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G.R. No. 170087. August 31, 2006.

* an involuntary resignation resulting in cessation


of work resorted to when continued employment
ANGELINA FRANCISCO, petitioner, vs. becomes impossible, unreasonable or unlikely;
NATIONAL LABOR RELATIONS COMMISSION,
when there is a demotion in rank or a diminution
KASEI CORPORATION, SEIICHIRO TAKAHASHI, in pay; or when a clear discrimination,
TIMOTEO ACEDO, DELFIN LIZA, IRENE
insensibility or disdain by an employer becomes
BALLESTEROS, TRINIDAD LIZA and RAMON unbearable to an employee. In Globe Telecom, Inc.
ESCUETA, respondents.
v. Florendo-Flores, 390 SCRA 201 (2002), we ruled
Labor Law; Employment; Control Test; The better that where an employee ceases to work due to a
approach would therefore be to adopt a two-tiered demotion of rank or a diminution of pay, an
test.The better approach would therefore be to unreasonable situation arises which creates an
adopt a two-tiered test involving: (1) the putative adverse working environment rendering it
employers power to control the employee with impossible for such employee to continue working
respect to the means and methods by which the for her employer. Hence, her severance from the
work is to be accomplished; and (2) the underlying company was not of her own making and
economic realities of the activity or relationship. therefore amounted to an illegal termination of
This two-tiered test would provide us with a employment.
framework of analysis, which would take into Labor Law; Equal Work Opportunity; In affording
consideration the totality of circumstances full protection to labor, this Court must ensure
surrounding the true nature of the relationship equal work opportunities regardless of sex, race or
between the parties. This is especially appropriate creed.In affording full protection to labor, this
in this case where there is no written agreement or
Court must ensure equal work opportunities
terms of reference to base the relationship on; and regardless of sex, race or creed. Even as we, in
due to the complexity of the relationship based on
every case, attempt to carefully balance the fragile
the various positions and responsibilities given to relationship between employees and employers,
the worker over the period of the latters
we are mindful of the fact that the policy of the law
employment. is to apply the Labor Code to a greater number of
Same; Same; Same; Economic Activity; The employees. This would enable employees to avail
determination of the relationship between of the benefits accorded to them by law, in line
employer and employee depends upon the with the constitutional mandate giving maximum
circumstances of the whole economic activity. aid and protection to labor, promoting their
The determination of the relationship between welfare and reaffirming it as a primary social
employer and employee depends upon the economic force in furtherance of social justice and
circumstances of the whole economic activity, such national development.
as: (1) the extent to which the services performed PETITION for review on certiorari of the decision
are an integral part of the employers business; (2) and resolution of the Court of Appeals.
the extent of the workers investment in equipment
and facilities; (3) the nature and degree of control
exercised by the employer; (4) the workers
The facts are stated in the opinion of the Court.
opportunity for profit and loss; (5) the amount of
initiative, skill, judgment or foresight required for Conrado S. Dar Santos for petitioner.
the success of the claimed independent enterprise;
(6) the permanency and duration of the Ramon P. Gutierrez for private respondents.
relationship between the worker and the YNARES-SANTIAGO, J.:
employer; and (7) the degree of dependency of the
worker upon the employer for his continued
employment in that line of business.
