G.R. No.

167622

November 7, 2008

GREGORIO V. TONGKO, petitioner vs. THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS, respondents.

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks the reversal of the March 29, 2005 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 88253, entitled The Manufacturers Life Insurance Co. (Phils.), Inc. v. National Labor Relations Commission and Gregorio V. Tongko. The assailed decision set aside the Decision dated September 27, 2004 and Resolution dated December 16, 2004 rendered by the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 040220-04.

The Facts

Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) is a domestic corporation engaged in life insurance business. Renato A. Vergel De Dios was, during the period material, its President and Chief Executive Officer. Gregorio V. Tongko started his professional relationship with Manulife on July 1, 1977 by virtue of a Career Agent's Agreement2 (Agreement) he executed with Manulife.

In the Agreement, it is provided that:

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 or to 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. x x x

In 1983, Tongko was named as a Unit Manager in Manulife's Sales Agency Organization. In 1990, he became a Branch Manager. As the CA found, Tongko's gross earnings from his work at Manulife, consisting of commissions, persistency income, and management overrides, may be summarized as follows:

January to December 10, 2002

P 865,096.07

2001

6,214,737.11

2000

8,003,180.38

1999

6,797,814.05

1998

4,805,166.34

1997

2,822,620.003

The problem started sometime in 2001, when Manulife instituted manpower development programs in the regional sales management level. Relative thereto, De Dios addressed a letter dated November 6, 20014 to Tongko regarding an October 18, 2001 Metro North Sales Managers Meeting. In the letter, De Dios stated:

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. xxx

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.

Subsequently, De Dios wrote Tongko another letter dated December 18, 2001,5 terminating Tongko's services, thus:

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.

Therefrom, Tongko filed a Complaint dated November 25, 2002 with the NLRC against Manulife for illegal dismissal. The case, docketed as NLRC NCR Case No. 11-10330-02, was raffled to Labor Arbiter Marita V. Padolina.

In the Complaint, Tongko, in a bid to establish an employer-employee relationship, alleged that De Dios gave him specific directives on how to manage his area of responsibility in the latter's letter dated November 6, 2001. He further claimed that Manulife exercised control over him as follows:

Such control was certainly exercised by respondents over the herein complainant. It was Manulife who hired, promoted and gave various assignments to him. It was the company who set objectives as regards productions, recruitment, training programs and all activities pertaining to its business. Manulife prescribed a Code of Conduct which would govern in minute detail all aspects of the work to be undertaken by employees, including the sales process, the underwriting process, signatures, handling of money, policyholder service, confidentiality, legal and regulatory requirements and grounds for termination of employment. The letter of Mr. De Dios dated 06 November 2001 left no doubt as to who was in control. The subsequent termination letter dated 18 December 2001 again established in no uncertain terms the authority of the herein respondents to control the employees of Manulife. Plainly, the respondents wielded control not only as to the ends to be achieved but the ways and means of attaining such ends.6

Tongko bolstered his argument by citing Insular Life Assurance Co., Ltd. v. NLRC (4th Division)7 and Great Pacific Life Assurance Corporation v. NLRC,8 which Tongko claimed to be similar to the instant case.

Tongko further claimed that his dismissal was without basis and that he was not afforded due process. He also cited the Manulife Code of Conduct by which his actions were controlled by the company.

Manulife then filed a Position Paper with Motion to Dismiss dated February 27, 2003,9 in which it alleged that Tongko is not its employee, and that it did not exercise "control" over him. Thus, Manulife claimed that the NLRC has no jurisdiction over the case.

In a Decision dated April 15, 2004, Labor Arbiter Marita V. Padolina dismissed the complaint for lack of an employer-employee relationship. Padolina found that applying the four-fold test in determining the existence of an employer-employee relationship, none was found in the instant case. The dispositive portion thereof states:

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the instant complaint for lack of jurisdiction, there being no employer-employee relationship between the parties.

SO ORDERED.

Tongko appealed the arbiter's Decision to the NLRC which reversed the same and rendered a Decision dated September 27, 2004 finding Tongko to have been illegally dismissed.

The NLRC's First Division, while finding an employer-employee relationship between Manulife and Tongko applying the four-fold test, held Manulife liable for illegal dismissal. It further stated that Manulife exercised control over Tongko as evidenced by the letter dated November 6, 2001 of De Dios and wrote:

The above-mentioned letter shows the extent to which respondents controlled complainant's manner and means of doing his work and achieving the goals set by respondents. The letter shows how respondents concerned themselves with the manner complainant managed the Metro North Region as Regional Sales Manager, to the point that respondents even had a say on how complainant interacted with other individuals in the Metro North Region. The letter is in fact replete with comments and criticisms on how complainant carried out his functions as Regional Sales Manager.

More importantly, the letter contains an abundance of directives or orders that are intended to directly affect complainant's authority and manner of carrying out his functions as Regional Sales Manager.10 x x x

Additionally, the First Division also ruled that:

Further evidence of [respondents'] control over complainant can be found in the records of the case. [These] are the different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of Conduct, and the Manulife Financial Code of Conduct Agreement, which serve as the foundations of the power of control wielded by respondents over complainant that is further manifested in the different administrative and other tasks that he is required to perform. These codes of conduct corroborate and reinforce the display of respondents' power of control in their 06 November 2001 Letter to complainant.11

The fallo of the September 27, 2004 Decision reads:

WHEREFORE, premises considered, the appealed Decision is hereby reversed and set aside. We find complainant to be a regular employee of respondent Manulife and that he was illegally dismissed from employment by respondents.

In lieu of reinstatement, respondent Manulife is hereby ordered to pay complainant separation pay as above set forth. Respondent Manulife is further ordered to pay complainant backwages from the time he was dismissed on 02 January 2002 up to the finality of this decision also as indicated above.

xxxx

All other claims are hereby dismissed for utter lack of merit.

From this Decision, Manulife filed a motion for reconsideration which was denied by the NLRC First Division in a Resolution dated December 16, 2004.12

Thus, Manulife filed an appeal with the CA docketed as CA-G.R. SP No. 88253. Thereafter, the CA issued the assailed Decision dated March 29, 2005, finding the absence of an employer-employee relationship between the parties and deeming the NLRC with no jurisdiction over the case. The CA arrived at this conclusion while again applying the four-fold test. The CA found that Manulife did not exercise control over Tongko that would render the latter an employee of Manulife. The dispositive portion reads:

WHEREFORE, premises considered, the present petition is hereby GRANTED and the writ prayed for accordingly GRANTED. The assailed Decision dated September 27, 2004 and Resolution dated December 16, 2004 of the National Labor Relations Commission in NLRC NCR Case No. 00-11-10330-2002 (NLRC NCR CA No. 040220-04) are hereby ANNULLED and SET ASIDE. The Decision dated April 15, 2004 of Labor Arbiter Marita V. Padolina is hereby REINSTATED.

Hence, Tongko filed this petition and presented the following issues:

The Court of Appeals committed grave abuse of discretion in granting respondents' petition for certiorari.

The Court of Appeals committed grave abuse of discretion in annulling and setting aside the Decision dated September 27, 2004 and Resolution dated December 16, 2004 in finding that there is no employer-employee relationship between petitioner and respondent.

The Court of Appeals committed grave abuse of discretion in annulling and setting aside the Decision dated September 27, 2004 and Resolution dated December 16, 2004 which found petitioner to have been illegally dismissed and ordered his reinstatement with payment of backwages.13

Restated, the issues are: (1) Was there an employer-employee relationship between Manulife and Tongko? and (2) If yes, was Manulife guilty of illegal dismissal?

The Court's Ruling

This petition is meritorious.

Tongko Was An Employee of Manulife

The basic issue of whether or not the NLRC has jurisdiction over the case resolves itself into the question of whether an employer-employee relationship existed between Manulife and Tongko. If no employeremployee relationship existed between the two parties, then jurisdiction over the case properly lies with the Regional Trial Court.

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 employeremployee 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.14

The NLRC, for its part, applied the four-fold test and found the existence of all the elements and declared Tongko an employee of Manulife. The CA, on the other hand, found that the element of control as an indicator of the existence of an employer-employee relationship was lacking in this case. The NLRC and the CA based their rulings on the same findings of fact but differed in their interpretations.

The NLRC arrived at its conclusion, first, on the basis of the letter dated November 6, 2001 addressed by De Dios to Tongko. According to the NLRC, the letter contained "an abundance of directives or orders

that are intended to directly affect complainant's authority and manner of carrying out his functions as Regional Sales Manager." It enumerated these "directives" or "orders" as follows:

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. x x x

xxxx

This assistant should be hired immediately.

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.

xxxx

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. x x x

3. Any resistance or holding back by anyone will be dealt with accordingly.

4. I have been straightforward in this my letter and I know that we can continue to work together but it will have to be on my terms. Anything else is unacceptable!

The NLRC further ruled that the different codes of conduct that were applicable to Tongko served as the foundations of the power of control wielded by Manulife over Tongko that is further manifested in the different administrative and other tasks that he was required to perform.

The NLRC also found that Tongko was required to render exclusive service to Manulife, further bolstering the existence of an employer-employee relationship.

Finally, the NLRC ruled that Tongko was integrated into a management structure over which Manulife exercised control, including the actions of its officers. The NLRC held that such integration added to the fact that Tongko did not have his own agency belied Manulife's claim that Tongko was an independent contractor.

The CA, however, considered the finding of the existence of an employer-employee relationship by the NLRC as far too sweeping having as its only basis the letter dated November 6, 2001 of De Dios. The CA did not concur with the NLRC's ruling that the elements of control as pointed out by the NLRC are "sufficient indicia of control that negates independent contractorship and conclusively establish an employer-employee relationship between"15 Tongko and Manulife. The CA ruled that there is no employer-employee relationship between Tongko and Manulife.

An impasse appears to have been reached between the CA and the NLRC on the sole issue of control over an employee's conduct. It bears clarifying that such control not only applies to the work or goal to be done but also to the means and methods to accomplish it.16 In Sonza v. ABS-CBN Broadcasting Corporation, we explained that not all forms of control would establish an employer-employee relationship, to wit:

Further, not every form of control that a party reserves to himself over the conduct of the other party in relation to the services being rendered may be accorded the effect of establishing an employeremployee relationship. The facts of this case fall squarely with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we held that:

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.17 (Emphasis supplied.)

We ruled in Insular Life Assurance Co., Ltd. v. NLRC (Insular) that:

It is, therefore, usual and expected for an insurance company to promulgate a set of rules to guide its commission agents in selling its policies that they may not run afoul of the law and what it requires or prohibits. Of such a character are the rules which prescribe the qualifications of persons who may be insured, subject insurance applications to processing and approval by the Company, and also reserve to the Company the determination of the premiums to be paid and the schedules of payment. None of these really invades the agent's contractual prerogative to adopt his own selling methods or to sell insurance at his own time and convenience, hence cannot justifiably be said to establish an employeremployee relationship between him and the company.18

Hence, we ruled in Insular that no employer-employee relationship existed therein. However, such ruling was tempered with the qualification that had there been evidence 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 have existed. In other words, the Court in Insular in no way definitively held that insurance agents are not employees of insurance companies, but rather made the same a case-to-case basis. We held:

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."19 (Emphasis supplied.)

There is no conflict between our rulings in Insular and in Great Pacific Life Assurance Corporation. We said in the latter case:

[I]t cannot be gain said that Grepalife had control over private respondents' performance as well as the result of their efforts. A cursory reading of their respective functions as enumerated in their contracts reveals that the company practically dictates the manner by which their jobs are to be carried out. For instance, the District Manager must properly account, record and document the company's funds spotcheck 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 manager, and maintain his quota of sales (the failure of which is a ground for termination). On the other hand, a zone supervisor must 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.20 (Emphasis supplied.)

Based on the foregoing cases, if the specific rules and regulations that are enforced against insurance agents or managers are such that would directly affect the means and methods by which such agents or managers would achieve the objectives set by the insurance company, they are employees of the insurance company.

In the instant case, Manulife had the power of control over Tongko that would make him its employee. Several factors contribute to this conclusion.

In the Agreement dated July 1, 1977 executed between Tongko and Manulife, it is provided that:

The Agent hereby agrees to comply with all regulations and requirements of the Company as herein provided as well as maintain a standard of knowledge and competency in the sale of the Company's products which satisfies those set by the Company and sufficiently meets the volume of new business required of Production Club membership.21

Under this provision, an agent of Manulife must comply with three (3) requirements: (1) compliance with the regulations and requirements of the company; (2) maintenance of a level of knowledge of the company's products that is satisfactory to the company; and (3) compliance with a quota of new businesses.

Among the company regulations of Manulife are the different codes of conduct such as the Agent Code of Conduct, Manulife Financial Code of Conduct, and Manulife Financial Code of Conduct Agreement, which demonstrate the power of control exercised by the company over Tongko. The fact that Tongko was obliged to obey and comply with the codes of conduct was not disowned by respondents.

Thus, with the company regulations and requirements alone, the fact that Tongko was an employee of Manulife may already be established. Certainly, these requirements controlled the means and methods by which Tongko was to achieve the company's goals.

More importantly, Manulife's evidence establishes the fact that Tongko was tasked to perform administrative duties that establishes his employment with Manulife.

In its Comment (Re: Petition for Review dated 15 April 2005) dated August 5, 2005, Manulife attached affidavits of its agents purportedly to support its claim that Tongko, as a Regional Sales Manager, did not perform any administrative functions. An examination of these affidavits would, however, prove the opposite.

In an Affidavit dated April 28, 2003,22 John D. Chua, a Regional Sales Manager of Manulife, stated:

4. On September 1, 1996, my services were engaged by Manulife as an Agency Regional Sales Manager ("RSM") for Metro South Region pursuant to an Agency Contract. As such RSM, I have the following functions:

1. Refer and recommend prospective agents to Manulife

2. Coach agents to become productive

3. Regularly meet with, and coordinate activities of agents affiliated to my region.

While Amada Toledo, a Branch Manager of Manulife, stated in her Affidavit dated April 29, 200323 that:

3. In January 1997, I was assigned as a Branch Manager ("BM") of Manulife for the Metro North Sector;

4. As such BM, I render the following services:

a. Refer and recommend prospective agents to Manulife;

b. Train and coordinate activities of other commission agents;

c. Coordinate activities of Agency Managers who, in turn, train and coordinate activites of other commission agents;

d. Achieve agreed production objectives in terms of Net Annualized Commissions and Case Count and recruitment goals; and

e. Sell the various products of Manulife to my personal clients.

While Ma. Lourdes Samson, a Unit Manager of Manulife, stated in her Affidavit dated April 28, 200324 that:

3. In 1977, I was assigned as a Unit Manager ("UM") of North Peaks Unit, North Star Branch, Metro North Region;

4. As such UM, I render the following services:

a. To render or recommend prospective agents to be licensed, trained and contracted to sell Manulife products and who will be part of my Unit;

b. To coordinate activities of the agents under my Unit in their daily, weekly and monthly selling activities, making sure that their respective sales targets are met;

c. To conduct periodic training sessions for my agents to further enhance their sales skills.

d. To assist my agents with their sales activities by way of joint fieldwork, consultations and one-on- one evaluation and analysis of particular accounts.

e. To provide opportunities to motivate my agents to succeed like conducting promos to increase sales activities and encouraging them to be involved in company and industry activities.

f. To provide opportunities for professional growth to my agents by encouraging them to be a member of the LUCAP (Life Underwriters Association of the Philippines).

A comparison of the above functions and those contained in the Agreement with those cited in Great Pacific Life Assurance Corporation25 reveals a striking similarity that would more than support a similar finding as in that case. Thus, there was an employer-employee relationship between the parties.

Additionally, it must be pointed out that the fact that Tongko was tasked with recruiting a certain number of agents, in addition to his other administrative functions, leads to no other conclusion that he was an employee of Manulife.

In his letter dated November 6, 2001, De Dios harped on the direction of Manulife of becoming a major agency-led distribution company whereby greater agency recruitment is required of the managers, including Tongko. De Dios made it clear that agent recruitment has become the primary means by which Manulife intends to sell more policies. More importantly, it is Tongko's alleged failure to follow this principle of recruitment that led to the termination of his employment with Manulife. With this, it is inescapable that Tongko was an employee of Manulife.

Tongko Was Illegally Dismissed

In its Petition for Certiorari dated January 7, 200526 filed before the CA, Manulife argued that even if Tongko is considered as its employee, his employment was validly terminated on the ground of gross and habitual neglect of duties, inefficiency, as well as willful disobedience of the lawful orders of Manulife. Manulife stated:

In the instant case, private respondent, despite the written reminder from Mr. De Dios refused to shape up and altogether disregarded the latter's advice resulting in his laggard performance clearly indicative of his willful disobedience of the lawful orders of his superior. x x x

xxxx

As private respondent has patently failed to perform a very fundamental duty, and that is to yield obedience to all reasonable rules, orders and instructions of the Company, as well as gross failure to reach at least minimum quota, the termination of his engagement from Manulife is highly warranted and therefore, there is no illegal dismissal to speak of.

It is readily evident from the above-quoted portions of Manulife's petition that it failed to cite a single iota of evidence to support its claims. Manulife did not even point out which order or rule that Tongko disobeyed. More importantly, Manulife did not point out the specific acts that Tongko was guilty of that would constitute gross and habitual neglect of duty or disobedience. Manulife merely cited Tongko's alleged "laggard performance," without substantiating such claim, and equated the same to disobedience and neglect of duty.

We cannot, therefore, accept Manulife's position.

In Quebec, Sr. v. National Labor Relations Commission, we ruled that:

When there is no showing of a clear, valid and legal cause for the termination of employment, the law considers the matter a case of illegal dismissal and the burden is on the employer to prove that the termination was for a valid or authorized cause. This burden of proof appropriately lies on the shoulders of the employer and not on the employee because a worker's job has some of the characteristics of property rights and is therefore within the constitutional mantle of protection. No person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied the equal protection of the laws.

Apropos thereto, Art. 277, par. (b), of the Labor Code mandates in explicit terms that the burden of proving the validity of the termination of employment rests on the employer. Failure to discharge this evidential burden would necessarily mean that the dismissal was not justified, and, therefore, illegal.27

We again ruled in Times Transportation Co., Inc. v. National Labor Relations Commission that:

The law mandates that the burden of proving the validity of the termination of employment rests with the employer. Failure to discharge this evidentiary burden would necessarily mean that the dismissal was not justified, and, therefore, illegal. Unsubstantiated suspicions, accusations and conclusions of employers do not provide for legal justification for dismissing employees. In case of doubt, such cases should be resolved in favor of labor, pursuant to the social justice policy of our labor laws and Constitution.28

This burden of proof was clarified in Community Rural Bank of San Isidro (N.E.), Inc. v. Paez to mean substantial evidence, to wit:

The Labor Code provides that an employer may terminate the services of an employee for just cause and this must be supported by substantial evidence. The settled rule in administrative and quasi-judicial proceedings is that proof beyond reasonable doubt is not required in determining the legality of an employer's dismissal of an employee, and not even a preponderance of evidence is necessary as substantial evidence is considered sufficient. Substantial evidence is more than a mere scintilla of evidence or relevant evidence as a reasonable mind might accept as adequate to support a conclusion, even if other minds, equally reasonable, might conceivably opine otherwise.29

Here, Manulife failed to overcome such burden of proof. It must be reiterated that Manulife even failed to identify the specific acts by which Tongko's employment was terminated much less support the same with substantial evidence. To repeat, mere conjectures cannot work to deprive employees of their means of livelihood. Thus, it must be concluded that Tongko was illegally dismissed.

Moreover, as to Manulife's failure to comply with the twin notice rule, it reasons that Tongko not being its employee is not entitled to such notices. Since we have ruled that Tongko is its employee, however, Manulife clearly failed to afford Tongko said notices. Thus, on this ground too, Manulife is guilty of illegal dismissal. In Quebec, Sr., we also stated:

Furthermore, not only does our legal system dictate that the reasons for dismissing a worker must be pertinently substantiated, it also mandates that the manner of dismissal must be properly done, otherwise, the termination itself is gravely defective and may be declared unlawful.30

For breach of the due process requirements, Manulife is liable to Tongko in the amount of PhP 30,000 as indemnity in the form of nominal damages.31

Finally, Manulife raises the issue of the correctness of the computation of the award to Tongko made by the NLRC by claiming that Songco v. National Labor Relations Commission32 is inapplicable to the instant case, considering that Songco was dismissed on the ground of retrenchment.

An examination of Songco reveals that it may be applied to the present case. In that case, Jose Songco was a salesman of F.E. Zuellig (M), Inc. which terminated the services of Songco on the ground of retrenchment due to financial losses. The issue raised to the Court, however, was whether commissions are considered as part of wages in order to determine separation pay. Thus, the fact that Songco was dismissed due to retrenchment does not hamper the application thereof to the instant case. What is pivotal is that we ruled in Songco that commissions are part of wages for the determination of separation pay.

Article 279 of the Labor Code on security of tenure pertinently provides that:

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

In Triad Security & Allied Services, Inc. v. Ortega, Jr. (Triad), we thus stated that an illegally dismissed employee shall be entitled to backwages and separation pay, if reinstatement is no longer viable:

As the law now stands, an illegally dismissed employee is entitled to two reliefs, namely: backwages and reinstatement. These are separate and distinct from each other. However, separation pay is granted where reinstatement is no longer feasible because of strained relations between the employee and the employer. In effect, an illegally dismissed employee is entitled to either reinstatement, if viable, or separation pay if reinstatement is no longer viable and backwages.33

Taking into consideration the cases of Songco and Triad, we find correct the computation of the NLRC that the monthly gross wage of Tongko in 2001 was PhP 518,144.76. For having been illegally dismissed, Tongko is entitled to reinstatement with full backwages under Art. 279 of the Labor Code. Due to the strained relationship between Manulife and Tongko, reinstatement, however, is no longer advisable. Thus, Tongko will be entitled to backwages from January 2, 2002 (date of dismissal) up to the finality of this decision. Moreover, Manulife will pay Tongko separation pay of one (1) month salary for every year of service that is from 1977 to 2001 amounting to PhP 12,435,474.24, considering that reinstatement is not feasible. Tongko shall also be entitled to an award of attorney's fees in the amount of ten percent (10%) of the aggregate amount of the above awards.

WHEREFORE, the petition is hereby GRANTED. The assailed March 29, 2005 Decision of the CA in CAG.R. SP No. 88253 is REVERSED and SET ASIDE. The Decision dated September 27, 2004 of the NLRC is REINSTATED with the following modifications:

Manulife shall pay Tongko the following:

(1) Full backwages, inclusive of allowances and other benefits or their monetary equivalent from January 2, 2002 up to the finality of this Decision;

(2) Separation pay of one (1) month salary for every year of service from 1977 up to 2001 amounting to PhP 12,435,474.24;

(3) Nominal damages of PhP 30,000 as indemnity for violation of the due process requirements; and

(4) Attorney's fees equivalent to ten percent (10%) of the aforementioned backwages and separation pay.

Costs against respondent Manulife.

SO ORDERED.

PRESBITERO J. VELASCO, JR. Associate Justice

WE CONCUR:

DISSENTING OPINION LEONARDO A. QUISUMBING Associate Justice Chairperson

CONCHITA CARPIO MORALES Associate Justice

DANTE O. TINGA Associate Justice

ARTURO D. BRION Associate Justice

ATTESTATION

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

LEONARDO A. QUISUMBING Associate Justice Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

REYNATO S. PUNO Chief Justice

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

SECOND DIVISION

G.R. No. 167622

November 7, 2008

GREGORIO V. TONGKO, petitioner vs. THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS, respondents.

DISSENTING OPINION

QUISUMBING, J.:

With due respect, I cannot concur in the majority opinion. I vote to deny the petition and affirm the decision of the Court of Appeals holding that the National Labor Relations Commission had no jurisdiction over this case due to the absence of an employer-employee relationship between petitioner Gregorio V. Tongko and respondent Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife).

The majority opinion states that Manulife had the power of control over petitioner that would make him its employee. It advances several reasons that do not persuade me.

In my view, two points require stressing: (1) Manulife has no power of control over petitioner in the pursuit of his own business; and (2) petitioner is compensated through sales agency commissions and not through fixed wages or salary.

Time and again, the Court has indeed applied the "four-fold" test in determining the existence of an employer-employee relationship. This test considers the following elements: (1) the power to hire; (2) the payment of wages; (3) the power to dismiss; and (4) the power to control, the last being the most important element.1

The difficulty lies in correctly assessing if certain factors or elements properly indicate the presence of control.2 The company's codes of conduct such as the Agent Code of Conduct, Manulife Financial Code of Conduct, and Manulife Financial Code of Conduct Agreement cannot be justifiably said to establish an

employer-employee relationship. These merely served as general guidelines for agents in selling Manulife policies in keeping with ethical principles governing the insurance business and in accordance with the rules promulgated by the Insurance Commissioner for proper regulation of the industry. None of these rules and regulations negated petitioner's contractual prerogative to adopt his own selling methods or to sell insurance at his own time and convenience.4 Nor did it overturn company or industry practices. Petitioner made his own strategy on how to generate more insurance sales. In fact, he derived his income from the agents under him through their sales volume. He was not bound to observe any work schedule or any working hours. He had freedom to adopt his own methods in selling insurance policies, so long as he and his recruited agents meet their quotas.

So too, petitioner's administrative functions are not indicative of control. Such functions which consisted of recruitment of new agents, training, and supervision were exercised over other sales agents and not employees of Manulife. Such functions relate to the insurance agents' work in pursuit of their agency's contractual obligations.

Neither can the Letter dated November 6, 20014 addressed by Renato A. Vergel De Dios, Manulife's President and Chief Executive Officer, to petitioner regarding greater agency recruitment be considered as control. While the letter reminded petitioner that his Region was the lowest performer in terms of agency recruitment, it did not dictate how petitioner would achieve this goal. Contrary to the finding of the main opinion,5 the letter did not contain "an abundance of directives or orders" other than suggesting to petitioner to hire a competent assistant to whom he could unload routine tasks. It is obvious that said assistant would be paid by petitioner as part of his agency's staff, not of the company's office personnel.

Clearly, following industry practice, petitioner had never been an employee of Manulife. He is an independent contractor as stated in the Career Agent's Agreement. Although he was eventually promoted as Regional Sales Manager, the Agreement subsisted since he still received commissions from insurance he directly sold to third persons aside from the override commissions he received from his own recruited agents' sales. The Agreement was never changed or altered by the parties.

Anent petitioner's compensation, he was paid through commissions from premium payments instead of fixed wages or salary. Petitioner's commissions varied, based on the computed premiums paid in full and actually received on policies obtained through his agency. His summary of commission, persistency, and management overrides constituted the income earned from business activities, not traditional office employment by Manulife, as follows:

2001

P6,214,737.11

2000

P8,003,180.38

1999

P6,797,814.05

1998

P4,805,166.34

1997

P2,822,620.006

Indeed, petitioner's earnings by way of commissions varied, depending on the clientele or those who availed of the insurance policies he procured. As also noted by the Labor Arbiter, his annual income was duly reflected in petitioner's income tax returns as agency earnings from which were deducted operating expenses and taxes withheld at source by Manulife. His returns did not reflect regular wages or salaries paid by the company.

Since no employer-employee relationship existed between petitioner and Manulife, there is no basis to award backwages and separation pay to petitioner. There is no reason to apply Songco v. National Labor Relations Commission7 which considered commission as part of the employee's salary in the computation of separation pay. Here, there exists no employer-employee relationship. A contrary ruling will reverse an industry practice long accepted in the insurance business. Such reversal could prove detrimental to the insurance public.

To reiterate, the present case does not involve an employer-employee relationship which warrants the application of the Labor Code provisions; rather, it calls for the implementation of the Career Agent's Agreement that should be construed in an ordinary civil action.

I vote to DENY the petition.

LEONARDO A. QUISUMBING Associate Justice

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 Agents 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 Manulifes 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 Manulifes Sales Agency Organization. In 1990, he became a Branch Manager. Six years later (or in 1996), Tongko became a Regional Sales Manager.4

Tongkos 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 Tongkos 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 OConnor, 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 Regions 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 Regions 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. xxx

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., Manulifes 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 Tongkos services:

It would appear, however, that despite the series of meetings and communications, both one-on-one meetings between yourself and SVP Kevin OConnor, 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 Managements 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 Manulifes 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. Tongkos Case for Employment Relationship

Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding P50,000.00, 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 P36,000.00 per year in addition to his overriding commissions; he was tasked with numerous administrative functions and supervisory authority over Manulifes 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. Manulifes 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 suchi.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 Tongkos 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 arbiters 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 arbiters 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 Manulifes 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 agents 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 Manulifes 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 Manulifes 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; Tongkos 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 Manulifes 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 *Tongkos+ 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--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 employeremployee relationship, that Respondent Manulife illegally dismissed Petitioner, and for consequently ordering Respondent Manulife to pay Petitioner backwages, separation pay, nominal damages and attorneys fees.13

THE COURTS 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 agents 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 companys 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 companys 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 Manulifes insurance agent.17 This agreement is supplemented by the companys 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 Manulifes 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 Agreements 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 Agreements express terms, Tongko served as an "insurance agent" for Manulife, not as an employee. To be sure, the Agreements 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 Tongkos 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 Manulifes 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 Tongkos 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 latters 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, Tongkos occupation was to sell Manulifes 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 Tongkos admissions against his interest. Strictly speaking, Tongkos 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 laymans 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. Tongkos 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 Velascos dissenting opinion states that Tongko was forced to declare himself a business or self-employed person by Manulifes 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 Tongkos 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 Tongkos backwages should only be with respect to his role as Manulifes manager.

The conclusion with respect to Tongkos 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 dissents unwarranted conclusion would cause the insurance industry that, by the laws 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 Manulifes 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 Tongkos appointment as branch manager in 1990, and as Regional Sales Manager in 1996. The best evidence of control the agreement or directive relating to Tongkos 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 agents 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 companys 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, Manulifes 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 Manulifes 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 Manulifes Manager

Duties of Grepalifes 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

- train understudies for the position of district manager

- 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;

- to conduct periodic training sessions for [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

- properly account, record and document the companys 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

- direct and supervise the sales activities of the 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 Tongkos additional roles in Manulifes sales operations on the contractual relationship between them.

To the dissent, Tongkos administrative functions as recruiter, trainer, or supervisor of other sales agents constituted a substantive alteration of Manulifes 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. Tongkos 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 Managers 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 Supervisors (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 managers role in relation with his agents from the point of view of Manulife whose business Tongkos sales group carries.

A disturbing note, with respect to the presented affidavits and Tongkos 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 Tongkos 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 Manulifes 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 Manulifes 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 Tongkos 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 Tongkos own expense. While couched in terms of a directive, it cannot strictly be understood as an intrusion into Tongkos 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 Tongkos 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 respondents 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 Tongkos 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 Tongkos 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 Manulifes 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 Tongkos 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 Tongkos

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 Manulifes control over Tongkos 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 Grepalifes employees. This did not mean, however, that they were simultaneously considered agents as well as employees of Grepalife; the Courts ruling never implied that this situation existed insofar as the Ruiz brothers were concerned. The Courts 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 dissents 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 Tongkos failure to comply with the guidelines of de Dios letter, as a ground for termination of Tongkos 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 Manulifes motion for reconsideration and, accordingly, DISMISS Tongkos petition. No costs.

SO ORDERED.

G.R. No. 146530

January 17, 2005

PEDRO CHAVEZ, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, SUPREME PACKAGING, INC. and ALVIN LEE, Plant Manager, respondents.

DECISION

CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari of the Resolution1 dated December 15, 2000 of the Court of Appeals (CA) reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485. The assailed resolution reinstated the Decision dated July 10, 1998 of the National Labor Relations Commission (NLRC), dismissing the complaint for illegal dismissal filed by herein petitioner Pedro Chavez. The said NLRC decision similarly reversed its earlier Decision dated January 27, 1998 which, affirming that of the Labor Arbiter, ruled that the petitioner had been illegally dismissed by respondents Supreme Packaging, Inc. and Mr. Alvin Lee.

The case stemmed from the following facts:

The respondent company, Supreme Packaging, Inc., is in the business of manufacturing cartons and other packaging materials for export and distribution. It engaged the services of the petitioner, Pedro Chavez, as truck driver on October 25, 1984. As such, the petitioner was tasked to deliver the respondent companys products from its factory in Mariveles, Bataan, to its various customers, mostly in Metro Manila. The respondent company furnished the petitioner with a truck. Most of the petitioners

delivery trips were made at nighttime, commencing at 6:00 p.m. from Mariveles, and returning thereto in the afternoon two or three days after. The deliveries were made in accordance with the routing slips issued by respondent company indicating the order, time and urgency of delivery. Initially, the petitioner was paid the sum of P350.00 per trip. This was later adjusted to P480.00 per trip and, at the time of his alleged dismissal, the petitioner was receiving P900.00 per trip.

Sometime in 1992, the petitioner expressed to respondent Alvin Lee, respondent companys plant manager, his (the petitioners) desire to avail himself of the benefits that the regular employees were receiving such as overtime pay, nightshift differential pay, and 13th month pay, among others. Although he promised to extend these benefits to the petitioner, respondent Lee failed to actually do so.

On February 20, 1995, the petitioner filed a complaint for regularization with the Regional Arbitration Branch No. III of the NLRC in San Fernando, Pampanga. Before the case could be heard, respondent company terminated the services of the petitioner. Consequently, on May 25, 1995, the petitioner filed an amended complaint against the respondents for illegal dismissal, unfair labor practice and nonpayment of overtime pay, nightshift differential pay, 13th month pay, among others. The case was docketed as NLRC Case No. RAB-III-02-6181-95.

The respondents, for their part, denied the existence of an employer-employee relationship between the respondent company and the petitioner. They averred that the petitioner was an independent contractor as evidenced by the contract of service which he and the respondent company entered into. The said contract provided as follows:

That the Principal [referring to Supreme Packaging, Inc.], by these presents, agrees to hire and the Contractor [referring to Pedro Chavez], by nature of their specialized line or service jobs, accepts the services to be rendered to the Principal, under the following terms and covenants heretofore mentioned:

1. That the inland transport delivery/hauling activities to be performed by the contractor to the principal, shall only cover travel route from Mariveles to Metro Manila. Otherwise, any change to this travel route shall be subject to further agreement by the parties concerned.

2. That the payment to be made by the Principal for any hauling or delivery transport services fully rendered by the Contractor shall be on a per trip basis depending on the size or classification of the truck being used in the transport service, to wit:

a) If the hauling or delivery service shall require a truck of six wheeler, the payment on a per trip basis from Mariveles to Metro Manila shall be THREE HUNDRED PESOS (P300.00) and EFFECTIVE December 15, 1984.

b) If the hauling or delivery service require a truck of ten wheeler, the payment on a per trip basis, following the same route mentioned, shall be THREE HUNDRED FIFTY (P350.00) Pesos and Effective December 15, 1984.

3. That for the amount involved, the Contractor will be to [sic] provide for [sic] at least two (2) helpers;

4. The Contractor shall exercise direct control and shall be responsible to the Principal for the cost of any damage to, loss of any goods, cargoes, finished products or the like, while the same are in transit, or due to reckless [sic] of its men utilized for the purpose above mentioned;

5. That the Contractor shall have absolute control and disciplinary power over its men working for him subject to this agreement, and that the Contractor shall hold the Principal free and harmless from any liability or claim that may arise by virtue of the Contractors non-compliance to the existing provisions of the Minimum Wage Law, the Employees Compensation Act, the Social Security System Act, or any other such law or decree that may hereafter be enacted, it being clearly understood that any truck drivers, helpers or men working with and for the Contractor, are not employees who will be indemnified by the Principal for any such claim, including damages incurred in connection therewith;

6. This contract shall take effect immediately upon the signing by the parties, subject to renewal on a year-to-year basis.2

This contract of service was dated December 12, 1984. It was subsequently renewed twice, on July 10, 1989 and September 28, 1992. Except for the rates to be paid to the petitioner, the terms of the contracts were substantially the same. The relationship of the respondent company and the petitioner was allegedly governed by this contract of service.

The respondents insisted that the petitioner had the sole control over the means and methods by which his work was accomplished. He paid the wages of his helpers and exercised control over them. As such, the petitioner was not entitled to regularization because he was not an employee of the respondent company. The respondents, likewise, maintained that they did not dismiss the petitioner. Rather, the severance of his contractual relation with the respondent company was due to his violation of the terms and conditions of their contract. The petitioner allegedly failed to observe the minimum degree of diligence in the proper maintenance of the truck he was using, thereby exposing respondent company to unnecessary significant expenses of overhauling the said truck.

After the parties had filed their respective pleadings, the Labor Arbiter rendered the Decision dated February 3, 1997, finding the respondents guilty of illegal dismissal. The Labor Arbiter declared that the petitioner was a regular employee of the respondent company as he was performing a service that was necessary and desirable to the latters business. Moreover, it was noted that the petitioner had discharged his duties as truck driver for the respondent company for a continuous and uninterrupted period of more than ten years.

