G.R. No. L-69870 November 29, 1988 NATIONAL SERVICE CORPORATION (NASECO) AND ARTURO L. PEREZ, petitioners, vs.

THE HONORABLE THIRD DIVISION, NATIONAL LABOR RELATIONS COMMISSION, MINISTRY OF LABOR AND EMPLOYMENT, MANILA AND EUGENIA C. CREDO, respondents. G.R. No. 70295 November 29,1988 EUGENIA C. CREDO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, NATIONAL SERVICES CORPORATION AND ARTURO L. PEREZ, respondents. The Chief Legal Counsel for respondents NASECO and Arturo L. Perez. Melchor R. Flores for petitioner Eugenia C. Credo.

PADILLA, J.: Consolidated special civil actions for certiorari seeking to review the decision * of the Third Division, National Labor Relations Commission in Case No. 11-4944-83 dated 28 November 1984 and its resolution dated 16 January 1985 denying motions for reconsideration of said decision. Eugenia C. Credo was an employee of the National Service Corporation (NASECO), a domestic corporation which provides security guards as well as messengerial, janitorial and other similar manpower services to the Philippine National Bank (PNB) and its agencies. She was first employed with NASECO as a lady guard on 18 July 1975. Through the years, she was promoted to Clerk Typist, then Personnel Clerk until she became Chief of Property and Records, on 10 March 1980. 1 Sometime before 7 November 1983, Credo was administratively charged by Sisinio S. Lloren, Manager of Finance and Special Project and Evaluation Department of NASECO, stemming from her noncompliance with Lloren's memorandum, dated 11 October 1983, regarding certain entry procedures in the company's Statement of Billings Adjustment. Said charges alleged that Credo "did not comply with Lloren's instructions to place some corrections/additional remarks in the Statement of Billings Adjustment; and when [Credo] was called by Lloren to his office to explain further the said instructions, [Credo] showed resentment and behaved in a scandalous manner by shouting and uttering remarks of disrespect in the presence of her co-employees." 2 On 7 November 1983, Credo was called to meet Arturo L. Perez, then Acting General Manager of NASECO, to explain her side before Perez and NASECO's Committee on Personnel Affairs in connection with the administrative charges filed against her. After said meeting, on the same date, Credo was placed on "Forced Leave" status for 1 5 days, effective 8 November 1983. 3 Before the expiration of said 15-day leave, or on 18 November 1983, Credo filed a complaint, docketed as Case No. 114944-83, with the Arbitration Branch, National Capital Region, Ministry of Labor and Employment, Manila, against NASECO for placing her on forced leave, without due process. 4 Likewise, while Credo was on forced leave, or on 22 November 1983, NASECO's Committee on Personnel Affairs deliberated and evaluated a number of past acts of misconduct or infractions attributed to her. 5 As a result of this deliberation, said committee resolved: 1. That, respondent [Credo] committed the following offenses in the Code of Discipline, viz: OFFENSE vs. Company Interest & Policies

No. 3 Any discourteous act to customer, officer and employee of client company or officer of the Corporation. OFFENSE vs. Public Moral No. 7 Exhibit marked discourtesy in the course of official duties or use of profane or insulting language to any superior officer. OFFENSE vs. Authority No. 3 Failure to comply with any lawful order or any instructions of a superior officer. 2. That, Management has already given due consideration to respondent's [Credo] scandalous actuations for several times in the past. Records also show that she was reprimanded for some offense and did not question it. Management at this juncture, has already met its maximum tolerance point so it has decided to put an end to respondent's [Credo] being an undesirable employee. 6 The committee recommended Credo's termination, with forfeiture of benefits.
7

On 1 December 1983, Credo was called age to the office of Perez to be informed that she was being charged with certain offenses. Notably, these offenses were those which NASECO's Committee on Personnel Affairs already resolved, on 22 November 1983 to have been committed by Credo. In Perez's office, and in the presence of NASECO's Committee on Personnel Affairs, Credo was made to explain her side in connection with the charges filed against her; however, due to her failure to do so, 8 she was handed a Notice of Termination, dated 24 November 1983, and made effective 1 December 1983. 9 Hence, on 6 December 1983, Credo filed a supplemental complaint for illegal dismissal in Case No. 11-4944-83, alleging absence of just or authorized cause for her dismissal and lack of opportunity to be heard. 10 After both parties had submitted their respective position papers, affidavits and other documentary evidence in support of their claims and defenses, on 9 May 1984, the labor arbiter rendered a decision: 1) dismissing Credo's complaint, and 2) directing NASECO to pay Credo separation pay equivalent to one half month's pay for every year of service. 11 Both parties appealed to respondent National Labor Relations Commission (NLRC) which, on 28 November 1984, rendered a decision: 1) directing NASECO to reinstate Credo to her former position, or substantially equivalent position, with six (6) months' backwages and without loss of seniority rights and other privileges appertaining thereto, and 2) dismissing Credo's claim for attorney's fees, moral and exemplary damages. As a consequence, both parties filed their respective motions for reconsideration, 12 which the NLRC denied in a resolution of 16 January 1985. 13 Hence, the present recourse by both parties. In G.R. No. 68970, petitioners challenge as grave abuse of discretion the dispositive portion of the 28 November 1984 decision which ordered Credo's reinstatement with backwages. 14 Petitioners contend that in arriving at said questioned order, the NLRC acted with grave abuse of discretion in finding that: 1) petitioners violated the requirements mandated by law on termination, 2) petitioners failed in the burden of proving that the termination of Credo was for a valid or authorized cause, 3) the alleged infractions committed by Credo were not proven or, even if proved, could be considered to have been condoned by petitioners, and 4) the termination of Credo was not for a valid or authorized cause. 15 On the other hand, in G.R. No. 70295, petitioner Credo challenges as grave abuse of discretion the dispositive portion of the 28 November 1984 decision which dismissed her claim for attorney's fees, moral and exemplary damages and limited her right to backwages to only six (6) months. 16 As guidelines for employers in the exercise of their power to dismiss employees for just causes, the law provides that:

Section 2. Notice of dismissal. Any employer who seeks to dismiss a worker shall furnish him a written notice stating the particular acts or omission constituting the grounds for his dismissal. xxx xxx xxx Section 5. Answer and Hearing. The worker may answer the allegations stated against him in the notice of dismissal within a reasonable period from receipt of such notice. The employer shall afford the worker ample opportunity to be heard and to defend himself with the assistance of his representative, if he so desires. Section 6. Decision to dismiss. The employer shall immediately notify a worker in writing of a decision to dismiss him stating clearly the reasons therefor. 17 These guidelines mandate that the employer furnish an employee sought to be dismissed two (2) written notices of dismissal before a termination of employment can be legally effected. These are the notice which apprises the employee of the particular acts or omissions for which his dismissal is sought and the subsequent notice which informs the employee of the employer's decision to dismiss him. Likewise, a reading of the guidelines in consonance with the express provisions of law on protection to labor 18(which encompasses the right to security of tenure) and the broader dictates of procedural due process necessarily mandate that notice of the employer's decision to dismiss an employee, with reasons therefor, can only be issued after the employer has afforded the employee concerned ample opportunity to be heard and to defend himself. In the case at bar, NASECO did not comply with these guidelines in effecting Credo's dismissal. Although she was apprised and "given the chance to explain her side" of the charges filed against her, this chance was given so perfunctorily, thus rendering illusory Credo's right to security of tenure. That Credo was not given ample opportunity to be heard and to defend herself is evident from the fact that the compliance with the injunction to apprise her of the charges filed against her and to afford her a chance to prepare for her defense was dispensed in only a day. This is not effective compliance with the legal requirements aforementioned. The fact also that the Notice of Termination of Credo's employment (or the decision to dismiss her) was dated 24 November 1983 and made effective 1 December 1983 shows that NASECO was already bent on terminating her services when she was informed on 1 December 1983 of the charges against her, and that any hearing which NASECO thought of affording her after 24 November 1983 would merely be pro forma or an exercise in futility. Besides, Credo's mere non-compliance with Lorens memorandum regarding the entry procedures in the company's Statement of Billings Adjustment did not warrant the severe penalty of dismissal of the NLRC correctly held that: ... on the charge of gross discourtesy, the CPA found in its Report, dated 22 November 1983 that, "In the process of her testimony/explanations she again exhibited a conduct unbecoming in front of NASECO Officers and argued to Mr. S. S. Lloren in a sarcastic and discourteous manner, notwithstanding, the fact that she was inside the office of the Acctg. General Manager." Let it be noted, however, that the Report did not even describe how the so called "conduct unbecoming" or "discourteous manner" was done by complainant. Anent the "sarcastic" argument of complainant, the purported transcript 19 of the meeting held on 7 November 1983 does not indicate any sarcasm on the part of complainant. At the most, complainant may have sounded insistent or emphatic about her work being more complete than the work of Ms. de Castro, yet, the complaining officer signed the work of Ms. de Castro and did not sign hers. As to the charge of insubordination, it may be conceded, albeit unclear, that complainant failed to place same corrections/additional remarks in the Statement of Billings Adjustments as instructed. However, under the circumstances obtaining, where complainant strongly felt that she was being discriminated against by her superior in relation to other employees, we are of the considered view and so hold, that a reprimand would have sufficed for the infraction, but certainly not termination from services. 20

As this Court has ruled: ... where a penalty less punitive would suffice, whatever missteps may be committed by labor ought not to be visited with a consequence so severe. It is not only because of the law's concern for the working man. There is, in addition, his family to consider. Unemployment brings untold hardships and sorrows on those dependent on the wageearner. 21 Of course, in justifying Credo's termination of employment, NASECO claims as additional lawful causes for dismissal Credo's previous and repeated acts of insubordination, discourtesy and sarcasm towards her superior officers, alleged to have been committed from 1980 to July 1983. 22 If such acts of misconduct were indeed committed by Credo, they are deemed to have been condoned by NASECO. For instance, sometime in 1980, when Credo allegedly "reacted in a scandalous manner and raised her voice" in a discussion with NASECO's Acting head of the Personnel Administration 23 no disciplinary measure was taken or meted against her. Nor was she even reprimanded when she allegedly talked 'in a shouting or yelling manner" with the Acting Manager of NASECO's Building Maintenance and Services Department in 1980 24 or when she allegedly "shouted" at NASECO's Corporate Auditor "in front of his subordinates displaying arrogance and unruly behavior" in 1980, or when she allegedly shouted at NASECO's Internal Control Consultant in 1981. 25But then, in sharp contrast to NASECO's penchant for ignoring the aforesaid acts of misconduct, when Credo committed frequent tardiness in August and September 1983, she was reprimanded. 26 Even if the allegations of improper conduct (discourtesy to superiors) were satisfactorily proven, NASECO's condonation thereof is gleaned from the fact that on 4 October 1983, Credo was given a salary adjustment for having performed in the job "at least [satisfactorily]" 27 and she was then rated "Very Satisfactory" 28as regards job performance, particularly in terms of quality of work, quantity of work, dependability, cooperation, resourcefulness and attendance. Considering that the acts or omissions for which Credo's employment was sought to be legally terminated were insufficiently proved, as to justify dismissal, reinstatement is proper. For "absent the reason which gave rise to [the employee's] separation from employment, there is no intention on the part of the employer to dismiss the employee concerned." 29 And, as a result of having been wrongfully dismissed, Credo is entitled to three (3) years of backwages without deduction and qualification. 30 However, while Credo's dismissal was effected without procedural fairness, an award of exemplary damages in her favor can only be justified if her dismissal was effected in a wanton, fraudulent, oppressive or malevolent manner.31 A judicious examination of the record manifests no such conduct on the part of management. However, in view of the attendant circumstances in the case, i.e., lack of due process in effecting her dismissal, it is reasonable to award her moral damages. And, for having been compelled to litigate because of the unlawful actuations of NASECO, a reasonable award for attorney's fees in her favor is in order. In NASECO's comment 32 in G.R. No. 70295, it is belatedly argued that the NLRC has no jurisdiction to order Credo's reinstatement. NASECO claims that, as a government corporation (by virtue of its being a subsidiary of the National Investment and Development Corporation (NIDC), a subsidiary wholly owned by the Philippine National Bank (PNB), which in turn is a government owned corporation), the terms and conditions of employment of its employees are governed by the Civil Service Law, rules and regulations. In support of this argument, NASECO cites National Housing Corporation vs. JUCO, 33 where this Court held that "There should no longer be any question at this time that employees of government-owned or controlled corporations are governed by the civil service law and civil service rifles and regulations." It would appear that, in the interest of justice, the holding in said case should not be given retroactive effect, that is, to cases that arose before its promulgation on 17 January 1985. To do otherwise would be oppressive to Credo and other employees similarly situated, because under the same 1973 Constitution ,but prior to the ruling inNational Housing Corporation vs. Juco, this Court had recognized the applicability of the Labor Code to, and the authority of the NLRC to exercise jurisdiction over, disputes involving terms and conditions of employment in government owned or controlled corporations, among them, the National Service Corporation (NASECO). <re||an1w> 34

Furthermore, in the matter of coverage by the civil service of government-owned or controlled corporations, the 1987 Constitution starkly varies from the 1973 Constitution, upon which National Housing Corporation vs. Juco is based. Under the 1973 Constitution, it was provided that: The civil service embraces every branch, agency, subdivision, and instrumentality of the Government, including every government-owned or controlled corporation. ... 35 On the other hand, the 1987 Constitution provides that: The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charter. 36 (Emphasis supplied) Thus, the situations sought to be avoided by the 1973 Constitution and expressed by the Court in the National Housing . Corporation case in the following manner The infirmity of the respondents' position lies in its permitting a circumvention or emasculation of Section 1, Article XII-B of the constitution. It would be possible for a regular ministry of government to create a host of subsidiary corporations under the Corporation Code funded by a willing legislature. A government-owned corporation could create several subsidiary corporations. These subsidiary corporations would enjoy the best of two worlds. Their officials and employees would be privileged individuals, free from the strict accountability required by the Civil Service Decree and the regulations of the Commission on Audit. Their incomes would not be subject to the competitive restrains of the open market nor to the terms and conditions of civil service employment. Conceivably, all government-owned or controlled corporations could be created, no longer by special charters, but through incorporations under the general law. The Constitutional amendment including such corporations in the embrace of the civil service would cease to have application. Certainly, such a situation cannot be allowed to exist. 37 appear relegated to relative insignificance by the 1987 Constitutional provision that the Civil Service embraces government-owned or controlled corporations with original charter; and, therefore, by clear implication, the Civil Service does not include government-owned or controlled corporations which are organized as subsidiaries of government-owned or controlled corporations under the general corporation law. The proceedings in the 1986 Constitutional Commission also shed light on the Constitutional intent and meaning in the use of the phrase "with original charter." Thus THE PRESIDING OFFICER (Mr. Trenas) Commissioner Romulo is recognized. MR. ROMULO. I beg the indulgence of the Committee. I was reading the wrong provision. I refer to Section 1, subparagraph I which reads: The Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the government, including government-owned or controlled corporations. My query: Is Philippine Airlines covered by this provision? MR. FOZ. Will the Commissioner please state his previous question? MR. ROMULO. The phrase on line 4 of Section 1, subparagraph 1, under the Civil Service Commission, says: "including government-owned or controlled corporations.' Does that include a corporation, like the Philippine Airlines which is government-owned or controlled? MR. FOZ. I would like to throw a question to the Commissioner. Is the Philippine Airlines controlled by the government in the sense that the majority of stocks are owned by the government?

MR. ROMULO. It is owned by the GSIS. So, this is what we might call a tertiary corporation. The GSIS is owned by the government. Would this be covered because the provision says "including government-owned or controlled corporations." MR. FOZ. The Philippine Airlines was established as a private corporation. Later on, the government, through the GSIS, acquired the controlling stocks. Is that not the correct situation? MR. ROMULO. That is true as Commissioner Ople is about to explain. There was apparently a Supreme Court decision that destroyed that distinction between a government-owned corporation created under the Corporation Law and a government-owned corporation created by its own charter. MR. FOZ. Yes, we recall the Supreme Court decision in the case of NHA vs. Juco to the effect that all government corporations irrespective of the manner of creation, whether by special charter or by the private Corporation Law, are deemed to be covered by the civil service because of the wide-embracing definition made in this section of the existing 1973 Constitution. But we recall the response to the question of Commissioner Ople that our intendment in this provision is just to give a general description of the civil service. We are not here to make any declaration as to whether employees of government-owned or controlled corporations are barred from the operation of laws, such as the Labor Code of the Philippines. MR. ROMULO. Yes. MR. OPLE. May I be recognized, Mr. Presiding Officer, since my name has been mentioned by both sides. MR. ROMULO. I yield part of my time. THE PRESIDING OFFICER (Mr.Trenas). Commissioner Ople is recognized. MR. OPLE. In connection with the coverage of the Civil Service Law in Section 1 (1), may I volunteer some information that may be helpful both to the interpellator and to the Committee. Following the proclamation of martial law on September 21, 1972, this issue of the coverage of the Labor Code of the Philippines and of the Civil Service Law almost immediately arose. I am, in particular, referring to the period following the coming into force and effect of the Constitution of 1973, where the Article on the Civil Service was supposed to take immediate force and effect. In the case of LUZTEVECO, there was a strike at the time. This was a government-controlled and government-owned corporation. I think it was owned by the PNOC with just the minuscule private shares left. So, the Secretary of Justice at that time, Secretary Abad Santos, and myself sat down, and the result of that meeting was an opinion of the Secretary of Justice which 9 became binding immediately on the government that government corporations with original charters, such as the GSIS, were covered by the Civil Service Law and corporations spun off from the GSIS, which we called second generation corporations functioning as private subsidiaries, were covered by the Labor Code. Samples of such second generation corporations were the Philippine Airlines, the Manila Hotel and the Hyatt. And that demarcation worked very well. In fact, all of these companies I have mentioned as examples, except for the Manila Hotel, had collective bargaining agreements. In the Philippine Airlines, there were, in fact, three collective bargaining agreements; one, for the ground people or the PALIA one, for the flight attendants or the PASAC and one for the pilots of the ALPAC How then could a

corporation like that be covered by the Civil Service law? But, as the Chairman of the Committee pointed out, the Supreme Court decision in the case of NHA vs. Juco unrobed the whole thing. Accordingly, the Philippine Airlines, the Manila Hotel and the Hyatt are now considered under that decision covered by the Civil Service Law. I also recall that in the emergency meeting of the Cabinet convened for this purpose at the initiative of the Chairman of the Reorganization Commission, Armand Fabella, they agreed to allow the CBA's to lapse before applying the full force and effect of the Supreme Court decision. So, we were in the awkward situation when the new government took over. I can agree with Commissioner Romulo when he said that this is a problem which I am not exactly sure we should address in the deliberations on the Civil Service Law or whether we should be content with what the Chairman said that Section 1 (1) of the Article on the Civil Service is just a general description of the coverage of the Civil Service and no more. Thank you, Mr. Presiding Officer. MR. ROMULO. Mr. Presiding Officer, for the moment, I would be satisfied if the Committee puts on records that it is not their intent by this provision and the phrase "including government-owned or controlled corporations" to cover such companies as the Philippine Airlines. MR. FOZ. Personally, that is my view. As a matter of fact, when this draft was made, my proposal was really to eliminate, to drop from the provision, the phrase "including government- owned or controlled corporations." MR. ROMULO. Would the Committee indicate that is the intent of this provision? MR. MONSOD. Mr. Presiding Officer, I do not think the Committee can make such a statement in the face of an absolute exclusion of government-owned or controlled corporations. However, this does not preclude the Civil Service Law to prescribe different rules and procedures, including emoluments for employees of proprietary corporations, taking into consideration the nature of their operations. So, it is a general coverage but it does not preclude a distinction of the rules between the two types of enterprises. MR. FOZ. In other words, it is something that should be left to the legislature to decide. As I said before, this is just a general description and we are not making any declaration whatsoever. MR. MONSOD. Perhaps if Commissioner Romulo would like a definitive understanding of the coverage and the Gentleman wants to exclude government-owned or controlled corporations like Philippine Airlines, then the recourse is to offer an amendment as to the coverage, if the Commissioner does not accept the explanation that there could be a distinction of the rules, including salaries and emoluments. MR. ROMULO. So as not to delay the proceedings, I will reserve my right to submit such an amendment. xxx xxx xxx THE PRESIDING OFFICE (Mr. Trenas) Commissioner Romulo is recognized. MR. ROMULO. On page 2, line 5, I suggest the following amendment after "corporations": Add a comma (,) and the phrase EXCEPT THOSE EXERCISING PROPRIETARY FUNCTIONS. THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?

