CASES

G.R. No. 170139 August 5, 2014

SAMEER OVERSEAS PLACEMENT AGENCY, INC., Petitioner, vs. JOY C. CABILES, Respondent.

CONCURRING AND DISSENTING OPINION

BRION, J.:

I concur with the ponencia's conclusion that respondent Joy C. Cabiles was illegally dismissed for lack of valid cause and due process.

I likewise concur with the conclusion that Section 10 of Republic Act (R.A.) No. 8042 (Migrant Workers and Overseas Filipino Act of
1995),1 as reinstated by R.A. No. 10022,2 is unconstitutional in so far as it provides that:

In case of termination of overseas employment without just, valid or authorized cause as defined by law or contract, the workers
shall be entitled to the full reimbursement of his placement fee with interest of twelve (12%) per annum, plus his salaries for the
unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever is less.
[Emphasis and italics ours]

My conclusion on the constitutionality of the above-quoted clause (subject clause) of Section 10, R.A. No. 8042, however, proceeds
from a different reason and constitutional basis. I maintain the view that the subject clause should be struck down for violation of
the constitutional provisions in favor of labor, under Section 3, Article XIII, and of the substantive aspect of the due process clause,
under Section 1, Article III.

Thus, I take exception to the ponencia's full adoption of the ruling in Serrano v. Gallant Maritime Services, Inc., et al. 3 to the extent
that it applies the strict scrutiny standard in invoking the equal protection guarantee. To my mind, the circumstances of this case do
not justify the ponencia's approach of extending and expanding the use of the strict scrutiny standard in invalidating the subject
clause (as reinstated in R.A. No. 8042 by R.A. No. 10022). The conclusion that the subject clause created a "suspect" classification is
simply misplaced.

The approach, sadly, only unnecessarily shifted the burden to the government, to prove: (1) a compelling state interest; and (2) that
the legislation is narrowly tailored to achieve the intended result. It also unnecessarily undermines the presumed constitutionality of
statutes and of the respect that the Court accords to the acts of a co-equal branch. The differential or rational basis scrutiny, i.e.,
where the challenged classification needs only be shown to be rationally related to serving a legitimate state interest, would have
undoubtedly served the purpose without bringing these unnecessary implications.

As I maintain the same view and legal reasoning, and if only to emphasize my position in the present case, I quote below portions of
my Concurring Opinion in Serrano v. Gallant Maritime Services, Inc., et al. (Serrano Opinion)4rejecting the validity of using the strict
scrutiny standard to test the validity of the subject clause under the equal protection guarantee. I invoke the same legal reasoning as
basis, mutatis mutandis, of my stance in the present case.

A suspect classification is one where distinctions are made based on the most invidious bases for classification that violate the most
basic human rights, i.e., on the basis of race, national origin, alien status, religious affiliation, and to a certain extent, sex and sexual
orientation. With a suspect classification, the scrutiny of the classification is raised to its highest level: the ordinary presumption of
constitutionality is reversed and government carries the burden of proving that its challenged policy is constitutional. To withstand
strict scrutiny, the government must show that its policy is necessary to achieve a compelling state interest; if this is proven, the
state must then demonstrate that the legislation is narrowly tailored to achieve the intended result.

In the present case, I do not see the slightest indication that Congress actually intended to classify OFWs– between and among
themselves, and in relation with local workers – when it adopted the disputed portion of Section 10. The congressional intent was to
merely grant recruitment and manning agencies an incentive and thereby encourage them into greater deployment efforts,
although, as discussed above, the incentive really works for the foreign principals’ benefit at the expense of the OFWs.

1
Even assuming that a classification resulted from the law, the classification should not immediately be characterized as a suspect
classification that would invite the application of the strict scrutiny standard. The disputed portion of Section 10 does not, on its
face, restrict or curtail the civil and human rights of any single group of OFWs. At best, the disputed portion limits the monetary
award for wrongful termination of employment – a tort situation affecting an OFW’s economic interest. This characterization and
the unintended classification that unwittingly results from the incentive scheme under Section 10, to my mind, render a strict
scrutiny disproportionate to the circumstances to which it is applied. I believe, too, that we should tread lightly in further expanding
the concept of suspect classification after we have done so in Central Bank, where we held that classifications that result in prejudice
to persons accorded special protection by the Constitution requires a stricter judicial scrutiny. The use of a suspect classification
label cannot depend solely on whether the Constitution has accorded special protection to a specified sector. While the Constitution
specially mentions labor as a sector that needs special protection, the involvement of or relationship to labor, by itself, cannot
automatically trigger a suspect classification and the accompanying strict scrutiny; much should depend on the circumstances of the
case, on the impact of the illegal differential treatment on the sector involved, on the needed protection, and on the impact of
recognizing a suspect classification on future situations. In other words, we should carefully calibrate our moves when faced with an
equal protection situation so that we do not misappreciate the essence of what a suspect classification is, and thereby lessen its
jurisprudential impact and value. Reserving this approach to the worst cases of unacceptable classification and discrimination
highlights the importance of striking at these types of unequal treatment and is a lesson that will not be lost on all concerned,
particularly the larger public. There is the added reason, too, that the reverse onus that a strict scrutiny brings directly strikes, in the
most glaring manner, atthe regularity of the performance of functions of a co-equal branch of government; inter-government
harmony and courtesy demand that we reserve this type of treatment to the worst violations of the Constitution.

Incidentally, I believe that we can arrive at the same conclusion and similarly strike down the disputed Section 10 by using the
lowest level of scrutiny, thereby rendering the use of the strict scrutiny unnecessary. Given the OSG’s positions, the resulting
differential treatment the law fosters between Philippine-based workers and OFWs in illegal dismissal situations does not reston
substantial distinctions that are germane to the purpose of the law. No reasonable basis for classification exists since the distinctions
the OSG pointed out do not justify the different treatment of OFWs and Philippine-based workers, specifically, why one class should
be excepted from the consequences of illegal termination under the Labor Code, while the other is not.

To be sure, the difference in work locations and working conditions that the OSG pointed out are not valid grounds for distinctions
that should matter in the enforcement of employment contracts. Whether in the Philippines or elsewhere, the integrity of contracts
– be they labor, commercial or political – is a zealously guarded value that we in the Philippines should not demean by allowing a
breach of OFW contracts easy to undertake. This is true whatever may be the duration or character of employment; employment
contracts, whatever their term and conditions may be subject only to their consistency with the law, must be respected during the
whole contracted term and under the conditions agreed upon.

Significantly, the OSG could not even point to any reason other than the protection of recruitment agencies and the expansion of the
Philippine overseas program as justification for the limitation of liability that has effectively distinguished OFWs from locally-based
workers. These reasons, unfortunately, are not on the same plane as protection to labor in our constitutional hierarchy of values.
Even RA 8042 repeats that "the State does not promote overseas employment as a means to sustain economic growth and national
development." Under RA 8042’s own terms, the overseas employment program exists only for OFW protection. Thus viewed, the
expansion of the Philippine overseas deployment program and the need for incentives to achieve results are simply not valid reasons
to justify a classification, particularly when the incentive is in the form of oppressive and confiscatory limitation of liability
detrimental to labor. No valid basis for classification thus exists to justify the differential treatment that resulted from the disputed
Section 10.5

In this regard, I likewise reiterate my reasons and explanation for striking down the subject clause on the ground that it violates the
constitutional provisions in favor of labor and the substantive aspect of the due process clause.

For proper perspective, I quote below the pertinent constitutional provision that secures a special status and treatment in favor of
labor.
Article XIII
xxxx
Section 18. 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.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted
activities, including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of
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work, and a living wage. They shall also participate in policy and decision-making processes affecting their rights and benefits as may
be provided by law.

The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary
modes in settling disputes, including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of
production and the right of enterprises to reasonable returns to investments, and to expansion and growth.

This constitutional protection afforded to labor articulates in clearer and more concrete terms the constitutional policy under
Section 18, Article II that declares and affirms labor as a primary social economic force aimed at protecting the rights of workers and
promoting their welfare.

On the other hand, R.A. No. 8042 provides, among others:

(b) 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. Towards this end, the State shall provide adequate and timely social, economic and
legal services to Filipino migrant workers.
xxxx
(e) Free access to the courts and quasi-judicial bodies and adequate legal assistance shall not be denied to any person by reason of
poverty. In this regard, it is imperative that an effective mechanism be instituted to ensure that the rights and interests of distressed
overseas Filipinos, in general, and Filipino migrant workers, in particular, documented or undocumented, are adequately protected
and safeguarded.

Under these terms, R.A. No. 8042 is discernibly a piece of social legislation that the State enacted in the exercise of its police power,
precisely to give teeth and arms to the constitutional provisions on labor under its aim to "establish a higher standard of protection
and promotion of the welfare of migrant worker, their families and of overseas Filipinos in distress." 6 Otherwise stated, it draws
power and life from the constitutional provisions that it seeks to concretize and implement.

As I pointed out in my Serrano Opinion, "the express policy declarations of R.A. No. 8042 show that its purposes are reiterations of
the very same policies enshrined in the Constitution x x x [They] patently characterize R.A. No. 8042 as a direct implementation of
the constitutional objectives on Filipino overseas work so that it must be read and understood in terms of these policy objectives.
Under this interpretative guide, any provision in R.A. No. 8042 inimical to the interest of an overseas Filipino worker (OFW) cannot
have any place in the law."7 [Underscoring supplied]

Note also (again, as I reflected in my Serrano Opinion) that while R.A. No. 8042 acknowledges that the State shall "promote full
employment,"it likewise provides that "the State does not promote overseas employment as a means to sustain economic growth
and national development. The existence of overseas employment program rests solely on the assurance that the dignity and
fundamental human rights and freedom of Filipino citizens shall not, at any time, be compromised and violated." 8 The Act, however,
concludes its Declaration of Policies by stating that "[n]onetheless, the deployment of Filipino overseas workers, whether land based
or sea-based, by local service contractors and manning agencies employing them shall be encouraged. Appropriate incentives may
be extended to them."9 [Underscoring supplied] Thus, the Act recognizes that to encourage greater deployment efforts, "incentives"
can be given, BUT, to service contractors and manning agencies ONLY.10 Contractors’ and agencies’ principals ,i.e., the foreign
employers in whose behalf the contractors and agencies recruit OFWs are not among those to whom incentives can be given as they
are not mentioned at all in the Act.11

Of particular importance to the present case is Section 10 of R.A. No. 8042 which governs the OFWs’ money claims.12 Pursuant to its
terms, the Act obviously protects the OFW as against the employer and the recruitment agency in cases of unlawful termination of
service. Unfortunately, it limits the liability to the "reimbursement of the placement fee and interest, and the payment of his salaries
for the unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever is
less."13

This limitation is a step backward as it imposes a cap on the liability of the foreign principal/employer and the
contractor/recruitment agency even as it earlier declared their liability joint and solidary. 14 To be an "appropriate incentive," this
limitation of liability can only be justified under the terms of the law, i.e., "the incentive must necessarily relate to the law’s purpose
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with reasonable expectation that it would serve this purpose; it must also accrue to its intended beneficiaries (the
recruitment/placement agencies), and not to parties to whom the reason for the grant does not apply." 15

Viewed in this light, the subject clause can only pass constitutional muster if it shows: (1) a lawful purpose; and (2) lawful means to
achieve the lawful purpose.

On the lawful purpose requirement, the policy of extending incentives to local service contractors and manning agencies to
encourage greater efforts at securing work for OFWs is, undeniably, constitutionally valid. There is nothing inherently
unconstitutional in providing such incentives for not only are local service contractors and manning agencies significant stakeholders
in the government’s overseas employment program;16 the Constitution itself also expressly recognizes "the right of labor to its just
share in the fruits of production and the right to reasonable returns on investments, and expansion and growth."17 [Underscoring
supplied]

On the lawful means requirement, i.e., whether the means employed to achieve the purpose of encouraging recruitment efforts
(through the incentive granted of limiting the liability of recruitment/manning agencies for illegal dismissals) is reasonable, the
subject clause obviously fails.

First, as I pointed out in my Serrano Opinion, Section 10 of R.A. No. 8042 provides measures that collectively protect OFWs, i.e.,by
ensuring the integrity of their contracts; by establishing the responsible parties; and by providing the mechanisms for their
enforcement that imposes direct and primary liability to the foreign principal employer.18 Yet, Section 10 presents a hidden twist
affecting the principal/employer’s liability. As worded, the Act "simply limits the OFWs’ recovery in wrongful dismissal situations.
Thus, it redounds to the benefit of whoever may be liable, including the principal/employer – the direct employer primarily liable for
the wrongful dismissal."19

From this perspective, Section 10 actually limits what is otherwise the foreign principal/employer’s full liability under the Act and
exceeds what the Act intended – to grant incentives to recruitment/manning agencies.20 "Section 10, in short, really operates to
benefit the wrong party and allows that party, without justifiable reason, to mitigate its liability for wrongful dismissals." 21 [Emphasis
supplied] "Because of this hidden twist, the limitation of liability under Section 10 cannot be an "appropriate"
incentive."22 [Underscoring supplied] Second, the chosen mode of granting the incentive, i.e., the liability limitation for wrongful
dismissals of already deployed OFWs, effectively imposed, with legal sanction, a partial condonation of the foreign
principal/employer’s liability to OFWs.23 The incentive, therefore, "from a more practical and realistic view, is really part of a scheme
to sell Filipino overseas labor at a bargain for purposes solely of attracting the market," 24 a scheme that sadly reduces our OFW s to
mere cash cows.

And third, the "incentive scheme" effectively benefits the recruitment/manning agencies and foreign principal/employer at the
expense of the OFWs from whom the salaries for the unexpired portion of the contract are taken and to whom these salaries
rightfully belong.25 In effect, "the principals/employers and the recruitment/manning agencies profit from their violation of the
security of tenure that an employment contract embodies."26 The OFWs, on the other hand, are afforded lesser protection because:
(1) they are afforded reduced recovery by operation of law; (2) the reduced recovery renders wrongful dismissal situations more
alluring, easier to facilitate and less onerous to undertake which foreign employers will most certainly consider in termination of
employment decisions.27

These inimical effects obviously will remain as long as the subject clause remains in Section 10 of R.A. No. 8042, this time as
reinstated by R.A. No. 10022. The "inherently oppressive, arbitrary, confiscatory and inimical provision [under Section 10 of R.A. No.
8042 should, therefore,] be struck down for its conflict with the substantive aspect of the constitutional due process
guarantee.28 Thus, I vote to declare as unconstitutional the phrase "for three (3) months for every year of the unexpired terms,
whichever is less" in the fifth and final paragraph of Section 10 of R.A. 8042."

In sum, given these considerations and conclusions, further testing the validity of the assailed clause under the equal protection
guarantee, particularly under the strict scrutiny standard that the ponencia in the present case deemed appropriate to employ, is
clearly unnecessary.

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G.R. No. 109835 November 22, 1993
JMM PROMOTIONS & MANAGEMENT, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and ULPIANO L. DE LOS
SANTOS, respondent.

CRUZ, J.:

The sole issue submitted in this case is the validity of the order of respondent National Labor Relations Commission dated October
30, 1992, dismissing the petitioner's appeal from a decision of the Philippine Overseas Employment Administration on the ground of
failure to post the required appeal bond.1

The respondent cited the second paragraph of Article 223 of the Labor Code as amended, providing that:

In the case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the
posting of a cash or surety bond issued by a reputable bonding company duly accredited by the Commission in an
amount equivalent to the monetary award in the judgment appealed from.

and Rule VI, Section 6 of the new Rules of Procedure of the NLRC, as amended, reading as follows:

Sec. 6. Bond — In case the decision of a Labor Arbiter involves a monetary award, an appeal by the employer shall
be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly
accredited by the Commission or the Supreme Court in an amount equivalent to the monetary award.

The petitioner contends that the NLRC committed grave abuse of discretion in applying these rules to decisions rendered by the
POEA. It insists that the appeal bond is not necessary in the case of licensed recruiters for overseas employment because they are
already required under Section 4, Rule II, Book II of the POEA Rules not only to pay a license fee of P30,000 but also to post a cash
bond of P100,000 and a surety bond of P50,000, thus:

Upon approval of the application, the applicant shall pay a license fee of P30,000. It shall also post a cash bond of
P100,000 and surety bond of P50,000 from a bonding company acceptable to the Administration and duly
accredited by the Insurance Commission. The bonds shall answer for all valid and legal claims arising from
violations of the conditions for the grant and use of the license, and/or accreditation and contracts of employment.
The bonds shall likewise guarantee compliance with the provisions of the Code and its implementing rules and
regulations relating to recruitment and placement, the Rules of the Administration and relevant issuances of the
Department and all liabilities which the Administration may impose. The surety bonds shall include the condition
that the notice to the principal is notice to the surety and that any judgment against the principal in connection
with matters falling under POEA's jurisdiction shall be binding and conclusive on the surety. The surety bonds shall
be co-terminus with the validity period of license. (Emphasis supplied)

In addition, the petitioner claims it has placed in escrow the sum of P200,000 with the Philippine National Bank in compliance with
Section 17, Rule II, Book II of the same Rule, "to primarily answer for valid and legal claims of recruited workers as a result of
recruitment violations or money claims."

Required to comment, the Solicitor General sustains the appeal bond requirement but suggest that the rules cited by the NLRC are
applicable only to decisions of the Labor Arbiters and not of the POEA. Appeals from decisions of the POEA, he says, are governed by
the following provisions of Rule V, Book VII of the POEA Rules:

Sec. 5. Requisites for Perfection of Appeal. The appeal shall be filed within the reglementary period as provided in
Section 1 of this Rule; shall be under oath with proof of payment of the required appeal fee and the posting of a
cash or surety bond as provided in Section 6 of this Rule; shall be accompanied by a memorandum of appeal which
shall state the grounds relied upon and the arguments in support thereof; the relief prayed for; and a statement of
the date when the appellant received the appealed decision and/or award and proof of service on the other party
of such appeal.

A mere notice of appeal without complying with the other requisites aforestated shall not stop the running of the
period for perfecting an appeal.
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 Sec. 6. Bond. In case the decision of the Administration involves a monetary award, an appeal by the employer shall
be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly
accredited by the Commission in an amount equivalent to the monetary award. (Emphasis supplied)

The question is, having posted the total bond of P150,000 and placed in escrow the amount of P200,000 as required by the POEA
Rules, was the petitioner still required to post an appeal bond to perfect its appeal from a decision of the POEA to the NLRC?

It was.

The POEA Rules are clear. A reading thereof readily shows that in addition to the cash and surety bonds and the escrow money, an
appeal bond in an amount equivalent to the monetary award is required to perfect an appeal from a decision of the POEA.
Obviously, the appeal bond is intended to further insure the payment of the monetary award in favor of the employee if it is
eventually affirmed on appeal to the NLRC.

It is true that the cash and surety bonds and the money placed in escrow are supposed to guarantee the payment of all valid and
legal claims against the employer, but these claims are not limited to monetary awards to employees whose contracts of
employment have been violated. The POEA can go against these bonds also for violations by the recruiter of the conditions of its
license, the provisions of the Labor Code and its implementing rules, E.O. 247 (reorganizing POEA) and the POEA Rules, as well as the
settlement of other liabilities the recruiter may incur.

As for the escrow agreement, it was presumably intended to provide for a standing fund, as it were, to be used only as a last resort
and not to be reduced with the enforcement against it of every claim of recruited workers that may be adjudged against the
employer. This amount may not even be enough to cover such claims and, even if it could initially, may eventually be exhausted
after satisfying other subsequent claims.

As it happens, the decision sought to be appealed grants a monetary award of about P170,000 to the dismissed employee, the
herein private respondent. The standby guarantees required by the POEA Rules would be depleted if this award were to be enforced
not against the appeal bond but against the bonds and the escrow money, making them inadequate for the satisfaction of the other
obligations the recruiter may incur.

Indeed, it is possible for the monetary award in favor of the employee to exceed the amount of P350,000, which is the sum of the
bonds and escrow money required of the recruiter.

It is true that these standby guarantees are not imposed on local employers, as the petitioner observes, but there is a simple
explanation for this distinction. Overseas recruiters are subject to more stringent requirement because of the special risks to which
our workers abroad are subjected by their foreign employers, against whom there is usually no direct or effective recourse. The
overseas recruiter is solidarily liable with a foreign employer. The bonds and the escrow money are intended to insure more care on
the part of the local agent in its choice of the foreign principal to whom our overseas workers are to be sent.

It is a principle of legal hermeneutics that in interpreting a statute (or a set of rules as in this case), care should be taken that every
part thereof be given effect, on the theory that it was enacted as an integrated measure and not as a hodge-podge of conflicting
provisions. Ut res magis valeat quam pereat. 2 Under the petitioner's interpretation, the appeal bond required by Section 6 of the
aforementioned POEA Rule should be disregarded because of the earlier bonds and escrow money it has posted. The petitioner
would in effect nullify Section 6 as a superfluity but we do not see any such redundancy; on the contrary, we find that Section 6
complements Section 4 and Section 17. The rule is that a construction that would render a provision inoperative should be avoided;
instead, apparently inconsistent provisions should be reconciled whenever possible as parts of a coordinated and harmonious
whole.

Accordingly, we hold that in addition to the monetary obligations of the overseas recruiter prescribed in Section 4, Rule II, Book II of
the POEA Rules and the escrow agreement under Section 17 of the same Rule, it is necessary to post the appeal bond required
under Section 6, Rule V, Book VII of the POEA Rules, as a condition for perfecting an appeal from a decision of the POEA.

Every intendment of the law must be interpreted in favor of the working class, conformably to the mandate of the Constitution. By
sustaining rather than annulling the appeal bond as a further protection to the claimant employee, this Court affirms once again its
commitment to the interest of labor. WHEREFORE, the petition is DISMISSED, with costs against the petitioner. It is so ordered.
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Millares vs. NLRC, 2002

Petitioner
Douglas Millares and Rogelio Lagda
Respondent
National Labor Relations Commission, Trans-Global Maritime Agency, Inc. and Esso International Shipping Co., Ltd.
Ponente
Kapunan, J.
Docket Number and Date of Decision
G.R. No. 110524, July 29, 2002

Significance of the Case

In this landmark case, the Supreme Court, citing Brent case and Coyoca case, ruled that seafarers are considered contractual
employees. They can not be considered as regular employees under Article 280 of the Labor Code. Their employment is governed by
the contracts they sign everytime they are rehired and their employment is terminated when the contract expires. Their
employment is contractually fixed for a certain period of time.

Facts
Douglas Millares was employed by ESSO International through its local manning agency, Trans-Global, in 1968 as a machinist. In
1975, he was promoted as Chief Engineer which position he occupied until he opted to retire in 1989.
In 1989, petitioner Millares filed a leave of absence and applied for optional retirement plan under the Consecutive Enlistment
Incentive Plan (CEIP) considering that he had already rendered more than twenty years of continuous service.
Esso International denied Millares’ request for optional retirement on the following grounds, to wit: (1) he was employed on a
contractual basis; (2) his contract of enlistment (COE) did not provide for retirement before the age of sixty years; and (3) he did not
comply with the requirement for claiming benefits under the CEIP, i.e., to submit a written advice to the company of his intention to
terminate his employment within thirty days from his last disembarkation date.
Subsequently, after failing to return to work after the expiration of his leave of absence, Millares was dropped from the roster of
crew members effective September 1, 1989.
On the other hand, petitioner Lagda was employed by Esso International as wiper/oiler in 1969. He was promoted as Chief Engineer
in 1980, a position he continued to occupy until his last COE expired in 1989.
In 1989, Lagda likewise filed a leave of absence and applied to avail of the optional early retirement plan in view of his twenty years
continuous service in the company.
Trans-global similarly denied Lagda’s request for availment of the optional early retirement scheme on the same grounds upon
which Millares request was denied.
Unable to return for contractual sea service after his leave of absence expire, Lagda was also dropped from the roster of crew
members effective September 1, 1989.
Millares and Lagda filed a complaint-affidavit for illegal dismissal and non-payment of employee benefits against private
respondents Esso International and Trans-Global before the POEA.
The POEA rendered a decision dismissing the complaint for lack of merit. On appeal, NLRC affirmed the decision of the POEA
dismissing the complaint.
NLRC rationcinated that Millares and Lagda, as seamen and overseas contract workers are not covered by the term “regular
employment” as defined under Article 280 of the Labor Code. The POEA, which is tasked with protecting the rights of the Filipino
workers for overseas employment to fair and equitable recruitment and employment practices and to ensure their welfare,
prescribes a standard employment contract for seamen on board ocean-going vessels for a fixed period but in no case to exceed
twelve months.
Issue
Whether or not seafarers are considered regular employees under Article 280 of the Labor Code.
Ruling
It is for the mutual interest of both the seafarer and the employer why the employment status must be contractual only or for a
certain period of time.
7
Quoting Brent School Inc. v. Zamora, 1990, and Pablo Coyoca v. NLRC, 1995, the Supreme Court ruled that seafarers are considered
contractual employees. They cannot be considered as regular employees under Article 280 of the Labor Code. Their employment is
governed by the contracts they sign everytime they are rehired and their employment is terminated when the contract expires.
Their employment is contractually fixed for a certain period of time. They fall under the exception of Article 280 whose employment
has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of
engagement of the employee or where the work or services to be performed is seasonal in nature and the employment is for the
duration of the season.
As ruled in Brent case, there are certain forms of employment which also require the performance of usual and desirable functions
and which exceed one year but do not necessarily attain regular employment status under Article 280. Overseas workers including
seafarers fall under this type of employment which are governed by the mutual agreements of the parties.
And as stated in the Coyoca case, Filipino seamen are governed by the Rules and Regulations of the POEA. The Standard
Employment Contract governing the employment of All Filipino seamen on Board Ocean-Going Vessels of the POEA, particularly in
Part I, Sec. C specifically provides that the contract of seamen shall be for a fixed period. And in no case should the contract of
seamen be longer than 12 months.
Moreover, the Court held that it is an accepted maritime industry practice that employment of seafarers are for a fixed period only.
Constrained by the nature of their employment which is quite peculiar and unique in itself, it is for the mutual interest of both the
seafarer and the employer why the employment status must be contractual only or for a certain period of time. Seafarers spend
most of their time at sea and understandably, they cannot stay for a long and an indefinite period of time at sea. Limited access to
shore society during the employment will have an adverse impact on the seafarer. The national, cultural and lingual diversity among
the crew during the COE is a reality that necessitates the limitation of its period.

8
[G.R. No. 160952. August 20, 2004]
MARCIAL GU-MIRO, petitioner, vs. ROLANDO C. ADORABLE and BERGESEN D.Y. MANILA, respondents.

DECISION
YNARES-SANTIAGO, J.:

Before us is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. SP No. 66131 dated May 29,
2003,[1] which modified the decision of the National Labor Relations Commission (NLRC) by increasing the incentive bonus awarded
to petitioner from US$594.56 to US$1189.12.
Petitioner Marcial Gu-Miro was formerly employed as a Radio Officer of respondent Bergesen D.Y. Philippines, which acted for
and in behalf of its principal Bergesen D.Y. ASA, on board its different vessels. A Certification dated April 14, 1998 was issued by
Bergesen D.Y. Philippines, Inc.s President and General Manager Rolando C. Adorable showing that petitioner served in the company
on board its vessels starting 1988.[2] The case before us involves an employment contract signed by petitioner to commence service
on board the M/V HEROS, which stipulated a monthly salary of US$929.00 for a period of eight (8) months. It also provided for
overtime pay of US$495.00 per month and vacation leave with pay in the amount of US$201.00 per month equivalent to six and a
half days.[3] The contract of employment was signed on March 18, 1996 and petitioner commenced work on April 15, 1996.
Record shows that respondent company traditionally gives an incentive bonus termed as Re-employment Bonus to employees
who decide to rejoin the company after the expiration of their employment contracts. After the expiration of petitioners contract in
December 1996, the same was renewed by respondent company until September 9, 1997, as stated in the Certification issued by
Bergesen D.Y. Philippines, Inc. In September 1997, petitioners services were terminated due to the installation of labor saving
devices which made his services redundant. Upon his forced separation from the company, petitioner requested that he be given
the incentive bonus plus the additional allowances he was entitled to. Respondent company, however, refused to accede to his
request.
Thus, in June 1999 petitioner filed a complaint with the NLRC, Regional Arbitration Branch of Cebu, for payment of the
incentive bonus from April 15, 1996 to September 15, 1997, 10% of the basic wage, unclaimed payment for incentive bonus from
September 1993 to June 1994, non-remittance of provident fund from July 1992 to June 1994, moral and exemplary damages as well
as attorneys fees. On December 29, 1999, the complaint was provisionally dismissed by the NLRC due to the failure of petitioner to
file the required position paper. Petitioner re-filed the complaint on March 2, 2000 accordingly.
In a Decision dated June 6, 2000, the Labor Arbiter dismissed the case for lack of merit, [4] based on the following findings:

x x x. Incentive bonus or reemployment bonus are benefits not found in the POEA approved contract. These are benefits which are
specifically granted pursuant to an internal memorandum entitled Employment Conditions for Filipino Seafarers serving on board
vessels of Bergesen D.Y. ASA. As stated in the said internal memorandum, entitlement to the benefits therein (is) not automatic but
(is) subject to some conditions. As clearly stated in the said memorandum, the reemployment bonus is an incentive bonus system
for reemployment upon signing for a subsequent period. x x x. In order that a seafarer, like the complainant, be entitled to
reemployment/incentive bonus, he must satisfy all of the following requirements, to wit:

1) He must be employed in a vessel under a principal who is a member of the reemployment bonus scheme;

2) He must have been an officer of the principal members vessel subject to the additional conditions stated in page 2 of the
aforementioned internal memorandum; and

3) After serving in a principal-members vessel, he must be reemployed in another or the same principal-members vessel.

To avail of the benefits under this scheme, seafarers like the complainant has to prove that he met all the foregoing conditions. It is,
thus, his burden to prove that he is entitled to the said benefit. Complainant, however, miserably failed to adduce evidence that he
met all the foregoing conditions for entitlement to the benefit. He relied on his unsubstantiated allegation that a certain Captain D.
Ramirez received an incentive bonus even if he did not sign up with the Company. x x x.

xxxxxxxxx

For obvious reasons, complainants claims for moral and exemplary damages as well as attorneys fees are denied. x x x.[5]
9
 Petitioner appealed to the NLRC, which set aside the Labor Arbiters decision and ordered respondents to pay petitioner the
amount of US$594.56 in a Decision dated March 5, 2001. The pertinent portion of the NLRCs decision states:

The Contract of Employment entered into between the complainant and the respondents specifically set a term of eight (8) months
which was supposed to be from April 15, 1996 up to December 14, 1996. The complainants length of service from December 15,
1996 to September 9, 1997, or a period of nine (9) months, more or less, was an extended term of employment. A closer look at the
facts shows that the extended term was even longer than the original term of the contract.

xxxxxxxxx

[W]e construe that the extended term of the contract of employment from December 15, 1996 up to September 9, 1997 was
considered as re-employment of the complainant. And when there was re-employment, it is presumed that all the conditions set
forth by the respondents in their established company written policy entitled Employment Conditions for Filipino Seafarers Serving
Onboard Vessels of Bergesen D.Y. ASA are deemed complied with. The pertinent portion of the said company policy states:

2. Re-employment bonus

The company has established an incentive bonus system for re-employment upon signing for a subsequent period.

The conditions are as follows:

xxxxxxxxx

Radio Officers/Electricians Serving onboard bulk carriers- 8% of basic wage per month of actual service.

To do otherwise, we would allow the respondent to circumvent its own established policy to merely extending the original contract
of employment.[6]

Petitioner and respondents filed separate Motions for Reconsideration which were both denied by the NLRC in its Resolution
dated April 24, 2001.
Not satisfied with the monetary award, petitioner filed a petition for review with the Court of Appeals claiming that there was
an error in computing the amount of the incentive bonus he is entitled to. Petitioner argued that he should be considered as a
regular employee of respondent company and thus, entitled to backwages or, at the very least, separation pay.
The Court of Appeals, on May 29, 2003, rendered the assailed Decision where it ruled:

WHEREFORE, the petition is GRANTED. The assailed Decision dated March 5, 2001 is hereby MODIFIED increasing the award of
incentive bonus from US$594.56 to US$1189.12.

SO ORDERED.[7]

In arriving at its decision, the appellate court made the following findings:

It is uncontroverted that the company grants incentive bonus for re-employment upon signing for a subsequent period. For radio
officers onboard bulk carriers, it shall be 8% of the basic wage per month of actual service. In this case, we find nothing in the record
to show that the classification of the vessel to which the petitioner was deployed is a Gas/LPG Tanker, which would make him
entitled to 10% instead of 8% of the basic wage as incentive bonus. Thus, the public respondent correctly applied the rate of 8% of
the basic wage per month of actual service, the basic wage in this case being the amount stipulated in the contract of
employment, i.e., US$929.00, and does not include the stipulated rate for overtime pay.

The question now is the application of the provision of the memorandum with respect to the length of actual service. Record shows
that after the expiration of the original eight-month employment contract on December 15, 1996, the petitioner was in fact re-
employed when his service was extended for another nine (9) months or up to September 1997. This unquestionably entitled him to
the incentive bonus for the 8-month period covered by the contract and which was correctly awarded to him by the public
10
respondent NLRC. However, as to the succeeding period, although it was not covered by a written contract, it is unrebutted that the
petitioner was actually made to suffer work during that period. Hence, there was a monthly re-employment of the petitioner for the
succeeding 9 months. Conformably, since the incentive bonus is given for re-employment upon signing for a subsequent period, for
purposes of computing the same, the petitioner is deemed to have been re-employed not only for the 8 months covered by the
contract but also for the succeeding 8 months preceding the last month when he was terminated. x x x.

xxxxxxxxx

As for the claim for backwages or separation pay, we note that these claims were neither raised in the petitioners position paper nor
in the motion for reconsideration filed before the NLRC; hence, they can no longer be raised for the first time in this petition. x x x. [8]

Hence, the instant petition for certiorari based on the following grounds:
I. THE HONORABLE COURT OF APPEALS ERRED WHEN IT PLACED THE BURDEN UPON PETITIONER TO PROVE THAT M/V
HEROS IS AN LPG/GAS TANKER.
II. CONSIDERING THAT PETITIONER HAD WORKED FOR BERGESEN D.Y. PHILIPPINES FOR AND IN BEHALF OF ITS PRINCIPAL
BERGESEN D.Y. ASA FOR TEN (10) LONG YEARS ABOARD ITS DIFFERENT VESSELS, PETITIONER SHOULD HAVE BEEN
CONSIDERED AS A REGULAR EMPLOYEE BY THE COURT OF APPEALS.
III. THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT SAID IN ITS DECISION THAT PETITIONER FAILED TO
RAISE THE ISSUE OF BACKWAGES AND SEPARATION PAY IN THE MOTION FOR RECONSIDERATION FILED WITH THE
NLRC.[9]
In this petition, we are called upon to resolve two basic issues: The first concerns what percentage to use in computing the
incentive bonus which petitioner is entitled to. In the memorandum entitled Employment Conditions for Filipino Seafarers Serving
Onboard Vessels of Bergesen D.Y. ASA (Employment Conditions Memorandum), Radio Officers are entitled to re-employment bonus
equivalent to a certain percentage of their basic wage per month of actual service. If the employee served onboard a bulk carrier, he
is entitled to 8% of his basic wage per month of actual service. Alternatively, if service was done onboard a gas carrier tanker, the
employee is entitled to 10% of his basic wage per month of actual service.
The NLRC and the Court of Appeals both agree that petitioner failed to adduce concrete proof to show that M/V HEROS is a
Gas/LPG Tanker and not a bulk carrier. Hence, the Court of Appeals upheld the use of 8% by the NLRC as multiplier to compute the
incentive bonus. Respondent company argues that petitioner failed to allege the nature of M/V HEROS at the earliest opportunity,
belatedly alleging this information in the Motion for Reconsideration with the NLRC. Petitioner insists that M/V HEROS is a Gas/LPG
Tanker which entitles him to 10% of his basic wage as incentive bonus; and that the Court of Appeals erred in ruling that it was
petitioners burden to prove the classification of M/V HEROS.
We rule in petitioners favor. The registration papers, which contain the vessel classification of M/V HEROS, are the conclusive
evidence that petitioner needs to prove his allegation. However, these are in the custody of respondent company or its mother
company, Bergesen D.Y. ASA. Interestingly, respondent company never presented the registration papers in evidence.
We find that respondent companys failure to controvert the allegation, when it had the opportunity and resources to do so,
works in favor of petitioner. Time and again we have held that should doubts exist between the evidence presented by the employer
and the employee, the scales of justice must be tilted in favor of the latter.[10] Moreover, the law creates the presumption that
evidence willfully suppressed would be adverse if produced.[11]
Consequently, the amount of incentive bonus termed as re-employment bonus which petitioner is entitled to should be
computed as follows:

Salary per month = US$929.00

No. of months of actual service = 16 months

Rate = 10% of basic wage

US$929.00/month x 16 months x 10% = US$1,486.40

11
 The second and third grounds raised in this petition are related, based on petitioners allegation that he should be considered a
regular employee of respondent company, having been employed onboard the latters different vessels for the span of 10 years.
Hence, petitioner claims that he is entitled to backwages or at the very least separation pay, invoking our decision in Millares, et al.
v. NLRC[12] where it was held that the repeated re-hiring of a Chief Engineer of a shipping company for 20 years is sufficient evidence
of the necessity and indispensability of the employees service to the employers business or trade. Hence, applying the express
provision of Article 280 of the Labor Code,[13] such an employee should be considered as a regular employee.
Petitioners argument is not well-taken. The decision of Millares, et al. v. NLRC was reconsidered and set aside in a
Resolution[14] where it was held:

[I]t is clear that seafarers are considered contractual employees. They can not be considered as regular employees under Article 280
of Labor Code. Their employment is governed by the contracts they sign every time they are rehired and their employment is
terminated when the contract expires. Their employment is contractually fixed for a certain period of time. They fall under the
exception of Article 280 whose employment has been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the employee or where the nature of the work or services to be
performed is seasonal in nature and employment is for the duration of the season.

xxxxxxxxx

Moreover, it is an accepted maritime industry practice that employment of seafarers (is) for a fixed period only. Constrained by the
nature of their employment which is quite peculiar and unique in itself, it is for the mutual interest of both the seafarer and the
employer why employment status must be contractual only or for a certain period of time. Seafarers spend most of their time at sea
and understandably, they cannot stay for a long and an indefinite period of time at sea. Limited access to shore society during the
employment will have an adverse impact on the seafarer. The national, cultural and lingual diversity among the crew during the
[Contract of Enlistment] is a reality that necessitates the limitation of its period.[15]

Clearly, petitioner cannot be considered as a regular employee notwithstanding that the work he performs is necessary and
desirable in the business of respondent company. As expounded in the above-mentioned Millares Resolution, an exception is made
in the situation of seafarers. The exigencies of their work necessitates that they be employed on a contractual basis.
Thus, even with the continued re-hiring by respondent company of petitioner to serve as Radio Officer onboard Bergesens
different vessels, this should be interpreted not as a basis for regularization but rather a series of contract renewals sanctioned
under the doctrine set down by the second Millares case. If at all, petitioner was preferred because of practical
considerationsnamely, his experience and qualifications. However, this does not alter the status of his employment from being
contractual.
With respect to the claim for backwages and separation pay, it is now well-settled that the award of backwages and separation
pay in lieu of reinstatement are reliefs that are awarded to an employee who is unjustly dismissed. [16] In the instant case, petitioner
was separated from his employment due to the termination of an impliedly renewed contract with respondent company. Hence,
there is no illegal or unjust dismissal.
WHEREFORE, premises considered, the petition is GRANTED IN PART. The Decision of the Court of Appeals in CA-G.R. SP No.
66131 dated May 29, 2003 is MODIFIED in that the award of incentive bonus is increased from US$1189.12 to US$1,486.40.
Petitioners claim that he be declared a regular employee and awarded backwages and separation pay is DENIED for lack of merit.
SO ORDERED.

12
[G.R. No. 97945. October 8, 1998]
PRIME MARINE SERVICES, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, PHILIPPINE OVERSEAS EMPLOYMENT
ADMINISTRATION, R & R MANAGEMENT SERVICES INTERNATIONAL, and NAPOLEON CANUT, respondents.

DECISION

MENDOZA, J.:

This is a petition for certiorari to set aside the decision, dated February 21, 1991, of the National Labor Relations Commission,
dismissing the appeal of petitioner Prime Marine Services, Inc. from the decision of the Philippine Overseas Employment
Administration in POEA Case No. (L) 88-10-850, as well as the resolution, dated March 26, 1991, of the NLRC, denying
reconsideration.

Private respondent Napoleon Canut was recruited to work as a Tug Master for Arabian Gulf Mechanical Services and Contracting Co.,
Ltd. (Arabian Gulf) by R & R Management Services International (R & R Management) for a period of 18 months, commencing June
15, 1988. Private respondents employment was, however, preterminated allegedly on the ground that he was incompetent. He was
repatriated to the Philippines on September 26, 1988.[1]

When private respondent reviewed his employment papers, he discovered that while R & R Management had acted as recruitment
agency in processing his application, it was actually petitioner Prime Marine Services, Inc., as deployment agent, which had
processed his papers and facilitated his going abroad. Further investigation showed that R & R Management was not licensed to
recruit workers for overseas employment. Accordingly, private respondent filed a complaint before the Philippine Overseas
Employment Agency for illegal dismissal, underpayment of salaries, and recruitment violations against petitioner, R & R
Management, and Arabian Gulf.[2]

Petitioner denied that there was any employer-employee relationship between it and private respondent. It pointed out that private
respondent admitted he had applied with and paid his placement fee to R & R Management. Petitioner likewise denied that it had
any part in the processing of private respondents papers and argued that only Arabian Gulf and R & R Management should be held
liable to private respondent. For this reason, petitioner filed a cross-claim against R & R Management seeking reimbursement for
any amount which petitioner may be held liable for to private respondent.[3]

R & R Management, on the other hand, averred that it referred private respondent to petitioner in order for the latter to facilitate
private respondents employment abroad and consequently worked in conjunction with petitioner in processing private respondents
deployment.[4]

On October 13, 1989, Deputy Administrator Cresencio M. Siddayao of the POEA rendered a decision disposing of the case as follows:

WHEREFORE, in view of the foregoing, Prime Marine Services, Inc., R & R Management Services, Intl and Arabian Gulf Mechanical
Services and Contracting Co. Ltd., are hereby ordered, jointly and severally, to pay complainant the following in Philippines Currency
at the prevailing rate of exchange at the time of payment:

SR 33,750.00 - representing salaries for the unexpired portion of the contract for 15 months at SR 2,250.00 a month;

350.00 - representing salary differential;

5% percent Attorneys fees of the award.

Furthermore, R & R Management Services International is referred to the Anti-illegal Recruitment Branch of this Office for
appropriate action.

Finally, the cross claim of Prime Marine Services, Inc. against R & R Management Services International is dismissed for lack of merit.

SO ORDERED.

Petitioner filed a motion for reconsideration with the National Labor Relations Commission which the latter treated as an appeal. In
its decision, dated February 21, 1991, the NLRC affirmed in toto the POEAs decision. On March 26, 1991, it denied petitioners
motion for reconsideration. Hence, this petition containing the following assignment of errors:
13
I. Public respondent NLRC and/or POEA committed grave abuse of discretion when they ignored existing jurisprudence.