The contract of service invoked by the respondents was declared null and void as it constituted a circumvention of the constitutional provision affording full protection to labor and security of tenure. The Labor Arbiter found that the petitioners dismissal was anchored on his insistent demand to be regularized. Hence, for lack of a valid and just cause therefor and for their failure to observe the due process requirements, the respondents were found guilty of illegal dismissal. The dispositive portion of the Labor Arbiters decision states:

WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring respondent SUPREME PACKAGING, INC. and/or MR. ALVIN LEE, Plant Manager, with business address at BEPZ, Mariveles, Bataan guilty of illegal dismissal, ordering said respondent to pay complainant his separation pay equivalent to one (1) month pay per year of service based on the average monthly pay of P10,800.00 in lieu of reinstatement as his reinstatement back to work will not do any good between the parties as the employment relationship has already become strained and full backwages from the time his compensation was withheld on February 23, 1995 up to January 31, 1997 (cut-off date) until compliance, otherwise, his backwages shall continue to run. Also to pay complainant his 13th month pay, night shift differential pay and service incentive leave pay hereunder computed as follows:

a) Backwages .. P248,400.00

b) Separation Pay .... P140,400.00

c) 13th month pay .P 10,800.00

d) Service Incentive Leave Pay .. 2,040.00

TOTAL P401,640.00

Respondent is also ordered to pay ten (10%) of the amount due the complainant as attorneys fees.

SO ORDERED.3

The respondents seasonably interposed an appeal with the NLRC. However, the appeal was dismissed by the NLRC in its Decision4 dated January 27, 1998, as it affirmed in toto the decision of the Labor Arbiter. In the said decision, the NLRC characterized the contract of service between the respondent company and the petitioner as a "scheme" that was resorted to by the respondents who, taking advantage of the petitioners unfamiliarity with the English language and/or legal niceties, wanted to evade the effects and implications of his becoming a regularized employee.5

The respondents sought reconsideration of the January 27, 1998 Decision of the NLRC. Acting thereon, the NLRC rendered another Decision6 dated July 10, 1998, reversing its earlier decision and, this time, holding that no employer-employee relationship existed between the respondent company and the petitioner. In reconsidering its earlier decision, the NLRC stated that the respondents did not exercise control over the means and methods by which the petitioner accomplished his delivery services. It upheld the validity of the contract of service as it pointed out that said contract was silent as to the time by which the petitioner was to make the deliveries and that the petitioner could hire his own helpers whose wages would be paid from his own account. These factors indicated that the petitioner was an independent contractor, not an employee of the respondent company.

The NLRC ruled that the contract of service was not intended to circumvent Article 280 of the Labor Code on the regularization of employees. Said contract, including the fixed period of employment contained therein, having been knowingly and voluntarily entered into by the parties thereto was declared valid citing Brent School, Inc. v. Zamora.7 The NLRC, thus, dismissed the petitioners complaint for illegal dismissal.

The petitioner sought reconsideration of the July 10, 1998 Decision but it was denied by the NLRC in its Resolution dated September 7, 1998. He then filed with this Court a petition for certiorari, which was referred to the CA following the ruling in St. Martin Funeral Home v. NLRC .8

The appellate court rendered the Decision dated April 28, 2000, reversing the July 10, 1998 Decision of the NLRC and reinstating the decision of the Labor Arbiter. In the said decision, the CA ruled that the petitioner was a regular employee of the respondent company because as its truck driver, he performed a service that was indispensable to the latters business. Further, he had been the respondent companys truck driver for ten continuous years. The CA also reasoned that the petitioner could not be considered an independent contractor since he had no substantial capital in the form of tools and machinery. In fact, the truck that he drove belonged to the respondent company. The CA also observed that the routing slips that the respondent company issued to the petitioner showed that it exercised control over the latter. The routing slips indicated the chronological order and priority of delivery, the urgency of certain deliveries and the time when the goods were to be delivered to the customers.

The CA, likewise, disbelieved the respondents claim that the petitioner abandoned his job noting that he just filed a complaint for regularization. This actuation of the petitioner negated the respondents allegation that he abandoned his job. The CA held that the respondents failed to discharge their burden to show that the petitioners dismissal was for a valid and just cause. Accordingly, the respondents were declared guilty of illegal dismissal and the decision of the Labor Arbiter was reinstated.

In its April 28, 2000 Decision, the CA denounced the contract of service between the respondent company and the petitioner in this wise:

In summation, we rule that with the proliferation of contracts seeking to prevent workers from attaining the status of regular employment, it is but necessary for the courts to scrutinize with extreme caution their legality and justness. Where from the circumstances it is apparent that a contract has been entered into to preclude acquisition of tenurial security by the employee, they should be struck down and disregarded as contrary to public policy and morals. In this case, the "contract of service" is just

another attempt to exploit the unwitting employee and deprive him of the protection of the Labor Code by making it appear that the stipulations of the parties were governed by the Civil Code as in ordinary transactions.9

However, on motion for reconsideration by the respondents, the CA made a complete turn around as it rendered the assailed Resolution dated December 15, 2000 upholding the contract of service between the petitioner and the respondent company. In reconsidering its decision, the CA explained that the extent of control exercised by the respondents over the petitioner was only with respect to the result but not to the means and methods used by him. The CA cited the following circumstances: (1) the respondents had no say on how the goods were to be delivered to the customers; (2) the petitioner had the right to employ workers who would be under his direct control; and (3) the petitioner had no working time.

The fact that the petitioner had been with the respondent company for more than ten years was, according to the CA, of no moment because his status was determined not by the length of service but by the contract of service. This contract, not being contrary to morals, good customs, public order or public policy, should be given the force and effect of law as between the respondent company and the petitioner. Consequently, the CA reinstated the July 10, 1998 Decision of the NLRC dismissing the petitioners complaint for illegal dismissal.

Hence, the recourse to this Court by the petitioner. He assails the December 15, 2000 Resolution of the appellate court alleging that:

(A)

THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN GIVING MORE CONSIDERATION TO THE "CONTRACT OF SERVICE" ENTERED INTO BY PETITIONER AND PRIVATE RESPONDENT THAN ARTICLE 280 OF THE LABOR CODE OF THE PHILIPPINES WHICH CATEGORICALLY DEFINES A REGULAR EMPLOYMENT NOTWITHSTANDING ANY WRITTEN AGREEMENT TO THE CONTRARY AND REGARDLESS OF THE ORAL AGREEMENT OF THE PARTIES;

(B)

THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN REVERSING ITS OWN FINDINGS THAT PETITIONER IS A REGULAR EMPLOYEE AND IN HOLDING THAT THERE EXISTED NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN PRIVATE RESPONDENT AND PETITIONER IN AS MUCH AS THE "CONTROL TEST" WHICH IS CONSIDERED THE MOST ESSENTIAL CRITERION IN DETERMINING THE EXISTENCE OF SAID RELATIONSHIP IS NOT PRESENT.10

The threshold issue that needs to be resolved is whether there existed an employer-employee relationship between the respondent company and the petitioner. We rule in the affirmative.

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; and (4) the employers power to control the employees conduct.11 The most important element is the employers control of the employees conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.12 All the four elements are present in this case.

First. Undeniably, it was the respondents who engaged the services of the petitioner without the intervention of a third party.

Second. Wages are defined as "remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for service rendered or to be rendered."13 That the petitioner was paid on a per trip basis is not significant. This is merely a method of computing compensation and not a basis for determining the existence or absence of employer-employee relationship. One may be paid on the basis of results or time expended on the work, and may or may not acquire an employment status, depending on whether the elements of an employer-employee relationship are present or not.14 In this case, it cannot be gainsaid that the petitioner received compensation from the respondent company for the services that he rendered to the latter.

Moreover, under the Rules Implementing the Labor Code, every employer is required to pay his employees by means of payroll.15 The payroll should show, among other things, the employees rate of pay, deductions made, and the amount actually paid to the employee. Interestingly, the respondents did not present the payroll to support their claim that the petitioner was not their employee, raising speculations whether this omission proves that its presentation would be adverse to their case.16

Third. The respondents power to dismiss the petitioner was inherent in the fact that they engaged the services of the petitioner as truck driver. They exercised this power by terminating the petitioners services albeit in the guise of "severance of contractual relation" due allegedly to the latters breach of his contractual obligation.

Fourth. As earlier opined, of the four elements of the employer-employee relationship, the "control test" is the most important. Compared to an employee, an independent contractor is one who carries on a distinct and independent business and undertakes to perform the job, work, or service on its own account and under its own responsibility according to its own manner and method, free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof.17 Hence, while an independent contractor enjoys independence and freedom from the control and supervision of his principal, an employee is subject to the employers power to control the means and methods by which the employees work is to be performed and accomplished.18

Although the respondents denied that they exercised control over the manner and methods by which the petitioner accomplished his work, a careful review of the records shows that the latter performed his work as truck driver under the respondents supervision and control. Their right of control was manifested by the following attendant circumstances:

1. The truck driven by the petitioner belonged to respondent company;

2. There was an express instruction from the respondents that the truck shall be used exclusively to deliver respondent companys goods; 19

3. Respondents directed the petitioner, after completion of each delivery, to park the truck in either of two specific places only, to wit: at its office in Metro Manila at 2320 Osmea Street, Makati City or at BEPZ, Mariveles, Bataan;20 and

4. Respondents determined how, where and when the petitioner would perform his task by issuing to him gate passes and routing slips. 21

a. The routing slips indicated on the column REMARKS, the chronological order and priority of delivery such as 1st drop, 2nd drop, 3rd drop, etc. This meant that the petitioner had to deliver the same according to the order of priority indicated therein.

b. The routing slips, likewise, showed whether the goods were to be delivered urgently or not by the word RUSH printed thereon.

c. The routing slips also indicated the exact time as to when the goods were to be delivered to the customers as, for example, the words "tomorrow morning" was written on slip no. 2776.

These circumstances, to the Courts mind, prove that the respondents exercised control over the means and methods by which the petitioner accomplished his work as truck driver of the respondent company. On the other hand, the Court is hard put to believe the respondents allegation that the petitioner was an independent contractor engaged in providing delivery or hauling services when he did not even own the truck used for such services. Evidently, he did not possess substantial capitalization or investment in the form of tools, machinery and work premises. Moreover, the petitioner performed the delivery services exclusively for the respondent company for a continuous and uninterrupted period of ten years.

The contract of service to the contrary notwithstanding, the factual circumstances earlier discussed indubitably establish the existence of an employer-employee relationship between the respondent company and the petitioner. It bears stressing that the existence of an employer-employee relationship cannot be negated by expressly repudiating it in a contract and providing therein that the employee is an independent contractor when, as in this case, the facts clearly show otherwise. Indeed, the employment status of a person is defined and prescribed by law and not by what the parties say it should be.22

Having established that there existed an employer-employee relationship between the respondent company and the petitioner, the Court shall now determine whether the respondents validly dismissed the petitioner.

As a rule, the employer bears the burden to prove that the dismissal was for a valid and just cause.23 In this case, the respondents failed to prove any such cause for the petitioners dismissal. They insinuated that the petitioner abandoned his job. To constitute abandonment, these two factors must concur: (1) the failure to report for work or absence without valid or justifiable reason; and (2) a clear intention to

sever employer-employee relationship.24 Obviously, the petitioner did not intend to sever his relationship with the respondent company for at the time that he allegedly abandoned his job, the petitioner just filed a complaint for regularization, which was forthwith amended to one for illegal dismissal. A charge of abandonment is totally inconsistent with the immediate filing of a complaint for illegal dismissal, more so when it includes a prayer for reinstatement.25

Neither can the respondents claim that the petitioner was guilty of gross negligence in the proper maintenance of the truck constitute a valid and just cause for his dismissal. Gross negligence implies a want or absence of or failure to exercise slight care or diligence, or the entire absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them.26 The negligence, to warrant removal from service, should not merely be gross but also habitual.27 The single and isolated act of the petitioners negligence in the proper maintenance of the truck alleged by the respondents does not amount to "gross and habitual neglect" warranting his dismissal.

The Court agrees with the following findings and conclusion of the Labor Arbiter:

As against the gratuitous allegation of the respondent that complainant was not dismissed from the service but due to complainants breach of their contractual relation, i.e., his violation of the terms and conditions of the contract, we are very much inclined to believe complainants story that his dismissal from the service was anchored on his insistent demand that he be considered a regular employee. Because complainant in his right senses will not just abandon for that reason alone his work especially so that it is only his job where he depends chiefly his existence and support for his family if he was not aggrieved by the respondent when he was told that his services as driver will be terminated on February 23, 1995.28

Thus, the lack of a valid and just cause in terminating the services of the petitioner renders his dismissal illegal. Under Article 279 of the Labor Code, an employee who is unjustly dismissed is entitled to reinstatement, without loss of seniority rights and other privileges, and to the payment of full backwages, inclusive of allowances, and other benefits or their monetary equivalent, computed from the time his compensation was withheld from him up to the time of his actual reinstatement.29 However, as found by the Labor Arbiter, the circumstances obtaining in this case do not warrant the petitioners reinstatement. A more equitable disposition, as held by the Labor Arbiter, would be an award of separation pay equivalent to one month for every year of service from the time of his illegal dismissal up to the finality of this judgment in addition to his full backwages, allowances and other benefits.

WHEREFORE, the instant petition is GRANTED. The Resolution dated December 15, 2000 of the Court of Appeals reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485 is REVERSED and SET ASIDE. The Decision dated February 3, 1997 of the Labor Arbiter in NLRC Case No. RAB-III-02-6181-5, finding the respondents guilty of illegally terminating the employment of petitioner Pedro Chavez, is REINSTATED.

SO ORDERED.

G.R. No. 149011

June 28, 2005

SAN MIGUEL CORPORATION, petitioner vs. PROSPERO A. ABALLA, BONNY J. ABARING, EDWIN M. ADLA-ON, ALVIN C. ALCALDE, CELANIO D. ARROLLADO, EDDIE A. ARROLLADO, REYNALDO T. ASONG, RENE A. ASPERA, JOEL D. BALATERIA, JOSEPH D. BALATERIA, JOSE JOLLEN BALLADOS, WILFREDO B. BASAS, EDWIN E. BEATINGO, SONNY V. BERONDO, CHRISTOPHER D. BRIONES, MARLON D. BRIONES, JOEL C. BOOC, ENRIQUE CABALIDA, DIOSCORO R. CAHINOD, ERNESTO P. CAHINOD, RENANTE S. CAHINOD, RUDERICK R. CALIXTON, RONILO C. CALVEZ, PANCHO CAETE, JUNNY CASTEL, JUDY S. CELESTE, ROMEO CHUA, DANILO COBRA, ARMANDO C. DEDOYCO, JOEY R. DELA CRUZ, JOHN D. DELFIN, RENELITO P. DEON, ARNEL C. DE PEDRO, ORLANDO DERDER, CLIFFORD A. DESPI, RAMIE A. DESPI, SR., VICTOR A. DESPI, ROLANDO L. DINGLE, ANTONIO D. DOLORFINO, LARRY DUMA-OP, NOEL DUMOL, CHITO L. DUNGOG, RODERICK C. DUQUEZA, ROMMEL ESTREBOR, RIC E. GALPO, MANSUETO GILLE, MAXIMO L. HILA-US, GERARDO J. JIMENEZ, ROBERTLY Y. HOFILEA, ROBERTO HOFILEA, VICENTE INDENCIO, JONATHAN T. INVENTOR, PETER PAUL T. INVENTOR, JOEBERT G. LAGARTO, RENATO LAMINA, ALVIN LAS POBRES, ALBERT LAS POBRES, LEONARD LEMONCHITO, JERRY LIM, JOSE COLLY S. LUCERO, ROBERTO E. MARTIL, HERNANDO MATILLANO, VICENTE M. MATILLANO, TANNY C. MENDOZA, WILLIAM P. NAVARRO, WILSON P. NAVARRO, LEO A. OLVIDO, ROBERTO G. OTERO, BIENVENIDO C. PAROCHILIN, REYNALDO C. PAROCHILIN, RICKY PALANOG, BERNIE O. PILLO, ALBERTO O. PILLO, JOE-MARIE S. PUGNA, EDWIN G. RIBON, RAUL A. RUBIO, HENRY S. SAMILLANO, EDGAR SANTIAGO, ROLAND B. SANTILLANA, ROLDAN V. SAYAM, JOSEPH S. SAYSON, RENE SUARNABA, ELMAR TABLIGAN, JERRY D. TALITE, OSCAR TALITE, WINIFREDO TALITE, CAMILO N. TEMPOROSA, JOSE TEMPOROSA, RANDY TINGALA, TRISTAN A. TINGSON, ROGELIO TOMESA, DIONISE A.

TORMIS, ADELINO C. UNTAL, FELIX T. UNTAL, RONILO E. VISTA, JOAN C. VIYO and JOSE JOFER C. VIYO and the COURT OF APPEALS, respondents.

DECISION

CARPIO-MORALES, J.:

Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and Visayas Area Manager for Aquaculture Operations Leopoldo S. Titular, and Sunflower Multi-Purpose Cooperative (Sunflower), represented by the Chairman of its Board of Directors Roy G. Asong, entered into a oneyear Contract of Services1 commencing on January 1, 1993, to be renewed on a month to month basis until terminated by either party. The pertinent provisions of the contract read:

1. The cooperative agrees and undertakes to perform and/or provide for the company, on a nonexclusive basis for a period of one year the following services for the Bacolod Shrimp Processing Plant:

A. Messengerial/Janitorial

B. Shrimp Harvesting/Receiving

C. Sanitation/Washing/Cold Storage2

2. To carry out the undertaking specified in the immediately preceding paragraph, the cooperative shall employ the necessary personnel and provide adequate equipment, materials, tools and apparatus, to efficiently, fully and speedily accomplish the work and services undertaken by the cooperative. xxx

3. In consideration of the above undertaking the company expressly agrees to pay the cooperative the following rates per activity:

A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand Five Hundred Pesos Only (P19,500.00)

B. Harvesting/Shrimp Receiving. Piece rate of P0.34/kg. Or P100.00 minimum per person/activity whichever is higher, with provisions as follows:

P25.00 Fixed Fee per person

Additional meal allowance P15.00 every meal time in case harvest duration exceeds one meal.

This will be pre-set every harvest based on harvest plan approved by the Senior Buyer.

C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts.

One-half of the payment for all services rendered shall be payable on the fifteenth and the other half, on the end of each month. The cooperative shall pay taxes, fees, dues and other impositions that shall become due as a result of this contract.

The cooperative shall have the entire charge, control and supervision of the work and services herein agreed upon. xxx

4. There is no employer-employee relationship between the company and the cooperative, or the cooperative and any of its members, or the company and any members of the cooperative. The cooperative is an association of self-employed members, an independent contractor, and an entrepreneur. It is subject to the control and direction of the company only as to the result to be accomplished by the work or services herein specified, and not as to the work herein contracted. The cooperative and its members recognize that it is taking a business risk in accepting a fixed service fee to provide the services contracted for and its realization of profit or loss from its undertaking, in relation to all its other undertakings, will depend on how efficiently it deploys and fields its members and how they perform the work and manage its operations.

5. The cooperative shall, whenever possible, maintain and keep under its control the premises where the work under this contract shall be performed.

6. The cooperative shall have exclusive discretion in the selection, engagement and discharge of its member-workers or otherwise in the direction and control thereof. The determination of the wages, salaries and compensation of the member-workers of the cooperative shall be within its full control. It is further understood that the cooperative is an independent contractor, and as such, the cooperative agrees to comply with all the requirements of all pertinent laws and ordinances, rules and regulations. Although it is understood and agreed between the parties hereto that the cooperative, in the performance of its obligations, is subject to the control or direction of the company merely as a (sic) result to be accomplished by the work or services herein specified, and not as to the means and methods of accomplishing such result, the cooperative hereby warrants that it will perform such work or services in such manner as will be consistent with the achievement of the result herein contracted for.

xxx

8. The cooperative undertakes to pay the wages or salaries of its member-workers, as well as all benefits, premiums and protection in accordance with the provisions of the labor code, cooperative code and other applicable laws and decrees and the rules and regulations promulgated by competent authorities, assuming all responsibility therefor.

The cooperative further undertakes to submit to the company within the first ten (10) days of every month, a statement made, signed and sworn to by its duly authorized representative before a notary public or other officer authorized by law to administer oaths, to the effect that the cooperative has paid all wages or salaries due to its employees or personnel for services rendered by them during the month immediately preceding, including overtime, if any, and that such payments were all in accordance with the requirements of law.

xxx

12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall be for a period of one (1) year commencing on January 1, 1993. Thereafter, this Contract will be deemed renewed on a month-to-month basis until terminated by either party by sending a written notice to the other at least thirty (30) days prior to the intended date of termination.

xxx3 (Underscoring supplied)

Pursuant to the contract, Sunflower engaged private respondents to, as they did, render services at SMCs Bacolod Shrimp Processing Plant at Sta. Fe, Bacolod City. The contract was deemed renewed by the parties every month after its expiration on January 1, 1994 and private respondents continued to perform their tasks until September 11, 1995.

In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration Branch No. VI, Bacolod City, praying to be declared as regular employees of SMC, with claims for recovery of all benefits and privileges enjoyed by SMC rank and file employees.

Private respondents subsequently filed on September 25, 1995 an Amended Complaint4 to include illegal dismissal as additional cause of action following SMCs closure of its Bacolod Shrimp Processing Plant on September 15, 19955 which resulted in the termination of their services.

SMC filed a Motion for Leave to File Attached Third Party Complaint6 dated November 27, 1995 to implead Sunflower as Third Party Defendant which was, by Order7 of December 11, 1995, granted by Labor Arbiter Ray Alan T. Drilon.

In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo City of the Department of Labor and Employment (DOLE) a Notice of Closure8 of its aquaculture operations effective on even date, citing serious business losses.

By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents complaint for lack of merit, ratiocinating as follows:

We sustain the stand of the respondent SMC that it could properly exercise its management prerogative to contract out the preparation and processing aspects of its aquaculture operations. Judicial notice has already been taken regarding the general practice adopted in government and private institutions and industries of hiring independent contractors to perform special services. xxx

xxx

Indeed, the law allows job contracting. Job contracting is permissible under the Labor Code under specific conditions and we do not see how this activity could not be legally undertaken by an independent service cooperative like the third-party respondent herein.

There is no basis to the demand for regularization simply on the theory that complainants performed activities which are necessary and desirable in the business of respondent. It has been held that the definition of regular employees as those who perform activities which are necessary and desirable for the business of the employer is not always determinative because any agreement may provide for one (1) party to render services for and in behalf of another for a consideration even without being hired as an employee.

The charge of the complainants that third-party respondent is a mere labor-only contractor is a sweeping generalization and completely unsubstantiated. xxx In the absence of clear and convincing evidence showing that third-party respondent acted merely as a labor only contractor, we are firmly convinced of the legitimacy and the integrity of its service contract with respondent SMC.

In the same vein, the closure of the Bacolod Shrimp Processing Plant was a management decision purely dictated by economic factors which was (sic) mainly serious business losses. The law recognizes the right of the employer to close his business or cease his operations for bonafide reasons, as much as it recognizes the right of the employer to terminate the employment of any employee due to closure or cessation of business operations, unless the closing is for the purpose of circumventing the provisions of the law on security of tenure. The decision of respondent SMC to close its Bacolod Shrimp Processing Plant, due to serious business losses which has (sic) clearly been established, is a management prerogative which could hardly be interfered with.

xxx The closure did affect the regular employees and workers of the Bacolod Processing Plant, who were accordingly terminated following the legal requisites prescribed by law. The closure, however, in so far as the complainants are concerned, resulted in the termination of SMCs service contract with their cooperative xxx9 (Underscoring supplied)

Private respondents appealed to the NLRC.

By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of merit, it finding that third party respondent Sunflower was an independent contractor in light of its observation that "[i]n all the activities of private respondents, they were under the actual direction, control and supervision of third party respondent Sunflower, as well as the payment of wages, and power of dismissal."10

Private respondents Motion for Reconsideration11 having been denied by the NLRC for lack of merit by Resolution of September 10, 1999, they filed a petition for certiorari12 before the Court of Appeals (CA).

Before the CA, SMC filed a Motion to Dismiss13 private respondents petition for non-compliance with the Rules on Civil Procedure and failure to show grave abuse of discretion on the part of the NLRC.

SMC subsequently filed its Comment14 to the petition on March 30, 2000.

By Decision of February 7, 2001, the appellate court reversed the NLRC decision and accordingly found for private respondents, disposing as follows:

WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby RENDERED: (1) REVERSING and SETTING ASIDE both the 29 December 1998 decision and 10 September 1999 resolution of the National Labor Relations Commission (NLRC), Fourth Division, Cebu City in NLRC Case No. V-0361-97 as well as the 23 September 1997 decision of the labor arbiter in RAB Case No. 06-07-10316-95; (2) ORDERING the respondent, San Miguel Corporation, to GRANT petitioners: (a) separation pay in accordance with the computation given to the regular SMC employees working at its Bacolod Shrimp Processing Plant with full backwages, inclusive of allowances and other benefits or their monetary equivalent, from 11 September 1995, the time their actual compensation was withheld from them, up to the time of the finality of this decision; (b) differentials pays (sic) effective as of and from the time petitioners acquired regular employment status pursuant to the disquisition mentioned above, and all such other and further benefits as provided by applicable collective bargaining agreement(s) or other relations, or by law, beginning such time up to their termination from employment on 11 September 1995; and ORDERING private respondent SMC to PAY unto the petitioners attorneys fees equivalent to ten (10%) percent of the total award.

No pronouncement as to costs.

SO ORDERED.15 (Underscoring supplied)

Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate court reasoned:

Although the terms of the non-exclusive contract of service between SMC and [Sunflower] showed a clear intent to abstain from establishing an employer-employee relationship between SMC and *Sunflower+ or the latters members, the extent to which the parties successfully realized this intent in the light of the applicable law is the controlling factor in determining the real and actual relationship between or among the parties.

xxx

With respect to the power to control petitioners conduct, it appears that petitioners were under the direct control and supervision of SMC supervisors both as to the manner they performed their functions and as to the end results thereof. It was only after petitioners lodged a complaint to have their status declared as regular employees of SMC that certain members of [Sunflower] began to countersign petitioners daily time records to make it appear that they (petitioners) were under the control and supervision of [Sunflower] team leaders (rollo, pp. 523-527). xxx

Even without these instances indicative of control by SMC over the petitioners, it is safe to assume that SMC would never have allowed the petitioners to work within its premises, using its own facilities, equipment and tools, alongside SMC employees discharging similar or identical activities unless it exercised a substantial degree of control and supervision over the petitioners not only as to the manner they performed their functions but also as to the end results of such functions.

xxx

xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent contractors. [Sunflower] and the petitioners did not have substantial capital or investment in the form of tools,

equipment, implements, work premises, et cetera necessary to actually perform the service under their own account, responsibility, and method. The only "work premises" maintained by [Sunflower] was a small office within the confines of a small "carinderia" or refreshment parlor owned by the mother of its chair, Roy Asong; the only equipment it owned was a typewriter (rollo, pp. 525-525) and, the only assets it provided SMC were the bare bodies of its members, the petitioners herein (rollo, p. 523).

In addition, as shown earlier, petitioners, who worked inside the premises of SMC, were under the control and supervision of SMC both as to the manner and method in discharging their functions and as to the results thereof.

Besides, it should be taken into account that the activities undertaken by the petitioners as cleaners, janitors, messengers and shrimp harvesters, packers and handlers were directly related to the aquaculture business of SMC (See Guarin vs. NLRC, 198 SCRA 267, 273). This is confirmed by the renewal of the service contract from January 1993 to September 1995, a period of close to three (3) years.

Moreover, the petitioners here numbering ninety seven (97), by itself, is a considerable workforce and raises the suspicion that the non-exclusive service contract between SMC and [Sunflower] was "designed to evade the obligations inherent in an employer-employee relationship" (See Rhone-Poulenc Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249, 259).

Equally suspicious is the fact that the notary public who signed the by-laws of [Sunflower] and its [Sunflower] retained counsel are both partners of the local counsel of SMC (rollo, p. 9).

xxx

With these observations, no other logical conclusion can be reached except that [Sunflower] acted as an agent of SMC, facilitating the manpower requirements of the latter, the real employer of the petitioners. We simply cannot allow these two entities through the convenience of a non-exclusive service contract to stipulate on the existence of employer-employee relation. Such existence is a question of law which cannot be made the subject of agreement to the detriment of the petitioners (Tabas vs. California Manufacturing, Inc., 169 SCRA 497, 500).

xxx

There being a finding of "labor-only" contracting, liability must be shouldered either by SMC or [Sunflower] or shared by both (See Tabas vs. California Manufacturing, Inc., supra, p. 502). SMC however should be held solely liable for [Sunflower] became non-existent with the closure of the aquaculture business of SMC.

Furthermore, since the closure of the aquaculture operations of SMC appears to be valid, reinstatement is no longer feasible. Consistent with the pronouncement in Bustamante, et al., vs. NLRC, G.R. No. 111651, 28 November 1996, petitioners are thus entitled to separation pay (in the computation similar to those given to regular SMC employees at its Bacolod Shrimp Processing Plant) "with full backwages, inclusive of allowances and other benefits or their monetary equivalent, from the time their actual compensation was withheld from them" up to the time of the finality of this decision. This is without prejudice to differentials pays (sic) effective as of and from the time petitioners acquired regular employment status pursuant to the discussion mentioned above, and all such other and further benefits as provided by applicable collective bargaining agreement(s) or other relations, or by law, beginning such time up to their termination from employment on 11 September 1995.16 (Emphasis and underscoring supplied)

SMCs Motion for Reconsideration17 having been denied for lack of merit by Resolution of July 11, 2001, it comes before this Court via the present petition for review on certiorari assigning to the CA the following errors:

THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE COURSE AND GRANTING RESPONDENTS PATENTLY DEFECTIVE PETITION FOR CERTIORARI. IN DOING SO, THE COURT OF APPEALS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.

II

THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE RESPONDENTS AS COMPLAINANTS IN THE CASE BEFORE THE LABOR ARBITER. IN DOING SO, THE COURT OF APPEALS DECIDED THIS CASE IN A MANNER NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT.

III

THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE EMPLOYEES OF SMC.

IV

THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic) THAT RESPONDENTS ARE NOT ENTITLED TO ANY RELIEF. THE CLOSURE OF THE BACOLOD SHRIMP PROCESSING PLANT WAS DUE TO SERIOUS BUSINESS LOSSES.18 (Underscoring supplied)

SMC bewails the failure of the appellate court to outrightly dismiss the petition for certiorari as only three out of the ninety seven named petitioners signed the verification and certification against forumshopping.

While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs or petitioners in a case and the signature of only one of them is insufficient,19 this Court has stressed that the rules on forum shopping, which were designed to promote and facilitate the orderly administration of justice, should not be interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective.20 Strict compliance with the provisions regarding the certificate of non-forum shopping merely underscores its mandatory nature in that the certification cannot be altogether dispensed with or its requirements completely disregarded.21 It does not, however, thereby interdict substantial compliance with its provisions under justifiable circumstances.22

Thus in the recent case of HLC Construction and Development Corporation v. Emily Homes Subdivision Homeowners Association,23 this Court held:

Respondents (who were plaintiffs in the trial court) filed the complaint against petitioners as a group, represented by their homeowners association president who was likewise one of the plaintiffs, Mr. Samaon M. Buat. Respondents raised one cause of action which was the breach of contractual obligations and payment of damages. They shared a common interest in the subject matter of the case, being the aggrieved residents of the poorly constructed and developed Emily Homes Subdivision. Due to the collective nature of the case, there was no doubt that Mr. Samaon M. Buat could validly sign the certificate of non-forum shopping in behalf of all his co-plaintiffs. In cases therefore where it is highly impractical to require all the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order not to defeat the ends of justice, for one of the plaintiffs, acting as representative, to sign the certificate provided that xxx the plaintiffs share a common interest in the subject matter of the case or filed the case as a "collective," raising only one common cause of action or defense.24 (Emphasis and underscoring supplied)

Given the collective nature of the petition filed before the appellate court by herein private respondents, raising one common cause of action against SMC, the execution by private respondents Winifredo Talite, Renelito Deon and Jose Temporosa in behalf of all the other private respondents of the certificate of non-forum shopping constitutes substantial compliance with the Rules.25 That the three indeed represented their co-petitioners before the appellate court is, as it correctly found, "subsequently proven to be true as shown by the signatures of the majority of the petitioners appearing in their memorandum filed before Us."26

Additionally, the merits of the substantive aspects of the case may also be deemed as "special circumstance" or "compelling reason" to take cognizance of a petition although the certification against forum shopping was not executed and signed by all of the petitioners.27

SMC goes on to argue that the petition filed before the CA is fatally defective as it was not accompanied by "copies of all pleadings and documents relevant and pertinent thereto" in contravention of Section 1, Rule 65 of the Rules of Court.28

This Court is not persuaded. The records show that private respondents appended the following documents to their petition before the appellate court: the September 23, 1997 Decision of the Labor Arbiter,29 their Notice of Appeal with Appeal Memorandum dated October 16, 1997 filed before the NLRC,30 the December 29, 1998 NLRC D E C I S I O N,31 their Motion for Reconsideration dated March 26, 1999 filed with the NLRC32 and the September 10, 1999 NLRC Resolution.33

It bears stressing at any rate that it is the appellate court which ultimately determines if the supporting documents are sufficient to make out a prima facie case.34 It discerns whether on the basis of what have been submitted it could already judiciously determine the merits of the petition.35 In the case at bar, the CA found that the petition was adequately supported by relevant and pertinent documents.

At all events, this Court has allowed a liberal construction of the rule on the accomplishment of a certificate of non-forum shopping in the following cases: (1) where a rigid application will result in manifest failure or miscarriage of justice; (2) where the interest of substantial justice will be served; (3) where the resolution of the motion is addressed solely to the sound and judicious discretion of the court; and (4) where the injustice to the adverse party is not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed.36

Rules of procedure should indeed be viewed as mere tools designed to facilitate the attainment of justice. Their strict and rigid application, which would result in technicalities that tend to frustrate rather than promote substantial justice, must always be eschewed.37

SMC further argues that the appellate court exceeded its jurisdiction in reversing the decisions of the labor arbiter and the NLRC as "findings of facts of quasi-judicial bodies like the NLRC are accorded great respect and finality," and that this principle acquires greater weight and application in the case at bar as the labor arbiter and the NLRC have the same factual findings.

The general rule, no doubt, is that findings of facts of an administrative agency which has acquired expertise in the particular field of its endeavor are accorded great weight on appeal.38 The rule is not absolute and admits of certain well-recognized exceptions, however. Thus, when the findings of fact of the labor arbiter and the NLRC are not supported by substantial evidence or their judgment was based on a misapprehension of facts, the appellate court may make an independent evaluation of the facts of the case.39

SMC further faults the appellate court in giving due course to private respondents petition despite the fact that the complaint filed before the labor arbiter was signed and verified only by private respondent Winifredo Talite; that private respondents position paper40 was verified by only six41 out of the ninety seven complainants; and that their Joint-Affidavit42 was executed only by twelve43 of the complainants.

Specifically with respect to the Joint-Affidavit of private respondents, SMC asserts that it should not have been considered by the appellate court in establishing the claims of those who did not sign the same, citing this Courts ruling in Southern Cotabato Development and Construction, Inc. v. NLRC.44

SMCs position does not lie.

A perusal of the complaint shows that the ninety seven complainants were being represented by their counsel of choice. Thus the first sentence of their complaint alleges: "xxx complainants, by counsel and unto this Honorable Office respectfully state xxx." And the complaint was signed by Atty. Jose Max S. Ortiz as "counsel for the complainants." Following Section 6, Rule III of the 1990 Rules of Procedure of the NLRC, now Section 7, Rule III of the 1999 NLRC Rules, Atty. Ortiz is presumed to be properly authorized by private respondents in filing the complaint.

That the verification wherein it is manifested that private respondent Talite was one of the complainants and was causing the preparation of the complaint "with the authority of my cocomplainants" indubitably shows that Talite was representing the rest of his co-complainants in signing the verification in accordance with Section 7, Rule III of the 1990 NLRC Rules, now Section 8, Rule 3 of the 1999 NLRC Rules, which states:

Section 7. Authority to bind party. Attorneys and other representatives of parties shall have authority to bind their clients in all matters of procedure; but they cannot, without a special power of attorney or express consent, enter into a compromise agreement with the opposing party in full or partial discharge of a clients claim. (Underscoring supplied)

As regards private respondents position paper which bore the signatures of only six of them, appended to it was an Authority/Confirmation of Authority45 signed by the ninety one others conferring authority to their counsel "to file RAB Case No. 06-07-10316-95, entitled Winifredo Talite et al. v. San Miguel Corporation presently pending before the sala of Labor Arbiter Ray Alan Drilon at the NLRC Regional Arbitration Branch No. VI in Bacolod City" and appointing him as their retained counsel to represent them in the said case.

That there has been substantial compliance with the requirement on verification of position papers under Section 3, Rule V of the 1990 NLRC Rules of Procedure46 is not difficult to appreciate in light of

the provision of Section 7, Rule V of the 1990 NLRC Rules, now Section 9, Rule V of the 1999 NLRC Rules which reads:

Section 7. Nature of Proceedings. The proceedings before a Labor Arbiter shall be non-litigious in nature. Subject to the requirements of due process, the technicalities of law and procedure and the rules obtaining in the courts of law shall not strictly apply thereto. The Labor Arbiter may avail himself of all reasonable means to ascertain the facts of the controversy speedily, including ocular inspection and examination of well-informed persons. (underscoring supplied)

As regards private respondents Joint-Affidavit which is being assailed in view of the failure of some complainants to affix their signatures thereon, this Court quotes with approval the appellate courts ratiocinations:

A perusal of the Southern Cotabato Development Case would reveal that movant did not quote the whole text of paragraph 5 on page 865 of 280 SCRA. The whole paragraph reads:

"Clearly then, as to those who opted to move for the dismissal of their complaints, or did not submit their affidavits nor appear during trial and in whose favor no other independent evidence was adduced, no award for back wages could have been validly and properly made for want of factual basis. There is no showing at all that any of the affidavits of the thirty-four (34) complainants were offered as evidence for those who did not submit their affidavits, or that such affidavits had any bearing at all on the rights and interest of the latter. In the same vein, private respondents position paper was not of any help to these delinquent complainants.

