementary department, and, ultimately, the reopening of the
high school department by SJCI after only one year from its closure.

Prior to the closure of the high school by SJCI, the parties agreed to refer the 1997 CBA deadlock to the
SOLE for assumption of jurisdiction under Article 263 of the Labor Code. As a result, the strike ended and
classes resumed. After the SOLE assumed jurisdiction, it required the parties to submit their respective
position papers. However, instead of filing its position paper, SJCI closed its high school, allegedly
because of the "irreconcilable differences between the school management and the Academys Union
particularly the safety of our students and the financial aspect of the ongoing CBA negotiations."
Thereafter, SJCI moved to dismiss the pending labor dispute with the SOLE contending that it had
become moot because of the closure. Nevertheless, a year after said closure, SJCI reopened its high
school and did not rehire the previously terminated employees.

Under these circumstances, it is not difficult to discern that the closure was done to defeat the parties
agreement to refer the labor dispute to the SOLE; to unilaterally end the bargaining deadlock; to render
nugatory any decision of the SOLE; and to circumvent the Unions right to collective bargaining and its
members right to security of tenure. By admitting that the closure was due to irreconcilable differences
between the Union and school management, specifically, the financial aspect of the ongoing CBA
negotiations, SJCI in effect admitted that it wanted to end the bargaining deadlock and eliminate the
problem of dealing with the demands of the Union. This is precisely what the Labor Code abhors and
punishes as unfair labor practice since the net effect is to defeat the Unions right to collective
bargaining.27 (Emphasis not supplied)

As in St. John, bad faith was manifested by the timing of the closure of Digiserv and the rehiring of some
employees to Interactive Technology Solutions, Inc. (I-tech), a corporate arm of Digitel. The assumption
order directs employees to return to work, and the employer to reinstate the employees. The existence
of the assumption order should have prompted Digitel to observe the status quo. Instead, Digitel
proceeded to close down Digiserv. The Secretary of Labor had to subsume the second notice of strike in
the assumption order. This order notwithstanding, Digitel proceeded to dismiss the employees.

The timing of the creation of I-tech is dubious. It was incorporated on 18 January 2005 while the labor
dispute within Digitel was pending. I-techs primary purpose was to provide call center/customer
contact service, the same service provided by Digiserv. It conducts its business inside the Digitel office at
110 E. Rodriguez Jr. Avenue, Bagumbayan, Quezon City. The former head of Digiserv, Ms. Teresa
Taniega, is also an officer of I-tech. Thus, when Digiserv was closed down, some of the employees
presumably non-union members were rehired by I-tech.

Thus, the closure of Digiserv pending the existence of an assumption order coupled with the creation of
a new corporation performing similar functions as Digiserv leaves no iota of doubt that the target of the
closure are the union member-employees. These factual circumstances prove that Digitel terminated
the services of the affected employees to defeat their security of tenure. The termination of service was
not a valid retrenchment; it was an illegal dismissal of employees.

It needs to be mentioned too that the dismissal constitutes an unfair labor practice under Article 248(c)
of the Labor Code which refers to contracting out services or functions being performed by union
members when such will interfere with, restrain or coerce employees in the exercise of their rights to
self-organization. At the height of the labor dispute, occasioned by Digitels reluctance to negotiate with
the Union, I-tech was formed to provide, as it did provide, the same services performed by Digiserv, the
Union members nominal employer.

Under Article 279 of the Labor Code, an illegally dismissed employee is entitled to backwages and
reinstatement. Where reinstatement is no longer viable as an option, as in this case where Digiserv no
longer exists, separation pay equivalent to one (1) month salary, or one-half (1/2) month pay for every
year of service, whichever is higher, should be awarded as an alternative.28 The payment of separation
pay is in addition to payment of backwages.29

Indeed, while we have found that the closure of Digiserv was undertaken in bad faith, badges thereof
evident in the timing of Digiservs closure, hand in hand, with I-techs creation, the closure remains a
foregone conclusion. There is no finding, and the Union makes no such assertion, that Digiserv and I-
tech are one and the same corporation. The timing of Digiservs closure and I-techs ensuing creation is
doubted, not the legitimacy of I-tech as a business process outsourcing corporation providing both
inbound and outbound services to an expanded local and international clientele.30
The finding of unfair labor practice hinges on Digitels contracting-out certain services performed by
union member-employees to interfere with, restrain or coerce them in the exercise of their right to self-
organization.

We have no basis to direct reinstatement of the affected employees to an ostensibly different

corporation. The surrounding circumstance of the creation of I-tech point to bad faith on the part of
Digitel, as well as constitutive of unfair labor practice in targeting the dismissal of the union member-
employees. However, this bad faith does not contradict, much less negate, the impossibility of the
employees reinstatement because Digiserv has been closed and no longer exists.

Even if it is a possibility that I-tech, as though Digitel, can absorb the dismissed union member-
employees as I-tech was incorporated during the time of the controversy with the same primary
purpose as Digiserv, we would be hard pressed to mandate the dismissed employees reinstatement
given the lapse of more than seven (7) years.

This length of time from the date the incident occurred to its Resolution31 coupled with the
demonstrated litigiousness of the disputants: (1) with all sorts of allegations thrown by either party
against the other; (2) the two separate filings of a notice of strike by the Union; (3) the Assumption
Orders of the DOLE; (4) our own finding of unfair labor practice by Digitel in targeting the union
member-employees, abundantly show that the relationship between Digitel and the union member-
employees is strained. Indeed, such discordance between the parties can very well be a necessary
consequence of the protracted and branched out litigation. We adhere to the oft-quoted doctrine that
separation pay may avail in lieu of reinstatement if reinstatement is no longer practical or in the best
interest of the parties.32

Under the doctrine of strained relations, the payment of separation pay is considered an acceptable
alternative to reinstatement when the latter option is no longer desirable or viable. On one hand, such
payment liberates the employee from what could be a highly oppressive work environment. On the
other hand, it releases the employer from the grossly unpalatable obligation of maintaining in its employ
a worker it could no longer trust.33

Finally, an illegally dismissed employee should be awarded moral and exemplary damages as their
dismissal was tainted with unfair labor practice.34 Depending on the factual milieu, jurisprudence has
awarded varying amounts as moral and exemplary damages to illegally dismissed employees when the
dismissal is attended by bad faith or fraud; or constitutes an act oppressive to labor; or is done in a
manner contrary to good morals, good customs or public policy; or if the dismissal is effected in a
wanton, oppressive or malevolent manner.351wphi1
In Nueva Ecija I Electric Cooperative, Inc. (NEECO I) Employees Association v. National Labor Relations
Commission, we intoned:

Unfair labor practices violate the constitutional rights of workers and employees to self-organization,
are inimical to the legitimate interests of both labor and management, including their right to bargain
collectively and otherwise deal with each other in an atmosphere of freedom and mutual respect; and
disrupt industrial peace and hinder the promotion of healthy and stable labor-management relations. As
the conscience of the government, it is the Courts sworn duty to ensure that none trifles with labor
rights.36

We awarded moral damages in the amount of P 10,000.00 and likewise awarded P 5,000.00 as
exemplary damages for each dismissed employee.

In the recent case of Purefoods Corporation v. Nagkakaisang Samahang Manggagawa ng Purefoods

Rank-and-File,37 we awarded the aggregate amount of P 500,000.00 as moral and exemplary damages
to the illegally dismissed union member-employees which exact number was undetermined.

In the case at hand, with the Unions manifestation that only 13 employees remain as respondents, as
most had already accepted separation pay, and consistent with our finding that Digitel committed an
unfair labor practice in violation of the employees constitutional right to self-organization, we deem it
proper to award each of the illegally dismissed union member-employees the amount of P 10,000.00
and P 5,000.00 as moral and exemplary damages, respectively.

WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 91719 is
AFFIRMED, while the Decision in CA-G.R. SP No. 94825 declaring the dismissal of affected union
member-employees as illegal is MODIFIED to include the payment of moral and exemplary damages in
amount of P 10,000.00 and P 5,000.00, respectively, to each of the thirteen (13) illegally dismissed
union-member employees.

Petitioner Digital Telecommunications Philippines, Inc. is ORDERED to pay the affected employees
backwages and separation pay equivalent to one (1) month salary, or one-half (1/2) month pay for every
year of service, whichever is higher.

Let this case be REMANDED to the Labor Arbiter for the computation of monetary claims due to the
affected employees.
SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

ARTURO D. BRION

Associate Justice MARIANO C. DEL CASTILLO

Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice

ATTESTATION

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

ANTONIO T. CARPIO

Associate Justice

Chairperson

CERTIFICATION
Pursuant to Section 13, Article VIII or the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer or the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

1 Penned by Associate Justice Normandie B. Pizarro with Associate Justices Josefina Guevara-Salonga
and Magdangal M. De Leon, concurring. Rollo, pp. 1042-1061.

2 Id. at 255-263.

3 Id. at 62-63.

4 Id. at 289-291.

5 Id. at 123-124.

6 Id. at 271-285.

7 Id. at 125-127.

8 Id. at 154.

9 Id. at 183-184.

10 Id. at 590-594.
11 Id. at 624-632.

12 Id. at 1059-1060.

13 501 Phil. 144 (2005).

14 Id. at 150.

15 G.R. No. 169754, 23 February 2011, 644 SCRA 94, 106.

16 G.R. No. 94716, 15 November 1991, 203 SCRA 596.

17 334 Phil. 955 (1997).

18 Aliviado v. Procter & Gamble Phils., Inc., G.R. No. 160506, 6 June 2011, 650 SCRA 400, 412-414.

19 Rollo, p. 582.

20 322 Phil. 536, 550 (1996).

21 Rollo, p. 583.

22 Id. at 587-588.

23 G.R. No. 174214, 13 June 2012.

24 Id.
25 Rollo, p. 707.

26 536 Phil. 631 (2006).

27 Id. at 645-646.

28 See Book VI, Rule 1, Section 4(b) of the Omnibus Rules Implementing the Labor Code;

Purefoods Corporation v. Nagkakaisang Samahang Manggagawa ng Purefoods Rank-and-File, G.R. No.

150896, 28 August 2008, 563 SCRA 471, 480-481.

29 Golden Ace Builders v. Talde, G.R. No. 187200, 5 May 2010, 620 SCRA 283, 288-289 citing Macasero
v. Southern Industrial Gases Philippines, G.R. No. 178524, 30 January 2009, 577 SCRA 500, 506-507.

30 See http://www.bestjobsph.com/bt-empd-itechsolutions.htm. (visited 2 October 2012).

31 Panday v. National Labor Relations Commission, G.R. No. 67664, 20 May 1992, 209 SCRA 122, 126-
127.

32 Velasco v. National Labor Relations Commission, 525 Phil. 749, 761 (2006).

33 Golden Ace Builders v. Talde, supra note 29 at 289-290.

34 Purefoods Corporation v. Nagkakaisang Samahang Manggagawa ng Puerfoods Rank-and-File, supra

note 28 at 480; Quadra v. Court of Appeals, 529 Phil. 218, 224-225 (2006) citing Nueva Ecija I Electric
Cooperative, Inc. (NEECO I) Employees Association v. National Labor Relations Commission, 380 Phil. 44,
57-58 (2000).

35 Woodridge School v. Pe Benito, G.R. No. 160240, 29 October 2008, 570 SCRA 164, 186.

36 Supra note 34 at 57-58.

37 Supra note 28 at 481.

The Lawphil Project - Arellano Law Foundation

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Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 182018 October 10, 2012

NORKIS TRADING CORPORATION, Petitioner,

vs.

JOAQUIN BUENA VISTA, HENRY FABROA, RICARDO CAPE, BERTULDO TULOD, WILLY DONDOY ANO and
GLEN VILLARASA, Respondents.

DECISION
REYES, J.:

Before us is a Petition for Review on Certiorari filed by petitioner Norkis Trading Corporation (Norkis
Trading) to assail the Decision1 dated May 7, 2007 and Resolution2 dated March 4, 2008 of the Court of
Appeals (CA) in CA-G.R. SP No. 84041.

The Facts

The petition stems from an amended complaint for illegal suspension, illegal dismissal, unfair labor
practice and other monetary claims filed with the National Labor Relations Commission (NLRC) by herein
respondents Joaquin Buenavista (Buenavista), Henry Fabroa (Fabroa), Ricardo Cape (Cape), Bertuldo
Tulod (Tulod), Willy Dondoyano (Dondoyano) and Glen Villariasa (Villariasa) against Norkis Trading and
Panaghiusa sa Kauswagan Multi-Purpose Cooperative (PASAKA). The complaint was docketed as NLRC-
RAB-VII Case No. 09-1402-99.