SUSPENSION OF SESSION MR. MONSOD. May we have a suspension of the session? THE PRESIDING OFFICER (Mr. Trenas). The session is suspended. It was 7:16 p.m. RESUMPTION OF SESSION At 7:21 p.m., the session was resumed. THE PRESIDING OFFICER (Mr. Trenas). The session is resumed. Commissioner Romulo is recognized. MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows: "including government-owned or controlled corporations WITH ORIGINAL CHARTERS." The purpose of this amendment is to indicate that government corporations such as the GSIS and SSS, which have original charters, fall within the ambit of the civil service. However, corporations which are subsidiaries of these chartered agencies such as the Philippine Airlines, Manila Hotel and Hyatt are excluded from the coverage of the civil service. THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say? MR. FOZ. Just one question, Mr. Presiding Officer. By the term "original charters," what exactly do we mean? MR. ROMULO. We mean that they were created by law, by an act of Congress, or by special law. MR. FOZ. And not under the general corporation law. MR. ROMULO. That is correct. Mr. Presiding Officer. MR. FOZ. With that understanding and clarification, the Committee accepts the amendment. MR. NATIVIDAD. Mr. Presiding officer, so those created by the general corporation law are out. MR. ROMULO. That is correct:
38

On the premise that it is the 1987 Constitution that governs the instant case because it is the Constitution in place at the time of decision thereof, the NLRC has jurisdiction to accord relief to the parties. As an admitted subsidiary of the NIDC, in turn a subsidiary of the PNB, the NASECO is a government-owned or controlled corporation without original charter. Dr. Jorge Bocobo, in his Cult of Legalism, cited by Mr. Justice Perfecto in his concurring opinion in Gomez vs. Government Insurance Board (L-602, March 31, 1947, 44 O.G. No. 8, pp. 2687, 2694; also published in 78 Phil. 221) on the effectivity of the principle of social justice embodied in the 1935 Constitution, said: Certainly, this principle of social justice in our Constitution as generously conceived and so tersely phrased, was not included in the fundamental law as a mere popular gesture. It was meant to (be) a vital, articulate, compelling principle of public policy. It should be observed in the interpretation not only of future legislation, but also of all laws already existing on November 15, 1935. It was intended to change the spirit of our laws, present and future. Thus, all the laws which on the great historic event when the Commonwealth

of the Philippines was born, were susceptible of two interpretations strict or liberal, against or in favor of social justice, now have to be construed broadly in order to promote and achieve social justice. This may seem novel to our friends, the advocates of legalism but it is the only way to give life and significance to the above-quoted principle of the Constitution. If it was not designed to apply to these existing laws, then it would be necessary to wait for generations until all our codes and all our statutes shall have been completely charred by removing every provision inimical to social justice, before the policy of social justice can become really effective. That would be an absurd conclusion. It is more reasonable to hold that this constitutional principle applies to all legislation in force on November 15, 1935, and all laws thereafter passed. WHEREFORE, in view of the foregoing, the challenged decision of the NLRC is AFFIRMED with modifications. Petitioners in G.R. No. 69870, who are the private respondents in G.R. No. 70295, are ordered to: 1) reinstate Eugenia C. Credo to her former position at the time of her termination, or if such reinstatement is not possible, to place her in a substantially equivalent position, with three (3) years backwages, from 1 December 1983, without qualification or deduction, and without loss of seniority rights and other privileges appertaining thereto, and 2) pay Eugenia C. Credo P5,000.00 for moral damages and P5,000.00 for attorney's fees. If reinstatement in any event is no longer possible because of supervening events, petitioners in G.R. No. 69870, who are the private respondents in G.R. No. 70295 are ordered to pay Eugenia C. Credo, in addition to her backwages and damages as above described, separation pay equivalent to one-half month's salary for every year of service, to be computed on her monthly salary at the time of her termination on 1 December 1983. SO ORDERED. Fernan, C.J., Melencio-Herrera, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes, Grio-Aquino, Medialdea and Regalado, JJ., concur. Narvasa, J., is on leave. Gutierrez, Jr., J., in the result.

[G.R. No. 138051. June 10, 2004]

JOSE Y. SONZA, petitioner, vs. ABS-CBN BROADCASTING CORPORATION, respondent. DECISION CARPIO, J.:

The Case Before this Court is a petition for review on certiorari[1] assailing the 26 March 1999 Decision[2] of the Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza (SONZA). The Court of Appeals affirmed the findings of the National Labor Relations Commission (NLRC), which affirmed the Labor Arbiters dismissal of the case for lack of jurisdiction.

The Facts In May 1994, respondent ABS-CBN Broadcasting Corporation (ABS-CBN) signed an Agreement (Agreement) with the Mel and Jay Management and Development Corporation (MJMDC). ABS-CBN was represented by its corporate officers while MJMDC was represented by SONZA, as President and General Manager, and Carmela Tiangco (TIANGCO), as EVP and Treasurer. Referred to in the Agreement as AGENT, MJMDC agreed to provide SONZAs services exclusively to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would render to ABS-CBN, as follows: a. b. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays; Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.[3]

ABS-CBN agreed to pay for SONZAs services a monthly talent fee of P310,000 for the first year and P317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on the 10th and 25th days of the month. On 1 April 1996, SONZA wrote a letter to ABS-CBNs President, Eugenio Lopez III, which reads: Dear Mr. Lopez, We would like to call your attention to the Agreement dated May 1994 entered into by your goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA. As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning his programs and career. We consider these acts of the station violative of the Agreement and the station as in breach thereof. In this connection, we hereby serve notice of rescission of said Agreement at our instance effective as of date. Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of the Agreement but reserves the right to seek recovery of the other benefits under said Agreement. Thank you for your attention. Very truly yours, (Sgd.) JOSE Y. SONZA President and Gen. Manager[4]

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and Employment, National Capital Region inQuezon City. SONZA complained that ABS-CBN did not pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel allowance and amounts due under the Employees Stock Option Plan (ESOP). On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996. Meanwhile, ABS-CBN continued to remit SONZAs monthly talent fees through his account at PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account with the same bank where ABS-CBN deposited SONZAs talent fees and other payments due him under the Agreement. In his Order dated 2 December 1996, the Labor Arbiter [5] denied the motion to dismiss and directed the parties to file their respective position papers. The Labor Arbiter ruled: In this instant case, complainant for having invoked a claim that he was an employee of respondent company until April 15, 1996 and that he was not paid certain claims, it is sufficient enough as to confer jurisdiction over the instant case in this Office. And as to whether or not such claim would entitle complainant to recover upon the causes of action asserted is a matter to be resolved only after and as a result of a hearing. Thus, the respondents plea of lack of employer-employee relationship may be pleaded only as a matter of defense. It behooves upon it the duty to prove that there really is no employer-employee relationship between it and the complainant. The Labor Arbiter then considered the case submitted for resolution. The parties submitted their position papers on 24 February 1997. On 11 March 1997, SONZA filed a Reply to Respondents Position Paper with Motion to Expunge Respondents Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBNs witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the prevailing practice in the television and broadcast industry is to treat talents like SONZA as independent contractors. The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of jurisdiction.[6] The pertinent parts of the decision read as follows: xxx While Philippine jurisprudence has not yet, with certainty, touched on the true nature of the contract of a talent, it stands to reason that a talent as above-described cannot be considered as an employee by reason of the peculiar circumstances surrounding the engagement of his services. It must be noted that complainant was engaged by respondent by reason of his peculiar skills and talent as a TV host and a radio broadcaster. Unlike an ordinary employee, he was free to perform the services he undertook to render in accordance with his own style. The benefits conferred to complainant under the May 1994 Agreement are certainly very much higher than those generally given to employees. For one, complainant Sonzas monthly talent fees amount to a staggering P317,000. Moreover, his engagement as a talent was covered by a specific contract. Likewise, he was not bound to render eight (8) hours of work per day as he worked only for such number of hours as may be necessary. The fact that per the May 1994 Agreement complainant was accorded some benefits normally given to an employee is inconsequential. Whatever benefits complainant enjoyed arose from specific agreement by the parties and not by reason of employer-employee relationship. As correctly put by the respondent, All these benefits are merely talent fees and other contractual benefits and should not be deemed as salaries, wages and/or other remuneration accorded to an employee, notwithstanding the nomenclature appended to these benefits. Apropos to this is the rule that the term or nomenclature given to a stipulated benefit is not controlling, but the intent of the parties to the Agreement conferring such benefit. The fact that complainant was made subject to respondents Rules and Regulations, likewise, does not detract from the absence of employer-employee relationship . As held by the Supreme Court, The line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed

in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employer-employee relationship unlike the second, which address both the result and the means to achieve it. (Insular Life Assurance Co., Ltd. vs. NLRC, et al., G.R. No. 84484, November 15, 1989). x x x (Emphasis supplied)[7] SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming the Labor Arbiters decision. SONZA filed a motion for reconsideration, which the NLRC denied in its Resolution dated 3 July 1998. On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals rendered a Decision dismissing the case.[8] Hence, this petition.

The Rulings of the NLRC and Court of Appeals The Court of Appeals affirmed the NLRCs finding that no employer-employee relationship existed between SONZA and ABS-CBN. Adopting the NLRCs decision, the appellate court quoted the following findings of the NLRC: x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract merely as an agent of complainant Sonza, the principal. By all indication and as the law puts it, the act of the agent is the act of the principal itself. This fact is made particularly true in this case, as admittedly MJMDC is a management company devoted exclusively to managing the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco. (Opposition to Motion to Dismiss) Clearly, the relations of principal and agent only accrues between complainant Sonza and MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of the May 1994 Agreement which specifically referred to MJMDC as the AGENT. As a matter of fact, when complainant herein unilaterally rescinded said May 1994 Agreement, it was MJMDC which issued the notice of rescission in behalf of Mr. Sonza, who himself signed the same in his capacity as President. Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is only in the May 1994 Agreement, which is the latest Agreement executed between ABS-CBN and Mr. Sonza, that MJMDC figured in the said Agreement as the agent of Mr. Sonza. We find it erroneous to assert that MJMDC is a mere labor-only contractor of ABS-CBN such that there exist[s] employer-employee relationship between the latter and Mr. Sonza. On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS-CBN, but of the talent/contractor Mr. Sonza, as expressly admitted by the latter and MJMDC in the May 1994 Agreement. It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to the regular courts, the same being in the nature of an action for alleged breach of contractual obligation on the part of respondent-appellee. As squarely apparent from complainant-appellants Position Paper, his claims for compensation for services, 13th month pay, signing bonus and travel allowance against respondent-appellee are not based on the Labor Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds under Stock Purchase Agreement are based on the latter. A portion of the Position Paper of complainant-appellant bears perusal: Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually bound itself to pay complainant a signing bonus consisting of shares of stockswith FIVE HUNDRED THOUSAND PESOS (P500,000.00). Similarly, complainant is also entitled to be paid 13th month pay based on an amount not lower than the amount he was receiving prior to effectivity of (the) Agreement.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a commutable travel benefit amounting to at least One Hundred Fifty Thousand Pesos (P150,000.00) per year. Thus, it is precisely because of complainant-appellants own recognition of the fact that his contractual relations with ABS-CBN are founded on the New Civil Code, rather than the Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant served upon the latter a notice of rescission of Agreement with the station, per his letter dated April 1, 1996, which asserted that instead of referring to unpaid employee benefits, he is waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of the Agreement but reserves the right to such recovery of the other benefits under said Agreement. (Annex 3 of the respondent ABS-CBNs Motion to Dismiss dated July 10, 1996). Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or the Stock Purchase Agreement by respondent-appellee that complainant-appellant filed his complaint. Complainant-appellants claims being anchored on the alleged breach of contract on the part of respondent-appellee, the same can be resolved by reference to civil law and not to labor law. Consequently, they are within the realm of civil law and, thus, lie with the regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs. Villarama, 238 SCRA 267, 21 November 1994, an action for breach of contractual obligation is intrinsically a civil dispute .[9] (Emphasis supplied) The Court of Appeals ruled that the existence of an employer-employee relationship between SONZA and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve. [10] A special civil action for certiorari extends only to issues of want or excess of jurisdiction of the NLRC. [11] Such action cannot cover an inquiry into the correctness of the evaluation of the evidence which served as basis of the NLRCs conclusion.[12] The Court of Appeals added that it could not re-examine the parties evidence and substitute the factual findings of the NLRC with its own. [13]

The Issue In assailing the decision of the Court of Appeals, SONZA contends that: THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRCS DECISION AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEEN SONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING.[14]

The Courts Ruling We affirm the assailed decision. No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming the NLRC ruling which upheld the Labor Arbiters dismissal of the case for lack of jurisdiction. The present controversy is one of first impression. Although Philippine labor laws and jurisprudence define clearly the elements of an employer-employee relationship, this is the first time that the Court will resolve the nature of the relationship between a television and radio station and one of its talents. There is no case law stating that a radio and television program host is an employee of the broadcast station. The instant case involves big names in the broadcast industry, namely Jose Jay Sonza, a known television and radio personality, and ABS-CBN, one of the biggest television and radio networks in the country. SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because SONZA was an independent contractor.

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courts accord the factual findings of the Labor Arbiter and the NLRC not only respect but also finality when supported by substantial evidence.[15] Substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. [16] A party cannot prove the absence of substantial evidence by simply pointing out that there is contrary evidence on record, direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in determining where the weight of evidence lies or what evidence is credible.[17] SONZA maintains that all essential elements of an employer-employee relationship are present in this case. Case law has consistently held that the elements of an employer-employee relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the employee on the means and methods by which the work is accomplished.[18]The last element, the so-called control test, is the most important element.[19]

A. Selection and Engagement of Employee ABS-CBN engaged SONZAs services to co-host its television and radio programs because of SONZAs peculiar skills, talent and celebrity status. SONZA contends that the discretion used by respondent in specifically selecting and hiring complainant over other broadcasters of possibly similar experience and qualification as complainant belies respondents claim of independent contractorship. Independent contractors often present themselves to possess unique skills, expertise or talent to distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of his unique skills, talent and celebrity status not possessed by ordinary employees , is a circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into the Agreement with SONZA but would have hired him through its personnel department just like any other employee. In any event, the method of selecting and engaging SONZA does not conclusively determine his status. We must consider all the circumstances of the relationship, with the control test being the most important element.

B. Payment of Wages ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC. SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN. SONZA also points out that ABS-CBN granted him benefits and privileges which he would not have enjoyed if he were truly the subject of a valid job contract. All the talent fees and benefits paid to SONZA were the result of negotiations that led to the Agreement. If SONZA were ABS-CBNs employee, there would be no need for the parties to stipulate on benefits such as SSS, Medicare, x x x and 13 th month pay[20] which the law automatically incorporates into every employer-employee contract. [21] Whatever benefits SONZA enjoyed arose from contract and not because of an employer-employee relationship. [22] SONZAs talent fees, amounting to P317,000 monthly in the second and third year, are so huge and out of the ordinary that they indicate more an independent contractual relationship rather than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely because of SONZAs unique skills, talent and celebrity status not possessed by ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such huge talent fees for his services. The power to bargain talent fees way above the salary scales of ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual relationship. The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of SONZA as an independent contractor. The parties expressly agreed on such mode of payment. Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over any talent fee accruing under the Agreement.

C. Power of Dismissal For violation of any provision of the Agreement, either party may terminate their relationship. SONZA failed to show that ABS-CBN could terminate his services on grounds other than breach of contract, such as retrenchment to prevent losses as provided under labor laws. [23] During the life of the Agreement, ABS-CBN agreed to pay SONZAs talent fees as long as AGENT and Jay Sonza shall faithfully and completely perform each condition of this Agreement. [24] Even if it suffered severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained obligated to pay SONZAs talent fees during the life of the Agreement. This circumstance indicates an independent contractual relationship between SONZA and ABS-CBN. SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying SONZAs talent fees during the remaining life of the Agreement even if ABS-CBN cancelled SONZAs programs through no fault of SONZA.[25] SONZA assails the Labor Arbiters interpretation of his rescission of the Agreement as an admission that he is not an employee of ABS-CBN. The Labor Arbiter stated that if it were true that complainant was really an employee, he would merely resign, instead. SONZA did actually resign from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZAs letter clearly bears this out. [26] However, the manner by which SONZA terminated his relationship with ABS-CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does not determine his status as employee or independent contractor.

D. Power of Control Since there is no local precedent on whether a radio and television program host is an employee or an independent contractor, we refer to foreign case law in analyzing the present case. The United States Court of Appeals, First Circuit, recently held in Alberty-Vlez v. Corporacin De Puerto Rico Para La Difusin Pblica (WIPR) [27] that a television program host is an independent contractor. We quote the following findings of the U.S. court: Several factors favor classifying Alberty as an independent contractor. First, a television actress is a skilled position requiring talent and training not available on-the-job . x x x In this regard, Alberty possesses a masters degree in public communications and journalism; is trained in dance, singing, and modeling; taught with the drama department at the University of Puerto Rico; and acted in several theater and television productions prior to her affiliation with Desde Mi Pueblo. Second, Alberty provided the tools and instrumentalities necessary for her to perform . Specifically, she provided, or obtained sponsors to provide, the costumes, jewelry, and other image-related supplies and services necessary for her appearance. Alberty disputes that this factor favors independent contractor status because WIPR provided the equipment necessary to tape the show. Albertys argument is misplaced. The equipment necessary for Alberty to conduct her job as host of Desde Mi Pueblo related to her appearance on the show. Others provided equipment for filming and producing the show, but these were not the primary tools that Alberty used to perform her particular function. If we accepted this argument, independent contractors could never work on collaborative projects because other individuals often provide the equipment required for different aspects of the collaboration. x x x Third, WIPR could not assign Alberty work in addition to filming Desde Mi Pueblo . Albertys contracts with WIPR specifically provided that WIPR hired her professional services as Hostess for the Program Desde Mi Pueblo. There is no evidence that WIPR assigned Alberty tasks in addition to work related to these tapings. x x x[28] (Emphasis supplied) Applying the control test to the present case, we find that SONZA is not an employee but an independent contractor. The control test is themost important test our courts apply in distinguishing an employee from an independent contractor.[29] This test is based on the extent of control the hirer exercises over a worker. The greater the supervision and control the hirer exercises, the more likely the worker is deemed an employee. The converse holds true as well the less control the hirer exercises, the more likely the worker is considered an independent contractor. [30]

First, SONZA contends that ABS-CBN exercised control over the means and methods of his work. SONZAs argument is misplaced. ABS-CBN engaged SONZAs services specifically to co-host the Mel & Jay programs. ABS-CBN did not assign any other work to SONZA. To perform his work, SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television, and sounded on radio were outside ABS-CBNs control. SONZA did not have to render eight hours of work per day. The Agreement required SONZA to attend only rehearsals and tapings of the shows, as well as pre- and post-production staff meetings. [31] ABS-CBN could not dictate the contents of SONZAs script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-CBN or its interests.[32] The clear implication is that SONZA had a free hand on what to say or discuss in his shows provided he did not attack ABS-CBN or its interests. We find that ABS-CBN was not involved in the actual performance that produced the finished product of SONZAs work.[33] ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN merely reserved the right to modify the program format and airtime schedule for more effective programming.[34] ABS-CBNs sole concern was the quality of the shows and their standing in the ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of SONZAs work. SONZA claims that ABS-CBNs power not to broadcast his shows proves ABS-CBNs power over the means and methods of the performance of his work. Although ABS-CBN did have the option not to broadcast SONZAs show, ABS-CBN was still obligated to pay SONZAs talent fees. Thus, even if ABSCBN was completely dissatisfied with the means and methods of SONZAs performance of his work, or even with the quality or product of his work, ABS-CBN could not dismiss or even discipline SONZA. All that ABS-CBN could do is not to broadcast SONZAs show but ABS-CBN must still pay his talent fees in full.[35] Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened as it was by the obligation to continue paying in full SONZAs talent fees, did not amount to control over the means and methods of the performance of SONZAs work. ABS-CBN could not terminate or discipline SONZA even if the means and methods of performance of his work - how he delivered his lines and appeared on television - did not meet ABS-CBNs approval. This proves that ABS-CBNs control was limited only to the result of SONZAs work, whether to broadcast the final product or not. In either case, ABS-CBN must still pay SONZAs talent fees in full until the expiry of the Agreement. In Vaughan, et al. v. Warner, et al.,[36] the United States Circuit Court of Appeals ruled that vaudeville performers were independent contractors although the management reserved the right to delete objectionable features in their shows. Since the management did not have control over the manner of performance of the skills of the artists, it could only control the result of the work by deleting objectionable features.[37] SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broadcast the Mel & Jay programs. However, the equipment, crew and airtime are not the tools and instrumentalities SONZA needed to perform his job. What SONZA principally needed were his talent or skills and the costumes necessary for his appearance. [38] Even though ABS-CBN provided SONZA with the place of work and the necessary equipment, SONZA was still an independent contractor since ABSCBN did not supervise and control his work. ABS-CBNs sole concern was for SONZA to display his talent during the airing of the programs.[39] A radio broadcast specialist who works under minimal supervision is an independent contractor. SONZAs work as television and radio program host required special skills and talent, which SONZA admittedly possesses. The records do not show that ABS-CBN exercised any supervision and control over how SONZA utilized his skills and talent in his shows.
[40]

Second, SONZA urges us to rule that he was ABS-CBNs employee because ABS-CBN subjected him to its rules and standards of performance. SONZA claims that this indicates ABS-CBNs control not only [over] his manner of work but also the quality of his work. The Agreement stipulates that SONZA shall abide with the rules and standards of performance covering talents[41] of ABS-CBN. The Agreement does not require SONZA to comply with the rules and standards of performance prescribed for employees of ABS-CBN. The code of conduct imposed on SONZA under the Agreement refers to the Television and Radio Code of the Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code of Ethics.[42] The KBP code applies to broadcasters, not to employees of radio and television stations. Broadcasters are not necessarily employees of radio and television stations. Clearly, the

rules and standards of performance referred to in the Agreement are those applicable to talents and not to employees of ABS-CBN. In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an employee of the former.[43] In this case, SONZA failed to show that these rules controlled his performance. We find that these general rules are merely guidelines towards the achievement of the mutually desired result, which are top-rating television and radio programs that comply with standards of the industry. We have ruled that: Further, not every form of control that a party reserves to himself over the conduct of the other party in relation to the services being rendered may be accorded the effect of establishing an employeremployee relationship. The facts of this case fall squarely with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we held that: Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employer-employee relationship unlike the second, which address both the result and the means used to achieve it. [44] The Vaughan case also held that one could still be an independent contractor although the hirer reserved certain supervision to insure the attainment of the desired result. The hirer, however, must not deprive the one hired from performing his services according to his own initiative. [45] Lastly, SONZA insists that the exclusivity clause in the Agreement is the most extreme form of control which ABS-CBN exercised over him. This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an employee of ABS-CBN. Even an independent contractor can validly provide his services exclusively to the hiring party. In the broadcast industry, exclusivity is not necessarily the same as control. The hiring of exclusive talents is a widespread and accepted practice in the entertainment industry. This practice is not designed to control the means and methods of work of the talent, but simply to protect the investment of the broadcast station. The broadcast station normally spends substantial amounts of money, time and effort in building up its talents as well as the programs they appear in and thus expects that said talents remain exclusive with the station for a commensurate period of time.[47] Normally, a much higher fee is paid to talents who agree to work exclusively for a particular radio or television station. In short, the huge talent fees partially compensates for exclusivity, as in the present case.
[46]

MJMDC as Agent of SONZA SONZA protests the Labor Arbiters finding that he is a talent of MJMDC, which contracted out his services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an employee of ABS-CBN. SONZA insists that MJMDC is a labor-only contractor and ABS-CBN is his employer. In a labor-only contract, there are three parties involved: (1) the labor-only contractor; (2) the employee who is ostensibly under the employ of the labor-only contractor; and (3) the principal who is deemed the real employer. Under this scheme, the labor-only contractor is the agent of the principal. The law makes the principal responsible to the employees of the labor-only contractor as if the principal itself directly hired or employed the employees. [48] These circumstances are not present in this case. There are essentially only two parties involved under the Agreement, namely, SONZA and ABSCBN. MJMDC merely acted as SONZAs agent. The Agreement expressly states that MJMDC acted as the AGENT of SONZA. The records do not show that MJMDC acted as ABS-CBNs agent. MJMDC, which stands for Mel and Jay Management and Development Corporation, is a corporation organized and owned by SONZA and TIANGCO. The President and General Manager of MJMDC is SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and managed by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, who himself is represented by MJMDC. That would make MJMDC the agent of both ABS-CBN and SONZA.