The implication is that as long as the affidavits of the complainants were offered as evidence for those who did not submit theirs, or the affidavits were material and relevant to the rights and interest of the latter, such affidavits may be sufficient to establish the claims of those who did not give their affidavits.

Here, a reading of the joint affidavit signed by twelve (12) of the ninety-seven (97) complainants (petitioners herein) would readily reveal that the affidavit was offered as evidence not only for the signatories therein but for all of the complainants. (These ninety-seven (97) individuals were previously identified during the mandatory conference as the only complainants in the proceedings before the labor arbiter) Moreover, the affidavit touched on the common interest of all of the complainants as it supported their claim of the existence of an employer-employee relationship between them and

respondent SMC. Thus, the said affidavit was enough to prove the claims of the rest of the complainants.47 (Emphasis supplied, underscoring in the original)

In any event, SMC is reminded that the rules of evidence prevailing in courts of law or equity do not control proceedings before the Labor Arbiter. So Article 221 of the Labor Code enjoins:

ART. 221. Technical rules not binding and prior resort to amicable settlement. In any proceeding before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in courts of law or equity shall not be controlling and it is the spirit and intention of this Code that the Commission and its members and the Labor Arbiters shall use every and all reasonable means to ascertain the facts in each case speedily and objectively and without regard to technicalities of law or procedure, all in the interest of due process. xxx

As such, their application may be relaxed to serve the demands of substantial justice.48

On the merits, the petition just the same fails.

SMC insists that private respondents are the employees of Sunflower, an independent contractor. On the other hand, private respondents assert that Sunflower is a labor-only contractor.

Article 106 of the Labor Code provides:

ART. 106. Contractor or subcontracting. Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any shall be paid in accordance with the provisions of this Code.

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

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

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

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18, distinguishes between legitimate and labor-only contracting:

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job, work or service.

Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis hereby declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present:

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

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

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

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

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

The test to determine the existence of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work.49

In legitimate labor contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to ensure that the employees are paid their wages. The principal employer becomes jointly and severally liable with the job contractor, only for the payment of the employees wages whenever the contractor fails to pay the same. Other than that, the principal employer is not responsible for any claim made by the employees.50

In labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.51

The Contract of Services between SMC and Sunflower shows that the parties clearly disavowed the existence of an employer-employee relationship between SMC and private respondents. The language of a contract is not, however, determinative of the parties relationship; rather it is the totality of the facts and surrounding circumstances of the case.52 A party cannot dictate, by the mere expedient of a unilateral declaration in a contract, the character of its business, i.e., whether as labor-only contractor or job contractor, it being crucial that its character be measured in terms of and determined by the criteria set by statute.53

SMC argues that Sunflower could not have been issued a certificate of registration as a cooperative if it had no substantial capital.54

While indeed Sunflower was issued Certificate of Registration No. IL0-87555 on February 10, 1992 by the Cooperative Development Authority, this merely shows that it had at least P2,000.00 in paid-up share capital as mandated by Section 5 of Article 1456 of Republic Act No. 6938, otherwise known as the Cooperative Code, which amount cannot be considered substantial capitalization.

What appears is that Sunflower does not have substantial capitalization or investment in the form of tools, equipment, machineries, work premises and other materials to qualify it as an independent contractor.

On the other hand, it is gathered that the lot, building, machineries and all other working tools utilized by private respondents in carrying out their tasks were owned and provided by SMC. Consider the following uncontroverted allegations of private respondents in the Joint Affidavit:

[Sunflower], during the existence of its service contract with respondent SMC, did not own a single machinery, equipment, or working tool used in the processing plant. Everything was owned and provided by respondent SMC. The lot, the building, and working facilities are owned by respondent SMC. The machineries and equipments (sic) like washer machine, oven or cooking machine, sizer machine, freezer, storage, and chilling tanks, push carts, hydrolic (sic) jack, tables, and chairs were all owned by respondent SMC. All the boxes, trays, molding pan used in the processing are also owned by respondent SMC. The gloves and boots used by the complainants were also owned by respondent SMC. Even the mops, electric floor cleaners, brush, hoose (sic), soaps, floor waxes, chlorine, liquid stain removers, lysol and the like used by the complainants assigned as cleaners were all owned and provided by respondent SMC.

Simply stated, third-party respondent did not own even a small capital in the form of tools, machineries, or facilities used in said prawn processing

xxx

The alleged office of [Sunflower] is found within the confines of a small "carinderia" or "refreshment" (sic) owned by the mother of the Cooperative Chairman Roy Asong.

xxx In said . . . office, the only equipment used and owned by [Sunflower] was a typewriter. 57

And from the job description provided by SMC itself, the work assigned to private respondents was directly related to the aquaculture operations of SMC. Undoubtedly, the nature of the work performed by private respondents in shrimp harvesting, receiving and packing formed an integral part of the shrimp processing operations of SMC. As for janitorial and messengerial services, that they are considered directly related to the principal business of the employer58 has been jurisprudentially recognized.

Furthermore, Sunflower did not carry on an independent business or undertake the performance of its service contract according to its own manner and method, free from the control and supervision of its principal, SMC, its apparent role having been merely to recruit persons to work for SMC.

Thus, it is gathered from the evidence adduced by private respondents before the labor arbiter that their daily time records were signed by SMC supervisors Ike Puentebella, Joemel Haro, Joemari Raca, Erwin Tumonong, Edison Arguello, and Stephen Palabrica, which fact shows that SMC exercised the power of control and supervision over its employees.59 And control of the premises in which private respondents worked was by SMC. These tend to disprove the independence of the contractor.60

More. Private respondents had been working in the aqua processing plant inside the SMC compound alongside regular SMC shrimp processing workers performing identical jobs under the same SMC supervisors.61 This circumstance is another indicium of the existence of a labor-only contractorship.62

And as private respondents alleged in their Joint Affidavit which did not escape the observation of the CA, no showing to the contrary having been proffered by SMC, Sunflower did not cater to clients other than SMC,63 and with the closure of SMCs Bacolod Shrimp Processing Plant, Sunflower likewise ceased to exist. This Courts ruling in San Miguel Corporation v. MAERC Integrated Services, Inc.64 is thus instructive.

xxx Nor do we believe MAERC to have an independent business. Not only was it set up to specifically meet the pressing needs of SMC which was then having labor problems in its segregation division, none of its workers was also ever assigned to any other establishment, thus convincing us that it was created solely to service the needs of SMC. Naturally, with the severance of relationship between MAERC and SMC followed MAERCs cessation of operations, the loss of jobs for the whole MAERC workforce and the resulting actions instituted by the workers.65 (Underscoring supplied)

All the foregoing considerations affirm by more than substantial evidence the existence of an employeremployee relationship between SMC and private respondents.

Since private respondents who were engaged in shrimp processing performed tasks usually necessary or desirable in the aquaculture business of SMC, they should be deemed regular employees of the latter66 and as such are entitled to all the benefits and rights appurtenant to regular employment.67 They should thus be awarded differential pay corresponding to the difference between the wages and benefits given them and those accorded SMCs other regular employees.1awphi1.zw+

Respecting the private respondents who were tasked with janitorial and messengerial duties, this Court quotes with approval the appellate courts ruling thereon:

Those performing janitorial and messengerial services however acquired regular status only after rendering one-year service pursuant to Article 280 of the Labor Code. Although janitorial and messengerial services are considered directly related to the aquaculture business of SMC, they are deemed unnecessary in the conduct of its principal business; hence, the distinction (See Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-137 and Philippine Bank of Communications v. NLRC, supra, p. 359).68

The law of course provides for two kinds of regular employees, namely: (1) those who are engaged to perform activities which are usually necessary or desirable in the usual business or trade of the

employer; and (2) those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed.69

As for those of private respondents who were engaged in janitorial and messengerial tasks, they fall under the second category and are thus entitled to differential pay and benefits extended to other SMC regular employees from the day immediately following their first year of service.70

Regarding the closure of SMCs aquaculture operations and the consequent termination of private respondents, Article 283 of the Labor Code provides:

ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or to at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. (Underscoring supplied)

In the case at bar, a particular department under the SMC group of companies was closed allegedly due to serious business reverses. This constitutes retrenchment by, and not closure of, the enterprise or the company itself as SMC has not totally ceased operations but is still very much an on-going and highly viable business concern.71

Retrenchment is a management prerogative consistently recognized and affirmed by this Court. It is, however, subject to faithful compliance with the substantive and procedural requirements laid down by law and jurisprudence.72

For retrenchment to be considered valid the following substantial requirements must be met: (a) the losses expected should be substantial and not merely de minimis in extent; (b) the substantial losses

apprehended must be reasonably imminent such as can be perceived objectively and in good faith by the employer; (c) the retrenchment must be reasonably necessary and likely to effectively prevent the expected losses; and (d) the alleged losses, if already incurred, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence.73

In the discharge of these requirements, it is the employer who has the onus, being in the nature of an affirmative defense.74

Normally, the condition of business losses is shown by audited financial documents like yearly balance sheets, profit and loss statements and annual income tax returns. The financial statements must be prepared and signed by independent auditors failing which they can be assailed as self-serving documents.75

In the case at bar, company losses were duly established by financial documents audited by Joaquin Cunanan & Co. showing that the aquaculture operations of SMCs Agribusiness Division accumulated losses amounting to P145,848,172.00 in 1992 resulting in the closure of its Calatrava Aquaculture Center in Negros Occidental, P11,393,071.00 in 1993 and P80,325,608.00 in 1994 which led to the closure of its San Fernando Shrimp Processing Plant in Pampanga and the Bacolod Shrimp Processing Plant in 1995.

SMC has thus proven substantial business reverses justifying retrenchment of its employees.

For termination due to retrenchment to be valid, however, the law requires that written notices of the intended retrenchment be served by the employer on the worker and on the DOLE at least one (1) month before the actual date of the retrenchment,76 in order to give employees some time to prepare for the eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the verity of the alleged cause of termination.77

Private respondents, however, were merely verbally informed on September 10, 1995 by SMC Prawn Manager Ponciano Capay that effective the following day or on September 11, 1995, they were no longer to report for work as SMC would be closing its operations.78

Where the dismissal is based on an authorized cause under Article 283 of the Labor Code but the employer failed to comply with the notice requirement, the sanction should be stiff as the dismissal

process was initiated by the employers exercise of his management prerogative, as opposed to a dismissal based on a just cause under Article 282 with the same procedural infirmity where the sanction to be imposed upon the employer should be tempered as the dismissal process was, in effect, initiated by an act imputable to the employee.79

In light of the factual circumstances of the case at bar, this Court awards P50,000.00 to each private respondent as nominal damages.

The grant of separation pay as an incidence of termination of employment due to retrenchment to prevent losses is a statutory obligation on the part of the employer and a demandable right on the part of the employee. Private respondents should thus be awarded separation pay equivalent to at least one (1) month pay or to at least one-half month pay for every year of service, whichever is higher, as mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to other regular SMC employees that were terminated as a result of the retrenchment, depending on which is most beneficial to private respondents.

Considering that private respondents were not illegally dismissed, however, no backwages need be awarded. It is well settled that backwages may be granted only when there is a finding of illegal dismissal.80 The appellate court thus erred in awarding backwages to private respondents upon the authority of Bustamante v. NLRC,81 what was involved in that case being one of illegal dismissal.

With respect to attorneys fees, in actions for recovery of wages or where an employee was forced to litigate and thus incurred expenses to protect his rights and interests,82 a maximum of ten percent (10%) of the total monetary award83 by way of attorneys fees is justifiable under Article 111 of the Labor Code,84 Section 8, Rule VIII, Book III of its Implementing Rules,85 and paragraph 7, Article 2208 of the Civil Code.86 Although an express finding of facts and law is still necessary to prove the merit of the award, there need not be any showing that the employer acted maliciously or in bad faith when it withheld the wages. There need only be a showing that the lawful wages were not paid accordingly, as in this case.87

Absent any evidence showing that Sunflower has been dissolved in accordance with law, pursuant to Rule VIII-A, Section 1988 of the Omnibus Rules Implementing the Labor Code, Sunflower is held solidarily liable with SMC for all the rightful claims of private respondents.

WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001 and Resolution dated July 11, 2001 of the Court of Appeals are AFFIRMED with MODIFICATION.

Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby ORDERED to jointly and severally pay each private respondent differential pay from the time they became regular employees up to the date of their termination; separation pay equivalent to at least one (1) month pay or to at least one-half month pay for every year of service, whichever is higher, as mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to other regular SMC employees that were terminated as a result of the retrenchment, depending on which is most beneficial to private respondents; and ten percent (10%) attorneys fees based on the herein modified award.

Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount of P50,000.00, representing nominal damages for non-compliance with statutory due process.

The award of backwages is DELETED.

SO ORDERED.

G.R. No. 138051

June 10, 2004

JOSE Y. SONZA, petitioner, vs. ABS-CBN BROADCASTING CORPORATION, respondent.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari1 assailing the 26 March 1999 Decision2 of the Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza ("SONZA"). The Court of Appeals affirmed the findings of the National Labor Relations Commission ("NLRC"), which affirmed the Labor Arbiters dismissal of the case for lack of jurisdiction.

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement ("Agreement") with the Mel and Jay Management and Development Corporation ("MJMDC"). ABS-CBN was represented by its corporate officers while MJMDC was represented by SONZA, as President and General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and Treasurer. Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZAs services exclusively to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would render to ABS-CBN, as follows:

a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.3

ABS-CBN agreed to pay for SONZAs services a monthly talent fee of P310,000 for the first year and P317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on the 10th and 25th days of the month.

On 1 April 1996, SONZA wrote a letter to ABS-CBNs President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered into by your goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA.

As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning his programs and career. We consider these acts of the station violative of the Agreement and the station as in breach thereof. In this connection, we hereby serve notice of rescission of said Agreement at our instance effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of the Agreement but reserves the right to seek recovery of the other benefits under said Agreement.

Thank you for your attention.

Very truly yours,

(Sgd.) JOSE Y. SONZA President and Gen. Manager4

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN did not pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel allowance and amounts due under the Employees Stock Option Plan ("ESOP").

On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZAs monthly talent fees through his account at PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account with the same bank where ABS-CBN deposited SONZAs talent fees and other payments due him under the Agreement.

In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to dismiss and directed the parties to file their respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of respondent company until April 15, 1996 and that he was not paid certain claims, it is sufficient enough as to confer jurisdiction over the instant case in this Office. And as to whether or not such claim would entitle complainant to recover upon the causes of action asserted is a matter to be resolved only after and as a result of a hearing. Thus, the respondents plea of lack of employer-employee relationship may be pleaded only as a matter of defense. It behooves upon it the duty to prove that there really is no employer-employee relationship between it and the complainant.

The Labor Arbiter then considered the case submitted for resolution. The parties submitted their position papers on 24 February 1997.

On 11 March 1997, SONZA filed a Reply to Respondents Position Paper with Motion to Expunge Respondents Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBNs witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the prevailing practice in the television and broadcast industry is to treat talents like SONZA as independent contractors.

The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of jurisdiction.6 The pertinent parts of the decision read as follows:

xxx

While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of the contract of a talent," it stands to reason that a "talent" as above-described cannot be considered as an employee by reason of the peculiar circumstances surrounding the engagement of his services.

It must be noted that complainant was engaged by respondent by reason of his peculiar skills and talent as a TV host and a radio broadcaster. Unlike an ordinary employee, he was free to perform the services he undertook to render in accordance with his own style. The benefits conferred to complainant under the May 1994 Agreement are certainly very much higher than those generally given to employees. For one, complainant Sonzas monthly talent fees amount to a staggering P317,000. Moreover, his engagement as a talent was covered by a specific contract. Likewise, he was not bound to render eight (8) hours of work per day as he worked only for such number of hours as may be necessary.

The fact that per the May 1994 Agreement complainant was accorded some benefits normally given to an employee is inconsequential. Whatever benefits complainant enjoyed arose from specific agreement by the parties and not by reason of employer-employee relationship. As correctly put by the respondent, "All these benefits are merely talent fees and other contractual benefits and should not be deemed as salaries, wages and/or other remuneration accorded to an employee, notwithstanding the nomenclature appended to these benefits. Apropos to this is the rule that the term or nomenclature given to a stipulated benefit is not controlling, but the intent of the parties to the Agreement conferring such benefit."

The fact that complainant was made subject to respondents Rules and Regulations, likewise, does not detract from the absence of employer-employee relationship. As held by the Supreme Court, "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 to achieve it." (Insular Life Assurance Co., Ltd. vs. NLRC, et al., G.R. No. 84484, November 15, 1989).

x x x (Emphasis supplied)7

SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming the Labor Arbiters decision. SONZA filed a motion for reconsideration, which the NLRC denied in its Resolution dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals rendered a Decision dismissing the case.8

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRCs finding that no employer-employee relationship existed between SONZA and ABS-CBN. Adopting the NLRCs decision, the appellate court quoted the following findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract merely as an agent of complainant Sonza, the principal. By all indication and as the law puts it, the act of the agent is the act of the principal itself. This fact is made particularly true in this case, as admittedly MJMDC is a management company devoted exclusively to managing the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco. (Opposition to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza and MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of the May 1994 Agreement which specifically referred to MJMDC as the AGENT. As a matter of fact, when complainant herein unilaterally rescinded said May 1994 Agreement, it was MJMDC which issued the notice of rescission in behalf of Mr. Sonza, who himself signed the same in his capacity as President.

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is only in the May 1994 Agreement, which is the latest Agreement executed between ABS-CBN and Mr. Sonza, that MJMDC figured in the said Agreement as the agent of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere labor-only contractor of ABS-CBN such that there exist[s] employer-employee relationship between the latter and Mr. Sonza. On the contrary, We find it

indubitable, that MJMDC is an agent, not of ABS-CBN, but of the talent/contractor Mr. Sonza, as expressly admitted by the latter and MJMDC in the May 1994 Agreement.

It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to the regular courts, the same being in the nature of an action for alleged breach of contractual obligation on the part of respondent-appellee. As squarely apparent from complainant-appellants Position Paper, his claims for compensation for services, 13th month pay, signing bonus and travel allowance against respondent-appellee are not based on the Labor Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds under Stock Purchase Agreement are based on the latter. A portion of the Position Paper of complainant-appellant bears perusal:

Under *the May 1994 Agreement] with respondent ABS-CBN, the latter contractually bound itself to pay complainant a signing bonus consisting of shares of stockswith FIVE HUNDRED THOUSAND PESOS (P500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an amount not lower than the amount he was receiving prior to effectivity of (the) Agreement.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a commutable travel benefit amounting to at least One Hundred Fifty Thousand Pesos (P150,000.00) per year.

Thus, it is precisely because of complainant-appellants own recognition of the fact that his contractual relations with ABS-CBN are founded on the New Civil Code, rather than the Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant served upon the latter a notice of rescission of Agreement with the station, per his letter dated April 1, 1996, which asserted that instead of referring to unpaid employee benefits, he is waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of the Agreement but reserves the right to such recovery of the other benefits under said Agreement. (Annex 3 of the respondent ABS-CBNs Motion to Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or the Stock Purchase Agreement by respondent-appellee that complainant-appellant filed his complaint. Complainant-appellants claims being anchored on the alleged breach of contract on the part of respondent-appellee, the same can be resolved by reference to civil law and not to labor law. Consequently, they are within the realm of civil law and, thus, lie with the regular courts. As held in the

case of Dai-Chi Electronics Manufacturing vs. Villarama, 238 SCRA 267, 21 November 1994, an action for breach of contractual obligation is intrinsically a civil dispute.9 (Emphasis supplied)

The Court of Appeals ruled that the existence of an employer-employee relationship between SONZA and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve.10 A special civil action for certiorari extends only to issues of want or excess of jurisdiction of the NLRC.11 Such action cannot cover an inquiry into the correctness of the evaluation of the evidence which served as basis of the NLRCs conclusion.12 The Court of Appeals added that it could not re-examine the parties evidence and substitute the factual findings of the NLRC with its own.13

The Issue

In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRCS DECISION AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEEN SONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING.14

The Courts Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming the NLRC ruling which upheld the Labor Arbiters dismissal of the case for lack of jurisdiction.

The present controversy is one of first impression. Although Philippine labor laws and jurisprudence define clearly the elements of an employer-employee relationship, this is the first time that the Court will resolve the nature of the relationship between a television and radio station and one of its "talents." There is no case law stating that a radio and television program host is an employee of the broadcast station.

The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a known television and radio personality, and ABS-CBN, one of the biggest television and radio networks in the country.

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because SONZA was an independent contractor.

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courts accord the factual findings of the Labor Arbiter and the NLRC not only respect but also finality when supported by substantial evidence.15 Substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.16 A party cannot prove the absence of substantial evidence by simply pointing out that there is contrary evidence on record, direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in determining where the weight of evidence lies or what evidence is credible.17

SONZA maintains that all essential elements of an employer-employee relationship are present in this case. Case law has consistently held that the elements of an employer-employee relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the employee on the means and methods by which the work is accomplished.18 The last element, the so-called "control test", is the most important element.19

A. Selection and Engagement of Employee

ABS-CBN engaged SONZAs services to co-host its television and radio programs because of SONZAs peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by respondent in specifically selecting and hiring complainant over other broadcasters of possibly similar experience and qualification as complainant belies respondents claim of independent contractorship."

Independent contractors often present themselves to possess unique skills, expertise or talent to distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of his

unique skills, talent and celebrity status not possessed by ordinary employees, is a circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into the Agreement with SONZA but would have hired him through its personnel department just like any other employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his status. We must consider all the circumstances of the relationship, with the control test being the most important element.

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC. SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN. SONZA also points out that ABS-CBN granted him benefits and privileges "which he would not have enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the Agreement. If SONZA were ABS-CBNs employee, there would be no need for the parties to stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay"20 which the law automatically incorporates into every employer-employee contract.21 Whatever benefits SONZA enjoyed arose from contract and not because of an employer-employee relationship.22

SONZAs talent fees, amounting to P317,000 monthly in the second and third year, are so huge and out of the ordinary that they indicate more an independent contractual relationship rather than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely because of SONZAs unique skills, talent and celebrity status not possessed by ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such huge talent fees for his services. The power to bargain talent fees way above the salary scales of ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of SONZA as an independent contractor. The parties expressly agreed on such mode of payment. Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over any talent fee accruing under the Agreement.

C. Power of Dismissal

For violation of any provision of the Agreement, either party may terminate their relationship. SONZA failed to show that ABS-CBN could terminate his services on grounds other than breach of contract, such as retrenchment to prevent losses as provided under labor laws.23

During the life of the Agreement, ABS-CBN agreed to pay SONZAs talent fees as long as "AGENT and Jay Sonza shall faithfully and completely perform each condition of this Agreement."24 Even if it suffered severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained obligated to pay SONZAs talent fees during the life of the Agreement. This circumstance indicates an independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying SONZAs talent fees during the remaining life of the Agreement even if ABS-CBN cancelled SONZAs programs through no fault of SONZA.25

SONZA assails the Labor Arbiters interpretation of his rescission of the Agreement as an admission that he is not an employee of ABS-CBN. The Labor Arbiter stated that "if it were true that complainant was really an employee, he would merely resign, instead." SONZA did actually resign from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZAs letter clearly bears this out.26 However, the manner by which SONZA terminated his relationship with ABS-CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does not determine his status as employee or independent contractor.

D. Power of Control

Since there is no local precedent on whether a radio and television program host is an employee or an independent contractor, we refer to foreign case law in analyzing the present case. The United States Court of Appeals, First Circuit, recently held in Alberty-Vlez v. Corporacin De Puerto Rico Para La Difusin Pblica ("WIPR")27 that a television program host is an independent contractor. We quote the following findings of the U.S. court:

Several factors favor classifying Alberty as an independent contractor. First, a television actress is a skilled position requiring talent and training not available on-the-job. x x x In this regard, Alberty possesses a masters degree in public communications and journalism; is trained in dance, singing, and modeling; taught with the drama department at the University of Puerto Rico; and acted in several theater and television productions prior to her affiliation with "Desde Mi Pueblo." Second, Alberty provided the "tools and instrumentalities" necessary for her to perform. Specifically, she provided, or obtained sponsors to provide, the costumes, jewelry, and other image-related supplies and services necessary for her appearance. Alberty disputes that this factor favors independent contractor status because WIPR provided the "equipment necessary to tape the show." Albertys argument is misplaced. The equipment necessary for Alberty to conduct her job as host of "Desde Mi Pueblo" related to her appearance on the show. Others provided equipment for filming and producing the show, but these were not the primary tools that Alberty used to perform her particular function. If we accepted this argument, independent contractors could never work on collaborative projects because other individuals often provide the equipment required for different aspects of the collaboration. x x x

Third, WIPR could not assign Alberty work in addition to filming "Desde Mi Pueblo." Albertys contracts with WIPR specifically provided that WIPR hired her "professional services as Hostess for the Program Desde Mi Pueblo." There is no evidence that WIPR assigned Alberty tasks in addition to work related to these tapings. x x x28 (Emphasis supplied)

Applying the control test to the present case, we find that SONZA is not an employee but an independent contractor. The control test is the most important test our courts apply in distinguishing an employee from an independent contractor.29 This test is based on the extent of control the hirer exercises over a worker. The greater the supervision and control the hirer exercises, the more likely the worker is deemed an employee. The converse holds true as well the less control the hirer exercises, the more likely the worker is considered an independent contractor.30

First, SONZA contends that ABS-CBN exercised control over the means and methods of his work.

SONZAs argument is misplaced. ABS-CBN engaged SONZAs services specifically to co-host the "Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his work, SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television, and sounded on radio were outside ABS-CBNs control. SONZA did not have to render eight hours of work per day. The Agreement required SONZA to attend only rehearsals and tapings of the shows, as well as pre- and postproduction staff meetings.31 ABS-CBN could not dictate the contents of SONZAs script. However, the

Agreement prohibited SONZA from criticizing in his shows ABS-CBN or its interests.32 The clear implication is that SONZA had a free hand on what to say or discuss in his shows provided he did not attack ABS-CBN or its interests.

We find that ABS-CBN was not involved in the actual performance that produced the finished product of SONZAs work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN merely reserved the right to modify the program format and airtime schedule "for more effective programming."34 ABSCBNs sole concern was the quality of the shows and their standing in the ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of SONZAs work.

SONZA claims that ABS-CBNs power not to broadcast his shows proves ABS-CBNs power over the means and methods of the performance of his work. Although ABS-CBN did have the option not to broadcast SONZAs show, ABS-CBN was still obligated to pay SONZAs talent fees... Thus, even if ABSCBN was completely dissatisfied with the means and methods of SONZAs performance of his work, or even with the quality or product of his work, ABS-CBN could not dismiss or even discipline SONZA. All that ABS-CBN could do is not to broadcast SONZAs show but ABS-CBN must still pay his talent fees in full.35

Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened as it was by the obligation to continue paying in full SONZAs talent fees, did not amount to control over the means and methods of the performance of SONZAs work. ABS-CBN could not terminate or discipline SONZA even if the means and methods of performance of his work - how he delivered his lines and appeared on television - did not meet ABS-CBNs approval. This proves that ABS-CBNs control was limited only to the result of SONZAs work, whether to broadcast the final product or not. In either case, ABS-CBN must still pay SONZAs talent fees in full until the expiry of the Agreement.

In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that vaudeville performers were independent contractors although the management reserved the right to delete objectionable features in their shows. Since the management did not have control over the manner of performance of the skills of the artists, it could only control the result of the work by deleting objectionable features.37

SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broadcast the "Mel & Jay" programs. However, the equipment, crew and airtime are not the "tools and instrumentalities"

SONZA needed to perform his job. What SONZA principally needed were his talent or skills and the costumes necessary for his appearance.38 Even though ABS-CBN provided SONZA with the place of work and the necessary equipment, SONZA was still an independent contractor since ABS-CBN did not supervise and control his work. ABS-CBNs sole concern was for SONZA to display his talent during the airing of the programs.39

A radio broadcast specialist who works under minimal supervision is an independent contractor.40 SONZAs work as television and radio program host required special skills and talent, which SONZA admittedly possesses. The records do not show that ABS-CBN exercised any supervision and control over how SONZA utilized his skills and talent in his shows.

Second, SONZA urges us to rule that he was ABS-CBNs employee because ABS-CBN subjected him to its rules and standards of performance. SONZA claims that this indicates ABS-CBNs control "not only *over+ his manner of work but also the quality of his work."

The Agreement stipulates that SONZA shall abide with the rules and standards of performance "covering talents"41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules and standards of performance prescribed for employees of ABS-CBN. The code of conduct imposed on SONZA under the Agreement refers to the "Television and Radio Code of the Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code of Ethics."42 The KBP code applies to broadcasters, not to employees of radio and television stations. Broadcasters are not necessarily employees of radio and television stations. Clearly, the rules and standards of performance referred to in the Agreement are those applicable to talents and not to employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an employee of the former.43 In this case, SONZA failed to show that these rules controlled his performance. We find that these general rules are merely guidelines towards the achievement of the mutually desired result, which are top-rating television and radio programs that comply with standards of the industry. We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party in relation to the services being rendered may be accorded the effect of establishing an employeremployee relationship. The facts of this case fall squarely with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we held that:

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.44

The Vaughan case also held that one could still be an independent contractor although the hirer reserved certain supervision to insure the attainment of the desired result. The hirer, however, must not deprive the one hired from performing his services according to his own initiative.45

Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form of control which ABS-CBN exercised over him.

This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an employee of ABS-CBN. Even an independent contractor can validly provide his services exclusively to the hiring party. In the broadcast industry, exclusivity is not necessarily the same as control.

The hiring of exclusive talents is a widespread and accepted practice in the entertainment industry.46 This practice is not designed to control the means and methods of work of the talent, but simply to protect the investment of the broadcast station. The broadcast station normally spends substantial amounts of money, time and effort "in building up its talents as well as the programs they appear in and thus expects that said talents remain exclusive with the station for a commensurate period of time."47 Normally, a much higher fee is paid to talents who agree to work exclusively for a particular radio or television station. In short, the huge talent fees partially compensates for exclusivity, as in the present case.

MJMDC as Agent of SONZA

SONZA protests the Labor Arbiters finding that he is a talent of MJMDC, which contracted out his services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an employee of ABS-CBN. SONZA insists that MJMDC is a "labor-only" contractor and ABS-CBN is his employer.

In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the employee who is ostensibly under the employ of the "labor-only" contractor; and (3) the principal who is deemed the real employer. Under this scheme, the "labor-only" contractor is the agent of the principal. The law makes the principal responsible to the employees of the "labor-only contractor" as if the principal itself directly hired or employed the employees.48 These circumstances are not present in this case.

There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-CBN. MJMDC merely acted as SONZAs agent. The Agreement expressly states that MJMDC acted as the "AGENT" of SONZA. The records do not show that MJMDC acted as ABS-CBNs agent. MJMDC, which stands for Mel and Jay Management and Development Corporation, is a corporation organized and owned by SONZA and TIANGCO. The President and General Manager of MJMDC is SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and managed by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, who himself is represented by MJMDC. That would make MJMDC the agent of both ABS-CBN and SONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to managing the careers of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other business, not even job contracting. MJMDC does not have any other function apart from acting as agent of SONZA or TIANGCO to promote their careers in the broadcast and television industry.49

Policy Instruction No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8 January 1979 finally settled the status of workers in the broadcast industry. Under this policy, the types of employees in the broadcast industry are the station and program employees.

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of law. There is no legal presumption that Policy Instruction No. 40 determines SONZAs status. A mere executive issuance cannot exclude independent contractors from the class of service providers to the broadcast industry. The classification of workers in the broadcast industry into only two groups under Policy Instruction No. 40 is not binding on this Court, especially when the classification has no basis either in law or in fact.

Affidavits of ABS-CBNs Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando Cruz without giving his counsel the

opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of these witnesses as misleading and irrelevant.

While SONZA failed to cross-examine ABS-CBNs witnesses, he was never prevented from denying or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether to conduct a formal (trial-type) hearing after the submission of the position papers of the parties, thus:

Section 3. Submission of Position Papers/Memorandum

xxx

These verified position papers shall cover only those claims and causes of action raised in the complaint excluding those that may have been amicably settled, and shall be accompanied by all supporting documents including the affidavits of their respective witnesses which shall take the place of the latters direct testimony. x x x

Section 4. Determination of Necessity of Hearing. Immediately after the submission of the parties of their position papers/memorandum, the Labor Arbiter shall motu propio determine whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and for the purpose of making such determination, ask clarificatory questions to further elicit facts or information, including but not limited to the subpoena of relevant documentary evidence, if any from any party or witness.50

The Labor Arbiter can decide a case based solely on the position papers and the supporting documents without a formal trial.51 The holding of a formal hearing or trial is something that the parties cannot demand as a matter of right.52 If the Labor Arbiter is confident that he can rely on the documents

before him, he cannot be faulted for not conducting a formal trial, unless under the particular circumstances of the case, the documents alone are insufficient. The proceedings before a Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings before a Labor Arbiter.

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries to treat talents like SONZA as independent contractors. SONZA argues that if such practice exists, it is void for violating the right of labor to security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution53 arises only if there is an employer-employee relationship under labor laws. Not every performance of services for a fee creates an employer-employee relationship. To hold that every person who renders services to another for a fee is an employee - to give meaning to the security of tenure clause - will lead to absurd results.

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as independent contractors. The right to life and livelihood guarantees this freedom to contract as independent contractors. The right of labor to security of tenure cannot operate to deprive an individual, possessed with special skills, expertise and talent, of his right to contract as an independent contractor. An individual like an artist or talent has a right to render his services without any one controlling the means and methods by which he performs his art or craft. This Court will not interpret the right of labor to security of tenure to compel artists and talents to render their services only as employees. If radio and television program hosts can render their services only as employees, the station owners and managers can dictate to the radio and television hosts what they say in their shows. This is not conducive to freedom of the press.

Different Tax Treatment of Talents and Broadcasters

The National Internal Revenue Code ("NIRC")54 in relation to Republic Act No. 7716,55 as amended by Republic Act No. 8241,56 treats talents, television and radio broadcasters differently. Under the NIRC, these professionals are subject to the 10% value-added tax ("VAT") on services they render. Exempted from the VAT are those under an employer-employee relationship.57 This different tax treatment

accorded to talents and broadcasters bolters our conclusion that they are independent contractors, provided all the basic elements of a contractual relationship are present as in this case.

Nature of SONZAs Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZAs claims are all based on the May 1994 Agreement and stock option plan, and not on the Labor Code. Clearly, the present case does not call for an application of the Labor Code provisions but an interpretation and implementation of the May 1994 Agreement. In effect, SONZAs cause of action is for breach of contract which is intrinsically a civil dispute cognizable by the regular courts.58

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26 March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 119930

March 12, 1998

INSULAR LIFE ASSURANCE CO., LTD., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (Fourth Division, Cebu City), LABOR ARBITER NICASIO P. ANINON and PANTALEON DE LOS REYES, respondents.

BELLOSILLO, J.:

On 17 June 1994 respondent Labor Arbiter dismissed for lack of jurisdiction NLRC RAB-VII Case No. 030309-94 filed by private respondent Pantaleon de los Reyes against petitioner Insular Life Assurance Co., Ltd. (INSULAR LIFE), for illegal dismissal and nonpayment of salaries and back wages after finding no employer-employee relationship between De los Reyes and petitioner INSULAR LIFE. 1 On appeal by private respondent, the order of dismissal was reversed by the National Labor Relations Commission (NLRC) which ruled that respondent De los Reyes was an employee of petitioner. 2 Petitioner's motion for reconsideration having been denied, the NLRC remanded the case to the Labor Arbiter for hearing on the merits.

Seeking relief through this special civil action for certiorari with prayer for a restraining order and/or preliminary injunction, petitioner now comes to us praying for annulment of the decision of respondent NLRC dated 3 March 1995 and its Order dated 6 April 1995 denying the motion for reconsideration of the decision. It faults NLRC for acting without jurisdiction and/or with grave abuse of discretion when, contrary to established facts and pertinent law and jurisprudence, it reversed the decision of the Labor Arbiter and held instead that the complaint was properly filed as an employer-employee relationship existed between petitioner and private respondent.

Petitioner reprises the stand it assumed below that it never had any employer-employee relationship with private respondent, this being an express agreement between them in the agency contracts, particularly reinforced by the stipulation therein that De los Reyes was allowed discretion to devise ways and means to fulfill his obligations as agent and would be paid commission fees based on his actual output. It further insists that the nature of this work status as described in the contracts had already been squarely resolved by the Court in the earlier case of Insular Life Assurance Co., Ltd. v. NLRC and Basiao 3 where the complainant therein, Melecio Basiao, was similarly situated as respondent De los Reyes in that he was appointed first as an agent and then promoted as agency manager, and the contracts under which he was appointed contained terms and conditions identical to those of Delos Reyes. Petitioner concludes that since Basiao was declared by the Court to be an independent contractor and not an employee of petitioner, there should be no reason why the status of De los Reyes herein vis-a-vis petitioner should not be similarly determined.

