1.

Applicable Laws and Basic Principles

MATERNITY CHILDRENS HOSPITAL v.
SECRETARY OF LABOR
FACTS:
On May 23, 1986, ten employees of the
petitioner hospital employed in different positions filed
a complaint with the Office of the Regional Director of
Labor and Employment, Region X, for underpayment
of their salaries and emergency cost of living
allowance (ECOLAS). The Regional Director issued an
Order dated August 4, 1986, directing the payment of
P723,888.58, representing underpayment of wages
and ECOLAs to all the petitioner's employees.
Petitioner appealed from this Order to the Minister of
Labor and Employment who rendered a Decision on
September 24, 1986, modifying the said Order in that
deficiency wages and ECOLAs should be computed
only from May 23, 1983 to May 23, 1986. The
petitioner filed a MR which was denied by the
Secretary of Labor for lack of merit.
ISSUE:
(1) WON the Regional Director has jurisdiction
over the case and if so, the extent of coverage of any
award that should be forthcoming, arising from his
visitorial and enforcement powers under Article 128 of
the Labor Code and (2) WON the applicability of the
award involving salary differentials and ECOLAS
covers not only the employees who signed the
complaints, but also those who are not signatories and
those who were no longer in the service of the hospital
at the time the complaints were filed.
RULING:
(1) YES. The Regional Director has jurisdiction
to resolve uncontested money claims but only in cases
where an employer-employee relationship still exists.
This is a labor standards case, and is governed
by Art. 128-b of the Labor Code, as amended by E.O.
No. 111. Labor standards refer to the minimum
requirements prescribed by existing laws, rules,
and regulations relating to wages, hours of work,
cost of living allowance and other monetary and
welfare benefits, including occupational, safety,
and health standards. Prior to the promulgation of
E.O. No. 111 on December 24, 1986, the Regional
Director's authority over money claims was unclear.
The complaint in the present case was filed on May
23, 1986 when E.O. No. 111 was not yet in effect, and
the prevailing view was that stated in the case of
Antonio Ong, Sr. vs. Henry M. Parel, et al. which relied
on the ruling laid down in Zambales Base Metals Inc.
vs. The Minister of Labor, et al that the "Regional
Director was not empowered to share in the original
and exclusive jurisdiction conferred on Labor Arbiters
by Article 217."
But the Court believe Regional Directors already
had enforcement powers over money claims even in
the absence of E.O. No. 111, through P.D. 850, issued
on December 16, 1975, which transferred labor
standards cases from the arbitration system to the
enforcement system.
With the promulgation of PD 850, Regional
Directors were given enforcement powers, in addition

to visitorial powers. Labor Arbiters, on the other hand,

lost jurisdiction over labor standard cases. Thus,
under the present rules, a Regional Director exercises
both visitorial and enforcement power over labor
standards cases, and is therefore empowered to
adjudicate money claims, provided there still exists an
employer-employee relationship, and the findings of
the regional office is not contested by the employer
concerned. The rationale behind the transfer of labor
standard cases from arbitration to enforcement
system is that social justice legislation, to be truly
meaningful and rewarding to our workers, must
not be hampered in its application by longwinded arbitration and litigation. Rights must be
asserted and benefits received with the least
inconvenience. Labor laws are meant to promote,
not defeat, social justice.
In the present case, petitioner admitted the
charge of underpayment of wages to workers still in
its employ; in fact, it pleaded for time to raise funds to
satisfy its obligation. There was thus no contest
against the findings of the labor inspectors unlike in
the Ong case where the employer disputed the
adequacy of the evidentiary foundation (employees
affidavits) of the findings of the labor standards
inspectors and in the Zambales case, wherein the
money claims were not discovered in the course of
normal inspection.
(2) With regards to the applicability of the
award involving salary differentials and ECOLAS, the
Regional Director correctly applied the award with
respect to those employees who signed the complaint,
as well as those who did not sign the complaint, but
were still connected with the hospital at the time the
complaint was filed. The justification for the award to
this group of employees who were not signatories to
the complaint is that the visitorial and enforcement
powers given to the Secretary of Labor is relevant to,
and exercisable over establishments, not over the
individual members/employees, because what is
sought to be achieved by its exercise is the observance
of, and/or compliance by, such firm/establishment with
the labor standards regulations. However, there is no
legal justification for the award in favor of those
employees who were no longer connected with the
hospital at the time the complaint was filed, having
resigned therefrom in 1984.
ACCORDINGLY,
this
petition
should
be
dismissed, as it is hereby DISMISSED, as regards all
persons still employed in the Hospital at the time of
the filing of the complaint but GRANTED as regards
those employees no longer employed at that time.
P.I. MANUFACTURING, INCORPORATED,
Petitioner vs. P.I. MANUFACTURING
SUPERVISORS AND FOREMAN ASSOCIATION
and the NATIONAL LABOR UNION, Respondents.
FACTS:
On December 10, 1987, the President signed
into law Republic Act (R.A.) No. 6640 providing,
among others, an increase of P10.00 per day to those
employees and workers in the private sector receiving
above the minimum wage up to P100.00. Thereafter,
on December 18, 1987, petitioner and respondent
PIMASUFA entered into a new Collective Bargaining

Agreement (1987 CBA) whereby the supervisors were

granted an increase of P625.00 per month and the
foremen, P475.00 per month. The increases were
made retroactive to May 12, 1987, or prior to the
passage of R.A. No. 6640, and every year thereafter
until July 26, 1989.
On January 26, 1989, respondents
PIMASUFA and NLU filed a complaint with the
Arbitration Branch of the NLRC, charging petitioner
with violation of R.A. No. 6640. The Labor Arbiter
rendered his Decision in favor of respondents ordering
petitioner to give the members of respondent wage
increases. The Labor Arbiter held:
It is correctly pointed out by the union
that employees cannot waive future benefits,
much less those mandated by law. That is
against public policy as it would render
meaningless the law. Thus, the waiver in the
CBA does not bar the union from claiming
adjustments in pay as a result of distortion of
wages brought about by the implementation of
R.A. 6640.
On appeal by petitioner, the NLRC affirmed the
Labor Arbiters judgment, which was also affirmed by
the CA, upon petitioners appeal.
ISSUE:
WON wage increase granted under the 1987
CBA corrected whatever wage distortion that may
have been created by R.A. No. 6640.
RULING:
YES. The 1987 CBA effectively re-established
the gap between wage rates of the supervisors and
foremen brought about by the implementation of R.A.
6640.
A CBA constitutes the law between the parties
when freely and voluntarily entered into. The goal of
collective bargaining is the making of agreements that
will stabilize business conditions and fix fair standards
of working conditions. The duty to bargain requires
that the parties deal with each other with open and
fair minds. A sincere endeavor to overcome obstacles
and difficulties that may arise, so that employeremployee relations may be stabilized and industrial
strife eliminated, must be apparent. And also, the
provisions of the CBA should be read in harmony with
the wage orders, whose benefits should be given only
to those employees covered thereby.
In the instant case, the 1987 CBA increased the
monthly salaries of the supervisors and the foremen.
These increases re-established and broadened the
gap, not only between the supervisors and the
foremen, but also between them and the rank-and-file
employees. Significantly, the 1987 CBA wage
increases almost doubledthat of the P10.00 increase
under R.A. No. 6640. Interestingly, such gap as reestablished by virtue of the CBA is more than a
substantial compliance with R.A. No. 6640.
Respondents cannot invoke the beneficial
provisions of the 1987 CBA but disregard the
concessions it voluntary extended to petitioner. The
goal of collective bargaining is the making of
agreements that will stabilize business conditions and

fix fair standards of working conditions. Definitely,

respondents posture contravenes this goal.
In fine, it must be emphasized that in the
resolution of labor cases, this Court has always been
guided by the State policy enshrined in the
Constitution that the rights of workers and the
promotion of their welfare shall be protected.
However, consistent with such policy, the Court
cannot favor one party, be it labor or
management, in arriving at a just solution to a
controversy if the party concerned has no valid
support to its claim, like respondents here.
WHEREFORE, we GRANT petitioners motion
for reconsideration and REINSTATE the petition we
likewise GRANT. The assailed Decision of the Court of
Appeals in CA-G.R. SP No. 54379 is REVERSED.
PHILIPPINE ASSOCIATION OF SERVICE
EXPORTERS, INC., petitioner, vs. HON. FRANKLIN
M. DRILON as Secretary of Labor and
Employment, and TOMAS D. ACHACOSO, as
Administrator of the Philippine Overseas
Employment Administration, respondents.
Facts:
The petitioner, Philippine Association of
Service Exporters, Inc. (PASEI), a firm "engaged
principally in the recruitment of Filipino workers,
male and female, for overseas placement," challenges
the Constitutional validity of Department Order No. 1,
Series of 1988, of the Department of Labor and
Employment, in the character of "GUIDELINES
GOVERNING THE TEMPORARY SUSPENSION OF
DEPLOYMENT OF FILIPINO DOMESTIC AND
HOUSEHOLD WORKERS."
PASEI invokes Section 3, of Article XIII, of the
Constitution, providing for worker participation "in
policy and decision-making processes affecting their
rights and benefits as may be provided by law."
Department Order No. 1, it is contended, was passed
in the absence of prior consultations. It is claimed,
finally, to be in violation of the Charter's nonimpairment clause, in addition to the "great and
irreparable injury" that PASEI members face should
the Order be further enforced.
The Solicitor General, on behalf of the
respondents Secretary of Labor and Administrator of
the Philippine Overseas Employment Administration,
filed a Comment informing the Court that the
respondent Labor Secretary lifted the deployment ban
in the states of Iraq, Jordan, Qatar, Canada,
Hongkong, United States, Italy, Norway, Austria, and
Switzerland.
In submitting the validity of the
challenged "guidelines," the Solicitor General invokes
the police power of the Philippine State.
Issue:
Did the Secretary of Labor violate Section 3, of
Article XIII, of the Constitution, which provides for
worker participation "in policy and decision-making
processes affecting their rights and benefits?
Held:

No. The petitioners's reliance on the

Constitutional guaranty of worker participation "in
policy and decision-making processes affecting their
rights and benefits" is not well-taken.

because of its financial reverses without the obligation

to grant separation pay. This was permitted under the
original Article 272(a), of the Labor Code, which was
in force at the time.

The Constitution declares that:

While the Constitution is committed to the

policy of social justice and the protection of the
working class, it should not be supposed that every
labor dispute will be automatically decided in favor of
labor. Management also has its own rights which, as
such, are entitled to respect and enforcement in the
interest of simple fair play. Out of its concern for those
with less privileges in life, this Court has inclined
more often than not toward the worker and unpheld
his cause in his conflicts with the employer. Such
favoritism, however, has not blinded us to the rule that
justice is in every case for the deserving, to be
dispensed in the light of the established facts and the
applicable law and doctrine.

