G.R. No. 208451
is ordered to pay wage differentials to complainants as
MANILA MEMORIAL PARK CEMETERY, INC., Petitioner,
vs.
EZARD D. LLUZ, NORMAN CORRAL, ERWIN FUGABAN, VALDIMAR BALISI, EMILIO FABON, JOHN MARK
APLICADOR, MICHAEL CURIOSO, JUNLIN ESPARES, GA VINO FARINAS, and WARD TRADING AND
SERVICES, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 assailing the Decision2 dated 21 January 2013 and the
Resolution3 dated 17 July 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 119237.
The Facts
On 23 February 2006, petitioner Manila Memorial Park Cemetery, Inc. (Manila Memorial) entered into a
Contract of Services with respondent Ward Trading and Services (Ward Trading). The Contract of Services
provided that Ward Trading, as an independent contractor, will render interment and exhumation services
and other related work to Manila Memorial in order to supplement operations at Manila Memorial Park,
Parañaque City.
Among those assigned by Ward Trading to perform services at the Manila Memorial Park were respondents
Ezard Lluz, Norman Corral, Erwin Fugaban, Valdimar Balisi, Emilio Fabon, John Mark Aplicador, Michael
Curioso, Junlin Espares, and Gavino Farinas (respondents). They worked six days a week for eight hours
daily and were paid P250 per day.
On 26 June 2007, respondents filed a Complaint4 for regularization and Collective Bargaining Agreement
benefits against Manila Memorial; Enrique B. Lagdameo, Manila Memorial’s Executive Vice-President and
Director in Charge for Overall Operations, and Ward Trading. On 6 August 2007, respondents filed an
amended complaint to include illegal dismissal, underpayment of 13th month pay, and payment of
attorney’s fees.
Respondents alleged that they asked Manila Memorial to consider them as regular workers within the
appropriate bargaining unit established in the collective bargaining agreement by Manila Memorial and
its union, the Manila Memorial Park Free Workers Union (MMP Union). Manila Memorial refused the request
since respondents were employed by Ward Trading, an independent labor contractor. Thereafter,
respondents joined the MMP Union. The MMP Union, on behalf of respondents, sought their regularization
which Manila Memorial again declined. Respondents then filed the complaint. Subsequently, respondents
were dismissed by Manila Memorial. Thus, respondents amended the complaint to include the prayer for
their reinstatement and payment of back wages.
Meanwhile, Manila Memorial sought the dismissal of the complaint for lack of jurisdiction since there was
no employer-employee relationship. Manila Memorial argued that respondents were the employees of
Ward Trading.
In a Decision5 dated 29 March 2010, the Labor Arbiter dismissed the complaint for failing to prove the
existence of an employer-employee relationship. The dispositive portion of the Decision states:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the above-entitled case for
complainants’ lack of employer-employee relationship with respondent Manila Memorial Park Cemetery,
Inc.
SO ORDERED.6
Respondents appealed7 to the NLRC. In a Decision8 dated 30 September 2010, the NLRC reversed the
Labor Arbiter’s findings. The NLRC ruled that Ward Trading was a labor-only contractor and an agent of
Manila Memorial. The dispositive portion of the Decision states:
WHEREFORE, premises considered, complainants’ appeal is GRANTED. The assailed Decision of Labor
Arbiter Geobel A. Bartolabac dated March 29, 2010 is MODIFIED. It is hereby declared that complainants
were regular employees of respondent Manila Memorial Park Cemetery, Inc. and entitled to the benefits
provided for under the CBA between the latter and the Manila Memorial Park Free Workers Union.
Respondent Manila Memorial Park Cemetery, Inc.
follows:
1. Ezard D. Lluz – P43,982.79
2. Norman Corral – P29,765.67
3. Erwin Fugaban – P28,634.67
4. Valdimar Balisi – P20,310.33
5. Emilio Fabon – P43,982.79
6. John Mark Aplicador – P43,982.79
7. Michael Curioso – P43,982.79
8. Ju[n]lin Espares – P43,982.79
9. Gavino Farinas – P43,982.79
SO ORDERED.9
Manila Memorial filed a Motion for Reconsideration which was denied in a Resolution10 dated 31 January
2011.
Thereafter, Manila Memorial filed an appeal with the CA. In a Decision dated 21 January 2013, the CA
affirmed the ruling of the NLRC. The CA found the existence of an employer-employee relationship
between Manila Memorial and respondents. The dispositive portion of the Decision states:
WHEREFORE, in view of the foregoing, the instant Petition for Certiorari is DENIED. The Decision, dated
September 30, 2010 and the Resolution, dated January 31, 2011, rendered by the National Labor Relations
Commission (NLRC) in NLRC LAC No. 06-001267-10 are AFFIRMED.
SO ORDERED.11
Manila Memorial then filed a Motion for Reconsideration which was denied by the CA in a Resolution
dated 17 July 2013.
Hence, the instant petition.
The Issue
The main issue for our resolution is whether or not an employer-employee relationship exists between
Manila Memorial and respondents for the latter to be entitled to their claim for wages and other benefits.
The Court’s Ruling
The petition lacks merit.
Manila Memorial contends that Ward Trading has total assets in excess of P1.4 million, according to Ward
Trading’s financial statements for the year 2006, proving that it has sufficient capitalization to qualify as a
legitimate independent contractor. Manila Memorial insists that nowhere is it provided in the Contract of
Services that Manila Memorial controls the manner and means by which respondents accomplish the
results of their work. Manila Memorial states that the company only wants its contractors and the latter’s
employees to abide by company rules and regulations.
Respondents, on the other hand, assert that they are regular employees of Manila Memorial since Ward
Trading cannot qualify as an independent contractor but should be treated as a mere labor-only
contractor. Respondents state that (1) there is enough proof that Ward Trading does not have substantial
capital, investment, tools and the like; (2) the workers recruited and placed by the alleged contractors
performed activities that were related to Manila Memorial’s business; and (3) Ward Trading does not
exercise the right to control the performance of the work of the contractual employees.
As a general rule, factual findings of the CA are binding upon this 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 due to the conflicting findings of the
Labor Arbiter on one hand, and the NLRC and the CA on the other.
In order to determine whether there exists an employer-employee relationship between Manila Memorial
and respondents, relevant provisions of the labor law and rules must first be reviewed. Article 106 of the
Labor Code states:
Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person
for the performance of the former’s work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance
with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to
such employees to the extent of the work performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him.
The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the
contracting-out of labor to protect the rights of workers established under this Code. In so prohibiting or
restricting, he may make appropriate distinctions between labor-only contracting and job contracting as
well as differentiations within these types of contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of
any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such person are performing activities which are directly
related to the principal business of such employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him. (Emphasis supplied)
Sections 3, 5 and 7 of Department Order No. 18-0212 distinguish between legitimate and labor-only
contracting and assume the existence of an employer-employee relationship if found to be engaged in
labor-only contracting. The provisions state:
xxxx
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.
xxxx
Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited.
For this purpose, labor-only contracting shall refer to an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal,
and any of the following elements are present:
i) The contractor or subcontractor does not have substantial capital or investment which relates to the job,
work or service to be performed and the employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to the main business of the principal; or
ii) The contractor does not exercise the right to control over the performance of the work of the
contractual employee.
The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code,
as amended.
"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries and work premises, actually and directly used by
the contractor or subcontractor in the performance or completion of the job, work or service contracted
out.
The "right to control" shall refer to the right reserved to the person for whom the services of the contractual
workers are performed, to determine not only the end to be achieved, but also the manner and means to
be used in reaching that end.
xxxx
Section 7. Existence of an employer-employee relationship. – The contractor or subcontractor shall be
considered the employer of the contractual employee for purposes of enforcing the provisions of the
Labor Code and other social legislation. The principal, however, shall be solidarily liable with the contractor
in the event of any violation of any provision of the Labor Code, including the failure to pay wages.
The principal shall be deemed the employer of the contractual employee in any of the following cases as
declared by a competent authority:
(a) where there is labor-only contracting; or
(b) where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions)
hereof.isi (Emphasis supplied)
It is clear from these provisions that contracting arrangements for the performance of specific jobs or
services under the law and its implementing rules are allowed. However, contracting must be made to a
legitimate and independent job contractor since labor rules expressly prohibit labor-only contracting.
Labor-only contracting exists when 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:
1) 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
2) The contractor does not exercise the right to control the performance of the work of the contractual
employee.13
In the present case, Manila Memorial entered into a Contract of Services with Ward Trading, a single
proprietorship owned by Emmanuel Mayor Ward with business address in Las Piñas City on 23 February
2006. In the Contract of Services, it was provided that Ward Trading, as the contractor, had adequate
workers and substantial capital or investment in the form of tools, equipment, machinery, work premises
and other materials which were necessary in the conduct of its business.
However, a closer look at the Contract of Services reveals that Ward Trading does not have substantial
capital or investment in the form of tools, equipment, machinery, work premises and other materials since it
is Manila Memorial which owns the equipment used in the performance of work needed for interment and
exhumation services. The pertinent provision in the Contract of Services which shows that Manila Memorial
owns the equipment states:
The COMPANY shall [sell] to the contractor the COMPANY owned equipment in the amount of ONE
MILLION FOUR HUNDRED THOUSAND PESOS ONLY (Php 1,400,000.00) payable in two (2) years or a monthly
payment of FIFTY EIGHT THOUSAND THREE HUNDRED THIRTY FIVE PESOS ONLY (Php 58,335.00) to be
deducted from the CONTRACTOR’s billing.14
Just by looking at the provision, it seems that the sale was a regular business transaction between two
parties. However, Manila Memorial did not present any evidence to show that the sale actually pushed
through or that payments were made by Ward Trading to prove an ordinary arms length transaction. We
agree with the NLRC in its findings:
While the above-cited provision of the Contract of Service implies that respondent MMPCI would sell
subject equipment to Ward at some future time, the former failed to present any contract of sale as proof
that, indeed, it actually sold said equipment to Ward. Likewise, respondent MMPCI failed to present any
"CONTRACTOR’s billing" wherein the purported monthly installment of P58,335.00 had been deducted, to
prove that Ward truly paid the same as they fell due. In a contract to sell, title is retained by the vendor
until full payment of the price.
Moreover, the Contract of Service provides that:
"5. The COMPANY reserves the right to rent all or any of the CONTRACTOR’s equipment in the event the
COMPANY requires the use of said equipment. x x x."
This provision is clear proof that Ward does not have an absolute right to use or enjoy subject equipment,
considering that its right to do so is subject to respondent MMPCI’s use thereof at any time the latter
requires it. Such provision is contrary to Article 428 of the Civil Code, which provides that "The owner has the
right to enjoy and dispose of a thing, without other limitation than those established by law." It is plain to
see that Ward is not the owner of the equipment worth P1,400,000.00 that is being actually and directly
used in the performance of the services contracted out.
Further, the Service Contract states that:
"For its part, the COMPANY agrees to provide the following:
a) Area to store CONTRACTOR’s equipment and materials
b) Office space for CONTRACTOR’s staff and personnel"
This provision is clear proof that even the work premises actually and directly used by Ward in the
performance of the services contracted out is owned by respondent MMPCI.15
Also, the difference in the value of the equipment in the total amount of P1,400,000.00 can be glaringly
seen in Ward Trading’s financial statements for the year 2006 when compared to its 2005 financial
statements. It is significant to note that these financial statements were submitted by Manila Memorial
without any certification that these financial statements were actually audited by an independent
certified public accountant. Ward Trading’s Balance Sheet16 as of 31 December 2005 showed that it had
assets in the amount of P441,178.50 and property and equipment with a net book value of P86,026.50
totaling P534,705. A year later, Ward Trading’s Balance Sheet17 ending in 31 December 2006 showed that it
had assets in the amount of P57,084.70 and property and equipment with a net book value of P1,426,468
totaling P1,491,052.70. Ward Trading, in its Income Statements18 for the years 2005 and 2006, only earned a
net income of P53,800 in the year ending 2005 and P68,141.50 in 2006. Obviously, Ward Trading could not
have raised a substantial capital of P1,400,000.00 from its income alone without the inclusion of the
equipment owned and allegedly sold by Manila Memorial to Ward Trading after they signed the Contract
of Services on 23 February 2006.
Further, the records show that Manila Memorial and Enrique B. Lagdameo admitted that respondents
performed various interment services at its Sucat, Parañaque branch which were directly related to Manila
Memorial’s business of developing, selling and maintaining memorial parks and interment functions. Manila
Memorial even retained the right to control the performance of the work of the employees concerned. As
correctly observed by the CA:
A perusal of the Service Contract would reveal that respondent Ward is still subject to petitioner’s control
as it specifically provides that although Ward shall be in charge of the supervision over individual
respondents, the exercise of its supervisory function is heavily dependent upon the needs of petitioner
Memorial Park, particularly:
"It is also agreed that:
a) The CONTRACTOR’s supervisor will conduct a regular inspection of grave sites/areas being dug to
ensure compliance with the COMPANY’s interment schedules and other related ceremonies.
b) The CONTRACTOR will provide enough manpower during peak interment days including Sundays and
Holidays.
c) The CONTRACTOR shall schedule off-days for its workers in coordination with the COMPANY’s schedule
of interment operation.
d) The CONTRACTOR shall be responsible for any damage done to lawn/s and/or structure/s resulting from
its operation, which must be restored to its/their original condition without delay and at the expense of
CONTRACTOR."
The contract further provides that petitioner has the option to take over the functions of Ward’s personnel if
it finds any part or aspect of the work or service provided to be unsatisfactory, thus:
"6.1 It is hereby expressly agreed and understood that, at any time during the effectivity of this CONTRACT
and its sole determination, the COMPANY may take over the performance of any of the functions
mentioned in Paragraph I above, in any of the following cases:
xxx
c. If the COMPANY finds the performance of the CONTRACTOR in any part or aspect of the grave digging
works or other services provided by it to be unsatisfactory."
It is obvious that the aforementioned provision leaves respondent Ward at the mercy of petitioner
Memorial Park as the contract states that the latter may take over if it finds any part of the services to be
below its expectations, including the manner of its performance. x x x.19
The NLRC also found that Ward Trading’s business documents fell short of sound business practices. The
relevant portion in the NLRC’s Decision states:
It is also worth noting that while Ward has a Certificate of Business Name Registration issued by the
Department of Trade and Industry on October 24, 2003 and valid up to October 24, 2008, the same
expressly states that it is not a license to engage in any kind of business, and that it is valid only at the place
indicated therein, which is Las Piñas City. Hence, the same is not valid in Parañaque City, where Ward
assigned complainants to perform interment services it contracted with respondent MMPCI. It is also noted
that the Permit, which was issued to Ward by the Office of the Mayor of Las Piñas City on October 28, 2003,
was valid only up to December 31, 2003. Likewise, the Sanitary Permit to Operate, which was issued to
Ward by the Office of the City Health Officer of the Las Piñas City Health Office on October 28, 2003,
expired on December 31, 2003. While respondents MMPCI and Lagdameo were able to present copies of
the above-mentioned documents, they failed to present any proof that Ward is duly registered as [a]
contractor with the Department of Labor and Employment.20
Section 11 of Department Order No. 18-02, which mandates registration of contractors or subcontractors
with the DOLE, states:
Section 11. Registration of Contractors or Subcontractors. – Consistent with authority of the Secretary of
Labor and Employment to restrict or prohibit the contracting out of labor through appropriate regulations,
a registration system to govern contracting arrangements and to be implemented by the Regional Office
is hereby established.