We reject the submissions of petitioner and hold that respondent NLRC acted appropriately within the bounds of the law. The records of the case are replete with telltale indicators of an existing employeremployee relationship between the two parties despite written contractual disavowals.

These facts are undisputed: on 21 August 1992 petitioner entered into an agency contract with respondent Pantaleon de los Reyes 4 authorizing the latter to solicit within the Philippines applications for life insurance and annuities for which he would be paid compensation in the form of commissions. The contract was prepared by petitioner in its entirety and De los Reyes merely signed his conformity thereto. It contained the stipulation that no employer-employee relationship shall be created between the parties and that the agent shall be free to exercise his own judgment as to time, place and means of soliciting insurance. De los Reyes however was prohibited by petitioner from working for any other life insurance company, and violation of this stipulation was sufficient ground for termination of the contract. Aside from soliciting insurance for the petitioner, private respondent was required to submit to the former all completed applications for insurance within ninety (90) consecutive days, deliver policies, receive and collect initial premiums and balances of first year premiums, renewal premiums, deposits on applications and payments on policy loans. Private respondent was also bound to turn over to the company immediately any and all sums of money collected by him. In a written communication by petitioner to respondent De los Reyes, the latter was urged to register with the Social Security System as a self-employed individual as provided under PD No. 1636. 5

On 1 March 1993 petitioner and private respondent entered into another contract 6 where the latter was appointed as Acting Unit Manager under its office the Cebu DSO V (157). As such, the duties and responsibilities of De los Reyes included the recruitment, training, organization and development within his designated territory of a sufficient number of qualified, competent and trustworthy underwriters, and to supervise and coordinate the sales efforts of the underwriters in the active solicitation of new business and in the furtherance of the agency's assigned goals. It was similarly provided in the management contract that the relation of the acting unit manager and/or the agents of his unit to the company shall be that of independent contractor. 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. As in the previous agency contract, De los Reyes together with his unit force was granted freedom to exercise judgment as to time, place and means of soliciting insurance. Aside from being granted override commissions, the acting unit manager was given production bonus, development allowance and a unit development financing scheme euphemistically termed "financial assistance" consisting of payment to him of a free portion of P300.00 per month and a validate portion of P1,200.00. While the latter amount was deemed as an advance against expected commissions, the former was not and would be freely given to the unit manager by the company only upon fulfillment by him of certain manpower and premium quota requirements. The agents and underwriters recruited and trained by the acting unit manager would be attached to the unit but petitioner reserved the right to determine if such assignment would be made or, for any reason, to reassign them elsewhere.

Aside from soliciting insurance, De los Reyes was also expressly obliged to participate in the company's conservation program, i.e., preservation and maintenance of existing insurance policies, and to accept moneys duly receipted on agent's receipts provided the same were turned over to the company. As long as he was unit manager in an acting capacity, De los Reyes was prohibited from working for other life insurance companies or with the government. He could not also accept a managerial or supervisory position in any firm doing business in the Philippines without the written consent of petitioner.

Private respondent worked concurrently as agent and Acting Unit Manager until he was notified by petitioner on 18 November 1993 that his services were terminated effective 18 December 1993. On 7 March 1994 he filed a complaint before the Labor Arbiter on the ground that he was illegally dismissed and that he was not paid his salaries and separation pay.

Petitioner filed a motion to dismiss the complaint of De los Reyes for lack of jurisdiction, citing the absence of employer-employee relationship. It reasoned out that based on the criteria for determining the existence of such relationship or the so-called "four-fold test," i.e., (a) selection and engagement of employee, (b) payment of wages, (c) power of dismissal, and, (d) power of control, De los Reyes was not an employee but an independent contractor.

On 17 June 1994 the motion of petitioner was granted by the Labor Arbiter and the case was dismissed on the ground that the element of control was not sufficiently established since the rules and guidelines set by petitioner in its agency agreement with respondent Delos Reyes were formulated only to achieve the desired result without dictating the means or methods of attaining it.

Respondent NLRC however appreciated the evidence from a different perspective. It determined that respondent De los Reyes was under the effective control of petitioner in the critical and most important aspects of his work as Unit Manager. This conclusion was derived from the provisions in the contract which appointed private respondent as Acting Unit Manager, to wit: (a) De los Reyes was to serve exclusively the company, therefore, he was not an independent contractor; (b) he was required to meet certain manpower and production quota; and, (c) petitioner controlled the assignment to and removal of soliciting agents from his unit.

The NLRC also took into account other circumstances showing that petitioner exercised employer's prerogatives over De los Reyes, e.g., (a) limiting the work of respondent De los Reyes to selling a life

insurance policy known as "Salary Deduction Insurance" only to members of the Philippine National Police, public and private school teachers and other employees of private companies; (b) assigning private respondent to a particular place and table where he worked whenever he was not in the field; (c) paying private respondent during the period of twelve (12) months of his appointment as Acting Unit Manager the amount of P1,500.00 as Unit Development Financing of which 20% formed his salary and the rest, i.e., 80%, as advance of his expected commissions; and, (d) promising that upon completion of certain requirements, he would be promoted to Unit Manager with the right of petitioner to revert him to agent status when warranted.

Parenthetically, both petitioner and respondent NLRC treated the agency contract and the management contract entered into between petitioner and De los Reyes as contracts of agency. We however hold otherwise. Unquestionably there exist major distinctions between the two agreements. While the first has the earmarks of an agency contract, the second is far removed from the concept of agency in that provided therein are conditionalities that indicate an employer-employee relationship. The NLRC therefore was correct in finding that private respondent was an employee of petitioner, but this holds true only insofar as the management contract is concerned. In view thereof, the Labor Arbiter has jurisdiction over the case..

It is axiomatic that the existence of an employer-employee relationship cannot be negated by expressly repudiating it in the management contract and providing therein that the "employee" is an independent contractor when the terms of the agreement clearly show otherwise. For, the employment status of a person is defined and prescribed by law and not by what the parties say it should be. 7 In determining the status of the management contract, the "four-fold test" on employment earlier mentioned has to be applied.

Petitioner contends that De los Reyes was never required to go through the pre-employment procedures and that the probationary employment status was reserved only to employees of petitioner. On this score, it insists that the first requirement of selection and engagement of the employee was not met.

A look at the provisions of the contract shows that private respondent was appointed as Acting Unit Manager only upon recommendation of the District Manager. 8 This indicates that private respondent was hired by petitioner because of the favorable endorsement of its duly authorized officer. But, this approbation could only have been based on the performance of De los Reyes as agent under the agency contract so that there can be no other conclusion arrived under this premise than the fact that the agency or underwriter phase of the relationship of De los Reyes with petitioner was nothing more than a

trial or probationary period for his eventual appointment as Acting Unit Manager of petitioner. Then, again, the very designation of the appointment of private respondent as "acting" unit manager obviously implies a temporary employment status which may be made permanent only upon compliance with company standards such as those enumerated under Sec. 6 of the management contract. 9

On the matter of payment of wages, petitioner points out that respondent was compensated strictly on commission basis, the amount of which was totally dependent on his total output. But, the manager's contract, speaks differently. Thus

4. Performance Requirements. To maintain your appointment as Acting Unit Manager you must meet the following manpower and production requirements:

Quarter Active Calendar Year Production Agents Production Cumulative FYP

1st 2nd 3rd 4th

2 3 4 5

P 125,000 250,000 375,000 500,000

5.4. Unit Development Financing (UDF). As an Acting Unit Manager you shall be given during the first 12 months of your appointment a financial assistance which is composed of two parts:

5.4.1. Free Portion amounting to P300 per month, subject to your meeting prescribed minimum performance requirement on manpower and premium production. The free portion is not payable by you.

5.4.2. Validate Portion amounting to P1,200 per month, also subject to meeting the same prescribed minimum performance requirements on manpower and premium production. The validated portion is an advance against expected compensation during the UDF period and thereafter as may be necessary.

The above provisions unquestionably demonstrate that the performance requirement imposed on De los Reyes was applicable quarterly while his entitlement to the free portion (P300) and the validated portion (P1,200) was monthly starting on the first month of the twelve (12) months of the appointment. Thus, it has to be admitted that even before the end of the first quarter and prior to the so-called quarterly performance evaluation, private respondent was already entitled to be paid both the free and validated portions of the UDF every month because his production performance could not be determined until after the lapse of the quarter involved. This indicates quite clearly that the unit manager's quarterly performance had no bearing at all on his entitlement at least to the free portion of the UDF which for all intents and purposes comprised the salary regularly paid to him by petitioner. Thus it cannot be validly claimed that the financial assistance consisting of the free portion of the UDF was purely dependent on the premium production of the agent. Be that as it may, it is worth considering that the payment of compensation by way of commission does not militate against the conclusion that private respondent was an employee of petitioner. Under Art. 97 of the Labor Code, "wage" shall mean "however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, price or commission basis . . . ." 10

As to the matter involving the power of dismissal and control by the employer, the latter of which is the most important of the test, petitioner asserts that its termination of De los Reyes was but an exercise of its inherent right as principal under the contracts and that the rules and guidelines it set forth in the contract cannot, by any stretch of the imagination, be deemed as an exercise of control over the private respondent as these were merely directives that fixed the desired result without dictating the means or method to be employed in attaining it. The following factual findings of the NLRC 11 however contradict such claims:

A perusal of the appointment of complainant as Acting Unit Manager reveals that:

1. Complainant was to "exclusively" serve respondent company. Thus it is provided: . . . 7..7 Other causes of Termination: This appointment may likewise be terminated for any of the following causes: . . . 7..7..2. Your entering the service of the government or another life insurance company; 7..7..3. Your accepting a managerial or supervisory position in any firm doing business in the Philippines without the written consent of the Company; . . .

2.

Complainant was required to meet certain manpower and production quotas.

3. Respondent (herein petitioner) controlled the assignment and removal of soliciting agents to and from complainant's unit, thus: . . . 7..2. Assignment of Agents: Agents recruited and trained by you shall be attached to your unit unless for reasons of Company policy, no such assignment should be made. The Company retains the exclusive right to assign new soliciting agents to the unit. It is agreed that the Company may remove or transfer any soliciting agents appointed and assigned to the said unit. ...

It would not be amiss to state that respondent's duty to collect the company's premiums using company receipts under Sec. 7.4 of the management contract is further evidence of petitioner's control over respondent, thus:

xxx

xxx

xxx

7.4. Acceptance and Remittance of Premiums. . . . . the Company hereby authorizes you to accept and to receive sums of money in payment of premiums, loans, deposits on applications, with or without interest, due from policyholders and applicants for insurance, and the like, specially from policyholders of business solicited and sold by the agents attached to your unit provided however, that all such payments shall be duly receipted by you on the corresponding Company's "Agents' Receipt" to be provided you for this purpose and to be covered by such rules and accounting regulations the Company may issue from time to time on the matter. Payments received by you shall be turned over to the Company's designated District or Service Office clerk or directly to the Home Office not later than the next working day from receipt thereof . . . .

Petitioner would have us apply our ruling in Insular Life Assurance Co., Ltd. v. NLRC and Basiao 12 to the instant case under the doctrine of stare decisis, postulating that both cases involve parties similarly situated and facts which are almost identical.

But we are not convinced that the cited case is on all fours with the case at bar. In Basiao, the agent was appointed Agency Manager under an Agency Manager Contract. To implement his end of the

agreement, Melecio Basiao organized an agency office to which he gave the name M. Basiao and Associates. The Agency Manager Contract practically contained the same terms and conditions as the Agency Contract earlier entered into, and the Court observed that, "drawn from the terms of the contract they had entered into, (which) either expressly or by necessary implication, Basiao (was) made the master of his own time and selling methods, left to his own judgment the time, place and means of soliciting insurance, set no accomplishment quotas and compensated him on the bases 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." Upon these premises, Basiao was considered as agent an independent contractor of petitioner INSULAR LIFE.

Unlike Basiao, herein respondent De los Reyes was appointed Acting Unit Manager, not agency manager. There is no evidence that to implement his obligations under the management contract, De los Reyes had organized an office. Petitioner in fact has admitted that it provided De los Reyes a place and a table at its office where he reported for and worked whenever he was not out in the field. Placed under petitioner's Cebu District Service Office, the unit was given a name by petitioner De los Reyes and Associates and assigned Code No. 11753 and Recruitment No. 109398. Under the managership contract, De los Reyes was obliged to work exclusively for petitioner in life insurance solicitation and was imposed premium production quotas. Of course, the acting unit manager could not underwrite other lines of insurance because his Permanent Certificate of Authority was for life insurance only and for no other. He was proscribed from accepting a managerial or supervisory position in any other office including the government without the written consent of petitioner. De los Reyes could only be promoted to permanent unit manager if he met certain requirements and his promotion was recommended by the petitioner's District Manager and Regional Manager and approved by its Division Manager. As Acting Unit Manager, De los Reyes performed functions beyond mere solicitation of insurance business for petitioner. As found by the NLRC, he exercised administrative functions which were necessary and beneficial to the business of INSULAR LIFE.

In Great Pacific Life Insurance Company v. NLRC 13 which is closer in application than Basiao to this present controversy, we found that "the relationships of the Ruiz brothers and Grepalife were those of employer-employee. First, their work at the time of their dismissal as zone supervisor and district manager was necessary and desirable to the usual business of the insurance company. They were entrusted with supervisory, sales and other functions to guard Grepalife's business interests and to bring in more clients to the company, and even with administrative functions to ensure that all collections, reports and data are faithfully brought to the company . . . . A cursory reading of their respective functions as enumerated in their contracts reveals that the company practically dictates the manner by which their jobs are to be carried out . . . ." We need elaborate no further.

Exclusivity of service, control of assignments and removal of agents under private respondent's unit, collection of premiums, furnishing of company facilities and materials as well as capital described as Unit Development Fund are but hallmarks of the management system in which herein private respondent worked. This obtaining, there is no escaping the conclusion that private respondent Pantaleon de los Reyes was an employee of herein petitioner.

WHEREFORE, the petition of Insular Life Assurance Company, Ltd., is DENIED and the Decision of the National Labor Relations Commission dated 3 March 1995 and its Order of 6 April 1996 sustaining it are AFFIRMED. Let this case be REMANDED to the Labor Arbiter a quo who is directed to hear and dispose of this case with deliberate dispatch in light of the views expressed herein.

SO ORDERED.

G.R. No. 164652

June 8, 2007

THELMA DUMPIT-MURILLO, petitioner, vs. COURT OF APPEALS, ASSOCIATED BROADCASTING COMPANY, JOSE JAVIER AND EDWARD TAN, respondents.

DECISION

QUISUMBING, J.:

This petition seeks to reverse and set aside both the Decision1 dated January 30, 2004 of the Court of Appeals in CA-G.R. SP No. 63125 and its Resolution2 dated June 23, 2004 denying the motion for reconsideration. The Court of Appeals had overturned the Resolution3 dated August 30, 2000 of the National Labor Relations Commission (NLRC) ruling that petitioner was illegally dismissed.

The facts of the case are as follows:

On October 2, 1995, under Talent Contract No. NT95-1805,4 private respondent Associated Broadcasting Company (ABC) hired petitioner Thelma Dumpit-Murillo as a newscaster and co-anchor for Balitang-Balita, an early evening news program. The contract was for a period of three months. It was renewed under Talent Contracts Nos. NT95-1915, NT96-3002, NT98-4984 and NT99-5649.5 In addition, petitioners services were engaged for the program "Live on Five." On September 30, 1999, after four years of repeated renewals, petitioners talent contract expired. Two weeks after the expiration of the last contract, petitioner sent a letter to Mr. Jose Javier, Vice President for News and Public Affairs of ABC, informing the latter that she was still interested in renewing her contract subject to a salary increase. Thereafter, petitioner stopped reporting for work. On November 5, 1999, she wrote Mr. Javier another letter,6 which we quote verbatim:

xxxx

Dear Mr. Javier:

On October 20, 1999, I wrote you a letter in answer to your query by way of a marginal note "what terms and conditions" in response to my first letter dated October 13, 1999. To date, or for more than fifteen (15) days since then, I have not received any formal written reply. xxx

In view hereof, should I not receive any formal response from you until Monday, November 8, 1999, I will deem it as a constructive dismissal of my services.

xxxx

A month later, petitioner sent a demand letter7 to ABC, demanding: (a) reinstatement to her former position; (b) payment of unpaid wages for services rendered from September 1 to October 20, 1999 and full backwages; (c) payment of 13th month pay, vacation/sick/service incentive leaves and other monetary benefits due to a regular employee starting March 31, 1996. ABC replied that a check covering petitioners talent fees for September 16 to October 20, 1999 had been processed and prepared, but that the other claims of petitioner had no basis in fact or in law.

On December 20, 1999, petitioner filed a complaint8 against ABC, Mr. Javier and Mr. Edward Tan, for illegal constructive dismissal, nonpayment of salaries, overtime pay, premium pay, separation pay, holiday pay, service incentive leave pay, vacation/sick leaves and 13th month pay in NLRC-NCR Case No. 30-12-00985-99. She likewise demanded payment for moral, exemplary and actual damages, as well as for attorneys fees.

The parties agreed to submit the case for resolution after settlement failed during the mandatory conference/conciliation. On March 29, 2000, the Labor Arbiter dismissed the complaint.9

On appeal, the NLRC reversed the Labor Arbiter in a Resolution dated August 30, 2000. The NLRC held that an employer-employee relationship existed between petitioner and ABC; that the subject talent contract was void; that the petitioner was a regular employee illegally dismissed; and that she was entitled to reinstatement and backwages or separation pay, aside from 13th month pay and service incentive leave pay, moral and exemplary damages and attorneys fees. It held as follows:

WHEREFORE, the Decision of the Arbiter dated 29 March 2000 is hereby REVERSED/SET ASIDE and a NEW ONE promulgated:

1) declaring respondents to have illegally dismissed complainant from her regular work therein and thus, ordering them to reinstate her in her former position without loss of seniority right[s] and other privileges and to pay her full backwages, inclusive of allowances and other benefits, including 13th month pay based on her said latest rate of P28,000.00/mo. from the date of her illegal dismissal on 21 October 1999 up to finality hereof, or at complainants option, to pay her separation pay of one (1) month pay per year of service based on said latest monthly rate, reckoned from date of hire on 30 September 1995 until finality hereof;

2) to pay complainants accrued SILP *Service Incentive Leave Pay] of 5 days pay per year and 13th month pay for the years 1999, 1998 and 1997 of P19,236.00 and P84,000.00, respectively and her accrued salary from 16 September 1999 to 20 October 1999 of P32,760.00 plus legal interest at 12% from date of judicial demand on 20 December 1999 until finality hereof;

3) to pay complainant moral damages of P500,000.00, exemplary damages of P350,000.00 and 10% of the total of the adjudged monetary awards as attorneys fees.

Other monetary claims of complainant are dismissed for lack of merit.

SO ORDERED.10

After its motion for reconsideration was denied, ABC elevated the case to the Court of Appeals in a petition for certiorari under Rule 65. The petition was first dismissed for failure to attach particular documents,11 but was reinstated on grounds of the higher interest of justice.12

Thereafter, the appellate court ruled that the NLRC committed grave abuse of discretion, and reversed the decision of the NLRC.13 The appellate court reasoned that petitioner should not be allowed to renege from the stipulations she had voluntarily and knowingly executed by invoking the security of tenure under the Labor Code. According to the appellate court, petitioner was a fixed-term employee and not a regular employee within the ambit of Article 28014 of the Labor Code because her job, as anticipated and agreed upon, was only for a specified time.15

Aggrieved, petitioner now comes to this Court on a petition for review, raising issues as follows:

I.

THIS HONORABLE COURT CAN REVIEW THE FINDINGS OF THE HONORABLE COURT OF APPEALS, THE DECISION OF WHICH IS NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT[;]

II.

THE PRO-FORMA TALENT CONTRACTS, AS CORRECTLY FOUND BY THE NLRC FIRST DIVISION, ARE "ANTI-REGULARIZATION DEVICES" WHICH MUST BE STRUCK DOWN FOR REASONS OF PUBLIC POLICY[;]

III.

BY REASON OF THE CONTINUOUS AND SUCCESSIVE RENEWALS OF THE THREE-MONTH TALENT CONTRACTS, AN EMPLOYER-EMPLOYEE RELATIONSHIP WAS CREATED AS PROVIDED FOR UNDER ARTICLE 280 OF THE LABOR CODE[;]

IV.

BY THE CONSTRUCTIVE DISMISSAL OF HEREIN PETITIONER, AS A REGULAR EMPLOYEE, THERE WAS A DENIAL OF PETITIONERS RIGHT TO DUE PROCESS THUS ENTITLING HER TO THE MONEY CLAIMS AS STATED IN THE COMPLAINT[.]16

The issues for our disposition are: (1) whether or not this Court can review the findings of the Court of Appeals; and (2) whether or not under Rule 45 of the Rules of Court the Court of Appeals committed a reversible error in its Decision.

On the first issue, private respondents contend that the issues raised in the instant petition are mainly factual and that there is no showing that the said issues have been resolved arbitrarily and without basis. They add that the findings of the Court of Appeals are supported by overwhelming wealth of evidence on record as well as prevailing jurisprudence on the matter.17

Petitioner however contends that this Court can review the findings of the Court of Appeals, since the appellate court erred in deciding a question of substance in a way which is not in accord with law or with applicable decisions of this Court.18

We agree with petitioner. Decisions, final orders or resolutions of the Court of Appeals in any case regardless of the nature of the action or proceeding involved may be appealed to this Court through a petition for review. This remedy is a continuation of the appellate process over the original case,19 and considering there is no congruence in the findings of the NLRC and the Court of Appeals regarding the status of employment of petitioner, an exception to the general rule that this Court is bound by the findings of facts of the appellate court,20 we can review such findings.

On the second issue, private respondents contend that the Court of Appeals did not err when it upheld the validity of the talent contracts voluntarily entered into by petitioner. It further stated that prevailing jurisprudence has recognized and sustained the absence of employer-employee relationship between a talent and the media entity which engaged the talents services on a per talent contract basis, citing the case of Sonza v. ABS-CBN Broadcasting Corporation.21

Petitioner avers however that an employer-employee relationship was created when the private respondents started to merely renew the contracts repeatedly fifteen times or for four consecutive years.22

Again, we agree with petitioner. The Court of Appeals committed reversible error when it held that petitioner was a fixed-term employee. Petitioner was a regular employee under contemplation of law. The practice of having fixed-term contracts in the industry does not automatically make all talent contracts valid and compliant with labor law. The assertion that a talent contract exists does not necessarily prevent a regular employment status.23

Further, the Sonza case is not applicable. In Sonza, the television station did not instruct Sonza how to perform his job. How Sonza delivered his lines, appeared on television, and sounded on radio were outside the television stations control. Sonza had a free hand on what to say or discuss in his shows provided he did not attack the television station or its interests. Clearly, the television station did not exercise control over the means and methods of the performance of Sonzas work.24 In the case at bar, ABC had control over the performance of petitioners work. Noteworthy too, is the comparatively low P28,000 monthly pay of petitioner25 vis the P300,000 a month salary of Sonza,26 that all the more bolsters the conclusion that petitioner was not in the same situation as Sonza.

The contract of employment of petitioner with ABC had the following stipulations:

xxxx

1. SCOPE OF SERVICES TALENT agrees to devote his/her talent, time, attention and best efforts in the performance of his/her duties and responsibilities as Anchor/Program Host/Newscaster of the Program, in accordance with the direction of ABC and/or its authorized representatives.

1.1. DUTIES AND RESPONSIBILITIES TALENT shall:

a. Render his/her services as a newscaster on the Program;

b. Be involved in news-gathering operations by conducting interviews on- and off-the-air;

c. Participate in live remote coverages when called upon;

d. Be available for any other news assignment, such as writing, research or camera work;

e. Attend production meetings;

f. On assigned days, be at the studios at least one (1) hour before the live telecasts;

g. Be present promptly at the studios and/or other place of assignment at the time designated by ABC;

h. Keep abreast of the news;

i. Give his/her full cooperation to ABC and its duly authorized representatives in the production and promotion of the Program; and

j. Perform such other functions as may be assigned to him/her from time to time.

xxxx

1.3 COMPLIANCE WITH STANDARDS, INSTRUCTIONS AND OTHER RULES AND REGULATIONS TALENT agrees that he/she will promptly and faithfully comply with the requests and instructions, as well as the program standards, policies, rules and regulations of ABC, the KBP and the government or any of its agencies and instrumentalities.27

xxxx

In Manila Water Company, Inc. v. Pena,28 we said that the elements to determine the existence of an employment relationship are: (a) the selection and engagement of the employee, (b) the payment of wages, (c) the power of dismissal, and (d) the employers power to control. The most important element is the employers control of the employees conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.29

The duties of petitioner as enumerated in her employment contract indicate that ABC had control over the work of petitioner. Aside from control, ABC also dictated the work assignments and payment of petitioners wages. ABC also had power to dismiss her. All these being present, clearly, there existed an employment relationship between petitioner and ABC.

Concerning regular employment, the law provides for two kinds of employees, namely: (1) those who are engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer; and (2) those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed.30 In other words, regular status arises from either the nature of work of the employee or the duration of his employment.31 In Benares v. Pancho,32 we very succinctly said:

*T+he primary standard for determining regular employment is the reasonable connection between the particular activity performed by the employee vis--vis the usual trade or business of the employer. This connection can be determined by considering the nature of the work performed and its relation to the scheme of the particular business or trade in its entirety. If the employee has been performing the job

for at least a year, even if the performance is not continuous and merely intermittent, the law deems repeated and continuing need for its performance as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence, the employment is considered regular, but only with respect to such activity and while such activity exists.33

In our view, the requisites for regularity of employment have been met in the instant case. Gleaned from the description of the scope of services aforementioned, petitioners work was necessary or desirable in the usual business or trade of the employer which includes, as a pre-condition for its enfranchisement, its participation in the governments news and public information dissemination. In addition, her work was continuous for a period of four years. This repeated engagement under contract of hire is indicative of the necessity and desirability of the petitioners work in private respondent ABCs business.34

The contention of the appellate court that the contract was characterized by a valid fixed-period employment is untenable. For such contract to be valid, it should be shown that the fixed period was knowingly and voluntarily agreed upon by the parties. There should have been no force, duress or improper pressure brought to bear upon the employee; neither should there be any other circumstance that vitiates the employees consent.35 It should satisfactorily appear that the employer and the employee dealt with each other on more or less equal terms with no moral dominance being exercised by the employer over the employee.36 Moreover, fixed-term employment will not be considered valid where, from the circumstances, it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee.37

In the case at bar, it does not appear that the employer and employee dealt with each other on equal terms. Understandably, the petitioner could not object to the terms of her employment contract because she did not want to lose the job that she loved and the workplace that she had grown accustomed to,38 which is exactly what happened when she finally manifested her intention to negotiate. Being one of the numerous newscasters/broadcasters of ABC and desiring to keep her job as a broadcasting practitioner, petitioner was left with no choice but to affix her signature of conformity on each renewal of her contract as already prepared by private respondents; otherwise, private respondents would have simply refused to renew her contract. Patently, the petitioner occupied a position of weakness vis--vis the employer. Moreover, private respondents practice of repeatedly extending petitioners 3-month contract for four years is a circumvention of the acquisition of regular status. Hence, there was no valid fixed-term employment between petitioner and private respondents.

While this Court has recognized the validity of fixed-term employment contracts in a number of cases, it has consistently emphasized that when the circumstances of a case show that the periods were imposed to block the acquisition of security of tenure, they should be struck down for being contrary to law, morals, good customs, public order or public policy.39

As a regular employee, petitioner is entitled to security of tenure and can be dismissed only for just cause and after due compliance with procedural due process. Since private respondents did not observe due process in constructively dismissing the petitioner, we hold that there was an illegal dismissal.

WHEREFORE, the challenged Decision dated January 30, 2004 and Resolution dated June 23, 2004 of the Court of Appeals in CA-G.R. SP No. 63125, which held that the petitioner was a fixed-term employee, are REVERSED and SET ASIDE. The NLRC decision is AFFIRMED.

Costs against private respondents.

SO ORDERED.

G.R. No. 164156

September 26, 2006

ABS-CBN BROADCASTING CORPORATION, petitioner, vs. MARLYN NAZARENO, MERLOU GERZON, JENNIFER DEIPARINE, and JOSEPHINE LERASAN, respondents.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 76582 and the Resolution denying the motion for reconsideration thereof. The CA affirmed the Decision2 and Resolution3 of the National Labor Relations Commission (NLRC) in NLRC Case No. V000762-2001 (RAB Case No. VII-10-1661-2001) which likewise affirmed, with modification, the decision of the Labor Arbiter declaring the respondents Marlyn Nazareno, Merlou Gerzon, Jennifer Deiparine and Josephine Lerasan as regular employees.

The Antecedents

Petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) is engaged in the broadcasting business and owns a network of television and radio stations, whose operations revolve around the broadcast, transmission, and relay of telecommunication signals. It sells and deals in or otherwise utilizes the airtime it generates from its radio and television operations. It has a franchise as a broadcasting company, and was likewise issued a license and authority to operate by the National Telecommunications Commission.

Petitioner employed respondents Nazareno, Gerzon, Deiparine, and Lerasan as production assistants (PAs) on different dates. They were assigned at the news and public affairs, for various radio programs in the Cebu Broadcasting Station, with a monthly compensation of P4,000. They were issued ABS-CBN employees identification cards and were required to work for a minimum of eight hours a day, including Sundays and holidays. They were made to perform the following tasks and duties:

a) Prepare, arrange airing of commercial broadcasting based on the daily operations log and digicart of respondent ABS-CBN;

b) Coordinate, arrange personalities for air interviews;

c) Coordinate, prepare schedule of reporters for scheduled news reporting and lead-in or incoming reports;

d) Facilitate, prepare and arrange airtime schedule for public service announcement and complaints;

e) Assist, anchor program interview, etc; and

f) Record, log clerical reports, man based control radio.4

Their respective working hours were as follows:

Name Time No. of Hours

1. Marlene Nazareno 4:30 A.M.-8:00 A.M. 7

8:00 A.M.-12:00 noon

2. Jennifer Deiparine 4:30 A.M.-12:00M.N. (sic) 7

3. Joy Sanchez 1:00 P.M.-10:00 P.M.(Sunday) 9 hrs.

9:00 A.M.-6:00 P.M. (WF) 9 hrs.

4. Merlou Gerzon 9:00 A.M.-6:00 P.M. 9 hrs.5

The PAs were under the control and supervision of Assistant Station Manager Dante J. Luzon, and News Manager Leo Lastimosa.

On December 19, 1996, petitioner and the ABS-CBN Rank-and-File Employees executed a Collective Bargaining Agreement (CBA) to be effective during the period from December 11, 1996 to December 11, 1999. However, since petitioner refused to recognize PAs as part of the bargaining unit, respondents were not included to the CBA.6

On July 20, 2000, petitioner, through Dante Luzon, issued a Memorandum informing the PAs that effective August 1, 2000, they would be assigned to non-drama programs, and that the DYAB studio operations would be handled by the studio technician. Thus, their revised schedule and other assignments would be as follows:

Monday Saturday

4:30 A.M. 8:00 A.M. Marlene Nazareno.

Miss Nazareno will then be assigned at the Research Dept.

From 8:00 A.M. to 12:00

4:30 P.M. 12:00 MN Jennifer Deiparine

Sunday

5:00 A.M. 1:00 P.M. Jennifer Deiparine

1:00 P.M. 10:00 P.M. Joy Sanchez

Respondent Gerzon was assigned as the full-time PA of the TV News Department reporting directly to Leo Lastimosa.

On October 12, 2000, respondents filed a Complaint for Recognition of Regular Employment Status, Underpayment of Overtime Pay, Holiday Pay, Premium Pay, Service Incentive Pay, Sick Leave Pay, and 13th Month Pay with Damages against the petitioner before the NLRC. The Labor Arbiter directed the parties to submit their respective position papers. Upon respondents failure to file their position papers within the reglementary period, Labor Arbiter Jose G. Gutierrez issued an Order dated April 30, 2001, dismissing the complaint without prejudice for lack of interest to pursue the case. Respondents received a copy of the Order on May 16, 2001.7 Instead of re-filing their complaint with the NLRC within 10 days from May 16, 2001, they filed, on June 11, 2001, an Earnest Motion to Refile Complaint with Motion to Admit Position Paper and Motion to Submit Case For Resolution.8 The Labor Arbiter granted this motion in an Order dated June 18, 2001, and forthwith admitted the position paper of the complainants. Respondents made the following allegations:

1. Complainants were engaged by respondent ABS-CBN as regular and full-time employees for a continuous period of more than five (5) years with a monthly salary rate of Four Thousand (P4,000.00) pesos beginning 1995 up until the filing of this complaint on November 20, 2000.

Machine copies of complainants ABS-CBN Employees Identification Card and salary vouchers are hereto attached as follows, thus:

I. Jennifer Deiparine:

Exhibit "A" - ABS-CBN Employees Identification Card

Exhibit "B", - ABS-CBN Salary Voucher from Nov.

Exhibit "B-1" & 1999 to July 2000 at P4,000.00

Exhibit "B-2"

Date employed: September 15, 1995

Length of service: 5 years & nine (9) months

II. Merlou Gerzon - ABS-CBN Employees Identification Card

Exhibit "C"

Exhibit "D"

Exhibit "D-1" &

Exhibit "D-2" - ABS-CBN Salary Voucher from March

1999 to January 2001 at P4,000.00

Date employed: September 1, 1995

Length of service: 5 years & 10 months

III. Marlene Nazareno

Exhibit "E" - ABS-CBN Employees Identification Card

Exhibit "E" - ABS-CBN Salary Voucher from Nov.

Exhibit "E-1" & 1999 to December 2000

Exhibit :E-2"

Date employed: April 17, 1996

Length of service: 5 years and one (1) month

IV. Joy Sanchez Lerasan

Exhibit "F" - ABS-CBN Employees Identification Card

Exhibit "F-1" - ABS-CBN Salary Voucher from Aug.

Exhibit "F-2" & 2000 to Jan. 2001

Exhibit "F-3"

Exhibit "F-4" - Certification dated July 6, 2000

Acknowledging regular status of

Complainant Joy Sanchez Lerasan

Signed by ABS-CBN Administrative

Officer May Kima Hife

Date employed: April 15, 1998

Length of service: 3 yrs. and one (1) month9

Respondents insisted that they belonged to a "work pool" from which petitioner chose persons to be given specific assignments at its discretion, and were thus under its direct supervision and control regardless of nomenclature. They prayed that judgment be rendered in their favor, thus:

WHEREFORE, premises considered, this Honorable Arbiter is most respectfully prayed, to issue an order compelling defendants to pay complainants the following:

1. One Hundred Thousand Pesos (P100,000.00) each

and by way of moral damages;

2. Minimum wage differential;

3. Thirteenth month pay differential;

4. Unpaid service incentive leave benefits;

5. Sick leave;

6. Holiday pay;

7. Premium pay;

8. Overtime pay;

9. Night shift differential.

Complainants further pray of this Arbiter to declare them regular and permanent employees of respondent ABS-CBN as a condition precedent for their admission into the existing union and collective bargaining unit of respondent company where they may as such acquire or otherwise perform their obligations thereto or enjoy the benefits due therefrom.

Complainants pray for such other reliefs as are just and equitable under the premises.10

For its part, petitioner alleged in its position paper that the respondents were PAs who basically assist in the conduct of a particular program ran by an anchor or talent. Among their duties include monitoring and receiving incoming calls from listeners and field reporters and calls of news sources; generally, they perform leg work for the anchors during a program or a particular production. They are considered in the industry as "program employees" in that, as distinguished from regular or station employees, they are basically engaged by the station for a particular or specific program broadcasted by the radio station. Petitioner asserted that as PAs, the complainants were issued talent information sheets which are updated from time to time, and are thus made the basis to determine the programs to which they shall later be called on to assist. The program assignments of complainants were as follows:

a. Complainant Nazareno assists in the programs:

1) Nagbagang Balita (early morning edition)

2) Infor Hayupan

3) Arangkada (morning edition)

4) Nagbagang Balita (mid-day edition)

b. Complainant Deiparine assists in the programs:

1) Unzanith

2) Serbisyo de Arevalo

3) Arangkada (evening edition)

4) Balitang K (local version)

5) Abante Subu

6) Pangutana Lang

c. Complainant Gerzon assists in the program:

1) On Mondays and Tuesdays:

(a) Unzanith

(b) Serbisyo de Arevalo

(c) Arangkada (evening edition)

(d) Balitang K (local version)

(e) Abante Sugbu

(f) Pangutana Lang

2) On Thursdays

Nagbagang Balita

3) On Saturdays

(a) Nagbagang Balita

(b) Info Hayupan

(c) Arangkada (morning edition)

(d) Nagbagang Balita (mid-day edition)

4) On Sundays:

(a) Siesta Serenata

(b) Sunday Chismisan

(c) Timbangan sa Hustisya

(d) Sayri ang Lungsod

(e) Haranahan11

Petitioner maintained that PAs, reporters, anchors and talents occasionally "sideline" for other programs they produce, such as drama talents in other productions. As program employees, a PAs engagement is coterminous with the completion of the program, and may be extended/renewed provided that the program is on-going; a PA may also be assigned to new programs upon the cancellation of one program and the commencement of another. As such program employees, their compensation is computed on a program basis, a fixed amount for performance services irrespective of the time consumed. At any rate, petitioner claimed, as the payroll will show, respondents were paid all salaries and benefits due them under the law.12

Petitioner also alleged that the Labor Arbiter had no jurisdiction to involve the CBA and interpret the same, especially since respondents were not covered by the bargaining unit.