Sec. 3. The State shall afford full protection

to labor, local and overseas, organized and
unorganized, and promote full employment
and equality of employment opportunities for
all.
Protection to labor does not signify the
promotion of employment alone. What concerns the
Constitution more paramountly is that such an
employment be above all, decent, just, and humane.
Under these circumstances, the Government is dutybound to insure that our toiling expatriates have
adequate protection, personally and economically,
while away from home.
In this case, the Government has evidence, an
evidence the petitioner cannot seriously dispute, of
the lack or inadequacy of such protection, and as part
of its duty, it has precisely ordered an indefinite ban
on deployment.
Petition was DISMISSED
MANUEL SOSITO, PETITIONER, VS. AGUINALDO
DEVELOPMENT CORPORATION, RESPONDENT
Facts:
Petitioner Manuel Sosito was employed by the
private respondent, a logging company, when he went
on indefinite leave with the consent of the company on
January 16, 1976. On July 20, 1976, the private
respondent, through its president, announced a
retrenchment program and offered separation pay to
employees in the active service as of June 30, 1976,
who would tender their resignations not later than
July 31, 1976.
The petitioner decided to accept this offer and
submitted his resignation on July 29, 1976, "to avail
himself of the gratuity benefits" promised. However,
his resignation was not acted upon and he was never
given the separation pay he expected.
Department of Labor ordered the company to
pay Sosito the sum of P4,387.50, representing his
salary for six and a half months. On appeal to the
National Labor Relations Commission, this decision
was reversed and it was held that the petitioner was
not covered by the retrenchment program.

The petition was DISMISSED.

ELMER MENDOZA v. RURAL BANK OF LUCBAN
FACTS.
On April 25, 1999, the Board of Directors of
the Rural Bank of Lucban, Inc., issued Board
Resolution Nos. 99-52 and 99-53, that in line with the
policy of the bank to familiarize bank employees with
the various phases of bank operations and further
strengthen the bank's existing internal control system,
all officers and employees are subject to reshuffle of
assignments. This resolution does not preclude the
transfer of assignment of bank officers and employees
from the branch office to the head office and viceversa."
Petitioner filed a Complaint before the
National Labor Relations Commission (NLRC) for
illegal dismissal, underpayment, separation pay and
damages. Petitioner argues that he was compelled to
file an action for constructive dismissal, because he
had been demoted from appraiser to clerk and not
given any work to do, while his table had been placed
near the toilet and eventually removed.
He adds that the reshuffling of employees was
done in bad faith, because it was designed primarily to
force him to resign.
NLRC denied his Motion for Reconsideration;
the petitioner then brought a Petition for Certiorari
assailing the foregoing Resolution to the CA. CA found
no grave abuse of discretion on the part of
NLRC.Hence, this Petition.

Issue:

ISSUE.

Is Manuel Sosito ,who was on an indefinite

leave, entitled to
separation pay under the
retrenchment program?

WON the petitioner

dismissed from employment?

Held:
No, separation pay was extended only to those
who were in the active service of the company as of
June 30, 1976. Being on indefinite leave, he was not in
the active service of the private respondent although,
if one were to be technical, he was still in its employ.
Under the law then in force the private
respondent could have validly reduced its work force

was

constructively

HELD.
The Petition has no merit.
Constructive dismissal is defined as an
involuntary resignation resorted to when continued
employment is rendered impossible, unreasonable or
unlikely; when there is a demotion in rank or a
diminution of pay; or when a clear discrimination,
insensibility or disdain by an employer becomes
unbearable to the employee. Jurisprudence recognizes

the exercise of management prerogatives. For this

reason, courts often decline to interfere in legitimate
business decisions of employers. Indeed, labor laws
discourage interference in employers' judgments
concerning the conduct of their business. The law
must protect not only the welfare of employees, but
also the right of employers.
In the pursuit of its legitimate business
interest, management has the prerogative to transfer
or assign employees from one office or area of
operation to another -- provided there is no demotion
in rank or diminution of salary, benefits, and other
privileges; and the action is not motivated by
discrimination, made in bad faith, or effected as a
form of punishment or demotion without sufficient
cause. This privilege is inherent in the right of
employers to control and manage their enterprise
effectively. The right of employees to security of
tenure does not give them vested rights to their
positions to the extent of depriving management of its
prerogative to change their assignments or to transfer
them.
The law protects both the welfare of
employees and the prerogatives of management.
Courts will not interfere with business judgments of
employers, provided they do not violate the law,
collective bargaining agreements, and general
principles of fair play and justice. The transfer of
personnel from one area of operation to another is
inherently a managerial prerogative that shall be
upheld if exercised in good faith -- for the purpose of
advancing business interests, not of defeating or
circumventing the rights of employees.
"The reshuffling of its employees was done in
good faith and cannot be made the basis of a finding of
constructive dismissal.
WHEREFORE, this Petition is DENIED, and
the June 14, 2002 Decision and the September 25,
2002 Resolution of the Court of Appeals are
AFFIRMED. Costs against petitioner.

CHINA BANKING CORPORATION v. MARIANO

BORROMEO
FACTS.
Respondent Mariano Borromeo was Assistant
Vice-President of the Branch Banking Group of China
Banking Corporation for the Mindanao Area.
Without
authority
from
the
Executive
Committee or Board of Directors of the bank, he
approved
several
DAUD/BP
(Drawn
Against
Uncollected
Deposits/Bills
Purhcased)
accommodations amounting to P2,441,375 in favor of
MR. Joel Maniwan. Such checks, which are not
sufficiently funded by cash, are generally not honored
by banks. Eventually, this incident came to the
knowledge of the bank authorities. A memorandum
was then issued to Borromeo seeking clarification
regarding the matter. Borromeo responded and
accepted full responsibility for committing an error in
judgment and abuse of discretion.
He then resigned from the Bank and
apologized for all the troubles I have caused because

of the Maniwan case. The respondent, however,

vehemently denied benefitting from the transaction.
He was directed to restitute the amount of
P1,507,736.79 representing 90% of the total loss of
P1,675,263.10 incurred by the Bank since his acts
constituted a violation of the bank's Code of Ethics.
However, in view of his resignation and considering
the years of service in the Bank, the management
earmarked only P836,637.08 from the respondents
total separation benefits. The said amount would be
released upon recovery of the sums demanded from
Maniwan in a civil case filed against him by the bank
with the RTC in Cagayan de Oro City.
The respondent made a demand on the bank
for the payment of his separation pay and other
benefits, but the bank maintained its position to
withhold the sum of P836,637.08. Thus, Borromeo
filed with the NLRC a complaint for payment of
separation pay, mid-year bonus, profit share and
damages against the bank.
The Labor Arbiter ruled in favor of the bank.
The NLRC affirmed the findings of the Labor Arbiter.
The CA, however, alleging that respondent was denied
his right to due process, set aside the NLRC decision
and ordered that the records of the case be remanded
to the Labor Arbiter for further hearings on the factual
issues involved.
The bank filed a motion for reconsideration
but denied the same. Hence, this petition.
ISSUE.
WON the bank has the prerogative/right to
impose on the respondent what it considered the
appropriate penalty under the circumstances pursuant
to its company rules and regulations.
HELD.
The petition is meritorious.
The bank was left with no other course but to
impose the ancillary penalty of restitution. It was
certainly within the banks prerogative to impose on
the respondent what it considered the appropriate
penalty under the circumstances pursuant to its
company rules and regulations.
The petitioners bank business is essentially
imbued with public interest and owes great fidelity to
the public it deals with. It is expected to exercise the
highest degree of diligence in the selection and
supervision of their employees. As a corollary, and like
all other business enterprises, its prerogative to
discipline its employees and to impose appropriate
penalties on erring workers pursuant to company
rules and regulations must be respected. The law, in
protecting the rights of labor, authorized neither
oppression nor self-destruction of an employer
company which itself is possessed of rights that must
be entitled to recognition and respect.
Significantly, the respondent is not wholly deprived of
his separation benefits. As the Labor Arbiter stressed
in his decision, the separation benefits due the
complainant were merely withheld. Even the
petitioner bank itself gives the assurance that as soon
as the bank has satisfied a judgment in the civil case,

the earmarked portion of his benefits will be released

without delay.
WHEREFORE, the petition is granted. The
decision of the CA is reversed and set aside. The
Resolution of the NLRC is reinstated.

SSS EMPLOYEES ASSOCIATION v. CA

G.R. NO. 85279, JULY 28, 1989, THIRD DIVISION,
(CORTES, J.)
Facts
The officers and members of Social Security
System Employees Association (SSSEA) staged a
strike and barricaded the entrances to the SSS
Building that hampered the regular course of
business. This was after the SSS failed to act on the
unions demands regarding salaries and benefits. The
strike was reported to the Public Sector LaborManagement Council, which ordered the strikers to
return to work but the strikers refused to return to
work.
SSS filed a complaint to the RTC for complaint
of damages with a prayer for a writ of preliminary
injunction. The court issued a Temporary restraining
Order (TRO) and thereafter issued an injunction after
finding that the strike was illegal. SSEA filed a motion
for reconsideration but was denied. Hence, they filed
the petition on certiorari but the case was referred to
the CA. But during the pendency of the case in CA, the
moved to recall the decision but was denied. Hence,
the instant petition before the SC.
ISSUES:
1) Do the employees of the SSS have the right to
strike?
2) Does the RTC have jurisdiction to try the case?
HELD:
NO.
Considering that under the 1987 Constitution
"[t]he
civil
service
embraces
all
branches,
subdivisions, instrumentalities, and agencies of the
Government,
including
government-owned
or
controlled corporations with original charters"
[Art.IX(B), Sec. 2(1); see also Sec. 1 of E.O. No. 180
where the employees in the civil service are
denominated as "government employees"] and that the
SSS is one such government-controlled corporation
with an original charter, having been created under
R.A. No. 1161, its employees are part of the civil
service [NASECO v. NLRC, G.R. Nos. 69870 & 70295,
November 24, 1988] and are covered by the Civil
Service
Commission's
memorandum
prohibiting
strikes. This being the case, the strike staged by the
employees of the SSS was illegal.
The statement of the Court in Alliance of
Government Workers v. Minister of Labor and
Employment [G.R. No. 60403, August 3, 1983, 124
SCRA 1] is relevant as it furnishes the rationale for
distinguishing between workers in the private sector
and government employees with regard to the right to
strike:

The general rule in the past and up to

the present is that "the terms and
conditions of employment in the
Government, including any political
subdivision or instrumentality thereof
are governed by law" (Section 11, the
Industrial Peace Act, R.A. No. 875, as
amended and Article 277, the Labor
Code, P.D. No. 442, as amended). Since
the
terms
and
conditions
of
government employment are fixed by
law,government workers cannot use
the same weapons employed by
workers in the private sector to secure
concessions from their employers. The
principle behind labor unionism in
private industry is that industrial
peace cannot be secured through
compulsion by law. Relations between
private employers and their employees
rest on an essentially voluntary basis.
Subject to the minimum requirements
of wage laws and other labor and
welfare legislation, the terms and
conditions of employment in the
unionized private sector are settled
through the process of collective
bargaining.
In
government
employment, however, it is the
legislature and, where properly given
delegated power, the administrative
heads of government which fix the
terms and conditions of employment.
And this is effected through statutes or
administrative circulars, rules, and
regulations, not through collective
bargaining agreements. [At p. 13;
underscoring supplied.]
Government employees may, therefore,
through their unions or associations, either
petition the Congress for the betterment of the
terms and conditions of employment which are
within the ambit of legislation or negotiate
with the appropriate government agencies for
the improvement of those which are not fixed
by law. If there be any unresolved grievances,
the dispute may be referred to the Public
Sector
Labor-Management
Council
for
appropriate action. But employees in the civil
service may not resort to strikes, walkouts and
other temporary work stoppages, like workers
in the private sector, to pressure the
Government to accede to their demands. As
now provided under Sec. 4, Rule III of the
Rules and Regulations to Govern the Exercise
of the Right of Government-Employees to SelfOrganization, which took effect after the
instant dispute arose, "[t]he terms and
conditions of employment in the government,
including
any
political
subdivision
or
instrumentality thereof and governmentowned and controlled corporations with
original charters are governed by law and
employees therein shall not strike for the
purpose of securing changes thereof."
YES.

