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labor rev 1

G.R. No. 131108 March 25, 1999


ASIAN ALCOHOL CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, FOURTH DIVISION, CEBU CITY and ERNESTO A.
CARIAS, ROBERTO C. MARTINEZ, RAFAEL H. SENDON, CARLOS A. AMACIO, LEANDRO O. VERAYO
and ERENEO S. TORMO, respondents.

PUNO, J.:
Contending that the dismissal of private respondents Ernesto A. Carias, Roberto C. Martinez,
Rafael H. Sendon, Carlos A. Amacio, Leandro O. Verayo and Ereneo S. Tormo, was valid on the twin
grounds of redundancy and retrenchment to prevent business losses, petitioner Asian Alcohol
Corporation (hereinafter referred to as Asian Alcohol) filed this petition for certiorari. Asian Alcohol
ascribes grave abuse of discretion to public respondent National Labor Relations Commission
1

(hereinafter referred to as NLRC) when, on May 30, 1997, it set aside
2
the decision
3
of the
Executive Labor Arbiter dismissing the illegal termination complaints filed by private respondents.
We first unfurl the facts.
In September, 1991, the Parsons family, who originally owned the controlling stocks in Asian
Alcohol, were driven by mounting business losses to sell their majority rights to Prior Holdings, Inc.
(hereinafter referred to as Prior Holdings). The next month, Prior Holdings took over its
management and operation.
4

To thwart further losses, Prior Holding implemented are organizational plan and other cost-
saving measures. Some one hundred seventeen (117) employees out of a total workforce of three
hundred sixty (360) were separated. Seventy two (72) of them occupied redundant positions that
were abolished. Of these positions, twenty one (21) held by union members and fifty one (51) by
non-union members.
The six (6) private respondents are among those union members
5
whose positions were
abolished due to redundancy. Private respondents Carias, Martinez, and Sendon were water pump
tenders; Amacio was a machine shop mechanic; Verayo was a briquetting plant operator while
Tormo was a plant helper under him. They were all assigned at the Repair and Maintenance Section
of the Pulupandan plant.
6

In October, 1992, they received individual notices of termination effective November 30,
1992.
7
They were paid the equivalent of one month salary for every year of service as separation
pay, the money value of their unused sick, vacation, emergency and seniority leave credits,
thirteenth (13th) month pay for the year 1992, medicine allowance, tax refunds, and goodwill cash
bonuses for those with at least ten (10) years of service.
8
All of them executed sworn releases,
waivers and quitclaims.
9
Except for Verayo and Tormo, they all signed sworn statements of
conformity to the company retrenchment program.
10
And except for Martinez, they all tendered
letters of resignation.
11

On December 18, 1992 the six (6) private respondents filed with the NLRC Regional
Arbitration Branch VI, Bacolod City, complaints for illegal dismissal with a prayer for reinstatement
with backwages, moral damages and attorney's fees. They alleged that Asian Alcohol used the
retrenchment program as a subterfuge for union busting. They claimed that they were singled out
for separation by reason of their active participation in the union. They also asseverated that Asian
Alcohol was not bankrupt as it has engaged in an aggressive scheme of contractual hiring.
The executive Labor Arbiter dismissed the complainants. He explained, thus:
The fact that respondent AAC incurred losses in its business operations was not seriously
challenged by the complainants. The fact that it incurred losses in its business operations prior to
the implementation of its retrenchment program is amply supported by the documents on records,
(sic) namely: (1) Balance Sheet of AAC as December 31, 1991 . . . , (2) Statement of Income and
Deficit for the year ended December 31, 1991 . . . , (3) Income Tax for Fiscal Year ending September
30, 1989 . . . , (4) Income Tax Return for Fiscal Year ending December 31, 1989 . . . , (5) Income Tax
Return for Fiscal Year ending December 31, 1990 . . . , and (6) Income Tax Return for Fiscal Year
ending December 31, 1991 . . . , indicating an accumulated deficit of P26,117,889.00.
It has to be emphasized that the law allows an employer to retrench some of its employees
to prevent of its employees to prevent losses. In the case of respondent AAC, it implemented its
retrenchment program not only to prevent losses but to prevent further losses as it was then
incurring huge losses in it operations.
Complainants would want us to believe that their positions were abolished because they are
union members, and that they were replaced by casual employees. Complainants' pretense is
rather untenable. For one thing, the retrenchment program of AAC affected not only union
members but also the non-union members. As earlier said, there were 117 employees of AAC who
were affected by the reorganization. Of the 117 positions, 72 positions were abolished due to
redundancy, 21 of which were occupied by unions members, while 51 were held by non-union
members. Thus, the theory of complainants that they were terminated from work on ground of
their union membership is far from the truth.
On the contrary, we find that complainants Ernesto Carias, Roberto Martinez and Rafael
Sendon who were all Water Pump Tenders assigned to AAC's water wells in Ubay, Pulupandan,
Negros Occidental which were drilled and operated before under the old management by virtue of
a right-of-way with the landowner, were retrenchment as an offshoot to the termination of the
lease agreement as the water thereunder had become salty due to extensive prawn farming
nearby, so that AAC could no longer use the water for its purpose. As a consequence, the services
of Ernesto Carias, Roberto Martinez and Rafael Sendon had become unnecessary, redundant and
superfluous.
As regards complainants Leandro Verayo and Ereneo Tormo, the grounds cited by
respondent AAC in support of its decision to retrench them are too convincing to be ignored.
According to respondent AAC, its boiler before was 100% coal fired. The boiler was manned by a
briquetting plant operator in the person of Leandro Verago and three (3) briquetting helpers,
namely, Ereneo Tormo, Eriberto Songaling, Jr. and Rudy Javier, Jr. Since AAC had shifted to the use
of bunker fuel by about 70% to fire its boiler, its usage of coal had been drastically reduced to only
30% of its total fuel usage in its production plant, thereby saving on fuel cost. For this reason, there
was no more need for the position of briquetting plant operator and the services of only two
briquetting helpers were determined to be adequate for the job of briquetting coal. Of the three
(3) briquetting helpers, Ereneo Tormo was the oldest, being already 41 years old, the other two,
Javier and Songaling, being only 28 and 35, respectively. Considering the manual nature of the work
of coal briquetting, younger workers are always preferred for reasons of efficiency [sic]. Hence the
abolition of the position of Ereneo Tormo. We have to stress that Eriberto Songaling, Jr. and Rudy
Javier, Jr. are also union member. . . .
With respect to Carlos Amacio, he was retrenched not because of his being a union member
but because of his poor health condition which greatly affect[ed] his work efficiency. Records show
that Carlos Amacio was among the ten machine shop mechanics employed by respondent AAC.
Under AAC's reorganization plan, it needs only nine mechanics.
labor rev 2
xxx xxx xxx
On the whole, therefore, the dismissal of complainants on ground of redundancy /
retrenchment was perfectly valid or legal.
12

Private respondents appealed to the NLRC.
On May 30,1997, the NLRC rendered the challenged decision. It rejected the evidence
proffered by Asian Alcohol to prove its business reversals. It ruled that the positions of private
respondents were not redundant for the simple reason that they were replaced by casuals. The
NLRC essayed this explanation:
In this case, [that] the respondent terminated complainants "to protect the company from
future losses," does not create an impression of imminent loss. The company at the time of
retrenchment was not then in the state of business reverses. There is therefore no reason to
retrench. . . .
The alleged deficits of the corporation did not prove anything for the respondent. The
financial status as shown in the Statement of Income and Deficits and Income Tax Returns from
1989 to 1991, submitted by respondent was before the respondent, new management of Prior
Holdings, Inc., took over the operation and management of the corporation in October, 199[1]. This
is no proof that on November 30, 1992 when the termination of complainant[s] took effect the
company was experiencing losses or at least imminent losses. Possible future losses do not
authorize retrenchment.
Secondly in the case of REDUNDANCY.
Redundancy exists where the service[s] of . . . employee[s] are in excess of what is reasonably
demanded by the actual requirements of the enterprise. The evidence, however, proved that, in
truth and in fact, the positions of the complainants were not redundant for the simple reason that
they were replaced by casuals.
xxx xxx xxx
Admittedly, from the testimonies of Engr. Palmares, the wells of the respondent were
operated by contractors. Otherwise stated, complainant[s] who are regular workers of the
respondent, performing jobs necessary and desirable to the business or redundancy [so that] their
jobs [will be performed by workers belonging to a contractor.
In summation, retrenchment and/or redundancy not having been proved, complainants,
therefore, were illegally dismissed.
13

The dispositive portion of the decision of the NLRC provides as follows:
WHEREFORE, premises considered, the Decision appealed from is hereby ordered SET ASIDE
and VACATED and in lieu thereof, the respondent Asian Alcohol Corporation is hereby ordered to
reinstate complainants with full backwages from the time they were dismissed on November 30,
1992 and up to actual reinstatement. Plus 10% attorney's fees.
SO ORDERED.
14

On July 2, 1997, Asian Alcohol moved for reconsideration of the foregoing decision. On
September 25, 1997, the NLRC denied the motion.
15

On January 12 l998, Asian Alcohol filed in this Court a petition for certiorari assailing both the
decision of the NLRC and the resolution denying its reconsideration. It invoked the following
grounds:
6. GROUNDS FOR PETITION
6.1 Public respondent has committed as hereinafter shown, a manifest grave abuse of
discretion amounting to lack or excess of jurisdiction in declaring in its assailed Decision . . . and
Resolution . . . that the termination of the employment of private respondents by the petitioner
herein is illegal and ordering their reinstatement with full backwages from the time they were
dismissed on November 30, 1992 up to their actual reinstatement, plus 10% attorney's fees, said
Decision and Resolution of the public respondent being contrary to the established facts of the
case, well settled jurisprudence and the law on the matter.
6.2 Public respondent has likewise committed, as hereinafter shown, a manifest grave abuse
of discretion amounting to lack or excess of jurisdiction by totally disregarding and refusing to
consider the factual findings of the Executive Labor Arbiter with respect to the circumstances which
rendered the positions of the private respondents unnecessary redundant and superfluous,
thereby justifying the termination of their employment.
6.3 Public respondent has furthermore committed, as hereinafter shown, a manifest grave
abuse of discretion amounting to lack or excess of jurisdiction in giving full credit to the oral
testimonies quoted in its assailed Decision . . . and taking them as conclusive proof of the alleged
replacement of the private respondents with casual workers despite the fact that said quoted
testimonies clearly amount to nothing but speculations, surmises and conjectures.
16

On March 25, 1998 we issued a Temporary Restraining Order
17
enjoining the NLRC from
enjoining its Decision and Resolution dated May 30, 1997 and September 25, 1997, respectively.
We find the petition meritorious.
Out of its concern for those with less privilege in life, this Court has inclined towards the
worker and upheld his cause in his conflicts with the employer.
18
This favored treatment is directed
by the social justice policy of the Constitution.
19
But while tilting the scales of justice in favor of
workers, the fundamental law also guarantees the right of the employer to reasonable returns
from his investment.
20
Corollarily, the law allows an employer to downsize his business to meet
clear and continuing economic threats.
21
Thus, this Court has upheld reductions in the work force
to forestall business losses or stop the hemorrhaging of capital.
22

The right of management to dismiss workers during periods of business recession and to
install labor saving devices to prevent losses is governed by Art. 283 of the labor Code, as amended.
It provides, viz.:
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 Ministry 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 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 case 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 at least
one-half (1/2), month pay for every year of service, whichever is higher. A fraction of at least six (6)
month shall be considered one (1) whole year. [emphasis ours]
labor rev 3
Under the foregoing provision, retrenchment and redundancy are just causes for the
employer to terminate the services of workers to preserve the viability of the business. In
exercising its right, however, management must faithfully comply with the substantive and
procedural requirements laid down law and jurisprudence.
23

The requirements for valid retrenchment which must be proved by clear and convincing
evidence are: (1) that the retrenchment is reasonably necessary and likely to prevent business
losses, which, if already incurred, are not merely de minimis, but substantial, serious, actual and
real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the
employer;
24
(2) that the employer served written notice both to the employees and to the
Department of Labor and Employment at least one month prior to the intend date of
retrenchment;
25
(3) that the employer pays the retrenched employees separation pay equivalent
to one month pay or at least 1/2 month pay for every year of service, whichever is higher;
26
(4)
that the employer exercises its prerogative to retrench employees in good faith for the
advancement of its interest of its interest and not to defeat or circumvent the employees' right to
security of tenure;
27
and (5) that the employer used fair and reasonable
criteria
28
in ascertaining who would be dismissed and who would be retained among the
employees, such as status (i.e., whether they are temporary, casual, regular or managerial
employees), efficiency, seniority,
29
physical fitness, age, and financial hardship for certain workers.
30

The condition of business losses is normally shown by audited financial documents like yearly
balance sheets and profit and loss statements as well as annual income tax returns.
31
It is our
ruling that financial statements must be prepared and signed by independent auditors.
32
Unless
duly audited, they can be assailed as self-serving documents.
33
But it is not enough that only the
financial statements for the year during which retrenchment was undertaken, are, presented in
evidence. For it may happen that while the company has indeed been losing, its losses may be on a
downward trend, indicating that business is picking up and retrenchment, being a drastic move,
should no longer be resorted to.
34
Thus, the failure of the employer to show its income or loss for
the immediately preceding year or to prove that it expected no abatement of such losses in the
coming years, may be speak the weakness of its cause.
35
It is necessary that the employer also
show that its losses increased through a period of time and that the condition of the company is
not likely to improve in the near future.
36

In the instant case, private respondents never contested the veracity of the audited financial
documents proffered by Asian Alcohol before the Executive Labor Arbiter. Neither did they object
to their admissibility. They show that petitioner has accumulated losses amounting to
P306,764,349.00 and showing nary a sign of abating in the near future. The allegation of union
busting is bereft of proof. Union and non-union members were treated alike. The records show
that the positions of fifty one (51) other non-union members were abolished due to business
losses.
In rejecting petitioner's claim of business losses, the NLRC stated that "the alleged deficits, of
the corporation did not prove anything for the [petitioner]"
37
since they were incurred before the
take over of Prior Holdings. Theorizing that proof of losses before the take over is no proof of losses
after the take over, it faulted Asian Alcohol for retrenching private respondents on the ground of
mere "possible future losses."
38

We do not agree. It should be observed that Article 283 of the Labor Code uses the phrase
"retrenchment to prevent losses". In its ordinary connotation, this phrase means that
retrenchment must be undertaken by the employer before losses are actually sustained.
39
We
have, however, interpreted the law to mean that the employer need not keep all his employees
until after his losses shall have materialized.
40
Otherwise, the law could be vulnerable of attack as
undue taking of property for the benefit of another.
41

In the case at bar, Prior Holdings took over the operations of Asian Alcohol in October 1991.
Plain to see, the last quarter losses in 1991 were already incurred under the new management.
There were no signs that these losses would abate. Irrefutable was the fact that losses have bled
Asian Alcohol incessantly over a span of several years. They were incurred under the management
of the Parsons family and continued to be suffered under the new management of Prior Holdings.
Ultimately, it is Prior Holdings that will absorb all the losses, including those incurred under the
former owners of the company. The law gives the new management every right to undertake
measures to save the company from bankruptcy.
We find that the reorganizational plan and comprehensive cost-saving program to turn the
business around were not designed to bust the union of the private respondents. Retrenched were
one hundred seventeen (117) employees. Seventy two (72) of them including private respondents
were separated because their positions had become redundant. In this context, what may
technically be considered as redundancy may verily be considered as retrenchment measures.
42

Their positions had to be declared redundant to cut losses.
Redundancy exists when the service capability of the work force is in excess of what is
reasonably needed to meet the demands on the enterprise. A redundant position is one rendered
superfluous by any number of factors, such as overhiring of workers, decreased volume of
business, dropping of a particular product line previously manufactured by the company or phasing
out of a service activity priorly undertaken by the business.
43
Under these conditions, the employer
has no legal obligation to keep in its payroll more employees than are necessary for the operation
of its business.
44

For the implementation of a redundancy program to be valid, the employer must comply
with the following requisites: (1) written notice served on both the employees and the Department
of Labor and Employment at least one month prior to the intended date of retrenchment;
45
(2)
payment of separation pay equivalent to at least one month pay or at least one month pay for
every year of service, whichever is higher; (3) good faith in abolishing the redundant
positions;
46
and (4) fair and reasonable criteria in ascertaining what positions are to be declared
redundant and accordingly abolished.
47

In the case at bar, private respondents Carias, Martinez and Sendon were water pump
tenders. They tended the water wells of Asian Alcohol located in Ubay, Pulupanban, Negros
Occidental. However, Asian Alcohol did not own the land where the wells stood. It only leased
them.
In 1992, the lease contract, which also provided for a right of way leading to the site of the
wells, was terminated. Also, the water from the wells had become salty due to extensive prawn
farming nearby and could no longer be used by Asian Alcohol for its purpose. The wells had to be
closed and needless to say, the services of Carias, Martinez and Sendon had to be terminated on
the twin grounds of redundancy and retrenchment.
Private respondent Verayo was the briquetting plant operator in charge of the coal-fired
boiler. Private respondent Tormo was one of the three briquetting helpers. To enhance production
efficiency, the new management team shifted to the use of bunker fuel by about seventy percent
(70%) to fire its boiler. The shift meant substantial fuel cost savings. In the process, however, the
need for a briquetting plant operator ceased as the services of only two (2) helpers were all that
was necessary to attend to the much lesser amount of coal required to run the boiler. Thus, the
position of private respondent Verayo had to be abolished. Of the three (3) briquetting helpers,
labor rev 4
Tormo was the oldest, being already 41 years old. The other two, Rudy Javier, Jr. and Eriberto
Songaling, Jr., were younger, being only 28 and 35, respectively. Age, with the physical strength
that comes with it, was particularly taken into consideration by the management team in deciding
whom to separate. Hence, it was private respondent Tormo who was separated from service. The
management choice rested on a rational basis.
Private respondent Amacio was among the ten (10) mechanics who manned the machine
shop at the plant site. At their current production level, the new management found that it was
more cost efficient to maintain only nine (9) mechanics. In choosing whom to separate among the
ten (10) mechanics, the management examined employment records and reports to determine the
least efficient among them. It was private respondent Amacio who appeared the least efficient
because of his poor health condition.
Not one of the private respondents refuted the foregoing facts. They only contend that the
new management should have followed the policy of "first in, last out" in choosing which positions
to declare as redundant or whom to retrench to prevent further business losses. No law mandates
such a policy. And the reason is simple enough. A host of relevant factors come into play in
determining cost efficient measures and in choosing the employees who will be retained or
separated to save the company from closing shop. In determining these issues, management has to
enjoy a pre-eminent role. The characterization of positions as redundant is an exercise of business
judgment on the part of the employers.
48
It will be upheld as long as it passes the test of
arbitrariness.
49

Private respondents call our attention to their allegation that casuals were hired to replace
Carias, Martinez and Sendon as water pump tenders at the Ubay wells. They rely on the testimony
of Engr. Federico Palmares, Jr., the head of the Mechanical Engineering Services Department who
admitted the engagement of independent contractors to operate the wells. A reading of the
testimony of Engr. Palmares, however, will reveal that he referred not to the Ubay wells which
were tended by private respondent Carias, Martinez and sendon, but to the Laura wells. Thus, he
declared in cross examination:
ATTY. YMBALLA: (cross-examination of respondent witness, Federico Palmares)
Q But in the Laura well?
WITNESS:
A Mansteel was hired as contractor.
ATTY. YMBALLA:
Q In other words, the persons mentioned are all workers of independent contractors?
WITNESS:
A I am not sure, maybe.
50

In any event, we have held that an employer's good faith in implementing a redundancy
program is not necessarily destroyed by availment of the services of an independent contractor to
replace the services of the terminated employees. We have previously ruled that the reduction of
the number of workers in a company made necessary by the introduction of an independent
contractor is justified when the latter is undertaken in order to effectuate more economic and
efficient methods of production.
51
In the case at bar, private respondents failed to proffer any
proof that the management acted in a malicious or arbitrary manner in engaging the services of an
independent contractor to operate the Laura wells. Absent such proof, the Court has no basis to
interfere with the bona fide decision of management to effect more economic and efficient
methods of production.
Finally, private respondent now claim that they signed the quitclaims, waivers and voluntary
resignation letters only to get their separation package. They maintain that in principle, they did
not believe that their dismissal was valid.
It is true that this Court has generally held that quit claims and releases are contrary to public
policy and therefore, void. Nonetheless, voluntary agreements that represent a reasonable
settlement are binding on the parties and should not later be disowned. It is only where there is
clear proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of
the settlement are unconscionable, that the law will step in to bail out the employee. While it is our
duty to prevent the exploitation of employees, it also behooves us to protect the sanctity of
contracts that do not contravene our laws.
In the case at bar, there is no showing that the quitclaims, waivers and voluntary resignation
letters were executed by the private respondents under force or duress. In truth, the documents
embodied separation benefits that were well beyond what the company was legally required to
give private respondents. We note that out of the more than one hundred workers that were
retrenched by Asian Alcohol, only these six (6) private respondents were not impressed by the
generosity of their employer. Their late complainants have no basis and deserves our scant
consideration.
In VIEW WHEREOF, the petition is GRANTED. The Decision of the National Labor Relations
Commission dated May 30, 1997 and its Resolution dated September 25, 1997 are ANNULLED AND
SET ASIDE. The Decision of the Executive Labor Arbiter dated January 10, 1996 in RAB Case No. 06-
12-10893-92 is ORDERED REINSTATED. The complainants for illegal dismissal filed by private
respondents against Asian Alcohol Corporation are hereby ORDERED DISMISSED FOR LACK OF
MERIT. No costs.
SO ORDERED.














labor rev 5
G.R. No. 127598 February 22, 2000
MANILA ELECTRIC COMPANY, petitioner,
vs.
Hon. SECRETARY OF LABOR LEONARDO QUISUMBING and MERALCO EMPLOYEES and WORKERS
ASSOCIATION (MEWA), respondent.
R E S O L U T I O N
YNARES-SANTIAGO, J.:
In the Decision promulgated on January 27, 1999, the Court disposed of the case as follows:
WHEREFORE, the petition is granted and the orders of public respondent Secretary of Labor
dated August 19, 1996 and December 28, 1996 are set aside to the extent set forth above. The
parties are directed to execute a Collective Bargaining Agreement incorporating the terms and
conditions contained in the unaffected portions of the Secretary of Labor's orders of August 19,
1996 and December 28, 1996, and the modifications set forth above. The retirement fund issue is
remanded to the Secretary of Labor for reception of evidence and determination of the legal
personality of the MERALCO retirement fund.
1

The modifications of the public respondent's resolutions include the following: XXX
Dissatisfied with the Decision, some alleged members of private respondent union (Union for
brevity) filed a motion for intervention and a motion for reconsideration of the said Decision. A
separate intervention was likewise made by the supervisor's union (FLAMES
2
) of petitioner
corporation alleging that it has bona fide legal interest in the outcome of the case.
3
The Court
required the "proper parties" to file a comment to the three motions for reconsideration but the
Solicitor-General asked that he be excused from filing the comment because the "petition filed in
the instant case was granted" by the Court.
4
Consequently, petitioner filed its own consolidated
comment. An "Appeal Seeking Immediate Reconsideration" was also filed by the alleged newly
elected president of the Union.
5
Other subsequent pleadings were filed by the parties and
intervenors.
The issues raised in the motions for reconsideration had already been passed upon by the
Court in the January 27, 1999 decision. No new arguments were presented for consideration of the
Court. Nonetheless, certain matters will be considered herein, particularly those involving the
amount of wages and the retroactivity of the Collective Bargaining Agreement (CBA) arbitral
awards.
Petitioner warns that if the wage increase of P2,200.00 per month as ordered by the
Secretary is allowed, it would simply pass the cost covering such increase to the consumers through
an increase in the rate of electricity. This is a non sequitur. The Court cannot be threatened with
such a misleading argument. An increase in the prices of electric current needs the approval of the
appropriate regulatory government agency and does not automatically result from a mere increase
in the wages of petitioner's employees. Besides, this argument presupposes that petitioner is
capable of meeting a wage increase. The All Asia Capital report upon which the Union relies to
support its position regarding the wage issue cannot be an accurate basis and conclusive
determinant of the rate of wage increase. Section 45 of Rule 130 Rules of Evidence provides:
Commercial lists and the like. Evidence of statements of matters of interest to persons
engaged in an occupation contained in a list, register, periodical, or other published compilation is
admissible as tending to prove the truth of any relevant matter so stated if that compilation is
published for use by persons engaged in that occupation and is generally used and relied upon by
them therein.
Under the afore-quoted rule, statement of matters contained in a periodical, may be
admitted only "if that compilation is published for use by persons engaged in that occupation and is
generally used and relied upon by them therein." As correctly held in our Decision dated January
27, 1999, the cited report is a mere newspaper account and not even a commercial list. At most, it
is but an analysis or opinion which carries no persuasive weight for purposes of this case as no
sufficient figures to support it were presented. Neither did anybody testify to its accuracy. It cannot
be said that businessmen generally rely on news items such as this in their occupation. Besides, no
evidence was presented that the publication was regularly prepared by a person in touch with the
market and that it is generally regarded as trustworthy and reliable. Absent extrinsic proof of their
accuracy, these reports are not admissible.
6
In the same manner, newspapers containing stock
quotations are not admissible in evidence when the source of the reports is available.
7
With more
reason, mere analyses or projections of such reports cannot be admitted. In particular, the source
of the report in this case can be easily made available considering that the same is necessary for
compliance with certain governmental requirements.
Nonetheless, by petitioner's own allegations, its actual total net income for 1996 was P5.1
billion.
8
An estimate by the All Asia financial analyst stated that petitioner's net operating income
for the same year was about P5.7 billion, a figure which the Union relies on to support its claim.
Assuming without admitting the truth thereof, the figure is higher than the P4.171 billion allegedly
suggested by petitioner as its projected net operating income. The P5.7 billion which was the
Secretary's basis for granting the P2,200.00 is higher than the actual net income of P5.1 billion
admitted by petitioner. It would be proper then to increase this Court's award of P1,900.00 to
P2,000.00 for the two years of the CBA award. For 1992, the agreed CBA wage increase for rank-
and-file was P1,400.00 and was reduced to P1,350.00; for 1993; further reduced to P1,150.00 for
1994. For supervisory employees, the agreed wage increase for the years 1992-1994 are P1,742.50,
P1,682.50 and P1,442.50, respectively. Based on the foregoing figures, the P2,000.00 increase for
the two-year period awarded to the rank-and-file is much higher than the highest increase granted
to supervisory employees.
9
As mentioned in the January 27, 1999 Decision, the Court does "not
seek to enumerate in this decision the factors that should affect wage determination" because
collective bargaining disputes particularly those affecting the national interest and public service
"requires due consideration and proper balancing of the interests of the parties to the dispute and
of those who might be affected by the dispute."
10
The Court takes judicial notice that the new
amounts granted herein are significantly higher than the weighted average salary currently enjoyed
by other rank-and-file employees within the community. It should be noted that the relations
between labor and capital is impressed with public interest which must yield to the common
good.
11
Neither party should act oppressively against the other or impair the interest or
convenience of the public.
12
Besides, matters of salary increases are part of management
prerogative.
13

On the retroactivity of the CBA arbitral award, it is well to recall that this petition had its
origin in the renegotiation of the parties' 1992-1997 CBA insofar as the last two-year period thereof
is concerned. When the Secretary of Labor assumed jurisdiction and granted the arbitral awards,
there was no question that these arbitral awards were to be given retroactive effect. However, the
parties dispute the reckoning period when retroaction shall commence. Petitioner claims that the
award should retroact only from such time that the Secretary of Labor rendered the award,
invoking the 1995 decision in Pier 8 case
14
where the Court, citing Union of Filipino Employees v.
NLRC,
15
said:
The assailed resolution which incorporated the CBA to be signed by the parties was
promulgated on June 5, 1989, the expiry date of the past CBA. Based on the provision of Section
253-A, its retroactivity should be agreed upon by the parties. But since no agreement to that effect
labor rev 6
was made, public respondent did not abuse its discretion in giving the said CBA a prospective
effect. The action of the public respondent is within the ambit of its authority vested by existing
law.
On the other hand, the Union argues that the award should retroact to such time granted by
the Secretary, citing the 1993 decision of St. Luke's.
16

Finally, the effectivity of the Order of January 28, 1991, must retroact to the date of the
expiration of the previous CBA, contrary to the position of petitioner. Under the circumstances of
the case, Article 253-A cannot be properly applied to herein case. As correctly stated by public
respondent in his assailed Order of April 12, 1991 dismissing petitioner's Motion for
Reconsideration
Anent the alleged lack of basis for the retroactivity provisions awarded; we would stress that
the provision of law invoked by the Hospital, Article 253-A of the Labor Code, speaks of agreements
by and between the parties, and not arbitral awards . . .
Therefore, in the absence of a specific provision of law prohibiting retroactivity of the
effectivity of arbitral awards issued by the Secretary of Labor pursuant to Article 263(g) of the
Labor Code, such as herein involved, public respondent is deemed vested with plenary and
discretionary powers to determine the effectivity thereof.
In the 1997 case of Mindanao Terminal,
17
the Court applied the St. Luke's doctrine and ruled
that:
In St. Luke's Medical Center v. Torres, a deadlock also developed during the CBA negotiations
between management and the union. The Secretary of Labor assumed jurisdiction and ordered the
retroaction of the CBA to the date of expiration of the previous CBA. As in this case, it was alleged
that the Secretary of Labor gravely abused its discretion in making his award retroactive. In
dismissing this contention this Court held:
Therefore, in the absence of a specific provision of law prohibiting retroactive of the
effectivity of arbitral awards issued by the Secretary of Labor pursuant to Article 263(g) of the
Labor Code, such as herein involved, public respondent is deemed vested with plenary and
discretionary powers to determine the effectivity thereof.
The Court in the January 27, 1999 Decision, stated that the CBA shall be "effective for a
period of 2 years counted from December 28, 1996 up to December 27, 1999." Parenthetically, this
actually covers a three-year period. Labor laws are silent as to when an arbitral award in a labor
dispute where the Secretary had assumed jurisdiction by virtue of Article 263 (g) of the Labor Code
shall retroact. In general, a CBA negotiated within six months after the expiration of the existing
CBA retroacts to the day immediately following such date and if agreed thereafter, the effectivity
depends on the agreement of the parties.
18
On the other hand, the law is silent as to the
retroactivity of a CBA arbitral award or that granted not by virtue of the mutual agreement of the
parties but by intervention of the government. Despite the silence of the law, the Court rules
herein that CBA arbitral awards granted after six months from the expiration of the last CBA shall
retroact to such time agreed upon by both employer and the employees or their union. Absent
such an agreement as to retroactivity, the award shall retroact to the first day after the six-month
period following the expiration of the last day of the CBA should there be one. In the absence of a
CBA, the Secretary's determination of the date of retroactivity as part of his discretionary powers
over arbitral awards shall control.
It is true that an arbitral award cannot per se be categorized as an agreement voluntarily
entered into by the parties because it requires the interference and imposing power of the State
thru the Secretary of Labor when he assumes jurisdiction. However, the arbitral award can be
considered as an approximation of a collective bargaining agreement which would otherwise have
been entered into by the parties.
19
The terms or periods set forth in Article 253-A pertains explicitly
to a CBA. But there is nothing that would prevent its application by analogy to an arbitral award by
the Secretary considering the absence of an applicable law. Under Article 253-A: "(I)f any such
agreement is entered into beyond six months, the parties shall agree on the duration of
retroactivity thereof." In other words, the law contemplates retroactivity whether the agreement
be entered into before or after the said six-month period. The agreement of the parties need not
be categorically stated for their acts may be considered in determining the duration of
retroactivity. In this connection, the Court considers the letter of petitioner's Chairman of the
Board and its President addressed to their stockholders, which states that the CBA "for the rank-
and-file employees covering the period December 1, 1995 to November 30, 1997 is still with the
Supreme Court,"
20
as indicative of petitioner's recognition that the CBA award covers the said
period. Earlier, petitioner's negotiating panel transmitted to the Union a copy of its proposed CBA
covering the same period inclusive.
21
In addition, petitioner does not dispute the allegation that in
the past CBA arbitral awards, the Secretary granted retroactivity commencing from the period
immediately following the last day of the expired CBA. Thus, by petitioner's own actions, the Court
sees no reason to retroact the subject CBA awards to a different date. The period is herein set at
two (2) years from December 1, 1995 to November 30, 1997.
On the allegation concerning the grant of loan to a cooperative, there is no merit in the
union's claim that it is no different from housing loans granted by the employer. The award of loans
for housing is justified because it pertains to a basic necessity of life. It is part of a privilege
recognized by the employer and allowed by law. In contrast, providing seed money for the
establishment of the employee's cooperative is a matter in which the employer has no business
interest or legal obligation. Courts should not be utilized as a tool to compel any person to grant
loans to another nor to force parties to undertake an obligation without justification. On the
contrary, it is the government that has the obligation to render financial assistance to cooperatives
and the Cooperative Code does not make it an obligation of the employer or any private
individual.
22