II. Dismissal of the cross-claim (against private respondent R & R Management) constitutes also grave abuse of discretion.

As to its first assignment of error, petitioner contends that the ruling of the NLRC goes against this Courts decision in Ilas v. NLRC.[5]

The contention has no merit. The case of Ilas simply held that a recruitment agency cannot be found liable for unpaid wages and
other claims of overseas workers who have been recruited by its agent without its knowledge and consent. The Courts ruling
denying liability against the recruitment agency (All Seasons Manpower International Services) was based on the following factual
findings of the POEA and the NLRC, which the Court affirmed:

All evidence indicate that private respondent [All Seasons Manpower International Services] cannot be held liable for the claims of
petitioners.

Firstly, petitioners applied for overseas deployment with CBT/Shiek International through spouses Francisco and Corazon Ngoho,
Eddie Sumaway and Erlinda Espeno. They never transacted their business with the office of private respondent.

Secondly, when they worked at Doha, Qatar, their employer was CBT/Shiek International who failed to pay their wages.

Thirdly, in the TEPS provided by Espeno to enable them to travel, it was made to appear that private respondent was their
agency/contractor of petitioners and Yacoub Trading Est. is their foreign employer. They were signed by petitioners knowing that
private respondent was not their recruiter. Apparently, Espeno conspired with petitioners and Ngoho to enable petitioners to travel
to the Middle East, ostensibly under the name of private respondent as agent/recruiter.

Fourthly, it turned our that petitioners were recruited for Mabeco Trading and Contracting Establishment, as the foreign principal
and not Yacoub Trading Est., which is the principal of private respondent.

Fifthly, in the very compliant filed by petitioners against private respondent they admitted that they applied for overseas
employment with the CBT/Shiek International under the management of the Ngohos.[6]

In contrast, both the POEA and the NLRC found that petitioner and R & R Management acted jointly in recruiting and deploying
private respondent abroad, to wit:

This contention cannot be sustained. The records show that while complainant applied with respondent R & R, he was however
deployed by herein movant Prime Marine and this was not rebutted during the proceedings below. Consequently, We find no
sufficient reason to disturb the questioned decision. We, therefore, quote with approval and adopt as Our own the following
findings of the POEA Deputy Administrator.

We find respondent R & R and prime Marine jointly and severally liable with complainants foreign employer, Arabian Gulf
Mechanical Services and Contracting Co. Ltd. R & R is the recruiting agency while Prime Marine is the deploying agency. Complainant
alleged that he applied with R & R and the latter admitted that it has facilitated and contributed efforts in conjunction with Prime
Marine in sending the applicant complainant abroad under a contract. Prime Marine did not rebut this allegation. It did not even
explain or touch on the matter why it appeared as the deploying agent in the Crew Agreement exhibited by complainant. The
foregoing leads us to the inevitable conclusion that there is a collusion between R & R and Prime Marine with respect to
complainants application and deployment. Thus, its cross claim against R & R must necessarily fail because it is held jointly and
severally liable with R & R and the foreign employer.[7]

Although petitioner denied before the POEA and the NLRC any part in the processing of private respondents papers, it now admits
that its general manager after all took part in the deployment of private respondent. However, it claims that its general manager
was not authorized to do so and that she was in collusion with private respondent.[8]

It is sufficient in order to dispose of this new contention to say that factual findings of administrative agencies are generally held to
be binding and even final so long as they are supported by substantial evidence in the record of the case.[9] This is especially so
where, as here, the agency and a subordinate one which heard the case in the first instance are in full agreement as to the facts.[10]
This rule was, in fact, reiterated in the Ilas case which petitioner invokes:

14
No rule is more settled than that this Court is not a trier of facts and that the findings of facts of administrative bodies, as public
respondent, shall not disturbed on appeal unless it is shown that it committed a grave abuse of discretion or otherwise acted
without jurisdiction or in excess of its jurisdiction. In this case, petitioners failed to discharge their burden to warrant a departure
from this rule.[11]

It should be pointed out that petitioner belatedly claims that its general manager acted without authority and in collusion with
private respondent apparently to bring this case within the ambit of Ilas which held that a recruitment agency is not liable for the
unauthorized acts of its agents. This transparent effort to make the present case fit the ruling in Ilas is done without specifying the
alleged evidence supporting such claim of collusion. Neither does petitioner even attempt to controvert the express finding of both
the POEA and the NLRC that it failed to rebut R & R Managements allegation that both of these firms jointly processed private
respondents employment.

As to petitioners second assignment of error, such should be dismissed as its solidary liability with R & R Management and Arabian
Gulf for private respondents claims is founded on the fact that both petitioner and R & R Management, and not the latter alone,
processed private respondents recruitment and deployment abroad.

There is no question that a private manning agency, such as petitioner, can be held liable for private respondents claims. The Rules
and Regulations of the POEA expressly provide that every applicant seeking a license or authority to operate a private employment,
recruitment, or manning agency must submit, among others:

d. A verified undertaking stating that the applicant:

....

(3) shall assume joint and solidary liability with the employer for all claims and liabilities which may arise in connection with the
implementation of the contract of employment;[12]

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

15
G.R. Nos. 90394-97 February 7, 1991
HERMINIGILDO ILAS, GLICERIO BELARMINO, MARIO BARBOSA and TEODORO ENRIQUEZ, petitioners, vs.
THE NATIONAL LABOR RELATIONS COMMISSION and ALL SEASONS MANPOWER INTERNATIONAL SERVICES, respondents.

GANCAYCO, J.:

Can a recruitment agency be liable for unpaid wages and other claims of certain overseas workers who appear to have been
recruited by its agent without its knowledge and consent? This is the focal issue in this petition.

Petitioners applied for overseas employment in Doha, Qatar, with CBT/Shiek International, an unlicensed recruitment agency, under
the management of spouses Francisco Ngoho, Jr. and Corazon Ngoho. To enable them to leave, they were assisted by Eddie
Sumaway and Erlinda Espeno, the latter being a liaison officer of private respondent All Seasons Manpower International Services, a
licensed placement agency. Petitioners filed their application papers and paid their placement fees with the Ngohos. However, it
was Espeno who processed their papers and gave them travel exit passes (TEPS). They were made to sign two-year contracts of
employment but they were not given copies thereof. Subsequently, they were deployed to Doha, Qatar, where they worked for four
(4) months without being paid. They sought the assistance of the Philippine Embassy and were able to come home to the Philippines
with the help of the Philippine Overseas Employment Administration (POEA).

Hence, they filed a complaint to recover their unpaid salaries and for wages covering the unexpired portion of their contracts against
private respondent.

On June 30, 1989, the POEA rendered a decision, the dispositive part of which reads as follows:

WHEREFORE, judgment is hereby rendered, ordering the respondent to refund to complainants Bonifacio Gagascas, Herminigildo
Ilas, Diosdado Galang, Antonio Frias, Perfecto Lora, Jr., Rolando Ernacio, Emmanuel Padilla, Andres Lontabo, Juanito Cueto, Camilo
Pastrana, Mario Barbosa, Romeo Muldong, Arnold Cresidio, Dominguez de la Cruz, Samuel Leaño, Teodoro Enriquez and Jaime
Ramos, the amount of TWO THOUSAND FIVE HUNDRED PESOS (P2,500.00) each, representing placement fees.

The claims for the salaries corresponding to the unexpired portion of the complainant's contracts are hereby ordered DISMISSED for
lack of merit.

The claims of Pedro Pabillonia, Glicerio Belarmino, Jaime Ramos, Rodolfo de Jesus, Romeo Toledo, Pedro Sagayap, Macario Valdez,
Benjamin Julio, Ernesto Yadao, Severino Pilon are hereby ordered severed from the other complaints in view of settlement.

SO ORDERED.1

Both parties appealed to public respondent National Labor Relations Commission (NLRC) which in due course rendered a decision on
September 23, 1988 modifying the appealed decision to the effect that petitioners were adjudged entitled to their four (4) months
unpaid salaries to be paid by private respondent but the refund of placement fees was deleted.

A motion for reconsideration thereof was filed by private respondent. On April 28, 1989, a decision was rendered by public
respondent setting aside the decision dated September 23, 1988 and dismissing the case for lack of merit.2

A motion for reconsideration filed by petitioners was denied in a resolution dated June 7, 1989.3

Hence, the herein petition for certiorari wherein it is alleged that public respondent committed a grave abuse of discretion in setting
aside its decision dated September 23, 1988 and rendering the questioned decision dated April 28, 1989.

The petition must fail.

No rule is more settled than that this Court is not a trier of facts and that the findings of facts of administrative bodies, as public
respondent, shall not be disturbed on appeal unless it is shown that it committed a grave abuse of discretion or otherwise acted
without jurisdiction or in excess of its jurisdiction. In this case, petitioners failed to discharge their burden to warrant a departure
from this rule.

All evidence indicate that private respondent cannot be held liable for the claims of petitioners.

16
Firstly, petitioners applied for overseas deployment with CBT/Shiek International through spouses Francisco and Corazon Ngoho,
Eddie Sumaway and Erlinda Espeno. They never transacted their business with the office of private respondent.

Secondly, when they worked at Doha, Qatar, their employer was CBT/Shiek International who failed to pay their wages.

Thirdly, in the TEPS provided by Espeno to enable them to travel, it was made to appear that private respondent was their
agency/contractor of petitioners and Yacoub Trading Est. is their foreign employer. They were signed by petitioners knowing that
private respondent was not their recruiter. Apparently, Espeno conspired with petitioners and Ngoho to enable petitioners to travel
to the Middle East, ostensively under the name of private respondent as agent/recruiter.

Fourthly, it turned out that petitioners were recruited for Mabeco Trading and Contracting Establishment, as the foreign principal
and not Yacoub Trading Est., which is the principal of private respondent.

Fifthly, in the very complaints filed by petitioners against private respondent they admitted that they applied for overseas
employment with the CBT/Shiek International under the management of the Ngohos.4

It is true that the rules and regulations of the POEA provide that the private employment or recruitment agency is made to assume
full and complete responsibility for all acts of its officials and representatives done in connection with recruitment and placement.5

However, when as in this case the recruitment was actually made by Espeno in behalf of CBT/Shiek International, not the private
respondent, and the name of private respondent was only used as a means to enable petitioners to be issued TEPS for travel
purposes, obviously without the knowledge and consent of private respondent, the latter cannot be held liable for the claims of
petitioners.

The observation of public respondent that the documents used in the deployment abroad of petitioners were all fake and that
petitioners knew about it is borne by the records. They did not come to court with clean hands. Thus, petitioners should suffer the
consequences of their wrongful acts.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

17
G.R. No. 162419 July 10, 2007
PAUL V. SANTIAGO, petitioner, vs. CF SHARP CREW MANAGEMENT, INC., respondent.

DECISION

TINGA, J.:

At the heart of this case involving a contract between a seafarer, on one hand, and the manning agent and the foreign principal, on
the other, is this erstwhile unsettled legal quandary: whether the seafarer, who was prevented from leaving the port of Manila and
refused deployment without valid reason but whose POEA-approved employment contract provides that the employer-employee
relationship shall commence only upon the seafarer’s actual departure from the port in the point of hire, is entitled to relief?

This treats of the petition for review filed by Paul V. Santiago (petitioner) assailing the Decision and Resolution of the Court of
Appeals dated 16 October 2003 and 19 February 2004, respectively, in CA-G.R. SP No. 68404.1

Petitioner had been working as a seafarer for Smith Bell Management, Inc. (respondent) for about five (5) years.2 On 3 February
1998, petitioner signed a new contract of employment with respondent, with the duration of nine (9) months. He was assured of a
monthly salary of US$515.00, overtime pay and other benefits. The following day or on 4 February 1998, the contract was approved
by the Philippine Overseas Employment Administration (POEA). Petitioner was to be deployed on board the "MSV Seaspread" which
was scheduled to leave the port of Manila for Canada on 13 February 1998.

A week before the scheduled date of departure, Capt. Pacifico Fernandez, respondent’s Vice President, sent a facsimile message to
the captain of "MSV Seaspread," which reads:

I received a phone call today from the wife of Paul Santiago in Masbate asking me not to send her husband to MSV Seaspread
anymore. Other callers who did not reveal their identity gave me some feedbacks that Paul Santiago this time if allowed to depart
will jump ship in Canada like his brother Christopher Santiago, O/S who jumped ship from the C.S. Nexus in Kita-kyushu, Japan last
December, 1997.

We do not want this to happen again and have the vessel penalized like the C.S. Nexus in Japan.

Forewarned is forearmed like his brother when his brother when he was applying he behaved like a Saint but in his heart he was a
serpent. If you agree with me then we will send his replacement.

Kindly advise.3

To this message the captain of "MSV Seaspread" replied:

Many thanks for your advice concerning P. Santiago, A/B. Please cancel plans for him to return to Seaspread.4

On 9 February 1998, petitioner was thus told that he would not be leaving for Canada anymore, but he was reassured that he might
be considered for deployment at some future date.

Petitioner filed a complaint for illegal dismissal, damages, and attorney's fees against respondent and its foreign principal, Cable and
Wireless (Marine) Ltd.5 The case was raffled to Labor Arbiter Teresita Castillon-Lora, who ruled that the employment contract
remained valid but had not commenced since petitioner was not deployed. According to her, respondent violated the rules and
regulations governing overseas employment when it did not deploy petitioner, causing petitioner to suffer actual damages
representing lost salary income for nine (9) months and fixed overtime fee, all amounting to US$7, 209.00.

The labor arbiter held respondent liable. The dispositive portion of her Decision dated 29 January 1999 reads:

WHEREFORE, premises considered, respondent is hereby Ordered to pay complainant actual damages in the amount of US$7,209.00
plus 10% attorney's fees, payable in Philippine peso at the rate of exchange prevailing at the time of payment.

All the other claims are hereby DISMISSED for lack of merit.

SO ORDERED.6
18
On appeal by respondent, the National Labor Relations Commission (NLRC) ruled that there is no employer-employee relationship
between petitioner and respondent because under the Standard Terms and Conditions Governing the Employment of Filipino
Seafarers on Board Ocean Going Vessels (POEA Standard Contract), the employment contract shall commence upon actual
departure of the seafarer from the airport or seaport at the point of hire and with a POEA-approved contract. In the absence of an
employer-employee relationship between the parties, the claims for illegal dismissal, actual damages, and attorney’s fees should be
dismissed.7 On the other hand, the NLRC found respondent’s decision not to deploy petitioner to be a valid exercise of its
management prerogative.8 The NLRC disposed of the appeal in this wise:

WHEREFORE, in the light of the foregoing, the assailed Decision dated January 29, 1999 is hereby AFFIRMED in so far as other claims
are concerned and with MODIFICATION by VACATING the award of actual damages and attorney’s fees as well as excluding Pacifico
Fernandez as party respondent.

SO ORDERED.9

Petitioner moved for the reconsideration of the NLRC’s Decision but his motion was denied for lack of merit.10 He elevated the case
to the Court of Appeals through a petition for certiorari.

In its Decision11 dated 16 October 2003, the Court of Appeals noted that there is an ambiguity in the NLRC’s Decision when it
affirmed with modification the labor arbiter’s Decision, because by the very modification introduced by the Commission (vacating
the award of actual damages and attorney’s fees), there is nothing more left in the labor arbiter’s Decision to affirm.12

According to the appellate court, petitioner is not entitled to actual damages because damages are not recoverable by a worker who
was not deployed by his agency within the period prescribed in

the POEA Rules.13 It agreed with the NLRC’s finding that petitioner’s non-deployment was a valid exercise of respondent’s
management prerogative.14 It added that since petitioner had not departed from the Port of Manila, no employer-employee
relationship between the parties arose and any claim for damages against the so-called employer could have no leg to stand on.15

Petitioner’s subsequent motion for reconsideration was denied on 19 February 2004.16

The present petition is anchored on two grounds, to wit:

A. The Honorable Court of Appeals committed a serious error of law when it ignored [S]ection 10 of Republic Act [R.A.] No. 8042
otherwise known as the Migrant Worker’s Act of 1995 as well as Section 29 of the Standard Terms and Conditions Governing the
Employment of Filipino Seafarers On-Board Ocean-Going Vessels (which is deemed incorporated under the petitioner’s POEA
approved Employment Contract) that the claims or disputes of the Overseas Filipino Worker by virtue of a contract fall within the
jurisdiction of the Labor Arbiter of the NLRC.

B. The Honorable Court of Appeals committed a serious error when it disregarded the required quantum of proof in labor cases,
which is substantial evidence, thus a total departure from established jurisprudence on the matter.17

Petitioner maintains that respondent violated the Migrant Workers Act and the POEA Rules when it failed to deploy him within thirty
(30) calendar days without a valid reason. In doing so, it had unilaterally and arbitrarily prevented the consummation of the POEA-
approved contract. Since it prevented his deployment without valid basis, said deployment being a condition to the consummation
of the POEA contract, the contract is deemed consummated, and therefore he should be awarded actual damages, consisting of the
stipulated salary and fixed overtime pay.18 Petitioner adds that since the contract is deemed consummated, he should be
considered an employee for all intents and purposes, and thus the labor arbiter and/or the NLRC has jurisdiction to take cognizance
of his claims.19

Petitioner additionally claims that he should be considered a regular employee, having worked for five (5) years on board the same
vessel owned by the same principal and manned by the same local agent. He argues that respondent’s act of not deploying him was
a scheme designed to prevent him from attaining the status of a regular employee.20

Petitioner submits that respondent had no valid and sufficient cause to abandon the employment contract, as it merely relied upon
alleged phone calls from his wife and other unnamed callers in arriving at the conclusion that he would jump ship like his brother. He
points out that his wife had executed an affidavit21 strongly denying having called respondent, and that the other alleged callers did
19
not even disclose their identities to respondent.22 Thus, it was error for the Court of Appeals to adopt the unfounded conclusion of
the NLRC, as the same was not based on substantial evidence.23

On the other hand, respondent argues that the Labor Arbiter has no jurisdiction to award petitioner’s monetary claims. His
employment with respondent did not commence because his deployment was withheld for a valid reason. Consequently, the labor
arbiter and/or the NLRC cannot entertain adjudication of petitioner’s case much less award damages to him. The controversy
involves a breach of contractual obligations and as such is cognizable by civil courts.24 On another matter, respondent claims that
the second issue posed by petitioner involves a recalibration of facts which is outside the jurisdiction of this Court.25

There is some merit in the petition.

There is no question that the parties entered into an employment contract on 3 February 1998, whereby petitioner was contracted
by respondent to render services on board "MSV Seaspread" for the consideration of US$515.00 per month for nine (9) months, plus
overtime pay. However, respondent failed to deploy petitioner from the port of Manila to Canada. Considering that petitioner was
not able to depart from the airport or seaport in the point of hire, the employment contract did not commence, and no employer-
employee relationship was created between the parties.26

However, a distinction must be made between the perfection of the employment contract and the commencement of the employer-
employee relationship. The perfection of the contract, which in this case coincided with the date of execution thereof, occurred
when petitioner and respondent agreed on the object and the cause, as well as the rest of the terms and conditions therein. The
commencement of the employer-employee relationship, as earlier discussed, would have taken place had petitioner been actually
deployed from the point of hire. Thus, even before the start of any employer-employee relationship, contemporaneous with the
perfection of the employment contract was the birth of certain rights and obligations, the breach of which may give rise to a cause
of action against the erring party. Thus, if the reverse had happened, that is the seafarer failed or refused to be deployed as agreed
upon, he would be liable for damages.

Moreover, while the POEA Standard Contract must be recognized and respected, neither the manning agent nor the employer can
simply prevent a seafarer from being deployed without a valid reason.

Respondent’s act of preventing petitioner from departing the port of Manila and boarding "MSV Seaspread" constitutes a breach of
contract, giving rise to petitioner’s cause of action. Respondent unilaterally and unreasonably reneged on its obligation to deploy
petitioner and must therefore answer for the actual damages he suffered.

We take exception to the Court of Appeals’ conclusion that damages are not recoverable by a worker who was not deployed by his
agency. The fact that the POEA Rules27 are silent as to the payment of damages to the affected seafarer does not mean that the
seafarer is precluded from claiming the same. The sanctions provided for non-deployment do not end with the suspension or
cancellation of license or fine and the return of all documents at no cost to the worker. They do not forfend a seafarer from
instituting an action for damages against the employer or agency which has failed to deploy him.

The POEA Rules only provide sanctions which the POEA can impose on erring agencies. It does not provide for damages and money
claims recoverable by aggrieved employees because it is not the POEA, but the NLRC, which has jurisdiction over such matters.

Despite the absence of an employer-employee relationship between petitioner and respondent, the Court rules that the NLRC has
jurisdiction over petitioner’s complaint. The jurisdiction of labor arbiters is not limited to claims arising from employer-employee
relationships. Section 10 of R.A. No. 8042 (Migrant Workers Act), provides that:

Sec. 10. Money Claims. – Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations
Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days after the
filing of the complaint, the claims arising out of an employer-employee relationship or by virtue of any law or contract involving
Filipino workers for overseas deployment including claims for actual, moral, exemplary and other forms of damages. x x x [Emphasis
supplied]

Since the present petition involves the employment contract entered into by petitioner for overseas employment, his claims are
cognizable by the labor arbiters of the NLRC.

Article 2199 of the Civil Code provides that one is entitled to an adequate compensation only for such pecuniary loss suffered by him
as he has duly proved. Respondent is thus liable to pay petitioner actual damages in the form of the loss of nine (9) months’ worth of
20
salary as provided in the contract. He is not, however, entitled to overtime pay. While the contract indicated a fixed overtime pay, it
is not a guarantee that he would receive said amount regardless of whether or not he rendered overtime work. Even though
petitioner was "prevented without valid reason from rendering regular much less overtime service,"28 the fact remains that there is
no certainty that petitioner will perform overtime work had he been allowed to board the vessel. The amount of US$286.00
stipulated in the contract will be paid only if and when the employee rendered overtime work. This has been the tenor of our rulings
in the case of Stolt-Nielsen Marine Services (Phils.), Inc. v. National Labor Relations Commission29 where we discussed the matter in
this light:

The contract provision means that the fixed overtime pay of 30% would be the basis for computing the overtime pay if and when
overtime work would be rendered. Simply stated, the rendition of overtime work and the submission of sufficient proof that said
work was actually performed are conditions to be satisfied before a seaman could be entitled to overtime pay which should be
computed on the basis of 30% of the basic monthly salary. In short, the contract provision guarantees the right to overtime pay but
the entitlement to such benefit must first be established. Realistically speaking, a seaman, by the very nature of his job, stays on
board a ship or vessel beyond the regular eight-hour work schedule. For the employer to give him overtime pay for the extra hours
when he might be sleeping or attending to his personal chores or even just lulling away his time would be extremely unfair and
unreasonable.30

The Court also holds that petitioner is entitled to attorney’s fees in the concept of damages and expenses of litigation. Attorney's
fees are recoverable when the defendant's act or omission has compelled the plaintiff to incur expenses to protect his interest.31
We note that respondent’s basis for not deploying petitioner is the belief that he will jump ship just like his brother, a mere
suspicion that is based on alleged phone calls of several persons whose identities were not even confirmed. Time and again, this
Court has upheld management prerogatives so long as they are exercised in good faith for the advancement of the employer’s
interest and not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid
agreements.32 Respondent’s failure to deploy petitioner is unfounded and unreasonable, forcing petitioner to institute the suit
below. The award of attorney’s fees is thus warranted.

However, moral damages cannot be awarded in this case. While respondent’s failure to deploy petitioner seems baseless and
unreasonable, we cannot qualify such action as being tainted with bad faith, or done deliberately to defeat petitioner’s rights, as to
justify the award of moral damages. At most, respondent was being overzealous in protecting its interest when it became too hasty
in making its conclusion that petitioner will jump ship like his brother.

We likewise do not see respondent’s failure to deploy petitioner as an act designed to prevent the latter from attaining the status of
a regular employee. Even if petitioner was able to depart the port of Manila, he still cannot be considered a regular employee,
regardless of his previous contracts of employment with respondent. In Millares v. National Labor Relations Commission,33 the
Court ruled that seafarers are considered contractual employees and cannot be considered as regular employees under the Labor
Code. Their employment is governed by the contracts they sign every time they are rehired and their employment is terminated
when the contract expires. The exigencies of their work necessitates that they be employed on a contractual basis.34

WHEREFORE, petition is GRANTED IN PART. The Decision dated 16 October 2003 and the Resolution dated 19 February 2004 of the
Court of Appeals are REVERSED and SET ASIDE. The Decision of Labor Arbiter Teresita D. Castillon-Lora dated 29 January 1999 is
REINSTATED with the MODIFICATION that respondent CF Sharp Crew Management, Inc. is ordered to pay actual or compensatory
damages in the amount of US$4,635.00

representing salary for nine (9) months as stated in the contract, and attorney’s fees at the reasonable rate of 10% of the
recoverable amount.

SO ORDERED.

21
[G.R. No. 112574. October 8, 1998]
MERCIDAR FISHING CORPORATION represented by its President DOMINGO B. NAVAL, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and FERMIN AGAO, JR., respondents.

DECISION

MENDOZA, J.:

This is a petition for certiorari to set aside the decision, dated August 30, 1993, of the National Labor Relations Commission
dismissing the appeal of petitioner Mercidar Fishing Corporation from the decision of the Labor Arbiter in NLRC NCR Case No. 09-
05084-90, as well as the resolution dated October 25, 1993, of the NLRC denying reconsideration.

This case originated from a complaint filed on September 20, 1990 by private respondent Fermin Agao, Jr. against petitioner for
illegal dismissal, violation of P.D. No. 851, and non-payment of five days service incentive leave for 1990. Private respondent had
been employed as a bodegero or ships quartermaster on February 12, 1988. He complained that he had been constructively
dismissed by petitioner when the latter refused him assignments aboard its boats after he had reported to work on May 28, 1990.[1]

Private respondent alleged that he had been sick and thus allowed to go on leave without pay for one month from April 28, 1990 but
that when he reported to work at the end of such period with a health clearance, he was told to come back another time as he could
not be reinstated immediately. Thereafter, petitioner refused to give him work. For this reason, private respondent asked for a
certificate of employment from petitioner on September 6, 1990. However, when he came back for the certificate on September 10,
petitioner refused to issue the certificate unless he submitted his resignation. Since private respondent refused to submit such letter
unless he was given separation pay, petitioner prevented him from entering the premises.[2]

Petitioner, on the other hand, alleged that it was private respondent who actually abandoned his work. It claimed that the latter
failed to report for work after his leave had expired and was, in fact, absent without leave for three months until August 28, 1998.
Petitioner further claims that, nonetheless, it assigned private respondent to another vessel, but the latter was left behind on
September 1, 1990. Thereafter, private respondent asked for a certificate of employment on September 6 on the pretext that he
was applying to another fishing company. On September 10, 1990, he refused to get the certificate and resign unless he was given
separation pay.[3]

On February 18, 1992, Labor Arbiter Arthur L. Amansec rendered a decision disposing of the case as follows:

ACCORDINGLY, respondents are ordered to reinstate complainant with backwages, pay him his 13th month pay and incentive leave
pay for 1990.

All other claims are dismissed.

SO ORDERED.

Petitioner appealed to the NLRC which, on August 30, 1993, dismissed the appeal for lack of merit. The NLRC dismissed petitioners
claim that it cannot be held liable for service incentive leave pay by fishermen in its employ as the latter supposedly are field
personnel and thus not entitled to such pay under the Labor Code.[4]

The NLRC likewise denied petitioners motion for reconsideration of its decision in its order dated October 25, 1993.

Hence, this petition. Petitioner contends:

THE RESPONDENT COMMISSION PALPABLY ERRED IN RULING AND SUSTAINING THE VIEW THAT FISHING CREW MEMBERS, LIKE
FERMIN AGAO, JR., CANNOT BE CLASSIFIED AS FIELD PERSONNEL UNDER ARTICLE 82 OF THE LABOR CODE.

II

22
THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT
UPHELD THE FINDINGS OF THE LABOR ARBITER THAT HEREIN PETITIONER HAD CONSTRUCTIVELY DISMISSED FERMIN AGAO, JR.,
FROM EMPLOYMENT.

The petition has no merit.

Art. 82 of the Labor Code provides:

ART. 82. Coverage. - The provisions of this Title [Working Conditions and Rest Periods] shall apply to employees in all establishments
and undertakings whether for profit or not, but not to government employees, field personnel, members of the family of the
employer who are dependent on him for support, domestic helpers, persons in the personal service of another, and workers who
are paid by results as determined by the Secretary of Labor in appropriate regulations.

..........

Field personnel shall refer to non-agricultural employees who regularly perform their duties away from the principal place of
business or branch office of the employer and whose actual hours of work in the field cannot be determined with reasonable
certainty.

Petitioner argues essentially that since the work of private respondent is performed away from its principal place of business, it has
no way of verifying his actual hours of work on the vessel. It contends that private respondent and other fishermen in its employ
should be classified as field personnel who have no statutory right to service incentive leave pay.

In the case of Union of Filipro Employees (UFE) v. Vicar,[5] this Court explained the meaning of the phrase whose actual hours of
work in the field cannot be determined with reasonable certainty in Art. 82 of the Labor Code, as follows:

Moreover, the requirement that actual hours of work in the field cannot be determined with reasonable certainty must be read in
conjunction with Rule IV, Book III of the Implementing Rules which provides:

Rule IV Holidays with Pay

Section 1. Coverage - This rule shall apply to all employees except:

..........

(e) Field personnel and other employees whose time and performance is unsupervised by the employer xxx (Italics supplied)

While contending that such rule added another element not found in the law (Rollo, p. 13), the petitioner nevertheless attempted to
show that its affected members are not covered by the abovementioned rule. The petitioner asserts that the companys sales
personnel are strictly supervised as shown by the SOD (Supervisor of the Day) schedule and the company circular dated March 15,
1984 (Annexes 2 and 3, Rollo, pp. 53-55).

Contrary to the contention of the petitioner, the Court finds that the aforementioned rule did not add another element to the Labor
Code definition of field personnel. The clause whose time and performance is unsupervised by the employer did not amplify but
merely interpreted and expounded the clause whose actual hours of work in the field cannot be determined with reasonable
certainty. The former clause is still within the scope and purview of Article 82 which defines field personnel. Hence, in deciding
whether or not an employees actual working hours in the field can be determined with reasonable certainty, query must be made as
to whether or not such employees time and performance is constantly supervised by the employer.[6]

Accordingly, it was held in the aforementioned case that salesmen of Nestle Philippines, Inc. were field personnel:

It is undisputed that these sales personnel start their field work at 8:00 a.m. after having reported to the office and come back to the
office at 4:00 p.m. or 4:30 p.m. if they are Makati-based.

The petitioner maintains that the period between 8:00 a.m. to 4:00 or 4:30 p.m. comprises the sales personnels working hours
which can be determined with reasonable certainty.

23
The Court does not agree. The law requires that the actual hours of work in the field be reasonably ascertained. The company has no
way of determining whether or not these sales personnel, even if they report to the office before 8:00 a.m. prior to field work and
come back at 4:30 p.m., really spend the hours in between in actual field work.[7]

In contrast, in the case at bar, during the entire course of their fishing voyage, fishermen employed by petitioner have no choice but
to remain on board its vessel. Although they perform non-agricultural work away from petitioners business offices, the fact remains
that throughout the duration of their work they are under the effective control and supervision of petitioner through the vessels
patron or master as the NLRC correctly held.[8]

Neither did petitioner gravely abuse its discretion in ruling that private respondent had constructively been dismissed by petitioner.
Such factual finding of both the NLRC and the Labor Arbiter is based not only on the pleadings of the parties but also on a medical
certificate of fitness which, contrary to petitioners claim, private respondent presented when he reported to work on May 28,
1990.[9] As the NLRC held:

Anent grounds (a) and (b) of the appeal, the respondent, in a nutshell, would like us to believe that the Arbiter abused his discretion
(or seriously erred in his findings of facts) in giving credence to the factual version of the complainant. But it is settled that (W)hen
confronted with conflicting versions of factual matters, the Labor Arbiter has the discretion to determine which party deserves
credence on the basis of evidence received. [Gelmart Industries (Phils.), Inc. vs. Leogardo, 155 SCRA 403, 409, L-70544, November 5,
1987]. And besides, it is settled in this jurisdiction that to constitute abandonment of position, there must be concurrence of the
intention to abandon and some overt acts from which it may be inferred that the employee concerned has no more interest in
working (Dagupan Bus Co., Inc. vs. NLRC, 191 SCRA 328), and that the filing of the complaint which asked for reinstatement plus
backwages (Record, p. 20) is inconsistent with respondents defense of abandonment (Hua Bee Shirt Factory vs. NLRC, 188 SCRA
586).[10]

It is trite to say that the factual findings of quasi-judicial bodies are generally binding as long as they are supported substantially by
evidence in the record of the case.[11] This is especially so where, as here, the agency and its subordinate who heard the case in the
first instance are in full agreement as to the facts.[12]

As regards the labor arbiters award which was affirmed by respondent NLRC, there is no reason to apply the rule that reinstatement
may not be ordered if, as a result of the case between the parties, their relation is strained.[13] Even at this late stage of this
dispute, petitioner continues to reiterate its offer to reinstate private respondent.[14]

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

24
G.R. No. 72409 December 29, 1986
MAMERTO S. BESA, doing business under the name and style of BESA'S CUSTOMBUILT SHOES, petitioner, vs.
THE HONORABLE CRESENCIANO B. TRAJANO, DIRECTOR OF THE BUREAU OF LABOR RELATIONS, MINISTRY OF LABOR AND
EMPLOYMENT, AND KAISAHAN NG MANGGAGAWANG PILIPINO (KAMPIL-KATIPUNAN), respondents.

PARAS, J.:

This petition questions the decision of the Director of the Bureau of Labor Relations in BLR Case No. A-8-165-85, which affirmed the
appealed order of the Med-Arbiter, Labor Relations Division, NCR in NCR-LRD-M-1-044-85, a certification election case. More
specifically, petitioner seeks the resolution of the question as to whether or not an employer-employee relationship exists between
herein petitioner and the seventeen (17) shoeshiners-members of the respondent union, who, if the relationship does exist, should
be entitled to the rights, privileges and benefits of an employee as provided in the Labor Code.

Sometime in January, 1985, private respondent Kaisahan ng Mangagawang Pilipino KAMPIL for short) a legitimate labor union duly
registered with the Ministry of Labor and Employment (MOLE, for short), filed a Petition for Certification Election, docketed as NCR-
LRD-M-1-044-85 in the National Labor Relations Division of the National Capital Region. Petitioner opposed it alleging that —

1. There is no employer-employee relationship between Besa's and the petitioners-signatories to the petition;

2. The subject of the present petition had previously been decided by the defunct Court of Industrial Relations, and is
therefore barred under the principle of res judicata;

3. The petition fails to comply with the mandatory formal requirements under Sec. 2, Book V, of the Omnibus Rules
Implementing the Labor Code; and

4. This Hon. Commission has no jurisdiction over the subject matter and parties to the petition.

Acting on the Petition, the Opposition thereto, and the Reply to the Opposition, the Med-Arbiter on June 27, 1985, issued an order
declaring that there was an employer-employee relationship between the parties and directed that an election be conducted.

Petitioner appealed the order to the Director of BLR citing among others the following reasons —

1. That the subject of the present petition has previously been decided by the defunct Court of Industrial Relations, and is
therefore barred under the principle of res judicata (CIR Case Nos. 2783, 2751 and 2949 ULP December 21, 1965);

2. That on May 28, 1985, Director Severo Pucan of the Ministry of Labor and Employment, in dismissing the case for
underpayment of commissions and non-payment of ECOLA, filed by the shoeshiners against Besas Custombuilt Shoes, for lack of
jurisdiction petition, declared that there was no employer-employee relationship between the shoeshiners and petitioner Besas
(Order in NCR-LSED1-020-85);

Director Pucan's findings were based on a letter-opinion of the Director of the Bureau of Working Conditions of the MOLE (Annex "B-
2", Petition for Certiorari). The legal ground therein cited was res judicata.

xxx xxx xxx

Appeal was dismissed by the Director of BLR as contained in his decision dated Sept. 27, 1985 upholding the finding of the Med-
Arbiter that supervisors were appointed to oversee the bootblacks' performance. It declared that such is a finding of fact that is
entitled to respect and that res judicata does not he as the parties and the causes of action in the certification election case are
different from the parties and causes of action in CIR Cases Nos. 2783-ULP 2751-ULP and 2949 ULP

Thus the Petition of the Union (KAMPIL) before the Med-Arbiter for the holding of the certification election was granted. While the
pre-election conference was in progress, petitioner herein BESAS filed with Us with petition for certiorari with Prohibition and
simultaneously filed with the Med-Arbiter a motion to suspend the pre-election conference. The petition filed before Us was
dismissed for lack of merit but was reconsidered upon Motion of petitioner. In its Motion for Reconsideration, petitioner raised the
following grounds:

I
25
THE INSTANT PETITION PRESENTS QUESTIONS OF LAW AND SUBSTANCE TO MERIT THE CONSIDERATION OF THIS HONORABLE
COURT.

II

THE QUESTIONED DECISION OF THE RESPONDENT DIRECTOR WAS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE AND THE SAME IS
PURELY BASED ON SPECULATIONS, SURMISES AND CONJECTURES.

III

THE QUESTIONED DECISION OF THE RESPONDENT DIRECTOR IS CONTRARY TO LAW AND APPLICABLE DECI SIONS OF THE SUPREME
COURT ON THE MATTER.

IV

THE PETITION FOR CERTIFICATION ELECTION FILED BY RESPONDENT UNION WITH THE MINISTRY OF LABOR AND EMPLOYMENT
FAILED TO COMPLY WITH THE MANDATORY REQUIREMENTS UNDER ARTICLE 258 OF THE LABOR CODE, AS AMENDED, AND ITS
IMPLEMENTING RULES.

THE RESPONDENT DIRECTOR ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN DECIDING THAT
THERE EXISTS AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PETITIONER AND THE SHOESHINER-MEMBERS OF THE
RESPONDENT UNION,

VI

THE RESPONDENT DIRECTOR ACTED WITHOUT JURISDICTION IN TAKING COGNIZANCE OF THE BASIC PETITION CONSIDERING THAT
THE SUBJECT MATTER AND THE PARTIES THEREOF HAVE BEEN DECIDED BY THE DEFUNCT COURT OF INDUSTRIAL RELATIONS AND IS
THEREFORE BABRED BY THE PRINCIPLE OF RES ADJUDICATA.

The main thrust of the instant petition is the question of employer-employee relationship between petitioner BESAS and 17 of the
members of the herein respondent Union who are designated as shoeshiners. During the certification election held on Nov. 26, 1985
at BESAS of the 53 eligible voters, 49 cast their votes. 33 voted for the union while 16 voted for no union. Among the 33 voters who
opted for a union 17 persons are shoeshiners while 16 persons are non-shoeshiners.

The question of employer-employee relationship became a primodial consideration in resolving whether or not the subject
shoeshiners have the juridical personality and standing to present a petition for certification election as well as to vote i therein. It is
the position of petitioner that if the shoeshiners are not considered as employees of Besa's the basic petition for certification
election must necessarily be dismissed for failure to comply with the mandatory requirements of the Labor Code, as amended, that
at least thirty (30%) percent of the employees must support the petition for certification election and that in order to be certified as
the sole and exclusive bargaining agent, the union must be obtained a majority of the valid votes cast by eligible voters. In the
instant case, if the 17 shoeshiners are declared ineligible and their votes are consequently nullified the result of the certification
election would be 16 "Yes" votes (33 minus 17) and 16 "No" votes, which is a tie. Since the respondent union did not obtain a clear
majority for the "Yes" votes as required under Rule IV Sec. 8(f) of the Omnibus Rules of the Labor Code, it necessarily follows that
the respondent union cannot be certified as the sole and exclusive bargaining agent of the workers of Besa's.

The present petition merits Our consideration. The records of the case reveal that an employer-employee relationship does not exist
between the 17 shoeshiners and petitioner.

Be it noted that the defunct CIR in dismissing the cases for unfair labor practice filed by the shoeshiners against herein petitioner
BESA declared in its Decision dated December 21, 1965 that:

The shoe shiner is distinct from a piece worker because while the latter is paid for work accomplished, he does not, however,
contribute anything to the capital of the employer other than his service. It is the employer of the piece worker who pays his wages,
while the shoe shiner in this instance is paid directly by his customer. The piece worker is paid for work accomplished without regard
26
or concern to the profit as derived by his employer, but in the case of the shoe shiners, the proceeds derived from the trade are
always divided share and share alike with respondent BESA. The shoe shiner can take his share of the proceeds everyday if he
wanted to or weekly as is the practice of qqqBesas The employer of the piece worker supervises and controls his work, but in the
case of the shoe shiner, respondent BESA does not exercise any degree of control or supervision over their person and their work.
All these are not obtaining in the case of a piece worker as he is in fact an employee in contemplation of law, distinct from the shoe
shiner in this instance who, in relation to respondent MAMERTO B. BESA, is a partner in the trade. Consequently, employer-
employee relationship between members of the Petitioning union and respondent MAMERTO B. BESA being absent the latter could
not be held guilty of the unfair tabor practice acts imputed against him. (p. 6, Annex "B1 " of said Decision).<äre||anº•1àw>

Then too on Dec. 27, 1983, then Director Augusto Sanchez of the Bureau of Working Conditions, MOLE, in response to a letter of
petitioner relative to the implementation of wage Order No. 2 which provided for an increase both in minimum wage and cost of
living allowance, opined as follows:

Entitlement of the minimum requirements of the law particularly on wages and allowances presupposes the existence of employer-
employee relationship which is determined by the concurrence of the following conditions:

1. right to hire

2. payment of wages

3. right to fire; and

4. control and supervision

The most important condition to be considered is the exercise of control and supervision over the employees, per our conversation,
the persons concerned under your query are the shoe shiners and based on the decision rendered by Associate Judge Emiliano
Tabigne of the defunct Court of Industrial Relations, these shoe shiners are not employees of the company, but are partners instead.
This is due to the fact that the owner/manager does not exercise control and supervision over the shoe shiners. That the shiners
have their own customers from whom they charge the fee and divide the proceeds equally with the owner, which make the owner
categorized them as on purely commission basis. The attendant circumstances clearly show that there is no employer-employee
relationship existing, and such the owner/manager is not by law, under obligation to extend to those on purely commission basis the
benefit of Wage Order No. 2. However, the law does not preclude the employer in giving such benefit to all its employees including
those which may not be covered by the mandate of the law.

(Letter dated December 27, 1985 addressed to petitioner Annex B-2, Petition)

The Office of the Solicitor General as counsel for public respondent agrees that in the present case, no employer-employee
relationship exists.

The Supreme Court in the Rosario Brothers case ruled that;

A basic factor underlying the exercise of rights under the Labor Code is the status of employment. It is important in the
determination of who shall be included in a proposed bargaining unit because it is sine qua non. The fundamental and essential
condition that a bargaining unit be composed of employees. Failure to establish this juridical relationship between the union
members and the employer affects the legality of the union itself. It means the ineligibility of the union members to present a
petition for certification election as well as to vote therein.