This petition for review on certiorari under Rule 45
Dismissals; Constructive Dismissals; A diminution of the Rules of Court seeks to annul and set aside
of pay is prejudicial to the employee and amounts the Decision and Resolution of the Court of Appeals
to constructive dismissal.A diminution of pay is dated October 29, 20041 and October 7, 2005,2
prejudicial to the employee and amounts to respectively, in CA-G.R. SP No. 78515 dismissing
constructive dismissal. Constructive dismissal is the complaint for constructive dismissal filed by
herein petitioner Angelina Francisco. The appellate announced that nothing had changed and that
court reversed and set aside the Decision of the petitioner was still connected with Kasei
National Labor Relations Commission (NLRC) Corporation as Technical Assistant to Seiji Kamura
dated April 15, 2003,3 in NLRC NCR CA No. and in charge of all BIR matters.9
032766-02 which affirmed with modification the
Thereafter, Kasei Corporation reduced her salary by
decision of the Labor Arbiter dated July 31, 2002,4
in NLRC-NCR Case No. 30-10-0-489-01, finding P2,500.00 a month beginning January up to
September 2001 for a total reduction of P22,500.00
that private respondents were liable for
constructive dismissal. as of September 2001. Petitioner was not paid her
mid-year bonus allegedly because the company was
In 1995, petitioner was hired by Kasei Corporation not earning well. On October 2001, petitioner did
during its incorporation stage. She was designated not receive her salary from the company. She made
as Accountant and Corporate Secretary and was repeated follow-ups with the company cashier but
assigned to handle all the accounting needs of the she was advised that the company was not earning
company. She was also designated as Liaison well.10
Officer to the City of Makati to secure business
permits, construction permits and other licenses for On October 15, 2001, petitioner asked for her salary
the initial operation of the company.5 from Acedo and the rest of the officers but she was
informed that she is no longer connected with the
Although she was designated as Corporate company.11
Secretary, she was not entrusted with the corporate
Since she was no longer paid her salary, petitioner
documents; neither did she attend any board
meeting nor required to do so. She never prepared did not report for work and filed an action for
constructive dismissal before the labor arbiter.
any legal document and never represented the
company as its Corporate Secretary. However, on Private respondents averred that petitioner is not
some occasions, she was prevailed upon to sign an employee of Kasei Corporation. They alleged
documentation for the company.6 that petitioner was hired in 1995 as one of its
In 1996, petitioner was designated Acting Manager. technical consultants on accounting matters and act
The corporation also hired Gerry Nino as concurrently as Corporate Secretary. As technical
accountant in lieu of petitioner. As Acting Manager, consultant, petitioner performed her work at her
petitioner was assigned to handle recruitment of all own discretion without control and supervision of
employees and perform management Kasei Corporation. Petitioner had no daily time
administration functions; represent the company in record and she came to the office any time she
all dealings with government agencies, especially wanted. The company never interfered with her
with the Bureau of Internal Revenue (BIR), Social work except that from time to time, the
Security System (SSS) and in the city government of management would ask her opinion on matters
Makati; and to administer all other matters relating to her profession. Petitioner did not go
pertaining to the operation of Kasei Restaurant through the usual procedure of selection of
which is owned and operated by Kasei employees, but her services were engaged through a
Corporation.7 Board Resolution designating her as technical
consultant. The money received by petitioner from
For five years, petitioner performed the duties of the corporation was her professional fee subject to
Acting Manager. As of December 31, 2000 her the 10% expanded withholding tax on professionals,
salary was P27,500.00 plus P3,000.00 housing and that she was not one of those reported to the
allowance and a 10% share in the profit of Kasei BIR or SSS as one of the companys employees.12
Corporation.8
Petitioners designation as technical consultant
In January 2001, petitioner was replaced by Liza R. depended solely upon the will of management. As
Fuentes as Manager. Petitioner alleged that she was such, her consultancy may be terminated any time
required to sign a prepared resolution for her considering that her services were only temporary
replacement but she was assured that she would in nature and dependent on the needs of the
still be connected with Kasei Corporation. Timoteo corporation.
Acedo, the designated Treasurer, convened a
meeting of all employees of Kasei Corporation and
To prove that petitioner was not an employee of the Corp. from 1996-2001
corporation, private respondents submitted a list of
employees for the years 1999 and 2000 duly 361,175.00
received by the BIR showing that petitioner was not g.
among the employees reported to the BIR, as well
as a list of payees subject to expanded withholding Moral and exemplary damages
tax which included petitioner. SSS records were 100,000.00
also submitted showing that petitioners latest
employer was Seiji Corporation.13 h.