During the proceedings a quo, herein respondents submitted the following averments:

The respondents were hired by Norkis Trading, a domestic corporation engaged in the business of
manufacturing and marketing of Yamaha motorcycles and multi-purpose vehicles, on separate dates and
for various positions, particularly:

Name Date of Hiring Position

Joaquin Buenavista March 14, 1994 Operator

Henry Fabroa January 5, 1993 Welder

Ricardo Cape January 1993 Welder/Operator

Bertuldo Tulod November 13, 1994 Welder/Assistant Operator

Willy Dondoyano January 1993 Welder

Glen Villariasa February 1993 Welder3

Although they worked for Norkis Trading as skilled workers assigned in the operation of industrial and
welding machines owned and used by Norkis Trading for its business, they were not treated as regular
employees by Norkis Trading. Instead, they were regarded by Norkis Trading as members of PASAKA, a
cooperative organized under the Cooperative Code of the Philippines, and which was deemed an
independent contractor that merely deployed the respondents to render services for Norkis Trading.4
The respondents nonetheless believed that they were regular employees of Norkis Trading, citing in
their Position Paper5 the following circumstances that allegedly characterized their employment with
the company:

The work of the operators involves operating industrial machines, such as, press machine, hydraulic
machine, and spotweld machine. On the other hand, the welders used the welding machines. The
machines used by complainants herein respondents in their work are all owned by respondent Norkis
Trading herein petitioner and these are installed and located in the working area of the complainants
inside the companys premises.

The complainants produced steel crates which are exported directly by respondent Norkis Trading to
Japan. These crates are used as containers of motorcycle machines and are shipped from Japan back to
respondent Norkis Trading.

The materials and supplies used by complainants in their work are supplied by respondent Norkis
Trading through Benjamin Gulbin, the companys Stockman, upon the request of Tirso Maslog, a
Leadman also employed by respondent Norkis Trading.

Respondent Norkis Trading gave instructions and supervised the work of complainants through Edwin
Ponce and Kiven Alilin, who are both Leadmen, and Rico Cabanas, who is the Production Supervisor, of
the former.

The salaries of complainants are paid inside the premises of respondent Norkis Trading by Dalia Rojo
and Belen Rubio, who are also employees of the said company assigned at the accounting office.

Despite having served respondent Norkis Trading for many years and performing the same functions as
regular employees, complainants were not accorded regular status. It was made to appear that
complainants are not employees of said company but that of respondent PASAKA.6

Against the foregoing scenario, the respondents, together with several other complainants,7 filed on
June 9, 1999 with the Department of Labor and Employment (DOLE) a complaint against Norkis Trading
and PASAKA for labor-only contracting and non-payment of minimum wage and overtime pay. The
complaint was docketed as LSED Case No. RO700-9906-CI-CS-168.

The filing of the complaint for labor-only contracting allegedly led to the suspension of the respondents
membership with PASAKA. On July 22, 1999, they were served by PASAKA with memoranda charging
them with a violation of the rule against commission of acts injurious or prejudicial to the interest or
welfare of the cooperative. The memoranda cited that the respondents filing of a case against Norkis
Trading had greatly prejudiced the interest and welfare of the cooperative.8 In their answer9 to the
memoranda, the respondents explained that they merely wanted to be recognized as regular employees
of Norkis Trading. The case records include copies of the memoranda sent to respondents Buenavista,
Fabroa and Dondoyano.10

On August 16, 1999, the respondents received another set of memoranda from PASAKA, now charging
them with the following violations of the cooperatives rules and regulations: (1) serious misconduct or
willful disobedience of superiors instructions or orders; (2) gross and habitual neglect of duties by
abandoning work without permission; (3) absences without filing leave of absence; and (4) wasting time
or loitering on companys time or leaving their post temporarily without permission during office
hours.11 Copies of the memoranda12 sent to Fabroa and Cape form part of the records.

On August 26, 1999, PASAKA informed the respondents of the cooperatives decision to suspend them
for fifteen (15) working days, to be effective from September 1 to 21, 1999, for violation of PASAKA
rules.

The records include copies of the memoranda13 sent to Fabroa and Cape. The suspension prompted the
respondents to file with the NLRC the complaint for illegal suspension against Norkis Trading and
PASAKA.

The 15-day suspension of the respondents was extended for another period of 15 days, from September
22, 1999 to October 12, 1999.14 Copies of PASAKAs separate letters15 to Buenavista, Fabroa, Cape and
Dondoyano on the cooperatives decision to extend the suspension form part of the records.

On October 13, 1999, the respondents were to report back to work but during the hearing in their NLRC
case, they were informed by PASAKA that they would be transferred to Norkis Tradings sister company,
Porta Coeli Industrial Corporation (Porta Coeli), as washers of Multicab vehicles.

The respondents opposed the transfer as it would allegedly result in a change of employers, from Norkis
Trading to Porta Coeli. The respondents also believed that the transfer would result in a demotion since
from being skilled workers in Norkis Trading, they would be reduced to being utility workers.These
circumstances made the respondents amend their complaint for illegal suspension, to include the
charges of unfair labor practice, illegal dismissal, damages and attorneys fees.
For their part, both Norkis Trading and PASAKA claimed that the respondents were not employees of
Norkis Trading. They insisted that the respondents were members of PASAKA, which served as an
independent contractor that merely supplied services to Norkis International Co., Inc. (Norkis
International) pursuant to a job contract16 which PASAKA and Norkis International executed on January
14, 1999 for 121,500 pieces of F/GF-Series Reinforcement Production. After PASAKA received reports
from its coordinator at Norkis International of the respondents low efficiency and violation of the
cooperatives rules, and after giving said respondents the chance to present their side, a penalty of
suspension was imposed upon them by the cooperative. The illegal suspension being complained of was
then not linked to the respondents employment, but to their membership with PASAKA.

Norkis Trading stressed that the respondents were deployed by PASAKA to Norkis International, a
company that is entirely separate and distinct from Norkis Trading.

The Ruling of the Labor Arbiter

On June 1, 2000, Labor Arbiter Jose G. Gutierrez (LA Gutierrez) dismissed the complaint via a Decision17
with decretal portion that reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered DISMISSING this case for
lack of merit. Complainants herein respondents are however directed to report back to respondent
PASAKA for work assignment within ten (10) days from receipt of this decision. Likewise, respondent
PASAKA is directed to accept the complainants back for work.

SO ORDERED.18

LA Gutierrez sustained the suspension imposed by PASAKA upon the respondents, taking into account
the offenses that the said respondents were found to have committed. He likewise rejected the
respondents claim of illegal dismissal. He ruled that to begin with, the respondents had failed to prove
with convincing evidence that they were dismissed from employment. The Decision reads in part:

Before the legality or illegality of a dismissal can be put in issue, the fact of dismissal itself must, first, be
clearly established. In the instant case, We find that complainants herein respondents failed to prove
with convincing evidence the fact that they were dismissed from employment. This observation is
derived from their very own allegation in their position paper. The first paragraph of page 5 of the
complainants position paper clearly shows that they were not yet dismissed from their employment.
The said paragraph states:
"Convinced that the company is bent on terminating their services, complainants amended their
complaint to include the charges of unfair labor practice, illegal dismissal, damages and attorneys fees."

The truth, as the record would show is that, complainants were only offered another post in order to
save the contractual relations between their cooperative and Norkis Trading as the latter finds the
complainants performance not satisfactory. The complainants took this offer as a demotion amounting
to dismissal. We do not however, agree as their transfer to another post was only the best option
available in order to save the contractual relations between their cooperative (PASAKA) and Norkis
Trading.19

The allegation of unfair labor practice and claim for monetary awards were likewise rejected by the LA.
Feeling aggrieved, the respondents appealed from the decision of the LA to the NLRC.

In the meantime, DOLE Regional Director Melencio Q. Balanag (Regional Director Balanag) issued on
August 22, 2000 his Order20 in LSED Case No. RO700-9906-CI-CS-168. Regional Director Balanag ruled
that PASAKA was engaged in labor-only contracting.21 The other findings in his Order that are significant
to this case are as follows: (1) PASAKA had failed to prove that it had substantial capital;22 (2) the
machineries, equipment and supplies used by the respondents in the performance of their duties were
all owned by Norkis Trading and not by PASAKA;23 (3) the respondents membership with PASAKA as a
cooperative was inconsequential to their employment with Norkis Trading;24 (4) Norkis Trading and
PASAKA failed to prove that their sub-contracting arrangements were covered by any of the conditions
set forth in Section 6 of Department Order No. 10, Series of 1997;25 (5) Norkis Trading and PASAKA
failed to dispute the respondents claim that their work was supervised by leadmen and production
supervisors of Norkis Trading;26 and (6) Norkis Trading and PASAKA failed to dispute the respondents
allegation that their salaries were paid by employees of Norkis Trading.27 Norkis Trading and PASAKA
were then declared solidarily liable for the monetary claims of therein complainants, as provided in the
dispositive portion of Regional Director Balanags Order, to wit:

WHEREFORE, respondent PANAGHIUSA SA KAUSWAGAN MULTIPURPOSE COOPERATIVE and/or NORKIS

TRADING CORPORATION are hereby ORDERED to pay solidarily the amount of THREE HUNDRED
THIRTEEN THOUSAND THREE HUNDRED FIFTY-FOUR AND 50/100 ([P]313,354.50) PESOS, Philippine
Currency, within ten (10) calendar days from receipt hereof to herein complainants x x x:

xxxx

SO ORDERED.28
The respondents informed the NLRC of Regional Director Balanags Order by filing a Manifestation29
dated September 11, 2000, attaching thereto a copy of the Order dated August 22, 2000.

It bears mentioning that Regional Director Balanags Order was later affirmed by then DOLE Secretary
Patricia Sto. Tomas (Sec. Sto. Tomas) in her Orders dated February 7, 2002 and October 14, 2002.30
When the rulings of the DOLE Secretary were appealed before the CA via the petitions for certiorari
docketed as CA-G.R. SP No. 73880 and CA-G.R. SP No. 74619, the CA affirmed the Orders of the DOLE
Secretary.31 A motion for reconsideration of the CA decision was denied in a Resolution32 dated
October 9, 2007. The two petitions docketed as G.R. Nos. 180078-79, which were brought before this
Court to question the CAs rulings, were later denied with finality by this Court in the Resolutions dated
December 5, 200733 and April 14, 2008.34

The Ruling of the NLRC

On April 18, 2002, the NLRC rendered its Decision35 affirming with modification the decision of LA
Gutierrez. It held that the respondents were not illegally suspended from work, as it was their
membership in the cooperative that was suspended after they were found to have violated the
cooperatives rules and regulations. It also declared that the respondents dismissal was not established
by substantial evidence. The NLRC however declared that the LA had no jurisdiction over the dispute
because the respondents were not employees, but members of PASAKA. The suspension of the
respondents as members of PASAKA for alleged violation of the cooperatives rules and regulations was
not a labor dispute, but an intra-corporate dispute.36 The complaint was also declared to have been
filed against the wrong party because the respondents were found by the NLRC to have been deployed
by PASAKA to Norkis International pursuant to a job contract.

The dispositive portion of the NLRCs Decision reads:

WHEREFORE, the Decision dated June 1, 2000 of the Labor Arbiter is AFFIRMED, with respect to the
DISMISSAL of the complainants herein respondents for lack of merit [sic], but deleting the portion
directing the complainants to report back to respondent PASAKA for work assignment and to accept
them back to work being an internal concern of PASAKA.

SO ORDERED.37
The respondents motion for reconsideration was denied by the NLRC in a Resolution38 dated
December 18, 2003. Undaunted, the respondents questioned the NLRCs rulings before the CA via a
petition for certiorari.

The Ruling of the CA

Finding merit in the petition for certiorari, the CA rendered its decision reversing and setting aside the
decision and resolution of the NLRC. The dispositive portion of its Decision dated May 7, 2007 reads:

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the NLRC, are hereby
REVERSED and SET ASIDE, and a new judgment is hereby rendered ordering the private respondents to:

(1) Reinstate petitioners to their former positions without loss of seniority rights, and to pay full
backwages inclusive of allowances and their other benefits or their monetary equivalent computed from
the time of illegal dismissal to the time of actual reinstatement; and

(2) Alternatively, if reinstatement is not possible, to pay full backwages inclusive of other benefits or
their monetary equivalent from the time of illegal dismissal until the same is paid in full, and pay
petitioners separation pay equivalent to one months salary for every year of service.

SO ORDERED.39

The CA rejected the argument of PASAKA and Norkis Trading that by virtue of a job contract executed on
January 14, 1999, the respondents were deployed to Norkis International and not to Norkis Trading. The
CA held:

We are not convinced. Private respondents among them, herein petitioner own evidence belie their
claim.

In its Comment, NORKIS TRADING attached the Payroll Registers for PANAGHIUSA SA KAUSWAGAN
(PASAKA) MULTIPURPOSE COOPERATIVE-NICI Tin Plate covering the payroll periods "12/28/98-
01/07/99" and "01/08/99-01/14/99". Included among the payees therein were the petitioners herein
respondents. x x x Why were petitioners included in said payrolls for said payroll periods when the
supposed Contract with NORKIS INTERNATIONAL was not yet executed? Apparently, private
respondents slipped. Thus, we hold that the much ballyhooed January 14, 1999 Contract between
PASAKA and NORKIS INTERNATIONAL, is but a mere afterthought, a concoction designed by private
respondents to evade their obligations to petitioners.40 (Citations omitted and emphasis supplied)

The CA also considered Regional Director Balanags finding in LSED Case No. RO700-9906-CI-CS-168 that
PASAKA was engaged in labor-only contracting. In ruling that the respondents were illegally dismissed,
the CA held that Norkis Tradings refusal to accept the respondents back to their former positions,
offering them instead to accept a new assignment as washers of vehicles in its sister company, was a
demotion that amounted to a constructive dismissal.

