G.R. No.

L-12582 January 28, 1961

LVN PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-appellees.

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

G.R. No. L-12598 January 28, 1961

SAMPAGUITA PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-appellees.

Nicanor S. Sison for petitioner-appellant.

Jaime E. Ilagan for respondent-appellee Court of Agrarian Relations.
Gerardo P. Cabo Chan for respondent-appellee Philippine Musicians Guild.

CONCEPCION, J.:

Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review by certiorari of an order of the Court of
Industrial Relations in Case No. 306-MC thereof, certifying the Philippine Musicians Guild (FFW), petitioner therein and
respondent herein, as the sole and exclusive bargaining agency of all musicians working with said companies, as well as
with the Premiere Productions, Inc., which has not appealed. The appeal of LVN Pictures, Inc., has been docketed as G.R.
No. L-12582, whereas G.R. No. L-12598 is the appeal of Sampaguita Pictures, Inc. Involving as they do the same order,
the two cases have been jointly heard in this Court, and will similarly be disposed of.

In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter referred to as the Guild, averred that it
is a duly registered legitimate labor organization; that LVN Pictures, Inc., Sampaguita Pictures, Inc., and Premiere
Productions, Inc. are corporations, duly organized under the Philippine laws, engaged in the making of motion pictures
and in the processing and distribution thereof; that said companies employ musicians for the purpose of making music
recordings for title music, background music, musical numbers, finale music and other incidental music, without which a
motion picture is incomplete; that ninety-five (95%) percent of all the musicians playing for the musical recordings of
said companies are members of the Guild; and that the same has no knowledge of the existence of any other legitimate
labor organization representing musicians in said companies. Premised upon these allegations, the Guild prayed that it
be certified as the sole and exclusive bargaining agency for all musicians working in the aforementioned companies. In
their respective answers, the latter denied that they have any musicians as employees, and alleged that the musical
numbers in the filing of the companies are furnished by independent contractors. The lower court, however, rejected
this pretense and sustained the theory of the Guild, with the result already adverted to. A reconsideration of the order
complained of having been denied by the Court en banc, LVN Pictures, inc., and Sampaguita Pictures, Inc., filed these
petitions for review for certiorari.

Apart from impugning the conclusion of the lower court on the status of the Guild members as alleged employees of the
film companies, the LVN Pictures, Inc., maintains that a petition for certification cannot be entertained when the
existence of employer-employee relationship between the parties is contested. However, this claim is neither borne out
by any legal provision nor supported by any authority. So long as, after due hearing, the parties are found to bear said
relationship, as in the case at bar, it is proper to pass upon the merits of the petition for certification.

It is next urged that a certification is improper in the present case, because, "(a) the petition does not allege and no
evidence was presented that the alleged musicians-employees of the respondents constitute a proper bargaining unit,
and (b) said alleged musicians-employees represent a majority of the other numerous employees of the film companies
constituting a proper bargaining unit under section 12 (a) of Republic Act No. 875."

The absence of an express allegation that the members of the Guild constitute a proper bargaining unit is fatal
proceeding, for the same is not a "litigation" in the sense in which this term is commonly understood, but a mere
investigation of a non-adversary, fact finding character, in which the investigating agency plays the part of a
disinterested investigator seeking merely to ascertain the desires of employees as to the matter of their representation.
In connection therewith, the court enjoys a wide discretion in determining the procedure necessary to insure the fair
and free choice of bargaining representatives by employees.1 Moreover, it is alleged in the petition that the Guild it a
duly registered legitimate labor organization and that ninety-five (95%) percent of the musicians playing for all the
musical recordings of the film companies involved in these cases are members of the Guild. Although, in its answer, the
LVN Pictures, Inc. denied both allegations, it appears that, at the hearing in the lower court it was merely the status of
the musicians as its employees that the film companies really contested. Besides, the substantial difference between the
work performed by said musicians and that of other persons who participate in the production of a film, and the peculiar
circumstances under which the services of that former are engaged and rendered, suffice to show that they constitute a
proper bargaining unit. At this juncture, it should be noted that the action of the lower court in deciding upon an
appropriate unit for collective bargaining purposes is discretionary (N.L.R.B. v. May Dept. Store Co., 66 Sup. Ct. 468. 90 L.
ed. 145) and that its judgment in this respect is entitled to almost complete finality, unless its action is arbitrary or
capricious (Marshall Field & Co. v. N.L.R.B. [C.C.A. 19431, 135 F. 2d. 891), which is far from being so in the cases at bar.

Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining agency for the musicians working in
the aforesaid film companies. It does not intend to represent the other employees therein. Hence, it was not necessary
for the Guild to allege that its members constitute a majority of all the employees of said film companies, including
those who are not musicians. The real issue in these cases, is whether or not the musicians in question are employees of
the film companies. In this connection the lower court had the following to say:

As a normal and usual course of procedure employed by the companies when a picture is to be made, the
producer invariably chooses, from the musical directors, one who will furnish the musical background for a film.
A price is agreed upon verbally between the producer and musical director for the cost of furnishing such
musical background. Thus, the musical director may compose his own music specially written for or adapted to
the picture. He engages his own men and pays the corresponding compensation of the musicians under him.

When the music is ready for recording, the musicians are summoned through 'call slips' in the name of the film
company (Exh 'D'), which show the name of the musician, his musical instrument, and the date, time and place
where he will be picked up by the truck of the film company. The film company provides the studio for the use
of the musicians for that particular recording. The musicians are also provided transportation to and from the
studio by the company. Similarly, the company furnishes them meals at dinner time.

During the recording sessions, the motion picture director, who is an employee of the company, supervises the
recording of the musicians and tells what to do in every detail. He solely directs the performance of the
musicians before the camera as director, he supervises the performance of all the action, including the
musicians who appear in the scenes so that in the actual performance to be shown on the screen, the musical
director's intervention has stopped.

And even in the recording sessions and during the actual shooting of a scene, the technicians, soundmen and
other employees of the company assist in the operation. Hence, the work of the musicians is an integral part of
the entire motion picture since they not only furnish the music but are also called upon to appear in the finished
picture.

The question to be determined next is what legal relationship exits between the musicians and the company in
the light of the foregoing facts.

We are thus called upon to apply R.A. Act 875. which is substantially the same as and patterned after the
Wagner Act substantially the same as a Act and the Taft-Hartley Law of the United States. Hence, reference to
decisions of American Courts on these laws on the point-at-issue is called for.

Statutes are to be construed in the light of purposes achieved and the evils sought to be remedied. (U.S. vs.
American Tracking Association, 310 U.S. 534, 84 L. ed. 1345.) .

In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S. 111, the United States Supreme
Court said the Wagner Act was designed to avert the 'substantial obstruction to the free flow of commerce
which results from strikes and other forms of industrial unrest by eliminating the causes of the unrest. Strikes
and industrial unrest result from the refusal of employers' to bargain collectively and the inability of workers to
bargain successfully for improvement in their working conditions. Hence, the purposes of the Act are to
encourage collective bargaining and to remedy the workers' inability to bargaining power, by protecting the
exercise of full freedom of association and designation of representatives of their own choosing, for the purpose
of negotiating the terms and conditions of their employment.'

The mischief at which the Act is aimed and the remedies it offers are not confined exclusively to 'employees'
within the traditional legal distinctions, separating them from 'independent contractor'. Myriad forms of service
relationship, with infinite and subtle variations in the term of employment, blanket the nation's economy. Some
are within this Act, others beyond its coverage. Large numbers will fall clearly on one side or on the other, by
whatever test may be applied. Inequality of bargaining power in controversies of their wages, hours and working
conditions may characterize the status of one group as of the other. The former, when acting alone may be as
helpless in dealing with the employer as dependent on his daily wage and as unable to resist arbitrary and unfair
treatment as the latter.'
To eliminate the causes of labor dispute and industrial strike, Congress thought it necessary to create a balance
of forces in certain types of economic relationship. Congress recognized those economic relationships cannot be
fitted neatly into the containers designated as 'employee' and 'employer'. Employers and employees not in
proximate relationship may be drawn into common controversies by economic forces and that the very dispute
sought to be avoided might involve 'employees' who are at times brought into an economic relationship with
'employers', who are not their 'employers'. In this light, the language of the Act's definition of 'employee' or
'employer' should be determined broadly in doubtful situations, by underlying economic facts rather than
technically and exclusively established legal classifications. (NLRB vs. Blount, 131 F [2d] 585.)

In other words, the scope of the term 'employee' must be understood with reference to the purposes of the Act
and the facts involved in the economic relationship. Where all the conditions of relation require protection,
protection ought to be given .

By declaring a worker an employee of the person for whom he works and by recognizing and protecting his
rights as such, we eliminate the cause of industrial unrest and consequently we promote industrial peace,
because we enable him to negotiate an agreement which will settle disputes regarding conditions of
employment, through the process of collective bargaining.

The statutory definition of the word 'employee' is of wide scope. As used in the Act, the term embraces 'any
employee' that is all employees in the conventional as well in the legal sense expect those excluded by express
provision. (Connor Lumber Co., 11 NLRB 776.).

It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes of industrial unrest by protecting
the exercise of their right to self-organization for the purpose of collective bargaining. (b) To promote sound
stable industrial peace and the advancement of the general welfare, and the best interests of employers and
employees by the settlement of issues respecting terms and conditions of employment through the process of
collective bargaining between employers and representatives of their employees.

The primary consideration is whether the declared policy and purpose of the Act can be effectuated by securing
for the individual worker the rights and protection guaranteed by the Act. The matter is not conclusively
determined by a contract which purports to establish the status of the worker, not as an employee.

The work of the musical director and musicians is a functional and integral part of the enterprise performed at
the same studio substantially under the direction and control of the company.

In other words, to determine whether a person who performs work for another is the latter's employee or an
independent contractor, the National Labor Relations relies on 'the right to control' test. Under this test an
employer-employee relationship exist where the person for whom the services are performed reserves the right
to control not only the end to be achieved, but also the manner and means to be used in reaching the end.
(United Insurance Company, 108, NLRB No. 115.).

Thus, in said similar case of Connor Lumber Company, the Supreme Court said:.

'We find that the independent contractors and persons working under them are employees' within the
meaning of Section 2 (3) of its Act. However, we are of the opinion that the independent contractors
have sufficient authority over the persons working under their immediate supervision to warrant their
exclusion from the unit. We shall include in the unit the employees working under the supervision of the
independent contractors, but exclude the contractors.'

'Notwithstanding that the employees are called independent contractors', the Board will hold them to be
employees under the Act where the extent of the employer's control over them indicates that the relationship is
in reality one of employment. (John Hancock Insurance Co., 2375-D, 1940, Teller, Labor Dispute Collective
Bargaining, Vol.).

The right of control of the film company over the musicians is shown (1) by calling the musicians through 'call
slips' in 'the name of the company; (2) by arranging schedules in its studio for recording sessions; (3) by
furnishing transportation and meals to musicians; and (4) by supervising and directing in detail, through the
motion picture director, the performance of the musicians before the camera, in order to suit the music they are
playing to the picture which is being flashed on the screen.

Thus, in the application of Philippine statutes and pertinent decisions of the United States Courts on the matter
to the facts established in this case, we cannot but conclude that to effectuate the policies of the Act and by
 virtue of the 'right of control' test, the members of the Philippine Musicians Guild are employees of the three
film companies and, therefore, entitled to right of collective bargaining under Republic Act No. 875.

In view of the fact that the three (3) film companies did not question the union's majority, the Philippine
Musicians Guild is hereby declared as the sole collective bargaining representative for all the musicians
employed by the film companies."

We are fully in agreement with the foregoing conclusion and the reasons given in support thereof. Both are substantially
in line with the spirit of our decision in Maligaya Ship Watchmen Agency vs. Associated Watchmen and Security Union, L-
12214-17 (May 28, 1958). In fact, the contention of the employers in the Maligaya cases, to the effect that they had
dealt with independent contractors, was stronger than that of the film companies in these cases. The third parties with
whom the management and the workers contracted in the Maligaya cases were agencies registered with the Bureau of
Commerce and duly licensed by the City of Manila to engage in the business of supplying watchmen to steamship
companies, with permits to engage in said business issued by the City Mayor and the Collector of Customs. In the cases
at bar, the musical directors with whom the film companies claim to have dealt with had nothing comparable to the
business standing of said watchmen agencies. In this respect, the status of said musical directors is analogous to that of
the alleged independent contractor in Caro vs. Rilloraza, L-9569 (September 30, 1957), with the particularity that the
Caro case involved the enforcement of the liability of an employer under the Workmen's Compensation Act, whereas the
cases before us are merely concerned with the right of the Guild to represent the musicians as a collective bargaining
unit. Hence, there is less reason to be legalistic and technical in these cases, than in the Caro case.

Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe Coconut Product Co., Inc vs. CIR (46
Off. Gaz., 5506, 5509), Philippine Manufacturing Co. vs. Santos Vda. de Geronimo, L-6968 (November 29, 1954), Viana
vs. Al-Lagadan, L-8967 (May 31, 1956), and Josefa Vda. de Cruz vs. The Manila Hotel Co. (53 Off. Gaz., 8540). Instead of
favoring the theory of said petitioners-appellants, the case of the Sunripe Coconut Product Co., Inc. is authority for
herein respondents-appellees. It was held that, although engaged as piece-workers, under the "pakiao" system, the
"parers" and "shellers" in the case were, not independent contractor, but employees of said company, because "the
requirement imposed on the 'parers' to the effect that 'the nuts are pared whole or that there is not much meat
wasted,' in effect limits or controls the means or details by which said workers are to accomplish their services" — as in
the cases before us.

The nature of the relation between the parties was not settled in the Viana case, the same having been remanded to the
Workmen's Compensation Commission for further evidence.

The case of the Philippine Manufacturing Co. involved a contract between said company and Eliano Garcia, who
undertook to paint a tank of the former. Garcia, in turn engaged the services of Arcadio Geronimo, a laborer, who fell
while painting the tank and died in consequence of the injuries thus sustained by him. Inasmuch as the company was
engaged in the manufacture of soap, vegetable lard, cooking oil and margarine, it was held that the connection between
its business and the painting aforementioned was purely casual; that Eliano Garcia was an independent contractor; that
Geronimo was not an employee of the company; and that the latter was not bound, therefore, to pay the compensation
provided in the Workmen's Compensation Act. Unlike the Philippine Manufacturing case, the relation between the
business of herein petitioners-appellants and the work of the musicians is not casual. As held in the order appealed from
which, in this respect, is not contested by herein petitioners-appellants — "the work of the musicians is an integral part
of the entire motion picture." Indeed, one can hardly find modern films without music therein. Hence, in the Caro case
(supra), the owner and operator of buildings for rent was held bound to pay the indemnity prescribed in the Workmen's
Compensation Act for the injury suffered by a carpenter while working as such in one of said buildings even though his
services had been allegedly engaged by a third party who had directly contracted with said owner. In other words, the
repair work had not merely a casual connection with the business of said owner. It was a necessary incident thereof, just
as music is in the production of motion pictures.

The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957) differs materially from the present
cases. It involved the interpretation of Republic Act No. 660, which amends the law creating and establishing the
Government Service Insurance System. No labor law was sought to be construed in that case. In act, the same was
originally heard in the Court of First Instance of Manila, the decision of which was, on appeal, affirmed by the Supreme
Court. The meaning or scope if the term "employee," as used in the Industrial Peace Act (Republic Act No. 875), was not
touched therein. Moreover, the subject matter of said case was a contract between the management of the Manila
Hotel, on the one hand, and Tirso Cruz, on the other, whereby the latter greed to furnish the former the services of his
orchestra, consisting of 15 musicians, including Tirso Cruz, "from 7:30 p.m. to closing time daily." In the language of this
court in that case, "what pieces the orchestra shall play, and how the music shall be arranged or directed, the intervals
and other details — such are left to the leader's discretion."