The Registration of contractors and subcontractors shall be necessary for purposes of establishing an
effective labor market information and monitoring.
Failure to register shall give rise to the presumption that the contractor is engaged in labor-only
contracting.1âwphi1
For failing to register as a contractor, a presumption arises that one is engaged in labor-only contracting
unless the contractor overcomes the burden of proving that it has substantial capital, investment, tools and
the like.21
In this case, however, Manila Memorial failed to adduce evidence to prove that Ward Trading had any
substantial capital, investment or assets to perform the work contracted for. Thus, the presumption that
Ward Trading is a labor-only contractor stands. Consequently, Manila Memorial is deemed the employer of
respondents. As regular employees of Manila Memorial, respondents are entitled to their claims for wages
and other benefits as awarded by the NLRC and affirmed by the CA.
WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 21 January 2013 and the Resolution
dated 1 7 July 2013 of the Court of Appeals in CA-G.R. SP No. 119237.
SO ORDERED.
G.R. Nos. 173254-55 & 173263
DIAMOND FARMS, INC., Petitioner,
vs.
SOUTHERN PHILIPPINES FEDERATION OF LABOR (SPFL)-WORKERS SOLIDARITY OF DARBMUPCO/DIAMOND-SPFL,
DIAMOND FARMS AGRARIAN REFORM BENEFICIARIES MULTI-PURPOSE COOPERATIVE (DARBMUPCO), VOLTER
LOPEZ, RUEL ROMERO, PATRICIO CAPRECHO, REY DIMACALI, ELESIO EMANEL, VICTOR SINGSON, NILDA
DIMACALI, PREMITIVO* DIAZ, RUDY VISTAL, ROGER MONTERO, JOSISIMO GOMEZ and MANUEL
MOSQUERA, Respondents.
DECISION
JARDELEZA, J.:
We resolve in this Petition for Review 1 under Rule 45 of the Rules of Court, the issue of who among Diamond
Farms, Inc. ("DFI"), Diamond Farms Agrarian Reform Beneficiaries Multi-Purpose Cooperative
("DARBMUPCO") and the individual contractors2 ("respondent-contractors") is the employer of the 400
employees ("respondent-workers").
DFI challenges the March 31, 2006 Decision3 and May 30, 2006 Resolution4 of the Court Appeals, Special
Twenty-Second Division, Cagayan De Oro City for being contrary to law and jurisprudence. The Decision
dismissed DFI’s Petition for Certiorari in C.A.-G.R. SP Nos. 53806 and 61607 and granted DARBMUPCO’s
Petition for Certiorari in C.A.-G.R. SP No. 59958. It declared DFI as the statutory employer of the respondent-
workers.
The Facts
DFI owns an 800-hectare banana plantation ("original plantation") in Alejal, Carmen, Davao.5 Pursuant to
Republic Act No. 6657 or the Comprehensive Agrarian Reform Law of 1988 ("CARL"), commercial farms
shall be subject to compulsory acquisition and distribution,6 thus the original plantation was covered by the
law. However, the Department of Agrarian Reform ("DAR") granted DFI a deferment privilege to continue
agricultural operations until 1998.7 Due to adverse marketing problems and observance of the so-called
"lay-follow" or the resting of a parcel of land for a certain period of time after exhaustive utilization, DFI
closed some areas of operation in the original plantation and laid off its employees.8 These employees
petitioned the DAR for the cancellation of DFI’s deferment privilege alleging that DFI already abandoned
its area of operations.9 The DAR Regional Director recalled DFI’s deferment privilege resulting in the original
plantation’s automatic compulsory acquisition and distribution under the CARL.10 DFI filed a motion for
reconsideration which was denied. It then appealed to the DAR Secretary.11
In the meantime, to minimize losses, DFI offered to give up its rights and interest over the original plantation
in favor of the government by way of a Voluntary Offer to Sell.12 The DAR accepted DFI’s offer to sell the
original plantation. However, out of the total 800 hectares, the DAR only approved the disposition of 689.88
hectares. Hence, the original plantation was split into two: 689.88 hectares were sold to the government
("awarded plantation") and the remaining 200 hectares, more or less, were retained by DFI ("managed
area").13 The managed area is subject to the outcome of the appeal on the cancellation of the deferment
privilege before the DAR Secretary.
On January 1, 1996, the awarded plantation was turned over to qualified agrarian reform beneficiaries
("ARBs") under the CARL. These ARBs are the same farmers who were working in the original plantation.
They subsequently organized themselves into a multi-purpose cooperative named "DARBMUPCO," which is
one of the respondents in this case.14
On March 27, 1996, DARBMUPCO entered into a Banana Production and Purchase Agreement
("BPPA")15 with DFI.16 Under the BPPA, DARBMUPCO and its members as owners of the awarded plantation,
agreed to grow and cultivate only high grade quality exportable bananas to be sold exclusively to
DFI.17 The BPPA is effective for 10 years.18
On April 20, 1996, DARBMUPCO and DFI executed a "Supplemental to Memorandum Agreement"
("SMA").19 The SMA stated that DFI shall take care of the labor cost arising from the packaging operation,
cable maintenance, irrigation pump and irrigation maintenance that the workers of DARBMUPCO shall
conduct for DFI’s account under the BPPA.20
From the start, DARBMUPCO was hampered by lack of manpower to undertake the agricultural operation
under the BPPA because some of its members were not willing to work.21 Hence, to assist DARBMUPCO in
meeting its production obligations under the BPPA, DFI engaged the services of the respondent-
contractors, who in turn recruited the respondent-workers.22
The engagement of the respondent-workers, as will be seen below, started a series of labor disputes
among DARBMUPCO, DFI and the respondent-contractors.
C.A. G.R. SP No. 53806
On February 10, 1997, respondent Southern Philippines Federation of Labor ("SPFL")—a legitimate labor
organization with a local chapter in the awarded plantation—filed a petition for certification election in
the Office of the Med-Arbiter in Davao City.23 SPFL filed the petition on behalf of some 400 workers (the
respondent-workers in this petition) "jointly employed by DFI and DARBMUPCO" working in the awarded
plantation.
DARBMUPCO and DFI denied that they are the employers of the respondent-workers. They claimed,
instead, that the respondent-workers are the employees of the respondent-contractors.24
In an Order dated May 14, 1997,25 the Med-Arbiter granted the petition for certification election. It directed
the conduct of certification election and declared that DARBMUPCO was the employer of the
respondent-workers. The Order stated that "whether the said workers/employees were hired by
independent contractors is of no moment. What is material is that they were hired purposely to work on the
689.88 hectares banana plantation [the awarded plantation] now owned and operated by
DARBMUPCO."26
DARBMUPCO appealed to the Secretary of Labor and Employment ("SOLE"). In a Resolution dated
February 18, 1999,27 the SOLE modified the decision of the Med-Arbiter. The SOLE held that DFI, through its
manager and personnel, supervised and directed the performance of the work of the
respondentcontractors. The SOLE thus declared DFI as the employer of the respondent-workers.28
DFI filed a motion for reconsideration which the SOLE denied in a Resolution dated May 4, 1999.29
On June 11, 1999, DFI elevated the case to the Court of Appeals ("CA") via a Petition for Certiorari30 under
Rule 65 of the Rules of Court. The case was raffled to the CA’s former Twelfth Division and was docketed
as C.A.-G.R. SP No. 53806.
C.A.-G.R. SP. No. 59958
Meanwhile, on June 20, 199731 and September 15, 1997,32 SPFL, together with more than 300 workers, filed a
case for underpayment of wages, non-payment of 13th month pay and service incentive leave pay and
attorney’s fees against DFI, DARBMUPCO and the respondent-contractors before the National Labor
Relations Commission ("NLRC") in Davao City. DARBMUPCO averred that it is not the employer of
respondent-workers; neither is DFI. It asserted that the money claims should be directed against the true
employer—the respondent-contractors.33
In a Decision dated January 22, 1999,34 the Labor Arbiter ("LA") held that the respondent-contractors are
"labor-only contractors." The LA gave credence to the affidavits of the other contractors35 of DFI (who are
not party-respondents in this petition) asserting that DFI engaged their services, and supervised and paid
their laborers. The affidavits also stated that the contractors had no dealings with DARBMUPCO, except
that their work is done in the awarded plantation.36
The LA held that, under the law, DFI is deemed as the statutory employer of all the respondent-
workers.37 The LA dismissed the case against DARBMUPCO and the respondent-contractors.38
DFI appealed to the NLRC. In a Resolution dated May 24, 1999,39 the NLRC Fifth Division modified the
Decision of the LA and declared that DARBMUPCO and DFI are the statutory employers of the workers
rendering services in the awarded plantation and the managed area, respectively.40 It adjudged DFI and
DARBMUPCO as solidarily liable with the respondent-contractors for the monetary claims of the workers, in
proportion to their net planted area.41
DARBMUPCO filed a motion for reconsideration which was denied.42 It filed a second motion for
reconsideration in the NLRC, which was also denied for lack of merit and for being barred under the NLRC
Rules of Procedure.43 Hence, DARBMUPCO elevated the case to the CA by way of a Petition
for Certiorari.44 The case was docketed as C.A.-G.R. SP. No. 59958.
The former Eleventh Division of the CA consolidated C.A. G.R. SP. No. 59958 and C.A.-G.R. SP No. 53806 in a
Resolution dated January 27, 2001.45
C.A.-G.R. SP No. 61607
Pursuant to the May 4, 1999 Resolution of the SOLE approving the conduct of certification election, the
Department of Labor and Employment ("DOLE") conducted a certification election on October 1,
1999.46 On even date, DFI filed an election protest47 before the Med-Arbiter arguing that the certification
election was premature due to the pendency of a petition for certiorari before the CA assailing the
February 18, 1999 and May 4, 1999 Resolutions of the SOLE (previously discussed in C.A.-G.R. SP No. 53806).
In an Order dated December 15, 1999,48 the Med-Arbiter denied DFI’s election protest, and certified SPFL-
Workers Solidarity of DARBMUPCO/DIAMOND-SPFL ("WSD-SPFL") as the exclusive bargaining representative
of the respondent-workers. DFI filed a Motion for Reconsideration49 which the Med-Arbiter treated as an
appeal, and which the latter elevated to the SOLE.
In a Resolution dated July 18, 2000,50 the SOLE dismissed the appeal. The Resolution stated that the May 4,
1999 Resolution directing the conduct of certification election is already final and executory on June 4,
1999. It pointed out that the filing of the petition for certiorari before the CA assailing the February 18, 1999
and May 4, 1999 Resolutions does not stay the conduct of the certification election because the CA did
not issue a restraining order.51 DFI filed a Motion for Reconsideration but the motion was denied.52
On October 27, 2000, DFI filed a Petition for Certiorari53 before the CA, docketed as C.A.-G.R. SP No. 61607.
In a Resolution dated August 2, 2005,54 the CA Twenty-Third Division consolidated C.A.-G.R. SP No. 61607
with C.A.-G.R. SP. No. 59958 and C.A. G.R. SP No. 53806.
The Assailed CA Decision and Resolution
The CA was confronted with two issues:55
(1) "Whether DFI or DARBMUPCO is the statutory employer of the [respondent-workers] in these
petitions; and
(2) Whether or not a certification election may be conducted pending the resolution of the
petition for certiorari filed before this Court, the main issue of which is the identity of the employer
of the [respondent-workers] in these petitions."
On the first issue, the CA agreed with the ruling of the SOLE56
that DFI is the statutory employer of the
respondent-workers. It noted that the DFI hired the respondent-contractors, who in turn procured their own
men to work in the land owned by DARBMUPCO. Further, DFI admitted that the respondent-contractors
worked under the direction and supervision of DFI’s managers and personnel. DFI also paid for the
respondent-contractors’ services.57 The CA said that the fact that the respondent-workers worked in the
land owned by DARBMUPCO is immaterial. "Ownership of the land is not one of the four (4) elements
generally considered to establish employer-employee relationship."58
The CA also ruled that DFI is the true employer of the respondent-workers because the respondent-
contractors are not independent contractors.59 The CA stressed that in its pleadings before the Med-
Arbiter, the SOLE, and the CA, DFI revealed that DARBMUPCO lacks manpower to fulfill the production
requirements under the BPPA. This impelled DFI to hire contractors to supply labor enabling DARBMUPCO to
meet its quota. The CA observed that while the various agencies involved in the consolidated petitions
sometimes differ as to who the statutory employer of the respondent-workers is, they are uniform in finding
that the respondent-contractors are labor-only contractors.60
On the second issue, the CA reiterated the ruling of the SOLE61 that absent an injunction from the CA, the
pendency of a petition for certiorari does not stay the holding of the certification election.62 The
challenged Resolution of the SOLE is already final and executory as evidenced by an Entry of Judgment
dated July 14, 1999; hence, the merits of the case can no longer be reviewed.63
The CA thus held in its Decision dated March 31, 2006:
WHEREFORE, premises considered, this Court hereby ORDERS:
(1) the DISMISSAL of the petitions in C.A.-G.R. SP No. 53806 and C.A.-G.R. SP No. 61607; and
(2) the GRANTING of the petition in C.A.-G.R. SP No. 59958 and the SETTING ASIDE of the assailed
resolutions of the NLRC dated 24 May 1999, 30 July 1999 and 26 June 2000, respectively.
SO ORDERED.64
DFI filed a Motion for Reconsideration of the CA Decision which was denied in a Resolution dated May 30,
2006.65
DFI is now before us by way of Petition for Review on Certiorari praying that DARBMUPCO be declared the
true employer of the respondent-workers.
DARBMUPCO filed a Comment66 maintaining that under the control test, DFI is the true employer of the
respondent-workers.
Respondent-contractors filed a Verified Explanation and Memorandum67 asserting that they were labor-
only contractors; hence, they are merely agents of the true employer of the respondent-workers.
SPFL did not file any comment or memorandum on behalf of the respondent-workers.68
The Issue
The issue before this Court is who among DFI, DARBMUPCO and the respondent-contractors is the
employer of the respondent-workers.
Our Ruling
We deny the petition.
This case involves job contracting, a labor arrangement expressly allowed by law. Contracting or
subcontracting is an arrangement whereby a principal (or employer) agrees to put out or farm out with a
contractor or subcontractor the performance or completion of a specific job, work or service within a
definite or predetermined period, regardless of whether such job, work or service is to be performed or
completed within or outside the premises of the principal.69 It involves a trilateral relationship among the
principal or employer, the contractor or subcontractor, and the workers engaged by the contractor or
subcontractor.70
Article 106 of the Labor Code of the Philippines71 (Labor Code) explains the relations which may arise
between an employer, a contractor, and the contractor’s employees,72 thus:
ART. 106. Contractor or subcontracting. − Whenever an employer enters into a contract with another
person for the performance of the formers work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance
with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to
such employees to the extent of the work performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him.
The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the
contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or
restricting, he may make appropriate distinctions between labor-only contracting and job contracting as
well as differentiations within these types of contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of
any provision of this Code.
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.
The Omnibus Rules Implementing the Labor Code73 distinguishes between permissible job contracting (or
independent contractorship) and labor-only contracting. Job contracting is permissible under the Code if
the following conditions are met:
 (a) 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
(b) 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.74
In contrast, job contracting shall be deemed as labor-only contracting, an arrangement prohibited by law,
if a person who undertakes to supply workers to an employer:
(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 person are performing activities which are directly
related to the principal business or operations of the employer in which workers are habitually
employed.75
As a general rule, a contractor is presumed to be a labor-only contractor, unless such contractor
overcomes the burden of proving that it has the substantial capital, investment, tools and the like.76
Based on the conditions for permissible job contracting, we rule that respondent-contractors are labor-only
contractors.
