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Danilo Mercado, an employee of the Philippine National Oil Company- Energy Development Corporation, was
dismissed on the grounds of serious acts of dishonesty and violation of company rules and regulations
allegedly committed as follows:

1. Withdrew P1680.00 from company funds, appropriated P680.00 for personal use and paid the nipa supplier
2. Withdrew P28.66 as payment for the fabrication of rubber stamp but appropriated the P8.66 for personal
3. Absence without leave and without proper turn-over thus disrupting and delaying company work
4. Vacation leave without prior leave.

Mercado filed a complaint against PNOC-EDC before the NLRC Regional Arbitration Branch. After
considerations of position papers presented by both parties, the labor arbiter ruled in favour of Mercado.


1. Whether or not matters of employment of PNOC-EDC is within the jurisdiction of the labor arbiter and the

2. Whether or not the labor arbiter and the NLRC are justified in ordering the reinstatement of the private
respondent, payment of his savings, 13th month pay, and payment of damages as well as attorney’s fees.


The High Court affirmed the resolution of the respondent NLRC with modification: reducing moral damages
to P10000 and exemplary damages to P5000.

1. The test whether a government-owned or controlled corporation is subject to Civil Service Law is the
manner of its creation. Those created by special charter are subject to its provision while those created
under General Corporation Law are not within its coverage. The PNOC-EDC, having been incorporated under
General Corporation Law, is subject to the provisions of the Labor Law.

2. PNOC-EDC’s accusations are not supported by evidence. Loss of trust or breach of confidence is a valid
ground for dismissing an employee, but such loss or breach must have some basis.