This is not situation obtaining in the case at bar. The musical directors above referred to have no such control over the
musicians involved in the present case. Said musical directors control neither the music to be played, nor the musicians
playing it. The film companies summon the musicians to work, through the musical directors. The film companies,
through the musical directors, fix the date, the time and the place of work. The film companies, not the musical
directors, provide the transportation to and from the studio. The film companies furnish meal at dinner time.

What is more — in the language of the order appealed from — "during the recording sessions, the motion picture
director who is an employee of the company" — not the musical director — "supervises the recording of the musicians
and tells them what to do in every detail". The motion picture director — not the musical director — "solely directs and
performance of the musicians before the camera". The motion picture director "supervises the performance of all the
actors, including the musicians who appear in the scenes, so that in the actual performance to be shown in the screen,
the musical director's intervention has stopped." Or, as testified to in the lower court, "the movie director tells the
musical director what to do; tells the music to be cut or tells additional music in this part or he eliminates the entire
music he does not (want) or he may want more drums or move violin or piano, as the case may be". The movie director
"directly controls the activities of the musicians." He "says he wants more drums and the drummer plays more" or "if he
wants more violin or he does not like that.".

It is well settled that "an employer-employee relationship exists . . .where the person for whom the services are
performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such
end . . . ." (Alabama Highway Express Co., Express Co., v. Local 612, 108S. 2d. 350.) The decisive nature of said control
over the "means to be used", is illustrated in the case of Gilchrist Timber Co., et al., Local No. 2530 (73 NLRB No. 210, pp.
1197, 1199-1201), in which, by reason of said control, the employer-employee relationship was held to exist between
the management and the workers, notwithstanding the intervention of an alleged independent contractor, who had,
and exercise, the power to hire and fire said workers. The aforementioned control over the means to be used" in reading
the desired end is possessed and exercised by the film companies over the musicians in the cases before us.

WHEREFORE, the order appealed from is hereby affirmed, with costs against petitioners herein. It is so ordered

G.R. No. 185251 October 2, 2009

RAUL G. LOCSIN and EDDIE B. TOMAQUIN, Petitioners,

vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Respondent.

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks the reversal of the May 6, 2008 Decision1 and November 4,
2008 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 97398, entitled Philippine Long Distance Telephone
Company v. National Labor Relations Commission, Raul G. Locsin and Eddie B. Tomaquin. The assailed decision set aside
the Resolutions of the National Labor Relations Commission (NLRC) dated October 28, 2005 and August 28, 2006 which
in turn affirmed the Decision dated February 13, 2004 of the Labor Arbiter. The assailed resolution, on the other hand,
denied petitioners’ motion for reconsideration of the assailed decision.

The Facts

On November 1, 1990, respondent Philippine Long Distance Telephone Company (PLDT) and the Security and Safety
Corporation of the Philippines (SSCP) entered into a Security Services Agreement3 (Agreement) whereby SSCP would
provide armed security guards to PLDT to be assigned to its various offices.

Pursuant to such agreement, petitioners Raul Locsin and Eddie Tomaquin, among other security guards, were posted at
a PLDT office.

On August 30, 2001, respondent issued a Letter dated August 30, 2001 terminating the Agreement effective October 1,
2001.4

Despite the termination of the Agreement, however, petitioners continued to secure the premises of their assigned
office. They were allegedly directed to remain at their post by representatives of respondent. In support of their
contention, petitioners provided the Labor Arbiter with copies of petitioner Locsin’s pay slips for the period of January to
September 2002.5
Then, on September 30, 2002, petitioners’ services were terminated.

Thus, petitioners filed a complaint before the Labor Arbiter for illegal dismissal and recovery of money claims such as
overtime pay, holiday pay, premium pay for holiday and rest day, service incentive leave pay, Emergency Cost of Living
Allowance, and moral and exemplary damages against PLDT.

The Labor Arbiter rendered a Decision finding PLDT liable for illegal dismissal. It was explained in the Decision that
petitioners were found to be employees of PLDT and not of SSCP. Such conclusion was arrived at with the factual finding
that petitioners continued to serve as guards of PLDT’s offices. As such employees, petitioners were entitled to
substantive and procedural due process before termination of employment. The Labor Arbiter held that respondent
failed to observe such due process requirements. The dispositive portion of the Labor Arbiter’s Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering respondent Philippine Long Distance and
Telephone Company (PLDT) to pay complainants Raul E. Locsin and Eddie Tomaquin their separation pay and back wages
computed as follows:

NAME SEPARATION PAY BACKWAGES

1. Raul E. Locsin P127,500.00 P240,954.67

2. Eddie B. Tomaquin P127,500.00 P240,954.67

P736,909.34

All other claims are DISMISSED for want of factual basis.

Let the computation made by the Computation and Examination Unit form part of this decision.

SO ORDERED.

PLDT appealed the above Decision to the NLRC which rendered a Resolution affirming in toto the Arbiter’s Decision.

Thus, PDLT filed a Motion for Reconsideration of the NLRC’s Resolution which was also denied.

Consequently, PLDT filed a Petition for Certiorari with the CA asking for the nullification of the Resolution issued by the
NLRC as well as the Labor Arbiter’s Decision. The CA rendered the assailed decision granting PLDT’s petition and
dismissing petitioners’ complaint. The dispositive portion of the CA Decision provides:

WHEREFORE, the instant Petition for Certiorari is GRANTED. The Resolutions dated October 28, 2005 and August 28,
2006 of the National Labor Relations Commission are ANNULLED and SET ASIDE. Private respondents’ complaint against
Philippine Long Distance Telephone Company is DISMISSED.

SO ORDERED.

The CA applied the four-fold test in order to determine the existence of an employer-employee relationship between
the parties but did not find such relationship. It determined that SSCP was not a labor-only contractor and was an
independent contractor having substantial capital to operate and conduct its own business. The CA further bolstered its
decision by citing the Agreement whereby it was stipulated that there shall be no employer-employee relationship
between the security guards and PLDT.

Anent the pay slips that were presented by petitioners, the CA noted that those were issued by SSCP and not PLDT;
hence, SSCP continued to pay the salaries of petitioners after the Agreement. This fact allegedly proved that petitioners
continued to be employees of SSCP albeit performing their work at PLDT’s premises.

From such assailed decision, petitioners filed a motion for reconsideration which was denied in the assailed resolution.

Hence, we have this petition.

The Issues
 1. Whether or not; complainants extended services to the respondent for one (1) year from October 1, 2001, the
effectivity of the termination of the contract of complainants agency SSCP, up to September 30, 2002, without a
renewed contract, constitutes an employer-employee relationship between respondent and the complainants.

2. Whether or not; in accordance to the provision of the Article 280 of the Labor Code, complainants extended
services to the respondent for another one (1) year without a contract be considered as contractual
employment.

3. Whether or not; in accordance to the provision of the Article 280 of the Labor Code, does complainants
thirteen (13) years of service to the respondent with manifestation to the respondent thirteen (13) years
renewal of its security contract with the complainant agency SSCP, can be considered only as "seasonal in
nature" or fixed as [specific projects] or undertakings and its completion or termination can be dictated as
[controlled] by the respondent anytime they wanted to.

4. Whether or not; complainants from being an alleged contractual employees of the respondent for thirteen
(13) years as they were then covered by a contract, becomes regular employees of the respondent as the one
(1) year extended services of the complainants were not covered by a contract, and can be considered as direct
employment pursuant to the provision of the Article 280 of the Labor Code.

5. Whether or not; the Court of Appeals committed grave abuse of discretion when it set aside and [annulled]
the labor [arbiter’s] decision and of the NLRC’s resolution declaring the dismissal of the complainant as illegal.6

The Court’s Ruling

This petition is hereby granted.

An Employer-Employee
Relationship Existed Between the Parties

It is beyond cavil that there was no employer-employee relationship between the parties from the time of petitioners’
first assignment to respondent by SSCP in 1988 until the alleged termination of the Agreement between respondent and
SSCP. In fact, this was the conclusion that was reached by this Court in Abella v. Philippine Long Distance Telephone
Company,7 where we ruled that petitioners therein, including herein petitioners, cannot be considered as employees of
PLDT. It bears pointing out that petitioners were among those declared to be employees of their respective security
agencies and not of PLDT.

The only issue in this case is whether petitioners became employees of respondent after the Agreement between SSCP
and respondent was terminated.

This must be answered in the affirmative.

Notably, respondent does not deny the fact that petitioners remained in the premises of their offices even after the
Agreement was terminated. And it is this fact that must be explained.

To recapitulate, the CA, in rendering a decision in favor of respondent, found that: (1) petitioners failed to prove that
SSCP was a labor-only contractor; and (2) petitioners are employees of SSCP and not of PLDT.

In arriving at such conclusions, the CA relied on the provisions of the Agreement, wherein SSCP undertook to supply
PLDT with the required security guards, while furnishing PLDT with a performance bond in the amount of PhP 707,000.
Moreover, the CA gave weight to the provision in the Agreement that SSCP warranted that it "carry on an independent
business and has substantial capital or investment in the form of equipment, work premises, and other materials which
are necessary in the conduct of its business."

Further, in determining that no employer-employee relationship existed between the parties, the CA quoted the express
provision of the Agreement, stating that no employer-employee relationship existed between the parties herein. The CA
disregarded the pay slips of Locsin considering that they were in fact issued by SSCP and not by PLDT.

From the foregoing explanation of the CA, the fact remains that petitioners remained at their post after the termination
of the Agreement. Notably, in its Comment dated March 10, 2009,8 respondent never denied that petitioners remained
at their post until September 30, 2002. While respondent denies the alleged circumstances stated by petitioners, that
they were told to remain at their post by respondent’s Security Department and that they were informed by SSCP
Operations Officer Eduardo Juliano that their salaries would be coursed through SSCP as per arrangement with PLDT, it
does not state why they were not made to vacate their posts. Respondent said that it did not know why petitioners
remained at their posts.

Rule 131, Section 3(y) of the Rules of Court provides:

SEC. 3. Disputable presumptions.—The following presumptions are satisfactory if uncontradicted, but may be
contradicted and overcome by other evidence:

xxxx

(y) That things have happened according to the ordinary course of nature and the ordinary habits of life.

In the ordinary course of things, responsible business owners or managers would not allow security guards of an agency
with whom the owners or managers have severed ties with to continue to stay within the business’ premises. This is
because upon the termination of the owners’ or managers’ agreement with the security agency, the agency’s
undertaking of liability for any damage that the security guard would cause has already been terminated. Thus, in the
event of an accident or otherwise damage caused by such security guards, it would be the business owners and/or
managers who would be liable and not the agency. The business owners or managers would, therefore, be opening
themselves up to liability for acts of security guards over whom the owners or managers allegedly have no control.

At the very least, responsible business owners or managers would inquire or learn why such security guards were
remaining at their posts, and would have a clear understanding of the circumstances of the guards’ stay. It is but logical
that responsible business owners or managers would be aware of the situation in their premises.

We point out that with respondent’s hypothesis, it would seem that SSCP was paying petitioners’ salaries while securing
respondent’s premises despite the termination of their Agreement. Obviously, it would only be respondent that would
benefit from such a situation. And it is seriously doubtful that a security agency that was established for profit would
allow its security guards to secure respondent’s premises when the Agreement was already terminated.

From the foregoing circumstances, reason dictates that we conclude that petitioners remained at their post under the
instructions of respondent. We can further conclude that respondent dictated upon petitioners that the latter perform
their regular duties to secure the premises during operating hours. This, to our mind and under the circumstances, is
sufficient to establish the existence of an employer-employee relationship. Certainly, the facts as narrated by petitioners
are more believable than the irrational denials made by respondent. Thus, we ruled in Lee Eng Hong v. Court of
Appeals:9

Evidence, to be believed, must not only proceed from the mouth of a credible witness, but it must be credible in itself —
such as the common experience and observation of mankind can approve as probable under the circumstances. We
have no test of the truth of human testimony, except its conformity to our knowledge, observation and experience.
Whatever is repugnant to these belongs to the miraculous and is outside judicial cognizance (Castañares v. Court of
Appeals, 92 SCRA 568 [1979]).

To reiterate, while respondent and SSCP no longer had any legal relationship with the termination of the Agreement,
petitioners remained at their post securing the premises of respondent while receiving their salaries, allegedly from
SSCP. Clearly, such a situation makes no sense, and the denials proffered by respondent do not shed any light to the
situation. It is but reasonable to conclude that, with the behest and, presumably, directive of respondent, petitioners
continued with their services. Evidently, such are indicia of control that respondent exercised over petitioners.

Such power of control has been explained as the "right to control not only the end to be achieved but also the means to
be used in reaching such end."10 With the conclusion that respondent directed petitioners to remain at their posts and
continue with their duties, it is clear that respondent exercised the power of control over them; thus, the existence of an
employer-employee relationship.

In Tongko v. The Manufacturers Life Insurance Co. (Phils.) Inc.,11 we reiterated the oft repeated rule that control is the
most important element in the determination of the existence of an employer-employee relationship:

In the determination of whether an employer-employee relationship exists between two parties, this Court applies the
four-fold test to determine the existence of the elements of such relationship. In Pacific Consultants International Asia,
Inc. v. Schonfeld, the Court set out the elements of an employer-employee relationship, thus:

Jurisprudence is firmly settled that whenever the existence of an employment relationship is in dispute, four elements
constitute the reliable yardstick: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the
power of dismissal; and (d) the employer’s power to control the employee’s conduct. It is the so-called "control test"
which constitutes the most important index of the existence of the employer-employee relationship 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. Stated otherwise, an employer-employee
relationship exists where the person for whom the services are performed reserves the right to control not only the end
to be achieved but also the means to be used in reaching such end.

Furthermore, Article 106 of the Labor Code contains a provision on contractors, to wit:

Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the
performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be
paid in accordance with the provisions of this Code.

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

The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting-out of labor
to protect the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job contracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the employer for purposes of this Code,
to prevent any violation or circumvention of any provision of this Code.1avvphi1

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital
or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited
and placed by such person are performing activities which are directly related to the principal business of such
employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were directly employed by him. (Emphasis
supplied.)

Thus, the Secretary of Labor issued Department Order No. 18-2002, Series of 2002, implementing Art. 106 as follows:

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.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations,
tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or
subcontractor in the performance or completion of the job, work or service contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of the contractual workers are
performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that
end.

On the other hand, Sec. 7 of the department order contains the consequence of such labor-only contracting:

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 cases 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.
(Emphasis supplied.)

Evidently, respondent having the power of control over petitioners must be considered as petitioners’ employer––from
the termination of the Agreement onwards––as this was the only time that any evidence of control was exhibited by
respondent over petitioners and in light of our ruling in Abella.12 Thus, as aptly declared by the NLRC, petitioners were
entitled to the rights and benefits of employees of respondent, including due process requirements in the termination of
their services.

Both the Labor Arbiter and NLRC found that respondent did not observe such due process requirements. Having failed to
do so, respondent is guilty of illegal dismissal.

WHEREFORE, we SET ASIDE the CA’s May 6, 2008 Decision and November 4, 2008 Resolution in CA-G.R. SP No. 97398.
We hereby REINSTATE the Labor Arbiter’s Decision dated February 13, 2004 and the NLRC’s Resolutions dated October
28, 2005 and August 28, 2006.