On July 30, 2001, the Labor Arbiter rendered judgment in favor of the respondents, and declared that they were regular employees of petitioner; as such, they were awarded monetary benefits. The fallo of the decision reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered declaring the complainants regular employees of the respondent ABS-CBN Broadcasting Corporation and directing the same respondent to pay complainants as follows:

I - Merlou A. Gerzon P12,025.00

II - Marlyn Nazareno 12,025.00

III - Jennifer Deiparine 12,025.00

IV - Josephine Sanchez Lerazan 12,025.00

_________

P48,100.00

plus ten (10%) percent Attorneys Fees or a TOTAL aggregate amount of PESOS: FIFTY TWO THOUSAND NINE HUNDRED TEN (P52,910.00).

Respondent Veneranda C. Sy is absolved from any liability.

SO ORDERED.13

However, the Labor Arbiter did not award money benefits as provided in the CBA on his belief that he had no jurisdiction to interpret and apply the agreement, as the same was within the jurisdiction of the Voluntary Arbitrator as provided in Article 261 of the Labor Code.

Respondents counsel received a copy of the decision on August 29, 2001. Respondent Nazareno received her copy on August 27, 2001, while the other respondents received theirs on September 8, 2001. Respondents signed and filed their Appeal Memorandum on September 18, 2001.

For its part, petitioner filed a motion for reconsideration, which the Labor Arbiter denied and considered as an appeal, conformably with Section 5, Rule V, of the NLRC Rules of Procedure. Petitioner forthwith appealed the decision to the NLRC, while respondents filed a partial appeal.

In its appeal, petitioner alleged the following:

1. That the Labor Arbiter erred in reviving or re-opening this case which had long been dismissed without prejudice for more than thirty (30) calendar days;

2. That the Labor Arbiter erred in depriving the respondent of its Constitutional right to due process of law;

3. That the Labor Arbiter erred in denying respondents Motion for Reconsideration on an interlocutory order on the ground that the same is a prohibited pleading;

4. That the Labor Arbiter erred when he ruled that the complainants are regular employees of the respondent;

5. That the Labor Arbiter erred when he ruled that the complainants are entitled to 13th month pay, service incentive leave pay and salary differential; and

6. That the Labor Arbiter erred when he ruled that complainants are entitled to attorneys fees.14

On November 14, 2002, the NLRC rendered judgment modifying the decision of the Labor Arbiter. The fallo of the decision reads:

WHEREFORE, premises considered, the decision of Labor Arbiter Jose G. Gutierrez dated 30 July 2001 is SET ASIDE and VACATED and a new one is entered ORDERING respondent ABS-CBN Broadcasting Corporation, as follows:

1. To pay complainants of their wage differentials and other benefits arising from the CBA as of 30 September 2002 in the aggregate amount of Two Million Five Hundred, Sixty-One Thousand Nine Hundred Forty-Eight Pesos and 22/100 (P2,561,948.22), broken down as follows:

a. Deiparine, Jennifer - P 716,113.49

b. Gerzon, Merlou - 716,113.49

c. Nazareno, Marlyn - 716,113.49

d. Lerazan, Josephine Sanchez - 413,607.75

Total - P 2,561,948.22

2. To deliver to the complainants Two Hundred Thirty-Three (233) sacks of rice as of 30 September 2002 representing their rice subsidy in the CBA, broken down as follows:

a. Deiparine, Jennifer - 60 Sacks

b. Gerzon, Merlou - 60 Sacks

c. Nazareno, Marlyn - 60 Sacks

d. Lerazan, Josephine Sanchez - 53 Sacks

Total 233 Sacks; and

3. To grant to the complainants all the benefits of the CBA after 30 September 2002.

SO ORDERED.15

The NLRC declared that the Labor Arbiter acted conformably with the Labor Code when it granted respondents motion to refile the complaint and admit their position paper. Although respondents were not parties to the CBA between petitioner and the ABS-CBN Rank-and-File Employees Union, the NLRC nevertheless granted and computed respondents monetary benefits based on the 1999 CBA, which was effective until September 2002. The NLRC also ruled that the Labor Arbiter had jurisdiction over the complaint of respondents because they acted in their individual capacities and not as members of the union. Their claim for monetary benefits was within the context of Article 217(6) of the Labor Code. The validity of respondents claim does not depend upon the interpretation of the CBA.

The NLRC ruled that respondents were entitled to the benefits under the CBA because they were regular employees who contributed to the profits of petitioner through their labor. The NLRC cited the ruling of this Court in New Pacific Timber & Supply Company v. National Labor Relations Commission.16

Petitioner filed a motion for reconsideration, which the NLRC denied.

Petitioner thus filed a petition for certiorari under Rule 65 of the Rules of Court before the CA, raising both procedural and substantive issues, as follows: (a) whether the NLRC acted without jurisdiction in admitting the appeal of respondents; (b) whether the NLRC committed palpable error in scrutinizing the reopening and revival of the complaint of respondents with the Labor Arbiter upon due notice despite the lapse of 10 days from their receipt of the July 30, 2001 Order of the Labor Arbiter; (c) whether respondents were regular employees; (d) whether the NLRC acted without jurisdiction in entertaining and resolving the claim of the respondents under the CBA instead of referring the same to the Voluntary Arbitrators as provided in the CBA; and (e) whether the NLRC acted with grave abuse of discretion when it awarded monetary benefits to respondents under the CBA although they are not members of the appropriate bargaining unit.

On February 10, 2004, the CA rendered judgment dismissing the petition. It held that the perfection of an appeal shall be upon the expiration of the last day to appeal by all parties, should there be several

parties to a case. Since respondents received their copies of the decision on September 8, 2001 (except respondent Nazareno who received her copy of the decision on August 27, 2001), they had until September 18, 2001 within which to file their Appeal Memorandum. Moreover, the CA declared that respondents failure to submit their position paper on time is not a ground to strike out the paper from the records, much less dismiss a complaint.

Anent the substantive issues, the appellate court stated that respondents are not mere project employees, but regular employees who perform tasks necessary and desirable in the usual trade and business of petitioner and not just its project employees. Moreover, the CA added, the award of benefits accorded to rank-and-file employees under the 1996-1999 CBA is a necessary consequence of the NLRC ruling that respondents, as PAs, are regular employees.

Finding no merit in petitioners motion for reconsideration, the CA denied the same in a Resolution17 dated June 16, 2004.

Petitioner thus filed the instant petition for review on certiorari and raises the following assignments of error:

1. THE HONORABLE COURT OF APPEALS ACTED WITHOUT JURISDICTION AND GRAVELY ERRED IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION NOTWITHSTANDING THE PATENT NULLITY OF THE LATTERS DECISION AND RESOLUTION.

2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE NLRC FINDING RESPONDENTS REGULAR EMPLOYEES.

3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE NLRC AWARDING CBA BENEFITS TO RESPONDENTS.18

Considering that the assignments of error are interrelated, the Court shall resolve them simultaneously.

Petitioner asserts that the appellate court committed palpable and serious error of law when it affirmed the rulings of the NLRC, and entertained respondents appeal from the decision of the Labor Arbiter despite the admitted lapse of the reglementary period within which to perfect the same. Petitioner likewise maintains that the 10-day period to appeal must be reckoned from receipt of a partys counsel, not from the time the party learns of the decision, that is, notice to counsel is notice to party and not the other way around. Finally, petitioner argues that the reopening of a complaint which the Labor Arbiter has dismissed without prejudice is a clear violation of Section 1, Rule V of the NLRC Rules; such order of dismissal had already attained finality and can no longer be set aside.

Respondents, on the other hand, allege that their late appeal is a non-issue because it was petitioners own timely appeal that empowered the NLRC to reopen the case. They assert that although the appeal was filed 10 days late, it may still be given due course in the interest of substantial justice as an exception to the general rule that the negligence of a counsel binds the client. On the issue of the late filing of their position paper, they maintain that this is not a ground to strike it out from the records or dismiss the complaint.

We find no merit in the petition.

We agree with petitioners contention that the perfection of an appeal within the statutory or reglementary period is not only mandatory, but also jurisdictional; failure to do so renders the assailed decision final and executory and deprives the appellate court or body of the legal authority to alter the final judgment, much less entertain the appeal. However, this Court has time and again ruled that in exceptional cases, a belated appeal may be given due course if greater injustice may occur if an appeal is not given due course than if the reglementary period to appeal were strictly followed.19 The Court resorted to this extraordinary measure even at the expense of sacrificing order and efficiency if only to serve the greater principles of substantial justice and equity.20

In the case at bar, the NLRC did not commit a grave abuse of its discretion in giving Article 22321 of the Labor Code a liberal application to prevent the miscarriage of justice. Technicality should not be allowed to stand in the way of equitably and completely resolving the rights and obligations of the parties.22 We have held in a catena of cases that technical rules are not binding in labor cases and are not to be applied strictly if the result would be detrimental to the workingman.23

Admittedly, respondents failed to perfect their appeal from the decision of the Labor Arbiter within the reglementary period therefor. However, petitioner perfected its appeal within the period, and since

petitioner had filed a timely appeal, the NLRC acquired jurisdiction over the case to give due course to its appeal and render the decision of November 14, 2002. Case law is that the party who failed to appeal from the decision of the Labor Arbiter to the NLRC can still participate in a separate appeal timely filed by the adverse party as the situation is considered to be of greater benefit to both parties.24

We find no merit in petitioners contention that the Labor Arbiter abused his discretion when he admitted respondents position paper which had been belatedly filed. It bears stressing that the Labor Arbiter is mandated by law to use every reasonable means to ascertain the facts in each case speedily and objectively, without technicalities of law or procedure, all in the interest of due process.25 Indeed, as stressed by the appellate court, respondents failure to submit a position paper on time is not a ground for striking out the paper from the records, much less for dismissing a complaint.26 Likewise, there is simply no truth to petitioners assertion that it was denied due process when the Labor Arbiter admitted respondents position paper without requiring it to file a comment before admitting said position paper. The essence of due process in administrative proceedings is simply an opportunity to explain ones side or an opportunity to seek reconsideration of the action or ruling complained of. Obviously, there is nothing in the records that would suggest that petitioner had absolute lack of opportunity to be heard.27 Petitioner had the right to file a motion for reconsideration of the Labor Arbiters admission of respondents position paper, and even file a Reply thereto. In fact, petitioner filed its position paper on April 2, 2001. It must be stressed that Article 280 of the Labor Code was encoded in our statute books to hinder the circumvention by unscrupulous employers of the employees right to security of tenure by indiscriminately and absolutely ruling out all written and oral agreements inharmonious with the concept of regular employment defined therein.28

We quote with approval the following pronouncement of the NLRC:

The complainants, on the other hand, contend that respondents assailed the Labor Arbiters order dated 18 June 2001 as violative of the NLRC Rules of Procedure and as such is violative of their right to procedural due process. That while suggesting that an Order be instead issued by the Labor Arbiter for complainants to refile this case, respondents impliedly submit that there is not any substantial damage or prejudice upon the refiling, even so, respondents suggestion acknowledges complainants right to prosecute this case, albeit with the burden of repeating the same procedure, thus, entailing additional time, efforts, litigation cost and precious time for the Arbiter to repeat the same process twice. Respondents suggestion, betrays its notion of prolonging, rather than promoting the early resolution of the case.

Although the Labor Arbiter in his Order dated 18 June 2001 which revived and re-opened the dismissed case without prejudice beyond the ten (10) day reglementary period had inadvertently failed to follow Section 16, Rule V, Rules Procedure of the NLRC which states:

"A party may file a motion to revive or re-open a case dismissed without prejudice within ten (10) calendar days from receipt of notice of the order dismissing the same; otherwise, his only remedy shall be to re-file the case in the arbitration branch of origin."

the same is not a serious flaw that had prejudiced the respondents right to due process. The case can still be refiled because it has not yet prescribed. Anyway, Article 221 of the Labor Code provides:

"In any proceedings before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in courts of law or equity shall not be controlling and it is the spirit and intention of this Code that the Commission and its members and the Labor Arbiters shall use every and all reasonable means to ascertain the facts in each case speedily and objectively and without regard to technicalities of law or procedure, all in the interest of due process."

The admission by the Labor Arbiter of the complainants Position Paper and Supplemental Manifestation which were belatedly filed just only shows that he acted within his discretion as he is enjoined by law to use every reasonable means to ascertain the facts in each case speedily and objectively, without regard to technicalities of law or procedure, all in the interest of due process. Indeed, the failure to submit a position paper on time is not a ground for striking out the paper from the records, much less for dismissing a complaint in the case of the complainant. (University of Immaculate Conception vs. UIC Teaching and Non-Teaching Personnel Employees, G.R. No. 144702, July 31, 2001).

"In admitting the respondents position paper albeit late, the Labor Arbiter acted within her discretion. In fact, she is enjoined by law to use every reasonable means to ascertain the facts in each case speedily and objectively, without technicalities of law or procedure, all in the interest of due process". (Panlilio vs. NLRC, 281 SCRA 53).

The respondents were given by the Labor Arbiter the opportunity to submit position paper. In fact, the respondents had filed their position paper on 2 April 2001. What is material in the compliance of due process is the fact that the parties are given the opportunities to submit position papers.

"Due process requirements are satisfied where the parties are given the opportunities to submit position papers". (Laurence vs. NLRC, 205 SCRA 737).

Thus, the respondent was not deprived of its Constitutional right to due process of law.29

We reject, as barren of factual basis, petitioners contention that respondents are considered as its talents, hence, not regular employees of the broadcasting company. Petitioners claim that the functions performed by the respondents are not at all necessary, desirable, or even vital to its trade or business is belied by the evidence on record.

Case law is that this Court has always accorded respect and finality to the findings of fact of the CA, particularly if they coincide with those of the Labor Arbiter and the National Labor Relations Commission, when supported by substantial evidence.30 The question of whether respondents are regular or project employees or independent contractors is essentially factual in nature; nonetheless, the Court is constrained to resolve it due to its tremendous effects to the legions of production assistants working in the Philippine broadcasting industry.

We agree with respondents contention that where a person has rendered at least one year of service, regardless of the nature of the activity performed, or where the work is continuous or intermittent, the employment is considered regular as long as the activity exists, the reason being that a customary appointment is not indispensable before one may be formally declared as having attained regular status. Article 280 of the Labor Code provides:

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

In Universal Robina Corporation v. Catapang,31 the Court reiterated the test in determining whether one is a regular employee:

The primary standard, therefore, of determining regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual trade or business of the employer. The test is whether the former is usually necessary or desirable in the usual business or trade of the employer. The connection can be determined by considering the nature of work performed and its relation to the scheme of the particular business or trade in its entirety. Also, if the employee has been performing the job for at least a year, even if the performance is not continuous and merely intermittent, the law deems repeated and continuing need for its performance as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence, the employment is considered regular, but only with respect to such activity and while such activity exists.32

As elaborated by this Court in Magsalin v. National Organization of Working Men:33

Even while the language of law might have been more definitive, the clarity of its spirit and intent, i.e., to ensure a "regular" workers security of tenure, however, can hardly be doubted. In determining whether an employment should be considered regular or non-regular, the applicable test is the reasonable connection between the particular activity performed by the employee in relation to the usual business or trade of the employer. The standard, supplied by the law itself, is whether the work undertaken is necessary or desirable in the usual business or trade of the employer, a fact that can be assessed by looking into the nature of the services rendered and its relation to the general scheme under which the business or trade is pursued in the usual course. It is distinguished from a specific undertaking that is divorced from the normal activities required in carrying on the particular business or trade. But, although the work to be performed is only for a specific project or seasonal, where a person thus engaged has been performing the job for at least one year, even if the performance is not continuous or is merely intermittent, the law deems the repeated and continuing need for its performance as being sufficient to indicate the necessity or desirability of that activity to the business or trade of the employer. The employment of such person is also then deemed to be regular with respect to such activity and while such activity exists.34

Not considered regular employees are "project employees," the completion or termination of which is more or less determinable at the time of employment, such as those employed in connection with a particular construction project, and "seasonal employees" whose employment by its nature is only desirable for a limited period of time. Even then, any employee who has rendered at least one year of

service, whether continuous or intermittent, is deemed regular with respect to the activity performed and while such activity actually exists.

It is of no moment that petitioner hired respondents as "talents." The fact that respondents received pre-agreed "talent fees" instead of salaries, that they did not observe the required office hours, and that they were permitted to join other productions during their free time are not conclusive of the nature of their employment. Respondents cannot be considered "talents" because they are not actors or actresses or radio specialists or mere clerks or utility employees. They are regular employees who perform several different duties under the control and direction of ABS-CBN executives and supervisors.

Thus, there are two kinds of regular employees under the law: (1) those engaged to perform activities which are necessary or desirable in the usual business or trade of the employer; and (2) those casual employees who have rendered at least one year of service, whether continuous or broken, with respect to the activities in which they are employed.35

The law overrides such conditions which are prejudicial to the interest of the worker whose weak bargaining situation necessitates the succor of the State. What determines whether a certain employment is regular or otherwise is not the will or word of the employer, to which the worker oftentimes acquiesces, much less the procedure of hiring the employee or the manner of paying the salary or the actual time spent at work. It is the character of the activities performed in relation to the particular trade or business taking into account all the circumstances, and in some cases the length of time of its performance and its continued existence.36 It is obvious that one year after they were employed by petitioner, respondents became regular employees by operation of law.37

Additionally, respondents cannot be considered as project or program employees because no evidence was presented to show that the duration and scope of the project were determined or specified at the time of their engagement. Under existing jurisprudence, project could refer to two distinguishable types of activities. First, a project may refer to a particular job or undertaking that is within the regular or usual business of the employer, but which is distinct and separate, and identifiable as such, from the other undertakings of the company. Such job or undertaking begins and ends at determined or determinable times. Second, the term project may also refer to a particular job or undertaking that is not within the regular business of the employer. Such a job or undertaking must also be identifiably separate and distinct from the ordinary or regular business operations of the employer. The job or undertaking also begins and ends at determined or determinable times.38

The principal test is whether or not the project employees were assigned to carry out a specific project or undertaking, the duration and scope of which were specified at the time the employees were engaged for that project.39

In this case, it is undisputed that respondents had continuously performed the same activities for an average of five years. Their assigned tasks are necessary or desirable in the usual business or trade of the petitioner. The persisting need for their services is sufficient evidence of the necessity and indispensability of such services to petitioners business or trade.40 While length of time may not be a sole controlling test for project employment, it can be a strong factor to determine whether the employee was hired for a specific undertaking or in fact tasked to perform functions which are vital, necessary and indispensable to the usual trade or business of the employer.41 We note further that petitioner did not report the termination of respondents employment in the particular "project" to the Department of Labor and Employment Regional Office having jurisdiction over the workplace within 30 days following the date of their separation from work, using the prescribed form on employees termination/ dismissals/suspensions.42

As gleaned from the records of this case, petitioner itself is not certain how to categorize respondents. In its earlier pleadings, petitioner classified respondents as program employees, and in later pleadings, independent contractors. Program employees, or project employees, are different from independent contractors because in the case of the latter, no employer-employee relationship exists.

Petitioners reliance on the ruling of this Court in Sonza v. ABS-CBN Broadcasting Corporation43 is misplaced. In that case, the Court explained why Jose Sonza, a well-known television and radio personality, was an independent contractor and not a regular employee:

A. Selection and Engagement of Employee

ABS-CBN engaged SONZAS services to co-host its television and radio programs because of SONZAS peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by respondent in specifically selecting and hiring complainant over other broadcasters of possibly similar experience and qualification as complainant belies respondents claim of independent contractorship."

Independent contractors often present themselves to possess unique skills, expertise or talent to distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of his

unique skills, talent and celebrity status not possessed by ordinary employees, is a circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into the Agreement with SONZA but would have hired him through its personnel department just like any other employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his status. We must consider all the circumstances of the relationship, with the control test being the most important element.

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC. SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN. SONZA also points out that ABS-CBN granted him benefits and privileges "which he would not have enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the Agreement. If SONZA were ABS-CBNs employee, there would be no need for the parties to stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay which the law automatically incorporates into every employer-employee contract. Whatever benefits SONZA enjoyed arose from contract and not because of an employer-employee relationship.

SONZAs talent fees, amounting to P317,000 monthly in the second and third year, are so huge and out of the ordinary that they indicate more an independent contractual relationship rather than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely because of SONZAS unique skills, talent and celebrity status not possessed by ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such huge talent fees for his services. The power to bargain talent fees way above the salary scales of ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of SONZA as an independent contractor. The parties expressly agreed on such mode of payment. Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over any talent fee accruing under the Agreement.44

In the case at bar, however, the employer-employee relationship between petitioner and respondents has been proven.

First. In the selection and engagement of respondents, no peculiar or unique skill, talent or celebrity status was required from them because they were merely hired through petitioners personnel department just like any ordinary employee.

Second. The so-called "talent fees" of respondents correspond to wages given as a result of an employer-employee relationship. Respondents did not have the power to bargain for huge talent fees, a circumstance negating independent contractual relationship.

Third. Petitioner could always discharge respondents should it find their work unsatisfactory, and respondents are highly dependent on the petitioner for continued work.

Fourth. The degree of control and supervision exercised by petitioner over respondents through its supervisors negates the allegation that respondents are independent contractors.

The presumption is that when the work done is an integral part of the regular business of the employer and when the worker, relative to the employer, does not furnish an independent business or professional service, such work is a regular employment of such employee and not an independent contractor.45 The Court will peruse beyond any such agreement to examine the facts that typify the parties actual relationship.46

It follows then that respondents are entitled to the benefits provided for in the existing CBA between petitioner and its rank-and-file employees. As regular employees, respondents are entitled to the benefits granted to all other regular employees of petitioner under the CBA.47 We quote with approval the ruling of the appellate court, that the reason why production assistants were excluded from the CBA is precisely because they were erroneously classified and treated as project employees by petitioner:

x x x The award in favor of private respondents of the benefits accorded to rank-and-file employees of ABS-CBN under the 1996-1999 CBA is a necessary consequence of public respondents ruling that private

respondents as production assistants of petitioner are regular employees. The monetary award is not considered as claims involving the interpretation or implementation of the collective bargaining agreement. The reason why production assistants were excluded from the said agreement is precisely because they were classified and treated as project employees by petitioner.

As earlier stated, it is not the will or word of the employer which determines the nature of employment of an employee but the nature of the activities performed by such employee in relation to the particular business or trade of the employer. Considering that We have clearly found that private respondents are regular employees of petitioner, their exclusion from the said CBA on the misplaced belief of the parties to the said agreement that they are project employees, is therefore not proper. Finding said private respondents as regular employees and not as mere project employees, they must be accorded the benefits due under the said Collective Bargaining Agreement.

A collective bargaining agreement is a contract entered into by the union representing the employees and the employer. However, even the non-member employees are entitled to the benefits of the contract. To accord its benefits only to members of the union without any valid reason would constitute undue discrimination against non-members. A collective bargaining agreement is binding on all employees of the company. Therefore, whatever benefits are given to the other employees of ABS-CBN must likewise be accorded to private respondents who were regular employees of petitioner.48

Besides, only talent-artists were excluded from the CBA and not production assistants who are regular employees of the respondents. Moreover, under Article 1702 of the New Civil Code: "In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living of the laborer."

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 76582 are AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 162401

January 31, 2006

CORAZON ALMIREZ, Petitioner, vs. INFINITE LOOP TECHNOLOGY CORPORATION, EDWIN R. RABINO and COURT OF APPEALS, Respondents. DECISION CARPIO MORALES, J.: Corazon Almirez (petitioner) was hired as a Refinery Senior Process Design Engineer for a specific project by respondent Infinite Loop Technology Corporation (Infinite Loop) through its General Manager/President-co-respondent Edwin R. Rabino (Rabino) who, by letter1 dated September 30, 1999 to petitioner, furnished the details of the employment of her services as follows: Subject: Acceptance of Professional Services Refinery Senior Process Design Engineer Dear Ms. Almirez This is to confirm acceptance of your services as per attached Terms and Conditions. Your services will commence effective October 18, 1999 up to the completion of the scope of services and continuation thereof with a guaranty of 12 continuous months as outlined in the attachment or until a mutually agreed date. We thank you for considering our company as a valued partner in the advancement of Petroleum Processing Technology in our country. x x x x (Emphasis and underscoring supplied) As indicated in the above-quoted portion of Rabinos letter, the terms and conditions attendant to the acceptance of petitioners "Professional Services"2 were attached to it reading: Scope of Professional Services The Senior Process Design Engineer shall work together with the Process Design Consultant in performing the scope of services below which includes but are not limited to the following: 1. Prepare the Process Design Terms of Reference or Basis of Design and other data required for the proposed 1,200,000 BPSD Petroleum Refinery. These data are to be used in securing the services of a Basic Design Engineering Company as well as part of Project Accomplishment of Infinite Loop Technology Corp. 2. Review and revise/improve as necessary the existing conceptual process block diagram or Process Flow Scheme of the proposed petroleum refinery. Various capacity combinations are to be considered to develop process design modules of 1,200,000 BPSD total capacity.

3. Implement new process technologies that can meet the requirements of Japanese, Australian and US petroleum product standard by the year 2004. As well as the Philippine Clean Air Act provisions applicable to the proposed 1,200,000 BPSD petroleum refinery. Petroleum Product Standards required shall be researched and be part of the Basis of Design or Term of Reference. 4. Participate in discussions during the solicitation of proposals from Basic Design Engineering Companies. 5. Review the progress of work being done by the Basic Design Engineering Company and coordinate with the company management team for an efficient and effective project implementation. 6. Make reports and recommendations to the company management team regarding work progress, revisions and improvement of process design on a regular basis as required by company management team. 7. Represent the Company in technical meetings to be held locally or abroad. 8. Perform other related works that are necessary in completing the Engineering Procurement and Construction (EPC) bid documents and progress reports relevant to schedules of deliveries to the Project Proponent as required by the company. 9. Continue related works when the construction stage of this Proposed Refinery will push through. 10. Serve as technical consultant to Infinite Loop Technology Corp. on other relevant works or projects when required. x x x x (Emphasis in the original; underscoring supplied) Terms of Payments Professional Fee: US$ 2,000.00 per month (net of tax) To be paid 50/50 split in US Dollars or equivalent Peso every 15th and 30th of the month Length of Service: Guaranteed minimum of 12 continuous months or up to completion of services, or until a mutually agreed date. Reimbursable Expenses: Work related expenses which include but not limited to the following:

- Communication Expenses (Cellular phone, fax, tels) - Representation Expenses - Out of town travel expenses Other Benefits: - US$ 300.00 per month as transportation allowance (Engineer to use her personal car in the performance of work) to be paid in equivalent pesos every end of the month. - Project Bonus at the end of the contract to be mutually agreed upon by both parties. Others: Infinite Loop Technology Corporation to provide the ff: - Laptop Computer (Pentium III or best available model with modems etc.) - Printer/ Scanner - Process Simulation Softwares to be identified later (Emphasis in the original; underscoring supplied) The letter, as well as the attached documents, bore the signature of petitioner and Rabino. For her services, petitioner received the following amounts on the dates indicated:3 Voucher date 11/23/99 12/02/99 12/15/99 Salary for Nov. 1-15, 1999 Salary for Nov. 15-30, 1999 Full payment for Nov. 15-30 salary Amount P20,000.00 8,000.00 2,000.00

Salary for Dec. 1-15, 1999 1/17/00 1/16/00 1/20/00 Salary for Jan. 1-15, 2000 Salary for Jan. 16-31, 2000 Salary for Jan. 1-15, 2000

10,000.00 12,000.00 12,500.00 12,500.00 --------------Total P77,000.00

By letter4 dated February 2, 2000, petitioner conveyed to Infinite Loop through Rabino her disappointment with the "salary" she was receiving in this wise: x x x When I agreed with a salary of P30,000.00 monthly, my understanding is that, this amount is already net of tax x x x. However, when I received my salary for the month of January which is only partial, (P25,000) and even less because [of] SSS and tax deductions x x x I understand that tax should be deducted from my salary for your Accounting records but I would like to ask you not to deduct it from the P30,000.00 salary I am supposed to be receiving. Currently I am paying my SSS contributions voluntarily so there is no need for the company to pay my monthly contributions. I would like to render my service at Infinite Loop based on the contract that I signed and I am willing to serve astechnical consultant to Infinite Loop on other relevant works or projects while we are waiting for the Masbate refinery project. x x x x (Emphasis and underscoring supplied) Responding,5 Rabino stated that petitioners letter "was totally different [from] what [they] verbally agreed [upon]" in her house; that "like any other proposed project, [the Proposed 1,200,000 BPSD Petroleum Refinery] can be deferred like its present status;" and that since "the financial side for the engineering design for the proposed [project] is not yet available x x x it would be prudent to SUSPEND her professional services as Senior Process Design Engineer effective February 7, 2000." Rabino assured petitioner that her professional services would be resumed once they are provided with the initial payment requested from the project proponent. By letter6 dated August 9, 2000, petitioner, through counsel, wrote Rabino "to compensate [her with] the total amount of her contract," thus: Our client MS. CORAZON S. ALMIREZ has referred to us for appropriate legal action concerning her contract with your company as a refinery process design engineer. In the said contract, which was accepted by our said client on September 30, 1999, you stated that our clients services "will commence effective October 18, 1999 up to the completion of the scope of the services and continuation thereof with a guaranty of 12 continuous months as outlined in the attachment or until a mutually agreed date". However, despite your guarantee of at least 12 continuous months of service, you suspended her professional services effective February 7, 2000. The same is a clear violation of the terms and conditions of the contract. Moreover, you have paid her only a total amount of SEVENTY FOUR THOUSAND TWO HUNDRED TWENTY NINE & 17/100 PESOS (P74,229.17), which is way below than the agreed professional fee of US $2,000.00 a month net of tax. On account of your blatant violation of the terms and conditions of the contract, our

client suffered sleepless nights, anxiety and besmirched reputation. She was constrained to resign from her job as an engineer at the Technoserve International Co., Inc., in view of her contract with your company. In view thereof, formal demand is hereby made on you to compensate our client the total amount of her contract or the amount of US DOLLARS: twenty thousand ($ 20,000.00), MORE OR LESS, within five (5) days from your receipt hereof, failing which we shall, much to our regret, be constrained to file the necessary action in court. x x x x (Underscoring supplied) Rabino later wrote petitioner, by letter of November 15, 2000,7 as follows: Thank you for reminding us about our agreement about this possible landmark project. You all know that Infinite Loop Tech. Corp. is the lead company in this undertaking in association with other companies forming a consortium to cope up with the huge financial and technical requirement of this project. We all have invested a lot of group resources for this, but unfortunately the Project Proponent, Arrox Resources Corp., have encountered re-organization and have not yet paid us for this project. At the moment, the former Chairman of Arrox Resources Corp. is still in contact with us. We all hope that this project will push thru after our country would overcome all the peace and order, economic and political crisis we are encountering now. We all hope that you would bear with us. We would inform you soonest once any development from the project proponent would be relayed to us. On December 12, 2000, petitioner filed a complaint against Infinite Loop and Rabino before the National Labor Relations Commission (NLRC) for "breach of contract of employment," praying that judgment be rendered in her favor ordering Infinite Loop to pay: (1) $22,000.00 or its peso equivalent representing salaries and wages; (2) P300,000.00 as and for moral damages; (3) P100,000.00 as and for exemplary damages; and (4) 10% of the total claim as and for attorneys fees. Infinite Loop moved to dismiss8 petitioners complaint on the ground that the NLRC has no jurisdiction over the parties and the subject matter, there being no employee-employer relationship between them as the contract they entered into was one of services and not of employment. By Resolution of November 14, 2001, the Labor Arbiter, finding that paragraph No. 6 of the Scope of Professional Services of petitioner showed that "the companys management team exercises control over the means and methods in the performance of [petitioners] duties as Refinery Process Design Engineer," held that there existed an employer-employee relationship between the parties. The Labor Arbiter thus ordered Infinite Loop and Rabino to jointly and severally pay petitioner the sum of US$ 24,000.00 in its peso equivalent at the date of payment less advances in the amount

of P77,000.00 plus 5% thereof by way of attorneys fees. It dismissed petitioners claim for damages, however.9 Infinite Loop and Rabino (hereafter respondents) appealed to the NLRC. By Resolution10 dated September 19, 2002, the NLRC, finding that employer-employee relation between the parties indeed existed, dismissed respondents appeal. Before the Court of Appeals to which respondents elevated the case, they argued that the NLRC: I. x x x ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION AND ERRED IN NOT FINDING THAT THE LABOR ARBITER HAS NO JURISDICTION OVER THE CAUSES OF ACTION PLEADED IN THE COMPLAINT, I.E., NON PAYMENT OF PROFESSIONAL FEE AND BREACH OF CONTRACT. II. x x x COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION AND COMMITTED REVERSIBLE ERROR IN NOT FINDING THAT [PETITIONER] IS NOT AN EMPLOYEE OF [INFINITE LOOP]. III. x x x SERIOUSLY ERRED IN NOT FINDING THE ENVISIONED ENGAGEMENT OF [PETITIONER] AS A REFINERY PROCESS ENGINEER IS CO-TERMINOUS WITH THE PROJECT, WHICH PROJECT DID NOT MATERIALIZE.11(Underscoring supplied) The appellate court, finding that "[petitioner] was hired to render professional services for a specific project" and her "primary cause of action is for a sum of money on account of [Infinite Loops] alleged breach of contractual obligation to pay her agreed professional fee," held by Decision12 dated October 20, 2003 that no employer-employee relationship existed between the parties, hence, the NLRC and the Labor Arbiter have no jurisdiction over the complaint. It accordingly reversed the NLRC decision and dismissed petitioners complaint. Hence, the present petition, petitioner contending that the appellate court erred when it: A. x x x INCONSISTENTLY RULED THAT THERE WAS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES BUT AT THE SAME TIME IT CITED THAT [PETITIONER] IS A PROJECT EMPLOYEE. MOREOVER, THE ASSAILED JUDGMENT IS BASED ON MISAPPRECIATION OF FACTS. B. x x x FAILED TO CONSIDER THE RELIEF MENTIONED IN [PETITIONERS] COMPLAINT FOR PAYMENT OF SALARY x x x C.

x x x RULED THAT THE SEPARATION FROM SERVICE OF [PETITIONER] BECAUSE OF THE PROJECTS DISCONTINUANCE DID NOT RESULT TO ILLEGAL DISMISSAL.13 To ascertain the existence of an employer-employee relationship, jurisprudence has invariably applied the four-fold test, to wit: (1) the manner of selection and engagement; (2) the payment of wages; (3) the presence or absence of the power of dismissal; and (4) the presence or absence of the power of control. Of these four, the last one, the so called "control test" is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship.14 Under the control test, an employer-employee relationship exists where the person for whom the services are performed reserves the right to control not only the end achieved, but also the manner and means to be used in reaching that end.15 From the earlier-quoted scope of petitioners professional services, there is no showing of a power of control over petitioner. The services to be performed by her specified what she needed to achieve but not on how she was to go about it. Contrary to the finding of the Labor Arbiter, as affirmed by the NLRC, above-quoted paragraph No. 6 of the "Scope of [petitioners] Professional Services" requiring her to "[m]ake reports and recommendations to the company management team regarding work progress, revisions and improvement of process design on a regular basis as required by company management team" does not "show that the companys management team exercises control over the means and methods in the performance of her duties as Refinery Process Design Engineer." Having hired petitioners professional services on account of her "expertise and qualifications" as petitioner herself proffers in her Position Paper,16 the company naturally expected to be updated regularly of her "work progress," if any, on the project for which she was specifically hired. In bolstering her contention that there was an employer-employee relationship, petitioner draws attention to the pay slips and Infinite Loops deduction of her SSS, Philhealth, and withholding tax, and to the designation of the payments to her as "salaries." The deduction from petitioners remuneration of amounts representing SSS premiums, Philhealth contributions and withholding tax, was made in the only payslip issued to petitioner, that for the period of January 16-31, 2000,17 the other amounts of remuneration having been documented by cash vouchers. Such payslip cannot prove the existence of an employer-employee relationship between the parties. The cases of Equitable Banking Corp. v. NLRC18 and Nagusara v. NLRC19 should be differentiated from the present case, as the employers in these two cases did not only regularly make similar deductions from the therein complainants remuneration but also registered and declared the complainants with the SSS and Medicare (Philhealth) as their employees. As for the designation of the payments to petitioner as "salaries," it is not determinative of the existence of an employer-employee relationship. "Salary" is a general term defined as "a remuneration for services given." It is the above-quoted contract of engagement of services-letter dated September 30, 1999, together with its attachments, which is the law between the parties. Even petitioner concedes rendering service "based on the contract,"20 which, as reflected earlier, is bereft of a showing of power of control, the most crucial and determinative indicator of the presence of an employer-employee relationship. WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioner. SO ORDERED.

G.R. No. 138254

July 30, 2004

ANGELITO L. LAZARO, Proprietor of Royal Star Marketing, petitioner, vs. SOCIAL SECURITY COMMISSION, ROSALINA LAUDATO, SOCIAL SECURITY SYSTEM and THE HONORABLE COURT OF APPEALS, respondents.