There is no evidence showing that respondent-contractors are independent contractors. The respondent-
contractors, DFI, and DARBMUPCO did not offer any proof that respondent-contractors were not engaged
in labor-only contracting. In this regard, we cite our ruling in Caro v. Rilloraza,77 thus:
"In regard to the first assignment of error, the defendant company pretends to show through Venancio
Nasol's own testimony that he was an independent contractor who undertook to construct a railway line
between Maropadlusan and Mantalisay, but as far as the record shows, Nasol did not testify that the
defendant company had no control over him as to the manner or methods he employed in pursuing his
work. On the contrary, he stated that he was not bonded, and that he only depended upon the Manila
Railroad for money to be paid to his laborers. As stated by counsel for the plaintiffs, the word ‘independent
contractor’ means 'one who exercises independent employment and contracts to do a piece of work
according to his own methods and without being subject to control of his employer except as to result of
the work.' Furthermore, if the employer claims that the workmen is an independent contractor, for whose
acts he is not responsible, the burden is on him to show his independence.
Tested by these definitions and by the fact that the defendant has presented practically no evidence to
determine whether Venancio Nasol was in reality an independent contractor or not, we are inclined to
think that he is nothing but an intermediary between the defendant and certain laborers. It is indeed
difficult to find that Nasol is an independent contractor; a person who possesses no capital or money of his
own to pay his obligations to them, who files no bond to answer for any fulfillment of his contract with his
employer and specially subject to the control and supervision of his employer, falls short of the requisites or
conditions necessary for the common and independent contractor."78 (Citations omitted; emphasis
supplied.)
To support its argument that respondent-contractors are the employers of respondent-workers, and not
merely labor-only contractors, DFI should have presented proof showing that respondent-contractors carry
on an independent business and have sufficient capitalization. The record, however, is bereft of showing of
even an attempt on the part of DFI to substantiate its argument.
DFI cannot cite the May 24, 1999 Resolution of the NLRC as basis that respondent-contractors are
independent contractors. Nowhere in the NLRC Resolution does it say that the respondent-contractors are
independent contractors. On the contrary, the NLRC declared that "it was not clearly established on
record that said [respondent-]contractors are independent, xxx."79
Further, respondent-contractors admit, and even insist that they are engaged in labor-only contracting. As
will be seen below, respondent-contractors made the admissions and declarations on two
occasions: first was in their Formal Appearance of Counsel and Motion for Exclusion of Individual Party-
Respondents filed before the LA; and second was in their Verified Explanation and Memorandum filed
before this Court.
Before the LA, respondent-contractors categorically stated that they are "labor-only" contractors who
have been engaged by DFI and DARBMUPCO.80 They admitted that they do not have substantial capital
or investment in the form of tools, equipment, machineries, work premises and other materials, and they
recruited workers to perform activities directly related to the principal operations of their employer.81
Before this Court, respondents-contractors again admitted that they are labor-only contractors. They
narrated that:
1. Herein respondents, Voltaire Lopez, Jr., et al., were commissioned and contracted by
petitioner, Diamond Farms, Inc. (DFI) to recruit farm workers, who are the complaining
[respondent-workers] (as represented by Southern Philippines Federation of Labor (SPFL) in this
appeal by certiorari), in order to perform specific farm activities, such as pruning, deleafing,
fertilizer application, bud inject, stem spray, drainage, bagging, etc., on banana plantation lands
awarded to private respondent, Diamond Farms Agrarian Reform Beneficiaries Multi-Purpose
Cooperative (DARBMUPCO) and on banana planted lands owned and managed by petitioner,
DFI.
2. All farm tools, implements and equipment necessary to performance of such farm activities
were supplied by petitioner DFI to respondents Voltaire Lopez, Jr., et. al. as well as to respondents-
SPFL, et. al. Herein respondents Voltaire Lopez, Jr. et. al. had no adequate capital to acquire or
purchase such tools, implements, equipment, etc.
3. Herein respondents Voltaire Lopez, Jr., et. al. As well as respondents-SPFL, et. al. were being
directly supervised, controlled and managed by petitioner DFI farm managers and supervisors,
specifically on work assignments and performance targets. DFI managers and supervisors, at their
sole discretion and prerogative, could directly hire and terminate any or all of the respondents-
SPFL, et. al., including any or all of the herein respondents Voltaire Lopez, Jr., et. al.
4. Attendance/Time sheets of respondents-SPFL, et. al. were being prepared by herein
respondents Voltaire Lopez, Jr., et. al., and correspondingly submitted to petitioner DFI. Payment
of wages to respondents-SPFL, et. al. were being paid for by petitioner DFI thru herein respondents
Voltaire Lopez, [Jr.], et. al. The latter were also receiving their wages/salaries from petitioner DFI
for monitoring/leading/recruiting the respondents-SPFL, et. al.
5. No monies were being paid directly by private respondent DARBMUPCO to respondents-SPFL,
et al., nor to herein respondents Voltaire Lopez, [Jr.], et. al. Nor did respondent DARBMUPCO
directly intervene much less supervise any or all of [the] respondents-SPFL, et. al. including herein
respondents Voltaire Lopez, Jr., et. al.82 (Emphasis supplied.)
The foregoing admissions are legally binding on respondent-contractors.83 Judicial admissions made by
parties in the pleadings, or in the course of the trial or other proceedings in the same case are conclusive
and so does not require further evidence to prove them.84 Here, the respondent-contractors voluntarily
pleaded that they are labor-only contractors; hence, these admissions bind them.
A finding that a contractor is a labor-only contractor is equivalent to a declaration that there is an
employer-employee relationship between the principal, and the workers of the labor-only contractor; the
labor-only contractor is deemed only as the agent of the principal.85 Thus, in this case, respondent-
contractors are the labor-only contractors and either DFI or DARBMUPCO is their principal.
We hold that DFI is the principal.
Under Article 106 of the Labor Code, a principal or employer refers to the person who enters into an
agreement with a job contractor, either for the performance of a specified work or for the supply of
manpower.86 In this regard, we quote with approval the findings of the CA, to wit:
The records show that it is DFI which hired the individual [respondent-contractors] who in turn hired their
own men to work in the 689.88 hectares land of DARBMUPCO as well as in the managed area of the
plantation. DFI admits [that] these [respondent-contractors] worked under the direction and supervision of
the DFI managers and personnel. DFI paid the [respondent-contractors] for the services rendered in the
plantation and the [respondent-contractors] in turn pay their workers after they [respondent-contractors]
received payment from DFI. xxx DARBMUPCO did not have anything to do with the hiring, supervision and
payment of the wages of the workers-respondents thru the contractors-respondents. xxx87 (Emphasis
supplied.)
DFI does not deny that it engaged the services of the respondent-contractors. It does not dispute the
claims of respondent-contractors that they sent their billing to DFI for payment; and that DFI’s managers
and personnel are in close consultation with the respondent-contractors.88
DFI cannot argue that DARBMUPCO is the principal of the respondent-contractors because it
(DARBMUPCO) owns the awarded plantation where respondent-contractors and respondent-workers
were working;89 and therefore DARBMUPCO is the ultimate beneficiary of the employment of the
respondent-workers.90
That DARBMUPCO owns the awarded plantation where the respondent-contractors and respondent-
workers were working is immaterial. This does not change the situation of the parties. As correctly found by
the CA, DFI, as the principal, hired the respondent-contractors and the latter, in turn, engaged the services
of the respondent-workers.91 This was also the unanimous finding of the SOLE,92 the LA,93 and the
NLRC.94 Factual findings of the NLRC, when they coincide with the LA and affirmed by the CA are
accorded with great weight and respect and even finality by this Court.95
Neither can DFI argue that it is only the purchaser of the bananas produced in the awarded plantation
under the BPPA,100 and that under the terms of the BPPA, no employer-employee relationship exists
between DFI and the respondent-workers,101 to wit:
UNDERTAKING OF THE FIRST PARTY
xxx
3. THE FIRST PARTY [DARBMUPCO] shall be responsible for the proper conduct, safety, benefits and general
welfare of its members working in the plantation and specifically render free and harmless the SECOND
PARTY [DFI] of any expense, liability or claims arising therefrom. It is clearly recognized by the FIRST PARTY
that its members and other personnel utilized in the performance of its function under this agreement are
not employees of the SECOND PARTY.102 (Emphasis supplied)
In labor-only contracting, it is the law which creates an employer-employee relationship between the
principal and the workers of the labor-only contractor.103
Inasmuch as it is the law that forms the employment ties, the stipulation in the BPPA that respondent-
workers are not employees of DFI is not controlling, as the proven facts show otherwise. The law prevails
over the stipulations of the parties. Thus, in Tabas v. California Manufacturing Co., Inc.,104 we held that:

Alilin v. Petron Corporation96 is applicable. In that case, this Court ruled that the presence of the power of The existence of an employer-employees relation is a question of law and being such, it cannot be made
control on the part of the principal over the workers of the contractor, under the facts, prove the the subject of agreement.1âwphi1 Hence, the fact that the manpower supply agreement between Livi
employer-employee relationship between the former and the latter, thus: and California had specifically designated the former as the petitioners' employer and had absolved the
latter from any liability as an employer, will not erase either party's obligations as an employer, if an
[A] finding that a contractor is a ‘labor-only’ contractor is equivalent to declaring that there is an employer-employee relation otherwise exists between the workers and either firm. xxx105 (Emphasis
employer-employee relationship between the principal and the employees of the supposed supplied.)
contractor." In this case, the employer-employee relationship between Petron and petitioners becomes all
the more apparent due to the presence of the power of control on the part of the former over the latter. Clearly, DFI is the true employer of the respondent-workers; respondent-contractors are only agents of DFI.
Under Article 106 of the Labor Code, DFI shall be solidarily liable with the respondent-contractors for the
It was held in Orozco v. The Fifth Division of the Hon. Court of Appeals that: rightful claims of the respondent-workers, to the same manner and extent as if the latter are directly
This Court has constantly adhered to the "four-fold test" to determine whether there exists an employer- employed by DFI.106
employee relationship between the parties.1âwphi1 The four elements of an employment relationship are: WHEREFORE, the petition is DENIED for lack of merit. The March 31, 2006 Decision and the May 30, 2006
(a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; Resolution of the Court of Appeals in C.A.-G.R. SP Nos. 53806, 61607 and 59958 are hereby AFFIRMED.
and (d) the power to control the employee’s conduct.
SO ORDERED.
Of these four elements, it is the power to control which is the most crucial and most determinative factor, so
important, in fact, that, the other elements may even be disregarded.
Hence, the facts that petitioners were hired by Romeo or his father and that their salaries were paid by
them do not detract from the conclusion that there exists an employer-employee relationship between the
parties due to Petron’s power of control over the petitioners. One manifestation of the power of control is
the power to transfer employees from one work assignment to another. Here, Petron could order
petitioners to do work outside of their regular "maintenance/utility" job. Also, petitioners were required to
report for work everyday at the bulk plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule, and
wear proper uniform and safety helmets as prescribed by the safety and security measures being
implemented within the bulk plant. All these imply control. In an industry where safety is of paramount
concern, control and supervision over sensitive operations, such as those performed by the petitioners, are
inevitable if not at all necessary. Indeed, Petron deals with commodities that are highly volatile and
flammable which, if mishandled or not properly attended to, may cause serious injuries and damage to
property and the environment. Naturally, supervision by Petron is essential in every aspect of its product
handling in order not to compromise the integrity, quality and safety of the products that it distributes to
the consuming public.97 (Citations omitted; emphasis supplied)
That DFI is the employer of the respondent-workers is bolstered by the CA’s finding that DFI exercises
control over the respondent-workers.98 DFI, through its manager and supervisors provides for the work
assignments and performance targets of the respondent-workers. The managers and supervisors also have
the power to directly hire and terminate the respondent-workers.99 Evidently, DFI wields control over the
respondent-workers.
 G.R. NO. 171664 : March 6, 2013
BANKARD, INC., Petitioner, v. NATIONAL LABOR RELATIONS COMMISSION- FIRST DIVISION, PAULO
BUENCONSEJO,BANKARD EMPLOYEES UNION-AWATU, Respondents.
DECISION
MENDOZA, J.:
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to review, reverse and set
aside the October 20, 2005 Decision1 and the February 21, 2006 Resolution2 of the Court of Appeals {CA), in
CA-G.R. SP No. 68303, which affirmed the May 31, 2001 Resolution3 and the September 24, 2001 Order4 of
the National Labor Relations Commission (NLRC) in Certified Cases No. 000-185-00 and 000-191-00.
The Facts
On June 26, 2000, respondent Bankard Employees Union-AWATU (Union) filed before the National
Conciliation and Mediation Board (NCMB) its first Notice of Strike (NOS), docketed as NS-06-225-
00,5 alleging commission of unfair labor practices by petitioner Bankard, Inc. (Bankard), to wit: 1) job
contractualization; 2) outsourcing/contracting-out jobs; 3) manpower rationalizing program; and 4)
discrimination.
On July 3, 2000, the initial conference was held where the Union clarified the issues cited in the NOS. On
July 5, 2000, the Union held its strike vote balloting where the members voted in favor of a strike. On July 10,
2000, Bankard asked the Office of the Secretary of Labor to assume jurisdiction over the labor dispute or to
certify the same to the NLRC for compulsory arbitration. On July 12, 2000, Secretary Bienvenido Laguesma
(Labor Secretary) of the Department of Labor and Employment (DOLE) issued the order certifying the labor
dispute to the NLRC.6chanroblesvirtualawlibrary
On July 25, 2000, the Union declared a CBA bargaining deadlock. The following day, the Union filed its
second NOS, docketed as NS-07-265-00,7 alleging bargaining in bad faith on the part of Bankard. Bankard
then again asked the Office of the Secretary of Labor to assume jurisdiction, which was granted. Thus, the
Order, dated August 9, 2000, certifying the labor dispute to the NLRC, was
issued.8chanroblesvirtualawlibrary
The Union, despite the two certification orders issued by the Labor Secretary enjoining them from
conducting a strike or lockout and from committing any act that would exacerbate the situation, went on
strike on August 11, 2000.9chanroblesvirtualawlibrary
During the conciliatory conferences, the parties failed to amicably settle their dispute. Consequently, they
were asked to submit their respective position papers. Both agreed to the following
issues:chanroblesvirtualawlibrary
1. Whether job contractualization or outsourcing or contracting-out is an unfair labor practice on the part
of the management.