Existence of employer-employee relationship is determined by the following elements, namely, a] selection and engagement of the
employee; b] payment of wages; c] powers of dismissal; and d] power to control the employee's conduct although the latter is the
most important element (Rosario Brothers Inc, vs. Ople, 131 SCRA 72, 1984)

WHEREFORE, judgment is hereby rendered giving due course to the Petition and declaring VOID the decision of the Director of the
Bureau of Labor Relations dated September 27, 1985. The Petition in BLR Case No. A-8-165-85 (NCR-LRD-M1-044-85) is therefore
hereby DISMISSED.

SO ORDERED.

27
G.R. No. L-69741 August 19, 1986
BROKENSHIRE MEMORIAL HOSPITAL, INC. vs NLRC

NARVASA, J.:
Are employees in a private enterprise entitled to the so called "13th month pay" prescribed by PD 851 "on top of
bonuses" already being given by the employer prior to the decree's effectivity on December 16, 1975?

To this question, a negative answer has twice been given by this Court.

In National Federation of Sugar Workers (NFSW) vs. Ovejera, promulgated on May 31, 1982 1-where a collective
bargaining agreement required the employer among others "to maintain the present practice on the grant of Christmas
bonus, milling bonus and amelioration bonus" ("amounting to more than a month's pay")-this Court made the following
pronouncements on the issue:2

Keenly sensitive to the needs of the workingmen, yet mindful of the mounting production cost that are the woe of
capital which provides employment to labor, President Ferdinand E. Marcos issued Presidential Decree No. 851 on 16
December 1975. Thereunder, 'all employers are hereby required to pay all their employees receiving a basic salary of not
more than Pl,000 a month, regardless of the nature of their employment, a 13th month pay not later than December 24
of every year.' Exempted from the obligation however are:

Employers already paying their employees a 13th month pay or its equivalent. . . . (Section 2)

The evident intention of the law, as revealed by the law itself, was to grant an additional income in the form of a 13th
month pay to employees not already receiving the same. Otherwise put, the intention was to grant some relief-not to all
workers-but only to the unfortunate ones not actually paid a 13th month salary or what amounts to it, by whatever
name called; but it was not envisioned that a double burden would be imposed on the employer already paying his
employees a 13th month pay or its equivalent-whether out of pure generosity or on the basis of a binding agreement
and, in the latter case, regardless of the conditional character of the grant (such as making the payment dependent on
profit), so long as there is actual payment. Otherwise, what was conceived to be a 13th month salary would in effect
become a 14th or possibly 15th month pay.

This view is justified by the law itself which makes no distinction in the grant of exemption: 'Employers already paying
their employees a 13th month pay or its equivalent are not covered by this Decree.' (P.D. 851)

The Rules Implementing P.D. 851 issued by MOLE immediately after the adoption of said law reinforce this stand. Under
Section 3(e) thereof-

The term "its equivalent" . . . shall include Christmas bonus, mid-year bonus, profit-sharing payments and other cash
bonuses amounting to not less than 1/12th of the basic salary but shall not include cash and stock dividends, cost of
living allowances and all other allowances regularly enjoyed by the employee, as well as non-monetary benefits. Where
an employer pays less than 1/12th of the employee's basic salary, the employer shall pay the difference.' (Empahsis
supplied)

Having been issued by the agency charged with the implementation of PD 851 as its contemporaneous interpretation of
the law, the quoted rule should be accorded great weight.

Pragmatic considerations also weigh heavily in favor of crediting both voluntary and contractual bonuses for the purpose
of determining liability for the 13th month pay. To require employers (already giving their employees a 13th month
salary or its equivalent to give a second 13th month pay would be unfair and productive of undesirable results. To the
employer who had acceded and is already bound to give bonuses to his employees, the additional burden of a 13th
month pay would amount to a penalty for his munificence or liberality. The probable reaction of one so circumstanced

28
would be to withdraw the bonuses or resist further voluntary grants for fear that if and when a law is passed giving the
same benefits, his prior concessions might not be given due credit; and this negative attitude would have an adverse
impact on the employees.

In Dole Philippines, Inc. vs. Leogardo, Jr., decided on October 23, 1982 3 -where a collective bargaining agreement
imposed on the employer the obligation to pay "a year-end productivity bonus equivalent to ten (10) days of ... (the
employee's) basic daily wage" if a stipulated level of production were attained, and the first bonus was in fact given on
December 11, 1975-this Court 4 adverted to the NFSW decision as binding norm and went on to say.

Tested against this norm, it becomes clear that the year-end productivity bonus granted by petitioner to private
respondents pursuant to their CBA is, in legal contemplation, an integral part of their 13th month pay, notwithstanding
its conditional nature. When, therefore, petitioner, in order to comply with the mandate of PD 851, credited the year-
end productivity bonus as part of the 13th month pay and adopted the procedure of paying only the difference between
said bonus and 1/12 of the worker's yearly basic salary, it acted well within the letter and spirit of the law and its
implementing rules. For in the event that "an employer pays less than one twelfth of the employees' basic salary, all that
said employer is required to do under the law is to pay the difference.

To hold otherwise would be to impose an unreasonable and undue burden upon those employers who had
demonstrated their sensitivity and concern for the welfare of their employees. A contrary stance would indeed create an
absurd situation whereby an employer who started giving his employees the 13th month pay only because of the
unmistakable force of the law would be in a far better position than another who, by his own magnanimity or by mutual
agreement, had long been extending to his employees the benefits contemplated under PD 851, by whatever
nomenclature these benefits have come to be known. Indeed, PD No. 851, a legislation benevolent in its purpose, never
intended to bring about such oppressive situation.

This Court is now called upon to answer the same question again, this time at the instance of petitioner Brokenshire
Memorial Hospital, which initiated the special civil action of certiorari at bar to annul the resolution of the National
Labor Relations Commission (Second Division) affirming the decision of a Labor Arbiter of Regional Arbitration Branch XI
of the Ministry of Labor and Employment in NLRC Case No. 64-LS-XI-82 entitled "Brokenshire Memorial Hospital
Employees and Workers Union FFW v. Brokenshire Memorial Hospital." The affirmed decision required the hospital to
pay its employees a yearly Christmas bonus in addition to the 13th month pay under PD 85l. 5 The answer to the
question will be the same. The hospital can not be obliged to bear the "double burden" of giving its employees not only
the 13th month pay required by PD 851 but also the Christmas bonus it had theretofore been granting. The decisions in
question will have to be reversed.

At the time that PD 851 became effective on December 16, 1975, the hospital had for many years been giving its
employees an annual Christmas bonus. It continued to do so afterwards. But after 1979 the hospital stopped giving the
bonus because avowedly its poor financial condition no longer made this possible.

Protesting the discontinuance, respondent union filed a complaint 6 against the hospital for unlawful diminution of
benefits, alleging a violation of Article 100 of the Labor Code and Section 10 of PD 851. 7 In response, 8 the hospital
asserted that the giving of the bonus was not an established and continuing obligation on its part but was contingent
and entirely dependent on its financial condition in any given year. This is why the matter of the bonus was not dealt
with at all in the Collective Bargaining Agreement between it and the union. At any rate, it further claimed, it should not
be made to bear the double burden of giving both 13th month pay and bonus, in the light of the decision in National
Federation of Sugar Workers (NFSW) vs. Ethelwoldo R. Ovejera, et al., G.R. No. 59743, rendered in the context of Section
2, PD 851, and Section 3(c) of the Rules and Regulations Implementing PD 851, declaring said decree inapplicable to
"employers already paying their employees a 13th month pay or its equivalent.

29
On March 23, 1983, the Labor Arbiter promulgated judgment requiring the hospital "to pay all its employees, as it had
done in 1979, an extra Christmas bonus of P100.00 per year, for 1980, 1981, and 1982." 9 The hospital appealed. On
December 14, 1984, the National Labor Relations Commission affirmed the labor Arbiter's decision. 10

It is difficult to understand why the Labor Arbiter took no account whatever of this Court's decision in NFSW vs. Ovejera
despite its having been explicitly brought to his attention. He never mentioned the case in his decision at all. Instead, he
occupied Himself with a discussion of the financial condition of the hospital, declaring that his reading of the hospital's
financial statement for 1980 revealed a "surplus available for expenditure" from which the employees' bonuses could be
drawn.

Equally difficult to understand is the refusal of the National Labor Relations Commission to apply the NFSW vs. Ovejera
ruling. According to the Commission-

Respondent's (the hospital's) reliance on the La Carlota case, GR No. 59743, is unavailing. We are not persuaded to view
the matter that way. For in the La Carlota case, the NFSW union is claiming entitlement to a 13th month pay, on top of
Christmas bonuses already given, whereas, in the instant case, respondent discontinued and eliminated a favorable
practice being enjoyed by the employee at the time of promulgation of the rules implementing PD No. 851 on December
22, 1975 which, as fixed below, amounts to P100 christmas bonus, on top of the 13th month pay.

The distinction sought to be drawn by the Commission between the case at bar and NFSW vs. Ovejera is insubstantial
and unjustifiable. The message of NFSW vs. Ovejera is clear and unequivocal: An employer may not be obliged to
assume a "double burden" of paying the 13th month pay in addition to bonuses or other pecuniary benefits given by
way of fringe benefits aside from the employees' basic salaries or wages; PD 851 accorded to him the option either to
exempt himself from the obligation to give 13th month pay or discontinue the payment of the bonuses or fringe benefits
deemed to be the equivalent of said 13th month pay. In any event, whatever doubt might have existed regarding this
option on the employer's part should have been dispelled by this Court's decision in Dole Phils., Inc. vs. Leogardo, Jr.
promulgated on October 23, 1982, 11 more than two (2) years before the rendition of the resolution of the National
Labor Relations Commission on December 14, 1984. In Dole, this Court declared that when an employer, in order to
comply with the mandate of PD 851, credits the bonus being paid by him as part of his employees' 13th month pay and
adopts the procedure of paying only the difference between said bonus and 1/12 of the employees' yearly basic salary,
said employer acts well within the letter and spirit of the law and its implementing rules; for in the event that "an
employer pays less than one twelfth of the employees' basic salary, all that said employer is required to do under the
law is to pay the difference."

Prescinding from these legal considerations, it would appear that the ratiocinations of the Labor Arbiter based
on his own interpretation of the financial statements of petitioner hospital for 1980 were quite erroneous. Where those
financial statements, to an accountant, or one familiar with accountancy, should have shown a deficit, to the Labor
Arbiter they showed a surplus.
Be this as it may, the fact is that as early as November 5, 1984, the hospital sent to the Minister of Labor and
Employment a notice of closure 12 because of its "critically grave" financial condition. 13 And on March 2, 1985 the
hospital finally ceased to operate for lack of operating capital 14 resulting from the garnishment of its bank deposits
amounting to P163,047.50. 15
Whether or not this unhappy eventuality would have come to pass had the decision of the Labor Arbiter or that
of the National Labor Relations Commission correctly applied the doctrine enunciated by this Court in NFSW vs. Ovejera
and Dole Phils., Inc. vs. Leogardo, Jr., is a question that perhaps is incapable of a fair and realistic answer. But the mere
possibility that closure, with the consequent loss of work for so many, was caused or hastened by the questioned
decisions should be enough to give pause and provide an object lesson to address such matters more studiously and
with greater circumspection in the future.
WHEREFORE, the Decision of the Labor Arbiter dated March 23, 1983 and the Resolution of the National Labor
Relation Commission in affirmance thereof, dated December 14, 1984, are hereby reversed and set aside, and the
complaint filed by respondent union is hereby dismissed, with costs against said private respondent. SO ORDERED.

30
G.R. No. L-60018 October 23, 1982
DOLE PHILIPPINES, INC., petitioner, vs. THE HON. VICENTE LEOGARDO, JR. (in his capacity as Deputy Minister of
Labor), and ASSOCIATED LABOR UNION (ALU), respondents.

G.R. No. L-60019 October 23, 1982

DOLE PHILIPPINES, INC., petitioner, vs. THE HON. VICENTE LEOGARDO, JR. (in his capacity as Deputy Minister of
Labor), OSCAR RABINO, OSCAR SERENUELA, RAUL MONTEJO, and ALL REGULAR RANK AND FILE WORKERS OF THE
STANDARD (PHILIPPINES) FRUIT CORPORATION (now merged with DOLE PHILIPPINES, INC.), respondents.

ESCOLIN, J.:
Petition for certiorari to annul and set aside the order of respondent Deputy Minister of Labor, dated October 26, 1981,
which affirmed the order of the Regional Director of the Ministry of Labor, Davao City, requiring petitioner Dole
Philippines, Inc. to pay its employees the year-end productivity bonus agreed upon in their Collective Bargaining
Agreement in addition to the 13th month pay prescribed under Presidential Decree No. 851.

The salient facts are as follows:

On June 6, 1975, Standard Philippines Fruit Corporation or STANFILCO, a company merged in 1981 with petitioner Dole
Philippines, Inc., entered into a collective bargaining agreement with the Associated Labor Union, ALU for short,
effective for a period of three (3) years, beginning June 1, 1975 to May 31, 1978. The Collective Bargaining Agreement
provided, among others, the grant of a yearend productivity bonus to all workers within the collective bargaining unit.
Section 1, Article XVII thereof reads as follows:

ARTICLE XVII

YEAR-END PRODUCTIVITY BONUS

SECTION 1. The COMPANY agrees to grant each worker within the bargaining unit a year-end productivity bonus
equivalent to ten (10) days of his basic daily wage if eighty percent (80%) or more of the average total banana
production for the two (2) preceding calendar years together with the current year's estimate is attained. This bonus is
exclusive of any bonus which the Company may be presently giving or may give in the future to its workers pursuant to
the COMPANY's rights under Section 4, Article I of this Agreement.

Section 4, Article I of the agreement referred to above provides:

SECTION 4. All terms and conditions of employment of workers not specifically excluded in Section I of this Article are
embodied in this Agreement, and the same shall govern the relationship between the COMPANY and such workers. On
the other hand, all such benefits and/or privileges as are not expressly provided for in this Agreement but which are now
being accorded, may in the future be accorded, or might have previously been accorded to the workers, no matter how
long or how often, shall be deemed purely acts of grace and dependent upon the sole judgment and discretion of the
COMPANY to grant, modify or withdraw, and shall not be construed as establishing an obligation on the part of the
COMPANY.

The 80% production level stated in Article XVII of said CBA having been attained in 1975, the workers were paid the
stipulated year-end productivity bonus on December 11, 1975.

Shortly thereafter, or on December 16, 1975, Presidential Decree 851 took effect. Section 1 thereof required all
employers to pay their employees receiving a basic salary of not more than P1,000.00 a month, regardless of the nature
of their employment, a 13th month pay not later than December 24 of every year. Section 2 of the law, however,
exempted from its coverage those employers already paying their employees a 13th month pay or its equivalent.

31
On June 22, 1975, Secretary (now Minister) of Labor, Hon. Blas F. Ople, issued the "Rules and Regulations Implementing
Presidential Decree 851." Section 3(c) thereof provides that the term "its equivalent" ... shall include Christmas bonus,
mid-year bonus, profit-sharing payments and other cash bonuses amounting to not less than 1/12th of the basic salary
but shall not include rash and stock dividends, cost of living allowance and other allowances regularly enjoyed by the
employee as well as non-monetary benefits ...

The rules further added that "where an employer pays less than 1/12th of the employee's basic salary, the employer
shall pay the difference."

To comply with the provision of P.D. 851 on the 13th month pay, STANFILCO paid its workers on December 29, 1975 the
difference between 1/12th of their yearly basic salary and their year-end productivity bonus. In doing so, STANFILCO
relied on Section 2 of the decree, as interpreted by the MOLE's implementing rules. The same method of computation
was followed in the payment of the year-end productivity bonus and the 13th month pay for the years 1976, 1977 and
1978.

Questioning this procedure, respondent ALU, joined by STANFILCO technical employees as well as its rank-and-file
workers, filed on February 19, 1979 a complaint with the South Cotabato District Labor Office at General Santos City,
docketed as LR-003-G.S.-79, ALU charging STANFILCO with unfair labor practice and non-implementation of the CBA
provision on the year-end productivity bonus. The following day, February 20, 1979, Oscar Rabino, Oscar Serenuela, Raul
Montejo and all the rank-and-file workers of STANFILCO instituted another complaint before the same district labor
office, docketed as LR-010-G.S.-79, charging the company with non-payment of the production incentive bonus for the
years 1975, 1976, 1977 and 1978.

The issues having been joined. the two (2) cases were Consolidated and the parties were required to file their position
papers.

On May 25, 1979, the Regional Director of MOLE, Davao City, issued an order sustaining respondents' position that the
year-end productivity bonus, being a contractual commitment, is separate and distinct from the 13th month pay and
must, therefore, be paid separately in full. The decretal portion of the order reads:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered

1) DISMISSING the complaint of the office and technical employees;

2) DISMISSING the claim of ALU for damages and interest including its charges against respondent for unfair labor
practice;

3) ABSOLVING respondent Thomas M. Leahy from any personal liability;

4) GRANTING the complaint of OSCAR RABINO and his group as the complaint of all rank and file workers covered
by the CBA, and which will also include all rank and file workers under the complaint filed by ALU;

5) ORDERING respondent to pay the bonuses under the CBA for the years 1975, 1976, 1977 and 1978.

On appeal, the respondent Deputy Minister of Labor affirming the order.

In mandating the payment of the 13th month compensation to employees earning less than P1,000.00, PD 851 obviously
seeks to remedy the sad plight of labor in a milieu of worldwide inflation vis-a-vis a static wage level. However, cognizant
of the fact that the remedy sought to be enforced had long been granted by some employers out of their own volition
and magnanimity, the law has expressly exempted from its coverage those employers "who are already paying their
employees a 13th month pay or its equivalent." 1

32
While the intention to exclude those certain employers from the operation of the law is quite clear, the parties advance
conflicting views as to the meaning of the phrase "or its equivalent."

Section 3(e) of the Rules and Regulations Implementing PD No. 851, issued by the Minister of Labor on December 22,
1975 explicitly states that the term "or its equivalent ... shall include Christmas bonus, mid-year bonus, profit-sharing
payments and other cash bonuses amounting to not less than one-twelfth of the basic salary. Where an employer pays
less than 1/12 of the employee's basic salary, the employer shall pay the difference."

In "National Federation of Sugar Workers versus Ovejera, et al.", 2 the interpretation given by the MOLE received the
imprimatur of this Court, thus:

Having been issued by the agency charged with the implementation of PD No. 851 as its contemporaneous
interpretation of the law, the quoted rule shall be accorded great weight.

Furthermore, to resolve the growing number of controversies stemming from the interpretation of Section 2, PD No.
851, this Court in the above-cited case, speaking thru Justice Plana, established definitely the legal equivalent of the
13th month pay in this wise:

The evident intention of the law, as revealed by the law itself, was to grant an additional income in the form of a 13th
month pay to employees not already receiving the same. Otherwise put, the intention was to grant some relief — not to
all workers — but only to the unfortunate ones not actually paid a 13th month salary or what amounts to it, by whatever
name caned; but it was not envisioned that a double burden would be imposed on the employer already paying his
employees a 13th month pay or its equivalent — whether out of pure generosity or on the basis of a binding agreement,
and, in the latter case, regardless of the conditional character of the grant (such as making the payment dependent on
profit), so long as there is actual payment. Otherwise, what was conceived to be a 13th month salary would in effect
become a 14th or possibly 15th month pay. (Emphasis supplied).<äre||anº•1àw>

Continuing, this Court said:

Pragmatic considerations also weigh heavily in favor of crediting both voluntary and contractual bonuses for the purpose
of determining liability for the 13th month pay ... (Emphasis supplied).

Tested against this norm, it becomes clear that the year-end productivity bonus granted by petitioner to private
respondents pursuant to their CBA is, in legal contemplation, an integral part of their 13th month pay, notwithstanding
its conditional nature. When, therefore, petitioner, in order to comply with the mandate of PD No. 851, credited the
year-end productivity bonus as part of the 13th month pay and adopted the procedure of paying only the difference
between said bonus and 1/12th of the worker's yearly basic salary, it acted well within the letter and spirit of the law
and its implementing rules. For in the event that "an employer pays less than one-twelfth of the employees' basic salary,
all that said employer is required to do under the law is to pay the difference." 3

To hold otherwise would be to impose an unreasonable and undue burden upon those employers who had
demonstrated their sensitivity and concern for the welfare of their employees. A contrary stance would indeed create an
absurd situation whereby an employer who started giving his employees the 13th month pay only because of the
unmistakable force of the law would be in a far better position than another who, by his own magnanimity or by mutual
agreement, had long been extending to his employees the benefits contemplated under PD No. 851, by whatever
nomenclature these benefits have come to be known. Indeed, PD No. 851, a legislation benevolent in its purpose, never
intended to bring about such oppressive situation.

WHEREFORE, this petition is hereby granted and, accordingly, the order of respondent Deputy Minister of Labor, dated
October 26, 1981, is set aside. No costs. SO ORDERED.

33
G.R. No. 107994 August 14, 1995
PHILIPPINE AGRICULTURAL COMMERCIAL AND INDUSTRIAL WORKERS UNION (PACIWU)-TUCP, petitioner,
vs. NATIONAL LABOR RELATIONS COMMISSION AND VALLACAR TRANSIT, INC., respondents.

KAPUNAN, J.:
This is a petition for certiorari seeking to reverse the decision of the National Labor Relations Commission (NLRC) in
NLRC Case No. V-0159-92 which dismissed the appeal of petitioner union and in effect, affirmed the decision of the
Labor Arbiter ordering the dismissal of the complaint of petitioner for payment of 13th month pay to the drivers and
conductors of respondent company.

Petitioner Philippine Agricultural Commercial and Agricultural Workers Union — TUCP is the exclusive bargaining agent
of the rank and file employees of respondent Vallacar Transit, Inc. Petitioner union instituted a complaint with NLRC
Regional Arbitration Branch No. VI, Bacolod City, for payment of 13th month pay in behalf of the drivers and conductors
of respondent company's Visayan operation on the ground that although said drivers and conductors are compensated
on a "purely commission" basis as described in their Collective Bargaining Agreement (CBA), they are automatically
entitled to the basic minimum pay mandated by law should said commission be less than their basic minimum for eight
(8) hours work.1

In its position paper, respondent Vallacar Transit, Inc. contended that since said drivers and conductors are
compensated on a purely commission basis, they are not entitled to 13th month pay pursuant to the exempting
provisions enumerated in paragraph 2 of the Revised Guidelines on the Implementation of the Thirteenth Month Pay
Law.2 It further contended that Section 2 of Article XIV of the Collective Bargaining Agreement (CBA) concluded on
October 17, 1988 expressly provided that "drivers and conductors paid on a purely commission are not legally entitled to
13th month pay." Said CBA, being the law between the parties, must be respected, respondent opined.

On May 22, 1992, Labor Arbiter Reynaldo Gulmatico rendered a decision dismissing the complaint.3

The appeal of the petitioner to the National Labor Relations Commission was likewise dismissed 4 so was the motion for
reconsideration of the said decision.5

Hence, the present petition.

The principal issue posed for consideration is whether or not the bus drivers and conductors of respondent Vallacar
Transit, Inc. are entitled to 13th month pay.

We rule in the affirmative.

It may be recalled that on December 16, 1975, P.D. 851, otherwise known as the "13th Month Pay" Law, was
promulgated. The same prescribed payment of 13th month pay in the following terms:

Sec. 1. All employers are hereby required to pay all their employees receiving a basic salary of not more than P1,000.00
a month, regardless of the nature of the employment, a 13th month pay not later than December 24 of every year.

Sec. 2. Employers already paying their employees a 13th month pay or its equivalent are not covered by this Decree.

The Rules and Regulations Implementing P.D. No. 851, issued by the then Secretary of Labor and Employment on
December 22, 1975, defined the following basic terms:

xxx xxx xxx

(a) 13th month pay shall mean one-twelfth (1/12) of the basic salary of an employee within a calendar year;

34
(b) basic salary shall include all remunerations or earnings paid by an employer to an employer for services
rendered, but may not include cost of living allowances granted pursuant to Presidential Decree No. 525 or Letter of
Instructions No. 174, profitsharing payments, and all allowances and monetary benefits which are not considered or
integrated as part of the regular or basic salary of the employee at the time of the promulgation of the Decree on
December 16, 1975.

xxx xxx xxx

On August 13, 1986, President Corazon C. Aquino, exercising both executive and legislative authority, issued
Memorandum Order No. 28 which provided as follows:

xxx xxx xxx

Sec.1. of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all
their rank-and-file employees a 13th month pay not later than December 24 of every year.

xxx xxx xxx

In connection with and in implementation of Memorandum Order No. 28, the then Minister of Labor and Employment
issued MOLE Explanatory Bulletin No. 86-12 on November 24, 1986. Item No. 5 (a) of the said issuance read:

xxx xxx xxx

Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the mandated 13th month pay,
based on their total earning(s) during the calendar year, i.e., on both their fixed and guaranteed wage and commission.

xxx xxx xxx

(emphasis ours)

From the foregoing legal milieu, it is clear that every employee receiving a commission in addition to a fixed or
guaranteed wage or salary, is entitled to a 13th month pay. For purposes of entitling rank and file employees a 13th
month pay, it is immaterial whether the employees concerned are paid a guaranteed wage plus commission or a
commission with guaranteed wage inasmuch as the botton line is that they receive a guaranteed wage. This is correctly
construed in the MOLE Explanatory Bulletin No. 86-12.

In the case at bench, while the bus drivers and conductors of respondent company are considered by the latter as being
compensated on a commission basis, they are not paid purely by what they receive as commission. As admitted by
respondent company, the said bus drivers and conductors are automatically entitled to the basic minimum pay
mandated by law in case the commissions they earned be less than their basic minimum for eight (8) hours work.6
Evidently therefore, the commissions form part of the wage or salary of the bus drivers and conductors. A contrary
interpretation would allow an employer to skirt the law and would result in an absurd situation where an employee who
receives a guaranteed minimum basic pay cannot be entitled to a 13th month pay simply because he is technically
referred to by his employer per the CBA as an employee compensated on a purely commission basis. Such would be a
narrow interpretation of the law, certainly not in accord with the liberal spirit of our labor laws. Moreover, what is
controlling is not the label attached to the remuneration that the employee receives but the nature of the
remuneration7 and the purpose for which the 13th month pay was given to alleviate the plight of the working masses
who are receiving low wages. This is extant from the "WHEREASES" of PD 851, to wit:

WHEREAS, it is necessary to further protect the level of real wages from the ravage of world-wide inflation.

WHEREAS, there has been no increase in the legal minimum wage since 1970.

WHEREAS, the Christmas season is an opportune time for society to show its concern for the plight of the working
masses so they may properly celebrate Christmas and New Year.

35
Misplaced legal hermeneutics cannot be countenanced to evade paying the rank and file what is due to them under the
law.

Commission is the recompense, compensation, reward of an employee, agent, salesman, executor, trustee, receiver,
factor, broker or bailee, when the same is calculated as a percentage on the amount of his transactions or on the profit
of the principal.8 While said commissions may be in the form of incentives or encouragement to inspire said bus drivers
and conductors to put a little more zeal and industry on their jobs, still, it is safe to say that the same are direct
remunerations for services rendered, given the small remuneration they receive for the services they render,9 which is
precisely the reason why private respondent allowed the drivers and conductors a guaranteed minimum wage. The
conclusion is ineluctable that said commissions are part of their salary. In Philippine Duplicators, Inc. v. National Labor
Relations Commission,10 we had the occasion to estate that:

. . . Article 97 (f) of the Labor Code defines the term "wage" (which is equivalent to "salary," as used in P.D. No. 851 and
Memorandum Order No. 28) in the following terms:

(f) "Wage" paid to any employee shall mean the remuneration or earnings, however designated, capable of being
expressed in term of money, money, whether fixed or ascertained on a time, task, piece, or commission basis, or other
method of calculating the same, which is payable by an employer to employee under a written or unwritten contract of
employment for work done or to be done, or for services rendered or to be rendered, and includes the fair and
reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by
the employer to the employee. "Fair and reasonable value" shall not include any profit to the employer or to any person
affiliated with the employer.

In the instant case, there is no question that the sales commissions earned by salesmen who make or close a sale of
duplicating machines distributed by petitioner corporation, constitute part of the compensation or remuneration paid to
salesmen for serving as salesmen, and hence as part of the "wage" or "salary" of petitioner's salesmen. Indeed, it
appears that petitioner pays its salesmen a small fixed or guaranteed wage; the greater part of the salesmen's wages or
salaries being composed of the sales or incentive commissions earned on actual sales closed by them. No doubt this
particular salary structure was intended for the benefit of petitioner corporation, on the apparent assumption that
thereby its salesmen would be moved to greater enterprise and diligence and close more sales in the expectation of
increasing their sales commissions. This, however, does not detract from the character of such commissions as part of
the salary or wage paid to each or its salesmen for rendering services to petitioner corporation. 11

In sum, the 13th month pay of the bus drivers and conductors who are paid a fixed or guaranteed minimum wage in
case their commissions be less than the statutory minimum, and commissions only in case where the same is over and
above the statutory minimum, must be equivalent to one-twelfth (1/12) of their total earnings during the calendar year.

WHEREFORE, the petition is hereby GRANTED. The decision of respondent National Labor Relations Commission is
hereby REVERSED and SET ASIDE. The case is remanded to the labor Arbiter for the proper computation of 13th month
pay.

SO ORDERED.

36
G.R. No. 110068 February 15, 1995
PHILIPPINE DUPLICATORS, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and PHILIPPINE
DUPLICATORS EMPLOYEES UNION-TUPAS, respondents.

FELICIANO, J.:
On 11 November 1993, this Court, through its Third Division, rendered a decision dismissing the Petition for Certiorari
filed by petitioner Philippine Duplicators, Inc. (Duplicators) in G.R. No. 110068. The Court upheld the decision of public
respondent National Labor Relations Commission (NLRC), which affirmed the order of Labor Arbiter Felipe T. Garduque II
directing petitioner to pay 13th month pay to private respondent employees computed on the basis of their fixed wages
plus sales commissions. The Third Division also denied with finality on 15 December 1993 the Motion for
Reconsideration filed (on 12 December 1993) by petitioner.

On 17 January 1994, petitioner Duplicators filed (a) a Motion for Leave to Admit Second Motion for Reconsideration and
(b) a Second Motion for Reconsideration. This time, petitioner invoked the decision handed down by this Court, through
its Second Division, on 10 December 1993 in the two (2) consolidated cases of Boie-Takeda Chemicals, Inc. vs. Hon.
Dionisio de la Serna and Philippine Fuji Xerox Corp. vs. Hon. Cresenciano B. Trajano, in G.R. Nos. 92174 and 102552,
respectively. In its decision, the Second Division inter alia declared null and void the second paragraph of Section 5 (a)1
of the Revised Guidelines issued by then Secretary of Labor Drilon. Petitioner submits that the decision in the
Duplicators case should now be considered as having been abandoned or reversed by the Boie-Takeda decision,
considering that the latter went "directly opposite and contrary to" the conclusion reached in the former. Petitioner
prays that the decision rendered in Duplicators be set aside and another be entered directing the dismissal of the money
claims of private respondent Philippine Duplicators' Employees' Union.

In view of the nature of the issues raised, the Third Division of this Court referred the petitioner's Second Motion for
Reconsideration, and its Motion for Leave to Admit the Second Motion for Reconsideration, to the Court en banc en
consulta. The Court en banc, after preliminary deliberation, and inorder to settle the condition of the relevant case law,
accepted G.R. No. 110068 as a banc case.

Deliberating upon the arguments contained in petitioner's Second Motion for Reconsideration, as well as its Motion for
Leave to Admit the Second Motion for Reconsideration, and after review of the doctrines embodied, respectively, in
Duplicators and Boie-Takeda, we consider that these Motions must fail.

The decision rendered in Boie-Takeda cannot serve as a precedent under the doctrine of stare decisis. The Boie-Takeda
decision was promulgated a month after this Court, (through its Third Division), had rendered the decision in the instant
case. Also, the petitioner's (first) Motion for Reconsideration of the decision dated 10 November 1993 had already been
denied, with finality, on 15 December 1993, i.e.; before the Boie-Takeda decision became final on 5 January 1994.

Preliminarily, we note that petitioner Duplicators did not put in issue the validity of the Revised Guidelines on the
Implementary on of the 13th Month Pay Law, issued on November 16, 1987, by then Labor Secretary Franklin M. Drilon,
either in its Petition for Certiorari or in its (First) Motion for Reconsideration. In fact, petitioner's counsel relied upon
these Guidelines and asserted their validity in opposing the decision rendered by public respondent NLRC. Any
attempted change in petitioner's theory, at this late stage of the proceedings, cannot be allowed.

More importantly, we do not agree with petitioner that the decision in Boie-Takeda is "directly opposite or contrary to"
the decision in the present (Philippine Duplicators). To the contrary, the doctrines enunciated in these two (2) cases in
fact co-exist one with the other. The two (2) cases present quite different factual situations (although the same word
"commissions" was used or invoked) the legal characterizations of which must accordingly differ.

The Third Division in Durplicators found that:

37
In the instant case, there is no question that the sales commission earned by the salesmen who make or close a sale of
duplicating machines distributed by petitioner corporation, constitute part of the compensation or remuneration paid to
salesmen for serving as salesmen, and hence as part of the "wage" or salary of petitioner's salesmen. Indeed, it appears
that petitioner pays its salesmen a small fixed or guaranteed wage; the greater part of the salesmen's wages or salaries
being composed of the sales or incentive commissions earned on actual sales closed by them. No doubt this particular
galary structure was intended for the benefit of the petitioner corporation, on the apparent assumption that thereby its
salesmen would be moved to greater enterprise and diligence and close more sales in the expectation of increasing their
sales commissions. This, however, does not detract from the character of such commissions as part of the salary or wage
paid to each of its salesmen for rendering services to petitioner corporation.

In other words, the sales commissions received for every duplicating machine sold constituted part of the basic
compensation or remuneration of the salesmen of Philippine Duplicators for doing their job. The portion of the salary
structure representing commissions simply comprised an automatic increment to the monetary value initially assigned
to each unit of work rendered by a salesman. Especially significant here also is the fact that the fixed or guaranteed
portion of the wages paid to the Philippine Duplicators' salesmen represented only 15%-30% of an employee's total
earnings in a year. We note the following facts on record:

Salesmen's Total Earnings and 13th Month Pay

For the Year 19862

Name of Total Amount Paid Montly Fixed

Salesman Earnings as 13th Month Pay Wages x 123

Baylon, P76,610.30 P1,350.00 P16,200.00

Benedicto

Bautista 90,780.85 1,182.00 14,184.00

Salvador

Brito, 64,382.75 1,238.00 14,856.00

Tomas

Bunagan, 89,287.75 1,266.00 15,192.00

Jorge

Canilan, 74,678.17 1,350.00 16,200.00

Rogelio

Dasig, 54,625.16 1,378,00 16,536.00

Jeordan

Centeno, 51,854.15 1,266.04 15,192.00

Melecio, Jr.

De los Santos 73,551.39 1,322.00 15,864.00

Ricardo

del Mundo, 108,230.35 1,406.00 16,872.00

Wilfredo

Garcia, 93,753.75 1,294.00 15,528.00

Delfin

Navarro, 98,618.71 1,266.00 15,192.00

Ma. Teresa

Ochosa, 66,275.65 1,406.00 16,872.00

Rolano

Quisumbing, 101,065.75 1,406.00 16,872.00

Teofilo

Rubina, 42,209.73 1,266.00 15,192.00

38
Emma

Salazar, 64,643.65 1,238.00 14,856.00

Celso

Sopelario, 52,622.27 1,350.00 16,200.00

Ludivico

Tan, 30,127.50 1,238.00 14,856.00

Leynard

Talampas, 146,510.25 1,434.00 17,208.00

Pedro

Villarin, 41,888.10 1,434.00 17,208.00

Constancio

Carrasco, 50,201.20 403.75*

Cicero

Punzalan, 24,351.89 1,266.00 15,192.00

Reynaldo

Poblador, 25,516.75 323.00*

Alberto

Cruz, 32,950.45 323.00*

Danilo

Baltazar, 15,681.35 323.00*

Carlito

Considering the above circumstances, the Third Division held, correctly, that the sales commissions were an integral part
of the basic salary structure of Philippine Duplicators' employees salesmen. These commissions are not overtime
payments, nor profit-sharing payments nor any other fringe benefit. Thus, the salesmen's commissions, comprising a
pre-determined percent of the selling price of the goods sold by each salesman, were properly included in the term
"basic salary" for purposes of computing their 13th month pay.

In Boie-Takeda the so-called commissions "paid to or received by medical representatives of Boie-Takeda Chemicals or
by the rank and file employees of Philippine Fuji Xerox Co.," were excluded from the term "basic salary" because these
were paid to the medical representatives and rank-and-file employees as "productivity bonuses."4 The Second Division
characterized these payments as additional monetary benefits not properly included in the term "basic salary" in
computing their 13th month pay. We note that productivity bonuses are generally tied to the productivity, or capacity
for revenue production, of a corporation; such bonuses closely resemble profit-sharing payments and have no clear
director necessary relation to the amount of work actually done by each individual employee. More generally, a bonus is
an amount granted and paid ex gratia to the employee; its payment constitutes an act of enlightened generosity and
self-interest on the part of the employer, rather than as a demandable or enforceable obligation. In Philippine Education
Co. Inc. (PECO) v. Court of Industrial Relations,5 the Court explained the nature of a bonus in the following general
terms:

As a rule a bonus is an amount granted and paid to an employee for his industry loyalty which contributed to the success
of the employer's business and made possible the realization of profits. It is an act of generosity of the employer for
which the employee ought to be thankful and grateful. It is also granted by an enlightened employer to spur the
employee to greater efforts for the success of the business and realization of bigger profits. . . . . From the legal point of
view a bonus is not and mandable and enforceable obligation. It is so when It is made part of the wage or salary or
compensation. In such a case the latter would be a fixed amount and the former would be a contingent one dependent
upon the realization of profits. . . .6 (Emphasis supplied)

In Atok-Big Wedge Mining Co., Inc. v. Atok-Big Wedge Mutual Benefit Association,7 the Court amplified:

39
. . . . Whether or not [a] bonus forms part of waqes depends upon the circumstances or conditions for its payment. If it is
an additional compensation which the employer promised and agreed to give without any conditions imposed for its
payment, such as success of business or greater production or output, then it is part of the wage. But if it is paid only if
profits are realized or a certain amount of productivity achieved, it cannot be considered part of wages. . . . It is also paid
on the basis of actual or actual work accomplished. If the desired goal of production is not obtained, or the amount of
actual work accomplished, the bonus does not accrue. . . . 8 (Emphasis supplied)

More recently, the non-demandable character of a bonus was stressed by the Court in Traders Royal Bank v. National
Labor Relations Commission:9

A bonus is a "gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of right."
(Aragon v. Cebu Portland Cement Co., 61 O.G. 4567). "It is something given in addition to what is ordinarily received by
or strictly due the recipient." The granting of a bonus is basically a management prerogative which cannot be forced
upon the employer "who may not be obliged to assume the onerous burden of granting bonuses or other benefits aside
from the employee's basic salaries or wages . . ." (Kamaya Point Hotel v. NLRC, 177 SCRA 160 [1989]). 10 (Emphasis
supplied)

If an employer cannot be compelled to pay a productivity bonus to his employees, it should follow that such productivity
bonus, when given, should not be deemed to fall within the "basic salary" of employees when the time comes to
compute their 13th month pay.

It is also important to note that the purported "commissions" paid by the Boie-Takeda Company to its medical
representatives could not have been "sales commissions" in the same sense that Philippine Duplicators paid its salesmen
Sales commissions. Medical representatives are not salesmen; they do not effect any sale of any article at all. In
common commercial practice, in the Philippines and elsewhere, of which we take judicial notice, medical
representatives are employees engaged in the promotion of pharmaceutical products or medical devices manufactured
by their employer. They promote such products by visiting identified physicians and inform much physicians, orally and
with the aid of printed brochures, of the existence and chemical composition and virtues of particular products of their
company. They commonly leave medical samples with each physician visited; but those samples are not "sold" to the
physician and the physician is, as a matter of professional ethics, prohibited from selling such samples to their patients.
Thus, the additional payments made to Boie-Takeda's medical representatives were not in fact sales commissions but
rather partook of the nature of profit-sharing bonuses.

The doctrine set out in the decision of the Second Division is, accordingly, that additional payments made to employees,
to the extent they partake of the nature of profit-sharing payments, are properly excluded from the ambit of the term
"basic salary" for purposes of computing the 13th month pay due to employees. Such additional payments are not
"commissions" within the meaning of the second paragraph of Section 5 (a) of the Revised Guidelines Implementing
13th Month Pay.

The Supplementary Rules and Regulations Implementing P.D. No. 851 subsequently issued by former Labor Minister
Ople sought to clarify the scope of items excluded in the computation of the 13th month pay; viz.:

Sec. 4. Overtime pay, earnings and other remunerations which are not part of the basic salary shall not be included in
the computation of the 13th month pay.

We observe that the third item excluded from the term "basic salary" is cast in open ended and apparently circular
terms: "other remunerations which are not part of the basic salary." However, what particular types of earnings and
remuneration are or are not properly included or integrated in the basic salary are questions to be resolved on a case to
case basis, in the light of the specific and detailed facts of each case. In principle, where these earnings and
remuneration are closely akin to fringe benefits, overtime pay or profit-sharing payments, they are properly excluded in

40
computing the 13th month pay. However, sales commissions which are effectively an integral portion of the basic salary
structure of an employee, shall be included in determining his 13th month pay.

We recognize that both productivity bonuses and sales commissions may have an incentive effect. But there is reason to
distinguish one from the other here. Productivity bonuses are generally tied to the productivity or profit generation of
the employer corporation. Productivity bonuses are not directly dependent on the extent an individual employee exerts
himself. A productivity bonus is something extra for which no specific additional services are rendered by any particular
employee and hence not legally demandable, absent a contractual undertaking to pay it. Sales commissions, on the
other hand, such as those paid in Duplicators, are intimately related to or directly proportional to the extent or energy of
an employee's endeavors. Commissions are paid upon the specific results achieved by a salesman-employee. It is a
percentage of the sales closed by a salesman and operates as an integral part of such salesman's basic pay.

Finally, the statement of the Second Division in Boie-Takeda declaring null and void the second paragraph of Section 5(a)
of the Revised Guidelines Implementing the 13th Month Pay issued by former Labor Secretary Drilon, is properly
understood as holding that that second paragraph provides no legal basis for including within the term "commission"
there used additional payments to employees which are, as a matter of fact, in the nature of profit-sharing payments or
bonuses. If and to the extent that such second paragraph is so interpreted and applied, it must be regarded as invalid as
having been issued in excess of the statutory authority of the Secretary of Labor. That same second paragraph however,
correctly recognizes that commissions, like those paid in Duplicators, may constitute part of the basic salary structure of
salesmen and hence should be included in determining the 13th month pay; to this extent, the second paragraph is and
remains valid.

ACCORDINGLY, the Motions for (a) Leave to File a Second Motion for Reconsideration and the (b) aforesaid Second
Reconsideration are DENIED for lack of merit. No further pleadings will be entertained.