DECISION

TINGA, J.: Before us is a Petition for Review under Rule 45, assailing the Decision1 of the Court of Appeals Fifteenth Division2 in CA-G.R. Sp. No. 40956, promulgated on 20 November 1998, which affirmed two rulings of the Social Security Commission ("SSC") dated 8 November 1995 and 24 April 1996. Private respondent Rosalina M. Laudato ("Laudato") filed a petition before the SSC for social security coverage and remittance of unpaid monthly social security contributions against her three (3) employers. Among the respondents was herein petitioner Angelito L. Lazaro ("Lazaro"), proprietor of Royal Star Marketing ("Royal Star"), which is engaged in the business of selling home appliances.3 Laudato alleged that despite her employment as sales supervisor of the sales agents for Royal Star from April of 1979 to March of 1986, Lazaro had failed during the said period, to report her to the SSC for compulsory coverage or remit Laudato's social security contributions.4 Lazaro denied that Laudato was a sales supervisor of Royal Star, averring instead that she was a mere sales agent whom he paid purely on commission basis. Lazaro also maintained that Laudato was not subjected to definite hours and conditions of work. As such, Laudato could not be deemed an employee of Royal Star.5

After the parties submitted their respective position papers, the SSC promulgated a Resolution6 dated 8 November 1995 ruling in favor of Laudato.7 Applying the "control test," it held that Laudato was an employee of Royal Star, and ordered Royal Star to pay the unremitted social security contributions of Laudato in the amount of Five Thousand Seven Pesos and Thirty Five Centavos (P5,007.35), together with the penalties totaling Twenty Two Thousand Two Hundred Eighteen Pesos and Fifty Four Centavos (P22,218.54). In addition, Royal Star was made liable to pay damages to the SSC in the amount of Fifteen Thousand Six Hundred Eighty Pesos and Seven Centavos (P15,680.07) for not reporting Laudato for social security coverage, pursuant to Section 24 of the Social Security Law.8 After Lazaro's Motion for Reconsideration before the SSC was denied,9 Lazaro filed a Petition for Review with the Court of Appeals. Lazaro reiterated that Laudato was merely a sales agent who was paid purely on commission basis, not included in the company payroll, and who neither observed regular working hours nor accomplished time cards. In its assailed Decision, the Court of Appeals noted that Lazaro's arguments were a reprise of those already presented before the SSC.10 Moreover, Lazaro had not come forward with particulars and specifics in his petition to show that the Commission's ruling is not supported by substantial evidence.11 Thus, the appellate court affirmed the finding that Laudato was an employee of Royal Star, and hence entitled to coverage under the Social Security Law. Before this Court, Lazaro again insists that Laudato was not qualified for social security coverage, as she was not an employee of Royal Star, her income dependent on a generation of sales and based on commissions.12 It is argued that Royal Star had no control over Laudato's activities, and that under the so-called "control test," Laudato could not be deemed an employee.13 It is an accepted doctrine that for the purposes of coverage under the Social Security Act, the determination of employer-employee relationship warrants the application of the "control test," that is, whether the employer controls or has reserved the right to control the employee, not only as to the result of the work done, but also as to the means and methods by which the same is accomplished.14 The SSC, as sustained by the Court of Appeals, applying the control test found that Laudato was an employee of Royal Star. We find no reversible error. Lazaro's arguments are nothing more but a mere reiteration of arguments unsuccessfully posed before two bodies: the SSC and the Court of Appeals. They likewise put to issue factual questions already passed upon twice below, rather than questions of law appropriate for review under a Rule 45 petition. The determination of an employer-employee relationship depends heavily on the particular factual circumstances attending the professional interaction of the parties. The Court is not a trier of facts15 and accords great weight to the factual findings of lower courts or agencies whose function is to resolve factual matters.16 Lazaro's arguments may be dispensed with by applying precedents. Suffice it to say, the fact that Laudato was paid by way of commission does not preclude the establishment of an employeremployee relationship. InGrepalife v. Judico,17 the Court upheld the existence of an employeremployee relationship between the insurance company and its agents, despite the fact that the compensation that the agents on commission received was not paid by the company but by the investor or the person insured.18 The relevant factor remains, as stated earlier, 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.19 Neither does it follow that a person who does not observe normal hours of work cannot be deemed an employee. In Cosmopolitan Funeral Homes, Inc. v. Maalat,20 the employer similarly denied the

existence of an employer-employee relationship, as the claimant according to it, was a "supervisor on commission basis" who did not observe normal hours of work. This Court declared that there was an employer-employee relationship, noting that "[the] supervisor, although compensated on commission basis, [is] exempt from the observance of normal hours of work for his compensation is measured by the number of sales he makes."21 It should also be emphasized that the SSC, also as upheld by the Court of Appeals, found that Laudato was a sales supervisor and not a mere agent.22 As such, Laudato oversaw and supervised the sales agents of the company, and thus was subject to the control of management as to how she implements its policies and its end results. We are disinclined to reverse this finding, in the absence of countervailing evidence from Lazaro and also in light of the fact that Laudato's calling cards from Royal Star indicate that she is indeed a sales supervisor. The finding of the SSC that Laudato was an employee of Royal Star is supported by substantial evidence. The SSC examined the cash vouchers issued by Royal Star to Laudato,23 calling cards of Royal Star denominating Laudato as a "Sales Supervisor" of the company,24 and Certificates of Appreciation issued by Royal Star to Laudato in recognition of her unselfish and loyal efforts in promoting the company.25 On the other hand, Lazaro has failed to present any convincing contrary evidence, relying instead on his bare assertions. The Court of Appeals correctly ruled that petitioner has not sufficiently shown that the SSC's ruling was not supported by substantial evidence. A piece of documentary evidence appreciated by the SSC is Memorandum dated 3 May 1980 of Teresita Lazaro, General Manager of Royal Star, directing that no commissions were to be given on all "main office" sales from walk-in customers and enjoining salesmen and sales supervisors to observe this new policy.26 The Memorandum evinces the fact that, contrary to Lazaro's claim, Royal Star exercised control over its sales supervisors or agents such as Laudato as to the means and methods through which these personnel performed their work. Finally, Lazaro invokes our ruling in the 1987 case of Social Security System v. Court of Appeals27 that a person who works for another at his own pleasure, subject to definite hours or conditions of work, and is compensated according to the result of his effort is not an employee.28 The citation is odd for Lazaro to rely upon, considering that in the cited case, the Court affirmed the employee-employer relationship between a sales agent and the cigarette firm whose products he sold.29 Perhaps Lazaro meant instead to cite our 1969 ruling in the similarly-titled case of Social Security System v. Court of Appeals,30 also cited in the later eponymous ruling, whose disposition is more in accord with Lazaro's argument. Yet, the circumstances in the 1969 case are very different from those at bar. Ruling on the question whether jockeys were considered employees of the Manila Jockey Club, the Court noted that the jockeys were actually subjected to the control of the racing steward, whose authority in turn was defined by the Games and Amusements Board.31 Moreover, the jockey's choice as to which horse to mount was subject to mutual agreement between the horse owner and the jockey, and beyond the control of the race club.32 In the case at bar, there is no showing that Royal Star was similarly precluded from exerting control or interference over the manner by which Laudato performed her duties. On the contrary, substantial evidence as found by the SSC and the Court of Appeals have established the element of control determinative of an employer-employee relationship. We affirm without hesitation. WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals dated 20 November 1998 is AFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. 118101 September 16, 1996 EDDIE DOMASIG, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION), CATA GARMENTS CORPORATION and/or OTTO ONG and CATALINA CO., respondents.

PADILLA, J.: This petition for certiorari under Rule 65 of the Rules of Court seeks to nullify and set aside the Resolution 1 of respondent National Labor Relations Commission (NLRC) rendered on 20 September 1994 remanding the records of the case to the arbitration branch of origin for further proceedings. The antecedent facts as narrated by public respondent in the assailed resolution are as follows: The complaint was instituted by Eddie Domasig against respondent Cata Garments Corporation, a company engaged in garments business and its owner/manager Otto Ong and Catalina Co for illegal dismissal, unpaid commission and other monetary claim[s]. Complainant alleged that he started working with the respondent on July 6, 1986 as Salesman when the company was still named Cato Garments Corporation; that three (3) years ago, because of a complaint against respondent by its workers, its changed its name to Cata Garments Corporation; and that on August 29, 1992, he was dismissed when respondent learned that he was being pirated by a rival corporation which offer he refused. Prior to his dismissal, complainant alleged that he was receiving a salary of P1,500.00 a month plus commission. On September 3, 1992 he filed the instant complaint. Respondent denied complainant's claim that he is a regular employee contending that he is a mere commission agent who receives a commission of P5.00 per piece of article sold at regular price and P2.50 per piece sold in [sic] bargain price; that in addition to commission, complainant received a fixed allowance of P1,500.00 a month; that he had no regular time schedule; and that the company come [sic] into existence only on September 17, 1991. In support of its claim that complainant is a commission agent, respondent submitted as Annexes "B" and "B-1" the List of Sales Collections, Computation of Commission due, expenses incurred, cash advances received for the month of

January and March 1992 (Rollo, p. 22-27). Respondent further contends that complainant failed to turn over to the respondent his collection from two (2) buyers as per affidavit executed by these buyers (Rollo p. 28-29) and for which, according to respondent it initiated criminal proceedings against the complainant.
The Labor Arbiter held that complainant was illegally dismissed and entitled to reinstatement and backwages as well as underpayment of salary; 13th month pay; service incentive leave and legal holiday. The Arbiter also awarded complainant his claim for unpaid commission in the amount of P143,955.00. 2

Private respondents appealed the decision of the labor arbiter to public respondent. As aforesaid, the NLRC resolved to remand the case to the labor arbiter for further proceeding. It declared as follows:
We find the decision of the Labor Arbiter not supported by evidence on record. The issue of whether or not complainant was a commission agent was not fully resolved in the assailed decision. It appears that the Labor Arbiter failed to appreciate the evidences submitted by respondent as Annexes "B" and "B-1" (Rollo p. 22-27) in support of its allegation as regard[s] the nature of complainant's employment. Neither is there a showing that the parties were required to adduce further to support their respective claim. The resolution of the nature of complainant's employment is vital to the case at bar considering that it would be determinative to his entitlement of monetary benefits. The same is similarly true as regard the claim [sic] for unpaid commission. The amount being claim [sic] for unpaid commission as big as it is requires substantial proof to establish the entitlement of the complainant proof to establish the entitlement of the complainant to the same. We take not of the respondent's claim that "while they admit that complainant has an unpaid commission due him, the same is only for his additional sale of 4,027 pieces at regular price and 1,047 pieces at bargain price for a total sum of (P20,135.00 + 2,655.00) or P22,820.00 as appearing in the list of Sales and unpaid commission" (Annex "C" and "C-1" Appeal, Rollo p. 100-102). Said amount according to respondent is being withheld by them pending the accounting of money collected by complainant from his two (2) buyers which was not remitted to them. Considering the conflicting version of the parties regarding the issues on hand, it was incumbent on the Labor Arbiter to conduct further proceedings thereon. The ends of justice would better be served if both partied are given the opportunity to ventilate further their positions. 3

In their comment on the petition at bar, private respondents agree with the finding of the NLRC that the nature of petitioner's employment with private respondents is vital to the case as it will determine the monetary benefits to which he is entitled. They further aver that the evidence presented upon which the labor arbiter based her decision is insufficient, so that the NLRC did not commit grave abuse of discretion in remanding the case to the arbitration branch of origin for further proceedings. The comment of the Solicitor General is substantially the same as that of private respondents, i.e., there is no sufficient evidence to prove employer-employee relationship between the parties. Furthermore, he avers that the order of the NLRC to the labor arbiter for further proceedings does not automatically translate to a protracted trial on the merits for such can be faithfully complied with through the submission of additional documents or pleadings only.

The only issue to be resolved in this petition is whether or not the NLRC gravely abused its discretion in vacating and setting aside the decision of the labor arbiter and remanding the case to the arbitration branch of origin for further proceedings. In essence, respondent NLRC was not convinced that the evidence presented by the petitioner, consisting of the identification card issued to him by private respondent corporation and the cash vouchers reflecting his monthly salaries covering the months stated therein, settled the issue of employer-employee relationship between private respondents and petitioner. It has long been established that in administrative and quasi-judicial proceedings, substantial evidence is sufficient as a basis for judgment on the existence of employer-employee relationship. No particular form of evidence is required is required to prove the existence of such employer-employee relationship. Any competent and relevant evidence to prove the relationship may be admitted. 4 Substantial evidence has been defined to be such relevant evidence as a reasonable mind might accept as adequate to support a conclusion, and its absence is not shown by stressing that there is contrary evidence on record, direct or circumstantial, for the appellate court cannot substitute its own judgment or criterion for that of the trial court in determining wherein lies the weight of evidence or what evidence is entitled to belief. 5 In a business establishment, an identification card is usually provided not only as a security measure but mainly to identify the holder thereof as a bona fide employee of the firm that issues it. Together with the cash vouchers covering petitioner's salaries for the months stated therein, we agree with the labor arbiter that these matters constitute substantial evidence adequate to support a conclusion that petitioner was indeed an employee of private respondent. Section 4, Rule V of the Rules of Procedure of the National Labor Relations Commission provides thus: Sec. 4. Determination of Necessity of Hearing. Immediately after the submission of the parties of their position papers/memoranda, the Labor Arbiter shall motu propio determine whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and for the purpose of making such determination, ask clarificatory questions to further elicit facts or information, including but not limited to the subpoena of relevant documentary evidence, if any, from any party or witness.
It is clear from the law that it is the arbiters who are authorized to determine whether or not there is a necessity for conducting formal hearings in cases brought before them for adjudication. Such determination is entitled to great respect in the absence of arbitrariness. 6

In the case at bar, we do not believe that the labor arbiter acted arbitrarily. Contrary to the finding of the NLRC, her decision at least on the existence of an employer-employee relationship between private respondents and petitioner, is supported by substantial evidence on record. The list of sales collection including computation of commissions due, expenses incurred and cash advances received (Exhibits "B" and "B-1") which, according to public respondent,

the labor arbiter failed to appreciate in support of private respondents" allegation as regards the nature of petitioner's employment as a commission agent, cannot overcome the evidence of the ID card and salary vouchers presented petitioner which private respondents have not denied. The list presented by private respondents would even support petitioner's allegations that, aside from a monthly salary of P1,500.00, he also received commissions for his work as a salesman of private respondents. Having been in the employ of private respondents continuously for more than one year, under the law, petitioner is considered a regular employee. Proof beyond reasonable doubt is not required as a basis for judgment on the legality of an employer's dismissal of an employee, nor even preponderance of evidence for that matter, substantial evidence being sufficient. 7 Petitioner's contention that private respondents terminated his employment due to their suspicion that he was being enticed by another firm to work for it was not refuted by private respondents. The labor arbiter's conclusion that petitioner's dismissal is therefore illegal, is not necessarily arbitrary or erroneous. It is entitled to great weight and respect. It was error and grave abuse of discretion for the NLRC to remand the case for further proceedings to determine whether or not petitioner was private respondents' employee. This would only prolong the final disposition of the complaint. It is stressed that, in labor cases, simplification of procedures, without regard to technicalities and without sacrificing the fundamental requisites of due process, is mandated to ensure the speedy administration of justice. 8 After all, Article 218 of the Labor Code grants the Commission and the labor arbiter broad powers, including issuance of subpoena, requiring the attendance and testimony of witnesses or the production of such documentary evidence as may be material to a just determination of the matter under investigation. Additionally, the National Labor Relations Commission and the labor arbiter have authority under the Labor Code to decide a case based on the position papers and documents submitted without resorting to the technical rules of evidence. 9 However, in view of the need for further and correct computation of the petitioner's commissions in the light of the exhibits presented and the dismissal of the criminal cases filed against petitioner, the labor arbiter is required to undertake a new computation of the commissions to which petitioner may be entitled, within thirty (30) days from the submission by the partied of all necessary documents. WHEREFORE, the resolutions of the public respondent dated 20 September 1994 and 9 November 1994 are SET ASIDE. The decision of the labor arbiter dated 19 may 1993 us REINSTATED and AFFIRMED subject to the modification above-stated as regards a recomputation by the labor arbiter of the commissions to which petitioner maybe actually entitled. SO ORDERED.

G.R. No. 146667

January 23, 2007

JOHN F. McLEOD, Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (First Division), FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, and ERIC HU, Respondents. DECISION CARPIO, J.: The Case This is a petition for review1 to set aside the Decision2 dated 15 June 2000 and the Resolution3 dated 27 December 2000 of the Court of Appeals in CA-G.R. SP No. 55130. The Court of Appeals affirmed with modification the 29 December 1998 Decision4 of the National Labor Relations Commission (NLRC) in NLRC NCR 02-00949-95. The Facts The facts, as summarized by the Labor Arbiter and adopted by the NLRC and the Court of Appeals, are as follows: On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary and 13th month pay, moral and exemplary damages, attorneys fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu. In his Position Paper, complainant alleged that he is an expert in textile manufacturing process; that as early as 1956 he was hired as the Assistant Spinning Manager of Universal Textiles, Inc. (UTEX); that he was promoted to Senior Manager and worked for UTEX till 1980 under its President, respondent Patricio Lim; that in 1978 Patricio Lim formed Peggy Mills, Inc. with respondent Filsyn having controlling interest; that complainant was absorbed by Peggy Mills as its Vice President and Plant Manager of the plant at Sta. Rosa, Laguna; that at the time of his retirement complainant was receiving P60,000.00 monthly with vacation and sick leave benefits; 13th month pay, holiday pay and two round trip business class tickets on a Manila-London-Manila itinerary every three years which is convertible to cas[h] if unused; that in January 1986, respondents failed to pay vacation and leave credits and requested complainant to wait as it was short of funds but the same remain unpaid at present; that complainant is entitled to such benefit as per CBA provision (Annex "A"); that respondents likewise failed to pay complainants holiday pay up to the present; that complainant is entitled to such benefits as per CBA provision (Annex "B"); that in 1989 the plant union staged a

strike and in 1993 was found guilty of staging an illegal strike; that from 1989 to 1992 complainant was entitled to 4 round trip business class plane tickets on a Manila-London-Manila itinerary but this benefit not (sic) its monetary equivalent was not given; that on August 1990 the respondents reduced complainants monthly salary of P60,000.00 by P9,900.00 till November 1993 or a period of 39 months; that in 1991 Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. as per agreement (Annex "D") and this was renamed as Sta. Rosa Textile with Patricio Lim as Chairman and President; that complainant worked for Sta. Rosa until November 30 that from time to time the owners of Far Eastern consulted with complainant on technical aspects of reoperation of the plant as per correspondence (Annexes "D-1" and "D-2"); that when complainant reached and applied retirement age at the end of 1993, he was only given a reduced 13th month pay ofP44,183.63, leaving a balance of P15,816.87; that thereafter the owners of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles; that on two occasions, complainant wrote letters (Annexes "E-1" to "E-2") to Patricio Lim requesting for his retirement and other benefits; that in the last quarter of 1994 respondents offered complainant compromise settlement of only P300,000.00 which complainant rejected; that again complainant wrote a letter (Annex "F") reiterating his demand for full payment of all benefits and to no avail, hence this complaint; and that he is entitled to all his money claims pursuant to law. On the other hand, respondents in their Position Paper alleged that complainant was the former Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980 and Peggy Mills closed operations due to irreversible losses at the end of July 1992 but the corporation still exists at present; that its assets were acquired by Sta. Rosa Textile Corporation which was established in April 1992 but still remains non-operational at present; that complainant was hired as consultant by Sta. Rosa Textile in November 1992 but he resigned on November 30, 1993; that Filsyn and Far Eastern Textiles are separate legal entities and have no employer relationship with complainant; that respondent Patricio Lim is the President and Board Chairman of Sta. Rosa Textile Corporation; that respondent Eric Hu is a Taiwanese and is Director of Sta. Rosa Textiles, Inc.; that complainant has no cause of action against Filsyn, Far Eastern Textile Ltd., Sta. Rosa Textile Corporation and Eric Hu; that Sta. Rosa only acquired the assets and not the liabilities of Peggy Mills, Inc.; that Patricio Lim was only impleaded as Board Chairman of Sta. Rosa Textile and not as private individual; that while complainant was Vice President and Plant Manager of Peggy Mills, the union staged a strike up to July 1992 resulting in closure of operations due to irreversible losses as per Notice (Annex "1"); that complainant was relied upon to settle the labor problem but due to his lack of attention and absence the strike continued resulting in closure of the company; and losses to Sta. Rosa which acquired its assets as per their financial statements (Annexes "2" and "3"); that the attendance records of complainant from April 1992 to November 1993 (Annexes "4" and "5") show that he was either absent or worked at most two hours a day; that Sta. Rosa and Peggy Mills are interposing counterclaims for damages in the total amount of P36,757.00 against complainant; that complainants monthly salary at Peggy Mills was P50,495.00 and not P60,000.00; that Peggy Mills, does not have a retirement program; that whatever amount complainant is entitled should be offset with the counterclaims; that complainant worked only for 12 years from 1980 to 1992; that complainant was only hired as a consultant and not an employee by Sta. Rosa Textile; that complainants attendance record of absence and two hours daily work during the period of the strike wipes out any vacation/sick leave he may have accumulated; that there is no basis for complainants claim of two (2) business class airline tickets; that complainants pay already included the holiday pay; that he is entitled to holiday pay as consultant by Sta. Rosa; that he has waived this benefit in his 12 years of work with Peggy Mills; that he is not entitled to 13th month pay as consultant; and that he is not entitled to moral and exemplary damages and attorneys fees. In his Reply, complainant alleged that all respondents being one and the same entities are solidarily liable for all salaries and benefits and complainant is entitled to; that all respondents have the same address at 12/F B.A. Lepanto Building, Makati City; that their counsel holds office in the same address; that all respondents have the same offices and key personnel such as Patricio Lim and Eric

Hu; that respondents Position Paper is verified by Marialen C. Corpuz who knows all the corporate officers of all respondents; that the veil of corporate fiction may be pierced if it is used as a shield to perpetuate fraud and confuse legitimate issues; that complainant never accepted the change in his position from Vice-President and Plant Manger to consultant and it is incumbent upon respondents to prove that he was only a consultant; that the Deed of Dation in Payment with Lease (Annex "C") proves that Sta. Rosa took over the assets of Peggy Mills as early as June 15, 1992 and not 1995 as alleged by respondents; that complainant never resigned from his job but applied for retirement as per letters (Annexes "E-1", "E-2" and "F"); that documents "G", "H" and "I" show that Eric Hu is a top official of Peggy Mills that the closure of Peggy Mills cannot be the fault of complainant; that the strike was staged on the issue of CBA negotiations which is not part of the usual duties and responsibilities as Plant Manager; that complainant is a British national and is prohibited by law in engaging in union activities; that as per Resolution (Annex "3") of the NLRC in the proper case, complainant testified in favor of management; that the alleged attendance record of complainant was lifted from the logbook of a security agency and is hearsay evidence; that in the other attendance record it shows that complainant was reporting daily and even on Saturdays; that his limited hours was due to the strike and cessation of operations; that as plant manager complainant was on call 24 hours a day; that respondents must pay complainant the unpaid portion of his salaries and his retirement benefits that cash voucher No. 17015 (Annex "K") shows that complainant drew the monthly salary of P60,000.00 which was reduced to P50,495.00 in August 1990 and therefore without the consent of complainant; that complainant was assured that he will be paid the deduction as soon as the company improved its financial standing but this assurance was never fulfilled; that Patricio Lim promised complainant his retirement pay as per the latters letters (Annexes "E-1", "E-2" and "F"); that the law itself provides for retirement benefits; that Patricio Lim by way of Memorandum (Annex "M") approved vacation and sick leave benefits of 22 days per year effective 1986; that Peggy Mills required monthly paid employees to sign an acknowledgement that their monthly compensation includes holiday pay; that complainant was not made to sign this undertaking precisely because he is entitled to holiday pay over and above his monthly pay; that the company paid for complainants two (2) round trip tickets to London in 1983 and 1986 as reflected in the complainants passport (Annex "N"); that respondents claim that complainant is not entitled to 13th month pay but paid in 1993 and all the past 13 years; that complainant is entitled to moral and exemplary damages and attorneys fees; that all doubts must be resolved in favor of complainant; and that complainant reserved the right to file perjury cases against those concerned. In their Reply, respondents alleged that except for Peggy Mills, the other respondents are not proper persons in interest due to the lack of employer-employee relationship between them and complainant; that undersigned counsel does not represent Peggy Mills, Inc. In a separate Position Paper, respondent Peggy Mills alleged that complainant was hired on February 10, 1991 as per Board Minutes (Annex "A"); that on August 19, 1987, the workers staged an illegal strike causing cessation of operations on July 21, 1992; that respondent filed a Notice of Closure with the DOLE (Annex "B"); that all employees were given separation pay except for complainant whose task was extended to December 31, 1992 to wind up the affairs of the company as per vouchers (Annexes "C" and "C-1"); that respondent offered complainant his retirement benefits under RA 7641 but complainant refused; that the regular salaries of complainant from closure up to December 31, 1992 have offset whatever vacation and sick leaves he accumulated; that his claim for unused plane tickets from 1989 to 1992 has no policy basis, the companys formula of employees monthly rate x 314 days over 12 months already included holiday pay; that complainants unpaid portion of the 13th month pay in 1993 has no basis because he was only an employee up to December 31, 1992; that the 13th month pay was based on his last salary; and that complainant is not entitled to damages.5 On 3 April 1998, the Labor Arbiter rendered his decision with the following dispositive portion:

WHEREFORE, premises considered, We hold all respondents as jointly and solidarily liable for complainants money claims as adjudicated above and computed below as follows: Retirement Benefits (one month salary for every year of service) 6/80 - 11/30/93 = 14 years P60,000 x 14.0 mos. P840,000.00 Vacation and Sick Leave (3 yrs.) P2,000.00 x 22 days x 3 yrs. 132,000.00 Underpayment of Salaries (3 yrs.) P60,000 - P50,495 = P9,505 P 9,505 x 36.0 mos. ... 342,180.00 Holiday Pay (3 yrs.) P2,000 x 30 days . 60,000.00 Underpayment of 13th month pay (1993) ... 15,816.87 Moral Damages .. 3,000,000.00 Exemplary Damages .. 1,000,000.00 10% Attorneys Fees . 138,999.68 TOTAL P5,528,996.55 Unused Airline Tickets (3 yrs.) (To be converted in Peso upon payment) $2,450.00 x 3.0 [yrs.].. $7,350.00 SO ORDERED.6 Filipinas Synthetic Fiber Corporation (Filsyn), Far Eastern Textile Mills, Inc. (FETMI), Sta. Rosa Textiles, Inc. (SRTI), Patricio L. Lim (Patricio), and Eric Hu appealed to the NLRC. The NLRC rendered its decision on 29 December 1998, thus: WHEREFORE, the Decision dated 3 April 1998 is hereby REVERSED and SET ASIDE and a new one is entered ORDERING respondent Peggy Mills, Inc. to pay complainant his retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495.00 a month.

All other claims are DISMISSED for lack of merit. SO ORDERED.7 John F. McLeod (McLeod) filed a motion for reconsideration which the NLRC denied in its Resolution of 30 June 1999.8 McLeod thus filed a petition for certiorari before the Court of Appeals assailing the decision and resolution of the NLRC.9 The Ruling of the Court of Appeals On 15 June 2000, the Court of Appeals rendered judgment as follows: WHEREFORE, the decision dated December 29, 1998 of the NLRC is hereby AFFIRMED with the MODIFICATION that respondent Patricio Lim is jointly and solidarily liable with Peggy Mills, Inc., to pay the following amounts to petitioner John F. McLeod: 1. retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495, a month; 2. moral damages in the amount of one hundred thousand (P100,000.00) Pesos; 3. exemplary damages in the amount of fifty thousand (P50,000.00) Pesos; and 4. attorneys fees equivalent to 10% of the total award. No costs is awarded. SO ORDERED.10 The Court of Appeals rejected McLeods theory that all respondent corporations are the same corporate entity which should be held solidarily liable for the payment of his monetary claims. The Court of Appeals ruled that the fact that (1) all respondent corporations have the same address; (2) all were represented by the same counsel, Atty. Isidro S. Escano; (3) Atty. Escano holds office at respondent corporations address; and (4) all respondent corporations have common officers and key personnel, would not justify the application of the doctrine of piercing the veil of corporate fiction. The Court of Appeals held that there should be clear and convincing evidence that SRTI, FETMI, and Filsyn were being used as alter ego, adjunct or business conduit for the sole benefit of Peggy Mills, Inc. (PMI), otherwise, said corporations should be treated as distinct and separate from each other. The Court of Appeals pointed out that the Articles of Incorporation of PMI show that it has six incorporators, namely, Patricio, Jose Yulo, Jr., Carlos Palanca, Jr., Cesar R. Concio, Jr., E. A. Picasso, and Walter Euyang. On the other hand, the Articles of Incorporation of Filsyn show that it has 10 incorporators, namely, Jesus Y. Yujuico, Carlos Palanca, Jr., Patricio, Ang Beng Uh, Ramon A. Yulo, Honorio Poblador, Jr., Cipriano Azada, Manuel Tomacruz, Ismael Maningas, and Benigno Zialcita, Jr. The Court of Appeals pointed out that PMI and Filsyn have only two interlocking incorporators and directors, namely, Patricio and Carlos Palanca, Jr.

Reiterating the ruling of this Court in Laguio v. NLRC,11 the Court of Appeals held that mere substantial identity of the incorporators of two corporations does not necessarily imply fraud, nor warrant the piercing of the veil of corporate fiction. The Court of Appeals also pointed out that when SRTI and PMI executed the Dation in Payment with Lease, it was clear that SRTI did not assume the liabilities PMI incurred before the execution of the contract. The Court of Appeals held that McLeod failed to substantiate his claim that all respondent corporations should be treated as one corporate entity. The Court of Appeals thus upheld the NLRCs finding that no employer-employee relationship existed between McLeod and respondent corporations except PMI. The Court of Appeals ruled that Eric Hu, as an officer of PMI, should be exonerated from any liability, there being no proof of malice or bad faith on his part. The Court of Appeals, however, ruled that McLeod was entitled to recover from PMI and Patricio, the companys Chairman and President. The Court of Appeals pointed out that Patricio deliberately and maliciously evaded PMIs financial obligation to McLeod. The Court of Appeals stated that, on several occasions, despite his approval, Patricio refused and ignored to pay McLeods retirement benefits. The Court of Appeals stated that the delay lasted for one year prompting McLeod to initiate legal action. The Court of Appeals stated that although PMI offered to pay McLeod his retirement benefits, this offer for P300,000 was still below the "floor limits" provided by law. The Court of Appeals held that an employee could demand payment of retirement benefits as a matter of right. The Court of Appeals stated that considering that PMI was no longer in operation, its "officer should be held liable for acting on behalf of the corporation." The Court of Appeals also ruled that since PMI did not have a retirement program providing for retirement benefits of its employees, Article 287 of the Labor Code must be followed. The Court of Appeals thus upheld the NLRCs finding that McLeod was entitled to retirement pay equivalent to 22.5 days for every year of service from 1980 to 1992 based on a salary rate of P50,495 a month. The Court of Appeals held that McLeod was not entitled to payment of vacation, sick leave and holiday pay because as Vice President and Plant Manager, McLeod is a managerial employee who, under Article 82 of the Labor Code, is not entitled to these benefits. The Court of Appeals stated that for McLeod to be entitled to payment of service incentive leave and holidays, there must be an agreement to that effect between him and his employer. Moreover, the Court of Appeals rejected McLeods argument that since PMI paid for his two roundtrip tickets Manila-London in 1983 and 1986, he was also "entitled to unused airline tickets." The Court of Appeals stated that the fact that PMI granted McLeod "free transport to and from Manila and London for the year 1983 and 1986 does not ipso facto characterize it as regular that would establish a prevailing company policy." The Court of Appeals also denied McLeods claims for underpayment of salaries and his 13th month pay for the year 1994. The Court of Appeals upheld the NLRCs ruling that it could be deduced from McLeods own narration of facts that he agreed to the reduction of his compensation from P60,000 to P50,495 in August 1990 to November 1993.

The Court of Appeals found the award of moral damages for P50,000 in order because of the "stubborn refusal" of PMI and Patricio to respect McLeods valid claims. The Court of Appeals also ruled that attorneys fees equivalent to 10% of the total award should be given to McLeod under Article 2208, paragraph 2 of the Civil Code.12 Hence, this petition. The Issues McLeod submits the following issues for our consideration: 1. Whether the challenged Decision and Resolution of the 14th Division of the Court of Appeals promulgated on 15 June 2000 and 27 December 2000, respectively, in CA-G.R. SP No. 55130 are in accord with law and jurisprudence; 2. Whether an employer-employee relationship exists between the private respondents and the petitioner for purposes of determining employer liability to the petitioner; 3. Whether the private respondents may avoid their financial obligations to the petitioner by invoking the veil of corporate fiction; 4. Whether petitioner is entitled to the relief he seeks against the private respondents; 5. Whether the ruling of [this] Court in Special Police and Watchman Association (PLUM) Federation v. National Labor Relations Commission cited by the Office of the Solicitor General is applicable to the case of petitioner; and 6. Whether the appeal taken by the private respondents from the Decision of the labor arbiter meets the mandatory requirements recited in the Labor Code of the Philippines, as amended.13 The Courts Ruling The petition must fail. McLeod asserts that the Court of Appeals should not have upheld the NLRCs findings that he was a managerial employee of PMI from 20 June 1980 to 31 December 1992, and then a consultant of SRTI up to 30 November 1993. McLeod asserts that if only for this "brazen assumption," the Court of Appeals should not have sustained the NLRCs ruling that his cause of action was only against PMI. These assertions do not deserve serious consideration. Records disclose that McLeod was an employee only of PMI.14 PMI hired McLeod as its acting Vice President and General Manager on 20 June 1980.15 PMI confirmed McLeods appointment as Vice President/Plant Manager in the Special Meeting of its Board of Directors on 10 February 1981.16 McLeod himself testified during the hearing before the Labor Arbiter that his "regular employment" was with PMI.17

When PMIs rank-and-file employees staged a strike on 19 August 1989 to July 1992, PMI incurred serious business losses.18 This prompted PMI to stop permanently plant operations and to send a notice of closure to the Department of Labor and Employment on 21 July 1992.19 PMI informed its employees, including McLeod, of the closure.20 PMI paid its employees, including managerial employees, except McLeod, their unpaid wages, sick leave, vacation leave, prorated 13th month pay, and separation pay. Under the compromise agreement between PMI and its employees, the employer-employee relationship between them ended on 25 November 1992.21 Records also disclose that PMI extended McLeods service up to 31 December 1992 "to wind up some affairs" of the company.22 McLeod testified on cross-examination that he received his last salary from PMI in December 1992.23 It is thus clear that McLeod was a managerial employee of PMI from 20 June 1980 to 31 December 1992. However, McLeod claims that after FETMI purchased PMI in January 1993, he "continued to work at the same plant with the same responsibilities" until 30 November 1993. McLeod claims that FETMI merely renamed PMI as SRTI. McLeod asserts that it was for this reason that when he reached the retirement age in 1993, he asked all the respondents for the payment of his benefits.24 These assertions deserve scant consideration. What took place between PMI and SRTI was dation in payment with lease. Pertinent portions of the contract that PMI and SRTI executed on 15 June 1992 read: WHEREAS, PMI is indebted to the Development Bank of the Philippines ("DBP") and as security for such debts (the "Obligations") has mortgaged its real properties covered by TCT Nos. T-38647, T37136, and T-37135, together with all machineries and improvements found thereat, a complete listing of which is hereto attached as Annex "A" (the "Assets"); WHEREAS, by virtue of an inter-governmental agency arrangement, DBP transferred the Obligations, including the Assets, to the Asset Privatization Trust ("APT") and the latter has received payment for the Obligations from PMI, under APTs Direct Debt Buy-Out ("DDBO") program thereby causing APT to completely discharge and cancel the mortgage in the Assets and to release the titles of the Assets back to PMI; WHEREAS, PMI obtained cash advances from SRTC in the total amount of TWO HUNDRED TEN MILLION PESOS (P210,000,000.00) (the "Advances") to enable PMI to consummate the DDBO with APT, with SRTC subrogating APT as PMIs creditor thereby; WHEREAS, in payment to SRTC for PMIs liability, PMI has agreed to transfer all its rights, title and interests in the Assets by way of a dation in payment to SRTC, provided that simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and conditions stated hereunder; xxxx NOW THEREFORE, for and in consideration of the foregoing premises, and of the terms and conditions hereinafter set forth, the parties hereby agree as follows:

1. CESSION. In consideration of the amount of TWO HUNDRED TEN MILLION PESOS (P210,000,000.00), PMI hereby cedes, conveys and transfers to SRTC all of its rights, title and interest in and to the Assets by way of a dation in payment.25 (Emphasis supplied) As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the selling corporation fraudulently enters into the transaction to escape liability for those debts.26 None of the foregoing exceptions is present in this case. Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum of P210,000,000. We are not convinced that PMI fraudulently transferred these assets to escape its liability for any of its debts. PMI had already paid its employees, except McLeod, their money claims. There was also no merger or consolidation of PMI and SRTI. Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations. Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the combined business. The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders. The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.27 In the present case, there is no showing that the subject dation in payment involved any corporate merger or consolidation. Neither is there any showing of those indicative factors that SRTI is a mere instrumentality of PMI. Moreover, SRTI did not expressly or impliedly agree to assume any of PMIs debts. Pertinent portions of the subject Deed of Dation in Payment with Lease provide, thus: 2. WARRANTIES AND REPRESENTATIONS. PMI hereby warrants and represents the following: xxxx

(e) PMI shall warrant that it will hold SRTC or its assigns, free and harmless from any liability for claims of PMIs creditors, laborers, and workers and for physical injury or injury to property arising from PMIs custody, possession, care, repairs, maintenance, use or operation of the Assets except ordinary wear and tear;28(Emphasis supplied) Also, McLeod did not present any evidence to show the alleged renaming of "Peggy Mills, Inc." to "Sta. Rosa Textiles, Inc." Hence, it is not correct for McLeod to treat PMI and SRTI as the same entity. Respondent corporations assert that SRTI hired McLeod as consultant after PMI stopped operations.29 On the other hand, McLeod asserts that he was respondent corporations employee from 1980 to 30 November 1993.30However, McLeod failed to present any proof of employeremployee relationship between him and Filsyn, SRTI, or FETMI. McLeod testified, thus: ATTY. ESCANO: Do you have any employment contract with Far Eastern Textile? WITNESS: It is my belief up the present time. ATTY. AVECILLA: May I request that the witness be allowed to go through his Annexes, Your Honor. ATTY. ESCANO: Yes, but I want a precise answer to that question. If he has an employment contract with Far Eastern Textile? WITNESS: Can I answer it this way, sir? There is not a valid contract but I was under the impression taking into consideration that the closeness that I had at Far Eastern Textile is enough during that period of time of the development of Peggy Mills to reorganize a staff. I was under the basic impression that they might still retain my status as Vice President and Plant Manager of the company. ATTY. ESCANO: But the answer is still, there is no employment contract in your possession appointing you in any capacity by Far Eastern? WITNESS: There was no written contract, sir. xxxx

ATTY. ESCANO: So, there is proof that you were in fact really employed by Peggy Mills? WITNESS: Yes, sir. ATTY. ESCANO: Of course, my interest now is to whether or not there is a similar document to present that you were employed by the other respondents like Filsyn Corporation? WITNESS: I have no document, sir. ATTY. ESCANO: What about Far Eastern Textile Mills? WITNESS: I have no document, sir. ATTY. ESCANO: And Sta. Rosa Textile Mills? WITNESS: There is no document, sir.31 xxxx ATTY. ESCANO: Q Yes. Let me be more specific, Mr. McLeod. Do you have a contract of employment from Far Eastern Textiles, Inc.? A No, sir. Q What about Sta. Rosa Textile Mills, do you have an employment contract from this company? A No, sir. xxxx Q And what about respondent Eric Hu. Have you had any contract of employment from Mr. Eric Hu?