The Labor Arbiter found that petitioner was 0% Attorneys fees
illegally dismissed, thus:
87,076.50
WHEREFORE, premises considered, judgment is
hereby rendered as follows:
1. finding complainant an employee of respondent
corporation; P957,742.50
2. declaring complainants dismissal as illegal; If reinstatement is no longer feasible, respondents
are ordered to pay complainant separation pay with
3. ordering respondents to reinstate complainant to
additional backwages that would accrue up to
her former position without loss of seniority rights
actual payment of separation pay.
and jointly and severally pay complainant her
money claims in accordance with the following SO ORDERED.14
computation:
On April 15, 2003, the NLRC affirmed with
a. modification the Decision of the Labor Arbiter, the
dispositive portion of which reads:
Backwages 10/200107/2002
PREMISES CONSIDERED, the Decision of July 31,
(27,500 x 10 mos.)
2002 is hereby MODIFIED as follows:
275,000.00
1) Respondents are directed to pay complainant
b. separation pay computed at one month per year of
service in addition to full backwages from October
Salary Differentials (01/200109/2001) 2001 to July 31, 2002;
22,500.00 2) The awards representing moral and exemplary
c. damages and 10% share in profit in the respective
accounts of P100,000.00 and P361,175.00 are
Housing Allowance (01/200107/2002) deleted;
57,000.00 3) The award of 10% attorneys fees shall be based
d. on salary differential award only;

Midyear Bonus 2001 4) The awards representing salary differentials,


housing allowance, mid year bonus and 13th month
27,500.00 pay are AFFIRMED.
e. SO ORDERED.15
13th Month Pay On appeal, the Court of Appeals reversed the NLRC
decision, thus:
27,500.00
WHEREFORE, the instant petition is hereby
f. GRANTED. The decision of the National Labor
10% share in the profits of Kasei Relations Commissions dated April 15, 2003 is
hereby REVERSED and SET ASIDE and a new one respect to the means and methods by which the
is hereby rendered dismissing the complaint filed work is to be accomplished; and (2) the underlying
by private respondent against Kasei Corporation, et economic realities of the activity or relationship.
al. for constructive dismissal.
This two-tiered test would provide us with a
SO ORDERED.16 framework of analysis, which would take into
consideration the totality of circumstances
The appellate court denied petitioners motion for surrounding the true nature of the relationship
reconsideration, hence, the present recourse. between the parties. This is especially appropriate
The core issues to be resolved in this case are (1) in this case where there is no written agreement or
whether there was an employer-employee terms of reference to base the relationship on; and
relationship between petitioner and private due to the complexity of the relationship based on
respondent Kasei Corporation; and if in the the various positions and responsibilities given to
affirmative, (2) whether petitioner was illegally the worker over the period of the latters
dismissed. employment.

Considering the conflicting findings by the Labor The control test initially found application in the
Arbiter and the National Labor Relations case of Viaa v. Al-Lagadan and Piga,19 and lately
Commission on one hand, and the Court of Appeals in Leonardo v. Court of Appeals,20 where we held
on the other, there is a need to reexamine the that there is an employer-employee relationship
records to determine which of the propositions when the person for whom the services are
espoused by the contending parties is supported by performed reserves the right to control not only the
substantial evidence.17 end achieved but also the manner and means used
to achieve that end.
We held in Sevilla v. Court of Appeals18 that in this
jurisdiction, there has been no uniform test to In Sevilla v. Court of Appeals,21 we observed the
determine the existence of an employer-employee need to consider the existing economic conditions
relation. Generally, courts have relied on the so- prevailing between the parties, in addition to the
called right of control test where the person for standard of right-of-control like the inclusion of the
whom the services are performed reserves a right to employee in the payrolls, to give a clearer picture in
control not only the end to be achieved but also the determining the existence of an employer-employee
means to be used in reaching such end. In addition relationship based on an analysis of the totality of
to the standard of right-of-control, the existing economic circumstances of the worker.
