DIGEST OF DIGEST

HORTENCIA SALAZAR, petitioner,
vs.
HON. TOMAS D. ACHACOSO, in his capacity as Administrator of the Philippine Overseas Employment Administration, and
FERDIE MARQUEZ, respondents.

This concerns the validity of the power of the Secretary of Labor to issue warrants of arrest and seizure under Article 38 of the
Labor Code, prohibiting illegal recruitment.

4. On the same day, having ascertained that the petitioner had no license to operate a recruitment agency, public
respondent Administrator Tomas D. Achacoso issued his challenged CLOSURE AND SEIZURE ORDER NO. 1205 which reads:

POEA filed a criminal complaint against her with the Pasig Provincial Fiscal

ISSUE:

The Court finds that a lone issue confronts it: May the Philippine Overseas Employment Administration (or the Secretary of
Labor) validly issue warrants of search and seizure (or arrest) under Article 38 of the Labor Code?

The decrees in question, it is well to note, stand as the dying vestiges of authoritarian rule in its twilight moments.

We reiterate that the Secretary of Labor, not being a judge, may no longer issue search or arrest warrants. Hence, the
authorities must go through the judicial process. To that extent, we declare Article 38, paragraph (c), of the Labor Code,
unconstitutional and of no force and effect.

FARLE P. ALMODIEL, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION), RAYTHEON PHILS., INC., respondents.

Petitioner Farle P. Almodiel is a certified public accountant who was hired in October, 1987 as Cost Accounting Manager of
respondent Raytheon Philippines.

However, he was assured by the Controller that should his position or department which was apparently a one-man
department with no staff becomes untenable or unable to deliver the needed service due to manpower constraint, he would be
given a three (3) year advance notice.

In the meantime, the standard cost accounting system was installed and used at the Raytheon plants and subsidiaries
worldwide. It was likewise adopted and installed in the Philippine operations. As a consequence, the services of a Cost
Accounting Manager allegedly entailed only the submission of periodic reports that would use computerized forms prescribed
and designed by the international head office of the Raytheon Company in California, USA.

he was told of the abolition of his position on the ground of redundancy. He pleaded with management to defer its action or
transfer him to another department, but he was told that the decision of management was final and that the same has been
conveyed to the Department of Labor and Employment. Thus, he was constrained to file the complaint for illegal dismissal
before the Arbitration

Labor Arbiter Daisy Cauton-Barcelona rendered a decision,

that complainant's termination on the ground of redundancy is highly irregular and without legal and factual basis, thus
ordering the respondents to reinstate complainant to his former position with full backwages without lost of seniority rights
and other benefits.

the NLRC reversed the decision and directed Raytheon to pay petitioner the total sum of P100,000.00 as separation
pay/financial assistance.

From this decision, petitioner filed the instant petition

RULING
Termination of an employee's services because of redundancy is governed by Article 283 of the Labor Code which provides as
follows:

There is no dispute that petitioner was duly advised, one (1) month before, of the termination of his employment on the
ground of redundancy in a written notice by his immediate superior.

The crux of the controversy lies on whether bad faith, malice and irregularity crept in the abolition of petitioner's position of
Cost Accounting Manager on the ground of redundancy. Petitioner claims that the functions of his position were absorbed by
the Payroll/Mis/Finance Department under the management of Danny Ang Tan Chai, a resident alien without any working
permit from the Department of Labor and Employment as required by law.

this Court said that redundancy, for purposes of our Labor Code, exists where the services of an employee are in excess of what
is reasonably demanded by the actual requirements of the enterprise. The characterization of an employee's services as no
longer necessary or sustainable, and therefore, properly terminable, was an exercise of business judgment on the part of the
employer.

management prerogative and the courts will not interfere with the exercise thereof as long as no abuse of discretion or merely
arbitrary or malicious action on the part of management is shown.

Considering further that petitioner herein held a position which was definitely managerial in character, Raytheon had a broad
latitude of discretion in abolishing his position. An employer has a much wider discretion in terminating employment
relationship of managerial personnel compared to rank and file employees.7 

Likewise destitute of merit is petitioner's imputation of unlawful discrimination when Raytheon caused corollary functions
appertaining to cost accounting to be absorbed by Danny Ang Tan Chai, a resident alien without a working permit. Article 40 of
the Labor Code which requires employment permit refers to non-resident aliens. The employment permit is required for entry
into the country for employment purposes and is issued after determination of the non-availability of a person in the
Philippines who is competent, able and willing at the time of application to perform the services for which the alien is desired.
Since Ang Tan Chai is a resident alien, he does not fall within the ambit of the provision.

Petitioner also assails Raytheon's choice of Ang Tan Chai to head the Payroll/Mis/Finance Department, claiming that he is better
qualified for the position.

an objection founded on the ground that one has better credentials over the appointee is frowned upon so long as the latter
possesses the minimum qualifications for the position.

The determination of the qualification and fitness of workers for hiring and firing, promotion or reassignment are exclusive
prerogatives of management.

GENERAL MILLING CORPORATION and EARL TIMOTHY CONE, petitioners,

vs.
HON. RUBEN D. TORRES, in his capacity as Secretary of Labor and Employment, HON. BIENVENIDO E. LAGUESMA, in his
capacity as Acting Secretary of Labor and Employment, and BASKETBALL COACHES ASSOCIATION OF THE
PHILIPPINES, respondents.

the Department of Labor and Employment issued Alien Employment Permit No. M-0689-3-535 in favor of petitioner Earl
Timothy Cone, a United States citizen, as sports consultant and assistant coach for petitioner General Milling Corporation
("GMC").

Private respondent Basketball Coaches Association of the Philippines ("BCAP") appealed the issuance of said alien
employment permit to the respondent Secretary of Labor who, on 23 April 1990, issued a decision ordering cancellation of
petitioner Cone's employment permit on the ground that there was no showing that there is no person in the Philippines who
is competent, able and willing to perform the services required nor that the hiring of petitioner Cone would redound to the
national interest.

Petitioners are now before the Court on a Petition for Certiorari.

Deliberating on the present Petition for Certiorari, the Court considers that petitioners have failed to show any grave abuse of
discretion or any act without or in excess of jurisdiction on the part of respondent Secretary of Labor in rendering his decision,
dated 23 April 1990, revoking petitioner Cone's Alien Employment Permit.
Petitioner GMC's claim that hiring of a foreign coach is an employer's prerogative has no legal basis at all. Under Article 40 of
the Labor Code, an employer seeking employment of an alien must first obtain an employment permit from the Department
of Labor. Petitioner GMC's right to choose whom to employ is, of course, limited by the statutory requirement of an alien
employment permit.

Neither can petitioners validly claim that implementation of respondent Secretary's decision would amount to an impairment
of the obligations of contracts. The provisions of the Labor Code and its Implementing Rules and Regulations requiring alien
employment permits were in existence long before petitioners entered into their contract of employment.

In short, the Department of Labor is the agency vested with jurisdiction to determine the question of availability of local
workers.

Petitioners apparently also question the validity of the Implementing Rules and Regulations, specifically Section 6 (c), Rule XIV,
Book I of the Implementing Rules, as imposing a condition not found in the Labor Code itself.

(c) His assessment as to whether or not the employment of the applicant will redound to the national interest;

Petitioners apparently suggest that the Secretary of Labor is not authorized to take into account the question of whether or not
employment of an alien applicant would "redound to the national interest" because Article 40 does not explicitly refer to such
assessment. This argument (which seems impliedly to concede that the relationship of basketball coaching and the national
interest is tenuous and unreal) is not persuasive. In the first place, the second paragraph of Article 40 says: "[t]he employment
permit may be issued to a non-resident alien or to the applicant employer after a determination of the non-availability of a
person in the Philippines who is competent, able and willing at the time of application to perform the services for which the
alien is desired." The permissive language employed in the Labor Code indicates that the authority granted involves the
exercise of discretion on the part of the issuing authority. In the second place, Article 12 of the Labor Code sets forth a
statement of objectives that the Secretary of Labor should, and indeed must, take into account in exercising his authority and
jurisdiction granted by the Labor Code,

ALIPIO R. RUGA, JOSE PARMA, ELADIO CALDERON, LAURENTE BAUTU, JAIME BARBIN, NICANOR FRANCISCO, PHILIP
CERVANTES and ELEUTERIO BARBIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DE GUZMAN FISHING ENTERPRISES and/or ARSENIO DE
GUZMAN, respondents.

Records show that the petitioners were the fishermen-crew members of 7/B Sandyman II, one of several fishing vessels
owned and operated by private respondent De Guzman Fishing Enterprises which is primarily engaged in the fishing business
with port and office at Camaligan, Camarines Sur.

petitioners were paid on percentage commission basis in cash by one Mrs. Pilar de Guzman, cashier of private respondent.

they sold some of their fish-catch at midsea to the prejudice of private respondent. Petitioners denied the charge claiming that
the same was a countermove to their having formed a labor union

private respondent refused to allow petitioners to return to the fishing vessel to resume their work on the same day,

On September 22, 1983, petitioners individually filed their complaints for illegal dismissal and non-payment of 13th month
pay, emergency cost of living allowance and service incentive pay

On October 24, 1983, private respondent, thru its operations manager, Conrado S. de Guzman, submitted its position paper
denying the employer-employee relationship between private respondent and petitioners on the theory that private
respondent and petitioners were engaged in a joint venture. 3

Labor Arbiter Asisclo S. Coralde rendered a joint decision 5 dismissing all the complaints of petitioners on a finding that a
"joint fishing venture" and not one of employer-employee relationship existed between private respondent and petitioners.

On May 30, 1985, the National Labor Relations Commission promulgated its resolution 6 affirming the decision of the labor
arbiter that a "joint fishing venture" relationship existed between private respondent and petitioners.
Hence, the instant petition.

We rule in favor of petitioners. ----- there is employer-employee relationship

We have consistently ruled that in determining the existence of an employer-employee relationship, the elements that are
generally considered are the following (a) the selection and engagement of the employee; (b) the payment of wages; (c) the
power of dismissal; and (d) the employer's power to control the employee with respect to the means and methods by which
the work is to be accomplished. 8 The employment relation arises from contract of hire, express or implied. 9 In the absence of
hiring, no actual employer-employee relation could exist.

From the four (4) elements mentioned, We have generally relied on the so-called right-of-control test 10 where the person for
whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in
reaching such end. The test calls merely for the existence of the right to control the manner of doing the work, not the actual

the herein petitioners, on the other hand, were directly hired by private respondent, through its general manager,

While tenure or length of employment is not considered as the test of employment, nevertheless the hiring of petitioners to
perform work which is necessary or desirable in the usual business or trade of private respondent for a period of 8-15 years
since 1968 qualify them as regular employees within the meaning of Article 281 of the Labor Code as they were indeed
engaged to perform activities usually necessary or desirable in the usual fishing business or occupation of private respondent.  14

Aside from performing activities usually necessary and desirable in the business of private respondent, it must be noted that
petitioners received compensation on a percentage commission based on the gross sale of the fish-catch i.e. 13% of the
proceeds of the sale if the total proceeds exceeded the cost of the crude oil consumed during the fishing trip, otherwise only
10% of the proceeds of the sale. Such compensation falls within the scope and meaning of the term "wage" as defined under
Article 97(f) of the Labor Code

Furthermore, the fact that on mere suspicion based on the reports that petitioners allegedly sold their fish-catch at midsea
without the knowledge and consent of private respondent, petitioners were unjustifiably not allowed to board the fishing
vessel on September 11, 1983 to resume their activities without giving them the opportunity to air their side on the accusation
against them unmistakably reveals the disciplinary power exercised by private respondent over them and the corresponding
sanction imposed in case of violation of any of its rules and regulations. The virtual dismissal of petitioners from their
employment was characterized by undue haste when less extreme measures consistent with the requirements of due process
should have been first exhausted. In that sense, the dismissal of petitioners was tainted with illegality.