Anent the 40-day union leave, the Court finds that the same is a typographical error. In order
to avoid any confusion, it is herein declared that the union leave is only thirty (30) days as granted
by the Secretary of Labor and affirmed in the Decision of this Court.
The added requirement of consultation imposed by the Secretary in cases of contracting out
for six (6) months or more has been rejected by the Court. Suffice it to say that the employer is
allowed to contract out services for six months or more. However, a line must be drawn between
management prerogatives regarding business operations per se and those which affect the rights of
employees, and in treating the latter, the employer should see to it that its employees are at least
properly informed of its decision or modes of action in order to attain a harmonious labor-
management relationship and enlighten the workers concerning their rights.
23
Hiring of workers is
within the employer's inherent freedom to regulate and is a valid exercise of its management
prerogative subject only to special laws and agreements on the matter and the fair standards of
justice.
24
The management cannot be denied the faculty of promoting efficiency and attaining
economy by a study of what units are essential for its operation. It has the ultimate determination
of whether services should be performed by its personnel or contracted to outside agencies. While
there should be mutual consultation, eventually deference is to be paid to what management
decides.
25
Contracting out of services is an exercise of business judgment or management
prerogative.
26
Absent proof that management acted in a malicious or arbitrary manner, the Court
will not interfere with the exercise of judgment by an employer.
27
As mentioned in the January 27,
labor rev 7
1999 Decision, the law already sufficiently regulates this matter.
28
Jurisprudence also provides
adequate limitations, such that the employer must be motivated by good faith and the contracting
out should not be resorted to circumvent the law or must not have been the result of malicious or
arbitrary actions.
29
These are matters that may be categorically determined only when an actual
suit on the matter arises.
WHEREFORE, the motion for reconsideration is PARTIALLY GRANTED and the assailed
Decision is MODIFIED as follows: (1) the arbitral award shall retroact from December 1, 1995 to
November 30, 1997; and (2) the award of wage is increased from the original amount of One
Thousand Nine Hundred Pesos (P1,900.00) to Two Thousand Pesos (P2,000.00) for the years 1995
and 1996. This Resolution is subject to the monetary advances granted by petitioner to its rank-
and-file employees during the pendency of this case assuming such advances had actually been
distributed to them. The assailed Decision is AFFIRMED in all other respects.1wphi1.nt
SO ORDERED.
Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur.

























































labor rev 8
G.R. No. 160506 March 9, 2010
JOEB M. ALIVIADO, Petitioners, vs.PROCTER & GAMBLE PHILS., INC., and PROMM-GEM
INC., Respondents.
D E C I S I O N
DEL CASTILLO, J.:
Labor laws expressly prohibit "labor-only" contracting. To prevent its circumvention, the
Labor Code establishes an employer-employee relationship between the employer and the
employees of the labor-only contractor.
The instant petition for review assails the March 21, 2003 Decision
1
of the Court of Appeals
(CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution
2
denying the motions for
reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc. (P&G).
The appellate court affirmed the July 27, 1998 Decision of the National Labor Relations Commission
(NLRC), which in turn affirmed the November 29, 1996 Decision
3
of the Labor Arbiter. All these
decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be
legitimate independent contractors and the employers of the petitioners.
Factual Antecedents
Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as
1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:
XXX
1avvphi1
They all individually signed employment contracts with either Promm-Gem or SAPS for
periods of more or less five months at a time.
5
They were assigned at different outlets,
supermarkets and stores where they handled all the products of P&G. They received their wages
from Promm-Gem or SAPS.
6

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons
such as habitual absenteeism, dishonesty or changing day-off without prior notice.
7

P&G is principally engaged in the manufacture and production of different consumer and
health products, which it sells on a wholesale basis to various supermarkets and distributors.
8
To
enhance consumer awareness and acceptance of the products, P&G entered into contracts with
Promm-Gem and SAPS for the promotion and merchandising of its products.
9

In December 1991, petitioners filed a complaint
10
against P&G for regularization, service
incentive leave pay and other benefits with damages. The complaint was later amended
11
to
include the matter of their subsequent dismissal.
Ruling of the Labor Arbiter
On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled
that there was no employer-employee relationship between petitioners and P&G. He found that
the selection and engagement of the petitioners, the payment of their wages, the power of
dismissal and control with respect to the means and methods by which their work was
accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that Promm-
Gem and SAPS were legitimate independent job contractors. The dispositive portion of his Decision
reads:
WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-
entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit.
SO ORDERED.
12

Ruling of the NLRC
Appealing to the NLRC, petitioners disputed the Labor Arbiters findings. On July 27, 1998,
the NLRC rendered a Decision
13
disposing as follows:
WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the
decision appealed from AFFIRMED.
SO ORDERED.
14

Petitioners filed a motion for reconsideration but the motion was denied in the November
19, 1998 Resolution.
15

Ruling of the Court of Appeals
Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the NLRC. However,
said petition was also denied by the CA which disposed as follows:
WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998 is
AFFIRMED with the MODIFICATION that respondent Procter & Gamble Phils., Inc. is ordered to pay
service incentive leave pay to petitioners.
SO ORDERED.
16

Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this
petition.
Issues
Petitioners now come before us raising the following issues:
I.
WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE
ERROR WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN RENDERING THE
QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND
ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS THEIR EMPLOYER AND THAT
THEY WERE ILLEGALLY DISMISSED BY THE FORMER.
II.
WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE
ERROR WHEN IT DID NOT DECLARE THAT THE PUBLIC RESPONDENTS HAD ACTED WITH GRAVE
ABUSE OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE RESPONDENTS LIABLE TO
THE PETITIONERS FOR PAYMENT OF ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS
LITIGATION COSTS AND ATTORNEYS FEES.
17

Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether
petitioners were illegally dismissed; and (3) whether petitioners are entitled for payment of actual,
moral and exemplary damages as well as litigation costs and attorneys fees.
Petitioners Arguments
labor rev 9
Petitioners insist that they are employees of P&G. They claim that they were recruited by the
salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the
existence of Promm-Gem and/or SAPS. They further claim that when the latter had its so-called re-
alignment program, petitioners were instructed to fill up application forms and report to the
agencies which P&G created.
18

Petitioners further claim that P&G instigated their dismissal from work as can be gleaned
from its letter
19
to SAPS dated February 24, 1993, informing the latter that their Merchandising
Services Contract will no longer be renewed.
Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing
services of manpower to their client. They claim that the contractors have neither substantial
capital nor tools and equipment to undertake independent labor contracting. Petitioners insist that
since they had been engaged to perform activities which are necessary or desirable in the usual
business or trade of P&G, then they are its regular employees.
20

Respondents Arguments
On the other hand, P&G points out that the instant petition raises only questions of fact and
should thus be thrown out as the Court is not a trier of facts. It argues that findings of facts of the
NLRC, particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding
and conclusive on the Supreme Court.
P&G further argues that there is no employment relationship between it and petitioners. It
was Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their
salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of
work.
P&G also contends that the Labor Code neither defines nor limits which services or activities
may be validly outsourced. Thus, an employer can farm out any of its activities to an independent
contractor, regardless of whether such activity is peripheral or core in nature. It insists that the
determination of whether to engage the services of a job contractor or to engage in direct hiring is
within the ambit of management prerogative.
At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the
filing of the Comment of Promm-Gem on the petition.
21
Also, although SAPS was impleaded as a
party in the proceedings before the Labor Arbiter and the NLRC, it was no longer impleaded as a
party in the proceedings before the CA.
22
Hence, our pronouncements with regard to SAPS are only
for the purpose of determining the obligations of P&G, if any.
Our Ruling
The petition has merit.
As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies
exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is constrained
to wade into factual matters when there is insufficient or insubstantial evidence on record to
support those factual findings; or when too much is concluded, inferred or deduced from the bare
or incomplete facts appearing on record.
23
In the present case, we find the need to review the
records to ascertain the facts.
Labor-only contracting and job contracting
In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to
first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job
contractors.
The pertinent Labor Code provision on the matter states:
ART. 106. Contractor or subcontractor. Whenever an employer enters into a contract with
another person for the performance of the formers work, the employees of the contractor and of
the latters subcontractor, if any, shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work performed under the contract, in the
same manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting
out of labor to protect the rights of workers established under this Code. In so prohibiting or
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. (Emphasis and underscoring supplied.)
Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18-02,
24
distinguishes between legitimate and labor-only contracting:
x x x x
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.
x x x x
Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby
declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where
the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work
or service for a principal, and any of the following elements are present:
i) The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities which are directly related to the main
business of the principal; or
ii) [T]he contractor does not exercise the right to control over the performance of the work of
the contractual employee.
labor rev 10
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.
x x x x (Underscoring supplied.)
Clearly, the law and its implementing rules allow contracting arrangements for the
performance of specific jobs, works or services. Indeed, it is management prerogative to farm out
any of its activities, regardless of whether such activity is peripheral or core in nature. However, in
order for such outsourcing to be valid, it must be made to an independent contractor because the
current labor rules expressly prohibit labor-only contracting.
To emphasize, there is labor-only contracting when the contractor or sub-contractor merely
recruits, supplies or places workers to perform a job, work or service for a principal
25
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. (Underscoring supplied)
In the instant case, the financial statements
26
of Promm-Gem show that it
has authorized capital stock of P1 million and a paid-in capital, or capital available for
operations, of P500,000.00 as of 1990.
27
It also has long term assets worth P432,895.28 and current
assets of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and
office space with a floor area of 870 square meters.
28
It also had under its name three registered
vehicles which were used for its promotional/merchandising business.
29
Promm-Gem also has
other clients
30
aside from P&G.
31
Under the circumstances, we find that Promm-Gem has
substantial investment which relates to the work to be performed. These factors negate the
existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02.
The records also show that Promm-Gem supplied its complainant-workers with the relevant
materials, such as markers, tapes, liners and cutters, necessary for them to perform their work.
Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already
considered the complainants working under it as its regular, not merely contractual or project,
employees.
32
This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE
Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates
on the part of Promm-Gem bad faith and intent to circumvent labor laws which factors have
often been tipping points that lead the Court to strike down the employment practice or
agreement concerned as contrary to public policy, morals, good customs or public order.
33

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We
find that it is a legitimate independent contractor.
On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of
only P31,250.00. There is no other evidence presented to show how much its working capital and
assets are. Furthermore, there is no showing of substantial investment in tools, equipment or other
assets.
In Vinoya v. National Labor Relations Commission,
34
the Court held that "[w]ith the current
economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000.00
cannot be considered as substantial capital and, as such, PMCI cannot qualify as an independent
contractor."
35
Applying the same rationale to the present case, it is clear that SAPS having a paid-
in capital of only P31,250 - has no substantial capital. SAPS lack of substantial capital is underlined
by the records
36
which show that its payroll for its merchandisers alone for one month would
already total P44,561.00. It had 6-month contracts with P&G.
37
Yet SAPS failed to show that it could
complete the 6-month contracts using its own capital and investment. Its capital is not even
sufficient for one months payroll. SAPS failed to show that its paid-in capital of P31,250.00 is
sufficient for the period required for it to generate its needed revenue to sustain its operations
independently. Substantial capital refers to capitalization used in the performance or completion of
the job, work or service contracted out. In the present case, SAPS has failed to show substantial
capital.
Furthermore, the petitioners have been charged with the merchandising and promotion of
the products of P&G, an activity that has already been considered by the Court as doubtlessly
directly related to the manufacturing business,
38
which is the principal business of P&G.
Considering that SAPS has no substantial capital or investment and the workers it recruited are
performing activities which are directly related to the principal business of P&G, we find that the
former is engaged in "labor-only contracting".
"Where labor-only contracting exists, the Labor Code itself establishes an employer-
employee relationship between the employer and the employees of the labor-only contractor."
39

The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention
of labor laws. The contractor is considered merely an agent of the principal employer and the latter
is responsible to the employees of the labor-only contractor as if such employees had been directly
employed by the principal employer.
40

Consequently, the following petitioners, having been recruited and supplied by SAPS
41
--
which engaged in labor-only contracting -- are considered as the employees of P&G: Arthur Corpuz,
Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon,
Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta, Roehl
Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao,
Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F.
Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German
Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoa, Philip M. Loza, Mario N.
Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres,
Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente
J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and
Dennis Dacasin.
The following petitioners, having worked under, and been dismissed by Promm-Gem, are
considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin
Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. Laban, Ernesto
Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie Ortiz,
Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio
labor rev 11
Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay,
Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado.
42

Termination of services
We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular
employment, the employer shall not terminate the services of an employee except for a just
43
or
authorized
44
cause.
In the instant case, the termination letters given by Promm-Gem to its employees uniformly
specified the cause of dismissal as grave misconduct and breach of trust, as follows:
x x x x
This informs you that effective May 5, 1992, your employment with our company, Promm-
Gem, Inc. has been terminated. We find your expressed admission, that you considered yourself as
an employee of Procter & Gamble Phils., Inc. and assailing the integrity of the Company as
legitimate and independent promotion firm, is deemed as an act of disloyalty prejudicial to the
interests of our Company: serious misconduct and breach of trust reposed upon you as employee
of our Company which [co]nstitute just cause for the termination of your employment.
x x x x
45

Misconduct has been defined as improper or wrong conduct; the transgression of some
established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character
implying wrongful intent and not mere error of judgment. The misconduct to be serious must be of
such grave and aggravated character and not merely trivial and unimportant.
46
To be a just cause
for dismissal, such misconduct (a) must be serious; (b) must relate to the performance of the
employees duties; and (c) must show that the employee has become unfit to continue working for
the employer.
47

In other words, in order to constitute serious misconduct which will warrant the dismissal of
an employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or
conduct complained of has violated some established rules or policies. It is equally important and
required that the act or conduct must have been performed with wrongful intent.
48
In the instant
case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming
to be employees of P&G, but it cannot be said that they were motivated by any wrongful intent in
doing so. As such, we find them guilty of only simple misconduct for assailing the integrity of
Promm-Gem as a legitimate and independent promotion firm. A misconduct which is not serious or
grave, as that existing in the instant case, cannot be a valid basis for dismissing an employee.
Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the
willful breach of the trust reposed in the employee by his employer. Ordinary breach will not
suffice. A breach of trust is willful if it is done intentionally, knowingly and purposely, without
justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or
inadvertently.
49

Loss of trust and confidence, as a cause for termination of employment, is premised on the
fact that the employee concerned holds a position of responsibility or of trust and confidence. As
such, he must be invested with confidence on delicate matters, such as custody, handling or care
and protection of the property and assets of the employer. And, in order to constitute a just cause
for dismissal, the act complained of must be work-related and must show that the employee is
unfit to continue to work for the employer.
50
In the instant case, the petitioners-employees of
Promm-Gem have not been shown to be occupying positions of responsibility or of trust and
confidence. Neither is there any evidence to show that they are unfit to continue to work as
merchandisers for Promm-Gem.
All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem.
While Promm-Gem had complied with the procedural aspect of due process in terminating
the employment of petitioners-employees, i.e., giving two notices and in between such notices, an
opportunity for the employees to answer and rebut the charges against them, it failed to comply
with the substantive aspect of due process as the acts complained of neither constitute serious
misconduct nor breach of trust. Hence, the dismissal is illegal.
With regard to the petitioners placed with P&G by SAPS, they were given no written notice of
dismissal. The records show that upon receipt by SAPS of P&Gs letter terminating their
"Merchandising Services Contact" effective March 11, 1993, they in turn verbally informed the
concerned petitioners not to report for work anymore. The concerned petitioners related their
dismissal as follows:
x x x x
5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr.
Saturnino A. Ponce that we should already stop working immediately because that was the order of
Procter and Gamble. According to him he could not do otherwise because Procter and Gamble was
the one paying us. To prove that Procter and Gamble was the one responsible in our dismissal, he
showed to us the letter
51
dated February 24, 1993, x x x
February 24, 1993
Sales and Promotions Services
Armons Bldg., 142 Kamias Road,
Quezon City
Attention: Mr. Saturnino A. Ponce
President & General Manager
Gentlemen:
Based on our discussions last 5 and 19 February 1993, this formally informs you that we will
not be renewing our Merchandising Services Contract with your agency.
Please immediately undertake efforts to ensure that your services to the Company will
terminate effective close of business hours of 11 March 1993.
This is without prejudice to whatever obligations you may have to the company under the
abovementioned contract.
Very truly yours,
(Sgd.)
EMMANUEL M. NON
Sales Merchandising III
6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no
longer allowed to work and we were refused entrance by the security guards posted. According to
the security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case in the
Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February 25, 1993. x
x x
52
1avvphi1
labor rev 12
Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike
Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to
disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS does not
carry on its own business because the termination of its contract with P&G automatically meant for
it also the termination of its employees services. It is obvious from its act that SAPS had no other
clients and had no intention of seeking other clients in order to further its merchandising business.
From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in
the latters merchandising concerns only. Under the circumstances prevailing in the instant case,
we cannot consider SAPS as an independent contractor.
Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove
the lawfulness of the dismissal rests with the employer.
53
In termination cases, the burden of proof
rests upon the employer to show that the dismissal is for just and valid cause.
54
In the instant case,
P&G failed to discharge the burden of proving the legality and validity of the dismissals of those
petitioners who are considered its employees. Hence, the dismissals necessarily were not justified
and are therefore illegal.
Damages
We now go to the issue of whether petitioners are entitled to damages. Moral
and exemplary damages are recoverable where the dismissal of an employee was attended
by bad faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to
morals, good customs or public policy.
55

With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or
any oppressive act on the part of the latter, we find no support for the award of damages.
As for P&G, the records show that it dismissed its employees through SAPS in a manner
oppressive to labor. The sudden and peremptory barring of the concerned petitioners from work,
and from admission to the work place, after just a one-day verbal notice, and for no valid cause
bellows oppression and utter disregard of the right to due process of the concerned petitioners.
Hence, an award of moral damages is called for.
Attorneys fees may likewise be awarded to the concerned petitioners who were illegally
dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights by
reason of the oppressive acts
56
of P&G.
Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work
shall be entitled to reinstatement without loss of seniority rights and other privileges, inclusive of
allowances, and other benefits or their monetary equivalent from the time the compensation was
withheld up to the time of actual reinstatement.
57
Hence, all the petitioners, having been illegally
dismissed are entitled to reinstatement without loss of seniority rights and with full back wages
and other benefits from the time of their illegal dismissal up to the time of their actual
reinstatement.
WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of
Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003 are REVERSED and SET
ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc. are ORDERED to reinstate their
respective employees immediately without loss of seniority rights and with full backwages and
other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.
Procter & Gamble Phils., Inc. is further ORDERED to pay each of those petitioners considered as its
employees, namely Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr.,
Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor
Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya,
Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N.
Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli
Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr., Arnold D.
Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C.
Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan,
Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato
dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, P25,000.00 as moral damages plus
ten percent of the total sum as and for attorneys fees.
Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from
receipt of this Decision, of petitioners backwages and other benefits; and ten percent of the total
sum as and for attorneys fees as stated above; and for immediate execution.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice






















labor rev 13
G.R. No. 170054 January 21, 2013
GOYA, INC., Petitioner,
vs.
GOYA, INC. EMPLOYEES UNION-FFW, Respondent.
D E C I S I O N
PERALTA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Civil Procedure seeks to
reverse and set aside the June 16, 2005 Decision
1
and October 12, 2005 Resolution
2
of the Court of
Appeals in CA-G.R. SP No. 87335, which sustained the October 26, 2004 Decision
3
of Voluntary
Arbitrator Bienvenido E. Laguesma, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered declaring that the Company is NOT guilty of
unfair labor practice in engaging the services of PESO.
The company is, however, directed to observe and comply with its commitment as it pertains
to the hiring of casual employees when necessitated by business circumstances.
4

The facts are simple and appear to be undisputed.
Sometime in January 2004, petitioner Goya, Inc. (Company), a domestic corporation engaged
in the manufacture, importation, and wholesale of top quality food products, hired contractual
employees from PESO Resources Development Corporation (PESO) to perform temporary and
occasional services in its factory in Parang, Marikina City. This prompted respondent Goya, Inc.
Employees UnionFFW (Union) to request for a grievance conference on the ground that the
contractual workers do not belong to the categories of employees stipulated in the existing
Collective Bargaining Agreement (CBA).
5
When the matter remained unresolved, the grievance was
referred to the National Conciliation and Mediation Board (NCMB) for voluntary arbitration.
During the hearing on July 1, 2004, the Company and the Union manifested before Voluntary
Arbitrator (VA) Bienvenido E. Laguesma that amicable settlement was no longer possible; hence,
they agreed to submit for resolution the solitary issue of "[w]hether or not the Company is guilty of
unfair labor acts in engaging the services of PESO, a third party service provider, under the existing
CBA, laws, and jurisprudence."
6
Both parties thereafter filed their respective pleadings.
The Union asserted that the hiring of contractual employees from PESO is not a management
prerogative and in gross violation of the CBA tantamount to unfair labor practice (ULP). It noted
that the contractual workers engaged have been assigned to work in positions previously handled
by regular workers and Union members, in effect violating Section 4, Article I of the CBA, which
provides for three categories of employees in the Company, to wit:
Section 4. Categories of Employees. The parties agree on the following categories of
employees:
(a) Probationary Employee. One hired to occupy a regular rank-and-file position in the
Company and is serving a probationary period. If the probationary employee is hired or comes from
outside the Company (non-Goya, Inc. employee), he shall be required to undergo a probationary
period of six (6) months, which period, in the sole judgment of management, may be shortened if
the employee has already acquired the knowledge or skills required of the job. If the employee is
hired from the casual pool and has worked in the same position at any time during the past two (2)
years, the probationary period shall be three (3) months.
(b) Regular Employee. An employee who has satisfactorily completed his probationary
period and automatically granted regular employment status in the Company.
(c) Casual Employee, One hired by the Company to perform occasional or seasonal work
directly connected with the regular operations of the Company, or one hired for specific projects of
limited duration not connected directly with the regular operations of the Company.
It was averred that the categories of employees had been a part of the CBA since the 1970s
and that due to this provision, a pool of casual employees had been maintained by the Company
from which it hired workers who then became regular workers when urgently necessary to employ
them for more than a year. Likewise, the Company sometimes hired probationary employees who
also later became regular workers after passing the probationary period. With the hiring of
contractual employees, the Union contended that it would no longer have probationary and casual
employees from which it could obtain additional Union members; thus, rendering inutile Section 1,
Article III (Union Security) of the CBA, which states:
Section 1. Condition of Employment. As a condition of continued employment in the
Company, all regular rank-and-file employees shall remain members of the Union in good standing
and that new employees covered by the appropriate bargaining unit shall automatically become
regular employees of the Company and shall remain members of the Union in good standing as a
condition of continued employment.
The Union moreover advanced that sustaining the Companys position would easily weaken
and ultimately destroy the former with the latters resort to retrenchment and/or retirement of
employees and not filling up the vacant regular positions through the hiring of contractual workers
from PESO, and that a possible scenario could also be created by the Company wherein it could
"import" workers from PESO during an actual strike.
In countering the Unions allegations, the Company argued that: (a) the law expressly allows
contracting and subcontracting arrangements through Department of Labor and Employment
(DOLE) Order No. 18-02; (b) the engagement of contractual employees did not, in any way,
prejudice the Union, since not a single employee was terminated and neither did it result in a
reduction of working hours nor a reduction or splitting of the bargaining unit; and (c) Section 4,
Article I of the CBA merely provides for the definition of the categories of employees and does not
put a limitation on the Companys right to engage the services of job contractors or its
management prerogative to address temporary/occasional needs in its operation.
On October 26, 2004, VA Laguesma dismissed the Unions charge of ULP for being purely
speculative and for lacking in factual basis, but the Company was directed to observe and comply
with its commitment under the CBA. The VA opined:
We examined the CBA provision Section 4, Article I of the CBAallegedly violated by the
Company and indeed the agreement prescribes three (3) categories of employees in the Company
and provides for the definition, functions and duties of each. Material to the case at hand is the
definition as regards the functions of a casual employee described as follows:
Casual Employee One hired by the COMPANY to perform occasional or seasonal work
directly connected with the regular operations of the COMPANY, or one hired for specific projects
of limited duration not connected directly with the regular operations of the COMPANY.
While the foregoing agreement between the parties did eliminate managements prerogative
of outsourcing parts of its operations, it serves as a limitation on such prerogative particularly if it
involves functions or duties specified under the aforequoted agreement. It is clear that the parties
agreed that in the event that the Company needs to engage the services of additional workers who
labor rev 14
will perform "occasional or seasonal work directly connected with the regular operations of the
COMPANY," or "specific projects of limited duration not connected directly with the regular
operations of the COMPANY", the Company can hire casual employees which is akin to contractual
employees. If we note the Companys own declaration that PESO was engaged to perform
"temporary or occasional services" (See the Companys Position Paper, at p. 1), then it should have
directly hired the services of casual employees rather than do it through PESO.
It is evident, therefore, that the engagement of PESO is not in keeping with the intent and
spirit of the CBA provision in question. It must, however, be stressed that the right of management
to outsource parts of its operations is not totally eliminated but is merely limited by the CBA. Given
the foregoing, the Companys engagement of PESO for the given purpose is indubitably a violation
of the CBA.
7

While the Union moved for partial reconsideration of the VA Decision,
8
the Company
immediately filed a petition for review
9
before the Court of Appeals (CA) under Rule 43 of the
Revised Rules of Civil Procedure to set aside the directive to observe and comply with the CBA
commitment pertaining to the hiring of casual employees when necessitated by business
circumstances. Professing that such order was not covered by the sole issue submitted for
voluntary arbitration, the Company assigned the following errors:
THE HONORABLE VOLUNTARY ARBITRATOR EXCEEDED HIS POWER WHICH WAS EXPRESSLY
GRANTED AND LIMITED BY BOTH PARTIES IN RULING THAT THE ENGAGEMENT OF PESO IS NOT IN
KEEPING WITH THE INTENT AND SPIRIT OF THE CBA.
10

THE HONORABLE VOLUNTARY ARBITRATOR COMMITTED A PATENT AND PALPABLE ERROR IN
DECLARING THAT THE ENGAGEMENT OF PESO IS NOT IN KEEPING WITH THE INTENT AND SPIRIT OF
THE CBA.
11

On June 16, 2005, the CA dismissed the petition. In dispensing with the merits of the
controversy, it held:
This Court does not find it arbitrary on the part of the Hon. Voluntary Arbitrator in ruling that
"the engagement of PESO is not in keeping with the intent and spirit of the CBA." The said ruling is
interrelated and intertwined with the sole issue to be resolved that is, "Whether or not the
Company is guilty of unfair labor practice in engaging the services of PESO, a third party service
provider, under existing CBA, laws, and jurisprudence." Both issues concern the engagement of
PESO by the Company which is perceived as a violation of the CBA and which constitutes as unfair
labor practice on the part of the Company. This is easily discernible in the decision of the Hon.
Voluntary Arbitrator when it held:
x x x x While the engagement of PESO is in violation of Section 4, Article I of the CBA, it does
not constitute unfair labor practice as it (sic) not characterized under the law as a gross violation of
the CBA. Violations of a CBA, except those which are gross in character, shall no longer be treated
as unfair labor practice. Gross violations of a CBA means flagrant and/or malicious refusal to
comply with the economic provisions of such agreement. x x x
Anent the second assigned error, the Company contends that the Hon. Voluntary Arbitrator
erred in declaring that the engagement of PESO is not in keeping with the intent and spirit of the
CBA. The Company justified its engagement of contractual employees through PESO as a
management prerogative, which is not prohibited by law. Also, it further alleged that no provision
under the CBA limits or prohibits its right to contract out certain services in the exercise of
management prerogatives.
Germane to the resolution of the above issue is the provision in their CBA with respect to the
categories of the employees:
x x x x
A careful reading of the above-enumerated categories of employees reveals that the PESO
contractual employees do not fall within the enumerated categories of employees stated in the
CBA of the parties. Following the said categories, the Company should have observed and complied
with the provision of their CBA. Since the Company had admitted that it engaged the services of
PESO to perform temporary or occasional services which is akin to those performed by casual
employees, the Company should have tapped the services of casual employees instead of engaging
PESO.
In justifying its act, the Company posits that its engagement of PESO was a management
prerogative. It bears stressing that a management prerogative refers to the right of the employer to
regulate all aspects of employment, such as the freedom to prescribe work assignments, working
methods, processes to be followed, regulation regarding transfer of employees, supervision of their
work, lay-off and discipline, and dismissal and recall of work, presupposing the existence of
employer-employee relationship. On the basis of the foregoing definition, the Companys
engagement of PESO was indeed a management prerogative. This is in consonance with the
pronouncement of the Supreme Court in the case of Manila Electric Company vs. Quisumbing
where it ruled that contracting out of services is an exercise of business judgment or management
prerogative.
This management prerogative of contracting out services, however, is not without limitation.
In contracting out services, the management must be motivated by good faith and the contracting
out should not be resorted to circumvent the law or must not have been the result of malicious
arbitrary actions. In the case at bench, the CBA of the parties has already provided for the
categories of the employees in the Companysestablishment. These categories of employees
particularly with respect to casual employees serve as limitation to the Companys prerogative to
outsource parts of its operations especially when hiring contractual employees. As stated earlier,
the work to be performed by PESO was similar to that of the casual employees. With the provision
on casual employees, the hiring of PESO contractual employees, therefore, is not in keeping with
the spirit and intent of their CBA. (Citations omitted)
12

The Company moved to reconsider the CA Decision,
13
but it was denied;
14
hence, this
petition.
Incidentally, on July 16, 2009, the Company filed a Manifestation
15
informing this Court that
its stockholders and directors unanimously voted to shorten the Companys corporate existence
only until June 30, 2006, and that the three-year period allowed by law for liquidation of the
Companys affairs already expired on June 30, 2009. Referring to Gelano v. Court of Appeals,
16

Public Interest Center, Inc. v. Elma,
17
and Atienza v. Villarosa,
18
it urged Us, however, to still resolve
the case for future guidance of the bench and the bar as the issue raised herein allegedly calls for a
clarification of a legal principle, specifically, whether the VA is empowered to rule on a matter not
covered by the issue submitted for arbitration.
Even if this Court would brush aside technicality by ignoring the supervening event that
renders this case moot and academic
19
due to the permanent cessation of the Companys business
operation on June 30, 2009, the arguments raised in this petition still fail to convince Us.
We confirm that the VA ruled on a matter that is covered by the sole issue submitted for
voluntary arbitration. Resultantly, the CA did not commit serious error when it sustained the ruling
that the hiring of contractual employees from PESO was not in keeping with the intent and spirit of
labor rev 15
the CBA. Indeed, the opinion of the VA is germane to, or, in the words of the CA, "interrelated and
intertwined with," the sole issue submitted for resolution by the parties. This being said, the
Companys invocation of Sections 4 and 5, Rule IV
20
and Section 5, Rule VI
21
of the Revised
Procedural Guidelines in the Conduct of Voluntary Arbitration Proceedings dated October 15, 2004
issued by the NCMB is plainly out of order.
Likewise, the Company cannot find solace in its cited case of Ludo & Luym Corporation v.
Saornido.
22
In Ludo, the company was engaged in the manufacture of coconut oil, corn starch,
glucose and related products. In the course of its business operations, it engaged the arrastre
services of CLAS for the loading and unloading of its finished products at the wharf. The arrastre
workers deployed by CLAS to perform the services needed were subsequently hired, on different
dates, as Ludos regular rank-and-file employees. Thereafter, said employees joined LEU, which
acted as the exclusive bargaining agent of the rank-and-file employees. When LEU entered into a
CBA with Ludo, providing for certain benefits to the employees (the amount of which vary
according to the length of service rendered), it requested to include in its members period of
service the time during which they rendered arrastre services so that they could get higher
benefits. The matter was submitted for voluntary arbitration when Ludo failed to act. Per
submission agreement executed by both parties, the sole issue for resolution was the date of
regularization of the workers. The VA Decision ruled that: (1) the subject employees were engaged
in activities necessary and desirable to the business of Ludo, and (2) CLAS is a labor-only contractor
of Ludo. It then disposed as follows: (a) the complainants were considered regular employees six
months from the first day of service at CLAS; (b) the complainants, being entitled to the CBA
benefits during the regular employment, were awarded sick leave, vacation leave, and annual wage
and salary increases during such period; (c) respondents shall pay attorneys fees of 10% of the
total award; and (d) an interest of 12% per annum or 1% per month shall be imposed on the award
from the date of promulgation until fully paid. The VA added that all separation and/or retirement
benefits shall be construed from the date of regularization subject only to the appropriate
government laws and other social legislation. Ludo filed a motion for reconsideration, but the VA
denied it. On appeal, the CA affirmed in toto the assailed decision; hence, a petition was brought
before this Court raising the issue, among others, of whether a voluntary arbitrator can award
benefits not claimed in the submission agreement. In denying the petition, We ruled:
Generally, the arbitrator is expected to decide only those questions expressly delineated by
the submission agreement. Nevertheless, the arbitrator can assume that he has the necessary
power to make a final settlement since arbitration is the final resort for the adjudication of
disputes. The succinct reasoning enunciated by the CA in support of its holding, that the Voluntary
Arbitrator in a labor controversy has jurisdiction to render the questioned arbitral awards, deserves
our concurrence, thus:
In general, the arbitrator is expected to decide those questions expressly stated and limited
in the submission agreement. However, since arbitration is the final resort for the adjudication of
disputes, the arbitrator can assume that he has the power to make a final settlement. Thus,
assuming that the submission empowers the arbitrator to decide whether an employee was
discharged for just cause, the arbitrator in this instance can reasonably assume that his powers
extended beyond giving a yes-or-no answer and included the power to reinstate him with or
without back pay.
In one case, the Supreme Court stressed that "xxx the Voluntary Arbitrator had plenary
jurisdiction and authority to interpret the agreement to arbitrate and to determine the scope of his
own authority subject only, in a proper case, to the certiorari jurisdiction of this Court. The
Arbitrator, as already indicated, viewed his authority as embracing not merely the determination of
the abstract question of whether or not a performance bonus was to be granted but also, in the
affirmative case, the amount thereof.
By the same token, the issue of regularization should be viewed as two-tiered issue. While
the submission agreement mentioned only the determination of the date or regularization, law and
jurisprudence give the voluntary arbitrator enough leeway of authority as well as adequate
prerogative to accomplish the reason for which the law on voluntary arbitration was created
speedy labor justice. It bears stressing that the underlying reason why this case arose is to settle,
once and for all, the ultimate question of whether respondent employees are entitled to higher
benefits. To require them to file another action for payment of such benefits would certainly
undermine labor proceedings and contravene the constitutional mandate providing full protection
to labor.
23