The Labor Code itself provides that terms and

conditions of employment of government employees
shall be governed by the Civil Service Law, rules and
regulations [Art. 276.] More importantly, E.O. No. 180
vests the Public Sector Labor-Management Council
with jurisdiction over unresolved labor disputes
involving government employees [Sec. 16.] Clearly, the
NLRC has no jurisdiction over the dispute.
This being the case, the Regional Trial Court
was not precluded, in the exercise of its general
jurisdiction under B.P. Blg. 129, as amended, from
assuming jurisdiction over the SSSs complaint for
damages and issuing the injunctive writ prayed for
therein. Unlike the NLRC, the Public Sector LaborManagement Council has not been granted by law
authority to issue writs of injunction in labor disputes
within its jurisdiction. Thus, since it is the Council,
and not the NLRC, that has jurisdiction over the
instant labor dispute, resort to the general courts of
law for the issuance of a writ of injunction to enjoin
the strike is appropriate.

2. Employer-Employee Relationship
BROTHERHOOD LABOR UNITY MOVEMENT V.
HON. RONALDO B. ZAMORA ET. AL
G.R. No. L-48645, January 07, 1987, SECOND
DIVISION, (GUTIERREZ, JR., J.)
Facts
Petitioners were workers of San Miguel
Corporation (SMC) for seven years as cargadores or
pahinantes. Their work was neither regular nor
continuous, depending wholly on the volume of bottles
manufactured to be loaded and unloaded. They were
neither paid overtime nor compensation for work on
Sundays and holidays when the business needs it. In
January, 1969, the petitioner workers numbering
one hundred and forty (140) organized and affiliated
themselves as Brotherhood" Labor Unity Movement of
the Philippines (BLUM). They then aired their
grievances to the management for changes in their
salaries but SMC did not heed alleging that the
workers are not their employees but are employees of
a different contractor. Hence, they filed a notice of
strike to the Bureau of Labor Relations. SMC
castigated the strikers and warned that they will be
dismissed should they continue with their union
activities. On February 20, 1969, all the petitioners
were dismissed from their jobs.
BLUM then charged SMC and 7 of its officers
of unfair labor practice under and illegal dismissal
before the defunct Court of Industrial Relations.
ISSUE:
Did employer-employee relationship exist
between members of the "Brotherhood Labor Unit
Movement of the Philippines" (BLUM) and San Miguel
Corporation?
HELD:
YES.

In determining the existence of an employeremployee 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. It is the so-called "control test"
that is the most important element (Investment
Planning Corp. of the Phils. v. The Social Security
System, 21 SCRA 924; Mafinco Trading Corp. v. Ople,
supra, and Rosario Brothers, Inc. v. Ople, 131 SCRA
72).
Applying the above criteria, the evidence
strongly indicates the existence of an employeremployee relationship between petitioner workers and
respondent San Miguel Corporation. The respondent
asserts that the petitioners are employees of the
Guaranteed Labor Contractor, an independent labor
contracting firm.
The facts and evidence on record negate
respondent SMC's claim.
The existence of an independent contractor
relationship is generally established by the following
criteria: "whether or not the contractor is carrying on
an independent business; the nature and extent of the
work; the skill required; the term and duration of the
relationship; the right to assign the performance of a
specified piece of work; the control and supervision of
the work to another; the employer's power with
respect to the hiring, firing and payment of the
contractor's workers; the control of the premises; the
duty to supply the premises tools, appliances,
materials and labor; and the mode, manner and terms
of payment (56 CJS Master and Servant, Sec. 3(2), 46;
See also 27 AM. Jur. Independent Contractor, Sec. 5,
485 andAnne., 75 ALR 7260727). None of the above
criteria exists in the case at bar.
Section 8, Rule VIII, Book III of
Implementing Rules of the Labor Code provides:

the

"Job contracting. There is job

contracting permissible under the
Code if the following conditions are
met:
"(1) The contractor carries on an
independent business and undertakes
the contract work on his own account
under his own responsibility according
to his own manner and method, free
from the control and direction of his
employer or principal in all matters
connected with the performance of the
work except as to the results thereof;
and
"(2) The contractor has substantial
capital or investment in the form of
tools, equipment, machineries, work
premises, and other materials which
are necessary in the conduct of his
business."
We find that Guaranteed and Reliable Labor
contractors have neither substantial capital nor
investment to qualify as an independent contractor
under the law. The premises, tools, equipment and

paraphernalia used by the petitioners in their jobs are

admittedly all supplied by respondent company. It is
only the manpower or labor force which the alleged
contractors supply, suggesting the existence of a
"labor-only" contracting scheme prohibited by law
(Article 106, 109 of the Labor Code; Section 9(b), Rule
VIII, Book III, Implementing Rules and Regulations of
the Labor Code). In fact, even the alleged contractor's
office, which consists of a space at respondent
company's warehouse, table, chair, typewriter and
cabinet, are provided for by respondent SMC. It is
therefore clear that the alleged contractors have no
capital outlay involved in the conduct of its business,
in the maintenance thereof or in the payment of its
workers' salaries.
The petitioners were dismissed allegedly
because of the shutdown of the glass manufacturing
plant. The respondent's shutdown was merely
temporary, one of its furnaces needing repair.
Operations continued after such repairs, but the
petitioners had already been refused entry to the
premises and dismissed from respondent's service.
New workers manned their positions. It is apparent
that the closure of respondent's warehouse was
merely a ploy to get rid of the petitioners, who were
then agitating the respondent company for benefits,
reforms and collective bargaining as a union. There is
no showing that petitioners had been remiss in their
obligations and inefficient in their jobs to warrant
their separation.
As to the charge of unfair labor practice
because of SMC's refusal to bargain with the
petitioners, it is clear that the respondent company
had an existing collective bargaining agreement with
the IBM union which is the recognized.
There
being
a
recognized
bargaining
representative of all employees at the company's glass
plant, the petitioners cannot merely form a union and
demand bargaining. The Labor Code provides the
proper procedure for the recognition of unions as sole
bargaining representatives. This must be followed.
WHEREFORE,
IN
VIEW
OF
THE
FOREGOING, the petition is GRANTED. The San
Miguel Corporation is hereby ordered to REINSTATE
petitioners, with three (3) years backwages. However,
where reinstatement is no longer possible, the
respondent SMC is ordered to pay the petitioners
separation pay equivalent to one (1) month pay for
every year of service.
TABAS, et al., v. CALIFORNIA MANUFACTURING
COMPANY, INC. (CMC), et al.,
G.R. No. 80680, January 26, 1989, SECOND
DIVISION (Sarmiento, J.)
Facts
Tabas et al., were employees of Livi Manpower
Services, Inc. (Livi), which subsequently assigned
them to work as promotional merchandisers for
CMC pursuant to a manpower supply agreement. The
agreement provided that CMC has no control or
supervision whatsoever over Livi's workers with
respect to how they accomplish their work or perform
CMCs obligation; that Livi "is an independent
contractor and nothing herein contained shall be

construed as creating between CMC and Livi the

relationship of principal-agent or employer-employee";
that "it is hereby agreed that it is the sole
responsibility of Livi to comply with all existing as well
as future laws, rules and regulations pertinent to
employment of labor"; and that "CMC is free and
harmless from any liability arising from such labor
laws or from any accident that may befall workers and
employees of Livi while in the performance of their
duties for CMC."
It was further expressly stipulated that the
assignment of workers to CMC shall be on a "seasonal
and contractual basis"; that "cost of living allowance
and the 10 legal holidays will be charged directly to
CMC at cost"; and that "payroll for the preceeding
week shall be delivered by Livi at CMCs premises."
Tabas et al., were then made to sign
employment contracts with durations of six months,
upon the expiration of which they signed new
agreements with the same period, and so on. Unlike
regular CMC employees, who received not less than
P2,823.00 a month in addition to a host of fringe
benefits and bonuses, they received P38.56 plus
P15.00 in allowance daily.
Tabas et al., allege that they had become
regular CMC employees and demand, as a
consequence whereof, similar benefits. They likewise
claim that pending further proceedings below, they
were notified by CMC that they would not be rehired.
As a result, they filed an amended complaint charging
CMC with illegal dismissal.
CMC admits having refused to accept Tabas et
al., back to work but deny liability therefor for the
reason that it is not, to begin with, the petitioners'
employer and that the "retrenchment" had been
forced by business losses as well as expiration of
contracts. It appears that thereafter, Livi reabsorbed
them into its labor pool on a "wait-in or standby"
status.
ISSUE:
Are Tabas, et al. CMCs or Livis employees?
HELD:
The existence of an employer-employee
relation is a question of law and being such, it
cannot be made the subject of agreement. Hence, the
fact that the manpower supply agreement between
Livi and CMC had specifically designated the former
as the petitioners' employer and had absolved the
latter from any liability as an employer, will not erase
either party's obligations as an employer, if an
employer-employee relation otherwise exists between
the workers and either firm. At any rate, since the
agreement was between Livi and CMC, they alone are
bound by it, and the petitioners cannot be made to
suffer from its adverse consequences.
The Court has consistently ruled that the
determination of whether or not there is an employeremployee relation depends upon four standards: (1)
the manner of selection and engagement of the
putative employee; (2) the mode of payment of wages;
(3) the presence or absence of a power of dismissal;
and (4) the presence or absence of a power to control
the putative employee's conduct. Of the four, the rightof-control test has been held to be the decisive factor.