Even on the assumption that petitioners indeed sold the fish-catch at midsea the act of private respondent virtually resulting in
their dismissal evidently contradicts private respondent's theory of "joint fishing venture" between the parties herein. A joint
venture, including partnership, presupposes generally a  parity of standing between the joint co-venturers or partners, in which
each party has an equal proprietary interest in the capital or property contributed  16 and where each party exercises equal lights
in the conduct of the business. 17 It would be inconsistent with the principle of parity of standing between the joint co-venturers
as regards the conduct of business, if private respondent would outrightly exclude petitioners from the conduct of the business
without first resorting to other measures consistent with the nature of a joint venture undertaking, Instead of arbitrary
unilateral action, private respondent should have discussed with an open mind the advantages and disadvantages of
petitioners' action with its joint co-venturers if indeed there is a "joint fishing venture" between the parties. But this was not
done in the instant case. Petitioners were arbitrarily dismissed notwithstanding that no criminal complaints were filed against
them. The lame excuse of private respondent that the non-filing of the criminal complaints against petitioners was for
humanitarian reasons will not help its cause either.

the boat-owner and the fishermen crew members not only because they worked for and in the interest of the business of the
boat-owner but also because they were subject to the control, supervision and dismissal of the boat-owner, thru its agent,
Simplicio Panganiban, the alleged "partner" of Dr. Abong; that while these fishermen crew members were paid in kind, or by
"pakiao basis" still that fact did not alter the character of their relationship with Dr. Abong as employees of the latter.

In Philippine Fishing Boat Officers and Engineers Union vs. Court of Industrial Relations, 112 SCRA 159 (1982), we held that the
employer-employee relationship between the crew members and the owners of the fishing vessels engaged in deep sea fishing
is merely suspended during the time the vessels are drydocked or undergoing repairs or being loaded with the necessary
provisions for the next fishing trip. The said ruling is premised on the principle that all these activities i.e., drydock, repairs,
loading of necessary provisions, form part of the regular operation of the company fishing business.
PERPETUAL HELP CREDIT COOPERATIVE, INC., Petitioner, v. BENEDICTO FABURADA, SISINITA VILLAR, IMELDA TAMAYO,
HAROLD CATIPAY, and the NATIONAL LABOR RELATIONS COMMISSION, Fourth Division, Cebu City, Respondents.

On January 3, 1990, Benedicto Faburada, Sisinita Vilar, Imelda Tamayo and Harold Catipay, private respondents, filed a
complaint against the Perpetual Help Credit Cooperative, Inc. (PHCCI), Petitioner, with the Arbitration Branch, Department of
Labor and Employment (DOLE), Dumaguete City, for illegal dismissal, premium pay on holidays and rest days, separation pay,
wage differential, moral damages, and attorney’s fees.

Forthwith, petitioner PHCCI filed a motion to dismiss the complaint on the ground that there is no employer-employee
relationship between them as private respondents are all members and co-owners of the cooperative. Furthermore, private
respondents have not exhausted the remedies provided in the cooperative by-laws.chanrob1es virtua1 1aw 1ibrary

On the same date, the Labor Arbiter denied petitioner’s motion to dismiss, holding that the case is impressed with employer-
employee relationship and that the law on cooperatives is subservient to the Labor Code.

WHEREFORE, premises considered, judgment is hereby rendered declaring complainants illegally dismissedOn appeal, 1 the
NLRC affirmed the Labor Arbiter’s decision.

Hence, this petition by the PHCCI.

In determining the existence of an employer-employee relationship, the following elements are considered: (1) the selection
and engagement of the worker or the power to hire; (2) the power to dismiss; (3) the payment of wages by whatever means;
and (4) the power to control the worker’s conduct, with the latter assuming primacy in the overall consideration. No particular
form of proof is required to prove the existence of an employer-employee relationship. Any competent and relevant evidence
may show the relationship. 2

The above elements are present here. Petitioner PHCCI, through Mr. Edilberto Lantaca, Jr., its Manager, hired private
respondents to work for it. They worked regularly on regular working hours, were assigned specific duties, were paid regular
wages and made to accomplish daily time records just like any other regular employee. They worked under the supervision of
the cooperative manager. But unfortunately, they were dismissed.

Necessarily, this leads us to the issue of whether or not private respondents are regular employees. Article 280 of the Labor
Code provides for three kinds of employees: (1) regular employees or those who have been engaged to perform activities
which are usually necessary or desirable in the usual business or trade of the employer; (2) project employees or those whose
employment has been fixed for a specific project or undertaking, the completion or termination of which has been determined
at the time of the engagement of the employee or where the work or service to be performed is seasonal in nature and the
employment is for the duration of the season; and (3) casual employees or those who are neither regular nor project
employees. 3 The employees who are deemed regular are: (a) those who have been engaged to perform activities which are
usually necessary or desirable in the usual trade or business of the employer; and (b) those casual employees who have
rendered at least one (1) year of service, whether such service is continuous or broken, with respect to the activity in which
they are employed. 4 Undeniably, private respondents were rendering services necessary to the day-to-day operations of
petitioner PHCCI. This fact alone qualified them as regular employees.chanrob1es virtua1 1aw 1ibrary

. One’s regularity of employment is not determined by the number of hours one works but by the nature and by the length of
time one has been in that particular job.

As regular employees or workers, private respondents are entitled to security of tenure. Thus, their services may be
terminated only for a valid cause, with observance of due process.

The valid causes are categorized into two groups: the just causes under Articles 282 of the Labor Code and the authorized
causes under Articles 283 and 284 of the same Code.
The just causes are: (1) serious misconduct or willful disobedience of lawful orders in connection with the employee’s work; (2)
gross or habitual neglect of duties; (3) fraud or willful breach of trust; (4) commission of a crime or an offense against the
person of the employer or his immediate family member or representative; and, analogous cases.

The authorized causes are: (1) the installation of labor-saving devices; (2) redundancy; (3) retrenchment to prevent losses; and
(4) closing or cessation of operations of the establishment or undertaking, unless the closing is for the purpose of circumventing
the provisions of law. Article 284 provides that an employer would be authorized to terminate the services of an employee
found to be suffering from any disease if the employee’s continued employment is prohibited by law or is prejudicial to his
health or to the health of his fellow employees 6

Private respondents were dismissed not for any of the above causes. They were dismissed because petitioner considered
them to be mere voluntary workers, being its members, and as such work at its pleasure. Petitioner thus vehemently insists
that their dismissal is not against the law.

We hold that private respondents have been illegally dismissed.

VICENTE SY, TRINIDAD PAULINO, 6B’S TRUCKING CORPORATION, and SBT 1 TRUCKING CORPORATION, Petitioners, v. HON.
COURT OF APPEALS, and JAIME SAHOT, Respondents.

Sometime in 1958, private respondent Jaime Sahot 5 started working as a truck helper for petitioners’ family-owned trucking
business named Vicente Sy Trucking. In 1965, he became a truck driver of the same family business, renamed T. Paulino
Trucking Service, later 6B’s Trucking Corporation in 1985, and thereafter known as SBT Trucking Corporation since 1994.
Throughout all these changes in names and for 36 years, private respondent continuously served the trucking business of
petitioners.

In April 1994, Sahot was already 59 years old. He had been incurring absences as he was suffering from various ailments.
Particularly causing him pain was his left thigh, which greatly affected the performance of his task as a driver. He inquired about
his medical and retirement benefits with the Social Security System (SSS) on April 25, 1994, but discovered that his premium
payments had not been remitted by his employer.

Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically examined and treated for EOR,
presleyopia, hypertensive retinopathy G II (Annexes "G-5" and "G-3", pp. 48, 104, respectively), 6 HPM, UTI, Osteoarthritis
(Annex "G-4", p. 105), 7 and heart enlargement (Annex G, p. 107). 8 On said grounds, Belen Paulino of the SBT Trucking Service
management told him to file a formal request for extension of his leave. At the end of his week-long absence, Sahot applied
for extension of his leave for the whole month of June, 1994. It was at this time when petitioners allegedly threatened to
terminate his employment should he refuse to go back to work.

At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work. But he could not retire on
pension because petitioners never paid his correct SSS premiums. The fact remained he could no longer work as his left thigh
hurt abominably. Petitioners ended his dilemma. They carried out their threat and dismissed him from work, effective June
30, 1994. He ended up sick, jobless and penniless.

On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal dismissal, docketed as NLRC
NCR Case No. 00-09-06717-94. He prayed for the recovery of separation pay and attorneys fees against Vicente Sy and Trinidad
Paulino-Sy, Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6B’s Trucking and SBT Trucking, herein petitioners.

For their part, petitioners admitted they had a trucking business in the 1950s but denied employing helpers and drivers. They
contend that private respondent was not illegally dismissed as a driver because he was in fact petitioners’ industrial partner.
They add that it was not until the year 1994, when SBT Trucking Corporation was established, and only then did respondent
Sahot become an employee of the company, with a monthly salary that reached P4,160.00 at the time of his
separation.chanrob1es virtua1 1aw 1ibrary
Petitioners add that due to Sahot’s refusal to work after the expiration of his authorized leave of absence, he should be
deemed to have voluntarily resigned from his work.

DECISIONS

The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that there was no illegal dismissal in
Sahot’s case. Private respondent had failed to report to work. Moreover, said the Labor Arbiter, petitioners and private
respondent were industrial partners before January 1994. The Labor Arbiter concluded by ordering petitioners to pay
"financial assistance" of P15,000 to Sahot for having served the company as a regular employee since January 1994 only.

On appeal, the National Labor Relations Commission modified the judgment of the Labor Arbiter. It declared that private
respondent was an employee, not an industrial partner, since the start. Private respondent Sahot did not abandon his job but
his employment was terminated on account of his illness, pursuant to Article 284 9 of the Labor Code. Accordingly, the NLRC
ordered petitioners to pay private respondent separation pay in the amount of P60,320.00, at the rate of P2,080.00 per year for
29 years of service.

Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision dated February 29, 2000, the appellate
court affirmed with modification the judgment of the NLRC. It held that private respondent was indeed an employee of
petitioners since 1958. It also increased the amount of separation pay awarded to private respondent to P74,880, computed at
the rate of P2,080 per year for 36 years of service from 1958 to 1994. It decreed:chanrob1es virtual 1aw library

Hence, the instant petition

Three issues are to be resolved: (1) Whether or not an employer-employee relationship existed between petitioners and
respondent Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or not respondent Sahot is entitled to
separation pay.chanrob1es virtua1 1aw 1ibrary

Crucial to the resolution of this case is the determination of the first issue. Before a case for illegal dismissal can prosper, an
employer-employee relationship must first be established. 14

We agree with complainant that there was error committed by the Labor Arbiter when he concluded that complainant was
an industrial partner prior to 1994. A computation of the age of complainant shows that he was only twenty-three (23) years
when he started working with respondent as truck helper. How can we entertain in our mind that a twenty-three (23) year old
man, working as a truck helper, be considered an industrial partner. Hence we rule that complainant was only an employee,
not a partner of respondents from the time complainant started working for Respondent. 17

The elements to determine the existence of an employment relationship are: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to control the employee’s
conduct. The most important element is the employer’s control of the employee’s conduct, not only as to the result of the work
to be done, but also as to the means and methods to accomplish it. 19

Article 1767 21 of the Civil Code states that in a contract of partnership two or more persons bind themselves to contribute
money, property or industry to a common fund, with the intention of dividing the profits among themselves. 22 Not one of
these circumstances is present in this case. No written agreement exists to prove the partnership between the parties.
Private respondent did not contribute money, property or industry for the purpose of engaging in the supposed business.
There is no proof that he was receiving a share in the profits as a matter of course, during the period when the trucking
business was under operation. Neither is there any proof that he had actively participated in the management,
administration and adoption of policies of the business. Thus, the NLRC and the CA did not err in reversing the finding of the
Labor Arbiter that private respondent was an industrial partner from 1958 to 1994.chanrob1es virtua1 1aw 1ibrary

On this point, we affirm the findings of the appellate court and the NLRC. Private respondent Jaime Sahot was not an industrial
partner but an employee of petitioners from 1958 to 1994. The existence of an employer-employee relationship is ultimately a
question of fact 23 and the findings thereon by the NLRC, as affirmed by the Court of Appeals, deserve not only respect but
finality when supported by substantial evidence.
Coming now to the second issue, was private respondent validly dismissed by petitioners?