41
G.R. No. 85073 August 24, 1993
DAVAO FRUITS CORPORATION, petitioner, vs. ASSOCIATED LABOR UNIONS (ALU) for in behalf of all the rank-and-file
workers/employees of DAVAO FRUITS CORPORATION and NATIONAL LABOR RELATIONS COMMISSION, respondents.

QUIASON, J.:
This is a petition for certiorari to set aside the resolution of the National Labor Relations Commission (NLRC), dismissing
for lack of merit petitioner's appeal from the decision of the Labor Arbiter in NLRC Case No. 1791-MC-X1-82.

On December 28, 1982 respondent Associated Labor Unions (ALU), for and in behalf of all the rank-and-file workers and
employees of petitioner, filed a complaint (NLRC Case No. 1791-MC-XI-82) before the Ministry of Labor and
Employment, Regional Arbitration Branch XI, Davao City, against petitioner, for "Payment of the Thirteenth-Month Pay
Differentials." Respondent ALU sought to recover from petitioner the thirteenth month pay differential for 1982 of its
rank-and-file employees, equivalent to their sick, vacation and maternity leaves, premium for work done on rest days
and special holidays, and pay for regular holidays which petitioner, allegedly in disregard of company practice since
1975, excluded from the computation of the thirteenth month pay for 1982.

In its answer, petitioner claimed that it erroneously included items subject of the complaint in the computation of the
thirteenth month pay for the years prior to 1982, upon a doubtful and difficult question of law. According to petitioner,
this mistake was discovered only in 1981 after the promulgation of the Supreme Court decision in the case of San Miguel
Corporation v. Inciong (103 SCRA 139).

A decision was rendered on March 7, 1984 by Labor Arbiter Pedro C. Ramos, in favor of respondent ALU. The dispositive
portion of the decision reads as follows:

WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered ordering respondent to pay the
1982 — 13th month pay differential to all its rank-and-file workers/employees herein represented by complainant Union
(Rollo, p. 32).

Petitioner appealed the decision of the Labor Arbiter to the NLRC, which affirmed the said decision accordingly
dismissed the appeal for lack of merit.

Petitioner elevated the matter to this Court in a petition for review under Rule 45 of the Revised Rules of Court. This
error notwithstanding and in the interest of justice, this Court resolved to treat the instant petition as a special civil
action for certiorari under Rule 65 of the Revised Rules of Court (P.D. No. 1391, Sec. 5; Rules Implementing P.D. No.
1391, Rule II, Sec. 7; Cando v. National Labor Relations Commission, 189 SCRA 666 [1990]: Pearl S. Buck Foundation, Inc.
v. National Labor Relations Commission, 182 SCRA 446 [1990]).

The crux of the present controversy is whether in the computation of the thirteenth month pay given by employers to
their employees under P.D.
No. 851, payments for sick, vacation and maternity leaves, premiums for work done on rest days and special holidays,
and pay for regular holidays may be excluded in the computation and payment thereof, regardless of long-standing
company practice.

Presidential Decree No. 851, promulgated on December 16, 1975, mandates all employers to pay their employees a
thirteenth month pay. How this pay shall be computed is set forth in Section 2 of the "Rules and Regulations
Implementing Presidential Decree No. 851," thus:

SECTION 2. ...

(a) "Thirteenth month pay" shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year.

42
(b) "Basic Salary" shall include all renumerations or earnings paid by an employer to an employee for services
rendered but may not include cost of living allowances granted pursuant to Presidential Decree No. 525 or Letter of
Instructions No. 174, profit-sharing payments, and all allowances and monetary benefits which are not considered or
integrated as part of the regular or basic salary of the employee at the time of the promulgation of the Decree on
December 16, 1975.

The Department of Labor and Employment issued on January 16, 1976 the "Supplementary Rules and Regulations
Implementing P.D. No. 851" which in paragraph 4 thereof further defines the term "basic salary," thus:

4. Overtime pay, earnings and other renumerations which are not part of the basic salary shall not be included in
the computation of the 13th month pay.

Clearly, the term "basic salary" includes renumerations or earnings paid by the employer to employee, but excludes
cost-of-living allowances, profit-sharing payments, and all allowances and monetary benefits which have not been
considered as part of the basic salary of the employee as of December 16, 1975. The exclusion of cost-of-living
allowances and profit sharing payments shows the intention to strip "basic salary" of payments which are otherwise
considered as "fringe" benefits. This intention is emphasized in the catch all phrase "all allowances and monetary
benefits which are not considered or integrated as part of the basic salary." Basic salary, therefore does not merely
exclude the benefits expressly mentioned but all payments which may be in the form of "fringe" benefits or allowances
(San Miguel Corporation v. Inciong, supra, at 143-144). In fact, the Supplementary Rules and Regulations Implementing
P.D. No. 851 are very emphatic in declaring that overtime pay, earnings and other renumerations shall be excluded in
computing the thirteenth month pay.

In other words, whatever compensation an employee receives for an eight-hour work daily or the daily wage rate in the
basic salary. Any compensation or remuneration other than the daily wage rate is excluded. It follows therefore, that
payments for sick, vacation and maternity leaves, premium for work done on rest days special holidays, as well as pay
for regular holidays, are likewise excluded in computing the basic salary for the purpose of determining the thirteen
month pay.

Petitioner claims that the mistake in the interpretation of "basic salary" was caused by the opinions, orders and rulings
rendered by then Acting Labor Secretary Amado C. Inciong, expressly including the subject items in computing the
thirteenth month pay. The inclusion of these items is clearly not sanctioned under P.D. No. 851, the governing law and
its implementing rules, which speak only of "basis salary" as the basis for determining the thirteenth month pay.

Moreover, whatever doubt arose in the interpretation of P.D. No. 851 was erased by the Supplementary Rules and
Regulations which clarified the definition of "basic salary."

As pointed out in San Miguel Corporation v. Inciong, (supra):

While doubt may have been created by the prior Rules and Regulations and Implementing Presidential Decree 851
which defines basic salary to include all remunerations or earnings paid by an employer to an employee, this cloud is
dissipated in the later and more controlling Supplementary Rules and Regulations which categorically, exclude from the
definition of basic salary earnings and other remunerations paid by employer to an employee. A cursory perusal of the
two sets of Rules indicates that what has hitherto been the subject of broad inclusion is now a subject of broad
exclusion. The Supplementary Rules and Regulations cure the seeming tendency of the former rules to include all
remunerations and earnings within the definition of basic salary.

The all-embracing phrase "earnings and other remunerations which are deemed not part of the basic salary includes
within its meaning payments for sick, vacation, or maternity leaves, premium for work performed on rest days and
special holidays, pay for regular holidays and night differentials. As such they are deemed not part of the basic salary
and shall not be considered in the computation of the 13th-month pay. If they were not so excluded, it is hard to find

43
any "earnings and other remunerations" expressly excluded in computation of the 13th month-pay. Then the
exclusionary provision would prove to be idle and with purpose.

The "Supplementary Rules and Regulations Implementing P.D. No. 851," which put to rest all doubts in the computation
of the thirteenth month pay, was issued by the Secretary of Labor as early as January 16, 1976, barely one month after
the effectivity of P.D. No. 851 and its Implementing Rules. And yet, petitioner computed and paid the thirteenth month
pay, without excluding the subject items therein until 1981. Petitioner continued its practice in December 1981, after
promulgation of the afore-quoted San Miguel decision on February 24, 1981, when petitioner purportedly "discovered"
its mistake.

From 1975 to 1981, petitioner had freely, voluntarily and continuously included in the computation of its employees'
thirteenth month pay, the payments for sick, vacation and maternity leaves, premiums for work done on rest days and
special holidays, and pay for regular holidays. The considerable length of time the questioned items had been included
by petitioner indicates a unilateral and voluntary act on its part, sufficient in itself to negate any claim of mistake.

A company practice favorable to the employees had indeed been established and the payments made pursuant thereto,
ripened into benefits enjoyed by them. And any benefit and supplement being enjoyed by the employees cannot be
reduced, diminished, discontinued or eliminated by the employer, by virtue of Section 10 of the Rules and Regulations
Implementing P.D. No. 851, and Article 100 of the labor of the Philippines, which prohibit the diminution or elimination
by the employer of the employees' existing benefits (Tiangco v. Leogardo, Jr., 122 SCRA 267, [1983]).

Petitioner cannot invoke the principle of solutio indebiti which as a civil law concept that is not applicable in Labor Law.
Besides, in solutio indebiti, the obligee is required to return to the obligor whatever he received from the latter (Civil
Code of the Philippines, Arts. 2154 and 2155). Petitioner in the instant case, does not demand the return of what it paid
respondent ALU from 1975 until 1981; it merely wants to "rectify" the error it made over these years by excluding
unilaterally from the thirteenth month pay in 1982 the items subject of litigation. Solutio indebiti, therefore, is not
applicable to the instant case.

WHEREFORE, finding no grave abuse of discretion on the part of the NLRC, the petition is hereby DISMISSED, and the
questioned decision of respondent NLRC is AFFIRMED accordingly.

44
G.R. No. L-12950 December 9, 1959
BENJAMIN CELESTIAL, ET AL., petitioners, vs. THE SOUTHERN MINDANAO EXPERIMENTAL STATION, ET AL.,
respondents.

MONTEMAYOR, J.:
This is a petition by Benjamin Celestial and 175 others for review of the decision of the Auditor General, dated
September 9, 1957, denying their claim for differential pay under the Minimum Wage Law.

The record discloses that petitioner are employees and/or workers of the Southern Mindanao Experimental Station,
later referred to as Experimental Station, Bureau of Plant Industry in Davao City, and that since 1952 they had been paid
each a daily wage of P2.50; that some time in March 1957, petitioners filed with the Auditor General's Office their claims
for differential pay, alleging among other things that they were entitled to the minimum wage of P4.00 a day, instead of
P2.50, which was actually paid them by the Experimental Station; and that as already stated, on September 9, 1957, the
Auditor General rendered a decision, holding that petitioner were not entitled to the minimum daily wage of P4.00, but
only to P2.50.

The resolution of this case depends upon the interpretation and application of Section 3 (a), (b) and (c) of the Minimum
Wage Law, which we reproduce below for purposes of ready reference:

SEC. 3. Minimum wage. — (a) Every employer shall pay to each of his employees who is employed by an enterprise
other than in agriculture wage at the rate of not less than —

(1) ....
(2) Three pesos a day on the effective date of this Act and for one year after the effective date, and thereafter P4.00
a day, for employees of establishment located outside of Manila or its environs: . . . .

(b) Every employer who operates a farm enterprise comprising more than 12 hectares shall pay each of his
employees who is engaged in agriculture, wage at the rate of not less than —

(1) . . .,
(2) . . .;
(3) One year thereafter, P2.50 a day and no allowance for board and lodging shall reduce this wage below P2.25 in
cash.1awphi1.net

(c) Effective on the first of July, nineteen hundred and fifty-two, the minimum wage rates for employees in the
Government service shall be those provided in subsection (a) and (b) of this section . . .

From the legal provisions above-reproduce, it will readily be seen that in order that an employee or laborer may be paid
the minimum wage of P2.50 a day, he must be employed by an enterprise (in this case, the Southern Mindanao
Experimental Station) engaged in agriculture; that said employer operates s farm comprising more than 12 hectares; and
that the employee or laborer is engaged in agriculture. The second condition is satisfied because the Experimental
Station is operating a farm comprising 960 hectares. The next question to be decided is whether or not said
Experimental Station is engaged in agriculture. To determine this, we have to go back to the function of the Bureau of
Plant Industry (Section 1753, Revised Administrative Code) of which the Experimental Station is an agency or adjunction,
said Experimental Station being provided for in Section 1754 of the same Revised Administrative Code. Said two sections
are reproduced below for ready reference:

SEC. 1753. Function of Bureau of Plant Industry. — It shall be the function of said Bureau to collect and disseminate
useful information pertaining to agriculture in the Philippines, to encourage the use of improved agriculture methods;
and, in general, to promote the development of the agriculture resources of the Philippines, as follows:

45
(a) By the introduction of new domesticated animals, and the improvement of the breeds of domesticated animal
now found in the Philippines;
(b) By the control and eradication of diseases of live stock;
(c) By the investigation of soil and climate conditions, and the methods of producing and handling agriculture
products;
(d) By the introduction, production, and distribution of improved seeds and plants;
(e) By the control and eradication of diseases, insects, and other pests injurious to cultivated plants;
(f) By the operation of a system of demonstration and agriculture extension work;
(g) By the collection of agricultural statistics; and
(h) By the publication and distribution of bulletins, circulars, and other printed matter.

SEC. 1754. Experiment station, farms, and stations for agricultural instruction. — In such place in the Philippines as
may be considered suitable for the purpose, the Director of Plant Industry, with the approval of the Head of the
Department, shall be funds shall be available therefore, establish, equip, maintain, and operate experiment stations,
farms, stock farms, and station for practical agriculture instruction.

(In the Bureau of Agriculture is also vested the supervision and control of American agriculture colonies).lawphi1.net

On the basis of the legal provision above-reproduced, we are of the opinion that both the Bureau of Plant Industry and
Experimental Station, particularly the latter, are engaged in agriculture or are dedicated to agricultural functions,
specially when we take into consideration the definition of agriculture in Section 2 of the Minimum Wage Law itself,
Republic Act No. 602, which is as follow:

Agriculture includes faring in all its branches and among other things include the cultivation and things of the soil,
dairying, the production, cultivation, growing, and harvesting of any agricultural or horticular commodities, the raising of
livestock or poultry, and any practice performer by a farmer or on a farm as an incident to or in conjunction with such
farming operations, but does not include the manufacturing or processing of sugar, coconut, abaca, tobacco, pineapples
or other farm products.

And is a matter of public knowledge that experimental stations maintained by the Bureau of Plant Industry, specially
when done on a big scale like the Southern Mindanao Experimental Station that operates a farm comprising 960
hectares, though its employees and laborers, actually till the soil, introduce and plant seeds of the best crop varieties
found by it after study and experiment, raise said crops in the best approved methods of cultivation, including the
spacing of each plant or seedling and the amount of water needed though irrigation, weeding, et., and the proper
harvesting of the crop, including the timing and method, all for the instruction and benefit of Philippine farmers, and to
foster agriculture in the country. Included in this cultivation is the discovery of plant pests and their eradication by
means of treatment with the proper insecticides. Thereafter, from the harvest are extracted the seeds which are called
certified seeds, for sale and distribution to farmers. There can be no question that all these acts and function fall within
the definition of agriculture provided in the Minimum Wage Law, and, consequently, are agricultural as distinguished
from no-agricultural functions. It follows that the laborers and farm workers who actually carry out and perform these
functions are also engaged in agriculture. It is possible that not all the laborers and employees in the Experimental
Station are actually engaged in preparing the land for planting, such as plowing, tilling, and planting the seeds or
seedlings, in weeding the farm, in treating plant diseases and harvesting crops. some employees may be engaged in
office work, such as, clerks, supervisors, maintenance workers, etc. But inasmuch as they are all employed by the
Experimental Station, which is a farm enterprise, and their work is incidental to agriculture, they may also be considered
as agricultural workers and employees. Interpretative Bulletin No. 14, issued by the United States Wage Administration
Service, implementing the provisions of the Fair Labor Standards Act of the United States of 1938, from which our
Minimum Wage Law was copied (Morave: Minimum Wage Law, p. 279), under the title "Office Workers, Etc.," says:

Office Workers, Etc.

46
12. We have received inquiries concerning office help — secretaries, clerks, bookkeepers, etc., night watchmen,
maintenance workers, engineers, etc., who are employed by a farmer or a farm in connection with the activities
described in the definition of "agriculture" contained in section 3 (f). In our opinion such employees are exempt. (Teller"
Labor Disputes and Collective Bargaining, Vol. II, p. 1209)

The above-reproduced portion of the bulletin, applied in this jurisdiction, means that the employees mentioned therein
are not governed by our Minimum Wage Law, as regards the minimum wage of P4.00 a day for non-agricultural workers;
consequently, they may receive a only the minimum wage of P2.50 a day, prescribed for workers engaged in agriculture.

But petitioners contend that the Bureau of Plant Industry and Experimental Station could not be engaged in agriculture
for the reason that their farm enterprise is not for profit. In answer to this contention, it is enough to say that Minimum
Wage Law in defining agriculture, does not prescribe the condition that the person or entity is engaged in it for purposes
of profit. We can well imagine a person interested in research and scientific agriculture who proceeds to cultivate a little
farm of, say, one or two hectares, to put into practice the results of his research, introducing in the cultivation the most
modern methods, the most suitable fertilizers, etc., so that a hectare so cultivated can produce, say, from 250 to 300
cavans of palay and incidentally to compete a prize or a medal offered by the Government or any of its agencies. The
fact that he does not cultivate the farm for purposes of profit, but rather in the interest of science and to prove his
scientific and agricultural theories, and incidentally enter the contest for a prize, does not make him less agriculturist
and his activities as agriculture.

Incidentally, it may be stated that the Secretary of Justice in an opinion rendered in connection with the different
activities of the Davao Regional Fiber Station, holds that the laborers and employees of said fiber experimental station
are not entitled to the minimum wage of P4.00.

In view of the foregoing, the decision appealed from is hereby reversed affirmed. No costs.

47
Millares vs. National Labor Relations Commission, 305 SCRA 500 (1999)
(Labor Standards – wages, customary facilities)

Facts: Article 97, par. (f), of the Labor Code defined “wage” as the remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis,
or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten
contract of employment for work done or to be done, or for services rendered or to be rendered and includes the fair
and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily
furnished by the employer to the employee.

116 employees of Paper Industries Corporation of the Philippines (PICOP) in Bislig, Surigao del Sur were terminated
under a retrenchment program as a solution to a major financial setback. Aside from their one month basic pay,
petitioners believe that the allowances they allegedly regularly received on a monthly basis should have also been
included in the computation of their separation.

PICOP grants the following allowances:

Staff allowance/managers allowance to those who live in rented houses near the mill site which ceases whenever a
vacancy occurs in the company’s free housing facilities.
Transportation allowance in the form of advances for actual transportation expenses subject to liquidation is given to
key officers and managers who use their own vehicles in the performance of their duties. This privilege is discontinued
when the conditions no longer obtain.
Bislig allowance is given to managers and officers on account of the hostile environment prevailing therein. Once the
recipient is transferred elsewhere, the allowance ceases.
Applying Art. 97, par (f) of the Labor Code which defines “wage”, the Executive Labor Arbiter opined that the subject
allowances, being customarily furnished by respondent PICOP and regularly received by petitioners, formed part of the
latter’s wage.

However, the NLRC decreed that the allowances did not form part of the salary base used in computing separation pay
since the same were contingency-based.

Issue: Whether or not the allowances in question are considered facilities customarily furnished.

Held: No. “Customary” is founded on long established and constant practice connoting regularity. The receipt of
allowance on a monthly basis does not ipso facto characterize it as regular and forming part of salary because the nature
of the grant is a factor worth considering.

The subject allowances were temporarily, not regularly received by petitioners because once the conditions for the
availment ceased to exist, the allowance reached the cutoff point. The petitioners’ continuous enjoyment of the
disputed allowances was based on contingencies the occurrence of which wrote finis to such enjoyment.

48
G.R. No. 82511 March 3, 1992
GLOBE-MACKAY CABLE AND RADIO CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and
IMELDA SALAZAR, respondents.

ROMERO, J.:
For private respondent Imelda L. Salazar, it would seem that her close association with Delfin Saldivar would mean the
loss of her job. In May 1982, private respondent was employed by Globe-Mackay Cable and Radio Corporation (GMCR)
as general systems analyst. Also employed by petitioner as manager for technical operations' support was Delfin Saldivar
with whom private respondent was allegedly very close.

Sometime in 1984, petitioner GMCR, prompted by reports that company equipment and spare parts worth thousands of
dollars under the custody of Saldivar were missing, caused the investigation of the latter's activities. The report dated
September 25, 1984 prepared by the company's internal auditor, Mr. Agustin Maramara, indicated that Saldivar had
entered into a partnership styled Concave Commercial and Industrial Company with Richard A. Yambao, owner and
manager of Elecon Engineering Services (Elecon), a supplier of petitioner often recommended by Saldivar. The report
also disclosed that Saldivar had taken petitioner's missing Fedders airconditioning unit for his own personal use without
authorization and also connived with Yambao to defraud petitioner of its property. The airconditioner was recovered
only after petitioner GMCR filed an action for replevin against Saldivar.1

It likewise appeared in the course of Maramara's investigation that Imelda Salazar violated company reglations by
involving herself in transactions conflicting with the company's interests. Evidence showed that she signed as a witness
to the articles of partnership between Yambao and Saldivar. It also appeared that she had full knowledge of the loss and
whereabouts of the Fedders airconditioner but failed to inform her employer.

Consequently, in a letter dated October 8, 1984, petitioner company placed private respondent Salazar under preventive
suspension for one (1) month, effective October 9, 1984, thus giving her thirty (30) days within which to, explain her
side. But instead of submitting an explanations three (3) days later or on October 12, 1984 private respondent filed a
complaint against petitioner for illegal suspension, which she subsequently amended to include illegal dismissal,
vacation and sick leave benefits, 13th month pay and damages, after petitioner notified her in writing that effective
November 8, 1984, she was considered dismissed "in view of (her) inability to refute and disprove these findings. 2

After due hearing, the Labor Arbiter in a decision dated July 16, 1985, ordered petitioner company to reinstate private
respondent to her former or equivalent position and to pay her full backwages and other benefits she would have
received were it not for the illegal dismissal. Petitioner was also ordered to pay private respondent moral damages of
P50,000.00. 3

On appeal, public respondent National Labor Relations, Commission in the questioned resolution dated December 29,
1987 affirmed the aforesaid decision with respect to the reinstatement of private respondent but limited the backwages
to a period of two (2) years and deleted the award for moral damages. 4

Hence, this petition assailing the Labor Tribunal for having committed grave abuse of discretion in holding that the
suspension and subsequent dismissal of private respondent were illegal and in ordering her reinstatement with two (2)
years' backwages.

On the matter of preventive suspension, we find for petitioner GMCR.

The inestigative findings of Mr. Maramara, which pointed to Delfin Saldivar's acts in conflict with his position as technical
operations manager, necessitated immediate and decisive action on any employee closely, associated with Saldivar. The
suspension of Salazar was further impelled by th.e discovery of the missing Fedders airconditioning unit inside the
apartment private respondent shared with Saldivar. Under such circumstances, preventive suspension was the proper
remedial recourse available to the company pending Salazar's investigation. By itself, preventive suspension does, not

49
signify that the company has adjudged the employee guilty of the charges she was asked to answer and explain. Such
disciplinary measure is resorted to for the protection of the company's property pending investigation any alleged
malfeasance or misfeasance committed by the employee.5

Thus, it is not correct to conclude that petitioner GMCR had violated Salazar's right to due process when she was
promptly suspended. If at all, the fault, lay with private respondent when she ignored petitioner's memorandum of
October 8, 1984 "giving her ample opportunity to present (her) side to the Management." Instead, she went directly to
the Labor Department and filed her complaint for illegal suspension without giving her employer a chance to evaluate
her side of the controversy.

But while we agree with the propriety of Salazar's preventive suspension, we hold that her eventual separation from
employment was not for cause.

What is the remedy in law to rectify an unlawful dismissal so as to "make whole" the victim who has not merely lost her
job which, under settled Jurisprudence, is a property right of which a person is not to be deprived without due process,
but also the compensation that should have accrued to her during the period when she was unemployed?

Art. 279 of the Labor Code, as amended, provides:

Security of Tenure. — In cases of regular employment, the employer shall not terminate the services of an employee
except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from work shall be
entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of
allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement. 6 (Emphasis supplied)

Corollary thereto are the following provisions of the Implementing Rules and Regulations of the Labor Code:

Sec. 2. Security of Tenure. — In cases of regular employments, the employer shall not terminate the services of an
employee except for a just cause as provided in the Labor Code or when authorized by existing laws.

Sec. 3. Reinstatement. — An employee who is unjustly dismissed from work shall by entitled to reinstatement without
loss of seniority rights and to backwages."7 (Emphasis supplied)

Before proceeding any furthers, it needs must be recalled that the present Constitution has gone further than the 1973
Charter in guaranteeing vital social and economic rights to marginalized groups of society, including labor. Given the pro-
poor orientation of several articulate Commissioners of the Constitutional Commission of 1986, it was not surprising that
a whole new Article emerged on Social Justice and Human Rights designed, among other things, to "protect and enhance
the right of all the people to human dignity, reduce social, economic and political inequalities, and remove cultural
inequities by equitably diffusing wealth and political power for the common good." 8 Proof of the priority accorded to
labor is that it leads the other areas of concern in the Article on Social Justice, viz., Labor ranks ahead of such topics as
Agrarian and Natural Resources Reform, Urban Land Roform and Housing, Health, Women, Role and Rights of Poople's
Organizations and Human Rights.9

The opening paragraphs on Labor states

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.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful
concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure,

50
humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes
affecting their rights and benefits is may be provided by law.10 (Emphasis supplied)

Compare this with the sole.provision on Labor in the 1973 Constitution under the Article an Declaration of Principles and
State Policies that provides:

Sec. 9. The state shall afford protection to labor, promote full employment and equality in employment, ensure equal
work opportunities regardless of sex, race, or creed, and regulate the relations between workers and employers. The
State shall ensure the rights of workers to self-organization, collective baegaining, security of tenure, and just and
humane conditions of work. The State may provide for compulsory arbitration. 11

To be sure, both Charters recognize "security of tenure" as one of the rights of labor which the State is mandated to
protect. But there is no gainsaying the fact that the intent of the framers of the present Constitution was to give primacy
to the rights of labor and afford the sector "full protection," at least greater protection than heretofore accorded them,
regardless of the geographical location of the workers and whether they are organized or not.

It was then CONCOM Commissioner, now Justice Hilario G. Davide, Jr., who substantially contributed to the present
formulation of the protection to labor provision and proposed that the same be incorporated in the Article on Social
Justice and not just in the Article on Declaration of Principles and State Policies "in the light of the special importance
that we are giving now to social justice and the necessity of emphasizing the scope and role of social justice in national
development." 12

If we have taken pains to delve into the background of the labor provisions in our Constitution and the Labor Code, it is
but to stress that the right of an employee not to be dismissed from his job except for a just or authorized cause
provided by law has assumed greater importance under the 1987 Constitution with the singular prominence labor
enjoys under the article on Social Justice. And this transcendent policy has been translated into law in the Labor Code.
Under its terms, where a case of unlawful or unauthorized dismissal has been proved by the aggrieved employee, or on
the other hand, the employer whose duty it is to prove the lawfulness or justness of his act of dismissal has failed to do
so, then the remedies provided in Article 279 should find, application. Consonant with this liberalized stance vis-a-vis
labor, the legislature even went further by enacting Republic Act No. 6715 which took effect on March 2, 1989 that
amended said Article to remove any possible ambiguity that jurisprudence may have generated which watered down
the constitutional intent to grant to labor "full protection." 13

To go back to the instant case, there being no evidence to show an authorized, much less a legal, cause for the dismissal
of private respondent, she had every right, not only to be entitled to reinstatement, but ay well, to full backwages." 14

The intendment of the law in prescribing the twin remedies of reinstatement and payment of backwages is, in the
former, to restore the dismissed employee to her status before she lost her job, for the dictionary meaning of the word
"reinstate" is "to restore to a state, conditione positions etc. from which one had been removed"15 and in the latter, to
give her back the income lost during the period of unemployment. Both remedies, looking to the past, would perforce
make her "whole."

Sadly, the avowed intent of the law has at times been thwarted when reinstatement has not been forthcoming and the
hapless dismissed employee finds himself on the outside looking in.

Over time, the following reasons have been advanced by the Court for denying reinstatement under the facts of the case
and the law applicable thereto; that reinstatement can no longer be effected in view of the long passage of time (22
years of litigation) or because of the realities of the situation; 16 or that it would be "inimical to the employer's interest;
" 17 or that reinstatement may no longer be feasible; 18 or, that it will not serve the best interests of the parties
involved; 19 or that the company would be prejudiced by the workers' continued employment; 20 or that it will not
serve any prudent purpose as when supervening facts have transpired which make execution on that score unjust or

51
inequitable 21 or, to an increasing extent, due to the resultant atmosphere of "antipathy and antagonism" or "strained
relations" or "irretrievable estrangement" between the employer and the employee. 22

In lieu of reinstatement, the Court has variously ordered the payment of backwages and separation pay 23 or solely
separation pay. 24

In the case at bar, the law is on the side of private respondent. In the first place the wording of the Labor Code is clear
and unambiguous: "An employee who is unjustly dismissed from work shall be entitled to reinstatement. . . . and to his
full backwages. . . ." 25 Under the principlesof statutory construction, if a statute is clears plain and free from ambiguity,
it must be given its literal meaning and applied without attempted interpretation. This plain-meaning rule or verba legis
derived from the maxim index animi sermo est (speech is the index of intention) rests on the valid presumption that the
words employed by, the legislature in a statute correctly express its intent or will and preclude the court from construing
it differently. 26 The legislature is presumed to know the meaning of the words, to:have used words advisedly, and to
have expressed its intent by the use of such words as are found in the statute.27 Verba legis non est recedendum, or
from the words of a statute there should be no departure. Neither does the provision admit of any qualification. If in the
wisdom of the Court, there may be a ground or grounds for non-application of the above-cited provision, this should be
by way of exception, such as when the reinstatement may be inadmissible due to ensuing strained relations between
the employer and the employee.

In such cases, it should be proved that the employee concerned occupies a position where he enjoys the trust and
confidence of his employer; and that it is likely that if reinstated, an atmosphere of antipathy and antagonism may be
generated as to adversely affect the efficiency and productivity of the employee concerned.

A few examples, will suffice to illustrate the Court's application of the above principles: where the employee is a Vice-
President for Marketing and as such, enjoys the full trust and confidence of top management; 28 or is the Officer-In-
Charge of the extension office of the bank where he works; 29 or is an organizer of a union who was in a position to
sabotage the union's efforts to organize the workers in commercial and industrial establishments; 30 or is a
warehouseman of a non-profit organization whose primary purpose is to facilitate and maximize voluntary gifts. by
foreign individuals and organizations to the Philippines; 31 or is a manager of its Energy Equipment Sales. 32

Obviously, the principle of "strained relations" cannot be applied indiscriminately. Otherwisey reinstatement can never
be possible simply because some hostility is invariably engendered between the parties as a result of litigation. That is
human nature. 33

Besides, no strained relations should arise from a valid and legal act of asserting one's right; otherwise an employee who
shall assert his right could be easily separated from the service, by merely paying his separation pay on the pretext that
his relationship with his employer had already become strained. 34

Here, it has not been proved that the position of private respondent as systems analyst is one that may be characterized
as a position of trust and confidence such that if reinstated, it may well lead to strained relations between employer and
employee. Hence, this does not constitute an exception to the general rule mandating reinstatement for an employee
who has been unlawfully dismissed.

On the other hand, has she betrayed any confidence reposed in her by engaging in transactions that may have created
conflict of interest situations? Petitioner GMCR points out that as a matter of company policy, it prohibits its employees
from involving themselves with any company that has business dealings with GMCR. Consequently, when private
respondent Salazar signed as a witness to the partnership papers of Concave (a supplier of Ultra which in turn is also a
supplier of GMCR), she was deemed to have placed. herself in an untenable position as far as petitioner was concerned.

However, on close scrutiny, we agree with public respondent that such a circumstance did not create a conflict of
interests situation. As a systems analyst, Salazar was very far removed from operations involving the procurement of

52
supplies. Salazar's duties revolved around the development of systems and analysis of designs on a continuing basis. In
other words, Salazar did not occupy a position of trust relative to the approval and purchase of supplies and company
assets.

In the instant case, petitioner has predicated its dismissal of Salazar on loss of confidence. As we have held countless
times, while loss of confidence or breach of trust is a valid ground for terminations it must rest an some basis which
must be convincingly established. 35 An employee who not be dismissed on mere presumptions and suppositions.
Petitioner's allegation that since Salazar and Saldivar lived together in the same apartment, it "presumed reasonably
that complainant's sympathy would be with Saldivar" and its averment that Saldivar's investigation although unverified,
was probably true, do not pass this Court's test. 36 While we should not condone the acts of disloyalty of an employee,
neither should we dismiss him on the basis of suspicion derived from speculative inferences.

To rely on the Maramara report as a basis for Salazar's dismissal would be most inequitous because the bulk of the
findings centered principally oh her friend's alleged thievery and anomalous transactions as technical operations'
support manager. Said report merely insinuated that in view of Salazar's special relationship with Saldivar, Salazar might
have had direct knowledge of Saldivar's questionable activities. Direct evidence implicating private respondent is
wanting from the records.

It is also worth emphasizing that the Maramara report came out after Saldivar had already resigned from GMCR on May
31, 1984. Since Saldivar did not have the opportunity to refute management's findings, the report remained obviously
one-sided. Since the main evidence obtained by petitioner dealt principally on the alleged culpability of Saldivar, without
his having had a chance to voice his side in view of his prior resignation, stringent examination should have been carried
out to ascertain whether or not there existed independent legal grounds to hold Salatar answerable as well and,
thereby, justify her dismissal. Finding none, from the records, we find her to have been unlawfully dismissed.

WHEREFORE, the assailed resolution of public respondent National Labor Relations Commission dated December 29,
1987 is hereby AFFIRMED. Petitioner GMCR is ordered to REINSTATE private respondent Imelda Salazar and to pay her
backwages equivalent to her salary for a period of two (2) years only.

This decision is immediately executory.

SO ORDERED.

53
G.R. No. 88168 August 30, 1990
TRADERS ROYAL BANK, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION & TRADERS ROYAL BANK
EMPLOYEES UNION, respondents.

GRIÑO-AQUINO, J.:
This petition for certiorari seeks to nullify or set aside the decision dated September 2, 1988 of the National Labor
Relations Commission, which found the petitioner, Traders Royal Bank (or TRB), guilty of diminution of benefits due the
private respondents and ordered it to pay the said employees' claims for differentials in their holiday, mid-year, and
year-end bonuses.

On November 18, 1986, the Union, through its president, filed a letter-complaint against TRB with the Conciliation
Division of the Bureau of Labor Relations claiming that:

First, the management of TRB per memo dated October 10, 1986 paid the employees their HOLIDAY PAY, but has
withheld from the Union the basis of their computation.

Second, the computation in question, has allegedly decreased the daily salary rate of the employees. This diminution of
existing benefits has decreased our overtime rate and has affected the employees' take home pay.

Third, the diminution of benefits being enjoyed by the employees since time immemorial, e.g. mid-year bonus, from two
(2) months gross pay to two (2) months basic and year-end bonus from three (3) months gross to only two (2) months.

Fourth, the refusal by management to recall active union members from the branches which were being transferred
without prior notice, solely at the instance of the branch manager. (p. 26, Rollo.)

In its answer to the union's complaint, TRB pointed out that the NLRC, not the Bureau of Labor Relations, had
jurisdiction over the money claims of the employees.

On March 24, 1987, the Secretary of Labor certified the complaint to the NLRC for resolution of the following issues
raised by the complainants:

l) The Management of TRB per memo dated October 10, 1986 paid the employees their holiday pay but has withheld
from the union the basis of their computation.

2) The computation in question has allegedly decreased the daily salary rate of the employees. This diminution of
existing benefits has decreased our overtime rate and has affected the employees' take home pay.

3) The diminution of benefits being enjoyed by the employees since the (sic) immemorial, e.g. mid-year bonus, from two
(2) months gross pay to two (2) months basic and year-end bonus from three (3) months gross to only two (2) months.

4) The refusal by management to recall active union members from the branches which were being transferred without
prior notice, solely at the instance of the branch, manager. (p. 28, Rollo.)

In the meantime, the parties who had been negotiating for a collective bargaining agreement, agreed on the terms of
the CBA, to wit:

1. The whole of the bonuses given in previous years is not demandable, i.e., there is no diminution, as to be liable
for a differential, if the bonus given is less than that in previous years.

2. Since only two months bonus is guaranteed, only to that extent are bonuses deemed part of regular
compensation.

54
3. As regards the third and fourth bonuses, they are entirely dependent on the income of the bank, and not demandable
as part of compensation. (pp. 67-68, Rollo.)

Despite the terms of the CBA, however, the union insisted on pursuing the case, arguing that the CBA would apply
prospectively only to claims arising after its effectivity.

Petitioner, on the other hand, insisted that it had paid the employees holiday pay. The practice of giving them bonuses
at year's end, would depend on how profitable the operation of the bank had been. Generally, the bonus given was two
(2) months basic mid-year and two (2) months gross end-year.

On September 2, 1988, the NLRC rendered a decision in favor of the employees, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioner and ordering respondent bank to pay petitioner
members-employees the following:

1. Holiday differential for the period covering l983-1986 as embodied in Resolution No. 4984-1986 of respondent's
Board of Directors but to start from November 11, 1983 and using the Divisor 251 days in determining the daily rate of
the employees;

2. Mid-year bonus differential representing the difference between two (2) months gross pay and two (2) months basic
pay and end-year bonus differential of one (1) month gross pay for 1986.

The claim for holiday differential for the period earlier than November 11, 1983 is hereby dismissed, the same having
prescribed.

Likewise, the charge of unfair labor practice against the respondent company is hereby dismissed for lack of merit. (pp.
72-73, Rollo.)

A motion for reconsideration was filed by TRB but it was denied. Hence, this petition for certiorari.

There is merit in the petitioner's contention that the NLRC gravely abused its discretion in ordering it to pay mid-
year/year-end bonus differential for 1986 to its employees.

A bonus is "a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of right"
(Aragon vs. Cebu Portland Cement Co., 61 O.G. 4597). "It is something given in addition to what is ordinarily received by
or strictly due the recipient." The granting of a bonus is basically a management prerogative which cannot be forced
upon the employer "who may not be obliged to assume the onerous burden of granting bonuses or other benefits aside
from the employee's basic salaries or wages" . . . (Kamaya Point Hotel vs. National Labor Relations Commission,
Federation of Free Workers and Nemia Quiambao, G.R. No. 75289, August 31, 1989).

It is clear from the above-cited rulings that the petitioner may not be obliged to pay bonuses to its employees. The
matter of giving them bonuses over and above their lawful salaries and allowances is entirely dependent on the profits,
if any, realized by the Bank from its operations during the past year.

From 1979-1985, the bonuses were less because the income of the Bank had decreased. In 1986, the income of the Bank
was only 20.2 million pesos, but the Bank still gave out the usual two (2) months basic mid-year and two months gross
year-end bonuses. The petitioner pointed out, however, that the Bank weakened considerably after 1986 on account of
political developments in the country. Suspected to be a Marcos-owned or controlled bank, it was placed under
sequestration by the present administration and is now managed by the Presidential Commission on Good Government
(PCGG).

55
In the light of these submissions of the petitioner, the contention of the Union that the granting of bonuses to the
employees had ripened into a company practice that may not be adjusted to the prevailing financial condition of the
Bank has no legal and moral bases. Its fiscal condition having declined, the Bank may not be forced to distribute bonuses
which it can no longer afford to pay and, in effect, be penalized for its past generosity to its employees.

Private respondent's contention, that the decrease in the midyear and year-end bonuses constituted a diminution of the
employees' salaries, is not correct, for bonuses are not part of labor standards in the same class as salaries, cost of living
allowances, holiday pay, and leave benefits, which are provided by the Labor Code.

WHEREFORE, the petition for certiorari is granted. The decision of the National Labor Relations Commission is modified
by deleting the award of bonus differentials to the employees for 1986. In other respects, the decision is affirmed. Costs
against the respondent union.

SO ORDERED.

56
G.R. No. L-80680 January 26, 1989
DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R. ERISPE, JOEL MADRIAGA, ARTHUR M.
ESPINO, AMARO BONA, FERDINAND CRUZ, FEDERICO A. BELITA, ROBERTO P. ISLES, ELMER ARMADA, EDUARDO
UDOG, PETER TIANSING, MIGUELITA QUIAMBOA, NOMER MATAGA, VIOLY ESTEBAN and LYDIA ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON, NATIONAL LABOR RELATIONS
COMMISSION, and HON. EMERSON C. TUMANON, respondents.

SARMIENTO, J.:
On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the National Labor Relations Commission
for reinstatement and payment of various benefits, including minimum wage, overtime pay, holiday pay, thirteen-month
pay, and emergency cost of living allowance pay, against the respondent, the California Manufacturing Company. 1

On October 7, 1986, after the cases had been consolidated, the California Manufacturing Company (California) filed a
motion to dismiss as well as a position paper denying the existence of an employer-employee relation between the
petitioners and the company and, consequently, any liability for payment of money claims. 2 On motion of the
petitioners, Livi Manpower Services, Inc. was impleaded as a party-respondent.

It appears that the petitioners were, prior to their stint with California, employees of Livi Manpower Services, Inc. (Livi),
which subsequently assigned them to work as "promotional merchandisers" 3 for the former firm pursuant to a
manpower supply agreement. Among other things, the agreement provided that California "has no control or
supervisions whatsoever over [Livi's] workers with respect to how they accomplish their work or perform [Californias]
obligation"; 4 the Livi "is an independent contractor and nothing herein contained shall be construed as creating
between [California] and [Livi] . . . the relationship of principal[-]agent or employer[-]employee'; 5 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" 6 and that "[California] is free and harmless from any liability arising from such laws
or from any accident that may befall workers and employees of [Livi] while in the performance of their duties for
[California].7

It was further expressly stipulated that the assignment of workers to California shall be on a "seasonal and contractual
basis"; that "[c]ost of living allowance and the 10 legal holidays will be charged directly to [California] at cost "; and that
"[p]ayroll for the preceeding [sic] week [shall] be delivered by [Livi] at [California's] premises." 8

The petitioners 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 California 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.

The petitioners now allege that they had become regular California employees and demand, as a consequence whereof,
similar benefits. They likewise claim that pending further proceedings below, they were notified by California that they
would not be rehired. As a result, they filed an amended complaint charging California with illegal dismissal.

California admits having refused to accept the petitioners 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.9 It appears that thereafter, Livi re-absorbed them into its labor pool on a "wait-in or standby"
status. 10

Amid these factual antecedents, the Court finds the single most important issue to be: Whether the petitioners are
California's or Livi's employees.

57
The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the existence of any employer-employee
relation between the petitioners and California ostensibly in the light of the manpower supply contract, supra, and
consequently, against the latter's liability as and for the money claims demanded. In the same breath, however, the
labor arbiter absolved Livi from any obligation because the "retrenchment" in question was allegedly "beyond its control
." 13 He assessed against the firm, nevertheless, separation pay and attorney's fees.

We reverse.

The existence of an employer-employees 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 California had specifically
designated the former as the petitioners' employer and had absolved the latter from any liability as an employer, will
not erase either party's obligations as an employer, if an employer-employee relation otherwise exists between the
workers and either firm. At any rate, since the agreement was between Livi and California, they alone are bound by it,
and the petitioners cannot be made to suffer from its adverse consequences.