Indubitably, Ludo fortifies, not diminishes, the soundness of the questioned VA Decision. Said
case reaffirms the plenary jurisdiction and authority of the voluntary arbitrator to interpret the CBA
and to determine the scope of his/her own authority. Subject to judicial review, the leeway of
authority as well as adequate prerogative is aimed at accomplishing the rationale of the law on
voluntary arbitration speedy labor justice. In this case, a complete and final adjudication of the
dispute between the parties necessarily called for the resolution of the related and incidental issue
of whether the Company still violated the CBA but without being guilty of ULP as, needless to state,
ULP is committed only if there is gross violation of the agreement.
Lastly, the Company kept on harping that both the VA and the CA conceded that its
engagement of contractual workers from PESO was a valid exercise of management prerogative. It
is confused. To emphasize, declaring that a particular act falls within the concept of management
prerogative is significantly different from acknowledging that such act is a valid exercise thereof.
What the VA and the CA correctly ruled was that the Companys act of contracting out/outsourcing
is within the purview of management prerogative. Both did not say, however, that such act is a
valid exercise thereof. Obviously, this is due to the recognition that the CBA provisions agreed upon
by the Company and the Union delimit the free exercise of management prerogative pertaining to
the hiring of contractual employees. Indeed, the VA opined that "the right of the management to
outsource parts of its operations is not totally eliminated but is merely limited by the CBA," while
the CA held that "this management prerogative of contracting out services, however, is not without
limitation. x x x These categories of employees particularly with respect to casual employees serve
as limitation to the Companys prerogative to outsource parts of its operations especially when
hiring contractual employees."
A collective bargaining agreement is the law between the parties:
It is familiar and fundamental doctrine in labor law that the CBA is the law between the
parties and they are obliged to comply with its provisions. We said so in Honda Phils., Inc. v.
Samahan ng Malayang Manggagawa sa Honda:
A collective bargaining agreement or CBA refers to the negotiated contract between a
legitimate labor organization and the employer concerning wages, hours of work and all other
terms and conditions of employment in a bargaining unit.1wphi1 As in all contracts, the parties in
a CBA may establish such stipulations, clauses, terms and conditions as they may deem convenient
provided these are not contrary to law, morals, good customs, public order or public policy. Thus,
where the CBA is clear and unambiguous, it becomes the law between the parties and compliance
therewith is mandated by the express policy of the law.
Moreover, if the terms of a contract, as in a CBA, are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of their stipulations shall control. x x x.
24

labor rev 16
In this case, Section 4, Article I (on categories of employees) of the CBA between the
Company and the Union must be read in conjunction with its Section 1, Article III (on union
security). Both are interconnected and must be given full force and effect. Also, these provisions
are clear and unambiguous. The terms are explicit and the language of the CBA is not susceptible to
any other interpretation. Hence, the literal meaning should prevail. As repeatedly held, the exercise
of management prerogative is not unlimited; it is subject to the limitations found in law, collective
bargaining agreement or the general principles of fair play and justice
25
Evidently, this case has one
of the restrictions- the presence of specific CBA provisions-unlike in San Miguel Corporation
Employees Union-PTGWO v. Bersamira,
26
De Ocampo v. NLRC,
27
Asian Alcohol Corporation v.
NLRC,
28
and Serrano v. NLRC
29
cited by the Company. To reiterate, the CBA is the norm of conduct
between the parties and compliance therewith is mandated by the express policy of the law.
30

WHEREFORE, the petition is DENIED. The assailed June 16, 2005 Decision, as well as the
October 12, 2005 Resolution of the Court of Appeals, which sustained the October 26, 2004
Decision of the Voluntary Arbitrator, are hereby AFFIRMED.
SO ORDERED.
DIOSDADO M. PERAL























































labor rev 17
G.R. No. 178827 March 4, 2009
JEROMIE D. ESCASINAS and EVAN RIGOR SINGCO, Petitioners,
vs.
SHANGRI-LA'S MACTAN ISLAND RESORT and DR. JESSICA J.R. PEPITO, Respondents.
D E C I S I O N
CARPIO MORALES, J.:
Registered nurses Jeromie D. Escasinas and Evan Rigor Singco (petitioners) were engaged in
1999 and 1996, respectively, by Dr. Jessica Joyce R. Pepito (respondent doctor) to work in her clinic
at respondent Shangri-las Mactan Island Resort (Shangri-la) in Cebu of which she was a retained
physician.
In late 2002, petitioners filed with the National Labor Relations Commission (NLRC) Regional
Arbitration Branch No. VII (NLRC-RAB No. VII) a complaint
1
for regularization, underpayment of
wages, non-payment of holiday pay, night shift differential and 13th month pay differential against
respondents, claiming that they are regular employees of Shangri-la. The case was docketed as RAB
Case No. 07-11-2089-02.
Shangri-la claimed, however, that petitioners were not its employees but of respondent
doctor whom it retained via Memorandum of Agreement (MOA)
2
pursuant to Article 157 of the
Labor Code, as amended.
Respondent doctor for her part claimed that petitioners were already working for the
previous retained physicians of Shangri-la before she was retained by Shangri-la; and that she
maintained petitioners services upon their request.
By Decision
3
of May 6, 2003, Labor Arbiter Ernesto F. Carreon declared petitioners to be
regular employees of Shangri-la. The Arbiter thus ordered Shangri-la to grant them the wages and
benefits due them as regular employees from the time their services were engaged.
In finding petitioners to be regular employees of Shangri-la, the Arbiter noted that they
usually perform work which is necessary and desirable to Shangri-las business; that they observe
clinic hours and render services only to Shangri-las guests and employees; that payment for their
salaries were recommended to Shangri-las Human Resource Department (HRD); that respondent
doctor was Shangri-las "in-house" physician, hence, also an employee; and that the MOA between
Shangri-la and respondent doctor was an "insidious mechanism in order to circumvent [the
doctors+ tenurial security and that of the employees under her."
Shangri-la and respondent doctor appealed to the NLRC. Petitioners appealed too, but only
with respect to the non-award to them of some of the benefits they were claiming.
By Decision
4
dated March 31, 2005, the NLRC granted Shangri-las and respondent doctors
appeal and dismissed petitioners complaint for lack of merit, it finding that no employer-employee
relationship exists between petitioner and Shangri-la. In so deciding, the NLRC held that the Arbiter
erred in interpreting Article 157 in relation to Article 280 of the Labor Code, as what is required
under Article 157 is that the employer should provide the services of medical personnel to its
employees, but nowhere in said article is a provision that nurses are required to be employed; that
contrary to the finding of the Arbiter, even if Article 280 states that if a worker performs work
usually necessary or desirable in the business of the employer, he cannot be automatically deemed
a regular employee; and that the MOA amply shows that respondent doctor was in fact engaged by
Shangri-la on a retainer basis, under which she could hire her own nurses and other clinic
personnel.
Brushing aside petitioners contention that since their application for employment was
addressed to Shangri-la, it was really Shangri-la which hired them and not respondent doctor, the
NLRC noted that the applications for employment were made by persons who are not parties to
the case and were not shown to have been actually hired by Shangri-la.
On the issue of payment of wages, the NLRC held that the fact that, for some months,
payment of petitioners wages were recommended by Shangri-las HRD did not prove that it was
Shangri-la which pays their wages. It thus credited respondent doctors explanation that the
recommendations for payment were based on the billings she prepared for salaries of additional
nurses during Shangri-las peak months of operation, in accordance with the retainership
agreement, the guests payments for medical services having been paid directly to Shanrgi-la.
Petitioners thereupon brought the case to the Court of Appeals which, by Decision
5
of May
22, 2007, affirmed the NLRC Decision that no employer-employee relationship exists between
Shangri-la and petitioners. The appellate court concluded that all aspects of the employment of
petitioners being under the supervision and control of respondent doctor and since Shangri-la is
not principally engaged in the business of providing medical or healthcare services, petitioners
could not be regarded as regular employees of Shangri-la.
Petitioners motion for reconsideration having been denied by Resolution
6
of July 10, 2007,
they interposed the present recourse.
Petitioners insist that under Article 157 of the Labor Code, Shangri-la is required to hire a full-
time registered nurse, apart from a physician, hence, their engagement should be deemed as
regular employment, the provisions of the MOA notwithstanding; and that the MOA is contrary to
public policy as it circumvents tenurial security and, therefore, should be struck down as being void
ab initio. At most, they argue, the MOA is a mere job contract.
And petitioners maintain that respondent doctor is a labor-only contractor for she has no
license or business permit and no business name registration, which is contrary to the
requirements under Sec. 19 and 20 of the Implementing Rules and Regulations of the Labor Code
on sub-contracting.
Petitioners add that respondent doctor cannot be a legitimate independent contractor,
lacking as she does in substantial capital, the clinic having been set-up and already operational
when she took over as retained physician; that respondent doctor has no control over how the
clinic is being run, as shown by the different orders issued by officers of Shangri-la forbidding her
from receiving cash payments and several purchase orders for medicines and supplies which were
coursed thru Shangri-las Purchasing Manager, circumstances indubitably showing that she is not
an independent contractor but a mere agent of Shangri-la.
In its Comment,
7
Shangri-la questions the Special Powers of Attorneys (SPAs) appended to
the petition for being inadequate. On the merits, it prays for the disallowance of the petition,
contending that it raises factual issues, such as the validity of the MOA, which were never raised
during the proceedings before the Arbiter, albeit passed upon by him in his Decision; that Article
157 of the Labor Code does not make it mandatory for a covered establishment to employ health
personnel; that the services of nurses is not germane nor indispensable to its operations; and that
respondent doctor is a legitimate individual independent contractor who has the power to hire, fire
and supervise the work of the nurses under her.
The resolution of the case hinges, in the main, on the correct interpretation of Art. 157 vis a
vis Art. 280 and the provisions on permissible job contracting of the Labor Code, as amended.
labor rev 18
The Court holds that, contrary to petitioners postulation, Art. 157 does not require the
engagement of full-time nurses as regular employees of a company employing not less than 50
workers. Thus, the Article provides:
ART. 157. Emergency medical and dental services. It shall be the duty of every employer to
furnish his employees in any locality with free medical and dental attendance and facilities
consisting of:
(a) The services of a full-time registered nurse when the number of employees exceeds fifty
(50) but not more than two hundred (200) except when the employer does not maintain hazardous
workplaces, in which case the services of a graduate first-aider shall be provided for the protection
of the workers, where no registered nurse is available. The Secretary of Labor shall provide by
appropriate regulations the services that shall be required where the number of employees does
not exceed fifty (50) and shall determine by appropriate order hazardous workplaces for purposes
of this Article;
(b) The services of a full-time registered nurse, a part-time physician and dentist, and an
emergency clinic, when the number of employees exceeds two hundred (200) but not more than
three hundred (300); and
(c) The services of a full-time physician, dentist and full-time registered nurse as well as a
dental clinic, and an infirmary or emergency hospital with one bed capacity for every one hundred
(100) employees when the number of employees exceeds three hundred (300).
In cases of hazardous workplaces, no employer shall engage the services of a physician or
dentist who cannot stay in the premises of the establishment for at least two (2) hours, in the case
of those engaged on part-time basis, and not less than eight (8) hours in the case of those
employed on full-time basis. Where the undertaking is nonhazardous in nature, the physician and
dentist may be engaged on retained basis, subject to such regulations as the Secretary of Labor
may prescribe to insure immediate availability of medical and dental treatment and attendance in
case of emergency. (Emphasis and underscoring supplied)
Under the foregoing provision, Shangri-la, which employs more than 200 workers, is
mandated to "furnish" its employees with the services of a full-time registered nurse, a part-time
physician and dentist, and an emergency clinic which means that it should provide or make
available such medical and allied services to its employees, not necessarily to hire or employ a
service provider. As held in Philippine Global Communications vs. De Vera:
8

x x x while it is true that the provision requires employers to engage the services of medical
practitioners in certain establishments depending on the number of their employees, nothing is
there in the law which says that medical practitioners so engaged be actually hired as employees,
adding that the law, as written, only requires the employer "to retain", not employ, a part-time
physician who needed to stay in the premises of the non-hazardous workplace for two (2) hours.
(Emphasis and underscoring supplied)1avvphi1
The term "full-time" in Art. 157 cannot be construed as referring to the type of employment
of the person engaged to provide the services, for Article 157 must not be read alongside Art. 280
9

in order to vest employer-employee relationship on the employer and the person so engaged. So
De Vera teaches:
x x x For, we take it that any agreement may provide that one party shall render services for
and in behalf of another, no matter how necessary for the latters business, even without being
hired as an employee. This set-up is precisely true in the case of an independent contractorship as
well as in an agency agreement. Indeed, Article 280 of the Labor Code, quoted by the appellate
court, is not the yardstick for determining the existence of an employment relationship. As it is, the
provision merely distinguishes between two (2) kinds of employees, i.e., regular and casual. x x x
10

(Emphasis and underscoring supplied)
The phrase "services of a full-time registered nurse" should thus be taken to refer to the kind
of services that the nurse will render in the companys premises and to its employees, not the
manner of his engagement.
As to whether respondent doctor can be considered a legitimate independent contractor, the
pertinent sections of DOLE Department Order No. 10, series of 1997, illuminate:
Sec. 8. Job contracting. There is job contracting permissible under the Code if the following
conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on
his own account under his own responsibility according to his own manner and method, free from
the control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an
employer shall be deemed to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials; and
(2) The workers recruited and placed by such persons are performing activities which are
directly related to the principal business or operations of the employer in which workers are
habitually employed.
(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as
contractor shall be considered merely as an agent or intermediary 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.
(c) For cases not falling under this Article, the Secretary of Labor shall determine through
appropriate orders whether or not the contracting out of labor is permissible in the light of the
circumstances of each case and after considering the operating needs of the employer and the
rights of the workers involved. In such case, he may prescribe conditions and restrictions to insure
the protection and welfare of the workers. (Emphasis supplied)
The existence of an independent and permissible contractor relationship is generally
established by considering the following determinants: whether the contractor is carrying on an
independent business; the nature and extent of the work; the skill required; the term and duration
of the relationship; the right to assign the performance of a specified piece of work; the control and
supervision of the work to another; the employer's power with respect to the hiring, firing and
payment of the contractor's workers; the control of the premises; the duty to supply the premises,
tools, appliances, materials and labor; and the mode, manner and terms of payment.
11

On the other hand, existence of an employer- employee relationship is established by the
presence of the following determinants: (1) the selection and engagement of the workers; (2)
power of dismissal; (3) the payment of wages by whatever means; and (4) the power to control the
worker's conduct, with the latter assuming primacy in the overall consideration.
12

labor rev 19
Against the above-listed determinants, the Court holds that respondent doctor is a legitimate
independent contractor. That Shangri-la provides the clinic premises and medical supplies for use
of its employees and guests does not necessarily prove that respondent doctor lacks substantial
capital and investment. Besides, the maintenance of a clinic and provision of medical services to its
employees is required under Art. 157, which are not directly related to Shangri-las principal
business operation of hotels and restaurants.
As to payment of wages, respondent doctor is the one who underwrites the following:
salaries, SSS contributions and other benefits of the staff
13
; group life, group personal accident
insurance and life/death insurance
14
for the staff with minimum benefit payable at 12 times the
employees last drawn salary, as well as value added taxes and withholding taxes, sourced from her
P60,000.00 monthly retainer fee and 70% share of the service charges from Shangri-las guests who
avail of the clinic services. It is unlikely that respondent doctor would report petitioners as workers,
pay their SSS premium as well as their wages if they were not indeed her employees.
15

With respect to the supervision and control of the nurses and clinic staff, it is not disputed
that a document, "Clinic Policies and Employee Manual"
16
claimed to have been prepared by
respondent doctor exists, to which petitioners gave their conformity
17
and in which they
acknowledged their co-terminus employment status. It is thus presumed that said document, and
not the employee manual being followed by Shangri-las regular workers, governs how they
perform their respective tasks and responsibilities.
Contrary to petitioners contention, the various office directives issued by Shangri-las
officers do not imply that it is Shangri-las management and not respondent doctor who exercises
control over them or that Shangri-la has control over how the doctor and the nurses perform their
work. The letter
18
addressed to respondent doctor dated February 7, 2003 from a certain Tata L.
Reyes giving instructions regarding the replenishment of emergency kits is, at most, administrative
in nature, related as it is to safety matters; while the letter
19
dated May 17, 2004 from Shangri-las
Assistant Financial Controller, Lotlot Dagat, forbidding the clinic from receiving cash payments from
the resorts guests is a matter of financial policy in order to ensure proper sharing of the proceeds,
considering that Shangri-la and respondent doctor share in the guests payments for medical
services rendered. In fine, as Shangri-la does not control how the work should be performed by
petitioners, it is not petitioners employer.
WHEREFORE, the petition is hereby DENIED. The Decision of the Court of Appeals dated May
22, 2007 and the Resolution dated July 10, 2007 are AFFIRMED.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice










































labor rev 20
G.R. No. 186091 December 15, 2010
EMMANUEL BABAS, DANILO T. BANAG, ARTURO V. VILLARIN, SR., EDWIN JAVIER, SANDI
BERMEO, REX ALLESA, MAXIMO SORIANO, JR., ARSENIO ESTORQUE, and FELIXBERTO ANAJAO,
Petitioners,
vs.
LORENZO SHIPPING CORPORATION, Respondent.
D E C I S I O N
NACHURA, J.:
Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi
Bermeo, Rex Allesa, Maximo Soriano, Jr., Arsenio Estorque, and Felixberto Anajao appeal by
certiorari under Rule 45 of the Rules of Court the October 10, 2008 Decision
1
of the Court of
Appeals (CA) in CA-G.R. SP. No. 103804, and the January 21, 2009 Resolution,
2
denying its
reconsideration.
Respondent Lorenzo Shipping Corporation (LSC) is a duly organized domestic corporation
engaged in the shipping industry; it owns several equipment necessary for its business. On
September 29, 1997, LSC entered into a General Equipment Maintenance Repair and Management
Services Agreement
3
(Agreement) with Best Manpower Services, Inc. (BMSI). Under the
Agreement, BMSI undertook to provide maintenance and repair services to LSCs container vans,
heavy equipment, trailer chassis, and generator sets. BMSI further undertook to provide checkers
to inspect all containers received for loading to and/or unloading from its vessels.
Simultaneous with the execution of the Agreement, LSC leased its equipment, tools, and
tractors to BMSI.
4
The period of lease was coterminous with the Agreement.
BMSI then hired petitioners on various dates to work at LSC as checkers, welders, utility men,
clerks, forklift operators, motor pool and machine shop workers, technicians, trailer drivers, and
mechanics. Six years later, or on May 1, 2003, LSC entered into another contract with BMSI, this
time, a service contract.
5

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint for regularization
against LSC and BMSI. On October 1, 2003, LSC terminated the Agreement, effective October 31,
2003. Consequently, petitioners lost their employment.
BMSI asserted that it is an independent contractor. It averred that it was willing to regularize
petitioners; however, some of them lacked the requisite qualifications for the job. BMSI was willing
to reassign petitioners who were willing to accept reassignment. BMSI denied petitioners claim for
underpayment of wages and non-payment of 13th month pay and other benefits.
LSC, on the other hand, averred that petitioners were employees of BMSI and were assigned
to LSC by virtue of the Agreement. BMSI is an independent job contractor with substantial capital
or investment in the form of tools, equipment, and machinery necessary in the conduct of its
business. The Agreement between LSC and BMSI constituted legitimate job contracting. Thus,
petitioners were employees of BMSI and not of LSC.
After due proceedings, the LA rendered a decision
6
dismissing petitioners complaint. The LA
found that petitioners were employees of BMSI. It was BMSI which hired petitioners, paid their
wages, and exercised control over them.
Petitioners appealed to the National Labor Relations Commission (NLRC), arguing that BMSI
was engaged in labor-only contracting. They insisted that their employer was LSC.
On January 16, 2008, the NLRC promulgated its decision.
7
Reversing the LA, the NLRC held:
We find from the records of this case that respondent BMSI is not engaged in legitimate job
contracting.
First, respondent BMSI has no equipment, no office premises, no capital and no investments
as shown in the Agreement itself which states:
x x x x
VI. RENTAL OF EQUIPMENT
[6.01.] That the CLIENT has several forklifts and truck tractor, and has offered to the
CONTRACTOR the use of the same by way of lease, the monthly rental of which shall be deducted
from the total monthly billings of the CONTRACTOR for the services covered by this Agreement.
6.02. That the CONTRACTOR has agreed to rent the CLIENTs forklifts and truck tractor.
6.03. The parties herein have agreed to execute a Contract of Lease for the forklifts and truck
tractor that will be rented by the CONTRACTOR. (p. 389, Records)
True enough, parties signed a Lease Contract (p. 392, Records) wherein respondent BMSI
leased several excess equipment of LSC to enable it to discharge its obligation under the
Agreement. So without the equipment which respondent BMSI leased from respondent LSC, the
former would not be able to perform its commitments in the Agreement.
In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme Court held:
x x x. The phrase "substantial capital and investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business," in the Implementing Rules clearly contemplates tools, equipment, etc., which are
directly related to the service it is being contracted to render. One who does not have an
independent business for undertaking the job contracted for is just an agent of the employer.
(underscoring ours)
Second, respondent BMSI has no independent business or activity or job to perform in
respondent LSC free from the control of respondent LSC except as to the results thereof. In view of
the absence of such independent business or activity or job to be performed by respondent BMSI in
respondent LSC [petitioners] performed work that was necessary and desirable to the main
business of respondent LSC. Respondents were not able to refute the allegations of [petitioners]
that they performed the same work that the regular workers of LSC performed and they stood side
by side with regular employees of respondent LSC performing the same work. Necessarily, the
control on the manner and method of doing the work was exercised by respondent LSC and not by
respondent BMSI since the latter had no business of its own to perform in respondent LSC.
Lastly, respondent BMSI has no other client but respondent LSC. If respondent BMSI were a
going concern, it would have other clients to which to assign [petitioners] after its Agreement with
LSC expired. Since there is only one client, respondent LSC, it is easy to conclude that respondent
BMSI is a mere supplier of labor.
After concluding that respondent BMSI is engaged in prohibited labor-only contracting,
respondent LSC became the employer of [petitioners] pursuant to DO 18-02.
[Petitioners] therefore should be reinstated to their former positions or equivalent positions
in respondent LSC as regular employees with full backwages and other benefits without loss of
seniority rights from October 31, 2003, when they lost their jobs, until actual reinstatement (Vinoya
v. NLRC, 324 SCRA 469). If reinstatement is not feasible, [petitioners] then should be paid
labor rev 21
separation pay of one month pay for every year of service or a fraction of six months to be
considered as one year, in addition to full backwages.
Concerning *petitioners+ prayer to be paid wage differentials and benefits under the CBA,
We have no doubt that [petitioners] would be entitled to them if they are covered by the said CBA.
For this purpose, [petitioners] should first enlist themselves as union members if they so desire, or
pay agency fee. Furthermore, only [petitioners] who signed the appeal memorandum are covered
by this Decision. As regards the other complainants who did not sign the appeal, the Decision of the
Labor Arbiter dismissing this case became final and executory.
8

The NLRC disposed thus:
WHEREFORE, the appeal of [petitioners] is GRANTED. The Decision of the Labor Arbiter is
hereby REVERSED, and a NEW ONE rendered finding respondent Best Manpower Services, Inc. is
engaged in prohibited labor-only-contracting and finding respondent Lorenzo Shipping Corp. as the
employer of the following [petitioners]:
1. Emmanuel B. Babas
2. Danilo Banag
3. Edwin L. Javier
4. Rex Allesa
5. Arturo Villarin, [Sr.]
6. Felixberto C. Anajao
7. Arsenio Estorque
8. Maximo N. Soriano, Jr.
9. Sandi G. Bermeo
Consequently, respondent Lorenzo Shipping Corp. is ordered to reinstate [petitioners] to
their former positions as regular employees and pay their wage differentials and benefits under the
CBA.
If reinstatement is not feasible, both respondents Lorenzo Shipping Corp. and Best
Manpower Services are adjudged jointly and solidarily to pay [petitioners] separation pay of one
month for every year of service, a fraction of six months to be considered as one year.
In addition, respondent LSC and BMSI are solidarily liable to pay *petitioners+ full backwages
from October 31, 2003 until actual reinstatement or, if reinstatement is not feasible, until finality of
this Decision.
Respondent LSC and respondent BMSI are likewise adjudged to be solidarily liable for
attorneys fees equivalent to ten (10%) of the total monetary award.
x x x x
SO ORDERED.
9

LSC went to the CA via certiorari. On October 10, 2008, the CA rendered the now challenged
Decision,
10
reversing the NLRC. In holding that BMSI was an independent contractor, the CA relied
on the provisions of the Agreement, wherein BMSI warranted that it is an independent contractor,
with adequate capital, expertise, knowledge, equipment, and personnel necessary for the services
rendered to LSC. According to the CA, the fact that BMSI entered into a contract of lease with LSC
did not ipso facto make BMSI a labor-only contractor; on the contrary, it proved that BMSI had
substantial capital. The CA was of the view that the law only required substantial capital or
investment. Since BMSI had substantial capital, as shown by its ability to pay rents to LSC, then it
qualified as an independent contractor. It added that even under the control test, BMSI would be
the real employer of petitioners, since it had assumed the entire charge and control of petitioners
services. The CA further held that BMSIs Certificate of Registration as an independent contractor
was sufficient proof that it was an independent contractor. Hence, the CA absolved LSC from
liability and instead held BMSI as employer of petitioners.
The fallo of the CA Decision reads:
WHEREFORE, premises considered, the instant petition is GRANTED and the assailed decision
and resolution of public respondent NLRC are REVERSED and SET ASIDE. Consequently, the decision
of the Labor Arbiter dated September 29, 2004 is REINSTATED.
SO ORDERED.
11

Petitioners filed a motion for reconsideration, but the CA denied it on January 21, 2009.
12

Hence, this appeal by petitioners, positing that:
THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE CLEAR EVIDENCE OF RECORD
THAT RESPONDENT WAS ENGAGED IN LABOR-ONLY CONTRACTING TO DEFEAT PETITIONERS RIGHT
TO SECURITY OF TENURE.
13

Before resolving the petition, we note that only seven (7) of the nine petitioners signed the
Verification and Certification.
14
Petitioners Maximo Soriano, Jr. (Soriano) and Felixberto Anajao
(Anajao) did not sign the Verification and Certification, because they could no longer be located by
their co-petitioners.
15

In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National Labor
Relations Commission,
16
citing Loquias v. Office of the Ombudsman,
17
we stated that the petition
satisfies the formal requirements only with regard to the petitioner who signed the petition, but
not his co-petitioner who did not sign nor authorize the other petitioner to sign it on his behalf.
Thus, the petition can be given due course only as to the parties who signed it. The other
petitioners who did not sign the verification and certificate against forum shopping cannot be
recognized as petitioners and have no legal standing before the Court. The petition should be
dismissed outright with respect to the non-conforming petitioners.
Thus, we dismiss the petition insofar as petitioners Soriano and Anajao are concerned.
Petitioners vigorously insist that they were employees of LSC; and that BMSI is not an
independent contractor, but a labor-only contractor. LSC, on the other hand, maintains that BMSI is
an independent contractor, with adequate capital and investment. LSC capitalizes on the
ratiocination made by the CA.
In declaring BMSI as an independent contractor, the CA, in the challenged Decision, heavily
relied on the provisions of the Agreement, wherein BMSI declared that it was an independent
contractor, with substantial capital and investment.
De Los Santos v. NLRC
18
instructed us that the character of the business, i.e., whether as
labor-only contractor or as job contractor, should
be measured in terms of, and determined by, the criteria set by statute. The parties cannot
dictate by the mere expedience of a unilateral declaration in a contract the character of their
business.
In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada, Alilgilan
Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,
19
this Court explained:
Despite the fact that the service contracts contain stipulations which are earmarks of
independent contractorship, they do not make it legally so. The language of a contract is neither
labor rev 22
determinative nor conclusive of the relationship between the parties. Petitioner SMC and AMPCO
cannot dictate, by a declaration in a contract, the character of AMPCO's business, that is, whether as
labor-only contractor, or job contractor. AMPCO's character should be measured in terms of, and
determined by, the criteria set by statute.
Thus, in distinguishing between prohibited labor-only contracting and permissible job contracting,
the totality of the facts and the surrounding circumstances of the case are to be considered.
Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor
merely recruits, supplies, or places workers to perform a job, work, or service for a principal. In labor-only
contracting, the following elements are present: (a) the contractor or subcontractor does not have
substantial capital or investment to actually perform the job, work, or service under its own account and
responsibility; and (b) the employees recruited, supplied, or placed by such contractor or subcontractor
perform activities which are directly related to the main business of the principal.
20

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

A person is considered engaged in legitimate job contracting or subcontracting if the following
conditions concur:
(a) The contractor carries on a distinct and independent business and undertakes the contract
work on his account under his own responsibility according to his own manner and method, free from the
control and direction of his employer or principal in all matters connected with the performance of his
work except as to the results thereof;
(b) The contractor has substantial capital or investment; and
(c) The agreement between the principal and the contractor or subcontractor assures the
contractual employees' entitlement to all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure, and social welfare benefits.
22