In termination cases, the burden is upon the employer to show by substantial evidence that the termination was for lawful
cause and validly made. 28 Article 277(b) of the Labor Code puts the burden of proving that the dismissal of an employee was
for a valid or authorized cause on the employer, without distinction whether the employer admits or does not admit the
dismissal. 29 For an employee’s dismissal to be valid, (a) the dismissal must be for a valid cause and (b) the employee must
be afforded due process. 30

Article 284 of the Labor Code authorizes an employer to terminate an employee on the ground of disease, viz:chanrob1es
virtual 1aw library

Art. 284. Disease as a ground for termination. — An employer may terminate the services of an employee who has been found
to be suffering from any disease and whose continued employment is prohibited by law or prejudicial to his health as well as
the health of his co-employees: . . .

However, in order to validly terminate employment on this ground, Book VI, Rule I, Section 8 of the Omnibus Implementing
Rules of the Labor Code requires:chanrob1es virtual 1aw library

Sec. 8. Disease as a ground for dismissal. — Where the employee suffers from a disease and his continued employment is
prohibited by law or prejudicial to his health or to the health of his co-employees, the employer shall not terminate his
employment unless there is a certification by competent public health authority that the disease is of such nature or at such a
stage that it cannot be cured within a period of six (6) months even with proper medical treatment. If the disease or ailment
can be cured within the period, the employer shall not terminate the employee but shall ask the employee to take a leave. The
employer shall reinstate such employee to his former position immediately upon the restoration of his normal health. (Italics
supplied).

In the case at bar, the employer clearly did not comply with the medical certificate requirement before Sahot’s dismissal was
effected. In the same case of Sevillana v. I. T. (International) Corp., we ruled:chanrob1es virtual 1aw library

Since the burden of proving the validity of the dismissal of the employee rests on the employer, the latter should likewise bear
the burden of showing that the requisites for a valid dismissal due to a disease have been complied with. In the absence of the
required certification by a competent public health authority, this Court has ruled against the validity of the employee’s
dismissal.
From the records, it clearly appears that procedural due process was not observed in the separation of private respondent by
the management of the trucking company.

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

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

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

The respondents, for their part, denied the existence of an employer-employee relationship between the respondent
company and the petitioner. They averred that the petitioner was an independent contractor as evidenced by the contract of
service which he and the respondent company entered into. The said contract provided as follows:
The respondents insisted that the petitioner had the sole control over the means and methods by which his work was
accomplished. He paid the wages of his helpers and exercised control over them. As such, the petitioner was not entitled to
regularization because he was not an employee of the respondent company. The respondents, likewise, maintained that
they did not dismiss the petitioner. Rather, the severance of his contractual relation with the respondent company was due to
his violation of the terms and conditions of their contract. The petitioner allegedly failed to observe the minimum degree of
diligence in the proper maintenance of the truck he was using, thereby exposing respondent company to unnecessary
significant expenses of overhauling the said truck.

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

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

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

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

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

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

However, on motion for reconsideration by the respondents, the CA made a complete turn around as it rendered the
assailed Resolution dated December 15, 2000 upholding the contract of service between the petitioner and the respondent
company. In reconsidering its decision, the CA explained that the extent of control exercised by the respondents over the
petitioner was only with respect to the result but not to the means and methods used by him.

RULING

The threshold issue that needs to be resolved is whether there existed an employer-employee relationship between the
respondent company and the petitioner. We rule in the affirmative.
The elements to determine the existence of an employment relationship are: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the employer’s power to control the employee’s
conduct.11 The most important element is the employer’s control of the employee’s conduct, not only as to the result of the
work to be done, but also as to the means and methods to accomplish it.12 All the four elements are present in this case.

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

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

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

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

Although the respondents denied that they exercised control over the manner and methods by which the petitioner
accomplished his work, a careful review of the records shows that the latter performed his work as truck driver under the
respondents’ supervision and control.

Evidently, he did not possess substantial capitalization or investment in the form of tools, machinery and work premises.
Moreover, the petitioner performed the delivery services exclusively for the respondent company for a continuous and
uninterrupted period of ten years.

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

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

As a rule, the employer bears the burden to prove that the dismissal was for a valid and just cause. 23 In this case, the
respondents failed to prove any such cause for the petitioner’s dismissal. They insinuated that the petitioner abandoned his
job.

To constitute abandonment , these two factors must concur: (1) the failure to report for work or absence without valid or
justifiable reason; and (2) a clear intention to sever employer-employee relationship.24 Obviously, the petitioner did not
intend to sever his relationship with the respondent company for at the time that he allegedly abandoned his job, the petitioner
just filed a complaint for regularization, which was forthwith amended to one for illegal dismissal. A charge of abandonment is
totally inconsistent with the immediate filing of a complaint for illegal dismissal, more so when it includes a prayer for
reinstatement.25

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

ANGELINA FRANCISCO, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION, SEIICHIRO TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA,
IRENE BALLESTEROS, TRINIDAD LIZA and RAMON ESCUETA, Respondents.

In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was designated as Accountant and
Corporate Secretary and was assigned to handle all the accounting needs of the company. She was also designated as Liaison
Officer to the City of Makati to secure business permits, construction permits and other licenses for the initial operation of the
company. 5

In 1996, petitioner was designated Acting Manager.

In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged that she was required to sign a
prepared resolution for her replacement but she was assured that she would still be connected with Kasei Corporation.
Timoteo Acedo, the designated Treasurer, convened a meeting of all employees of Kasei Corporation and announced that
nothing had changed and that petitioner was still connected with Kasei Corporation as Technical Assistant to Seiji Kamura and
in charge of all BIR matters. 9

Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up to September 2001 for a total
reduction of P22,500.00 as of September 2001. Petitioner was not paid her mid-year bonus allegedly because the company was
not earning well. On October 2001, petitioner did not receive her salary from the company. She made repeated follow-ups with
the company cashier but she was advised that the company was not earning well. 10

On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but she was informed that she is no
longer connected with the company. 11

Since she was no longer paid her salary, petitioner did not report for work and filed an action for constructive dismissal
before the labor arbiter.

Private respondents averred that petitioner is not an employee of Kasei Corporation. They alleged that petitioner was hired
in 1995 as one of its technical consultants on accounting matters and act concurrently as Corporate Secretary. As technical
consultant, petitioner performed her work at her own discretion without control and supervision of Kasei Corporation.

Petitioner’s designation as technical consultant depended solely upon the will of management. As such, her consultancy may
be terminated any time considering that her services were only temporary in nature and dependent on the needs of the
corporation.

The Labor Arbiter found that petitioner was illegally dismissed

the NLRC affirmed with modification the Decision of the Labor Arbiter,

On appeal, the Court of Appeals reversed the NLRC decision, thus:

RULING

The core issues to be resolved in this case are (1) whether there was an employer-employee relationship between petitioner
and private respondent Kasei Corporation; and if in the affirmative, (2) whether petitioner was illegally dismissed.

We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform test to determine the existence of an
employer-employee relation. Generally, courts have relied on the so-called right of control test where the person for whom
the services are performed reserves a right to control not only the end to be achieved but also the means to be used in
reaching such end. In addition to the standard of right-of-control, the existing economic conditions prevailing between the
parties, like the inclusion of the employee in the payrolls, can help in determining the existence of an employer-employee
relationship.

However, in certain cases the control test is not sufficient to give a complete picture of the relationship between the parties,
owing to the complexity of such a relationship where several positions have been held by the worker. There are instances
when, aside from the employer’s power to control the employee with respect to the means and methods by which the work is
to be accomplished, economic realities of the employment relations help provide a comprehensive analysis of the true
classification of the individual, whether as employee, independent contractor, corporate officer or some other capacity.

The better approach would therefore be to adopt a two-tiered test involving: (1) the putative employer’s power to control the
employee with respect to the means and methods by which the work is to be accomplished; and (2) the underlying economic
realities of the activity or relationship.

Thus, the determination of the relationship between employer and employee depends upon the circumstances of the whole
economic activity, 22 such as: (1) the extent to which the services performed are an integral part of the employer’s business; (2)
the extent of the worker’s investment in equipment and facilities; (3) the nature and degree of control exercised by the
employer; (4) the worker’s opportunity for profit and loss; (5) the amount of initiative, skill, judgment or foresight required for
the success of the claimed independent enterprise; (6) the permanency and duration of the relationship between the worker
and the employer; and (7) the degree of dependency of the worker upon the employer for his continued employment in that
line of business. 23

The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his continued
employment in that line of business. 24 In the United States, the touchstone of economic reality in analyzing possible
employment relationships for purposes of the Federal Labor Standards Act is dependency. 25 By analogy, the benchmark of
economic reality in analyzing possible employment relationships for purposes of the Labor Code ought to be the economic
dependence of the worker on his employer.

By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation because she was under
the direct control and supervision of Seiji Kamura, the corporation’s Technical Consultant. She reported for work regularly
and served in various capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate Secretary,
with substantially the same job functions, that is, rendering accounting and tax services to the company and performing
functions necessary and desirable for the proper operation of the corporation such as securing business permits and other
licenses over an indefinite period of engagement.

Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation
because she had served the company for six years before her dismissal, receiving check vouchers indicating her salaries/wages,
benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security contributions from August 1, 1999
to December 18, 2000. 26 When petitioner was designated General Manager, respondent corporation made a report to the SSS
signed by Irene Ballesteros. Petitioner’s membership in the SSS as manifested by a copy of the SSS specimen signature card
which was signed by the President of Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS
evinces the existence of an employer-employee relationship between petitioner and respondent corporation. 27

It is therefore apparent that petitioner is economically dependent on respondent corporation for her continued employment
in the latter’s line of business.

Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that petitioner never acted as
Corporate Secretary and that her designation as such was only for convenience. The actual nature of petitioner’s job was as
Kamura’s direct assistant with the duty of acting as Liaison Officer in representing the company to secure construction permits,
license to operate and other requirements imposed by government agencies. Petitioner was never entrusted with corporate
documents of the company, nor required to attend the meeting of the corporation. She was never privy to the preparation of
any document for the corporation, although once in a while she was required to sign prepared documentation for the
company. 30

Based on the foregoing, there can be no other conclusion that petitioner is an employee of respondent Kasei Corporation. She
was selected and engaged by the company for compensation, and is economically dependent upon respondent for her
continued employment in that line of business. Her main job function involved accounting and tax services rendered to
respondent corporation on a regular basis over an indefinite period of engagement. Respondent corporation hired and engaged
petitioner for compensation, with the power to dismiss her for cause. More importantly, respondent corporation had the
power to control petitioner with the means and methods by which the work is to be accomplished.

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month from January to September
2001. This amounts to an illegal termination of employment, where the petitioner is entitled to full backwages. Since the
position of petitioner as accountant is one of trust and confidence, and under the principle of strained relations, petitioner is
further entitled to separation pay, in lieu of reinstatement. 34

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal. Constructive dismissal is an
involuntary resignation resulting in cessation of work resorted to when continued employment becomes impossible,
unreasonable or unlikely; when there is a demotion in rank or a diminution in pay; or when a clear discrimination,
insensibility or disdain by an employer becomes unbearable to an employee. 35 

PAMPLONA PLANTATION COMPANY, INC. and/or JOSE LUIS BONDOC, petitioners,

vs.
RODEL TINGHIL, MARYGLENN SABIHON, ESTANISLAO BOBON, CARLITO TINGHIL, BONIFACIO TINGHIL, NOLI TINGHIL, EDGAR
TINGHIL, ERNESTO ESTOMANTE, SALLY TOROY, BENIGNO TINGHIL JR., ROSE ANN NAPAO, DIOSDADO TINGHIL, ALBERTO
TINGHIL, ANALIE TINGHIL, and ANTONIO ESTOMANTE, respondents.

Petitioner] Pamplona Plantations Company, Inc. (company for brevity) was organized for the purpose of taking over the
operations of the coconut and sugar plantation of Hacienda Pamplona located in Pamplona, Negros Oriental. It appears that
Hacienda Pamplona was formerly owned by a certain Mr. Bower who had in his employ several agricultural workers.