economic conditions prevailing between the parties, Thus, the determination of the relationship
like the inclusion of the employee in the payrolls,
between employer and employee depends upon the
can help in determining the existence of an circumstances of the whole economic activity,22
employer-employee relationship. such as: (1) the extent to which the services
However, in certain cases the control test is not performed are an integral part of the employers
sufficient to give a complete picture of the business; (2) the extent of the workers investment
relationship between the parties, owing to the in equipment and facilities; (3) the nature and
complexity of such a relationship where several degree of control exercised by the employer; (4) the
positions have been held by the worker. There are workers opportunity for profit and loss; (5) the
instances when, aside from the employers power to amount of initiative, skill, judgment or foresight
control the employee with respect to the means and required for the success of the claimed independent
methods by which the work is to be accomplished, enterprise; (6) the permanency and duration of the
economic realities of the employment relations help relationship between the worker and the employer;
provide a comprehensive analysis of the true and (7) the degree of dependency of the worker
classification of the individual, whether as upon the employer for his continued employment
employee, independent contractor, corporate in that line of business.23
officer or some other capacity. The proper standard of economic dependence is
The better approach would therefore be to adopt a whether the worker is dependent on the alleged
two-tiered test involving: (1) the putative employer for his continued employment in that line
employers power to control the employee with of business.24 In the United States, the touchstone
of economic reality in analyzing possible vouchers covering petitioners salaries for the
employment relationships for purposes of the months stated therein, these matters constitute
Federal Labor Standards Act is dependency.25 By substantial evidence adequate to support a
analogy, the benchmark of economic reality in conclusion that petitioner was an employee of
analyzing possible employment relationships for private respondent.
purposes of the Labor Code ought to be the
economic dependence of the worker on his We likewise ruled in Flores v. Nuestro29 that a
corporation who registers its workers with the SSS
employer.
is proof that the latter were the formers employees.
By applying the control test, there is no doubt that The coverage of Social Security Law is predicated
petitioner is an employee of Kasei Corporation on the existence of an employer-employee
because she was under the direct control and relationship.
supervision of Seiji Kamura, the corporations
Technical Consultant. She reported for work Furthermore, the affidavit of Seiji Kamura dated
regularly and served in various capacities as December 5, 2001 has clearly established that
Accountant, Liaison Officer, Technical Consultant, petitioner never acted as Corporate Secretary and
Acting Manager and Corporate Secretary, with that her designation as such was only for
substantially the same job functions, that is, convenience. The actual nature of petitioners job
rendering accounting and tax services to the was as Kamuras direct assistant with the duty of
company and performing functions necessary and acting as Liaison Officer in representing the
desirable for the proper operation of the company to secure construction permits, license to
corporation such as securing business permits and operate and other requirements imposed by
government agencies. Petitioner was never
other licenses over an indefinite period of
engagement. entrusted with corporate documents of the
company, nor required to attend the meeting of the
Under the broader economic reality test, the corporation. She was never privy to the preparation
petitioner can likewise be said to be an employee of of any document for the corporation, although once
respondent corporation because she had served the in a while she was required to sign prepared
company for six years before her dismissal, documentation for the company.30
receiving check vouchers indicating her salaries/
The second affidavit of Kamura dated March 7,
wages, benefits, 13th month pay, bonuses and
allowances, as well as deductions and Social 2002 which repudiated the December 5, 2001
Security contributions from August 1, 1999 to affidavit has been allegedly withdrawn by Kamura
December 18, 2000.26 When petitioner was himself from the records of the case.31 Regardless
designated General Manager, respondent of this fact, we are convinced that the allegations in
corporation made a report to the SSS signed by the first affidavit are sufficient to establish that
Irene Ballesteros. Petitioners membership in the petitioner is an employee of Kasei Corporation.