Norkis Tradings motion for reconsideration was denied by the CA in its Resolution41 dated March 4,
2008. Hence, this petition.

The Present Petition

The petition is founded on the following grounds:

1) THE COURT OF APPEALS HAS DEPARTED FROM THE USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN
IT MADE ITS OWN FACTUAL FINDINGS AND DISREGARDED THE UNIFORM AND CONSISTENT FACTUAL
FINDINGS OF THE LABOR ARBITER AND THE NLRC, WHICH MUST BE ACCORDED GREAT WEIGHT,
RESPECT AND EVEN FINALITY. IN SO DOING, THE COURT OF APPEALS EXCEEDED ITS AUTHORITY ON
CERTIORARI UNDER RULE 65 OF THE RULES OF COURT BECAUSE SUCH FACTUAL FINDINGS WERE BASED
ON SPECULATIONS AND NOT ON OTHER EVIDENCES [SIC] ON RECORD.

2) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW
AND JURISPRUDENCE IN RULING THAT THE NLRC COMMITTED GRAVE ABUSE OF DISCRETION IN
ALLEGEDLY IGNORING THE RULING OF THE REGIONAL DIRECTOR.

3) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW
AND JURISPRUDENCE IN RULING THAT PETITIONER IS THE EMPLOYER OF RESPONDENTS.

4) THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW
AND JURISPRUDENCE IN RULING THAT THE RESPONDENTS WERE CONSTRUCTIVELY DISMISSED
CONTRARY TO THE FACTUAL FINDINGS OF THE LABOR ARBITER AND THE NLRC AND WITHOUT
SHOWING ANY EVIDENCE TO OVERTURN SUCH FINDING OF FACT.42
The respondents oppose these grounds in their Comment.43 In support of their arguments, the
respondents submit with their Comment copies of the CAs Decision44 and Resolution45 in CA-G.R. SP
No. 73880 and CA-G.R. SP No. 74619, and this Courts Resolutions46 in G.R. Nos. 180078-79.

This Courts Ruling

The Court resolves to deny the petition.

Factual findings of labor officials

may be examined by the courts

when there is a showing that they

were arrived at arbitrarily or in

disregard of evidence on record.

As regards the first ground, the petitioner questions the CAs reversal of LA Gutierrezs and the NLRCs
rulings, and argues that said rulings should have been accorded great weight and finality by the
appellate court as these were allegedly supported by substantial evidence.

On this matter, the settled rule is that factual findings of labor officials, who are deemed to have
acquired expertise in matters within their jurisdiction, are generally accorded not only respect but even
finality by the courts when supported by substantial evidence, i.e., the amount of relevant evidence
which a reasonable mind might accept as adequate to support a conclusion. We emphasize,
nonetheless, that these findings are not infallible. When there is a showing that they were arrived at
arbitrarily or in disregard of the evidence on record, they may be examined by the courts. The CA can
then grant a petition for certiorari if it finds that the NLRC, in its assailed decision or resolution, has
made a factual finding that is not supported by substantial evidence. It is within the jurisdiction of the
CA, whose jurisdiction over labor cases has been expanded to review the findings of the NLRC.47

We have thus explained in Cocomangas Hotel Beach Resort v. Visca48 that the CA can take cognizance
of a petition for certiorari if it finds that the NLRC committed grave abuse of discretion by capriciously,
whimsically, or arbitrarily disregarding evidence which are material to or decisive of the controversy.
The CA cannot make this determination without looking into the evidence presented by the parties. The
appellate court needs to evaluate the materiality or significance of the evidence, which are alleged to
have been capriciously, whimsically, or arbitrarily disregarded by the NLRC, in relation to all other
evidence on record.

This case falls within the exception to the general rule that findings of fact of labor officials are to be
accorded respect and finality on appeal. As our discussions in the other grounds that are raised in this
petition will demonstrate, the CA has correctly held that the NLRC has disregarded facts and evidence
that are material to the outcome of the respondents case. No error can be ascribed to the appellate
court for making its own assessment of the facts that are significant to the case to determine the
presence or absence of grave abuse of discretion on the part of the NLRC, even if the CAs findings turn
out to be different from the factual findings of both the LA and NLRC.

Norkis Trading is the principal

employer of the respondents,

considering that PASAKA is a mere

labor-only contractor.

The second and third grounds, being interrelated as they both pertain to the CAs finding that an
employer-employee relationship existed between the petitioner and the respondents, shall be discussed
jointly. In its decision, the CA cited the findings of the Regional Director in LSED Case No. RO700-9906-CI-
CS-168 and declared that the NLRC committed a grave abuse of discretion when it ignored said findings.

The issue of whether or not the respondents shall be regarded as employees of the petitioner hinges
mainly on the question of whether or not PASAKA is a labor-only contractor. Labor-only contracting, a
prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies, or
places workers to perform a job, work, or service for a principal. In labor-only contracting, the following
elements are present: (a) the contractor or subcontractor does not have substantial capital or
investment to actually perform the job, work, or service under its own account and responsibility; and
(b) the employees recruited, supplied or placed by such contractor or subcontractor perform activities
which are directly related to the main business of the principal. These differentiate it from permissible
or legitimate job contracting or subcontracting, which refers to an arrangement whereby a principal
agrees to put out or farm out with the contractor or subcontractor the performance or completion of a
specific job, work, or service within a definite or predetermined period, regardless of whether such job,
work, or service is to be performed or completed within or outside the premises of the principal. A
person is considered engaged in legitimate job contracting or subcontracting if the following conditions
concur: (a) the contractor carries on a distinct and independent business and partakes the contract work
on his account under his own responsibility according to his own manner and method, free from the
control and direction of his employer or principal in all matters connected with the performance of his
work except as to the results thereof; (b) the contractor has substantial capital or investment; and (c)
the agreement between the principal and the contractor or subcontractor assures the contractual
employees entitlement to all labor and occupational safety and health standards, free exercise of the
right to self-organization, security of tenure, and social welfare benefits.49

We emphasize that the petitioners arguments against the respondents claim that PASAKA is a labor-
only contractor, which is thus to be regarded as a mere agent of Norkis Trading for which the
respondents rendered service, are already mooted by the finality of this Courts Resolutions dated
December 5, 2007 and April 14, 2008 in G.R. Nos. 180078-79, which stems from the CAs and the DOLE
Secretarys review of the DOLE Regional Directors Order dated August 22, 2000 in LSED Case No.
RO700-9906-CI-CS-168.

To recapitulate, Regional Director Balanag issued on August 22, 2000 its Order50 in LSED Case No.
RO700-9906-CI-CS-168 and declared PASAKA as a mere labor-only contractor, and Norkis Trading as the
true employer of herein respondents. He explained that PASAKA failed to prove during the conduct of a
summary investigation that the cooperative had substantial capital or investment sufficient to enable it
to perform the functions of an independent contractor. The respondents claim that the machinery,
equipment and supplies they used to perform their duties were owned by Norkis Trading, and not by
PASAKA, was undisputed. While PASAKA reflected in its Statement of Financial Condition for the year
1996 property and equipment net of accumulated depreciation at P 344,273.02, there was no showing
that the properties covered thereby were actually and directly used in the conduct of PASAKAs
business.51 The DOLE Regional Director explained:

Herein respondents among them, herein petitioner failed to prove that their sub-contracting
arrangements fall under any of the conditions set forth in Sec. 6 of D.O. # 10 S. 1997 to qualify as
permissible contracting or subcontracting as provided for as follows:

Sec. 6. Permissible contracting or subcontracting. Subject to conditions set forth in Sec. 4 (d) and (e) and
Section 5 hereof, the principal may engage the services of a contractor or subcontractor for the
performance of any of the following:

a.) Works or services temporarily or occasionally needed to meet abnormal increase in the demand of
products or services...

b) Works or services temporarily or occasionally needed by the principal for undertakings requiring
expert or highly technical personnel to improve the management or operations of an enterprise;

c) Services temporarily needed for the introduction or promotion of new products...;

d) Works or services not directly related or not integral to main business or operation of the principal
including casual work, janitorial, security, landscaping and messengerial services and work not related to
manufacturing processes in manufacturing establishments.

e) Services involving the public display of manufacturers products...;

f) Specialized works involving the use of some particular, unusual or peculiar skills... and

g) Unless a reliever system is in place among the regular workforce, substitute services for absent
regular employees...

It is therefore evident that herein respondents are engaged in "labor-only" contracting as defined in Art.
106 of the Labor Code. Furthermore, such contracting/sub-contracting arrangement not only falls under
labor-only contracting but also fails to qualify as legitimate subcontracting as defined under Sec. 4 par. e
of D.O. #10 S. 1997, to wit:

"Sec. 4. Definition of terms.

d)

Subject to the provisions of Sections 6, 7 and 8 of this Rule, contracting or subcontracting shall be
legitimate if the following circumstances concur:

i) The contractor or subcontractor carries on a distinct and independent business and undertakes to
perform the job, work or service on its own account and under its own responsibility, according to its
own manner and method, and free from the control and direction of the principal in all matters
connected with the performance of the work except to the results thereof;

ii) The contractor or subcontractor has substantial capital or investment; and

iii) The agreement between the principal and contractor or subcontractor assures the contractual
employees entitlement to all labor and occupational and safety and health standards, free exercise of
the right to self-organization, security of tenure and social and welfare benefits."52 (Emphasis supplied)

Together with his finding that PASAKA evidently lacked substantial capital or investment required from
legitimate job contractors, Regional Director Balanag ruled that the cooperative failed to dispute the
respondents allegation that officers of Norkis Trading supervised their work and paid their salaries. In
conclusion, PASAKA and Norkis Trading were declared solidarily liable for the monetary awards made in
favor of therein claimants-employees, which included herein respondents. A motion for reconsideration
of the Order was denied by the Regional Director.

Upon appeal, then DOLE Sec. Sto. Tomas affirmed the rulings of Regional Director Balanag. Both Norkis
Trading and PASAKA filed their separate appeals from the orders of the DOLE Secretary to the CA via the
petitions for certiorari docketed as CA-G.R. SP Nos. 73880 and 74619, but said petitions were dismissed
for lack of merit by the CA in its Decision dated May 7, 2007 and Resolution dated October 9, 2007. The
CA held:

This Court agrees with the finding of the DOLE Regional Director, as affirmed by the Secretary of Labor in
her assailed Order, that petitioners among them, herein petitioner were engaged in labor-only
contracting.

First. PASAKA failed to prove that it has substantial capitalization or investment in the form of tools,
equipment, machineries, work premises, among others, to qualify as an independent contractor.
PASAKAs claim that it has machineries and equipment worth P 344,273.02 as reflected in its Financial
Statements and Supplementary Schedules is belied by private respondents among them, herein
respondents evidence which consisted of pictures showing machineries and equipment which were
owned by and located at the premises of petitioner NORKIS TRADING (as earlier noted, some of the
pictures showed some of the private respondents operating said machines). Indeed it makes one
wonder why, if PASAKA indeed had such machineries and equipment worth P 344,273.02, private
respondents were using machineries and equipment owned by and located at the premises of NORKIS
TRADING.

Even granting that indeed PASAKA had machineries and equipment worth P 344,273.02, it was not
shown that said machineries and equipment were actually used in the performance or completion of the
job, work, or service that it was contracted to render under its supposed job contract.

xxxx
Second. PASAKA likewise did not carry out an independent business from NORKIS TRADING. While
PASAKA was issued its Certificate of Registration on July 18, 1991, all it could show to prove that it
carried out an independent business as a job contractor were the Project Contract dated January 2, 1998
with NORKIS TRADING, and the Project Contract dated December 18, 1998 with NORKIS
INTERNATIONAL. However, as earlier discussed, the Project Contract dated December 18, 1998 with
NORKIS INTERNATIONAL is nothing more than an afterthought by the petitioners to confuse its workers
and defeat their rightful claims. The same can be said of the Project Contract with WICKER and VINE,
INC., considering that it was executed only on February 1, 2000. Verily, said contract was submitted only
to strengthen PASAKAs claim that it is a legitimate job contractor.

Third. Private respondents performed activities directly related to the principal business of NORKIS
TRADING. They worked as welders and machine operators engaged in the production of steel crates
which were sent to Japan for use as containers of motorcycles that are then sent back to NORKIS
TRADING. Private respondents functions therefore are directly related and vital to NORKIS TRADINGs
business of manufacturing of Yamaha motorcycles.