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

Policy Instruction No. 40 SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8 January 1979 finally settled the status of workers in the broadcast industry. Under this policy, the types of employees in the broadcast industry are the station and program employees. Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of law. There is no legal presumption that Policy Instruction No. 40 determines SONZAs status. A mere executive issuance cannot exclude independent contractors from the class of service providers to the broadcast industry. The classification of workers in the broadcast industry into only two groups under Policy Instruction No. 40 is not binding on this Court, especially when the classification has no basis either in law or in fact.

Affidavits of ABS-CBNs Witnesses SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando Cruz without giving his counsel the opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of these witnesses as misleading and irrelevant. While SONZA failed to cross-examine ABS-CBNs witnesses, he was never prevented from denying or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether to conduct a formal (trial-type) hearing after the submission of the position papers of the parties, thus: Section 3. Submission of Position Papers/Memorandum xxx These verified position papers shall cover only those claims and causes of action raised in the complaint excluding those that may have been amicably settled, and shall be accompanied by all supporting documents including the affidavits of their respective witnesses which shall take the place of the latters direct testimony. x x x Section 4. Determination of Necessity of Hearing. Immediately after the submission of the parties of their position papers/memorandum, the Labor Arbiter shall motu propio determine whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and for the purpose of making such determination, ask clarificatory questions to further elicit facts or information, including but not limited to the subpoena of relevant documentary evidence, if any from any party or witness. [50] The Labor Arbiter can decide a case based solely on the position papers and the supporting documents without a formal trial. [51] The holding of a formal hearing or trial is something that the parties cannot demand as a matter of right. [52] If the Labor Arbiter is confident that he can rely on the documents before him, he cannot be faulted for not conducting a formal trial, unless under the particular circumstances of the case, the documents alone are insufficient. The proceedings before a Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings before a Labor Arbiter.

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries to treat talents like SONZA as independent contractors. SONZA argues that if such practice exists, it is void for violating the right of labor to security of tenure. The right of labor to security of tenure as guaranteed in the Constitution [53] arises only if there is an employer-employee relationship under labor laws. Not every performance of services for a fee creates an employer-employee relationship. To hold that every person who renders services to another for a fee is an employee - to give meaning to the security of tenure clause - will lead to absurd results. Individuals with special skills, expertise or talent enjoy the freedom to offer their services as independent contractors. The right to life and livelihood guarantees this freedom to contract as independent contractors. The right of labor to security of tenure cannot operate to deprive an individual, possessed with special skills, expertise and talent, of his right to contract as an independent contractor. An individual like an artist or talent has a right to render his services without any one controlling the means and methods by which he performs his art or craft. This Court will not interpret the right of labor to security of tenure to compel artists and talents to render their services only as employees. If radio and television program hosts can render their services only as employees, the station owners and managers can dictate to the radio and television hosts what they say in their shows. This is not conducive to freedom of the press.

Different Tax Treatment of Talents and Broadcasters The National Internal Revenue Code (NIRC)[54] in relation to Republic Act No. 7716,[55] as amended by Republic Act No. 8241,[56] treats talents, television and radio broadcasters differently. Under the NIRC, these professionals are subject to the 10% value-added tax (VAT) on services they render. Exempted from the VAT are those under an employer-employee relationship. [57] This different tax treatment accorded to talents and broadcasters bolters our conclusion that they are independent contractors, provided all the basic elements of a contractual relationship are present as in this case.

Nature of SONZAs Claims SONZA seeks the recovery of allegedly unpaid talent fees, 13 th month pay, separation pay, service incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZAs claims are all based on the May 1994 Agreement and stock option plan, and not on the Labor Code. Clearly, the present case does not call for an application of the Labor Code provisions but an interpretation and implementation of the May 1994 Agreement. In effect, SONZAs cause of action is for breach of contract which is intrinsically a civil dispute cognizable by the regular courts. [58] WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26 March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner. SO ORDERED. Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna

G.R. No. L-72654-61 January 22, 1990 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. J.C. Espinas & Associates for petitioners. Tomas A. Reyes for private respondent.

FERNAN, C.J.: The issue to be resolved in the instant case is whether or not the fishermen-crew members of the trawl fishing vessel 7/B Sandyman II are employees of its owner-operator, De Guzman Fishing Enterprises, and if so, whether or not they were illegally dismissed from their employment. 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 rendered service aboard said fishing vessel in various capacities, as follows: Alipio Ruga and Jose Parma patron/pilot; Eladio Calderon, chief engineer; Laurente Bautu, second engineer; Jaime Barbin, master fisherman; Nicanor Francisco, second fisherman; Philip Cervantes and Eleuterio Barbin, fishermen. For services rendered in the conduct of private respondent's regular business of "trawl" fishing, petitioners were paid on percentage commission basis in cash by one Mrs. Pilar de Guzman, cashier of private respondent. As agreed upon, they received thirteen percent (13%) of the proceeds of the sale of the fish-catch if the total proceeds exceeded the cost of crude oil consumed during the fishing trip, otherwise, they received ten percent (10%) of the total proceeds of the sale. The patron/pilot, chief engineer and master fisherman received a minimum income of P350.00 per week while the assistant engineer, second fisherman, and fisherman-winchman received a minimum income of P260.00 per week. 1 On September 11, 1983 upon arrival at the fishing port, petitioners were told by Jorge de Guzman, president of private respondent, to proceed to the police station at Camaligan, Camarines Sur, for investigation on the report that 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 and becoming members of Defender of Industrial Agricultural Labor Organizations and General Workers Union (DIALOGWU) on September 3, 1983. During the investigation, no witnesses were presented to prove the charge against petitioners, and no criminal charges were formally filed against them. Notwithstanding, private respondent refused to allow petitioners to return to the fishing vessel to resume their work on the same day, September 11, 1983. On September 22, 1983, petitioners individually filed their complaints for illegal dismissal and nonpayment of 13th month pay, emergency cost of living allowance and service incentive pay, with the then Ministry (now Department) of Labor and Employment, Regional Arbitration Branch No. V, Legaspi City, Albay, docketed as Cases Nos. 1449-83 to 1456-83. 2 They uniformly contended that they were arbitrarily dismissed without being given ample time to look for a new job. 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

After the parties failed to reach an amicable settlement, the Labor Arbiter scheduled the case for joint hearing furnishing the parties with notice and summons. On December 27, 1983, after two (2) previously scheduled joint hearings were postponed due to the absence of private respondent, one of the petitioners herein, Alipio Ruga, the pilot/captain of the 7/B Sandyman II, testified, among others, on the manner the fishing operations were conducted, mode of payment of compensation for services rendered by the fishermen-crew members, and the circumstances leading to their dismissal. 4 On March 31, 1984, after the case was submitted for resolution, 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. From the adverse decision against them, petitioners appealed to the National Labor Relations Commission. 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. Petitioners assail the ruling of the public respondent NLRC that what exists between private respondent and petitioners is a joint venture arrangement and not an employer-employee relationship. To stress that there is an employer-employee relationship between them and private respondent, petitioners invite attention to the following: that they were directly hired by private respondent through its general manager, Arsenio de Guzman, and its operations manager, Conrado de Guzman; that, except for Laurente Bautu, they had been employed by private respondent from 8 to 15 years in various capacities; that private respondent, through its operations manager, supervised and controlled the conduct of their fishing operations as to the fixing of the schedule of the fishing trips, the direction of the fishing vessel, the volume or number of tubes of the fish-catch the time to return to the fishing port, which were communicated to the patron/pilot by radio (single side band); that they were not allowed to join other outfits even the other vessels owned by private respondent without the permission of the operations manager; that they were compensated on percentage commission basis of the gross sales of the fish-catch which were delivered to them in cash by private respondent's cashier, Mrs. Pilar de Guzman; and that they have to follow company policies, rules and regulations imposed on them by private respondent. Disputing the finding of public respondent that a "joint fishing venture" exists between private respondent and petitioners, petitioners claim that public respondent exceeded its jurisdiction and/or abused its discretion when it added facts not contained in the records when it stated that the pilot-crew members do not receive compensation from the boat-owners except their share in the catch produced by their own efforts; that public respondent ignored the evidence of petitioners that private respondent controlled the fishing operations; that public respondent did not take into account established jurisprudence that the relationship between the fishing boat operators and their crew is one of direct employer and employee. Aside from seeking the dismissal of the petition on the ground that the decision of the labor arbiter is now final and executory for failure of petitioners to file their appeal with the NLRC within 10 calendar days from receipt of said decision pursuant to the doctrine laid down in Vir-Jen Shipping and Marine Services, Inc. vs. NLRC, 115 SCRA 347 (1982), the Solicitor General claims that the ruling of public respondent that a "joint fishing venture" exists between private respondent and petitioners rests on the resolution of the Social Security System (SSS) in a 1968 case, Case No. 708 (De Guzman Fishing Enterprises vs. SSS), exempting De Guzman Fishing Enterprises, private respondent herein, from compulsory coverage of the SSS on the ground that there is no employer-employee relations between the boat-owner and the fishermen-crew members following the doctrine laid down in Pajarillo vs. SSS, 17 SCRA 1014 (1966). In applying to the case at bar the doctrine in Pajarillo vs. SSS, supra, that there is no employer-employee relationship between the boat-owner and the pilot and crew members when the boat-owner supplies the boat and equipment while the pilot and crew members contribute the corresponding labor and the parties get specific shares in the catch for their respective contribution to the venture, the Solicitor General pointed out that the boat-owners in the Pajarillo case, as in the case at bar, did not control the conduct of the fishing operations and the pilot and crew members shared in the catch.

We rule in favor of petitioners. Fundamental considerations of substantial justice persuade Us to decide the instant case on the merits rather than to dismiss it on a mere technicality. In so doing, we exercise the prerogative accorded to this Court enunciated in Firestone Filipinas Employees Association, et al. vs. Firestone Tire and Rubber Co. of the Philippines, Inc., 61 SCRA 340 (1974), thus "the well-settled doctrine is that in labor cases before this Tribunal, no undue sympathy is to be accorded to any claim of a procedural misstep, the idea being that its power be exercised according to justice and equity and substantial merits of the controversy." Circumstances peculiar to some extent to fishermen-crew members of a fishing vessel regularly engaged in trawl fishing, as in the case of petitioners herein, who spend one (1) whole week or more 7 in the open sea performing their job to earn a living to support their families, convince Us to adopt a more liberal attitude in applying to petitioners the 10-calendar day rule in the filing of appeals with the NLRC from the decision of the labor arbiter. Records reveal that petitioners were informed of the labor arbiter's decision of March 31, 1984 only on July 3,1984 by their non-lawyer representative during the arbitration proceedings, Jose Dialogo who received the decision eight (8) days earlier, or on June 25, 1984. As adverted to earlier, the circumstances peculiar to petitioners' occupation as fishermen-crew members, who during the pendency of the case understandably have to earn a living by seeking employment elsewhere, impress upon Us that in the ordinary course of events, the information as to the adverse decision against them would not reach them within such time frame as would allow them to faithfully abide by the 10calendar day appeal period. This peculiar circumstance and the fact that their representative is a nonlawyer provide equitable justification to conclude that there is substantial compliance with the tencalendar day rule of filing of appeals with the NLRC when petitioners filed on July 10, 1984, or seven (7) days after receipt of the decision, their appeal with the NLRC through registered mail. 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 exercise of the right. 11 The case of Pajarillo vs. SSS, supra, invoked by the public respondent as authority for the ruling that a "joint fishing venture" existed between private respondent and petitioners is not applicable in the instant case. There is neither light of control nor actual exercise of such right on the part of the boatowners in the Pajarillo case, where the Court found that the pilots therein are not under the order of the boat-owners as regards their employment; that they go out to sea not upon directions of the boatowners, but upon their own volition as to when, how long and where to go fishing; that the boatowners do not in any way control the crew-members with whom the former have no relationship whatsoever; that they simply join every trip for which the pilots allow them, without any reference to the owners of the vessel; and that they only share in their own catch produced by their own efforts. The aforementioned circumstances obtaining in Pajarillo case do not exist in the instant case. The conduct of the fishing operations was undisputably shown by the testimony of Alipio Ruga, the patron/pilot of 7/B Sandyman II, to be under the control and supervision of private respondent's operations manager. Matters dealing on the fixing of the schedule of the fishing trip and the time to return to the fishing port were shown to be the prerogative of private respondent. 12 While performing the fishing operations, petitioners received instructions via a single-side band radio from private respondent's operations manager who called the patron/pilot in the morning. They are told to report their activities, their position, and the number of tubes of fish-catch in one day. 13 Clearly thus, the conduct of the fishing operations was monitored by private respondent thru the patron/pilot of 7/B Sandyman II who is responsible for disseminating the instructions to the crew members.

The conclusion of public respondent that there had been no change in the situation of the parties since 1968 when De Guzman Fishing Enterprises, private respondent herein, obtained a favorable judgment in Case No. 708 exempting it from compulsory coverage of the SSS law is not supported by evidence on record. It was erroneous for public respondent to apply the factual situation of the parties in the 1968 case to the instant case in the light of the changes in the conditions of employment agreed upon by the private respondent and petitioners as discussed earlier. Records show that in the instant case, as distinguished from the Pajarillo case where the crew members are under no obligation to remain in the outfit for any definite period as one can be the crew member of an outfit for one day and be the member of the crew of another vessel the next day, the herein petitioners, on the other hand, were directly hired by private respondent, through its general manager, Arsenio de Guzman, and its operations manager, Conrado de Guzman and have been under the employ of private respondent for a period of 8-15 years in various capacities, except for Laurente Bautu who was hired on August 3, 1983 as assistant engineer. Petitioner Alipio Ruga was hired on September 29, 1974 as patron/captain of the fishing vessel; Eladio Calderon started as a mechanic on April 16, 1968 until he was promoted as chief engineer of the fishing vessel; Jose Parma was employed on September 29, 1974 as assistant engineer; Jaime Barbin started as a pilot of the motor boat until he was transferred as a master fisherman to the fishing vessel 7/B Sandyman II; Philip Cervantes was hired as winchman on August 1, 1972 while Eleuterio Barbin was hired as winchman on April 15, 1976. 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, thus: (f) "Wage" paid to any employee shall mean the 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 services rendered or to be rendered, and included the fair and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee. ... The claim of private respondent, which was given credence by public respondent, that petitioners get paid in the form of share in the fish-catch which the patron/pilot as head of the team distributes to his crew members in accordance with their own understanding 15 is not supported by recorded evidence. Except that such claim appears as an allegation in private respondent's position paper, there is nothing in the records showing such a sharing scheme as preferred by private respondent. 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. We have examined the jurisprudence on the matter and find the same to be supportive of petitioners' stand. InNegre vs. WCC 135 SCRA 653 (1985), we held that fishermen crew members who were recruited by one master fisherman locally known as "maestro" in charge of recruiting others to complete the crew members are considered employees, not industrial partners, of the boat-owners. In an earlier case of Abong vs. WCC, 54 SCRA 379 (1973) where petitioner therein, Dr. Agustin Abong, owner of the fishing boat, claimed that he was not the employer of the fishermen crew members because of an alleged partnership agreement between him, as financier, and Simplicio Panganiban, as his team leader in charge of recruiting said fishermen to work for him, we affirmed the finding of the WCC that there existed an employer-employee relationship between 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. WHEREFORE, in view of the foregoing, the petition is GRANTED. The questioned resolution of the National Labor Relations Commission dated May 30,1985 is hereby REVERSED and SET ASIDE. Private respondent is ordered to reinstate petitioners to their former positions or any equivalent positions with 3-year backwages and other monetary benefits under the law. No pronouncement as to costs. SO ORDERED. Gutierrez, Jr., Bidin and Corts, JJ., concur. Feliciano, J., concurs in the result.