No costs.

SO ORDERED

G.R. No. 84484 November 15, 1989

INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.

Tirol & Tirol for petitioner.

Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.

NARVASA, J.:

On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and Melecio T. Basiao entered
into a contract 1 by which:

1. Basiao was "authorized to solicit within the Philippines applications for insurance policies and
annuities in accordance with the existing rules and regulations" of the Company;

2. he would receive "compensation, in the form of commissions ... as provided in the Schedule of
Commissions" of the contract to "constitute a part of the consideration of ... (said) agreement;" and

3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well as all its circulars ... and
those which may from time to time be promulgated by it, ..." were made part of said contract.

The contract also contained, among others, provisions governing the relations of the parties, the duties of the Agent, the
acts prohibited to him, and the modes of termination of the agreement, viz.:

RELATION WITH THE COMPANY. The Agent shall be free to exercise his own judgment as to time, place
and means of soliciting insurance. Nothing herein contained shall therefore be construed to create the
relationship of employee and employer between the Agent and the Company. However, the Agent shall
observe and conform to all rules and regulations which the Company may from time to time prescribe.

ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving, directly or indirectly, rebates
in any form, or from making any misrepresentation or over-selling, and, in general, from doing or
committing acts prohibited in the Agent's Manual and in circulars of the Office of the Insurance
Commissioner.
 TERMINATION. The Company may terminate the contract at will, without any previous notice to the
Agent, for or on account of ... (explicitly specified causes). ...

Either party may terminate this contract by giving to the other notice in writing to that effect. It shall
become ipso facto cancelled if the Insurance Commissioner should revoke a Certificate of Authority
previously issued or should the Agent fail to renew his existing Certificate of Authority upon its
expiration. The Agent shall not have any right to any commission on renewal of premiums that may be
paid after the termination of this agreement for any cause whatsoever, except when the termination is
due to disability or death in line of service. As to commission corresponding to any balance of the first
year's premiums remaining unpaid at the termination of this agreement, the Agent shall be entitled to it
if the balance of the first year premium is paid, less actual cost of collection, unless the termination is
due to a violation of this contract, involving criminal liability or breach of trust.

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

shall be valid without the prior consent in writing of the Company. ...

Some four years later, in April 1972, the parties entered into another contract — an Agency Manager's Contract — and
to implement his end of it Basiao organized an agency or office to which he gave the name M. Basiao and Associates,
while concurrently fulfilling his commitments under the first contract with the Company. 2

In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking a reconsideration, Basiao
sued the Company in a civil action and this, he was later to claim, prompted the latter to terminate also his engagement
under the first contract and to stop payment of his commissions starting April 1, 1980. 3

Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and its president. Without
contesting the termination of the first contract, the complaint sought to recover commissions allegedly unpaid
thereunder, plus attorney's fees. The respondents disputed the Ministry's jurisdiction over Basiao's claim, asserting that
he was not the Company's employee, but an independent contractor and that the Company had no obligation to him for
unpaid commissions under the terms and conditions of his contract. 5

The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting agreement had
established an employer-employee relationship between him and the Company, and this conferred jurisdiction on the
Ministry of Labor to adjudicate his claim. Said official's decision directed payment of his unpaid commissions "...
equivalent to the balance of the first year's premium remaining unpaid, at the time of his termination, of all the
insurance policies solicited by ... (him) in favor of the respondent company ..." plus 10% attorney's fees. 6

This decision was, on appeal by the Company, affirmed by the National Labor Relations Commission. 7 Hence, the
present petition for certiorari and prohibition.

The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the Company's employee by virtue
of the contract invoked by him, thereby placing his claim for unpaid commissions within the original and exclusive
jurisdiction of the Labor Arbiter under the provisions of Section 217 of the Labor Code, 8 or, contrarily, as the Company
would have it, that under said contract Basiao's status was that of an independent contractor whose claim was thus
cognizable, not by the Labor Arbiter in a labor case, but by the regular courts in an ordinary civil action.

The Company's thesis, that no employer-employee relation in the legal and generally accepted sense existed between it
and Basiao, is drawn from the terms of the contract they had entered into, which, either expressly or by necessary
implication, made Basiao the master of his own time and selling methods, left to his judgment the time, place and
means of soliciting insurance, set no accomplishment quotas and compensated him on the basis of results obtained. He
was not bound to observe any schedule of working hours or report to any regular station; he could seek and work on his
prospects anywhere and at anytime he chose to, and was free to adopt the selling methods he deemed most effective.

Without denying that the above were indeed the expressed implicit conditions of Basiao's contract with the Company,
the respondents contend that they do not constitute the decisive determinant of the nature of his engagement, invoking
precedents to the effect that the critical feature distinguishing the status of an employee from that of an independent
contractor is control, that is, whether or not the party who engages the services of another has the power to control the
latter's conduct in rendering such services. Pursuing the argument, the respondents draw attention to the provisions of
Basiao's contract obliging him to "... observe and conform to all rules and regulations which the Company may from time
to time prescribe ...," as well as to the fact that the Company prescribed the qualifications of applicants for insurance,
processed their applications and determined the amounts of insurance cover to be issued as indicative of the control,
which made Basiao, in legal contemplation, an employee of the Company. 9
It is true that the "control test" expressed in the following pronouncement of the Court in the 1956 case of Viana vs.
Alejo Al-Lagadan10

... In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3)
the power of dismissal; and (4) the power to control the employees' conduct — although the latter is
the most important element (35 Am. Jur. 445). ...

has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a valid test of the
character of a contract or agreement to render service. It should, however, be obvious that not every form of control
that the hiring party reserves to himself over the conduct of the party hired in relation to the services rendered may be
accorded the effect of establishing an employer-employee relationship between them in the legal or technical sense of
the term. A line must be drawn somewhere, if the recognized distinction between an employee and an individual
contractor is not to vanish altogether. Realistically, it would be a rare contract of service that gives untrammelled
freedom to the party hired and eschews any intervention whatsoever in his performance of the engagement.

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the
mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or
fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote
the result, create no employer-employee relationship unlike the second, which address both the result and the means
used to achieve it. The distinction acquires particular relevance in the case of an enterprise affected with public interest,
as is the business of insurance, and is on that account subject to regulation by the State with respect, not only to the
relations between insurer and insured but also to the internal affairs of the insurance company. 12 Rules and regulations
governing the conduct of the business are provided for in the Insurance Code and enforced by the Insurance
Commissioner. It is, therefore, usual and expected for an insurance company to promulgate a set of rules to guide its
commission agents in selling its policies that they may not run afoul of the law and what it requires or prohibits. Of such
a character are the rules which prescribe the qualifications of persons who may be insured, subject insurance
applications to processing and approval by the Company, and also reserve to the Company the determination of the
premiums to be paid and the schedules of payment. None of these really invades the agent's contractual prerogative to
adopt his own selling methods or to sell insurance at his own time and convenience, hence cannot justifiably be said to
establish an employer-employee relationship between him and the company.

There is no dearth of authority holding persons similarly placed as respondent Basiao to be independent contractors,
instead of employees of the parties for whom they worked. In Mafinco Trading Corporation vs. Ople, 13 the Court ruled
that a person engaged to sell soft drinks for another, using a truck supplied by the latter, but with the right to employ his
own workers, sell according to his own methods subject only to prearranged routes, observing no working hours fixed by
the other party and obliged to secure his own licenses and defray his own selling expenses, all in consideration of a
peddler's discount given by the other party for at least 250 cases of soft drinks sold daily, was not an employee but an
independent contractor.

In Investment Planning Corporation of the Philippines us. Social Security System 14 a case almost on all fours with the
present one, this Court held that there was no employer-employee relationship between a commission agent and an
investment company, but that the former was an independent contractor where said agent and others similarly placed
were: (a) paid compensation in the form of commissions based on percentages of their sales, any balance of
commissions earned being payable to their legal representatives in the event of death or registration; (b) required to put
up performance bonds; (c) subject to a set of rules and regulations governing the performance of their duties under the
agreement with the company and termination of their services for certain causes; (d) not required to report for work at
any time, nor to devote their time exclusively to working for the company nor to submit a record of their activities, and
who, finally, shouldered their own selling and transportation expenses.

More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller to buy and sell rice and
palay without compensation except a certain percentage of what he was able to buy or sell, did work at his own
pleasure without any supervision or control on the part of his principal and relied on his own resources in the
performance of his work, was a plain commission agent, an independent contractor and not an employee.

The respondents limit themselves to pointing out that Basiao's contract with the Company bound him to observe and
conform to such rules and regulations as the latter might from time to time prescribe. No showing has been made that
any such rules or regulations were in fact promulgated, much less that any rules existed or were issued which effectively
controlled or restricted his choice of methods — or the methods themselves — of selling insurance. Absent such
showing, the Court will not speculate that any exceptions or qualifications were imposed on the express provision of the
contract leaving Basiao "... free to exercise his own judgment as to the time, place and means of soliciting insurance."
The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with the Company for twenty-
five years. Whatever this is meant to imply, the obvious reply would be that what is germane here is Basiao's status
under the contract of July 2, 1968, not the length of his relationship with the Company.

The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of the petitioner, but a
commission agent, an independent contractor whose claim for unpaid commissions should have been litigated in an
ordinary civil action. The Labor Arbiter erred in taking cognizance of, and adjudicating, said claim, being without
jurisdiction to do so, as did the respondent NLRC in affirming the Arbiter's decision. This conclusion renders it
unnecessary and premature to consider Basiao's claim for commissions on its merits.

WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside, and that complaint of
private respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is dismissed. No pronouncement as to costs.

SO ORDERED

G.R. No. 167622 June 29, 2010

GREGORIO V. TONGKO, Petitioner,

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS, Respondents.

RESOLUTION

BRION, J.:

This resolves the Motion for Reconsideration1 dated December 3, 2008 filed by respondent The Manufacturers Life
Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of November 7, 2008. In the assailed decision, we found
that an employer-employee relationship existed between Manulife and petitioner Gregorio Tongko and ordered
Manulife to pay Tongko backwages and separation pay for illegal dismissal.

The following facts have been stated in our Decision of November 7, 2008, now under reconsideration, but are
repeated, simply for purposes of clarity.

The contractual relationship between Tongko and Manulife had two basic phases. The first or initial phase began on July
1, 1977, under a Career Agent’s Agreement (Agreement) that provided:

It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be
construed or interpreted as creating an employer-employee relationship between the Company and the Agent.

xxxx

a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products offered by
the Company, and collect, in exchange for provisional receipts issued by the Agent, money due to or become due to the
Company in respect of applications or policies obtained by or through the Agent or from policyholders allotted by the
Company to the Agent for servicing, subject to subsequent confirmation of receipt of payment by the Company as
evidenced by an Official Receipt issued by the Company directly to the policyholder.

xxxx

The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the Agent by
giving written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No waiver,
extinguishment, abandonment, withdrawal or cancellation of the right to terminate this Agreement by the Company
shall be construed for any previous failure to exercise its right under any provision of this Agreement.

Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other
party fifteen (15) days notice in writing.2

Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and (2) to maintain a
standard of knowledge and competency in the sale of Manulife’s products, satisfactory to Manulife and sufficient to
meet the volume of the new business, required by his Production Club membership.3
The second phase started in 1983 when Tongko was named Unit Manager in Manulife’s Sales Agency Organization. In
1990, he became a Branch Manager. Six years later (or in 1996), Tongko became a Regional Sales Manager.4

Tongko’s gross earnings consisted of commissions, persistency income, and management overrides. Since the beginning,
Tongko consistently declared himself self-employed in his income tax returns. Thus, under oath, he declared his gross
business income and deducted his business expenses to arrive at his taxable business income. Manulife withheld the
corresponding 10% tax on Tongko’s earnings.5

In 2001, Manulife instituted manpower development programs at the regional sales management level. Respondent
Renato Vergel de Dios wrote Tongko a letter dated November 6, 2001 on concerns that were brought up during the
October 18, 2001 Metro North Sales Managers Meeting. De Dios wrote:

The first step to transforming Manulife into a big league player has been very clear – to increase the number of agents to
at least 1,000 strong for a start. This may seem diametrically opposed to the way Manulife was run when you first joined
the organization. Since then, however, substantial changes have taken place in the organization, as these have been
influenced by developments both from within and without the company.

xxxx

The issues around agent recruiting are central to the intended objectives hence the need for a Senior Managers’
meeting earlier last month when Kevin O’Connor, SVP-Agency, took to the floor to determine from our senior agency
leaders what more could be done to bolster manpower development. At earlier meetings, Kevin had presented
information where evidently, your Region was the lowest performer (on a per Manager basis) in terms of recruiting in
2000 and, as of today, continues to remain one of the laggards in this area.

While discussions, in general, were positive other than for certain comments from your end which were perceived to be
uncalled for, it became clear that a one-on-one meeting with you was necessary to ensure that you and management,
were on the same plane. As gleaned from some of your previous comments in prior meetings (both in group and one-
on-one), it was not clear that we were proceeding in the same direction.

Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those subsequent
meetings you reiterated certain views, the validity of which we challenged and subsequently found as having no basis.

With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a bit
confused as to the directions the company was taking. For this reason, I sought a meeting with everyone in your
management team, including you, to clear the air, so to speak.

This note is intended to confirm the items that were discussed at the said Metro North Region’s Sales Managers meeting
held at the 7/F Conference room last 18 October.

xxxx

Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the position of agents."

This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the issue on the table
before the rest of your Region’s Sales Managers to verify its validity. As you must have noted, no Sales Manager came
forward on their own to confirm your statement and it took you to name Malou Samson as a source of the same, an
allegation that Malou herself denied at our meeting and in your very presence.

This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had thought all along,
that these allegations were simply meant to muddle the issues surrounding the inability of your Region to meet its
agency development objectives!

Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process, they earn less."

xxxx

All the above notwithstanding, we had your own records checked and we found that you made a lot more money in the
Year 2000 versus 1999. In addition, you also volunteered the information to Kevin when you said that you probably will
make more money in the Year 2001 compared to Year 2000. Obviously, your above statement about making "less
money" did not refer to you but the way you argued this point had us almost believing that you were spouting the
gospel of truth when you were not. x x x
xxxx

All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the new direction
that we have been discussing these past few weeks, i.e., Manulife’s goal to become a major agency-led distribution
company in the Philippines. While as you claim, you have not stopped anyone from recruiting, I have never heard you
proactively push for greater agency recruiting. You have not been proactive all these years when it comes to agency
growth.

xxxx

I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are making the
following changes in the interim:

1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks which can be
easily delegated. This assistant should be so chosen as to complement your skills and help you in the areas where you
feel "may not be your cup of tea."

You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for your health. The
above could solve this problem.

xxxx

2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch (NSB) in
autonomous fashion. x x x

I have decided to make this change so as to reduce your span of control and allow you to concentrate more fully on
overseeing the remaining groups under Metro North, your Central Unit and the rest of the Sales Managers in Metro
North. I will hold you solely responsible for meeting the objectives of these remaining groups.

xxxx

The above changes can end at this point and they need not go any further. This, however, is entirely dependent upon
you. But you have to understand that meeting corporate objectives by everyone is primary and will not be
compromised. We are meeting tough challenges next year, and I would want everybody on board. Any resistance or
holding back by anyone will be dealt with accordingly.6

Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating Tongko’s services:

It would appear, however, that despite the series of meetings and communications, both one-on-one meetings between
yourself and SVP Kevin O’Connor, some of them with me, as well as group meetings with your Sales Managers, all these
efforts have failed in helping you align your directions with Management’s avowed agency growth policy.

xxxx

On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as we are now
issuing this notice of termination of your Agency Agreement with us effective fifteen days from the date of this letter.7

Tongko responded by filing an illegal dismissal complaint with the National Labor Relations Commission (NLRC)
Arbitration Branch. He essentially alleged – despite the clear terms of the letter terminating his Agency Agreement –
that he was Manulife’s employee before he was illegally dismissed.8

Thus, the threshold issue is the existence of an employment relationship. A finding that none exists renders the question
of illegal dismissal moot; a finding that an employment relationship exists, on the other hand, necessarily leads to the
need to determine the validity of the termination of the relationship.