""Sometime in 1995, Pamplona Plantation Leisure Corporation was established for the purpose of engaging in the business of
operating tourist resorts, hotels, and inns, with complementary facilities, such as restaurants, bars, boutiques, service shops,
entertainment, golf courses, tennis courts, and other land and aquatic sports and leisure facilities.

"On 15 December 1996, the Pamplona Plantation Labor Independent Union (PAPLIU) conducted an organizational meeting
wherein several [respondents] who are either union members or officers participated in said meeting.

"Upon learning that some of the [respondents] attended the said meeting, [Petitioner] Jose Luis Bondoc, manager of the
company, did not allow [respondents] to work anymore in the plantation.

"Thereafter, on various dates, [respondents] filed their respective complaints with the NLRC, Sub-Regional Arbitration Branch
No. VII, Dumaguete City against [petitioners] for unfair labor practice, illegal dismissal, underpayment, overtime pay, premium
pay for rest day and holidays, service incentive leave pay, damages, attorney’s fees and 13th month pay.

"On 09 October 1997, [respondent] Carlito Tinghil amended his complaint to implead Pamplona Plantation Leisure
Corporation x x x.

"On 31 August 1998, Labor Arbiter Jose G. Gutierrez rendered a decision finding [respondents], except Rufino Bacubac,
Antonio Cañolas and Felix Torres who were complainants in another case, to be entitled to separation pay.

xxxxxxxxx

"[Petitioners] appealed the Labor Arbiter’s decision to [the] NLRC. In the assailed decision dated 19 July 2000, the NLRC’s
Fourth Division reversed the Labor Arbiter, ruling that [respondents], except Carlito Tinghil, failed to implead Pamplona
Plantation Leisure Corporation, an indispensable party and that ‘there exist no employer-employee relation between the
parties.’

Ruling of the Court of Appeals

Guided by the fourfold test for determining the existence of an employer-employee relationship, the CA held that respondents
were employees of petitioner-company. Finding there was a "power to hire," the appellate court considered the admission of
petitioners in their Comment that they had hired respondents as coconut filers, coconut scoopers, charcoal makers, or as
pieceworkers. The fact that respondents were paid by piecework did not mean that they were not employees of the company.
Further, the CA ruled that petitioners necessarily exercised control over the work they performed, since the latter were
working within the premises of the plantation. According to the CA, the mere existence -- not necessarily the actual exercise --
of the right to control the manner of doing work sufficed to meet the fourth element of an employer-employee relation.
Hence, this Petition.9

Issues

The main issue raised is whether the case should be dismissed for the non-joinder of the Pamplona Plantation Leisure
Corporation. The other issues will be taken up in the discussion of the main question.

The Court’s Ruling

The Petition OF RESPONDENTS lacks merit. IN OTHER WORDS, THE PETITION OF WORKERS SHOULD NOT BE DISMISSED DUE TO
NON-PLEADING OF PARTY.

Piercing the Corporate Veil

Petitioners contend that the CA should have dismissed the case for the failure of respondents (except Carlito Tinghil) to implead
the Pamplona Plantation Leisure Corporation, an indispensable party, for being the true and real employer. Allegedly,
respondents admitted in their Affidavits dated February 3, 1998,19 that they had been employed by the leisure corporation
and/or engaged to perform activities that pertained to its business.

Further, as the NLRC allegedly noted in their individual Complaints, respondents specifically averred that they had worked in
the "golf course" and performed related jobs in the "recreational facilities" of the leisure corporation. Hence, petitioners claim
that, as a sugar and coconut plantation company separate and distinct from the Pamplona Plantation Leisure Corporation, the
petitioner-company is not the real party in interest.

We are not persuaded.

An examination of the facts reveals that, for both the coconut plantation and the golf course, there is only one management
which the laborers deal with regarding their work.20 A portion of the plantation (also called Hacienda Pamplona) had actually
been converted into a golf course and other recreational facilities. The weekly payrolls issued by petitioner-company bore the
name "Pamplona Plantation Co., Inc."21 It is also a fact that respondents all received their pay from the same person, Petitioner
Bondoc -- the managing director of the company. Since the workers were working for a firm known as Pamplona Plantation Co.,
Inc., the reason they sued their employer through that name was natural and understandable.

True, the Petitioner Pamplona Plantation Co., Inc., and the Pamplona Plantation Leisure Corporation appear to be separate
corporate entities. But it is settled that this fiction of law cannot be invoked to further an end subversive of justice. 22

The principle requiring the piercing of the corporate veil mandates courts to see through the protective shroud that
distinguishes one corporation from a seemingly separate one. 23 The corporate mask may be removed and the corporate veil
pierced when a corporation is the mere alter ego of another.24 Where badges of fraud exist, where public convenience is
defeated, where a wrong is sought to be justified thereby, or where a separate corporate identity is used to evade financial
obligations to employees or to third parties, 25 the notion of separate legal entity should be set aside26 and the factual truth
upheld. When that happens, the corporate character is not necessarily abrogated. 27 It continues for other legitimate objectives.
However, it may be pierced in any of the instances cited in order to promote substantial justice.

In the present case, the corporations have basically the same incorporators and directors and are headed by the same official.
Both use only one office and one payroll and are under one management. In their individual Affidavits, respondents allege that
they worked under the supervision and control of Petitioner Bondoc -- the common managing director of both the petitioner-
company and the leisure corporation. Some of the laborers of the plantation also work in the golf course. 28 Thus, the attempt to
make the two corporations appear as two separate entities, insofar as the workers are concerned, should be viewed as a
devious but obvious means to defeat the ends of the law. Such a ploy should not be permitted to cloud the truth and
perpetrate an injustice.

Employer-Employee Relationship

Petitioners insist that respondents are not their employees, because the former exercised no control over the latter’s work
hours and method of performing tasks. Thus, petitioners contend that under the "control test," the workers were independent
contractors.

We disagree. As shown by the evidence on record, petitioners hired respondents, who performed tasks assigned by their
respective officers-in-charge, who in turn were all under the direct supervision and control of Petitioner Bondoc. These
allegations are contained in the workers’ Affidavits, which were never disputed by petitioners. Also uncontroverted are the
payrolls bearing the name of the plantation company and signed by Petitioner Bondoc. Some of these payrolls include the time
records of the employees. These documents prove that petitioner-company exercised control and supervision over them.

To operate against the employer, the power of control need not have been actually exercised. Proof of the existence of such
power is enough.41 Certainly, petitioners wielded that power to hire or dismiss, as well as to check on the progress and the
quality of work of the laborers.

Jurisprudence provides other equally important considerations 42 that support the conclusion that respondents were not
independent contractors. First, they cannot be said to have carried on an independent business or occupation.43 They are not
engaged in the business of filing, scooping and hauling coconuts and/or operating and maintaining a plantation and a golf
course. Second, they do not have substantial capital or investment in the form of tools, equipment, machinery, work premises,
and other implements needed to perform the job, work or service under their own account or responsibility. 44 Third, they have
been working exclusively for petitioners for several years. Fourth, there is no dispute that petitioners are in the business of
growing coconut trees for commercial purposes. There is no question, either, that a portion of the plantation was converted
into a golf course and other recreational facilities. Clearly, respondents performed usual, regular and necessary services for
petitioners’ business.

SAN MIGUEL CORPORATION, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and RAFAEL MALIKSI, respondents.

In this petition for review under Rule 45 of the Rules of Court, petitioner San Miguel Corporation (SMC) seeks the reversal and
setting aside of the Decision1 dated September 30, 1999 of the Court of Appeals (CA) in CA-G.R. SP No. 50321, as reiterated in
its Resolution2 of March 20, 2001, affirming in toto an earlier decision of the National Labor Relations Commission (NLRC) in
NLRC NCR CA No. 005478-93, entitled "Rafael C. Maliksi v. San Miguel Corporation and/or Philippine Software Services &
Education Center." The affirmed NLRC decision overturned that of the Labor Arbiter and declared the herein private
respondent Rafael Maliksi (Maliksi) a regular employee of the petitioner and ordered the latter to reinstate him with benefits.

On 16 October 1990, Rafael M. Maliksi filed a complaint against the San Miguel Corporation-Magnolia Division, herein
referred to as SMC and Philippine Software Services and Education Center herein referred to as PHILSSEC to compel the said
respondents to recognize him as a regular employee. He amended the complaint on 12 November 1990 to include the charge
of illegal dismissal because his services were terminated on 31 October 1990.

The complainant considered himself as an employee of SMC-Magnolia. Lipercon Services, Skillpower, Inc. and PHILSSEC are
labor-only contractors and any one of which had never been his employer. His dismissal, according to him, was in retaliation
for his filing of the complaint for regularization in service. His dismissal was illegal there being no just cause for the action. He
was not accorded due process neither was his dismissal reported to the Department of Labor and Employment.

PHILSSEC disclaimed liability. As an entity catering (sic) computer systems and program for business enterprises, it has
contracted with SMC-Magnolia to computerize the latter’s manual accounting reporting systems of its provincial sales.
PHILSSEC then conducted a three phase analysis of SMC–Magnolia set up: first the computer needs of the firm was (sic)
determined; then, the development of computer systems or program suitable; and, finally, set up the systems and train the
employees to operate the same. In all these phases, PHILSSEC uses its computer system and technology and provided the
necessary manpower to compliment the transfer of the technology to SMC-Magnolia. Complainant Maliksi was one of those
employed by PHILSSEC whose principal function was the manual control of data needed during the computerization. Like all
assigned to the project, the complainant’s work was controlled by PHILSSEC supervisors, his salary paid by the agency and he
reported directly to PHILSSEC. The computerization project was completed on 31 October 1990, and so, the complainant was
terminated on the said date.

SMC likewise contends that PHILSSEC exercised exclusive managerial prerogative over the complainant as to hiring, payment
of salary, dismissal and most importantly, the control over his work. SMC was interested only in the result of the work
specified in the contract but not as to the means and methods of accomplishing the same. Moreover, PHILSSEC has
substantial capital of its own. It has an IBM system, 3 computers, 17 IBM or IBM-compatible computers; it has a building where
the computer training center and main office are located. What it markets to clients are computer programs and training
systems on computer technology and not the usual labor or manpower supply to establishment concerns. Moreover, what
PHILSSEC set up employing the complainant, among others, has no relation to the principal business of SMC, which is food
and beverage. It was a single relationship between the people utilized by PHILSSEC and SMC…’ 3

The Labor Arbiter declared Maliksi a regular employee of PHILSSEC and absolved SMC from liability.

Maliksi appealed to the NLRC. In turn, in a decision dated January 26, 1998, the NLRC reversed that of the Labor Arbiter by
declaring Maliksi a regular employee of the petitioner and ordering the latter to reinstate him without loss of seniority rights
and with full benefits, to wit:

As stated at the outset, the CA, in the herein assailed Decision6 dated September 30, 1999, affirmed in toto that of the NLRC.
In so doing, the CA found SMC to have utilized PHILSSEC, Lipercon Services, Inc. (Lipercon) and Skillpower, Inc. (Skillpower) as
conduits to circumvent Article 280 of the Labor Code, employing Maliksi as contractual or project employee through these
entities, thereby undermining his right to gain regular employment status under the law. The appellate court echoed the
NLRC’s assessment that Maliksi’s work was necessary or desirable in the business of SMC in its Magnolia Division, for more
than the required one-year period. It affirmed the NLRC’s finding that the three (3) conduit entities adverted to, Lipercon and
Skillpower, are labor-only contractors such that Maliksi’s previous employment contracts with SMC, through these two entities,
are deemed to have been entered into in violation of labor laws. Consequently, Maliksi’s employment with SMC became
permanent and regular after the statutory period of one year of service through these entities. The CA concluded that on
account of his past employment contracts with SMC under Lipercon and Skillpower, Maliksi was already a regular employee of
SMC when he entered into SMC’s computerization project as part of the PHILSSEC project complement.