PERPETUAL HELP CREDIT COOPERATIVE, INC., petitioner, vs. BENEDICTO FABURADA, SISINITA VILLAR, IMELDA TAMAYO, HAROLD CATIPAY, and the NATIONAL LABOR RELATIONS COMMISSION, Fourth Division, Cebu City, respondents. DECISION SANDOVAL-GUTIERREZ, J.: 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 attorneys 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. On September 3, 1990, petitioner filed a supplemental motion to dismiss alleging that Article 121 of R.A. No. 6939, otherwise known as the Cooperative Development Authority Law which took effect on March 26, 1990, requires conciliation or mediation within the cooperative before a resort to judicial proceeding. 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. On November 23, 1993, the Labor Arbiter rendered a decision, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered declaring complainants illegally dismissed, thus respondent is directed to pay Complainants backwages computed from the time they were illegally dismissed up to the actual reinstatement but subject to the three year backwages rule, separation pay for one month for every year of service since reinstatement is evidently not feasible anymore, to pay complainants 13th month pay, wage differentials and Ten Percent (10%) attorneys fees from the aggregate monetary award. However, complainant Benedicto Faburada shall only be awarded what are due him in proportion to the nine and a half months that he had served the respondent, he being a part-time employee. All other claims are hereby dismissed for lack of merit. The computation of the foregoing awards is hereto attached and forms an integral part of this decision. On appeal[1], the NLRC affirmed the Labor Arbiter's decision. Hence, this petition by the PHCCI. The issue for our resolution is whether or not respondent judge committed grave abuse of discretion in ruling that there is an employer-employee relationship between the parties and that private respondents were illegally dismissed. Petitioner PHCCI contends that private respondents are its members and are working for it as volunteers. Not being regular employees, they cannot sue petitioner. 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 workers 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. That an employer-employee exists between the parties is shown by the averments of private respondents in their respective affidavits, carefully considered by respondent NLRC in affirming the Labor Arbiter's decision, thus: Benedicto Faburada -Regular part-time Computer programmer/ operator. Worked with the Cooperative since June 1, 1988 up to December 29, 1989.Work schedule: Tuesdays and Thursdays, from 1:00 p.m. to 5:30 p.m. and every Saturday from 8:00 to 11:30 a.m. and 1:00 to 4:00 p.m. and for at least three (3 ) hours during Sundays. Monthly salary: P1,000.00 -from June to December 1988; P1,350.00 - from January to June 1989; and P1,500.00 from July to December 1989. Duties: Among others, Enter data into the computer; compute interests on savings deposits, effect mortuary deductions and dividends on fixed deposits; maintain the masterlist of the cooperative members; perform various forms for mimeographing; and perform such other duties as may be assigned from time to time. Sisinita Vilar -Clerk. Worked with the Cooperative since December 1, 1987 up to December 29, 1989. Work schedule: Regular working hours. Monthly salary: P500.00 - from December 1, 1987 to December 31, 1988; P1,000.00 - from January 1, 1989 to June 30, 1989; and P1,150.00 from July 1, 1989 to December 31, 1989. Duties: Among others, Prepare summary of salary advances, journal vouchers, daily summary of disbursements to respective classifications; schedule loans; prepare checks and cash vouchers for regular and emergency loans; reconcile bank statements to the daily summary of disbursements; post the monthly balance of fixed and savings deposits in preparation for the computation of interests, dividends, mortuary and patronage funds; disburse checks during regular and emergency loans; and perform such other bookkeeping and accounting duties as may be assigned to her from time to time. Imelda C. Tamayo - Clerk. Worked with the Cooperative since October 19, 1987 up to December 29, 1989. Work schedule: Monday to Friday - 8:00 to 11:30 a.m and 2:00 to 5:30 p.m.; every Saturday - 8:00 to 11:30 a.m and 1:00 to 4:00 p.m; and for one Sunday each month - for at least three (3) hours.Monthly salary: P60.00 - from October to November 1987; P250.00 for December 1987; P500.00 - from January to December 1988; P950 - from January to June 1989; and P1,000.00 from July to December 1989. Duties: Among others, pick up balances for the computation of interests on savings deposit, mortuary, dividends and patronage funds; prepare cash vouchers; check petty cash vouchers; take charge of the preparation of new passbooks and ledgers for new applicants; fill up members logbook of regular depositors, junior depositors and special accounts; take charge of loan releases every Monday morning; assist in the posting and preparation of deposit slips; receive deposits from members; and perform such other bookkeeping and accounting duties as may be assigned her from time to time. Harold D. Catipay - Clerk. Worked with the Cooperative since March 3 to December 29, 1989. Work schedule: - Monday to Friday - 8:00 to 11:30 a.m. and 2:00 to 5:30 p.m.; Saturday 8:00 to 11:30 a.m. and 1:00 to 4:00 p.m.; and one Sunday each month - for at least three (3) hours. Monthly salary: P900.00 - from March to June 1989; P1,050.00 - from July to December 1989. Duties: Among others, Bookkeeping, accounting and collecting duties, such as, post daily collections from the two (2) collectors in the market; reconcile passbooks and ledgers of members in the market; and assist the other clerks in their duties. All of them were given a memorandum of termination on January 2, 1990, effective December 29, 1989. We are not prepared to disregard the findings of both the Labor Arbiter and respondent NLRC, the same being supported by substantial evidence, that quantum of evidence required in quasi-judicial proceedings, like this one.. 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. All of them, except Harold D. Catipay, worked with petitioner for more than one (1) year: Benedicto Faburada, for one and a half (1 1/2) years; Sisinita Vilar, for two (2) years; and Imelda C. Tamayo, for two (2) years and two (2) months. That Benedicto Faburada worked only on a part-time basis, does not mean that he is not a regular employee. Ones 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.[5] Petitioner's contention that private respondents are mere volunteer workers, not regular employees, must necessarily fail. Its invocation of San Jose City Electric Cooperative vs. Ministry of Labor and Employment (173 SCRA 697, 703 (1989 ) is misplaced. The issue in this case is whether or not the employees-members of a cooperative can organize themselves for purposes of collective bargaining, not whether or not the members can be employees. Petitioner missed the point. 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 employees 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 employees 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. Procedural due process requires that the employer serve the employees to be dismissed two (2) written notices before the termination of their employment is effected: (a) the first, to apprise them of the particular acts or omissions for which their dismissal is sought and (b) the second, to inform them of the decision of the employer that they are being dismissed. [7] In this case, only one notice was served upon private respondents by petitioner. It was in the form of a Memorandum signed by the Manager of the Cooperative dated January 2, 1990 terminating their services effective December 29, 1989. Clearly, petitioner failed to comply with the twin requisites of a valid notice. We hold that private respondents have been illegally dismissed. Petitioner contends that the labor arbiter has no jurisdiction to take cognizance of the complaint of private respondents considering that they failed to submit their dispute to the grievance machinery as required by P.D 175 (strengthening the Cooperative Movement) [8] and its implementing rules and regulations under LOI 23. Likewise, the Cooperative Development Authority did not issue a Certificate of Non-Resolution pursuant to Section 8 of R.A. 6939 or the Cooperative Development Authority Law. As aptly stated by the Solicitor General in his comment, P.D. 175 does not provide for a grievance machinery where a dispute or claim may first be submitted. LOI 23 refers to instructions to the Secretary of Public Works and Communications to implement immediately the recommendation of the Postmaster General for the dismissal of some employees of the Bureau of Post. Obviously, this LOI has no relevance to the instant case. Article 121 of Republic Act No. 6938 (Cooperative Code of the Philippines) provides the procedure how cooperative disputes are to be resolved, thus: ART. 121. Settlement of Disputes.- Disputes among members, officers, directors, and committee members, and intra-cooperative disputes shall, as far as practicable, be settled amicably in accordance

with the conciliation or mediation mechanisms embodied in the bylaws of the cooperative, and in applicable laws. Should such a conciliation/mediation proceeding fail, the matter shall be settled in a court of competent jurisdiction. Complementing this Article is Section 8 of R.A. No. 6939 (Cooperative Development Authority Law) which reads: SEC. 8 Mediation and Conciliation.- Upon request of either or both parties, the Authority shall mediate and conciliate disputes within a cooperative or between cooperatives: Provided, That if no mediation or conciliation succeeds within three (3) months from request thereof, a certificate of non-resolution shall be issued by the Commission prior to the filing of appropriate action before the proper courts. The above provisions apply to members, officers and directors of the cooperative involved in disputes within a cooperative or between cooperatives. There is no evidence that private respondents are members of petitioner PHCCI and even if they are, the dispute is about payment of wages, overtime pay, rest day and termination of employment. Under Art. 217 of the Labor Code, these disputes are within the original and exclusive jurisdiction of the Labor Arbiter. As illegally dismissed employees, private respondents are therefore entitled to reinstatement without loss of seniority rights and other privileges and to full backwages, inclusive of allowances, plus other benefits or their monetary equivalent computed from the time their compensation was witheld from them up to the time of their actual reinstatement. [9] Since they were dismissed after March 21, 1989, the effectivity date of R.A. 6715 [10] they are granted full backwages, meaning, without deducting from their backwages the earnings derived by them elsewhere during the period of their illegal dismissal.[11] If reinstatement is no longer feasible, as when the relationship between petitioner and private respondents has become strained, payment of their separation pay in lieu of reinstatement is in order.[12] WHEREFORE, the petition is hereby DENIED. The decision of respondent NLRC is AFFIRMED, with modification in the sense that the backwages due private respondents shall be paid in full, computed from the time they were illegally dismissed up to the time of the finality of this Decision. [13] SO ORDERED. Melo, (Chairman), Vitug, and Panganiban, JJ., concur.

PEDRO CHAVEZ, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, SUPREME PACKAGING, INC. and ALVIN LEE, Plant Manager, respondents. DECISION CALLEJO, SR., J.: Before the Court is the petition for review on certiorari of the Resolution [1] dated December 15, 2000 of the Court of Appeals (CA) reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485. The assailed resolution reinstated the Decision dated July 10, 1998 of the National Labor Relations Commission (NLRC), dismissing the complaint for illegal dismissal filed by herein petitioner Pedro Chavez. The said NLRC decision similarly reversed its earlier Decision dated January 27, 1998 which, affirming that of the Labor Arbiter, ruled that the petitioner had been illegally dismissed by respondents Supreme Packaging, Inc. and Mr. Alvin Lee. The case stemmed from the following facts: The respondent company, Supreme Packaging, Inc., is in the business of manufacturing cartons and other packaging materials for export and distribution. It engaged the services of the petitioner, Pedro Chavez, as truck driver on October 25, 1984. As such, the petitioner was tasked to deliver the respondent companys products from its factory in Mariveles, Bataan, to its various customers, mostly in Metro Manila. The respondent company furnished the petitioner with a truck. Most of the petitioners delivery trips were made at nighttime, commencing at 6:00 p.m. from Mariveles, and returning thereto in the afternoon two or three days after. The deliveries were made in accordance with the routing slips issued by respondent company indicating the order, time and urgency of delivery. Initially, the petitioner was paid the sum of P350.00 per trip. This was later adjusted to P480.00 per trip and, at the time of his alleged dismissal, the petitioner was receiving P900.00 per trip. Sometime in 1992, the petitioner expressed to respondent Alvin Lee, respondent companys plant manager, his (the petitioners) desire to avail himself of the benefits that the regular employees were receiving such as overtime pay, nightshift differential pay, and 13th month pay, among others. Although he promised to extend these benefits to the petitioner, respondent Lee failed to actually do so. On February 20, 1995, the petitioner filed a complaint for regularization with the Regional Arbitration Branch No. III of the NLRC in San Fernando, Pampanga. Before the case could be heard, respondent company terminated the services of the petitioner. Consequently, on May 25, 1995, the petitioner filed an amended complaint against the respondents for illegal dismissal, unfair labor practice and 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: That the Principal [referring to Supreme Packaging, Inc.], by these presents, agrees to hire and the Contractor [referring to Pedro Chavez], by nature of their specialized line or service jobs, accepts the services to be rendered to the Principal, under the following terms and covenants heretofore mentioned: 1. That the inland transport delivery/hauling activities to be performed by the contractor to the principal, shall only cover travel route from Mariveles to Metro Manila. Otherwise, any change to this travel route shall be subject to further agreement by the parties concerned. 2. That the payment to be made by the Principal for any hauling or delivery transport services fully rendered by the Contractor shall be on a per trip basis depending on the size or classification of the truck being used in the transport service, to wit: a) If the hauling or delivery service shall require a truck of six wheeler, the payment on a per trip basis from Mariveles to Metro Manila shall be THREE HUNDRED PESOS (P300.00) and EFFECTIVE December 15, 1984. If the hauling or delivery service require a truck of ten wheeler, the payment on a per trip basis, following the same route mentioned, shall be THREE HUNDRED FIFTY (P350.00) Pesos and Effective December 15, 1984.

b)

3. That for the amount involved, the Contractor will be to [sic] provide for [sic] at least two (2) helpers; 4. The Contractor shall exercise direct control and shall be responsible to the Principal for the cost of any damage to, loss of any goods, cargoes, finished products or the like, while the same are in transit, or due to reckless [sic] of its men utilized for the purpose above mentioned; 5. That the Contractor shall have absolute control and disciplinary power over its men working for him subject to this agreement, and that the Contractor shall hold the Principal free and harmless from any

liability or claim that may arise by virtue of the Contractors non-compliance to the existing provisions of the Minimum Wage Law, the Employees Compensation Act, the Social Security System Act, or any other such law or decree that may hereafter be enacted, it being clearly understood that any truck drivers, helpers or men working with and for the Contractor, are not employees who will be indemnified by the Principal for any such claim, including damages incurred in connection therewith; 6. This contract shall take effect immediately upon the signing by the parties, subject to renewal on a yearto-year basis.[2] This contract of service was dated December 12, 1984. It was subsequently renewed twice, on July 10, 1989 and September 28, 1992. Except for the rates to be paid to the petitioner, the terms of the contracts were substantially the same. The relationship of the respondent company and the petitioner was allegedly governed by this contract of service. The respondents insisted that the petitioner had the sole control over the means and methods by which his work was accomplished. He paid the wages of his helpers and exercised control over them. As such, the petitioner was not entitled to regularization because he was not an employee of the respondent company. The respondents, likewise, maintained that they did not dismiss the petitioner. Rather, the severance of his contractual relation with the respondent company was due to his violation of the terms and conditions of their contract. The petitioner allegedly failed to observe the minimum degree of diligence in the proper maintenance of the truck he was using, thereby exposing respondent company to unnecessary significant expenses of overhauling the said truck. After the parties had filed their respective pleadings, the Labor Arbiter rendered the Decision dated February 3, 1997, finding the respondents guilty of illegal dismissal. The Labor Arbiter declared that the petitioner was a regular employee of the respondent company as he was performing a service that was necessary and desirable to the latters business. Moreover, it was noted that the petitioner had discharged his duties as truck driver for the respondent company for a continuous and uninterrupted period of more than ten years. The contract of service invoked by the respondents was declared null and void as it constituted a circumvention of the constitutional provision affording full protection to labor and security of tenure. The Labor Arbiter found that the petitioners dismissal was anchored on his insistent demand to be regularized. Hence, for lack of a valid and just cause therefor and for their failure to observe the due process requirements, the respondents were found guilty of illegal dismissal. The dispositive portion of the Labor Arbiters decision states: WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring respondent SUPREME PACKAGING, INC. and/or MR. ALVIN LEE, Plant Manager, with business address at BEPZ, Mariveles, Bataan guilty of illegal dismissal, ordering said respondent to pay complainant his separation pay equivalent to one (1) month pay per year of service based on the average monthly pay of P10,800.00 in lieu of reinstatement as his reinstatement back to work will not do any good between the parties as the employment relationship has already become strained and full backwages from the time his compensation was withheld on February 23, 1995 up to January 31, 1997 (cut-off date) until compliance, otherwise, his backwages shall continue to run. Also to pay complainant his 13th month pay, night shift differential pay and service incentive leave pay hereunder computed as follows: a) b) c) d) Backwages .. P248,400.00 Separation Pay .... P140,400.00 13th month pay .P 10,800.00 Service Incentive Leave Pay .. 2,040.00 TOTAL P401,640.00

Respondent is also ordered to pay ten (10%) of the amount due the complainant as attorneys fees. SO ORDERED.[3] The respondents seasonably interposed an appeal with the NLRC. However, the appeal was dismissed by the NLRC in its Decision[4]dated January 27, 1998, as it affirmed in toto the decision of the Labor Arbiter. In the said decision, the NLRC characterized the contract of service between the respondent company and the petitioner as a scheme that was resorted to by the respondents who, taking advantage of the petitioners unfamiliarity with the English language and/or legal niceties, wanted to evade the effects and implications of his becoming a regularized employee.[5] The respondents sought reconsideration of the January 27, 1998 Decision of the NLRC. Acting thereon, the NLRC rendered another Decision[6] dated July 10, 1998, reversing its earlier decision and, this time, holding that no employer-employee relationship existed between the respondent company and the petitioner. In reconsidering its earlier decision, the NLRC stated that the respondents did not exercise control over the means and methods by which the petitioner accomplished his delivery services. It upheld the validity of the contract of service as it pointed out that said contract was silent as to the time by which the petitioner was to make the deliveries and that the petitioner could hire his own helpers whose wages would be paid from his own account. These factors indicated that the petitioner was an independent contractor, not an employee of the respondent company.

The NLRC ruled that the contract of service was not intended to circumvent Article 280 of the Labor Code on the regularization of employees. Said contract, including the fixed period of employment contained therein, having been knowingly and voluntarily entered into by the parties thereto was declared valid citing Brent School, Inc. v. Zamora.[7] The NLRC, thus, dismissed the petitioners complaint for illegal dismissal. The petitioner sought reconsideration of the July 10, 1998 Decision but it was denied by the NLRC in its Resolution dated September 7, 1998. He then filed with this Court a petition for certiorari, which was referred to the CA following the ruling in St. Martin Funeral Home v. NLRC.[8] The appellate court rendered the Decision dated April 28, 2000, reversing the July 10, 1998 Decision of the NLRC and reinstating the decision of the Labor Arbiter. In the said decision, the CA ruled that the petitioner was a regular employee of the respondent company because as its truck driver, he performed a service that was indispensable to the latters business. Further, he had been the respondent companys truck driver for ten continuous years. The CA also reasoned that the petitioner could not be considered an independent contractor since he had no substantial capital in the form of tools and machinery. In fact, the truck that he drove belonged to the respondent company. The CA also observed that the routing slips that the respondent company issued to the petitioner showed that it exercised control over the latter. The routing slips indicated the chronological order and priority of delivery, the urgency of certain deliveries and the time when the goods were to be delivered to the customers. The CA, likewise, disbelieved the respondents claim that the petitioner abandoned his job noting that he just filed a complaint for regularization. This actuation of the petitioner negated the respondents allegation that he abandoned his job. The CA held that the respondents failed to discharge their burden to show that the petitioners dismissal was for a valid and just cause. Accordingly, the respondents were declared guilty of illegal dismissal and the decision of the Labor Arbiter was reinstated. In its April 28, 2000 Decision, the CA denounced the contract of service between the respondent company and the petitioner in this wise: In summation, we rule that with the proliferation of contracts seeking to prevent workers from attaining the status of regular employment, it is but necessary for the courts to scrutinize with extreme caution their legality and justness. Where from the circumstances it is apparent that a contract has been entered into to preclude acquisition of tenurial security by the employee, they should be struck down and disregarded as contrary to public policy and morals. In this case, the contract of service is just another attempt to exploit the unwitting employee and deprive him of the protection of the Labor Code by making it appear that the stipulations of the parties were governed by the Civil Code as in ordinary transactions. [9] However, on motion for reconsideration by the respondents, the CA made a complete turn around as it rendered the assailed Resolution dated December 15, 2000 upholding the contract of service between the petitioner and the respondent company. In reconsidering its decision, the CA explained that the extent of control exercised by the respondents over the petitioner was only with respect to the result but not to the means and methods used by him. The CA cited the following circumstances: (1) the respondents had no say on how the goods were to be delivered to the customers; (2) the petitioner had the right to employ workers who would be under his direct control; and (3) the petitioner had no working time. The fact that the petitioner had been with the respondent company for more than ten years was, according to the CA, of no moment because his status was determined not by the length of service but by the contract of service. This contract, not being contrary to morals, good customs, public order or public policy, should be given the force and effect of law as between the respondent company and the petitioner. Consequently, the CA reinstated the July 10, 1998 Decision of the NLRC dismissing the petitioners complaint for illegal dismissal. Hence, the recourse to this Court by the petitioner. He assails the December 15, 2000 Resolution of the appellate court alleging that: (A) THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN GIVING MORE CONSIDERATION TO THE CONTRACT OF SERVICE ENTERED INTO BY PETITIONER AND PRIVATE RESPONDENT THAN ARTICLE 280 OF THE LABOR CODE OF THE PHILIPPINES WHICH CATEGORICALLY DEFINES A REGULAR EMPLOYMENT NOTWITHSTANDING ANY WRITTEN AGREEMENT TO THE CONTRARY AND REGARDLESS OF THE ORAL AGREEMENT OF THE PARTIES; (B) THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN REVERSING ITS OWN FINDINGS THAT PETITIONER IS A REGULAR EMPLOYEE AND IN HOLDING THAT THERE EXISTED NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN PRIVATE RESPONDENT AND PETITIONER IN AS MUCH AS THE CONTROL TEST WHICH IS CONSIDERED THE MOST ESSENTIAL CRITERION IN DETERMINING THE EXISTENCE OF SAID RELATIONSHIP IS NOT PRESENT.[10]

The threshold issue that needs to be resolved is whether there existed an employer-employee relationship between the respondent company and the petitioner. We rule in the affirmative. The elements to determine the existence of an employment relationship are: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the employers power to control the employees conduct.[11] The most important element is the employers control of the employees conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it. [12] All the four elements are present in this case. First. Undeniably, it was the respondents who engaged the services of the petitioner without the intervention of a third party. Second. Wages are defined as remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for service rendered or to be rendered. [13] That the petitioner was paid on a per trip basis is not significant. This is merely a method of computing compensation and not a basis for determining the existence or absence of employer-employee relationship. One may be paid on the basis of results or time expended on the work, and may or may not acquire an employment status, depending on whether the elements of an employer-employee relationship are present or not. [14] In this case, it cannot be gainsaid that the petitioner received compensation from the respondent company for the services that he rendered to the latter. Moreover, under the Rules Implementing the Labor Code, every employer is required to pay his employees by means of payroll.[15] The payroll should show, among other things, the employees rate of pay, deductions made, and the amount actually paid to the employee. Interestingly, the respondents did not present the payroll to support their claim that the petitioner was not their employee, raising speculations whether this omission proves that its presentation would be adverse to their case.[16] Third. The respondents power to dismiss the petitioner was inherent in the fact that they engaged the services of the petitioner as truck driver. They exercised this power by terminating the petitioners services albeit in the guise of severance of contractual relation due allegedly to the latters breach of his contractual obligation. Fourth. As earlier opined, of the four elements of the employer-employee relationship, the control test is the most important. Compared to an employee, an independent contractor is one who carries on a distinct and independent business and undertakes to perform the job, work, or service on its own account and under its own responsibility according to its own manner and method, free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof. [17] Hence, while an independent contractor enjoys independence and freedom from the control and supervision of his principal, an employee is subject to the employers power to control the means and methods by which the employees work is to be performed and accomplished.[18] Although the respondents denied that they exercised control over the manner and methods by which the petitioner accomplished his work, a careful review of the records shows that the latter performed his work as truck driver under the respondents supervision and control. Their right of control was manifested by the following attendant circumstances: 1. The truck driven by the petitioner belonged to respondent company; 2. There was an express instruction from the respondents that the truck shall be used exclusively to deliver respondent companys goods; [19] 3. Respondents directed the petitioner, after completion of each delivery, to park the truck in either of two specific places only, to wit: at its office in Metro Manila at 2320 Osmea Street, Makati City or at BEPZ, Mariveles, Bataan; [20] and 4. Respondents determined how, where and when the petitioner would perform his task by issuing to him gate passes and routing slips. [21] a. The routing slips indicated on the column REMARKS, the chronological order and priority of delivery such as 1 st drop, nd 2 drop, 3rd drop, etc. This meant that the petitioner had to deliver the same according to the order of priority indicated therein. b. The routing slips, likewise, showed whether the goods were to be delivered urgently or not by the word RUSH printed thereon. c. The routing slips also indicated the exact time as to when the goods were to be delivered to the customers as, for example, the words tomorrow morning was written on slip no. 2776. These circumstances, to the Courts mind, prove that the respondents exercised control over the means and methods by which the petitioner accomplished his work as truck driver of the respondent company. On the other hand, the Court is hard put to believe the respondents allegation that the petitioner was an independent contractor engaged in providing delivery or hauling services when he did not even own the truck used for such services. Evidently, he did not possess substantial capitalization or investment in the form of tools, machinery and work premises. Moreover, the petitioner performed the delivery services exclusively for the respondent company for a continuous and uninterrupted period of ten years. The contract of service to the contrary notwithstanding, the factual circumstances earlier discussed indubitably establish the existence of an employer-employee relationship between the respondent company and the petitioner. It