A. Tongko’s Case for Employment Relationship

Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding ₱50,000.00, regardless of
production levels attained and exclusive of commissions and bonuses. He also claimed that as Regional Sales Manager,
he was given a travel and entertainment allowance of ₱36,000.00 per year in addition to his overriding commissions; he
was tasked with numerous administrative functions and supervisory authority over Manulife’s employees, aside from
merely selling policies and recruiting agents for Manulife; and he recommended and recruited insurance agents subject
to vetting and approval by Manulife. He further alleges that he was assigned a definite place in the Manulife offices
when he was not in the field – at the 3rd Floor, Manulife Center, 108 Tordesillas corner Gallardo Sts., Salcedo Village,
Makati City – for which he never paid any rental. Manulife provided the office equipment he used, including tables,
chairs, computers and printers (and even office stationery), and paid for the electricity, water and telephone bills. As
Regional Sales Manager, Tongko additionally asserts that he was required to follow at least three codes of conduct.9

B. Manulife’s Case – Agency Relationship with Tongko

Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was paid commissions of
varying amounts, computed based on the premium paid in full and actually received by Manulife on policies obtained
through an agent. As sales manager, Tongko was paid overriding sales commission derived from sales made by agents
under his unit/structure/branch/region. Manulife also points out that it deducted and withheld a 10% tax from all
commissions Tongko received; Tongko even declared himself to be self-employed and consistently paid taxes as such—
i.e., he availed of tax deductions such as ordinary and necessary trade, business and professional expenses to which a
business is entitled.

Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he was not its employee as
characterized in the four-fold test and our ruling in Carungcong v. National Labor Relations Commission.10

The Conflicting Rulings of the Lower Tribunals

The labor arbiter decreed that no employer-employee relationship existed between the parties. However, the NLRC
reversed the labor arbiter’s decision on appeal; it found the existence of an employer-employee relationship and
concluded that Tongko had been illegally dismissed. In the petition for certiorari with the Court of Appeals (CA), the
appellate court found that the NLRC gravely abused its discretion in its ruling and reverted to the labor arbiter’s decision
that no employer-employee relationship existed between Tongko and Manulife.

Our Decision of November 7, 2008

In our Decision of November 7, 2008, we reversed the CA ruling and found that an employment relationship existed
between Tongko and Manulife. We concluded that Tongko is Manulife’s employee for the following reasons:

1. Our ruling in the first Insular11 case did not foreclose the possibility of an insurance agent becoming an
employee of an insurance company; if evidence exists showing that the company promulgated rules or
regulations that effectively controlled or restricted an insurance agent’s choice of methods or the methods
themselves in selling insurance, an employer-employee relationship would be present. The determination of the
existence of an employer-employee relationship is thus on a case-to-case basis depending on the evidence on
record.

2. Manulife had the power of control over Tongko, sufficient to characterize him as an employee, as shown by
the following indicators:

2.1 Tongko undertook to comply with Manulife’s rules, regulations and other requirements, i.e., the
different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of Conduct,
and the Financial Code of Conduct Agreement;

2.2 The various affidavits of Manulife’s insurance agents and managers, who occupied similar positions
as Tongko, showed that they performed administrative duties that established employment with
Manulife;12 and

2.3 Tongko was tasked to recruit some agents in addition to his other administrative functions. De Dios’
letter harped on the direction Manulife intended to take, viz., greater agency recruitment as the primary
means to sell more policies; Tongko’s alleged failure to follow this directive led to the termination of his
employment with Manulife.

The Motion for Reconsideration

Manulife disagreed with our Decision and filed the present motion for reconsideration on the following GROUNDS:

1. The November 7[, 2008] Decision violates Manulife’s right to due process by: (a) confining the review only to
the issue of "control" and utterly disregarding all the other issues that had been joined in this case; (b)
mischaracterizing the divergence of conclusions between the CA and the NLRC decisions as confined only to that
on "control"; (c) grossly failing to consider the findings and conclusions of the CA on the majority of the material
 evidence, especially [Tongko’s] declaration in his income tax returns that he was a "business person" or "self-
employed"; and (d) allowing [Tongko] to repudiate his sworn statement in a public document.

2. The November 7[, 2008] Decision contravenes settled rules in contract law and agency, distorts not only the
legal relationships of agencies to sell but also distributorship and franchising, and ignores the constitutional and
policy context of contract law vis-à-vis labor law.

3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements of the four-fold test
other than the "control" test, reverses well-settled doctrines of law on employer-employee relationships, and
grossly misapplies the "control test," by selecting, without basis, a few items of evidence to the exclusion of
more material evidence to support its conclusion that there is "control."

4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by Articles 8 and 9 of the
Civil Code, beyond the powers granted to this Court under Article VIII, Section 1 of the Constitution and
contravenes through judicial legislation, the constitutional prohibition against impairment of contracts under
Article III, Section 10 of the Constitution.

5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and reversible errors, which
should be corrected, in concluding that Respondent Manulife and Petitioner had an employer-employee
relationship, that Respondent Manulife illegally dismissed Petitioner, and for consequently ordering Respondent
Manulife to pay Petitioner backwages, separation pay, nominal damages and attorney’s fees.13

THE COURT’S RULING

A. The Insurance and the Civil Codes;

the Parties’ Intent and Established
Industry Practices

We cannot consider the present case purely from a labor law perspective, oblivious that the factual antecedents were
set in the insurance industry so that the Insurance Code primarily governs. Chapter IV, Title 1 of this Code is wholly
devoted to "Insurance Agents and Brokers" and specifically defines the agents and brokers relationship with the
insurance company and how they are governed by the Code and regulated by the Insurance Commission.

The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as agency is a civil law matter
governed by the Civil Code. Thus, at the very least, three sets of laws – namely, the Insurance Code, the Labor Code and
the Civil Code – have to be considered in looking at the present case. Not to be forgotten, too, is the Agreement (partly
reproduced on page 2 of this Dissent and which no one disputes) that the parties adopted to govern their relationship
for purposes of selling the insurance the company offers. To forget these other laws is to take a myopic view of the
present case and to add to the uncertainties that now exist in considering the legal relationship between the insurance
company and its "agents."

The main issue of whether an agency or an employment relationship exists depends on the incidents of the relationship.
The Labor Code concept of "control" has to be compared and distinguished with the "control" that must necessarily exist
in a principal-agent relationship. The principal cannot but also have his or her say in directing the course of the principal-
agent relationship, especially in cases where the company-representative relationship in the insurance industry is an
agency.

a. The laws on insurance and agency

The business of insurance is a highly regulated commercial activity in the country, in terms particularly of who can be in
the insurance business, who can act for and in behalf of an insurer, and how these parties shall conduct themselves in
the insurance business. Section 186 of the Insurance Code provides that "No person, partnership, or association of
persons shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to
do the business of insurance in the Philippines." Sections 299 and 300 of the Insurance Code on Insurance Agents and
Brokers, among other provisions, provide:

Section 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission
or other compensation to any person for services in obtaining insurance, unless such person shall have first procured
from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter
provided.

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for
insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance
company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner x x x The Commissioner shall satisfy himself as to the competence and trustworthiness of the applicant
and shall have the right to refuse to issue or renew and to suspend or revoke any such license in his
discretion.1avvphi1.net

Section 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or
transmits for a person other than himself an application for a policy or contract of insurance to or from such company or
offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section
and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is
subject.

The application for an insurance agent’s license requires a written examination, and the applicant must be of good moral
character and must not have been convicted of a crime involving moral turpitude.14 The insurance agent who collects
premiums from an insured person for remittance to the insurance company does so in a fiduciary capacity, and an
insurance company which delivers an insurance policy or contract to an authorized agent is deemed to have authorized
the agent to receive payment on the company’s behalf.15 Section 361 further prohibits the offer, negotiation, or
collection of any amount other than that specified in the policy and this covers any rebate from the premium or any
special favor or advantage in the dividends or benefit accruing from the policy.

Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and must also act within the
parameters of the authority granted under the license and under the contract with the principal. Other than the need
for a license, the agent is limited in the way he offers and negotiates for the sale of the company’s insurance products, in
his collection activities, and in the delivery of the insurance contract or policy. Rules regarding the desired results (e.g.,
the required volume to continue to qualify as a company agent, rules to check on the parameters on the authority given
to the agent, and rules to ensure that industry, legal and ethical rules are followed) are built-in elements of control
specific to an insurance agency and should not and cannot be read as elements of control that attend an employment
relationship governed by the Labor Code.

On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter." 16 While this is a very
broad definition that on its face may even encompass an employment relationship, the distinctions between agency and
employment are sufficiently established by law and jurisprudence.

Generally, the determinative element is the control exercised over the one rendering service. The employer controls the
employee both in the results and in the means and manner of achieving this result. The principal in an agency
relationship, on the other hand, also has the prerogative to exercise control over the agent in undertaking the assigned
task based on the parameters outlined in the pertinent laws.

Under the general law on agency as applied to insurance, an agency must be express in light of the need for a license
and for the designation by the insurance company. In the present case, the Agreement fully serves as grant of authority
to Tongko as Manulife’s insurance agent.17 This agreement is supplemented by the company’s agency practices and
usages, duly accepted by the agent in carrying out the agency.18 By authority of the Insurance Code, an insurance agency
is for compensation,19 a matter the Civil Code Rules on Agency presumes in the absence of proof to the contrary.20 Other
than the compensation, the principal is bound to advance to, or to reimburse, the agent the agreed sums necessary for
the execution of the agency.21 By implication at least under Article 1994 of the Civil Code, the principal can appoint two
or more agents to carry out the same assigned tasks,22 based necessarily on the specific instructions and directives given
to them.

With particular relevance to the present case is the provision that "In the execution of the agency, the agent shall act in
accordance with the instructions of the principal."23 This provision is pertinent for purposes of the necessary control that
the principal exercises over the agent in undertaking the assigned task, and is an area where the instructions can intrude
into the labor law concept of control so that minute consideration of the facts is necessary. A related article is Article
1891 of the Civil Code which binds the agent to render an account of his transactions to the principal.

B. The Cited Case

The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish that the company rules and
regulations that an agent has to comply with are indicative of an employer-employee relationship.24 The Dissenting
Opinions of Justice Presbitero Velasco, Jr. and Justice Conchita Carpio Morales also cite Insular Life Assurance Co. v.
National Labor Relations Commission (second Insular case)25 to support the view that Tongko is Manulife’s employee.
On the other hand, Manulife cites the Carungcong case and AFP Mutual Benefit Association, Inc. v. National Labor
Relations Commission (AFPMBAI case)26 to support its allegation that Tongko was not its employee.
A caveat has been given above with respect to the use of the rulings in the cited cases because none of them is on all
fours with the present case; the uniqueness of the factual situation of the present case prevents it from being directly
and readily cast in the mold of the cited cases. These cited cases are themselves different from one another; this
difference underscores the need to read and quote them in the context of their own factual situations.

The present case at first glance appears aligned with the facts in the Carungcong, the Grepalife, and the second Insular
Life cases. A critical difference, however, exists as these cited cases dealt with the proper legal characterization of a
subsequent management contract that superseded the original agency contract between the insurance company and its
agent. Carungcong dealt with a subsequent Agreement making Carungcong a New Business Manager that clearly
superseded the Agreement designating Carungcong as an agent empowered to solicit applications for insurance. The
Grepalife case, on the other hand, dealt with the proper legal characterization of the appointment of the Ruiz brothers
to positions higher than their original position as insurance agents. Thus, after analyzing the duties and functions of the
Ruiz brothers, as these were enumerated in their contracts, we concluded that the company practically dictated the
manner by which the Ruiz brothers were to carry out their jobs. Finally, the second Insular Life case dealt with the
implications of de los Reyes’ appointment as acting unit manager which, like the subsequent contracts in the
Carungcong and the Grepalife cases, was clearly defined under a subsequent contract. In all these cited cases, a
determination of the presence of the Labor Code element of control was made on the basis of the stipulations of the
subsequent contracts.

In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the only contract or document
extant and submitted as evidence in the present case is the Agreement – a pure agency agreement in the Civil Code
context similar to the original contract in the first Insular Life case and the contract in the AFPMBAI case. And while
Tongko was later on designated unit manager in 1983, Branch Manager in 1990, and Regional Sales Manager in 1996, no
formal contract regarding these undertakings appears in the records of the case. Any such contract or agreement, had
there been any, could have at the very least provided the bases for properly ascertaining the juridical relationship
established between the parties.

These critical differences, particularly between the present case and the Grepalife and the second Insular Life cases,
should therefore immediately drive us to be more prudent and cautious in applying the rulings in these cases.

C. Analysis of the Evidence

c.1. The Agreement

The primary evidence in the present case is the July 1, 1977 Agreement that governed and defined the parties’ relations
until the Agreement’s termination in 2001. This Agreement stood for more than two decades and, based on the records
of the case, was never modified or novated. It assumes primacy because it directly dealt with the nature of the parties’
relationship up to the very end; moreover, both parties never disputed its authenticity or the accuracy of its terms.

By the Agreement’s express terms, Tongko served as an "insurance agent" for Manulife, not as an employee. To be sure,
the Agreement’s legal characterization of the nature of the relationship cannot be conclusive and binding on the courts;
as the dissent clearly stated, the characterization of the juridical relationship the Agreement embodied is a matter of law
that is for the courts to determine. At the same time, though, the characterization the parties gave to their relationship
in the Agreement cannot simply be brushed aside because it embodies their intent at the time they entered the
Agreement, and they were governed by this understanding throughout their relationship. At the very least, the provision
on the absence of employer-employee relationship between the parties can be an aid in considering the Agreement and
its implementation, and in appreciating the other evidence on record.

The parties’ legal characterization of their intent, although not conclusive, is critical in this case because this intent is not
illegal or outside the contemplation of law, particularly of the Insurance and the Civil Codes. From this perspective, the
provisions of the Insurance Code cannot be disregarded as this Code (as heretofore already noted) expressly envisions a
principal-agent relationship between the insurance company and the insurance agent in the sale of insurance to the
public.1awph!1 For this reason, we can take judicial notice that as a matter of Insurance Code-based business practice,
an agency relationship prevails in the insurance industry for the purpose of selling insurance. The Agreement, by its
express terms, is in accordance with the Insurance Code model when it provided for a principal-agent relationship, and
thus cannot lightly be set aside nor simply be considered as an agreement that does not reflect the parties’ true intent.
This intent, incidentally, is reinforced by the system of compensation the Agreement provides, which likewise is in
accordance with the production-based sales commissions the Insurance Code provides.

Significantly, evidence shows that Tongko’s role as an insurance agent never changed during his relationship with
Manulife. If changes occurred at all, the changes did not appear to be in the nature of their core relationship. Tongko
essentially remained an agent, but moved up in this role through Manulife’s recognition that he could use other agents
approved by Manulife, but operating under his guidance and in whose commissions he had a share. For want of a better
term, Tongko perhaps could be labeled as a "lead agent" who guided under his wing other Manulife agents similarly
tasked with the selling of Manulife insurance.