We DENY. RULED AGAINST SAN MIGUEL

The Court takes judicial notice of the fact that Lipercon and Skillpower were declared to be labor-only
contractors,11 providing as they do manpower services to the public for a fee. The existence of an employer-employee
relationship is factual and we give due deference to the factual findings of both the NLRC and the CA that an employer-
employee relationship existed between SMC (or its subsidiaries) and Maliksi. Indeed, having served SMC for an aggregate
period of more than three (3) years through employment contracts with these two labor contractors, Maliksi should be
considered as SMC’s regular employee. The hard fact is that he was hired and re-hired by SMC to perform administrative and
clerical work that was necessary to SMC’s business on a daily basis. In Bustamante v. National Labor Relations
Commission, 12 we ruled:

In the case at bar, petitioners were employed at various periods from 1985 to 1989 for the same kind of work they were hired
to perform in September 1989. Both the labor arbiter and the respondent NLRC agree that petitioners were employees
engaged to perform activities necessary in the usual business of the employer . As laborers, harvesters or sprayers in an
agricultural establishment which produces high grade bananas, petitioners’ tasks are indispensable to the year-round
operations of respondent company. This belies the theory of respondent company that the employment of petitioners was
terminated due to the expiration of their probationary period in June 1990. If at all significant, the contract for probationary
employment was utilized by respondent company as a chicanery to deny petitioners their status as regular employees and to
evade paying them the benefits attached to such status. Some of the petitioners were hired as far back as 1985, although the
hiring was not continuous. They were hired and re-hired in a span of from two to four years to do the same type of work which
conclusively shows the necessity of petitioners’ service to the respondent company’s business. Petitioners have, therefore,
become regular employees after performing activities which are necessary in the usual business of their employer. But, even
assuming that the activities of petitioners in respondent company’s plantation were not necessary or desirable to its business,
we affirm the public respondent’s finding that all of the complainants (petitioners) have rendered non-continuous or broken
service for more than one (1) year and are consequently considered regular employees.

We find respondent Maliksi to be similarly situated with those of the complainants in Madriaga. Indeed, Lipercon and
Skillpower have figured in not just a few of our decisions, 15 so much so that we are inclined to believe that these two were
involved in labor-only contracting with respect to Maliksi. We hold that the finding of the NLRC and the CA as to SMC’s
resorting to labor-only contracting is entitled to consideration in its full weight.

As to the petitioner’s second assigned error, we hold that there is no need to resolve the present case under the principle
that all doubts should be resolved in favor of the workingman. The perceived doubt does not obtain in the first place.

Ways and means contrived by employers to countermand labor laws granting regular employment status to their workers
are numerous and long. For instance, they toss the poor workers from one job contractor to another, make them go through
endless applications, lining up, paperwork, documentation, and physical examinations; make them sign five- or ten-month-only
job contracts, yet re-hire them after brief "rest periods," but not after requiring them to go through the whole application and
selection process once again; prepare and have them sign waivers, quitclaims, and the like; refuse to issue them identification
cards, receipts or any other concrete proof of employment or documentary proof of payment of their salaries; fail to enroll
them for entitlement to social security and other benefits; give them positions, titles or designations that connote short-term
employment.

Others are more creative: they set up "distributors" or "dealers" which are, in reality, shell or dummy companies. In this
manner, the mother company avoids the employer-employee relations, and is thus shielded from liability from employee claims
in case of illegal dismissal, closure, unfair labor practices and the like. In those instances, the poor employees, finding the shell
or dummy company to be without assets, often end up confused and without recourse as to whom to run after. They sue the
mother company which conveniently sets up the defense of absence of employer-employee relations. In San Miguel
Corporation v. MAERC Integrated Services, Inc.,20 we took note of the practice of hiring employees through labor contractors
that catered exclusively to the employment needs of SMC or its divisions or other specific business interests, such that after the
specific SMC business or division ceases to do business, the labor contractor likewise ceases its operations.

LAKAS SA INDUSTRIYA NG KAPATIRANG HALIGI NG ALYANSA-PINAGBUKLOD NG MANGGAGAWANG PROMO NG

BURLINGAME, petitioner,
vs.
BURLINGAME CORPORATION, respondent.

On January 17, 2000, the petitioner Lakas sa Industriya ng Kapatirang Haligi ng Alyansa-Pinagbuklod ng Manggagawang
Promo ng Burlingame (LIKHA-PMPB) filed a petition for certification election before the Department of Labor and
Employment (DOLE). LIKHA-PMPB sought to represent all rank-and-file promo employees of respondent numbering about 70 in
all.

The respondent filed a motion to dismiss the petition. It argued that there exists no employer-employee relationship between
it and the petitioner’s members. It further alleged that the petitioner’s members are actually employees of F. Garil Manpower
Services (F. Garil), a duly licensed local employment agency. To prove such contention, respondent presented a copy of its
contract for manpower services with F. Garil.

On June 29, 2000, Med-Arbiter Renato D. Parungo dismissed4 the petition for lack of employer-employee relationship,
prompting the petitioner to file an appeal5 before the Secretary of Labor and Employment.

On December 29, 2000, the Secretary of Labor and Employment ordered the immediate conduct of a certification election. 6

A motion for reconsideration of the said decision was filed by the respondent on January 19, 2001, but the same was denied in
the Resolution7 of February 19, 2002 of the Secretary of Labor and Employment.

Respondent then filed a complaint with the Court of Appeals, which then reversed8 the decision of the Secretary. The
petitioner then filed a motion for reconsideration, 9 which the Court of Appeals denied10 on March 15, 2004.

Hence the instant petition for review on certiorari.

The resolution of this issue boils down to a determination of the true status of F. Garil, i.e., whether it is an independent
contractor or a labor-only contractor.

RULING

The case of De Los Santos v. NLRC14 succinctly enunciates the statutory criteria:

Job contracting is permissible only if the following conditions are met:

1) the contractor carries on an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his employer or principal in all
matters connected with the performance of the work except as to the results thereof; and 2) the contractor has substantial
capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in
the conduct of the business.15
According to Section 5 of DOLE Department Order No. 18-02, Series of 2002: 16

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

i) The contractor or sub-contractor 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.

Given the above criteria, we agree with the Secretary that F. Garil is not an independent contractor.

First, F. Garil does not have substantial capitalization or investment in the form of tools, equipment, machineries, work
premises, and other materials, to qualify as an independent contractor. No proof was adduced to show F. Garil’s capitalization.

Second, the work of the promo-girls was directly related to the principal business or operation of Burlingame. Marketing and
selling of products is an essential activity to the main business of the principal.

Lastly, F. Garil did not carry on an independent business or undertake the performance of its service contract according to its
own manner and method, free from the control and supervision of its principal, Burlingame.

The "four-fold test" will show that respondent is the employer of petitioner’s members. The elements to determine the
existence of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer’s power to control the employee’s conduct. The most important element is the
employer’s control of the employee’s conduct, not only as to the result of the work to be done, but also as to the means and
methods to accomplish it.17

It is patent that the involvement of F. Garil in the hiring process was only with respect to the recruitment aspect, i.e. the
screening, testing and pre-selection of the personnel it provided to Burlingame. The actual hiring itself was done through the
deployment of personnel to establishments by Burlingame.

The contract states that Burlingame would pay the workers through F. Garil, stipulating that Burlingame shall pay F. Garil a
certain sum per worker on the basis of eight-hour work every 15 th and 30th of each calendar month. This evinces the fact that F.
Garil merely served as conduit in the payment of wages to the deployed personnel. The interpretation would have been
different if the payment was for the job, project, or services rendered during the month and not on a per worker basis.
In Vinoya v. National Labor Relations Commission,19 we held:

The Court takes judicial notice of the practice of employers who, in order to evade the liabilities under the Labor Code, do not
issue payslips directly to their employees. Under the current practice, a third person, usually the purported contractor (service
or manpower placement agency), assumes the act of paying the wage.

These are indications that F. Garil was not left alone in the supervision and control of its alleged employees. Consequently, it
can be concluded that F. Garil was not an independent contractor since it did not carry a distinct business free from the
control and supervision of Burlingame.

Under this circumstance, there is no doubt that F. Garil was engaged in labor-only contracting, and as such, is considered
merely an agent of Burlingame. In labor-only contracting, the law creates an employer-employee relationship to prevent a
circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is
responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal
employer.21 Since F. Garil is a labor-only contractor, the workers it supplied should be considered as employees of
Burlingame in the eyes of the law.

COCA COLA BOTTLERS PHILS., INC., Petitioners, v. NATIONAL LABOR RELATIONS COMMISSION and RAMON B.
CANONICATO, Respondents. (NOT A REGULAR EMPLOYEE)

On 7 April 1986 COCA COLA entered into a contract of janitorial services with Bacolod Janitorial Services (BJS)

On 26 October 1989 COCA COLA hired private respondent Ramon Canonicato as a casual employee and assigned him to the
bottling crew as a substitute for absent employees. In April 1990 COCA COLA terminated Canonicato’s casual employment.
Later that year COCA COLA availed of Canonicato’s services, this time as a painter in contractual projects which lasted from
fifteen (15) to thirty (30) days. 5

On 1 April 1991 Canonicato was hired as a janitor by BJS 6 which assigned him to COCA COLA considering his familiarity with
its premises. On 5 and 7 March 1992 Canonicato started painting the facilities of COCA COLA and continued doing so several
months thereafter or so for a few days every time until 6 to 25 June 1993. 7

Goaded by information that COCA COLA employed previous BJS employees who filed a complaint against the company for
regularization pursuant to a compromise agreement, Canonicato submitted a similar complaint against COCA COLA to the
Labor Arbiter on 8 June 1993. 9 The complaint was docketed as RAB Case No. 06-06-10337-93.chanrobles law library

Without notifying BJS, Canonicato no longer reported to his COCA COLA assignment starting 29 June 1993. On 15 July 1993 he
sent his sister Rowena to collect his salary from BJS. 10 BJS released his salary but advised Rowena to tell Canonicato to report
for work. Claiming that he was barred from entering the premises of COCA COLA on either 14 or 15 July 1993, Canonicato met
with the proprietress of BJS, Gloria Lacson, who offered him assignments in other firms which he however refused. 11

On 23 July 1993 Canonicato amended his complaint against COCA COLA by citing instead as grounds therefor illegal dismissal
and underpayment of wages. He included BJS therein as a co-respondent. 12 On 28 September 1993 BJS sent him a letter
advising him to report for work within three (3) days from receipt, otherwise, he would be considered to have abandoned his
job. 13

On 28 April 1994 the Labor Arbiter ruled that: (a) there was no employer-employee relationship between COCA COLA and
Ramon Canonicato because BJS was Canonicato’s real employer; (b) BJS was a legitimate job contractor, hence, any liability of
COCA COLA as to Canonicato’s salary or wage differentials was solidary with BJS in accordance with pars. 1 and 2 of Art. 106,
Labor Code; (c) COCA COLA and BJS must jointly and severally pay Canonicato his wage differentials amounting to P2,776.80
and his 13th month salary of P1,068.00, including ten (10%) percent attorney’s fees in the sum of P384.48. The Labor Arbiter
also ordered that all other claims by Canonicato against COCA COLA be dismissed for lack of employer-employee relationship;
that the complaint for illegal dismissal as well as all the other claims be likewise dismissed for lack of merit; and that COCA
COLA and BJS deposit P4,429.28 with the Department of Labor Regional Arbitration Branch Office within ten (10) days from
receipt of the decision. 14

The NLRC rejected on appeal the decision of the Labor Arbiter on the ground that the janitorial services of Canonicato were
found to be necessary or desirable in the usual business or trade of COCA COLA. The NLRC accepted Canonicato’s proposition
that his work with the BJS was the same as what he did while still a casual employee of COCA COLA. In so holding the NLRC
applied Art. 280 of the Labor Code and declared that Canonicato was a regular employee of COCA COLA and entitled to

RULING – in favor of Coca-Cola

We find good cause to sustain petitioner.