2. Whether there was bad faith on the part of the management when it bargained with the
Union.10chanroblesvirtualawlibrary
As regards the first issue, it was Bankard's position that job contractualization or outsourcing or contracting-
out of jobs was a legitimate exercise of management prerogative and did not constitute unfair labor
practice. It had to implement new policies and programs, one of which was the Manpower Rationalization
Program (MRP) in December 1999, to further enhance its efficiency and be more competitive in the credit
card industry. The MRP was an invitation to the employees to tender their voluntary resignation, with
entitlement to separation pay equivalent to at least two (2) months salary for every year of service. Those
eligible under the company's retirement plan would still receive additional pay. Thereafter, majority of the
Phone Center and the Service Fulfilment Division availed of the MRP. Thus, Bankard contracted an
independent agency to handle its call center needs.11chanroblesvirtualawlibrary
As to the second issue, Bankard denied that there was bad faith on its part in bargaining with the Union. It
came up with counter-offers to the Union's proposals, but the latter's demands were far beyond what
management could give. Nonetheless, Bankard continued to negotiate in good faith until the
Memorandum of Agreement (MOA) re-negotiating the provisions of the 1997-2002, Collective Bargaining
Agreement (CBA) was entered into between Bankard and the Union. The CBA was overwhelmingly ratified
by the Union members. For said reason, Bankard contended that the issue of bad faith in bargaining had
become moot and academic.12chanroblesvirtualawlibrary
On the other hand, the Union alleged that contractualization started in Bankard in 1995 in the Records
Communications Management Division, particularly in the mailing unit, which was composed of two (2)
employees and fourteen (14) messengers. They were hired as contractual workers to perform the functions
of the regular employees who had earlier resigned and availed of the MRP.13 According to the Union,
there were other departments in Bankard utilizing messengers to perform work load considered for regular
employees, like the Marketing Department, Voice Authorizational Department, Computer Services
Department, and Records Retention Department. The Union contended that the number of regular
employees had been reduced substantially through the management scheme of freeze-hiring policy on
positions vacated by regular employees on the basis of cost-cutting measures and the introduction of a
more drastic formula of streamlining its regular employees through the MRP.14chanroblesvirtualawlibrary
With regard to the second issue, the Union averred that Bankard's proposals were way below their
demands, showing that the management had no intention of reaching an agreement. It was a scheme
calculated to force the Union to declare a bargaining deadlock.15chanroblesvirtualawlibrary
On May 31, 2001, the NLRC issued its Resolution16 declaring that the management committed acts
considered as unfair labor practice (ULP) under Article 248(c) of the Labor Code. It ruled
that:chanroblesvirtualawlibrary
The act of management of reducing its number of employees thru application of the Manpower
Rationalization Program and subsequently contracting the same to other contractual employees defeats
the purpose or reason for streamlining the employees. The ultimate effect is to reduce the number of union
members and increasing the number of contractual employees who could never be members of the
union for lack of qualification. Consequently, the union was effectively restrained in their movements as a
union on their rights to self-organization. Management had successfully limited and prevented the growth
of the Union and the acts are clear violation of the provisions of the Labor Code and could be considered
as Unfair Labor Practice in the light of the provisions of Article 248 paragraph (c) of the Labor
Code.17chanroblesvirtualawlibrary
The NLRC, however, agreed with Bankard that the issue of bargaining in bad faith was rendered moot and
academic by virtue of the finalization and signing of the CBA between the management and the
Union.18chanroblesvirtualawlibrary
Unsatisfied, both parties filed their respective motions for partial reconsideration. Bankard assailed the
NLRC's finding of acts of ULP on its part. The Union, on the other hand, assailed the NLRC ruling on the issue
of bad faith bargaining.
On September 24, 2001, the NLRC issued the Order19 denying both parties' motions for lack of merit.
On December 28, 2001, Bankard filed a petition for certiorari under Rule 65 with the CA arguing that the
NLRC gravely abused its discretion amounting to lack or excess of jurisdiction
when:chanroblesvirtualawlibrary
1. It issued the Resolution, dated May 31, 2001, particularly in finding that Bankard committed acts of unfair
labor practice; and,
2. It issued the Order dated September 24, 2001 denying Bankard's partial motion for
reconsideration.20chanroblesvirtualawlibrary
The Union filed two (2) comments, dated January 22, 2002, through its NCR Director, Cornelio Santiago,
and another, dated February 6, 2002, through its President, Paulo Buenconsejo, both praying for the
dismissal of the petition and insisting that Bankard's resort to contractualization or outsourcing of contracts
constituted ULP. It further alleged that Bankard committed ULP when it conducted CBA negotiations in
bad faith with the Union.
Ruling of the Court of Appeals
The CA dismissed the petition, finding that the NLRC ruling was supported by substantial evidence.
The CA agreed with Bankard that job contracting, outsourcing and/or contracting out of jobs did not per
se constitute ULP, especially when made in good faith and for valid purposes. Despite Bankard's claim of
good faith in resorting to job contractualization for purposes of cost-efficient operations and its non-
interference with the employees' right to self-organization, the CA agreed with the NLRC that Bankard's
acts impaired the employees right to self-organization and should be struck down as illegal and invalid
pursuant to Article 248(c)21 of the Labor Code. The CA thus, ruled in this wise:chanroblesvirtualawlibrary
We cannot agree more with public respondent. Incontrovertible is the fact that petitioner's acts,
particularly its promotion of the program enticing employees to tender their voluntary resignation in
exchange for financial packages, resulted to a union dramatically reduced in numbers. Coupled with the
management's policy of "freeze-hiring" of regular employees and contracting out jobs to contractual
workers, petitioner was able to limit and prevent the growth of the Union, an act that clearly constituted
unfair labor practice.22chanroblesvirtualawlibrary
In its assailed decision, the CA affirmed the May 31, 2001 Resolution and the September 24, 2001 Order of
the NLRC.
Aggrieved, Bankard filed a motion for reconsideration. The CA subsequently denied it for being a mere
repetition of the grounds previously raised. Hence, the present petition bringing up this lone
issue:chanroblesvirtualawlibrary
THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONER BANKARD, INC. COMMITTED ACTS OF UNFAIR
LABOR PRACTICE WHEN IT DISMISSED THE PETITION FOR CERTIORARI AND DENIED THE MOTION FOR
RECONSIDERATION FILED BY PETITIONER.23chanroblesvirtualawlibrary
Ruling of the Court
The Court finds merit in the petition.
Well-settled is the rule that "factual findings of labor officials, who are deemed to have acquired expertise
in matters within their jurisdiction, are generally accorded not only respect but even finality by the courts
when supported by substantial evidence."24 Furthermore, the factual findings of the NLRC, when affirmed
by the CA, are generally conclusive on this Court.25 When the petitioner, however, persuasively alleges that
there is insufficient or insubstantial evidence on record to support the factual findings of the tribunal or
court a quo, then the Court, exceptionally, may review factual issues raised in a petition under Rule 45 in
the exercise of its discretionary appellate jurisdiction.26chanroblesvirtualawlibrary
This case involves determination of whether or not Bankard committed acts considered as ULP. The
underlying concept of ULP is found in Article 247 of the Labor Code, to wit:chanroblesvirtualawlibrary
Article 247. Concept of unfair labor practice and procedure for prosecution thereof. -- Unfair labor
practices violate the constitutional right 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, disrupt industrial peace
and hinder the promotion of healthy and stable labor-management relations. x x x
The Court has ruled that the prohibited acts considered as ULP relate to the workers' right to self-
organization and to the observance of a CBA. It refers to "acts that violate the workers' right to
organize."27 Without that element, the acts, even if unfair, are not ULP.28 Thus, an employer may only be
held liable for unfair labor practice if it can be shown that his acts affect in whatever manner the right of
his employees to self-organize.29chanroblesvirtualawlibrary
In this case, the Union claims that Bankard, in implementing its MRP which eventually reduced the number
of employees, clearly violated Article 248(c) of the Labor Code which states
that:chanroblesvirtualawlibrary
Art. 248. Unfair labor practices of employers. It shall be unlawful for an employer to commit any of the
following unfair labor practice:chanroblesvirtualawlibrary
xxx
(c) To contract 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;
xxx
Because of said reduction, Bankard subsequently contracted out the jobs held by former employees to
other contractual employees. The Union specifically alleges that there were other departments in Bankard,
Inc. which utilized messengers to perform work load considered for regular employees like the Marketing
Department, Voice Authorizational Department, Computer Services Department, and Records Retention
Department.30 As a result, the number of union members was reduced, and the number of contractual
employees, who were never eligible for union membership for lack of qualification, increased.
The general principle is that the one who makes an allegation has the burden of proving it. While there are
exceptions to this general rule, in ULP cases, the alleging party has the burden of proving the ULP;31 and in
order to show that the employer committed ULP under the Labor Code, substantial evidence is required to
support the claim.32 Such principle finds justification in the fact that ULP is punishable with both civil and/or
criminal sanctions.33chanroblesvirtualawlibrary
Aside from the bare allegations of the Union, nothing in the records strongly proves that Bankard intended
its program, the MRP, as a tool to drastically and deliberately reduce union membership. Contrary to the
findings and conclusions of both the NLRC and the CA, there was no proof that the program was meant to
encourage the employees to disassociate themselves from the Union or to restrain them from joining any
union or organization. There was no showing that it was intentionally implemented to stunt the growth of
the Union or that Bankard discriminated, or in any way singled out the union members who had availed of
the retirement package under the MRP. True, the program might have affected the number of union
membership because of the employees' voluntary resignation and availment of the package, but it does
not necessarily follow that Bankard indeed purposely sought such result. It must be recalled that the MRP
was implemented as a valid cost-cutting measure, well within the ambit of the so-called management
prerogatives. Bankard contracted an independent agency to meet business exigencies. In the absence of
any showing that Bankard was motivated by ill will, bad faith or malice, or that it was aimed at interfering
with its employees' right to self-organize, it cannot be said to have committed an act of unfair labor
practice.34chanroblesvirtualawlibrary
"Substantial evidence is more than a mere scintilla of evidence. It means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion, even if other minds equally
reasonable might conceivably opine otherwise."35 Unfortunately, the Union, which had the burden of
adducing substantial evidence to support its allegations of ULP, failed to discharge such
burden.36chanroblesvirtualawlibrary
The employer's right to conduct the affairs of its business, according to its own discretion and judgment, is
well-recognized.37 Management has a wide latitude to conduct its own affairs in accordance with the
necessities of its business.38 As the Court once said:chanroblesvirtualawlibrary
The Court has always respected a company's exercise of its prerogative to devise means to improve its
operations. Thus, we have held that management is free to regulate, according to its own discretion and
judgment, all aspects of employment, including hiring, work assignments, supervision and transfer of
employees, working methods, time, place and manner of work.
This is so because the law on unfair labor practices is not intended to deprive employers of their
fundamental right to prescribe and enforce such rules as they honestly believe to be necessary to the
proper, productive and profitable operation of their business.39chanroblesvirtualawlibrary
Contracting out of services is an exercise of business judgment or management prerogative. Absent any
proof that management acted in a malicious or arbitrary manner, the Court will not interfere with the
exercise of judgment by an employer.40Furthermore, bear in mind that ULP is punishable with both civil
and/or criminal sanctions.41 As such, the party so alleging must necessarily prove it by substantial evidence.
The Union, as earlier noted, failed to do this. Bankard merely validly exercised its management prerogative.
Not shown to have acted maliciously or arbitrarily, no act of ULP can be imputed against it.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 68303, dated
October 20, 2005, and its Resolution, dated February 21, 2006, are REVERSED and SET ASIDE. Petitioner
Bankard, Inc. is hereby declared as not having committed any act constituting Unfair Labor Practice under
Article 248 of the Labor Code.
SO ORDERED.
 G.R. No. 181719 April 21, 2014 pay without prejudice to their right to question the legality of their dismissal with the NLRC. Jardine paid the
EUGENE S. ARABIT, EDGARDO C. SADSAD, LOWELL C. FUNTANOZ, GERARDO F. PUNZALAN, FREDDIE M. petitioners a separation package composed of their severance pay, plus their grossed up transportation
MENDOZA, EMILIO B. BELEN, VIOLETA C. DIUMANO and MB FINANCE EMPLOYEES ASSOCIATION FFW allowance.7
CHAPTER (FEDERATION OF FREE WORKERS), Petitioners, On June 1, 1999, the petitioners and the Union filed a complaint against Jardine with the NLRC for illegal
vs. dismissal and unfair labor practice.
JARDINE PACIFIC FINANCE, INC. (FORMERLY MB FINANCE), Respondent. The Labor Arbitration Rulings
DECISION Before the LA, the parties decided to limit the issues to two, namely: (a) whether the separation of the
BRION, J.: petitioners was valid or not; and (b) whether Jardine committed an unfair labor practice against the Union.
We resolve in this petition for review on certiorari1 the challenge to the March 23, 2007 decision2 and the The petitioners alleged before the LA that their dismissal was illegal and was tainted with bad faith as their
February 11, 2008 resolution3 of the Court of Appeals (CA) in CA G.R. SP No. 91952. These assailed CA positions were not superfluous. They argued that if their positions had really been redundant, then Jardine
rulings annulled and set aside the December 1, 2004 decision4 and the July 21, 2005 resolution5 of the should have not hired contractual workers to replace them.8
National Labor Relations Commission (NLRC) in NLRC NCR CA No. 029753-01 (NLRC NCR Case No. 06- The petitioners also argued that Jardine was guilty of unfair labor practice for contracting out services that
06112-99). The NLRC rulings, in turn, fully affirmed the September 29, 2000 decision 6 of Labor Arbiter (LA) the petitioners previously held. Unfair labor practice took place under Article 248 of the Labor Code as the
Jovencio LL Mayor, Jr. The LA's decision ordered the petitioners Eugene S. Arabit, Edgardo C. Sadsad, petitioners were union officers.9
Lowell C. Funtanoz, Gerardo F. Punzalan, Freddie M. Mendoza, Emilio B. Belen and Violeta C. Diumano’s
reinstatement to their former positions without loss of seniority rights and the payment of full backwages, The petitioners likewise claimed that Jardine’s act of hiring contractual employees as replacements was a
computed from the time of their dismissal on May 30, 1999. restraint on the Union’s right to self-organization. The petitioners also pointed out that they were Union
officers and panel members in the scheduled collective bargaining agreement (CBA) negotiations
Factual Antecedents between Jardine and the Union. The petitioners particularly found the company action objectionable as
Petitioners were former regular employees of respondent Jardine Pacific Finance, Inc. (formerly MB their employment was terminated when their CBA negotiations were about to commence.10
Finance) (Jardine). The petitioners were also officers and members of MB Finance Employees Association- Jardine argued in its defense that the company had been incurring substantial business losses from 1996 to
FFW Chapter (the Union), a legitimate labor union and the sole exclusive bargaining agent of the 1998. According to Jardine, its audited financial statements reflect that for 1996, it suffered a net loss of
employees of Jardine. The table below shows the petitioners’ previously occupied positions, as well as their ₱5,538,960.00; for 1997,11 a net loss in the amount of ₱57,274,018.00;12 and a net loss of ₱95,529,527.00 for
total length of service with Jardine before their dismissal from employment. 1998.13
Petitioner Position Number of Because of these serious business losses, Jardine asserted that it had to lay-off some of its employees and
Years of reorganize its ranks to eliminate positions that were in excess of what its business required.14
Service Jardine, however, admitted that it hired contractual employees to replace petitioners in their previous
posts. Jardine reasoned out that no bad faith took place since the hiring of contractual employees was a
Eugene S. Arabit Field Collector 20 years valid exercise of its management prerogative.15 Jardine argued that the distinction between redundancy
and retrenchment is not material; an employer resorts to retrenchment or redundancy for the same
Edgardo C. Sadsad Field Collector 3 years reason, namely the economics of business.16 Since Jardine successfully established that it incurred serious
business losses, then termination of employment of the petitioners was valid for all intents and purposes.17
Lowell C. Funtanoz Field Collector 7 years In reply to the petitioners’ allegation of unfair labor practice, Jardine argued that had it intended to
commit union busting, then it should not have merely dismissed the seven petitioners; it should have also
Gerardo F. Punzalan Field Collector 16 years dismissed other employees who were union officers and members.18 According to Jardine, the termination
of the petitioners’ services did not interfere with the Union and its remaining members’ right to self-
Freddie M. Mendoza Field Collector 20 years organization since Jardine continuously dealt with the Union and recognized it as the sole and exclusive
bargaining representative of its rank-and-file employees.19
Emilio B. Belen Senior Credit Investigator/Field 18 years
The LA ruled in the petitioners’ favor. In its decision20 dated September 29, 2000, the LA held that the hiring
Collector- San Pablo Branch
of contractual employees to replace the petitioners directly contradicts the concept of redundancy
which involves the trimming down of the workforce because a task is being carried out by too many
Violeta C. Diumano Senior Accounting 19 years people.21 The LA explained that the company’s action was a circumvention of the right of the petitioners
Clerk/Documentation Clerk-San Pablo Branch to security of tenure.22
On the claim of financial losses, Jardine decided to reorganize and implement a redundancy program The LA further held that it was not enough for Jardine to simply focus on its losses. According to the LA, it
among its employees. The petitioners were among those affected by the redundancy program. Jardine was error for Jardine to simply lump together the seven petitioners as employees whose positions have
thereafter hired contractual employees to undertake the functions these employees used to perform. become redundant without explaining why their respective positions became superfluous in relation to the
The Union filed a notice of strike with the National Conciliation and Mediation Board (NCMB), questioning other positions and employees of the company.23
the termination of employment of the petitioners who were also union officers. The Union alleged unfair On the petitioners’ allegation of unfair labor practice, the LA held that not enough evidence was
labor practice on the part of Jardine, as well as discrimination in the dismissal of its officers and members. presented to prove the claim against Jardine.