Given the above standards, we sustain the petitioners contention that BMSI is engaged in labor-
only contracting.
First, petitioners worked at LSCs premises, and nowhere else. Other than the provisions of the
Agreement, there was no showing that it was BMSI which established petitioners working procedure and
methods, which supervised petitioners in their work, or which evaluated the same. There was absolute
lack of evidence that BMSI exercised control over them or their work, except for the fact that petitioners
were hired by BMSI.
Second, LSC was unable to present proof that BMSI had substantial capital. The record before us is
bereft of any proof pertaining to the contractors capitalization, nor to its investment in tools, equipment,
or implements actually used in the performance or completion of the job, work, or service that it was
contracted to render. What is clear was that the equipment used by BMSI were owned by, and merely
rented from, LSC.
In Mandaue Galleon Trade, Inc. v. Andales,
23
we held:
The law casts the burden on the contractor to prove that it has substantial capital,
investment, tools, etc. Employees, on the other hand, need not prove that the contractor does not
have substantial capital, investment, and tools to engage in job-contracting.
Third, petitioners performed activities which were directly related to the main business of
LSC. The work of petitioners as checkers, welders, utility men, drivers, and mechanics could only be
characterized as part of, or at least clearly related to, and in the pursuit of, LSCs business. Logically,
when petitioners were assigned by BMSI to LSC, BMSI acted merely as a labor-only contractor.
Lastly, as found by the NLRC, BMSI had no other client except for LSC, and neither BMSI nor
LSC refuted this finding, thereby bolstering the NLRC finding that BMSI is a labor-only contractor.
The CA erred in considering BMSIs Certificate of Registration as sufficient proof that it is an
independent contractor. In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas,
Jovito Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,
24
we held that a
Certificate of Registration issued by the Department of Labor and Employment is not conclusive
evidence of such status. The fact of registration simply prevents the legal presumption of being a
mere labor-only contractor from arising.
25
1avvphi1
Indubitably, BMSI can only be classified as a labor-only contractor. The CA, therefore, erred
when it ruled otherwise. Consequently, the workers that BMSI supplied to LSC became regular
employees of the latter.
26
Having gained regular status, petitioners were entitled to security of
tenure and could only be dismissed for just or authorized causes and after they had been accorded
due process.
Petitioners lost their employment when LSC terminated its Agreement with BMSI. However,
the termination of LSCs Agreement with BMSI cannot be considered a just or an authorized cause
for petitioners dismissal. In Almeda v. Asahi Glass Philippines. Inc. v. Asahi Glass Philippines, Inc.,
27

this Court declared:
The sole reason given for the dismissal of petitioners by SSASI was the termination of its
service contract with respondent. But since SSASI was a labor-only contractor, and petitioners were
to be deemed the employees of respondent, then the said reason would not constitute a just or
authorized cause for petitioners dismissal. It would then appear that petitioners were summarily
dismissed based on the aforecited reason, without compliance with the procedural due process for
notice and hearing.
Herein petitioners, having been unjustly dismissed from work, are entitled to reinstatement
without loss of seniority rights and other privileges and to full back wages, inclusive of allowances,
and to other benefits or their monetary equivalents computed from the time compensation was
withheld up to the time of actual reinstatement. Their earnings elsewhere during the periods of
their illegal dismissal shall not be deducted therefrom.
Accordingly, we hold that the NLRC committed no grave abuse of discretion in its decision.
Conversely, the CA committed a reversible error when it set aside the NLRC ruling.
WHEREFORE, the petition is GRANTED. The Decision and the Resolution of the Court of Appeals in
CA-G.R. SP. No. 103804 are REVERSED and SET ASIDE. Petitioners Emmanuel Babas, Danilo T. Banag,
Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa, and Arsenio Estorque are declared regular
employees of Lorenzo Shipping Corporation. Further, LSC is ordered to reinstate the seven petitioners to
their former position without loss of seniority rights and other privileges, and to pay full backwages,
inclusive of allowances, and other benefits or their monetary equivalent, computed from the time
compensation was withheld up to the time of actual reinstatement.
No pronouncement as to costs.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice

labor rev 23
G.R. Nos. 184903 October 10, 2012
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC., Petitioner,
vs.
DIGITEL EMPLOYEES UNION (DEU), ARCELO RAFAEL A. ESPLANA, ALAN D. LICANDO, FELICITO C.
ROMERO, JR., ARNOLD D. GONZALES, REYNEL FRANCISCO B. GARCIA, ZOSIMO B. PERALTA,
REGINO T. UNIDAD and JIM L. JAVIER, Respondents.
D E C I S I O N
PEREZ, J.:
This treats of the petition for review filed by Digital Telecommunications Philippines, Inc.
(Digitel) assailing the 18 June 2008 Decision
1
and 9 October 2008 Resolution of the Court of
Appeals 10th Division in CA-G.R. SP No. 91719, which affirms the Order of the Secretary of Labor
and Employment directing Digitel to commence Collective Bargaining Agreement (CBA)
negotiations and in CA-G.R. SP No. 94825, which declares the dismissal of affected Digitel
employees as illegal.
The facts, as borne by the records, follow.
By virtue of a certification election, Digitel Employees Union (Union) became the exclusive
bargaining agent of all rank and file employees of Digitel in 1994. The Union and Digitel then
commenced collective bargaining negotiations which resulted in a bargaining deadlock. The Union
threatened to go on strike, but then Acting Labor Secretary Bienvenido E. Laguesma assumed
jurisdiction over the dispute and eventually directed the parties to execute a CBA.
2

However, no CBA was forged between Digitel and the Union. Some Union members
abandoned their employment with Digitel. The Union later became dormant.
Ten (10) years thereafter or on 28 September 2004, Digitel received from Arceo Rafael A.
Esplana (Esplana), who identified himself as President of the Union, a letter containing the list of
officers, CBA proposals and ground rules.
3
The officers were respondents Esplana, Alan D. Licando
(Vice-President), Felicito C. Romero, Jr. (Secretary), Arnold D. Gonzales (Treasurer), Reynel
Francisco B. Garcia (Auditor), Zosimo B. Peralta (PRO), Regino T. Unidad (Sgt. at Arms), and Jim L.
Javier (Sgt. at Arms).
Digitel was reluctant to negotiate with the Union and demanded that the latter show
compliance with the provisions of the Unions Constitution and By-laws on union membership and
election of officers.
On 4 November 2004, Esplana and his group filed a case for Preventive Mediation before the
National Conciliation and Mediation Board based on Digitels violation of the duty to bargain. On 25
November 2004, Esplana filed a notice of strike.
On 10 March 2005, then Labor Secretary Patricia A. Sto. Tomas issued an Order
4
assuming
jurisdiction over the labor dispute.
During the pendency of the controversy, Digitel Service, Inc. (Digiserv), a non-profit
enterprise engaged in call center servicing, filed with the Department of Labor and Employment
(DOLE) an Establishment Termination Report stating that it will cease its business operation. The
closure affected at least 100 employees, 42 of whom are members of the herein respondent Union.
Alleging that the affected employees are its members and in reaction to Digiservs action,
Esplana and his group filed another Notice of Strike for union busting, illegal lock-out, and violation
of the assumption order.
On 23 May 2005, the Secretary of Labor ordered the second notice of strike subsumed by the
previous Assumption Order.
5

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

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

The appeal filed by Digitel with the BLR was eventually dismissed for lack of merit in a
Resolution dated 9 March 2007, thereby affirming the 11 May 2005 Decision of the Regional
Director.
CA-G.R. SP No. 91719
In an Order dated 13 July 2005, the Secretary of Labor directed Digitel to commence the CBA
negotiation with the Union. Thus:
WHEREFORE, all the foregoing premises considered, this Office hereby orders:
1. DIGITEL to commence collective bargaining negotiation with DEU without further delay;
and,
2. The issue of unfair labor practice, consisting of union-busting, illegal termination/lockout
and violation of the assumption of jurisdiction, specifically the return-to-work aspect of the 10
March 2005 and 03 June 2005 orders, be CERTIFIED for compulsory arbitration to the NLRC.
8

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

On 14 October 2005, Digitel filed a petition, docketed as CA-G.R. SP No. 91719, before the
Court of Appeals assailing the 13 July and 19 August 2005 Orders of the DOLE Secretary and
attributing grave abuse of discretion on the part of the DOLE Secretary for ordering Digitel to
commence bargaining negotiations with the Union despite the pendency of the issue of union
legitimacy.
CA-G.R. SP No. 94825
In accordance with the 13 July 2005 Order of the Secretary of Labor, the unfair labor practice
issue was certified for compulsory arbitration before the NLRC, which, on 31 January 2006,
rendered a Decision dismissing the unfair labor practice charge against Digitel but declaring the
dismissal of the 13 employees of Digiserv as illegal and ordering their reinstatement. The Union
manifested that out of 42 employees, only 13 remained, as most had already accepted separation
pay. The dispositive portion of the Decision reads:
labor rev 24
WHEREFORE, premises considered, the charge of unfair labor practice is hereby DISMISSED
for lack of merit. However, the dismissal of the remaining thirteen (13) affected employees is
hereby declared illegal and DIGITEL is hereby ORDERED to reinstate them to their former position
with full backwages up to the time they are reinstated, computed as follows:
x x x x.
10

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

In view of this unfavorable decision, Digitel filed another petition on 9 June 2006 in CA-G.R.
SP No. 94825 before the Court of Appeals, challenging the above NLRC Decision and Resolution and
arguing mainly that Digiserv employees are not employees of Digitel.
Ruling of the Court of Appeals
On 18 June 2008, the Tenth Division of the Court of Appeals consolidated the two petitions in
CA-G.R. SP No. 91719 and CA-G.R. SP No. 94825, and disposed as follows:
WHEREFORE, the petition in CA-G.R. SP No. 91719 is DISMISSED. The July 13, 2005 Order and
the August 19, 2005 Resolution of the DOLE Secretary are AFFIRMED in toto. With costs.
The petition in CA-G.R. SP No. 94825 is partially GRANTED, with the effect that the assailed
dispositions must be MODIFIED, as follows:
1) In addition to the order directing reinstatement and payment of full backwages to the nine
(9) affected employees, Digital Telecommunications Philippines, Inc. is furthered ORDERED, should
reinstatement is no longer feasible, to pay separation pay equivalent to one (1) month pay, or one-
half (1/2) month pay for every year of service, whichever is higher.
2) The one hundred thousand (PhP 100,000.00) peso-fine imposed on Digital
Telecommunications Philippines, Inc. is DELETED. No costs.
12

The Court of Appeals upheld the Secretary of Labors Order for Digitel to commence CBA
negotiations with the Union and emphasized that the pendency of a petition for the cancellation of
a unions registration does not bar the holding of negotiations for a CBA. The Court of Appeals
sustained the finding that Digiserv is engaged in labor-only contracting and that its employees are
actually employees of Digitel.
Digitel filed a motion for reconsideration but was denied in a Resolution dated 9 October
2008.
Hence, this petition for review on certiorari.
Digitel argues that the Court of Appeals seriously erred when it condoned the act of the
Secretary of Labor in issuing an assumption order despite the pendency of an appeal on the issue of
union registration. Digitel maintains that it cannot be compelled to negotiate with a union for
purposes of collective bargaining when the very status of the same as the exclusive bargaining
agent is in question.
Digitel insists that had the Court of Appeals considered the nature of the activities performed
by Digiserv, it would reach the conclusion that Digiserv is a legitimate contractor. To bolster its
claim, Digitel asserts that the affected employees are registered with the Social Security System,
Pag-ibig, Bureau of Internal Revenue and Philhealth with Digiserv as their employer. Digitel further
contends that assuming that the affected Digiserv employees are employees of Digitel, they were
nevertheless validly dismissed on the ground of closure of a department or a part of Digitels
business operation.
The three issues raised in this petition are: 1) whether the Secretary of Labor erred in issuing
the assumption order despite the pendency of the petition for cancellation of union registration; 2)
whether Digiserv is a legitimate contractor; and 3) whether there was a valid dismissal.
The pendency of a petition
for cancellation of union
registration does not preclude
collective bargaining.
The first issue raised by Digitel is not novel. It is well-settled that the pendency of a petition
for cancellation of union registration does not preclude collective bargaining.
The 2005 case of Capitol Medical Center, Inc. v. Hon. Trajano
13
is apropos. The respondent
union therein sent a letter to petitioner requesting a negotiation of their CBA. Petitioner refused to
bargain and instead filed a petition for cancellation of the unions certificate of registration.
Petitioners refusal to bargain forced the union to file a notice of strike. They eventually staged a
strike. The Secretary of Labor assumed jurisdiction over the labor dispute and ordered all striking
workers to return to work. Petitioner challenged said order by contending that its petition for
cancellation of unions certificate of registration involves a prejudicial question that should first be
settled before the Secretary of Labor could order the parties to bargain collectively. When the case
eventually reached this Court, we agreed with the Secretary of Labor that the pendency of a
petition for cancellation of union registration does not preclude collective bargaining, thus:
That there is a pending cancellation proceeding against the respondent Union is not a bar to
set in motion the mechanics of collective bargaining. If a certification election may still be ordered
despite the pendency of a petition to cancel the unions registration certificate (National Union of
Bank Employees vs. Minister of Labor, 110 SCRA 274), more so should the collective bargaining
process continue despite its pendency. We must emphasize that the majority status of the
respondent Union is not affected by the pendency of the Petition for Cancellation pending against
it. Unless its certificate of registration and its status as the certified bargaining agent are revoked,
the Hospital is, by express provision of the law, duty bound to collectively bargain with the Union.
14

Trajano was reiterated in Legend International Resorts Limited v. Kilusang Manggagawa ng
Legenda (KML-Independent).
15
Legend International Resorts reiterated the rationale for allowing
the continuation of either a CBA process or a certification election even during the pendency of
proceedings for the cancellation of the unions certificate of registration. Citing the cases of
Association of Court of Appeals Employees v. Ferrer- Calleja
16
and Samahan ng Manggagawa sa
Pacific Plastic v. Hon. Laguesma,
17
it was pointed out at the time of the filing of the petition for
certification election or a CBA process as in the instant case the union still had the personality
to file a petition for certification or to ask for a CBA negotiation as in the present case.
Digiserv is a labor-only contractor.
Labor-only contracting is expressly prohibited by our labor laws. Article 106 of the Labor
Code defines labor-only contracting as "supplying workers to an employer [who] does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises,
among others, and the workers recruited and placed by such person are performing activities
which are directly related to the principal business of such employer."
labor rev 25
Section 5, Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code
(Implementing Rules), as amended by Department Order No. 18-02, expounds on the prohibition
against labor-only contracting, thus:
Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby
declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where
the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work
or service for a principal, and any of the following elements are present:
i) The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities which are directly related to the main
business of the principal; or
ii) The contractor does not exercise the right to control over the performance of the work of
the contractual employee.
The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the
Labor Code, as amended.
x x x x
The "right to control" shall refer to the right reserved to the person for whom, the services of
the contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.
The law and its implementing rules allow contracting arrangements for the performance of
specific jobs, works or services. Indeed, it is management prerogative to farm out any of its
activities, regardless of whether such activity is peripheral or core in nature. However, in order for
such outsourcing to be valid, it must be made to an independent contractor because the current
labor rules expressly prohibit labor-only contracting.
18

After an exhaustive review of the records, there is no showing that first, Digiserv has
substantial investment in the form of capital, equipment or tools. Under the Implementing Rules,
substantial capital or investment refers to "capital stocks and subscribed capitalization in the case
of corporations, tools, equipment, implements, machineries and work premises, actually and
directly used by the contractor or subcontractor in the performance or completion of the job, work
or service contracted out." The NLRC, as echoed by the Court of Appeals, did not find substantial
Digiservs authorized capital stock of One Million Pesos (P 1,000,000.00). It pointed out that only
Two Hundred Fifty Thousand Pesos (P 250,000.00) of the authorized capital stock had been
subscribed and only Sixty-Two Thousand Five Hundred Pesos (P 62,500.00) had been paid up. There
was no increase in capitalization for the last ten (10) years.
19

Moreover, in the Amended Articles of Incorporation, as well as in the General Information
Sheets for the years 1994, 2001 and 2005, the primary purpose of Digiserv is to provide manpower
services. In PCI Automation Center, Inc. v. National Labor Relations Commission,
20
the Court made
the following distinction: "the legitimate job contractor provides services while the labor-only
contractor provides only manpower. The legitimate job contractor undertakes to perform a specific
job for the principal employer while the labor-only contractor merely provides the personnel to
work for the principal employer." The services provided by employees of Digiserv are directly
related to the business of Digitel, as rationalized by the NLRC in this wise:
It is undisputed that as early as March 1994, the affected employees, except for two, were
already performing their job as Traffic Operator which was later renamed as Customer Service
Representative (CSR). It is equally undisputed that all throughout their employment, their function
as CSR remains the same until they were terminated effective May 30, 2005. Their long period of
employment as such is an indication that their job is directly related to the main business of
DIGITEL which is telecommunications. Because, if it was not, DIGITEL would not have allowed them
to render services as Customer Service Representative for such a long period of time.
21

Furthermore, Digiserv does not exercise control over the affected employees. The NLRC
highlighted the fact that Digiserv shared the same Human Resources, Accounting, Audit and Legal
Departments with Digitel which manifested that it was Digitel who exercised control over the
performance of the affected employees. The NLRC also relied on the letters of commendation,
plaques of appreciation and certification issued by Digitel to the Customer Service Representatives
as evidence of control.
Considering that Digiserv has been found to be engaged in labor-only contracting, the
dismissed employees are deemed employees of Digitel.
Section 7 of the Implementing Rules holds that labor-only contracting would give rise to: (1)
the creation of an employer-employee relationship between the principal and the employees of
the contractor or sub-contractor; and (2) the solidary liability of the principal and the contractor to
the employees in the event of any violation of the Labor Code.
Accordingly, Digitel is considered the principal employer of respondent employees.
The affected employees were
illegally dismissed.
In addition to finding that Digiserv is a labor-only contractor, records teem with proof that its
dismissed employees are in fact employees of Digitel. The NLRC enumerated these evidences, thus:
That the remaining thirteen (13) affected employees are indeed employees of DIGITEL is
sufficiently established by the facts and evidence on record.
It is undisputed that the remaining affected employees, except for two (2), were already
hired by DIGITEL even before the existence of DIGISERV. (The other two (2) were hired after the
existence of DIGISERV). The UNION submitted a sample copy of their appointment paper (Annex
"A" of UNIONs Position Paper, Records, Vol. 1, p. 100) showing that they were appointed on March
1, 1994, almost three (3) months before DIGISERV came into existence on May 30, 1994 (Annex
"B", Ibid, Records, Vol. 1, p. 101). On the other hand, not a single appointment paper was
submitted by DIGITEL showing that these remaining affected employees were hired by DIGISERV.
It is equally undisputed that the remaining, affected employees continuously held the
position of Customer Service Representative, which was earlier known as Traffic Operator, from the
time they were appointed on March 1, 1994 until they were terminated on May 30, 2005. The
UNION alleges that these Customer Service Representatives were under the Customer Service
Division of DIGITEL. The UNIONs allegation is correct. Sample of letter of commendations issued to
Customer Service Representatives (Annexes "C" and "C-1" of UNIONs Position Paper, Records, p.
100 and 111) indeed show that DIGITEL has a Customer Service Division which handles its Call
Center operations.
Further, the Certificates issued to Customer Service Representative likewise show that they
are employees of DIGITEL (Annexes "C-5", "C-6" - "C-7" of UNIONs Position Paper, Records, Vol. 1,
pp. 115 to 117), Take for example the "Service Award" issued to Ma. Loretta C. Esen, one of the
remaining affected employees (Annex "C-5", Supra). The "Service Award" was signed by the officers
of DIGITEL the VP-Customer Services Division, the VP-Human Resources Division and the Group
Head-Human Resources Division. It was issued by DIGITEL to Esen thru the above named officers
"In recognition of her seven (7) years continuous and valuable contributions to the achievement of
labor rev 26
Digitels organization objectives". It cannot be gainsaid that it is only the employer that issues
service award to its employees.
22
(Emphasis not supplied)
As a matter of fact, even before the incorporation of Digiserv, the affected employees were
already employed by Digitel as Traffic Operators, later renamed as Customer Service
Representatives.
As an alternative argument, Digitel maintains that the affected employees were validly
dismissed on the grounds of closure of Digiserv, a department within Digitel.
In the recent case of Waterfront Cebu City Hotel v. Jimenez,
23
we referred to the closure of a
department or division of a company as retrenchment. The dismissed employees were
undoubtedly retrenched with the closure of Digiserv.
For a valid retrenchment, the following elements must be present:
(1) That retrenchment is reasonably necessary and likely to prevent business losses which, if
already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only
expected, are reasonably imminent as perceived objectively and in good faith by the employer;
(2) That the employer served written notice both to the employees and to the Department of
Labor and Employment at least one month prior to the intended date of retrenchment;
(3) That the employer pays the retrenched employees separation pay equivalent to one (1)
month pay or at least month pay for every year of service, whichever is higher;
(4) That the employer exercises its prerogative to retrench employees in good faith for the
advancement of its interest and not to defeat or circumvent the employees right to security of
tenure; and
(5) That the employer used fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as status, efficiency, seniority,
physical fitness, age, and financial hardship for certain workers.
24

Only the first 3 elements of a valid retrenchment had been here satisfied. Indeed, it is
management prerogative to close a department of the company. Digitels decision to outsource the
call center operation of the company is a valid reason to close down the operations of a
department under which the affected employees were employed. Digitel cited the decline in the
volume of transaction of operator-assisted call services as supported by Financial Statements for
the years 2003 and 2004, during which Digiserv incurred a deficit of P 163,624.00 and P 164,055.00,
respectively.
25
All affected employees working under Digiserv were served with individual notices
of termination. DOLE was likewise served with the corresponding notice. All affected employees
were offered separation pay. Only 9 out of the 45 employees refused to accept the separation pay
and chose to contest their dismissal before this Court.
The fifth element regarding the criteria to be observed by Digitel clearly does not apply
because all employees under Digiserv were dismissed. The instant case is all about the fourth
element, that is, whether or not the affected employees were dismissed in good faith. We find that
there was no good faith in the retrenchment.
Prior to the cessation of Digiservs operations, the Secretary of Labor had issued the first
assumption order to enjoin an impending strike. When Digiserv effected the dismissal of the
affected employees, the Union filed another notice of strike. Significantly, the Secretary of Labor
ordered that the second notice of strike be subsumed by the previous assumption order. Article
263(g) of the Labor Code provides:
When, in his opinion, there exists a labor dispute causing or likely to cause a strike or lockout
in an industry indispensable to the national interest, the Secretary of Labor and Employment may
assume jurisdiction over the dispute and decide it or certify the same to the Commission for
compulsory arbitration. Such assumption or certification shall have the effect of automatically
enjoining the intended or impending strike or lockout as specified in the assumption or certification
order. If one has already taken place at the time of assumption or certification, all striking or locked
out employees shall immediately return to work and the employer shall immediately resume
operations and readmit all workers under the same terms and conditions prevailing before the
strike or lockout. The Secretary of Labor and Employment or the Commission may seek the
assistance of law enforcement agencies to ensure the compliance with this provision as well as with
such orders as he may issue to enforce the same.
The effects of the assumption order issued by the Secretary of Labor are two-fold. It enjoins
an impending strike on the part of the employees and orders the employer to maintain the status
quo.
There is no doubt that Digitel defied the assumption order by abruptly closing down Digiserv.
The closure of a department is not illegal per se. What makes it unlawful is when the closure is
undertaken in bad faith. In St. John Colleges, Inc. v. St. John Academy Faculty and Employees
Union,
26
bad faith was evidenced by the timing of and reasons for the closure and the timing of and
reasons for the subsequent opening. There, the collective bargaining negotiations between St. John
and the Union resulted in a bargaining deadlock that led to the filing of a notice of strike. The labor
dispute was referred to the Secretary of Labor who assumed jurisdiction.
Pending resolution of the dispute, St. John closed the school prompting the Union to file a
complaint for illegal dismissal and unfair labor practice. The Union members alleged that the
closure of the high school was done in bad faith in order to get rid of the Union and render useless
any decision of the SOLE on the CBA deadlocked issues. We held that closure was done to defeat
the affected employees security of tenure, thus:
The determination of whether SJCI acted in bad faith depends on the particular facts as
established by the evidence on record. Bad faith is, after all, an inference which must be drawn
from the peculiar circumstances of a case. The two decisive factors in determining whether SJCI
acted in bad faith are (1) the timing of, and reasons for the closure of the high school, and (2) the
timing of, and the reasons for the subsequent opening of a college and elementary department,
and, ultimately, the reopening of the high school department by SJCI after only one year from its
closure.
Prior to the closure of the high school by SJCI, the parties agreed to refer the 1997 CBA
deadlock to the SOLE for assumption of jurisdiction under Article 263 of the Labor Code. As a result,
the strike ended and classes resumed. After the SOLE assumed jurisdiction, it required the parties
to submit their respective position papers. However, instead of filing its position paper, SJCI closed
its high school, allegedly because of the "irreconcilable differences between the school
management and the Academys Union particularly the safety of our students and the financial
aspect of the ongoing CBA negotiations." Thereafter, SJCI moved to dismiss the pending labor
dispute with the SOLE contending that it had become moot because of the closure. Nevertheless, a
year after said closure, SJCI reopened its high school and did not rehire the previously terminated
employees.
Under these circumstances, it is not difficult to discern that the closure was done to defeat
the parties agreement to refer the labor dispute to the SOLE; to unilaterally end the bargaining
deadlock; to render nugatory any decision of the SOLE; and to circumvent the Unions right to
collective bargaining and its members right to security of tenure. By admitting that the closure was
labor rev 27
due to irreconcilable differences between the Union and school management, specifically, the
financial aspect of the ongoing CBA negotiations, SJCI in effect admitted that it wanted to end the
bargaining deadlock and eliminate the problem of dealing with the demands of the Union. This is
precisely what the Labor Code abhors and punishes as unfair labor practice since the net effect is to
defeat the Unions right to collective bargaining.
27
(Emphasis not supplied)
As in St. John, bad faith was manifested by the timing of the closure of Digiserv and the
rehiring of some employees to Interactive Technology Solutions, Inc. (I-tech), a corporate arm of
Digitel. The assumption order directs employees to return to work, and the employer to reinstate
the employees. The existence of the assumption order should have prompted Digitel to observe
the status quo. Instead, Digitel proceeded to close down Digiserv. The Secretary of Labor had to
subsume the second notice of strike in the assumption order. This order notwithstanding, Digitel
proceeded to dismiss the employees.
The timing of the creation of I-tech is dubious. It was incorporated on 18 January 2005 while
the labor dispute within Digitel was pending. I-techs primary purpose was to provide call
center/customer contact service, the same service provided by Digiserv. It conducts its business
inside the Digitel office at 110 E. Rodriguez Jr. Avenue, Bagumbayan, Quezon City. The former head
of Digiserv, Ms. Teresa Taniega, is also an officer of I-tech. Thus, when Digiserv was closed down,
some of the employees presumably non-union members were rehired by I-tech.
Thus, the closure of Digiserv pending the existence of an assumption order coupled with the
creation of a new corporation performing similar functions as Digiserv leaves no iota of doubt that
the target of the closure are the union member-employees. These factual circumstances prove that
Digitel terminated the services of the affected employees to defeat their security of tenure. The
termination of service was not a valid retrenchment; it was an illegal dismissal of employees.
It needs to be mentioned too that the dismissal constitutes an unfair labor practice under
Article 248(c) of the Labor Code which refers to contracting out services or functions being
performed by union members when such will interfere with, restrain or coerce employees in the
exercise of their rights to self-organization. At the height of the labor dispute, occasioned by
Digitels reluctance to negotiate with the Union, I-tech was formed to provide, as it did provide, the
same services performed by Digiserv, the Union members nominal employer.
Under Article 279 of the Labor Code, an illegally dismissed employee is entitled to backwages
and reinstatement. Where reinstatement is no longer viable as an option, as in this case where
Digiserv no longer exists, separation pay equivalent to one (1) month salary, or one-half (1/2)
month pay for every year of service, whichever is higher, should be awarded as an alternative.
28

The payment of separation pay is in addition to payment of backwages.
29

Indeed, while we have found that the closure of Digiserv was undertaken in bad faith, badges
thereof evident in the timing of Digiservs closure, hand in hand, with I-techs creation, the closure
remains a foregone conclusion. There is no finding, and the Union makes no such assertion, that
Digiserv and I-tech are one and the same corporation. The timing of Digiservs closure and I-techs
ensuing creation is doubted, not the legitimacy of I-tech as a business process outsourcing
corporation providing both inbound and outbound services to an expanded local and international
clientele.
30

The finding of unfair labor practice hinges on Digitels contracting-out certain services
performed by union member-employees to interfere with, restrain or coerce them in the exercise
of their right to self-organization.
We have no basis to direct reinstatement of the affected employees to an ostensibly
different corporation. The surrounding circumstance of the creation of I-tech point to bad faith on
the part of Digitel, as well as constitutive of unfair labor practice in targeting the dismissal of the
union member-employees. However, this bad faith does not contradict, much less negate, the
impossibility of the employees reinstatement because Digiserv has been closed and no longer
exists.
Even if it is a possibility that I-tech, as though Digitel, can absorb the dismissed union
member-employees as I-tech was incorporated during the time of the controversy with the same
primary purpose as Digiserv, we would be hard pressed to mandate the dismissed employees
reinstatement given the lapse of more than seven (7) years.
This length of time from the date the incident occurred to its Resolution
31
coupled with the
demonstrated litigiousness of the disputants: (1) with all sorts of allegations thrown by either party
against the other; (2) the two separate filings of a notice of strike by the Union; (3) the Assumption
Orders of the DOLE; (4) our own finding of unfair labor practice by Digitel in targeting the union
member-employees, abundantly show that the relationship between Digitel and the union
member-employees is strained. Indeed, such discordance between the parties can very well be a
necessary consequence of the protracted and branched out litigation. We adhere to the oft-quoted
doctrine that separation pay may avail in lieu of reinstatement if reinstatement is no longer
practical or in the best interest of the parties.
32

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

Finally, an illegally dismissed employee should be awarded moral and exemplary damages as
their dismissal was tainted with unfair labor practice.
34
Depending on the factual milieu,
jurisprudence has awarded varying amounts as moral and exemplary damages to illegally dismissed
employees when the dismissal is attended by bad faith or fraud; or constitutes an act oppressive to
labor; or is done in a manner contrary to good morals, good customs or public policy; or if the
dismissal is effected in a wanton, oppressive or malevolent manner.
35
1wphi1
In Nueva Ecija I Electric Cooperative, Inc. (NEECO I) Employees Association v. National Labor
Relations Commission, we intoned:
Unfair labor practices violate the constitutional rights of workers and employees to self-
organization, are inimical to the legitimate interests of both labor and management, including their
right to bargain collectively and otherwise deal with each other in an atmosphere of freedom and
mutual respect; and disrupt industrial peace and hinder the promotion of healthy and stable labor-
management relations. As the conscience of the government, it is the Courts sworn duty to ensure
that none trifles with labor rights.
36

We awarded moral damages in the amount of P 10,000.00 and likewise awarded P 5,000.00
as exemplary damages for each dismissed employee.
In the recent case of Purefoods Corporation v. Nagkakaisang Samahang Manggagawa ng
Purefoods Rank-and-File,
37
we awarded the aggregate amount of P 500,000.00 as moral and
exemplary damages to the illegally dismissed union member-employees which exact number was
undetermined.
In the case at hand, with the Unions manifestation that only 13 employees remain as
respondents, as most had already accepted separation pay, and consistent with our finding that
Digitel committed an unfair labor practice in violation of the employees constitutional right to self-
labor rev 28
organization, we deem it proper to award each of the illegally dismissed union member-employees
the amount of P 10,000.00 and P 5,000.00 as moral and exemplary damages, respectively.
WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.
91719 is AFFIRMED, while the Decision in CA-G.R. SP No. 94825 declaring the dismissal of affected
union member-employees as illegal is MODIFIED to include the payment of moral and exemplary
damages in amount of P 10,000.00 and P 5,000.00, respectively, to each of the thirteen (13) illegally
dismissed union-member employees.
Petitioner Digital Telecommunications Philippines, Inc. is ORDERED to pay the affected
employees backwages and separation pay equivalent to one (1) month salary, or one-half (1/2)
month pay for every year of service, whichever is higher.
Let this case be REMANDED to the Labor Arbiter for the computation of monetary claims due
to the affected employees.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice























































labor rev 29
G.R. No. 196426 August 15, 2011
MARTICIO SEMBLANTE and DUBRICK PILAR, Petitioners,
vs.
COURT OF APPEALS, 19th DIVISION, now SPECIAL FORMER 19th DIVISION, GALLERA DE
MANDAUE / SPOUSES VICENTE and MARIA LUISA LOOT, Respondents.
D E C I S I O N
VELASCO, JR., J.:
Before Us is a Petition for Review on Certiorari under Rule 45, assailing and seeking to set
aside the Decision
1
and Resolution
2
dated May 29, 2009 and February 23, 2010, respectively, of the
Court of Appeals (CA) in CA-G.R. SP No. 03328. The CA affirmed the October 18, 2006 Resolution
3
of
the National Labor Relations Commission (NLRC), Fourth Division (now Seventh Division), in NLRC
Case No. V-000673-2004.
Petitioners Marticio Semblante (Semblante) and Dubrick Pilar (Pilar) assert that they were
hired by respondents-spouses Vicente and Maria Luisa Loot, the owners of Gallera de Mandaue
(the cockpit), as the official masiador and sentenciador, respectively, of the cockpit sometime in
1993.
As the masiador, Semblante calls and takes the bets from the gamecock owners and other
bettors and orders the start of the cockfight. He also distributes the winnings after deducting the
arriba, or the commission for the cockpit. Meanwhile, as the sentenciador, Pilar oversees the
proper gaffing of fighting cocks, determines the fighting cocks physical condition and capabilities
to continue the cockfight, and eventually declares the result of the cockfight.
4