This Court has consistently ruled that the determination of whether or not there is an employer-employee 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. 14 Of the four, the right-of-control test has been held to be the decisive factor.
15

On the other hand, we have likewise held, based on Article 106 of the Labor Code, hereinbelow reproduced:

ART. 106. Contractor or sub-contractor. — Whenever an employee enters into a contract with another person for the
performance of the former's work, the employees of the contractor and of the latter's sub-contractor, if any, shall be
paid in accordance with the provisions of this Code.

In the event that the contractor or sub-contractor fails to pay wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or sub-contractor to such employees to the extent of
the work performed under the contract, in the same manner and extent that he is liable to employees directly employed
by him.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the
rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as differentiations within these types of contracting and
determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any
violation or circumvention of any provisions of this Code.

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

that notwithstanding the absence of a direct employer-employee relationship between the employer in whose favor
work had been contracted out by a "labor-only" contractor, and the employees, the former has the responsibility,
together with the "labor-only" contractor, for any valid labor claims, 16 by operation of law. The reason, so we held, is
that the "labor-only" contractor is considered "merely an agent of the employer,"17 and liability must be shouldered by
either one or shared by both. 18

58
There is no doubt that in the case at bar, Livi performs "manpower services", 19 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." 20 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. 21 The bare
fact that Livi maintains a separate line of business does not extinguish the equal fact that it has provided California 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," 22 California's purported
"principal operation activity. " 23 The petitioner's had been charged with "merchandizing [sic] promotion or sale of the
products of [California] in the different sales outlets in Metro Manila including task and occational [sic] price tagging," 24
an activity that is doubtless, an integral part of the manufacturing business. It is not, then, as if Livi had served as its
(California's) promotions or sales arm or agent, or otherwise, rendered a piece of work it (California) could not have
itself done; Livi, as a placement agency, had simply supplied it with the manpower necessary to carry out its (California's)
merchandising activities, using its (California's) premises and equipment. 25

Neither Livi nor California can therefore escape liability, that is, assuming one exists.

The fact that the petitioners have allegedly admitted being Livi's "direct employees" 26 in their complaints is nothing
conclusive. For one thing, the fact that the petitioners were (are), will not absolve California since liability has been
imposed by legal operation. For another, and as we indicated, the relations of parties must be judged from case to case
and the decree of law, and not by declarations of parties.

The fact that the petitioners have been hired on a "temporary or seasonal" basis merely is no argument either. As we
held in Philippine Bank of Communications v. NLRC, 27 a temporary or casual employee, under Article 218 of the Labor
Code, becomes regular after service of one year, unless he has been contracted for a specific project. And we cannot say
that merchandising is a specific project for the obvious reason that it is an activity related to the day-to-day operations
of California.

It would have been different, we believe, had Livi been discretely a promotions firm, and that California had hired it to
perform the latter's merchandising activities. For then, Livi would have been truly the employer of its employees, and
California, its client. The client, in that case, would have been a mere patron, and not an employer. The employees
would not in that event be unlike waiters, who, although at the service of customers, are not the latter's employees, but
of the restaurant. As we pointed out in the Philippine Bank of Communications case:

xxx xxx xxx

... The undertaking given by CESI in favor of the bank was not the performance of a specific job for instance, the carriage
and delivery of documents and parcels to the addresses thereof. There appear to be many companies today which
perform this discrete service, companies with their own personnel who pick up documents and packages from the
offices of a client or customer, and who deliver such materials utilizing their own delivery vans or motorcycles to the
addressees. In the present case, the undertaking of CESI was to provide its client the bank with a certain number of
persons able to carry out the work of messengers. Such undertaking of CESI was complied with when the requisite
number of persons were assigned or seconded to the petitioner bank. Orpiada utilized the premises and office
equipment of the bank and not those of CESI. Messengerial work the delivery of documents to designated persons
whether within or without the bank premises-is of course directly related to the day-to-day operations of the bank.
Section 9(2) quoted above does not require for its applicability that the petitioner must be engaged in the delivery of
items as a distinct and separate line of business.

Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and placement corporation
placing bodies, as it were, in different client companies for longer or shorter periods of time, ... 28

59
In the case at bar, Livi is admittedly an "independent contractor providing temporary services of manpower to its client.
" 29 When it thus provided California with manpower, it supplied California with personnel, as if such personnel had
been directly hired by California. Hence, Article 106 of the Code applies.

The Court need not therefore consider whether it is Livi or California which exercises control over the petitioner vis-a-vis
the four barometers referred to earlier, since by fiction of law, either or both shoulder responsibility.

It is not that by dismissing the terms and conditions of the manpower supply agreement, we have, hence, considered it
illegal. Under the Labor Code, genuine job contracts are permissible, provided they are genuine job contracts. But, as we
held in Philippine Bank of Communications, supra, when such arrangements are resorted to "in anticipation of, and for
the very purpose of making possible, the secondment" 30 of the employees from the true employer, the Court will be
justified in expressing its concern. For then that would compromise the rights of the workers, especially their right to
security of tenure.

This brings us to the question: What is the liability of either Livi or California?

The records show that the petitioners bad been given an initial six-month contract, renewed for another six months.
Accordingly, under Article 281 of the Code, they had become regular employees-of-California-and had acquired a secure
tenure. Hence, they cannot be separated without due process of law.

California resists reinstatement on the ground, first, and as we Id, that the petitioners are not its employees, and
second, by reason of financial distress brought about by "unfavorable political and economic atmosphere" 31 "coupled
by the February Revolution." 32 As to the first objection, we reiterate that the petitioners are its employees and who, by
virtue of the required one-year length-of-service, have acquired a regular status. As to the second, we are not convinced
that California has shown enough evidence, other than its bare say so, that it had in fact suffered serious business
reverses as a result alone of the prevailing political and economic climate. We further find the attribution to the
February Revolution as a cause for its alleged losses to be gratuitous and without basis in fact.

California should be warned that retrenchment of workers, unless clearly warranted, has serious consequences not only
on the State's initiatives to maintain a stable employment record for the country, but more so, on the workingman
himself, amid an environment that is desperately scarce in jobs. And, the National Labor Relations Commission should
have known better than to fall for such unwarranted excuses and nebulous claims.

WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): SETTING ASIDE the decision, dated March 20,
1987, and the resolution, dated August 19, 1987; (2) ORDERING the respondent, the California Manufacturing Company,
to REINSTATE the petitioners with full status and rights of regular employees; and (3) ORDERING the respondent, the
California Manufacturing Company, and the respondents, Livi Manpower Service, Inc. and/or Lily-Victoria Azarcon, to
PAY, jointly and severally, unto the petitioners: (a) backwages and differential pays effective as and from the time they
had acquired a regular status under the second paragraph, of Section 281, of the Labor Code, but not to exceed three (3)
years, and (b) all such other and further benefits as may be provided by existing collective bargaining agreement(s) or
other relations, or by law, beginning such time; and (4) ORDERING the private respondents to PAY unto the petitioners
attorney's fees equivalent to ten (10%) percent of all money claims hereby awarded, in addition to those money claims.
The private respondents are likewise ORDERED to PAY the costs of this suit.

IT IS SO ORDERED.

60
G.R. No. 121327 December 20, 2001
CECILIO P. DE LOS SANTOS and BUKLOD MANGGAGAWA NG CAMARA (BUMACA), petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION), HON. COMMISSIONERS VICTORIANO R. CALAYCAY,
RAUL T. AQUINO, and ROGELIO I. RAYALA, CAMARA STEEL INDUSTRIES INC., JOSELITO JACINTO, ALBERTO F. DEL
PILAR, DENNIS ALBANO, MERCEDITA G. PASTRANA, TOP-FLITE and RAUL RUIZ, respondents.

BELLOSILLO, J.:
This is a petition for certiorari under Rule 65 assailing the Decision of public respondent National Labor Relations
Commission (NLRC) which remanded this case to the Labor Arbiter who ruled that petitioner Cecilio P. de los Santos was
illegally dismissed by private respondent Camara Steel, Inc., and as a consequence, ordered his immediate
reinstatement. Specifically, the dispositive portion of the Labor Arbiter's Decision promulgated 23 May 1999 states —

WHEREFORE, premises considered, respondent Camara Steel Industries, Inc. is hereby ordered to reinstate complainant
Cecilio de los Santos to his former position within ten (10) days from receipt of this Resolution without loss of seniority
rights and other benefits with full back wages from date of dismissal up to actual date of reinstatement which is hereby
computed as of even date as follows:

From 8/23/93-12/15/93=3.73 mos.

P118 x 26 days x 3.73 mos.=P11,443.64
12/16/93 - 3/29/94=3.43 mos.
135 x 26 days x 3.43 mos.=12,039.30
Total Backwages as of 3/29/94 P23,482.94

Respondent Camara Steel Industries, Inc. is also ordered to pay complainant 10% for and as attorney's fees.

All other claims are hereby dismissed for lack of merit.

On 3 May 1991 petitioner De los Santos started working at Camara Steel Industries Inc. (CAMARA STEEL), a company
engaged in the manufacture of steel products such as LPG cylinders and drums. He was first assigned at the LPG
assembly line, then later, as operator of a blasting machine. While performing his task as such operator, he met an
accident that forced him to go on leave for one and a half (1-1/2) months. Upon his return, he was designated as a
janitor assigned to clean the premises of the company, and occasionally, to transfer scrap and garbage from one site to
another.1

On 11 May 1993 petitioner was doing his usual chores as a janitor of CAMARA STEEL when he momentarily left his
pushcart to answer the call of Narciso Honrado, scrap in-charge, who summoned him to the company clinic. There
Honrado handed him a box which he placed on top of a drum in his pushcart for transfer to the other lot of the company
near gate 2. On his way out of gate 2, however, the security guard on duty found in the box handed to him by Honrado
two (2) pieces of electric cable measuring 2.26 inches each and another piece of 1.76 meters with a total estimated
value of P50.00 to P100.00. Apprehensive that he might be charged with theft, petitioner De los Santos explained that
the electric cord was declared a scrap by Honrado whose instructions he was only following to transfer the same to the
adjacent lot of the company as scrap.

Narciso Honrado admitted responsibility for the haul and his error in declaring the electric cables as scrap. The general
manager, apparently appeased by Honrado's apology, issued a memorandum acknowledging receipt of his letter of
apology and exculpated him of any wrongdoing.

Taking an unexpected volte face, however, the company through its counsel filed on 9 July 1993 a criminal complaint for
frustrated qualified theft against Honrado and herein petitioner De los Santos. The complaint however was subsequently
dismissed by the Provincial Prosecutor of Pasig for lack of evidence.2

61
On 23 August 1993, upon request of Top-Flite, alleged manpower agency of De los Santos, CAMARA STEEL terminated
his services.

Aggrieved by his illegal termination, De los Santos sought recourse with the Labor Arbiter who on 29 March 1994
rendered a decision ordering respondent CAMARA STEEL to reinstate Delos Santos to his former position within ten (10)
days without loss of seniority rights and other benefits with full back wages from date of dismissal up to actual
reinstatement as herein before stated.

CAMARA STEEL went to the NLRC for recourse. Top-Flite filed a Motion for Intervention praying that it be permitted to
intervene in the appeal as co-respondent and, accordingly, be allowed to submit its own memorandum and other
pleadings.3

On 23 May 1995 the NLRC reversed the Labor Arbiter and ordered the return of the entire records of the case to the
arbitration branch of origin for further proceedings. In its Decision, NLRC specified the reasons for the remand to the
Labor Arbiter —4

First, as respondents have broadly implied, having alleged that he was an employee of Camara Steel, it was
complainant's burden to prove this allegation as a fact, not merely through his uncorroborated statements but through
independent evidence. As noted by respondents, he has not submitted one piece of evidence to support his premise on
this matter except for his sworn statement.

Secondly, the Arbiter maintained that the contract of services submitted by respondents was insufficient to prove that
complainant was an employee of Top-Flite, but he has obviously omitted consideration of Annexes F, G, H and I which
are time sheets of the complainant with Top-Flite and the corresponding time cards which he punches in for Camara
Steel.

The NLRC further noted that under the circumstances it became appropriate to conduct a formal hearing on the
particular issue of whether an employer-employee relationship existed between the parties, which issue was
determinative of the nature of petitioner's dismissal by CAMARA STEEL. That being so, according to the NLRC, it was
necessary for the Labor Arbiter to issue the appropriate directive to summon Top-Flite as a necessary party to the case,
for the manpower agency to submit its own evidence on the actual status of petitioner.

As pointed out by petitioner, the errors in the disputed decision by the NLRC are: (a) NLRC violated due process of law
when it did not consider the evidence on record; (b) CAMARA STEEL, and not Top-Flite, is the real employer of
petitioner; (c) Contrary to the finding of NLRC, Top-Flite was made a party respondent in the illegal dismissal case
docketed as NLRC-NCR No. 00-08-05302-93 and the NLRC was therefore in error in remanding the case to the Labor
Arbiter for further proceedings.

Petitioner De los Santos contends that NLRC was in grave error when it ruled that, with the exception of a bare assertion
on his sworn statement, he "has not submitted one piece of evidence to support his premise"5 that he was in fact an
employee of CAMARA STEEL.

To underscore NLRC's oversight, petitioner brings to our attention and specifies the pieces of evidence which he
presented before the Labor Arbiter on 19 November 1993 — also appended as Annexes to petitioner's "Traverse to
Camara's Position Paper and Reply:" (a) Annex "E" to "E-1" — Approval signature of Camara's Department head,
Reynaldo Narisma, without which petitioner cannot render overtime; (b) Annex "F" — Petitioner's daily time record for
8/3/92 to 8/9/92; (c) Annex "F-1" — Signature of private respondent Mercedita Pastrana, approving in her capacity as
Assistant Manager of Camara Steel; (d) Annex "F-2" — Signature of private respondent Dennis Albano, Personnel
Manager of Camara Steel Industries Inc. also co-signing for approval; (e) Annex "F-3" — Signature of Narisma, as
Department Head of Camara Steel Industries Inc. where petitioner is working; (f) Annex "G" — Daily Time Record of
petitioner for 7/6/92 to 7/12/92; (g) Annex "G-1" — Signature of Camara Steel Assistant Manager; (h) Annex "G-2" —

62
Signature of Camara's Personnel Manager, Dennis Albano, approving; (i) Annex "G-3" — Signature of Camara's
Department Head where petitioner is working, Mr. Narisma, approving; (j) Annex "H" to "H-1" — Petitioner's Daily Time
Card (representative samples) with name and logo of Camara Steel Industries Inc.; and, (k) Annex "J" — Affidavit of
Complainant.

All these pieces of evidence which, according to petitioner De los Santos, were not properly considered by NLRC, plainly
and clearly show that the power of control and supervision over him was exercised solely and exclusively by the
managers and supervisors of CAMARA STEEL. Even the power to dismiss was also lodged with CAMARA STEEL when it
admitted in page 3 of its Reply that upon request by Top-Flite, the steel company terminated his employment after
being allegedly caught committing theft.

Petitioner De los Santos also advances the view that Top-Flite, far from being his employer, was in fact a "labor-only"
contractor as borne out by a contract whereby Top-Flite undertook to supply CAMARA STEEL workers with "warm
bodies" for its factory needs and edifices. He insists that such contract was not a job contract but the supply of labor
only. All things considered, he is of the firm belief that for all legal intents and purposes, he was an employee — a
regular one at that — of CAMARA STEEL.

In its comment, private respondent CAMARA STEEL avers that far from being its employee, De los Santos was merely a
project employee of Top-Flite who was assigned as janitor in private respondent company. This much was acknowledged
by Top-Flite in its Motion for Intervention filed before the NLRC.6 Such allegation, according to private respondent
CAMARA STEEL, supports all along its theory that De los Santos' assignment to the latter as janitor was based on an
independent contract executed between Top-Flite and CAMARA STEEL.7

Respondent CAMARA STEEL further argues that crystal clear in the Motion for Intervention of Top-Flite is its allegation
that it was in fact petitioner's real employer as his salaries and benefits during the contractual period were paid by Top-
Flite; not only that, De los Santos was dismissed by CAMARA STEEL upon the recommendation of Top-Flite. These
ineluctably show that Top-Flite was not only a job contractor but was in truth and in fact the employer of petitioner.

In his petition, De los Santos vigorously insists that he was the employee of respondent CAMARA STEEL which in turn
was not only denying the allegation but was finger-pointing Top-Flite as petitioner's real employer. De los Santos again
objects to this assertion and claims that Top-Flite, far from being an employer, was merely a "labor-only" contractor.

In the maze and flurry of claims and counterclaims, several contentious issues continue to stick out like a sore thumb.
Was De los Santos illegally dismissed? If so, by whom? Was his employer respondent CAMARA STEEL, in whose premises
he was allegedly caught stealing, or was it Top-Flite, the manpower services which allegedly hired him?

Inextricably intertwined in the resolution of these issues is the determination of whether there existed an employer-
employee relationship between CAMARA STEEL and respondent De Los Santos, and whether Top-Flite was an
"independent contractor" or a "labor-only" contractor. A finding that Top-Flite was a "labor-only" contractor reduces it
to a mere agent of CAMARA STEEL which by statute would be responsible to the employees of the "labor-only"
contractor as if such employees had been directly employed by the employer.

Etched in an unending stream of cases are the four (4) standards in determining the existence of an employer-employee
relationship, namely: (a) the manner of selection and engagement of the putative employee; (b) the mode of payment
of wages; (c) the presence or absence of power of dismissal; and, (d) the presence or absence of control of the putative
employee's conduct. Most determinative among these factors is the so-called "control test."

As shown by the evidence on record, De los Santos was hired by CAMARA STEEL after undergoing an interview with one
Carlos Suizo, its timekeeper who worked under the direct supervision of one Renato Pacion, a supervisor of CAMARA
STEEL. These allegations are contained in the affidavit8 executed by De los Santos and were never disputed by CAMARA
STEEL. Also remaining uncontroverted are the pieces of documentary evidence adduced by De los Santos consisting of

63
daily time records marked Annexes "F" and "G" which, although bearing the heading and logo of Top-Flite, were signed
by officers of respondent CAMARA STEEL, and Annexes "H" and "I" with the heading and logo of CAMARA STEEL.

Incidentally, we do not agree with NLRC's submission that the daily time records serve no other purpose than to
establish merely the presence of De los Santos within the premises of CAMARA STEEL. Contrarily, these records, which
were signed by the company's officers, prove that the company exercised the power of control and supervision over its
employees, particularly De los Santos. There is dearth of proof to show that Top-Flite was the real employer of De los
Santos other than a naked and unsubstantiated denial by CAMARA STEEL that it has no power of control over De los
Santos. Records would attest that even the power to dismiss was vested with CAMARA STEEL which admitted in its Reply
that "Top-Flite requested CAMARA STEEL to terminate his employment after he was caught by the security guard
committing theft."

A cursory reading of the above declaration will confirm the fact that the dismissal of De los Santos could only be effected
by CAMARA STEEL and not by Top-Flite as the latter could only "request" for De los Santos' dismissal. If Top-Flite was
truly the employer of De los Santos, it would not be asking permission from or "requesting" respondent CAMARA STEEL
to dismiss De los Santos considering that it could very well dismiss him without CAMARA STEEL's assent.

All the foregoing considerations affirm by more than substantial evidence the existence of an employer-employee
relationship between De los Santos and CAMARA STEEL.

As to whether petitioner De los Santos was illegally terminated from his employment, we are in full agreement with the
Labor Arbiter's finding that he was illegally dismissed. As correctly observed by the Labor Arbiter, it was Narciso
Honrado, scrap in-charge, who handed the box containing the electrical cables to De los Santos. No shred of evidence
can show that De los Santos was aware of its contents, or if ever, that he conspired with Honrado in bilking the company
of its property. What is certain however is that while Honrado admitted, in a letter of apology, his culpability for the
unfortunate incident and was unconditionally forgiven by the company, De los Santos was not only unceremoniously
dismissed from service but was charged before the court for qualified theft (later dismissed by the public prosecutor for
lack of evidence). For sure, De los Santos cannot be held more guilty than Honrado who, being the scrap in-charge, had
the power to classify the cables concerned as scrap.

Neither can we gratify CAMARA STEEL's contention that petitioner was validly dismissed for loss of trust and confidence.
As provided for in the Labor Code:

Art. 282. Termination by employment — An employer may terminate an employment for any of the following
causes: x x x (c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized
representative x x x x

Of course, it must be stressed that loss of confidence as a just cause for the termination of employment is based on the
premise that the employee holds a position of trust and confidence, as when he is entrusted with responsibility involving
delicate matters, and the task of a janitor does not fall squarely under this category.

Petitioner De los Santos argues that Top-Flite was merely a "labor-only" contractor. To fortify his stance, De los Santos
brings to our attention the contract of service9 dated 8 February 1991 between CAMARA STEEL and Top-Flite which
provides:

1) The contractor (Top-Flite) shall provide workers (non-skilled) six (6) days a week for the Client's (Camara) factory
and edifices.

However, both respondent CAMARA STEEL and Top-Flite10 are adamant in their belief that the latter was not a "labor-
only" contractor as they rely on another provision of the contract which states —

64
2) The Contractor warrants the honesty, reliability, industry and cooperative disposition of the person it employs to
perform the job subject to this contract, and shall employ such persons only as are in possession of health certificates
and police clearances x x x

The preceding provisions do not give a clear and categorical answer as regards the real character of Top-Flite's business.
For whatever its worth, the invocation of the contract of service is a tacit admission by both parties that the
employment of De los Santos was by virtue of such contract. Be that as it may, Top-Flite, much less CAMARA STEEL,
cannot dictate, by the mere expedient of a unilateral declaration in a contract, the character of its business, i.e., whether
as "labor-only" contractor, or job contractor, it being crucial that its character be measured in terms of and determined
by the criteria set by statute. The case of Tiu v. NLRC11 succinctly enunciates this statutory criteria —

Job contracting is permissible only if the following conditions are met: 1) the contractor carries on an independent
business and undertakes the contract work on his own account under his own responsibility according to his own
manner and method, free from the control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and 2) the contractor has substantial capital or investment in
the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of
the business.

"Labor-only contracting" as defined in Sec. 4, par. (f), Rule VIII-A, Book III, of the Omnibus Rules Implementing the Labor
Code states that a "labor-only" contractor, prohibited under this Rule, is an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal and the
following elements are present: (a) The contractor or subcontractor does not have substantial capital or investment to
actually perform the job, work or service under its own account or responsibility; and, (b) The employees recruited,
supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main
business of the principal.

Applying the foregoing provisions, the Court finds Top-Flite to be a "labor-only" contractor, a mere supplier of labor to
CAMARA STEEL, the real employer. Other than its open declaration that it is an independent contractor, no substantial
evidence was adduced by Top-Flite to back up its claim. Its revelation that it provided a sweeper to petitioner would not
suffice to convince this Court that it possesses adequate capitalization to undertake an independent business.12 Neither
will the submission prosper that De los Santos did not perform a task directly related to the principal business of
respondent CAMARA STELL. As early as in Guarin v. NLRC13 we ruled that "the jobs assigned to the petitioners as
mechanics, janitors, gardeners, firemen and grasscutters were directly related to the business of Novelty as a garment
manufacturer," reasoning that "for the work of gardeners in maintaining clean and well-kept grounds around the
factory, mechanics to keep the machines functioning properly, and firemen to look out for fires, are directly related to
the daily operations of a garment factory."

In its comment respondent CAMARA STEEL emphatically argues that Top-Flite, although impleaded as respondent in
NLRC-NCR Cases Nos. 00-0704761-93 and 00-0805061-93, subject of the present appeal, was never summoned for
which reason it was deprived of procedural due process; basically the same line of argument adopted by the NLRC in its
decision to remand the case to the arbitration branch of origin. CAMARA STEEL obviously wants to impress upon us that
Top-flite, being a necessary party, should have been summoned and the failure to do so would justify the remand of the
case to the Labor Arbiter.

We are not persuaded. The records show that Top-Flite was not only impleaded in the aforementioned case but was in
fact afforded an opportunity to be heard when it submitted a position paper. This much was admitted by Top-Flite in
par. 5 of its Motion for Intervention where it stated that "movant submitted its position paper in the cases mentioned in
the preceding paragraph but the Presiding Arbiter ignored the clear and legal basis of the position of the movant."14 In
other words, the failure of Top-Flite to receive summons was not a fatal procedural flaw because it was never deprived
of the opportunity to ventilate its side and challenge petitioner in its position paper, not to mention the comment which
it submitted through counsel before this Court.15 It moved to intervene not because it had no notice of the proceedings

65
but because its position paper allegedly was not considered by the Labor Arbiter. While jurisdiction over the person of
the defendant can be acquired by service of summons, it can also be acquired by voluntary appearance before the court
which includes submission of pleadings in compliance with the order of the court or tribunal. A fortiori, administrative
tribunals exercising quasi-judicial powers are unfettered by the rigidity of certain procedural requirements subject to the
observance of fundamental and essential requirements of due process in justiciable cases presented before them. In
labor cases, a punctilious adherence to stringent technical rules may be relaxed in the interest of the workingman. A
remand of the case, as the NLRC envisions, would compel petitioner, a lowly worker, to tread once again the calvary of a
protracted litigation and flagellate him into submission with the lash of technicality.

WHEREFORE, the petition is GRANTED and the appealed Decision of the NLRC is REVERSED and SET ASIDE and the
Decision of the Labor Arbiter promulgated 23 May 1999 is REINSTATED and ADOPTED as the Decision in this case.

SO ORDERED.

66
G.R. Nos. 97320-27 July 30, 1993
VALLUM SECURITY SERVICES and BAGUIO LEISURE CORPORATION (HYATT TERRACES BAGUIO), petitioners,
vs. THE NATIONAL LABOR RELATIONS COMMISSION, RUBEN ABELLERA, MANUEL GANANCIAL, SAMSON ALEJERA,
ROMEO BAUTISTA, CARLOS BANIAGO, GABRIEL CABASAL, ARTEMIO CARIÑO, BENJAMIN LARON, SANTIAGO
PACULAN, FRANCISCO OBEDOZA, CEFERINO GARCIA, ARNOLD PAMINLAN, ROMAN PALIMA, JOSEFINO LOZANO,
PEDRO DULAY, JR., CLAUDIO PANGANIBAN, RONNIE BALDERAS, AVELINO PINTO, BEN ENRIQUE ESTOCAPIO,
ESABELITO ANGARA, ROBERT AGUIMBAG, WILSON ESTAVILLO, FELIXBERTO NARVASA, PABLITO ROSARIO, EDGAR
PALISOC, DONIE PERALTA, WILLY QUESADA, MARIO URBANO, EDWIN JACOB, JOSE VIRGILIO LUSTERIO, MA. NESTOR
LABADOR, ROMEO LOPEZ, MANOLO MAGAT, MARIANO MARCENA, WILSON MUNAR. ROSEMARIE DUMLAO,
FLORENTINO CASTAÑEDA, RUBEN PANTERIA, JOHNNY VILLANUEVA, DELIA ROSARIO, GARY JAVATE, DEAN PASAMIC,
VALERIE BRIONES, NEMENCIO CUTCHON, PHILIP MORIS, VINCENT NOEL CABRERA and JAIME GIMENO, respondents.

FELICIANO, J.:
On 1 September 1986, petitioner Baguio Leisure Corporation (Hyatt Terraces Baguio) ("Hyatt Baguio") and petitioner
Vallum Security Services ("Vallum") entered into a contract for security services under the terms of which Vallum agreed
to protect the properties and premises of Hyatt Baguio by providing fifty (50) security guards, on a 24-hour basis, a day.

On 1 June 1988, Heinrich L. Maulbecker, Hyatt Baguio's General Manager, wrote to Domingo A. Inocentes, President of
Vallum advising that effective 1 July 1988, the contract of security services would be terminated.

Vallum informed Mr. Maulbecker, on 22 June 1988, that it was agreeable to the termination of the contract.

On 30 June 1988, private respondents, who were security guards provided by Vallum to Hyatt Baguio, were informed by
Vallum's Personnel Officer that the contract between the two (2) had already expired. Private respondents were
directed to report to Vallum's head office at Sucat Road, in Muntinlupa, Metropolitan Manila, not later than 15 July 1988
for re-assignment. They were also told that failure to report at Sucat would be taken to mean that they were no longer
interested in being re-assigned to some other client of Vallum.

None of the private respondents reported at Sucat for re-assignment. Instead, between July and September 1988,
private respondents filed several complaints against petitioners in the National Labor Relations Commission's Office
("NLRC") in Baguio City for illegal dismissal and unfair labor practices; for violation of labor standards relating to
underpayment of wages, premium holiday and restday pay, uniform allowances and meal allowances. They prayed for
reinstatement with full backwages. The several cases were consolidated together.

On 19 May 1989, the Labor Arbiter rendered a decision dismissing the complaints. He found Vallum to be an
independent contractor and, consequently, declined to hold Hyatt Baguio liable for dismissal of private respondents. He
also held that the termination of services of private respondents by Vallum did not constitute an unfair labor practice,
considering that such termination had been brought about by lack of work. Furthermore, the Labor Arbiter held that
private respondents were not entitled to backwages or separation pay, in line with the "no work, no pay" principle.
Lastly, he found no violation of the labor standard provisions on payment of wages and other employee benefits.1

Private respondents appealed the Labor Arbiter's decision to the NLRC. On 31 July 1990, the NLRC promulgated a
resolution reversing the Labor Arbiter's decision, the dispositive portion of which resolution reads as follows:

WHEREFORE, the decision appealed from is hereby REVERSED and set aside and a new one entered ordering the
respondent Hyatt Terraces Baguio to reinstate the complainants to their former positions with full backwages limited to
one (1) year. In view of supervening event which makes the reinstatement imposible, respondents Hyatt Terraces Baguio
and Vallum Security Services Corporation, are directed, jointly and severally to pay complainants, in lieu of
reinstatement, separation pay equal to one (1) month per year of service. Service of six month shall be considered a year
for the purpose of the same.2

67
Petitioners moved for reconsideration, without success.

Vallum and Hyatt Baguio are hence before this Court on certiorari seeking to: (a) reverse and annul the Resolutions of
the NLRC of 31 July 1990 and 31 January 1991; and (b) reinstate the decision of the Labor Arbiter dated 19 May 1989.
Petitioners assert that the NLRC's finding that an employer-employee relationship had existed between Hyatt Baguio
and private respondents, is tainted with arbitrariness.

The main issue here presented and addressed below is whether or not private respondent security guards are indeed
employees of petitioner Hyatt Baguio.

In determining whether a given set of circumstances constitute or exhibit an employer-employee relationship, the
accepted rule is that the elements or circumstances relating to the following matters shall be examined and considered:

1. the selection and engagement of the employee;.

2. the payment of wages;
3. the power of dismissal; and
4. the power to control the employees' conduct.3

Of the above, control of the employees' conduct is commonly regarded as the most crucial and determinative indicator
of the presence or absence of an employer-employee relationship.4 We examine below the circumstances of the
relationship between petitioners and private respondents under the above four (4) rubrics.

In respect of the selection and engagement of the employees, the records here show that private respondents filled up
Hyatt employment application forms and submitted the executed forms directly to the Security Department of Hyatt
Baguio.5 It appears that these executed application forms were returned to the respective applicants;6 nonetheless,
however, a few days after the applications to Hyatt Baguio were submitted, Vallum sent letters of acceptance to private
respondents. Petitioners do not deny that private respondent had applied for employment at Hyatt's Security
Department and that Security Department was used to process the applications. Petitioners argue that because the
premises to be secured were located in Baguio, Vallum found it more advantageous to recruit security guards from the
Baguio area. It would have been most inconvenient for applicants from the Baguio area to have gone all the way to
Sucat in Makati to file and follow-up their applications; accordingly, Vallum was provided with its own office at Hyatt
Baguio and there the applications, with the assistance of Hyatt Baguio's Security Department, were processed.7
Petitioners' argument here, while understandable, does not negate the fact that the process of selection and
engagement of private respondents had been carried out in Hyatt Baguio and subject to the scrutiny of officers and
employees of Hyatt Baguio.

In respect of the mode or manner of payment of wages, private respondents submitted in evidence four hundred
twenty-three (423) pay slips (Exhibits "A" for complainants-private respondents), which bore Hyatt Baguio's logo.8 These
pay slips show that it was Hyatt Baguio which paid their wages directly and that Hyatt Baguio deducted therefrom the
necessary amounts for SSS premiums, internal revenue withholding taxes, and medicare contributions. The Labor
Arbiter had found that a separate payroll was maintained for Vallum by Hyatt Baguio; the NLRC, however, held that this
finding had no factual basis, and we are compelled to agree with this finding. It is true that a subsequent agreement (10
September 1986) between Vallum and Hyatt Baguio had provided:

1. That for the purposes of facilitating and prevention of delays in the distribution of payroll to all Security guards
assigned at the premises of the company and as embraced in the contract of Security services, the [vallum] shall
herewith authorize the [Hyatt Baguio] to undertake the distribution of the payroll directly to the guards as mentioned
herein. (Emphasis supplied)

2. That for purposes of the payroll distribution as stated above, the company shall devise ways to ensure the
efficient and prompt distribution to the guards of their respective salaries.9 (Emphasis supplied)

68
The fact that this agreement had stipulated for direct payment by Hyatt Baguio of private respondents' wages did not, of
course, dissolve the relevance of such direct payment as an indicator of an employer-employee relationship between
Hyatt Baguio and private respondents. Vallum did not even provide Hyatt Baguio with Vallum's own pay slips or payroll
vouchers for such direct payments. What clearly emerges is that Hyatt Baguio discharged a function which was properly
a function of the employer.

Turning to the matter of location of the power of dismissal, we note that the contract provided that upon loss of
confidence on the part of Hyatt Baguio vis-a-vis any security guard furnished by Vallum, such security guard "may be
changed immediately upon the request to [Vallum] by [Hyatt Baguio]." Notwithstanding the terms of the formal contract
between petitioners, the NLRC found that, in operative fact, it was Hyatt Baguio's Chief Security Officer
who exercised the power of enforcing disciplinary measures over the security guards. 10 In the matter of termination of
services of particular security guards, Hyatt Baguio had merely used Vallum as a channel to implement its decisions,
much as it had done in the process of selection and recruitment of the guards.

Coming then to the location of the power of control over the activities of the security guards, the following factors lead
us to the conclusion that power was effectively located in Hyatt Baguio rather than in Vallum:

(a) the assignments of particular security guards was subject to the approval of Hyatt Baguio's Chief Security
Officer; 11

(b) promotions of the security guards from casual to regular employees were approved or ratified by the Chief
Security Officer of Hyatt Baguio; 12

(c) Hyatt Baguio's Chief Security Officer decided who among the various security guards should be an duty or on
call, as well as who, in cases of disciplinary matters, should be suspended or dismissed; 13

(d) the petitioners themselves admitted that Hyatt Baguio, through its Chief Security Officer, awarded citations to
individual security guards for meritorious services. 14

Petitioners contend that what existed between Vallum and Hyatt Baguio was simply close coordination and dove-tailing
of operations, rather than control and supervision by one over the operations of the other, and that Hyatt Baguio's Chief
Security Officer had acted as the conduit between Hyatt Baguio and Vallum in respect of the implementation of the
contract of security services. That is not, however, the characterization given by the NLRC to the details of the factual
relationships between Hyatt Baguio (acting through its Chief Security Officer) and Vallum and private respondent
security guards and it is clear to the Court that the characterization reached by the NLRC is not without the support of
substantial evidence of record. We agree with the NLRC's characterization.

One final circumstance seems worthy of note: orders received by private respondent security guards were set forth on
paper bearing the letterheads of both Hyatt Baguio and Vallum. 15 It appears to us, therefore, that Hyatt Baguio
explicitly purported, at the very least, to share with Vallum the exercise of the power of control and supervision with
Vallum over the security guards, if indeed Vallum was not functioning merely as an alter ego of Hyatt Baguio in respect
of the operations of the security guards. In the ordinary course of business, security guard agencies are engaged because
of their specialized capabilities in the matter of physical security. It is a security agency's business to know the most
efficacious manner of protecting and securing a particular place at a particular time. In the case at bar, the functions
performed by Hyatt Baguio's Chief Security Officer were precisely the duties which the head or senior officer of a
legitimate security agency would be exercising over its own employees.

Finally, we note that the contract for security services between Vallum and Hyatt Baguio contained the following
provisions:

69
xxx xxx xxx

3. The AGENCY shall exercise discipline, supervision, control and administration over the security guard so assigned
to the premises of the COMPANY in accordance with the Rules and Regulations of the PCSUSIA, the Local Police
Departments, the AGENCY and the COMPANY.

4. The AGENCY shall provide at its own expense all necessary, proper and duly licensed firearms, ammunitions,
nightsticks, and other paraphernalia for security purposes, to the guards it assigns to the COMPANY and shall shoulder
all taxes and licenses relating to the Security Services referred to in this agreement.

5. It is expressly understood and mutually agreed by the parties hereto that the AGENCY shall be held solely liable
for any claim for security guards' wages and/or damages arising out of personal injury including death caused, either by
the AGENCY's guard upon a third party or by the AGENCY'S guard or third party upon a guard assigned by the AGENCY to
the COMPANY, and should the COMPANY be held liable therefore, the AGENCY shall reimburse the COMPANY for any
and all amounts that it may have been called upon to pay.

xxx xxx xxx

7. The AGENCY shall always detail within the hours the period provided for and in the paragraph 1 of this contract,
an authorized representative who shall handle for the AGENCY all matters regarding security and enforcement which the
COMPANY may wish to implement.

The thrust of the foregoing discussion, however, is that the relationship between Vallum and Hyatt Baguio as actually
conducted departed significantly from the formal written terms of their agreement. It is to us self-evident that the
characterization in law of such relationship cannot conclusively be made in terms alone of the written agreement —
which constitutes but one factor out of many that the Court must take into account — but must rest upon an
examination of the detailed facts of such relationship in the world of time and space.

We find no basis for overturning the conclusions reached by the NLRC that Vallum, in the specific circumstances of this
case, was not an independent contractor but was, rather, a "labor-only" contracor. Section 9 of Rule VII of Book III
entitled "Conditions of Employment" of the Omnibus Rules Implementing the Labor Code provides as follows:

Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an employer shall be deemed to be
engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises
and other materials; and

(2) The workers recruited and placed by such person are performing activities which are directly related to the
principal business or operations of the employer in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him.

xxx xxx xxx

Sec. 8. Job contracting. — There is job contracting permissible under the Code if the following conditions are met:

70
(1) The contractor carries on an independent business and undertakes the contract work on his own account under
his own responsibility according 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 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 at bar, we noted that Vallum did not have a branch office in Baguio City and that Hyatt Baguio provided
Vallum with offices at Hyatt's own premises and allowed Vallum to use its Security Department in the processing of
applications. That was the reason too why Vallum had stipulated that Hyatt Baguio was to distribute the salaries of the
security guards directly to them and that Hyatt had used its own corporate forms and pay slips in doing so. The security
guards were clearly performing activities directly related to the business operations of Hyatt Baguio, since the
undertaking to safeguard the person and belongings of hotel guests is one of the obligations of a hotel vis-a-vis its guests
and the general public.

Where labor-only contracting exists in a given case, the law itself implies or establishes an employer-employee
relationship between the employer (the owner of the project or establishment) (here, Hyatt Baguio) and the employees
of the labor-only contractor (here, Vallum) to prevent any violation or circumvention of provisions of the Labor Code. 16

The issue of illegal dismissal need not detain us for long. It has not been alleged by petitioners that a just or authorized
cause for terminating private respondents' services had existed. And even if such lawful cause existed, it is not alleged
that private respondents' rights to procedural due process in that connection had been appropriately observed.

We conclude that petitioners have not shown any grave abuse of discretion or any act without or any in excess of
jurisdiction on the part of the National Labor Relations Commission in rendering its Resolutions dated 31 July 1990 and
31 January 1991.

WHEREFORE, premises considered, the Petition for Certiorari is hereby DISMISSED for lack of merit. Costs against
petitioners.

71
[G.R. No. 124055. June 8, 2000]
ROLANDO E. ESCARIO, NESTOR ANDRES, CESAR AMPER, LORETO BALDEMOR, EDUARDO BOLONIA, ROMEO E.
BOLONIA, ANICETO CADESIM, JOEL CATAPANG, NESTOR DELA CRUZ, EDUARDO DUNGO ESCARIO REY, ELIZALDE
ESTASIO, CAROLINO M. FABIAN, RENATO JANER, EMER B. LIQUIGAN, ALEJANDRO MABAWAD, FERNANDO M.
MAGTIBAY, DOMINADOR B. MALLILLIN, NOEL B. MANILA, VIRGILIO A. MANIO, ROMEO M. MENDOZA, TIMOTEO
NOTARION, FREDERICK RAMOS, JOSEPH REYES, JESSIE SEVILLA, NOEL STO. DOMINGO, DODJIE TAJONERA, JOSELITO
TIONLOC, ARNEL UMALI, MAURLIE C. VIBAR, ROLANDO ZALDUA, RODOLFO TUAZON, TEODORO LUGADA, MAURING
MANUEL, MARCIANO VERGARA, JR., ARMANDO IBASCO, CAYETANO IBASCO, LEONILO MEDINA, JOSELITO ODO,
MELCHOR BUELA, GOMER GOMEZ, HENRY PONCE, RAMON ORTIZ, JR., ANTONIO MIJARES, JR., MARIO DIZER,
REYNANTE PEJO, ARNALDO RAFAEL, NELSON BERUELA, AUGUSTO RAMOS, RODOLFO VALENTIN, ANTONIO CACAM,
VERNON VELASQUEZ, NORMAN VALLO, ALEJANDRO ORTIZ, ROSANO VALLO, ANDREW ESPINOSA, EDGAR CABARDO,
FIDELES REYES, EDGARDO FRANCISCO, FERNANDO VILLARUEL, LEOPOLDO OLEGARIO, OSCAR SORIANO, GARY RELOS,
DANTE IRANZO, RONALDO BACOLOR, RONALD ESGUERA, VICTOR ALVAREZ, JOSE MARCELO, DANTE ESTRELLADO,
MELQUIADES ANGELES, GREGORIO TALABONG, ALBERT BALAO, ALBERT CANLAS, CAMILO VELASCO, PONTINO
CHRISTOPHER, WELFREDO RAMOS, REYNALDO RODRIGUEZ, RAZ GARIZALDE, MIGUEL TUAZON, ROBERTO SANTOS,
AND RICARDO MORTEL, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, CALIFORNIA MANUFACTURING
CO. INC. AND DONNA LOUISE ADVERTISING AND MARKETING ASSOCIATES INCORPORATED, respondents.

DECISION

KAPUNAN, J.:
Before this Court is a petition for certiorari under Rule 65, which seeks to annul and set aside the decision, promulgated
on 10 May 1995, of the National Labor Relations Commission (NLRC). The assailed decision reversed the decision of the
Labor Arbiter, and ruled that the petitioners are employees of Donna Louise Advertising and Marketing Associates, Inc.
and ordered the reinstatement of petitioners and the payment of backwages.

Private respondent California Marketing Co. Inc. (CMC) is a domestic corporation principally engaged in the
manufacturing of food products and distribution of such products to wholesalers and retailers. Private respondent
Donna Louise Advertising and Marketing Associates, Inc. (D.L. Admark) is a duly registered promotional firm.