bears stressing that the existence of an employer-employee relationship cannot be negated by expressly repudiating it in a contract and providing therein that the employee is an independent contractor when, as in this case, the facts clearly show otherwise. Indeed, the employment status of a person is defined and prescribed by law and not by what the parties say it should be.[22] Having established that there existed an employer-employee relationship between the respondent company and the petitioner, the Court shall now determine whether the respondents validly dismissed the petitioner. As a rule, the employer bears the burden to prove that the dismissal was for a valid and just cause. [23] In this case, the respondents failed to prove any such cause for the petitioners dismissal. They insinuated that the petitioner abandoned his job. To constitute abandonment, these two factors must concur: (1) the failure to report for work or absence without valid or justifiable reason; and (2) a clear intention to sever employer-employee relationship. [24] Obviously, the petitioner did not intend to sever his relationship with the respondent company for at the time that he allegedly abandoned his job, the petitioner just filed a complaint for regularization, which was forthwith amended to one for illegal dismissal. A charge of abandonment is totally inconsistent with the immediate filing of a complaint for illegal dismissal, more so when it includes a prayer for reinstatement. [25] Neither can the respondents claim that the petitioner was guilty of gross negligence in the proper maintenance of the truck constitute a valid and just cause for his dismissal. Gross negligence implies a want or absence of or failure to exercise slight care or diligence, or the entire absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them. [26] The negligence, to warrant removal from service, should not merely be gross but also habitual.[27] The single and isolated act of the petitioners negligence in the proper maintenance of the truck alleged by the respondents does not amount to gross and habitual neglect warranting his dismissal. The Court agrees with the following findings and conclusion of the Labor Arbiter: As against the gratuitous allegation of the respondent that complainant was not dismissed from the service but due to complainants breach of their contractual relation, i.e., his violation of the terms and conditions of the contract, we are very much inclined to believe complainants story that his dismissal from the service was anchored on his insistent demand that he be considered a regular employee. Because complainant in his right senses will not just abandon for that reason alone his work especially so that it is only his job where he depends chiefly his existence and support for his family if he was not aggrieved by the respondent when he was told that his services as driver will be terminated on February 23, 1995.[28] Thus, the lack of a valid and just cause in terminating the services of the petitioner renders his dismissal illegal. Under Article 279 of the Labor Code, an employee who is unjustly dismissed is entitled to reinstatement, without loss of seniority rights and other privileges, and to the payment of full backwages, inclusive of allowances, and other benefits or their monetary equivalent, computed from the time his compensation was withheld from him up to the time of his actual reinstatement. [29] However, as found by the Labor Arbiter, the circumstances obtaining in this case do not warrant the petitioners reinstatement. A more equitable disposition, as held by the Labor Arbiter, would be an award of separation pay equivalent to one month for every year of service from the time of his illegal dismissal up to the finality of this judgment in addition to his full backwages, allowances and other benefits. WHEREFORE, the instant petition is GRANTED. The Resolution dated December 15, 2000 of the Court of Appeals reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485 is REVERSED and SET ASIDE. The Decision dated February 3, 1997 of the Labor Arbiter in NLRC Case No. RAB-III-02-6181-5, finding the respondents guilty of illegally terminating the employment of petitioner Pedro Chavez, is REINSTATED. SO ORDERED. Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

ANGELINA FRANCISCO, Petitioner,

G.R. No. 170087 Present:

- versus -

Panganiban, C.J. (Chairperson), Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ.

NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION, SEIICHIRO TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA, IRENE BALLESTEROS, TRINIDAD LIZA Promulgated: and RAMON ESCUETA, Respondents. August 31, 2006 x ---------------------------------------------------------------------------------------- x DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Decision and Resolution of the Court of Appeals dated October 29, 2004 [1] and October 7, 2005,[2] respectively, in CA-G.R. SP No. 78515 dismissing the complaint for constructive dismissal filed by herein petitioner Angelina Francisco. The appellate court reversed and set aside the Decision of the National Labor Relations Commission (NLRC) dated April 15, 2003, [3] in NLRC NCR CA No. 032766-02 which affirmed with modification the decision of the Labor Arbiter dated July 31, 2002, [4] in NLRC-NCR Case No. 30-10-0-489-01, finding that private respondents were liable for constructive dismissal. 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] Although she was designated as Corporate Secretary, she was not entrusted with the corporate documents; neither did she attend any board meeting nor required to do so. She never prepared any legal document and never represented the company as its Corporate Secretary. However, on some occasions, she was prevailed upon to sign documentation for the company. [6] In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as accountant in lieu of petitioner. As Acting Manager, petitioner was assigned to handle recruitment of all employees and perform management administration functions; represent the company in all dealings with government agencies, especially with the Bureau of Internal Revenue (BIR), Social Security System (SSS) and in the city government of Makati; and to administer all other matters pertaining to the operation of Kasei Restaurant which is owned and operated by Kasei Corporation. [7] For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in the profit of Kasei Corporation.[8] 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 had no daily time record and she came to the office any time she wanted. The company never interfered with her work except that from time to time, the management would ask her opinion on matters relating to her profession. Petitioner did not go through the usual procedure of selection of employees, but her services were engaged through a Board Resolution designating her as technical consultant. The money received by petitioner from the corporation was her professional fee subject to the 10% expanded withholding tax on professionals, and that she was not one of those reported to the BIR or SSS as one of the companys employees.[12] Petitioners 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. To prove that petitioner was not an employee of the corporation, private respondents submitted a list of employees for the years 1999 and 2000 duly received by the BIR showing that petitioner was not among the employees reported to the BIR, as well as a list of payees subject to expanded withholding tax which included petitioner. SSS records were also submitted showing that petitioners latest employer was Seiji Corporation.[13] The Labor Arbiter found that petitioner was illegally dismissed, thus: WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. finding complainant an employee of respondent corporation; 2. declaring complainants dismissal as illegal; 3. ordering respondents to reinstate complainant to her former position without loss of seniority rights and jointly and severally pay complainant her money claims in accordance with the following computation: a. b. c. d. e. f. g. h. Backwages 10/2001 07/2002 275,000.00 (27,500 x 10 mos.) Salary Differentials (01/2001 09/2001) 22,500.00 Housing Allowance (01/2001 07/2002) 57,000.00 Midyear Bonus 2001 27,500.00 13th Month Pay 27,500.00 10% share in the profits of Kasei Corp. from 1996-2001 361,175.00 Moral and exemplary damages 100,000.00 10% Attorneys fees 87,076.50 P957,742.50

If reinstatement is no longer feasible, respondents are ordered to pay complainant separation pay with additional backwages that would accrue up to actual payment of separation pay. SO ORDERED.[14]

On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the dispositive portion of which reads: PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows: 1) Respondents are directed to pay complainant separation pay computed at one month per year of service in addition to full backwages from October 2001 to July 31, 2002; 2) The awards representing moral and exemplary damages and 10% share in profit in the respective accounts of P100,000.00 and P361,175.00 are deleted; 3) award only; The award of 10% attorneys fees shall be based on salary differential

4) The awards representing salary differentials, housing allowance, mid year bonus and 13th month pay are AFFIRMED. SO ORDERED.[15] On appeal, the Court of Appeals reversed the NLRC decision, thus: WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor Relations Commissions dated April 15, 2003 is hereby REVERSED and SET ASIDE and a new one is hereby rendered dismissing the complaint filed by private respondent against Kasei Corporation, et al. for constructive dismissal. SO ORDERED.[16] The appellate court denied petitioners motion for reconsideration, hence, the present recourse. 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. Considering the conflicting findings by the Labor Arbiter and the National Labor Relations Commission on one hand, and the Court of Appeals on the other, there is a need to reexamine the records to determine which of the propositions espoused by the contending parties is supported by substantial evidence.[17] 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 socalled 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 employers 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 employers 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. This two-tiered test would provide us with a framework of analysis, which would take into consideration the totality of circumstances surrounding the true nature of the relationship between the

parties. This is especially appropriate in this case where there is no written agreement or terms of reference to base the relationship on; and due to the complexity of the relationship based on the various positions and responsibilities given to the worker over the period of the latters employment. The control test initially found application in the case of Viaa v. Al-Lagadan and Piga,[19] and lately in Leonardo v. Court of Appeals,[20] where we held that there is an employer-employee relationship when the person for whom the services are performed reserves the right to control not only the end achieved but also the manner and means used to achieve that end. In Sevilla v. Court of Appeals ,[21] we observed the need to consider the existing economic conditions prevailing between the parties, in addition to the standard of right-of-control like the inclusion of the employee in the payrolls, to give a clearer picture in determining the existence of an employer-employee relationship based on an analysis of the totality of economic circumstances of the worker. 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 employers business; (2) the extent of the workers investment in equipment and facilities; (3) the nature and degree of control exercised by the employer; (4) the workers 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 corporations 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, 13 th 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. Petitioners 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 employeremployee 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 latters line of business. In Domasig v. National Labor Relations Commission ,[28] we held that in a business establishment, an identification card is provided not only as a security measure but mainly to identify the holder thereof as a bona fide employee of the firm that issues it. Together with the cash vouchers covering petitioners salaries for the months stated therein, these matters constitute substantial evidence adequate to support a conclusion that petitioner was an employee of private respondent. We likewise ruled in Flores v. Nuestro[29] that a corporation who registers its workers with the SSS is proof that the latter were the formers employees. The coverage of Social Security Law is predicated on the existence of an employer-employee relationship.

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 petitioners job was as Kamuras 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] The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001 affidavit has been allegedly withdrawn by Kamura himself from the records of the case. [31] Regardless of this fact, we are convinced that the allegations in the first affidavit are sufficient to establish that petitioner is an employee of Kasei Corporation. Granting arguendo, that the second affidavit validly repudiated the first one, courts do not generally look with favor on any retraction or recanted testimony, for it could have been secured by considerations other than to tell the truth and would make solemn trials a mockery and place the investigation of the truth at the mercy of unscrupulous witnesses. [32] A recantation does not necessarily cancel an earlier declaration, but like any other testimony the same is subject to the test of credibility and should be received with caution.[33] 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] In Globe Telecom, Inc. v. Florendo-Flores,[36] we ruled that where an employee ceases to work due to a demotion of rank or a diminution of pay, an unreasonable situation arises which creates an adverse working environment rendering it impossible for such employee to continue working for her employer. Hence, her severance from the company was not of her own making and therefore amounted to an illegal termination of employment. In affording full protection to labor, this Court must ensure equal work opportunities regardless of sex, race or creed. Even as we, in every case, attempt to carefully balance the fragile relationship between employees and employers, we are mindful of the fact that the policy of the law is to apply the Labor Code to a greater number of employees. This would enable employees to avail of the benefits accorded to them by law, in line with the constitutional mandate giving maximum aid and protection to labor, promoting their welfare and reaffirming it as a primary social economic force in furtherance of social justice and national development. WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET ASIDE. The Decision of the National Labor Relations Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The case isREMANDED to the Labor Arbiter for the recomputation of petitioner Angelina Franciscos full backwages from the time she was illegally terminated until the date of finality of this decision, and separation pay representing one-half month pay for every year of service, where a fraction of at least six months shall be considered as one whole year.

G.R. No. 167648 : January 28, 2008 TELEVISION AND PRODUCTION EXPONENTS, INC. and/or ANTONIO P. TUVIERA, petitioners, v. ROBERTO C. SERVAA, Respondent. DECISION TINGA, J.: This petition for review under Rule 45 assails the 21 December 2004 Decision 1 and 8 April 2005 Resolution2 of the Court of Appeals declaring Roberto Servaa (respondent) a regular employee of petitioner Television and Production Exponents, Inc. (TAPE). The appellate court likewise ordered TAPE to pay nominal damages for its failure to observe statutory due process in the termination of respondent's employment for authorized cause. TAPE is a domestic corporation engaged in the production of television programs, such as the long-running variety program, "Eat Bulaga!". Its president is Antonio P. Tuviera (Tuviera). Respondent Roberto C. Servaa had served as a security guard for TAPE from March 1987 until he was terminated on 3 March 2000. Respondent filed a complaint for illegal dismissal and nonpayment of benefits against TAPE. He alleged that he was first connected with Agro-Commercial Security Agency but was later on absorbed by TAPE as a regular company guard. He was detailed at Broadway Centrum in Quezon City where "Eat Bulaga!" regularly staged its productions. On 2 March 2000, respondent received a memorandum informing him of his impending dismissal on account of TAPE's decision to contract the services of a professional security agency. At the time of his termination, respondent was receiving a monthly salary of P6,000.00. He claimed that the holiday pay, unpaid vacation and sick leave benefits and other monetary considerations were withheld from him. He further contended that his dismissal was undertaken without due process and violative of existing labor laws, aggravated by nonpayment of separation pay.3
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In a motion to dismiss which was treated as its position paper, TAPE countered that the labor arbiter had no jurisdiction over the case in the absence of an employer-employee relationship between the parties. TAPE made the following assertions: (1) that respondent was initially employed as a security guard for Radio Philippines Network (RPN-9); (2) that he was tasked to assist TAPE during its live productions, specifically, to control the crowd; (3) that when RPN-9 severed its relationship with the security agency, TAPE engaged respondent's services, as part of the support group and thus a talent, to provide security service to production staff, stars and guests of "Eat Bulaga!" as well as to control the audience during the one-and-a-half hour noontime program; (4) that it was agreed that complainant would render his services until such time that respondent company shall have engaged the services of a professional security agency; (5) that in 1995, when his contract with RPN-9 expired, respondent was retained as a talent and a member of the support group, until such time that TAPE shall have engaged the services of a professional security agency; (6) that respondent was not prevented from seeking other employment, whether or not related to security services, before or after attending to his "Eat Bulaga!" functions; (7) that sometime in late 1999, TAPE started negotiations for the engagement of a professional security agency, the Sun Shield Security Agency; and (8) that on 2 March 2000, TAPE issued memoranda to all talents, whose functions would be rendered redundant by the engagement of the security agency, informing them of the management's decision to terminate their services. 4
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TAPE averred that respondent was an independent contractor falling under the talent group category and was working under a special arrangement which is recognized in the industry. 5
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Respondent for his part insisted that he was a regular employee having been engaged to perform an activity that is necessary and desirable to TAPE's business for thirteen (13) years. 6
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On 29 June 2001, Labor Arbiter Daisy G. Cauton-Barcelona declared respondent to be a regular employee of TAPE. The Labor Arbiter relied on the nature of the work of respondent, which is securing and maintaining order in the studio, as necessary and desirable in the usual business activity of TAPE. The Labor Arbiter also ruled that the termination was valid on the ground of redundancy, and ordered the payment of respondent's separation pay equivalent to one (1)-month pay for every year of service. The dispositive portion of the decision reads: WHEREFORE, complainant's position is hereby declared redundant. Accordingly, respondents are hereby ordered to pay complainant his separation pay computed at the rate of one (1) month pay for every year of service or in the total amount ofP78,000.00.7 On appeal, the National Labor Relations Commission (NLRC) in a Decision 8 dated 22 April 2002 reversed the Labor Arbiter and considered respondent a mere program employee, thus: We have scoured the records of this case and we find nothing to support the Labor Arbiter's conclusion that complainant was a regular employee.

xxx The primary standard to determine regularity of employment is the reasonable connection between the particular activity performed by the employee in relation to the usual business or trade of the employer. This connection can be determined by considering the nature and work performed and its relation to the scheme of the particular business or trade in its entirety. x x x Respondent company is engaged in the business of production of television shows. The records of this case also show that complainant was employed by respondent company beginning 1995 after respondent company transferred from RPN-9 to GMA-7, a fact which complainant does not dispute. His last salary was P5,444.44 per month. In such industry, security services may not be deemed necessary and desirable in the usual business of the employer. Even without the performance of such services on a regular basis, respondent's company's business will not grind to a halt. xxx Complainant was indubitably a program employee of respondent company. Unlike [a] regular employee, he did not observe working hours x x x. He worked for other companies, such as M-Zet TV Production, Inc. at the same time that he was working for respondent company. The foregoing indubitably shows that complainant-appellee was a program employee. Otherwise, he would have two (2) employers at the same time. 9 Respondent filed a motion for reconsideration but it was denied in a Resolution 10 dated 28 June 2002. Respondent 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. Respondent asserted that he was a regular employee considering the nature and length of service rendered. 11 Reversing the decision of the NLRC, the Court of Appeals found respondent to be a regular employee. We quote the dispositive portion of the decision: IN LIGHT OF THE FOREGOING, the petition is hereby GRANTED. The Decision dated 22 April 2002 of the public respondent NLRC reversing the Decision of the Labor Arbiter and its Resolution dated 28 June 2002 denying petitioner's motion for reconsideration are REVERSED and SET ASIDE. The Decision dated 29 June 2001 of the Labor Arbiter is REINSTATED with MODIFICATION in that private respondents are ordered to pay jointly and severally petitioner the amount ofP10,000.00 as nominal damages for non-compliance with the statutory due process. SO ORDERED.12 Finding TAPE's motion for reconsideration without merit, the Court of Appeals issued a Resolution 13 dated 8 April 2005 denying said motion. TAPE filed the instant petition for review raising substantially the same grounds as those in its petition for certiorari before the Court of Appeals. These matters may be summed up into one main issue: whether an employer-employee relationship exists between TAPE and respondent. On 27 September 2006, the Court gave due course to the petition and considered the case submitted for decision.14
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At the outset, it bears emphasis that the existence of employer-employee relationship is ultimately a question of fact. Generally, only questions of law are entertained in appeals by certiorari to the Supreme Court. This rule, however, is not absolute. Among the several recognized exceptions is when the findings of the Court of Appeals and Labor Arbiters, on one hand, and that of the NLRC, on the other, are conflicting, 15 as obtaining in the case at bar. Jurisprudence is abound with cases that recite the factors to be considered in determining the existence of employer-employee relationship, namely: (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 method by which the work is to be accomplished. 16 The most important factor involves the control test. Under the control test, there is an employer-employee relationship when the person for whom the services are performed reserves the right to control not only the end achieved but also the manner and means used to achieve that end.17
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In concluding that respondent was an employee of TAPE, the Court of Appeals applied the "four-fold test" in this wise:

First. The selection and hiring of petitioner was done by private Respondents. In fact, private respondents themselves admitted having engaged the services of petitioner only in 1995 after TAPE severed its relations with RPN Channel 9. By informing petitioner through the Memorandum dated 2 March 2000, that his services will be terminated as soon as the services of the newly hired security agency begins, private respondents in effect acknowledged petitioner to be their employee. For the right to hire and fire is another important element of the employer-employee relationship. Second. Payment of wages is one of the four factors to be considered in determining the existence of employeremployee relation. . . Payment as admitted by private respondents was given by them on a monthly basis at a rate ofP5,444.44. Third. Of the four elements of the employer-employee relationship, the "control test" is the most important. x x x The bundy cards representing the time petitioner had reported for work are evident proofs of private respondents' control over petitioner more particularly with the time he is required to report for work during the noontime program of "Eat Bulaga!" If it were not so, petitioner would be free to report for work anytime even not during the noontime program of "Eat Bulaga!" from 11:30 a.m. to 1:00 p.m. and still gets his compensation for being a "talent." Precisely, he is being paid for being the security of "Eat Bulaga!" during the above-mentioned period. The daily time cards of petitioner are not just for mere record purposes as claimed by private Respondents. It is a form of control by the management of private respondent TAPE. 18 TAPE asseverates that the Court of Appeals erred in applying the "four-fold test" in determining the existence of employer-employee relationship between it and respondent. With respect to the elements of selection, wages and dismissal, TAPE proffers the following arguments: that it never hired respondent, instead it was the latter who offered his services as a talent to TAPE; that the Memorandum dated 2 March 2000 served on respondent was for the discontinuance of the contract for security services and not a termination letter; and that the talent fees given to respondent were the pre-agreed consideration for the services rendered and should not be construed as wages. Anent the element of control, TAPE insists that it had no control over respondent in that he was free to employ means and methods by which he is to control and manage the live audiences, as well as the safety of TAPE's stars and guests.19
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The position of TAPE is untenable. Respondent was first connected with Agro-Commercial Security Agency, which assigned him to assist TAPE in its live productions. When the security agency's contract with RPN-9 expired in 1995, respondent was absorbed by TAPE or, in the latter's language, "retained as talent." 20 Clearly, respondent was hired by TAPE. Respondent presented his identification card 21 to prove that he is indeed an employee of TAPE. It has been in held that in a business establishment, an identification card is usually provided not just as a security measure but to mainly identify the holder thereof as a bona fide employee of the firm who issues it.22
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Respondent claims to have been receiving P5,444.44 as his monthly salary while TAPE prefers to designate such amount as talent fees. Wages, as defined in the Labor Code, are 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. It is beyond dispute that respondent received a fixed amount as monthly compensation for the services he rendered to TAPE. The Memorandum informing respondent of the discontinuance of his service proves that TAPE had the power to dismiss respondent. Control is manifested in the bundy cards submitted by respondent in evidence. He was required to report daily and observe definite work hours. To negate the element of control, TAPE presented a certification from M-Zet Productions to prove that respondent also worked as a studio security guard for said company. Notably, the said certificate categorically stated that respondent reported for work on Thursdays from 1992 to 1995. It can be recalled that during said period, respondent was still working for RPN-9. As admitted by TAPE, it absorbed respondent in late 1995.23
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TAPE further denies exercising control over respondent and maintains that the latter is an independent contractor.24 Aside from possessing substantial capital or investment, a legitimate job contractor or subcontractor 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, and 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.25 TAPE failed to establish that respondent is an independent contractor. As found by the Court of Appeals: We find the annexes submitted by the private respondents insufficient to prove that herein petitioner is indeed an independent contractor. None of the above conditions exist in the case at bar. Private respondents failed to show

that petitioner has substantial capital or investment to be qualified as an independent contractor. They likewise failed to present a written contract which specifies the performance of a specified piece of work, the nature and extent of the work and the term and duration of the relationship between herein petitioner and private respondent TAPE.26 TAPE relies on Policy Instruction No. 40, issued by the Department of Labor, in classifying respondent as a program employee and equating him to be an independent contractor. Policy Instruction No. 40 defines program employees asx x x those whose skills, talents or services are engaged by the station for a particular or specific program or undertaking and who are not required to observe normal working hours such that on some days they work for less than eight (8) hours and on other days beyond the normal work hours observed by station employees and are allowed to enter into employment contracts with other persons, stations, advertising agencies or sponsoring companies. The engagement of program employees, including those hired by advertising or sponsoring companies, shall be under a written contract specifying, among other things, the nature of the work to be performed, rates of pay and the programs in which they will work. The contract shall be duly registered by the station with the Broadcast Media Council within three (3) days from its consummation. 27 TAPE failed to adduce any evidence to prove that it complied with the requirements laid down in the policy instruction. It did not even present its contract with respondent. Neither did it comply with the contractregistration requirement. Even granting arguendo that respondent is a program employee, stills, classifying him as an independent contractor is misplaced. The Court of Appeals had this to say: We cannot subscribe to private respondents' conflicting theories. The theory of private respondents that petitioner is an independent contractor runs counter to their very own allegation that petitioner is a talent or a program employee. An independent contractor is not an employee of the employer, while a talent or program employee is an employee. The only difference between a talent or program employee and a regular employee is the fact that a regular employee is entitled to all the benefits that are being prayed for. This is the reason why private respondents try to seek refuge under the concept of an independent contractor theory. For if petitioner were indeed an independent contractor, private respondents will not be liable to pay the benefits prayed for in petitioner's complaint.28 More importantly, respondent had been continuously under the employ of TAPE from 1995 until his termination in March 2000, or for a span of 5 years. Regardless of whether or not respondent had been performing work that is necessary or desirable to the usual business of TAPE, respondent is still considered a regular employee under 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 engagement of the employee or where the work or service to be performed is seasonal in nature and 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. As a regular employee, respondent cannot be terminated except for just cause or when authorized by law. 29 It is clear from the tenor of the 2 March 2000 Memorandum that respondent's termination was due to redundancy. Thus, the Court of Appeals correctly disposed of this issue, viz: Article 283 of the Labor Code provides that the employer may also terminate the employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year or service, whichever is higher. xxx