Negotiations ensued between the Union and Jardine under the auspices of the NCMB, and both parties Both parties appealed the LA’s decision to the NLRC. In its decision24 dated December 1, 2004, the NLRC
eventually reached an amicable settlement. In the settlement, the petitioners accepted their redundancy dismissed the appeals and affirmed the LA’s decision in its entirety.25
Jardine moved for the reconsideration of the NLRC’s decision, which motion the NLRC also denied in its
resolution26 of July 21, 2005. Jardine thereafter sought recourse with the CA via a petition for certiorari
under Rule 65.27
The CA’s Ruling
In its decision28 dated March 23, 2007, the CA reversed the LA’s and the NLRC’s rulings, and granted
Jardine’s petition for certiorari.
The CA found that Jardine’s act of hiring contractual employees in replacement of the petitioners does
not run counter to the argument that their positions are already superfluous.29 According to the CA, the
hiring of contractual employees is a management prerogative that Jardine has the right to exercise.30 In
the absence of any showing of malice or arbitrariness on the part of Jardine in implementing its
redundancy program, the courts must not interfere with the company’s exercise of a bona fide
management decision.31 The CA cited for this purpose the case of De Ocampo v. National Labor Relations
Commission32 which explains:
The reduction of the number of workers in a company made necessary by the introduction of the services
of Gemac Machineries in the maintenance and repair of its industrial machinery is justified. There can be
no question as to the right of the company to contract the services of Gemac Machineries to replace the
services rendered by the terminated mechanics with a view to effecting more economic and efficient
methods of production.
In the same case, We ruled that "(t)he characterization of (petitioners’) services as no longer necessary or
sustainable, and therefore properly terminable, was an exercise of business judgment on the part of
(private respondent) company. The wisdom or soundness of such characterization or decision was not
subject to discretionary review on the part of the Labor Arbiter nor of the NLRC so long, of course, as
violation of law or merely arbitrary and malicious action is not shown" (ibid, p. 673).
In contracting the services of Gemac Machineries, as part of the company's cost-saving program, the
services rendered by the mechanics became redundant and superfluous, and therefore properly
terminable. The company merely exercised its business judgment or management prerogative. And in the
absence of any proof that the management abused its discretion or acted in a malicious or arbitrary
manner, the court will not interfere with the exercise of such prerogative.33
The CA further held that Jardine successfully established that for the years 1996 to 1998, the company
incurred serious losses.34 The appellate court also observed that the reduction in the number of workers,
made necessary by the introduction of the services of an independent contractor, is justified when
undertaken to implement more economic and efficient methods of production.35
These justifications led to the CA’s ruling which annulled and set aside the December 1, 2004 decision and
the July 21, 2005 resolution of the NLRC and to its own ruling that the petitioners had not been illegally
dismissed.
The CA denied the petitioners’ subsequent motion for reconsideration. The petitioners are now before this
Court on a petition for review on certiorari under Rule 45 of the Rules of Court.
The Petition
In their petition, the petitioners maintain that the CA gravely abused its discretion and that its ruling is not in
conformity with the law and jurisprudence.
The petitioners argue that there is a difference between financial loss and decline of earnings. They posit
that what Jardine actually experienced was a decline in capital and not substantial financial losses for the
years 1996 to 1998.36
The petitioners also assert that Jardine did not take any remedial measure before it implemented its
redundancy program. It simply hastily terminated the petitioners from the service.37 In support of this
argument, the petitioners cited the case of Golden Thread Knitting Industries, Inc. v. NLRC38 where the
Court laid down guidelines to be considered in selecting employees who would be dismissed from the
service in case of redundancy.39 The petitioners contend that the records show that Jardine did not lay
down any basis or criteria in choosing the petitioners for inclusion in the program.40
According to the petitioners, they are all regular employees whose years of service range from three (3) to
twenty (20) years. Since Jardine immediately terminated their services without evaluating their
performance in relation with those of the other employees and without considering other relevant factors,
then Jardine’s decision was arbitrary and in disregard of the guidelines set by this Court in Golden Thread.41
Finally, the petitioners also reiterate the findings of the LA and of the NLRC that Jardine’s act of hiring
contractual employees as their replacements is contrary to Jardine’s claim that there was
redundancy.42 They also contend that the hiring of new employees negates Jardine’s argument that it was
suffering from substantial losses.43 Based on these premises, the petitioners posit that the CA erred in
annulling and setting aside the NLRC’s decision, and pray instead for its reinstatement.
The Court’s Ruling
We resolve to GRANT the petition.
Procedural consideration: the nature
of a Rule 45 petition
We emphasize at the outset that the current petition was brought under Rule 45 of the Rules of Court. As a
rule, only questions of law may be raised on appeal under this remedy.44 This is in contrast with a petition for
certiorari brought under Rule 65 where the review centers on the jurisdictional errors the lower court or
tribunal may have committed.45
We thus limit our review to errors of law which the CA might have committed. A question of law arises
when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when
the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same
must not involve an examination of the probative value of the evidence presented by the litigants or any
of them.46
"In ruling for legal correctness, we have to view the CA decision in the same context that the petition for
certiorari it ruled upon was presented to it; we have to examine the CA decision from the prism of whether
it correctly determined the presence or absence of grave abuse of discretion in the NLRC decision before
it, not on the basis of whether the NLRC decision on the merits of the case was correct. In other words, we
have to be keenly aware that the CA undertook a Rule 65 review, not a review on appeal, of the NLRC
decision challenged before it. This is the approach that should be basic in a Rule 45 review of a CA ruling in
a labor case. In question form, the question to ask is: Did the CA correctly determine whether the NLRC
committed grave abuse of discretion in ruling on the case?"47
In this context, the primary question we confront is: did the CA correctly rule that the NLRC committed
grave abuse of discretion when it found that Jardine validly terminated the petitioners’ employment
because of redundancy?
Redundancy in contrast with retrenchment
Jardine, in its petition for certiorari with the CA, posited that the distinction between redundancy and
retrenchment is not material.48 It contended that employers resort to these causes of dismissal for purely
economic considerations.49 Jardine further argued that the immateriality of the distinction between these
two just causes for dismissal is shown by the fact that redundancy and retrenchment are found and
lumped together in just one single provision of the Labor Code (Article 283 thereof).
We cannot accept Jardine’s shallow understanding of the concepts of redundancy and retrenchment in
determining the validity of the severance of an employer-employee relationship. The fact that they are
found together in just one provision does not necessarily give rise to the conclusion that the difference
between them is immaterial. This Court has already ruled before that retrenchment and redundancy are
two different concepts; they are not synonymous; thus, they should not be used interchangeably.50 The
clear distinction between these two concepts was discussed in Andrada, et al., v. NLRC,51 citing the case
of Sebuguero v. NLRC,52 where this Court clarified:
Redundancy exists where the services of an employee are in excess of what is reasonably demanded by
the actual requirements of the enterprise. A position is redundant where it is superfluous, and superfluity of
a position or positions may be the outcome of a number of factors, such as over hiring of workers,
decreased volume of business, or dropping of a particular product line or service activity previously
manufactured or undertaken by the enterprise.
Retrenchment, on the other hand, is used interchangeably with the term "lay-off." It is the termination of
employment initiated by the employer through no fault of the employee’s and without prejudice to the
latter, resorted to by management during periods of business recession, industrial depression, or seasonal
fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a
new production program or the introduction of new methods or more efficient machinery, or of
automation. Simply put, it is an act of the employer of dismissing employees because of losses in the
operation of a business, lack of work, and considerable reduction on the volume of his business, a right
consistently recognized and affirmed by this Court.
These rulings appropriately clarify that redundancy does not need to be always triggered by a decline in
the business. Primarily, employers resort to redundancy when the functions of an employee have already
become superfluous or in excess of what the business requires. Thus, even if a business is doing well, an
employer can still validly dismiss an employee from the service due to redundancy if that employee’s
position has already become in excess of what the employer’s enterprise requires.
From this perspective, it is illogical for Jardine to terminate the petitioners’ employment and replace them
with contractual employees. The replacement effectively belies Jardine’s claim that the petitioners’
positions were abolished due to superfluity. Redundancy could have been justified if the functions of the
petitioners were transferred to other existing employees of the company.
To dismiss the petitioners and hire new contractual employees as replacements necessarily give rise to the
sound conclusion that the petitioners’ services have not really become in excess of what Jardine’s business
requires. To replace the petitioners who were all regular employees with contractual ones would amount
to a violation of their right to security of tenure. For this, we affirm the NLRC’s ruling, citing the LA’s decision,
when it ruled:
In the case at bench, respondents did not dispute that after laying-off complainants herein, they engaged
the services of an agency to perform the tasks use (sic) to be done by complainants. This is [in direct]
contradiction to the concept of redundancy which precisely requires the trimming down of the
[workforce] because a task is being carried out by just too many people. The subsequent contracting out
to an agency the functions or duties that used to be the domain of individual complainants herein is a
circumvention of their constitutional rights to security of tenure, and therefore illegal.53
Guidelines in implementing redundancy
We recognize that management has the prerogative to characterize an employee’s services as no longer
necessary or sustainable, and therefore properly terminable.54
The CA also correctly cited De Ocampo, et al., v. NLRC55 when it discussed that Jardine’s decision to hire
contractual employees as replacements is a management prerogative which the company has the right
to undertake to implement a more economic and efficient operation of its business.56
In De Ocampo, this Court held that, in the absence of proof that the management abused its discretion or
acted in a malicious or arbitrary manner in replacing dismissed employees with contractual ones, judicial
intervention should not be made in the company’s exercise of its management prerogative.57
The employer’s exercise of its management prerogative, however, is not an unbridled right that cannot be subjected to
this Court’s scrutiny. The exercise of management prerogative is subject to the caveat that it should not performed in
violation of any law and that it is not tainted by any arbitrary or malicious motive on the part of the employer. 58
This Court, in several cases, sufficiently explained that the employer must follow certain guidelines to dismiss employees
due to redundancy. These guidelines aim to ensure that the dismissal is not implemented arbitrarily and is not tainted with
bad faith against the dismissed employees.
In Golden Thread Knitting Industries, Inc. v. NLRC,59 this Court laid down the principle that the employer must use fair and
reasonable criteria in the selection of employees who will be dismissed from employment due to redundancy. Such fair
and reasonable criteria may include the following, but are not limited to: (a) less preferred status (e.g. temporary
employee); (b) efficiency; and (c) seniority. The presence of these criteria used by the employer shows good faith on its
part and is evidence that the implementation of redundancy was painstakingly done by the employer in order to properly
justify the termination from the service of its employees.60
As the petitioners pointed out, the records are bereft of indications that Jardine employed clear criteria when it decided
who among its employees, who held similar positions as the petitioners, should be removed from their posts because of
redundancy. Jardine never bothered to explain how and why the petitioners were the ones dismissed. Jardine’s acts
became more suspect given that the petitioners were all union officers and some of them were panel members in the
scheduled CBA negotiations between Jardine and the Union.
Aside from the guidelines for the selection of employees who will be terminated, the Court, in Asian Alcohol Corp. v.
NLRC,61 also laid down guidelines for redundancy to be characterized as validly undertaken by the employer. The Court
ruled:
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; (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; and (4) fair
and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished.62
Admittedly, Jardine complied with guidelines 1 and 2 of the guidelines in Asian Alcohol. Jardine informed the Department
of Labor and Employment of the petitioners’ separation from the service due to redundancy on April 30, 1999, one month
before their termination’s effectivity. Also, the petitioners were given their individual separation packages, composed of
their severance pay, plus their grossed up transportation allowance.
Guidelines 3 and 4 of Asian Alcohol, however, are different matters. These last two guidelines are interrelated to ensure
good faith in abolishing redundant positions; the employer must clearly show that it used fair and reasonable criteria in
ascertaining what positions are to be declared redundant.
In this cited case, the employer took pains to discuss and elaborate on the reasons why the position of the private
respondent was the one chosen by the employer to be abolished. We quote the Court’s ruling:
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.1awp++i1 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.
xxxx
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.63
Jardine never undertook what the employer in Asian Alcohol did.1âwphi1 Jardine was never able to explain in any of its
pleadings why the petitioners’ positions were redundant. It never even attempted to discuss the attendant facts and
circumstances that led to the conclusion that the petitioners’ positions had become superfluous and unnecessary to
Jardine’s business requirements. Thus, we can only speculate on what actually happened.
As the LA correctly found, Jardine lumped together the seven petitioners into one group whose positions had become
redundant. This move was despite the fact that not all of them occupied the same positions and performed the same
functions.64 Under the circumstances of the case, Jardine’s move was thus illegal. We affirm the LA’s ruling that fair play
and good faith require that where one employee will be chosen over the others, the employer must be able to clearly
explain the merit of the choice it has taken.65
To sum up, based on the guidelines set by the Court in the cases of Golden Thread and Asian Alcohol, we find that at two
levels, Jardine failed to set the required fair and reasonable criteria in the termination of the petitioners’ employment,
leading to the conclusion that the termination from the service was arbitrary and in bad faith.
The first level, based on Asian Alcohol, is broader as the case recognized distinctions on a per position basis. At this level,
Jardine failed to explain why among all of the existing positions in its organization, Jardine chose the petitioners’ posts as
the ones which have already become redundant and terminable.1âwphi1
The second level, derived from Golden Thread, is more specific. Here the distinction narrows down to the particular
employees occupying the same positions which were already declared to be redundant. At this level, Jardine’s lapse is
shown by its failure to explain why among all of its employees whose positions were determined to be redundant, the
petitioners were the ones selected to be dismissed from the service.
Notably, the LA and the NLRC also arrived at the same conclusion that the redundancy program was not valid because
Jardine hired contractual employees as replacements, thus, contradicting underlying reasons of redundancy. The CA
significantly chose to disregard these coherent labor findings without fully justifying its move. At the very least, this was an
indicator that something was wrong somewhere in these dismissals. It was clear legal error for the CA to recognize grave
abuse of discretion when none occurred.