Petitioners worked as merchandisers for the products of CMC. Their services were terminated on 16 March 1992.

The parties presented conflicting versions of the facts.

Petitioners allege that they were employed by CMC as merchandisers. Among the tasks assigned to them were the
withdrawing of stocks from the warehouse, the fixing of prices, price-tagging, displaying of merchandise, and the
inventory of stocks. These were done under the control, management and supervision of CMC. The materials and
equipment necessary in the performance of their job, such as price markers, gun taggers, toys, pentel pen, streamers
and posters were provided by CMC. Their salaries were being paid by CMC. According to petitioners, the hiring, control
and supervision of the workers and the payment of salaries, were all coursed by CMC through its agent D.L. Admark in
order for CMC to avoid its liability under the law.

On 7 February 1992, petitioners filed a case against CMC before the Labor Arbiter for the regularization of their
employment status. During the pendency of the case before the Labor Arbiter, D.L. Admark sent to petitioners notice of
termination of their employment effective 16 March 1992. Hence, their complaint was amended so as to include illegal
dismissal as cause of action. Thereafter, twenty-seven more persons joined as complainants. CMC filed a motion to
implead as party-defendant D. L. Admark and at the same time the latter filed a motion to intervene. Both motions were
granted.

CMC, on the other hand, denied the existence of an employer-employee relationship between petitioner and itself.
Rather, CMC contended that it is D.L. Admark who is the employer of the petitioners. While CMC is engaged in the

72
manufacturing of food products and distribution of such to wholesalers and retailers, it is not allowed by law to engage
in retail or direct sales to end consumers. It, however, hired independent job contractors such as D.L. Admark, to
provide the necessary promotional activities for its product lines.

For its part, D.L. Admark asserted that it is the employer of the petitioners. Its primary purpose is to carry on the
business of advertising, promotion and publicity, the sales and merchandising of goods and services and conduct survey
and opinion polls. As an independent contractor it serves several clients among which include Purefoods, Corona Supply,
Firstbrand, Splash Cosmetics and herein private respondent California Marketing.

On 29 July 1994, the Labor Arbiter rendered a decision finding that petitioners are the employees of CMC as they were
engaged in activities that are necessary and desirable in the usual business or trade of CMC.[1] In justifying its ruling, the
Labor Arbiter cited the case of Tabas vs. CMC which, likewise, involved private respondent CMC. In the Tabas case, this
Court ruled that therein petitioner merchandisers were employees of CMC, to wit:

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 not withstanding its vehement claims to the contrary and not- withstanding its
vehement claims to the contrary, and notwithstanding the provision of the contract that it is "an independent
contractor." The nature of ones 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 California with workers to pursue the latters own business. In this
connection, we do not agree that the petitioner has been made to perform activities "which are not directly related to
the general business of manufacturing," Californias purported "principal operation activity. The petitioners had been
charged with merchandising [sic] promotion or sale of the products of [California] in the different sales outlets in Metro
Manila including task and occational [sic] price tagging," an activity that is doubtless, an integral part of the
manufacturing business. It is not, then, as if Livi had served as its (Californias) promotions or sales arm or agent, or
otherwise rendered a piece of work it (California) could not itself have done; Livi as a placement agency, had simply
supplied it with manpower necessary to carry out its (Californias) merchandising activities, using its (Californias)
premises and equipment.[2]

On appeal, the NLRC set aside the decision of the Labor Arbiter. It ruled that no employer-employee relationship existed
between the petitioners and CMC. It, likewise, held that D.L. Admark is a legitimate independent contractor, hence, the
employer of the petitioners. Finding no valid grounds existed for the dismissal of the petitioners by D.L. Admark, it
ordered their reinstatement. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the appealed judgment is modified. Intervenor DL ADMARK is ordered to reinstate
the eighty one (81) complainants mentioned in the appealed decision to their former positions with backwages from
March 16, 1992 until they are actually reinstated. The award of attorneys fees equivalent to ten (10%) of the award is
deleted for lack of basis.[3]

Petitioners filed a motion for reconsideration but the same was denied by the NLRC for lack of merit. [4]

Hence, this petition.

In the main, the issue brought to fore is whether petitioners are employees of CMC or D.L. Admark. In resolving this, it is
necessary to determine whether D.L. Admark is a labor-only contractor or an independent contractor.

Petitioners are of the position that D.L. Admark is a labor-only contractor and cites this Courts ruling in the case of
Tabas, which they claim is applicable to the case at bar for the following reasons:

1. The petitioners are merchandisers and the petitioners in the Tabas case are also merchandisers who have the same
nature of work.

73
2. The respondent in this case is California Manufacturing Co. Inc. while respondent in the Tabas case is the same
California Manufacturing Co. Inc.

3. The agency in the Tabas case is Livi Manpower Services. In this case, there are at least, three (3) agencies namely: the
same Livi Manpower Services; the Rank Manpower Services and D.L. Admark whose participation is to give and pay the
salaries of the petitioners and that the money came from the respondent CMC as in the Tabas case.

4. The supervision, management and/or control rest upon respondent California Manufacturing Co. Inc. as found by the
Honorable Labor Arbiter which is also, true in the Tabas Case.[5]

We cannot sustain the petition.

Petitioners reliance on the Tabas case is misplaced. In said case, we ruled that therein contractor Livi Manpower Services
was a mere placement agency and had simply supplied herein petitioner with the manpower necessary to carry out the
companys merchandising activity. We, however, further stated that :

It would have been different, we believe, had Livi been discretely a promotions firm, and that California had hired it to
perform the latters merchandising activities. For then, Livi would have been truly the employer of its employees and
California, its client. x x x.[6]

In other words, CMC can validly farm out its merchandising activities to a legitimate independent contractor.

There is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places workers to
perform a job, work or service for a principal. In labor-only contracting, the following elements are present:

(a) 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

(b) The workers recruited and placed by such person are performing activities which are directly related to the principal
business of the employer. [7]

In contrast, there is permissible job contracting when a principal agrees to put out or farm out with a contractor or a
subcontractor the performance or completion of a specific job, work or service within a definite or predetermined
period, regardless of whether such job or work or service is to be performed or completed within or outside the
premises of the principal. In this arrangement, the following conditions must concur:

(a)....The contractor carries on a distinct and independent business and undertakes the contract work on his account
under his own responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of his work except as to the results thereof; and

(b)....The contractor has substantial capital or investment in the form of tools, equipment, machineries (sic), work
premises, and other materials which are necessary in the conduct of his business.[8]

In the recent case of Alexander Vinoya vs. NLRC et al.,[9] this Court ruled that in order to be considered an independent
contractor it is not enough to show substantial capitalization or investment in the form of tools, equipment, machinery
and work premises. In addition, the following factors need be considered: (a) whether the contractor is carrying on an
independent business; (b) the nature and extent of the work; (c) the skill required; (d) the term and duration of the
relationship; (e) the right to assign the performance of specified pieces of work; (f) the control and supervision of the
workers; (g) the power of the employer with respect to the hiring, firing and payment of workers of the contractor; (h)

74
the control of the premises; (i) the duty to supply premises, tools, appliances, materials, and labor; and (j) the mode,
manner and terms of payment.[10]

Based on the foregoing criterion, we find that D.L. Admark is a legitimate independent contractor.

Among the circumstances that tend to establish the status of D.L. Admark as a legitimate job contractor are:

1) The SEC registration certificate of D.L. Admark states that it is a firm engaged in promotional, advertising, marketing
and merchandising activities.

2) The service contract between CMC and D.L. Admark clearly provides that the agreement is for the supply of sales
promoting merchandising services rather than one of manpower placement.[11]

3) D.L. Admark was actually engaged in several activities, such as advertising, publication, promotions, marketing and
merchandising. It had several merchandising contracts with companies like Purefoods, Corona Supply, Nabisco Biscuits,
and Licron. It was likewise engaged in the publication business as evidenced by it magazine the "Phenomenon."[12]

4) It had its own capital assets to carry out its promotion business. It then had current assets amounting to P6 million
and is therefore a highly capitalized venture.[13] It had an authorized capital stock of P500,000.00. It owned several
motor vehicles and other tools, materials and equipment to service its clients. It paid rentals of P30,020 for the office
space it occupied.

Moreover, by applying the four-fold test used in determining employer-employee relationship, the status of D.L. Admark
as the true employer of petitioners is further established. The elements of this test are (1) the selection and engagement
of employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employees
conduct.[14]

As regards the first element, petitioners themselves admitted that they were selected and hired by D.L. Admark.[15]

As to the second element, the NLRC noted that D.L. Admark was able to present in evidence the payroll of petitioners,
sample SSS contribution forms filed and submitted by D.L. Admark to the SSS, and the application for employment by R.
de los Reyes, all tending to show that D.L. Admark was paying for the petitioners salaries. In contrast, petitioners did not
submit an iota of evidence that it was CMC who paid for their salaries. The fact that the agreement between CMC and
D.L. Admark contains the billing rate and cost breakdown of payment for core merchandisers and coordinators does not
in any way establish that it was CMC who was paying for their salaries. As correctly pointed out by both CMC[16] and the
Office of the Solicitor General,[17] such cost breakdown is a standard content of service contracts designed to insure
that under the contract, employees of the job contractor will receive benefits mandated by law.

Neither did the petitioners prove the existence of the third element. Again petitioners admitted that it was D.L. Admark
who terminated their employment.[18]

To prove the fourth and most important element of control, petitioners presented the memoranda of CMCs sales and
promotions manager. The Labor Arbiter found that these memos "indubitably show that the complainants were under
the supervision and control of the CMC people."[19] However, as correctly pointed out by the NLRC, a careful scrutiny of
the documents adverted to, will reveal that nothing therein would remotely suggest that CMC was supervising and
controlling the work of the petitioners:

x x x The memorandums (Exhibit "B") were addressed to the store or grocery owners telling them about the forthcoming
sales promotions of CMC products. While in one of the memorandums a statement is made that "our merchandisers and
demonstrators will be assigned to pack the premium with your stocks in the shelves x x x, yet it does not necessarily
mean to refer to the complainants, as they claim, since CMC has also regular merchandisers and demonstrators. It would

75
be different if in the memorandums were sent or given to the complainants and their duties or roles in the said sales
campaign are therein defined. It is also noted that in one of the memorandums it was addressed to: "All regular
merchandisers/demonstrators." x x x we are not convinced that the documents sufficiently prove employer-employee
relationship between complainants and respondents CMC.[20]

The Office of the Solicitor General, likewise, notes that the documents fail to show anything that would remotely suggest
control and supervision exercised by CMC over petitioners on the matter on how they should perform their work. The
memoranda were addressed either to the store owners or "regular" merchandisers and demonstrators of CMC. Thus,
petitioners, who filed a complaint for regularization against respondent CMC, thereby, conceding that they are not
regular employees of the latter, cannot validly claim to be the ones referred to in said memos.[21]

Having proven the existence of an employer-employee relationship between D.L. Admark and petitioners, it is no longer
relevant to determine whether the activities performed by the latter are necessary or desirable to the usual business or
trade of CMC.

On the issue of illegal dismissal, we agree with the findings of the NLRC that D.L. Admark "admits having dismissed the
petitioners for allegedly disowning and rejecting them as their employer." Undoubtedly, the reason given is not just
cause to terminate petitioners.[22] D.L. Admarks belated claim that the petitioners were not terminated but simply did
not report to work[23] is not supported by the evidence on record. Moreover, there is no showing that due process was
afforded the petitioners.

IN VIEW OF THE FOREGOING, finding no grave abuse of discretion on the part of the National Labor Relations
Commission, the assailed decision is AFFIRMED in toto.

SO ORDERED.

76
[G.R. No. 144134. November 11, 2003]
MARIVELES SHIPYARD CORP., petitioner, vs. HON. COURT OF APPEALS, LUIS REGONDOLA, MANUELIT GATALAN,
ORESCA AGAPITO, NOEL ALBADBAD, ROGELIO PINTUAN, DANILO CRISOSTOMO, ROMULO MACALINAO, NESTOR
FERER, RICKY CUESTA, ROLLY ANDRADA, LARRY ROGOLA, FRANCISCO LENOGON, AUGUSTO QUINTO, ARFE BERAMO,
BONIFACIO TRINIDAD, ALFREDO ASCARRAGA, ERNESTO MAGNO, HONORARIO HORTECIO, NELBERT PINEDA, GLEN
ESTIPULAR, FRANCISCO COMPUESTO, ISABELITO CORTEZ, MATURAN ROSAURO, SAMSON CANAS, FEBIEN ISIP, JESUS
RIPARIP, ALFREDO SIENES, ADOLAR ALBERT, HONESTO CABANILLAS, AMPING CASTILLO and ELWIN REVILLA,
respondents.

DECISION
QUISUMBING, J.:
For review on certiorari is the Resolution,[1] dated December 29, 1999, of the Court of Appeals in CA-G.R. SP No. 55416,
which dismissed outright the petition for certiorari of Mariveles Shipyard Corp., due to a defective certificate of non-
forum shopping and non-submission of the required documents to accompany said petition. Mariveles Shipyard Corp.,
had filed a special civil action for certiorari with the Court of Appeals to nullify the resolution[2] of the National Labor
Relations Commission (NLRC), dated April 22, 1999, in NLRC NCR Case No. 00-09-005440-96-A, which affirmed the Labor
Arbiters decision,[3] dated May 22, 1998, holding petitioner jointly and severally liable with Longest Force Investigation
and Security Agency, Inc., for the underpayment of wages and overtime pay due to the private respondents. Likewise
challenged in the instant petition is the resolution[4] of the Court of Appeals, dated July 12, 2000, denying petitioners
motion for reconsideration.

The facts, as culled from records, are as follows:

Sometime on October 1993, petitioner Mariveles Shipyard Corporation engaged the services of Longest Force
Investigation and Security Agency, Inc. (hereinafter, Longest Force) to render security services at its premises. Pursuant
to their agreement, Longest Force deployed its security guards, the private respondents herein, at the petitioners
shipyard in Mariveles, Bataan.

According to petitioner, it religiously complied with the terms of the security contract with Longest Force, promptly
paying its bills and the contract rates of the latter. However, it found the services being rendered by the assigned guards
unsatisfactory and inadequate, causing it to terminate its contract with Longest Force on April 1995.[5] Longest Force, in
turn, terminated the employment of the security guards it had deployed at petitioners shipyard.

On September 2, 1996, private respondents filed a case for illegal dismissal, underpayment of wages pursuant to the
PNPSOSIA-PADPAO rates, non-payment of overtime pay, premium pay for holiday and rest day, service incentive leave
pay, 13th month pay and attorneys fees, against both Longest Force and petitioner, before the Labor Arbiter. Docketed
as NLRC NCR Case No. 00-09-005440-96-A, the case sought the guards reinstatement with full backwages and without
loss of seniority rights.

For its part, Longest Force filed a cross-claim[6] against the petitioner. Longest Force admitted that it employed private
respondents and assigned them as security guards at the premises of petitioner from October 16, 1993 to April 30, 1995,
rendering a 12 hours duty per shift for the said period. It likewise admitted its liability as to the non-payment of the
alleged wage differential in the total amount of P2,618,025 but passed on the liability to petitioner alleging that the
service fee paid by the latter to it was way below the PNPSOSIA and PADPAO rate, thus, contrary to the mandatory and
prohibitive laws because the right to proper compensation and benefits provided under the existing labor laws cannot
be waived nor compromised.

The petitioner denied any liability on account of the alleged illegal dismissal, stressing that no employer-employee
relationship existed between it and the security guards. It further pointed out that it would be the height of injustice to
make it liable again for monetary claims which it had already paid. Anent the cross-claim filed by Longest Force against

77
it, petitioner prayed that it be dismissed for lack of merit. Petitioner averred that Longest Force had benefited from the
contract, it was now estopped from questioning said agreement on the ground that it had made a bad deal.

On May 22, 1998, the Labor Arbiter decided NLRC NCR Case No. 00-09-005440-96-A, to wit:

WHEREFORE, conformably with the foregoing, judgment is hereby rendered ordering the respondents as follows:

1. DECLARING respondents Longest Force Investigation & Security Agency, Inc. and Mariveles Shipyard Corporation
jointly and severally liable to pay the money claims of complainants representing underpayment of wages and overtime
pay in the total amount of P2,700,623.40 based on the PADPAO rates of pay covering the period from October 16, 1993
up to April 29, 1995 broken down as follows:

UNDERPAYMENT OF WAGES:

PERIOD MONTHLY

COVERED PADPAO ACTUAL UNDERPAYMENT

RATES SALARY FOR THE Wage

(8 hrs. duty) RECEIVED PERIOD DIFFERENTIALS
Oct. 16-Dec. P5,485.00 P5,000 P 485.00 P970.00
15/93 (2 mos.)
Dec. 16/93-Mar. 6,630.00 5,000 1,630.00 5,705.00
31/94 (3.5 mos.)
Apr. 1-Dec. 7,090.00 5,810 1,280.00 11,520.00
31/94 (9 mos.)
Jan. 1-Apr. 7,220.00 5,810 1,410.00 5,597.70
29/95 (3.97 mos.)
TOTAL UNDERPAYMENTS - - - - - - - - - - - - - - - - P23,792.70

OVERTIME:
Oct. 16-Dec. 15/93 P5,485 x 2 = P 5,485.00
(2 mos.) 2
Dec. 16/93-Mar. 6,630 x 3.5 = 11,602.50
31/94 (3.5 mos.) 2
Apr. 1-Dec. 7,090 x 9 = 31,905.00
31/94 (9 mos.) 2
Jan. 1-Apr. 7,220 x 3.97 = 14,331.70
29/95 (3.97 mos.) 2
TOTAL OVERTIME- - - - - - - - - P63,324.20

Sub-Total of Underpayments and Overtime P87,116.90

1. Luis Regondula (the same) P 87,116.90
2. Manolito Catalan (the same) 87,116.90
3. Oresca Agapito (the same) 87,116.90
4. Noel Alibadbad (the same) 87,116.90
5. Rogelio Pintuan (the same) 87,116.90
6. Danilo Crisostomo (the same) 87,116.90
7. Romulo Macalinao (the same) 87,116.90
8. Nestor Ferrer (the same) 87,116.90
9. Ricky Cuesta (the same) 87,116.90
10. Andrada Ricky (the same) 87,116.90
11. Larry Rogola (the same) 87,116.90
12. Francisco Lenogon (the same) 87,116.90
13. Augosto Quinto (the same) 87,116.90
14. Arfe Beramo (the same) 87,116.90
15. Bonifacio Trinidad (the same) 87,116.90
16. Alfredo Azcarraga (the same) 87,116.90
17. Ernesto Magno (the same) 87,116.90
18. Honario Hortecio (the same) 87,116.90
19. Nelbert Pineda (the same) 87,116.90
78
20. Glen Estipular (the same) 87,116.90
21. Francisco Compuesto (the same) 87,116.90
22. Isabelito Cortes (the same) 87,116.90
23. Maturan Rosauro (the same) 87,116.90
24. Samson Canas (the same) 87,116.90
25. Febien Isip (the same) 87,116.90
26. Jesus Riparip (the same) 87,116.90
27. Alfredo Sienes (the same) 87,116.90
28. Adolar Albert (the same) 87,116.90
29. Cabanillas Honesto (the same) 87,116.90
30. Castillo Amping (the same) 87,116.90
31. Revilla Elwin (the same) 87,116.90
GRAND TOTAL P 2,700,623.90

2. DECLARING both respondents liable to pay complainants attorneys fees equivalent to ten (10%) percent of the total
award recovered or the sum of P270,062.34.

3. ORDERING respondent Longest Force Investigation & Security Agency, Inc. to reinstate all the herein complainants to
their former or equivalent positions without loss of seniority rights and privileges with full backwages which as
computed as of the date of this decision are as follows:

Backwages:
10/16 12/15/93 =2 mos.
P 5,485.00 x 2 mos. = P 10,970.00
12/16/93 3/31/94=3.5 mos.
P 6,630.00 x 3.5 mos. = 23,205.00
4/1 12/31/94 = 9 mos.
P 7,090.00 x 9 mos. = 63,810.00
1/1 4/29/95 = 3.97 mos.
P 7,220.00 x 3.97 mos. = 28,663.40
TOTAL P 126,684.40[7]

1. Luis Regondula (same) P 126,684.40[8]

2. Manolito Catalan (same) 126,684.40
3. Oresca Agapito (same) 126,684.40
4. Noel Alibadbad (same) 126,684.40
5. Rogelio Pintuan (same) 126,684.40
6. Danilo Crisostomo (same) 126,684.40
7. Romulo Macalinao (same) 126,684.40
8. Nestor Ferrer (same) 126,684.40
9. Ricky Cuesta (same) 126,684.40
10. Andrada Rolly (same) 126,684.40
11. Larry Rogola (same) 126,684.40
12. Francisco Lenogon (same) 126,684.40
13. Augosto Quinto (same) 126,684.40
14. Arfe Beramo (same) 126,684.40
15. Bonifacio Trinidad (same) 126,684.40
16. Alfredo Azcarraga (same) 126,684.40
17. Ernesto Magno (same) 126,684.40
18. Honario Hortecio (same) 126,684.40
19. Nelbert Pineda (same) 126,684.40
20. Glen Estipular (same) 126,684.40
21. Francisco Compuesto (same) 126,684.40
22. Isabelito Cortes (same) 126,684.40
23. Maturan Rosauro (same) 126,684.40
24. Samson Canas (same) 126,684.40
25. Febien Isip (same) 126,684.40
26. Jesus Riparip (same) 126,684.40
27. Alfredo Sienes (same) 126,684.40
28. Adolar Albert (same) 126,684.40
29. Cabanillas Honesto (same) 126,684.40
30. Castillo Amping (same) 126,684.40
31. Revilla Elwin (same) 126,684.40
GRAND TOTAL P3,927,216.40[9]

79
4. ORDERING said Longest Force Investigation & Security Agency, Inc. to pay attorneys fees equivalent to ten (10%)
percent of the total award recovered representing backwages in the amount of P392,721.64.[10]

5. DISMISSING all other claims for lack of legal basis.

SO ORDERED.[11]

Petitioner appealed the foregoing to the NLRC in NLRC NCR Case No. 00-09-005440-96-A. The labor tribunal, however,
affirmed in toto the decision of the Labor Arbiter. Petitioner moved for reconsideration, but this was denied by the
NLRC.

The petitioner then filed a special civil action for certiorari assailing the NLRC judgment for having been rendered with
grave abuse of discretion with the Court of Appeals, docketed as CA-G.R. SP No. 55416. The Court of Appeals, however,
denied due course to the petition and dismissed it outright for the following reasons:

1. The verification and certification on non-forum shopping is signed not by duly authorized officer of petitioner
corporation, but by counsel (Section 1, Rule 65, 1997 Rules of Civil Procedure).

2. The petition is unaccompanied by copies of relevant and pertinent documents, particularly the motion for
reconsideration filed before the NLRC (Section 1, Rule 65, 1997 Rules of Civil Procedure).[12]

The petitioner then moved for reconsideration of the order of dismissal. The appellate court denied the motion, pointing
out that under prevailing case law subsequent compliance with formal requirements for filing a petition as prescribed by
the Rules, does not ipso facto warrant a reconsideration. In any event, it found no grave abuse of discretion on the part
of the NLRC to grant the writ of certiorari.

Hence, this present petition before us. Petitioner submits that THE COURT OF APPEALS GRAVELY ERRED:

1. .IN DISMISSING THE PETITION AND DENYING THE MOTION FOR RECONSIDERATION DESPITE THE FACT THAT
PETITIONER SUBSTANTIALLY COMPLIED WITH THE REQUIREMENTS OF SECTION 1, RULE 65, 1997 RULES OF CIVIL
PROCEDURE.

2. .IN RULING THAT PETITIONER WAS NOT DENIED DUE PROCESS OF LAW.

3. .IN AFFIRMING THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION THAT LONGEST FORCE AND
PETITIONER ARE JOINTLY AND SEVERALLY LIABLE FOR PAYMENT OF WAGES AND OVERTIME PAY DESPITE THE CLEAR
SHOWING THAT PETITIONER HAVE ALREADY PAID THE SECURITY SERVICES THAT WAS RENDERED BY PRIVATE
RESPONDENTS.

4. WHEN IT FAILED TO RULE THAT ONLY LONGEST FORCE SHOULD BE SOLELY AND ULTIMATELY LIABLE IN THE INSTANT
CASE.[13]

We find the issues for our resolution to be: (1) Was it error for the Court of Appeals to sustain its order of dismissal of
petitioners special civil action for certiorari, notwithstanding subsequent compliance with the requirements under the
Rules of Court by the petitioner? (2) Did the appellate court err in not holding that petitioner was denied due process of
law by the NLRC? and (3) Did the appellate court grievously err in finding petitioner jointly and severally liable with
Longest Force for the payment of wage differentials and overtime pay owing to the private respondents?

On the first issue, the Court of Appeals in dismissing CA-G.R. SP No. 55416 observed that: (1) the verification and
certification of non-forum shopping was not signed by any duly authorized officer of petitioner but merely by petitioners
counsel; and (2) the petition was not accompanied by a copy of motion for reconsideration filed before the NLRC, thus

80
violating Section 1,[14] Rule 65 of the Rules of Court. Hence, a dismissal was proper under Section 3,[15] Rule 46 of the
Rules.

In assailing the appellate courts ruling, the petitioner appeals to our sense of compassion and kind consideration. It
submits that the certification signed by its counsel and attached to its petition filed with the Court of Appeals is
substantial compliance with the requirement. Moreover, petitioner calls our attention to the fact that when it filed its
motion for reconsideration before the Court of Appeals, a joint verification and certification of non-forum shopping duly
signed by its Personnel Manager[16] and a copy of the Motion for Reconsideration[17] filed before the NLRC were
attached therein. Thus, petitioner prays that we take a liberal stance to promote the ends of justice.

Petitioners plea for liberality, however, cannot be granted by the Court for reasons herein elucidated.

It is settled that the requirement in the Rules that the certification of non-forum shopping should be executed and
signed by the plaintiff or the principal means that counsel cannot sign said certification unless clothed with special
authority to do so.[18] The reason for this is that the plaintiff or principal knows better than anyone else whether a
petition has previously been filed involving the same case or substantially the same issues. Hence, a certification signed
by counsel alone is defective and constitutes a valid cause for dismissal of the petition.[19] In the case of natural
persons, the Rule requires the parties themselves to sign the certificate of non-forum shopping. However, in the case of
the corporations, the physical act of signing may be performed, on behalf of the corporate entity, only by specifically
authorized individuals for the simple reason that corporations, as artificial persons, cannot personally do the task
themselves.[20] In this case, not only was the originally appended certification signed by counsel, but in its motion for
reconsideration, still petitioner utterly failed to show that Ms. Rosanna Ignacio, its Personnel Manager who signed the
verification and certification of non-forum shopping attached thereto, was duly authorized for this purpose. It cannot be
gainsaid that obedience to the requirements of procedural rule is needed if we are to expect fair results therefrom.
Utter disregard of the rules cannot justly be rationalized by harking on the policy of liberal construction.[21]

Thus, on this point, no error could be validly attributed to respondent Court of Appeals. It did not err in dismissing the
petition for non-compliance with the requirements governing the certification of non-forum shopping.

Anent the second issue, petitioner avers that there was denial of due process of law when the Labor Arbiter failed to
have the case tried on the merits. Petitioner adds that the Arbiter did not observe the mandatory language of the then
Sec. 5(b) Rule V (now Section 11, per amendment in Resolution No. 01-02, Series of 2002) of the NLRC New Rules of
Procedure which provided that:

If the Labor Arbiter finds no necessity of further hearing after the parties have submitted their position papers and
supporting documents, he shall issue an Order to that effect and shall inform the parties, stating the reasons therefor.
[22]

Petitioners contention, in our view, lacks sufficient basis. Well settled is the rule that the essence of due process is
simply an opportunity to be heard, or, as applied to administrative proceedings, an opportunity to explain ones side or
an opportunity to seek a reconsideration of the action or ruling complained of.[23] Not all cases require a trial-type
hearing. The requirement of due process in labor cases before a Labor Arbiter is satisfied when the parties are given the
opportunity to submit their position papers to which they are supposed to attach all the supporting documents or
documentary evidence that would prove their respective claims, in the event the Labor Arbiter determines that no
formal hearing would be conducted or that such hearing was not necessary.[24] In any event, as found by the NLRC,
petitioner was given ample opportunity to present its side in several hearings conducted before the Labor Arbiter and in
the position papers and other supporting documents that it had submitted. We find that such opportunity more than
satisfies the requirement of due process in labor cases.

On the third issue, petitioner argues that it should not be held jointly and severally liable with Longest Force for
underpayment of wages and overtime pay because it had been religiously and promptly paying the bills for the security

81
services sent by Longest Force and that these are in accordance with the statutory minimum wage. Also, petitioner
contends that it should not be held liable for overtime pay as private respondents failed to present proof that overtime
work was actually performed. Lastly, petitioner claims that the Court of Appeals failed to render a decision that finally
disposed of the case because it did not specifically rule on the immediate recourse of private respondents, that is, the
matter of reimbursement between petitioner and Longest Force in accordance with Eagle Security Agency Inc. v.
NLRC,[25] and Philippine Fisheries Development Authority v. NLRC.[26]

Petitioners liability is joint and several with that of Longest Force, pursuant to Articles 106, 107 and 109 of the Labor
Code which provide as follows:

ART. 106. CONTRACTOR OR SUBCONTRACTOR Whenever an employer enters into a contract with another person for the
performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid
in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of
the work performed under the contract, in the same manner and extent that he is liable to employees directly employed
by him.

xxx

ART. 107. INDIRECT EMPLOYER. The provisions of the immediately preceding Article shall likewise apply to any person,
partnership, association or corporation which, not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project.

ART. 109. SOLIDARY LIABILITY. The provisions of existing laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this
Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct
employers.

In this case, when petitioner contracted for security services with Longest Force as the security agency that hired private
respondents to work as guards for the shipyard corporation, petitioner became an indirect employer of private
respondents pursuant to Article 107 abovecited. Following Article 106, when the agency as contractor failed to pay the
guards, the corporation as principal becomes jointly and severally liable for the guards wages. This is mandated by the
Labor Code to ensure compliance with its provisions, including payment of statutory minimum wage. The security
agency is held liable by virtue of its status as direct employer, while the corporation is deemed the indirect employer of
the guards for the purpose of paying their wages in the event of failure of the agency to pay them. This statutory scheme
gives the workers the ample protection consonant with labor and social justice provisions of the 1987 Constitution.[27]

Petitioner cannot evade its liability by claiming that it had religiously paid the compensation of guards as stipulated
under the contract with the security agency. Labor standards are enacted by the legislature to alleviate the plight of
workers whose wages barely meet the spiraling costs of their basic needs. Labor laws are considered written in every
contract. Stipulations in violation thereof are considered null. Similarly, legislated wage increases are deemed
amendments to the contract. Thus, employers cannot hide behind their contracts in order to evade their (or their
contractors or subcontractors) liability for noncompliance with the statutory minimum wage.[28]

However, we must emphasize that the solidary liability of petitioner with that of Longest Force does not preclude the
application of the Civil Code provision on the right of reimbursement from his co-debtor by the one who paid.[29] As
held in Del Rosario & Sons Logging Enterprises, Inc. v. NLRC,[30] the joint and several liability imposed on petitioner is
without prejudice to a claim for reimbursement by petitioner against the security agency for such amounts as petitioner
may have to pay to complainants, the private respondents herein. The security agency may not seek exculpation by

82
claiming that the principals payments to it were inadequate for the guards lawful compensation. As an employer, the
security agency is charged with knowledge of labor laws; and the adequacy of the compensation that it demands for
contractual services is its principal concern and not any others.[31]

On the issue of the propriety of the award of overtime pay despite the alleged lack of proof thereof, suffice it to state
that such involves a determination and evaluation of facts which cannot be done in a petition for review. Well
established is the rule that in an appeal via certiorari, only questions of law may be reviewed.[32]

One final point. Upon review of the award of backwages and attorneys fees, we discovered certain errors that happened
in the addition of the amount of individual backwages that resulted in the erroneous total amount of backwages and
attorneys fees. These errors ought to be properly rectified now. Thus, the correct sum of individual backwages should be
P126,648.40 instead of P126,684.40, while the correct sum of total backwages awarded and attorneys fees should be
P3,926,100.40 and P392,610.04, instead of P3,927,216.40 and P392,721.64, respectively.

WHEREFORE, the Resolution of the Court of Appeals in CA-G.R. SP No. 55416 is AFFIRMED with MODIFICATION.
Petitioner and Longest Force are held liable jointly and severally for underpayment of wages and overtime pay of the
security guards, without prejudice to petitioners right of reimbursement from Longest Force Investigation and Security
Agency, Inc. The amounts payable to complaining security guards, herein private respondents, by way of total
backwages and attorneys fees are hereby set at P3,926,100.40 and P392,610.04, respectively. Costs against petitioner.

SO ORDERED.

83
G.R. No. 104269 November 11, 1993
DEPARTMENT OF AGRICULTURE, petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, et al., respondents.

VITUG, J.:
For consideration are the incidents that flow from the familiar doctrine of non-suability of the state.

In this petition for certiorari, the Department of Agriculture seeks to nullify the Resolution, 1 dated 27 November 1991,
of the National Labor Relations Commission (NLRC), Fifth Division, Cagayan de Oro City, denying the petition for
injunction, prohibition and mandamus that prays to enjoin permanently the NLRC's Regional Arbitration Branch X and
Cagayan de Oro City Sheriff from enforcing the decision 2 of 31 May 1991 of the Executive Labor Arbiter and from
attaching and executing on petitioner's property.

The Department of Agriculture (herein petitioner) and Sultan Security Agency entered into a contract3 on 01 April 1989
for security services to be provided by the latter to the said governmental entity. Save for the increase in the monthly
rate of the guards, the same terms and conditions were also made to apply to another contract, dated 01 May 1990,
between the same parties. Pursuant to their arrangements, guards were deployed by Sultan Agency in the various
premises of the petitioner.

On 13 September 1990, several guards of the Sultan Security Agency filed a complaint for underpayment of wages, non-
payment of 13th month pay, uniform allowances, night shift differential pay, holiday pay and overtime pay, as well as for
damages,4 before the Regional Arbitration Branch X of Cagayan de Oro City, docketed as NLRC Case No. 10-09-00455-90
(or 10-10-00519-90, its original docket number), against the Department of Agriculture and Sultan Security Agency.

The Executive Labor Arbiter rendered a decision on 31 May finding herein petitioner and jointly and severally liable with
Sultan Security Agency for the payment of money claims, aggregating P266,483.91, of the complainant security guards.
The petitioner and Sultan Security Agency did not appeal the decision of the Labor Arbiter. Thus, the decision became
final and executory.

On 18 July 1991, the Labor Arbiter issued a writ of execution. 5 commanding the City Sheriff to enforce and execute the
judgment against the property of the two respondents. Forthwith, or on 19 July 1991, the City Sheriff levied on
execution the motor vehicles of the petitioner, i.e. one (1) unit Toyota Hi-Ace, one (1) unit Toyota Mini Cruiser, and one
(1) unit Toyota Crown.6 These units were put under the custody of Zacharias Roa, the property custodian of the
petitioner, pending their sale at public auction or the final settlement of the case, whichever would come first.

A petition for injunction, prohibition and mandamus, with prayer for preliminary writ of injunction was filed by the
petitioner with the National Labor Relations Commission (NLRC), Cagayan de Oro, alleging, inter alia, that the writ issued
was effected without the Labor Arbiter having duly acquired jurisdiction over the petitioner, and that, therefore, the
decision of the Labor Arbiter was null and void and all actions pursuant thereto should be deemed equally invalid and of
no legal, effect. The petitioner also pointed out that the attachment or seizure of its property would hamper and
jeopardize petitioner's governmental functions to the prejudice of the public good.

On 27 November 1991, the NLRC promulgated its assailed resolution; viz:

WHEREFORE, premises considered, the following orders are issued:

1. The enforcement and execution of the judgments against petitioner in NLRC RABX Cases Nos. 10-10-00455-90;
10-10-0481-90 and 10-10-00519-90 are temporarily suspended for a period of two (2) months, more or less, but not
extending beyond the last quarter of calendar year 1991 to enable petitioner to source and raise funds to satisfy the
judgment awards against it;

84
2. Meantime, petitioner is ordered and directed to source for funds within the period above-stated and to deposit
the sums of money equivalent to the aggregate amount. it has been adjudged to pay jointly and severally with
respondent Sultan Security Agency with the Regional Arbitration Branch X, Cagayan de Oro City within the same period
for proper dispositions;

3. In order to ensure compliance with this order, petitioner is likewise directed to put up and post sufficient surety
and supersedeas bond equivalent to at least to fifty (50%) percent of the total monetary award issued by a reputable
bonding company duly accredited by the Supreme Court or by the Regional Trial Court of Misamis Oriental to answer for
the satisfaction of the money claims in case of failure or default on the part of petitioner to satisfy the money claims;

4. The City Sheriff is ordered to immediately release the properties of petitioner levied on execution within ten
(10) days from notice of the posting of sufficient surety or supersedeas bond as specified above. In the meanwhile,
petitioner is assessed to pay the costs and/or expenses incurred by the City Sheriff, if any, in connection with the
execution of the judgments in the above-stated cases upon presentation of the appropriate claims or vouchers and
receipts by the city Sheriff, subject to the conditions specified in the NLRC Sheriff, subject to the conditions specified in
the NLRC Manual of Instructions for Sheriffs;

5. The right of any of the judgment debtors to claim reimbursement against each other for any payments made in
connection with the satisfaction of the judgments herein is hereby recognized pursuant to the ruling in the Eagle
Security case, (supra). In case of dispute between the judgment debtors, the Executive Labor Arbiter of the Branch of
origin may upon proper petition by any of the parties conduct arbitration proceedings for the purpose and thereby
render his decision after due notice and hearings;

7. Finally, the petition for injunction is Dismissed for lack of basis. The writ of preliminary injunction previously
issued is Lifted and Set Aside and in lieu thereof, a Temporary Stay of Execution is issued for a period of two (2) months
but not extending beyond the last quarter of calendar year 1991, conditioned upon the posting of a surety or
supersedeas bond by petitioner within ten (10) days from notice pursuant to paragraph 3 of this disposition. The motion
to admit the complaint in intervention is Denied for lack of merit while the motion to dismiss the petition filed by Duty
Sheriff is Noted

SO ORDERED.

In this petition for certiorari, the petitioner charges the NLRC with grave abuse of discretion for refusing to quash the
writ of execution. The petitioner faults the NLRC for assuming jurisdiction over a money claim against the Department,
which, it claims, falls under the exclusive jurisdiction of the Commission on Audit. More importantly, the petitioner
asserts, the NLRC has disregarded the cardinal rule on the non-suability of the State.

The private respondents, on the other hand, argue that the petitioner has impliedly waived its immunity from suit by
concluding a service contract with Sultan Security Agency.

The basic postulate enshrined in the constitution that "(t)he State may not be sued without its consent," 7 reflects
nothing less than a recognition of the sovereign character of the State and an express affirmation of the unwritten rule
effectively insulating it from the jurisdiction of courts. 8 It is based on the very essence of sovereignty. As has been aptly
observed, by Justice Holmes, a sovereign is exempt from suit, not because of any formal conception or obsolete theory,
but on the logical and practical ground that there can be no legal right as against the authority that makes the law on
which the right depends. 9 True, the doctrine, not too infrequently, is derisively called "the royal prerogative of
dishonesty" because it grants the state the prerogative to defeat any legitimate claim against it by simply invoking its
non-suability. 10 We have had occasion, to explain in its defense, however, that a continued adherence to the doctrine
of non-suability cannot be deplored, for the loss of governmental efficiency and the obstacle to the performance of its
multifarious functions would be far greater in severity than the inconvenience that may be caused private parties, if such
fundamental principle is to be abandoned and the availability of judicial remedy is not to be accordingly restricted. 11

85
The rule, in any case, is not really absolute for it does not say that the state may not be sued under any circumstances.
On the contrary, as correctly phrased, the doctrine only conveys, "the state may not be sued without its consent;" its
clear import then is that the State may at times be sued. 12 The States' consent may be given expressly or impliedly.
Express consent may be made through a general law13 or a special law. 14 In this jurisdiction, the general law waiving
the immunity of the state from suit is found in Act No. 3083, where the Philippine government "consents and submits to
be sued upon any money claims involving liability arising from contract, express or implied, which could serve as a basis
of civil action between private parties." 15 Implied consent, on the other hand, is conceded when the State itself
commences litigation, thus opening itself to a counterclaim16 or when it enters into a contract. 17 In this situation, the
government is deemed to have descended to the level of the other contracting party and to have divested itself of its
sovereign immunity. This rule, relied upon by the NLRC and the private respondents, is not, however, without
qualification. Not all contracts entered into by the government operate as a waiver of its non-suability; distinction must
still be made between one which is executed in the exercise of its sovereign function and another which is done in its
proprietary capacity. 18

In the Unites States of America vs. Ruiz, 19 where the questioned transaction dealt with improvements on the wharves
in the naval installation at Subic Bay, we held:

The traditional rule of immunity exempts a State from being sued in the courts of another State without its consent or
waiver. This rule is a necessary consequence of the principles of independence and equality of States. However, the
rules of International Law are not petrified; they are constantly developing and evolving. And because the activities of
states have multiplied, it has been necessary to distinguish them — between sovereign and governmental acts ( jure
imperii) and private, commercial and proprietary act ( jure gestionisis). The result is that State immunity now extends
only to acts jure imperii. The restrictive application of State immunity is now the rule in the United States, the United
Kingdom and other states in Western Europe.

xxx xxx xxx

The restrictive application of State immunity is proper only when the proceedings arise out of commercial transactions
of the foreign sovereign, its commercial activities or economic affairs. Stated differently, a state may be said to have
descended to the level of an individual and can this be deemed to have actually given its consent to be sued only when it
enters into business contracts. It does not apply where the contracts relates to the exercise of its sovereign functions. In
this case the projects are an integral part of the naval base which is devoted to the defense of both the United States
and the Philippines, indisputably a function of the government of the highest order; they are not utilized for not
dedicated to commercial or business purposes.

In the instant case, the Department of Agriculture has not pretended to have assumed a capacity apart from its being a
governmental entity when it entered into the questioned contract; nor that it could have, in fact, performed any act
proprietary in character.

But, be that as it may, the claims of private respondents, i.e. for underpayment of wages, holiday pay, overtime pay and
similar other items, arising from the Contract for Service, clearly constitute money claims. Act No. 3083, aforecited, gives
the consent of the State to be "sued upon any moneyed claim involving liability arising from contract, express or implied,
. . . Pursuant, however, to Commonwealth Act ("C.A.") No. 327, as amended by Presidential Decree ("P.D.") No. 1145,
the money claim first be brought to the Commission on Audit. Thus, in Carabao, Inc., vs. Agricultural Productivity
Commission, 20 we ruled:

(C)laimants have to prosecute their money claims against the Government under Commonwealth Act 327, stating that
Act 3083 stands now merely as the general law waiving the State's immunity from suit, subject to the general limitation
expressed in Section 7 thereof that "no execution shall issue upon any judgment rendered by any Court against the

86
Government of the (Philippines), and that the conditions provided in Commonwealth Act 327 for filing money claims
against the Government must be strictly observed."