All the foregoing considerations affirm by more than substantial evidence that NORKIS TRADING and
PASAKA engaged in labor-only contracting.53 (Citations omitted and emphasis supplied)

When the case was brought before this Court via the petitions for review on certiorari docketed as G.R.
Nos. 180078-79, we resolved to issue on December 5, 2007 our Resolution dismissing the appeal for,
among other grounds, the failure of Norkis Trading to sufficiently show any reversible error in the the CA
decision. In our Resolution dated April 14, 2008, we denied with finality Norkis Tradings motion for
reconsideration on the ground that no substantial argument and compelling reason was adduced to
warrant a reconsideration of our dismissal of the petition. This Courts resolutions, affirming the findings
of the CA, had then become final and executory.

Applying the doctrine of res judicata, all matters that have been fully resolved with finality by this
Courts dismissal of the appeal that stemmed from Regional Director Balanags Order dated August 22,
2000 in LSED Case No. RO700-9906-CI-CS-168 are already conclusive between the parties. Res judicata is
defined as a matter adjudged; a thing judicially acted upon or decided; a thing or matter settled by
judgment. Under this doctrine, an existing final judgment or decree rendered on the merits, and without
fraud or collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is
conclusive of the rights of the parties or their privies, in all other actions or suits in the same or any
other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the first suit.
To state simply, a final judgment or decree on the merits by a court of competent jurisdiction is
conclusive of the rights of the parties or their privies in all later suits on all points and matters
determined in the former suit.54

Res judicata has two aspects: bar by prior judgment and conclusiveness of judgment as provided under
Section 47(b) and (c), Rule 39, respectively, of the Rules of Court.55 Under the doctrine of
conclusiveness of judgment, facts and issues actually and directly resolved in a former suit cannot be
raised in any future case between the same parties, even if the latter suit may involve a different cause
of action.56

Clearly, res judicata in the concept of conclusiveness of judgment has set in. In the proceedings before
the Regional Director and the LA, there were identity of parties and identity of issues, although the
causes of action in the two actions were different. First, herein respondents on the one hand, and Norkis
Trading on the other hand, were all parties in the two cases, being therein complainants and
respondent, respectively. As to the second requisite, the issue of whether PASAKA was a labor-only
contractor which would make Norkis Trading the true employer of the respondents was the main issue
in the two cases, especially since Norkis Trading had been arguing in both proceedings that it could not
be regarded as the herein respondents employer, harping on the defense that PASAKA was a legitimate
job contractor.

Similarly, in Dole Philippines, Inc. v. Esteva,57 we held that the finding of the DOLE Regional Director,
which had been affirmed by the Undersecretary of Labor, by authority of the Secretary of Labor, in an
Order that has reached finality and which provided that the cooperative Cannery Multi-Purpose
Cooperative (CAMPCO) was engaged in labor-only contracting should bind the NLRC in a case for illegal
dismissal. We ruled:

While the causes of action in the proceedings before the DOLE and the NLRC differ, they are, in fact,
very closely related. The DOLE Regional Office conducted an investigation to determine whether
CAMPCO was violating labor laws, particularly, those on labor-only contracting. Subsequently, it ruled
that CAMPCO was indeed engaging in labor-only contracting activities, and thereafter ordered to cease
and desist from doing so. x x x The matter of whether CAMPCO was a labor-only contractor was already
settled and determined in the DOLE proceedings, which should be conclusive and binding upon the
NLRC. What were left for the determination of the NLRC were the issues on whether there was illegal
dismissal and whether respondents should be regularized.

x x x For the NLRC to ignore the findings of DOLE Regional Director Parel and DOLE Undersecretary
Trajano is an unmistakable and serious undermining of the DOLE officials authority.58
The rule on conclusiveness of judgment then now precludes this Court from re-opening the issues that
were already settled with finality in G.R. Nos. 180078-79, which effectively affirmed the CAs findings
that PASAKA was engaged in labor-only contracting, and that Norkis Trading shall be treated as the
employer of the respondents.

In the present petition, Norkis Trading still argues that the NLRC committed no grave abuse of discretion
in ignoring the findings of Regional Director Balanag considering that his Order had not yet reached
finality at the time the NLRC resolved the appeal from the decision of the LA. This notwithstanding, this
Court holds that the CA still committed no error in finding grave abuse of discretion on the part of the
NLRC by the latters utter disregard of the findings of the Regional Director that Norkis Trading should be
considered the employer of herein respondents. As correctly observed by the CA in the assailed Decision
dated May 7, 2007:

Surprisingly, the NLRC failed to consider or even make reference to the said August 22, 2000 Order of
the DOLE Regional Director. Considering the significance of the DOLE Regional Directors findings, the
same cannot just be perfunctorily rejected. For the NLRC to ignore the findings of DOLE Regional
Director is to undermine or disregard of [sic] the visitorial and enforcement power of the DOLE Secretary
and his authorized representatives under Article 128 of the Labor Code, as amended. It was grave abuse
of discretion then on the part of the NLRC to ignore or simply sweep under the rug the findings of the
DOLE Regional Director.59 (Citation omitted and emphasis ours)

A reading of the NLRCs Resolution60 dated December 18, 2003 indicates that while it was confronted
with opposing findings of the Regional Director and the LA on the material issue of labor-only
contracting, it failed to even attempt to review thoroughly the matter, look into the records, reconcile
the differing judgments and make its own appreciation of the evidence presented by the parties.
Instead, it simply brushed aside the rulings of the Regional Director, without due consideration of the
circumstance that said labor official had the jurisdiction to rule on the issue pursuant to the visitorial
and enforcement powers of the DOLE Secretary and his duly authorized representatives under Article
12861 of the Labor Code.

The rule in appeals in labor cases provides that the CA can grant a petition for certiorari if it finds that
the NLRC, in its assailed decision or resolution, committed grave abuse of discretion by capriciously,
whimsically or arbitrarily disregarding evidence which is material or decisive of the controversy.62
Significantly, the Secretary of Labor had already affirmed Regional Director Balanags Order when the
appeal from the LAs rulings was resolved. In the NLRC Resolution dated December 18, 2003, the
Commission nonetheless merely held:

The photocopies of the Order of the Honorable Secretary of the Department of Labor and Employment
dated February 7, 2002 and the Order of the Regional Director of the Regional Office of the Department
of Labor and Employment finding the existence of labor-only contracting between respondent NORKIS
[Trading] and respondent PASAKA do not provide sufficient basis to disturb Our Decision. We are not
convinced that the facts and evidence, which are totally distinct from this case and which were
presented in a separate proceedings and before another Office, would be a sufficient and valid basis to
divest the Labor Arbiter a quo of his authority which undoubtedly the law vests upon him as his
exclusive jurisdiction. The jurisdiction conferred by Article 217 of the Labor Code upon the Labor Arbiter
is "original and exclusive", and his authority to hear and decide case[s] vested upon him is to the
exclusion of any other court or quasi-judicial body. By reason of their training, experience, and expertise,
Labor Arbiters are in a better position to resolve controversies, for which they are conferred original and
exclusive jurisdiction by law. Even Article 218 of the Labor Code does not empower the Regional
Director of the Department of Labor and Employment to share original and exclusive jurisdiction
conferred on the Labor Arbiter by Article 217 x x x.63

Such utter disregard by the NLRC of the findings of the Regional Director and DOLE Secretary amounts to
grave abuse of discretion amounting to lack or excess of jurisdiction. As this Courts review of the
records would confirm, a judicious study of the evidence presented by the parties would have supported
the finding that Norkis Trading should be treated as the respondents true employer, with PASAKA being
merely an agent of said employer. PASAKA failed to sufficiently show that it had substantial capital or
investment in the form of tools, equipment, machineries and work premises required from legitimate
job contractors. The work required from the respondents, being welders and/or operators of industrial
machines, were also directly related to Norkis Tradings principal business of manufacturing. The job
contract supposedly executed by and between PASAKA and Norkis International in 1999 deserved nil
consideration given that the respondents had claimed early on that they began working for Norkis
Trading on various dates from 1993 to 1994. Moreover, the records confirm that Norkis Trading was still
among the clients of PASAKA as of July 1999, as clearly indicated in the memoranda it sent to
respondents Buenavista, Fabroa and Dondoyano on July 22, 1999, which provide:

Please take note that the recent action you have done in filing a case against one of our clients, Norkis
Trading Co., Inc., has greatly prejudiced the interest and welfare of the Cooperative.64 (Emphasis ours)

This categorical statement of PASAKA that Norkis Trading was among its clients at the time the
memoranda were issued only further bolsters the respondents claim, and Regional Director Balanags
finding, that said respondents were deployed by PASAKA to Norkis Trading. This also contradicts
petitioners argument that its contract with PASAKA had ended in 1998.65

Finally, contrary to the insinuations of Norkis Trading, the fact that PASAKA was a duly-registered
cooperative did not preclude the possibility that it was engaged in labor-only contracting, as confirmed
by the findings of the Regional Director. An entity is characterized as a labor-only contractor based on
the elements and guidelines established by law and jurisprudence, judging primarily on the relationship
that the said entity has with the company to which the workers are deployed, and not on any special
arrangement that the entity has with said workers.

Termination of an employment for

no just or authorized cause

amounts to an illegal dismissal.

As to the issue of whether the respondents were illegally dismissed by Norkis Trading, we answer in the
affirmative, although not by constructive dismissal as declared by the CA, but by actual dismissal.

Where an entity is declared to be a labor-only contractor, the employees supplied by said contractor to
the principal employer become regular employees of the latter. Having gained regular status, the
employees are entitled to security of tenure and can only be dismissed for just or authorized causes and
after they had been afforded due process.66 Termination of employment without just or authorized
cause and without observing procedural due process is illegal.1wphi1

In claiming that they were illegally dismissed from their employment, the respondents alleged having
been informed by PASAKA that they would be transferred, upon the behest of Norkis Trading, as
Multicab washers or utility workers to Porta Coeli, a sister company of Norkis Trading. Norkis Trading
does not dispute that such job transfer was relayed by PASAKA unto the respondents, although the
company contends that the transfer was merely an "offer" that did not constitute a dismissal. It bears
mentioning, however, that the respondents were not given any other option by PASAKA and Norkis
Trading but to accede to said transfer. In fact, there is no showing that Norkis Trading would still
willingly accept the respondents to work for the company. Worse, it still vehemently denies that the
respondents had ever worked for it. Again, all defenses of Norkis Trading that anchor on the alleged lack
of employer-employee relationship between it and the respondents no longer merit any consideration,
given that this Courts findings in G.R. Nos. 180078-79 have become conclusive. Thus, the respondents
transfer to Porta Coeli, although relayed to the respondents by PASAKA was effectively an act of Norkis
Trading. 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. The statute
establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The
contractor is considered merely an agent of the principal employer and the latter is responsible to the
employees of the labor-only contractor as if such employees had been directly employed by the
principal employer.67

No further evidence or document should then be required from the respondents to prove such fact of
dismissal, especially since Norkis Trading maintains that it has no duty to admit and treat said
respondents as its employees. Considering that Porta Coeli is an entity separate and distinct from Norkis
Trading, the respondents employment with Norkis Trading was necessarily severed by the change in
work assignment. It then did not even matter whether or not the transfer involved a demotion in the
respondents rank and work functions; the intention to dismiss, and the actual dismissal of the
respondents were sufficiently established.

In the absence of a clear showing that the respondents dismissal was for just or authorized causes, the
termination of the respondents employment was illegal. What may be reasonably deduced from the
records was that Norkis Trading decided on the transfer, after the respondents had earlier filed their
complaint for labor-only contracting against the company. Even Norkis Tradings contention that the
transfer may be deemed a valid exercise of management prerogative is misplaced. First, the exercise of
management prerogative presupposes that the transfer is only for positions within the business
establishment. Second, the exercise of management prerogative by employers is not absolute, as it is
limited by law and the general principles of fair play and justice.

WHEREFORE, premises considered, the petition is DENIED.

SO ORDERED.

BIENVENIDO L. REYES

Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

Chairperson

TERESITA J. LEONARDO-DE CASTRO

Associate Justice LUCAS P. BERSAMIN

Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion of
the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

1 Penned by Associate Justice francisco P. Acosta, with Associate Justices Arsenio J. Magpale and Agustin
S. Dizon, concurring; rollo, pp. 54-65.

2 Id. at 67-69.

3 Id. at 71.

4 Id. at 72.

5 Id. at 70-79.

6 Id. at 71-72.

7 The other complainants in LSED Case No. RO700-9906-CI-CS-168 were Bernardo Tumulak, Jr., Efren
Dadol, Melecio Bontuyan, Jose Ramil Suico, Constancio Layasan, Renato Montaner, Ronilo Bordario,
Profil Suico and Florencio Capangpangan.
8 Rollo, p. 72.