In this respect, although janitorial services may be considered directly related to the principal business of an employer, as with
every business, we deemed them unnecessary in the conduct of the employer’s principal business. 19

This judicial notice, of course, rests on the assumption that the independent contractor is a legitimate job contractor so that
there can be no doubt as to the existence of an employer-employee relationship between the contractor and the worker. In this
situation, the only pertinent question that may arise will no longer deal with whether there exists an employment bond but
whether the employee may be considered regular or casual as to deserve the application of Art. 280 of the Labor
Code.chanroblesvirtuallawlibrary:red

It is an altogether different matter when the very existence of an employment relationship is in question. This was the issue
generated by Canonicato’s application for regularization of his employment with COCA COLA and the subsequent denial by
the latter of an employer-employee relationship with the applicant. It was error therefore for the NLRC to apply Art. 280 of
the Labor Code in determining the existence of an employment relationship of the parties herein, especially in light of our
explicit holding in Singer Sewing Machine Company v. Drilon 20 that —. The Court agrees with the petitioner’s argument that
Article 280 is not the yardstick for determining the existence of an employment relationship because it merely distinguishes
between two kinds of employees, i.e., regular employees and casual employees, for purposes of determining the right of an
employee to certain benefits, to join or form a union, or to security of tenure. Article 280 does not apply where the existence
of an employment relationship is in dispute.

In determining the existence of an employer-employee relationship it is necessary to determine whether the following factors
are present: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power to dismiss; and, (d)
the power to control the employee’s conduct. 21 Notably, these are all found in the relationship between BJS and Canonicato
and not between Canonicato and petitioner COCA COLA. As the Solicitor-General manifested 22 —

In the instant case, the selection and engagement of the janitors for petitioner were done by BJS. The application form and
letter submitted by private respondent (Canonicato) to BJS show that he acknowledged the fact that it was BJS who did the
hiring and not petitioner . . .

BJS paid the wages of private respondent, as evidenced by the fact that on July 15, 1993, private respondent sent his sister to
BJS with a note authorizing her to receive his pay.

Power of dismissal is also exercised by BJS and not petitioner. BJS is the one that assigns the janitors to its clients and transfers
them when it sees fit. Since BJS is the one who engages their services, then it only follows that it also has the power to dismiss
them when justified under the circumstances.

Lastly, BJS has the power to control the conduct of the janitors. The supervisors of petitioner, being interested in the result of
the work of the janitors, also give suggestions as to the performance of the janitors, but this does not mean that BJS has no
control over them. The interest of petitioner is only with respect to the result of their work. On the other hand, BJS oversees
the totality of their performance.

The power of the employer to control the work of the employee is said to be the most significant determinant. Canonicato
disputed this power of BJS over him by asserting that his employment with COCA COLA was not interrupted by his application
with BJS since his duties before and after he applied for regularization were the same, involving as they did, working in the
maintenance department and doing painting tasks within its facilities. Canonicato cited the Labor Utilization Reports of COCA
COLA showing his painting assignments. These reports, however, are not expressive of the true nature of the relationship
between Canonicato and COCA COLA; neither do they detract from the fact that BJS exercised real authority over Canonicato as
its employee.

Moreover, a closer scrutiny of the reports reveals that the painting jobs were performed by Canonicato sporadically, either in
a few days within a month and only for a few months in a year. 23 This infrequency or irregularity of assignments countervails
Canonicato’s submission that he was assigned specifically to undertake the task of painting the whole year round. If anything, it
hews closely to the assertion of BJS that it assigned Canonicato to these jobs to maintain and sanitize the premises of petitioner
COCA COLA pursuant to its contract of services with the company. 24

It is clear from these established circumstances that NLRC should have recognized BJS as the employer of Canonicato and not
COCA COLA. This is demanded by the fact that it did not disturb, and therefore it upheld, the finding of the Labor Arbiter that
BJS was truly a legitimate job-contractor and could by itself hire its own employees. The Commission could not have reached
any other legitimate conclusion considering that BJS satisfied all the requirements of a job-contractor under the law, namely,
(a) the ability to carry on an independent business and undertake the contract work on its own account under its own
responsibility according to its own manner and method, free from the control and direction of its principal or client in all
matters connected with the performance of the work except as to the results thereof; and, (b) the substantial capital or
investment in the form of tools, equipment, machinery, work premises, and other materials which are necessary in the conduct
of its business.25cralaw:red

MANILA WATER COMPANY, INC., petitioner,

vs.
HERMINIO D. PENA, ESTEBAN B. BALDOZA, JORGE D. CANONIGO, JR., IKE S. DELFIN, RIZALINO M. INTAL, REY T. MANLEGRO,
JOHN L. MARTEJA, MARLON B. MORADA, ALLAN D. ESPINA, EDUARDO ONG, AGNESIO D. QUEBRAL, EDMUNDO B. VICTA,
VICTOR C. ZAFARALLA, EDILBERTO C. PINGUL and FEDERICO M. RIVERA, respondents.

Petitioner Manila Water Company, Inc. is one of the two private concessionaires contracted by the Metropolitan
Waterworks and Sewerage System (MWSS) to manage the water distribution system in the East Zone of Metro Manila,
pursuant to Republic Act No. 8041, otherwise known as the National Water Crisis Act of 1995. Under the Concession
Agreement, petitioner undertook to absorb former employees of the MWSS whose names and positions were in the list
furnished by the latter, while the employment of those not in the list was terminated on the day petitioner took over the
operation of the East Zone, which was on August 1, 1997. Private respondents, being contractual collectors of the MWSS,
were among the 121 employees not included in the list; nevertheless, petitioner engaged their services without written
contract from August 1, 1997 to August 31, 1997. Thereafter, on September 1, 1997, they signed a three-month contract to
perform collection services for eight branches of petitioner in the East Zone. 2

Before the end of the three-month contract, the 121 collectors incorporated the Association Collectors Group, Inc.
(ACGI),3 which was contracted by petitioner to collect charges for the Balara Branch. Subsequently, most of the 121 collectors
were asked by the petitioner to transfer to the First Classic Courier Services, a newly registered corporation. Only private
respondents herein remained with ACGI. Petitioner continued to transact with ACGI to do its collection needs until February
8, 1999, when petitioner terminated its contract with ACGI.4

Private respondents filed a complaint for illegal dismissal and money claims against petitioner, contending that they were
petitioner’s employees as all the methods and procedures of their collections were controlled by the latter.

On the other hand, petitioner asserts that private respondents were employees of ACGI, an independent contractor. It
maintained that it had no control and supervision over private respondents’ manner of performing their work except as to the
results. Thus, petitioner did not have an employer-employee relationship with the private respondents, but only a service
contractor-client relationship with ACGI.

On May 31, 2000, Labor Arbiter Eduardo J. Carpio rendered a decision finding the dismissal of private respondents illegal. He
held that private respondents were regular employees of petitioner not only because the tasks performed by them were
controlled by it but, also, the tasks were obviously necessary and desirable to petitioner’s principal business.

Both parties appealed to the NLRC, which reversed the decision of the Labor Arbiter and ruled that the documentary
evidence, e.g., letters and memoranda by the petitioner to ACGI regarding the poor performance of the collectors, did not
constitute proof of control since these documents merely identified the erring collectors; the appropriate disciplinary actions
were left to the corporation to impose.6 Further, there was no evidence showing that the incorporation of ACGI was irregular.

Private respondents filed a petition for certiorari with the Court of Appeals, contending that the NLRC acted with grave abuse of
discretion amounting to lack or excess of jurisdiction when it reversed the decision of the Labor Arbiter.

The Court of Appeals reversed the decision of the NLRC

Hence, this petition for review raising the following errors:

The pivotal issue to be resolved in this petition is whether or not there exists an employer-employee relationship between
petitioner and private respondents. Corollary thereto is the issue of whether or not private respondents were illegally
dismissed by petitioner.

The resolution of the foregoing issues initially boils down to a determination of the true status of ACGI, i.e., whether it is an
independent contractor or a labor-only contractor.
Job contracting is permissible only if the following conditions are met: 1) the contractor carries on an independent business
and undertakes the contract work on his own account under his own responsibility according to his own manner and method,
free from the control and direction of his employer or principal in all matters connected with the performance of the work
except as to the results thereof; and 2) the contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of the business.

"Labor-only contracting" as defined in Section 5, Department Order No. 18-02, Rules Implementing Articles 106-109 of the
Labor Code14 refers to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to
perform job, work or service for a principal, and any of the following elements is present:

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

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

Given the above criteria, we agree with the Labor Arbiter that ACGI was not an independent contractor.

First, ACGI does not have substantial capitalization or investment in the form of tools, equipment, machineries, work
premises, and other materials, to qualify as an independent contractor. While it has an authorized capital stock of
P1,000,000.00, only P62,500.00 is actually paid-in, which cannot be considered substantial capitalization. The 121 collectors
subscribed to four shares each and paid only the amount of P625.00 in order to comply with the incorporation
requirements.15 Further, private respondents reported daily to the branch office of the petitioner because ACGI has no office or
work premises. In fact, the corporate address of ACGI was the residence of its president, Mr. Herminio D. Peña. 16 Moreover, in
dealing with the consumers, private respondents used the receipts and identification cards issued by petitioner. 17

Second, the work of the private respondents was directly related to the principal business or operation of the petitioner.
Being in the business of providing water to the consumers in the East Zone, the collection of the charges therefor by private
respondents for the petitioner can only be categorized as clearly related to, and in the pursuit of the latter’s business.

Lastly, ACGI did not carry on an independent business or undertake the performance of its service contract according to its
own manner and method, free from the control and supervision of its principal, petitioner. Prior to private respondents’
alleged employment with ACGI, they were already working for petitioner, subject to its rules and regulations in regard to the
manner and method of performing their tasks. This form of control and supervision never changed although they were already
under the seeming employ of ACGI.

Under this factual milieu, there is no doubt that ACGI was engaged in labor-only contracting, and as such, is considered
merely an agent of the petitioner. In labor-only contracting, the statute creates an employer-employee relationship for a
comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the
principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been
directly employed by the principal employer. 20 Since ACGI is only a labor-only contractor, the workers it supplied should be
considered as employees of the petitioner.

Even the "four-fold test" will show that petitioner is the employer of private respondents. The elements to determine the
existence of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer’s power to control the employee’s conduct. The most important element is the
employer’s control of the employee’s conduct, not only as to the result of the work to be done, but also as to the means and
methods to accomplish it.21

We agree with the Labor Arbiter that in the three stages of private respondents’ services with the petitioner, i.e., (1) from
August 1, 1997 to August 31, 1997; (2) from September 1, 1997 to November 30, 1997; and (3) from December 1, 1997 to
February 8, 1999, the latter exercised control and supervision over the formers’ conduct.

Notably, private respondents performed activities which were necessary or desirable to its principal trade or business. Thus,
they were regular employees of petitioner, regardless of whether the engagement was merely an accommodation of their
request, pursuant to Article 280 of the Labor Code which reads:

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

As such, regular employees, private respondents are entitled to security of tenure which may not be circumvented by mere
stipulation in a subsequent contract that their employment is one with a fixed period. While this Court has upheld the legality
of fixed-term employment, where from the circumstances it is apparent that the periods have been imposed to preclude
acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to public policy and
morals.22

In the case at bar, we find that the term fixed in the subsequent contract was used to defeat the tenurial security which
private respondents already enjoy. Thus, we concur with the Labor Arbiter, as affirmed by the Court of Appeals, when it held
that:

The next question is whether, with respect to the period, the individual contracts are valid. Not all contracts of employment
fixing a period are invalid. Under Article 280, the evil sought to be prevented is singled out: agreements entered into precisely
to circumvent security of tenure. It has no application where a fixed period of employment was agreed upon knowingly and
voluntarily by the parties, without any force, duress or improper pressure being brought upon the employee and absent any
circumstances vitiating his consent, or where it satisfactorily appears that the employer and employee dealt with each other on
more or less terms with no moral dominance whatever being exercised by the former over the latter.

In view of the foregoing, we hold that an employment relationship exists between petitioner and private respondents.

We now proceed to ascertain whether private respondents were dismissed in accordance with law.

As private respondents’ employer, petitioner has the burden of proving that the dismissal was for a cause allowed under the
law and that they were afforded procedural due process. 24 Petitioner failed to discharge this burden by substantial evidence as
it maintained the defense that it was not the employer of private respondents. Having established that the schemes employed
by petitioner were devious attempts to defeat the tenurial rights of private respondents and that it failed to comply with the
requirements of termination under the Labor Code, the dismissal of the private respondent is tainted with illegality.