WHEREFORE, we hereby GRANT the petition. We REVERSE the decision dated March 23, 2007 and the resolution dated
February 11, 2008 of the Court of Appeals in CA G.R. SP No. 91952, and uphold the decision dated December 1, 2004 and
the resolution dated July 21, 2005 of the National Labor Relations Commission which affirmed in its entirety the September
29, 2000 decision of the Labor Arbiter. SO ORDERED.
G.R. No. 168613 March 5, 2013
ATTY. MA. ROSARIO MANALANG-DEMIGILLO, Petitioner,
vs.
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES (TIDCORP), and its BOARD OF
DIRECTORS, Respondents.
x-----------------------x
G.R. No. 185571
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES, Petitioner,
vs.
MA. ROSARIO S. MANALANG-DEMIGILLO, Respondent.
DECISION
BERSAMIN, J.:
A reorganization undertaken pursuant to a specific statutory authority by the Board of Directors of a
government-owned and government-controlled corporation is valid.
Antecedents
On February 12, 1998, the Philippine Export and Foreign Loan Guarantee was renamed Trade and
Investment Development Corporation of the Philippines (TIDCORP) pursuant to Republic Act No. 8494
entitled An Act Further Amending Presidential Decree No. 1080, As Amended, by Reorganizing And
Renaming the Philippine Export and Foreign Loan Guarantee Corporation, Expanding Its Primary Purpose,
and for Other Purposes.
Republic Act No. 8494 reorganized the structure of TIDCORP. The issuance of appointments in accordance
with the reorganization ensued. Petitioner Rosario Manalang-Demigillo (Demigillo) was appointed as Senior
Vice President (PG 15) with permanent status, and was assigned to the Legal and Corporate Services
Department (LCSD) of TIDCORP.
In 2002, TIDCORP President Joel C. Valdes sought an opinion from the Office of the Government Corporate
Counsel (OGCC) relative to TIDCORP’s authority to undertake a reorganization under the law, whose
Section 7 and Section 8 provide as follows:
Section 7. The Board of Directors shall provide for an organizational structure and staffing pattern for
officers and employees of the Trade and Investment Development Corporation of the Philippines
(TIDCORP) and upon recommendation of its President, appoint and fix their remuneration, emoluments
and fringe benefits: Provided, That the Board shall have exclusive and final authority to appoint, promote,
transfer, assign and re-assign personnel of the TIDCORP, any provision of existing law to the contrary
notwithstanding. x x x
Section 8. All incumbent personnel of the Philippine Export and Foreign Loan Guarantee Corporation shall
continue to exercise their duties and functions as personnel of the TIDCORP until reorganization is fully
implemented but not to exceed one (1) year from the approval of this Act. The Board of Directors is
authorized to provide for separation benefits for those who cannot be accommodated in the new
structure. All those who shall retire or are separated from the service on account of the reorganization
under the preceding Section shall be entitled to such incentives, as are authorized by the Corporation,
which shall be in addition to all gratuities and benefits to which they may be entitled under existing laws.
In Opinion No. 221 dated September 13, 2002,1 then Government Corporate Counsel Amado D. Valdez
opined as follows:
There is no question on the power of the PhilEXIM (also known as TIDCORP) Board of Directors to undertake
a reorganization of the corporation’s present organizational set-up. In fact, the authority to provide for the
corporation’s organizational structure is among the express powers granted to PhilEXIM through its Board.
As to the one-year period to implement a reorganization mentioned in Section 8 of RA 8494, it is our
considered opinion that the same provision refers to the initial reorganization to effect transition from the
Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee) to what is now known as the
Trade and Investment Corporation of the Philippines (TIDCORP). The one-year period does not, however,
operate as a limitation that any subsequent changes in the organizational set-up pursuant to the authority
of the Board to determine the corporation’s organizational structure under Section 7 of RA 8494, which is
designed to make the corporation more attuned to the needs of the people or, in this case, the sector of
the Philippine economy that it serves, can only be made during the same one-year period.
On the basis of OGCC Opinion No. 221, the Board of Directors passed Resolution No. 1365, Series of 2002,
on October 22, 2002 to approve a so-called Organizational Refinement/Restructuring Plan to implement a
new organizational structure and staffing pattern, a position classification system, and a new set of
qualification standards.
During the implementation of the Organizational Refinement/Restructuring Plan, the LCSD was abolished.
According to the List of Appointed Employees under the New Organizational Structure of TIDCORP as of
November 1, 2002, Demigillo, albeit retaining her position as a Senior Vice President, was assigned to head
the Remedial and Credit Management Support Sector (RCMSS). On the same date, President Valdes
issued her appointment as head of RCMSS, such appointment being in nature a reappointment under the
reorganization plan.
On December 13, 2002, President Valdes issued a memorandum informing all officers and employees of
TIDCORP that the Board of Directors had approved on December 11, 2002 the appointments issued
pursuant to the newly approved positions under the Organizational Refinement/Restructuring Plan.
In her letter dated December 23, 2002 that she sent to TIDCORP Chairman Jose Isidro Camacho, however,
Demigillo challenged before the Board of Directors the validity of Resolution No. 1365 and of her
assignment to the RCMSS. She averred that she had been thereby illegally removed from her position of
Senior Vice President in the LCSD to which she had been previously assigned during the reorganization of
July 1998. She insisted that contrary to OGCC Opinion No. 221 dated September 13, 2002 the Board of
Directors had not been authorized to undertake the reorganization and corporate restructuring.
On January 31, 2003, pending determination of her challenge by the Board of Directors, Demigillo
appealed to the Civil Service Commission (CSC), raising the same issues.
TIDCORP assailed the propriety of Demigillo’s appeal to the CSC, alleging that her elevation of the case to
the CSC without the Board of Directors having yet decided her challenge had been improper and a clear
case of forum-shopping.
Later on, however, TIDCORP furnished to the CSC a copy of Board Decision No. 03-002 dismissing
Demigillo’s appeal for its lack of merit, thereby rendering the question about the propriety of Demigillo’s
appeal moot and academic. Board Decision No. 03-002 pertinently reads as follows:
Atty. Demigillo failed to show to the Board that she was prejudiced in the implementation of the TIDCORP
organizational refinements/restructuring. She was reappointed to the same position she was holding before
the reorganization. She was not demoted in terms of salary, rank and status. There was a (sic) substantial
compliance with the requirements of RA 6656, particularly on transparency. More importantly, the said
organizational refinements done and adoption of a new compensation structure were made in
accordance with what is mandated under the Charter of the Corporation.
WHEREFORE, foregoing premises considered, the Board decided as it hereby decides to DISMISS the
appeal of Atty. Ma Rosario Demigillo for lack of merit.2
In the meanwhile, by letter dated April 14, 2003, President Valdes informed Demigillo of her poor
performance rating for the period from January 1, 2002 to December 31, 2002, to wit:
After a thorough evaluation/assessment of your job performance for the rating period January 1 to
December 21, 2002, it appears that your over-all performance is ‘Poor’.
Records show that you consistently behaved as an obstructionist in the implementation of the Corporate
Business Plan. You failed to demonstrate cooperation, respect and concern towards authority and other
members of the company. You also failed to abide by Civil Service and company policies, rules and
regulation. You miserably failed to adapt and respond to changes. You were very resentful to new
approaches as shown by your vehement objection to new improved policies and programs. Instead of
helping raise the morale of subordinate at high levels (sic) and promote career and professional growth of
subordinates, you tried to block such efforts towards this end.
In view of the foregoing and your failure to prove that you have effectively and efficiently performed the
duties, functions and responsibility (sic) of your position, I am constrained to give you a rating of "Poor" for
your 2002 performance.3
On April 28, 2003, Demigillo formally communicated to Atty. Florencio P. Gabriel Jr., Executive Vice
President of the Operations Group, appealing the "poor rating" given her by President Valdes.
In a memorandum dated May 6, 2003, Atty. Gabriel informed Demigillo that he could not act on her
appeal because of her "failure to state facts and arguments constituting the grounds for the appeal and
submit any evidence to support the same."4
On May 6, 2003, President Valdes issued a memorandum to Demigillo stating that he found no justification
to change the poor rating given to her for the year 2002.
On August 12, 2003, Demigillo received a memorandum from President Valdes stating that her
performance rating for the period from January 1, 2003 to June 2003 "needs improvement," attaching the
pertinent Performance Evaluation Report Form that she was instructed to return "within 24 hours from
receipt."5
Not in conformity with the performance rating, Demigillo scribbled on the right corner of the memorandum
the following comments: "I do not agree and accept. I am questioning the same. This is pure harassment."
She then appealed the poor performance rating on August 14, 2003, calling the rating a part of Valdes’
"unremitting harassment and oppression on her."6
On August 19, 2003, Demigillo reported for work upon the expiration of the 90-day preventive suspension
imposed by the Board of Directors in a separate administrative case for grave misconduct, conduct
prejudicial to the best interest of the service, insubordination and gross discourtesy. In her memorandum of
that date, she informed Atty. Gabriel Jr. of her readiness to resume her duties and responsibilities, but
requested to be allowed to reproduce documents in connection with the appeal of her performance
rating. She further requested that the relevant grievance process should commence.
It appears that the Board of Directors rendered Decision No. 03-003 dated August 15, 2003 unanimously
dropping Demigillo from the rolls.7 Demigillo received the copy of Decision No. 03-003 on August 25, 2003.
Decision of the CSC
On October 14, 2004, the CSC ruled through Resolution No. 0410928 that the 2002 Organizational
Refinements or Restructuring Plan of TIDCORP had been valid for being authorized by Republic Act. No.
6656; that Section 7 of Republic Act No. 8498 granted a continuing power to TIDCORP’s Board of Directors
to prescribe the agency’s organizational structure, staffing pattern and compensation packages; and that
such grant continued until declared invalid by a court of competent jurisdiction or revoked by Congress.
The CSC held, however, that TIDCORP’s implementation of its reorganization did not comply with Section 6
of Republic Act No. 6656;9 that although there was no diminution in Demigillo’s rank, salary and status,
there was nonetheless a demotion in her functions and authority, considering that the 2002 reorganization
reduced her authority and functions from being the highest ranking legal officer in charge of all the legal
and corporate affairs of TIDCORP to being the head of the RCMSS reporting to the Executive Vice
President and having only two departments under her supervision; and that the functions of Demigillo’s
office were in fact transferred to the Operations Group.
The CSC further held that the dropping from the rolls of Demigillo did not comply with the mandatory
requirement under Section 2, particularly 2.2 Rule XII of the Revised Omnibus Rules on Appointments and
Other Personnel Actions Memorandum Circular No. 40, Series of 1998.
Subsequently, TIDCORP reinstated Demigillo to the position of Senior Vice President in RCMSS, a position she
accepted without prejudice to her right to appeal the decision of the CSC.
Ruling of the CA
Both Demigillo and TIDCORP appealed the decision of the CSC to the Court of Appeals (CA). Demigillo’s
appeal was docketed as CA-G.R. SP No. 87285. On the other hand, TIDCORP’s appeal was docketed as
CA-G.R. SP No. 87295.
In CA-G.R. SP No. 87285, Demigillo partially assailed the CSC’s decision, claiming that the CSC erred: (1) in
holding that Section 7 of Republic Act No. 8494 granted the Board of Directors of TIDCORP a continuing
power to reorganize; (2) in holding that the 2002 TIDCORP reorganization had been authorized by law; and
(3) in not holding that the 2002 TIDCORP reorganization was void ab initio because it was not authorized by
law and because the reorganization did not comply with Republic Act No. 6656.10
In CA-G.R. SP No. 87295, TIDCORP contended that the CSC erred: (1) in ruling that Demigillo had been
demoted as a result of the 2002 TIDCORP reorganization; and (2) in ruling that TIDCORP had failed to
observe the provisions of Section 2, particularly 2.2 Rule XII of the Revised Omnibus Rules on Appointments
and Other Personnel Actions (Memorandum Circular No. 40, Series of 1998) on dropping from the rolls, to
the prejudice of Demigillo’s right to due process.11
On June 27, 2005, the CA’s Fourth Division promulgated its decision in CA–G.R. SP No. 87285,12 which, albeit
affirming the ruling of the CSC, rendered a legal basis different from that given by the CSC, to wit:
In numerous cases citing Section 20 and Section 31, Book III of Executive Order No. 292, otherwise known as
the Administrative Code of 1987, the Supreme Court ruled in the affirmative that the President of the
Philippines has the continuing authority to reorganize the administrative structure of the Office of the
President.
Hence, being the alter ego of the President of the Philippines, the Board of Directors of the private
respondent-appellee is authorized by law to have a continuous power to reorganize its agency.13
Anent Demigillo’s contention that the 2002 reorganization effected was invalid, the CA ruled:
x x x. In this jurisdiction, reorganizations have been regarded as valid provided they are pursued in good
faith. Reorganization is carried out in good faith if it is for the purpose of economy or to make bureaucracy
more efficient.
In the case at bench, it is our considered opinion that except for her allegations, the petitioner-appellant
(Demigillo) failed to present sufficient evidence that the reorganization effected in 2002 did not bear the
earmarks of economy and efficiency. Good faith is always presumed.14
The CA held that Demigillo could not be reinstated to her previous position of Senior Vice President of the
LCSD in view of the legality of the 2002 reorganization being upheld.15
With respect to CA-G.R. SP No. 87295, the CA’s Special Former Thirteenth Division promulgated a decision
on November 28, 2008,16 denying TIDCORP’s appeal, and holding that Demigillo had been demoted and
invalidly dropped from the rolls by TIDCORP, explaining:
We do not need to stretch Our imagination that respondent Demigillo, one of the highest ranking officers
of the corporation, was indeed demoted when she was designated to be the head of merely one sector.
She may have retained her title as SVP, but she was deprived of the authority she previously enjoyed and
stripped of the duties and responsibilities assigned to her under the Legal and Corporate Services. In utter
disregard of respondent Demigillo’s right to security of tenure, petitioner TIDCORP demoted her in the guise
of "reorganization."
xxxx
Next, petitioner TIDCORP asserts that respondent Demigillo was legally dropped from the rolls. This is a
delirious supposition which does not deserve merit at all.
xxxx
Petitioner TIDCORP did not bother to adduce proof that it complied with the rudiments of due process
before dropping Demigillo from the rolls. She was not given the chance to present evidence refuting the
contentious ratings as her employer refused to discuss how it arrived at such assessment. Her
unceremonious dismissal was made even more apparent as she was never advised of the possibility that
she may be separated from service if her rating would not improve for the next evaluation period.17
Issues
Demigillo filed before this Court a petition for review on certiorari assailing the CA decision in CA-G.R. SP
No. 87285 (G.R. No. 168613), asserting that the CA gravely erred: (1) in holding that the Board of Directors
of TIDCORP was an alter ego of the President who had the continuing authority to reorganize TIDCORP;
and (2) in holding that the reorganization of TIDCORP effected in 2002 was valid considering her alleged
failure to present evidence sufficiently showing that the reorganization did not bear the earmarks of
economy and efficiency.18 Corollarily, she sought her reinstatement to a position comparable to her former
position as Senior Vice President in the LCSD.19
Likewise, TIDCORP appealed through a petition for review on certiorari, praying for the reversal of the
decision promulgated in CA-G.R. SP No. 87295 (G.R. No. 185571), contending that the CA erred: (1) in
ruling that Demigillo had been demoted as a result of the TIDCORP 2002 reorganization; and (2) in ruling
that Demigillo had not been legally dropped from the rolls.20
On March 8, 2011, the Court En Banc consolidated G.R. No. 168613 and G.R. No. 185571.21
Ruling of the Court
We deny the petition for review of Demigillo (G.R. No. 168613) for its lack of merit, but grant the petition for
review of TIDCORP (G.R. No. 185571).