We fail to see any substantial conflict or inconsistency between the provisions of C.A. No. 327 and the Labor Code with
respect to money claims against the State. The Labor code, in relation to Act No. 3083, provides the legal basis for the
State liability but the prosecution, enforcement or satisfaction thereof must still be pursued in accordance with the rules
and procedures laid down in C.A. No. 327, as amended by P.D. 1445.

When the state gives its consent to be sued, it does thereby necessarily consent to unrestrained execution against it.
tersely put, when the State waives its immunity, all it does, in effect, is to give the other party an opportunity to prove, if
it can, that the State has a liability. 21 In Republic vs. Villasor 22 this Court, in nullifying the issuance of an alias writ of
execution directed against the funds of the Armed Forces of the Philippines to satisfy a final and executory judgment,
has explained, thus —

The universal rule that where the State gives its consent to be sued by private parties either by general or special law, it
may limit the claimant's action "only up to the completion of proceedings anterior to the stage of execution" and that
the power of the Courts ends when the judgment is rendered, since government funds and properties may not be seized
under writs or execution or garnishment to satisfy such judgments, is based on obvious considerations of public policy.
Disbursements of public funds must be covered by the correspondent appropriation as required by law. The functions
and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public
funds from their legitimate and specific objects, as appropriated by law.23

WHEREFORE, the petition is GRANTED. The resolution, dated 27 November 1991, is hereby REVERSED and SET ASIDE.
The writ of execution directed against the property of the Department of Agriculture is nullified, and the public
respondents are hereby enjoined permanently from doing, issuing and implementing any and all writs of execution
issued pursuant to the decision rendered by the Labor Arbiter against said petitioner.

SO ORDERED.

87
PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, and
ODIN SECURITY AGENCY, as representative of its Security Guards, respondents., G.R. No. 94825, 1992 September 4,
3rd Division

GUTIERREZ, JR., J.:

The petitioner questions the resolution of the National Labor Relations Commission (NLRC) dated January 17, 1983
setting aside the order of dismissal issued by the Labor Arbiter and the resolution dated June 25, 1990 denying
petitioner's motion for reconsideration.

The facts are as follows:

The petitioner is a government-owned or controlled corporation created by P.D. No. 977.

On November 11, 1985, it entered into a contract with the Odin Security Agency for security services of its Iloilo Fishing
Port Complex in Iloilo City. The pertinent provision of the contract provides:

OBLIGATION OF THE FISHING PORT COMPLEX:

1. For and in consideration of the services to be rendered by the AGENCY to the FISHING PORT COMPLEX, the latter
shall pay to the former per month for eight (8) hours work daily as follows:

OUTSIDE METRO MANILA

Security Guard P1,990.00
Security Supervisor 2,090.00
Det. Commander 2,190.00.

The Security Group of the AGENCY will be headed by a detachment commander whose main function shall consist of the
administration and supervision control of the AGENCY's personnel in the FISHING PORT COMPLEX. There shall be one
supervisor per shift who shall supervise the guards on duty during a particular shift.

The above schedule of compensation includes among others, the following:

(a) Minimum wage (Wage Order No. 5)
(b) Rest Day Pay
(c) Night Differential Pay
(d) Incentive Leave Pay
(e) 13th Month Pay
(f) Emergency Cost of Living Allowance (up to Wage Order No. 5)
(g) 4% Contractor's Tax
(h) Operational Expenses
(i) Overhead (Rollo, pp. 197-198)

The contract for security services also provided for a one year renewable period unless terminated by either of the
parties. It reads:

9. This agreement shall take effect upon approval for a period of one (1) year unless sooner terminated upon notice of
one party to the other provided, that should there be no notice of renewal within thirty (30) days before the expiry date,
the same shall be deemed renewed, and provided further, that the party desiring to terminate the contract before the
expiry date shall give thirty (30) days written advance notice to the other party. (Rollo, p. 198)

88
On October 24, 1987, and during the effectivity of the said Security Agreement, the private respondent requested the
petitioner to adjust the contract rate in view of the implementation of Wage Order No. 6 which took effect on
November 1, 1984.

The private respondent's request for adjustment was anchored on the provision of Wage Order No. 6 which states:

SECTION 9. In the case of contracts for construction projects and for security, janitorial and similar services, the
increases in the minimum wage and allowance rates of the workers shall be borne by the principal or client of the
construction/service contractor and the contracts shall be deemed amended accordingly, subject to the provisions of
Section 3(c) of this Order. (Rollo, p. 49)

Section 7, par. c of the Security Services Contract which calls for an automatic escalation of the rate per guard in case of
wage increase also reads:

The terms and conditions herein set forth shall be modified by the applicable provisions of subsequent laws or decrees,
especially as they pertain to increases in the minimum wage and occupational benefits to workers. (Rollo, p. 46)

Requests for adjustment of the contract price were reiterated on January 14, 1988 and February 19, 1988 but were
ignored by the petitioner.

Thus on June 7, 1988, the private respondent filed with the Office of the Sub-Regional Arbitrator in Region VI, Iloilo City
a complaint for unpaid amount of re-adjustment rate under Wage Order No. 6 together with wage salary differentials
arising from the integration of the cost of living allowance under Wage Order No. 1, 2, 3 and 5 pursuant to Executive
Order No. 178 plus the amount of P25,000.00 as attorney's fees and cost of litigation.

On July 29, 1988, the petitioner filed a Motion to Dismiss on the following grounds:
(1) The Commission has no jurisdiction to hear and try the case;
(2) Assuming it has jurisdiction, the security guards of Odin Security Agency have no legal personality to sue or be sued;
and
(3) Assuming the individual guards have legal personality the action involves interpretation of contract over which it has
no authority. (Rollo, p. 75)

On August 19, 1988, the Labor Arbiter issued an Order dismissing the complaint stating that the petitioner's being a
government-owned or controlled corporation would place it under the scope and jurisdiction of the Civil Service
Commission and not within the ambit of the NLRC.

This Order of dismissal was raised on Appeal to the NLRC and on January 17, 1989 the NLRC issued the questioned
resolution setting aside the order and entered a decision granting reliefs to the private respondent.

A motion for reconsideration was subsequently filed raising among others that the resolution is:

(1) In violation of the right of the respondent to due process under the Constitution;

(2) Granting arguendo that the due process clause was observed, the resolution granting relief is without any legal
basis; and

(3) Granting arguendo that there is legal basis for the award, the stipulation under the contract allowing an increase of
wage rate is void ab initio. (Rollo, p. 86)

On June 25, 1990, the motion for reconsideration was denied.

89
The petitioner now comes to this Court reiterating substantially the same grounds it raised in its motion for
reconsideration, to wit:
(1) The National Labor Relations Commission failed to observe due process.
(2) Granting the award of the National Labor Relations Commission is valid, reliefs granted are not legal.
(3) Assuming the award complies with the requirements of due process, the National Labor Relations Commission erred
when it failed to declare the contract for security services void. (Rollo, pp. 201-202)

The petitioner is a government-owned or controlled corporation with a special charter. This places it under the scope of
the civil service (Art. XI [B] [1] and [2], 1987 Constitution); Boy Scouts of the Philippines v. NLRC, 196 SCRA 176 [1991];
PNOC-Energy Development Corp. v. NLRC, 201 SCRA 487 [1991]). However, the guards are not employees of the
petitioner. The contract of services explicitly states that the security guards are not considered employees of the
petitioner (Rollo, p. 45). There being no employer-employee relationship between the petitioner and the security
guards, the jurisdiction of the Civil Service Commission may not be invoked in this case.

The contract entered into by the petitioner which is merely job contracting makes the petitioner an indirect employer.
The issue, therefore, is whether or not an indirect employer is bound by the rulings of the NLRC.

Notwithstanding that the petitioner is a government agency, its liabilities, which are joint and solidary with that of the
contractor, are provided in Articles 106, 107 and 109 of the Labor Code. This places the petitioner's liabilities under the
scope of the NLRC. Moreover, Book Three, Title II on Wages specifically provides that the term "employer" includes any
person acting directly or indirectly in the interest of an employer in relation to an employee and shall include the
Government and all its branches, subdivisions and instrumentalities, all government-owned or controlled corporation
and institutions as well as non-profit private institutions, or organizations (Art. 97 [b], Labor Code; Eagle Security Agency,
Inc. v. NLRC, 173 SCRA 479 [1989]; Rabago v. NLRC, 200 SCRA 158 [1991]). The NLRC, therefore, did not commit grave
abuse of discretion in assuming jurisdiction to set aside the Order of dismissal by the Labor Arbiter.

The underlying issue in this case is who should carry the burden of the wage increases.

Settled is the rule that in job contracting, the petitioner as principal is jointly and severally liable with the contractor for
the payment of unpaid wages. The statutory basis for the joint and several liability is set forth in Articles 107, and 109 in
relation to Article 106 of the Labor Code. (Del Rosario and Sons Logging Enterprises, Inc. v. NLRC, 136 SCRA 669 [1985];
Baguio v. NLRC, 202 SCRA 465 [1991]; Ecal v. NLRC, 195 SCRA 224 [1991]). In the case at bar, the action instituted by the
private respondent was for the payment of unpaid wage differentials under Wage Order No. 6. The liabilities of the
parties were very well explained in the case of Eagle Security v. NLRC, supra where the court held:
xxx xxx xxx
"The solidary liability of PTSI and EAGLE, however, does not preclude the right of reimbursement from his co-debtor by
the one who paid [See Article 1217, Civil Code]. It is with respect to this right of reimbursement that petitioners can find
support in the aforecited contractual stipulation and Wage Order provision.

"The Wage Orders are explicit that payment of the increases are `to be borne' by the principal or client. 'To be borne',
however, does not mean that the principal, PTSI in this case, would directly pay the security guards the wage and
allowance increases because there is no privity of contract between them. The security guards' contractual relationship
is with their immediate employer, EAGLE. As an employer, EAGLE is tasked, among others, with the payment of their
wages [See Article VII Sec. 3 of the Contract for Security Services, supra and Bautista v. Inciong, G.R. No. 52824, March
16, 1988, 158 SCRA 556].

"Premises considered, the security guards' immediate recourse for the payment of the increases is with their direct
employer, EAGLE. However, in order for the security agency to comply with the new wage and allowance rates it has to
pay the security guards, the Wage Order made specific provision to amend existing contracts for security services by
allowing the adjustment of the consideration paid by the principal to the security agency concerned. What the Wage
Orders require, therefore, is the amendment of the contract as to the consideration to cover the service contractor's

90
payment of the increases mandated. In the end, therefore, ultimate liability for the payment of the increases rests with
the principal."

The Wage Orders are statutory and mandatory and can not be waived. The petitioner can not escape liability since the
law provides the joint and solidary liability of the principal and the contractor for the protection of the laborers. The
contention that it was deprived due process because no hearing was conducted does not deserve merit. A decision on
the merits is proper where the issues raised by the parties did not involve intricate questions of law. (See Blue Bar
Coconut Phils. Inc. v. Minister of Labor, 174 SCRA 25 [1989]) There can be no question that the security guards are
entitled to wage adjustments. The computation of the amount due to each individual guard can be made during the
execution of the decision where hearings can be held. (See Section 3, Rule VIII of the New Rules of Procedure of the
NLRC) Neither can the petitioner assail the contract for security services for being void ab initio on the ground that it did
not comply with the bidding requirements set by law. Undeniably, services were rendered already and the petitioner
benefitted from said contract for two (2) years now. The petitioner is therefore estopped from assailing the contract.

Quite noteworthy is the fact that the private respondent entered into the contract when Wage Order No. 6 had already
been in force. The contract was entered into in November 11, 1985 one year after the effectivity of Wage Order No. 6
which was on November 1, 1984. The rates of the security guards as stipulated in the contract did not consider the
increases in the minimum wage mandated by Wage Order No. 6. Two years after, the private respondent is now asking
for an adjustment in the contract price pursuant to the wage order provision.

Such action of the private respondent is rather disturbing and must not remain unchecked. In the complaint filed, the
private respondent alleged that it requested the Regional Director, NCR Region of the Department of Labor and
Employment for their intercession in connection with the illegal bidding and award made by the petitioner in favor of
Triad Security Agency which was below the minimum wage law. Undeniably, the private respondent is equally guilty
when it entered into the contract with the petitioner without considering Wage Order No. 6.

The private respondent tries to explain that the Philippine Association of Detective and Protective Agency Operators
(PADPAO) which fixes the contract rate of the security agencies was unable to fix the new contract rate until May 12,
1986.

We, however, agree with the posture that the setting of wages under PADPAO is of no moment. The PADPAO
memorandum was not necessary to make Wage Order No. 6 effective. The PADPAO memo was merely an internal
agreement among the operators to set the ceiling of the contract rates. It was aimed to curb the practice of security
agencies which were in cutthroat competition to request for wage adjustments after proposals were accepted in good
faith to the prejudice of the parties.

While it is true that security personnel should not be deprived of what is lawfully due them, it bears emphasis that it was
the private respondent which first deprived the security personnel of their rightful wage under Wage Order No. 6. The
private respondent is the employer of the security guards and as the employer, it is charged with knowledge of labor
laws and the adequacy of the compensation that it demands for contractual services is its principal concern and not any
other's (Del Rosario & Sons Logging Enterprises, Inc. v. NLRC, 136 SCRA 669 [1985]).

Given this peculiar circumstance, the private respondent should also be faulted for the unpaid wage differentials of the
security guards. By filing the complaint in its own behalf and in behalf of the security guards, the private respondent
wishes to exculpate itself from liability on the strength of the ruling in the Eagle case that the ultimate liability rests with
the principal. Nonetheless, the inescapable fact is that the employees must be guaranteed payment of the wages due
them for the performance of any work, task, job or project. They must be given ample protection as mandated by the
Constitution (See Article II, Section 18 and Article XIII, Section 3). Thus, to assure compliance with the provisions of the
Labor Code including the statutory minimum wage, the joint and several liability of the contractor and the principal is
mandated.

91
We, therefore, hold the petitioner and the private respondent jointly and severally liable to the security guards for the
unpaid wage differentials under Wage Order No. 6. As held in the Eagle case, the security guards' immediate recourse is
with their direct employer, private respondent Odin Security Agency. The solidary liability is, however, without prejudice
to a claim for reimbursement by the private respondent against the petitioner for only one-half of the amount due
considering that the private respondent is also at fault for entering into the contract without taking into consideration
the minimum wage rates under Wage Order No. 6.

WHEREFORE, the questioned resolutions of the National Labor Relations Commission are hereby AFFIRMED with the
modification that both the petitioner and the private respondent are ORDERED to pay jointly and severally the unpaid
wage differentials under Wage Order No. 6 without prejudice to the right of reimbursement for one-half of the amount
which either the petitioner or the private respondent may have to pay to the security guards. Costs against the
petitioner.

SO ORDERED.

92
G.R. No. 78713 February 27, 1991
CAILO/HENRY DEFERIA, EDDIE NORICO, FLORENTINO DE PAULA, CARLOS PACHECO, HERNANI DEFERIA, EDWIN
NORICO, CRISTOBAL MORADAS, JOSE RABALA, LORETA PADASAS, CELESTINA MASION, ELISA BAYOT, CIRIACA NICOR,
NENITA MORADAS, ANTONIA MIRASOL, ROSARIO CAMARITE, LEOPOLDO SUALA, DELIA VALENTE, VENUS GUARRA,
MERCEDES GUARRA and MARY-ANN AGATO, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION and ERMA
INDUSTRIES, INC. ERNESTO MARCELO, respondents.

G.R. No. 82718 February 27, 1991

CAILO/EDDIE NORICO, FLORENTINO DE PAULA, CARLOS PACHECO, HERNANI DEFERIA, EDWIN NORICO, CRISTOBAL
MORADAS, JOSE RABALA, LORETA PADASAS, CELESTINA MASION, ELISA BAYOT, CIRIACA NICOR, NENITA MORADAS,
ANTONIA MIRASOL, ROSARIO CAMARITE, LEOPOLDO SUALA, DELIA VALENTE, VENUS GUARRA, MERCEDES GUARRA,
and MARY-ANN AGATO, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION, ERMA INDUSTRIES, INC.,
ERNESTO MARCELO, President and CIRILO UNDAN, Manager, respondents

SARMIENTO, J.:
The existence of an employer-employee relationship and the determination of the liability of an indirect employer are
the common issues of these two consolidated petitions for certiorari.

In G.R. No. 78713, a petition involving the alleged violation of labor standard laws, the National Labor Relations
Commission (NLRC), affirming the Decision of the Labor Arbiter, ruled in its assailed Resolution1 dated January 8, 1987
that no employer-employee relationship existed between the petitioners and the private respondents.

In G.R. No. 82718, a petition involving charges of unfair labor practices against the private respondents, the laid
Commission in a Resolution2 dated August 31, 1987 reiterated the lack of employer-employee relationship between the
said parties. The motions for reconsideration filed by the petitioners in both cases were denied by the respondent
Commission.

The facts, as gathered from the records of both petitions, are as follows:

On May 3, 1979, the private respondent Erma Industries, Inc. (hereinafter referred as ERMA), as private corporation
engaged in exporting shrimps, prawns, squids and other marine products and as represented by its Vice-President Sergio
Oritz Luis, Jr., entered into a contract with the private co-respondent Cirilo Undan for the latter to supply the former
with marine products in Bacolod City.3

Under the said contract, ERMA would provide both the financing and the equipment to Undan while the latter would be
responsible for hiring the workers.

Subsequently, Undan engaged the services of the nineteen (19) individual petitioners to clean, behead, sort, prepare,
and pack the marine products for their shipment and delivery to ERMA.

Since the employment of the petitioners in 1982 up to June 30, 1984, they worked continuously for Undan who paid
them on a piece-work basis or pakiao. The female employees who took charge of the cleaning, beheading, and sorting
phases of the work were allgedly paid at the rate of P0.16 per kilo or an average weekly earning of P8.00 to P22.00. The
male employees, on the other hand, who were engaged in the preparation and packing phases of the work were paid at
the rate of P0.25 per kilo or an earning of P60.00 to P100.00 a week. All the said employees claimed to work everyday,
including Sundays and legal holidays from 8:00 o'clock AM to 6:00 o'clock PM.4

Sometimes in April, 1984, the petitioners constituting a majority of the employees of Undan, joined and became
members of the co-petitioner Commercial and Agro-Industrial Labor Organization (CAILO), a duly registered and existing
labor union.5

93
On May 9, 1984, the petitioners filed a petition for certification election as the sole and exclusive bargaining
representative of the workers of ERMA with then Ministry (now Department) of Labor and Employment, Regional Office
No. VI, which case was docketed as LRD Case No. 0638-84. At the same time, the petitioners filed a complaint against
the private respondents for non-payment of wage differentials, emergency and cost allowances, 13th month pay, night
shift differentials and service incentive pay with the National Labor Relations Commission, Regional Arbitration Branch
No. VI, which case was designated as RAB 0230-84. A letter complaint was likewise filed with the Social Security System
for the failure of the private respondents to register the petitioners as their employees.6

However, on June 30, 1984, while the petitioners were about to report for work in the morning, they were surprised to
see the entrance to their working place closed with Undan informing them of the shutdown of the said business.

Consequently, the petitioners filed another case designated as RAB Case No. 0313-84 with the National Labor Relations
Commission, Regional Arbitration Branch No. VI, Bacolod City for unfair labor practice committed by the private
respondents through the alleged pretended closure of the said business. The petitioners contended that the same
business continued to operate at another place which was at the residence of Undan's relative and that the purported
closure was made without prior notice to the then Ministry (now Department) of Labor and Employment.7

On October 9, 1984, the Med-Arbiter Rodolfo G. Lagoc dismissed the petition for certification election filed by the
petitioners against ERMA on the ground that there was no existing employer-employee relationship between them and
suggested that the petitioners' employer appeared to be Undan.8

On March 27, 1985, Labor Arbiter Ricardo T. Octavio likewise dismissed RAB Case No. 0236-84 which was the complaint
for the violation of labor standard laws on the same ground that there was no employer-employee relationship between
the said parties. On appeal, the National Labor Relations Commission in a Resolution dated January 8, 1987, affirmed the
said decision of the Labor and denied a subsequent motion for reconsideration.

Meanwhile, on October 30, 1985, Labor Arbiter Jose Aguirre dismissed RAB Case No. 0313-84 which was the complaint
for unfair labor practice on the same finding that there was no employer-employee relationship between the said
parties. On appeal, the National Labor Relations Commission in a Resolution dated August 31, 1987, affirmed the said
decision of the Labor Arbiter and denied a subsequent motion for reconsideration.

Hence, these twin petitions.

Upon the manifestation and motion of the Solicitor General, the said petitions for certiorari were ordered consolidated
by the Court in a Resolution dated December 14, 1988.9 On March 26, 1990, the Court resolved in G.R. No. 82718, to
dispense with the comment of the private respondents, due to their failure up to that late date to comply with the
resolutions of the Court of July 11, 1988 and September 19, 1988, requiring them to file comment on the petition in that
case, and thus considered these cases submitted for decision.

The common issues raised by the said petitions as adverted to at the outset are as follows:

1. Whether or not an employer-employee relationship exists between ERMA and the petitioners, and

2. Whether or not ERMA is the indirect employer of petitioners so as to make it jointly and severally liable with
Cirilo Undan for the petitioners' claims.10

With regard to the first issue, we affirm the challenged ruling of the National Labor Relations Commission that, indeed,
there is no employer-employee relationship between ERMA and the petitioners. Settled jurisprudence enumerates four
(4) elements necessary to establish the existence of an employer-employee relationship, to wit: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control
employees' conduct.11

94
Nowhere in the record of the case is there a showing by the petitioners of any evidence as to substantiate the presence
of the said four (4) elements. On the contrary, various exhibits12 of the petitioners, such as the alleged authorization
signed by Cirilo Undan as Officer-in-Charge of ERMA, sales and charge invoices, and collector's and delivery receipts
purported showing the active involvement of ERMA in the said business, only demonstrates more convincingly that it
was Undan who was the direct and actual employer who had engaged the petitioners, paid their wages, controlled their
conduct, and ultimately, dismissed them. In short, we conclude rather that the employer-employee relationship had
existed between Undan and the petitioners.

Be that as it may, notwithstanding the lack of employer-employee relationship between ERMA and the petitioners, we
however can not hold ERMA free from any liability to the petitioners for the payment of emergency cost of living
allowance, 13th moth pay, and minimum wages due the latter under applicable laws.

Addressing the second issue, we agree with the Solicitor-General in his strong support of the submission on this score of
the petitioners that ERMA is their indirect employer and therefore solidarily liable with Undan. He profers:

xxx xxx xxx

It is evident from the foregoing that ERMA contracted with Undan only for the purpose of securing the services
necessary to prepare and pack the marine products it procured from Bacolod with ERMA providing everything else.
Thus, when Undan hired the petitioners to provide the services needed by ERMA, the latter became an indirect
employer of the petitioners and hence, liable for their monetary claims . . . .13

The conclusion is easily borne out by the provisions in the contract between ERMA and Undan which, in part, states:

2. ....

Realizing, as per your request, that you are not in a position to finance the buying, we will put in a representative from
the Manila office to take care of cashiering.

xxx xxx xxx

3. Erma Industries expect[s] that it did not enter into a complicated arrangement. Suffice it to say that you are our
supplier who [sic] we finance. . . .

4. ....

Upon termination of the agreement, all the equipment we have loaned out to you shall be turned over to US.14

The joint and several liability of ERMA with Carlos Undan, the "labor-only" contractor, arises not only from their contract
but finds firm statutory basis in Articles 106, 107, and 109 of the Labor Code which state:

Art. 106. Contractor or sub-contractor. — Whenever an employer enters into a contract with another person for
the performance of the former's work, the employees of the contractor and of the latter's sub-contractor, if any, shall be
paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of
the work performed under the contract, in the same manner and extent that he is liable to employees directly employed
by him.

95
xxx xxx xxx

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.

xxx xxx xxx

Art. 107. Indirect employer. — The provisions of the immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.

xxx xxx xxx

Art. 109. Solidary liability. — The provisions of existing laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this
Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct
employers.

Corollarily, the joint and several liability imposed on ERMA is without prejudice to a claim for reimbursement by it
against Cirilo Undan of such sums which ERMA may have to pay the petitioners.15

Anent the charge against private respondent Carlos Undan of unfair labor practice in illegally dismissing the petitioners
through the sham closure are of the said business, we find the same meritorious. The said act constitutes an
interference and restraint on the petitioners in the exercise of their right to self-organization16 as the latter were then
pursuing their union affiliation and membership with CAILO.

In an earlier case, we struck down a similar attempt by the employer to avoid responsibility for the valid claims of its
employees, to wit:

xxx xxx xxx

Aggravating RANSOM's clear evasion of payment of its financial obligations is the organization of a "run-away
corporation," ROSARIO, in 1969 at the time the unfair labor practice case was pending before the CIR by the same
persons who were the officers and stockholders of RANSOM, engaged in the same line of business as RANSOM,
producing the same line of products, occupying the same compound, using the same machineries, buildings, laboratory,
bodega and sales accounts departments used by RANSOM, and which is still in existence. Both corporations were closed
corporations owned and managed by members of the same family. Its organization proved to be a convenient
instrument to avoid payment of backwages and the reinstatement of the 22 workers. This is another instance where the
fiction of separate and distinct corporate entities should be disregarded.17

In sum, we hold that Undan as direct employer and ERMA as indirect employer are jointly and severally liable to the
petitioners for the violation of labor standard laws and unfair labor practice which the private respondents, have failed
to deny.

WHEREFORE, the petitions are GRANTED and all the challenged Resolutions of the National Labor Relations Commission
are hereby ANNULLED and SET ASIDE. Private respondent Carlos Undan is ordered to REINSTATE the petitioners to their
same or substantially equivalent positions at the time of their termination, with three years backwages and without loss
of seniority lights and benefits appurtenant thereto.

96
Should the said reinstatement be rendered impossible by the supervention of circumstances, Undan is further ordered
to PAY the petitioners separation pay equivalent to one (1) month's salary for every year of service rendered, computed
at the minimum daily wage level at the time of their termination.

In addition, we FIND that each of the petitioners is entitled to moral damages in the amount of Five Thousand Pesos
(P5,000.00) for the evident bad faith shown by Undan in illegally dismissing the former.

In all instances, Undan and ERMA are jointly and severally liable for all the aforementioned monetary awards. Costs
against the private respondents.

SO ORDERED.

97
[G.R. Nos. 116476-84. May 21, 1998]
ROSEWOOD PROCESSING, INC., petitioner, vs. NATIONAL LABOR RELATIONSCOMMISSION, NAPOLEON C. MAMON,
ARSENIO GAZZINGAN, ROMEO C. VELASCO, ARMANDO L. BALLON, VICTOR E. ALDEZA, JOSE L. CABRERA, VETERANS
PHILIPPINE SCOUT SECURITY AGENCY, and/or ENGR. SERGIO JAMILA IV, respondents.

PANGANIBAN, J.:
Under the Labor Code, an employer is solidarily liable for legal wages due security guards for the period of time they
were assigned to it by its contracted security agency. However, in the absence of proof that the employer itself
committed the acts constitutive of illegal dismissal or conspired with the security agency in the performance of such
acts, the employer shall not be liable for back wages and/or separation pay arising as a consequence of such unlawful
termination.

The Case

These are the legal principles on which this Court bases its resolution of this special civil action for certiorari, seeking the
nullification of the April 28, 1994 Resolution and the July 12, 1994 Order of the National Labor Relations Commission,
which dismissed petitioners appeal from the labor arbiters Decision and denied its Motion for Reconsideration,
respectively, in NLRC NCR Case Nos. 00-05-02834-91, 00-08-04630-91, 00-07-03966-91, 00-09-05617-91, 00-07-03967-
91, 00-07-04455-91, 00-08-05030-91, 00-11-06389-91, and 00-03-01642-92.

On May 13, 1991, a complaint for illegal dismissal; underpayment of wages; and for nonpayment of overtime pay, legal
holiday pay, premium pay for holiday and rest day, thirteenth month pay, cash bond deposit, unpaid wages and
damages was filed against Veterans Philippine Scout Security Agency and/or Sergio Jamila IV (collectively referred to as
the security agency, for brevity). Thereafter, petitioner was impleaded as a third-party respondent by the security
agency. In due course, Labor Arbiter Ricardo C. Nora rendered a consolidated Decision dated March 26, 1993, which
disposed as follows:[1]

IN VIEW OF ALL THE FOREGOING, respondents Veterans Philippine Scout Security Agency, Sergio Jamila IV, and third-
party respondent Rosewood Processing, Inc. are hereby ordered to pay jointly and severally complainants the following
amounts, to wit:
1. Napoleon Mamon P126,411.10
2. Arsenio Gazzingan 128,639.71
3. Rodolfo Velasco 147,114.43
4. Armando Ballon 116,894.70
5. Jose L. Cabrera 133,047.81
6. Victor Aldeza 137,046.64
TOTAL P789,154.39
===========

representing their monetary benefits in the amount of SEVEN HUNDRED EIGHTY NINE THOUSAND ONE HUNDRED FIFTY
FOUR PESOS AND 39/100 CENTAVOS (P789,154.39).

Respondents are likewise ordered to pay attorneys fees in the amount of P78,915.43 within ten (10) days from receipt of
this Decision.

All other issues are hereby [d]ismissed for failure of the complainants to fully substantiate their claims.

The appeal filed by petitioner was dismissed by the National Labor Relations Commission[2] in its Resolution
promulgated April 28, 1994, for failure of the petitioner to file the required appeal bond within the reglementary
period.[3] Pertinent portions of the challenged Resolution are herewith quoted:

98
It appears on record that [petitioner] received their copy of the [labor arbiters] decision on April 2, 1993 and
subsequently filed a Notice of Appeal with Memorandum of Appeal on April 26, 1993, in violation of Rule VI, Section 1,
3, and 6 of the 1990 New Rules of Procedure of the NLRC xxx.

xxxxxxxxx

Clearly, the appeal filed by the [petitioners] on April 12, 1993 was not perfected within the reglementary period, and the
decision dated March 26, 1993 became final and executory as of April 23, 1993.

WHEREFORE, the appeal is hereby DISMISSED.

In its motion for reconsideration, petitioner contended that it received a copy of the labor arbiters Decision only on April
6, 1993, and that it filed on April 16, 1993 within the prescribed time, a Notice of Appeal with a Memorandum on
Appeal, a Motion to Reduce Appeal Bond and a surety bond issued by Prudential Guarantee and Assurance, Inc. in the
amount of P50,000.[4] Though not opposed by the complainants and the security agency, the arguments stated in the
motion were not taken up by Respondent Commission. Reconsideration was nonetheless denied by Respondent
Commission in its Order of July 12, 1994, quoted below:[5]

Section 14, Rule VII of the NLRC New Rules of Procedure allows [u]s to entertain a motion for reconsideration only on
palpable or patent errors [w]e may have committed in [o]ur disputed April 28, 1994 resolution.

There being no such assignment here, [petitioners] motion for reconsideration dated May 19, 1994 is hereby DENIED for
lack of merit.

Hence, this recourse.[6]

In a Resolution dated March 20, 1995, this Court issued a temporary restraining order enjoining the respondents and
their agents from implementing and enforcing the assailed Resolution and Order until further notice.[7]

The Facts

Undisputed are the facts of this case, narrated by the labor arbiter as follows:

All the complainants were employed by the [security agency] as security guards: Napoleon Mamon on October 7, 1989;
Arsenio Gazzingan on September 25, 1988; Rodolfo C. Velasco on January 5, 1987; Armando Ballon on June 28, 1990;
Victor Aldeza on March 21, 1990; and Jose L. Cabrera [in] January 1988.

Napoleon Mamon started working for the [security agency] on October 7, 1989 and was assigned as office guard for
three (3) days without any pay nor allowance as it was allegedly an on[-the-]job training so there [was] no pay[.] On
October 10, 1989, he was transferred to the residence of Mr. Benito Ong with 12 hours duty a day receiving a salary very
much less than the minimum wage for eight (8) hours work until February 3, 1990 when he received an order
transferring him to Rosewood Processing, Inc. effective that date xxx; [a]t Rosewood Processing, Inc., he was required to
render also 12 hours duty every day with a salary of P2,600.00/month. He was not given his pay for February 1 and 2 by
the paymaster of [the security agency] allegedly because the payroll could not be located so after 3 to 4 times of going
back and forth to [the security agencys] office to get his salary[;] [after] xxx two (2) days he gave up because he was
already spending more than what he could get thru transportation alone. On May 16, 1991, Rosewood Processing, Inc.
asked for the relief of Mamon and other guards at Rosewood because they came to know that complainants filed a
complaint for underpayment on May 13, 1991 with the National Labor Relations Commission[.] On May 18 to 19, 1991,
[the security agency] assigned him to their [m]ain [o]ffice. After that, complainant was floated until May 29, 1991 when
he was assigned to Mead Johnson Philippines Corporation. [A]t about a week later, [the security agency] received
summons on complainants complaint for underpayment and he was called to [the security agencys] office. When he

99
reported, he was told to sign a Quitclaim and Waiver[] by Lt. R. Rodriguez because according to the latter, he [could]
only get a measly sum from his complaint with the NLRC and if he (complainant) [signed] the quitclaim and waiver he
[would] be retained at his present assignment which [was] giving quite a good salary and other benefits but if he [did]
not sign the quitclaim and waiver, he [would] be relieved from his post and [would] no longer be given any assignment.
xxx He was given up to the end of July 1991 to think it over. At the end of July 1991, h[e] was approached by the Security
in Charge A. Azuela and asked him to sign the quitclaim and waiver and when he refused to sign, he was told that the
following day August 1, 1991, he [would have] no more assignment and should report to their office. Thinking that it was
only a joke, he reported the following day to the detachment commander Mr. A. Yadao and he was told that the main
office xxx relieved him because he did not sign the quitclaim and waiver. He reported to their office asking for an
assignment but he was told by R. Rodriguez that I no longer can be given an assignment so I had better resign. He went
back several times to the office of the [security agency] but every time the answer was the same[:] that he better tender
his resignation because he cannot be given any assignment although respondent was recruiting new guards and posting
them.

Arsenio Gazzingan started to work for the [security agency] on September 29, 1988. [Note: the introductory paragraph
stated September 25, 1988.] He was assigned to Purefoods Breeding Farm at Calauan, Laguna and given a salary of
P54.00 a day working eight (8) hours. After three (3) months, he was given an examination and passed the same. On
December 26, 1988, he was given an increase and was paid P64.00/day working eight (8) hours; [h]e remained at the
same post for 8 months and transferred to Purefoods Feed Mill at Sta. Rosa, Laguna, with the same salary and the same
tour of duty, 8 hours[.] After four (4) months, he was transferred to Purefoods Grand Perry at Sta. Rosa, Laguna, and
after eleven (11) days on June 1989, he was transferred to Rosewood Processing, Inc. at Meycauayan, Bulacan and
required to work for 12 hours at a salary of P94.00/day for one year. [In] June 1990, he was assigned at Purefoods
DELPAN [to] guard x x x a barge loaded with corn and rendered 12 hours work/day with a salary of only P148.00/day and
after 24 days, he was floated for one month. He reported to [the security agencys] office and was assigned to Purefoods
Breeder Farm in Canlubang rendering 8 hours work per day receiving only P78.00/day. After 11 days, he asked to be
transferred to Manila[.] [B]ecause of the distance from his home xxx the transfer was approved but instead of being
transferred to Manila, he was assigned to Purefoods B-F-4 in Batangas rendering 12 hours duty/day and receiving only
P148.00 per day until January 28, 1991[;] and again he requested for transfer which was also approved by the [security
agencys] office[,] but since then he was told to come back again and again. [U]p to the present he has not been given
any assignment. Because of the fact that his family [was] in danger of going hungry, he sought relief from the NLRC-NCR-
Arbitration Branch.

Rodolfo Velasco started working for the [security agency] on January 5, 1987. He was assigned to PCI Bank Elcano,
Tondo Branch, as probationary, and [for] working 8 hours a day for 9 days he received only P400.00. On January 16,
1987, he was assigned to [the security agencys] headquarters up to January 31, 1987, working 12 hours a day[; he]
received only P650.00 for the 16 days. On September 1, 1988, he was assigned to Imperial Synthetic Rubber Products
rendering 12 hours duty per day until December 31, 1988 and was given a salary of P1,600.00/month. He was later
transferred to various posts like Polypaper Products working 12 hours a day given a salary of P1,800.00 a month;
Paramount Electrical, Inc. working 12 hours a day given P1,100.00 for 15 days; Rosewood Processing, Inc., rendering 12
hours duty per day receiving P2,200.00/month until May 16, 1991[;] Alen Engineering rendering 12 hours duty/day
receiving P1,100/month; Purefoods Corporation on Delta II rendering 12 hours duty per day received P4,200.00 a
month. He was relieved on August 24 and his salary for the period August 20 to 23 has not been paid by [the security
agency.] He was suspended for no cause at all.

Armando Ballon started as security guard with [the security agency] July 1990 [Note: the introductory paragraph stated
June 28, 1990] and was assigned to Purefoods Corporation in Marikina for five (5) months and received a salary of
P50.00 per day for 8 hours. He was transferred to Rosewood Processing, Inc. on November 6, 1990 rendering 12 hours
duty as [d]etachment [c]ommander and a salary of P2,700.00/month including P200.00 officers allowance until May 15,
1991. On May 16, 1991, he applied for sick leave on orders of his doctor for 15 days but the HRM, Miss M. Andres[,] got
angry and crumpled his application for sick leave, that [was] why he was not able to forward it to the SSS. After 15 days,
he came back to the office of [the security agency] asking for an assignment and he was told that he [was] already

100
terminated. Complainant found out that the reason why Miss Andres crumpled his application for sick leave was
because of the complaint he previously filed and was dismissed for failure to appear. He then refiled this case to seek
redress from this Office.

Jose L. Cabrera started working for the [security agency] as security guard January, 1988 and was assigned to Alencor
Residence rendering 12 hours duty per day and received a salary of P2,400.00 a month for 3 months[.] [I]n May, 1988,
he was transferred to E & L Restaurant rendering 12 hours duty per day and receiv[ing] a salary of P1,500.00 per month
for 6 months[.] [I]n January, 1989, he was transferred to Paramount rendering 12 hours duty per day receiving only
P1,800.00 per month for 6 months[.] [I]n July 1989, he was transferred to Benito Ong[s] residence rendering 12 hours
duty per day and receiving a salary of P1,400.00 per month for 4 months[.] [I]n December, 1989, he was transferred to
Sea Trade International rendering xxx 12 hours duty per day and receiving a salary of P1,900 per month for 6 months[.]
[I]n July, 1990, he was transferred to Holland Pacific & Paper Mills rendering 8 hours duty per day and receiving a salary
of P2,400.00 per month until September 1990[.] [In] October 1990, he was transferred to RMG residence rendering 12
hours duty per day receiving a salary of P2,200.00 per month for 3 months[.] [In] February 1991, he was transferred to
Purefoods Corporation at Mabini, Batangas rendering 12 hours duty per day with a salary of P3,600.00 per month for
only one month because he was hospitalized due to a stab wound inflicted by his [d]etachment [c]ommander. When he
was discharged from the hospital and after he was examined and declared fit to work by the doctor, he reported back to
[the security agencys] office but was given the run-around [and was told to] come back tomorrow[.] [H]e [could] see
that [the agency was] posting new recruits. He then complained to this Honorable Office to seek redress, hiring the
services of a counsel.

Victor Aldeza started working for the [security agency] on March 21, 1990 and was assigned to Meridian Condominium,
rendering 12 hours work per day and receiving a salary of P1,500.00 per month. Although he knew that the salary was
below minimum yet he persevered because he had spent much to get this job and stayed on until October 15, 1990[.]
On October 16, 1990, he was transferred to Rosewood Processing, Inc., rendering 12 hours duty per day and receiving a
salary of P2,600.00 per month up to May 15, 1991[.] On the later part of May 1991, he was assigned to UPSSA (Sandoval
Shipyard) rendering 12 hours duty per day receiving a salary of P3,200.00 per month. [Aldeza] complained to [the
security agency] about the salary but [the agency] did not heed him; thus, he filed his complaint for underpayment[.]
[The agency] upon complainants complaint for underpayment xxx, instead of adjusting his salary to meet the minimum
prescribed by law[,] relieved him and left him floating[.] xxx When he complained of the treatment, he was told to resign
because he could no longer be given any assignment. Because of this, complainant was forced to file another complaint
for illegal dismissal.

Labor Arbiters Ruling

The labor arbiter noted the failure of the security agency to present evidence to refute the complainants allegation.
Instead, it impleaded the petitioner as third-party respondent, contending that its actions were primarily caused by
petitioners noncompliance with its obligations under the contract for security services, and the subsequent cancellation
of the said contract.

The labor arbiter held petitioner jointly and severally liable with the security agency as the complainants indirect
employer under Articles 106, 107 and 109 of the Labor Code, citing the case of Spartan Security & Detective Agency, Inc.
vs. National Labor Relations Commission.[8]

Although the security agency could lawfully place the complainants on floating status for a period not exceeding six
months, the act was illegal because the former had issued a newspaper advertisement for new security guards. Since the
relation between the complainants and the agency was already strained, the labor arbiter ordered the payment of
separation pay in lieu of reinstatement.

The award for wage differential, limited back wages and separation pay contained the following details:

1. Napoleon Mamon
101
Wage Differentials P45,959.02
Backwages 72,764.38
Separation Pay __7,687.70 P126,411.10
2. Arsenio Gazzingan
Wage Differentials P24,855.76
Backwages 96,096.25
Separation Pay __7,687.70 P128,639.71
3. Rodolfo Velasco
Wage Differentials P66,393.58
Backwages 69,189.30
Separation Pay _11,531.55 P147,114.43
4. Armando Ballon
Wage Differentials P31,176.85
Backwages 81,874.00
Separation Pay __3,843.85 P116,894.70
5. Jose Cabrera
Wage Differentials P30,032.63
Backwages 91,483.63
Separation Pay _11,531.55 P133,047.81
6. Victor Aldeza
Wage Differentials P49,406.86
Backwages 83,795.93
Separation Pay __3,843.85 P137,046.64
P789,154.39
=========

Ruling of Respondent Commission

As earlier stated, Respondent Commission dismissed petitioners appeal, because it was allegedly not perfected within
the reglementary ten-day period. Petitioner received a copy of the labor arbiters Decision on April 2, 1993, and it filed its
Memorandum of Appeal on April 12, 1993. However, it submitted the appeal bond on April 26, 1993, or twelve days
after the expiration of the period for appeal per Rule VI, Sections 1, 3 and 6 of the 1990 Rules of Procedure of the
National Labor Relations Commission. Thus, it ruled that the labor arbiters Decision became final and executory on April
13, 1993.

In the assailed Order, Respondent Commission denied reconsideration, because petitioner allegedly failed to raise any
palpable or patent error committed by said commission.

Assignment of Errors

Petitioner imputes the following errors to Respondent Commission:

Respondent NLRC committed grave abuse of discretion amounting to lack of jurisdiction when it dismissed petitioners
appeal despite the fact that the same was perfected within the reglementary period provided by law.