For their services as masiador and sentenciador, Semblante receives PhP 2,000 per week or a
total of PhP 8,000 per month, while Pilar gets PhP 3,500 a week or PhP 14,000 per month. They
work every Tuesday, Wednesday, Saturday, and Sunday every week, excluding monthly derbies and
cockfights held on special holidays. Their working days start at 1:00 p.m. and last until 12:00
midnight, or until the early hours of the morning depending on the needs of the cockpit. Petitioners
had both been issued employees identification cards
5
that they wear every time they report for
duty. They alleged never having incurred any infraction and/or violation of the cockpit rules and
regulations.
On November 14, 2003, however, petitioners were denied entry into the cockpit upon the
instructions of respondents, and were informed of the termination of their services effective that
date. This prompted petitioners to file a complaint for illegal dismissal against respondents.
In answer, respondents denied that petitioners were their employees and alleged that they
were associates of respondents independent contractor, Tomas Vega. Respondents claimed that
petitioners have no regular working time or day and they are free to decide for themselves
whether to report for work or not on any cockfighting day. In times when there are few cockfights
in Gallera de Mandaue, petitioners go to other cockpits in the vicinity. Lastly, petitioners, so
respondents assert, were only issued identification cards to indicate that they were free from the
normal entrance fee and to differentiate them from the general public.
6

In a Decision dated June 16, 2004, Labor Arbiter Julie C. Rendoque found petitioners to be
regular employees of respondents as they performed work that was necessary and indispensable to
the usual trade or business of respondents for a number of years. The Labor Arbiter also ruled that
petitioners were illegally dismissed, and so ordered respondents to pay petitioners their backwages
and separation pay.
7

Respondents counsel received the Labor Arbiters Decision on September 14, 2004. And
within the 10-day appeal period, he filed the respondents appeal with the NLRC on September 24,
2004, but without posting a cash or surety bond equivalent to the monetary award granted by the
Labor Arbiter.
8

It was only on October 11, 2004 that respondents filed an appeal bond dated October 6,
2004. Hence, in a Resolution
9
dated August 25, 2005, the NLRC denied the appeal for its non-
perfection.
Subsequently, however, the NLRC, acting on respondents Motion for Reconsideration,
reversed its Resolution on the postulate that their appeal was meritorious and the filing of an
appeal bond, albeit belated, is a substantial compliance with the rules. The NLRC held in its
Resolution of October 18, 2006 that there was no employer-employee relationship between
petitioners and respondents, respondents having no part in the selection and engagement of
petitioners, and that no separate individual contract with respondents was ever executed by
petitioners.
10

Following the denial by the NLRC of their Motion for Reconsideration, per Resolution dated
January 12, 2007, petitioners went to the CA on a petition for certiorari. In support of their petition,
petitioners argued that the NLRC gravely abused its discretion in entertaining an appeal that was
not perfected in the first place. On the other hand, respondents argued that the NLRC did not
commit grave abuse of discretion, since they eventually posted their appeal bond and that their
appeal was so meritorious warranting the relaxation of the rules in the interest of justice.
11

In its Decision dated May 29, 2009, the appellate court found for respondents, noting that
referees and bet-takers in a cockfight need to have the kind of expertise that is characteristic of the
game to interpret messages conveyed by mere gestures. Hence, petitioners are akin to
independent contractors who possess unique skills, expertise, and talent to distinguish them from
ordinary employees. Further, respondents did not supply petitioners with the tools and
instrumentalities they needed to perform work. Petitioners only needed their unique skills and
talents to perform their job as masiador and sentenciador.
12
The CA held:
In some circumstances, the NLRC is allowed to be liberal in the interpretation of the rules in
deciding labor cases. In this case, the appeal bond was filed, although late. Moreover, an
exceptional circumstance obtains in the case at bench which warrants a relaxation of the bond
requirement as a condition for perfecting the appeal. This case is highly meritorious that propels
this Court not to strictly apply the rules and thus prevent a grave injustice from being done.
As elucidated by the NLRC, the circumstances obtaining in this case wherein no actual
employer-employee exists between the petitioners and the private respondents [constrain] the
relaxation of the rules. In this regard, we find no grave abuse attributable to the administrative
body.
x x x x
Petitioners are duly licensed "masiador" and "sentenciador" in the cockpit owned by Lucia
Loot. Cockfighting, which is a part of our cultural heritage, has a peculiar set of rules. It is a game
based on the fighting ability of the game cocks in the cockpit. The referees and bet-takers need to
have that kind of expertise that is characteristic of the cockfight gambling who can interpret the
message conveyed even by mere gestures. They ought to have the talent and skill to get the bets
from numerous cockfighting aficionados and decide which cockerel to put in the arena. They are
placed in that elite spot where they can control the game and the crowd. They are not given
salaries by cockpit owners as their compensation is based on the "arriba". In fact, they can offer
their services everywhere because they are duly licensed by the GAB. They are free to choose
labor rev 30
which cockpit arena to enter and offer their expertise. Private respondents cannot even control
over the means and methods of the manner by which they perform their work. In this light, they
are akin to independent contractors who possess unique skills, expertise and talent to distinguish
them from ordinary employees.
Furthermore, private respondents did not supply petitioners with the tools and
instrumentalities they needed to perform their work. Petitioners only needed their talent and skills
to be a "masiador" and "sentenciador". As such, they had all the tools they needed to perform their
work. (Emphasis supplied.)
The CA refused to reconsider its Decision. Hence, petitioners came to this Court, arguing in
the main that the CA committed a reversible error in entertaining an appeal, which was not
perfected in the first place.
Indeed, the posting of a bond is indispensable to the perfection of an appeal in cases
involving monetary awards from the Decision of the Labor Arbiter.
13
Article 223 of the Labor Code
provides:
Article 223. Appeal. Decisions, awards, or orders of the Labor Arbiter are final and
executory unless appealed to the Commission by any or both parties within ten (10) calendar days
from receipt of such decisions, awards, or orders. Such appeal may be entertained only on any of
the following grounds:
x x x x
In case of a judgment involving a monetary award, an appeal by the employer may be
perfected only upon the posting of a cash or surety bond issued by a reputable bonding company
duly accredited by the Commission in the amount equivalent to the monetary award in the
judgment appealed from. (Emphasis supplied.)
Time and again, however, this Court, considering the substantial merits of the case, has
relaxed this rule on, and excused the late posting of, the appeal bond when there are strong and
compelling reasons for the liberality,
14
such as the prevention of miscarriage of justice extant in the
case
15
or the special circumstances in the case combined with its legal merits or the amount and
the issue involved.
16
After all, technical rules cannot prevent courts from exercising their duties to
determine and settle, equitably and completely, the rights and obligations of the parties.
17
This is
one case where the exception to the general rule lies.
While respondents had failed to post their bond within the 10-day period provided above, it
is evident, on the other hand, that petitioners are NOT employees of respondents, since their
relationship fails to pass muster the four-fold test of employment We have repeatedly mentioned
in countless decisions: (1) the selection and engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; and (4) the power to control the employees conduct, which is
the most important element.
18
1avvphi1
As found by both the NLRC and the CA, respondents had no part in petitioners selection and
management;
19
petitioners compensation was paid out of the arriba (which is a percentage
deducted from the total bets), not by petitioners;
20
and petitioners performed their functions as
masiador and sentenciador free from the direction and control of respondents.
21
In the conduct of
their work, petitioners relied mainly on their "expertise that is characteristic of the cockfight
gambling,"
22
and were never given by respondents any tool needed for the performance of their
work.
23

Respondents, not being petitioners employers, could never have dismissed, legally or
illegally, petitioners, since respondents were without power or prerogative to do so in the first
place. The rule on the posting of an appeal bond cannot defeat the substantive rights of
respondents to be free from an unwarranted burden of answering for an illegal dismissal for which
they were never responsible.1avvphi1
Strict implementation of the rules on appeals must give way to the factual and legal reality
that is evident from the records of this case.
24
After all, the primary objective of our laws is to
dispense justice and equity, not the contrary.
WHEREFORE, We DENY this petition and AFFIRM the May 29, 2009 Decision and February 23,
2010 Resolution of the CA, and the October 18, 2006 Resolution of the NLRC.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

























labor rev 31
G.R. No. 186965 December 23, 2009
TEMIC AUTOMOTIVE PHILIPPINES, INC., Petitioner,
vs.
TEMIC AUTOMOTIVE PHILIPPINES, INC. EMPLOYEES UNION-FFW, Respondent.
D E C I S I O N
BRION, J.:
We resolve the present petition for review on certiorari[1] filed by Temic Automotive
Philippines Inc. (petitioner) to challenge the decision
2
and resolution
3
of the Court of Appeals (CA)
in CA-G.R. SP No. 99029.
4

The Antecedents
The petitioner is a corporation engaged in the manufacture of electronic brake systems and
comfort body electronics for automotive vehicles. Respondent Temic Automotive Philippines, Inc.
Employees Union-FFW (union) is the exclusive bargaining agent of the petitioner's rank-and-file
employees. On May 6, 2005, the petitioner and the union executed a collective bargaining
agreement (CBA) for the period January 1, 2005 to December 31, 2009.
The petitioner is composed of several departments, one of which is the warehouse
department consisting of two warehouses - the electronic braking system and the comfort body
electronics. These warehouses are further divided into four sections - receiving section, raw
materials warehouse section, indirect warehouse section and finished goods section. The union
members are regular rank-and-file employees working in these sections as clerks, material
handlers, system encoders and general clerks. Their functions are interrelated and include:
receiving and recording of incoming deliveries, raw materials and spare parts; checking and
booking-in deliveries, raw materials and spare parts with the use of the petitioner's system
application processing; generating bar codes and sticking these on boxes and automotive parts;
and issuing or releasing spare parts and materials as may be needed at the production area, and
piling them up by means of the company's equipment (forklift or jacklift).
By practice established since 1998, the petitioner contracts out some of the work in the
warehouse department, specifically those in the receiving and finished goods sections, to three
independent service providers or forwarders (forwarders), namely: Diversified Cargo Services, Inc.
(Diversified), Airfreight 2100 (Airfreight) and Kuehne & Nagel, Inc. (KNI). These forwarders also have
their own employees who hold the positions of clerk, material handler, system encoder and general
clerk. The regular employees of the petitioner and those of the forwarders share the same work
area and use the same equipment, tools and computers all belonging to the petitioner.
This outsourcing arrangement gave rise to a union grievance on the issue of the scope and
coverage of the collective bargaining unit, specifically to the question of "whether or not the
functions of the forwarders employees are functions being performed by the regular rank-and-file
employees covered by the bargaining unit."
5
The union thus demanded that the forwarders'
employees be absorbed into the petitioner's regular employee force and be given positions within
the bargaining unit. The petitioner, on the other hand, on the premise that the contracting
arrangement with the forwarders is a valid exercise of its management prerogative, posited that
the union's position is a violation of its management prerogative to determine who to hire and
what to contract out, and that the regular rank-and-file employees and their forwarders
employees serving as its clerks, material handlers, system encoders and general clerks do not have
the same functions as regular company employees.
The union and the petitioner failed to resolve the dispute at the grievance machinery level,
thus necessitating recourse to voluntary arbitration. The parties chose Atty. Roberto A. Padilla as
their voluntary arbitrator. Their voluntary arbitration submission agreement delineated the issues
to be resolved as follows:
1. Whether or not the company validly contracted out or outsourced the services involving
forwarding, packing, loading and clerical activities related thereto; and
2. Whether or not the functions of the forwarders' employees are functions being performed
by regular rank-and-file employees covered by the bargaining unit.
6

To support its position, the union submitted in evidence a copy of the complete manpower
complement of the petitioner's warehouse department as of January 3, 2007
7
showing that there
were at the time 19 regular company employees and 26 forwarder employees. It also presented
the affidavits
8
of Edgardo P. Usog, Antonio A. Muzones, Endrico B. Dumolong, Salvador R. Vargas
and Harley J. Noval, regular employees of the petitioner, who deposed that they and the
forwarders employees assigned at the warehouse department were performing the same
functions. The union also presented the affidavits of Ramil V. Barit
9
(Barit), Jonathan G.
Prevendido
10
(Prevendido) and Eduardo H. Enano
11
(Enano), employees of forwarder KNI, who
described their work at the warehouse department.
In its submission,
12
the petitioner invoked the exercise of its management prerogative and its
authority under this prerogative to contract out to independent service providers the forwarding,
packing, loading of raw materials and/or finished goods and all support and ancillary services (such
as clerical activities) for greater economy and efficiency in its operations. It argued that in Meralco
v. Quisumbing
13
this Court explicitly recognized that the contracting out of work is an employer
proprietary right in the exercise of its inherent management prerogative.
The forwarders, the petitioners alleged, are all highly reputable freight forwarding companies
providing total logistics services such as customs brokerage that includes the preparation and
processing of import and export documentation, cargo handling, transport (air, land or sea),
delivery and trucking; and they have substantial capital and are fully equipped with the technical
knowledge, facilities, equipment, materials, tools and manpower to service the company's
forwarding, packing and loading requirements. Additionally, the petitioner argued that the union is
not in a position to question its business judgment, for even their CBA expressly recognizes its
prerogative to have exclusive control of the management of all functions and facilities in the
company, including the exclusive right to plan or control operations and introduce new or
improved systems, procedures and methods.
The petitioner maintained that the services rendered by the forwarders employees are not
the same as the functions undertaken by regular rank-and-file employees covered by the
bargaining unit; therefore, the unions demand that the forwarders employees be assimilated as
regular company employees and absorbed by the collective bargaining unit has no basis; what the
union asks constitutes an unlawful interference in the company's prerogative to choose who to hire
as employees. It pointed out that the union could not, and never did, assert that the contracting-
out of work to the service providers was in violation of the CBA or prohibited by law.
The petitioner explained that its regular employees' clerical and material handling tasks are
not identical with those done by the service providers; the clerical work rendered by the
contractors are recording and documentation tasks ancillary to or supportive of the contracted
services of forwarding, packing and loading; on the other hand, the company employees assigned
as general clerks prepare inventory reports relating to its shipments in general to ensure that the
recording of inventory is consistent with the company's general system; company employees
labor rev 32
assigned as material handlers essentially assist in counter-checking and reporting activities to
ensure that the contractors' services comply with company standards.
The petitioner submitted in evidence the affidavits of Antonio Gregorio
14
(Gregorio), its
warehouse manager, and Ma. Maja Bawar
15
(Bawar), its section head.
The Voluntary Arbitration Decision
In his decision of May 1, 2007,
16
the voluntary arbitrator defined forwarding as a universally
accepted and normal business practice or activity, and ruled that the company validly contracted
out its forwarding services. The voluntary arbitrator observed that exporters, in utilizing forwarders
as travel agents of cargo, mitigate the confusion and delays associated with international trade
logistics; the company need not deal with many of the details involved in the export of goods; and
given the years of experience and constant attention to detail provided by the forwarders, it may
be a good investment for the company. He found that the outsourcing of forwarding work is
expressly allowed by the rules implementing the Labor Code.
17

At the same time, however, the voluntary arbitrator found that the petitioner went beyond
the limits of the legally allowable contracting out because the forwarders' employees encroached
upon the functions of the petitioner's regular rank-and-file workers. He opined that the forwarders'
personnel serving as clerks, material handlers, system encoders and general clerks perform
"functions [that] are being performed by regular rank-and-file employees covered by the bargaining
unit." He also noted that the forwarders' employees perform their jobs in the company warehouse
together with the petitioner's employees, use the same company tools and equipment and work
under the same company supervisors indicators that the petitioner exercises supervision and
control over all the employees in the warehouse department. For these reasons, he declared the
forwarders employees serving as clerks, material handlers, system encoders and general clerks to
be "employees of the company who are entitled to all the rights and privileges of regular employees
of the company including security of tenure."
18

The petitioner sought relief from the CA through a petition for review under Rule 43 of the
Rules of Court invoking questions of facts and law.
19
It specifically questioned the ruling that the
company did not validly contract out the services performed by the forwarders clerks, material
handlers, system encoders and general clerks, and claimed that the voluntary arbitrator acted in
excess of his authority when he ruled that they should be considered regular employees of the
company.
The CA Decision
In its decision of October 28, 2008,
20
the CA fully affirmed the voluntary arbitrators decision
and dismissed the petition for lack of merit. The discussion essentially focused on three points.
First, that decisions of voluntary arbitrators on matters of fact and law, acting within the scope of
their authority, are conclusive and constitute res adjudicata on the theory that the parties agreed
that the voluntary arbitrators decision shall be final. Second, that the petitioner has the right to
enter into the forwarding agreements, but these agreements should be limited to forwarding
services; the petitioner failed to present clear and convincing proof of the delineation of functions
and duties between company and forwarder employees engaged as clerks, material handlers,
system encoders and general clerks; thus, they should be considered regular company employees.
Third, on the extent of the voluntary arbitrator's authority, the CA acknowledged that the
arbitrator can only decide questions agreed upon and submitted by the parties, but maintained
that the arbitrator also has the power to rule on consequential issues that would finally settle the
dispute. On this basis, the CA justified the ruling on the employment status of the forwarders'
clerks, material handlers, system encoders and general clerks as a necessary consequence that ties
up the loose ends of the submitted issues for a final settlement of the dispute.
The CA denied the petitioners motion for reconsideration, giving way to the present
petition.
The Petition
The petition questions as a preliminary issue the CA ruling that decisions of voluntary
arbitrators are conclusive and constitute res adjudicata on the facts and law ruled upon.
Expectedly, it cites as error the voluntary arbitrators and the CAs rulings that: (a) the
forwarders employees undertaking the functions of clerks, material handlers, system encoders and
general clerks exercise the functions of regular company employees and are subject to the
companys control; and (b) the functions of the forwarders employees are beyond the limits of
what the law allows for a forwarding agreement.
The petitioner reiterates that there are distinctions between the work of the forwarders
employees and that of the regular company employees. The receiving, unloading, recording or
documenting of materials the forwarders employees undertake form part of the contracted
forwarding services. The similarity of these activities to those performed by the company's regular
employees does not necessarily lead to the conclusion that the forwarders employees should be
absorbed by the company as its regular employees. No proof was ever presented by the union that
the company exercised supervision and control over the forwarders' employees. The contracted
services and even the work performed by the regular employees in the warehouse department are
also not usually necessary and desirable in the manufacture of automotive electronics which is the
companys main business. It adds that as held in Philippine Global Communications, Inc. v. De
Vera,[21] management can contract out even services that are usually necessary or desirable in the
employer's business.
On the issue of jurisdiction, the petitioner argues that the voluntary arbitrator neither had
jurisdiction nor basis to declare the forwarders' personnel as regular employees of the company
because the matter was not among the issues submitted by the parties for arbitration; in voluntary
arbitration, it is the parties submission of the issues that confers jurisdiction on the voluntary
arbitrator. The petitioner finally argues that the forwarders and their employees were not parties
to the voluntary arbitration case and thus cannot be bound by the voluntary arbitrators decision.
The Case for the Union
In its comment,
22
the union takes exception to the petitioner's position that the contracting
out of services involving forwarding and ancillary activities is a valid exercise of management
prerogative. It posits that the exercise of management prerogative is not an absolute right, but is
subject to the limitation provided for by law, contract, existing practice, as well as the general
principles of justice and fair play. It submits that both the law and the parties' CBA prohibit the
petitioner from contracting out to forwarders the functions of regular employees, especially when
the contracting out will amount to a violation of the employees' security of tenure, of the CBA
provision on the coverage of the bargaining unit, or of the law on regular employment.
The union disputes the petitioner's claim that there is a distinction between the work being
performed by the regular employees and that of the forwarders' employees. It insists that the
functions being assigned, delegated to and performed by employees of the forwarders are also
those assigned, delegated to and being performed by the regular rank-and-file employees covered
by the bargaining unit.
labor rev 33
On the jurisdictional issue, the union submits that while the submitted issue is "whether or
not the functions of the forwarders' employees are functions being performed by the regular rank-
and-file employees covered by the bargaining unit," the ruling of the voluntary arbitrator was a
necessary consequence of his finding that the forwarders' employees were performing functions
similar to those being performed by the regular employees of the petitioner. It maintains that it is
within the power of the voluntary arbitrator to rule on the issue since it is inherently connected to,
or a consequence of, the main issues resolved in the case.
The Court's Ruling
We find the petition meritorious.
Underlying Jurisdictional Issues
As submitted by the parties, the first issue is "whether or not the company validly contracted
out or outsourced the services involving forwarding, packing, loading and clerical activities related
thereto." However, the forwarders, with whom the petitioner had written contracts for these
services, were never made parties (and could not have been parties to the voluntary arbitration
except with their consent) so that the various forwarders agreements could not have been validly
impugned through voluntary arbitration and declared invalid as against the forwarders.
The second submitted issue is "whether or not the functions of the forwarders employees
are functions being performed by regular rank-and-file employees covered by the bargaining unit."
While this submission is couched in general terms, the issue as discussed by the parties is limited to
the forwarders employees undertaking services as clerks, material handlers, system encoders and
general clerks, which functions are allegedly the same functions undertaken by regular rank-and-
file company employees covered by the bargaining unit. Either way, however, the issue poses
jurisdictional problems as the forwarders employees are not parties to the case and the union has
no authority to speak for them.
From this perspective, the voluntary arbitration submission covers matters affecting third
parties who are not parties to the voluntary arbitration and over whom the voluntary arbitrator has
no jurisdiction; thus, the voluntary arbitration ruling cannot bind them.
23
While they may
voluntarily join the voluntary arbitration process as parties, no such voluntary submission appears
in the record and we cannot presume that one exists. Thus, the voluntary arbitration process and
ruling can only be recognized as valid between its immediate parties as a case arising from their
collective bargaining agreement. This limited scope, of course, poses no problem as the forwarders
and their employees are not indispensable parties and the case is not mooted by their absence.
Our ruling will fully bind the immediate parties and shall fully apply to, and clarify the terms of,
their relationship, particularly the interpretation and enforcement of the CBA provisions pertinent
to the arbitrated issues.
Validity of the Contracting Out
The voluntary arbitration decision itself established, without objection from the parties, the
description of the work of forwarding as a basic premise for its ruling. We similarly find the
description acceptable and thus adopt it as our own starting point in considering the nature of the
service contracted out when the petitioner entered into its forwarding agreements with
Diversified, Airfreight and KNI. To quote the voluntary arbitration decision:
As forwarders they act as travel agents for cargo. They specialize in arranging transport and
completing required shipping documentation of respondent's company's finished products. They
provide custom crating and packing designed for specific needs of respondent company. These
freight forwarders are actually acting as agents for the company in moving cargo to an overseas
destination. These agents are familiar with the import rules and regulations, the methods of
shipping, and the documents related to foreign trade. They recommend the packing methods that
will protect the merchandise during transit. Freight forwarders can also reserve for the company
the necessary space on a vessel, aircraft, train or truck.
They also prepare the bill of lading and any special required documentation. Freight
forwarders can also make arrangement with customs brokers overseas that the goods comply with
customs export documentation regulations. They have the expertise that allows them to prepare
and process the documentation and perform related activities pertaining to international
shipments. As an analogy, freight forwarders have been called travel agents for freight.
24

Significantly, both the voluntary arbitrator and the CA recognized that the petitioner was
within its right in entering the forwarding agreements with the forwarders as an exercise of its
management prerogative. The petitioner's declared objective for the arrangement is to achieve
greater economy and efficiency in its operations a universally accepted business objective and
standard that the union has never questioned. In Meralco v. Quisumbing,
25
we joined this universal
recognition of outsourcing as a legitimate activity when we held that a company can determine in
its best judgment whether it should contract out a part of its work for as long as the employer is
motivated by good faith; the contracting is not for purposes of circumventing the law; and does
not involve or be the result of malicious or arbitrary action.
While the voluntary arbitrator and the CA saw nothing irregular in the contracting out as a
whole, they held otherwise for the ancillary or support services involving clerical work, materials
handling and documentation. They held these to be the same as the workplace activities
undertaken by regular company rank-and-file employees covered by the bargaining unit who work
under company control; hence, they concluded that the forwarders employees should be
considered as regular company employees.
Our own examination of the agreement shows that the forwarding arrangement complies
with the requirements of Article 106
26
of the Labor Code and its implementing rules.
27
To reiterate,
no evidence or argument questions the companys basic objective of achieving "greater economy
and efficiency of operations." This, to our mind, goes a long way to negate the presence of bad
faith. The forwarding arrangement has been in place since 1998 and no evidence has been
presented showing that any regular employee has been dismissed or displaced by the forwarders
employees since then. No evidence likewise stands before us showing that the outsourcing has
resulted in a reduction of work hours or the splitting of the bargaining unit effects that under the
implementing rules of Article 106 of the Labor Code can make a contracting arrangement illegal.
The other requirements of Article 106, on the other hand, are simply not material to the present
petition. Thus, on the whole, we see no evidence or argument effectively showing that the
outsourcing of the forwarding activities violate our labor laws, regulations, and the parties CBA,
specifically that it interfered with, restrained or coerced employees in the exercise of their rights to
self-organization as provided in Section 6, par. (f) of the implementing rules. The only exception, of
course, is what the union now submits as a voluntary arbitration issue i.e., the failure to recognize
certain forwarder employees as regular company employees and the effect of this failure on the
CBAs scope of coverage which issue we fully discuss below.
The job of forwarding, as we earlier described, consists not only of a single activity but of
several services that complement one another and can best be viewed as one whole process
involving a package of services. These services include packing, loading, materials handling and
support clerical activities, all of which are directed at the transport of company goods, usually to
foreign destinations.
labor rev 34
It is in the appreciation of these forwarder services as one whole package of inter-related
services that we discern a basic misunderstanding that results in the error of equating the functions
of the forwarders employees with those of regular rank-and-file employees of the company. A
clerical job, for example, may similarly involve typing and paper pushing activities and may be done
on the same company products that the forwarders employees and company employees may work
on, but these similarities do not necessarily mean that all these employees work for the company.
The regular company employees, to be sure, work for the company under its supervision and
control, but forwarder employees work for the forwarder in the forwarders own operation that is
itself a contracted work from the company. The company controls its employees in the means,
method and results of their work, in the same manner that the forwarder controls its own
employees in the means, manner and results of their work. Complications and confusion result
because the company at the same time controls the forwarder in the results of the latters work,
without controlling however the means and manner of the forwarder employees work. This
interaction is best exemplified by the adduced evidence, particularly the affidavits of petitioners
warehouse manager Gregorio
28
and Section Head Bawar
29
discussed below.
From the perspective of the union in the present case, we note that the forwarding
agreements were already in place when the current CBA was signed.
30
In this sense, the union
accepted the forwarding arrangement, albeit implicitly, when it signed the CBA with the company.
Thereby, the union agreed, again implicitly by its silence and acceptance, that jobs related to the
contracted forwarding activities are not regular company activities and are not to be undertaken by
regular employees falling within the scope of the bargaining unit but by the forwarders employees.
Thus, the skills requirements and job content between forwarders jobs and bargaining unit jobs
may be the same, and they may even work on the same company products, but their work for
different purposes and for different entities completely distinguish and separate forwarder and
company employees from one another. A clerical job, therefore, if undertaken by a forwarders
employee in support of forwarding activities, is not a CBA-covered undertaking or a regular
company activity.
The best evidence supporting this conclusion can be found in the CBA itself, Article 1,
Sections 1, 2, 3 and 4 (VII) of which provide:
Section 1. Recognition and Bargaining Unit. Upon the unions representation and showing
of continued majority status among the employees covered by the bargaining unit as already
appropriately constituted, the company recognizes the union as the sole and exclusive collective
bargaining representative of all its regular rank-and-file employees, except those excluded from the
bargaining unit as hereinafter enumerated in Sections 2 and 3 of this Article, for purposes of
collective bargaining in respect to their rates of pay and other terms and condition of employment
for the duration of this Agreement.
Section 2. Exclusions. The following employment categories are expressly excluded from the
bargaining unit and from the scope of this Agreement: executives, managers, supervisors and those
employees exercising any of the attributes of a managerial employee; Accounting Department,
Controlling Department, Human Resources Department and IT Department employees,
department secretaries, the drivers and personnel assigned to the Office of the General Manager
and the Office of the Commercial Affairs and Treasury, probationary, temporary and casual
employees, security guards, and other categories of employees declared by law to be eligible for
union membership.
Section 3. Additional Exclusions. Employees within the bargaining unit heretofore defined,
who are promoted or transferred to an excluded employment category as herein before
enumerated, shall automatically be considered as resigned and/or disqualified from membership in
the UNION and automatically removed from the bargaining unit.
Section 4. Definitions x x x
VII. A regular employee is one who having satisfactorily undergone the probationary period
of employment and passed the companys full requirement for regular employees, such as, but not
limited to physical fitness, proficiency, acceptable conduct and good moral character, received an
appointment as a regular employee duly signed by the authorized official of the COMPANY.
[Emphasis supplied.]
When these CBA provisions were put in place, the forwarding agreements had been in place
so that the forwarders employees were never considered as company employees who would be
part of the bargaining unit. To be precise, the forwarders employees and their positions were not
part of the appropriate bargaining unit "as already constituted." In fact, even now, the union
implicitly recognizes forwarding as a whole as a legitimate non-company activity by simply claiming
as part of their unit the forwarders employees undertaking allied support activities.
At this point, the union cannot simply turn around and claim through voluntary arbitration
the contrary position that some forwarder employees should be regular employees and should be
part of its bargaining unit because they undertake regular company functions. What the union
wants is a function of negotiations, or perhaps an appropriate action before the National Labor
Relations Commission impleading the proper parties, but not a voluntary arbitration that does not
implead the affected parties. The union must not forget, too, that before the inclusion of the
forwarders employees in the bargaining unit can be considered, these employees must first be
proven to be regular company employees. As already mentioned, the union does not even have the
personality to make this claim for these forwarders employees. This is the impenetrable wall that
the union cannot, for now, pass through using the voluntary arbitration proceedings now before us
on appeal.
Significantly, the evidence presented does not also prove the unions point that forwarder
employees undertake company rather than the forwarders' activities. We say this mindful that
forwarding includes a whole range of activities that may duplicate company activities in terms of
the exact character and content of the job done and even of the skills required, but cannot be
legitimately labeled as company activities because they properly pertain to forwarding that the
company has contracted out.
The unions own evidence, in fact, speaks against the point the union wishes to prove.
Specifically, the affidavits of forwarder KNI employees Barit, Prevendido, and Enano, submitted in
evidence by the union, confirm that the work they were doing was predominantly related to
forwarding or the shipment or transport of the petitioners finished goods to overseas destinations,
particularly to Germany and the United States of America (USA).lavvphil
Barit
31
deposed that on August 2, 2004 he started working at the petitioner's CBE finished
goods area as an employee of forwarder Emery Transnational Air Cargo Group; on the same date,
he was absorbed by KNI and was assigned the same task of a loader; his actual work involved:
making of inventories of CBE finished products in the warehouse; double checking of the finished
products he inventoried and those received by the other personnel of KNI; securing from his
superior the delivery note and print-out indicating the model and the quantity of products to be
exported to Germany; and preparing the loading form and then referring it to his co-workers from
the forwarders who gather the goods to be transported to Germany based on the model and
quantity needed; with the use of the computer, printing the airway bill which serves as cargo ticket
for the airline and posted on every box of finished products before loading on the van of goods
labor rev 35
bound for Germany; preparing the gate pass for the van. He explained that other products to be
shipped to the USA, via sea transport, are picked up by the other forwarders and brought to their
warehouse in Paraaque.
Prevendido,
32
also a loader, stated that his actual work involved loading into the container
van finished CBE products bound for Germany; when there is a build up for the E.K. Express
(Emirates Airlines), he is sent by the petitioner to the airlines to load the finished products and
check if they are in good condition; although the inspection and checking of loaded finished
products should be done by a company supervisor or clerk, he is asked to do them because he is
already there in the area; he also conducts an inventory of finished goods in the finished goods
area, prepares loading form schedule and generates the airway bill and is asked by his supervisor to
call up KNI for the airway bill number.
Enano,
33
for his part, stated that on November 11, 1998, he was absorbed by KNI after
initially working in 1996 for a janitorial service agency which had a contract with the petitioner, he
was also a loader and assigned at the finished goods section in the warehouse department; his
actual work involved preparing the gate pass for finished products of the petitioner to be released;
loading the finished products on the truck and calling up KNI (Air Freight Department) to check on
the volume of the petitioner's products for export; making inventories of the remaining finished
products and doing other tasks related to the export of the petitioner's products, which he claimed
are supposed to be done by the company's finished goods supervisor; and monitoring of KNI's
trucking sub-contractor who handled the transport component of KNI's arrangement with the
petitioner.
The essential nature of the outsourced services is not substantially altered by the claim of the
three KNI employees that they occasionally do work that pertains to the companys finished goods
supervisor or a company employee such as the inspection of goods to be shipped and inventory of
finished goods. This was clarified by petitioners warehouse manager Gregorio
34
and Section Head
Bawar
35
in their respective affidavits. They explained that the three KNI employees do not conduct
inventory of finished goods; rather, as part of the contract, KNI personnel have to count the boxes
of finished products they load into the trucks to ensure that the quantity corresponds with the
entries made in the loading form; included in the contracted service is the preparation of transport
documents like the airway bill; the airway bill is prepared in the office and a KNI employee calls for
the airway bill number, a sticker label is then printed; and that the use of the company forklift is
necessary for the loading of the finished goods into the truck.
Thus, even on the evidentiary side, the unions case must fail.
In light of these conclusions, we see no need to dwell on the issue of the voluntary
arbitrators authority to rule on issues not expressly submitted but which arise as a consequence of
the voluntary arbitrators findings on the submitted issues.
WHEREFORE, premises considered, we hereby NULLIFY and SET ASIDE the assailed Court of
Appeals Decision in CA-G.R. SP No. 99029 dated October 28, 2008, together with the Voluntary
Arbitrators Decision of May 1, 2007 declaring the employees of forwarders Diversified Cargo
Services, Inc., Airfreight 2100 and Kuehne & Nagel, Inc., presently designated and functioning as
clerks, material handlers, system or data encoders and general clerks, to be regular company
employees. No costs. SO
G.R. No. 138051 June 10, 2004
JOSE Y. SONZA, petitioner,
vs.
ABS-CBN BROADCASTING CORPORATION, respondent.
D E C I S I O N
CARPIO, J.:
The Case
Before this Court is a petition for review on certiorari
1
assailing the 26 March 1999 Decision
2

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. Manager
4

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").
labor rev 36
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 Arbiter
5
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:
x x x
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
labor rev 37
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.
labor rev 38
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 x
28
(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 post-production 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
ABS-CBNs 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 ABS-CBN was completely dissatisfied with the means and methods of SONZAs
labor rev 39
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
employer-employee 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.
labor rev 40
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
x x x
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 Constitution
53
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.
Davide, Jr., Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.
G.R. No. 164156 September 26, 2006
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.
labor rev 41
MARLYN NAZARENO, MERLOU GERZON, JENNIFER DEIPARINE, and JOSEPHINE LERASAN,
respondents.
D E C I S I O N
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision
1
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 Decision
2
and Resolution
3
of the National Labor Relations Commission (NLRC) in NLRC
Case No. V-000762-2001 (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: XXX
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:
labor rev 42
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:
XXX
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

labor rev 43
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
Resolution
17
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
labor rev 44
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
223
21
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.
labor rev 45
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
labor rev 46
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
Corporation
43
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.
labor rev 47
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.
Panganiban, C.J., Chairperson, Ynares-Santiago, Austria-Martinez, Chico-Nazario, J.J., concur.



