9 Id. at 83.

10 Id. at 80-82.

11 Id. at 72.

12 Id. at 84-85.

13 Id. at 86-87.

14 Id. at 73.

15 Id. at 91-94.

16 Id. at 106-110.

17 Id. at 210-220.

18 Id. at 219.

19 Id. at 217-218.

20 Id. at 223-239.

21 Id. at 236.

22 Id. at 233.
23 Id. at 234.

24 Id. at 235.

25 Id. at 236.

26 Id. at 237.

27 Id.

28 Id. at 238-239.

29 Id. at 221-222.

30 Id. at 268.

31 Id. at 267-287.

32 Id. at 288-289.

33 Id. at 290-291.

34 Id. at 292-293.

35 Id. at 240-245.

36 Id. at 244.
37 Id. at 245.

38 Id. at 246-247.

39 Id. at 64.

40 Id. at 60-61.

41 Id. at 67-69.

42 Id. at 27-28.

43 Id. at 250-266.

44 Id. at 267-287.

45 Id. at 288-289.

46 Id. at 290-291 and 292-293.

47 Prince Transport, Inc. v. Garcia, G.R. No. 167291, January 12, 2011, 639 SCRA 312, 325, citing Emcor
Incorporated v. Sienes, G.R. No. 152101, September 8, 2009, 598 SCRA 617, 632.

48 G.R. No. 167045, August 29, 2008, 563 SCRA 705.

49 Babas v. Lorenzo Shipping Corporation, G.R. No. 186091, December 15, 2010, 638 SCRA 735, 745-
746, citing Vinoya v. NLRC, 381 Phil. 460, 472-473 (2000).

50 Rollo, pp. 223-239.

51 Id. at 234.

52 Id. at 236-237.

53 Id. at 283-285.

54 Antonio v. Sayman Vda. de Monje, G.R. No. 149624, September 29, 2010, 631 SCRA 471, 479-480,
citing Agustin v. Delos Santos, G.R. No. 168139, January 20, 2009, 576 SCRA 576, 585.

55 Sec. 47. Effects of judgments or final orders. The effect of a judgment or final order rendered by a
court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows:

xxxx

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to
any other matter that could have been raised in relation thereto, conclusive between the parties and
their successors in interest by title subsequent to the commencement of the action or special
proceeding, litigating for the same thing and under the same title and in the same capacity; and

(c) In any other litigation between the same parties or their successors in interest, that only is deemed
to have been adjudged in a former judgment or final order which appears upon its face to have been so
adjudged, or which was actually and necessarily included therein or necessary thereto.

56 Tan v. Court of Appeals, 415 Phil. 675, 681-682 (2001), citing Mata v. Court of Appeals, 376 Phil. 525,
540 (1999).

57 538 Phil. 817 (2006).

58 Id. at 863-864.

59 Rollo, pp. 61-62.

60 Id. at 246-247.

61 Art. 128. Visitorial and enforcement power. (a) The Secretary of Labor and Employment or his duly
authorized representatives, including labor regulation officers, shall have access to employers records
and premises at any time of the day or night whenever work is being undertaken therein, and the right
to copy therefrom, to question any employee and investigate any fact, condition or matter which may
be necessary to determine violations or which may aid in the enforcement of this Code and of any labor
law, wage order or rules and regulations pursuant thereto.

(b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in cases
where the relationship of employer-employee still exists, the Secretary of Labor and Employment or his
duly authorized representatives shall have the power to issue compliance orders to give effect to the
labor standards provisions of this Code and other labor legislation based on the findings of labor
employment and enforcement officers or industrial safety engineers made in the course of inspection.
The Secretary or his duly authorized representatives shall issue writs of execution to the appropriate
authority for the enforcement of their orders, except in cases where the employer contests the findings
of the labor employment and enforcement officer and raises issues supported by documentary proofs
which were not considered in the course of inspection.

An order issued by the duly authorized representative of the Secretary of Labor and Employment under
this Article may be appealed to the latter. In case said order involves a monetary award, an appeal by
the employer may be perfected only upon the posting of a cash or surety bond issued by a reputable
bonding company duly accredited by the Secretary of Labor and Employment in the amount equivalent
to the monetary award in the order appealed from. (As amended by R.A. No. 7730, June 2, 1994).

62 AMA Computer College, Inc. v. Garcia, G.R. No. 166703, April 14, 2008, 551 SCRA 254, 270.

63 Rollo, pp. 246-247.

64 Id. at 80-82.

65 Id. at 103.

66 Supra note 49, at 747.

67 Aliviado v. Procter and Gamble Phils., Inc., G.R. No. 160506, June 6, 2011, 650 SCRA 400, 417, citing
PCI Automation Center, Inc. v. NLRC, 322 Phil. 536, 548 (1996).

The Lawphil Project - Arellano Law Foundation

THIRD DIVISION

COCA-COLA BOTTLERS PHILS., INC., G.R. No. 179546

Petitioner,
Present:

- versus - YNARES-SANTIAGO, J.,

Chairperson,
AUSTRIA-MARTINEZ, ,
ALAN M. AGITO, REGOLO
S. OCA III, ERNESTO G. CHICO-NAZARIO,
ALARIAO, JR., ALFONSO NACHURA, and
PAA, JR., DEMPSTER P.
ONG, URRIQUIA T. ARVIN, PERALTA, JJ.
GIL H. FRANCISCO, and
EDWIN M. GOLEZ,
Respondents.

Promulgated:

February 13, 2009

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

DECISION
CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court,
assailing the Decision[1] dated 19 February 2007, promulgated by the Court of
Appeals in CA-G.R. SP No. 85320, reversing the Resolution[2] rendered on 30
October 2003 by the National Labor Relations Commission (NLRC) in NLRC NCR CA
No. 036494-03. The Court of Appeals, in its assailed Decision, declared that
respondents Alan M. Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso Paa, Jr.,
Dempster P. Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M. Golez were
regular employees of petitioner Coca-Cola Bottlers Phils., Inc; and that Interserve
Management & Manpower Resources, Inc. (Interserve) was a labor-only
contractor, whose presence was intended merely to preclude respondents from
acquiring tenurial security.

Petitioner is a domestic corporation duly registered with the Securities and Exchange
Commission (SEC) and engaged in manufacturing, bottling and distributing soft
drink beverages and other allied products.

On 15 April 2002, respondents filed before the NLRC two complaints against
petitioner, Interserve, Peerless Integrated Services, Inc., Better Builders, Inc., and
Excellent Partners, Inc. for reinstatement with backwages, regularization,
nonpayment of 13th month pay, and damages. The two cases, docketed as NLRC
NCR Case No. 04-02345-2002 and NLRC NCR Case No. 05-03137-02, were
consolidated.
 Respondents alleged in their Position Paper that they were salesmen
assigned at the Lagro Sales Office of petitioner. They had been in the employ of
petitioner for years, but were not regularized. Their employment was terminated
on 8 April 2002without just cause and due process. However, they failed to state
the reason/s for filing a complaint against Interserve; Peerless Integrated Services,
Inc.; Better Builders, Inc.; and Excellent Partners, Inc.[3]

Petitioner filed its Position Paper (with Motion to Dismiss),[4] where it

averred that respondents were employees of Interserve who were tasked to
perform contracted services in accordance with the provisions of the Contract of
Services[5]executed between petitioner and Interserve on 23 March 2002.Said
Contract between petitioner and Interserve, covering the period of 1 April
2002 to 30 September 2002, constituted legitimate job contracting, given that the
latter was a bona fideindependent contractor with substantial capital or
investment in the form of tools, equipment, and machinery necessary in the
conduct of its business.

To prove the status of Interserve as an independent contractor, petitioner

presented the following pieces of evidence: (1) the Articles of Incorporation of
Interserve;[6] (2) the Certificate of Registration of Interserve with the Bureau of
Internal Revenue;[7] (3) the Income Tax Return, with Audited Financial Statements,
of Interserve for 2001;[8] and (4) the Certificate of Registration of Interserve as an
independent job contractor, issued by the Department of Labor and Employment
(DOLE).[9]

As a result, petitioner asserted that respondents were employees of

Interserve, since it was the latter which hired them, paid their wages, and
supervised their work, as proven by: (1) respondents Personal Data Files in the
records of Interserve;[10] (2) respondents Contract of Temporary Employment
with Interserve;[11] and (3) the payroll records of Interserve.[12]
Petitioner, thus, sought the dismissal of respondents complaint against it on the
ground that the Labor Arbiter did not acquire jurisdiction over the same in the
absence of an employer-employee relationship between petitioner and the
respondents.[13]

In a Decision dated 28 May 2003, the Labor Arbiter found that respondents were
employees of Interserve and not of petitioner. She reasoned that the standard put
forth in Article 280 of the Labor Code for determining regular employment (i.e.,
that the employee is performing activities that are necessary and desirable in the
usual business of the employer) was not determinative of the issue of whether an
employer-employee relationship existed between petitioner and
respondents. While respondents performed activities that were necessary and
desirable in the usual business or trade of petitioner, the Labor Arbiter underscored
that respondents functions were not indispensable to the principal business of
petitioner, which was manufacturing and bottling soft drink beverages and similar
products.

The Labor Arbiter placed considerable weight on the fact that Interserve was
registered with the DOLE as an independent job contractor, with total assets
amounting to P1,439,785.00 as of 31 December 2001. It was Interserve that kept
and maintained respondents employee records, including their Personal Data
Sheets; Contracts of Employment; and remittances to the Social Securities System
(SSS), Medicare and Pag-ibig Fund, thus, further supporting the Labor Arbiters
finding that respondents were employees of Interserve. She ruled that the
circulars, rules and regulations which petitioner issued from time to time to
respondents were not indicative of control as to make the latter its employees.

Nevertheless, the Labor Arbiter directed Interserve to pay respondents their

pro-rated 13th month benefits for the period of January 2002 until April 2002.[14]

In the end, the Labor Arbiter decreed:

 WHEREFORE, judgment is hereby rendered finding that [herein respondents] are
employees of [herein petitioner] INTERSERVE MANAGEMENT & MANPOWER
RESOURCES, INC. Concomitantly, respondent Interserve is further ordered to pay
[respondents] their pro-rated 13th month pay.

The complaints against COCA-COLA BOTTLERS PHILS., INC. is DISMISMMED for lack of
merit.

In like manner the complaints against PEERLESS INTEGRATED SERVICES, INC., BETTER
BUILDING INC. and EXCELLENT PARTNERS COOPERATIVE are DISMISSED for failure of
complainants to pursue against them.

Other claims are dismissed for lack of merit.

The computation of the Computation and Examination Unit, this Commission if (sic) made
part of this Decision.[15]

Unsatisfied with the foregoing Decision of the Labor Arbiter, respondents

filed an appeal with the NLRC, docketed as NLRC NCR CA No. 036494-03.

In their Memorandum of Appeal,[16] respondents maintained that contrary

to the finding of the Labor Arbiter, their work was indispensable to the principal
business of petitioner. Respondents supported their claim with copies of the
Delivery Agreement[17] between petitioner and TRMD Incorporated, stating that
petitioner was engaged in the manufacture, distribution and sale of soft drinks and
other related products with various plants and sales offices and warehouses
located all over the Philippines. Moreover, petitioner supplied the tools and
equipment used by respondents in their jobs such as forklifts, pallet, etc.
Respondents were also required to work in the warehouses, sales offices, and
plants of petitioner. Respondents pointed out that, in contrast, Interserve did not
own trucks, pallets cartillas, or any other equipment necessary in the sale of Coca-
Cola products.
 Respondents further averred in their Memorandum of Appeal that petitioner
exercised control over workers supplied by various contractors. Respondents cited
as an example the case of Raul Arenajo (Arenajo), who, just like them, worked for
petitioner, but was made to appear as an employee of the contractor Peerless
Integrated Services, Inc. As proof of control by petitioner, respondents submitted
copies of: (1) a Memorandum[18] dated 11 August 1998 issued by Vicente Dy (Dy),
a supervisor of petitioner, addressed to Arenajo, suspending the latter from work
until he explained his disrespectful acts toward the supervisor who caught him
sleeping during work hours; (2) a Memorandum[19] dated 12 August 1998 again
issued by Dy to Arenajo, informing the latter that the company had taken a more
lenient and tolerant position regarding his offense despite having found cause for
his dismissal; (3) Memorandum[20] issued by Dy to the personnel of Peerless
Integrated Services, Inc., requiring the latter to present their timely request for
leave or medical certificates for their absences; (4) Personnel Workers
Schedules, [21] prepared by RB Chua, another supervisor of petitioner; (5) Daily Sales
Monitoring Report prepared by petitioner;[22] and (6) the Conventional Route
System Proposed Set-up of petitioner. [23]
The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor
Arbiters Decision dated 28 May 2003 and pronounced that no employer-employee
relationship existed between petitioner and respondents. It reiterated the findings
of the Labor Arbiter that Interserve was an independent contractor as evidenced
by its substantial assets and registration with the DOLE. In addition, it was
Interserve which hired and paid respondents wages, as well as paid and remitted
their SSS, Medicare, and Pag-ibig contributions.Respondents likewise failed to
convince the NLRC that the instructions issued and trainings conducted by
petitioner proved that petitioner exercised control over respondents as their
employer.[24] The dispositive part of the NLRC Resolution states:[25]

WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit. However,
respondent Interserve Management & Manpower Resources, Inc., is hereby ordered to
pay the [herein respondents] their pro-rated 13th month pay.
Aggrieved once more, respondents sought recourse with the Court of Appeals by
filing a Petition for Certiorari under Rule 65, docketed as CA-G.R. SP No. 85320.