Like Tongko, the evidence suggests that these other agents operated under their own agency agreements. Thus, if
Tongko’s compensation scheme changed at all during his relationship with Manulife, the change was solely for purposes
of crediting him with his share in the commissions the agents under his wing generated. As an agent who was recruiting
and guiding other insurance agents, Tongko likewise moved up in terms of the reimbursement of expenses he incurred
in the course of his lead agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil Code. Thus, Tongko
received greater reimbursements for his expenses and was even allowed to use Manulife facilities in his interactions
with the agents, all of whom were, in the strict sense, Manulife agents approved and certified as such by Manulife with
the Insurance Commission.

That Tongko assumed a leadership role but nevertheless wholly remained an agent is the inevitable conclusion that
results from the reading of the Agreement (the only agreement on record in this case) and his continuing role
thereunder as sales agent, from the perspective of the Insurance and the Civil Codes and in light of what Tongko himself
attested to as his role as Regional Sales Manager. To be sure, this interpretation could have been contradicted if other
agreements had been submitted as evidence of the relationship between Manulife and Tongko on the latter’s expanded
undertakings. In the absence of any such evidence, however, this reading – based on the available evidence and the
applicable insurance and civil law provisions – must stand, subject only to objective and evidentiary Labor Code tests on
the existence of an employer-employee relationship.

In applying such Labor Code tests, however, the enforcement of the Agreement during the course of the parties’
relationship should be noted. From 1977 until the termination of the Agreement, Tongko’s occupation was to sell
Manulife’s insurance policies and products. Both parties acquiesced with the terms and conditions of the Agreement.
Tongko, for his part, accepted all the benefits flowing from the Agreement, particularly the generous commissions.

Evidence indicates that Tongko consistently clung to the view that he was an independent agent selling Manulife
insurance products since he invariably declared himself a business or self-employed person in his income tax returns.
This consistency with, and action made pursuant to the Agreement were pieces of evidence that were never
mentioned nor considered in our Decision of November 7, 2008. Had they been considered, they could, at the very
least, serve as Tongko’s admissions against his interest. Strictly speaking, Tongko’s tax returns cannot but be legally
significant because he certified under oath the amount he earned as gross business income, claimed business
deductions, leading to his net taxable income. This should be evidence of the first order that cannot be brushed aside by
a mere denial. Even on a layman’s view that is devoid of legal considerations, the extent of his annual income alone
renders his claimed employment status doubtful.27

Hand in hand with the concept of admission against interest in considering the tax returns, the concept of estoppel – a
legal and equitable concept28 – necessarily must come into play. Tongko’s previous admissions in several years of tax
returns as an independent agent, as against his belated claim that he was all along an employee, are too diametrically
opposed to be simply dismissed or ignored. Interestingly, Justice Velasco’s dissenting opinion states that Tongko was
forced to declare himself a business or self-employed person by Manulife’s persistent refusal to recognize him as its
employee.29 Regrettably, the dissent has shown no basis for this conclusion, an understandable omission since no
evidence in fact exists on this point in the records of the case. In fact, what the evidence shows is Tongko’s full
conformity with, and action as, an independent agent until his relationship with Manulife took a bad turn.

Another interesting point the dissent raised with respect to the Agreement is its conclusion that the Agreement negated
any employment relationship between Tongko and Manulife so that the commissions he earned as a sales agent should
not be considered in the determination of the backwages and separation pay that should be given to him. This part of
the dissent is correct although it went on to twist this conclusion by asserting that Tongko had dual roles in his
relationship with Manulife; he was an agent, not an employee, in so far as he sold insurance for Manulife, but was an
employee in his capacity as a manager. Thus, the dissent concluded that Tongko’s backwages should only be with
respect to his role as Manulife’s manager.

The conclusion with respect to Tongko’s employment as a manager is, of course, unacceptable for the legal, factual and
practical reasons discussed in this Resolution. In brief, the factual reason is grounded on the lack of evidentiary support
of the conclusion that Manulife exercised control over Tongko in the sense understood in the Labor Code. The legal
reason, partly based on the lack of factual basis, is the erroneous legal conclusion that Manulife controlled Tongko and
was thus its employee. The practical reason, on the other hand, is the havoc that the dissent’s unwarranted conclusion
would cause the insurance industry that, by the law’s own design, operated along the lines of principal-agent
relationship in the sale of insurance.

c.2. Other Evidence of Alleged Control

A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing that Manulife ever exercised
means-and-manner control, even to a limited extent, over Tongko during his ascent in Manulife’s sales ladder. In 1983,
Tongko was appointed unit manager. Inexplicably, Tongko never bothered to present any evidence at all on what this
designation meant. This also holds true for Tongko’s appointment as branch manager in 1990, and as Regional Sales
Manager in 1996. The best evidence of control – the agreement or directive relating to Tongko’s duties and
responsibilities – was never introduced as part of the records of the case. The reality is, prior to de Dios’ letter, Manulife
had practically left Tongko alone not only in doing the business of selling insurance, but also in guiding the agents under
his wing. As discussed below, the alleged directives covered by de Dios’ letter, heretofore quoted in full, were policy
directions and targeted results that the company wanted Tongko and the other sales groups to realign with in their own
selling activities. This is the reality that the parties’ presented evidence consistently tells us.

What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife imposes on its agents in
the sale of insurance. The mere presentation of codes or of rules and regulations, however, is not per se indicative of
labor law control as the law and jurisprudence teach us.

As already recited above, the Insurance Code imposes obligations on both the insurance company and its agents in the
performance of their respective obligations under the Code, particularly on licenses and their renewals, on the
representations to be made to potential customers, the collection of premiums, on the delivery of insurance policies, on
the matter of compensation, and on measures to ensure ethical business practice in the industry.

The general law on agency, on the other hand, expressly allows the principal an element of control over the agent in a
manner consistent with an agency relationship. In this sense, these control measures cannot be read as indicative of
labor law control. Foremost among these are the directives that the principal may impose on the agent to achieve the
assigned tasks, to the extent that they do not involve the means and manner of undertaking these tasks. The law
likewise obligates the agent to render an account; in this sense, the principal may impose on the agent specific
instructions on how an account shall be made, particularly on the matter of expenses and reimbursements. To these
extents, control can be imposed through rules and regulations without intruding into the labor law concept of control
for purposes of employment.

From jurisprudence, an important lesson that the first Insular Life case teaches us is that a commitment to abide by the
rules and regulations of an insurance company does not ipso facto make the insurance agent an employee. Neither do
guidelines somehow restrictive of the insurance agent’s conduct necessarily indicate "control" as this term is defined in
jurisprudence. Guidelines indicative of labor law "control," as the first Insular Life case tells us, should not merely
relate to the mutually desirable result intended by the contractual relationship; they must have the nature of
dictating the means or methods to be employed in attaining the result, or of fixing the methodology and of binding or
restricting the party hired to the use of these means. In fact, results-wise, the principal can impose production quotas
and can determine how many agents, with specific territories, ought to be employed to achieve the company’s
objectives. These are management policy decisions that the labor law element of control cannot reach. Our ruling in
these respects in the first Insular Life case was practically reiterated in Carungcong. Thus, as will be shown more fully
below, Manulife’s codes of conduct,30 all of which do not intrude into the insurance agents’ means and manner of
conducting their sales and only control them as to the desired results and Insurance Code norms, cannot be used as
basis for a finding that the labor law concept of control existed between Manulife and Tongko.

The dissent considers the imposition of administrative and managerial functions on Tongko as indicative of labor law
control; thus, Tongko as manager, but not as insurance agent, became Manulife’s employee. It drew this conclusion
from what the other Manulife managers disclosed in their affidavits (i.e., their enumerated administrative and
managerial functions) and after comparing these statements with the managers in Grepalife. The dissent compared the
control exercised by Manulife over its managers in the present case with the control the managers in the Grepalife case
exercised over their employees by presenting the following matrix:31

Duties of Manulife’s Manager Duties of Grepalife’s Managers/Supervisors

- to render or recommend prospective agents
to be licensed, trained and contracted to sell
Manulife products and who will be part of my
Unit
- to coordinate activities of the agents under
[the managers’] Unit in [the agents’] daily,
weekly and monthly selling activities, making
sure that their respective sales targets are
met;
- train understudies for the position of district
manager
- properly account, record and document the
company’s funds, spot-check and audit the work
of the zone supervisors, x x x follow up the
submission of weekly remittance reports of the
debit agents and zone supervisors

- to conduct periodic training sessions for - direct and supervise the sales activities of the
 [the] agents to further enhance their sales
skill; and
- to assist [the] agents with their sales
activities by way of joint fieldwork,
consultations and one-on-one evaluation and
analysis of particular accounts
debit agents under him, x x x undertake and
discharge the functions of absentee debit agents,
spot-check the record of debit agents, and insure
proper documentation of sales and collections of
debit agents.

Aside from these affidavits however, no other evidence exists regarding the effects of Tongko’s additional roles in
Manulife’s sales operations on the contractual relationship between them.

To the dissent, Tongko’s administrative functions as recruiter, trainer, or supervisor of other sales agents constituted a
substantive alteration of Manulife’s authority over Tongko and the performance of his end of the relationship with
Manulife. We could not deny though that Tongko remained, first and foremost, an insurance agent, and that his
additional role as Branch Manager did not lessen his main and dominant role as insurance agent; this role continued to
dominate the relations between Tongko and Manulife even after Tongko assumed his leadership role among agents.
This conclusion cannot be denied because it proceeds from the undisputed fact that Tongko and Manulife never altered
their July 1, 1977 Agreement, a distinction the present case has with the contractual changes made in the second Insular
Life case. Tongko’s results-based commissions, too, attest to the primacy he gave to his role as insurance sales agent.

The dissent apparently did not also properly analyze and appreciate the great qualitative difference that exists between:

 the Manulife managers’ role is to coordinate activities of the agents under the managers’ Unit in the agents’
daily, weekly, and monthly selling activities, making sure that their respective sales targets are met.
 the District Manager’s duty in Grepalife is to properly account, record, and document the company's funds,
spot-check and audit the work of the zone supervisors, conserve the company's business in the district through
"reinstatements," follow up the submission of weekly remittance reports of the debit agents and zone
supervisors, preserve company property in good condition, train understudies for the position of district
managers, and maintain his quota of sales (the failure of which is a ground for termination).
 the Zone Supervisor’s (also in Grepalife) has the duty to direct and supervise the sales activities of the debit
agents under him, conserve company property through "reinstatements," undertake and discharge the functions
of absentee debit agents, spot-check the records of debit agents, and insure proper documentation of sales and
collections by the debit agents.

These job contents are worlds apart in terms of "control." In Grepalife, the details of how to do the job are specified and
pre-determined; in the present case, the operative words are the "sales target," the methodology being left undefined
except to the extent of being "coordinative." To be sure, a "coordinative" standard for a manager cannot be indicative of
control; the standard only essentially describes what a Branch Manager is – the person in the lead who orchestrates
activities within the group. To "coordinate," and thereby to lead and to orchestrate, is not so much a matter of control
by Manulife; it is simply a statement of a branch manager’s role in relation with his agents from the point of view of
Manulife whose business Tongko’s sales group carries.

A disturbing note, with respect to the presented affidavits and Tongko’s alleged administrative functions, is the selective
citation of the portions supportive of an employment relationship and the consequent omission of portions leading to
the contrary conclusion. For example, the following portions of the affidavit of Regional Sales Manager John Chua, with
counterparts in the other affidavits, were not brought out in the Decision of November 7, 2008, while the other portions
suggesting labor law control were highlighted. Specifically, the following portions of the affidavits were not brought
out:32

1.a. I have no fixed wages or salary since my services are compensated by way of commissions based on the
computed premiums paid in full on the policies obtained thereat;

1.b. I have no fixed working hours and employ my own method in soliticing insurance at a time and place I see
fit;

1.c. I have my own assistant and messenger who handle my daily work load;

1.d. I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance;

xxxx

6. I have my own staff that handles the day to day operations of my office;
 7. My staff are my own employees and received salaries from me;

xxxx

9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as income by a self-
employed individual or professional with a ten (10) percent creditable withholding tax. I also remit monthly for
professionals.

These statements, read with the above comparative analysis of the Manulife and the Grepalife cases, would have readily
yielded the conclusion that no employer-employee relationship existed between Manulife and Tongko.

Even de Dios’ letter is not determinative of control as it indicates the least amount of intrusion into Tongko’s exercise of
his role as manager in guiding the sales agents. Strictly viewed, de Dios’ directives are merely operational guidelines on
how Tongko could align his operations with Manulife’s re-directed goal of being a "big league player." The method is to
expand coverage through the use of more agents. This requirement for the recruitment of more agents is not a means-
and-method control as it relates, more than anything else, and is directly relevant, to Manulife’s objective of expanded
business operations through the use of a bigger sales force whose members are all on a principal-agent relationship. An
important point to note here is that Tongko was not supervising regular full-time employees of Manulife engaged in the
running of the insurance business; Tongko was effectively guiding his corps of sales agents, who are bound to Manulife
through the same Agreement that he had with Manulife, all the while sharing in these agents’ commissions through his
overrides. This is the lead agent concept mentioned above for want of a more appropriate term, since the title of Branch
Manager used by the parties is really a misnomer given that what is involved is not a specific regular branch of the
company but a corps of non-employed agents, defined in terms of covered territory, through which the company sells
insurance. Still another point to consider is that Tongko was not even setting policies in the way a regular company
manager does; company aims and objectives were simply relayed to him with suggestions on how these objectives can
be reached through the expansion of a non-employee sales force.

Interestingly, a large part of de Dios’ letter focused on income, which Manulife demonstrated, in Tongko’s case, to be
unaffected by the new goal and direction the company had set. Income in insurance agency, of course, is dependent on
results, not on the means and manner of selling – a matter for Tongko and his agents to determine and an area into
which Manulife had not waded. Undeniably, de Dios’ letter contained a directive to secure a competent assistant at
Tongko’s own expense. While couched in terms of a directive, it cannot strictly be understood as an intrusion into
Tongko’s method of operating and supervising the group of agents within his delineated territory. More than anything
else, the "directive" was a signal to Tongko that his results were unsatisfactory, and was a suggestion on how Tongko’s
perceived weakness in delivering results could be remedied. It was a solution, with an eye on results, for a consistently
underperforming group; its obvious intent was to save Tongko from the result that he then failed to grasp – that he
could lose even his own status as an agent, as he in fact eventually did.

The present case must be distinguished from the second Insular Life case that showed the hallmarks of an employer-
employee relationship in the management system established. These were: exclusivity of service, control of assignments
and removal of agents under the private respondent’s unit, and furnishing of company facilities and materials as well as
capital described as Unit Development Fund. All these are obviously absent in the present case. If there is a commonality
in these cases, it is in the collection of premiums which is a basic authority that can be delegated to agents under the
Insurance Code.

As previously discussed, what simply happened in Tongko’s case was the grant of an expanded sales agency role that
recognized him as leader amongst agents in an area that Manulife defined. Whether this consequently resulted in the
establishment of an employment relationship can be answered by concrete evidence that corresponds to the
following questions:

 as lead agent, what were Tongko’s specific functions and the terms of his additional engagement;
 was he paid additional compensation as a so-called Area Sales Manager, apart from the commissions he
received from the insurance sales he generated;
 what can be Manulife’s basis to terminate his status as lead agent;
 can Manulife terminate his role as lead agent separately from his agency contract; and
 to what extent does Manulife control the means and methods of Tongko’s role as lead agent?