SAN MIGUEL CORPORATION, petitioner

vs.
PROSPERO A. ABALLA, ET. AL.

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

The pertinent provisions of the contract read:

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

 the cooperative shall employ the necessary personnel and provide adequate equipment, materials, tools and apparatus, to
efficiently, fully and speedily accomplish the work and services undertaken by the cooperative. xxx

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

4. There is no employer-employee relationship between the company and the cooperative, or the cooperative and any of its
members, or the company and any members of the cooperative.

5. The cooperative shall, whenever possible, maintain and keep under its control the premises where the work under this
contract shall be performed.
8. The cooperative undertakes to pay the wages or salaries of its member-workers, as well as all benefits, premiums and
protection in accordance with the provisions of the labor code, cooperative code and other applicable laws and decrees and the
rules and regulations promulgated by competent authorities, assuming all responsibility therefor.

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

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

Private respondents subsequently filed on September 25, 1995 an Amended Complaint4 to include illegal dismissal as
additional cause of action following SMC’s closure of its Bacolod Shrimp Processing Plant on September 15, 1995 5 which
resulted in the termination of their services.

By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents’ complaint for lack of merit.

By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of merit, it finding that third party respondent
Sunflower was an independent contractor 

, the appellate court reversed the NLRC decision and accordingly found for private respondents ,

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

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

xxx

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

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

xxx

xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent contractors. [Sunflower] and the
petitioners did not have substantial capital or investment in the form of tools, equipment, implements, work premises, et
cetera necessary to actually perform the service under their own account, responsibility, and method. The only "work
premises" maintained by [Sunflower] was a small office within the confines of a small "carinderia" or refreshment parlor owned
by the mother of its chair, Roy Asong; the only equipment it owned was a typewriter (rollo, pp. 525-525) and, the only assets it
provided SMC were the bare bodies of its members, the petitioners herein (rollo, p. 523).

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

Besides, it should be taken into account that the activities undertaken by the petitioners as cleaners, janitors, messengers and
shrimp harvesters, packers and handlers were directly related to the aquaculture business of SMC (See Guarin vs. NLRC, 198
SCRA 267, 273). This is confirmed by the renewal of the service contract from January 1993 to September 1995, a period of
close to three (3) years.
Moreover, the petitioners here numbering ninety seven (97), by itself, is a considerable workforce and raises the suspicion that
the non-exclusive service contract between SMC and [Sunflower] was "designed to evade the obligations inherent in an
employer-employee relationship" (See Rhone-Poulenc Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249, 259).

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

xxx

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

RULING

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

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

 the technicalities of law and procedure and the rules obtaining in the courts of law shall not strictly apply thereto.

 There is no showing at all that any of the affidavits of the thirty-four (34) complainants were offered as evidence for those who
did not submit their affidavits, or that such affidavits had any bearing at all on the rights and interest of the latter. In the same
vein, private respondent’s position paper was not of any help to these delinquent complainants.

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

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

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

On the merits, the petition just the same fails.

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

Article 106 of the Labor Code provides:

ART. 106. Contractor or subcontracting. – Whenever an employer enters into a contract with another person for the
performance of the 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 may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of
workers established under the Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only
contracting and job contracting as well as differentiations within these types of contracting and determine who among the
parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any
provision of this Code.

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

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

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

Section 5. Prohibition against labor-only contracting. Labor-only contracting 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 test to determine the existence of independent contractorship is whether one claiming to be an independent contractor
has contracted to do the work according to his own methods and without being subject to the control of the employer,
except only as to the results of the work.49

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

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

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

What appears is that Sunflower does not have substantial capitalization or investment in the form of tools, equipment,
machineries, work premises and other materials to qualify it as an independent contractor.
And from the job description provided by SMC itself, the work assigned to private respondents was directly related to the
aquaculture operations of SMC. Undoubtedly, the nature of the work performed by private respondents in shrimp harvesting,
receiving and packing formed an integral part of the shrimp processing operations of SMC. As for janitorial and messengerial
services, that they are considered directly related to the principal business of the employer 58 has been jurisprudentially
recognized.

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

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

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

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

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

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

EFFECTS OF FINDING

Since private respondents who were engaged in shrimp processing performed tasks usually necessary or desirable in the
aquaculture business of SMC, they should be deemed regular employees of the latter 66 and as such are entitled to all the
benefits and rights appurtenant to regular employment.67 They should thus be awarded differential pay corresponding to the
difference between the wages and benefits given them and those accorded SMC’s other regular employees.1awphi1.zw+

Those performing janitorial and messengerial services however acquired regular status only after rendering one-year
service pursuant to Article 280 of the Labor Code. Although janitorial and messengerial services are considered directly related
to the aquaculture business of SMC, they are deemed unnecessary in the conduct of its principal business; hence, the
distinction

The law of course provides for two kinds of regular employees, namely: (1) those who are engaged to perform activities which
are usually necessary or desirable in the usual business or trade of the employer; and (2) those who have rendered at least one
year of service, whether continuous or broken, with respect to the activity in which they are employed. 69

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

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

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

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

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

For retrenchment to be considered valid the following substantial requirements must be met: (a) the losses expected should
be substantial and not merely de minimis in extent; (b) the substantial losses apprehended must be reasonably imminent such
as can be perceived objectively and in good faith by the employer; (c) the retrenchment must be reasonably necessary and
likely to effectively prevent the expected losses; and (d) the alleged losses, if already incurred, and the expected imminent
losses sought to be forestalled, must be proved by sufficient and convincing evidence.73

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

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

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

Where the dismissal is based on an authorized cause under Article 283 of the Labor Code but the employer failed to comply
with the notice requirement, the sanction should be stiff as the dismissal process was initiated by the employer’s exercise of
his management prerogative, as opposed to a dismissal based on a just cause under Article 282 with the same procedural
infirmity where the sanction to be imposed upon the employer should be tempered as the dismissal process was, in effect,
initiated by an act imputable to the employee.79

In light of the factual circumstances of the case at bar, this Court awards ₱50,000.00 to each private respondent as nominal
damages.

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

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

With respect to attorney’s fees, in actions for recovery of wages or where an employee was forced to litigate and thus
incurred expenses to protect his rights and interests, 82 a maximum of ten percent (10%) of the total monetary award 83 by
way of attorney’s fees is justifiable under Article 111 of the Labor Code,84 Section 8, Rule VIII, Book III of its Implementing
Rules,85 and paragraph 7, Article 2208 of the Civil Code .86 Although an express finding of facts and law is still necessary to prove
the merit of the award, there need not be any showing that the employer acted maliciously or in bad faith when it withheld the
wages. There need only be a showing that the lawful wages were not paid accordingly, as in this case. 87
Absent any evidence showing that Sunflower has been dissolved in accordance with law, pursuant to Rule VIII-A, Section 19 88 of
the Omnibus Rules Implementing the Labor Code, Sunflower is held solidarily liable with SMC for all the rightful claims of
private respondents.

PRISCO LANZADERAS, SAMUEL SADICON, ANGELO MABANTA, VICENTE GIBERSON, LONGINO NAMBATAC, ELENO ACERON,
and SALVADOR VIRTUDAZO, Petitioners,
vs.
AMETHYST SECURITY AND GENERAL SERVICES, INC. (Formerly CALMAR SECURITY AGENCY), RESIN INDUSTRIAL CHEMICAL
CORP., ENGR. ROBERTO TOGLE, Resident Manager, AND/OR PHIL. IRON CONSTRUCTION AND MARINE WORKS,
INC., Respondents.

Petitioners were the complainants in RAB CASES NO. 10-03-00233-98, 10-03-00234-98, and 10-04-00254-98. These were
consolidated cases for alleged illegal dismissal with money claims against sister companies Resin Industrial Chemical Corp.,
(RICC) and Philippine Iron Construction and Marine Works, Inc., (PICMW) and their security services provider, Amethyst
Security and General Services Inc. (formerly Calmar Security Agency). The Labor Arbiter in a decision4 dated November 27,
1998 found in favor of complainants (herein petitioners). Respondents herein filed their appeal with the NLRC. And the NLRC in
a resolution5 dated March 19, 1999 reversed and set aside the ruling of the Labor Arbiter. Then in a resolution 6 dated October
29, 1999, the NLRC denied herein petitioners’ motion for reconsideration.

Respondent RICC is engaged in the manufacture of industrial glue at Nahalinan, Jasaan, Misamis Oriental. It leased a portion of
its compound to its sister company, PICMW, which operated a shipbuilding and repair facility. To secure their properties and
personnel, RICC and PICMW entered into separate service contracts for detailing of security guards with respondent
Amethyst Security. Amethyst had been RICC/PICMW’s security contractor since 1968.

One of the conditions of the service contracts between Amethyst and RICC/PICMW was for Amethyst to supply the latter
companies with security guards who must be between 25 to 45 years of age.

On January 30, 1998, petitioners who were at that time over 45 years of age received Memorandum/Relief Orders 10 relieving
them from their existing postings as security guards of Amethyst with RICC/PICMW,

According to respondent Amethyst, it gave petitioners the option to either continue working for PICMW as firewatchers or
be transferred to Cagayan de Oro for new assignments. The respondents alleged that the petitioners chose neither option
but instead failed to report for work on February 1, 1998. Thereafter, petitioners filed on March 23, 1998 and April 2, 1998,
their separate complaints for illegal dismissal.13

On November 27, 1998, the Labor Arbiter ruled that the petitioners had been constructively dismissed

The respondents appealed to the NLRC alleging grave abuse of discretion on the part of the Labor Arbiter. The NLRC reversed
and set aside the decision of the Labor Arbiter on the ground that the relief of the petitioners from their posts was a
legitimate exercise of business prerogative by RICC/PICMW.

the Court of Appeals dismissed the petition outright

Hence this petition for review,

Moreover, on the second issue, which we now consider only for the purpose of resolving this matter completely, petitioners
aver that the age requirement for posting of guards at RICC/PICMW was a new provision in the service contract. This averment
is inaccurate. Admittedly, the security services contract between Amethyst (formerly Calmar) Security Agency and RICC/PICMW
had continuously been renewed since 1968 and featured the particular provision on the age limit (not exceeding 45 years) of
the security guards with each renewal.31 Petitioners could not claim ignorance of the said provision. They could not claim to be
have been caught by surprise when Amethyst relieved them from their posting at RICC/PICMW due to their failure to meet the
stipulated age limits. Petitioners acted in bad faith when they tried to mislead Amethyst as to their respective actual age.

Lastly, petitioners’ claims of constructive dismissal could not be sustained.1âwphi1 Their averments fall short of what this
Court considers as constructive dismissal. Petitioners could not fairly claim involuntary resignation on the ground that their
continued employment was rendered impossible, unreasonable or unlikely.32 Neither could they show persuasively that their
transfer or assignment from security guards to firewatch guards involved diminution in pay or demotion in rank. Nor was
there a clear showing of an act of clear discrimination, insensibility or disdain by their employer - Amethyst - that made their
employment so unbearable that it could foreclose any option by them except to forego their continued employment. 33

The condition imposed by respondent RICC/PICMW, as a principal or client of the contractor Amethyst, regarding the age
requirement of the security guards to be designated in its compound, is a valid contractual stipulation. It is an inherent right
of RICC/PICMW, as the principal or client, to specify the qualifications of the guards who shall render service pursuant to a
service contract. It stands to reason that in a service contract, the client may require from the service contractor that the
personnel assigned to the client should meet certain standards and possess certain qualifications, conformably to the client’s
needs.