G.R. No. 168613
In its comment in G.R. No. 168613,22
TIDCORP argues for the application of the doctrine of qualified political
agency, contending that the acts of the Board of Directors of TIDCORP, an attached agency of the
Department of Finance whose head, the Secretary of Finance, was an alter ego of the President, were
also the acts of the President.
TIDCORP’s argument is unfounded.
The doctrine of qualified political agency, also known as the alter ego doctrine, was introduced in the
landmark case of Villena v. The Secretary of Interior.23 In said case, the Department of Justice, upon the
request of the Secretary of Interior, investigated Makati Mayor Jose D. Villena and found him guilty of
bribery, extortion, and abuse of authority. The Secretary of Interior then recommended to the President the
suspension from office of Mayor Villena. Upon approval by the President of the recommendation, the
Secretary of Interior suspended Mayor Villena. Unyielding, Mayor Villena challenged his suspension,
asserting that the Secretary of Interior had no authority to suspend him from office because there was no
specific law granting such power to the Secretary of Interior; and that it was the President alone who was
empowered to suspend local government officials. The Court disagreed with Mayor Villena and upheld his
suspension, holding that the doctrine of qualified political agency warranted the suspension by the
Secretary of Interior. Justice Laurel, writing for the Court, opined:
After serious reflection, we have decided to sustain the contention of the government in this case on the
broad proposition, albeit not suggested, that under the presidential type of government which we have
adopted and considering the departmental organization established and continued in force by
paragraph 1, section 12, Article VII, of our Constitution, all executive and administrative organizations are
adjuncts of the Executive Department, the heads of the various executive departments are assistants and
agents of the Chief Executive, and, except in cases where the Chief Executive is required by the
Constitution or the law to act in person or the exigencies of the situation demand that he act personally,
the multifarious executive and administrative functions of the Chief Executive are performed by and
through the executive departments, and the acts of the secretaries of such departments, performed and
promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief
Executive, presumptively the acts of the Chief Executive. (Runkle vs. United States [1887], 122 U. S., 543; 30
Law. ed., 1167; 7 Sup. Ct. Rep., 1141; see also U. S. vs. Eliason [1839], 16 Pet., 291; 10 Law. ed., 968; Jones vs.
U. S. [1890], 137 U. S., 202; 34 Law. ed., 691; 11 Sup. Ct., Rep., 80; Wolsey vs. Chapman [1880], 101 U. S., 755;
25 Law. ed., 915; Wilcox vs. Jackson [1836], 13 Pet., 498; 10 Law. ed., 264.)
Fear is expressed by more than one member of this court that the acceptance of the principle of qualified
political agency in this and similar cases would result in the assumption of responsibility by the President of
the Philippines for acts of any member of his cabinet, however illegal, irregular or improper may be these
acts. The implications, it is said, are serious. Fear, however, is no valid argument against the system once
adopted, established and operated. Familiarity with the essential background of the type of Government
established under our Constitution, in the light of certain well-known principles and practices that go with
the system, should offer the necessary explanation. With reference to the Executive Department of the
government, there is one purpose which is crystal-clear and is readily visible without the projection of
judicial searchlight, and that is the establishment of a single, not plural, Executive. The first section of Article
VII of the Constitution, dealing with the Executive Department, begins with the enunciation of the principle
that "The executive power shall be vested in a President of the Philippines." This means that the President of
the Philippines is the Executive of the Government of the Philippines, and no other. The heads of the
executive departments occupy political positions and hold office in an advisory capacity, and, in the
language of Thomas Jefferson, "should be of the President’s bosom confidence" (7 Writings, Ford ed., 498),
and in the language of Attorney-General Cushing (7 Op., Attorney-General, 453), "are subject to the
direction of the President." Without minimizing the importance of the heads of the various departments,
their personality is in reality but the projection of that of the President. Stated otherwise, and as forcibly
characterized by Chief Justice Taft of the Supreme Court of the United States, "each head of a
department is, and must be, the President's alter ego in the matters of that department where the
President is required by law to exercise authority." (Myers vs. United States, 47 Sup. Ct. Rep., 21 at 30; 272
U.S. 52 at 133; 71 Law. Ed., 160). x x x.
The doctrine of qualified political agency essentially postulates that the heads of the various executive
departments are the alter egos of the President, and, thus, the actions taken by such heads in the
performance of their official duties are deemed the acts of the President unless the President himself
should disapprove such acts. This doctrine is in recognition of the fact that in our presidential form of
government, all executive organizations are adjuncts of a single Chief Executive; that the heads of the
Executive Departments are assistants and agents of the Chief Executive; and that the multiple executive
functions of the President as the Chief Executive are performed through the Executive Departments. The
doctrine has been adopted here out of practical necessity, considering that the President cannot be
expected to personally perform the multifarious functions of the executive office.
But the doctrine of qualified political agency could not be extended to the acts of the Board of Directors
of TIDCORP despite some of its members being themselves the appointees of the President to the Cabinet.
Under Section 10 of Presidential Decree No. 1080, as further amended by Section 6 of Republic Act No.
8494,24 the five ex officio members were the Secretary of Finance, the Secretary of Trade and Industry, the
Governor of the Bangko Sentral ng Pilipinas, the Director-General of the National Economic and
Development Authority, and the Chairman of the Philippine Overseas Construction Board, while the four
other members of the Board were the three from the private sector (at least one of whom should come
from the export community), who were elected by the ex officio members of the Board for a term of not
more than two consecutive years, and the President of TIDCORP who was concurrently the Vice-Chairman
of the Board. Such Cabinet members sat on the Board of Directors of TIDCORP ex officio, or by reason of
their office or function, not because of their direct appointment to the Board by the President. Evidently, it
was the law, not the President, that sat them in the Board.
Under the circumstances, when the members of the Board of Directors effected the assailed 2002
reorganization, they were acting as the responsible members of the Board of Directors of TIDCORP
constituted pursuant to Presidential Decree No. 1080, as amended by Republic Act No. 8494, not as the
alter egos of the President. We cannot stretch the application of a doctrine that already delegates an
enormous amount of power. Also, it is settled that the delegation of power is not to be lightly inferred.25
Nonetheless, we uphold the 2002 reorganization and declare it valid for being done in accordance with
the exclusive and final authority expressly granted under Republic Act No. 8494, further amending
Presidential Decree No. 1080, the law creating TIDCORP itself, to wit:
Section 7. The Board of Directors shall provide for an organizational structure and staffing pattern for
officers and employees of the Trade and Investment Development Corporation of the Philippines
(TIDCORP) and upon recommendation of its President, appoint and fix their remuneration, emoluments
and fringe benefits: Provided, That the Board shall have exclusive and final authority to appoint, promote,
transfer, assign and re-assign personnel of the TIDCORP, any provision of existing law to the contrary
notwithstanding.
In this connection, too, we reiterate that we cannot disturb but must respect the ruling of the CSC that
deals with specific cases coming within its area of technical knowledge and expertise,26 absent a clear
showing of grave abuse of discretion on its part. That clear showing was not made herein. Such deference
proceeds from our recognition of the important role of the CSC as the central personnel agency of the
Government having the familiarity with and expertise on the matters relating to the career service.
Worthy to stress, lastly, is that the reorganization was not arbitrary and whimsical. It had been formulated
following lengthy consultations and close coordination with the affected offices within TIDCORP in order for
them to come up with various functional statements relating to the new organizational setup. In fact, the
Board of Directors decided on the need to reorganize in 2002 to achieve several worthy objectives, as
follows:
(1) To make the organization more viable in terms of economy, efficiency, effectiveness and
make it more responsive to the needs of its clientèles by eliminating or minimizing any overlaps
and duplication of powers and functions;
(2) To come up with an organizational structure which is geared towards the strengthening of the
Corporation's overall financial and business operations through resource allocation shift; and
(3) To rationalize corporate operations to maximize resources and achieve optimum sustainable
corporate performance vis-a-vis revised corporate policies, objectives and directions by focusing
the Corporation's efforts and resources to its vital and core functions.27
The result of the lengthy consultations and close coordination was the comprehensive reorganization plan
that included a new organizational structure, position classification and staffing pattern, qualification
standards, rules and regulations to implement the reorganization, separation incentive packages and
timetable of implementation. Undoubtedly, TIDCORP effected the reorganization within legal bounds and
in response to the perceived need to make the agency more attuned to the changing times.
Having found the 2002 reorganization to be valid and made pursuant to Republic Act No. 8494, we
declare that there are no legal and practical bases for reinstating Demigillo to her former position as Senior
Vice President in the LCSD. To be sure, the reorganization plan abolished the LCSD, and put in place a set-
up completely different from the previous one, including a new staffing pattern in which Demigillo would
be heading the RCMSS, still as a Senior Vice President of TIDCORP. With that abolition, reinstating her as
Senior Vice President in the LCSD became legally and physically impossible.
Demigillo’s contention that she was specifically appointed to the position of Senior Vice President in the
LCSD was bereft of factual basis. The records indicate that her permanent appointment pertained only to
the position of Senior Vice President.28 Her appointment did not indicate at all that she was to hold that
specific post in the LCSD. Hence, her re-assignment to the RCMSS was by no means a diminution in rank
and status considering that she maintained the same rank of Senior Vice President with an accompanying
increase in pay grade.
The assignment to the RCMSS did not also violate Demigillo’s security of tenure as protected by Republic
Act No. 6656. We have already upheld reassignments In the Civil Service resulting from valid
reorganizations.29 Nor could she claim that her reassignment was invalid because it caused the reduction
in her rank, status or salary. On the contrary, she was reappointed as Senior Vice President, a position that
was even upgraded like all the other similar positions to Pay Grade 16, Step 4, Level II.30 In every sense, the
position to which she was reappointed under the 2002 reorganization was comparable with, if not similar to
her previous position.
That the RCMSS was a unit smaller than the LCSD did not necessarily result in or cause a demotion for
Demigillo. Her new position was but the consequence of the valid reorganization, the authority to
implement which was vested in the Board of Directors by Republic Act No. 8494. Indeed, we do not
consider to be a violation of the civil servant’s right to security of tenure the exercise by the agency where
she works of the essential prerogative to change the work assignment or to transfer the civil servant to an
assignment where she would be most useful and effective. More succinctly put, that prerogative inheres
with the employer,31 whether public or private.
G.R. No. 185571
As earlier stated, TIDCORP’s petition for review in G.R. No. 185571 is meritorious.
Anent the first issue in G.R. No. 185571, we have already explained that Demigillo was not demoted
because she did not suffer any diminution in her rank, status and salary under the reorganization. Her
reassignment to the RCMSS, a smaller unit compared to the LCSD, maintained for her the same rank of
Senior Vice-President with a corresponding increase in pay grade. The reassignment resulted from the valid
reorganization.
With respect to the second issue, Demigillo was validly dropped from the rolls by TIDCORP as the
consequence of the application of the rules governing her employment. Section 2 (2.2), Rule XII of the
Revised Omnibus Rules on Appointments and Other Personnel Actions (Memorandum Circular No. 40,
Series of 1998) provides:
xxxx
2.2 Unsatisfactory or Poor Performance
a. An official or employee who is given two (2) consecutive unsatisfactory ratings may be
dropped from the rolls after due notice. Notice shall mean that the officer or employee
concerned is informed in writing of his unsatisfactory performance for a semester and is
sufficiently warned that a succeeding unsatisfactory performance shall warrant his separation
from the service. Such notice shall be given not later than 30 days from the end of the semester
and shall contain sufficient information which shall enable the employee to prepare an
explanation.
b. An official or employee, who for one evaluation period is rated poor in performance, may be
dropped from the rolls after due notice. Notice shall mean that the officer or employee is
informed in writing of the status of his performance not later than the 4th month of that rating
period with sufficient warning that failure to improve his performance within the remaining period
of the semester shall warrant his separation from the service. Such notice shall also contain
sufficient information which shall enable the employee to prepare an explanation.
Under Section (b), supra, an official or employee may be dropped from the rolls provided the following
requisites are present, namely: (1) the official or employee was rated poor in performance for one
evaluation period; (2) the official or employee was notified in writing of the status of her performance not
later than the 4th month of the rating period with sufficient warning that failure to improve her
performance within the remaining period of the semester shall warrant her separation from the service;
and (3) such notice contained adequate information that would enable her to prepare an explanation.
All of the requisites were duly established herein.
As to the first requisite, there is no dispute that President Valdes gave Demigillo a poor performance rating
for the annual rating period from January 1, 2002 to December 31, 2002.
The second requisite speaks of a sixth-month or per semester rating period. Although Demigillo’s poor
rating was made on an annual basis, that was allowed by the implementing rules of Executive Order No.
292.32 Regarding the need to give her the written notice of her performance status not later than the 4th
month of the rating period, or at the half of the semester, the requirement did not apply here because her
rating was made on an annual basis. By analogy, however, the written notice for an annual rating period
could be sent on the 6th month or in the middle of the year. Nevertheless, this was not expressly provided
for in the Civil Service rules.1âwphi1 In any case, it is emphasized that the purpose of the written notice
being sent to the affected officer or employee not later than the 4th month of the rating period has been
to give her the sufficient time to improve her performance and thereby avert her separation from the
service. That purpose is the very essence of due process.
In Demigillo’s case, therefore, what was crucial was whether she had been allowed to enhance her
performance within a sufficient time from her receipt of the written notice of the poor performance rating
up to her receipt of the written notice of her dropping from the rolls. The records show that she was,
indeed, given enough time for her to show improvement. She received on April 21, 2003 a letter from
President Valdes that indicated her poor performance rating for the period of January 1, 2002 to
December 31, 2002.33 The Board of Directors issued on August 15, 2003 the decision dropping her from
rolls.34 She received a copy of the decision on August 25, 2003.35 Thereby, she was given almost four months
to improve her performance before she was finally dropped from the rolls.
The second requisite further mentions that the written notice must contain sufficient warning that failure to
improve her performance within the remaining period of the semester shall warrant separation from the
service. Although the letter informing Demigillo of her poor performance rating did not expressly state such
a warning to her, it stated her gross failures in the performance of her duties.36 The Performance Evaluation
Report Form corresponding to her, which was attached to the memorandum given to her, reflected her
poor performance.36 She was notified in writing of the denial of her appeal of the poor rating.37 It cannot
be denied that the letter of poor rating, the Performance Evaluation Repmi Form, and the denial of her
appeal all signified to her that she could be removed from the service unless she would improve her
performance. Thereby, she was given ample warning to improve, or else be separated from the service. In
that regard, she was certainly not a witless person who could have missed the significance of such events.
She was not only a lawyer. 38 She was also a mid-level ranking government official who had been in the
government corporate sector for almost 20 years.39 Her familiarity with the dire consequences of a failure
to improve a poor rating under Civil Service rules was justifiably assumed.
Anent the third requisite, the letter of President Valdes plainly stated the reasons for her poor rating. Her
Performance Evaluation Repmi Form, which was attached to the letter, enumerated several criteria used
in measuring her management skills and the corresponding rating per criterion. The letter even suggested
that in order for her to enhance her performance she should undergo extensive training on business
management, a comprehensive lecture program on Civil Service rules and regulations, and a training on
effective public relations. The letter indicated that the contents of the Performance Evaluation Report had
been discussed with her. Moreover, Demigillo formally appealed the poor performance rating, except that
TIDCORP denied her appeal.40All these circumstances show that she was given more than enough
information about the bases for her poor performance rating, enabling her to appeal properly.