On the other hand, the Court has likewise

held, based on Article 106 of the Labor Code. There
is no doubt that in the case at bar, Livi performs
"manpower services", meaning to say, it contracts out
labor in favor of clients. We hold that it is one,
notwithstanding its vehement claims to the contrary,
and notwithstanding the provision of the contract that
it is "an independent contractor". The nature of
one's business is not determined by self-serving
appellations one attaches thereto but by the tests
provided by statute and prevailing case law. The bare
fact that Livi maintains a separate line of business
does not extinguish the equal fact that it has provided
CMC with workers to pursue the latter's own business.
In this connection, we do not agree that the
petitioners had been made to perform activities
"which are not directly related to the general business
of manufacturing," CMC's purported "principal
operational activity". The petitioner's had been
charged with "merchandising promotion or sale of the
products of CMC in the different sales outlets in Metro
Manila including task and occasional price tagging,"
an activity that is doubtless, an integral part of the
manufacturing business. It is not, then, as if Livi had
served as CMCs promotions or sales arm or agent, or
otherwise, rendered a piece of work CMC could not
have itself done; Livi, as a placement agency, had
simply supplied it with the manpower necessary to
carry out CMCs merchandising activities, using
CMCs premises and equipment.
In the case at bar, Livi is admittedly an
"independent contractor providing temporary services
of manpower to its clients." When it thus provided
CMC with manpower, it supplied CMC with personnel,
as if such personnel had been directly hired by CMC.
Hence, Article 106 of the Code applies.
The Court need not therefore consider
whether it is Livi or CMC which exercises control over
the petitioners vis-a-vis the four barometers referred
to earlier, since by fiction of law, either or both
shoulder responsibility.

PHILIPPINE FUJI XEROX, et al., v. NLRC et al.

G.R. No. 111501, March 5, 1996, 2nd DIVISION
(Mendoza, J.)
Facts
Fuji Xerox entered into an agreement under
which Skillpower, Inc. supplied workers to operate
copier machines of Fuji Xerox as part of the latters
"Xerox Copier Project" in its sales offices. Pedro
Garado was assigned as key operator at Fuji Xeroxs
branch. Garado went on leave and his place was taken
over by a substitute. Upon his return, he discovered
that there was a spoilage of over 600 copies. Afraid
that he might be blamed for the spoilage, he tried to
talk to a service technician of Fuji Xerox into stopping
the meter of the machine. The technician refused
Garados request, but this incident came to the
knowledge of Fuji Xerox which reported the matter to
Skillpower, Inc. The next day, Skillpower, Inc. wrote
Garado, ordering him to explain. In the meantime, it
suspended him from work. Garado filed a complaint
for illegal dismissal.

The Labor Arbiter (LA) found that Garado

applied for work to Skillpower, Inc.; he was employed
and made to sign a contract. Although he received his
salaries regularly from Fuji Xerox, it was Skillpower,
Inc. which exercised control and supervision over his
work; that Skillpower, Inc. had substantial capital and
investments in machinery, equipment, and service
vehicles, and assets totalling P5,008,812.43. The LA
held that Garado was an employee of Skillpower, Inc.,
and that he had merely been assigned by Skillpower,
Inc. to Fuji Xerox. The LA dismissed Garados
complaint.
On the other hand, the NLRC found Garado to
be in fact an employee of petitioner Fuji Xerox and by
it to have been illegally dismissed. The NLRC found
that although Garados request was wrongful,
dismissal would be a disproportionate penalty. The
NLRC held that although Skillpower, Inc. had
substantial capital assets, the fact was that the copier
machines, which Garado operated, belonged to
petitioner Fuji Xerox, and that although it was
Skillpower, Inc. which had suspended Garado, the
latter merely acted at the behest of Fuji Xerox. The
NLRC found that Garado worked under the control
and supervision of Fuji Xerox, which paid his salaries,
and that Skilipower, Inc. merely acted as paymasteragent of Fuji Xerox. The NLRC held that Skilipower,
Inc. was a labor-only contractor and Garado should be
deemed to have been directly employed by Fuji Xerox,
regardless of the agreement between it and
Skillpower, Inc. Hence the present petition. Fuji Xerox
argues that Skillpower, Inc. is an independent
contractor and that Garado is its employee.
ISSUE:
Is Pedro Garado an employee of Skillpower,
Inc.?
HELD:
Skillpower, Inc. is a "labor-only" contractor
and Garado is not its employee.
According to Art. 106 of the Labor Code, there
is "labor-only" contracting where the person supplying
workers to an employer does not have substantial
capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the
workers recruited and placed by such persons are
performing activities which are directly related to the
principal business of such employer. In such cases, the
person or intermediary shall be considered merely as
an agent of the employer who shall be responsible to
the workers in the same manner and extent as if the
latter were directly employed by him.
Fuji Xerox argues that Skillpower, Inc. had
typewriters and service vehicles for the conduct of its
business independently of the petitioner. But
typewriters and vehicles bear no direct relationship to
the job for which Skillpower, Inc. contracted its
service of operating copier machines and offering
copying services to the public. The fact is that
Skillpower, Inc. did not have copying machines of its
own. What it did was simply to supply manpower to
Fuji Xerox. The phrase "substantial capital and
investment in the form of tools, equipment,
machineries, work premises, and other materials
which are necessary in the conduct of his business," in
the Implementing Rules clearly contemplates tools,

equipment, etc., which are directly related to the

service it is being contracted to render. One who does
not have an independent business for undertaking the
job contracted for is just an agent of the employer.
MANILA GOLF & COUNTRY CLUB V.
INTERMEDIATE APPELLATE COURT AND
FERMIN LLAMAR
G.R. No. 64948, September 27, 1994, NARVASA,
C.J., 2nd Division
Facts
This case involves three separate proceedings
all initiated by or on behalf of herein private
respondent and his fellow caddies namely: (1) A case
in the Social Security Comission (SSC) via petition of
seventeen (17) persons who styled themselves as
"Caddies of Manila Golf and Country Club-PTCCEA
(Philippine Technical, Clerical, Commercial Employees
Association) against the petitioner. (2) A Certification
election case filed with the Labor Relations Division of
the Ministry of Labor by the PTCCEA on behalf of the
same caddies of the Manila Golf and Country Club
which was resolved in favor of PTCCEA (also upheld
after a MR). (3) A compulsory arbitration case
initiated before the Arbitration Branch of the Ministry
of Labor by the same labor organization which was
decided in favor of herein petitioner and later on
upheld by the NLRC.
In the case before SSC, petitioner asserts that
there is no employer-employee relationship between
them. Later on, all but two of the 17 employees
withdrew their claim namely the respondent and
Ramundo Jomok. Thereafter, the SSC decided in favor
of the Manila Golf on two grounds: (1) caddy's fees
were paid by the golf players themselves and not by
respondent club and (2) While respondent club
promulgates rules and regulations on the assignment,
deportment and conduct of caddies the same are
designed to impose personal discipline among the
caddies but not to direct or conduct their actual work.
This lends credence to respondent's assertion that the
caddies are never their employees in the absence of
two elements, namely, (1) payment of wages and (2)
control or supervision over them.
On appeal, Llamar raised the ruling of the
Director of the Bureau of Labor Relations (certification
election case), which "has not only become final but
(has been) executed or (become) res adjudicata. The
IAC then reversed the decision in favor of the
respondent (Jomoks appeal was dismissed) by saying
it passed the control test on the following grounds: (1)
Promulgation rules and regulations and any violation
of any of which could subject him to disciplinary
action. (2) Enforcement of a group rotation system (3)
"suggesting" the rate of fees payable to the caddies.
Issue
WON persons rendering caddying services for
members of golf clubs and their guests in said clubs'
courses or premises are the employees of such clubs
and therefore within the compulsory coverage of the
Social Security System (SSS)
Decision

On the issue of Res Judicata, the following

essential requisites must concur: (1) there must be a
final judgment or order; (2) said judgment or order
must be on the merits; (3) the court rendering the
same must have jurisdiction over the subject matter
and the parties; and (4) there must be between the
two cases identity of parties, identity of subject matter
and identity of cause of action. Implicit in these
requisites is that the "prior Judgment" that would
operate in bar of a subsequent action between the
same parties for the same cause, be adversarial, or
contentious, as distinguished from an ex parte hearing
or proceeding. *** of which the party seeking relief
has given legal notice to the other party and afforded
the latter an opportunity to contest it. With this in
mind, "A certification proceeding is not a
litigation in the sense in which this term is
commonly understood, but a mere investigation of a
non-adversary, fact-finding character, in which the
investigating agency plays the part of a disinterested
investigator seeking merely to ascertain the desires of
the employees as to the matter of their representation.
If any ruling that should operate as Res Judicata in
this case, it should be the compulsory arbitration case.
On the matter of an employer - employee
relationship, the court resolves that there is none. (1)
The regulations, does not circumscribe the actions
or judgment of the caddies concerned as to leave them
little or no freedom of choice whatsoever in the
manner of carrying out their services. In the very
nature of things, caddies must submit to some
supervision of their conduct while enjoying the
privilege of pursuing their occupation within the
premises and grounds of whatever club they do their
work in. They do not have to observe any working
hours, free to leave anytime they please, to stay away
for as long as they like. (2) group rotation system, is
less a measure of employee control than an assurance
that the work is fairly distributed, the club has no way
of compelling the presence of a caddie. (3) On Fees,
the Club has no measure of control over the incidents
of the caddies' work and compensation that an
employer would possess, as the fact suggests, its a
mere suggestion.
PETITION GRANTED, DECISION OF IAC WAS
REVERESED AND SET ASIDE.
DR. CARLOS SEVILLA AND LINA O. SEVILLA V.
THE COURT OF APPEALS, TOURIST WORLD
SERVICE, INC., ELISEO S.CANILAO, AND
SEGUNDINA NOGUERA,
G.R. No. L-41182-3 April 16, 1988, SARMIENTO ,
J., SECOND DIVISION
Facts
On Oct. 19, 1960, Mrs. Noguera leased her
property to Tourist World Service (TWS) represented
by Eliseo Canilao in Mabini st., Manila with Lina
Sevilla holding herself solidarily liable for the payment
of the monthly rentals agreed on. A branch was
opened in said property by TWS, the same was run by
the herein appellant payable to Tourist World Service
Inc. by any airline for any fare brought in on the
efforts of Mrs. Lina Sevilla, 4% was to go to Lina
Sevilla and 3% was to be withheld by TWS. However
on November 24, 1961, the board of TWS decided to

abolish said branch on the ground that it was losing

and the alleged connection of Sevilla with a rival firm,
Philippine Travel Bureau. The board also authorized
the corporate secretary (Gabino Canilao) to receive
the properties of the Tourist World Service then
located at the said branch office. Later on, the
corporate secretary went to the branch and upon the
finding that it was locked and being unable to contact
Sevilla, he padlocked the premises of the branch.
When neither the appellant Lina Sevilla nor any of her
employees could enter the locked premises, a
complaint was filed by the herein appellants against
the appellees with a prayer for the issuance of
mandatory preliminary injunction (with claim for
damages invoking the provisions of the NCC on human
relations).
Both
appellees
answered
with
counterclaims. For apparent lack of interest of the
parties therein, the trial court ordered the dismissal of
the case without prejudice. However, on June 17,1963
both parties refiled their respective claims he court a
quo ordered both cases to be dismissed for lack of
merit.
On appeal, petitioners claim that there was no
employer - employee relationship between her and
TWS and what exists was that of one of a joint
business venture and that TWS had no right to
unilaterally evict Sevilla from the Mabini Office.
Issues
WON Sevilla is an employee of Tourist World Services
rendering the lower court without jurisdiction for such
case is within the ambit of the jurisdiction of the
Bureau of Labor Relations.
Decision
Sevilla is not an employee of TWS. The court
relied on the 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, in
determining the existence of an employer-employee
relationship. The records will show that the petitioner,
Lina Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to the
result of the enterprise or as to the means used in
connection therewith for the following reasons:
(1) She bound herself in solidumas (solidary) and for
rental payments of the Mabini property although the
lower court reduced such in to a mere guaranty this
does not make her an employee of TWS. A true
employee cannot be made to part with his own money
in pursuance of his employer's business, or otherwise,
assume any liability thereof.
(2) As found by the Appellate Court, '[w]hen the
branch office was opened, the same was run by the
herein appellant Lina O. Sevilla payable to Tourist
World Service, Inc. by any airline for any fare brought
in on the effort of Mrs. Lina Sevilla. Under these
circumstances, it cannot be said that Sevilla was
under the control of Tourist World Service, Inc. "as to
the means used." Sevilla in pursuing the business,
obviously relied on her own gifts and capabilities.