The answers to these questions may, to some extent, be deduced from the evidence at hand, as partly discussed above.
But strictly speaking, the questions cannot definitively and concretely be answered through the evidence on record. The
concrete evidence required to settle these questions is simply not there, since only the Agreement and the anecdotal
affidavits have been marked and submitted as evidence.
Given this anemic state of the evidence, particularly on the requisite confluence of the factors determinative of the
existence of employer-employee relationship, the Court cannot conclusively find that the relationship exists in the
present case, even if such relationship only refers to Tongko’s additional functions. While a rough deduction can be
made, the answer will not be fully supported by the substantial evidence needed.

Under this legal situation, the only conclusion that can be made is that the absence of evidence showing Manulife’s
control over Tongko’s contractual duties points to the absence of any employer-employee relationship between Tongko
and Manulife. In the context of the established evidence, Tongko remained an agent all along; although his subsequent
duties made him a lead agent with leadership role, he was nevertheless only an agent whose basic contract yields no
evidence of means-and-manner control.

This conclusion renders unnecessary any further discussion of the question of whether an agent may simultaneously
assume conflicting dual personalities. But to set the record straight, the concept of a single person having the dual role
of agent and employee while doing the same task is a novel one in our jurisprudence, which must be viewed with
caution especially when it is devoid of any jurisprudential support or precedent. The quoted portions in Justice Carpio-
Morales’ dissent,33 borrowed from both the Grepalife and the second Insular Life cases, to support the duality approach
of the Decision of November 7, 2008, are regrettably far removed from their context – i.e., the cases’ factual situations,
the issues they decided and the totality of the rulings in these cases – and cannot yield the conclusions that the
dissenting opinions drew.

The Grepalife case dealt with the sole issue of whether the Ruiz brothers’ appointment as zone supervisor and district
manager made them employees of Grepalife. Indeed, because of the presence of the element of control in their contract
of engagements, they were considered Grepalife’s employees. This did not mean, however, that they were
simultaneously considered agents as well as employees of Grepalife; the Court’s ruling never implied that this situation
existed insofar as the Ruiz brothers were concerned. The Court’s statement – the Insurance Code may govern the
licensing requirements and other particular duties of insurance agents, but it does not bar the application of the Labor
Code with regard to labor standards and labor relations – simply means that when an insurance company has exercised
control over its agents so as to make them their employees, the relationship between the parties, which was otherwise
one for agency governed by the Civil Code and the Insurance Code, will now be governed by the Labor Code. The reason
for this is simple – the contract of agency has been transformed into an employer-employee relationship.

The second Insular Life case, on the other hand, involved the issue of whether the labor bodies have jurisdiction over an
illegal termination dispute involving parties who had two contracts – first, an original contract (agency contract), which
was undoubtedly one for agency, and another subsequent contract that in turn designated the agent acting unit
manager (a management contract). Both the Insular Life and the labor arbiter were one in the position that both were
agency contracts. The Court disagreed with this conclusion and held that insofar as the management contract is
concerned, the labor arbiter has jurisdiction. It is in this light that we remanded the case to the labor arbiter for further
proceedings. We never said in this case though that the insurance agent had effectively assumed dual personalities for
the simple reason that the agency contract has been effectively superseded by the management contract. The
management contract provided that if the appointment was terminated for any reason other than for cause, the acting
unit manager would be reverted to agent status and assigned to any unit.

The dissent pointed out, as an argument to support its employment relationship conclusion, that any doubt in the
existence of an employer-employee relationship should be resolved in favor of the existence of the relationship. 34 This
observation, apparently drawn from Article 4 of the Labor Code, is misplaced, as Article 4 applies only when a doubt
exists in the "implementation and application" of the Labor Code and its implementing rules; it does not apply where no
doubt exists as in a situation where the claimant clearly failed to substantiate his claim of employment relationship by
the quantum of evidence the Labor Code requires.

On the dissent’s last point regarding the lack of jurisprudential value of our November 7, 2008 Decision, suffice it to
state that, as discussed above, the Decision was not supported by the evidence adduced and was not in accordance with
controlling jurisprudence. It should, therefore, be reconsidered and abandoned, but not in the manner the dissent
suggests as the dissenting opinions are as factually and as legally erroneous as the Decision under reconsideration.

In light of these conclusions, the sufficiency of Tongko’s failure to comply with the guidelines of de Dios’ letter, as a
ground for termination of Tongko’s agency, is a matter that the labor tribunals cannot rule upon in the absence of an
employer-employee relationship. Jurisdiction over the matter belongs to the courts applying the laws of insurance,
agency and contracts.

WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November 7, 2008, GRANT Manulife’s
motion for reconsideration and, accordingly, DISMISS Tongko’s petition. No costs.

SO ORDERED
G.R. No. 171212 August 4, 2014

INDOPHIL TEXTILE MILLS, INC., Petitioner,

vs.
ENGR. SALVADOR ADVIENTO, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court which seeks to review,
reverse and set-aside the Decision1 of the Court of Appeals (CA), dated May 30, 2005, and its Resolution2 dated January
10, 2006 in the case entitled Jndophil Textile Mills, Inc. v. Hon. Rolando R. Velasco and Engr. Salvador Adviento,
docketed as CA-G.R. SP No. 83099.

The facts are not disputed.

Petitioner Indophil Textile Mills, Inc. is a domestic corporation engaged in the business of manufacturing thread for
weaving.3 On August 21, 1990, petitioner hired respondent Engr. Salvador Adviento as Civil Engineer to maintain its
facilities in Lambakin, Marilao, Bulacan.4 On August 7, 2002, respondent consulted a physician due to recurring
weakness and dizziness.5 Few days later, he was diagnosed with Chronic Poly Sinusitis, and thereafter, with moderate,
severe and persistent Allergic Rhinitis.6 Accordingly, respondent was advised by his doctor to totally avoid house dust
mite and textile dust as it will transmute into health problems.7

Distressed, respondent filed a complaint against petitioner with the National Labor Relations Commission (NLRC), San
Fernando, Pampanga, for alleged illegal dismissal and for the payment of backwages, separation pay, actual damages
and attorney’s fees. The said case, docketed as NLRC Case No. RAB-III-05-5834-03, is still pending resolution with the
NLRC at the time the instant petition was filed.8

Subsequently, respondent filed another Complaint9 with the Regional Trial Court (RTC) of Aparri, Cagayan, alleging that
he contracted such occupational disease by reason of the gross negligence of petitioner to provide him with a safe,
healthy and workable environment.

In his Complaint, respondent alleged that as part of his job description, he conductsregular maintenance check on
petitioner’s facilities including its dye house area, which is very hot and emits foul chemical odor with no adequate
safety measures introduced by petitioner.10 According to respondent, the air washer dampers and all roof exhaust vests
are blown into open air, carrying dust thereto.11 Concerned, respondent recommended to management to place roof
insulation to minimize, if not, eradicate the health hazards attendant in the work place.12 However, said
recommendation was turned down by management due to high cost.13 Respondent further suggested to petitioner’s
management that the engineering office be relocated because ofits dent prone location, such that even if the door of
the office is sealed, accumulated dust creeps in outside the office.14 This was further aggravated by the installation of
new filters fronting the office.15 However, no action was taken by management.16 According to respondent, these
healthhazards have been the persistent complaints of most, if not all, workers of petitioner.17 Nevertheless, said
complaints fell on deaf ears as petitioner callously ignored the health problems of its workers and even tended to be
apathetic to their plight, including respondent.18

Respondent averred that, being the only breadwinner in the family, he made several attempts to apply for a new job,
but to his dismay and frustration, employers who knew ofhis present health condition discriminated against him and
turned down his application.19 By reason thereof, respondent suffered intense moral suffering, mental anguish, serious
anxiety and wounded feelings, praying for the recovery of the following: (1) Five Million Pesos (₱5,000,000.00) asmoral
damages; (2) Two Million Pesos (₱2,000,000.00) as exemplary damages; and (3) Seven Million Three Thousand and Eight
Pesos (₱7,003,008.00) as compensatory damages.20 Claiming to be a pauper litigant, respondent was not required to
pay any filing fee.21

In reply, petitioner filed a Motion to Dismiss22 on the ground that: (1) the RTC has no jurisdiction over the subject
matter of the complaint because the same falls under the original and exclusive jurisdiction of the Labor Arbiter (LA)
under Article 217(a)(4) of the Labor Code; and (2) there is another action pending with the Regional Arbitration Branch
III of the NLRC in San Fernando City, Pampanga, involving the same parties for the same cause.

On December 29, 2003, the RTC issued a Resolution23 denying the aforesaid Motion and sustaining its jurisdiction over
the instant case. It held that petitioner’s alleged failure to provide its employees with a safe, healthy and workable
environment is an act of negligence, a case of quasi-delict. As such, it is not within the jurisdiction of the LA under Article
217 of the Labor Code. On the matter of dismissal based on lis pendencia, the RTC ruled that the complaint before the
NLRC has a different cause of action which is for illegal dismissal and prayer for backwages, actual damages, attorney’s
fees and separation pay due to illegal dismissal while in the present case, the cause of action is for quasi-delict.24 The
falloof the Resolution is quoted below:

WHEREFORE, finding the motion to dismiss to be without merit, the Court deniesthe motion to dismiss.

SO ORDERED.25

On February 9, 2004, petitioner filed a motion for reconsideration thereto, which was likewise denied in an Order issued
on even date.

Expectedly, petitioner then filed a Petition for Certiorariwith the CA on the ground that the RTC committed grave abuse
of discretion amounting to lack or excess of jurisdiction in upholding that it has jurisdiction over the subject matter of
the complaint despite the broad and clear terms of Article 217 of the Labor Code, as amended.26

After the submission by the parties of their respective Memoranda, the CA rendered a Decision27 dated May 30, 2005
dismissing petitioner’s Petition for lack of merit, the dispositive portion of which states:

WHEREFORE, premises considered, petition for certiorari is hereby DISMISSEDfor lack of merit. SO ORDERED.28

From the aforesaid Decision, petitioner filed a Motion for Reconsideration which was nevertheless denied for lack of
merit in the CA’s Resolution29 dated January 10, 2006. Hence, petitioner interposed the instant petition upon the
solitary ground that "THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN
ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THE HONORABLE SUPREME COURT."30 Simply, the issue
presented before us is whether or not the RTC has jurisdiction over the subject matter of respondent’s complaint
praying for moral damages,exemplary damages, compensatory damages, anchored on petitioner’s alleged gross
negligence in failing to provide a safe and healthy working environment for respondent.

The delineation between the jurisdiction of regular courts and labor courts over cases involving workers and their
employers has always been a matter of dispute.31 It is up to the Courts to lay the line after careful scrutiny of the factual
milieu of each case. Here, we find that jurisdiction rests on the regular courts.

In its attempt to overturn the assailed Decision and Resolution of the CA, petitioner argues that respondent’sclaim for
damages is anchored on the alleged gross negligence of petitioner as an employer to provide its employees, including
herein respondent, with a safe, healthy and workable environment; hence, it arose from an employer-employee
relationship.32 The fact of respondent’s employment withpetitioner as a civil engineer is a necessary element of his
cause ofaction because without the same, respondent cannot claim to have a rightto a safe, healthy and workable
environment.33 Thus, exclusive jurisdiction over the same should be vested in the Labor Arbiter and the NLRC pursuant
to Article 217(a)(4) of the Labor Code of the Philippines (Labor Code), as amended.34

We are not convinced.

The jurisdiction of the LA and the NLRC is outlined in Article 217 of the Labor Code, as amended by Section 9 of Republic
Act (R.A.) No. 6715, to wit:

ART. 217. Jurisdiction of Labor Arbiters and the Commission-- (a) Except as otherwise provided under this Code the
Labor Arbiter shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or nonagricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involvingwages, rates of pay,
hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code including questions involving the legality of strikes
and lockouts; and
 6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relations, including those of persons in domestic or household service,involving
an amount exceeding five thousand pesos (₱5,000.00) regardless of whether accompanied with a claim for
reinstatement.

x x x.35

While we have upheld the present trend to refer worker-employer controversies to labor courts in light of the
aforequoted provision, we have also recognized that not all claims involving employees can be resolved solely by our
labor courts, specifically when the law provides otherwise.36 For this reason, we have formulated the "reasonable
causal connection rule," wherein if there is a reasonable causal connection between the claim asserted and the
employer-employee relations, then the case is within the jurisdiction of the labor courts; and in the absence thereof, it is
the regular courts that have jurisdiction.37 Such distinction is apt since it cannot be presumed that money claims of
workers which do not arise out of or in connection with their employer-employee relationship, and which would
therefore fall within the general jurisdiction of the regular courts of justice, were intended by the legislative authority to
be taken away from the jurisdiction of the courts and lodged with Labor Arbiters on an exclusive basis.38

In fact, as early as Medina vs. Hon. Castro-Bartolome,39 in negating the jurisdiction of the LA, although the parties
involved were an employer and two employees, the Court succinctly held that:

The pivotal question to Our mind iswhether or not the Labor Code has any relevance to the reliefs sought by the
plaintiffs. For if the Labor Code has no relevance, any discussion concerning the statutes amending it and whether or not
they have retroactive effect is unnecessary.

It is obvious from the complaint that the plaintiffs have not alleged any unfair labor practice. Theirs is a simple action for
damages for tortious acts allegedly committed by the defendants. Such being the case, the governing statute is the Civil
Code and not the Labor Code. It results that the orders under revieware based on a wrong premise.40

Similarly, we ruled in the recent case of Portillo v. Rudolf Lietz, Inc.41 that not all disputes between an employer and his
employees fall within the jurisdiction of the labor tribunals suchthat when the claim for damages is grounded on the
"wanton failure and refusal" without just cause of an employee to report for duty despite repeated notices served upon
him of the disapproval of his application for leave ofabsence, the same falls within the purview of Civil Law, to wit:

As early as Singapore Airlines Limited v. Paño, we established that not all disputes between an employer and his
employee(s) fall within the jurisdiction of the labor tribunals. We differentiated between abandonment per seand the
manner and consequent effects of such abandonment and ruled that the first, is a labor case, while the second, is a civil
law case.

Upon the facts and issues involved, jurisdiction over the present controversy must be held to belong to the civil Courts.
While seemingly petitioner's claim for damages arises from employer-employee relations, and the latest amendment to
Article 217 of the Labor Code under PD No. 1691 and BP Blg. 130 provides that all other claimsarising from employer-
employee relationship are cognizable by Labor Arbiters [citation omitted], in essence, petitioner's claim for damages is
grounded on the "wanton failure and refusal"without just cause of private respondent Cruz to report for duty despite
repeated notices served upon him of the disapproval of his application for leave of absence without pay. This, coupled
with the further averment that Cruz "maliciously and with bad faith" violated the terms and conditions of the conversion
training course agreement to the damage of petitioner removes the present controversy from the coverage of the Labor
Code and brings it within the purview of Civil Law.

Clearly, the complaint was anchored not on the abandonment per seby private respondent Cruz of his job—as the latter
was not required in the Complaint to report back to work—but on the manner and consequent effects of such
abandonmentof work translated in terms of the damages which petitioner had to suffer. x x x.42

Indeed, jurisprudence has evolved the rule that claims for damages under Article 217(a)(4) of the Labor Code, to be
cognizable by the LA, must have a reasonable causal connection withany of the claims provided for in that article.43
Only if there is such a connection with the other claims can a claim for damages be considered as arising from employer-
employee relations.44

In the case at bench, we find that such connection is nil.