Security of tenure, although provided in the Constitution, 34 does not give an employee an absolute vested right in a position
as would deprive the company of its prerogative to change their assignment or transfer them where they will be most useful.
When a transfer is not unreasonable, nor inconvenient, nor prejudicial to an employee; and it does not involve a demotion in
rank or diminution of his pay, benefits, and other privileges, the employee may not complain that it amounts to a constructive
dismissal.35

Petitioners, however, refused to report to Amethyst headquarters, despite knowledge that they were being called to receive
instructions regarding new deployment. Petitioners’ action not to report for work is a form of defiant action that petitioners
failed to justify. Even if it could be argued that their collective action stemmed from their resentment against the age rule being
enforced by Amethyst, we find nothing in the circumstances of this case to show sufficient reason to excuse petitioners’ failure
to heed management’s exercise of a management prerogative.

LIABILITY

Thus, we agree with respondents that there is no reason to hold Amethyst liable for violations claimed by petitioners. It
follows also that we find no ground to hold co-respondents RICC/PICMW liable, except for salary differential ordered in the
NLRC decision. The only time the indirect employer may be made solidarily liable with the contractor is when the contractor
fails to pay his employees their wages and other benefits claimed.

WHEREFORE, the petition is DENIED. The assailed resolutions of the Court of Appeals in CA-G.R. SP No. 56347 are AFFIRMED. As
ordered in the NLRC decision dated November 27, 1998, respondents must pay jointly and severally petitioners’ salary
differential only for the period December 18, 1997 to January 31, 1998, as follows: ₱289.86 each to petitioners Prisco
Lanzaderas, Samuel Sadicon, and Angelo Mabanta; and ₱366.24 each to petitioners Vicente Giberson, Longino Nambatac,
Salvador Virtudazo, and Eleno Aceron. No pronouncement as to costs.

NITTO ENTERPRISES, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and ROBERTO CAPILI, respondents.

Petitioner Nitto Enterprises, a company engaged in the sale of glass and aluminum products, hired Roberto Capili sometime
in May 1990 as an apprentice machinist, molder and core maker as evidenced by an apprenticeship agreement2 for a period of
six (6) months from May 28, 1990 to November 28, 1990 with a daily wage rate of P66.75 which was 75% of the applicable
minimum wage.

At around 1:00 p.m. of August 2, 1990, Roberto Capili who was handling a piece of glass which he was working on, accidentally
hit and injured the leg of an office secretary who was treated at a nearby hospital.

Later that same day, after office hours, private respondent entered a workshop within the office premises which was not his
work station. There, he operated one of the power press machines without authority and in the process injured his left thumb.
Petitioner spent the amount of P1,023.04 to cover the medication of private respondent.
The following day, Roberto Capili was asked to resign in a letter3 which reads:

On August 3, 1990 private respondent executed a Quitclaim and Release in favor of petitioner for and in consideration of the
sum of P1,912.79.4

Three days after, or on August 6, 1990, private respondent formally filed before the NLRC Arbitration Branch, National Capital
Region a complaint for illegal dismissal and payment of other monetary benefits.

On October 9, 1991, the Labor Arbiter rendered his decision finding the termination of private respondent as valid and
dismissing the money claim for lack of merit. The dispositive portion of the ruling reads:

On July 26, 1993, the National Labor Relations Commission issued an order reversing the decision of the Labor Arbiter, the
dispositive portion of which reads:

The NLRC declared that private respondent was a regular employee

Hence, the instant petition — for certiorari.

We find no merit in the petition. CAPILI IS NOT AN APPRENTICE. BUT A REGULAR EMPLOYEE.

Petitioner further insists that the mere signing of the apprenticeship agreement already established an employer-apprentice
relationship.

Petitioner's argument is erroneous.

The law is clear on this matter. Article 61 of the Labor Code provides:

Contents of apprenticeship agreement. — Apprenticeship agreements, including the main rates of apprentices, shall conform
to the rules issued by the Minister of Labor and Employment. The period of apprenticeship shall not exceed six months.
Apprenticeship agreements providing for wage rates below the legal minimum wage, which in no case shall start below 75% per
cent of the applicable minimum wage, may be entered into only in accordance with apprenticeship program duly approved by
the Minister of Labor and Employment. The Ministry shall develop standard model programs of apprenticeship. (emphasis
supplied)

In the case at bench, the apprenticeship agreement between petitioner and private respondent was executed on May 28, 1990
allegedly employing the latter as an apprentice in the trade of "care maker/molder." On the same date, an apprenticeship
program was prepared by petitioner and submitted to the Department of Labor and Employment. However, the apprenticeship
Agreement was filed only on June 7, 1990. Notwithstanding the absence of approval by the Department of Labor and
Employment, the apprenticeship agreement was enforced the day it was signed.

Based on the evidence before us, petitioner did not comply with the requirements of the law. It is mandated that
apprenticeship agreements entered into by the employer and apprentice shall be entered only in accordance with the
apprenticeship program duly approved by the Minister of Labor and Employment.

Prior approval by the Department of Labor and Employment of the proposed apprenticeship program is, therefore, a
condition sine quo non before an apprenticeship agreement can be validly entered into.

Hence, since the apprenticeship agreement between petitioner and private respondent has no force and effect in the absence
of a valid apprenticeship program duly approved by the DOLE, private respondent's assertion that he was hired not as an
apprentice but as a delivery boy ("kargador" or "pahinante") deserves credence. He should rightly be considered as a regular
employee of petitioner as defined by Article 280 of the Labor Code:

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

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That, any employee who
has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee
with respect to the activity in which he is employed and his employment shall continue while such activity exists. (Emphasis
supplied)and pursuant to the constitutional mandate to "protect the rights of workers and promote their welfare." 9

MARITES BERNARDO, ET. AL petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION and FAR EAST BANK AND TRUST COMPANY, respondents.

Complainants numbering 43 (p. 176, Records) are deaf-mutes who were hired on various periods from 1988 to 1993 by
respondent Far East Bank and Trust Co. as Money Sorters and Counters through a uniformly worded agreement called
"Employment Contract for Handicapped Workers".

In 1988, two (2) deaf-mutes were hired under this Agreement; in 1989 another two (2); in 1990, nineteen (19); in 1991 six (6); in
1992, six (6) and in 1993, twenty-one (21). Their employment[s] were renewed every six months such that by the time this
case arose, there were fifty-six (56) deaf-mutes who were employed by respondent under the said employment agreement.
The last one was Thelma Malindoy who was employed in 1992 and whose contract expired on July 1993.

the labor arbiter and, on appeal, the NLRC ruled against herein petitioners.

The Ruling of the NLRC ------ We agree that Art. 280 is not controlling herein. We give due credence to the conclusion that
complainants were hired as an accommodation to [the] recommendation of civic oriented personalities whose employment[s]
were covered by . . . Employment Contract[s] with special provisions on duration of contract as specified under Art. 80. Hence,
as correctly held by the Labor Arbiter a quo, the terms of the contract shall be the law between the parties. 10

This Court's Ruling

The petition is meritorious. However, only the employees, who worked for more than six months and whose contracts were
renewed are deemed regular. Hence, their dismissal from employement was illegal.

Are Petitioners Regular Employee?

Petitioners maintain that they should be considered regular employees, because their task as money sorters and counters was
necessary and desirable to the business of respondent bank. They further allege that their contracts served merely to preclude
the application of Article 280 and to bar them from becoming regular employees.

Private respondent, on the other hand, submits that petitioners were hired only as "special workers and should not in any way
be considered as part of the regular complement of the Bank." 12 Rather, they were "special" workers under Article 80 of the
Labor Code. Private respondent contends that it never solicited the services of petitioners, whose employment was merely an
"accommodation" in response to the requests of government officials and civic-minded citizens. They were told from the start,
"with the assistance of government representatives," that they could not become regular employees because there were no
plantilla positions for "money sorters," whose task used to be performed by tellers. Their contracts were renewed several
times, not because of need "but merely for humanitarian reasons." Respondent submits that "as of the present, the "special
position" that was created for the petitioners no longer exist[s] in private respondent [bank], after the latter had decided not to
renew anymore their special employment contracts."

At the outset, let it be known that this Court appreciates the nobility of private respondent's effort to provide employment to
physically impaired individuals and to make them more productive members of society. However, we cannot allow it to elude
the legal consequences of that effort, simply because it now deems their employment irrelevant. The facts, viewed in light of
the Labor Code and the Magna Carta for Disabled Persons, indubitably show that the petitioners, except sixteen of them,
should be deemed regular employees. As such, they have acquired legal rights that this Court is duty-bound to protect and
uphold, not as a matter of compassion but as a consequence of law and justice.

Respondent bank entered into the aforesaid contract with a total of 56 handicapped workers and renewed the contracts of
37 of them. In fact, two of them worked from 1988 to 1993. Verily, the renewal of the contracts of the handicapped workers
and the hiring of others lead to the conclusion that their tasks were beneficial and necessary to the bank. More important,
these facts show that they were qualified to perform the responsibilities of their positions. In other words, their disability did
not render them unqualified or unfit for the tasks assigned to them.
In this light, the Magna Carta for Disabled Persons mandates that a qualified disabled employee should be given the same
terms and conditions of employment as a qualified able-bodied person. Section 5 of the Magna Carta provides:

Sec. 5. Equal Opportunity for Employment. — No disabled person shall be denied access to opportunities for suitable
employment. A qualified disabled employee shall be subject to the same terms and conditions of employment and the same
compensation, privileges, benefits, fringe benefits, incentives or allowances as a qualified able bodied person.

The fact that the employees were qualified disabled persons necessarily removes the employment contracts from the ambit
of Article 80. Since the Magna Carta accords them the rights of qualified able-bodied persons, they are thus covered by Article
280 of the Labor Code, which provides:

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

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That, any employee
who has rendered at least one year of service, whether such service is continuous or broken, shall be considered as regular
employee with respect to the activity in which he is employed and his employment shall continue while such activity exists.

The test of whether an employee is regular was laid down in De Leon v. NLRC, 14 in which this Court held:

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

Without a doubt, the task of counting and sorting bills is necessary and desirable to the business of respondent bank. With
the exception of sixteen of them, petitioners performed these tasks for more than six months.

As held by the Court, "Articles 280 and 281 of the Labor Code put an end to the pernicious practice of making permanent
casuals of our lowly employees by the simple expedient of extending to them probationary appointments, ad infinitum."15 The
contract signed by petitioners is akin to a probationary employment, during which the bank determined the employees' fitness
for the job. When the bank renewed the contract after the lapse of the six-month probationary period, the employees
thereby became regular employees. 16 No employer is allowed to determine indefinitely the fitness of its employees.

As regular employees, the twenty-seven petitioners are entitled to security of tenure; that is, their services may be
terminated only for a just or authorized cause. Because respondent failed to show such cause, 17 these twenty-seven
petitioners are deemed illegally dismissed and therefore entitled to back wages and reinstatement without loss of seniority
rights and other privileges. 18 Considering the allegation of respondent that the job of money sorting is no longer available
because it has been assigned back to the tellers to whom it originally belonged, 18 petitioners are hereby awarded separation
pay in lieu of reinstatement. 20

Applicability of the

Brent Ruling

 Provisions of applicable statutes are deemed written into the contract, and the "parties are not at liberty to insulate
themselves and their relationships from the impact of labor laws and regulations by simply contracting with each
other." 23 Clearly, the agreement of the parties regarding the period of employment cannot prevail over the provisions of the
Magna Carta for Disabled Persons, which mandate that petitioners must be treated as qualified able-bodied employees.

Other Grounds Cited by Respondent

Respondent argues that petitioners were merely "accommodated" employees. This fact does not change the nature of their
employment. As earlier noted, an employee is regular because of the nature of work and the length of service, not because of
the mode or even the reason for hiring them.

The well-settled rule is that the character of employment is determined not by stipulations in the contract, but by the nature
of the work performed. 26 Otherwise, no employee can become regular by the simple expedient of incorporating this condition
in the contract of employment.

At this juncture, the leading case of Brent School, Inc. v.  Zamora proves instructive. As reaffirmed in subsequent cases, this
Court has upheld the legality of fixed-term employment. It ruled that the decisive determinant in "term employment" should
not be the activities that the employee is called upon to perform but the day certain agreed upon the parties for the
commencement and termination of their employment relationship. But this Court went on to say that where from the
circumstances it is apparent that the periods have been imposed to preclude acquisition of tenurial security by the
employee, they should be struck down or disregarded as contrary to public policy and morals.