(3) Sevilla was not in the company's payroll. For her

efforts, she retained 4% in commissions from airline
bookings, the remaining 3% going to Tourist World.
(4) Contrary to the claims of both parties, what exist
between them seems to be that of a contract of agency
since Sevilla had conceded certain rights in favor of
TWS (TWS claims it was an employer-employee
relationship while Sevilla claims that it was of a joint
venture or partnership). A joint venture presupposes
an equal standing between the joint partners, in which
each party has an equal proprietary interest in the
capital or property contributed and where each party
exercises equal rights in the conduct of the business.
Furthermore, both parties never held themselves as
partners for the branch was embellished with the sign
of TWS instead of a distinct partner name. In a
contract of agency, the essence of the contract that
the agent renders services "in representation or on
behalf of another In the case at bar, Sevilla solicited
airline fares, but she did so for and on behalf of her
principal, Tourist World Service, Inc. But unlike simple
grants of a power of attorney, the agency that we
hereby declare to be compatible with the intent of the
parties, cannot be revoked at will. The reason is that it
is one coupled with an interest, the agency having
been created for mutual interest, of the agent and the
principal *remember that she had a solidary obligation
for the payment of rentals.
In this same vein the lower court must
likewise be held to be in error with respect to the
padlocking incident. For the fact that Tourist World
Service, Inc. was the lessee named in the lease
contract did not accord it any authority to terminate
that contract without notice to its actual occupant,
and to padlock the premises in such fashion. As this
Court has ruled, the petitioner, Lina Sevilla, had
acquired a personal stake in the business itself, and
necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that
contract having been explicitly named therein as a
third party in charge of rental payments (solidarily
with Tourist World, Inc.). She could not be ousted from
possession as summarily as one would eject an
interloper.
Petition Granted, Respondents, with the exception of
Noguera, were ordered to pay jointly and severally
sum of 25,00.00 as and for moral damages, the sum of
P10,000.00, as and for exemplary damages, and the
sum of P5,000.00, as and for nominal and/or
temperate damages.

ENCYCLOPEDIA BRITANNICA (PHILIPPINES),

INC. v. NLRC
G.R. No. 87098, 4 November 1996, SECOND
DIVISION, (Torres, Jr., J.)
Facts
Benjamin Limjoco was a Sales Division
Manager of Encyclopaedia Britannica (EB) and was in
charge of selling EBs products through some sales
representatives. He received commissions from the
products sold by his agents as compensation. He was
also allowed to use EBs name, goodwill and logo. But
the office expenses would be deducted from his

commissions. EB would also be informed about

appointments, promotions, and transfers of employees
in Limjocos district.
On 1974, Limjoco resigned from office to
pursue his private business. Then on 1975, he filed a
complaint against EB with the DOLE, claiming for nonpayment of separation pay and other benefits, and also
illegal deduction from his sales commissions for there
was employer-employee relationship. However, EB
alleged that Limjoco was not its employee but an
independent dealer authorized to promote and sell its
products because Limjoco did not have any salary and
his income from EB was dependent on the volume of
sales accomplished. He also had his own separate
office, financed the business expenses, and maintained
his own workforce, did not even report to EBs office
nor observe fixed office hours and the salaries of his
workforce were chargeable to his commissions. EB
argued that it had no control and supervision over the
complainant as to the manner and means he
conducted his business operations, thus, there is no
employer-employee relationship.
Labor Arbiter Teodorico Dogelio ruled that
Limjoco was an employee of EB for the company
exercised control over him. The NLRC upheld the LAs
decision.
ISSUE:
Is Limjoco considered an employee of EB?
RULING:
NO.
In determining the existence of an employeremployee relationship the following elements must be
present: 1) selection and engagement of the employee;
2) payment of wages; 3) power of dismissal; and 4) the
power to control the employees conduct. Of the
above, control of employees conduct is commonly
regarded as the most crucial and determinative
indicator of the presence or absence of an
employer-employee relationship. Under the control
test, an employer-employee relationship exists where
the person for whom the services are performed
reserves the right to control not only the end to be
achieved, but also the manner and means to be
used in reaching that end.
The element of control is absent; where a
person who works for another does so more or less at
his own pleasure and is not subject to definite hours or
conditions of work, and in turn is compensated
according to the result of his efforts and not the
amount thereof, we should not find that the
relationship of employer and employee exists.
The different memoranda were merely
guidelines on company policies which the sales
managers follow and impose on their respective
agents. It should be noted that in EBs business of
selling encyclopedias and books, the marketing of
these products was done through dealership
agreements. The sales operations were primarily
conducted by independent authorized agents who did
not
receive
regular compensations
but
only
commissions based on the sales of the products. These
independent
agents
hired
their
own
sales
representatives, financed their own office expenses,
and maintained their own staff. Thus, there was a

need for EB to issue memoranda to Limjoco so that the

latter would be apprised of the company policies and
procedures. Nevertheless, Limjoco and the other
agents were free to conduct and promote their sales
operations. The periodic reports to EB by the agents
were but necessary to update the company of the
latters performance and business income.
While it was true that EB had fixed the prices
of the products for reason of uniformity and Limjoco
could not alter them, the latter, nevertheless, had free
rein in the means and methods for conducting the
marketing operations. He selected his own personnel
and the only reason why he had to notify EB about
such appointments was for purpose of deducting the
employees salaries from his commissions.
Limjoco was merely an agent or an
independent dealer of EB. He was free to conduct
his work and he was free to engage in other means of
livelihood. At the time he was connected with EB,
Limjoco was also a director and later the president of
the Farmers Rural Bank. Had he been an employee of
the company, he could not be employed elsewhere and
he would be required to devote full time for EB. If he
was indeed an employee, it was rather unusual for him
to wait for more than a year from his separation from
work before he decided to file his claims.
In ascertaining whether the relationship is
that of employer-employee or one of independent
contractor, each case must be determined by its own
facts and all features of the relationship are to be
considered.

INSULAR LIFE ASSURANCE CO., LTD. v. NLRC

G.R. No. 119930, 12 March 1998, FIRST
DIVISION, (Bellosillo, J.)
Facts
On 1992, Insular Life entered into an agency
contract, which it prepared wholly, with Pantaleon de
los Reyes authorizing him to solicit within the
Philippines applications for life insurance and
annuities for which he would be paid compensation by
commissions. It contained stipulation that no
employer-employee relationship shall be created
between the parties and that the agent shall be free to
exercise his own judgment as to time, place and
means of soliciting insurance. De los Reyes however
was prohibited by Insular Life from working for any
other life insurance company, and violation of which
was sufficient ground for termination. He was
required to submit all completed applications for
insurance, deliver policies, receive and collect initial
premiums and balances of first year premiums,
renewal premiums, deposits on applications, and
payments on policy loans. He was also bound to turn
over to the company immediately any and all sums of
money collected by him.
On 1993, Insular Life and De los Reyes
entered into another contract where De los Reyes was
appointed as Acting Unit Manager in its Cebu office.
His
duties
and
responsibilities
included
the
recruitment, training, organization and development
of a sufficient number of qualified, competent and
trustworthy underwriters, and to supervise and

coordinate the sales efforts of the underwriters in the

active solicitation of new business and in the
furtherance of the agencys assigned goals. The
contract stipulated that De los Reyes is considered as
an independent contractor. De los Reyes together with
his unit force was granted freedom to exercise
judgment as to time, place and means of soliciting
insurance. As acting unit manager, he was given
production bonus, development allowance and
financial assistance deemed as an advance against
expected commissions only upon his fulfillment of
certain quota requirements. He was also expressly
obliged to participate in the companys conservation
program, i.e., preservation and maintenance of
existing insurance policies, and to accept moneys duly
receipted on agents receipts provided the same were
turned over to the company.
He was notified on 1993 that his services were
terminated. Then he filed a complaint before the Labor
Arbiter for illegal dismissal and non-payment of his
salaries and separation pay. The LA dismissed it
saying that there was no employer-employee
relationship for the element of control was not
established. The NLRC reversed the LAs decision,
saying there was employer-employee relationship, for
Insular Life limited the work of De los Reyes to selling
of a certain insurance policy, assigned him to a
particular place and table, paid him as Acting Unit
Manager, and promised him of promotion upon
meeting of certain requirements and quotas.
ISSUE:
Is De los Reyes an employee of Insular Life
even if the management contract stipulated him only
as an independent contractor?
RULING:
YES.
Parenthetically, both Insular Life and NLRC
treated the agency contract and the management
contract entered into between Insular Life and De los
Reyes as contracts of agency. We however hold
otherwise.
Unquestionably
there
exist
major
distinctions between the two agreements. While the
first has the earmarks of an agency contract, the
second is far removed from the concept of agency in
that provided therein are conditionalities that indicate
an employer-employee relationship. The NLRC was
correct in finding that De los Reyes was an
employee of Insular Life, but this holds true only
insofar as the management contract is concerned.
It is axiomatic that the existence of an
employer-employee
relationship
cannot
be
negated by expressly repudiating it in the
management contract and providing therein that
the employee is an independent contractor
when the terms of agreement clearly show
otherwise. For, the employment status of a person
is defined and prescribed by law and not by what
the parties say it should be. In determining the
status of the management contract, the four-fold
test on employment earlier mentioned has to be
applied.
The very designation of the appointment of De
los Reyes as acting unit manager obviously implies a
temporary employment status which may be made

permanent only upon compliance with

standards under the management contract.

company

It cannot be validly claimed that the financial

assistance consisting of the free portion of the UDF
was purely dependent on the premium production of
the agent. Be that as it may, it is worth considering
that the payment of compensation by way of
commission does not militate against the conclusion
that De los Reyes was an employee of Insular Life.
Under Art. 97 of the Labor Code, wage shall mean
however designated, capable of being expressed in
terms of money, whether fixed or ascertained on a
time, task, price or commission basis x x x x
De los Reyes duty to collect the companys
premiums using company receipts under the
management contract is further evidence of Insular
Lifes control over De los Reyes.
De los Reyes was appointed Acting Unit
Manager, not agency manager. There is no evidence
that to implement his obligations under the
management contract, De los Reyes had organized an
office. Insular Life in fact has admitted that it provided
De los Reyes a place and a table at its office where he
reported for and worked whenever he was not out in
the field. Under the managership contract, De los
Reyes was obliged to work exclusively for Insular Life
in life insurance solicitation and was imposed
premium production quotas. Of course, the acting unit
manager could not underwrite other lines of insurance
because his Permanent Certificate of Authority was for
life insurance only and for no other. He was proscribed
from accepting a managerial or supervisory position in
any other office including the government without the
written consent of Insular Life. As Acting Unit
Manager, De los Reyes performed functions beyond
mere solicitation of insurance business for Insular
Life. As found by the NLRC, he exercised
administrative functions which were necessary
and beneficial to the business of INSULAR LIFE.
Exclusivity of service, control of assignments
and removal of agents under De los Reyess unit,
collection of premiums, furnishing of company
facilities and materials as well as capital described as
Unit Development Fund are but hallmarks of the
management system in which De los Reyes worked.
This obtaining, there is no escaping the conclusion
that de los Reyes was an employee of Insular Life.