We uphold the finding of the Labor Arbiter that "complainant [herein petitioner] was terminated upon [the] management's option to professionalize the security services in its operations. x x x" However, [we] find that although petitioner's services [sic] was for an authorized cause, i.e., redundancy, private respondents failed to prove that it complied with service of written notice to the Department of Labor and Employment at least one month prior to the intended date of retrenchment. It bears stressing that although notice was served upon petitioner through a Memorandum dated 2 March 2000, the effectivity of his dismissal is fifteen days from the start of the agency's take over which was on 3 March 2000. Petitioner's services with private respondents were severed less than the month requirement by the law. Under prevailing jurisprudence the termination for an authorized cause requires payment of separation pay. Procedurally, if the dismissal is based on authorized causes under Articles 283 and 284, the employer must give the employee and the Deparment of Labor and Employment written notice 30 days prior to the effectivity of his separation. Where the dismissal is for an authorized cause but due process was not observed, the dismissal should be upheld. While the procedural infirmity cannot be cured, it should not invalidate the dismissal. However, the employer should be liable for non-compliance with procedural requirements of due process. xxx Under recent jurisprudence, the Supreme Court fixed the amount of P30,000.00 as nominal damages. The basis of the violation of petitioners' right to statutory due process by the private respondents warrants the payment of indemnity in the form of nominal damages. The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances. We believe this form of damages would serve to deter employer from future violations of the statutory due process rights of the employees. At the very least, it provides a vindication or recognition of this fundamental right granted to the latter under the Labor Code and its Implementing Rules. Considering the circumstances in the case at bench, we deem it proper to fix it at P10,000.00.30 In sum, we find no reversible error committed by the Court of Appeals in its assailed decision. However, with respect to the liability of petitioner Tuviera, president of TAPE, absent any showing that he acted with malice or bad faith in terminating respondent, he cannot be held solidarily liable with TAPE. 31 Thus, the Court of Appeals ruling on this point has to be modified. WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION in that only petitioner Television and Production Exponents, Inc. is liable to pay respondent the amount of P10,000.00 as nominal damages for non-compliance with the statutory due process and petitioner Antonio P. Tuviera is accordingly absolved from liability. SO ORDERED.

LAKAS SA INDUSTRIYA NG KAPATIRANG HALIGI NG ALYANSAPINAGBUKLOD NG MANGGAGAWANG PROMO NGBURLINGAME, Petitioner, - versus -

G.R. No. 162833 Present: QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES,* TINGA, and VELASCO, JR., JJ. Promulgated: June 15, 2007

BURLINGAME CORPORATION, Respondent.

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION QUISUMBING, J.: This is an appeal to reverse and set aside both the Decision [1] dated August 29, 2003 of the Court of Appeals and its Resolution [2] dated March 15, 2004 in CA-G.R. SP No. 69639. The appellate court had reversed the decision[3] dated December 29, 2000 of the Secretary of Labor and Employment which ordered the holding of a certification election among the rank-and-file promo employees of respondent Burlingame Corporation. The facts are undisputed. On January 17, 2000, the petitioner Lakas sa Industriya ng Kapatirang Haligi ng AlyansaPinagbuklod 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 petitioner claimed that there was no existing union in the aforementioned establishment representing the regular rank-and-file promo employees. It prayed that it be voluntarily recognized by the respondent to be the collective bargaining agent, or, in the alternative, that a certification/consent election be held among said regular rank-and-file promo employees. The respondent filed a motion to dismiss the petition. It argued that there exists no employeremployee relationship between it and the petitioners members. It further alleged that the petitioners 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 dismissed [4] the petition for lack of employer-employee relationship, prompting the petitioner to file an appeal [5] 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 Resolution [7] of February 19, 2002 of the Secretary of Labor and Employment. Respondent then filed a complaint with the Court of Appeals, which then reversed [8] the decision of the Secretary. The petitioner then filed a motion for reconsideration, [9] which the Court of Appeals denied[10] on March 15, 2004. Hence the instant petition for review on certiorari. The issue raised in the petition is: WHETHER THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN DECLARING THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN PETITIONERS MEMBERS AND BURLINGAME BECAUSE F. GARIL MANPOWER SERVICES IS AN INDEPENDENT CONTRACTOR.[11]

Respondent contends that there is no employer-employee relationship between the parties.

[12]

Petitioner, on the other hand, insists that there is.[13] 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. The case of De Los Santos v. NLRC[14] 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 The contractor does not exercise the right to control over the performance of the work of the contractual employee.

ii)

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. Garils 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 petitioners 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 employers power to control the employees conduct. The most important element is the employers control of the employees conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.[17] A perusal of the contractual stipulations between Burlingame and F. Garil shows the following: 1. The AGENCY shall provide Burlingame Corporation or the CLIENT, with sufficient number of screened, tested and pre-selected personnel (professionals, highly-skilled, skilled, semi-skilled and unskilled) who will be deployed in establishment selling products manufactured by the CLIENT. 2. The AGENCY shall be responsible in paying its workers under this contract in accordance with the new minimum wage including the daily living allowances and shall pay them overtime or remuneration that which is authorized by law. 3. It is expressly understood and agreed that the worker(s) supplied shall be considered or treated as employee(s) of the AGENCY. Consequently, there shall be no employer-employee relationship between the worker(s) and the CLIENT and as such, the AGENCY shall be responsible to the benefits mandated by law. 4. For and in consideration of the service to be rendered by the AGENCY to the CLIENT, the latter shall during the terms of agreement pay to the AGENCY the sum of Seven Thousand Five Hundred Pesos Only (P7,500.00) per month per worker on the basis of Eight (8) hours work payable up-to-date, semi-monthly, every 15 th and 30th of each

calendar month. However, these rates may be subject to change proportionately in the event that there will be revisions in the Minimum Wage Law or any law related to salaries and wages. 5. The CLIENT shall report to the AGENCY any of its personnel assigned to it if those personnel are found to be inefficient, troublesome, uncooperative and not observing the rules and regulations set forth by the CLIENT. It is understood and agreed that the CLIENT may request any time the immediate replacement of any personnel(s) assigned to them.[18]

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 15th 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. For this reason, the lowly worker is unable to show proof that it was directly paid by the true employer. Nevertheless, for the workers, it is enough that they actually receive their pay, oblivious of the need for payslips, unaware of its legal implications. Applying this principle to the case at bar, even though the wages were coursed through PMCI, we note that the funds actually came from the pockets of RFC. Thus, in the end, RFC is still the one who paid the wages of petitioner albeit indirectly.[20] The contract also provides that any personnel found to be inefficient, troublesome, uncooperative and not observing the rules and regulations set forth by Burlingame shall be reported to F. Garil and may be replaced upon request. Corollary to this circumstance would be the exercise of control and supervision by Burlingame over workers supplied by F. Garil in order to establish the inefficient, troublesome, and uncooperative nature of undesirable personnel. Also implied in the provision on replacement of personnel carried upon request by Burlingame is the power to fire personnel. 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. It goes without saying that the contractual stipulation on the nonexistence of an employeremployee relationship between Burlingame and the personnel provided by F. Garil has no legal effect. While the parties may freely stipulate terms and conditions of a contract, such contractual stipulations should not be contrary to law, morals, good customs, public order or public policy. A contractual stipulation to the contrary cannot override factual circumstances firmly establishing the legal existence of an employer-employee relationship.

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. WHEREFORE, the challenged Decision of the Court of Appeals dated August 29, 2003 and the Resolution dated March 15, 2004 denying the motion for reconsideration are REVERSED and SET ASIDE. The decision of the Secretary of Labor and Employment ordering the holding of a certification election among the rank-and-file promo employees of Burlingame is reinstated. Costs against respondent. SO ORDERED.

DEL CASTILLO, J.: Labor laws expressly prohibit labor-only contracting. To prevent its circumvention, the Labor Code establishes an employer-employee relationship between the employer and the employees of the labor-only contractor. The instant petition for review assails the March 21, 2003 Decision [1] of the Court of Appeals (CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution [2] denying the motions for reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc. (P&G). The appellate court affirmed the July 27, 1998 Decision of the National Labor Relations Commission (NLRC), which in turn affirmed the November 29, 1996 Decision[3] of the Labor Arbiter. All these decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be legitimate independent contractors and the employers of the petitioners. Factual Antecedents Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:
Name 1. Joeb M. Aliviado 5, 1992 2. Corpuz 3. Aliviado 1993 4. Monchito Ampeloquio 11, 1993 5. Abraham Basmayor[, Jr.] 11, 1993 6. Jonathan Mateo 11, 1993 7. Platon 8. Jose Fernando Gutierrez 5, 1992 9. Estanislao Buenaventura 11, 1993 10. Lope Salonga 11, 1993 11. Franz David 11, 1993 Date Employed November, 1985 1988 1985 September, 1988 1987 May, 1985 1988 June, 1988 1982 1989 1988 Date Dismissed May Arthur March 11, 1993 Eric March 11, March March March Lorenzo March 11, 1993 May March March March

12. Nestor Ignacio 11, 1993 13. Rey 1992 14. Ruben [Vasquez], Jr. 5, 1992 15. Pascual 16. Ernesto Calanao[, Jr.] 5, 1992 17. Rolando Romasanta 11, 1993 18. [Roehl] Agoo 11, 1993 19. Bonifacio Ortega 11, 1993 20. Arsenio Soriano, Jr. 11, 1993 21. Arnel Endaya 11, 1993 22. Roberto Enriquez 11, 1993 23. [Es]quila 24. Ed[g]ardo Quiambao 11, 1993 25. Santos Bacalso 11, 1993 26. Samson Basco 11, 1993 27. Jr. 28. Garcia 29. Villar 30. Tawat 1993 31. Liongson 32. Cresente J. Garcia 11, 1993 33. Fernando Macabent[a] 5, 1992 34. Melecio Casapao 11, 1993

1982 1989 1985 1990 1987 1983 1988 1988 1985 1983 December, 1983 1989 1990 1984 Aladino 1980 1987 1990 1988 Mario 1991 1984 1990 1987 May 5, 1992 1988

March Julio May 5, May Maximino May 5, 1992 May March March March March March March Nestor May 5, 1992 March March March Gregor[e], Edwin May 5, 1992 Armando May 5, 1992 Emil March 11, P. May 5, 1992 March May March

35. Jacaban 36. Salvo 37. Alstando Montos 11, 1993 38. Salvador 39. Reyes 40. Pedro G. Roy 41. Leonardo [F]. Talledo 11, 1993 42. Enrique [F]. Talledo 11, 1993 43. Ortiz 1992 44. Soyosa 45. Romeo Vasquez 11, 1993 46. Billones 1993 47. Baltazar 48. Noli Gabuyo 11, 1993 49. Laban 50. [Pita] 51. Dulay 1992 52. Duran[o] 53. Joseph Banico 11, 1993 54. Leynes 55. Dacu[m]a 56. Renato dela Cruz 57. Romeo Viernes, Jr. 58. Bas[c]o

1990 1985 1984 1984 1984 1987 1985 1988 1987 1988 1985 1987 1989 1991 Emmanuel 1987 Ramir[o] 1990 1988 1988 1988 1990 1990 1982 1986

Reynaldo May 5, 1992 Ferdinand May 5, 1992 March Rainer N. May 5, 1992 Ramil March 11, 1993 March March Willie May 5, Ernesto May 5, 1992 March March Joel 11,

Allan March 11, 1993 March E. May 5, 1992 E. May 5, 1992 Raul May 5, Tadeo May 5, 1992 March Albert May 5, 1992 Antonio May 5, 1992 El[ia]s

1989

59. Torres 60. Carda[]o 61. [Maranion] 62. Sumergido 1992 63. Roberto Rosales 5, 1992 64. Gerry [G]. Gatpo 11, 1993 65. German N. Guevara 11, 1993 66. Gilbert Y. Miranda 11, 1993 67. Rodolfo C. Toledo[, Jr.] 1993 68. Arnold D. [Laspoa] 11, 1993 69. Philip M. Loza 11, 1993 70. Mario N. C[o]ldayon 1993 71. Orlando P. Jimenez 11, 1993 72. Fred P. Jimenez 11, 1993 73. Restituto C. Pamintuan, Jr. 11, 1993 74. Rolando J. de Andres 11, 1993 75. Artuz Bustenera[, Jr.] 11, 1993 76. Roberto B. Cruz 11, 1993 77. Rosedy O. Yordan 5, 1992 78. Dacasin May. 79. Abaton 80. Orlando S. Balangue 1993[4]

1986 1991 1989 1987 May, November, May, June, May 14, June March 5, May 14, 1987 1990 1990 1991 1991 1991 1992 1991 1992 1991 1992 1991 1989 1990 1991 1990 1988 March,

Wilfredo May 5, 1992 Melchor May 5, 1992 [Marino] May 5, 1992 John May 5, May March March March March 11, March March March 11, March March March March March March May Dennis May 5, 1992 Alejandrino May 5, 1992 March 11,

November 6, September, March 5, June, December, May June, 4,

1989

They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time. [5] They were assigned at different outlets,

supermarkets and stores where they handled all the products of P&G. They received their wages from Promm-Gem or SAPS.[6] SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.[7] P&G is principally engaged in the manufacture and production of different consumer and health products, which it sells on a wholesale basis to various supermarkets and distributors. [8] To enhance consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products.[9] In December 1991, petitioners filed a complaint [10] against P&G for regularization, service incentive leave pay and other benefits with damages. The complaint was later amended[11] to include the matter of their subsequent dismissal. Ruling of the Labor Arbiter On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled that there was no employer-employee relationship between petitioners and P&G. He found that the selection and engagement of the petitioners, the payment of their wages, the power of dismissal and control with respect to the means and methods by which their work was accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that PrommGem and SAPS were legitimate independent job contractors. The dispositive portion of his Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit. SO ORDERED.[12] Ruling of the NLRC

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

Petitioners filed a motion for reconsideration but the motion was denied in the November 19, 1998 Resolution.[15] Ruling of the Court of Appeals

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

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

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

Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its letter[19] to SAPS datedFebruary 24, 1993, informing the latter that their Merchandising Services Contract will no longer be renewed. Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their client. They claim that the contractors have neither substantial capital nor tools and equipment to undertake independent labor contracting. Petitioners insist that since they had been engaged to perform activities which are necessary or desirable in the usual business or trade of P&G, then they are its regular employees.[20] Respondents Arguments On the other hand, P&G points out that the instant petition raises only questions of fact and should thus be thrown out as the Court is not a trier of facts. It argues that findings of facts of the NLRC, particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding and conclusive on the Supreme Court. P&G further argues that there is no employment relationship between it and petitioners. It was Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of work. P&G also contends that the Labor Code neither defines nor limits which services or activities may be validly outsourced. Thus, an employer can farm out any of its activities to an independent contractor, regardless of whether such activity is peripheral or core in nature. It insists that the determination of whether to engage the services of a job contractor or to engage in direct hiring is within the ambit of management prerogative. At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the filing of the Comment of Promm-Gem on the petition.[21] Also, although SAPS was impleaded as a party in the proceedings before the Labor Arbiter and the NLRC, it was no longer impleaded as a party in the proceedings before the CA.[22] Hence, our pronouncements with regard to SAPS are only for the purpose of determining the obligations of P&G, if any. Our Ruling The petition has merit. As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is constrained to wade into factual matters when there is insufficient or insubstantial evidence on record to support those factual findings; or when too much is concluded, inferred or deduced from

the bare or incomplete facts appearing on record.[23] In the present case, we find the need to review the records to ascertain the facts. Labor-only contracting and job contracting In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors. The pertinent Labor Code provision on the matter states:
ART. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code. There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. (Emphasis and underscoring supplied.)

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18-02,[24]distinguishes between legitimate and labor-only contracting:
xxxx Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor,

and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job[,] work or service. xxxx Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present: i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or ii) [T]he 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. x x x x (Underscoring supplied.)

Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or services. Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature. However, in order for such outsourcing to be valid, it must be made to an independent contractor because the current labor rules expressly prohibit labor-only contracting. To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places workers to perform a job, work or service for a principal [25] and any of the following elements are present:

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

In the instant case, the financial statements[26] of Promm-Gem show that it has authorized capital stock of P1 million and a paid-in capital, or capital available for operations, of P500,000.00 as of 1990.[27] It also has long term assets worth P432,895.28 and current assets of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space with a floor area of 870 square meters.[28] It also had under its name three registered vehicles which were used for its promotional/merchandising business. [29] Promm-Gem also has other clients[30] aside from P&G.[31]Under the circumstances, we find that Promm-Gem has substantial investment which relates to the work to be performed. These factors negate the existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02. The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their work. Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already considered the complainants working under it as its regular, not merely contractual or project, employees.[32] This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates on the part of Promm-Gem bad faith and intent to circumvent labor laws which factors have often been tipping points that lead the Court to strike down the employment practice or agreement concerned as contrary to public policy, morals, good customs or public order.[33] Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find that it is a legitimate independent contractor. On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250.00. There is no other evidence presented to show how much its working capital and assets are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets. In Vinoya v. National Labor Relations Commission,[34] the Court held that [w]ith the current economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as an independent contractor.[35] Applying the same rationale to the present case, it is clear that SAPS having a paid-in capital of only P31,250 - has no substantial capital. SAPS lack of substantial capital is underlined by the records[36] which show that its payroll for its merchandisers alone for one month would already total P44,561.00. It had 6-month contracts with P&G.[37] Yet SAPS failed to show

that it could complete the 6-month contracts using its own capital and investment. Its capital is not even sufficient for one months payroll. SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for the period required for it to generate its needed revenue to sustain its operations independently. Substantial capital refers to capitalization used in the performance or completion of the job, work or service contracted out. In the present case, SAPS has failed to show substantial capital. Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity that has already been considered by the Court as doubtlessly directly related to the manufacturing business,[38] which is the principal business of P&G. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal business of P&G, we find that the former is engaged in labor-only contracting. Where labor-only contracting exists, the Labor Code itself establishes an employeremployee relationship between the employer and the employees of the labor-only contractor.[39] The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.[40] Consequently, the following petitioners, having been recruited and supplied by SAPS[41] -- which engaged in labor-only contracting -- are considered as the employees of P&G: Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin. The following petitioners, having worked under, and been dismissed by Promm-Gem, are considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado.[42]

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

Misconduct has been defined as improper or wrong conduct; the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character implying wrongful intent and not mere error of judgment. The misconduct to be serious must be of such grave and aggravated character and not merely trivial and unimportant. [46] To be a just cause for dismissal, such misconduct (a) must be serious; (b) must relate to the performance of the employees duties; and (c) must show that the employee has become unfit to continue working for the employer.[47] In other words, in order to constitute serious misconduct which will warrant the dismissal of an employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or conduct complained of has violated some established rules or policies. It is equally important and required that the act or conduct must have been performed with wrongful intent. [48] In the instant case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so. As such, we find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm. A misconduct which is not serious or grave, as that existing in the instant case, cannot be a valid basis for dismissing an employee. Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the trust reposed in the employee by his employer. Ordinary breach will not suffice. A breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.[49]

Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that the employee concerned holds a position of responsibility or of trust and confidence. As such, he must be invested with confidence on delicate matters, such as custody, handling or care and protection of the property and assets of the employer. And, in order to constitute a just cause for dismissal, the act complained of must be work-related and must show that the employee is unfit to continue to work for the employer.[50] In the instant case, the petitioners-employees of Promm-Gem have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is there any evidence to show that they are unfit to continue to work as merchandisers for PrommGem. All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem. While Promm-Gem had complied with the procedural aspect of due process in terminating the employment of petitioners-employees, i.e., giving two notices and in between such notices, an opportunity for the employees to answer and rebut the charges against them, it failed to comply with the substantive aspect of due process as the acts complained of neither constitute serious misconduct nor breach of trust. Hence, the dismissal is illegal. With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal. The records show that upon receipt by SAPS of P&Gs letter terminating their Merchandising Services Contact effective March 11, 1993, they in turn verbally informed the concerned petitioners not to report for work anymore. The concerned petitioners related their dismissal as follows:
xxxx 5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr. Saturnino A. Ponce that we should already stop working immediately because that was the order of Procter and Gamble. According to him he could not do otherwise because Procter and Gamble was the one paying us. To prove that Procter and Gamble was the one responsible in our dismissal, he showed to us the letter[51] datedFebruary 24, 1993, x x x
February 24, 1993 Sales and Promotions Services Armons Bldg., 142 Kamias Road, Quezon City Attention: Mr. Saturnino A. Ponce President & General Manager Gentlemen: Based on our discussions last 5 and 19 February 1993, this formally informs you that we will not be renewing our Merchandising Services Contract with your agency.