G.R. No. 183810 January 21, 2010



































labor rev 48
FARLEY FULACHE, MANOLO JABONERO, DAVID CASTILLO, JEFFREY LAGUNZAD,
MAGDALENA MALIG-ON BIGNO, FRANCISCO CABAS, JR., HARVEY PONCE and ALAN C.
ALMENDRAS, Petitioners,
vs.
ABS-CBN BROADCASTING CORPORATION, Respondent.
D E C I S I O N
BRION, J.:
The petition for review on certiorari
1
now before us seeks to set aside the decision
2
and
resolution
3
of the Court of Appeals, Nineteenth Division (CA) promulgated on March 25, 2008 and
July 8, 2008, respectively, in CA- G.R. SP No. 01838.
4

The Antecedents
The Regularization Case.
In June 2001, petitioners Farley Fulache, Manolo Jabonero, David Castillo, Jeffrey Lagunzad,
Magdalena Malig-on Bigno, Francisco Cabas, Jr., Harvey Ponce and Alan C. Almendras (petitioners)
and Cresente Atinen (Atinen) filed two separate complaints for regularization, unfair labor practice
and several money claims (regularization case) against ABS-CBN Broadcasting Corporation-Cebu
(ABS-CBN). Fulache and Castillo were drivers/cameramen; Atinen, Lagunzad and Jabonero were
drivers; Ponce and Almendras were cameramen/editors; Bigno was a PA/Teleprompter Operator-
Editing, and Cabas was a VTR man/editor. The complaints (RAB VII Case Nos. 06-1100-01 and 06-
1176-01) were consolidated and were assigned to Labor Arbiter Julie C. Rendoque.
The petitioners alleged that on December 17, 1999, ABS-CBN and the ABS-CBN Rank-and-File
Employees Union (Union) executed a collective bargaining agreement (CBA) effective December 11,
1999 to December 10, 2002; they only became aware of the CBA when they obtained copies of the
agreement; they learned that they had been excluded from its coverage as ABS-CBN considered
them temporary and not regular employees, in violation of the Labor Code. They claimed they had
already rendered more than a year of service in the company and, therefore, should have been
recognized as regular employees entitled to security of tenure and to the privileges and benefits
enjoyed by regular employees. They asked that they be paid overtime, night shift differential,
holiday, rest day and service incentive leave pay. They also prayed for an award of moral damages
and attorneys fees.
ABS-CBN explained the nature of the petitioners employment within the framework of its
operations. It claimed that: it operates in several divisions, one of which is the Regional Network
Group (RNG). The RNG exercises control and supervision over all the ABS-CBN local stations to
ensure that ABS-CBN programs are extended to the provinces. A local station, like the Cebu station,
can resort to cost-effective and cost-saving measures to remain viable; local stations produced
shows and programs that were constantly changing because of the competitive nature of the
industry, the changing public demand or preference, and the seasonal nature of media
broadcasting programs. ABS-CBN claimed, too, that the production of programs per se is not
necessary or desirable in its business because it could generate profits by selling airtime to block-
timers or through advertising.
ABS-CBN further claimed that to cope with fluctuating business conditions, it contracts on a
case-to-case basis the services of persons who possess the necessary talent, skills, training,
expertise or qualifications to meet the requirements of its programs and productions. These
contracted persons are called "talents" and are considered independent contractors who offer
their services to broadcasting companies.
Instead of salaries, ABS-CBN pointed out that talents are paid a pre-arranged consideration
called "talent fee" taken from the budget of a particular program and subject to a ten percent
(10%) withholding tax. Talents do not undergo probation. Their services are engaged for a specific
program or production, or a segment thereof. Their contracts are terminated once the program,
production or segment is completed.
ABS-CBN alleged that the petitioners services were contracted on various dates by its Cebu
station as independent contractors/off camera talents, and they were not entitled to regularization
in these capacities.
On January 17, 2002, Labor Arbiter Rendoque rendered his decision
5
holding that the
petitioners were regular employees of ABS-CBN, not independent contractors, and are entitled to
the benefits and privileges of regular employees.
ABS-CBN appealed the ruling to the National Labor Relations Commission (NLRC) Fourth
Division, mainly contending that the petitioners were independent contractors, not regular
employees.
6

The Illegal Dismissal Case.
While the appeal of the regularization case was pending, ABS-CBN dismissed Fulache,
Jabonero, Castillo, Lagunzad and Atinen (all drivers) for their refusal to sign up contracts of
employment with service contractor Able Services. The four drivers and Atinen responded by filing
a complaint for illegal dismissal (illegal dismissal case). The case (RAB VII Case No. 07-1300-2002)
was likewise handled by Labor Arbiter Rendoque.
In defense, ABS-CBN alleged that even before the labor arbiter rendered his decision of
January 17, 2002 in the regularization case, it had already undertaken a comprehensive review of
its existing organizational structure to address its operational requirements. It then decided to
course through legitimate service contractors all driving, messengerial, janitorial, utility, make-up,
wardrobe and security services for both the Metro Manila and provincial stations, to improve its
operations and to make them more economically viable. Fulache, Jabonero, Castillo, Lagunzad and
Atinen were not singled out for dismissal; as drivers, they were dismissed because they belonged to
a job category that had already been contracted out. It argued that even if the petitioners had been
found to have been illegally dismissed, their reinstatement had become a physical impossibility
because their employer-employee relationships had been strained and that Atinen had executed a
quitclaim and release.
In her April 21, 2003 decision in the illegal dismissal case,
7
Labor Arbiter Rendoque upheld
the validity of ABS-CBN's contracting out of certain work or services in its operations. The labor
arbiter found that petitioners Fulache, Jabonero, Castillo, Lagunzad and Atinen had been dismissed
due to redundancy, an authorized cause under the law.
8
He awarded them separation pay of one
(1) months salary for every year of service.
Again, ABS-CBN appealed to the NLRC which rendered on December 15, 2004 a joint decision
on the regularization and illegal dismissal cases.
9
The NLRC ruled that there was an employer-
employee relationship between the petitioners and ABS-CBN as the company exercised control
over the petitioners in the performance of their work; the petitioners were regular employees
because they were engaged to perform activities usually necessary or desirable in ABS-CBN's trade
or business; they cannot be considered contractual employees since they were not paid for the
result of their work, but on a monthly basis and were required to do their work in accordance with
the companys schedule. The NLRC thus affirmed with modification the labor arbiter's
regularization decision of January 17, 2002, additionally granting the petitioners CBA benefits and
privileges.
labor rev 49
The NLRC reversed the labor arbiters ruling in the illegal dismissal case; it found that
petitioners Fulache, Jabonero, Castillo, Lagunzad and Atinen had been illegally dismissed and
awarded them backwages and separation pay in lieu of reinstatement. Under both cases, the
petitioners were awarded CBA benefits and privileges from the time they became regular
employees up to the time of their dismissal.
The petitioners moved for reconsideration, contending that Fulache, Jabonero, Castillo and
Lagunzad are entitled to reinstatement and full backwages, salary increases and other CBA benefits
as well as 13th month pay, cash conversion of sick and vacation leaves, medical and dental
allowances, educational benefits and service awards. Atinen appeared to have been excluded from
the motion and there was no showing that he sought reconsideration on his own.
ABS-CBN likewise moved for the reconsideration of the decision, reiterating that Fulache,
Jabonero, Castillo and Lagunzad were independent contractors, whose services had been
terminated due to redundancy; thus, no backwages should have been awarded. It further argued
that the petitioners were not entitled to the CBA benefits because they never claimed these
benefits in their position paper before the labor arbiter while the NLRC failed to make a clear and
positive finding that that they were part of the bargaining unit; neither was there evidence to
support this finding.
The NLRC resolved the motions for reconsideration on March 24, 2006
10
by reinstating the
two separate decisions of the labor arbiter dated January 17, 2002,
11
and April 21, 2003,
12

respectively. Thus, on the regularization issue, the NLRC stood by the ruling that the petitioners
were regular employees entitled to the benefits and privileges of regular employees. On the illegal
dismissal case, the petitioners, while recognized as regular employees, were declared dismissed
due to redundancy. The NLRC denied the petitioners second motion for reconsideration in its
order of May 31, 2006 for being a prohibited pleading.
13

The CA Petition and Decision
The petitioners went to the CA through a petition for certiorari under Rule 65 of the Rules of
Court.
14
They charged the NLRC with grave abuse of discretion in: (1) denying them the benefits
under the CBA; (2) finding no evidence that they are part of the companys bargaining unit; (3) not
reinstating and awarding backwages to Fulache, Jabonero, Castillo and Lagunzad; and (4) ruling that
they are not entitled to damages and attorneys fees.
ABS-CBN, on the other hand, questioned the propriety of the petitioners use of a certiorari
petition. It argued that the proper remedy for the petitioners was an appeal from the reinstated
decisions of the labor arbiter.
In its decision of March 25, 2008,
15
the appellate court brushed aside ABS-CBNs procedural
question, holding that the petition was justified because there is no plain, speedy or adequate
remedy from a final decision, order or resolution of the NLRC; the reinstatement of the labor
arbiters decisions did not mean that the proceedings reverted back to the level of the arbiter. It
likewise affirmed the NLRC ruling that the petitioners second motion for reconsideration is a
prohibited pleading under the NLRC rules.
16

On the merits of the case, the CA ruled that the petitioners failed to prove their claim to CBA
benefits since they never raised the issue in the compulsory arbitration proceedings, and did not
appeal the labor arbiters decision which was silent on their entitlement to CBA benefits. The CA
found that the petitioners failed to show with specificity how Section 1 (Appropriate Bargaining
Unit) and the other provisions of the CBA applied to them.
On the illegal dismissal issue, the CA upheld the NLRC decision reinstating the labor arbiters
April 21, 2003 ruling.
17
Thus, the drivers Fulache, Jabonero, Castillo and Lagunzad were not
illegally dismissed as their separation from the service was due to redundancy; they had not
presented any evidence that ABS-CBN abused its prerogative in contracting out the services of
drivers. Except for separation pay, the CA denied the petitioners claim for backwages, moral and
exemplary damages, and attorneys fees.
The petitioners moved for reconsideration, but the CA denied the motion in a resolution
promulgated on July 8, 2008.
18
Hence, the present petition.
The Petition
The petitioners challenge the CA ruling on both procedural and substantive grounds. As
procedural questions, they submit that the CA erred in: (1) affirming the NLRC resolution which
reversed its own decision; (2) sustaining the NLRC ruling that their second motion for
reconsideration is a prohibited pleading; (3) not ruling that ABS-CBN admitted in its position paper
before the labor arbiter that they were members of the bargaining unit as the matter was not
raised in its appeal to the NLRC; and, (4) not ruling that notwithstanding their failure to appeal from
the first decision of the Labor Arbiter, they can still participate in the appeal filed by ABS-CBN
regarding their employment status.
On the substantive aspect, the petitioners contend that the CA gravely erred in: (1) not
considering the evidence submitted to the NLRC on appeal to bolster their claim that they were
members of the bargaining unit and therefore entitled to the CBA benefits; (2) not ordering ABS-
CBN to pay the petitioners salaries, allowances and CBA benefits after the NLRC has declared that
they were regular employees of ABS-CBN; (3) not ruling that under existing jurisprudence, the
position of driver cannot be declared redundant, and that the petitioners-drivers were illegally
dismissed; and, (4) not ruling that the petitioners were entitled to damages and attorneys fees.
The petitioners argue that the NLRC resolution of March 24, 2006
19
which set aside its joint
decision of December 15, 2004
20
and reinstated the twin decisions of the labor arbiter,
21
had the
effect of promulgating a new decision based on issues that were not raised in ABS-CBNs partial
appeal to the NLRC. They submit that the NLRC should have allowed their second motion for
reconsideration so that it may be able to equitably evaluate the parties "conflicting versions of the
facts" instead of denying the motion on a mere technicality.
On the question of their CBA coverage, the petitioners contend that the CA erred in not
considering that ABS-CBN admitted their membership in the bargaining unit, for nowhere in its
partial appeal from the labor arbiters decision in the regularization case did it allege that the
petitioners failed to prove that they are members of the bargaining unit; instead, the company
stood by its position that the petitioners were not entitled to the CBA benefits since they were
independent contractors/program employees.
The petitioners submit that while they did not appeal the labor arbiters decision in the
regularization case, ABS-CBN raised the employment status issue in its own appeal to the NLRC; this
appeal laid this issue open for review. They argue that they could still participate in the appeal
proceedings at the NLRC; pursue their position on the issue; and introduce evidence as they did in
their reply to the companys appeal.
22
They bewail the appellate courts failure to consider the
evidence they presented to the NLRC (consisting of documents and sworn statements enumerating
the activities they are performing) clearly indicating that they are part of the rank-and-file
bargaining unit at ABS-CBN.
The petitioners then proceeded to describe the work they render for the company.
Collectively, they claim that they work as assistants in the production of the Cebuano news
labor rev 50
program broadcast daily over ABS-CBN Channel 3, as follows: Fulache, Jabonero, Castillo and
Lagunzad as production assistants to drive the news team; Ponce and Almendras, to shoot scenes
and events with the use of cameras owned by ABS-CBN; Malig-on Bigno, as studio production
assistant and assistant editor/teleprompter operator; and Cabas, Jr., as production assistant for
video editing and operating the VTR machine recorder. As production assistants, the petitioners
submit that they are rank-and-file employees (citing in support of their position the Courts ruling in
ABS-CBN Broadcasting Corp. v. Nazareno
23
) who are entitled to salary increases and other benefits
under the CBA. Relying on the Courts ruling in New Pacific Timber and Supply Company, Inc. v.
NLRC,
24
they posit that to exclude them from the CBA "would constitute undue discrimination and
would deprive them of monetary benefits they would otherwise be entitled to."
As their final point, the petitioners argue that even if they were not able to prove that they
were members of the bargaining unit, the CA should not have dismissed their petition. When the
CA affirmed the rulings of both the labor arbiter and the NLRC that they are regular employees, the
CA should have ordered ABS-CBN to recognize their regular employee status and to give them the
salaries, allowances and other benefits and privileges under the CBA.1avvphi1
On the dismissal of Fulache, Jabonero, Castillo and Lagunzad, the petitioners impute bad
faith on ABS-CBN when it abolished the positions of drivers claiming that the company failed to
comply with the requisites of a valid redundancy action. They maintain that ABS-CBN did not
present any evidence on the new staffing pattern as approved by the management of the
company, and did not even bother to show why it considered the positions of drivers superfluous
and unnecessary; it is not true that the positions of drivers no longer existed because these
positions were contracted out to an agency that, in turn, recruited four drivers to take the place of
Fulache, Jabonero, Castillo and Lagunzad. As further indication that the redundancy action against
the four drivers was done in bad faith, the petitioners call attention to ABS-CBNs abolition of the
position of drivers after the labor arbiter rendered her decision declaring Fulache, Jabonero,
Castillo and Lagunzad regular company employees. The petitioners object to the dismissal of the
four drivers when they refused to sign resignation letters and join Able Services, a contracting
agency, contending that the four had no reason to resign after the labor arbiter declared them
regular company employees.
Since their dismissal was illegal and attended by bad faith, the petitioners insist that they
should be reinstated with backwages, and should likewise be awarded moral and exemplary
damages, and attorney's fees.
The Case for ABS-CBN
In its Comment filed on January 28, 2009,
25
ABS-CBN presents several grounds which may be
synthesized as follows:
1. The petition raises questions of fact and not of law.
2. The CA committed no error in affirming the resolution of the NLRC reinstating the
decisions of the labor arbiter.
ABS-CBN submits that the petition should be dismissed for having raised questions of fact
and not of law in violation of Rule 45 of the Rules of Court. It argues that the question of whether
the petitioners were covered by the CBA (and therefore entitled to the CBA benefits) and whether
the petitioners were illegally dismissed because of redundancy, are factual questions that cannot
be reviewed on certiorari because the Court is not a trier of facts.
ABS-CBN dismisses the petitioners issues and arguments as mere rehash of what they raised
in their pleadings with the CA and as grounds that do not warrant further consideration. It further
contends that because the petitioners did not appeal the labor arbiter decisions, these decisions
had lapsed to finality and could no longer be the subject of a petition for certiorari; the petitioners
cannot obtain from the appellate court affirmative relief other than those granted in the appealed
decision. It also argues that the NLRC did not commit any grave abuse of discretion in reinstating
the twin decisions of the labor arbiter, thereby affirming that no CBA benefits can be awarded to
the petitioners; in the absence of any illegal dismissal, the petitioners were not entitled to
reinstatement, backwages, damages, and attorney's fees.
The Court's Ruling
We first resolve the parties procedural questions.
ABS-CBN wants the petition to be dismissed outright for its alleged failure to comply with the
requirement of Rule 45 of the Rules of Court that the petition raises only questions of law.
26

We find no impropriety in the petition from the standpoint of Rule 45. The petitioners do not
question the findings of facts of the assailed decisions. They question the misapplication of the law
and jurisprudence on the facts recognized by the decisions. For example, they question as contrary
to law their exclusion from the CBA after they were recognized as regular rank-and-file employees
of ABS-CBN. They also question the basis in law of the dismissal of the four drivers and the legal
propriety of the redundancy action taken against. To reiterate the established distinctions between
questions of law and questions of fact, we quote hereunder our ruling in New Rural Bank of
Guimba (N.E.) Inc. v. Fermina S. Abad and Rafael Susan:
27

We reiterate the distinction between a question of law and a question of fact. A question
of law exists when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts; or when the issue does not call for an examination of the
probative value of the evidence presented, the truth or falsehood of the facts being admitted. A
question of fact exists when a doubt or difference arises as to the truth or falsehood of facts or
when the query invites calibration of the whole evidence considering mainly the credibility of the
witnesses, the existence and relevancy of specific surrounding circumstances, as well as their
relation to each other and to the whole, and the probability of the situation.
We also find no error in the CAs affirmation of the denial of the petitioners second motion
for reconsideration of the March 24, 2006 resolution of the NLRC reinstating the labor arbiters
twin decisions. The petitioners second motion for reconsideration was a prohibited pleading under
the NLRC rules of procedure.
28

The parties other procedural questions directly bear on the merits of their positions and are
discussed and resolved below, together with the core substantive issues of: (1) whether the
petitioners, as regular employees, are members of the bargaining unit entitled to CBA benefits; and
(2) whether petitioners Fulache, Jabonero, Castillo and Lagunzad were illegally dismissed.
The Claim for CBA Benefits
We find merit in the petitioners positions.
As regular employees, the petitioners fall within the coverage of the bargaining unit and are
therefore entitled to CBA benefits as a matter of law and contract. In the root decision (the labor
arbiters decision of January 17, 2002) that the NLRC and CA affirmed, the labor arbiter declared:
WHEREFORE, IN THE LIGHT OF THE FOREGOING, taking into account the factual scenario and
the evidence adduced by both parties, it is declared that complainants in these cases are REGULAR
EMPLOYEES of respondent ABS-CBN and not INDEPENDENT CONTRACTORS and thus henceforth
they are entitled to the benefits and privileges attached to regular status of their employment.
labor rev 51
This declaration unequivocally settled the petitioners employment status: they are ABS-
CBNs regular employees entitled to the benefits and privileges of regular employees. These
benefits and privileges arise from entitlements under the law (specifically, the Labor Code and its
related laws), and from their employment contract as regular ABS-CBN employees, part of which is
the CBA if they fall within the coverage of this agreement. Thus, what only needs to be resolved as
an issue for purposes of implementation of the decision is whether the petitioners fall within CBA
coverage.
The parties 1999-2002 CBA provided in its Article I (Scope of the Agreement) that:
29

Section 1. APPROPRIATE BARGAINING UNIT. The parties agree that the appropriate
bargaining unit shall be regular rank-and-file employees of ABS-CBN BROADCASTING
CORPORATION but shall not include:
a) Personnel classified as Supervisor and Confidential employees;
b) Personnel who are on "casual" or "probationary" status as defined in Section 2 hereof;
c) Personnel who are on "contract" status or who are paid for specified units of work such as
writer-producers, talent-artists, and singers.
The inclusion or exclusion of new job classifications into the bargaining unit shall be subject
of discussion between the COMPANY and the UNION. [emphasis supplied]
Under these terms, the petitioners are members of the appropriate bargaining unit because
they are regular rank-and-file employees and do not belong to any of the excluded categories.
Specifically, nothing in the records shows that they are supervisory or confidential employees;
neither are they casual nor probationary employees. Most importantly, the labor arbiters decision
of January 17, 2002 affirmed all the way up to the CA level ruled against ABS-CBNs submission
that they are independent contractors. Thus, as regular rank-and-file employees, they fall within
CBA coverage under the CBAs express terms and are entitled to its benefits.
We see no merit in ABS-CBNs arguments that the petitioners are not entitled to CBA benefits
because: (1) they did not claim these benefits in their position paper; (2) the NLRC did not
categorically rule that the petitioners were members of the bargaining unit; and (3) there was no
evidence of this membership. To further clarify what we stated above, CBA coverage is not only a
question of fact, but of law and contract. The factual issue is whether the petitioners are regular
rank-and-file employees of ABS-CBN. The tribunals below uniformly answered this question in the
affirmative. From this factual finding flows legal effects touching on the terms and conditions of the
petitioners regular employment. This was what the labor arbiter meant when he stated in his
decision that "henceforth they are entitled to the benefits and privileges attached to regular status
of their employment." Significantly, ABS-CBN itself posited before this Court that "the Court of
Appeals did not gravely err nor gravely abuse its discretion when it affirmed the resolution of the
NLRC dated March 24, 2006 reinstating and adopting in toto the decision of the Labor Arbiter dated
January 17, 2002 x x x."
30
This representation alone fully resolves all the objections procedural or
otherwise ABS-CBN raised on the regularization issue.
The Dismissal of Fulache, Jabonero,
Castillo and Lagunzad
The termination of employment of the four drivers occurred under highly questionable
circumstances and with plain and unadulterated bad faith.
The records show that the regularization case was in fact the root of the resulting bad faith
as this case gave rise and led to the dismissal case. First, the regularization case was filed leading to
the labor arbiters decision
31
declaring the petitioners, including Fulache, Jabonero, Castillo and
Lagunzad, to be regular employees. ABS-CBN appealed the decision and maintained its position
that the petitioners were independent contractors.
In the course of this appeal, ABS-CBN took matters into its own hands and terminated the
petitioners services, clearly disregarding its own appeal then pending with the NLRC. Notably, this
appeal posited that the petitioners were not employees (whose services therefore could be
terminated through dismissal under the Labor Code); they were independent contractors whose
services could be terminated at will, subject only to the terms of their contracts. To justify the
termination of service, the company cited redundancy as its authorized cause but offered no
justificatory supporting evidence. It merely claimed that it was contracting out the petitioners
activities in the exercise of its management prerogative.
ABS-CBNs intent, of course, based on the records, was to transfer the petitioners and their
activities to a service contractor without paying any attention to the requirements of our labor
laws; hence, ABS-CBN dismissed the petitioners when they refused to sign up with the service
contractor.
32
In this manner, ABS-CBN fell into a downward spiral of irreconcilable legal positions,
all undertaken in the hope of saving itself from the decision declaring its "talents" to be regular
employees.
By doing all these, ABS-CBN forgot labor law and its realities.
It forgot that by claiming redundancy as authorized cause for dismissal, it impliedly admitted
that the petitioners were regular employees whose services, by law, can only be terminated for the
just and authorized causes defined under the Labor Code.
Likewise ABS-CBN forgot that it had an existing CBA with a union, which agreement must be
respected in any move affecting the security of tenure of affected employees; otherwise, it ran the
risk of committing unfair labor practice both a criminal and an administrative offense.
33
It
similarly forgot that an exercise of management prerogative can be valid only if it is undertaken in
good faith and with no intent to defeat or circumvent the rights of its employees under the laws or
under valid agreements.
34

Lastly, it forgot that there was a standing labor arbiters decision that, while not yet final
because of its own pending appeal, cannot simply be disregarded. By implementing the dismissal
action at the time the labor arbiters ruling was under review, the company unilaterally negated the
effects of the labor arbiters ruling while at the same time appealling the same ruling to the NLRC.
This unilateral move is a direct affront to the NLRCs authority and an abuse of the appeal process.
All these go to show that ABS-CBN acted with patent bad faith. A close parallel we can draw
to characterize this bad faith is the prohibition against forum-shopping under the Rules of Court. In
forum-shopping, the Rules characterize as bad faith the act of filing similar and repetitive actions
for the same cause with the intent of somehow finding a favorable ruling in one of the actions
filed.
35
ABS-CBNs actions in the two cases, as described above, are of the same character, since its
obvious intent was to defeat and render useless, in a roundabout way and other than through the
appeal it had taken, the labor arbiters decision in the regularization case. Forum-shopping is
penalized by the dismissal of the actions involved. The penalty against ABS-CBN for its bad faith in
the present case should be no less.
The errors and omissions do not belong to ABS-CBN alone. The labor arbiter himself who
handled both cases did not see the totality of the companys actions for what they were. He
appeared to have blindly allowed what he granted the petitioners with his left hand, to be taken
away with his right hand, unmindful that the company already exhibited a badge of bad faith in
seeking to terminate the services of the petitioners whose regular status had just been recognized.
labor rev 52
He should have recognized the bad faith from the timing alone of ABS-CBNs conscious and
purposeful moves to secure the ultimate aim of avoiding the regularization of its so-called
"talents."
The NLRC, for its part, initially recognized the presence of bad faith when it originally ruled
that:
While notice has been made to the employees whose positions were declared redundant,
the element of good faith in abolishing the positions of the complainants appear to be wanting. In
fact, it remains undisputed that herein complainants were terminated when they refused to sign an
employment contract with Able Services which would make them appear as employees of the
agency and not of ABS-CBN. Such act by itself clearly demonstrates bad faith on the part of the
respondent in carrying out the companys redundancy program x x x.
36

On motion for reconsideration by both parties, the NLRC reiterated its "pronouncement that
complainants were illegally terminated as extensively discussed in our Joint Decision dated
December 15, 2004."
37
Yet, in an inexplicable turnaround, it reconsidered its joint decision and
reinstated not only the labor arbiters decision of January 17, 2002 in the regularization case, but
also his illegal dismissal decision of April 21, 2003.
38
Thus, the NLRC joined the labor arbiter in his
error that we cannot but characterize as grave abuse of discretion.
The Court cannot leave unchecked the labor tribunals patent grave abuse of discretion that
resulted, without doubt, in a grave injustice to the petitioners who were claiming regular
employment status and were unceremoniously deprived of their employment soon after their
regular status was recognized. Unfortunately, the CA failed to detect the labor tribunals gross
errors in the disposition of the dismissal issue. Thus, the CA itself joined the same errors the labor
tribunals committed.
The injustice committed on the petitioners/drivers requires rectification. Their dismissal was
not only unjust and in bad faith as the above discussions abundantly show. The bad faith in ABS-
CBNs move toward its illegitimate goal was not even hidden; it dismissed the petitioners already
recognized as regular employees for refusing to sign up with its service contractor. Thus, from
every perspective, the petitioners were illegally dismissed.
By law,
39
illegally dismissed employees are entitled to reinstatement without loss of seniority
rights and other privileges and to full backwages, inclusive of allowances, and to other benefits or
their monetary equivalent from the time their compensation was withheld from them up to the
time of their actual reinstatement. The four dismissed drivers deserve no less.
Moreover, they are also entitled to moral damages since their dismissal was attended by bad
faith.
40
For having been compelled to litigate and to incur expenses to protect their rights and
interest, the petitioners are likewise entitled to attorneys fees.
41

WHEREFORE, premises considered, we hereby GRANT the petition. The decision dated
March 25, 2008 and the resolution dated July 8, 2008 of the Court of Appeals in CA-G.R. SP No.
01838 are hereby REVERSED and SET ASIDE. Accordingly, judgment is hereby rendered as follows:
1. Confirming that petitioners FARLEY FULACHE, MANOLO JABONERO, DAVID CASTILLO,
JEFFREY LAGUNZAD, MAGDALENA MALIG-ON BIGNO, FRANCISCO CABAS, JR., HARVEY PONCE and
ALAN C. ALMENDRAS are regular employees of ABS-CBN BROADCASTING CORPORATION, and
declaring them entitled to all the rights, benefits and privileges, including CBA benefits, from the
time they became regular employees in accordance with existing company practice and the Labor
Code;
2. Declaring illegal the dismissal of Fulache, Jabonero, Castillo and Lagunzad, and ordering
ABS-CBN to immediately reinstate them to their former positions without loss of seniority rights
with full backwages and all other monetary benefits, from the time they were dismissed up to the
date of their actual reinstatement;
3. Awarding moral damages of P100,000.00 each to Fulache, Jabonero, Castillo and
Lagunzad; and,
4. Awarding attorneys fees of 10% of the total monetary award decreed in this Decision.
Costs against the respondent.
SO ORDERED.
ARTURO D. BRION
Associate Justice
























labor rev 53
G.R. No. 84484 November 15, 1989
INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.
Tirol & Tirol for petitioner.
Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.