A Not a direct contract but I was taken in and I told to take over this from Mr. Eric Hu. Automatically, it confirms that Mr. Eric Hu, in other words, was under the control of Mr. Patricio Lim at that period of time. Q No documents to show, Mr. McLeod? A No. No documents, sir.32 McLeod could have presented evidence to support his allegation of employer-employee relationship between him and any of Filsyn, SRTI, and FETMI, but he did not. Appointment letters or employment contracts, payrolls, organization charts, SSS registration, personnel list, as well as testimony of coemployees, may serve as evidence of employee status.33 It is a basic rule in evidence that parties must prove their affirmative allegations. While technical rules are not strictly followed in the NLRC, this does not mean that the rules on proving allegations are entirely ignored. Bare allegations are not enough. They must be supported by substantial evidence at the very least.34 However, McLeod claims that "for purposes of determining employer liability, all private respondents are one and the same employer" because: (1) they have the same address; (2) they are all engaged in the same business; and (3) they have interlocking directors and officers.35 This assertion is untenable. A corporation is an artificial being invested by law with a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be connected.36 While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime,37 or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.38 To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed.39 Here, we do not find any of the evils sought to be prevented by the doctrine of piercing the corporate veil. Respondent corporations may be engaged in the same business as that of PMI, but this fact alone is not enough reason to pierce the veil of corporate fiction.40 In Indophil Textile Mill Workers Union v. Calica,41 the Court ruled, thus: In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise to evade the application of the CBA between petitioner Union and private respondent Company. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither are we inclined to apply the doctrine invoked

by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the employees of the private respondent are the same persons manning and providing for auxiliary services to the units of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it is our considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of Acrylic.42 (Emphasis supplied) Also, the fact that SRTI and PMI shared the same address, i.e., 11/F BA-Lepanto Bldg., Paseo de Roxas, Makati City,43 can be explained by the two companies stipulation in their Deed of Dation in Payment with Lease that "simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and conditions stated hereunder."44 As for the addresses of Filsyn and FETMI, Filsyn held office at 12th Floor, BA-Lepanto Bldg., Paseo de Roxas, Makati City,45 while FETMI held office at 18F, Tun Nan Commercial Building, 333 Tun Hwa South Road, Sec. 2, Taipei, Taiwan, R.O.C.46 Hence, they did not have the same address as that of PMI. That respondent corporations have interlocking incorporators, directors, and officers is of no moment. The only interlocking incorporators of PMI and Filsyn were Patricio and Carlos Palanca, Jr.47 While Patricio was Director and Board Chairman of Filsyn, SRTI, and PMI,48 he was never an officer of FETMI. Eric Hu, on the other hand, was Director of Filsyn and SRTI.49 He was never an officer of PMI. Marialen C. Corpuz, Filsyns Finance Officer,50 testified on cross-examination that (1) among all of Filsyns officers, only she was the one involved in the management of PMI; (2) only she and Patricio were the common officers between Filsyn and PMI; and (3) Filsyn and PMI are "two separate companies."51 Apolinario L. Posio, PMIs Chief Accountant, testified that "SRTI is a different corporation from PMI."52 At any rate, the existence of interlocking incorporators, directors, and officers is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations.53 In Del Rosario v. NLRC,54 the Court ruled that substantial identity of the incorporators of corporations does not necessarily imply fraud. In light of the foregoing, and there being no proof of employer-employee relationship between McLeod and respondent corporations and Eric Hu, McLeods cause of action is only against his former employer, PMI. On Patricios personal liability, it is settled that in the absence of malice, bad faith, or specific provision of law, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities.55 To reiterate, a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations

incurred by the corporation, acting through its directors, officers, and employees, are its sole liabilities.56 Personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) they consent to the issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the corporate secretary their written objection; (3) they agree to hold themselves personally and solidarily liable with the corporation; or (4) they are made by specific provision of law personally answerable for their corporate action.57 Considering that McLeod failed to prove any of the foregoing exceptions in the present case, McLeod cannot hold Patricio solidarily liable with PMI. The records are bereft of any evidence that Patricio acted with malice or bad faith. Bad faith is a question of fact and is evidentiary. Bad faith does not connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious wrongdoing. It means breach of a known duty through some ill motive or interest. It partakes of the nature of fraud.58 In the present case, there is nothing substantial on record to show that Patricio acted in bad faith in terminating McLeods services to warrant Patricios personal liability. PMI had no other choice but to stop plant operations. The work stoppage therefore was by necessity. The company could no longer continue with its plant operations because of the serious business losses that it had suffered. The mere fact that Patricio was president and director of PMI is not a ground to conclude that he should be held solidarily liable with PMI for McLeods money claims. The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,59 which the Court of Appeals cited, does not apply to this case. We quote pertinent portions of the ruling, thus: (a) Article 265 of the Labor Code, in part, expressly provides: "Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages." Article 273 of the Code provides that: "Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months." (b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides: "(c) Employer includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer.". The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law. xxxx (c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. In the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM.60 (Emphasis supplied) Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to evade payment of backwages to the 22 strikers. This situation, or anything similar showing malice or bad faith on the part of Patricio, does not obtain in the present case. In Santos v. NLRC,61 the Court held, thus: It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its employees. In A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation could be held personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment of backwages." In the absence of a clear identification of the officer directly responsible for failure to pay the backwages, the Court considered the President of the corporation as such officer. The case was cited in Chua vs. NLRC in holding personally liable the vice-president of the company, being the highest and most ranking official of the corporation next to the President who was dismissed for the latters claim for unpaid wages. A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal liability on the part of the company officer. In A.C. Ransom, the corporate entity was a family corporation and execution against it could not be implemented because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations. The doctrine of "piercing the veil of corporate fiction" was thus clearly appropriate. Chua likewise involved another family corporation, and this time the conflict was between two brothers occupying the highest ranking positions in the company. There were incontrovertible facts which pointed to extreme personal animosity that resulted, evidently in bad faith, in the easing out from the company of one of the brothers by the other. The basic rule is still that which can be deduced from the Courts pronouncement in Sunio vs. National Labor Relations Commission; thus: We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the backwages of private respondents. This is reversible error. The Assistant Regional Directors Decision failed to disclose the reason why he was made personally liable. Respondents, however, alleged as grounds thereof, his being the owner of one-half () interest of said corporation, and his alleged arbitrary dismissal of private respondents. Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private respondents back salaries.62 (Emphasis supplied) Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. Neither Article 212(c) nor Article 273 (now 272) of the Labor Code expressly makes any corporate officer personally liable for the debts of the corporation. As this Court ruled in H.L. Carlos Construction, Inc. v. Marina Properties Corporation:63 We concur with the CA that these two respondents are not liable. Section 31 of the Corporation Code (Batas Pambansa Blg. 68) provides: "Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith ... shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders and other persons." The personal liability of corporate officers validly attaches only when (a) they assent to a patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross negligence in directing its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation, its stockholders or other persons. The records are bereft of any evidence that Typoco acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as company president. The unilateral termination of the Contract during the existence of the TRO was indeed contemptible for which MPC should have merely been cited for contempt of court at the most and a preliminary injunction would have then stopped work by the second contractor. Besides, there is no showing that the unilateral termination of the Contract was null and void.64 McLeod is not entitled to payment of vacation leave and sick leave as well as to holiday pay. Article 82, Title I, Book Three of the Labor Code, on Working Conditions and Rest Periods, provides: Coverage. The provisions of this title shall apply to employees in all establishments and undertakings whether for profit or not, but not to government employees, managerial employees, field personnel, members of the family of the employer who are dependent on him for support, domestic helpers, persons in the personal service of another, and workers who are paid by results as determined by the Secretary of Labor in appropriate regulations. As used herein, "managerial employees" refer to those whose primary duty consists of the management of the establishment in which they are employed or of a department or subdivision thereof, and to other officers or members of the managerial staff. (Emphasis supplied) As Vice President/Plant Manager, McLeod is a managerial employee who is excluded from the coverage of Title I, Book Three of the Labor Code. McLeod is entitled to payment of vacation leave and sick leave only if he and PMI had agreed on it. The payment of vacation leave and sick leave depends on the policy of the employer or the agreement between the employer and employee.65 In

the present case, there is no showing that McLeod and PMI had an agreement concerning payment of these benefits. McLeods assertion of underpayment of his 13th month pay in December 1993 is unavailing.66 As already stated, PMI stopped plant operations in 1992. McLeod himself testified that he received his last salary from PMI in December 1992. After the termination of the employer-employee relationship between McLeod and PMI, SRTI hired McLeod as consultant and not as employee. Since McLeod was no longer an employee, he was not entitled to the 13th month pay.67 Besides, there is no evidence on record that McLeod indeed received his alleged "reduced 13th month pay of P44,183.63" in December 1993.68 Also unavailing is McLeods claim that he was entitled to the "unpaid monetary equivalent of unused plane tickets for the period covering 1989 to 1992 in the amount of P279,300.00."69 PMI has no company policy granting its officers and employees expenses for trips abroad.70 That at one time PMI reimbursed McLeod for his and his wifes plane tickets in a vacation to London71 could not be deemed as an established practice considering that it happened only once. To be considered a "regular practice," the giving of the benefits should have been done over a long period, and must be shown to have been consistent and deliberate.72 In American Wire and Cable Daily Rated Employees Union v. American Wire and Cable Co., Inc.,73 the Court held that for a bonus to be enforceable, the employer must have promised it, and the parties must have expressly agreed upon it, or it must have had a fixed amount and had been a long and regular practice on the part of the employer. In the present case, there is no showing that PMI ever promised McLeod that it would continue to grant him the benefit in question. Neither is there any proof that PMI and McLeod had expressly agreed upon the giving of that benefit. McLeods reliance on Annex M74 can hardly carry the day for him. Annex M, which is McLeods letter addressed to "Philip Lim, VP Administration," merely contains McLeods proposals for the grant of some benefits to supervisory and confidential employees. Contrary to McLeods allegation, Patricio did not sign the letter. Hence, the letter does not embody any agreement between McLeod and the management that would entitle McLeod to his money claims. Neither can McLeods assertions find support in Annex U.75 Annex U is the Agreement which McLeod and Universal Textile Mills, Inc. executed in 1959. The Agreement merely contains the renewal of the service agreement which the parties signed in 1956. McLeod cannot successfully pretend that his monthly salary of P60,000 was reduced without his consent. McLeod testified that in 1990, Philip Lim explained to him why his salary would have to be reduced. McLeod said that Philip told him that "they were short in finances; that it would be repaid."76 Were McLeod not amenable to that reduction in salary, he could have immediately resigned from his work in PMI. McLeod knew that PMI was then suffering from serious business losses. In fact, McLeod testified that PMI was not able to operate from August 1989 to 1992 because of the strike. Even before 1989, as Vice President of PMI, McLeod was aware that the company had incurred "huge loans from DBP."77 As it happened, McLeod continued to work with PMI. We find it pertinent to quote some portions of Apolinario Posios testimony, to wit:

Q You also stated that before the period of the strike as shown by annex "K" of the reply filed by the complainant which was I think a voucher, the salary of Mr. McLeod was roughly P60,000.00 a month? A Yes, sir. Q And as shown by their annex "L" to their reply, that this was reduced to roughly P50,000.00 a month? A Yes, sir. Q You stated that this was indeed upon the instruction by the Vice-President of Peggy Mills at that time and that was Mr. Philip Lim, would you not? A Yes, sir. Q Of your own personal knowledge, can you say if this was, in fact, by agreement between Mr. Philip Lim or any other officers of Peggy Mills and Mr. McLeod? A If I recall it correctly, I assume it was an agreement, verbal agreement with, between Mr. Philip Lim and Mr. McLeod, because the voucher that we prepared was actually acknowledged by Mr. McLeod, the reduced amount was acknowledged by Mr. McLeod thru the voucher that we prepared. Q In other words, Mr. Witness, you mean to tell us that Mr. McLeod continuously received the reduced amount ofP50,000.00 by signing the voucher and receiving the amount in question? A Yes, sir. Q As far as you remember, Mr. Posio, was there any complaint by Mr. McLeod because of this reduced amount of his salary at that time? A I dont have any personal knowledge of any complaint, sir. Q At least, that is in so far as you were concerned, he said nothing when he signed the voucher in question? A Yes, sir. Q Now, you also stated that the reason for what appears to be an agreement between Peggy Mills and Mr. McLeod in so far as the reduction of his salary from P60,000.00 to P50,000.00 a month was because he would have a reduced number of working days in view of the strike at Peggy Mills, is that right? A Yes, sir. Q And that this was so because on account of the strike, there was no work to be done in the company? A Yes, sir.78

xxxx Q Now, you also stated if you remember during the first time that you testified that in the beginning, the monthly salary of the complainant was P60,000.00, is that correct? A Yes, sir. Q And because of the long period of the strike, when there was no work to be done, by agreement with the complainant, his monthly salary was adjusted to only P50,495 because he would not have to report for work on Saturday. Do you remember having made that explanation? A Yes, sir. Q You also stated that the complainant continuously received his monthly salary in the adjusted amount ofP50,495.00 monthly signing the necessary vouchers or pay slips for that without complaining, is that not right, Mr. Posio? A Yes, sir.79 Since the last salary that McLeod received from PMI was P50,495, that amount should be the basis in computing his retirement benefits. McLeod must be credited only with his service to PMI as it had a juridical personality separate and distinct from that of the other respondent corporations. Since PMI has no retirement plan,80 we apply Section 5, Rule II of the Rules Implementing the New Retirement Law which provides: 5.1 In the absence of an applicable agreement or retirement plan, an employee who retires pursuant to the Act shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year. 5.2 Components of One-half (1/2) Month Salary. For the purpose of determining the minimum retirement pay due an employee under this Rule, the term "one-half month salary" shall include all of the following: (a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x With McLeod having worked with PMI for 12 years, from 1980 to 1992, he is entitled to a retirement pay equivalent to month salary for every year of service based on his latest salary rate of P50,495 a month. There is no basis for the award of moral damages. Moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, or is guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations. The breach must be wanton, reckless, malicious, or in bad faith, oppressive or abusive.81 From the records of the case, the Court finds no ultimate facts to support a conclusion of bad faith on the part of PMI. Records disclose that PMI had long offered to pay McLeod his money claims. In their Comment, respondents assert that they offered to pay McLeod the sum of P840,000, as "separation benefits, and not P300,000, if only to buy peace and to forestall any complaint" that McLeod may initiate

before the NLRC. McLeod admitted at the hearing before the Labor Arbiter that PMI has made this offer ATTY. ESCANO: x x x According to your own statement in your Position Paper and I am referring to page 8, your unpaid retirement benefit for fourteen (14) years of service at P60,000.00 per year is P840,000.00, is that correct? WITNESS: That is correct, sir. ATTY. ESCANO: And this amount is correct P840,000.00, according to your Position Paper? WITNESS: That is correct, sir. ATTY. ESCANO: The question I want to ask is, are you aware that this amount was offered to you sometime last year through your own lawyer, my good friend, Atty. Avecilla, who is right here with us? WITNESS: I was aware, sir. ATTY. ESCANO: So this was offered to you, is that correct? WITNESS: I was told that a fixed sum of P840,000.00 was offered. ATTY. ESCANO: And , of course, the reason, if I may assume, that you declined this offer was that, according to you, there are other claims which you would like to raise against the Respondents which, by your impression, they were not willing to pay in addition to this particular amount? WITNESS: Yes, sir. ATTY. ESCANO:

The question now is, if the same amount is offered to you by way of retirement which is exactly what you stated in your own Position Paper, would you accept it or not? WITNESS: Not on the concept without all the basic benefits due me, I will refuse.82 xxxx ATTY. ROXAS: Q You mentioned in the cross-examination of Atty. Escano that you were offered the separation pay in 1994, is that correct, Mr. Witness? WITNESS: A I was offered a settlement of P300,000.00 for complete settlement and that was I think in January or February 1994, sir. ATTY. ESCANO: No. What was mentioned was the amount of P840,000.00. WITNESS: What did you say, Atty. Escano? ATTY. ESCANO: The amount that I mentioned was P840,000.00 corresponding to the . . . . . . . WITNESS: May I ask that the question be clarified, your Honor? ATTY. ROXAS: Q You mentioned that you were offered for the settlement of your claims in 1994 for P840,000.00, is that right, Mr. Witness? A During that period in time, while the petition in this case was ongoing, we already filed a case at that period of time, sir. There was a discussion. To the best of my knowledge, they are willing to settle for P840,000.00 and based on what the Attorney told me, I refused to accept because I believe that my position was not in anyway due to a compromise situation to the benefits I am entitled to.83 Hence, the awards for exemplary damages and attorneys fees are not proper in the present case.84

That respondent corporations, in their appeal to the NLRC, did not serve a copy of their memorandum of appeal upon PMI is of no moment. Section 3(a), Rule VI of the NLRC New Rules of Procedure provides: Requisites for Perfection of Appeal. (a) The appeal shall be filed within the reglementary period as provided in Section 1 of this Rule; shall be under oath with proof of payment of the required appeal fee and the posting of a cash or surety bond as provided in Section 5 of this Rule; shall be accompanied by a memorandum of appeal x x x and proof of service on the other party of such appeal. (Emphasis supplied) The "other party" mentioned in the Rule obviously refers to the adverse party, in this case, McLeod. Besides, Section 3, Rule VI of the Rules which requires, among others, proof of service of the memorandum of appeal on the other party, is merely a rundown of the contents of the required memorandum of appeal to be submitted by the appellant. These are not jurisdictional requirements.85 WHEREFORE, we DENY the petition and AFFIRM the Decision of the Court of Appeals in CA-G.R. SP No. 55130, with the following MODIFICATIONS: (a) the retirement pay of John F. McLeod should be computed at month salary for every year of service for 12 years based on his salary rate of P50,495 a month; (b) Patricio L. Lim is absolved from personal liability; and (c) the awards for moral and exemplary damages and attorneys fees are deleted. No pronouncement as to costs. SO ORDERED.

G.R. No. 155731

September 3, 2007

LOLITA LOPEZ, petitioner, vs. BODEGA CITY (Video-Disco Kitchen of the Philippines) and/or ANDRES C. TORRESYAP, respondents. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the July 18, 2002 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 66861, dismissing the petition for certiorari filed before it and affirming the Decision of the National Labor Relations Commission (NLRC) in NLRC-NCR Case No. 00-03-01729-95; and its Resolution dated October 16, 2002,2 denying petitioner's Motion for Reconsideration. The NLRC Decision set aside the Decision of

the Labor Arbiter finding that Lolita Lopez (petitioner) was illegally dismissed by Bodega City and/or Andres C. Torres-Yap (respondents). Respondent Bodega City (Bodega City) is a corporation duly registered and existing under and by virtue of the laws of the Republic of the Philippines, while respondent Andres C. Torres-Yap (Yap) is its owner/ manager. Petitioner was the "lady keeper" of Bodega City tasked with manning its ladies' comfort room. In a letter signed by Yap dated February 10, 1995, petitioner was made to explain why the concessionaire agreement between her and respondents should not be terminated or suspended in view of an incident that happened on February 3, 1995, wherein petitioner was seen to have acted in a hostile manner against a lady customer of Bodega City who informed the management that she saw petitioner sleeping while on duty. In a subsequent letter dated February 25, 1995, Yap informed petitioner that because of the incident that happened on February 3, 1995, respondents had decided to terminate the concessionaire agreement between them. On March 1, 1995, petitioner filed with the Arbitration Branch of the NLRC, National Capital Region, Quezon City, a complaint for illegal dismissal against respondents contending that she was dismissed from her employment without cause and due process. In their answer, respondents contended that no employer-employee relationship ever existed between them and petitioner; that the latter's services rendered within the premises of Bodega City was by virtue of a concessionaire agreement she entered into with respondents. The complaint was dismissed by the Labor Arbiter for lack of merit. However, on appeal, the NLRC set aside the order of dismissal and remanded the case for further proceedings. Upon remand, the case was assigned to a different Labor Arbiter. Thereafter, hearings were conducted and the parties were required to submit memoranda and other supporting documents. On December 28, 1999, the Labor Arbiter rendered judgment finding that petitioner was an employee of respondents and that the latter illegally dismissed her.3 Respondents filed an appeal with the NLRC. On March 22, 2001, the NLRC issued a Resolution, the dispositive portion of which reads as follows: WHEREFORE, premises duly considered, the Decision appealed from is hereby ordered SET ASIDE and VACATED, and in its stead, a new one entered DISMISSING the aboveentitled case for lack of merit.4 Petitioner filed a motion for reconsideration of the above-quoted NLRC Resolution, but the NLRC denied the same. Aggrieved, petitioner filed a Petition for Certiorari with the CA. On July 18, 2002, the CA promulgated the presently assailed Decision dismissing her special civil action for certiorari. Petitioner moved for reconsideration but her motion was denied. Hence, herein petition based on the following grounds:

1. WITH DUE RESPECT, PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION IN RULING THAT THE NATIONAL LABOR RELATIONS COMMISSION DID NOT COMMIT GRAVE ABUSE OF DISCRETION IN REVERSING THE DECISION OF THE LABOR ARBITER FINDING PETITIONER TO HAVE BEEN ILLEGALLY DISMISSED BY PRIVATE RESPONDENTS. 2. WITH DUE RESPECT, PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION IN RULING THAT PETITIONER WAS NOT AN EMPLOYEE OF PRIVATE RESPONDENTS.5 Petitioner contends that it was wrong for the CA to conclude that even if she did not sign the document evidencing the concessionaire agreement, she impliedly accepted and thus bound herself to the terms and conditions contained in the said agreement when she continued to perform the task which was allegedly specified therein for a considerable length of time. Petitioner claims that the concessionaire agreement was only offered to her during her tenth year of service and after she organized a union and filed a complaint against respondents. Prior to all these, petitioner asserts that her job as a "lady keeper" was a task assigned to her as an employee of respondents. Petitioner further argues that her receipt of a special allowance from respondents is a clear evidence that she was an employee of the latter, as the amount she received was equivalent to the minimum wage at that time. Petitioner also contends that her identification card clearly shows that she was not a concessionaire but an employee of respondents; that if respondents really intended the ID card issued to her to be used simply for having access to the premises of Bodega City, then respondents could have clearly indicated such intent on the said ID card. Moreover, petitioner submits that the fact that she was required to follow rules and regulations prescribing appropriate conduct while she was in the premises of Bodega City is clear evidence of the existence of an employer-employee relationship between her and petitioners. On the other hand, respondents contend that the present petition was filed for the sole purpose of delaying the proceedings of the case; the grounds relied upon in the instant petition are matters that have been exhaustively discussed by the NLRC and the CA; the present petition raises questions of fact which are not proper in a petition for review on certiorari under Rule 45 of the Rules of Court; the respective decisions of the NLRC and the CA are based on evidence presented by both parties; petitioner's compliance with the terms and conditions of the proposed concessionaire contract for a period of three years is evidence of her implied acceptance of such proposal; petitioner failed to present evidence to prove her allegation that the subject concessionaire agreement was only proposed to her in her 10th year of employment with respondent company and after she organized a union and filed a labor complaint against respondents; petitioner failed to present competent documentary and testimonial evidence to prove her contention that she was an employee of respondents since 1985. The main issue to be resolved in the present case is whether or not petitioner is an employee of respondents. The issue of whether or not an employer-employee relationship exists in a given case is essentially a question of fact.6

While it is a settled rule that only errors of law are generally reviewed by this Court in petitions for review oncertiorari of CA decisions,7 there are well-recognized exceptions to this rule, as in this case, when the factual findings of the NLRC as affirmed by the CA contradict those of the Labor Arbiter.8 In that event, it is this Court's task, in the exercise of its equity jurisdiction, to re-evaluate and review the factual issues by looking into the records of the case and re-examining the questioned findings.9 It is a basic rule of evidence that each party must prove his affirmative allegation.10 If he claims a right granted by law, he must prove his claim by competent evidence, relying on the strength of his own evidence and not upon the weakness of that of his opponent.11 The test for determining on whom the burden of proof lies is found in the result of an inquiry as to which party would be successful if no evidence of such matters were given.12 In an illegal dismissal case, the onus probandi rests on the employer to prove that its dismissal of an employee was for a valid cause.13 However, before a case for illegal dismissal can prosper, an employer-employee relationship must first be established.14 In filing a complaint before the Labor Arbiter for illegal dismissal based on the premise that she was an employee of respondent, it is incumbent upon petitioner to prove the employee-employer relationship by substantial evidence.15 The NLRC and the CA found that petitioner failed to discharge this burden, and the Court finds no cogent reason to depart from their findings. The Court applies the four-fold test expounded in Abante v. Lamadrid Bearing and Parts Corp.,16 to wit: To ascertain the existence of an employer-employee relationship, jurisprudence has invariably applied the four-fold test, namely: (1) the manner of selection and engagement; (2) the payment of wages; (3) the presence or absence of the power of dismissal; and (4) the presence or absence of the power of control. Of these four, the last one is the most important. The so-called "control test" is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. Under the control test, an employer-employee relationship exists where the person for whom the services are performed reserves the right to control not only the end achieved, but also the manner and means to be used in reaching that end.17 To prove the element of payment of wages, petitioner presented a petty cash voucher showing that she received an allowance for five (5) days.18 The CA did not err when it held that a solitary petty cash voucher did not prove that petitioner had been receiving salary from respondents or that she had been respondents' employee for 10 years. Indeed, if petitioner was really an employee of respondents for that length of time, she should have been able to present salary vouchers or pay slips and not just a single petty cash voucher. The Court agrees with respondents that petitioner could have easily shown other pieces of evidence such as a contract of employment, SSS or Medicare forms, or certificates of withholding tax on compensation income; or she could have presented witnesses to prove her contention that she was an employee of respondents. Petitioner failed to do so. Anent the element of control, petitioner's contention that she was an employee of respondents because she was subject to their control does not hold water.

Petitioner failed to cite a single instance to prove that she was subject to the control of respondents insofar as the manner in which she should perform her job as a "lady keeper" was concerned. It is true that petitioner was required to follow rules and regulations prescribing appropriate conduct while within the premises of Bodega City. However, this was imposed upon petitioner as part of the terms and conditions in the concessionaire agreement embodied in a 1992 letter of Yap addressed to petitioner, to wit: January 6, 1992 Dear Ms. Lolita Lopez, The new owners of Bodega City, 1121 Food Service Corporation offers to your goodself the concessionaire/contract to provide independently, customer comfort services to assist users of the ladies comfort room of the Club to further enhance its business, under the following terms and conditions: 1. You will provide at your own expense, all toilet supplies, useful for the purpose, such as toilet papers, soap, hair pins, safety pins and other related items or things which in your opinion is beneficial to the services you will undertake; 2. For the entire duration of this concessionaire contract, and during the Club's operating hours, you shall maintain the cleanliness of the ladies comfort room. Provided, that general cleanliness, sanitation and physical maintenance of said comfort rooms shall be undertaken by the owners of Bodega City; 3. You shall at all times ensure satisfaction and good services in the discharge of your undertaking. More importantly, you shall always observe utmost courtesy in dealing with the persons/individuals using said comfort room and shall refrain from doing acts that may adversely affect the goodwill and business standing of Bodega City; 4. All remunerations, tips, donations given to you by individuals/persons utilizing said comfort rooms and/or guests of Bodega City shall be waived by the latter to your benefit provided however, that if concessionaire receives tips or donations per day in an amount exceeding 200% the prevailing minimum wage, then, she shall remit fifty percent (50%) of said amount to Bodega City by way of royalty or concession fees; 5. This contract shall be for a period of one year and shall be automatically renewed on a yearly basis unless notice of termination is given thirty (30) days prior to expiration. Any violation of the terms and conditions of this contract shall be a ground for its immediate revocation and/or termination. 6. It is hereby understood that no employer-employee relationship exists between Bodega City and/or 1121 FoodService Corporation and your goodself, as you are an independent contractor who has represented to us that you possess the necessary qualification as such including manpower compliment, equipment, facilities, etc. and that any person you may engage or employ to work with or assist you in the discharge of your undertaking shall be solely your own employees and/or agents.

1121 FoodService Corporation Bodega City By: (Sgd.) ANDRES C. TORRES-YAP Conforme: _______________ LOLITA LOPEZ19 Petitioner does not dispute the existence of the letter; neither does she deny that respondents offered her the subject concessionaire agreement. However, she contends that she could not have entered into the said agreement with respondents because she did not sign the document evidencing the same. Settled is the rule that contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror.20 For a contract, to arise, the acceptance must be made known to the offeror.21 Moreover, the acceptance of the thing and the cause, which are to constitute a contract, may be express or implied as can be inferred from the contemporaneous and subsequent acts of the contracting parties.22 A contract will be upheld as long as there is proof of consent, subject matter and cause; it is generally obligatory in whatever form it may have been entered into.23 In the present case, the Court finds no cogent reason to disregard the findings of both the CA and the NLRC that while petitioner did not affix her signature to the document evidencing the subject concessionaire agreement, the fact that she performed the tasks indicated in the said agreement for a period of three years without any complaint or question only goes to show that she has given her implied acceptance of or consent to the said agreement. Petitioner is likewise estopped from denying the existence of the subject concessionaire agreement. She should not, after enjoying the benefits of the concessionaire agreement with respondents, be allowed to later disown the same through her allegation that she was an employee of the respondents when the said agreement was terminated by reason of her violation of the terms and conditions thereof. The principle of estoppel in pais applies wherein -- by one's acts, representations or admissions, or silence when one ought to speak out -- intentionally or through culpable negligence, induces another to believe certain facts to exist and to rightfully rely and act on such belief, so as to be prejudiced if the former is permitted to deny the existence of those facts.24 Moreover, petitioner failed to dispute the contents of the affidavit25 as well as the testimony26 of Felimon Habitan (Habitan), the concessionaire of the men's comfort room of Bodega City, that he had personal knowledge of the fact that petitioner was the concessionaire of the ladies' comfort room of Bodega City. Petitioner also claims that the concessionaire agreement was offered to her only in her 10th year of service, after she organized a union and filed a complaint against respondents. However, petitioner's claim remains to be an allegation which is not supported by any evidence. It is a basic rule in evidence that each party must prove his affirmative allegation,27 that mere allegation is not evidence.28

The Court is not persuaded by petitioner's contention that the Labor Arbiter was correct in concluding that there existed an employer-employee relationship between respondents and petitioner. A perusal of the Decision29 of the Labor Arbiter shows that his only basis for arriving at such a conclusion are the bare assertions of petitioner and the fact that the latter did not sign the letter of Yap containing the proposed concessionaire agreement. However, as earlier discussed, this Court finds no error in the findings of the NLRC and the CA that petitioner is deemed as having given her consent to the said proposal when she continuously performed the tasks indicated therein for a considerable length of time. For all intents and purposes, the concessionaire agreement had been perfected. Petitioner insists that her ID card is sufficient proof of her employment. In Domasig v. National Labor Relations Commission,30 this Court held that the complainant's ID card and the cash vouchers covering his salaries for the months indicated therein were substantial evidence that he was an employee of respondents, especially in light of the fact that the latter failed to deny said evidence. This is not the situation in the present case. The only evidence presented by petitioner as proof of her alleged employment are her ID card and one petty cash voucher for a five-day allowance which were disputed by respondents. As to the ID card, it is true that the words "EMPLOYEE'S NAME" appear printed below petitioner's name.31However, she failed to dispute respondents' evidence consisting of Habitan's testimony,32 that he and the other "contractors" of Bodega City such as the singers and band performers, were also issued the same ID cards for the purpose of enabling them to enter the premises of Bodega City. The Court quotes, with approval, the ruling of the CA on this matter, to wit: Nor can petitioners identification card improve her cause any better. It is undisputed that non-employees, such as Felimon Habitan, an admitted concessionaire, musicians, singers and the like at Bodega City are also issued identification cards. Given this premise, it appears clear to Us that petitioner's I.D. Card is incompetent proof of an alleged employeremployee relationship between the herein parties. Viewed in the context of this case, the card is at best a "passport" from management assuring the holder thereof of his unmolested access to the premises of Bodega City.33 With respect to the petty cash voucher, petitioner failed to refute respondent's claim that it was not given to her for services rendered or on a regular basis, but simply granted as financial assistance to help her temporarily meet her family's needs. Hence, going back to the element of control, the concessionaire agreement merely stated that petitioner shall maintain the cleanliness of the ladies' comfort room and observe courtesy guidelines that would help her obtain the results they wanted to achieve. There is nothing in the agreement which specifies the methods by which petitioner should achieve these results. Respondents did not indicate the manner in which she should go about in maintaining the cleanliness of the ladies' comfort room. Neither did respondents determine the means and methods by which petitioner could ensure the satisfaction of respondent company's customers. In other words, petitioner was given a free hand as to how she would perform her job as a "lady keeper." In fact, the last paragraph of the concessionaire agreement even allowed petitioner to engage persons to work with or assist her in the discharge of her functions.34 Moreover, petitioner was not subjected to definite hours or conditions of work. The fact that she was expected to maintain the cleanliness of respondent company's ladies' comfort room during Bodega City's operating hours does not indicate that her performance of her job was subject to the control of

respondents as to make her an employee of the latter. Instead, the requirement that she had to render her services while Bodega City was open for business was dictated simply by the very nature of her undertaking, which was to give assistance to the users of the ladies' comfort room. In Consulta v. Court of Appeals,35 this Court held: 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 untrammeled 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.36 Lastly, the Court finds that the elements of selection and engagement as well as the power of dismissal are not present in the instant case. It has been established that there has been no employer-employee relationship between respondents and petitioner. Their contractual relationship was governed by the concessionaire agreement embodied in the 1992 letter. Thus, petitioner was not dismissed by respondents. Instead, as shown by the letter of Yap to her dated February 15, 1995,37 their contractual relationship was terminated by reason of respondents' termination of the subject concessionaire agreement, which was in accordance with the provisions of the agreement in case of violation of its terms and conditions. In fine, the CA did not err in dismissing the petition for certiorari filed before it by petitioner. WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of the Court of Appeals areAFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. 159890

May 28, 2004

EMPERMACO B. ABANTE, JR., petitioner, vs. LAMADRID BEARING & PARTS CORP. and JOSE LAMADRID, President, respondents. DECISION YNARES-SANTIAGO, J.: This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure assailing the Decision dated March 7, 2003 of the Court of Appeals in CA-G.R. SP No. 73102 which affirmed the Resolution dated April 2, 2002 of the National Labor Relations Commission. Petitioner was employed by respondent company Lamadrid Bearing and Parts Corporation sometime in June 1985 as a salesman earning a commission of 3% of the total paid-up sales covering the whole area of Mindanao. His average monthly income was more or less P16,000.00, but later was increased to approximately P20,269.50. Aside from selling the merchandise of respondent corporation, he was also tasked to collect payments from his various customers. Respondent corporation had complete control over his work because its President, respondent Jose Lamadrid, frequently directed him to report to a particular area for his sales and collection activities, and occasionally required him to go to Manila to attend conferences regarding product competition, prices, and other market strategies. Sometime in 1998, petitioner encountered five customers/clients with bad accounts, namely: Customers/Clients 1) A&B Engineering Services Amount P 86,431.20

2) Emmanuel Engineering Services 126, 858.50 3) Panabo Empire Marketing 4) Southern Fortune Marketing 5) Alreg Marketing Less Returns: 691.02 Total Bad Accounts 226,458.76 191,208.00 56, 901.18 56, 210.16 P 687,166.62

Petitioner was confronted by respondent Lamadrid over the bad accounts and warned that if he does not issue his own checks to cover the said bad accounts, his commissions will not be released and he will lose his job. Despite serious misgivings, he issued his personal checks in favor of respondent corporation on condition that the same shall not be deposited for clearing and that they shall be offset against his periodic commissions.1 Not contented with the issuance of the foregoing checks as security for the bad accounts, respondents "tricked" petitioner into signing two documents, which he later discovered to be a Promissory Note2 and a Deed of Real Estate Mortgage.3

Pursuant to the parties agreement that the checks would not be deposited, as their corresponding values would be offset from petitioners sales commissions, respondents returned the same to petitioner as evidenced by the undeposited checks and respondent Lamadrids computations of petitioners commissions.4 Due to financial difficulties, petitioner inquired about his membership with the Social Security System in order to apply for a salary loan. To his dismay, he learned that he was not covered by the SSS and therefore was not entitled to any benefit. When he brought the matter of his SSS coverage to his employer, the latter berated and hurled invectives at him and, contrary to their agreement, deposited the remaining checks which were dishonored by the drawee bank due to "Account Closed." On March 22, 2001, counsel for respondent corporation sent a letter to petitioner demanding that he make good the dishonored checks or pay their cash equivalent. In response, petitioner sent a letter addressed to Atty. Meneses, counsel for respondent corporation, which reads:5 This has reference to your demand letter dated March 22, 2001 which I received on March 30, 2001, relative to the checks I issued to my employer LAMADRID BEARING PARTS CORPORATION. May I respectfully request for a consideration as to the payment of the amount covered by the said checks, as follows: 1. I have an earned commission in the amount of P33,412.39 as shown in the hereto attached Summary of Sales as of February 28, 2001 (P22,748.60) and as of March 31, 2001 (P10,664.79), which I offer to be charged or deducted as partial payment thereof; 2. I hereby commit One Hundred Percent (100%) of all my commission to be directly charged or deducted as payment, from date onward, until such time that payment will be completed; Sir, kindly convey my good faith to your client and my employer, as is shown by my willingness to continue working as Commission Salesman, having served the Company for the last sixteen (16) years. Im sincerely appealing to my employer, through you, Sir, to settle these accountabilities which all resulted from the checks issued by my customers which bounced and later charged to my account, in the manner afore-cited. May this request merit your kindest consideration, Sirs. Thank you very much. On April 2, 2001, petitioner sent another letter to respondent Lamadrid, to wit:6 Dear Mr. Lamadrid, This is to inform your good office that if you pursue the case against me, I may refer this problem to Mr. Paul Dominguez and Atty. Jesus Dureza to solicit proper legal advice. I may also file counter charges against your company of (sic) unfair labor practice and unfair compensation of 3% commission to my sales and commissions of more or less 90,000,000.00 (all collected and covered with cleared check payments) for 16 years working with your company up to the present year 2001.