Please immediately undertake efforts to ensure that your services to the Company will terminate effective close of business hours of11 March 1993. This is without prejudice to whatever obligations you may have to the company under the abovementioned contract. Very truly yours, (Sgd.) EMMANUEL M. NON Sales Merchandising III

6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no longer allowed to work and we were refused entrance by the security guards posted. According to the security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case in the Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February 25, 1993. x x x[52]

Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS does not carry on its own business because the termination of its contract with P&G automatically meant for it also the termination of its employees services. It is obvious from its act that SAPS had no other clients and had no intention of seeking other clients in order to further its merchandising business. From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in the latters merchandising concerns only. Under the circumstances prevailing in the instant case, we cannot consider SAPS as an independent contractor. Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the lawfulness of the dismissal rests with the employer.[53] In termination cases, the burden of proof rests upon the employer to show that the dismissal is for just and valid cause. [54] In the instant case, P&G failed to discharge the burden of proving the legality and validity of the dismissals of those petitioners who are considered its employees. Hence, the dismissals necessarily were not justified and are therefore illegal. Damages We now go to the issue of whether petitioners are entitled to damages. Moral and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to morals, good customs or public policy.[55] With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any oppressive act on the part of the latter, we find no support for the award of damages.

As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor. The sudden and peremptory barring of the concerned petitioners from work, and from admission to the work place, after just a one-day verbal notice, and for no valid cause bellows oppression and utter disregard of the right to due process of the concerned petitioners. Hence, an award of moral damages is called for.

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

OCA

COLA BOTTLERS PHILS., INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and RAMON B. CANONICATO, respondents. DECISION

BELLOSILLO, J.:

This petition for certiorari under Rule 65 of the Revised Rules of Court assails the 3 January 1995 decision[1] of the National Labor Relations Commission (NLRC) holding that private respondent Ramon B. Canonicato is a regular employee of petitioner Coca Cola Bottlers Phils. Inc. (COCA COLA) entitled to reinstatement and back wages. The NLRC reversed the decision of the Labor Arbiter of 28 April 1994 [2] which declared that no employer-employee relationship existed between COCA COLA and Canonicato thereby foreclosing entitlement to reinstatement and back wages. On 7 April 1986 COCA COLA entered into a contract of janitorial services with Bacolod Janitorial Services (BJS) stipulating[3] among others That the First Party (COCA COLA) desires to engage the services of the Second Party (BJS), as an Independent Contractor, to perform and provide for the maintenance, sanitation and cleaning services for the areas hereinbelow mentioned, all located within the aforesaid building of the First Party x x x x 1. The scope of work of the Second Party includes all floors, walls, doors, vertical and horizontal areas, ceiling, all windows, glass surfaces, partitions, furniture, fixtures and other interiors within the aforestated covered areas. 2. Except holidays which are rest days, the Second Party will undertake daily the following: 1) Sweeping, damp-mopping, spot scrubbing and polishing of floors; 2) Cleaning, sanitizing and disinfecting agents to be used on commodes, urinals and washbasins, water spots on chrome and other fixtures to be checked; 3) Cleaning of glass surfaces, windows and glass partitions that require daily attention; 4) Cleaning and dusting of horizontal and vertical surfaces; 5) Cleaning of fixtures, counters, panels and sills; 6) Clean, pick-up cigarette butts from sandburns and ashtrays and trash receptacles; 7) Trash and rubbish disposal and burning. In addition, the Second Party will also do the following once a week, to wit: 1) Cleaning, waxing and polishing of lobbies and offices; 2) Washing of windows, glasses that require cleaning; 3) Thorough disinfecting and cleaning of toilets and washrooms. 3. The Second Party shall supply the necessary utensils, equipment and supervision, and it shall only employ the services of fifteen (15) honest, reliable, carefully screened, cooperative and trained personnel, who are in good faith, in the performance of its herein undertaking x x x x 4. The Second Party hereby guarantees against unsatisfactory workmanship. Minor repair of comfort rooms are free of charge provided the First Party will supply the necessary materials for

such repairs at its expense. As may be necessary, the Second Party shall also report on such part or areas of the premises covered by this contract which may require repairs from time to time x x x (italics supplied). Every year thereafter a service contract was entered into between the parties under similar terms and conditions until about May 1994.[4] 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, [8] 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. 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 reinstatement and payment of P18,105.10 in back wages.[15] On 26 May 1995 the NLRC denied COCA COLA's motion for reconsideration for lack of merit.[16] Hence, this petition, assigning as errors: (a) NLRC's finding that janitorial services were necessary and desirable in COCA COLA's trade and business; (b) NLRC's application of Art. 280 of the Labor Code in resolving the issue of whether an employment relationship existed between the parties; (c) NLRC's ruling that there was an employer-employee relationship between petitioner and Canonicato despite its virtual affirmance that BJS was a legitimate job contractor; (d) NLRC's declaration that Canonicato was a regular employee of petitioner although he had rendered the company only five (5) months of casual employment; and, (e) NLRC's order directing the reinstatement of Canonicato and the payment to him of six (6) months back wages.[17] We find good cause to sustain petitioner. Findings of fact of administrative offices are generally accorded respect by us and no longer reviewed for the reason that such factual findings are considered to be within their field of expertise. Exception however is made, as in this case, when the NLRC and the Labor Arbiter made contradictory findings. We perceive at the outset the disposition of the NLRC that janitorial services are necessary and desirable to the trade or business of petitioner COCA COLA. But this is inconsistent with our pronouncement in Kimberly Independent Labor Union v. Drilon [18] where the Court took judicial notice of the practice adopted in several government and private institutions and industries of hiring janitorial services on an "independent contractor basis." 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 employeremployee relationship between 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. 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 employeremployee 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 x x x x [t]he definition that regular employees are those who perform activities which are desirable and necessary for the business of the employer is not determinative in this case. Any agreement may provide that one party shall render services for and in behalf of another for a consideration (no matter how necessary for the latter's business) even without being hired as an employee. This is precisely true in the case of an independent contractorship as well as in an agency agreement. 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 x x x x 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 gives 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 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 Canonicatos 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 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. [25] It is to be noted that COCA COLA is not the only client of BJS which has its roster of clients like San Miguel Corporation, Distileria Bago Incorporated, University of Negros Occidental-Recolletos, University of St. La Salle, Riverside College, College Assurance Plan Phil., Inc., and Negros Consolidated Farmers Association, Inc. [26] This is proof enough that BJS has the capability to carry on its business of janitorial services with big establishments aside from petitioner and has sufficient capital or materials necessary therefor. [27] All told, there being no employer-employee relationship between Canonicato and COCA COLA, the latter cannot be validly ordered to reinstate the former and pay him back wages. WHEREFORE, the petition is GRANTED. The NLRC decision of 3 January 1995 declaring Ramon B. Canonicato a regular employee of petitioner Coca Cola Bottlers Phils., Inc., entitled to reinstatement and back wages is REVERSED and SET ASIDE. The decision of the Labor Arbiter of 28 April 1994 finding no employer-employee relationship between petitioner and private respondent but directing petitioner Coca Cola Bottlers Phils., Inc., instead and Bacolod Janitorial Services to pay jointly and severally Ramon B. Canonicato P2,776.80 as wage differentials, P1,068.00 as 13th month pay and P384.48 as attorney's fees, is REINSTATED. SO ORDERED. Puno, Mendoza, and Quisumbing, JJ., concur. Buena, J., on leave.

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. DECISION
YNARES-SANTIAGO, J.:

This petition assails the decision of the Court of Appeals dated November 29, 2002, in CA-G.R. SP No. 67134, which reversed the decision of the National Labor Relations Commission and reinstated the decision of the Labor Arbiter with modification.
[1]

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 MWSSwhose 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 theMWSS, were among the 121 employees not included in the list; nevertheless, petitioner engaged their services without written contract fromAugust 1, 1997 to August 31, 1997. Thereafter, on September 1, 1997, they signed a threemonth 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), 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.
[3] [4]

Private respondents filed a complaint for illegal dismissal and money claims against petitioner, contending that they were petitioners 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 petitioners principal business. The dispositive portion of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered, finding that complainants were employees of respondent [petitioner herein], that they were illegally dismissed, and respondent [petitioner herein] is hereby ordered to pay their separation pay based on the following computed amounts: HERMINIO D. PENA P15,000.00 ESTEBAN BALDOZA P12,000.00 JORGE D. CANONIGO, JR. P16,000.00 IKE S. DELFIN P12,000.00 RIZALINO M. INTAL P16,000.00 REY T. MANLEGRO P16,000.00 JOHN L. MARTEJA P12,000.00 MARLON B. MORADA P16,000.00 ALLAN D. ESPINA P14,000.00 EDUARDO ONG P15,000.00 AGNESIO D. QUEBRAL P16,000.00 EDMUNDO B. VICTA P13,000.00 VICTOR P. ZAFARALLA P15,000.00 EDILBERTO C. PINGUL P19,500.00 FEDERICO M. RIVERA P15,000.00 ------------------------------TOTAL P222,500.00 Respondent [petitioner herein] is further directed to pay ten (10%) percent of the total award as attorneys fee or the sum of P22,250.00. SO ORDERED.
[5]

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. Further, there was no evidence showing that the incorporation of ACGI was irregular.
[6]

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 and reinstated with modification the decision of the Labor Arbiter. It held that petitioner deliberately prevented the creation of an employment relationship with the private respondents; and that ACGI was not an independent contractor. It likewise denied petitioners motion for reconsideration.
[7] [8]

Hence, this petition for review raising the following errors: THE HONORABLE COURT OF APPEALS IN RENDERING THE ASSAILED DECISION AND RESOLUTION COMMITTED GRAVE REVERSIBLE ERRORS:
A. IN GOING BEYOND ITS JURISDICTION AND PROCEEDING TO GIVE DUE COURSE TO RESPONDENTS PETITION FOR CERTIORARI UNDER RULE 65 OF THE RULES OF COURT, NOTWITHSTANDING THE ABSENCE OF ANY PROOF OF GRAVE ABUSE OF DISCRETION ON THE PART OF THE NATIONAL LABOR RELATIONS COMMISSION WHEN IT RENDERED THE DECISION ASSAILED BY HEREIN RESPONDENTS. B. WHEN IT MANIFESTLY OVERLOOKED THE EVIDENCE PRESENTED BY THE PETITIONER COMPANY AND RULING THAT THE PETITIONERS DEFENSE OF LACK OF EMPLOYEREMPLOYEE RELATIONS IS WITHOUT MERIT. C. IN CONCLUDING THAT PETITIONER COMPANY REQUIRED RESPONDENTS TO INCORPORATE THE ASSOCIATED COLLECTORS GROUP, INC. [ACGI] NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN SUPPORT OF THE SAME. D. IN FINDING PETITIONER COMPANY GUILTY OF BAD FAITH NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN SUPPORT OF THE SAME, AND AWARDING MORAL AND EXEMPLARY DAMAGES TO HEREIN RESPONDENTS.[9]

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 issue of whether or not an employer-employee relationship exists in a given case is essentially a question of fact. As a rule, the Supreme Court is not a trier of facts, and this applies with greater force in labor cases. Hence, factual findings of quasi-judicial bodies like the NLRC, particularly when they coincide with those of the Labor Arbiter and if supported by substantial evidence, are accorded respect and even finality by this Court. However, a disharmony between the factual findings of the Labor Arbiter and the National Labor Relations Commission opens the door to a review thereof by this Court. Factual findings of administrative agencies are not infallible and will be set aside when they fail the test of arbitrariness. Moreover, when the findings of the National Labor Relations Commission contradict with those of the labor arbiter, this Court, in the exercise of its equity jurisdiction, may look into the records of the case and reexamine the questioned findings.
[10] [11] [12]

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. Petitioner asserts that ACGI, a duly organized corporation primarily engaged in collection services, is an independent contractor which entered into a service contract for the collection of petitioners accounts starting November 30, 1997 until the early part

of February 1999. Thus, it has no employment relationship with private respondents, being employees of ACGI. The existence of an employment relationship between petitioner and private respondents cannot be negated by simply alleging that the latter are employees of ACGI as an independent contractor, it being crucial that ACGIs status, whether as labor-only contractor or independent contractor, be measured in terms of and determined by the criteria set by statute. The case of De los Santos v. NLRC succinctly enunciates this statutory criteria
[13]

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 Code 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:
[14]

(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. 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. Pea. Moreover, in dealing with the consumers, private respondents used the receipts and identification cards issued by petitioner.
[15] [16] [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 latters 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. Petitioner issued memoranda regarding the billing methods and distribution of books to the collectors; it required private respondents to report daily and to remit their collections on the same day to the branch office or to deposit them with Bank of the Philippine Islands; it monitored strictly their attendance as when a collector cannot perform his daily collection, he must notify petitioner or the branch office in the morning of the day that he will be absent; and although it was ACGI which ultimately disciplined private respondents, the penalty to be imposed was dictated by petitioner as shown in the letters it sent toACGI specifying the penalties to be meted on the erring private respondents. These are indications that ACGI was not left alone in the supervision and control of its alleged employees. Consequently, it can be concluded that ACGI was not an independent contractor since it did not carry a distinct business free from the control and supervision of petitioner.
[18] [19]

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. Since ACGI is only a labor-only contractor, the workers it supplied should be considered as employees of the petitioner.
[20]

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 employers power to control the employees conduct. The most important element is the employers control of the employees conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.
[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 toAugust 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. Petitioner contends that the employment of private respondents from August 1, 1997 to August 30, 1997 was only temporary and done to accommodate their request to be absorbed since petitioner was still undergoing a transition period. It was only when its business became settled that petitioner employed private respondents for a fixed term of three months. Although petitioner was not obliged to absorb the private respondents, by engaging their services, paying their wages in the form of commission, subjecting them to its rules and imposing punishment in case of breach thereof, and controlling not only the

end result but the manner of achieving the same as well, an employment relationship existed between them. 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 fixedterm 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 if 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. That is the doctrine in Brent School, Inc. v. Zamora, 181 SCRA 702. The individual contracts in question were prepared by MWC in the form of the letter addressed to complainants. The letter-contract is dated September 1, 1997, when complainants were already working for MWC as collectors. With their employment as their means of survival, there was no room then for complainants to disagree with the presented letter-contracts. Their choice then was not to negotiate for the terms of the contract but to lose or not to lose their employment employment which they already had at that time. The choice is obvious, as what they did, to sign the ready made letter-contract to retain their employment, and survive. It is a defiance of the teaching inBrent School, Inc. v. Zamora if this Office rules that the individual contracts in question are valid, so, in deference to Brent School ruling, this Office rules they are null and void.
[23]

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. 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.
[24]

Under Article 279 of the Labor Code, an employee who is unjustly dismissed from work is entitled to reinstatement without loss of seniority rights and other privileges, and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement. However, if reinstatement is no longer possible, the employer has the alternative of paying the employee his separation pay in lieu of reinstatement.
[25]

This Court however cannot sustain the award of moral and exemplary damages in favor of private respondents. Such an award cannot be justified solely upon the premise that the employer dismissed his employee without just cause or due process. Additional facts must be pleaded and proved to warrant the grant of moral damages under the Civil Code. The act of dismissal must be attended with bad faith, or fraud, or was oppressive to labor or done in a manner contrary to morals, good customs or public policy and, of course, that social humiliation, wounded feelings, or grave anxiety resulted therefrom. Similarly, exemplary damages are recoverable only when the dismissal was effected in a wanton, oppressive or malevolent manner. Those circumstances have not been adequately established.
[26]

However, private respondents are entitled to attorneys fees as they were compelled to litigate with petitioners and incur expenses to enforce and protect their interests. The award by the Labor Arbiter of P22,250.00 as attorneys fees to private respondents, being reasonable, is sustained.
[27]

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated November 29, 2002, in CA-G.R. SP No. 67134, reversing the decision of the National Labor Relations Commission and reinstating the decision of the Labor Arbiter is AFFIRMED with the MODIFICATION that the awards of P10,000.00 as moral damages and P5,000.00 as exemplary damages are DELETED for lack of evidentiary basis. SO ORDERED. Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur.

SAN MIGUEL CORPORATION v. PROSPERO ABALLA

CARPIO-MORALES, J.:

Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and Visayas Area Manager for Aquaculture Operations Leopoldo S. Titular, and Sunflower Multi-Purpose Cooperative (Sunflower), represented by the Chairman of its Board of Directors Roy G. Asong, entered into a one-year Contract of Services 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]

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:
A. Messengerial/Janitorial B. Shrimp Harvesting/Receiving C. Sanitation/Washing/Cold Storage[2]

2. To carry out the undertaking specified in the immediately preceding paragraph, the cooperative shall employ the necessary personnel and provide adequate equipment, materials, tools and apparatus, to efficiently, fully and speedily accomplish the work and services undertaken by the cooperative. xxx 3. In consideration of the above undertaking the company expressly agrees to pay the cooperative the following rates per activity: A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand Five Hundred Pesos Only (P19,500.00) B. Harvesting/Shrimp Receiving. Piece rate of P0.34/kg. Or P100.00 minimum per person/activity whichever is higher, with provisions as follows: P25.00 Fixed Fee per person Additional meal allowance P15.00 every meal time in case harvest duration exceeds one meal. This will be pre-set every harvest based on harvest plan approved by the Senior Buyer.