True, the maintenance of a safe and healthy workplace is ordinarily a subject of labor cases. More, the acts complained
of appear to constitute matters involving employee-employer relations since respondent used to be the Civil Engineer of
petitioner. However, it should be stressed that respondent’s claim for damages is specifically grounded on petitioner’s
gross negligenceto provide a safe, healthy and workable environment for its employees −a case of quasi-delict. This is
easily ascertained from a plain and cursory reading of the Complaint,45 which enumerates the acts and/or omissions of
petitioner relative to the conditions in the workplace, to wit:

1. Petitioner’s textile mills have excessive flying textile dust and waste in its operations and no effort was
exerted by petitioner to minimize or totally eradicate it;

2. Petitioner failed to provide adequate and sufficient dust suction facilities;

3. Textile machines are cleaned with air compressors aggravating the dusty work place;

4. Petitioner has no physician specializing in respiratoryrelated illness considering it is a textile company;

5. Petitioner has no device to detectthe presence or density of dust which is airborne;

6. The chemical and color room are not equipped with proper safety chemical nose mask; and

7. The power and boiler plant emit too much smoke with solid particles blown to the air from the smoke stack of
the power plant emitting a brown rust color which engulfs the entire compound.46

In addition, respondent alleged that despite his earnest efforts to suggest to management to place roof insulation to
minimize, if not, eradicate the health hazards attendant in the workplace, the same was not heeded.47

It is a basic tenet that jurisdiction over the subject matter is determined upon the allegations made in the complaint,
irrespective of whether or not the plaintiff is entitled to recover upon the claim asserted therein, which is a matter
resolved only after and as a result of a trial.48 Neither can jurisdiction of a court bemade to depend upon the defenses
made by a defendant in his answer or motion to dismiss.49 In this case, a perusal of the complaint would reveal that the
subject matter is one of claim for damages arising from quasi-delict, which is within the ambit of the regular court's
jurisdiction.

The pertinent provision of Article 2176 of the Civil Code which governs quasi-delictprovides that: Whoever by act or
omissioncauses damageto another, there being fault or negligence, is obliged to pay for the damagedone. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is called quasi-delict.50

Thus, to sustain a claim liability under quasi-delict, the following requisites must concur: (a) damages suffered by the
plaintiff; (b) fault or negligence of the defendant, or someother person for whose acts he must respond; and (c) the
connection of causeand effect between the fault or negligence of the defendant and the damages incurred by the
plaintiff.51

In the case at bar, respondent alleges that due to the continued and prolonged exposure to textile dust seriously inimical
to his health, he suffered work-contracted disease which is now irreversible and incurable, and deprived him of job
opportunities.52 Clearly, injury and damages were allegedly suffered by respondent, an element of quasi-delict.
Secondly, the previous contract of employment between petitioner and respondent cannot be used to counter the
element of "no pre-existing contractual relation" since petitioner’s alleged gross negligence in maintaining a hazardous
work environment cannot be considered a mere breach of such contract of employment, but falls squarely within the
elements of quasi-delictunder Article 2176 of the Civil Code since the negligence is direct, substantive and
independent.53 Hence, we ruled in Yusen Air and Sea Services Phils., Inc. v. Villamor54 that:

When, as here, the cause of action is based on a quasi-delictor tort, which has no reasonable causal connection with any
of the claims provided for in Article 217, jurisdiction over the action is with the regular courts.55

It also bears stressing that respondent is not praying for any relief under the Labor Code of the Philippines. He neither
claims for reinstatement nor backwages or separation pay resulting from an illegal termination. The cause of action
herein pertains to the consequence of petitioner’s omission which led to a work-related disease suffered by respondent,
causing harm or damage to his person. Such cause of action is within the realm of Civil Law, and jurisdiction over the
controversy belongs to the regular courts.56

Our ruling in Portillo, is instructive, thus:

There is no causal connection between private respondent’s claim for damages and the respondent employers’ claim for
damages for the alleged "Goodwill Clause" violation. Portillo’s claim for unpaid salaries did not have anything to do with
her alleged violation of the employment contract as, in fact, her separation from employmentis not "rooted" in the
alleged contractual violation. She resigned from her employment. She was not dismissed. Portillo’s entitlementto the
unpaid salaries is not even contested. Indeed, Lietz Inc.’s argument about legal compensation necessarily admits that it
owesthe money claimed by Portillo.57

Further, it cannot be gainsaid that the claim for damages occurred afterthe employer-employee relationship of
petitioner and respondent has ceased. Given that respondent no longer demands for any relief under the Labor Code as
well as the rules and regulations pertinent thereto, Article 217(a)(4) of the Labor Code is inapplicable to the instant case,
as emphatically held in Portillo, to wit:

It is clear, therefore, that while Portillo’s claim for unpaid salaries is a money claim that arises out ofor in connection
with an employeremployee relationship, Lietz Inc.’s claim against Portillo for violation of the goodwill clause is a money
claim based on an act done after the cessation of the employment relationship. And, while the jurisdiction over Portillo’s
claim is vested in the labor arbiter, the jurisdiction over Lietz Inc.’s claim rests on the regular courts. Thus:

As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks to recover damages based on the
parties' contract of employment as redress for respondent's breach thereof. Such cause of action is within the realm of
Civil Law, and jurisdiction over the controversy belongs to the regular courts. More so must this be in the present case,
what with the reality that the stipulation refers to the post-employment relations of the parties.58

Where the resolution of the dispute requires expertise, not in labor management relations nor in wage structures and
other terms and conditions of employment, but rather in the application of the general civil law, such claim falls outside
the area of competence of expertise ordinarily ascribed to the LA and the NLRC.59

Guided by the aforequoted doctrines, we find no reason to reverse the findings of the CA.1âwphi1 The RTC has
jurisdiction over the subject matter of respondent's complaint praying for moral damages, exemplary damages,
compensatory damages, anchored on petitioner's alleged gross negligence in failing to provide a safe and healthy
working environment for respondent. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, dated
May 30, 2005, and its Resolution dated January 10, 2006 in CA-G.R. SP No. 83099 are hereby AFFIRMED.

SO ORDERED

G.R. No. 179652 March 6, 2012

PEOPLE'S BROADCASTING SERVICE (BOMBO RADYO PHILS., INC.), Petitioner,

vs.
THE SECRETARY OF THE DEPARTMENT OF LABOR AND EMPLOYMENT, THE REGIONAL DIRECTOR, DOLE REGION VII,
and JANDELEON JUEZAN, Respondents.

RESOLUTION

VELASCO, JR., J.:

In a Petition for Certiorari under Rule 65, petitioner People’s Broadcasting Service, Inc. (Bombo Radyo Phils., Inc.)
questioned the Decision and Resolution of the Court of Appeals (CA) dated October 26, 2006 and June 26, 2007,
respectively, in C.A. G.R. CEB-SP No. 00855.

Private respondent Jandeleon Juezan filed a complaint against petitioner with the Department of Labor and Employment
(DOLE) Regional Office No. VII, Cebu City, for illegal deduction, nonpayment of service incentive leave, 13th month pay,
premium pay for holiday and rest day and illegal diminution of benefits, delayed payment of wages and noncoverage of
SSS, PAG-IBIG and Philhealth.1 After the conduct of summary investigations, and after the parties submitted their
position papers, the DOLE Regional Director found that private respondent was an employee of petitioner, and was
entitled to his money claims.2 Petitioner sought reconsideration of the Director’s Order, but failed. The Acting DOLE
Secretary dismissed petitioner’s appeal on the ground that petitioner submitted a Deed of Assignment of Bank Deposit
instead of posting a cash or surety bond. When the matter was brought before the CA, where petitioner claimed that it
had been denied due process, it was held that petitioner was accorded due process as it had been given the opportunity
to be heard, and that the DOLE Secretary had jurisdiction over the matter, as the jurisdictional limitation imposed by
Article 129 of the Labor Code on the power of the DOLE Secretary under Art. 128(b) of the Code had been repealed by
Republic Act No. (RA) 7730.3

In the Decision of this Court, the CA Decision was reversed and set aside, and the complaint against petitioner was
dismissed. The dispositive portion of the Decision reads as follows:
WHEREFORE, the petition is GRANTED. The Decision dated 26 October 2006 and the Resolution dated 26 June 2007 of
the Court of Appeals in C.A. G.R. CEB-SP No. 00855 are REVERSED and SET ASIDE. The Order of the then Acting Secretary
of the Department of Labor and Employment dated 27 January 2005 denying petitioner’s appeal, and the Orders of the
Director, DOLE Regional Office No. VII, dated 24 May 2004 and 27 February 2004, respectively, are ANNULLED. The
complaint against petitioner is DISMISSED.4

The Court found that there was no employer-employee relationship between petitioner and private respondent. It was
held that while the DOLE may make a determination of the existence of an employer-employee relationship, this
function could not be co-extensive with the visitorial and enforcement power provided in Art. 128(b) of the Labor Code,
as amended by RA 7730. The National Labor Relations Commission (NLRC) was held to be the primary agency in
determining the existence of an employer-employee relationship. This was the interpretation of the Court of the clause
"in cases where the relationship of employer-employee still exists" in Art. 128(b).5

From this Decision, the Public Attorney’s Office (PAO) filed a Motion for Clarification of Decision (with Leave of Court).
The PAO sought to clarify as to when the visitorial and enforcement power of the DOLE be not considered as co-
extensive with the power to determine the existence of an employer-employee relationship.6 In its Comment,7 the
DOLE sought clarification as well, as to the extent of its visitorial and enforcement power under the Labor Code, as
amended.

The Court treated the Motion for Clarification as a second motion for reconsideration, granting said motion and
reinstating the petition.8 It is apparent that there is a need to delineate the jurisdiction of the DOLE Secretary vis-à-vis
that of the NLRC.

Under Art. 129 of the Labor Code, the power of the DOLE and its duly authorized hearing officers to hear and decide any
matter involving the recovery of wages and other monetary claims and benefits was qualified by the proviso that the
complaint not include a claim for reinstatement, or that the aggregate money claims not exceed PhP 5,000. RA 7730, or
an Act Further Strengthening the Visitorial and Enforcement Powers of the Secretary of Labor, did away with the PhP
5,000 limitation, allowing the DOLE Secretary to exercise its visitorial and enforcement power for claims beyond PhP
5,000. The only qualification to this expanded power of the DOLE was only that there still be an existing employer-
employee relationship.

It is conceded that if there is no employer-employee relationship, whether it has been terminated or it has not existed
from the start, the DOLE has no jurisdiction. Under Art. 128(b) of the Labor Code, as amended by RA 7730, the first
sentence reads, "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." It is clear and beyond debate that an employer-employee
relationship must exist for the exercise of the visitorial and enforcement power of the DOLE. The question now arises,
may the DOLE make a determination of whether or not an employer-employee relationship exists, and if so, to what
extent?

The first portion of the question must be answered in the affirmative.

The prior decision of this Court in the present case accepts such answer, but places a limitation upon the power of the
DOLE, that is, the determination of the existence of an employer-employee relationship cannot be co-extensive with the
visitorial and enforcement power of the DOLE. But even in conceding the power of the DOLE to determine the existence
of an employer-employee relationship, the Court held that the determination of the existence of an employer-employee
relationship is still primarily within the power of the NLRC, that any finding by the DOLE is merely preliminary.

This conclusion must be revisited.

No limitation in the law was placed upon the power of the DOLE to determine the existence of an employer-employee
relationship. No procedure was laid down where the DOLE would only make a preliminary finding, that the power was
primarily held by the NLRC. The law did not say that the DOLE would first seek the NLRC’s determination of the existence
of an employer-employee relationship, or that should the existence of the employer-employee relationship be disputed,
the DOLE would refer the matter to the NLRC. The DOLE must have the power to determine whether or not an
employer-employee relationship exists, and from there to decide whether or not to issue compliance orders in
accordance with Art. 128(b) of the Labor Code, as amended by RA 7730.

The DOLE, in determining the existence of an employer-employee relationship, has a ready set of guidelines to follow,
the same guide the courts themselves use. The elements to determine the existence of an employment relationship are:
(1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; (4) the
employer’s power to control the employee’s conduct.9 The use of this test is not solely limited to the NLRC. The DOLE
Secretary, or his or her representatives, can utilize the same test, even in the course of inspection, making use of the
same evidence that would have been presented before the NLRC.

The determination of the existence of an employer-employee relationship by the DOLE must be respected. The
expanded visitorial and enforcement power of the DOLE granted by RA 7730 would be rendered nugatory if the alleged
employer could, by the simple expedient of disputing the employer-employee relationship, force the referral of the
matter to the NLRC. The Court issued the declaration that at least a prima facie showing of the absence of an employer-
employee relationship be made to oust the DOLE of jurisdiction. But it is precisely the DOLE that will be faced with that
evidence, and it is the DOLE that will weigh it, to see if the same does successfully refute the existence of an employer-
employee relationship.

If the DOLE makes a finding that there is an existing employer-employee relationship, it takes cognizance of the matter,
to the exclusion of the NLRC. The DOLE would have no jurisdiction only if the employer-employee relationship has
already been terminated, or it appears, upon review, that no employer-employee relationship existed in the first place.

The Court, in limiting the power of the DOLE, gave the rationale that such limitation would eliminate the prospect of
competing conclusions between the DOLE and the NLRC. The prospect of competing conclusions could just as well have
been eliminated by according respect to the DOLE findings, to the exclusion of the NLRC, and this We believe is the more
prudent course of action to take.

This is not to say that the determination by the DOLE is beyond question or review.1avvphi1 Suffice it to say, there are
judicial remedies such as a petition for certiorari under Rule 65 that may be availed of, should a party wish to dispute
the findings of the DOLE.

It must also be remembered that the power of the DOLE to determine the existence of an employer-employee
relationship need not necessarily result in an affirmative finding. The DOLE may well make the determination that no
employer-employee relationship exists, thus divesting itself of jurisdiction over the case. It must not be precluded from
being able to reach its own conclusions, not by the parties, and certainly not by this Court.

Under Art. 128(b) of the Labor Code, as amended by RA 7730, the DOLE is fully empowered to make a determination as
to the existence of an employer-employee relationship in the exercise of its visitorial and enforcement power, subject to
judicial review, not review by the NLRC.

There is a view that despite Art. 128(b) of the Labor Code, as amended by RA 7730, there is still a threshold amount set
by Arts. 129 and 217 of the Labor Code when money claims are involved, i.e., that if it is for PhP 5,000 and below, the
jurisdiction is with the regional director of the DOLE, under Art. 129, and if the amount involved exceeds PhP 5,000, the
jurisdiction is with the labor arbiter, under Art. 217. The view states that despite the wording of Art. 128(b), this would
only apply in the course of regular inspections undertaken by the DOLE, as differentiated from cases under Arts. 129 and
217, which originate from complaints. There are several cases, however, where the Court has ruled that Art. 128(b) has
been amended to expand the powers of the DOLE Secretary and his duly authorized representatives by RA 7730. In
these cases, the Court resolved that the DOLE had the jurisdiction, despite the amount of the money claims involved.
Furthermore, in these cases, the inspection held by the DOLE regional director was prompted specifically by a complaint.
Therefore, the initiation of a case through a complaint does not divest the DOLE Secretary or his duly authorized
representative of jurisdiction under Art. 128(b).