NARVASA, J.:
On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and
Melecio T. Basiao entered into a contract
1
by which:
1. Basiao was "authorized to solicit within the Philippines applications for insurance policies
and annuities in accordance with the existing rules and regulations" of the Company;
2. he would receive "compensation, in the form of commissions ... as provided in the
Schedule of Commissions" of the contract to "constitute a part of the consideration of ... (said)
agreement;" and
3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well as all its circulars
... and those which may from time to time be promulgated by it, ..." were made part of said
contract.
The contract also contained, among others, provisions governing the relations of the parties,
the duties of the Agent, the acts prohibited to him, and the modes of termination of the
agreement, viz.:
RELATION WITH THE COMPANY. The Agent shall be free to exercise his own judgment as to
time, place and means of soliciting insurance. Nothing herein contained shall therefore be
construed to create the relationship of employee and employer between the Agent and the
Company. However, the Agent shall observe and conform to all rules and regulations which the
Company may from time to time prescribe.
ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving, directly or
indirectly, rebates in any form, or from making any misrepresentation or over-selling, and, in
general, from doing or committing acts prohibited in the Agent's Manual and in circulars of the
Office of the Insurance Commissioner.
TERMINATION. The Company may terminate the contract at will, without any previous notice
to the Agent, for or on account of ... (explicitly specified causes). ...
Either party may terminate this contract by giving to the other notice in writing to that effect.
It shall become ipso facto cancelled if the Insurance Commissioner should revoke a Certificate of
Authority previously issued or should the Agent fail to renew his existing Certificate of Authority
upon its expiration. The Agent shall not have any right to any commission on renewal of premiums
that may be paid after the termination of this agreement for any cause whatsoever, except when
the termination is due to disability or death in line of service. As to commission corresponding to
any balance of the first year's premiums remaining unpaid at the termination of this agreement,
the Agent shall be entitled to it if the balance of the first year premium is paid, less actual cost of
collection, unless the termination is due to a violation of this contract, involving criminal liability or
breach of trust.
ASSIGNMENT. No Assignment of the Agency herein created or of commissions or other
compensations shall be valid without the prior consent in writing of the Company. ...
Some four years later, in April 1972, the parties entered into another contract an Agency
Manager's Contract and to implement his end of it Basiao organized an agency or office to which
he gave the name M. Basiao and Associates, while concurrently fulfilling his commitments under
the first contract with the Company.
2

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

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

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

This decision was, on appeal by the Company, affirmed by the National Labor Relations
Commission.
7
Hence, the present petition for certiorari and prohibition.
The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the
Company's employee by virtue of the contract invoked by him, thereby placing his claim for unpaid
commissions within the original and exclusive jurisdiction of the Labor Arbiter under the provisions
of Section 217 of the Labor Code,
8
or, contrarily, as the Company would have it, that under said
contract Basiao's status was that of an independent contractor whose claim was thus cognizable,
not by the Labor Arbiter in a labor case, but by the regular courts in an ordinary civil action.
The Company's thesis, that no employer-employee relation in the legal and generally
accepted sense existed between it and Basiao, is drawn from the terms of the contract they had
entered into, which, either expressly or by necessary implication, made Basiao the master of his
own time and selling methods, left to his judgment the time, place and means of soliciting
insurance, set no accomplishment quotas and compensated him on the basis of results obtained.
He was not bound to observe any schedule of working hours or report to any regular station; he
could seek and work on his prospects anywhere and at anytime he chose to, and was free to adopt
the selling methods he deemed most effective.
Without denying that the above were indeed the expressed implicit conditions of Basiao's
contract with the Company, the respondents contend that they do not constitute the decisive
determinant of the nature of his engagement, invoking precedents to the effect that the critical
feature distinguishing the status of an employee from that of an independent contractor is control,
that is, whether or not the party who engages the services of another has the power to control the
latter's conduct in rendering such services. Pursuing the argument, the respondents draw attention
to the provisions of Basiao's contract obliging him to "... observe and conform to all rules and
regulations which the Company may from time to time prescribe ...," as well as to the fact that the
labor rev 54
Company prescribed the qualifications of applicants for insurance, processed their applications and
determined the amounts of insurance cover to be issued as indicative of the control, which made
Basiao, in legal contemplation, an employee of the Company.
9

It is true that the "control test" expressed in the following pronouncement of the Court in the
1956 case of Viana vs. Alejo Al-Lagadan
10

... In determining the existence of employer-employee relationship, the following elements
are generally considered, namely: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the power to control the employees' conduct
although the latter is the most important element (35 Am. Jur. 445). ...
has been followed and applied in later cases, some fairly recent.
11
Indeed, it is without
question a valid test of the character of a contract or agreement to render service. It should,
however, be obvious that not every form of control that the hiring party reserves to himself over
the conduct of the party hired in relation to the services rendered may be accorded the effect of
establishing an employer-employee relationship between them in the legal or technical sense of
the term. A line must be drawn somewhere, if the recognized distinction between an employee
and an individual contractor is not to vanish altogether. Realistically, it would be a rare contract of
service that gives untrammelled freedom to the party hired and eschews any intervention
whatsoever in his performance of the engagement.
Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the result and the means
used to achieve it. The distinction acquires particular relevance in the case of an enterprise affected
with public interest, as is the business of insurance, and is on that account subject to regulation by
the State with respect, not only to the relations between insurer and insured but also to the
internal affairs of the insurance company.
12
Rules and regulations governing the conduct of the
business are provided for in the Insurance Code and enforced by the Insurance Commissioner. It is,
therefore, usual and expected for an insurance company to promulgate a set of rules to guide its
commission agents in selling its policies that they may not run afoul of the law and what it requires
or prohibits. Of such a character are the rules which prescribe the qualifications of persons who
may be insured, subject insurance applications to processing and approval by the Company, and
also reserve to the Company the determination of the premiums to be paid and the schedules of
payment. None of these really invades the agent's contractual prerogative to adopt his own selling
methods or to sell insurance at his own time and convenience, hence cannot justifiably be said to
establish an employer-employee relationship between him and the company.
There is no dearth of authority holding persons similarly placed as respondent Basiao to be
independent contractors, instead of employees of the parties for whom they worked. In Mafinco
Trading Corporation vs. Ople,
13
the Court ruled that a person engaged to sell soft drinks for
another, using a truck supplied by the latter, but with the right to employ his own workers, sell
according to his own methods subject only to prearranged routes, observing no working hours
fixed by the other party and obliged to secure his own licenses and defray his own selling expenses,
all in consideration of a peddler's discount given by the other party for at least 250 cases of soft
drinks sold daily, was not an employee but an independent contractor.
In Investment Planning Corporation of the Philippines us. Social Security System
14
a case
almost on all fours with the present one, this Court held that there was no employer-employee
relationship between a commission agent and an investment company, but that the former was an
independent contractor where said agent and others similarly placed were: (a) paid compensation
in the form of commissions based on percentages of their sales, any balance of commissions
earned being payable to their legal representatives in the event of death or registration; (b)
required to put up performance bonds; (c) subject to a set of rules and regulations governing the
performance of their duties under the agreement with the company and termination of their
services for certain causes; (d) not required to report for work at any time, nor to devote their time
exclusively to working for the company nor to submit a record of their activities, and who, finally,
shouldered their own selling and transportation expenses.
More recently, in Sara vs. NLRC,
15
it was held that one who had been engaged by a rice
miller to buy and sell rice and palay without compensation except a certain percentage of what he
was able to buy or sell, did work at his own pleasure without any supervision or control on the part
of his principal and relied on his own resources in the performance of his work, was a plain
commission agent, an independent contractor and not an employee.
The respondents limit themselves to pointing out that Basiao's contract with the Company
bound him to observe and conform to such rules and regulations as the latter might from time to
time prescribe. No showing has been made that any such rules or regulations were in fact
promulgated, much less that any rules existed or were issued which effectively controlled or
restricted his choice of methods or the methods themselves of selling insurance. Absent such
showing, the Court will not speculate that any exceptions or qualifications were imposed on the
express provision of the contract leaving Basiao "... free to exercise his own judgment as to the
time, place and means of soliciting insurance."
The Labor Arbiter's decision makes reference to Basiao's claim of having been connected
with the Company for twenty-five years. Whatever this is meant to imply, the obvious reply would
be that what is germane here is Basiao's status under the contract of July 2, 1968, not the length of
his relationship with the Company.
The Court, therefore, rules that under the contract invoked by him, Basiao was not an
employee of the petitioner, but a commission agent, an independent contractor whose claim for
unpaid commissions should have been litigated in an ordinary civil action. The Labor Arbiter erred
in taking cognizance of, and adjudicating, said claim, being without jurisdiction to do so, as did the
respondent NLRC in affirming the Arbiter's decision. This conclusion renders it unnecessary and
premature to consider Basiao's claim for commissions on its merits.
WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set
aside, and that complaint of private respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is
dismissed. No pronouncement as to costs.
SO ORDERED.
Cruz, Gancayco, Grio-Aquino, and Medialdea, JJ., concur.







labor rev 55

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.
R E S O L U T I O N
BRION, J.:
This resolves the Motion for Reconsideration
1
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.
x x x x
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.
x x x x
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.
x x x x
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.
x x x x
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.
labor rev 56
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."
x x x x
All the above notwithstanding, we had your own records checked and we found that you
made a lot more money in the Year 2000 versus 1999. In addition, you also volunteered the
information to Kevin when you said that you probably will make more money in the Year 2001
compared to Year 2000. Obviously, your above statement about making "less money" did not refer
to you but the way you argued this point had us almost believing that you were spouting the gospel
of truth when you were not. x x x
x x x x
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.
x x x x
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.
x x x x
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.
x x x x
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.
x x x x
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
labor rev 57
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 Insular
11
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 employer-employee 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,
labor rev 58
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
labor rev 59
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 concept
28
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
labor rev 60
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
labor rev 61
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;
x x x x
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;
x x x x
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
labor rev 62
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.ARTURO D. BRION
Associate Justice
labor rev 63
G.R. No. 179807 July 31, 2009
RAMY GALLEGO, Petitioner,
vs.
BAYER PHILIPPINES, INC., DANPIN GUILLERMO, PRODUCT IMAGE MARKETING, INC., and
EDGARDO BERGONIA, Respondents.
D E C I S I O N
CARPIO MORALES, J.:
Ramy Gallego (petitioner) was contracted in April 1992 by Bayer Philippines, Inc. (BAYER) as
crop protection technician to promote and market BAYER products.
1
Under the supervision of
Aristeo Filipino, BAYER sales representative for Panay Island, petitioner made farm visits to
different municipalities in Panay Island to convince farmers to buy BAYER products.
2

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

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

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

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

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

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

By Decision of May 6, 2004,
10
the Labor Arbiter declared respondents guilty of illegal
dismissal, disposing as follows:
WHEREFORE, judgment is rendered declaring respondents, Bayer Phil. Inc./Danpin Guillermo
and Product Image Marketing Services, Inc./Edgardo Begornia [sic] guilty of Illegal Dismissal and is
hereby ORDERED to Reinstate complainant to his former or equivalent position ten (10) days from
receipt hereof and to immediately pay complainant upon receipt of this decision the following:
Backwages
Php
228,000.00
13th Month Pay
Php
19,000.00
Holiday Pay
Php
9,500.00
Service Incentive
Leave Pay
Php
4,750.00
Attorneys Fees `
Php
26,125.00
Total:

Php
287,375.00
In so deciding, the Labor Arbiter found, among other things, that there was an employer-
employee relationship between BAYER and petitioner since BAYER furnished petitioner the needed
facilities and paraphernalia, and fixed the methodology to be used in the performance of his work.
On appeal by respondents, the NLRC reversed the Decision of the Labor Arbiter and
dismissed petitioners complaint by Decision of February 22, 2006,
11
holding that as an
independent contractor, PRODUCT IMAGE was the employer of petitioner but there was no
evidence that petitioner was dismissed by either PRODUCT IMAGE or BAYER. Sustaining PRODUCT
IMAGEs claim of abandonment, it held that an employee is deemed to have abandoned his job if
he failed to report for work after the expiration of a duly approved leave of absence or if, after
being transferred to a new assignment, he did not report for work anymore.
Petitioners Motion for Reconsideration having been denied by Resolution of May 25, 2006,
12

he appealed to the Court of Appeals via Certiorari.
13

labor rev 64
By Resolution of September 25, 2006, the appellate court dismissed petitioners petition for
failure to attach to it the complaint and the parties respective position papers filed with the Labor
Arbiter.
14
His Motion for Reconsideration having been denied by Resolution of August 14, 2007,
15

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

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

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

The Court shall first resolve the procedural issues.
Only errors of law are generally reviewed by this Court in petitions for review on certiorari of
the appellate courts decisions,
19
and the question of whether an employer-employee relationship
exists in a given case is essentially a question of fact.
20
Be that as it may, when, as here, the findings
of the NLRC contradict those of the Labor Arbiter, this Court, in the exercise of its equity
jurisdiction, may look into the records of the case and reexamine the questioned findings.
21

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

The Court, however, is inclined to, as it does, overlook petitioners failure to attach the
subject relevant pleadings to his Petition for Certiorari before the appellate court in view of the
serious matters dealt with in this case. That brings the Court to consider the substantial merits of
the case, thus rendering it unnecessary to still discuss the other procedural matters raised by
respondents.1avvph!1
In the main, the substantive issues are: whether PRODUCT IMAGE is a labor-only contactor
and BAYER should be deemed petitioners principal employer; and whether petitioner was illegally
dismissed from his employment.
Permissible job contracting or subcontracting refers to an arrangement whereby a principal
agrees to farm out with a contractor or subcontractor the performance of a specific job, work, or
service within a definite or predetermined period, regardless of whether such job, work or, service
is to be performed or completed within or outside the premises of the principal.
25
Under this
arrangement, the following conditions must be met: (a) the contractor carries on a distinct and
independent business and undertakes the contract work on his account under his own
responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of his work except as to the
results thereof; (b) the contractor has substantial capital or investment; and (c) the agreement
between the principal and contractor or subcontractor assures the contractual employees
entitlement to all labor and occupational safety and health standards, free exercise of the right to
self-organization, security of tenure, and social welfare benefits.
26

In distinguishing between permissible job contracting and prohibited labor-only
contracting,
27
the totality of the facts and the surrounding circumstances of the case are to be
considered,
28
each case to be determined by its own facts, and all the features of the relationship
assessed.
29

In the case at bar, the Court finds substantial evidence to support the finding of the NLRC
that PRODUCT IMAGE is a legitimate job contractor.
The Court notes that PRODUCT IMAGE was issued by the Department of Labor and
Employment (DOLE) Certificate of Registration Numbered NCR-8-0602-176 reading:
CERTIFICATE OF REGISTRATION
Numbered NCR-8-0602-176
issued to
Mr. Edgardo V. Bergonia
President
PRODUCT IMAGE & MARKETING SERVICES, INC.
Unit 5& 6 GF J & L Bldg., 251 EDSA Greenhills,
Mandaluyong City
for having complied with the requirements as provided for under the Labor Code, as
amended, and its implementing Rules and having paid the registration fee in the amount of ONE
HUNDRED (P100) PESOS per Official Receipt Number 6530485Y, dated 21 June 2002.
30

The DOLE certificate having been issued by a public officer, it carries with it the presumption
that it was issued in the regular performance of official duty.
31
Petitioners bare assertions fail to
rebut this presumption. Further, since the DOLE is the agency primarily responsible for regulating
the business of independent job contractors, the Court can presume, in the absence of evidence to
the contrary, that it had thoroughly evaluated the requirements submitted by PRODUCT IMAGE
before issuing the Certificate of Registration.
Independently of the DOLEs Certification, among the circumstances that establish the status
of PRODUCT IMAGE as a legitimate job contractor are: (1) PRODUCT IMAGE had, during the period
in question, a contract with BAYER for the promotion and marketing of BAYER products;
32
(2)
PRODUCT IMAGE has an independent business and provides services nationwide to big companies
such as Ajinomoto Philippines and Procter and Gamble Corporation;
33
and (3) PRODUCT IMAGEs
labor rev 65
total assets from 1998 to 2000 amounted to P405,639, P559,897, and P644,728, respectively.
34

PRODUCT IMAGE also posted a bond in the amount of P100,000 to answer for any claim of its
employees for unpaid wages and other benefits that may arise out of the implementation of its
contract with BAYER.
35

PRODUCT IMAGE cannot thus be considered a labor-only contractor.
The existence of an employer-employee relationship is determined on the basis of four
standards, namely: (a) the manner of selection and engagement of the putative employee; (b) the
mode of payment of wages; (c) the presence or absence of power of dismissal; and (d) the
presence or absence of control of the putative employees conduct. Most determinative among
these factors is the so-called "control test."
36

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

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

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

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

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

WHEREFORE, the petition is, in light of the foregoing, DENIED.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
































labor rev 66
G.R. No. 184977 December 7, 2009
COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner,
vs.
RICKY E. DELA CRUZ, ROLANDO M. GUASIS, MANNY C. PUGAL, RONNIE L. HERMO, ROLANDO C.
SOMERO, JR., DIBSON D. DIOCARES, and IAN B. ICHAPARE, Respondents.
D E C I S I O N
BRION, J.:
The present petition for review on certiorari
1
challenges the decision
2
and resolution
3
of the
Court of Appeals (CA) rendered on August 29, 2008 and October 13, 2008, respectively, in CA-G.R.
SP No. 102988.
THE ANTECEDENTS
Respondents Ricky E. Dela Cruz, Rolando M. Guasis, Manny C. Pugal, Ronnie L. Hermo,
Rolando C. Somero, Jr., Dibson D. Diocares, and Ian Ichapare (respondents) filed in July 2000 two
separate complaints
4
for regularization with money claims against Coca-Cola Bottlers Philippines,
Inc., (petitioner or the company). The complaints were consolidated and subsequently amended to
implead Peerless Integrated Service, Inc. (Peerless) as a party-respondent.
Before the Labor Arbiter, the respondents alleged that they are route helpers assigned to
work in the petitioners trucks. They go from the Coca- Cola sales offices or plants to customer
outlets such as sari-sari stores, restaurants, groceries, supermarkets and similar establishments;
they were hired either directly by the petitioner or by its contractors, but they do not enjoy the full
remuneration, benefits and privileges granted to the petitioners regular sales force. They argued
that the services they render are necessary and desirable in the regular business of the petitioner.
5

In defense, the petitioner contended that it entered into contracts of services with Peerless
6

and Excellent Partners Cooperative, Inc. (Excellent)
7
to provide allied services; under these
contracts, Peerless and Excellent retained the right to select, hire, dismiss, supervise, control and
discipline and pay the salaries of all personnel they assign to the petitioner; in return for these
services, Peerless and Excellent were paid a stipulated fee. The petitioner posited that there is no
employer-employee relationship between the company and the respondents and the complaints
should be dismissed for lack of jurisdiction on the part of the National Labor Relations Commission
(NLRC). Peerless did not file a position paper, although nothing on record indicates that it was ever
notified of the amended complaint.
In reply, the respondents countered that they worked under the control and supervision of
the companys supervisors who prepared their work schedules and assignments. Peerless and
Excellent, too, did not have sufficient capital or investment to provide services to the petitioner.
The respondents thus argued that the petitioners contracts of services with Peerless and Excellent
are in the nature of "labor-only" contracts prohibited by law.
8

In rebuttal, the petitioner belied the respondents submission that their jobs are usually
necessary and desirable in its main business. It claimed that its main business is softdrinks
manufacturing and the respondents tasks of handling, loading and unloading of the manufactured
softdrinks are not part of the manufacturing process. It stressed that its only interest in the
respondents is in the result of their work, and left to them the means and the methods of achieving
this result. It thus argued that there is no basis for the respondents claim that without them, there
would be over-production in the company and its operations would come to a halt.
9
The petitioner
lastly argued that in any case, the respondents did not present evidence in support of their claims
of company control and supervision so that these claims cannot be considered and given weight.
10

The Compulsory Arbitration Rulings
Labor Arbiter Joel S. Lustria dismissed the complaint for lack of jurisdiction in his decision of
September 28, 2004,
11
after finding that the respondents were the employees of either Peerless or
Excellent and not of the petitioner. He brushed aside for lack of evidence the respondents claim
that they were directly hired by the petitioner and that company personnel supervised and
controlled their work. The Labor Arbiter likewise ordered Peerless "to accord to the appropriate
complainants all employment benefits and privileges befitting its regular employees."
12

The respondents appealed to the NLRC.
13
On October 31, 2007, the NLRC denied the appeal
and affirmed the labor arbiters ruling,
14
and subsequently denied the respondents motion for
reconsideration.
15
The respondents thus sought relief from the CA through a petition for certiorari
under Rule 65 of the Rules of Court.
The CA Decision
The main substantive issue the parties submitted to the CA was whether Excellent and
Peerless were independent contractors or "labor-only" contractors. Procedurally, the petitioner
questioned the sufficiency of the petition and asked for its dismissal on the following grounds: (1)
the petition was filed out of time; (2) failure to implead Peerless and Excellent as necessary parties;
(3) absence of the notarized proof of service that Rule 13 of the Rules of Court requires; and (4)
defective verification and certification.
The CA examined the circumstances of the contractual arrangements between Peerless and
Excellent, on the one hand, and the company, on the other, and found that Peerless and Excellent
were engaged in labor-only contracting, a prohibited undertaking.
16
The appellate court explained
that based on the respondents assertions and the petitioners admissions, the contractors simply
supplied the company with manpower, and that the sale and distribution of the companys
products are the same allied services found by this Court in Magsalin v. National Organization of
Workingmen
17
to be necessary and desirable functions in the companys business.1avvphi1
On the matter of capitalization, the CA invoked our ruling in 7K Corporation v. NLRC
18

presuming a contractor supplying labor to be engaged in prohibited labor-only contracting, unless
the contractor can show that it has substantial capital, investment, and tools to undertake the
contract. The CA found no proof in the records showing the required capitalization and tools; thus,
the CA concluded that Peerless and Excellent were engaged in "labor-only" contracting.
The CA faulted the labor tribunals for relying solely on the contract of services in determining
who the real employer is. Again invoking our 7K Corporation ruling, it pointed out that the language
of a contract is not wholly determinative of the relationship of the parties; whether a labor-only or
a job contractor relationship exists must be determined using the criteria established by law.
Finding that the Labor Arbiters and the NLRCs conclusions were not supported by substantial
evidence, the CA nullified the challenged NLRC decision and ordered the company "to reinstate the
petitioners with the full status and rights of regular employees and to grant them all benefits as
provided by existing collective bargaining agreement or by law."
The CA generally brushed aside the companys procedural questions.
It ruled that the petition was filed on time, noting that April 7, 2008, a Monday and the last
day for filing the petition, was declared a holiday in lieu of April 9 (Araw ng Kagitingan), a
Wednesday,
19
and that the petition was filed on April 8, 2008, a Tuesday and a working day.
That the contractors were not impleaded as necessary parties was not a fatal infirmity,
according to the CA, relying on the ruling of the Court in Cabutihan v. Landcenter Construction and
Development Corporation.
20
On the other hand, the alleged lack of proof of service was brushed
labor rev 67
aside on the finding that there is in the records of the case (page 35 of the petition) an affidavit of
service executed by Rufino San Antonio indicating compliance with the rule on service. Finally, the
CA ruled that the defect in the verification and certification was a mere formal requirement that
can be excused in the interest of substantial justice, following the ruling of this Court in Uy v.
Landbank of the Philippines.
21

Petitioner moved for reconsideration of the decision, but the CA denied the motion in its
resolution of October 13, 2008.
22

The Petition
The company filed the present appeal on November 4, 2008 on the grounds that the CA
erred when it:
23

1. gave due course to the petition despite the failure of the respondents to comply with the
Rules on Notarial Practice in its verification and certification;
2. excluded the contractors as necessary parties in violation of Section 8, Rule 3, in relation
with Section 5, Rule 65 of the Rules of Court; and
3. refused to follow established jurisprudence holding that the findings of fact of the NLRC
are accorded respect, if not finality, when supported by substantial evidence.
On the notarial issue, the petitioner argues that Rule 65 of the Rules of Court requires that a
petition filed before the CA must be verified and accompanied with a properly notarized
certification of non-forum shopping. It claims that the verification and certification accompanying
the petition were not notarized as required by Section 12, Rule II of the 2004 Rules on Notarial
Practice (for failure to present competent evidence of identity) and Section 2, Rule IV (prohibition
against the notarization without appropriate proof of identity); the verification and certification
attached to the petition before the CA do not indicate that the affiants were personally known to
the notary public, nor did the notary identify the affiants through competent evidence of identity
other than their community tax certificate. These violations, according to the petitioner,
collectively resulted in a petition filed without the proper verification and certification required by
Section 4, Rule 7 of the Rules of Court.lawphil.net
On the necessary party issue, the petitioner posits that the CA ruling excluding the
contractors as necessary parties "results in the absurd situation whereby the grant of regularization
by the Labor Arbiter in favor of the respondents and against the contractors, is actually the same
award the CA held in their favor and against the Company thereby making them regular employees
of both the Company and the contractors," a situation which "is precisely what Section 8, Rule 3, in
relation to Section 5, Rule 65 of the Rules of Court seeks to prevent."
The petitioner also takes exception to the CAs reliance on the ruling of the Court in
Cabutihan v. Landcenter Construction and Development Corporation.
24
It posits that the ruling in
Cabutihan was taken out of context; in that case, the subject matter was divisible as it pertained to
the conveyance of 36.5% of the property under litigation or, in the alternative, to the value
corresponding to this portion. On this fact situation, the Court found that the non-joinder of the
companions of the petitioner as party-litigants was not prejudicial to their rights.
In the present case, the petitioner posits that supposed cause of action (for regularization of
the respondents) and the issue of employer-employee relationship cannot be ruled upon without
including the parties who had already been held liable by the NLRC. It adds that as a result of the
CA ruling, the respondents are now regular employees of both the petitioner and the contractors.
In their comment of March 4, 2009,
25
the respondents, aside from the reiteration of their
previously expressed positions on necessary parties and the labor-only contracting issues, argued
that the rules of procedure are not controlling in labor cases and that every and all the reasonable
means shall be used to ascertain the facts for the full adjudication of the merits of the case. They
argue that it is more in accord with substantial justice and equity to overlook procedural questions
raised.
THE COURTS RULING
We resolve to deny the petition for lack of merit.
The Notarial Issue.
After due consideration, we deem the respondents to have substantially complied with the
verification and certification requirements in their petition for certiorari before the CA.
We find from our examination of the records that the fact situation that gave rise to the
notarial issue before the CA was not a new one; the same situation obtained before the NLRC
where the verification and certification of the respondents appeal were also notarized before the
same notary public Diosdado V. Macapagal and where the respondents presented the same
evidence of identity (their community tax certificates).
26

The petitioners belated attention to the imputed defect indicates to us that the petitioner
did not consider this defect worth raising when things were going its way, but considered it a
serious one when things turned the other way. This opportunistic stance is not our idea of how
technical deficiencies should be viewed. We are aware, too, that under the circumstances of this
case, the defect is a technical and minor one; the respondents did file the required verification and
certification of non-forum shopping with all the respondents properly participating, marred only by
a glitch in the evidence of their identity.
27
In the interest of justice, this minor defect should not
defeat their petition and is one that we can overlook in the interest of substantial justice, taking
into account the merits of the case as discussed below.
The Necessary Party Issue.
In our view, the petitioners necessary party issue proceeds from a misapprehension of the
relationships in a contracting relationship. As lucidly pointed out in Azucenas The Labor Code with
Comments and Cases,
28
there are three parties in a legitimate contracting relationship, namely: the
principal, the contractor, and the contractors employees. In this trilateral relationship, the
principal controls the contractor and his employees with respect to the ultimate results or output
of the contract; the contractor, on the other hand, controls his employees with respect, not only to
the results to be obtained, but with respect to the means and manner of achieving this result. This
pervasive control by the contractor over its employees results in an employer-employee
relationship between them.
This trilateral relationship under a legitimate job contracting is different from the relationship
in a labor-only contracting situation because in the latter, the contractor simply becomes an agent
of the principal; either directly or through the agent, the principal then controls the results as well
as the means and manner of achieving the desired results. In other words, the party who would
have been the principal in a legitimate job contracting relationship and who has no direct
relationship with the contractor's employees, simply becomes the employer in the labor-only
contracting situation with direct supervision and control over the contracted employees. As
Azucena astutely observed: in labor-contracting, there is really no contracting and no contractor;
there is only the employers representative who gathers and supplies people for the employer;
labor-contracting is therefore a misnomer.
29

labor rev 68
Where, as in this case, the main issue is labor contracting and a labor-only contracting
situation is found to exist as discussed below, the question of whether or not the purported
contractors are necessary parties is a non-issue; these purported contractors are mere
representatives of the principal/employer whose personality, as against that of the workers, is
merged with that of the principal/employer. Thus, this issue is rendered academic by our
conclusion that labor-only contracting exists. Our labor-only contracting conclusion, too, answers
the petitioners argument that confusion results because the workers will have two employers.
The Contracting Out Issue.
Contracting and sub-contracting are "hot" labor issues for two reasons. The first is that job
contracting and labor-only contracting are technical Labor Code concepts that are easily
misunderstood. For one, there is a lot of lay misunderstanding of what kind of contracting the
Labor Code prohibits or allows. The second, echoing the cry from the labor sector, is that the Labor
Code provisions on contracting are blatantly and pervasively violated, effectively defeating
workers right to security of tenure.
This Court, through its decisions, can directly help address the problem of misunderstanding.
The second problem, however, largely relates to implementation issues that are outside the Courts
legitimate scope of activities; the Court can only passively address the problem through the cases
that are brought before us. Either way, however, the need is for clear decisions that the workers,
most especially, will easily understand and appreciate. We resolve the present case with these
thoughts in mind.
The law allows contracting and subcontracting involving services but closely regulates these
activities for the protection of workers. Thus, an employer can contract out part of its operations,
provided it complies with the limits and standards provided in the Code and in its implementing
rules.
The directly applicable provision of the Labor Code on contracting and subcontracting is
Article 106 which provides:
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 shall be paid
in accordance with the provisions of this Code.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting
out of labor to protect the rights of workers established under this Code. In so prohibiting or
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.
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 persons are performing
activities which are directly related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the alter were directly employed by
him (underscoring supplied).
The Department of Labor and Employment implements this Labor Code provision through its
Department Order No. 18-02 (D.O. 18-02).
30
On the matter of labor-only contracting, Section 5
thereof provides:
Prohibition against labor-only contracting. - Labor-only contracting is hereby declared
prohibited x x x 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 sufficient 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.
"Substantial capital or investment" refers to capital stocks and subscribed capitalization in
the case of corporations, tools or 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. [Emphasis supplied]
The "right to control" refers to the prerogative of a party to determine, not only the end
result sought to be achieved, but also the means and manner to be used to achieve this end.
In strictly laymans terms, a manufacturer can sell its products on its own, or allow
contractors, independently operating on their own, to sell and distribute these products in a
manner that does not violate the regulations. From the terms of the above-quoted D.O. 18-02, the
legitimate job contractor must have the capitalization and equipment to undertake the sale and
distribution of the manufacturers products, and must do it on its own using its own means and
selling methods.
In the present case, both the capitalization of Peerless and Excellent and their control over
the means and manner of their operations are live sub-issues before us.
A key consideration in resolving these issues is the contract between the company and the
purported contractors. The contract
31
with Peerless, which is almost identical with the contract
with Excellent, among others, states:
1. The CONTRACTOR agrees and undertakes to perform and/or provide for the COMPANY, on
a non-exclusive basis, the services of contractual employees for a temporary period for task or
activities that are considered contractible under DOLE Department Order No. 10, Series of 1 997,
such as lead helpers and replacement for absences as well as other contractible jobs that may be
needed by the Company from time to time.
32

x x x x
5. The CONTRACTOR shall have exclusive discretion in the selection, engagement and
discharge of its personnel, employees or agents or otherwise in the direction and control
hereunder. The determination of the wages, salaries and compensation of the personnel, workers
and employees of the CONTRACTOR shall be within its full control.
33

x x x x
. . . Although it is understood and agreed between the parties hereto that the CONTRACTOR,
in the performance of its obligations hereunder, is subject to the control and direction of he
COMPANY merely as to result to be accomplished by the work or services herein specified, and not
as to the means and methods of accomplishing such result, the CONTRACTOR 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.
34

labor rev 69
These provisions particularly, that Peerless and Excellent retain the right to select, hire,
dismiss, supervise, control, and discipline all personnel they will assign to the petitioner, as well as
pay their salaries were cited by the labor arbiter and the NLRC as basis for their conclusion that
no employer-employee relationship existed between the respondents and the petitioner.
The Court of Appeals viewed matters differently and faulted the labor tribunals for relying
"solely" on the service contracts to prove that the respondents were employees of Peerless and
Excellent. The CA cited in this regard what we said in 7K Corporation v. NLRC:
35