If I am not wrong your company did not exactly declare the correct amount of P90,000,000.00 more or less representing my sales and collections (all collected and covered with cleared check payments to the Bureau of Internal Revenue [BIR] for tax declaration purposes). In short your company profited large amount of money to (sic) the above-mentioned sales and collections of P90,000,000.00 more or less for 16 years working with your company. I remember that upon my employment with your company last 1985 up to the present year 2001 as commission basis salesman, I have not signed any contract with your company stating that all uncollected accounts including bounced checks from Lamadrid Bearing & Parts Corp. will be charged to me. I wonder why your company forcibly instructed me to secure checking account to pay and issue check payment of P15,000.00 per month to cover your companys bad accounts in which this amount is too heavy on my part paying a total bad accounts of more than P650,000.00 for my 16 years employment with your company as commission basis salesman. Recalling your visit here at my Davao City residence, located at Zone 1 2nd Avenue, San Vicente Buhangin Davao City, way back 1998, you even forced me to sign mortgage contract of my house and lot located at Zone 1 2nd Avenue, San Vicente, Buhangin, Davao City, according to Mr. Jose Lamadrid this mortgage contract of my house and lot will serve as guarantee to the uncollected and bounced checks from Lamadrid Bearing and Parts Corp., customers. I have asked 1 copy of the mortgage contract I have signed but Mr. Jose C. Lamadrid never furnished me a copy. Very truly yours, (Sgd) Empermaco B. Abante, Jr. While doing his usual rounds as commission salesman, petitioner was handed by his customers a letter from the respondent company warning them not to deal with petitioner since it no longer recognized him as a commission salesman. In the interim, petitioner received a subpoena from the Office of the City Prosecutor of Manila for violations of Batas Pambansa Blg. 22 filed by respondent Lamadrid. Petitioner thus filed a complaint for illegal dismissal with money claims against respondent company and its president, Jose Lamadrid, before the NLRC Regional Arbitration Branch No. XI, Davao City. By way of defense, respondents countered that petitioner was not its employee but a freelance salesman on commission basis, procuring and purchasing auto parts and supplies from the latter on credit, consignment and installment basis and selling the same to his customers for profit and commission of 3% out of his total paid-up sales. Respondents cite the following as indicators of the absence of an employer-employee relationship between them: (1) petitioner constantly admitted in all his acts, letters, communications with the respondents that his relationship with the latter was strictly commission basis salesman; (2) he does not have a monthly salary nor has he received any benefits accruing to regular employment;

(3) he was not required to report for work on a daily basis but would occasionally drop by the Manila office when he went to Manila for some other purpose; (4) he was not given the usual pay-slip to show his monthly gross compensation; (5) neither has the respondent withheld his taxes nor was he enrolled as an employee of the respondent under the Social Security System and Philhealth; (6) he was in fact working as commission salesman of five other companies, which are engaged in the same line of business as that of respondent, as shown by certifications issued by the said companies;7 (7) if respondent owed petitioner his alleged commissions, he should not have executed the Promissory Note and the Deed of Real Estate Mortgage.8 Finding no necessity for further hearing the case after the parties submitted their respective position papers, the Labor Arbiter rendered a decision dated November 29, 2001, the decretal portion of which reads:9 WHEREFORE, premises considered judgment is hereby rendered DECLARING respondents LAMADRID BEARING & PARTS CORPORATION AND JOSE LAMADRID to pay jointly and severally complainant EMPERMACO B. ABANTE, JR., the sum of PESOS ONE MILLION THREE HUNDRED THIRTY SIX THOUSAND SEVEN HUNDRED TWENTY NINE AND 62/100 ONLY (P1,336,729.62) representing his awarded separation pay, back wages (partial) unpaid commissions, refund of deductions, damages and attorneys fees. SO ORDERED. On appeal, the National Labor Relations Commission reversed the decision of the Labor Arbiter in a Resolution dated April 5, 2002, the dispositive portion of which reads:10 WHEREFORE, the Appeal is GRANTED. Accordingly, the appealed decision is Set Aside and Vacated. In lieu thereof, a new judgment is entered dismissing the instant case for lack of cause of action. SO ORDERED. Petitioner challenged the decision of the NLRC before the Court of Appeals, which rendered the assailed judgment on March 7, 2003, the dispositive portion of which reads:11 WHEREFORE, premises considered, petition is hereby DENIED. Let the supersedeas bond dated 09 January 2002, issued the Philippine Charter Insurance Corporation be cancelled and released. SO ORDERED. Upon denial of his motion for reconsideration, petitioner filed the instant appeal based on the following grounds: I

THE HONORABLE COURT OF APPEALS IN GRAVE ABUSE OF DISCRETION "MODIFIED" THE IMPORT OF THE "RELEVANT ANTECEDENTS" AS ITS PREMISE IN ITS QUESTIONED DECISION CAUSING IT TO ARRIVE AT ERRONEOUS CONCLUSIONS OF FACT AND LAW. II THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN APPRECIATING THE TRUE FACTS OF THIS CASE THEREBY IT MADE A WRONG CONCLUSION BY STATING THAT THE FOURTH ELEMENT FOR DETERMINING EMPLOYER-EMPLOYEE RELATIONSHIP, WHICH IS THE "CONTROL TEST," IS WANTING IN THIS CASE. III THE HONORABLE COURT OF APPEALS IS AT WAR WITH THE EVIDENCE PRESENTED IN THIS CASE AS WELL AS WITH THE APPLICABLE LAW AND ESTABLISHED RULINGS OF THIS HONORABLE COURT. Initially, petitioner challenged the statement by the appellate court that "petitioner, who was contracted a 3% of the total gross sales as his commission, was tasked to sell private respondents merchandise in the Mindanao area and to collect payments of his sales from the customers." He argues that this statement, which suggests contracting or subcontracting under Department Order No. 10-97 Amending the Rules Implementing Books III and VI of the Labor Code, is erroneous because the circumstances to warrant such conclusion do not exist. Not being an independent contractor, he must be a regular employee pursuant to Article 280 of the Labor Code because an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer. Petitioner likewise disputes the finding of the appellate court that no employer-employee relationship exists between him and respondent corporation since the power of control, which is the most decisive element to determine such relationship, is wanting. He argues that the following circumstances show that he was in truth an employee of the respondent corporation: (1) As salesman of the private respondents, petitioner was also the one collecting payment of his sales from various customers. Thus, he was bringing with him Provisional Receipts, samples of which are attached to his Position Paper filed with the Labor Arbiter. (2) Private respondents had complete control over the work of the petitioner. From time to time, respondent JOSE LAMADRID was directing him to report to a particular area in Mindanao for his sales and collection activities, and sometimes he was required to go to Manila for a conference regarding competitions, new prices (if any), special offer (if competitors gave special offer or discounts), and other selling/marketing strategy. In other words, respondent JOSE LAMADRID was closely monitoring the sales and collection activities of the petitioner. Petitioner further contends that it was illogical for the appellate court to conclude that since he was not required to report for work on a daily basis, the power of control is absent. He reasons that being a field personnel, as defined under Article 82 of the Labor Code, who is covering the Mindanao area, it would be impractical for him to report to the respondents office in Manila in order to keep tab of his actual working hours.

Well-entrenched is the doctrine that the existence of an employer-employee relationship is ultimately a question of fact and that the findings thereon by the Labor Arbiter and the National Labor Relations Commission shall be accorded not only respect but even finality when supported by substantial evidence. The decisive factor in such finality is the presence of substantial evidence to support said finding, otherwise, such factual findings cannot be accorded finality by this Court.12 Considering the conflicting findings of fact by the Labor Arbiter and the NLRC as well as the Court of Appeals, there is a need to reexamine the records to determine with certainty which of the propositions espoused by the contending parties is supported by substantial evidence. We are called upon to resolve the issue of whether or not petitioner, as a commission salesman, is an employee of respondent corporation. To ascertain the existence of an employer-employee relationship, jurisprudence has invariably applied the four-fold test, namely: (1) the manner of selection and engagement; (2) the payment of wages; (3) the presence or absence of the power of dismissal; and (4) the presence or absence of the power of control. Of these four, the last one is the most important.13 The so-called "control test" is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. Under the control test, an employer-employee relationship exists where the person for whom the services areperformed reserves the right to control not only the end achieved, but also the manner and means to be used in reaching that end. Applying the aforementioned test, an employer-employee relationship is notably absent in this case. It is undisputed that petitioner Abante was a commission salesman who received 3% commission of his gross sales. Yet no quota was imposed on him by the respondent; such that a dismal performance or even a dead result will not result in any sanction or provide a ground for dismissal. He was not required to report to the office at any time or submit any periodic written report on his sales performance and activities. Although he had the whole of Mindanao as his base of operation, he was not designated by respondent to conduct his sales activities at any particular or specific place. He pursued his selling activities without interference or supervision from respondent company and relied on his own resources to perform his functions. Respondent company did not prescribe the manner of selling the merchandise; he was left alone to adopt any style or strategy to entice his customers. While it is true that he occasionally reported to the Manila office to attend conferences on marketing strategies, it was intended not to control the manner and means to be used in reaching the desired end, but to serve as a guide and to upgrade his skills for a more efficient marketing performance. As correctly observed by the appellate court, reports on sales, collection, competitors, market strategies, price listings and new offers relayed by petitioner during his conferences to Manila do not indicate that he was under the control of respondent.14 Moreover, petitioner was free to offer his services to other companies engaged in similar or related marketing activities as evidenced by the certifications issued by various customers.15 In Encyclopedia Britannica (Philippines), Inc. v. NLRC,16 we reiterated the rule that there could be no employer-employee relationship where the element of control is absent. Where a person who works for another does so more or less at his own pleasure and is not subject to definite hours or conditions of work, and in turn is compensated according to the result of his efforts and not the amount thereof, no relationship of employer-employee exists. We do not agree with petitioners contention that Article 28017 is a crucial factor in determining the existence of an employment relationship. It merely distinguishes between two kinds of employees, i.e., regular employees and casual employees, for purposes of determining their rights to certain benefits, such as to join or form a union, or to security of tenure. Article 280 does not apply where the existence of an employment relationship is in dispute.18

Neither can we subscribe to petitioners misplaced reliance on the case of Songco v. NLRC.19 While in that case the term "commission" under Article 96 of the Labor Code was construed as being included in the definition of the term "wage" available to employees, there is no categorical pronouncement that the payment of compensation on commission basis is conclusive proof of the existence of an employer-employee relationship. After all, commission, as a form of remuneration, may be availed of by both an employee or a non-employee. Petitioner decried the alleged intimidation and trickery employed by respondents to obtain from him a Promissory Note and to issue forty-seven checks as security for the bad accounts incurred by five customers. While petitioner may have been coerced into executing force to issue the said documents, it may equally be true that petitioner did so in recognition of a valid financial obligation. He who claims that force or intimidation was employed upon him lies the onus probandi. He who asserts must prove. It is therefore incumbent upon petitioner to overcome the disputable presumption that private transactions have been prosecuted fairly and regularly, and that there is sufficient consideration for every contract.20 A fortiori, it is difficult to imagine that petitioner, a salesman of long standing, would accede without raising a protest to the patently capricious and oppressive demand by respondent of requiring him to assume bad accounts which, as he contended, he had not incurred. This lends credence to the respondents assertion that petitioner procured the goods from the said company on credit, consignment or installment basis and then sold the same to various customers. In the scheme of things, petitioner, having directly contracted with the respondent company, becomes responsible for the amount of merchandise he took from the respondent, and in turn, the customer/s would be liable for their respective accounts to the seller, i.e., the petitioner, with whom they contracted the sale. All told, we sustain the factual and legal findings of the appellate court and accordingly, find no cogent reason to overturn the same. WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated March 7, 2003 in CA-G.R. SP No. 73102, which denied the petition of Empermaco B. Abante, is AFFIRMED in toto. SO ORDERED.

G.R. No. 148508

May 20, 2004

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

DECISION CORONA, J.: Before us is a petition for review of the decision1 of the Court of Appeals2 dated December 22, 2000 dismissing the petition for certiorari of the decision of the National Labor Relations Commission3 (NLRC) dated May 30, 1997. The latter affirmed the decision4 of the labor arbiter dated February 27, 1997 holding petitioner liable for illegal dismissal and directing private respondents reinstatement. Private respondent Rogelio Ejandra alleged that, for almost six years, from July 15, 1990 to January 31, 1996, he worked as a bus driver of petitioner R Transport Corporation. He plied the route "Muntilupa-Alabang-Malanday-Monumento-UE-Letre-Sangandaan" from 5:00 a.m. up to 2:00 a.m. the next day and was paid 10% of his daily earnings. On January 31, 1996, an officer of the Land Transportation Office (LTO), Guadalupe Branch, Makati City, apprehended him for obstruction of traffic for which his license was confiscated. Upon his arrival at petitioners garage, he immediately reported the incident to his manager, Mr. Oscar Pasquin, who gave him P500 to redeem his license. The following day, he went to LTO, Guadalupe Branch, to claim it but he was told that it had not yet been turned over by the officer who apprehended him. He was able to retrieve his license only after a week. On February 8, 1996, private respondent informed Mr. Pasquin that he was ready to report for work. However, he was told that the company was still studying whether to allow him to drive again. Private respondent was likewise accused of causing damage to the bus he used to drive. Denying the charge, private respondent blamed the person who drove the said bus during his absence, considering that the damage was sustained during the week that he did not drive the bus. Mr. Pacquin nonetheless told him "Magpahinga ka muna at tatawagin ka na lang namin kung kailangan ka na para magmaneho. Magbakasyon ka muna, bata." When respondent asked how long he had to rest, the manager did not give a definite time. Petitioner denied private respondents allegations and claimed that private respondent, a habitual absentee, abandoned his job. To belie private respondents allegation that his license had been confiscated, petitioner asserted that, had it been true, he should have presented an apprehension report and informed petitioner of his problems with the LTO. But he did not. Petitioner further argued that private respondent was not an employee because theirs was a contract of lease and not of employment, with petitioner being paid on commission basis. On February 23, 1997, labor arbiter Rogelio Yulo rendered his decision in favor of private respondent. The dispositive portion of the decision read: PREMISES CONSIDERED, judgment is hereby rendered finding the dismissal of Rogelio Ejandra to be without just cause and, therefore, illegal and ORDERING R-Transport to REINSTATE him to his former position without loss of seniority and other benefits and to pay him backwages from the time of his dismissal until actual reinstatement. SO ORDERED.5 Labor arbiter Yulo gave no weight to petitioners claim that private respondent abandoned his work. His one-week absence did not constitute abandonment of work considering that it took him the whole week to reclaim his license. Private respondent could not retrieve it unless and until the apprehending officer first transmitted it to their office. His inability to drive for petitioner that whole

week was therefore not his fault and petitioner could be held liable for illegal dismissal. Due process was not accorded to private respondent who was never given the opportunity to contest the charge of abandonment. Moreover, assuming actual abandonment, petitioner should have reported such fact to the nearest employment office of the Department of Labor and Employment. But no such report was ever made. On May 30, 1997, the NLRC rendered a decision affirming the decision of the labor arbiter: WHEREFORE, premises considered, the appeal is hereby DISMISSED and the appealed decision AFFIRMED in toto. SO ORDERED.6 In disputing petitioners claim that private respondent was not its employee and was not therefore entitled to notice and hearing before termination, the NLRC held that: It is very clear that (sic) from no less than appellants admission, that complainant was not afforded his right to due process prior to the severance of his employment with respondents. (First par. p.3, respondents Appeal Memorandum, p. 45, Rollo) Appellants defense of denying the existence of employer-employee relationship with the complainant based on the manner by which complainant was being paid his salary, cannot hold water. xxx xxx xxx

While employees paid on piece-rate and commission basis are not covered by the provisions of the Labor Code, as amended, on hours of work, these employees however, for all intents and purposes, are employees of their employers. xxx xxx x x x7

Petitioner filed in the Court of Appeals a petition for certiorari on the ground that the NLRC committed grave abuse of discretion in affirming the decision of the labor arbiter. On December 22, 2000, the Court of Appeals rendered a decision, the dispositive portion of which read: WHEREFORE, the instant petition is hereby DENIED for lack of merit. SO ORDERED.8 Categorizing the issues raised by petitioner as factual, the appellate court held that the findings of fact of the labor arbiter (affirmed by the NLRC) were entitled to great respect because they were supported by substantial evidence. The Court of Appeals also ruled that petitioner was barred from denying the existence of an employer-employee relationship because petitioner invoked its rights under the law and jurisprudence as an employer in dismissing private respondent. Hence, this appeal based on the following assignments of errors: A

With due respect, the Honorable Court of Appeals, Tenth Division committed grave abuse of discretion when it affirmed/adopted in toto the decision of the National Labor Relations Commission (NLRC) based purely on a speculation, surmise or conjecture. B The findings of facts are mere conclusions without citation or specific evidence on which they are based. C Further, the Honorable Court of Appeals, Tenth Division committed grave abuse of discretion amounting to lack of jurisdiction in not ruling that the relationship in law occurring between the petitioner R Transport Corporation and the private respondent was in a nature of "lessor and lessee." D Moreover, there is a need by this Honorable Court to give a second look on the records of NLRC NCR Case RAB No. IV-2-7910-R / NLRC NCR CA-012-605-97 to avoid miscarriage of justice and furtherance of the statutory requirements of due process. E Finally, the Honorable Court of Appeals, Tenth Division gravely erred in denying the petition in CA-G.R. SP. No. 51962 in its decision promulgated on December 22, 2000 (Annexes "G" and "G-1") and in its Resolution dated June 4, 2001 (Annex "B"), has acted contrary to law and the Rules of Court.9 According to the petitioner, the appellate court erred in not finding that private respondent abandoned his work; that petitioner was not the lessor of private respondent; that, as such, the termination of the contract of lease of services did not require petitioner to respect private respondents rights to notice and hearing; and, that private respondents affidavit was hearsay and self-serving. We deny the appeal. Under Section 1, Rule 45 of the 1997 Rules of Civil Procedure, a petition for review shall only raise questions of law considering that the findings of fact of the Court of Appeals are, as a general rule, conclusive upon and binding on this Court.10 This doctrine applies with greater force in labor cases where the factual findings of the labor tribunals are affirmed by the Court of Appeals. The reason is because labor officials are deemed to have acquired expertise in matters within their jurisdiction and therefore, their factual findings are generally accorded not only respect but also finality, and are binding on this Court.11 In the case at bar, the labor arbiter, the NLRC and the Court of Appeals were unanimous in finding that private respondent worked as a driver of one of the buses of petitioner and was paid on a 10% commission basis. After he was apprehended for a traffic violation, his license was confiscated. When he informed petitioners general manager of such fact, the latter gave him money to redeem his license. He went to the LTO office everyday but it was only after a week that he was able to get back his license. When he reported back to work, petitioners manager told him to wait until his

services were needed again. Considering himself dismissed, private respondent filed a complaint for illegal dismissal against petitioner. We have no reason to disturb all these factual findings because they are amply supported by substantial evidence. Denying the existence of an employer-employee relationship, petitioner insists that the parties agreement was for a contract of lease of services. We disagree. Petitioner is barred to negate the existence of an employer-employee relationship. In its petition filed before this Court, petitioner invoked our rulings on the right of an employer to dismiss an employee for just cause.12 Petitioner maintained that private respondent was justifiably dismissed due to abandonment of work. By adopting said rulings, petitioner impliedly admitted that it was in fact the employer of private respondent. According to the control test, the power to dismiss an employee is one of the indications of an employer-employee relationship.13 Petitioners claim that private respondent was legally dismissed for abandonment was in fact a negative pregnant:14 an acknowledgement that there was no mutual termination of the alleged contract of lease and that private respondent was its employee. The fact that petitioner paid private respondent on commission basis did not rule out the presence of an employee-employer relationship. Article 97(f) of the Labor Code clearly provides that an employees wages can be in the form of commissions. We now ask the next question: was private respondent, an employee of petitioner, dismissed for just cause? We do not think so. According to petitioner, private respondent abandoned his job and lied about the confiscation of his license. To constitute abandonment, two elements must concur: (1) the failure to report for work or absence without valid or justifiable reason and (2) a clear intention to sever the employer-employee relationship. Of the two, the second element is the more determinative factor and should be manifested by some overt acts. Mere absence is not sufficient. It is the employer who has the burden of proof to show a deliberate and unjustified refusal of the employee to resume his employment without any intention of returning.15 In the instant case, petitioner fell short of proving the requisites. To begin with, petitioners absence was justified because the LTO, Guadalupe Branch, did not release his license until after a week. This was the unanimous factual finding of the labor tribunals and the Court of Appeals. As aptly held by labor arbiter Yulo, the process of redeeming a confiscated license, based on common experience, depended on when the apprehending officer turned over the same. Second, private respondent never intended to sever his employment as he in fact reported for work as soon as he got his license back. Petitioner offered no evidence to rebut these established facts. Third, labor arbiter Yulo correctly observed that, if private respondent really abandoned his work, petitioner should have reported such fact to the nearest Regional Office of the Department of Labor and Employment in accordance with Section 7, Rule XXIII, Book V of Department Order No. 9, series of 199716 (Rules Implementing Book V of the Labor Code). Petitioner made no such report. In addition to the fact that petitioner had no valid cause to terminate private respondent from work, it violated the latters right to procedural due process by not giving him the required notice and hearing. Section 2, Rule XXIII, Book V of Department Order No. 9 provides for the procedure for dismissal for just or authorized cause: SEC. 2. Standards of due process; requirement of notice. In all cases of termination of employment, the following standards of due process shall be substantially observed:

I. For termination of employment based on just causes as defined in Article 282 of the Code: (a) A written notice served on the employee specifying the ground or grounds for termination, and giving to said employee reasonable opportunity within which to explain his side; (b) A hearing or conference during which the employee concerned, with the assistance of counsel if the employee so desires, is given opportunity to respond to the charge, present his evidence or rebut the evidence presented against him; and (c) A written notice of termination served on the employee indicating that upon due consideration of all the circumstances, grounds have been established to justify his termination. In case of termination, the foregoing notices shall be served on the employees last known address. II. For termination of employment as based on authorized causes defined in Article 283 of the Code, the requirements of due process shall be deemed complied with upon service of a written notice to the employee and the appropriate Regional Office of the Department at least thirty days before the effectivity of the termination, specifying the ground or grounds for termination. III. If termination is brought about by the completion of the contract or phase thereof, no prior notice is required. If the termination is brought about by the failure of an employee to meet the standards of the employer in case of probationary employment, it shall be sufficient that a written notice is served the employee within a reasonable time from the effective date of termination. WHEREFORE, premises considered, the petition is hereby DENIED. Costs against the petitioner. SO ORDERED.

DEPARTMENT ORDER NO. 18 - 02 (Series of 2002)

RULES IMPLEMENTING ARTICLES 106 TO 109 OF THE LABOR CODE, AS AMENDED

By virtue of the power vested in the Secretary of Labor and Employment under Articles 5 (Rule-making) and 106 (Contractor or Subcontractor) of the Labor Code of the Philippines, as amended, the following regulations governing contracting and subcontracting arrangements are hereby issued:chanroblesvirtuallawlibrary Section 1. Guiding principles. - Contracting and subcontracting arrangements are expressly allowed by law and are subject to regulation for the promotion of employment and the observance of the rights of workers to just and humane conditions of work, security of tenure, self-organization, and collective bargaining. Labor-only contracting as defined herein shall be prohibited. Section 2Coverage. - These Rules shall apply to all parties of contracting and subcontracting arrangements where employer-employee relationship exists. Placement activities through private recruitment and placement agencies as governed by Articles 25 to 39 of the Labor Code are not covered by these Rules. Section 3. Trilateral Relationship in Contracting Arrangements. - In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job work or service. Section 4. Definition of Basic Terms. - The following terms as used in these Rules, shall mean:chanroblesvirtuallawlibrary (a) "Contracting" or "subcontracting" refers to an arrangement whereby a principal agrees to put out or farm out with a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal. (b) "Contractor or subcontractor" refers to any person or entity engaged in a legitimate contracting or subcontracting arrangement. (c) "Contractual employee" includes one employed by a contractor or subcontractor to perform or complete a job, work or service pursuant to an arrangement between the latter and a principal. (d) "Principal" refers to any employer who puts out or farms out a job, service or work to a contractor or subcontractor. 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:chanroblesvirtuallawlibrary (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. Section 6. Prohibitions. - Notwithstanding Section 5 of these Rules, the following are hereby declared prohibited for being contrary to law or public policy:chanroblesvirtuallawlibrary (a) Contracting out of a job, work or service when not done in good faith and not justified by the exigencies of the business and the same results in the termination of regular employees and reduction of work hours or reduction or splitting of the bargaining unit; (b) Contracting out of work with a "cabo" as defined in Section 1 (ii), Rule I, Book V of these Rules. "Cabo" refers to a person or group of persons or to a labor group which, in the guise of a labor organization, supplies workers to an employer, with or without any monetary or other consideration whether in the capacity of an agent of the employer or as an ostensible independent contractor; (c) Taking undue advantage of the economic situation or lack of bargaining strength of the contractual employee, or undermining his security of tenure or basic rights, or circumventing the provisions of regular employment, in any of the following instances:chanroblesvirtuallawlibrary (i) In addition to his assigned functions, requiring the contractual employee to perform functions which are currently being performed by the regular employees of the principal or of the contractor or subcontractor; (ii) Requiring him to sign, as a precondition to employment or continued employment, an antedated resignation letter; a blank payroll; a waiver of labor standards including minimum wages and social or

welfare benefits; or a quitclaim releasing the principal, contractor or subcontractor from any liability as to payment of future claims; and (iii) Requiring him to sign a contract fixing the period of employment to a term shorter than the term of the contract between the principal and the contractor or subcontractor, unless the latter contract is divisible into phases for which substantially different skills are required and this is made known to the employee at the time of engagement; (d) Contracting out of a job, work or service through an in-house agency which refers to a contractor or subcontractor engaged in the supply of labor which is owned, managed or controlled by the principal and which operates solely for the principal; (e) Contracting out of a job, work or service directly related to the business or operation of the principal by reason of a strike or lockout whether actual or imminent; (f) Contracting out of a job, work or service being performed by union members when such will interfere with, restrain or coerce employees in the exercise of their rights to self organization as provided in Art. 248 (c) of the Labor Code, as amended. 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:chanroblesvirtuallawlibrary (a) where there is labor-only contracting; or (b) where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions) hereof. Section 8. Rights of Contractual Employees. - Consistent with Section 7 of these Rules, the contractual employee shall be entitled to all the rights and privileges due a regular employee as provided for in the Labor Code, as amended, to include the following:chanroblesvirtuallawlibrary (a) Safe and healthful working conditions; (b) Labor standards such as service incentive leave, rest days, overtime pay, holiday pay, 13th month pay and separation pay; (c) Social security and welfare benefits; (d) Self-organization, collective bargaining and peaceful concerted action; and (e) Security of tenure.

Section 9. Contract between contractor or subcontractor and contractual employee. - Notwithstanding oral or written stipulations to the contrary, the contract between the contractor or subcontractor and the contractual employee, which shall be in writing, shall include the following terms and conditions:chanroblesvirtuallawlibrary (a) The specific description of the job, work or service to be performed by the contractual employee; (b) The place of work and terms and conditions of employment, including a statement of the wage rate applicable to the individual contractual employee; and (c) The term or duration of employment, which shall be coextensive with the contract of the principal and subcontractor, or with the specific phase for which the contractual employee is engaged, as the case may be. The contractor or subcontractor shall inform the contractual employee of the foregoing terms and conditions on or before the first day of his employment. Section 10. Effect of Termination of Contractual Employment. - In cases of termination of employment prior to the expiration of the contract between the principal and the contractor or subcontractor, the right of the contractual employee to separation pay or other related benefits shall be governed by the applicable laws and jurisprudence on termination of employment. Where the termination results from the expiration of the contract between the principal and the contractor or subcontractor, or from the completion of the phase of the job, work or service for which the contractual employee is engaged, the latter shall not be entitled to separation pay. However, this shall be without prejudice to completion bonuses or other emoluments, including retirement pay as may be provided by law or in the contract between the principal and the contractor or subcontractor. Section 11. Registration of Contractors or Subcontractors. - Consistent with the authority of the Secretary of Labor and Employment to restrict or prohibit the contracting out of labor through appropriate regulations, a registration system to govern contracting arrangements and to be implemented by the Regional Offices is hereby established. The registration of contractors and subcontractors shall be necessary for purposes of establishing an effective labor market information and monitoring. Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting. Section 12. Requirements for registration. - A contractor or subcontractor shall be listed in the registry of contractors and subcontractors upon completion of an application form to be provided by the DOLE. The applicant contractor or subcontractor shall provide in the application form the following information:chanroblesvirtuallawlibrary (a) The name and business address of the applicant and the area or areas where it seeks to operate;

(b) The names and addresses of officers, if the applicant is a corporation, partnership, cooperative or union; (c) The nature of the applicant's business and the industry or industries where the applicant seeks to operate; (d) The number of regular workers; the list of clients, if any; the number of personnel assigned to each client, if any and the services provided to the client; (e) The description of the phases of the contract and the number of employees covered in each phase, where appropriate; and (f) A copy of audited financial statements if the applicant is a corporation, partnership, cooperative or a union, or copy of the latest ITR if the applicant is a sole proprietorship. The application shall be supported by:chanroblesvirtuallawlibrary (a) A certified copy of a certificate of registration of firm or business name from the Securities and Exchange Commission (SEC), Department of Trade and Industry (DTI), Cooperative Development Authority (CDA), or from the DOLE if the applicant is a union; and (b) A certified copy of the license or business permit issued by the local government unit or units where the contractor or subcontractor operates. The application shall be verified and shall include an undertaking that the contractor or subcontractor shall abide by all applicable labor laws and regulations. Section 13. Filing and processing of applications. - The application and its supporting documents shall be filed in triplicate in the Regional Offices where the applicant principally operates. No application for registration shall be accepted unless all the foregoing requirements are complied with. The contractor or subcontractor shall be deemed registered upon payment of a registration fee of P100.00 to the Regional Office. Where all the supporting documents have been submitted, the Regional Office shall deny or approve the application within seven (7) working days after its filing. Upon registration, the Regional Office shall return one set of the duly-stamped application documents to the applicant, retain one set for its file, and transmit the remaining set to the Bureau of Local Employment. The Bureau shall devise the necessary forms for the expeditious processing of all applications for registration. Section 14. Duty to produce copy of contract between the principal and the contractor or subcontractor. - The principal or the contractor or subcontractor shall be under an obligation to produce a copy of the contract between the principal and the contractor in the ordinary course of inspection. The contractor shall likewise be under an obligation to produce a copy of the contract of employment of the contractual worker when directed to do so by the Regional Director or his authorized representative.

A copy of the contract between the contractual employee and the contractor or subcontractor shall be furnished the certified bargaining agent, if there is any. Section 15. Annual Reporting of Registered Contractors. - The contractor or subcontractor shall submit in triplicate its annual report using a prescribed form to the appropriate Regional Office not later than the 15th of January of the following year. The report shall include:chanroblesvirtuallawlibrary (a) A list of contracts entered with the principal during the subject reporting period; (b) The number of workers covered by each contract with the principal; (c) A sworn undertaking that the benefits from the Social Security System (SSS), the Home Development Mutual Fund (HDMF), PhilHealth, Employees Compensation Commission (ECC), and remittances to the Bureau of Internal Revenue (BIR) due its contractual employees have been made during the subject reporting period. The Regional Office shall return one set of the duly-stamped report to the contractor or subcontractor, retain one set for its file, and transmit the remaining set to the Bureau of Local Employment within five (5) days from receipt thereof. Section 16. Delisting of contractors or subcontractors. - Subject to due process, the Regional Director shall cancel the registration of contractors or subcontractors based on any of the following grounds:chanroblesvirtuallawlibrary (a) Non-submission of contracts between the principal and the contractor or subcontractor when required to do so; (b) Non-submission of annual report; (c) Findings through arbitration that the contractor or subcontractor has engaged in labor-only contracting and the prohibited activities as provided in Section 6 (Prohibitions) hereof; and (d) Non-compliance with labor standards and working conditions. Section 17. Renewal of registration of contractors or subcontractors. - All registered contractors or subcontractors may apply for renewal of registration every three years. For this purpose, the Tripartite Industrial Peace Council (TIPC) as created under Executive Order No. 49, shall serve as the oversight committee to verify and monitor the following:chanroblesvirtuallawlibrary (a) Engaging in allowable contracting activities; and (b) Compliance with administrative reporting requirements. Section 18. Enforcement of Labor Standards and Working Conditions. - Consistent with Article 128 (Visitorial and Enforcement Power) of the Labor Code, as amended, the Regional Director through his duly authorized representatives, including labor regulation officers shall have the authority to conduct routine inspection of establishments engaged in contracting or subcontracting and shall have access to

employer's records and premises at any time of the day or night whenever work is being undertaken therein, and the right to copy therefrom, to question any employee and investigate any fact, condition or matter which may be necessary to determine violations or which may aid in the enforcement of the Labor Code and of any labor law, wage order, or rules and regulations issued pursuant thereto. The findings of the duly authorized representative shall be referred to the Regional Director for appropriate action as provided for in Article 128, and shall be furnished the collective bargaining agent, if any. Based on the visitorial and enforcement power of the Secretary of Labor and Employment in Article 128 (a), (b), (c) and (d), the Regional Director shall issue compliance orders to give effect to the labor standards provisions of the Labor Code, other labor legislation and these guidelines. Section 19. Solidary liability. - The principal shall be deemed as the direct employer of the contractual employees and therefore, solidarily liable with the contractor or subcontractor for whatever monetary claims the contractual employees may have against the former in the case of violations as provided for in Sections 5 (Labor-Only contracting), 6 (Prohibitions), 8 (Rights of Contractual Employees) and 16 (Delisting) of these Rules. In addition, the principal shall also be solidarily liable in case the contract between the principal and contractor or subcontractor is preterminated for reasons not attributable to the fault of the contractor or subcontractor. Section 20. Supersession. - All rules and regulations issued by the Secretary of Labor and Employment inconsistent with the provisions of this Rule are hereby superseded. Contracting or subcontracting arrangements in the construction industry, under the licensing coverage of the PCAB and shall not include shipbuilding and ship repairing works, however, shall continue to be governed by Department Order No. 19, series of 1993. Section 21. Effectivity. - This Order shall be effective fifteen (15) days after completion of its publication in two (2) newspapers of general circulation.

Manila, Philippines, 21 February 2002.