To recapitulate, if a complaint is brought before the DOLE to give effect to the labor standards provisions of the Labor
Code or other labor legislation, and there is a finding by the DOLE that there is an existing employer-employee
relationship, the DOLE exercises jurisdiction to the exclusion of the NLRC. If the DOLE finds that there is no employer-
employee relationship, the jurisdiction is properly with the NLRC. If a complaint is filed with the DOLE, and it is
accompanied by a claim for reinstatement, the jurisdiction is properly with the Labor Arbiter, under Art. 217(3) of the
Labor Code, which provides that the Labor Arbiter has original and exclusive jurisdiction over those cases involving
wages, rates of pay, hours of work, and other terms and conditions of employment, if accompanied by a claim for
reinstatement. If a complaint is filed with the NLRC, and there is still an existing employer-employee relationship, the
jurisdiction is properly with the DOLE. The findings of the DOLE, however, may still be questioned through a petition for
certiorari under Rule 65 of the Rules of Court.

In the present case, the finding of the DOLE Regional Director that there was an employer-employee relationship has
been subjected to review by this Court, with the finding being that there was no employer-employee relationship
between petitioner and private respondent, based on the evidence presented. Private respondent presented self-
serving allegations as well as self-defeating evidence.10 The findings of the Regional Director were not based on
substantial evidence, and private respondent failed to prove the existence of an employer-employee relationship. The
DOLE had no jurisdiction over the case, as there was no employer-employee relationship present. Thus, the dismissal of
the complaint against petitioner is proper.

WHEREFORE, the Decision of this Court in G.R. No. 179652 is hereby AFFIRMED, with the MODIFICATION that in the
exercise of the DOLE’s visitorial and enforcement power, the Labor Secretary or the latter’s authorized representative
shall have the power to determine the existence of an employer-employee relationship, to the exclusion of the NLRC.

SO ORDERED

G.R. No. 173489 February 25, 2013

ALILEM CREDIT COOPERATIVE, INC., now known as ALILEM MULTIPURPOSE COOPERATIVE, INC., Petitioner,
vs.
SALVADOR M. BANDIOLA, JR., Respondent.

DECISION

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner Alilem Credit
Cooperative, Inc. against respondent Salvador M. Bandiola, Jr. assailing the Court of Appeals (CA) Decision1 dated
January 16, 2006 and Resolution2 dated July 5, 2006 in CAG. R. SP No. 64554.

The case stemmed from the following facts:

Respondent was employed by petitioner as bookkeeper. Petitioner's Board of Directors (the Board) received a letter
from a certain Napoleon Gao-ay (Napoleon) reporting the alleged immoral coaduct and unbecoming behavior of
respondent by having an illicit relationship with Napoleon’s sister, Thelma G. Palma (Thelma). This prompted the Board
to conduct a preliminary investigation.3

During the preliminary investigation, the Board received the following evidence of respondent’s alleged extramarital
affair:

1. Melanie Gao-ay’s (Melanie) sworn statement declaring that sometime in December 1996, respondent slept
on the same bed with Thelma in a boarding house in San Fernando, La Union where she (Melanie) and Thelma
resided. She personally witnessed the intimacy of respondent and Thelma when they engaged in lovemaking as
they slept in one room and openly displayed their affection for each other.4

2. Rosita Tegon’s (Rosita) sworn statement that on May 23, 1997, she saw Thelma talk to respondent in
petitioner’s office asking him to accompany her in San Fernando, La Union.5

3. Emma Gao-ay Lubrin’s (Emma, Thelma’s sister) interview wherein she admitted that she and her family
confronted Thelma about the alleged extramarital affair which Thelma allegedly admitted.6

4. Napoleon’s interview with the Board wherein he claimed that their family tried to convince Thelma to end her
extramarital affair with respondent but instead of complying, she in fact lived together with respondent.7

The Board decided to form an Ad Hoc Committee to investigate the charges against respondent yielding the following
additional evidence:

1. Agustina Boteras’ (Agustina) sworn statement that she witnessed a confrontation between Thelma and her
sister in the latter’s residence concerning the alleged extramarital affair. At that time, respondent’s wife was
allegedly present who in fact pleaded Thelma to end her relationship with respondent but she supposedly said
"No way!"8

2. Milagros Villacorte’s sworn statement that while she was at the Bethany Hospital in San Fernando, La Union
where her husband was confined, respondent approached her and asked her to look for Thelma who was then
having her class. When he finally found her, respondent and Thelma met and talked in the hospital premises.9

3. Julienne Marie L. Dalangey’s certification that on August 9 to 10, 1996, respondent attended a seminar on
Internal Control and Systems Design I at the Northern Luzon Federation of Cooperatives and Development
 Center (NORLU) Pension House in Baguio City, together with a lady companion whom he introduced as his wife.
Apparently, the lady was not his wife because at that time, his wife reported for work in the Municipal Hall of
Alilem.10

Respondent, on the other hand, denied the accusation against him. He, instead, claimed that the accusation was a result
of the insecurity felt by some members of the cooperative and of the Board because of his growing popularity owing to
his exemplary record as an employee.11 Thelma executed an affidavit likewise denying the allegations of extra-marital
affair.12

Meanwhile, on June 7, 1997, the Board received a petition from about fifty members of the cooperative asking the relief
of respondent due to his illicit affair with Thelma.13

In its Summary Investigation Report, the Ad Hoc Committee concluded that respondent was involved in an extra-marital
affair with Thelma. On July 10, 1997, the Chairman of the Board sent a letter14 to respondent informing him of the
existence of a prima facie case against him for "illicit marital affair, an act that brings discredit to the cooperative
organization and a cause for termination per AMPC (Alilem Multi-Purpose Cooperative) Personnel Policy. Respondent
was directed to appear and be present at the AMPC office for a hearing. He was likewise advised of his right to be
assisted by counsel.

On the day of the hearing, respondent requested15 for postponement on the ground that his lawyer was not available.
The request was, however, denied and the hearing proceeded as scheduled.

In a Memorandum16 dated July 16, 1997, respondent was informed of Board Resolution No. 05, series of 199717
embodying the Board’s decision to terminate his services as bookkeeper of petitioner, effective July 31, 1997, without
any compensation or benefit except the unpaid balance of his regular salary for services actually rendered.18

Aggrieved, respondent filed a Complaint for Illegal Dismissal against petitioner before the Regional Arbitration Branch of
the National Labor Relations Commission (NLRC).19

On April 30, 1998, the Labor Arbiter (LA) dismissed20 respondent’s complaint for lack of merit. The LA concluded that
respondent had been or might still be carrying on an affair with a married woman. The LA found it unforgiving in the
case of a married employee who sleeps with or has illicit relations with another married person for in such case, the
employee sullies not only the reputation of his spouse and his family but the reputation as well of the spouse of his
paramour and the latter’s family.21 As opposed to respondent’s claim that the accusation is a mere fabrication of some
of the directors or cooperative members who were allegedly envious of his growing popularity, the LA gave more
credence to the testimonies of petitioner’s witnesses who were relatives of Thelma and who had no motive to falsely
testify because their family reputation was likewise at a risk of being tarnished.22 The LA, thus, found respondent to have
been validly dismissed from employment for violation of the cooperative’s Personnel Policy, specifically "the commission
of acts that bring discredit to the cooperative organization, especially, but not limited to conviction of any crime, illicit
marital affairs, scandalous acts inimical to established and accepted social mores." The LA also found no violation of
respondent’s right to due process as he was given ample opportunity to defend himself from the accusation against
him.23

On appeal, the NLRC set aside24 the LA decision and rendered a judgment disposed in this wise:

WHEREFORE, the appealed Decision of the Executive Labor Arbiter is SET ASIDE. Judgment is hereby rendered:

1. declaring respondent Alilem Credit Cooperative, Inc. (ACCI) also known as Alilem Multi-Purpose Cooperative
(AMPC) guilty of illegal dismissal for the reasons above-discussed;

2. directing the said respondent to pay complainant Salvador Bandiola, Jr. full backwages computed from the
time of (sic) his wages were withheld until finality of this judgment;

3. directing, on account of strained relationship between the parties, the above-named respondent to pay
complainant, in lieu of reinstatement, separation pay computed at one (1) month pay for every year of service, a
fraction of six (6) months to be computed as one (1) whole year; [and]

4. directing respondent to pay complainant ten (10%) percent attorney’s fees based on the total monetary
award.

SO ORDERED.25
The NLRC found petitioner’s Personnel Policy to be of questionable existence and validity because it was unnumbered. 26
It held that even assuming that respondent had an extra-marital affair with a married woman, the latter is not his fellow
worker in petitioner’s business establishment.27 It, thus, concluded that respondent’s dismissal was not founded on any
of the just causes for termination of employment under Article 282 of the Labor Code, as amended.28 It, likewise,
declared that respondent was not afforded his right to his counsel of choice as his request for postponement was not
allowed.29 Therefore, the NLRC declared respondent’s dismissal from employment illegal, entitling him to the payment
of backwages, separation pay, and attorney’s fees.30

Petitioner elevated the matter to the CA, but it failed to obtain a favorable decision. The CA found respondent’s
dismissal being founded on the serious misconduct he allegedly committed by carrying an illicit relationship with a
married woman.31 While considering said act a serious misconduct, it refused to consider it sufficient to justify
respondent’s dismissal, because it was not done in the performance of his duties as would make him unfit to continue
working for petitioner.32 Petitioner’s motion for reconsideration was likewise denied in the assailed July 5, 2006
resolution.

Unsatisfied, petitioner now comes before the Court in this petition for review on certiorari insisting on the validity of
respondent’s dismissal from employment.

We find merit in the petition.

It is undisputed that respondent was dismissed from employment for engaging in extramarital affairs, a ground for
termination of employment stated in petitioner’s Personnel Policy. This basis of termination was made known to
respondent as early as the first communication made by petitioner. In its June 20, 1997 letter, petitioner directed
respondent to explain in writing or personal confrontation why he should not be terminated for violation of Section
4.1.4 of the Personnel Policy.33 Respondent merely denied the accusation against him34 and did not question the basis of
such termination. When the LA was called upon to decide the illegal dismissal case, it ruled in favor of petitioner and
upheld the basis of such dismissal which is the cited Personnel Policy.1âwphi1 The NLRC, however, refused to recognize
the existence and validity of petitioner’s Personnel Policy on which the ground for termination was embodied.35

The existence of the Personnel Policy containing provisions on the grounds for termination of employees was not
questioned by respondent. In his position paper, respondent only assailed the effectivity of the policy, as for him as it
was amended on the same date as the letter-complaints against him. In other words, he claimed that the policy was
amended in order to include therein the ground for his termination to make sure that he is removed from his position.36

We do not subscribe to such an argument.

A comparison of petitioner’s old and new Personnel Policies attached by respondent himself to his Position Paper shows
that under the old policy, one of the grounds for termination of an employee is "commission of acts or commission (sic)
of duties that bring discredit to the organization,37" while under the new policy, one of the grounds is the "commission
of acts that brings (sic) discredit to the cooperative organization, especially, but not limited to, conviction of any
crime, illicit marital affairs, scandalous acts inimical to established and accepted social mores."38 Contrary to
respondent’s claim, with the amendment of the Personnel Policy, petitioner did not create a new ground for the
termination of employment to make sure that respondent is removed from his position. The quoted ground under the
old policy is similar to that provided for in the new policy. The enumeration containing the specific act of "illicit marital
affairs" is not an additional ground, but an example of an act that brings discredit to the cooperative. It is merely an
interpretation of what petitioner considers as such. It is, thus, clear from the foregoing that engaging in extra-marital
affairs is a ground for termination of employment not only under the new but even under the old Personnel Policy of
petitioner. The effectivity of the policy as to respondent cannot, therefore, be questioned.

To be sure, an employer is free to regulate all aspects of employment.39 It may make reasonable rules and regulations
for the government of its employees which become part of the contract of employment provided they are made known
to the employee.40 In the event of a violation, an employee may be validly terminated from employment on the ground
that an employer cannot rationally be expected to retain the employment of a person whose lack of morals, respect and
loyalty to his employer, regard for his employer’s rules and application of the dignity and responsibility, has so plainly
and completely been bared.41

Applying now the above-discussed ground for termination, we now determine whether respondent was properly
dismissed from employment. In other words, did petitioner adequately prove that respondent indeed engaged in extra-
marital affairs, an act which petitioner considers as would bring discredit to the cooperative?

We answer in the affirmative.

The employer’s evidence consists of sworn statements of either relatives or friends of Thelma and respondent. They
either had direct personal knowledge of the illicit relationship or revealed circumstances indicating the existence of such
relationship. As aptly observed by the LA:

x x x Moreover, the credibility of the persons who bore witness against him can hardly be questioned because some of
these persons are relatives or friends of either [respondent] or his lover. In particular, it is hard to see how Napoleon
Gao-ay, the brother of his lover, Thelma, could have resorted to a lie just to destroy him when the same scandal could
also result in tarnishing the reputation of his own family. The motive of Napoleon in bringing the matter to the attention
of the Board of Directors, after all, was based on ethical grounds – he wanted a stop to the affair because it was a
disgrace to the community.

There is also no reason to doubt the statement of Melanie Gao-ay, the wife of Napoleon, who witnessed the
embarrassing "encounter", to borrow the term she used, between [respondent] and Thelma in her own boarding
house.42

While respondent’s act of engaging in extra--marital affairs may be considered personal to him and does not directly
affect the performance of his assigned task as bookkeeper, aside from the fact that the act was specifically provided for
by petitioner’s Personnel Policy as one of the grounds for termination of employment, said act raised concerns to
petitioner as the Board received numerous complaints and petitions from the cooperative members themselves asking
for the removal of respondent because of his immoral conduct.43

The next question is whether procedural due process was observed in the termination of respondent’s services. "Before
the services of an employee can be validly terminated, the employer must furnish him two written notices: (a) a written
notice served on the employee specifying the ground or grounds for termination, and giving the employee reasonable
opportunity to explain his side; and (b) 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."44 The employer must
inform the employee of the charges against him and to hear his defenses. A full adversarial proceeding is not necessary
as the parties may be heard through pleadings, written explanations, position papers, memorandum or oral argument.45

In this case, respondent was adequately afforded the opportunity to defend himself and explain the accusation against
him. Upon receipt of the complaint, petitioner conducted a preliminary investigation and even created an Ad Hoc
Committee to investigate the matter. Respondent was directed to explain either in writing or by a personal
confrontation with the Board why he should not be terminated for engaging in illicit affair.46 Not only did petitioner give
him the opportunity but respondent in fact informed petitioner that he opted to present his side orally 47 and did so as
promised when he specifically denied such allegations before the AdHoc Committee.48 Moreover, respondent was also
allowed to peruse the investigation report prepared by the Ad Hoc Committee and was advised that he was entitled to
assistance of counsel.49 Afterwhich, hearing was conducted. It was only after thorough investigation and proper notice
and hearing to respondent that petitioner decided whether to dismiss the former or not. The decision to terminate
respondent from employment was embodied in Board Resolution No. 05, series of 1997 a copy of which was furnished
respondent.50 With this resolution, respondent was adequately notified of petitioner’s decision to remove him from his
position. Respondent cannot now claim that his right to due process was infringed upon.

WHEREFORE, premises considered, the petition is hereby GRANTED. The Court of Appeals Decision dated January 16,
2006 and Resolution dated July 5, 2006 in CA-G.R. SP No. 64554, are SET ASIDE. The Labor Arbiter's Decision dated April
30, 1998 in NLRC Case No. RAB-1-08-1144-97 (IS) dismissing respondent Salvador M. Bandiola, Jr.'s complaint against
petitioner Alilem Credit Cooperative, Inc., Is REINSTATED.

SO ORDERED