ANGELINA FRANCISCO, PETITIONER, VS.

NATIONAL LABOR RELATIONS COMMISSION,
KASEI CORPORATION, SEIICHIRO TAKAHASHI,
TIMOTEO ACEDO, DELFIN LIZA, IRENE
BALLESTEROS, TRINIDAD LIZA AND RAMON
ESCUETA, RESPONDENTS.
Facts:
In 1995, petitioner was hired by Kasei Corporation
during its incorporation stage. She was designated as
Accountant and Corporate Secretary and was 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.

In 1996, petitioner was designated Acting Manager. In

January 2001, petitioner was replaced by Liza R.
Fuentes as Manager. Petitioner alleged that she was
required to sign a prepared resolution for her
replacement but she was assured that she would still
be connected with Kasei Corporation when in fact she
wasnt.
Issue:
Does the employer-employee relationship
between petitioner and Kasei Corporation?

exist

Held:
Yes. Applying the two-tiered test, the Court ruled that
an employer-employee does exist.
(1) the putative employer's power to control the
employee with respect to the means and methods by
which the work is to be accomplished; and
(2) the underlying economic realities of the activity or
relationship.
By applying the control test, there is no doubt
that petitioner is an employee of Kasei Corporation
because she was under the direct control and
supervision of Seiji Kamura, the corporation's
Technical Consultant. She reported for work regularly
and served in various capacities as Accountant,
Liaison Officer, Technical Consultant, Acting Manager
and Corporate Secretary, with substantially the same
job functions, that is, rendering accounting and tax
services to the company and performing functions
necessary and desirable for the proper operation of
the corporation such as securing business permits and
other licenses over an indefinite period of
engagement.
Under the broader economic reality test, the
petitioner can likewise be said to be an employee of
respondent corporation because she had served the
company for six years before her dismissal, receiving
check vouchers indicating her salaries/wages,
benefits, 13th month pay, bonuses and allowances, as
well as deductions and Social Security contributions
from August 1, 1999 to December 18, 2000.
Petition is granted.

EFREN P. PAGUIO, PETITIONER, VS. NATIONAL

LABOR RELATIONS COMMISSION,
METROMEDIA TIMES CORPORATION, ROBINA
Y. GOKONGWEI, LIBERATO GOMEZ, JR.,
YOLANDA E. ARAGON, FREDERICK D. GO AND
ALDA IGLESIA, RESPONDENTS.
Facts:
Efren P. Paguio was to solicit advertisements
for "The Manila Times," a newspaper of general
circulation, published by respondent company.
Petitioner, for his efforts, was to receive compensation
consisting of a 15% commission on direct
advertisements less withholding tax and a 10%
commission on agency advertisements based on gross

revenues
less
agency
commission
corresponding withholding tax.

and

the

After agreeing in a contract signifying that he

is not an employee of the respondent and his services
may be terminated any time provided that a 30 day
notice is given, he was unceremoniously terminated
without having given the chance to defend himself.
The labor arbiter found for petitioner and
declared his dismissal illegal.
However, the National Labor Relations
Commission (NLRC) reversed the ruling of the labor
arbiter and declared the contractual relationship
between the parties as being for a fixed-term
employment.
Issue:
Is Paguios dismissal legal?
Held:
No. A lawful dismissal must meet both
substantive and procedural requirements; in fine, the
dismissal must be for a just or authorized cause and
must comply with the rudimentary due process of
notice and hearing. It is not shown that respondent
company has fully bothered itself with either of these
requirements in terminating the services of petitioner.
The notice of termination recites no valid or just cause
for the dismissal of petitioner nor does it appear that
he has been given an opportunity to be heard in his
defense.
Petition granted.

GREAT PACIFIC LIFE ASSURANCE

CORPORATION, PETITIONER, VS. HONORATO
JUDICO AND NATIONAL LABOR RELATIONS
COMMISSION, RESPONDENTS.
Facts:
Private respondent Judico entered into an
agreement of agency with petitioner Grepalife to
become a debit agent attached to the industrial life
agency in Cebu City. Sometime in September 1981,
complainant was promoted to the position of Zone
Supervisor and was given additional (supervisor's)
allowance fixed at P110.00 per week. During the third
week of November 1981, he was reverted to his
former position as debit agent but, for unknown
reasons, not paid so-called weekly sales reserve of at
least P200.00. Finally on June 28, 1982, complainant
was dismissed by way of termination of his agency
contract.
Honorato Judico filed a complaint for illegal
dismissal against Grepalife, a duly organized
insurance firm, beforethe NLRC Regional Arbitration
Branch No. VII, Cebu City on August 27, 1982
NLRC ruled that there was no employeremployee relationship but ordered Grepalife to pay the
complainant with P1,000.00 by reason of Christian
Charity.
Issue:

Was there an employer-employee relationship between

Grepalife and Judico?

executed transformed the employerrelationship into that of vendor-vendee.

Held:

The Labor Arbiter rendered judgment in favor of

Villamaria and subsequently the NLRC dismissed
Bustamantes appeal. On appeal, the CA reversed the
NLRCs ruling. Hence this petition.

Yes. We can readily see that the element of

control by the petitioner on Judico was very much
present. The record shows that petitioner Judico
received a definite minimum amount per week as his
wage known as "sales reserve" wherein the failure to
maintain the same would bring him back to a
beginner's employment with a fixed weekly wage of
P200.00 for thirteen weeks regardless of production.
He was assigned a definite place in the office to work
on when he is not in the field; and in addition to his
canvassing work he was burdened with the job of
collection. In both cases he was required to make
regular report to the company regarding this duties,
and for which an anemic performance would mean a
dismissal. Conversely faithful and productive service
earned him a promotion to Zone Supervisor with
additional supervisor's allowance, a definite amount of
P110.00 aside from the regular P200.00 weekly
"allowance". Furthermore, his contract of services
with petitioner is not for a piece of work nor for a
definite period.
Petition denied.

OSCAR VILLAMARIA, JR. PETITIONER,VS.COURT

OF APPEALS AND JERRY V. BUSTAMANTE,
RESPONDENTS.
FACTS:
Petitioner Villamaria employed respondent
driver on boundary-basis. Villamaria verbally agreed
to sell the jeepney to Bustamante under the
"boundary-hulog scheme. On August 7, 1997,
Villamaria executed a contract (Kasunduan) over the
passenger jeepney. The parties agreed that in case
Bustamante failed to remit the daily boundary-hulog
for a period of one week, the Kasunduan would cease
to have legal effect and Bustamante would have to
return the vehicle to Villamaria Motors. Other
prohibitions and regulations that were to be followed
by Bustamante were stipulated in the Kasunduan.
In 1999, Bustamante and other drivers who also
had the same arrangement with Villamaria Motors
failed to pay their respective boundary-hulog. This
prompted Villamaria to serve a "Paalala," reminding
them that under the Kasunduan, failure to pay the
daily boundary-hulog for one week, would mean their
respective jeepneys would be returned to him without
any complaints. On July 24, 2000, Villamaria took back
the jeepney driven by Bustamante and barred the
latter from driving the vehicle.
Thereafter, Bustamante filed a complaint for
Illegal Dismissal against Villamaria with prayer that
judgment be rendered ordering the latter to reinstate
the former with backwages and other money claims
and equitable reliefs.
The spouses Villamaria argued that Bustamante
was not illegally dismissed since the Kasunduan

employee

ISSUE:
WON
the
Kasunduan
transformed
the
relationship of the herein parties from an employeremployee to a vendor-vendee.
RULING:
NO.
Under
the
boundary-hulog
scheme
incorporated in the Kasunduan, a dual juridical
relationship was created between petitioner and
respondent: that of employer-employee and vendorvendee.
The boundary system is a scheme by an
owner/operator engaged in transporting passengers as
a common carrier to primarily govern the
compensation of the driver, that is, the latter's daily
earnings are remitted to the owner/operator less the
excess of the boundary which represents the driver's
compensation. Under this system, the owner/operator
exercises control and supervision over the driver. It is
unlike in lease of chattels where the lessor loses
complete control over the chattel leased but the lessee
is still ultimately responsible for the consequences of
its use. The management of the business is still in the
hands of the owner/operator, who, being the holder of
the certificate of public convenience, must see to it
that the driver follows the route prescribed by the
franchising and regulatory authority, and the rules
promulgated with regard to the business operations.
The fact that the driver does not receive fixed wages
but only the excess of the "boundary" given to the
owner/operator is not sufficient to change the
relationship between them. Indubitably, the driver
performs activities which are usually necessary or
desirable in the usual business or trade of the
owner/operator.
Under the Kasunduan, respondent was required
to remit P550.00 daily to petitioner, an amount which
represented the boundary of petitioner as well as
respondent's partial payment (hulog) of the purchase
price of the jeepney. Respondent was entitled to keep
the excess of his daily earnings as his daily wage.
Thus, the daily remittances also had a dual purpose:
that of petitioner's boundary and respondent's partial
payment (hulog) for the vehicle. This dual purpose was
expressly stated in the Kasunduan. The well- settled
rule is that an obligation is not novated by an
instrument that expressly recognizes the old one,
changes only the terms of payment, and adds other
obligations not incompatible with the old provisions or
where the new contract merely supplements the
previous one. The two obligations of the respondent to
remit to petitioner the boundary-hulog can stand
together.
The juridical relationship of employer-employee
between petitioner and respondent was not negated
by the foregoing stipulation in the Kasunduan,
considering that petitioner retained control of
respondent's conduct as driver of the vehicle. As
correctly ruled by the CA: The exercise of control by

private respondent over petitioner's conduct in

operating the jeepney he was driving is inconsistent
with private respondent's claim that he is, or was, not
engaged in the transportation business; that, even if
petitioner was allowed to let some other person drive
the unit, it was not shown that he did so; that the
existence of an employment relation is not
dependent on how the worker is paid but on the
presence or absence of control over the means
and method of the work; that the amount earned
in excess of the "boundary hulog" is equivalent to
wages; and that the fact that the power of
dismissal was not mentioned in the Kasunduan
did not mean that private respondent never
exercised such power, or could not exercise such
power.