The Court of Appeals promulgated its Decision on 9 February 2007,

reversing the NLRC Resolution dated 30 October 2003. The appellate court ruled
that Interserve was a labor-only contractor, with insufficient capital and
investments for the services which it was contracted to perform. With
only P510,000.00 invested in its service vehicles and P200,000.00 in its
machineries and equipment, Interserve would be hard-pressed to meet the
demands of daily soft drink deliveries of petitioner in the Lagro area. The Court
Appeals concluded that the respondents used the equipment, tools, and facilities
of petitioner in the day-to-day sales operations.

Additionally, the Court of Appeals determined that petitioner had effective

control over the means and method of respondents work as evidenced by the
Daily Sales Monitoring Report, the Conventional Route System Proposed Set-up,
and the memoranda issued by the supervisor of petitioner addressed to workers,
who, like respondents, were supposedly supplied by contractors. The appellate
court deemed that the respondents, who were tasked to deliver, distribute, and
sell Coca-Cola products, carried out functions directly related and necessary to
the main business of petitioner. The appellate court finally noted that certain
provisions of the Contract of Service between petitioner and Interserve suggested
that the latters undertaking did not involve a specific job, but rather the supply of
manpower.

The decretal portion of the Decision of the Court of Appeals reads:[26]

WHEREFORE, the petition is GRANTED. The assailed Resolutions of public respondent

NLRC are REVERSED and SET ASIDE. The case is remanded to the NLRC for further
proceedings.
 Petitioner filed a Motion for Reconsideration, which the Court of Appeals
denied in a Resolution, dated 31 August 2007.[27]

Hence, the present Petition, in which the following issues are raised[28]:

WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH EVIDENCE ON

RECORD, APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT RULED THAT
INTERSERVE IS A LABOR-ONLY CONTRACTOR;

II

WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH APPLICABLE

LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT CONCLUDED THAT RESPONDENTS
PERFORMED WORK NECESSARY AND DESIRABLE TO THE BUSINESS OF [PETITIONER];

III

WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT

DECLARED THAT RESPONDENTS WERE EMPLOYEES OF [PETITIONER], EVEN ABSENT THE
FOUR ELEMENTS INDICATIVE OF AN EMPLOYMENT RELATIONSHIP; AND

IV

WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT CONCLUDED

THAT INTERSERVE WAS ENGAGED BY [PETITIONER] TO SUPPLY MANPOWER ONLY.
 The Court ascertains that the fundamental issue in this case is whether
Interserve is a legitimate job contractor. Only by resolving such issue will the Court
be able to determine whether an employer-employee relationship exists between
petitioner and the respondents. To settle the same issue, however, the Court must
necessarily review the factual findings of the Court of Appeals and look into the
evidence presented by the parties on record.

As a general rule, factual findings of the Court of Appeals are binding upon
the Supreme Court. One exception to this rule is when the factual findings of the
former are contrary to those of the trial court, or the lower administrative body, as
the case may be. This Court is obliged to resolve an issue of fact herein due to the
incongruent findings of the Labor Arbiter and the NLRC and those of the Court of
Appeals. [29]

The relations which may arise in a situation, where there is an employer, a

contractor, and employees of the contractor, are identified and distinguished
under Article 106 of the Labor Code:

Article 106. Contractor or subcontractor. - Whenever an employer enters into a

contract with another person for the performance of the formers work, the employees of
the contractor and of the latters subcontractor, if any, shall be paid in accordance with the
provisions of this Code.

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

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the

contracting out of labor to protect the rights of workers established under this Code. In so
prohibiting or restriction, 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 employee

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.

The afore-quoted provision recognizes two possible relations among the

parties: (1) the permitted legitimate job contract, or (2) the prohibited labor-only
contracting.

A legitimate job contract, wherein an employer enters into a contract with a

job contractor for the performance of the formers work, is permitted by law. Thus,
the employer-employee relationship between the job contractor and his
employees is maintained. In legitimate job contracting, the law creates an
employer-employee relationship between the employer and the contractors
employees only for a limited purpose, i.e., to ensure that the employees are paid
their wages. The 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 employer is not responsible for any claim
made by the contractors employees.[30]

On the other hand, labor-only contracting is an arrangement wherein the

contractor merely acts as an agent in recruiting and supplying the principal
employer with workers for the purpose of circumventing labor law provisions
setting down the rights of employees. It is not condoned by law. A finding by the
appropriate authorities that a contractor is a labor-only contractor establishes an
employer-employee relationship between the principal employer and the
contractors employees and the former becomes solidarily liable for all the rightful
claims of the employees. [31]

Section 5 of the Rules Implementing Articles 106-109 of the Labor Code, as

amended, provides the guidelines in determining whether labor-only contracting
exists:

Section 5. Prohibition against labor-only contracting.Labor-only contracting is

hereby declared prohibited. For this purpose, labor-only contracting shall refer to an
arrangement where the contractor or subcontractor merely recruits, supplies, or places
workers to perform a job, work or service for a principal, and any of the following elements
are [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 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 reversed to the person for whom the
services of the contractual workers are performed, to determine not only the end to be
achieved, but also the manner and means to be used in reaching that end. (Emphasis
supplied.)
 When there is labor-only contracting, Section 7 of the same implementing
rules, describes the consequences thereof:

Section 7. Existence of an employer-employee relationship.The contractor or

subcontractor shall be considered the employer of the contractual employee for purposes
of enforcing the provisions of the Labor Code and other social legislation. The principal,
however, shall be solidarily liable with the contractor in the event of any violation of any
provision of the Labor Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of
the following case, as declared by a competent authority:

a. where there is labor-only contracting; or

b. where the contracting arrangement falls within the prohibitions provided

in Section 6 (Prohibitions) hereof.

According to the foregoing provision, labor-only contracting would give rise

to: (1) the creation of an employer-employee relationship between the principal
and the employees of the contractor or sub-contractor; and (2) the solidary liability
of the principal and the contractor to the employees in the event of any violation
of the Labor Code.

Petitioner argues that there could not have been labor-only contracting, since
respondents did not perform activities that were indispensable to petitioners
principal business. And, even assuming that they did, such fact alone does not
establish an employer-employee relationship between petitioner and the
respondents, since respondents were unable to show that petitioner exercised the
power to select and hire them, pay their wages, dismiss them, and control their
conduct.
 The argument of petitioner is untenable.

The law clearly establishes an employer-employee relationship between the

principal employer and the contractors employee upon a finding that the contractor
is engaged in labor-only contracting. Article 106 of the Labor Code categorically
states: There is labor-only contracting where the person supplying workers to an
employee 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. Thus, performing activities directly related to
the principal business of the employer is only one of the two indicators that labor-
only contracting exists; the other is lack of substantial capital or investment. The
Court finds that both indicators exist in the case at bar.

Respondents worked for petitioner as salesmen, with the exception of

respondent Gil Francisco whose job was designated as leadman. In the Delivery
Agreement[32]between petitioner and TRMD Incorporated, it is stated that
petitioner is engaged in the manufacture, distribution and sale of softdrinks and
other related products. The work of respondents, constituting distribution and sale
of Coca-Cola products, is clearly indispensable to the principal business of
petitioner. The repeated re-hiring of some of the respondents supports this
finding.[33] Petitioner also does not contradict respondents allegations that the
former has Sales Departments and Sales Offices in its various offices, plants, and
warehouses; and that petitioner hires Regional Sales Supervisors and District Sales
Supervisors who supervise and control the salesmen and sales route helpers.[34]

As to the supposed substantial capital and investment required of an

independent job contractor, petitioner calls the attention of the Court to the
authorized capital stock of Interserve amounting to P2,000,000.00.[35] It cites as
authority Filipinas Synthetic Fiber Corp. v. National Labor Relations
Commission[36] and Frondozo v. National Labor Relations Commission,[37] where the
contractors authorized capital stock of P1,600,000.00 and P2,000,000.00,
respectively, were considered substantial for the purpose of concluding that they
were legitimate job contractors. Petitioner also refers to Neri v. National Labor
Relations Commission[38] where it was held that a contractor ceases to be a labor-
only contractor by having substantial capital alone, without investment in tools and
equipment.

This Court is unconvinced.

At the outset, the Court clarifies that although Interserve has an authorized
capital stock amounting to P2,000,000.00, only P625,000.00 thereof was paid up as
of 31 December 2001.The Court does not set an absolute figure for what it
considers substantial capital for an independent job contractor, but it measures the
same against the type of work which the contractor is obligated to perform for the
principal. However, this is rendered impossible in this case since the Contract
between petitioner and Interserve does not even specify the work or the project
that needs to be performed or completed by the latters employees, and uses the
dubious phrase tasks and activities that are considered contractible under existing
laws and regulations. Even in its pleadings, petitioner carefully sidesteps identifying
or describing the exact nature of the services that Interserve was obligated to
render to petitioner.The importance of identifying with particularity the work or
task which Interserve was supposed to accomplish for petitioner becomes even
more evident, considering that theArticles of Incorporation of Interserve states
that its primary purpose is to operate, conduct, and maintain the business of
janitorial and allied services.[39] But respondents were hired as salesmen and
leadman for petitioner. The Court cannot, under such ambiguous circumstances,
make a reasonable determination if Interserve had substantial capital or
investment to undertake the job it was contracting with petitioner.

Petitioner cannot seek refuge in Neri v. National Labor Relations

Commission. Unlike in Neri, petitioner was unable to prove in the instant case that
Interserve had substantial capitalization to be an independent job
contractor. In San Miguel Corporation v. MAERC Integrated Services, Inc.,[40]therein
petitioner San Miguel Corporation similarly invoked Neri, but was rebuffed by the
Court based on the following ratiocination[41]:
 Petitioner also ascribes as error the failure of the Court of Appeals to apply the
ruling in Neri v. NLRC. In that case, it was held that the law did not require one to possess
both substantial capital and investment in the form of tools, equipment, machinery, work
premises, among others, to be considered a job contractor. The second condition to
establish permissible job contracting was sufficiently met if one possessed either attribute.

Accordingly, petitioner alleged that the appellate court and the NLRC erred when
they declared MAERC a labor-only contractor despite the finding that MAERC had
investments amounting to P4,608,080.00 consisting of buildings, machinery and
equipment.

However, in Vinoya v. NLRC, we clarified that it was not enough to show substantial
capitalization or investment in the form of tools, equipment, machinery and work premises,
etc., to be considered an independent contractor.In fact, jurisprudential holdings were to
the effect that in determining the existence of an independent contractor relationship,
several factors may be considered, such as, but not necessarily confined to, whether the
contractor was carrying on an independent business; the nature and extent of the work;
the skill required; the term and duration of the relationship; the right to assign the
performance of specified pieces of work; the control and supervision of the workers; the
power of the employer with respect to the hiring, firing and payment of the workers of the
contractor; the control of the premises; the duty to supply premises, tools, appliances,
materials and labor; and the mode, manner and terms of payment.

In Neri, the Court considered not only the fact that respondent Building Care
Corporation (BCC) had substantial capitalization but noted that BBC carried on an
independent business and performed its contract according to its own manner and method,
free from the control and supervision of its principal in all matters except as to the results
thereof. The Court likewise mentioned that the employees of BCC were engaged to perform
specific special services for their principal. The status of BCC had also been passed upon by
the Court in a previous case where it was found to be a qualified job contractor because it
was a big firm which services among others, a university, an international bank, a big local
bank, a hospital center, government agencies, etc. Furthermore, there were only two (2)
complainants in that case who were not only selected and hired by the contractor before
being assigned to work in the Cagayan de Oro branch of FEBTC but the Court also found
that the contractor maintained effective supervision and control over them.
 Thus, in San Miguel Corporation, the investment of MAERC, the contractor
therein, in the form of buildings, tools, and equipment of more than P4,000,000.00
did not impress the Court, which still declared MAERC to be a labor-only
contractor. In another case, Dole Philippines, Inc. v. Esteva,[42]the Court did not
recognize the contractor therein as a legitimate job contractor, despite its paid-up
capital of over P4,000,000.00, in the absence of substantial investment in tools and
equipment used in the services it was rendering.

Insisting that Interserve had substantial investment, petitioner assails, for

being purely speculative, the finding of the Court of Appeals that the service
vehicles and equipment of Interserve, with the values of P510,000.00
and P200,000.00, respectively, could not have met the demands of the Coca-Cola
deliveries in the Lagro area.

Yet again, petitioner fails to persuade.