SSS as manifested by a copy of the SSS specimen Granting arguendo, that the second affidavit validly
signature card which was signed by the President of repudiated the first one, courts do not generally
Kasei Corporation and the inclusion of her name in look with favor on any retraction or recanted
the online inquiry system of the SSS evinces the testimony, for it could have been secured by
existence of an employer-employee relationship considerations other than to tell the truth and
between petitioner and respondent corporation.27 would make solemn trials a mockery and place the
It is therefore apparent that petitioner is investigation of the truth at the mercy of
unscrupulous witnesses.32 A recantation does not
economically dependent on respondent corporation
for her continued employment in the latters line of necessarily cancel an earlier declaration, but like
any other testimony the same is subject to the test
business.
of credibility and should be received with
In Domasig v. National Labor Relations caution.33
Commission,28 we held that in a business
establishment, an identification card is provided Based on the foregoing, there can be no other
not only as a security measure but mainly to conclusion that petitioner is an employee of
identify the holder thereof as a bona fide employee respondent Kasei Corporation. She was selected
and engaged by the company for compensation,
of the firm that issues it. Together with the cash
and is economically dependent upon respondent for WHEREFORE, the petition is GRANTED. The
her continued employment in that line of business. Decision and Resolution of the Court of Appeals
Her main job function involved accounting and tax dated October 29, 2004 and October 7, 2005,
services rendered to respondent corporation on a respectively, in CA-G.R. SP No. 78515 are
regular basis over an indefinite period of ANNULLED and SET ASIDE. The Decision of the
engagement. Respondent corporation hired and National Labor Relations Commission dated April
engaged petitioner for compensation, with the 15, 2003 in NLRC NCR CA No. 032766-02, is
power to dismiss her for cause. More importantly, REINSTATED. The case is REMANDED to the
respondent corporation had the power to control Labor Arbiter for the recomputation of petitioner
petitioner with the means and methods by which Angelina Franciscos full backwages from the time
the work is to be accomplished. she was illegally terminated until the date of finality
of this decision, and separation pay representing
The corporation constructively dismissed petitioner one-half month pay for every year of service, where
when it reduced her salary by P2,500 a month from a fraction of at least six months shall be considered
January to September 2001. This amounts to an as one whole year.
illegal termination of employment, where the
petitioner is entitled to full backwages. Since the SO ORDERED.
position of petitioner as accountant is one of trust
and confidence, and under the principle of strained Panganiban (C.J., Chairperson), Austria-
relations, petitioner is further entitled to separation Martinez, Callejo, Sr. and Chico-Nazario, JJ.,
pay, in lieu of reinstatement.34 concur.

A diminution of pay is prejudicial to the employee Petition granted, judgment and resolution annulled
and set aside.
and amounts to constructive dismissal.
Constructive dismissal is an involuntary resignation Note.Factors to be considered in ascertaining an
resulting in cessation of work resorted to when employer-employee relationship. (San Miguel
continued employment becomes impossible, Corporation vs. MAERC Integrated Services, Inc.,
unreasonable or unlikely; when there is a demotion 405 SCRA 579 [2003]) Francisco vs. National
in rank or a diminution in pay; or when a clear Labor Relations Commission, 500 SCRA 690, G.R.
discrimination, insensibility or disdain by an No. 170087 August 31, 2006
employer becomes unbearable to an employee.35 In
Globe Telecom, Inc. v. Florendo-Flores,36 we ruled
that where an employee ceases to work due to a
demotion of rank or a diminution of pay, an
unreasonable situation arises which creates an
adverse working environment rendering it
impossible for such employee to continue working
for her employer. Hence, her severance from the
company was not of her own making and therefore
amounted to an illegal termination of employment.
In affording full protection to labor, this Court must
ensure equal work opportunities regardless of sex,
race or creed. Even as we, in every case, attempt to
carefully balance the fragile relationship between
employees and employers, we are mindful of the
fact that the policy of the law is to apply the Labor
Code to a greater number of employees. This would
enable employees to avail of the benefits accorded
to them by law, in line with the constitutional
mandate giving maximum aid and protection to
labor, promoting their welfare and reaffirming it as
a primary social economic force in furtherance of
social justice and national development.