VICENTE SY ET. AL. v. COURT OF APPEALS

G.R. No. 142293, February 27, 2003, SECOND
DIVISION, (QUISUMBING, J.)
Facts
Jaime Sahot started working as a truck helper
for family-owned trucking business named Vicente Sy
Trucking. In 1965, it was renamed T. Paulino Trucking
Service, later 6Bs Trucking Corporation in 1985, and
thereafter known as SBT Trucking Corporation since
1994. He worked for the company for 36 years. When
Sahot was already 59 years old, he was suffering
various ailments causing pain on his left thigh. He
inquired to SSS about his medical and retirement
benefits but he discovered that his employer did not
remit payments. He had filed a week long leave from
work to be treated and filed an extension of leave for
another month. He was threatened to be terminated if
he will not report to work. The threat was carried out
and he was terminated.
Sahot filed with the NLRC a complaint for
illegal dismissal. He prayed for the recovery of
separation pay and attorneys fees against Vicente Sy
et al. The latter argued that Sahot was not an
employee before 1994 but was an industrial partner.
They alleged that only in the year of 1994 that he
became an employee. The Labor Arbiter declared that
there was no illegal dismissal. On appeal in NLRC, it
held that Sahot was an employee since the start. Sy et
al. appealed to the CA. The CA affirmed the NLRCs
decision and modified the award that was based from
29 years to 36 years of service. Hence, this petition.
ISSUE:
1) Did an employer-employee
exist between Sy and Sahot?

relationship

2) Was Sahot validly terminated?

HELD:
YES.
FIRST. 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.
As found by the appellate court, petitioners
owned and operated a trucking business since the
1950s and by their own allegations, they determined
private respondents wages and rest day.[20] Records
of the case show that private respondent actually
engaged in work as an employee. During the entire
course of his employment he did not have the freedom
to determine where he would go, what he would do,
and how he would do it. He merely followed
instructions of petitioners and was content to do so, as
long as he was paid his wages. Indeed, said the CA,
private respondent had worked as a truck helper and
driver of petitioners not for his own pleasure but
under the latters control.
Article 1767 of the Civil Code states that in a
contract of partnership two or more persons bind
themselves to contribute money, property or industry
to a common fund, with the intention of dividing the
profits among themselves. Not one of these
circumstances is present in this case. No written
agreement exists to prove the partnership between
the parties. Private respondent did not contribute
money, property or industry for the purpose of
engaging in the supposed business. There is no proof
that he was receiving a share in the profits as a matter
of course, during the period when the trucking
business was under operation. Neither is there any
proof that he had actively participated in the
management, administration and adoption of policies
of the business. Thus, the NLRC and the CA did not
err in reversing the finding of the Labor Arbiter that
private respondent was an industrial partner from
1958 to 1994.
On this point, we affirm the findings of the
appellate court and the NLRC. Private respondent
Jaime Sahot was not an industrial partner but an
employee of petitioners from 1958 to 1994. The
existence of an employer-employee relationship is
ultimately a question of fact[23] and the findings
thereon by the NLRC, as affirmed by the Court of
Appeals, deserve not only respect but finality when
supported by substantial evidence. Substantial
evidence is such amount of relevant evidence which a
reasonable mind might accept as adequate to justify a
conclusion.
Time and again this Court has said that if
doubt exists between the evidence presented by the
employer and the employee, the scales of justice must
be tilted in favor of the latter. Here, we entertain no
doubt. Private respondent since the beginning was an
employee of, not an industrial partner in, the trucking
business.
SECOND. In termination cases, the burden is upon
the employer to show by substantial evidence that the
termination was for lawful cause and validly made.
Article 277(b) of the Labor Code puts the burden of
proving that the dismissal of an employee was for a
valid or authorized cause on the employer, without
distinction whether the employer admits or does not
admit the dismissal.[29] For an employees dismissal
to be valid, (a) the dismissal must be for a valid cause
and (b) the employee must be afforded due process.

[30] Article 284 of the Labor Code authorizes an

employer to terminate an employee on the ground of
disease, viz:
Art. 284. Disease as a ground
for termination- An employer may
terminate the services of an employee
who has been found to be suffering
from any disease and whose continued
employment is prohibited by law or
prejudicial to his health as well as the
health of his co-employees:
However, in order to validly terminate
employment on this ground, Book VI, Rule I, Section 8
of the Omnibus Implementing Rules of the Labor Code
requires:
Sec. 8. Disease as a ground for
dismissal- Where the employee suffers
from a disease and his continued
employment is prohibited by law or
prejudicial to his health or to the
health of his co-employees, the
employer shall not terminate his
employment
unless
there
is
a
certification by competent public
health authority that the disease is of
such nature or at such a stage that it
cannot be cured within a period of six
(6) months even with proper medical
treatment. If the disease or ailment
can be cured within the period, the
employer shall not terminate the
employee but shall ask the employee
to take a leave. The employer shall
reinstate such employee to his former
position
immediately
upon
the
restoration of his normal health.
(Italics supplied).
In the case at bar, the employer clearly did not
comply with the medical certificate requirement
before Sahots dismissal was effected.
In addition, we must likewise determine if the
procedural aspect of due process had been complied
with by the employer. From the records, it clearly
appears that procedural due process was not observed
in the separation of private respondent by the
management of the trucking company. The employer is
required to furnish an employee with two written
notices before the latter is dismissed: (1) the notice to
apprise the employee of the particular acts or
omissions for which his dismissal is sought, which is
the equivalent of a charge; and (2) the notice
informing the employee of his dismissal, to be issued
after the employee has been given reasonable
opportunity to answer and to be heard on his defense.
These, the petitioners failed to do, even only for
record purposes. What management did was to
threaten the employee with dismissal, then actually
implement the threat when the occasion presented
itself because of private respondents painful left
thigh. All told, both the substantive and procedural
aspects of due process were violated. Clearly,
therefore, Sahots dismissal is tainted with invalidity.
WHEREFORE, the petition is DENIED and the
decision of the Court of Appeals dated February 29,

2000 is AFFIRMED. Petitioners must pay private

respondent Jaime Sahot his separation pay for 36
years of service at the rate of one-half monthly pay for
every year of service, amounting to P74,880.00, with
interest of six per centum (6%) per annum from
finality of this decision until fully paid.

MAKATI HABERDASHERY, INC. et al. v. NLRC, et

al.
G.R. Nos. 83380-81, 15 November 1989, THIRD
DIVISION, (Fernan, C.J.)
Facts
The private respondents herein have been
working for Makati Haberdashery, Inc. (MHI) as
tailors, seamstress, sewers,basters (manlililip) and
"plantsadoras". They are paid on a piece-rate basis
except Maria Angeles and Leonila Serafina who are
paid on a monthly basis. They are also given a daily
allowance of P3.00 provided they report for work
before 9:30 a.m. everyday. They are required to work
from or before 9:30 a.m. up to 6:00 or 7:00 p.m. from
Monday to Saturday and during peak periods even on
Sundays and holidays.
On 1984, the Sandigan ng Manggagawang
Pilipino, a labor organization of the workers, filed a
complaint for (a) underpayment of the basic wage, and
living allowance; (b) non-payment of overtime work,
holiday pay, service incentive pay, 13th month pay;
and (c) other benefits provided for under some Wage
Orders.
During the pendency of the first case, Dioscoro
Pelobello left with Salvador Rivera, a salesman of
MHI, an open package, which was discovered to
contain a "jusi" barong tagalog. When confronted,
Pelobello replied that the same was ordered by
Casimiro Zapata for his customer. Zapata allegedly
admitted that he copied the design of MHI. But in the
afternoon, when again questioned about said barong,
Pelobello and Zapata denied ownership of the same.
Consequently a memorandum was issued to them to
explain why no action should be taken against them
for accepting a job order which is prejudicial and in
direct competition with the business of the company.
Both allegedly did not submit their explanation and
did not report for work. Hence, they were dismissed
by MHI. They filed a complaint for illegal dismissal.
Labor Arbiter Ceferina J. Diosana found MHI
guilty of illegal dismissal, of violating the decrees on
the cost of living allowance, service incentive leave
pay and the 13th Month Pay but dismissed the claims
for underpayment re violation of the minimum wage
law for lack of merit. The NLRC affirmed the LAs
decision.
ISSUE:
Is there employer-employee relationship existing
between MHI and the respondent workers?
RULING:
YES.
We have repeatedly held in countless decisions
that the test of employer-employee relationship is
four-fold: (1) the selection and engagement of the

employee; (2) the payment of wages; (3) the power of

dismissal; and (4) the power to control the employee's
conduct. It is the so-called "control test" that is the
most important element.
This simply means the determination of
whether the employer controls or has reserved the
right to control the employee not only as to the result
of the work but also as to the means and method by
which the same is to be accomplished.
The facts at bar indubitably reveal that the
most important requisite of control is present. As
gleaned from the operations of MHI, when a customer
enters into a contract with the haberdashery or its
proprietor, MHI directs an employee who may be a
tailor, pattern maker, sewer or "plantsadora" to take
the customer's measurements, and to sew the pants,
coat or shirt as specified by the customer. Supervision
is actively manifested in all these aspects -- the
manner and quality of cutting, sewing and ironing.
From the memorandum alone, it is evident
that MHI has reserved the right to control its
employees not only as to the result but also the means
and methods by which the same are to be
accomplished. That private respondents are regular
employees is further proven by the fact that they have
to report for work regularly from 9:30 a.m. to 6:00 or
7:00 p.m. and are paid an additional allowance of
P3.00 daily if they report for work before 9:30 a.m.
and which is forfeited when they arrive at or after
9:30 a.m.
Since private respondents are regular
employees, necessarily the argument that they are
independent contractors must fail. As established in
the preceding paragraphs, private respondents did not
exercise independence in their own methods, but on
the contrary were subject to the control of petitioners
from the beginning of their tasks to their completion.
Unlike independent contractors who generally
rely on their own resources, the equipment, tools,
accessories and paraphernalia used by private
respondents are supplied and owned by MHI. Private
respondents are totally dependent on petitioners in all
these aspects.
Coming now to the second issue, there is no
dispute that private respondents are entitled to the
Minimum Wage. But the records show that private
respondents did not appeal the above ruling of the
Labor Arbiter to the NLRC; neither did they file any
petition raising that issue in the Supreme Court.
Accordingly, insofar as this case is concerned, that
issue has been laid to rest.
As a consequence of their status as regular
employees of the petitioners, they can claim cost of
living allowance. Private respondents are also entitled
to claim their 13th Month Pay under Section 3(e) of
the Rules and Regulations Implementing P.D. No. 851.
However, they are not entitled to service incentive
leave pay and holiday pay because as piece-rate
workers being paid at a fixed amount for performing
work irrespective of time consumed in the
performance thereof.
It shows that a violation of the employer's
rules has been committed and the evidence of such
transgression, the copied barong tagalog, was in the
possession of Pelobello who pointed to Zapata as the