C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts. One-half of the payment for all services rendered shall be payable on the fifteenth and the other half, on the end of each month. The cooperative shall pay taxes, fees, dues and other impositions that shall become due as a result of this contract. The cooperative shall have the entire charge, control and supervision of the work and services herein agreed upon. xxx 4. There is no employer-employee relationship between the company and the cooperative, or the cooperative and any of its members, or the company and any members of the cooperative. The cooperative is an association of self-employed members, an independent contractor, and an entrepreneur. It is subject to the control and direction of the company only as to the result to be accomplished by the work or services herein specified, and not as to the work herein contracted. The cooperative and its members recognize that it is taking a business risk in accepting a fixed service fee to provide the services contracted for and its realization of profit or loss from its undertaking, in relation to all its other undertakings, will depend on how efficiently it deploys and fields its members and how they perform the work and manage its operations. 5. The cooperative shall, whenever possible, maintain and keep under its control the premises where the work under this contract shall be performed. 6. The cooperative shall have exclusive discretion in the selection, engagement and discharge of its member-workers or otherwise in the direction and control thereof. The determination of the wages, salaries and compensation of the member-workers of the cooperative shall be within its full control. It is further understood that the cooperative is an independent contractor, and as such, the cooperative agrees to comply with all the requirements of all pertinent laws and ordinances, rules and regulations. Although it is understood and agreed between the parties hereto that the cooperative, in the performance of its obligations, is subject to the control or direction of the company merely as a (sic) result to be accomplished by the work or services herein specified, and not as to the means and methods of accomplishing such result, the cooperative hereby warrants that it will perform such work or services in such manner as will be consistent with the achievement of the result herein contracted for. xxx 8. The cooperative undertakes to pay the wages or salaries of its member-workers, as well as all benefits, premiums and protection in accordance with the provisions of the labor code, cooperative code and other applicable laws and decrees and the rules and regulations promulgated by competent authorities, assuming all responsibility therefor. The cooperative further undertakes to submit to the company within the first ten (10) days of every month, a statement made, signed and sworn to by its duly authorized representative before a notary public or other officer authorized by law to administer oaths, to the effect that the cooperative has paid all wages or salaries due to its employees or personnel for services rendered by them during the month immediately preceding, including overtime, if any, and that such payments were all in accordance with the requirements of law. xxx

12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall be for a period of one (1) year commencing on January 1, 1993. Thereafter, this Contract will be deemed renewed on a month-to-month basis until terminated by either party by sending a written notice to the other at least thirty (30) days prior to the intended date of termination. xxx (Underscoring supplied)
[3]

Pursuant to the contract, Sunflower engaged private respondents to, as they did, render services at SMCs Bacolod Shrimp Processing Plant at Sta. Fe, Bacolod City. The contract was deemed renewed by the parties every month after its expiration on January 1, 1994 and private respondents continued to perform their tasks until September 11, 1995. In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration Branch No. VI, Bacolod City, praying to be declared as regular employees of SMC, with claims for recovery of all benefits and privileges enjoyed by SMC rank and file employees. Private respondents subsequently filed on September 25, 1995 an Amended Complaint to include illegal dismissal as additional cause of action following SMCs closure of its Bacolod Shrimp Processing Plant on September 15, 1995 which resulted in the termination of their services.
[4] [5]

SMC filed a Motion for Leave to File Attached Third Party Complaint dated November 27, 1995 to implead Sunflower as Third Party Defendant which was, by Order of December 11, 1995, granted by Labor Arbiter Ray Alan T. Drilon.
[6] [7]

In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo City of the Department of Labor and Employment (DOLE) a Notice of Closure of its aquaculture operations effective on even date, citing serious business losses.
[8]

By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents complaint for lack of merit, ratiocinating as follows: We sustain the stand of the respondent SMC that it could properly exercise its management prerogative to contract out the preparation and processing aspects of its aquaculture operations. Judicial notice has already been taken regarding the general practice adopted in government and private institutions and industries of hiring independent contractors to perform special services. xxx xxx Indeed, the law allows job contracting. Job contracting is permissible under the Labor Code under specific conditions and we do not see how this activity could not be legally undertaken by an independent service cooperative like the third-party respondent herein. There is no basis to the demand for regularization simply on the theory that complainants performed activities which are necessary and desirable in the business of respondent. It has been held that the definition of regular employees as those who perform activities which are necessary and desirable for the business of the employer is not always determinative because any agreement may provide for one (1) party to render services for and in behalf of another for a consideration even without being hired as an employee.

The charge of the complainants that third-party respondent is a mere labor-only contractor is a sweeping generalization and completely unsubstantiated. xxx In the absence of clear and convincing evidence showing that third-party respondent acted merely as a labor only contractor, we are firmly convinced of the legitimacy and the integrity of its service contract with respondent SMC. In the same vein, the closure of the Bacolod Shrimp Processing Plant was a management decision purely dictated by economic factors which was (sic) mainly serious business losses. The law recognizes the right of the employer to close his business or cease his operations for bonafide reasons, as much as it recognizes the right of the employer to terminate the employment of any employee due to closure or cessation of business operations, unless the closing is for the purpose of circumventing the provisions of the law on security of tenure. The decision of respondent SMC to close its Bacolod Shrimp Processing Plant, due to serious business losses which has (sic) clearly been established, is a management prerogative which could hardly be interfered with. xxx The closure did affect the regular employees and workers of the Bacolod Processing Plant, who were accordingly terminated following the legal requisites prescribed by law. The closure, however, in so far as the complainants are concerned, resulted in the termination of SMCs service contract with their cooperativexxx (Underscoring supplied)
[9]

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

Private respondents Motion for Reconsideration having been denied by the NLRC for lack of merit by Resolution of September 10, 1999, they filed a petition for certiorari before the Court of Appeals (CA).
[11] [12]

Before the CA, SMC filed a Motion to Dismiss private respondents petition for non-compliance with the Rules on Civil Procedure and failure to show grave abuse of discretion on the part of the NLRC.
[13]

SMC subsequently filed its Comment to the petition on March 30, 2000.
[14]

By Decision of February 7, 2001, the appellate court reversed the NLRC decision and accordingly found for private respondents, disposing as follows: WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby RENDERED: (1) REVERSING and SETTING ASIDE both the 29 December 1998 decision and 10 September 1999 resolution of the National Labor Relations Commission (NLRC), Fourth Division, Cebu City in NLRC Case No. V-0361-97 as well as the 23 September 1997 decision of the labor arbiter in RAB Case No. 06-07-10316-95; (2) ORDERING the respondent, San Miguel Corporation, to GRANT petitioners: (a) separation pay in accordance with the computation given to the regular SMC employees working at its Bacolod Shrimp Processing Plantwith full backwages, inclusive of allowances and other benefits or their monetary equivalent, from 11 September 1995, the time their actual compensation was withheld from them, up to the time of the finality of this decision; (b) differentials pays (sic) effective as of and from the time

petitioners acquired regular employment status pursuant to the disquisition mentioned above, and all such other and further benefits as provided by applicable collective bargaining agreement(s) or other relations, or by law, beginning such time up to their termination from employment on 11 September 1995; and ORDERING private respondent SMC to PAY unto the petitioners attorneys fees equivalent to ten (10%) percent of the total award. No pronouncement as to costs. SO ORDERED. (Underscoring supplied)
[15]

Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate court reasoned: Although the terms of the non-exclusive contract of service between SMC and [Sunflower] showed a clear intent to abstain from establishing an employer-employee relationship between SMC and [Sunflower] or the latters members, the extent to which the parties successfully realized this intent in the light of the applicable law is the controlling factor in determining the real and actual relationship between or among the parties. xxx With respect to the power to control petitioners conduct, it appears that petitioners were under the direct control and supervision of SMC supervisors both as to the manner they performed their functions and as to the end results thereof. It was only after petitioners lodged a complaint to have their status declared as regular employees of SMC that certain members of [Sunflower] began to countersign petitioners daily time records to make it appear that they (petitioners) were under the control and supervision of [Sunflower] team leaders (rollo, pp. 523-527). xxx Even without these instances indicative of control by SMC over the petitioners, it is safe to assume that SMC would never have allowed the petitioners to work within its premises, using its own facilities, equipment and tools, alongside SMC employees discharging similar or identical activities unless it exercised a substantial degree of control and supervision over the petitioners not only as to the manner they performed their functions but also as to the end results of such functions. xxx xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent contractors. [Sunflower] and the petitioners did not have substantial capital or investment in the form of tools, equipment, implements, work premises, et cetera necessary to actually perform the service under their own account, responsibility, and method. The only work premises maintained by [Sunflower] was a small office within the confines of a small carinderia or refreshment parlor owned by the mother of its chair, Roy Asong; the only equipment it owned was a typewriter (rollo, pp. 525-525) and, the only assets it provided SMC were the bare bodies of its members, the petitioners herein (rollo, p. 523). In addition, as shown earlier, petitioners, who worked inside the premises of SMC, were under the control and supervision of SMC both as to the manner andmethod in discharging their functions and as to the results thereof.

Besides, it should be taken into account that the activities undertaken by the petitioners as cleaners, janitors, messengers and shrimp harvesters, packers and handlers were directly related to the aquaculture business of SMC (See Guarin vs. NLRC, 198 SCRA 267, 273). This is confirmed by the renewal of the service contract from January 1993 to September 1995, a period of close to three (3) years. Moreover, the petitioners here numbering ninety seven (97), by itself, is a considerable workforce and raises the suspicion that the non-exclusive service contract between SMC and [Sunflower] was designed to evade the obligations inherent in an employer-employee relationship (See Rhone-Poulenc Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249, 259). Equally suspicious is the fact that the notary public who signed the by-laws of [Sunflower] and its [Sunflower] retained counsel are both partners of the local counsel of SMC (rollo, p. 9). xxx With these observations, no other logical conclusion can be reached except that [Sunflower] acted as an agent of SMC, facilitating the manpower requirements of the latter, the real employer of the petitioners. We simply cannot allow these two entities through the convenience of a non-exclusive service contract to stipulate on the existence of employer-employee relation. Such existence is a question of law which cannot be made the subject of agreement to the detriment of the petitioners (Tabas vs. California Manufacturing, Inc., 169 SCRA 497, 500). xxx There being a finding of labor-only contracting, liability must be shouldered either by SMC or [Sunflower] or shared by both (See Tabas vs. California Manufacturing, Inc., supra, p. 502). SMC however should be held solely liable for [Sunflower] became non-existent with the closure of the aquaculture business of SMC. Furthermore, since the closure of the aquaculture operations of SMC appears to be valid, reinstatement is no longer feasible. Consistent with the pronouncement inBustamante, et al., vs. NLRC, G.R. No. 111651, 28 November 1996, petitioners are thus entitled to separation pay (in the computation similar to those given to regular SMC employees at its Bacolod Shrimp Processing Plant) with full backwages, inclusive of allowances and other benefits or their monetary equivalent, from the time their actual compensation was withheld from them up to the time of the finality of this decision. This is without prejudice to differentials pays (sic) effective as of and from the time petitioners acquired regular employment status pursuant to the discussion mentioned above, and all such other and further benefits as provided by applicable collective bargaining agreement(s) or other relations, or by law, beginning such time up to their termination from employment on 11 September 1995. (Emphasis and underscoring supplied)
[16]

SMCs Motion for Reconsideration having been denied for lack of merit by Resolution of July 11, 2001, it comes before this Court via the present petition for review on certiorari assigning to the CA the following errors:
[17]

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

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

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

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

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

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

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 coplaintiffs. 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. (Emphasis and underscoring supplied)
[24]

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

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

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

This Court is not persuaded. The records show that private respondents appended the following documents to their petition before the appellate court: the September 23, 1997 Decision of the Labor Arbiter, their Notice of Appeal with Appeal Memorandum dated October 16, 1997 filed before the NLRC, the December 29, 1998 NLRC Decision, their Motion for Reconsideration dated March 26, 1999 filed with the NLRC and the September 10, 1999 NLRC Resolution.
[29] [30] [31] [32] [33]

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

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

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

SMC further argues that the appellate court exceeded its jurisdiction in reversing the decisions of the labor arbiter and the NLRC as findings of facts of quasi-judicial bodies like the NLRC are accorded great respect and finality, and that this principle

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

SMC further faults the appellate court in giving due course to private respondents petition despite the fact that the complaint filed before the labor arbiter was signed and verified only by private respondent Winifredo Talite; that private respondents position paper was verified by only six out of the ninety seven complainants; and that their Joint-Affidavit was executed only by twelve of the complainants.
[40] [41] [42] [43]

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

SMCs position does not lie. A perusal of the complaint shows that the ninety seven complainants were being represented by their counsel of choice. Thus the first sentence of their complaint alleges: xxx complainants, by counsel and unto this Honorable Office respectfully state xxx. And the complaint was signed by Atty. Jose Max S. Ortiz as counsel for the complainants. Following Section 6, Rule III of the 1990 Rules of Procedure of the NLRC, now Section 7, Rule III of the 1999 NLRC Rules, Atty. Ortiz is presumed to be properly authorized by private respondents in filing the complaint. That the verification wherein it is manifested that private respondent Talite was one of the complainants and was causing the preparation of the complaint with the authority of my co-complainants indubitably shows that Talite was representing the rest of his co-complainants in signing the verification in accordance with Section 7, Rule III of the 1990 NLRC Rules, now Section 8, Rule 3 of the 1999 NLRC Rules, which states: Section 7. Authority to bind party. Attorneys and other representatives of parties shall have authority to bind their clients in all matters of procedure; but they cannot, without a special power of attorney or express consent, enter into a compromise agreement with the opposing party in full or partial discharge of a clients claim. (Underscoring supplied) As regards private respondents position paper which bore the signatures of only six of them, appended to it was an Authority/Confirmation of Authority signed by the ninety one others conferring authority to their counsel to file RAB Case No. 06-0710316-95, entitled Winifredo Talite et al. v. San Miguel Corporation presently pending before the sala of Labor Arbiter Ray Alan Drilon at the NLRC Regional Arbitration Branch No. VI in Bacolod City and appointing him as their retained counsel to represent them in the said case.
[45]

That there has been substantial compliance with the requirement on verification of position papers under Section 3, Rule V of the 1990 NLRC Rules of Procedure is not difficult to appreciate in light of the provision of Section 7, Rule V of the 1990 NLRC Rules, now Section 9, Rule V of the 1999 NLRC Rules which reads:
[46]

Section 7. Nature of Proceedings. The proceedings before a Labor Arbiter shall be nonlitigious in nature. Subject to the requirements of due process, the technicalities of law and procedure and the rules obtaining in the courts of law shall not strictly apply thereto. The Labor Arbiter may avail himself of all reasonable means to ascertain the facts of the controversy speedily, including ocular inspection and examination of well-informed persons. (underscoring supplied) As regards private respondents Joint-Affidavit which is being assailed in view of the failure of some complainants to affix their signatures thereon, this Court quotes with approval the appellate courts ratiocinations: A perusal of the Southern Cotabato Development Case would reveal that movant did not quote the whole text of paragraph 5 on page 865 of 280 SCRA. The whole paragraph reads: Clearly then, as to those who opted to move for the dismissal of their complaints, or did not submit their affidavits nor appear during trial and in whose favor no other independent evidence was adduced, no award for back wages could have been validly and properly made for want of factual basis. There is no showing at all that any of the affidavits of the thirty-four (34) complainants were offered as evidence for those who did not submit their affidavits, or that such affidavits had any bearing at all on the rights and interest of the latter. In the same vein, private respondents position paper was not of any help to these delinquent complainants. The implication is that as long as the affidavits of the complainants were offered as evidence for those who did not submit theirs, or the affidavits were material and relevant to the rights and interest of the latter, such affidavits may be sufficient to establish the claims of those who did not give their affidavits. Here, a reading of the joint affidavit signed by twelve (12) of the ninety-seven (97) complainants (petitioners herein) would readily reveal that the affidavit was offered as evidence not only for the signatories therein but for all of the complainants. (These ninety-seven (97) individuals were previously identified during the mandatory conference as the only complainants in the proceedings before the labor arbiter) Moreover, the affidavit touched on the common interest of all of the complainants as it supported their claim of the existence of an employer-employee relationship between them and respondent SMC. Thus, the said affidavit was enough to prove the claims of the rest of the complainants. (Emphasis supplied, underscoring in the original)
[47]

In any event, SMC is reminded that the rules of evidence prevailing in courts of law or equity do not control proceedings before the Labor Arbiter. So Article 221 of the Labor Code enjoins: ART. 221. Technical rules not binding and prior resort to amicable settlement. In any proceeding before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in courts of law or equity shall not be controlling and it is the spirit and intention of this Code that the Commission and its members and the Labor Arbiters shall use every and all reasonable

means to ascertain the facts in each case speedily and objectively and without regard to technicalities of law or procedure, all in the interest of due process. xxx As such, their application may be relaxed to serve the demands of substantial justice.
[48]

On the merits, the petition just the same fails. SMC insists that private respondents are the employees of Sunflower, an independent contractor. On the other hand, private respondents assert that Sunflower is a labor-only contractor. Article 106 of the Labor Code provides: ART. 106. Contractor or subcontracting. Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under the Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code. There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18, distinguishes between legitimate and labor-only contracting: Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job, work or service.

Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis hereby declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present: i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal, or

ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee. The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code, as amended. Substantial capital or investment refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out. The right to control shall refer to the right reserved to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. The test to determine the existence of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work.
[49]

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

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

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

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

While indeed Sunflower was issued Certificate of Registration No. IL0-875 on February 10, 1992 by the Cooperative Development Authority, this merely shows that it had at least P2,000.00 in paid-up share capital as mandated by Section 5 of Article 14 of Republic Act No. 6938, otherwise known as the Cooperative Code, which amount cannot be considered substantial capitalization.
[55] [56]

What appears is that Sunflower does not have substantial capitalization or investment in the form of tools, equipment, machineries, work premises and other materials to qualify it as an independent contractor. On the other hand, it is gathered that the lot, building, machineries and all other working tools utilized by private respondents in carrying out their tasks were owned and provided by SMC. Consider the following uncontroverted allegations of private respondents in the Joint Affidavit: [Sunflower], during the existence of its service contract with respondent SMC, did not own a single machinery, equipment, or working tool used in the processing plant. Everything was owned and provided by respondent SMC. The lot, the building, and working facilities are owned by respondent SMC. The machineries and equipments (sic) like washer machine, oven or cooking machine, sizer machine, freezer, storage, and chilling tanks, push carts, hydrolic (sic) jack, tables, and chairs were all owned by respondent SMC. All the boxes, trays, molding pan used in the processing are also owned by respondent SMC. The gloves and boots used by the complainants were also owned by respondent SMC. Even the mops, electric floor cleaners, brush, hoose (sic), soaps, floor waxes, chlorine, liquid stain removers, lysol and the like used by the complainants assigned as cleaners were all owned and provided by respondent SMC. Simply stated, third-party respondent did not own even a small capital in the form of tools, machineries, or facilities used in said prawn processing xxx The alleged office of [Sunflower] is found within the confines of a small carinderia or refreshment (sic) owned by the mother of the Cooperative Chairman Roy Asong. xxx In said . . . office, the only equipment used and owned by [Sunflower] was a typewriter.
[57]

And from the job description provided by SMC itself, the work assigned to private respondents was directly related to the aquaculture operations of SMC. Undoubtedly, the nature of the work performed by private respondents in shrimp harvesting, receiving and packing formed an integral part of the shrimp processing operations of SMC. As for janitorial and messengerial services, that they are considered directly related to the principal business of the employer has been jurisprudentially recognized.
[58]

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. And control of the premises in which private respondents worked was by SMC. These tend to disprove the independence of the contractor.
[59] [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. This circumstance is another indicium of the existence of a labor-only contractorship.
[61] [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, and with the closure of SMCs Bacolod Shrimp Processing Plant, Sunflower likewise ceased to exist. This Courts ruling in San Miguel Corporation v. MAERC Integrated Services, Inc. is thus instructive.
[63] [64]

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

All the foregoing considerations affirm by more than substantial evidence the existence of an employer-employee relationship between SMC and private respondents. Since private respondents who were engaged in shrimp processing performed tasks usually necessary or desirable in the aquaculture business of SMC, they should be deemed regular employees of the latter and as such are entitled to all the benefits and rights appurtenant to regular employment. They should thus be awarded differential pay corresponding to the difference between the wages and benefits given them and those accorded SMCs other regular employees.
[66] [67]

Respecting the private respondents who were tasked with janitorial and messengerial duties, this Court quotes with approval the appellate courts ruling thereon: Those performing janitorial and messengerial services however acquired regular status only after rendering one-year service pursuant to Article 280 of the Labor Code. Although janitorial and messengerial services are considered directly related to the aquaculture business of SMC, they are deemed unnecessary in the conduct of its principal business; hence, the distinction (See Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-137 and Philippine Bank of Communications v. NLRC, supra, p. 359).
[68]

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

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

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

Regarding the closure of SMCs aquaculture operations and the consequent termination of private respondents, Article 283 of the Labor Code provides: ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or to at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. (Underscoring supplied) In the case at bar, a particular department under the SMC group of companies was closed allegedly due to serious business reverses. This constitutes retrenchment by, and not closure of, the enterprise or the company itself as SMC has not totally ceased operations but is still very much an on-going and highly viable business concern.
[71]

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

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

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

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

In the case at bar, company losses were duly established by financial documents audited by Joaquin Cunanan & Co. showing that the aquaculture operations of SMCs Agribusiness Division accumulated losses amounting to P145,848,172.00 in 1992 resulting in the closure of its Calatrava Aquaculture Center in Negros Occidental, P11,393,071.00 in 1993 and P80,325,608.00 in 1994 which led to the closure of its San Fernando Shrimp Processing Plant in Pampanga and the Bacolod Shrimp Processing Plant in 1995. SMC has thus proven substantial business reverses justifying retrenchment of its employees. For termination due to retrenchment to be valid, however, the law requires that written notices of the intended retrenchment be served by the employer on the worker and on the DOLE at least one (1) month before the actual date of the retrenchment, 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.
[76] [77]

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

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

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

this

Court

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. The appellate court thus erred in awarding backwages to private respondents upon the authority of Bustamante v. NLRC, what was involved in that case being one of illegal dismissal.
[80] [81]

With respect to attorneys fees, in actions for recovery of wages or where an employee was forced to litigate and thus incurred expenses to protect his rights and interests, a maximum of ten percent (10%) of the total monetary award by way of attorneys fees is justifiable under Article 111 of the Labor Code, Section 8, Rule VIII,
[82] [83] [84]

Book III of its Implementing Rules, and paragraph 7, Article 2208 of the Civil Code. 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.
[85] [86] [87]

Absent any evidence showing that Sunflower has been dissolved in accordance with law, pursuant to Rule VIII-A, Section 19 of the Omnibus Rules Implementing the Labor Code, Sunflower is held solidarily liable with SMC for all the rightful claims of private respondents.
[88]

WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001 and Resolution dated July 11, 2001 of the Court of Appeals are AFFIRMED with MODIFICATION. Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby ORDERED to jointly and severally pay each private respondent differential pay from the time they became regular employees up to the date of their termination; separation pay equivalent to at least one (1) month pay or to at least one-half month pay for every year of service, whichever is higher, as mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to other regular SMC employees that were terminated as a result of the retrenchment, depending on which is most beneficial to private respondents; and ten percent (10%) attorneys fees based on the herein modified award. Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount of P50,000.00, representing nominal damages for noncompliance with statutory due process. The award of backwages is DELETED. SO ORDERED. Panganiban, (Chairman), Sandoval-Gutierrez,