The contractor, not the employee, has the burden of proof that it has the
substantial capital, investment, and tool to engage in job contracting.[43] Although
not the contractor itself (since Interserve no longer appealed the judgment against
it by the Labor Arbiter), said burden of proof herein falls upon petitioner who is
invoking the supposed status of Interserve as an independent job
contractor. Noticeably, petitioner failed to submit evidence to establish that the
service vehicles and equipment of Interserve, valued at P510,000.00
and P200,000.00, respectively, were sufficient to carry out its service contract with
petitioner. Certainly, petitioner could have simply provided the courts with records
showing the deliveries that were undertaken by Interserve for the Lagro area, the
type and number of equipment necessary for such task, and the valuation of such
equipment. Absent evidence which a legally compliant company could have easily
provided, the Court will not presume that Interserve had sufficient investment in
service vehicles and equipment, especially since respondents allegation that they
were using equipment, such as forklifts and pallets belonging to petitioner, to carry
out their jobs was uncontroverted.
 In sum, Interserve did not have substantial capital or investment in the form
of tools, equipment, machineries, and work premises; and respondents, its
supposed employees, performed work which was directly related to the principal
business of petitioner. It is, thus, evident that Interserve falls under the definition
of a labor-only contractor, under Article 106 of the Labor Code; as well as Section
5(i) of the Rules Implementing Articles 106-109 of the Labor Code, as amended.

The Court, however, does not stop at this finding. It is also apparent that
Interserve is a labor-only contractor under Section 5(ii)[44] of the Rules
Implementing Articles 106-109 of the Labor Code, as amended, since it did not
exercise the right to control the performance of the work of respondents.

The lack of control of Interserve over the respondents can be gleaned from
the Contract of Services between Interserve (as the CONTRACTOR) and petitioner
(as the CLIENT), pertinent portions of which are reproduced below:

WHEREAS, the CONTRACTOR is engaged in the business, among others, of

performing and/or undertaking, managing for consideration, varied projects, jobs and other
related management-oriented services;

WHEREAS, the CONTRACTOR warrants that it has the necessary capital, expertise,
technical know-how and a team of professional management group and personnel to
undertake and assume the responsibility to carry out the above mentioned project and
services;

WHEREAS, the CLIENT is desirous of utilizing the services and facilities of the
CONTRACTOR for emergency needs, rush jobs, peak product loads, temporary, seasonal
and other special project requirements the extent that the available work of the CLIENT can
properly be done by an independent CONTRACTOR permissible under existing laws and
regulations;
 WHEREAS, the CONTRACTOR has offered to perform specific jobs/works at the
CLIENT as stated heretofore, under the terms and conditions herein stated, and the CLIENT
has accepted the offer.

NOW THEREFORE, for and in consideration of the foregoing premises and of the
mutual covenants and stipulations hereinafter set forth, the parties have hereto have stated
and the CLIENT has accepted the offer:

1. The CONTRACTOR agrees and undertakes to perform and/or provide for the
CLIENT, on a non-exclusive basis for tasks or activities that are considered contractible
under existing laws and regulations, as may be needed by the CLIENT from time to time.

2. To carry out the undertakings specified in the immediately preceding paragraph,

the CONTRACTOR shall employ the necessary personnel like Route Helpers, Salesmen,
Drivers, Clericals, Encoders & PD who are at least Technical/Vocational courses graduates
provided with adequate uniforms and appropriate identification cards, who are warranted
by the CONTRACTOR to be so trained as to efficiently, fully and speedily accomplish the
work and services undertaken herein by the CONTRACTOR. The CONTRACTOR represents
that its personnel shall be in such number as will be sufficient to cope with the requirements
of the services and work herein undertaken and that such personnel shall be physically fit,
of good moral character and has not been convicted of any crime. The CLIENT, however,
may request for the replacement of the CONTRACTORS personnel if from its judgment, the
jobs or the projects being done could not be completed within the time specified or that
the quality of the desired result is not being achieved.

3. It is agreed and understood that the CONTRACTORS personnel will comply with
CLIENT, CLIENTS policies, rules and regulations and will be subjected on-the-spot search by
CLIENT, CLIENTS duly authorized guards or security men on duty every time the assigned
personnel enter and leave the premises during the entire duration of this agreement.

4. The CONTRACTOR further warrants to make available at times relievers and/or

replacements to ensure continuous and uninterrupted service as in the case of absences of
any personnel above mentioned, and to exercise the necessary and due supervision over
the work of its personnel.[45]
 Paragraph 3 of the Contract specified that the personnel of contractor
Interserve, which included the respondents, would comply with CLIENT as well as
CLIENTs policies, rules and regulations. It even required Interserve personnel to
subject themselves to on-the-spot searches by petitioner or its duly authorized
guards or security men on duty every time the said personnel entered and left the
premises of petitioner. Said paragraph explicitly established the control of
petitioner over the conduct of respondents. Although under paragraph 4 of the
same Contract, Interserve warranted that it would exercise the necessary and due
supervision of the work of its personnel, there is a dearth of evidence to
demonstrate the extent or degree of supervision exercised by Interserve over
respondents or the manner in which it was actually exercised.There is even no
showing that Interserve had representatives who supervised respondents work
while they were in the premises of petitioner.

Also significant was the right of petitioner under paragraph 2 of the Contract
to request the replacement of the CONTRACTORS personnel. True, this right was
conveniently qualified by the phrase if from its judgment, the jobs or the projects
being done could not be completed within the time specified or that the quality of
the desired result is not being achieved, but such qualification was rendered
meaningless by the fact that the Contract did not stipulate what work or job the
personnel needed to complete, the time for its completion, or the results
desired. The said provision left a gap which could enable petitioner to demand the
removal or replacement of any employee in the guise of his or her inability to
complete a project in time or to deliver the desired result. The power to
recommend penalties or dismiss workers is the strongest indication of a companys
right of control as direct employer.[46]

Paragraph 4 of the same Contract, in which Interserve warranted to

petitioner that the former would provide relievers and replacements in case of
absences of its personnel, raises another red flag. An independent job contractor,
who is answerable to the principal only for the results of a certain work, job, or
service need not guarantee to said principal the daily attendance of the workers
assigned to the latter. An independent job contractor would surely have the
discretion over the pace at which the work is performed, the number of employees
required to complete the same, and the work schedule which its employees need
to follow.

As the Court previously observed, the Contract of Services between

Interserve and petitioner did not identify the work needed to be performed and
the final result required to be accomplished. Instead, the Contract specified the
type of workers Interserve must provide petitioner (Route Helpers, Salesmen,
Drivers, Clericals, Encoders & PD) and their qualifications (technical/vocational
course graduates, physically fit, of good moral character, and have not been
convicted of any crime). The Contract also states that, to carry out the undertakings
specified in the immediately preceding paragraph, the CONTRACTOR shall employ
the necessary personnel, thus, acknowledging that Interserve did not yet have in
its employ the personnel needed by petitioner and would still pick out such
personnel based on the criteria provided by petitioner. In other words, Interserve
did not obligate itself to perform an identifiable job, work, or service for petitioner,
but merely bound itself to provide the latter with specific types of
employees. These contractual provisions strongly indicated that Interserve was
merely a recruiting and manpower agency providing petitioner with workers
performing tasks directly related to the latters principal business.

The certification issued by the DOLE stating that Interserve is an independent

job contractor does not sway this Court to take it at face value, since the primary
purpose stated in the Articles of Incorporation[47] of Interserve is
misleading.According to its Articles of Incorporation, the principal business of
Interserve is to provide janitorial and allied services. The delivery and distribution
of Coca-Cola products, the work for which respondents were employed and
assigned to petitioner, were in no way allied to janitorial services. While the DOLE
may have found that the capital and/or investments in tools and equipment of
Interserve were sufficient for an independent contractor for janitorial services, this
does not mean that such capital and/or investments were likewise sufficient to
maintain an independent contracting business for the delivery and distribution of
Coca-Cola products.
 With the finding that Interserve was engaged in prohibited labor-only
contracting, petitioner shall be deemed the true employer of respondents. As
regular employees of petitioner, respondents cannot be dismissed except for just
or authorized causes, none of which were alleged or proven to exist in this case,
the only defense of petitioner against the charge of illegal dismissal being that
respondents were not its employees.Records also failed to show that petitioner
afforded respondents the twin requirements of procedural due process, i.e., notice
and hearing, prior to their dismissal. Respondents were not served notices
informing them of the particular acts for which their dismissal was sought. Nor
were they required to give their side regarding the charges made against
them.Certainly, the respondents dismissal was not carried out in accordance with
law and, therefore, illegal.[48]

Given that respondents were illegally dismissed by petitioner, they are entitled
to reinstatement, full backwages, inclusive of allowances, and to their other benefits
or the monetary equivalents thereof computed from the time their compensations
were withheld from them up to the time of their actual reinstatement, as
mandated under Article 279 of the Labor Code,.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The
Court AFFIRMS WITH MODIFICATION the Decision dated 19 February 2007 of the
Court of Appeals in CA-G.R. SP No. 85320. The Court DECLARES that respondents
were illegally dismissed and, accordingly, ORDERS petitioner to reinstate them
without loss of seniority rights, and to pay them full back wages computed from the
time their compensation was withheld up to their actual reinstatement. Costs
against the petitioner.
 SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

DIOSDADO M. PERALTA
 Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
 REYNATO S. PUNO
Chief Justice

[1]
Penned by Associate Justice Rosalinda Asuncion-Vicente with Associate Justices Elvi John S. Asuncion and Enrico
M. Lanzanas, concurring. Rollo, pp. 57-69.
[2]
Rollo, pp. 152-157.
[3]
Id. at 236-242.
[4]
CA rollo, pp. 55-69.
[5]
Id. at 71-76.
[6]
Id. at 78-87.
[7]
Id. at 88.
[8]
Id. at 89-93.
[9]
Id. at 131.
[10]
Id. at 94, 97, 100, 103, 106, 109. Only six Personal Data Files were attached to the Position Paper. Personal Data
Files of two of the respondents, Alfonso Paa, Jr. and Edwin Golez, were not submitted.
[11]
Id at 95-96, 98-99, 101-102, 104-405, 107-108, 110-111. Only six Contracts of Temporary Employment were
attached to the Position Paper. The Contracts for Temporary Employment of two of the respondents, Alfonso
Paa, Jr. and Edwin Golez, were not submitted.
[12]
Id. at 112-130.
[13]
Id. at 66-69.
[14]
Rollo, pp. 134-149.
[15]
Id. at 149-150.
[16]
CA rollo, pp. 150-170.
[17]
Id. at 186.
[18]
Id. at 193.
[19]
Id. at 194.
[20]
Id. at 195.
[21]
Id. at 201-202.
[22]
Id. at 196.
[23]
Id. at 197.
[24]
Rollo, pp.152-156.
[25]
Id. at 156.
[26]
Id. at 57-68.
[27]
CA rollo, pp. 456-457.
[28]
Rollo, p. 330.
[29]
Filipinas Pre-Fabricated Building Systems (Filsystems), Inc. v. Puente, G.R. No. 153832, 18 March 2005, 453
SCRA 820, 826.
[30]
San Miguel Corporation v. MAERC Integrated Services, Inc., 453 Phil. 543, 566-567 (2003).
[31]
Id. at 567.
[32]
Rollo, p. 199.
[33]
Based on respondents Personal Data files, which were kept by Interserve, respondent Regolo Oca worked in Coca-
Cola in September 2000 as a salesman and his contract was renewed three more times until he was dismissed
in April 2002. Respondent Ernesto Alario worked in Coca-Cola in October 2001, and his contract was
renewed one more time before his dismissal in April 2002. Respondent Gil Francisco worked in Coca-cola
as a Driver on August 1998 and later on as leadman in December 1998, and his contract was renewed until
he was dismissed in April 2002.Respondent Arvin Urquia worked as a salesman in Coca-Cola in October
 2001, and his contract was renewed in February 2002 until he was dismissed in April 2002. Lastly,
respondent Alan Agito worked in Coca-Cola as salesman in May 2002, and his contract was renewed until
he was dismissed in April 2002. (CA rollo, pp. 94, 97, 100, 103, 106, and 109.)
[34]
Rollo, p. 283.
[35]
Id. at 331-338.
[36]
327 Phil. 144 (1996).
[37]
CA-G.R. SP No. 102442, 30 May 2008.
[38]
G.R. Nos. 97008-09, 23 July 1993, 224 SCRA 717.
[39]
CA rollo, p. 78.
[40]
Supra note 30.
[41]
Id. at 564-566.
[42]
G.R. No. 161115, 30 November 2006, 509 SCRA 332, 353 and 377.
[43]
Aboitiz Haulers, Inc. v. Dimapatoi, G.R. No. 148619, 19 September 2006, 502 SCRA 271, 289; Guarin v. National
Labor Relations Commission, G.R. No. 86010, 3 October 1989, 178 SCRA 267, 273.
[44]
According to Section 5 of the Rules Implementing Articles 106-109, as amended:

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

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

The use of the words any and or in the foregoing provision means that the elements of labor-only contracting
identified therein need not exist concurrently. The existence of one element is sufficient to establish labor-only
contracting.
[45]
Rollo, pp. 74-75.
[46]
Brotherhood Labor Unity Movement of the Philippines v. Zamora, G.R. No. L-48645, 7 January 1987, 147
SCRA 49, 59.
[47]
CA rollo, p. 78.
[48]
Abesco Construction and Development Corporation v. Ramirez, G.R. No. 141168, 10 April 2006, 487 SCRA 9,
15; Grandspan Development Corporation v. Bernardo, G.R. No. 141464, 21 September 2005, 470 SCRA
461, 470; Raycor Aircontrol Systems, Inc. v. National Labor Relations Commission, 330 Phil. 306, 334
(1996).