The fact that the service contract entered into by petitioner and Universal stipulated that
private respondents shall be the employees of Universal, would not help petitioner, as the
language of a contract is not determinative of the relationship of the parties. Petitioner and
Universal cannot dictate, by the mere expedient of a declaration in a contract, the character of
Universal business, i.e., whether as labor-only contractor , or job contractor, it being crucial that
Universals character be mentioned in terms of and determined by the criteria set by the statute.
36

as basis for looking at how the contracted workers really related with the company in
performing their contracted tasks. In other words, the contract between the principal and the
contractor is not the final word on how the contracted workers relate to the principal and the
purported contractor; the relationships must be tested on the basis of how they actually operate.
Even before going into the realities of workplace operations, the CA found that the service
contracts
37
themselves provide ample leads into the relationship between the company, on the one
hand, and Peerless and Excellent, on the other. The CA noted that both the Peerless and the
Excellent contracts show that their obligation was solely to provide the company with "the services
of contractual employees,"
38
and nothing more. These contracted services were for the handling
and delivery of the companys products and allied services.
39
Following D.O. 18-02 and the
contracts that spoke purely of the supply of labor, the CA concluded that Peerless and Excellent
were labor-only contractors unless they could prove that they had the required capitalization and
the right of control over their contracted workers.
The CA concluded that other than the petitioners bare allegation, there is no indication in
the records that Peerless and Excellent had substantial capital, tools or investment used directly in
providing the contracted services to the petitioner. Thus, in the handling and delivery of company
products, the contracted personnel used company trucks and equipment in an operation where
company sales personnel primarily handled sales and distribution, merely utilizing the contracted
personnel as sales route helpers.
In plainer terms, the contracted personnel (acting as sales route helpers) were only engaged
in the marginal work of helping in the sale and distribution of company products; they only
provided the muscle work that sale and distribution required and were thus necessarily under the
companys control and supervision in doing these tasks.
Still another way of putting it is that the contractors were not independently selling and
distributing company products, using their own equipment, means and methods of selling and
distribution; they only supplied the manpower that helped the company in the handing of products
for sale and distribution. In the context of D.O. 18-02, the contracting for sale and distribution as an
independent and self-contained operation is a legitimate contract, but the pure supply of
manpower with the task of assisting in sales and distribution controlled by a principal falls within
prohibited labor-only contracting.
The role of sales route helpers in company operations is not a new issue before this Court as
we have ruled on this issue in Magsalin v. National Organization of Workingmen
40
which the CA
itself cited in the assailed decision. We held in this cited case that:
The argument of petitioner that its usual business or trade is softdrink manufacturing and
that the work assigned to the respondent workers so involves merely "postproduction activities,"
one which is not indispensable in the manufacture of its products, scarcely can be persuasive. If, as
so argued by petitioner company, only those whose work are directly involved in the production of
softdrinks may be held performing functions necessary and desirable in its usual business or trade,
there would have been no need for it to even maintain regular truck sales route helpers. The
nature of the work performed must be viewed from a perspective of the business or trade in its
entirety and not only in a confined scope.
41

While the respondents were not direct parties to this ruling, the petitioner was the party
involved and Magsalin described in a very significant way the manufacture of softdrinks and the
companys sales and distribution activities in relation with one another. Following the lead we gave
in Magsalin, the CA concluded that the contracted personnel who served as route helpers were
really engaged in functions directly related to the overall business of the petitioner. This led to the
further CA conclusion that the contracted personnel were under the companys supervision and
control since sales and distribution were in fact not the purported contractors independent,
discrete and separable activities, but were component parts of sales and distribution operations
that the company controlled in its softdrinks business.
Based on these considerations, we fully agree with the CA that Peerless and Excellent were
mere suppliers of labor who had no sufficient capitalization and equipment to undertake sales and
distribution of softdrinks as independent activities separate from the manufacture of softdrinks,
and who had no control and supervision over the contracted personnel. They are therefore labor-
only contractors. Consequently, the contracted personnel, engaged in component functions in the
main business of the company under the latters supervision and control, cannot but be regular
company employees. In these lights, the petition is totally without merit and hence must be
denied.
WHEREFORE, premises considered, we hereby DENY the petition and accordingly AFFIRM the
challenged decision and resolution of the Court of Appeals in CA-G.R. SP No. 102988. Costs against
the petitioner.
SO ORDERED.
ARTURO D. BRION
Associate Justice











labor rev 70
G.R. No. 179546 February 13, 2009
COCA-COLA BOTTLERS PHILS., INC., Petitioner,
vs.
ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR., ALFONSO PAA, JR., DEMPSTER P.
ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO, and EDWIN M. GOLEZ, Respondents.
D E C I S I O N
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the
Decision
1
dated 19 February 2007, promulgated by the Court of Appeals in CA-G.R. SP No. 85320,
reversing the Resolution
2
rendered on 30 October 2003 by the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 036494-03. The Court of Appeals, in its assailed Decision,
declared that respondents Alan M. Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso Paa,
Jr., Dempster P. Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M. Golez were regular
employees of petitioner Coca-Cola Bottlers Phils., Inc; and that Interserve Management &
Manpower Resources, Inc. (Interserve) was a labor-only contractor, whose presence was
intended merely to preclude respondents from acquiring tenurial security.
Petitioner is a domestic corporation duly registered with the Securities and Exchange
Commission (SEC) and engaged in manufacturing, bottling and distributing soft drink beverages
and other allied products.
On 15 April 2002, respondents filed before the NLRC two complaints against petitioner,
Interserve, Peerless Integrated Services, Inc., Better Builders, Inc., and Excellent Partners, Inc. for
reinstatement with backwages, regularization, nonpayment of 13th month pay, and damages.
The two cases, docketed as NLRC NCR Case No. 04-02345-2002 and NLRC NCR Case No. 05-03137-
02, were consolidated.
Respondents alleged in their Position Paper that they were salesmen assigned at the Lagro
Sales Office of petitioner. They had been in the employ of petitioner for years, but were not
regularized. Their employment was terminated on 8 April 2002 without just cause and due
process. However, they failed to state the reason/s for filing a complaint against Interserve;
Peerless Integrated Services, Inc.; Better Builders, Inc.; and Excellent Partners, Inc.
3

Petitioner filed its Position Paper (with Motion to Dismiss),
4
where it averred that
respondents were employees of Interserve who were tasked to perform contracted services in
accordance with the provisions of the Contract of Services
5
executed between petitioner and
Interserve on 23 March 2002. Said Contract between petitioner and Interserve, covering the
period of 1 April 2002 to 30 September 2002, constituted legitimate job contracting, given that
the latter was a bona fide independent contractor with substantial capital or investment in the
form of tools, equipment, and machinery necessary in the conduct of its business.
To prove the status of Interserve as an independent contractor, petitioner presented the
following pieces of evidence: (1) the Articles of Incorporation of Interserve;
6
(2) the Certificate of
Registration of Interserve with the Bureau of Internal Revenue;
7
(3) the Income Tax Return, with
Audited Financial Statements, of Interserve for 2001;
8
and (4) the Certificate of Registration of
Interserve as an independent job contractor, issued by the Department of Labor and Employment
(DOLE).
9

As a result, petitioner asserted that respondents were employees of Interserve, since it was
the latter which hired them, paid their wages, and supervised their work, as proven by: (1)
respondents Personal Data Files in the records of Interserve;
10
(2) respondents Contract of
Temporary Employment with Interserve;
11
and (3) the payroll records of Interserve.
12

Petitioner, thus, sought the dismissal of respondents complaint against it on the ground
that the Labor Arbiter did not acquire jurisdiction over the same in the absence of an employer-
employee relationship between petitioner and the respondents.
13

In a Decision dated 28 May 2003, the Labor Arbiter found that respondents were
employees of Interserve and not of petitioner. She reasoned that the standard put forth in Article
280 of the Labor Code for determining regular employment (i.e., that the employee is performing
activities that are necessary and desirable in the usual business of the employer) was not
determinative of the issue of whether an employer-employee relationship existed between
petitioner and respondents. While respondents performed activities that were necessary and
desirable in the usual business or trade of petitioner, the Labor Arbiter underscored that
respondents functions were not indispensable to the principal business of petitioner, which was
manufacturing and bottling soft drink beverages and similar products.
The Labor Arbiter placed considerable weight on the fact that Interserve was registered
with the DOLE as an independent job contractor, with total assets amounting to P1,439,785.00 as
of 31 December 2001. It was Interserve that kept and maintained respondents employee
records, including their Personal Data Sheets; Contracts of Employment; and remittances to the
Social Securities System (SSS), Medicare and Pag-ibig Fund, thus, further supporting the Labor
Arbiters finding that respondents were employees of Interserve. She ruled that the circulars,
rules and regulations which petitioner issued from time to time to respondents were not
indicative of control as to make the latter its employees.
Nevertheless, the Labor Arbiter directed Interserve to pay respondents their pro-rated 13th
month benefits for the period of January 2002 until April 2002.
14

In the end, the Labor Arbiter decreed:
WHEREFORE, judgment is hereby rendered finding that [herein respondents] are
employees of [herein petitioner] INTERSERVE MANAGEMENT & MANPOWER RESOURCES, INC.
Concomitantly, respondent Interserve is further ordered to pay [respondents] their pro-rated
13th month pay.
The complaints against COCA-COLA BOTTLERS PHILS., INC. is DISMISMMED for lack of
merit.
In like manner the complaints against PEERLESS INTEGRATED SERVICES, INC., BETTER
BUILDING INC. and EXCELLENT PARTNERS COOPERATIVE are DISMISSED for failure of
complainants to pursue against them.
Other claims are dismissed for lack of merit.
The computation of the Computation and Examination Unit, this Commission if (sic) made
part of this Decision.
15

Unsatisfied with the foregoing Decision of the Labor Arbiter, respondents filed an appeal
with the NLRC, docketed as NLRC NCR CA No. 036494-03.
In their Memorandum of Appeal,
16
respondents maintained that contrary to the finding of
the Labor Arbiter, their work was indispensable to the principal business of petitioner.
Respondents supported their claim with copies of the Delivery Agreement
17
between petitioner
and TRMD Incorporated, stating that petitioner was "engaged in the manufacture, distribution
and sale of soft drinks and other related products with various plants and sales offices and
labor rev 71
warehouses located all over the Philippines." Moreover, petitioner supplied the tools and
equipment used by respondents in their jobs such as forklifts, pallet, etc. Respondents were also
required to work in the warehouses, sales offices, and plants of petitioner. Respondents pointed
out that, in contrast, Interserve did not own trucks, pallets cartillas, or any other equipment
necessary in the sale of Coca-Cola products.
Respondents further averred in their Memorandum of Appeal that petitioner exercised
control over workers supplied by various contractors. Respondents cited as an example the case
of Raul Arenajo (Arenajo), who, just like them, worked for petitioner, but was made to appear as
an employee of the contractor Peerless Integrated Services, Inc. As proof of control by petitioner,
respondents submitted copies of: (1) a Memorandum
18
dated 11 August 1998 issued by Vicente
Dy (Dy), a supervisor of petitioner, addressed to Arenajo, suspending the latter from work until
he explained his disrespectful acts toward the supervisor who caught him sleeping during work
hours; (2) a Memorandum
19
dated 12 August 1998 again issued by Dy to Arenajo, informing the
latter that the company had taken a more lenient and tolerant position regarding his offense
despite having found cause for his dismissal; (3) Memorandum
20
issued by Dy to the personnel of
Peerless Integrated Services, Inc., requiring the latter to present their timely request for leave or
medical certificates for their absences; (4) Personnel Workers Schedules,
21
prepared by RB Chua,
another supervisor of petitioner; (5) Daily Sales Monitoring Report prepared by petitioner;
22
and
(6) the Conventional Route System Proposed Set-up of petitioner.
23

The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor Arbiters Decision
dated 28 May 2003 and pronounced that no employer-employee relationship existed between
petitioner and respondents. It reiterated the findings of the Labor Arbiter that Interserve was an
independent contractor as evidenced by its substantial assets and registration with the DOLE. In
addition, it was Interserve which hired and paid respondents wages, as well as paid and
remitted their SSS, Medicare, and Pag-ibig contributions. Respondents likewise failed to convince
the NLRC that the instructions issued and trainings conducted by petitioner proved that
petitioner exercised control over respondents as their employer.
24
The dispositive part of the
NLRC Resolution states:
25

WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit. However,
respondent Interserve Management & Manpower Resources, Inc., is hereby ordered to pay the
[herein respondents] their pro-rated 13th month pay.
Aggrieved once more, respondents sought recourse with the Court of Appeals by filing a
Petition for Certiorari under Rule 65, docketed as CA-G.R. SP No. 85320.
The Court of Appeals promulgated its Decision on 9 February 2007, reversing the NLRC
Resolution dated 30 October 2003. The appellate court ruled that Interserve was a labor-only
contractor, with insufficient capital and investments for the services which it was contracted to
perform. With only P510,000.00 invested in its service vehicles and P200,000.00 in its
machineries and equipment, Interserve would be hard-pressed to meet the demands of daily soft
drink deliveries of petitioner in the Lagro area. The Court Appeals concluded that the
respondents used the equipment, tools, and facilities of petitioner in the day-to-day sales
operations.
Additionally, the Court of Appeals determined that petitioner had effective control over
the means and method of respondents work as evidenced by the Daily Sales Monitoring Report,
the Conventional Route System Proposed Set-up, and the memoranda issued by the supervisor of
petitioner addressed to workers, who, like respondents, were supposedly supplied by
contractors. The appellate court deemed that the respondents, who were tasked to deliver,
distribute, and sell Coca-Cola products, carried out functions directly related and necessary to the
main business of petitioner. The appellate court finally noted that certain provisions of the
Contract of Service between petitioner and Interserve suggested that the latters undertaking did
not involve a specific job, but rather the supply of manpower.
The decretal portion of the Decision of the Court of Appeals reads:
26

WHEREFORE, the petition is GRANTED. The assailed Resolutions of public respondent NLRC
are REVERSED and SET ASIDE. The case is remanded to the NLRC for further proceedings.
Petitioner filed a Motion for Reconsideration, which the Court of Appeals denied in a
Resolution, dated 31 August 2007.
27

Hence, the present Petition, in which the following issues are raised
28
:
I
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH EVIDENCE ON
RECORD, APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT RULED THAT
INTERSERVE IS A LABOR-ONLY CONTRACTOR;
II
WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH APPLICABLE
LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT CONCLUDED THAT RESPONDENTS
PERFORMED WORK NECESSARY AND DESIRABLE TO THE BUSINESS OF [PETITIONER];
III
WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT
DECLARED THAT RESPONDENTS WERE EMPLOYEES OF [PETITIONER], EVEN ABSENT THE FOUR
ELEMENTS INDICATIVE OF AN EMPLOYMENT RELATIONSHIP; AND
IV
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT CONCLUDED THAT
INTERSERVE WAS ENGAGED BY [PETITIONER] TO SUPPLY MANPOWER ONLY.
The Court ascertains that the fundamental issue in this case is whether Interserve is a
legitimate job contractor. Only by resolving such issue will the Court be able to determine
whether an employer-employee relationship exists between petitioner and the respondents. To
settle the same issue, however, the Court must necessarily review the factual findings of the
Court of Appeals and look into the evidence presented by the parties on record.
As a general rule, factual findings of the Court of Appeals are binding upon the Supreme
Court. One exception to this rule is when the factual findings of the former are contrary to those
of the trial court, or the lower administrative body, as the case may be. This Court is obliged to
resolve an issue of fact herein due to the incongruent findings of the Labor Arbiter and the NLRC
and those of the Court of Appeals.
29

The relations which may arise in a situation, where there is an employer, a contractor, and
employees of the contractor, are identified and distinguished under Article 106 of the Labor
Code:
Article 106. Contractor or subcontractor. - Whenever an employer enters into a contract
with another person for the performance of the formers work, the employees of the contractor
and of the latters subcontractor, if any, shall be paid in accordance with the provisions of this
Code.
labor rev 72
In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor
or subcontractor to such employees to the extent of the work performed under the contract, in
the same manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting
out of labor to protect the rights of workers established under this Code. In so prohibiting or
restriction, he may make appropriate distinctions between labor-only contracting and job
contracting as well as differentiations within these types of contracting and determine who
among the parties involved shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an employee does
not have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by such persons are performing
activities which are directly related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him.
The afore-quoted provision recognizes two possible relations among the parties: (1) the
permitted legitimate job contract, or (2) the prohibited labor-only contracting.
A legitimate job contract, wherein an employer enters into a contract with a job contractor
for the performance of the formers work, is permitted by law. Thus, the employer-employee
relationship between the job contractor and his employees is maintained. In legitimate job
contracting, the law creates an employer-employee relationship between the employer and the
contractors employees only for a limited purpose, i.e., to ensure that the employees are paid
their wages. The employer becomes jointly and severally liable with the job contractor only for
the payment of the employees wages whenever the contractor fails to pay the same. Other than
that, the employer is not responsible for any claim made by the contractors employees.
30

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

Section 5 of the Rules Implementing Articles 106-109 of the Labor Code, as amended,
provides the guidelines in determining whether labor-only contracting exists:
Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby
declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where
the contractor or subcontractor merely recruits, supplies, or places workers to perform a job,
work or service for a principal, and any of the following elements are [is] present:
i) The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work, or service to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing activities which are directly related to
the main business of the principal; or
ii) The contractor does not exercise the right to control the performance of the work of the
contractual employee.
The foregoing provisions shall be without prejudice to the application of Article 248(C) of
the Labor Code, as amended.
"Substantial capital or investment" refers to capital stocks and subscribed capitalization in
the case of corporations, tools, equipment, implements, machineries and work premises, actually
and directly used by the contractor or subcontractor in the performance or completion of the job,
work, or service contracted out.
The "right to control" shall refer to the right reversed to the person for whom the services
of the contractual workers are performed, to determine not only the end to be achieved, but also
the manner and means to be used in reaching that end. (Emphasis supplied.)
When there is labor-only contracting, Section 7 of the same implementing rules, describes
the consequences thereof:
Section 7. Existence of an employer-employee relationship.The contractor or
subcontractor shall be considered the employer of the contractual employee for purposes of
enforcing the provisions of the Labor Code and other social legislation. The principal, however,
shall be solidarily liable with the contractor in the event of any violation of any provision of the
Labor Code, including the failure to pay wages.
The principal shall be deemed the employer of the contractual employee in any of the
following case, as declared by a competent authority:
a. where there is labor-only contracting; or
b. where the contracting arrangement falls within the prohibitions provided in Section 6
(Prohibitions) hereof.
According to the foregoing provision, labor-only contracting would give rise to: (1) the
creation of an employer-employee relationship between the principal and the employees of the
contractor or sub-contractor; and (2) the solidary liability of the principal and the contractor to
the employees in the event of any violation of the Labor Code.
Petitioner argues that there could not have been labor-only contracting, since respondents
did not perform activities that were indispensable to petitioners principal business. And, even
assuming that they did, such fact alone does not establish an employer-employee relationship
between petitioner and the respondents, since respondents were unable to show that petitioner
exercised the power to select and hire them, pay their wages, dismiss them, and control their
conduct.
The argument of petitioner is untenable.
The law clearly establishes an employer-employee relationship between the principal
employer and the contractors employee upon a finding that the contractor is engaged in "labor-
only" contracting. Article 106 of the Labor Code categorically states: "There is labor-only
contracting where the person supplying workers to an employee does not have substantial
capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing activities which are
directly related to the principal business of such employer." Thus, performing activities directly
related to the principal business of the employer is only one of the two indicators that "labor-
only" contracting exists; the other is lack of substantial capital or investment. The Court finds
that both indicators exist in the case at bar.
labor rev 73
Respondents worked for petitioner as salesmen, with the exception of respondent Gil
Francisco whose job was designated as leadman. In the Delivery Agreement
32
between petitioner
and TRMD Incorporated, it is stated that petitioner is engaged in the manufacture, distribution
and sale of softdrinks and other related products. The work of respondents, constituting
distribution and sale of Coca-Cola products, is clearly indispensable to the principal business of
petitioner. The repeated re-hiring of some of the respondents supports this finding.
33
Petitioner
also does not contradict respondents allegations that the former has Sales Departments and
Sales Offices in its various offices, plants, and warehouses; and that petitioner hires Regional
Sales Supervisors and District Sales Supervisors who supervise and control the salesmen and
sales route helpers.
34

As to the supposed substantial capital and investment required of an independent job
contractor, petitioner calls the attention of the Court to the authorized capital stock of Interserve
amounting to P2,000,000.00.
35
It cites as authority Filipinas Synthetic Fiber Corp. v. National
Labor Relations Commission
36
and Frondozo v. National Labor Relations Commission,
37
where the
contractors authorized capital stock of P1,600,000.00 and P2,000,000.00, respectively, were
considered substantial for the purpose of concluding that they were legitimate job contractors.
Petitioner also refers to Neri v. National Labor Relations Commission
38
where it was held that a
contractor ceases to be a labor-only contractor by having substantial capital alone, without
investment in tools and equipment.
This Court is unconvinced.
At the outset, the Court clarifies that although Interserve has an authorized capital stock
amounting to P2,000,000.00, only P625,000.00 thereof was paid up as of 31 December 2001. The
Court does not set an absolute figure for what it considers substantial capital for an independent
job contractor, but it measures the same against the type of work which the contractor is
obligated to perform for the principal. However, this is rendered impossible in this case since the
Contract between petitioner and Interserve does not even specify the work or the project that
needs to be performed or completed by the latters employees, and uses the dubious phrase
"tasks and activities that are considered contractible under existing laws and regulations." Even
in its pleadings, petitioner carefully sidesteps identifying or describing the exact nature of the
services that Interserve was obligated to render to petitioner. The importance of identifying with
particularity the work or task which Interserve was supposed to accomplish for petitioner
becomes even more evident, considering that the Articles of Incorporation of Interserve states
that its primary purpose is to operate, conduct, and maintain the business of janitorial and allied
services.
39
But respondents were hired as salesmen and leadman for petitioner. The Court
cannot, under such ambiguous circumstances, make a reasonable determination if Interserve had
substantial capital or investment to undertake the job it was contracting with petitioner.
Petitioner cannot seek refuge in Neri v. National Labor Relations Commission. Unlike in
Neri, petitioner was unable to prove in the instant case that Interserve had substantial
capitalization to be an independent job contractor. In San Miguel Corporation v. MAERC
Integrated Services, Inc.,
40
therein petitioner San Miguel Corporation similarly invoked Neri, but
was rebuffed by the Court based on the following ratiocination
41
:
Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling in
Neri v. NLRC. In that case, it was held that the law did not require one to possess both substantial
capital and investment in the form of tools, equipment, machinery, work premises, among
others, to be considered a job contractor. The second condition to establish permissible job
contracting was sufficiently met if one possessed either attribute.
Accordingly, petitioner alleged that the appellate court and the NLRC erred when they
declared MAERC a labor-only contractor despite the finding that MAERC had investments
amounting to P4,608,080.00 consisting of buildings, machinery and equipment.
However, in Vinoya v. NLRC, we clarified that it was not enough to show substantial
capitalization or investment in the form of tools, equipment, machinery and work premises, etc.,
to be considered an independent contractor. In fact, jurisprudential holdings were to the effect
that in determining the existence of an independent contractor relationship, several factors may
be considered, such as, but not necessarily confined to, whether the contractor was carrying on
an independent business; the nature and extent of the work; the skill required; the term and
duration of the relationship; the right to assign the performance of specified pieces of work; the
control and supervision of the workers; the power of the employer with respect to the hiring,
firing and payment of the workers of the contractor; the control of the premises; the duty to
supply premises, tools, appliances, materials and labor; and the mode, manner and terms of
payment.
In Neri, the Court considered not only the fact that respondent Building Care Corporation
(BCC) had substantial capitalization but noted that BBC carried on an independent business and
performed its contract according to its own manner and method, free from the control and
supervision of its principal in all matters except as to the results thereof. The Court likewise
mentioned that the employees of BCC were engaged to perform specific special services for their
principal. The status of BCC had also been passed upon by the Court in a previous case where it
was found to be a qualified job contractor because it was a "big firm which services among
others, a university, an international bank, a big local bank, a hospital center, government
agencies, etc." Furthermore, there were only two (2) complainants in that case who were not
only selected and hired by the contractor before being assigned to work in the Cagayan de Oro
branch of FEBTC but the Court also found that the contractor maintained effective supervision
and control over them.
Thus, in San Miguel Corporation, the investment of MAERC, the contractor therein, in the
form of buildings, tools, and equipment of more than P4,000,000.00 did not impress the Court,
which still declared MAERC to be a labor-only contractor. In another case, Dole Philippines, Inc. v.
Esteva,
42
the Court did not recognize the contractor therein as a legitimate job contractor,
despite its paid-up capital of over P4,000,000.00, in the absence of substantial investment in
tools and equipment used in the services it was rendering.
Insisting that Interserve had substantial investment, petitioner assails, for being purely
speculative, the finding of the Court of Appeals that the service vehicles and equipment of
Interserve, with the values of P510,000.00 and P200,000.00, respectively, could not have met the
demands of the Coca-Cola deliveries in the Lagro area.
Yet again, petitioner fails to persuade.
The contractor, not the employee, has the burden of proof that it has the substantial
capital, investment, and tool to engage in job contracting.
43
Although not the contractor itself
(since Interserve no longer appealed the judgment against it by the Labor Arbiter), said burden of
proof herein falls upon petitioner who is invoking the supposed status of Interserve as an
independent job contractor. Noticeably, petitioner failed to submit evidence to establish that the
service vehicles and equipment of Interserve, valued at P510,000.00 and P200,000.00,
respectively, were sufficient to carry out its service contract with petitioner. Certainly, petitioner
could have simply provided the courts with records showing the deliveries that were undertaken
by Interserve for the Lagro area, the type and number of equipment necessary for such task, and
the valuation of such equipment. Absent evidence which a legally compliant company could have
labor rev 74
easily provided, the Court will not presume that Interserve had sufficient investment in service
vehicles and equipment, especially since respondents allegation that they were using
equipment, such as forklifts and pallets belonging to petitioner, to carry out their jobs was
uncontroverted.
In sum, Interserve did not have substantial capital or investment in the form of tools,
equipment, machineries, and work premises; and respondents, its supposed employees,
performed work which was directly related to the principal business of petitioner. It is, thus,
evident that Interserve falls under the definition of a "labor-only" contractor, under Article 106
of the Labor Code; as well as Section 5(i) of the Rules Implementing Articles 106-109 of the Labor
Code, as amended.
The Court, however, does not stop at this finding. It is also apparent that Interserve is a
labor-only contractor under Section 5(ii)
44
of the Rules Implementing Articles 106-109 of the
Labor Code, as amended, since it did not exercise the right to control the performance of the
work of respondents.
The lack of control of Interserve over the respondents can be gleaned from the Contract of
Services between Interserve (as the CONTRACTOR) and petitioner (as the CLIENT), pertinent
portions of which are reproduced below:
WHEREAS, the CONTRACTOR is engaged in the business, among others, of performing
and/or undertaking, managing for consideration, varied projects, jobs and other related
management-oriented services;
WHEREAS, the CONTRACTOR warrants that it has the necessary capital, expertise, technical
know-how and a team of professional management group and personnel to undertake and
assume the responsibility to carry out the above mentioned project and services;
WHEREAS, the CLIENT is desirous of utilizing the services and facilities of the CONTRACTOR
for emergency needs, rush jobs, peak product loads, temporary, seasonal and other special
project requirements the extent that the available work of the CLIENT can properly be done by
an independent CONTRACTOR permissible under existing laws and regulations;
WHEREAS, the CONTRACTOR has offered to perform specific jobs/works at the CLIENT as
stated heretofore, under the terms and conditions herein stated, and the CLIENT has accepted
the offer.
NOW THEREFORE, for and in consideration of the foregoing premises and of the mutual
covenants and stipulations hereinafter set forth, the parties have hereto have stated and the
CLIENT has accepted the offer:
1. The CONTRACTOR agrees and undertakes to perform and/or provide for the CLIENT, on a
non-exclusive basis for tasks or activities that are considered contractible under existing laws and
regulations, as may be needed by the CLIENT from time to time.
2. To carry out the undertakings specified in the immediately preceding paragraph, the
CONTRACTOR shall employ the necessary personnel like Route Helpers, Salesmen, Drivers,
Clericals, Encoders & PD who are at least Technical/Vocational courses graduates provided with
adequate uniforms and appropriate identification cards, who are warranted by the CONTRACTOR
to be so trained as to efficiently, fully and speedily accomplish the work and services undertaken
herein by the CONTRACTOR. The CONTRACTOR represents that its personnel shall be in such
number as will be sufficient to cope with the requirements of the services and work herein
undertaken and that such personnel shall be physically fit, of good moral character and has not
been convicted of any crime. The CLIENT, however, may request for the replacement of the
CONTRACTORS personnel if from its judgment, the jobs or the projects being done could not be
completed within the time specified or that the quality of the desired result is not being
achieved.
3. It is agreed and understood that the CONTRACTORS personnel will comply with CLIENT,
CLIENTS policies, rules and regulations and will be subjected on-the-spot search by CLIENT,
CLIENTS duly authorized guards or security men on duty every time the assigned personnel enter
and leave the premises during the entire duration of this agreement.
4. The CONTRACTOR further warrants to make available at times relievers and/or
replacements to ensure continuous and uninterrupted service as in the case of absences of any
personnel above mentioned, and to exercise the necessary and due supervision over the work of
its personnel.
45

Paragraph 3 of the Contract specified that the personnel of contractor Interserve, which
included the respondents, would comply with "CLIENT" as well as "CLIENTs policies, rules and
regulations." It even required Interserve personnel to subject themselves to on-the-spot searches
by petitioner or its duly authorized guards or security men on duty every time the said personnel
entered and left the premises of petitioner. Said paragraph explicitly established the control of
petitioner over the conduct of respondents. Although under paragraph 4 of the same Contract,
Interserve warranted that it would exercise the necessary and due supervision of the work of its
personnel, there is a dearth of evidence to demonstrate the extent or degree of supervision
exercised by Interserve over respondents or the manner in which it was actually exercised. There
is even no showing that Interserve had representatives who supervised respondents work while
they were in the premises of petitioner.
Also significant was the right of petitioner under paragraph 2 of the Contract to "request
the replacement of the CONTRACTORS personnel." True, this right was conveniently qualified by
the phrase "if from its judgment, the jobs or the projects being done could not be completed
within the time specified or that the quality of the desired result is not being achieved," but such
qualification was rendered meaningless by the fact that the Contract did not stipulate what work
or job the personnel needed to complete, the time for its completion, or the results desired. The
said provision left a gap which could enable petitioner to demand the removal or replacement of
any employee in the guise of his or her inability to complete a project in time or to deliver the
desired result. The power to recommend penalties or dismiss workers is the strongest indication
of a companys right of control as direct employer.
46
1avvphil.zw+
Paragraph 4 of the same Contract, in which Interserve warranted to petitioner that the
former would provide relievers and replacements in case of absences of its personnel, raises
another red flag. An independent job contractor, who is answerable to the principal only for the
results of a certain work, job, or service need not guarantee to said principal the daily attendance
of the workers assigned to the latter. An independent job contractor would surely have the
discretion over the pace at which the work is performed, the number of employees required to
complete the same, and the work schedule which its employees need to follow.
As the Court previously observed, the Contract of Services between Interserve and
petitioner did not identify the work needed to be performed and the final result required to be
accomplished. Instead, the Contract specified the type of workers Interserve must provide
petitioner ("Route Helpers, Salesmen, Drivers, Clericals, Encoders & PD") and their qualifications
(technical/vocational course graduates, physically fit, of good moral character, and have not
been convicted of any crime). The Contract also states that, "to carry out the undertakings
specified in the immediately preceding paragraph, the CONTRACTOR shall employ the necessary
personnel," thus, acknowledging that Interserve did not yet have in its employ the personnel
labor rev 75
needed by petitioner and would still pick out such personnel based on the criteria provided by
petitioner. In other words, Interserve did not obligate itself to perform an identifiable job, work,
or service for petitioner, but merely bound itself to provide the latter with specific types of
employees. These contractual provisions strongly indicated that Interserve was merely a
recruiting and manpower agency providing petitioner with workers performing tasks directly
related to the latters principal business.
The certification issued by the DOLE stating that Interserve is an independent job
contractor does not sway this Court to take it at face value, since the primary purpose stated in
the Articles of Incorporation
47
of Interserve is misleading. According to its Articles of
Incorporation, the principal business of Interserve is to provide janitorial and allied services. The
delivery and distribution of Coca-Cola products, the work for which respondents were employed
and assigned to petitioner, were in no way allied to janitorial services. While the DOLE may have
found that the capital and/or investments in tools and equipment of Interserve were sufficient
for an independent contractor for janitorial services, this does not mean that such capital and/or
investments were likewise sufficient to maintain an independent contracting business for the
delivery and distribution of Coca-Cola products.
With the finding that Interserve was engaged in prohibited labor-only contracting,
petitioner shall be deemed the true employer of respondents. As regular employees of
petitioner, respondents cannot be dismissed except for just or authorized causes, none of which
were alleged or proven to exist in this case, the only defense of petitioner against the charge of
illegal dismissal being that respondents were not its employees. Records also failed to show that
petitioner afforded respondents the twin requirements of procedural due process, i.e., notice
and hearing, prior to their dismissal. Respondents were not served notices informing them of the
particular acts for which their dismissal was sought. Nor were they required to give their side
regarding the charges made against them. Certainly, the respondents dismissal was not carried
out in accordance with law and, therefore, illegal.
48

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

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