owner. When required by their employer to explain in

a memorandum issued to each of them, they not only
failed to do so but instead went on AWOL, waited for
the period to explain to expire and for MHI to dismiss
them. They thereafter filed an action for illegal
dismissal on the far-fetched ground that they were
dismissed because of union activities. Assuming that
such acts do not constitute, abandonment of their jobs
as insisted by private respondents, their blatant
disregard of their employer's memorandum is
undoubtedly an open defiance to the lawful orders of
the latter, a justifiable ground for termination of
employment by the employer expressly provided for in
Article 283(a) of the Labor Code as well as a clear
indication of guilt for the commission of acts inimical
to the interests of the employer, another justifiable
ground for dismissal under the same Article of the
Labor Code, paragraph (c). Well established in our
jurisprudence is the right of an employer to
dismiss an employee whose continuance in the
service is inimical to the employer's interest.
Under the circumstances, it is evident that
there is no illegal dismissal of said employees. The law
in protecting the rights of the laborer authorizes
neither oppression nor self-destruction of the
employer. More importantly, while the Constitution is
committed to the policy of social justice and the
protection of the working class, it should not be
supposed
that
every
labor
dispute
will
automatically be decided in favor of labor.
It has been established that the right to
dismiss
or
otherwise
impose
disciplinary
sanctions upon an employee for just and valid
cause, pertains in the first place to the employer,
as well as the authority to determine the
existence of said cause in accordance with the
norms of due process.

ALEJANDRO MARAGUINOT, JR. AND PAULINO

ENERO V. NATIONAL LABOR RELATIONS
COMMISSION (SECOND DIVISION) COMPOSED
OF PRESIDING COMMISSIONER RAUL T.
AQUINO, COMMISSIONER ROGELIO RAYALA
AND COMISSIONER VICTORIANO CALAYCAY,
VIC DEL ROSARIO AND VIVA FILMS
G.R. No. 120969, January 22, 1998, DAVIDE, JR.
Facts
Petitioners Maraguinot and Enero maintains
that they were employed as a members of the filming
crew. Their tasks consisted of loading, unloading and
arranging movie equipment in the shooting area as
instructed by the cameraman, returning the
equipment to Viva Films warehouse, assisting in the
fixing of the lighting system, and performing other
tasks that the cameraman and/or director may assign.
In May 1992, petitioners sought the assistance of their
supervisor, Mrs. Alejandria Cesario, to facilitate their
request that private respondents adjust their salary in
accordance with the minimum wage law. On June
1992, Mrs. Cesario informed petitioners that Mr. Vic
del Rosario would agree to increase their salary only if
they signed a blank employment contract. Both
petitioners refused to sign, respondents forced Enero
to go on leave. However, when here ported to work,

respondent refused to take him back. Maraguinot was

dropped from the company payroll but when his name
was again included in such, he was again asked to
sign a blank employment contract, and when he still
refused, respondents terminated his services.
Petitioners thus sued for illegal dismissal.
Private respondents claim that Viva Films is
primarily engaged in the distribution and exhibition of
movies -- but not in the business of making movies; in
the same vein, private respondent Vic Del Rosario is
merely an executive producer, i.e., the financier who
invests a certain sum of money for the production of
movies distributed and exhibited by VIVA. Private
respondents assert that they contract persons called
producers
--also
referred
to
as
associate
producers-- to produce or make movies for private
respondents. Petitioners are project employees of
the associate producers who, in turn, act as
independent contractors. As such, there is no
employer-employee relationship. The labor arbiter
ruled in favor of the petitioners. On appeal, the NLRC
reversed the decision hence, this appeal.
Issues
WON there is an employer
relationship between petitioners
respondents

- employee
and private

Decision
Yes. Petitioners cannot be considered as
project employees of associate producers who, in turn,
act as independent contractors. It is settled that the
contracting out of labor is allowed only in case of job
contracting. According to Sec. 8 rule 8 book 3 of the
Omnibus Rules Implementing the Labor Code such is
only permissible when (1) The contractor carries on an
independent business and undertakes the contract
work on his own account under his own responsibility
according to his own manner and method free from
the control and direction of his employer or principal
in all matters connected with the performance of the
work except as to the results thereof and (2) The
contractor has substantial capital or investment in the
form of tools, equipment, machineries, work premises,
and other materials which are necessary in the
conduct of his business. In the case associate
producers do not have the equipment; in fact, it is
VIVA itself who supplies the movie-making equipment.
The associate producers of VIVA cannot be considered
labor-only contractors as they did not supply, recruit
nor hire the workers. It was Cesario, the Shooting
Supervisor of VIVA, who recruited crew members.
Thus, the relationship between VIVA and its producers
or associate producers seems to be that of agency. The
latter make movies on behalf of VIVA, whose business
is to make movies. As such, the employment
relationship between petitioners and producers is
actually one between petitioners and VIVA, with the
latter being the direct employer.
The employer-employee relationship between
petitioners and VIVA can further be established by the
control test. While four elements are usually
considered in determining the existence of an
employment relationship, namely: (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 the same. All of which are
present in the case. The movie project must be
finished within schedule without exceeding the
budget, and additional expenses must be justified;
certain scenes are subject to change to suit the taste
of the company; and the Supervising Producer, the
eyes and ears of VIVA and del Rosario, intervenes in
the movie-making process by assisting the associate
producer in solving problems encountered in making
the film.
Regarding the Illegal Dismissal, petitioners
although admitted that they were hired as project
employees, they had attained the status of regular
employees in view of VIVAs conduct. A project
employee or a member of a work pool may acquire the
status of a regular employee when the following
concur: (1) There is a continuous rehiring of project
employees even after cessation of a project; and (2)
The tasks performed by the alleged project
employee are vital, necessary and indispensable to
the usual business or trade of the employer.
The evidence on record shows that petitioner
Enero was employed for a total of two (2) years and
engaged in at least eighteen (18) projects, while
petitioner Maraguinot was employed for some three
(3) years and worked on at least twenty-three (23)
projects. Moreover, as petitioners tasks involved,
among other chores, the loading, unloading and
arranging of movie equipment in the shooting area as
instructed by the cameramen, returning the
equipment to the Viva Films warehouse, and assisting
in the fixing of the lighting system, it may not be
gainsaid that these tasks were vital, necessary and
indispensable to the usual business or trade of the
employer.
As petitioners had already gained the status of
regular employees, their dismissal was unwarranted,
for the cause invoked by private respondents for
petitioners dismissal, viz., completion of project, was
not, as to them, a valid cause for dismissal under
Article 282 of the Labor Code. As such, petitioners are
now entitled to back wages and reinstatement,
without loss of seniority rights and other benefit s that
may have accrued.
PETITION GRANTED
NOTE:

A work pool may exist although the workers in

the pool do not receive salaries and are free to
seek other employment during temporary
breaks in the business, provided that the
worker shall be available when called to report
for a project. Although primarily applicable to
regular seasonal workers, this set-up can
likewise be applied to project workers insofar
as the effect of temporary cessation of work is
concerned. This is beneficial to both the
employer and employee for it prevents the
unjust situation of coddling labor at the
expense of capital and at the same time
enables the workers to attain the status of
regular employees.

Truly, the cessation of construction activities

at the end of every project is a foreseeable
suspension
of
work.
Of
course,
no
compensation can be demanded from the
employer because the stoppage of operations
at the end of a project and before the start of a
new one is regular and expected by both
parties to the labor relations. Similar to the
case of regular seasonal employees, the
employment relation is not severed by merely
being suspended. [citing Manila Hotel Co. v.
CIR, 9 SCRA 186 (1963)] The employees are,
strictly speaking, not separated from
services but merely on leave of absence
without pay until they are reemployed.
Thus we cannot affirm the argument that nonpayment of salary or non-inclusion in the
payroll and the opportunity to seek other
employment denote project employment.

amended, which defines an employer as any person

acting in the interest of an employer, directly or
indirectly. Following a careful scrutiny of the said
provision, the Court concludes that the law does not
require an employer to be registered before he may
come within the purview of the Labor Code, consistent
with the established rule in statutory construction that
when the law does not distinguish, we should not
distinguish. To do otherwise would bring about a
situation whereby employees are denied, not only
redress of their grievances, but, more importantly, the
protection and benefits accorded to them by law if
their employer happens to be an unregistered
association.

ORLANDO FARM GROWERS

ASSOCIATION/GLICERIO AOVER v. NLRC et al.
G.R. No. 129076, November 25, 1998, THIRD
DIVISION (Romero, J.)

The following circumstances which support

the existence of employer-employee relations cannot
be denied. During the subsistence of the association,
several circulars and memoranda were issued
concerning, among other things, absences without
formal request, loitering in the work area and
disciplinary measures with which every worker is
enjoined to comply. Furthermore, the employees were
issued identification cards. However, what makes the
relationship explicit is the power of the petitioner to
enter into compromise agreements involving money
claims filed by three employees.

Facts
Orlando Farms Growers Association, with copetitioner Glicerio Aover as its President, is an
association of landowners engaged in the production
of export quality bananas, established for the sole
purpose of dealing collectively with Stanfilco on
matters
concerning
technical
services,
canal
maintenance, irrigation and pest control, among
others. Respondents, on the other hand, were hired as
farm workers by several member-landowners but,
nonetheless, were made to perform functions as
packers and harvesters in the plantation of Orlando
Farm. Respondents were dismissed and several
complaints were filed against Orlando Farm for illegal
dismissal and monetary benefits.
Petitioner alleged that the NLRC erred in
finding that respondents were its employees and not
of the individual landowners which fact can easily be
deduced from the payments made by the latter of
respondent's
Social
Security
System
(SSS)
contributions. Moreover, it could have never exercised
the power of control over them with regard to the
manner and method by which the work was to be
accomplished, which authority remain vested with the
landowners despite becoming members thereof.
ISSUE:
Can an unregistered association be an
employer independent of the respective members it
represents?
HELD:
Yes. The contention that petitioner, being an
unregistered association and having been formed
solely to serve as an effective medium for dealing
collectively with Stanfilco, does not exist in law and,
therefore, cannot be considered an employer, is
misleading.
This assertion can easily be dismissed by
reference to Article 212(e) of the Labor Code, as

To reiterate, the following are generally

considered in the determination of the existence of an
employer-employee relationship: (1) the manner of
selection and engagement; (2) the payment of wages;
(3) the presence or absence of the power of dismissal;
and (4) the presence or absence of the power of
control; of these four, the last one being the most
important.