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION
 EMMANUEL BABAS, DANILO T. BANAG, G.R. No. 186091
ARTURO V. VILLARIN, SR., EDWIN JAVIER,
SANDI BERMEO, REX ALLESA, MAXIMO
Present:
SORIANO, JR., ARSENIO ESTORQUE, and
FELIXBERTO ANAJAO,
Petitioners, CARPIO, J.
Chairperson,
NACHURA,

- versus - PERALTA,
DEL CASTILLO,* and
MENDOZA, JJ.

LORENZO SHIPPING CORPORATION,

Respondent. Promulgated:

December 15, 2010

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

DECISION

NACHURA, J.:

Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier,
Sandi Bermeo, Rex Allesa, Maximo Soriano, Jr., Arsenio Estorque, and Felixberto
Anajao appeal by certiorari under Rule 45 of the Rules of Court the October 10,
2008 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP. No. 103804, and the
January 21, 2009 Resolution,[2] denying its reconsideration.

Respondent Lorenzo Shipping Corporation (LSC) is a duly organized domestic

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

Simultaneous with the execution of the Agreement, LSC leased its equipment,
tools, and tractors to BMSI.[4] The period of lease was coterminous with
the Agreement.

BMSI then hired petitioners on various dates to work at LSC as checkers, welders,
utility men, clerks, forklift operators, motor pool and machine shop workers,
technicians, trailer drivers, and mechanics. Six years later, or on May 1, 2003, LSC
entered into another contract with BMSI, this time, a service contract.[5]

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint
for regularization against LSC and BMSI. On October 1, 2003, LSC terminated
the Agreement, effective October 31, 2003. Consequently, petitioners lost their
employment.

BMSI asserted that it is an independent contractor. It averred that it was

willing to regularize petitioners; however, some of them lacked the requisite
qualifications for the job.BMSI was willing to reassign petitioners who were willing
to accept reassignment. BMSI denied petitioners claim for underpayment of wages
and non-payment of 13th month pay and other benefits.

LSC, on the other hand, averred that petitioners were employees of BMSI and were
assigned to LSC by virtue of the Agreement. BMSI is an independent job contractor
with substantial capital or investment in the form of tools, equipment, and
machinery necessary in the conduct of its business. The Agreement between LSC
and BMSI constituted legitimate job contracting. Thus, petitioners were employees
of BMSI and not of LSC.

After due proceedings, the LA rendered a decision[6]dismissing petitioners

complaint. The LA found that petitioners were employees of BMSI. It was BMSI
which hired petitioners, paid their wages, and exercised control over them.

Petitioners appealed to the National Labor Relations Commission (NLRC), arguing

that BMSI was engaged in labor-only contracting. They insisted that their employer
was LSC.

On January 16, 2008, the NLRC promulgated its decision.[7]Reversing the LA, the
NLRC held:

We find from the records of this case that respondent BMSI is not
engaged in legitimate job contracting.

First, respondent BMSI has no equipment, no office premises, no capital

and no investments as shown in the Agreement itself which states:

xxxx
 VI. RENTAL OF EQUIPMENT

[6.01.] That the CLIENT has several forklifts and truck

tractor, and has offered to the CONTRACTOR
the use of the same by way of lease, the
monthly rental of which shall be deducted from
the total monthly billings of the CONTRACTOR
for the services covered by this Agreement.

6.02. That the CONTRACTOR has agreed to rent the CLIENTs

forklifts and truck tractor.

6.03. The parties herein have agreed to execute a

Contract of Lease for the forklifts and truck
tractor that will be rented by the
CONTRACTOR. (p. 389, Records)
True enough, parties signed a Lease Contract (p. 392, Records)
wherein respondent BMSI leased several excess equipment of LSC to
enable it to discharge its obligation under the Agreement. So without the
equipment which respondent BMSI leased from respondent LSC, the
former would not be able to perform its commitments in the Agreement.

In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme Court held:

x x x. The phrase substantial capital and investment in the

form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his
business, in the Implementing Rules clearly contemplates
tools, equipment, etc., which are directly related to the
service it is being contracted to render. One who does not
have an independent business for undertaking the job
 contracted for is just an agent of the employer.
(underscoring ours)

Second, respondent BMSI has no independent business or activity or job

to perform in respondent LSC free from the control of respondent LSC
except as to the results thereof.In view of the absence of such
independent business or activity or job to be performed by respondent
BMSI in respondent LSC [petitioners] performed work that was necessary
and desirable to the main business of respondent LSC. Respondents were
not able to refute the allegations of [petitioners] that they performed the
same work that the regular workers of LSC performed and they stood
side by side with regular employees of respondent LSC performing the
same work. Necessarily, the control on the manner and method of doing
the work was exercised by respondent LSC and not by respondent BMSI
since the latter had no business of its own to perform in respondent LSC.

Lastly, respondent BMSI has no other client but respondent LSC. If

respondent BMSI were a going concern, it would have other clients to
which to assign [petitioners] after its Agreement with LSC expired. Since
there is only one client, respondent LSC, it is easy to conclude that
respondent BMSI is a mere supplier of labor.

After concluding that respondent BMSI is engaged in prohibited labor-

only contracting, respondent LSC became the employer of [petitioners]
pursuant to DO 18-02.

[Petitioners] therefore should be reinstated to their former positions or

equivalent positions in respondent LSC as regular employees with full
backwages and other benefits without loss of seniority rights from
October 31, 2003, when they lost their jobs, until actual reinstatement
(Vinoya v. NLRC, 324 SCRA 469). If reinstatement is not feasible,
[petitioners] then should be paid separation pay of one month pay for
 every year of service or a fraction of six months to be considered as one
year, in addition to full backwages.

Concerning [petitioners] prayer to be paid wage differentials and

benefits under the CBA, We have no doubt that [petitioners] would be
entitled to them if they are covered by the said CBA. For this purpose,
[petitioners] should first enlist themselves as union members if they so
desire, or pay agency fee. Furthermore, only [petitioners] who signed the
appeal memorandum are covered by this Decision. As regards the other
complainants who did not sign the appeal, the Decision of the Labor
Arbiter dismissing this case became final and executory.[8]

The NLRC disposed thus:

WHEREFORE, the appeal of [petitioners] is GRANTED. The Decision of the

Labor Arbiter is hereby REVERSED, and a NEW ONE rendered finding
respondent Best Manpower Services, Inc. is engaged in prohibited labor-
only-contracting and finding respondent Lorenzo Shipping Corp. as the
employer of the following [petitioners]:

1. Emmanuel B. Babas
2. Danilo Banag
3. Edwin L. Javier
4. Rex Allesa
5. Arturo Villarin, [Sr.]
6. Felixberto C. Anajao
7. Arsenio Estorque
8. Maximo N. Soriano, Jr.
 9. Sandi G. Bermeo

Consequently, respondent Lorenzo Shipping Corp. is ordered to reinstate

[petitioners] to their former positions as regular employees and pay their
wage differentials and benefits under the CBA.

If reinstatement is not feasible, both respondents Lorenzo Shipping Corp.

and Best Manpower Services are adjudged jointly and solidarily to pay
[petitioners] separation pay of one month for every year of service, a
fraction of six months to be considered as one year.

In addition, respondent LSC and BMSI are solidarily liable to pay

[petitioners] full backwages from October 31, 2003 until actual
reinstatement or, if reinstatement is not feasible, until finality of this
Decision.

Respondent LSC and respondent BMSI are likewise adjudged to be

solidarily liable for attorneys fees equivalent to ten (10%) of the total
monetary award.

xxxx

SO ORDERED.[9]

LSC went to the CA via certiorari. On October 10, 2008, the CA rendered the now
challenged Decision,[10] reversing the NLRC. In holding that BMSI was an
independent contractor, the CA relied on the provisions of the Agreement, wherein
BMSI warranted that it is an independent contractor, with adequate capital,
expertise, knowledge, equipment, and personnel necessary for the services
rendered to LSC.According to the CA, the fact that BMSI entered into a contract of
lease with LSC did not ipso facto make BMSI a labor-only contractor; on the
contrary, it proved that BMSI had substantial capital. The CA was of the view that
the law only required substantial capital or investment. Since BMSI had substantial
capital, as shown by its ability to pay rents to LSC, then it qualified as an
independent contractor. It added that even under the control test, BMSI would be
the real employer of petitioners, since it had assumed the entire charge and control
of petitioners services. The CA further held that BMSIs Certificate of Registration
as an independent contractor was sufficient proof that it was an independent
contractor. Hence, the CA absolved LSC from liability and instead held BMSI as
employer of petitioners.

The fallo of the CA Decision reads:

WHEREFORE, premises considered, the instant petition is GRANTED and

the assailed decision and resolution of public respondent NLRC
are REVERSED and SET ASIDE.Consequently, the decision of the Labor
Arbiter dated September 29, 2004 is REINSTATED.

SO ORDERED.[11]

Petitioners filed a motion for reconsideration, but the CA denied it on

January 21, 2009.[12]

Hence, this appeal by petitioners, positing that:

THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE CLEAR

EVIDENCE OF RECORD THAT RESPONDENT WAS ENGAGED IN LABOR-
 ONLY CONTRACTING TO DEFEAT PETITIONERS RIGHT TO SECURITY OF
TENURE.[13]

Before resolving the petition, we note that only seven (7) of the nine
petitioners signed the Verification and Certification.[14] Petitioners Maximo
Soriano, Jr. (Soriano) and Felixberto Anajao (Anajao) did not sign the Verification
and Certification, because they could no longer be located by their co-
petitioners.[15]
In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v.
National Labor Relations Commission,[16]citing Loquias v. Office of the
Ombudsman,[17] we stated that the petition satisfies the formal requirements only
with regard to the petitioner who signed the petition, but not his co-petitioner who
did not sign nor authorize the other petitioner to sign it on his behalf. Thus, the
petition can be given due course only as to the parties who signed it. The other
petitioners who did not sign the verification and certificate against forum shopping
cannot be recognized as petitioners and have no legal standing before the Court.
The petition should be dismissed outright with respect to the non-conforming
petitioners.

Thus, we dismiss the petition insofar as petitioners Soriano and Anajao are
concerned.

Petitioners vigorously insist that they were employees of LSC; and that BMSI
is not an independent contractor, but a labor-only contractor. LSC, on the other
hand, maintains that BMSI is an independent contractor, with adequate capital and
investment. LSC capitalizes on the ratiocination made by the CA.

In declaring BMSI as an independent contractor, the CA, in the challenged

Decision, heavily relied on the provisions of the Agreement, wherein BMSI declared
that it was an independent contractor, with substantial capital and investment.
 De Los Santos v. NLRC[18] instructed us that the character of the business, i.e.,
whether as labor-only contractor or as job contractor, should

be measured in terms of, and determined by, the criteria set by statute. The parties
cannot dictate by the mere expedience of a unilateral declaration in a contract the
character of their business.

In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito

Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,[19] this
Court explained:

Despite the fact that the service contracts contain stipulations

which are earmarks of independent contractorship, they do not make it
legally so. The language of a contract is neither determinative nor
conclusive of the relationship between the parties. Petitioner SMC and
AMPCO cannot dictate, by a declaration in a contract, the character of
AMPCO's business, that is, whether as labor-only contractor, or job
contractor. AMPCO's character should be measured in terms of, and
determined by, the criteria set by statute.

Thus, in distinguishing between prohibited labor-only contracting and

permissible job contracting, the totality of the facts and the surrounding
circumstances of the case are to be considered.

Labor-only contracting, a prohibited act, is an arrangement where the

contractor or subcontractor merely recruits, supplies, or places workers to perform
a job, work, or service for a principal. In labor-only contracting, the following
elements are present: (a) the contractor or subcontractor does not have
substantial capital or investment to actually perform the job, work, or service under
its own account and responsibility; and (b) the employees recruited, supplied, or
placed by such contractor or subcontractor perform activities which are directly
related to the main business of the principal.[20]

On the other hand, permissible job contracting or subcontracting refers to

an arrangement whereby a principal agrees to put out or farm out with the
contractor or subcontractor the performance or completion of a specific job, work,
or service within a definite or predetermined period, regardless of whether such
job, work, or service is to be performed or completed within or outside the
premises of the principal. [21]

A person is considered engaged in legitimate job contracting or

subcontracting if the following conditions concur:

(a) The contractor carries on a distinct and independent business and

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