WHEREFORE, we DENY the petition for review on certiorari in G.R. No. 168613; AFFIRM the decision
promulgated on June 27, 2005 by the Court of Appeals in its CA-G.R. No. 87285; GRANT the petition for
review on certiorari in G.R. No. 185571; SET ASIDE the decision promulgated on November 28, 2008 by the
Court of Appeals in its CA-G.R. No. 87295; and ORDER Atty. MA. ROSARIO MANALANG-DEMIGILLO to pay
the costs of suit.
SO ORDERED.
G.R. No. 157139 October 19, 2011
CARLOS COTIANGCO, LUCIO SALAS, EDITHA SALONOY, MA. FILIPINA CALDERON, ROSALINDA ABILAR,
MEDARDA LARIBA, TITO GUTIERREZ, BENJAMIN LUCIANO, MYRNA FILAMOR AND MONIANA
NAJARRO, Petitioners,
vs.
THE PROVINCE OF BILIRAN AND THE COURT OF APPEALS, Respondents.
DECISION
SERENO, J.:
Before us is a Petition for Review on Certiorari under Rule 45 seeking a reversal of the Decision of the Court
of Appeals dated 16 July 2002,1 and its Resolution dated 24 January 2003 which affirmed Resolution No.
000894 dated 30 March 2000 of the Civil Service Commission (CSC). The CSC Resolution held that
petitioners’ removal from their respective positions in the Biliran Provincial Health Office as a result of the
reorganization of the provincial government was lawful.
Petitioners held permanent appointments as public health workers in the Province of Biliran.
On 23 October 1998, the Sangguniang Panlalawigan (SP) of Biliran passed SP Resolution No. 102, Series of
1998, approving the revised structure and staffing pattern of the provincial government submitted by its
then incumbent governor, Danilo Parilla.
Pursuant to said Resolution, Governor Parilla issued Executive Order (EO) No. 98-07, Series of 1998, dated 4
November 1998, declaring all positions in the provincial government of Biliran as abolished except those of
the Provincial Treasurer and all elective positions.
EO No. 98-07 was revoked by EO No. 98-08, Series of 1998, which in turn declared "all positions under the
new staffing pattern vacant" and directed "all permanent employees to submit their application within
fifteen (15) days from the date of posting of the approved new staffing pattern on November 4, 1998."
Petitioners filed a suit for Prohibition2 to question the validity of EO No. 98-08, Series of 1998.
Meanwhile, pursuant to said EO, a Personnel Placement Committee (Committee) was created to screen
and evaluate all applicants for the vacant positions.
Petitioners failed/refused to apply for any position under the new staffing pattern, claiming that to do so
would be inconsistent with their pending suit for prohibition. At any rate, petitioners argue that under Rule
VI, Section 9 of Civil Service Commission (CSC) Resolution No. 91-1631,3 as well as Sections 5 and 6 of the
Rules on Government Reorganization, there should be a screening of the qualifications of all existing
employees, and not merely of those who filed their respective applications under the new staffing pattern.
As a result of the reorganization, the following positions in the Biliran Provincial Health Service occupied by
petitioners were excluded or abolished:
Dr. Carlos C. Cotiangco --- Provincial Health Officer I
Licio J. Salas ---------------- Administrative Officer II
Edeltha O. Salonoy --------- Senior Bookkeeper I
Ma. Filipina V. Calderon --- Cashier II
Rosalinda A. Abilar --------- Pharmacist III
Medarda S. Lariba ---------- Cook I
Tito G. Gutierrez ------------ Driver II
Benjamin J. Luciano -------- Cook I
Myrna A. Filamor ----------- Nurse II
Monina Najarro -------------- Medical Technologist
On 13 January 1999, petitioners received their notices of termination/non-reappointment dated 12 January
1999, which stated that their service was "only up to February 11, 1999."
Petitioners appealed to the governor, but he denied their appeal.
Petitioners thereafter filed an appeal to the CSC, which likewise dismissed it in CSC Resolution No. 000894
dated 30 March 2000.4 The CSC held that petitioners failed to show that the reorganization was tainted
with bad faith. They failed to establish that they were replaced by less qualified employees "in terms of
status of appointment, performance and merit." The Commission noted that the reorganization resulted in
a significant decrease in the number of positions in the staffing pattern of the Biliran Provincial
Hospital.5 The CSC further held that the reorganization did not violate the Magna Carta of Public Health
Workers (Republic Act No. 7305), because the governor implemented a procedure for the reorganization,
as follows:
1. Information dissemination regarding the reorganization to be effected;
2. The Committee was established to screen and evaluate the qualifications of existing
employees;
3. Publication and dissemination of the new staffing pattern;
4. Invitation of employees to apply for the new positions; and
5. Notices to appellants that they were not reappointed in the revised organization structure and
staffing pattern.
Moreover, it was pointed out that petitioners’ positions were duplications of other positions. Finally, the CSC
ruled that petitioners could no longer be appointed to other positions as the records show that these do
not include their former positions, which had in fact remained unfilled after the reorganization.
Petitioners moved for reconsideration of the CSC Resolution. This motion was denied for lack of merit by the
CSC in its Resolution No. 0105306 dated 4 September 2000.
Petitioners elevated the case to the Court of Appeals (CA), citing similar cases (CSC Resolution Nos.
002617, 002624, and 002629 dated 6 March 2001)7 wherein the CSC found that the Province of Biliran failed
to comply with the required procedure with respect to the other employees who were also not
reappointed. Petitioners claimed that in these companion cases, employees of the province were
reinstated on the ground that the reorganization had been implemented in violation of Republic Act No.
(R.A.) 6656 and its Implementing Rules, as it was not shown that the subject employees’ qualifications were
assessed or evaluated by the committee.
In its Decision dated 16 July 2002, the CA affirmed the CSC resolution with modification, in that the
Province of Biliran was directed to take up petitioner Salvador Rosel’s possible reappointment as Sanitation
Inspector I of the Municipality of Caibiran. The CA held that what petitioners referred to as companion
cases "involve circumstances different from the case at bench where petitioners had not presented any
concrete evidence to prove their claim."8
Petitioners moved for reconsideration of the said Decision but the CA denied their motion. Hence,
petitioners filed the present Rule 45 petition, basically posing the following issue for resolution:
1. Whether or not the reorganization was done in bad faith
2. Whether or not petitioners were denied due process when they were not screened and evaluated for
possible appointment to new positions
We rule to deny the petition.
1. Petitioners failed to show that the reorganization was done in bad faith. They have not adduced
sufficient evidence to establish the existence of bad faith.
Section 8 of the Magna Carta of Public Health Workers (R.A. 7305) provides that "(i)n case of regular
employment of public health workers, their services shall not be terminated except for cause provided by
law and after due process."
Nevertheless, a government officer or employee’s removal from office as a result of a bona
fide reorganization is a valid cause for that employee’s removal.9
Hence, the pertinent issue would be whether the reorganization herein was undertaken in bad faith.
Petitioners claim that the provincial government’s reorganization implemented by Governor Parilla was not
caused by a desire to streamline the local bureaucracy to save on resources. They allege that despite the
availability of a sufficient number of vehicles for official use, the provincial government bought five motor
vehicles, which were used by provincial officials belonging to the same political party as that of Governor
Parilla. Allegedly, there were also excessive numbers of casuals hired and positions/items abolished, only to
create new ones with substantially the same functions. Petitioners were all appointees of former Governor
Wayne Jaro, who is the political enemy of Governor Parilla.
On the other hand, the provincial government argued, and the CSC found, that the Biliran Province had a
total of 162 personnel in 1990. However, this number swelled to 381 personnel in 1998. Reorganization was
therefore called for to lessen the budget allocation for personnel services; and to increase that for
development projects, the purchase of medicines and supplies, and the maintenance of infrastructure.
It is a basic principle that good faith is presumed and that the party who alleges bad faith has the burden
of proving the allegation. Petitioners therefore had the burden of proving bad faith on the part of the
province when it undertook the reorganization. Section 2 of R.A. 6656 (An Act to Protect the Security of
Tenure of Civil Service Officers and Employees in the Implementation of Government Reorganization) cites
instances that may be considered as evidence of bad faith in the removal from office of a government
officer or employee pursuant to a reorganization, to wit:
SECTION 2. No officer or employee in the career service shall be removed except for a valid cause and
after due notice and hearing. A valid cause for removal exists when, pursuant to a bona
fide reorganization, a position has been abolished or rendered redundant or there is a need to merge,
divide, or consolidate positions in order to meet the exigencies of the service, or other lawful causes
allowed by the Civil Service Law. The existence of any or some of the following circumstances may be
considered as evidence of bad faith in the removals made as a result of reorganization, giving rise to a
claim for reinstatement or reappointment by an aggrieved party:
(a) Where there is a significant increase in the number of positions in the new staffing pattern of
the department or agency concerned;
(b) Where an office is abolished and other performing substantially the same functions is created;
(c) Where incumbents are replaced by those less qualified in terms of status of appointment,
performance and merit;
(d) Where there is a reclassification of offices in the department or agency concerned and the
reclassified offices perform substantially the same function as the original offices;
(e) Where the removal violates the order of separation provided in Section 3 hereof.
(Underscoring supplied.)
Measured against the foregoing guidelines, petitioners failed to adduce evidence to show bad faith on
the part of the Province in effecting the reorganization.
First, petitioners have failed to show that there was a "significant increase in the number of
positions in the new staffing pattern" of Biliran Province as a result of the reorganization. On the
contrary, it is undisputed that from a high of 120 positions in 1998, the number of those at the
Biliran Provincial Health Office was reduced to only 98 after the reorganization.10 Even assuming
the truth of petitioners’ claim that the CSC and the CA committed a misapprehension of facts in
equating the number of personnel in the Biliran Provincial Hospital with the number of personnel in
the entire Provincial Health Office, this conclusion cannot be altered in the absence of glaring
error in such apprehension.
Second, petitioners have failed to present evidence that an office performing substantially the
same functions as an abolished office was created as a result of the reorganization. We note that
there were four new positions created within the Provincial Health Office (one Medical
Technologist II for the Health Services Group; and one Storekeeper each for Caibiran Community
Hospital, Culaba Community Hospital and Maripipi Community Hospital). None of these positions
may be considered as having been created to perform substantially the same functions as any of
the abolished offices. None of the petitioners held the position of Storekeeper; and, although
petitioner Najarro held the position of Medical Technologist II, he was then assigned to the
Maripipi Community Hospital, and not to the Health (Field) Services Group.
Third, petitioners have not shown that there was a "reclassification of offices in the department or
agency concerned and the reclassified offices perform substantially the same function as the
original offices."
Fourth, petitioners have not adduced evidence that they were "replaced by those less qualified
in terms of status of appointment, performance and merit." Alternatively, petitioners have not
adduced any evidence to show that their qualifications in terms of performance and merit are
any better than those possessed by the persons who were eventually appointed to the
reorganized positions.
Neither have petitioners been able to demonstrate that their removal from office as a result of the
reorganization violated the order of separation as found in Section 3 of R.A. 6656, particularly, in the
provision that "those … who are least qualified in terms of performance and merit shall be laid [off] first,
length of service notwithstanding."
Petitioners also erroneously insist on the application of the "next in rank" rule in claiming that they should
have been appointed to the available positions after the reorganization. However, the "next in rank rule"
specifically applies only to promotions and not to positions created in the course of a valid
reorganization.11 Apart from the fact that the "next in rank" rule only gives preference to the person
occupying the position next in rank to a vacancy, it does not by any means give him exclusive right to be
appointed to the said vacancy. Indeed, the appointing authority is vested with sufficient discretion to
appoint a candidate, as long as the latter possesses the minimum qualifications under the law.12
2. Petitioners were not deprived of due process when they were not screened and evaluated for possible
appointment to new positions, as they had not filed their applications notwithstanding the invitation for
them to do so.
Petitioners allege that they were deprived of their employment without due process of law, because
respondent province did not show proof that its Personnel Placement Committee had screened and
evaluated them for possible appointment to new positions.
On the other hand, respondent province argues that petitioners were not considered for the new positions,
because they had not filed their applications notwithstanding the invitation for them to do so.
In response, petitioners argue that under the Implementing Rules of R.A. 6656, "qualifications of existing
employees," and not merely those who filed their respective applications under the new staffing pattern,
should be screened and evaluated, as follows:
SECTION 5. Who will be Evaluated. - All officers and employees, including those who have pending
administrative charges, or any derogatory records/reports, shall be evaluated on the basis of standards for
retention/termination as provided for herein. (Underscoring and emphasis supplied.)
Moreover, Section 9 of the same Implementing Rules provides that the Placement Committee shall
evaluate the qualifications and competence of both "the applicants and other employees in the agency,"
to wit:
SECTION 9. Selection and Placement of Personnel. —
(1) Within five (5) days from receipt by the agency concerned of its approved staffing pattern, or
the Organizational Staffing and Classification Action Summary (OSCAS), the head of office shall
cause copies thereof to be posted in the bulletin boards and other conspicuous places in its
central and regional/field offices.
(2) Officers and employees shall be invited to apply for any of the authorized position. Said
Application shall be considered by the Placement Committee in the placement and selection of
personnel.
(3) The Committee shall evaluate/assess the qualifications and competence of the
applicants and other employee in the agency based on the criteria and preference provided for
in these Rules.
(4) The Committee shall prepare the Personnel Placement List and submit the same to the
appointing authority for his approval.
 (5) Within thirty (30) days from submission of the Personnel Placement List by the Placement
Committee, the appointing authority shall approve, modify or revise the Personnel Placement List
which shall then constitute the New Plantilla of Personnel. (Underscoring and emphasis supplied.)
Petitioners’ reliance upon the words used in the above portions of the Implementing Rules is misplaced.
R.A. 6656 itself, the law that these Implementing Rules seek to implement, provides only that all officers and
employees of the agency being reorganized shall be invited to apply for any of the positions in the new
staffing pattern, and that the "(s)aid application shall be considered by the (Placement) Committee in the
placement and selection of personnel," as shown by the following provision:
SECTION 6. In order that the best qualified and most deserving persons shall be appointed in any
reorganization, there shall be created a Placement Committee in each department or agency to assist
the appointing authority in the judicious selection and placement of personnel. The Committee shall
consist of two (2) members appointed by the head of the department or agency, a representative of the
appointing authority, and two (2) members duly elected by the employees holding positions in the first and
second levels of the career service: Provided, That if there is a registered employee association with a
majority of the employees as members, that employee association shall also have a representative in the
Committee: Provided, further That immediately upon approval of the staffing pattern of the department or
agency concerned, such staffing pattern shall be made known to all officers and employees of the
agency who shall be invited to apply for any of the positions authorized therein. Said application shall be
considered by the Committee in the placement and selection of personnel. (Underscoring supplied.)
Clearly, the law mandates that only those who have filed the requisite applications for the subject position
may be considered by the placement committee for possible appointment. The intent of this law is clear
enough. After all, it is the submission of the application form that signals an employee’s interest in a
position. The placement committee cannot spend its limited time and resources in considering the
qualifications of all previous employees of the agency being reorganized, even if they have not signified
their intention to continue working in the said agency. Otherwise, there is a possibility that it would
recommend the appointment of a person to a position in which the latter is not interested. Also, without
the filing of the requisite application form, there would hardly be a basis for evaluating the qualifications of
the candidates for employment.
WHEREFORE, premises considered, the petition is denied for lack of merit. The 16 July 2002 Decision and the
24 January 2003 Resolution of the Court of Appeals are hereby AFFIRMED.
SO ORDERED.