Respondent NLRC committed grave abuse of discretion amounting to lack of jurisdiction when it dismissed petitioners
appeal despite the clearly meritorious grounds relied upon therein.

Otherwise stated, the petition raises these two issues: first, whether the appeal from the labor arbiter to the NLRC was
perfected on time; and second, whether petitioner is solidarily liable with the security agency for the payment of back
wages, wage differential and separation pay.

The Courts Ruling

The petition is impressed with some merit and deserves partial grant.

First Issue: Substantial Compliance with the Appeal Bond Requirement

102
The perfection of an appeal within the reglementary period and in the manner prescribed by law is jurisdictional, and
noncompliance with such legal requirement is fatal and effectively renders the judgment final and executory.[9] The
Labor Code provides:

ART. 223. Appeal.Decisions, awards or orders of the Labor Arbiter are final and executory unless appealed to the
Commission by any or both parties within ten (10) calendar days from receipt of such decisions, awards, or orders. xxx

xxxxxxxxx

In case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the posting
of a cash or surety bond issued by a reputable bonding company duly accredited by the Commission in the amount
equivalent to the monetary award in the judgment appealed from.

x x x x x x x x x.

Indisputable is the legal doctrine that the appeal of a decision involving a monetary award in labor cases may be
perfected only upon the posting of a cash or surety bond.[10] The lawmakers intended the posting of the bond to be an
indispensable requirement to perfect an employers appeal.[11]

However, in a number of cases, this Court has relaxed this requirement in order to bring about the immediate and
appropriate resolution of controversies on the merits.[12] Some of these cases include: (a) counsels reliance on the
footnote of the notice of the decision of the labor arbiter that the aggrieved party may appeal xxx within ten (10)
working days; (b) fundamental consideration of substantial justice; (c) prevention of miscarriage of justice or of unjust
enrichment, as where the tardy appeal is from a decision granting separation pay which was already granted in an
earlier final decision; and (d) special circumstances of the case combined with its legal merits or the amount and the
issue involved.[13]

In Quiambao vs. National Labor Relations Commission,[14] this Court ruled that a relaxation of the appeal bond
requirement could be justified by substantial compliance with the rule.

In Globe General Services and Security Agency vs. National Labor Relations Commission,[15] the Court observed that the
NLRC, in actual practice, allows the reduction of the appeal bond upon motion of the appellant and on meritorious
grounds; hence, petitioners in that case should have filed a motion to reduce the bond within the reglementary period
for appeal.

That is the exact situation in the case at bar. Here, petitioner claims to have received the labor arbiters Decision on April
6, 1993.[16] On April 16, 1993, it filed, together with its memorandum on appeal[17] and notice of appeal, a motion to
reduce the appeal bond[18] accompanied by a surety bond for fifty thousand pesos issued by Prudential Guarantee and
Assurance, Inc.[19] Ignoring petitioners motion (to reduce bond), Respondent Commission rendered its assailed
Resolution dismissing the appeal due to the late filing of the appeal bond.

The solicitor general argues for the affirmation of the assailed Resolution for the sole reason that the appeal bond, even
if it was filed on time, was defective, as it was not in an amount equivalent to the monetary award in the judgment
appealed from. The Court disagrees.

We hold that petitioners motion to reduce the bond is a substantial compliance with the Labor Code. This holding is
consistent with the norm that letter-perfect rules must yield to the broader interest of substantial justice.[20]

Where a decision may be made to rest on informed judgment rather than rigid rules, the equities of the case must be
accorded their due weight because labor determinations should not only be secundum rationem but also secundum
caritatem.[21] A judicious reading of the memorandum of appeal would have made it evident to Respondent

103
Commission that the recourse was meritorious. Respondent Commission acted with grave abuse of discretion in
peremptorily dismissing the appeal without passing upon -- in fact, ignoring -- the motion to reduce the appeal bond.

We repeat: Considering the clear merits which appear, res ipsa loquitur, in the appeal from the labor arbiters Decision,
and the petitioners substantial compliance with rules governing appeals, we hold that the NLRC gravely abused its
discretion in dismissing said appeal and in failing to pass upon the grounds alleged in the Motion for Reconsideration.

Second Issue: Liability of an Indirect Employer

The overriding premise in the labor arbiters Decision holding the security agency and the petitioner liable was that said
parties offered no evidence refuting or rebutting the complainants computation of their monetary claims. The arbiter
ruled that petitioner was liable in solidum with the agency for salary differentials based on Articles 106, 107 and 109 of
the Labor Code which hold an employer jointly and severally liable with its contractor or subcontractor, as if it is the
direct employer. We quote said provisions below:

ART. 106. Contractor or subcontractor. -- Whenever an employer enters into a contract with another person for the
performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid
in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of
the work performed under the contract, in the same manner and extent that he is liable to employees directly employed
by him.

x x x x x x x x x.

ART. 107. Indirect employer. -- The provisions of the immediately preceding Article shall likewise apply to any person,
partnership, association or corporation which, not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project.

ART. 109. Solidary liability. -- The provisions of existing laws to the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code.
For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct
employers.

Upon the other hand, back wages and separation pay were awarded because the complainants were constructively and
illegally dismissed by the security agency which placed them on floating status and at the same time gave assignments
to newly hired security guards. Noting that the relationship between the security agency and the complainants was
already strained, the labor arbiter granted separation pay in lieu of reinstatement.

In its memorandum of appeal, petitioner controverts its liability for the mentioned monetary awards on the following
grounds:[22]

A. Complainant Jose Cabrera never rendered security services to [petitioner] or was [n]ever assigned as security guard
[for] the latters business establishment;

B. Complainants Napoleon Mamon, Arsenio Gazzingan, Rodolfo Velasco, Armando Ballon and Victor Aldeza rendered
security services to [petitioner] for a fixed period and were thereafter assigned to other entities or establishments or
were floated or recalled to the headquarters of Veterans; and,

104
C. The relationship between [petitioner] and Veterans was governed by a Contract for Guard Services under which
[petitioner] dutifully paid a contract price of P3,500.00 a month for 12 hour duty per guard and later increased to
P4,250.00 a month for 12 hour duty per guard which are within the prevailing rates in the industry and in accordance
with labor standard laws.

The first two grounds are meritorious. Legally untenable, however, is the contention that petitioner is not liable for any
wage differential for the reason that it paid the employees in accordance with the contract for security services which it
had entered into with the security agency. Notwithstanding the service contract between the petitioner and the security
agency, the former is still solidarily liable to the employees, who were not privy to said contract, pursuant to the
aforecited provisions of the Code. Labor standard legislations are enacted to alleviate the plight of workers whose wages
barely meet the spiraling costs of their basic needs.

They are considered written in every contract, and stipulations in violation thereof are considered not written. Similarly,
legislated wage increases are deemed amendments to the contract. Thus, employers cannot hide behind their contracts
in order to evade their or their contractors or subcontractors liability for noncompliance with the statutory minimum
wage.

The joint and several liability of the employer or principal was enacted to ensure compliance with the provisions of the
Code, principally those on statutory minimum wage. The contractor or subcontractor is made liable by virtue of his or
her status as a direct employer, and the principal as the indirect employer of the contractors employees. This liability
facilitates, if not guarantees, payment of the workers compensation, thus, giving the workers ample protection as
mandated by the 1987 Constitution.[23] This is not unduly burdensome to the employer. Should the indirect employer
be constrained to pay the workers, it can recover whatever amount it had paid in accordance with the terms of the
service contract between itself and the contractor.[24]

Withal, fairness likewise dictates that the petitioner should not, however, be held liable for wage differentials incurred
while the complainants were assigned to other companies. Under these cited provisions of the Labor Code, should the
contractor fail to pay the wages of its employees in accordance with law, the indirect employer (the petitioner in this
case), is jointly and severally liable with the contractor, but such responsibility should be understood to be limited to the
extent of the work performed under the contract, in the same manner and extent that he is liable to the employees
directly employed by him. This liability of petitioner covers the payment of the workers performance of any work, task,
job or project. So long as the work, task, job or project has been performed for petitioners benefit or on its behalf, the
liability accrues for such period even if, later on, the employees are eventually transferred or reassigned elsewhere.

We repeat: The indirect employers liability to the contractors employees extends only to the period during which they
were working for the petitioner, and the fact that they were reassigned to another principal necessarily ends such
responsibility. The principal is made liable to his indirect employees, because it can protect itself from irresponsible
contractors by withholding such sums and paying them directly to the employees or by requiring a bond from the
contractor or subcontractor for this purpose.

Similarly, the solidary liability for payment of back wages and separation pay is limited, under Article 106, to the extent
of the work performed under the contract; under Article 107, to the performance of any work, task, job or project; and
under Article 109, to the extent of their civil liability under this Chapter [on payment of wages].

These provisions cannot apply to petitioner, considering that the complainants were no longer working for or assigned
to it when they were illegally dismissed. Furthermore, an order to pay back wages and separation pay is invested with a
punitive character, such that an indirect employer should not be made liable without a finding that it had committed or
conspired in the illegal dismissal.

The liability arising from an illegal dismissal is unlike an order to pay the statutory minimum wage, because the workers
right to such wage is derived from law. The proposition that payment of back wages and separation pay should be

105
covered by Article 109, which holds an indirect employer solidarily responsible with his contractor or subcontractor for
any violation of any provision of this Code, would have been tenable if there were proof -- there was none in this case --
that the principal/employer had conspired with the contractor in the acts giving rise to the illegal dismissal.

With the foregoing discussion in mind, we now take up in detail the petitioners liability to each of the complainants.

Case No. NCR-00-08-04630-91

Mamon worked for petitioner for a period of a little more than one year beginning February 3, 1990 until May 16, 1991.
Inasmuch as petitioner was his indirect employer during such time, it should thus be severally liable for wage differential
from the time of his employment until his relief from duty. He was relieved upon the request of petitioner, after it had
learned of the complaint for underpayment of wages filed by Mamon and several other security guards.

However, this was not a dismissal from work because Mamon was still working for the security agency and was
immediately assigned, on May 29, 1991, to its other client, Mead Johnson Philippines. His dismissal came about later,
when he refused to sign a quitclaim and waiver in favor of the security agency. Thus, he was illegally dismissed by the
agency when he was no longer employed by petitioner, which cannot thus be held liable for back wages and separation
pay in his case.

Napoleon Mamon x x x received an order transferring him to Rosewood Processing, Inc. effective x x x February 3, 1990;
x x x. On May 16, 1991, Rosewood Processing, Inc. asked for the relief of Mamon and other guards at Rosewood because
they came to know that complainants filed a complaint for underpayment on May 13, 1991 with the National Labor
Relations Commission[.] x x x After that, complainant was floated until May 29, 1991 when he was assigned to Mead
Johnson Philippines Corporation. x x x [A] week later, [the security agency] received summons on complainants
complaint for underpayment and he was called to [the security agency] office. When he reported, he was told to sign a
Quitclaim and Waiver[] by Lt. R. Rodriguez x x x and x x x if he [did] not sign the quitclaim and waiver, he [would] be
relieved from his post and [would] no longer be given any assignment. xxxx At the end of July 1991, he was approached
by the Security in Charge, A. Azuela, x x x [for him] to sign the quitclaim and waiver[,] and when he refused to sign, he
was told that x x x he ha[d] no more assignment and should report to their office. x x x [H]e reported the following day
to the detachment commander, Mr. A. Yadao and he was told that the main office ha[d] relieved him x x x. He reported
to their office asking for an assignment but he was told by R. Rodriguez that I no longer can be given an assignment so I
had better resign. He went back several times to the office of the [security agency] but every time the answer was the
same x x x although respondent was recruiting new guards and posting them.[25]

Case No. NCR-00-07-03966-91

Gazzingan was assigned to petitioner as a security guard for a period of one year. For said period, petitioner is solidarily
liable with the agency for underpayment of wages based on Articles 106, 107 and 109 of the Code.

Arsenio Gazzingan x x x after eleven (11) days on June 1989, xxx was transferred to Rosewood Processing, Inc. x x x. [I]n
June 1990, he was assigned at Purefoods DELPAN x x x. After 11 days, he asked to be transferred to Manila because of
the distance from his home and the transfer was approved but instead of being transferred to Manila, he was assigned
to Purefoods B-F-4 in Batangas x x x again he requested for transfer which was also approved by the [security agency]
office but since then he was told to come back again and again and up to the present he has not been given any
assignment. x x x x.[26]

His dismissal cannot be blamed on the petitioner. Like Mamon, Gazzingan had already been assigned to another client of
the agency when he was illegally dismissed. Thus, Rosewood cannot be held liable, jointly and severally with the agency,
for back wages and separation pay.

Case No. NCR-00-07-03967-91

106
Rodolfo Velasco was assigned to petitioner from December 31, 1988 until May 16, 1991. Thus, petitioner is solidarily
liable for wage differentials during such period. Petitioner is not, however, liable for back wages and separation pay,
because Velasco was no longer working for petitioner at the time of his illegal dismissal.

Rodolfo Velasco started working for the [security agency] on January 5, 1987. x x x [On] December 31, 1988 xxx he was x
x x transferred to various posts like x x x Rosewood Processing, Inc., x x x until May 16, 1991 x x x. He was relieved on
August 24 and his salary for the period August 20 to 23 has not been paid by [the security agency]; [h]e was suspended
for no cause at all.[27]

Case No. NCR-00-07-0445-91

Petitioner was the indirect employer of Ballon during the period beginning November 6, 1990 until May 15, 1991; thus,
it is liable for wage differentials for said period. However, it is not liable for back wages and separation pay, as there was
no evidence presented to show that it participated in Ballons illegal dismissal.

x x x [H]e [Armando Ballon] was transferred to Rosewood Processing, Inc. on November 6, 1990 rendering 12 hours duty
as [d]etachment [c]ommander and received a salary of P2,700.00/month including P200.00 officers allowance until May
15, 1991. On May 16, 1991, he applied for sick leave on orders of his doctor for 15 days but the HRM, Miss M. Andres[,]
got angry and crumpled his application for sick leave that is why he was not able to forward it to the SSS. After 15 days,
he came back to the office of [the security agency] asking for an assignment and he was told that he [was] already
terminated. Complainant found out that the reason why Miss Andres crumpled his application for sick leave was
because of the complaint he previously filed and was dismissed for failure to appear. He then refiled this case to seek
redress from this Office.[28]

Case No. NCR-00-08-05030-91

Petitioner is liable for wage differentials in favor of Aldeza during the period he worked with petitioner, that is, October
16, 1990 until May 15, 1991.

x x x On October 16, 1990, he [Aldeza] was transferred to Rosewood Processing, Inc., x x x up to May 15, 1991[.] On the
later part of May 1991, he was assigned to UPSSA (Sandoval Shipyard) x x x. Complainant [sic] complained to [the
security agency] about the salary but [the security agency] did not heed him; thus, he filed his complaint for
underpayment[.] [The security agency] upon complainants complaint for underpayment reacted xxx, instead of adjusting
his salary to meet the minimum prescribed by law[,] relieved him and left him floating[;] and when he complained of the
treatment, he was told to resign because he could no longer be given any assignment. Because of this, complainant was
forced to file another complaint for illegal dismissal.[29]

The cause of Aldezas illegal dismissal is imputable, not to petitioner, but solely to the security agency. In Aldezas case,
the solidary liability for back wages and separation pay arising from Articles 106, 107 and 109 of the Code has no
application.

Case No. NCR-00-09-05617-91

Cabrera was an employee of the security agency, but he never rendered security services to petitioner. This fact is
evident in the labor arbiters findings:

Jose L. Cabrera started working for the [security agency] as [a] security guard on January, 1988 and was assigned to
Alencor Residence x x x. [I]n May, 1988, he was transferred to E & L Restaurant x x x[.] [I]n January, 1989, he was
transferred to Paramount x x x[.] [I]n July 1989, he was transferred to Benito Ong[s] residence x x x[.] [I]n December,
1989, he was transferred to Sea Trade International xxx[.] [I]n July, 1990, he was transferred to Holland Pacific & Paper

107
Mills x x x[.] [I]n October 1990, he was transferred to RMG [R]esidence x x x[.] [I]n February 1991, he was transferred to
Purefoods Corporation at Mabini, Batangas x x x. When he was discharged from the hospital and after he was examined
and declared fit to work by the doctor, he reported back to [the security agency] office but was given the run-around
[and was told to] come back tomorrow[,] although he [could] see that [it was] posting new recruits. He then complained
to this Honorable Office to seek redress, hiring the services of a counsel.[30]

Hence, petitioner is not liable to Cabrera for anything.

In all these cases, however, the liability of the security agency is without question, as it did not appeal from the
Decisions of the labor arbiter and Respondent Commission.

WHEREFORE, the petition is partially GRANTED. The assailed Decision is hereby MODIFIED, such that petitioner, with the
security agency, is solidarily liable to PAY the complainants only wage differentials during the period that the
complainants were actually under its employ, as above detailed. Petitioner is EXONERATED from the payment of back
wages and separation pay.

The temporary restraining order issued earlier is LIFTED, but the petitioner is deemed liable only for the aforementioned
wage differentials which Respondent Commission is required to RECOMPUTE within fifteen days from the finality of this
Decision. No costs.

SO ORDERED.

108
[G.R. No. 140689. February 17, 2004]
BANKARD EMPLOYEES UNION-WORKERS ALLIANCE TRADE UNIONS, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION
and BANKARD, INC., respondents.

DECISION
CARPIO MORALES, J.:

The present Petition for Review on Certiorari under Rule 45 of the Rules of Court raises the issue of whether the unilateral
adoption by an employer of an upgraded salary scale that increased the hiring rates of new employees without increasing the salary
rates of old employees resulted in wage distortion within the contemplation of Article 124 of the Labor Code.
Bankard, Inc. (Bankard) classifies its employees by levels, to wit: Level I, Level II, Level III, Level IV, and Level V. On May 28,
1993, its Board of Directors approved a New Salary Scale, made retroactive to April 1, 1993, for the purpose of making its hiring rate
competitive in the industrys labor market. The New Salary Scale increased the hiring rates of new employees, to wit: Levels I and V
by one thousand pesos (P1,000.00), and Levels II, III and IV by nine hundred pesos (P900.00). Accordingly, the salaries of employees
who fell below the new minimum rates were also adjusted to reach such rates under their levels.
Bankards move drew the Bankard Employees Union-WATU (petitioner), the duly certified exclusive bargaining agent of the
regular rank and file employees of Bankard, to press for the increase in the salary of its old, regular employees.
Bankard took the position, however, that there was no obligation on the part of the management to grant to all its employees
the same increase in an across-the-board manner.
As the continued request of petitioner for increase in the wages and salaries of Bankards regular employees remained
unheeded, it filed a Notice of Strike on August 26, 1993 on the ground of discrimination and other acts of Unfair Labor Practice
(ULP).
A director of the National Conciliation and Mediation Board treated the Notice of Strike as a Preventive Mediation Case based
on a finding that the issues therein were not strikeable.
Petitioner filed another Notice of Strike on October 8, 1993 on the grounds of refusal to bargain, discrimination, and other acts
of ULP - union busting. The strike was averted, however, when the dispute was certified by the Secretary of Labor and Employment
for compulsory arbitration.
The Second Division of the NLRC, by Order of May 31, 1995, finding no wage distortion, dismissed the case for lack of merit.
Petitioners motion for reconsideration of the dismissal of the case was, by Resolution of July 28, 1995, denied.
Petitioner thereupon filed a petition for certiorari before this Court, docketed as G.R. 121970. In accordance with its ruling
in St. Martin Funeral Homes v. NLRC,[1] the petition was referred to the Court of Appeals which, by October 28, 1999, denied the
same for lack of merit.
Hence, the present petition which faults the appellate court as follows:
(1) It misapprehended the basic issues when it concluded that under Bankards new wage structure, the old salary gaps
between the different classification or level of employees were still reflected by the adjusted salary rates [2]; and
(2) It erred in concluding that wage distortion does not appear to exist, which conclusion is manifestly contrary to law and
jurisprudence.[3]
Upon the enactment of R.A. No. 6727 (WAGE RATIONALIZATION ACT, amending, among others, Article 124 of the Labor Code)
on June 9, 1989, the term wage distortion was explicitly defined as:

... a situation where an increase in prescribed wage rates results in the elimination or severe contraction of intentional quantitative
differences in wage or salary rates between and among employee groups in an establishment as to effectively obliterate the
distinctions embodied in such wage structure based on skills, length of service, or other logical bases of differentiation.[4]

Prubankers Association v. Prudential Bank and Trust Company [5] laid down the four elements of wage distortion, to wit: (1.) An
existing hierarchy of positions with corresponding salary rates; (2) A significant change in the salary rate of a lower pay class without

109
a concomitant increase in the salary rate of a higher one; (3) The elimination of the distinction between the two levels; and (4) The
existence of the distortion in the same region of the country.
Normally, a company has a wage structure or method of determining the wages of its employees. In a problem dealing with
wage distortion, the basic assumption is that there exists a grouping or classification of employees that establishes distinctions
among them on some relevant or legitimate bases.[6]
Involved in the classification of employees are various factors such as the degrees of responsibility, the skills and knowledge
required, the complexity of the job, or other logical basis of differentiation. The differing wage rate for each of the existing classes of
employees reflects this classification.
Petitioner maintains that for purposes of wage distortion, the classification is not one based on levels or ranks but on two
groups of employees, the newly hired and the old, in each and every level, and not between and among the different levels or ranks
in the salary structure.
Public respondent National Labor Relations Commission (NLRC) refutes petitioners position, however. It, through the Office of
the Solicitor General, essays in its Comment of April 12, 2000 as follows:

To determine the existence of wage distortion, the historical classification of the employees prior to the wage increase must be
established. Likewise, it must be shown that as between the different classification of employees, there exists a historical gap or
difference.

xxx

The classification preferred by petitioner is belied by the wage structure of private respondent as shown in the new salary scale it
adopted on May 28, 1993, retroactive to April 1, 1993, which provides, thus:

Hiring Minimum Maximum

Level From To From To From To
I 3,100 4,100 3,200 4,200 7,200 9,250
II 3,200 4,100 3,300 4,200 7,500 9,500
III 3,300 4,200 3,400 4,300 8,000 10,000
IV 3,500 4,400 3,600 4,500 8,500 10,500
V 3,700 4,700 3,800 4,800 9,000 11,000

Thus the employees of private respondent have been historically classified into levels, i.e. I to V, and not on the basis of their
length of service. Put differently, the entry of new employees to the company ipso facto place[s] them under any of the
levels mentioned in the new salary scale which private respondent adopted retroactive [to] April 1, 1993. Petitioner cannot make a
contrary classification of private respondents employees without encroaching upon recognized management prerogative of
formulating a wage structure, in this case, one based on level.[7] (Emphasis and underscoring supplied)

The issue of whether wage distortion exists being a question of fact that is within the jurisdiction of quasi-judicial
tribunals,[8] and it being a basic rule that findings of facts of quasi-judicial agencies, like the NLRC, are generally accorded not only
respect but at times even finality if they are supported by substantial evidence, as are the findings in the case at bar, they must be
respected. For these agencies have acquired expertise, their jurisdiction being confined to specific matters.[9]
It is thus clear that there is no hierarchy of positions between the newly hired and regular employees of Bankard, hence, the
first element of wage distortion provided in Prubankers is wanting.
While seniority may be a factor in determining the wages of employees, it cannot be made the sole basis in cases where the
nature of their work differs.
Moreover, for purposes of determining the existence of wage distortion, employees cannot create their own independent
classification and use it as a basis to demand an across-the-board increase in salary.
As National Federation of Labor v. NLRC, et al.[10] teaches, the formulation of a wage structure through the classification of
employees is a matter of management judgment and discretion.

[W]hether or not a new additional scheme of classification of employees for compensation purposes should be established by the
Company (and the legitimacy or viability of the bases of distinction there embodied) is properly a matter of management judgment
110
and discretion, and ultimately, perhaps, a subject matter for bargaining negotiations between employer and employees. It is
assuredly something that falls outside the concept of wage distortion. [11] (Emphasis and underscoring supplied)

As did the Court of Appeals, this Court finds that the third element provided in Prubankers is also wanting. For, as the appellate
court explained:
In trying to prove wage distortion, petitioner union presented a list of five (5) employees allegedly affected by the said
increase:
Pay of Old/ Pay of Newly Difference
Regular Employees Hired Employees
A. Prior to April 1, 1993
Level I P4,518.75 P3,100 P1,418.75
(Sammy Guce)
Level II P6,242.00 P3,200 P3,042.00
(Nazario Abello)
Level III P4,850.00 P3,300 P1,550.00
(Arthur Chavez)
Level IV P5,339.00 P3,500 P1,839.00
Melissa Cordero)
Level V P7,090.69 P3,700 P3,390.69
(Ma. Lourdes Dee)
B. Effective April 1, 1993
Level I P4,518.75 P4,100 P418.75
Sammy Guce)
Level II P6,242.00 P4,100 P2,142.00
(Nazario Abello)
Level III P4,850.00 P4,200 P650.00
(Arthur Chavez)
Level IV P5,330.00 P4,400 P939.00
(Melissa Cordero)
Level V P7,090.69 P4,700 P2,390.69
(Ma. Lourdes Dee)

Even assuming that there is a decrease in the wage gap between the pay of the old employees and the newly hired employees, to
Our mind said gap is not significant as to obliterate or result in severe contraction of the intentional quantitative differences in the
salary rates between the employee group. As already stated, the classification under the wage structure is based on the rank of
an employee, not on seniority. For this reason, ,wage distortion does not appear to exist. [12] (Emphasis and underscoring supplied)

Apart from the findings of fact of the NLRC and the Court of Appeals that some of the elements of wage distortion are absent,
petitioner cannot legally obligate Bankard to correct the alleged wage distortion as the increase in the wages and salaries of the
newly-hired was not due to a prescribed law or wage order.
The wordings of Article 124 are clear. If it was the intention of the legislators to cover all kinds of wage adjustments, then the
language of the law should have been broad, not restrictive as it is currently phrased:

Article 124. Standards/Criteria for Minimum Wage Fixing.

xxx

Where the application of any prescribed wage increase by virtue of a law or Wage Order issued by any Regional Board results in
distortions of the wage structure within an establishment, the employer and the union shall negotiate to correct the distortions. Any
dispute arising from the wage distortions shall be resolved through the grievance procedure under their collective bargaining
agreement and, if it remains unresolved, through voluntary arbitration.

x x x (Italics and emphasis supplied)

Article 124 is entitled Standards/Criteria for Minimum Wage Fixing. It is found in CHAPTER V on WAGE STUDIES, WAGE
AGREEMENTS AND WAGE DETERMINATION which principally deals with the fixing of minimum wage. Article 124 should thus be
construed and correlated in relation to minimum wage fixing, the intention of the law being that in the event of an increase in
minimum wage, the distinctions embodied in the wage structure based on skills, length of service, or other logical bases of
differentiation will be preserved.

111
 If the compulsory mandate under Article 124 to correct wage distortion is applied to voluntary and unilateral increases by the
employer in fixing hiring rates which is inherently a business judgment prerogative, then the hands of the employer would be
completely tied even in cases where an increase in wages of a particular group is justified due to a re-evaluation of the high
productivity of a particular group, or as in the present case, the need to increase the competitiveness of Bankards hiring rate. An
employer would be discouraged from adjusting the salary rates of a particular group of employees for fear that it would result to a
demand by all employees for a similar increase, especially if the financial conditions of the business cannot address an across-the-
board increase.
Petitioner cites Metro Transit Organization, Inc. v. NLRC[13] to support its claim that the obligation to rectify wage distortion is
not confined to wage distortion resulting from government decreed law or wage order.
Reliance on Metro Transit is however misplaced, as the obligation therein to rectify the wage distortion was not by virtue of
Article 124 of the Labor Code, but on account of a then existing company practice that whenever rank-and-file employees were paid
a statutorily mandated salary increase, supervisory employees were, as a matter of practice, also paid the same amount plus an
added premium. Thus this Court held in said case:

We conclude that the supervisory employees, who then (i.e., on April 17, 1989) had, unlike the rank-and-file employees, no CBA
governing the terms and conditions of their employment, had the right to rely on the company practice of unilaterally correcting the
wage distortion effects of a salary increase given to the rank-and-file employees, by giving the supervisory employees a
corresponding salary increase plus a premium. . . .[14] (Emphasis supplied)

Wage distortion is a factual and economic condition that may be brought about by different causes. In Metro Transit, the
reduction or elimination of the normal differential between the wage rates of rank-and-file and those of supervisory employees was
due to the granting to the former of wage increase which was, however, denied to the latter group of employees.
The mere factual existence of wage distortion does not, however, ipso facto result to an obligation to rectify it, absent a law or
other source of obligation which requires its rectification.
Unlike in Metro Transit then where there existed a company practice, no such management practice is herein alleged to
obligate Bankard to provide an across-the-board increase to all its regular employees.
Bankards right to increase its hiring rate, to establish minimum salaries for specific jobs, and to adjust the rates of employees
affected thereby is embodied under Section 2, Article V (Salary and Cost of Living Allowance) of the parties Collective Bargaining
Agreement (CBA), to wit:

Section 2. Any salary increase granted under this Article shall be without prejudice to the right of the Company to establish such
minimum salaries as it may hereafter find appropriate for specific jobs, and to adjust the rates of the employees thereby affected to
such minimum salaries thus established.[15] (Italics and underscoring supplied)

This CBA provision, which is based on legitimate business-judgment prerogatives of the employer, is a valid and legally
enforceable source of rights between the parties.
In fine, absent any indication that the voluntary increase of salary rates by an employer was done arbitrarily and illegally for the
purpose of circumventing the laws or was devoid of any legitimate purpose other than to discriminate against the regular
employees, this Court will not step in to interfere with this management prerogative. Employees are of course not precluded from
negotiating with its employer and lobby for wage increases through appropriate channels, such as through a CBA.
This Court, time and again, has shown concern and compassion to the plight of workers in adherence to the Constitutional
provisions on social justice and has always upheld the right of workers to press for better terms and conditions of employment. It
does not mean, however, that every dispute should be decided in favor of labor, for employers correspondingly have rights under
the law which need to be respected.
WHEREFORE, the present petition is hereby DENIED.
SO ORDERED.

112
[G.R. No. 108556. November 19, 1996]
MANILA MANDARIN EMPLOYEES UNION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, Second Division,
and the MANILA MANDARIN HOTEL, respondents.

NARVASA, C.J.:
The petitioner in this special civil action of certiorari seeks nullification of the September 11, 1992 Decision of the
Second Division of the National Labor Relations Commission reversing the judgment of the Labor Arbiter in NLRC NCR
Case No. 10-4336-86 and dismissing the case for lack of merit, as well as of the Commissions November 24, 1992
Resolution denying reconsideration of said decision.

On October 30, 1986, the Manila Mandarin Employees Union (hereafter UNION), as exclusive bargaining agent of the
rank-and-file employees of the Manila Mandarin Hotel, Inc. (hereafter MANDARIN), filed with the NLRC Arbitration
Branch a complaint in its members behalf to compel MANDARIN to pay the salary differentials of the individual
employees concerned because of wage distortions in their salary structure allegedly created by the upward revisions of
the minimum wage pursuant to various Presidential Decrees and Wage Orders, and the failure of MANDARIN to
implement the corresponding increases in the basic salary rate of newly-hired employees.

The relevant Presidential Decrees and Wage Orders were specified by the UNION as follows:

a. PD 1389, amending PD 928, mandating an increase in the statutory minimum wage by P3.00 spread out over a period
of three years, as follows: P1.00 starting July 1, 1978; P1.00 starting May 1, 1979; and P1.00 starting May 1, 1980.

b. PD 1614, providing that workers covered by PD 1389, whether agricultural or non-agricultural, should receive an
increase of P2.00 in their statutory minimum wage effective April 1, 1979, the same representing an acceleration of the
remaining increases under PD 1389; and that all non-agricultural workers in Metro Manila shall receive a minimum wage
of P12.00;

c. PD 1713, issued on august 18, 1980 providing an increase in the minimum daily wage rates and for additional
allowance; increasing the minimum daily wage rates by P1.00 and providing that all private employers shall pay their
employees with wages or salaries not exceeding P1,500.00 a month, an additional mandatory living allowance of P60.00
a month for non-agricultural workers, P45.00 for plantation workers and P30.00 a month for agricultural non-plantation
workers;

d. PD 1751, issued on December 14, 1980, increasing the statutory daily minimum wages by integrating the P4.00
mandatory allowance under PD 525 and PD 1123 into the basic pay of all covered workers;

e. Wage Order No. 1, issued on March 26, 1981, increasing the mandatory emergency living allowance of all workers
with salaries or wages of P1,500.00 a month by P2.00 a day for non-agricultural workers, P1.50 a day for agricultural
plantation workers, P1.00 a day for agricultural non-plantation workers, effective March 22, 1981;

f. Wage Order No. 2 issued on July 6, 1983 increasing the mandatory basic minimum wage and living allowance for non-
agricultural and agricultural workers in the following manner:

1) For non-agricultural employees, receiving not more than P1,800.00 monthly, P1.00 a day as minimum wage and P1.50
a day as cost of living allowance;

2) For plantation agricultural employees, P1.00 a day as minimum wage and P0.50 a day as cost of living allowance
subject to the same salary ceiling provided in the immediately preceding section; and

3) For non-plantation agricultural employees, P1.00 a day as minimum wage; and

113
also, providing that effective October 1, 1983, the living allowances rates as adjusted in the preceding section shall be
further increased subject to the same salary ceiling, for non-agricultural employees, by P1.00.

g. Wage Order No. 3 issued November 7, 1983 increasing the statutory minimum wage rates for workers in the private
sector by P1.00 per day effective November 1, 1983, and also increasing the statutory wage rates by P1.00 per day,
effective December 1, 1983;

h. Wage Order No. 4 issued on May 1, 1984 increasing the statutory daily minimum wages, after integrating the
mandatory living allowance under PDs 1614, 1634, 1678 and 1713 into the basic pay of all covered employees, effective
May 1, 1984; -- after the integration, the minimum daily wage rate was increased by P11.00 for non-agricultural
workers.

i. Wage Order No. 5 issued on June 11, 1984 increasing the statutory daily minimum wage rates and living allowances of
workers in the private sector by P3.00 effective June 16, 1984 -- the minimum daily wage rates became P35.00 for Metro
Manila and P34.00 for outside Metro Manila; and

j. Wage Order No. 6, effective November 1, 1984, increasing the statutory minimum wage rate by P2.00 per day.

On January 15, 1987, the UNION filed its Position Paper amplifying the allegations of its complaint and setting forth the
legal bases of its demands against MANDARIN; and on March 25, 1987, it filed an Amended Complaint presenting an
additional claim for payment of salary differentials to the union members affected, allegedly resulting from
underpayment of wages.

The Labor Arbiter eventually ruled in favor of the UNION, holding that there were in fact wage distortions entitling its
members to salary adjustments totalling P26,173,601.25 -- for 541 employees -- as well as underpayments amounting to
P1,978,296.18 -- 182 employees. The dispositive portion of his decision reads:[1]

WHEREFORE, judgment is hereby rendered ordering the respondent Hotel to pay the individual complainants who are
members of the respondent Union whose names appear on the respective computations embodied in this Decision, the
aggregate amount of P26,173,601.25 representing their salary adjustments by way of correcting the wage distortions in
their respective salary structure, for the period from October 30, 1983 up to October 31, 1990, and continuously
thereafter to pay the corresponding amounts due them as such salary adjustments until the same are properly and
finally restored in their basic monthly rates; to pay the aggregate amount of P1,978,296.18 representing their salary
differentials resulting from underpayment of wages in violation of the minimum wage laws, Presidential Decrees and
Wage Orders for the period from March 25, 1984 up to October 31, 1990, and continuously thereafter to pay the
corresponding amounts due them as such salary differentials until the same are properly and finally restored into their
basic monthly rates.

Likewise, the respondent Hotel is ordered to pay an amount equivalent to ten percent (10%) of the total awards granted
to individual complainants, by way of and as attorneys fees.

On appeal, the Second Division of respondent Commission (composed of Commissioner Domingo H. Zapanta, ponente,
and Presiding Commissioner Edna Bonto-Perez) rendered the dispositions already referred to and now assailed -- setting
aside the Labor Arbiters judgment and dismissing the UNIONs complainant, and later denying the UNIONs motion for
reconsideration.[2]

The principal issues raised in this Court are: (1) Whether or not the NLRC had jurisdiction to take cognizance of
MANDARINS appeal from the Labor Arbiters decision; and (2) if so, whether or not it gravely abused its discretion in
setting aside the Labor Arbiters judgment and dismissing the UNIONS complaint.

114
The issue of jurisdiction is grounded on the posited tardiness of private respondents appeal from the Labor Arbiters
judgment to the NLRC, and fatal defect in their supersedeas bond.

The UNION contends[3] that the records indubitably show that MANDARIN received on January 22, 1991 its copy of the
Labor Arbiters Decision (of January 15, 1991), but filed its appeal and paid the appeal fee only on February 4, 1991, three
(3) days beyond the reglementary ten-day period for doing so. It also condemns as anomalous the certification of
Deputy Executive Clerk Gaudencio P. Demaisip, Jr., NLRC, to the effect that MANDARINs lawyer had approached Hon.
Domingo H. Zapanta, a member of the Second Division, NLRC, for assistance to have the appeal including the appeal fee
in said case duly received and acknowledged on February 1, 1991, at 4:40 P.M; and claims that the anomally was
aggravated when it was Commissioner Zapanta who wrote the Decision for the Second Division[4]-- reversing the Labor
Arbiters judgment, as aforesaid -- despite the UNIONS motion for his disqualification and/or inhibition. The UNION
finally argues that MANDARINS appeal was not only tardy but also fatally flawed in that its supersedeas bond had been
issued by a surety company -- Plaridel Surety & Insurance Company -- which had pending obligations and liabilities at the
time, the Insurance Commissioner having in fact issued a Cease-and-Desist Order against said company for issuing bonds
of no little magnitude without authority; and that moreover, the replacement bond of the Commonwealth Insurance
Company -- subsequently filed by order of the NLRC -- was just as defective because the latter company had an
authorized maximum net retention level in the amount of only P686,582.80, way below the monetary award subject of
MANDARINS appeal to the Commission.

The Court rules that respondent Commission acted correctly in accepting and acting on MANDARINs appeal. The
circumstances attendant upon the filing of the appeal and supersedeas bond are clearly set forth in the Certification of
Deputy Executive Clerk Demaisip, Jr.[5] above mentioned, viz.:

This is to certify that when Atty. Godofredo Labay filed the appeal in NLRC NCR Case No. 10-4335-86 entitled Manila
Mandarin Employees Union vs. Manila Mandarin on Friday, February 1, 1991, the Cashier and the Docket Section, NCR,
were not around, that no one would receive the pleadings and the appeal fee. He therefore approached Commissioner
Domingo H. Zapanta for assistance and to have the appeal including the appeal bond in said case duly received on
February 1, 1991 at 4:50 p.m.

with respect to the appeal fee, since no one was authorized to act as substitute for the Cashier of the NCR for purposes
of receiving the appeal fee and issuing a temporary receipt and/or official receipt therefor, Commissioner Zapanta
requested Atty. Gaudencio P. Demaisip, Jr. to receive said pleadings and allowed Atty. Labay to pay the appeal fee on
Monday, February 4, 1991.

This certification is issued upon request of Atty. Labay for whatever purpose it may serve him.

(SGD.) GAUDENCIO P. DEMAISIP, JR.

Deputy Executive Clerk

Second Division

MANDARIN cannot be faulted for paying the appeal fee only on February 4, 1991. The fact is that on February 1, 1991,
its lawyer was in the NLRC premises, ready to pay said fee, but was unable to do so because the NLRC Cashier or any
other employee authorized to receive payment in his stead, was no longer around. This is why Commissioner Zapanta
allowed payment of the appeal fee to be made on the next business day, as in fact the appeal fee was paid on, February
4, 1991. This Court has ruled that the failure to pay the appeal docketing fee within the reglementary period confers a
directory, not mandatory, power to dismiss an appeal, to be exercised with circumspection in light of all the relevant
facts.[6] In view of these considerations, and the meritoriousness of MANDARINs appeal -- as later pronounced by
respondent NLRC -- the interest of justice was quite evidently served when MANDARINs appeal was given due course
despite delayed payment of the docketing fee.

115
The contention concerning MANDARINs ostensibly defective appeal bond, issued by Plaridel Surety and Insurance
Company, deserves short shrift, too. The issuance of the bond antedated this Courts resolution of January 15, 1992 -- to
which the attention of respondent NLRC had been invited by the UNION -- declaring said surety company to be of
doubtful solvency. More important, the issue was mooted when MANDARIN posted a new surety bond, through
Commonwealth Insurance Company, in compliance with the Order of the respondent Commission dated December 10,
1991. The UNIONs contention that this new bond was equally defective because the bonding company had an
authorized maximum net retention level lower than the sum of P30,967,087.17 involved in this dispute, is
inconsequential, the new bonding company being duly accredited by this Court and licensed by the Insurance
Commission.

At any rate, this Court has invariably ruled that Article 223 of the Labor Code, requiring a bond in appeals involving
monetary awards, must be liberally construed, in line with the desired objective of resolving controversies on their
merits.[7] The circumstance under which the bond was filed in this case adequately justify such liberal application of the
provision.

As to the alleged partiality of Commissioner Domingo Zapanta, the Court finds that his intervention on February 1, 1991
in the matter of payment of the appeal docketing fee did not, in the circumstances already related, constitute
impropriety or pre-judgment of the case and a ground for his disqualification as a member of the Second Division to
which the case was thereafter raffled. Significantly, in its motion to inhibit, the UNION mentioned that the case was
assigned particularly to the late Commissioner Rustico Diokno ** (but) that upon the latters demise, the case was
reassigned to Commissioner Domingo Zapanta as the new ponente.[8] As Commissioner Zapanta had always been a
member of the Second Division, the UNIONs motion for his inhibition, filed more than a year after the occurrence of the
incident on which it was based, becomes suspect as a mere afterthought. In any case, Commissioner Zapanta did inhibit
himself from taking part in the resolution of the UNIONS motion for reconsideration of the assailed decision of
September 11, 1992, thus dispelling what doubts might linger about his impartiality.

Coming now to the issue of wage distortion, prior to the effectivity on June 9, 1989 of Republic Act No. 6727 which,
among others, amended Article 124 (Standards/Criteria for Minimum Wage Fixing) of the Labor Code, the concept to
wage distortion was relatively obscure. So it was observed by this Court in National Federation of Labor vs. NLRC,[9] a
case involving the same subject Wage Orders:

We note that neither the Wage Orders noted above, nor the Implementing Rules promulgated by the Department of
Labor and Employment, set forth a clear and specific notion of wage distortion. What the Wage Orders and the
Implementing Rules did was simply to recognize that implementation of the Wage Orders could result in a distortion of
the wage structure of an employer, and to direct the employer and the union to negotiate with each other to correct the
distortion. Thus, Section 6 of Wage Order No. 3, dated 7 November 1983, provided as follows:

Section 6. Where the application of the minimum wage rate prescribed herein results in distortions of the wage
structure of an establishment, the employer and the union shall negotiate to correct the distortions. Any dispute arising
from wage distortions shall be resolved through the grievance procedure under their collective bargaining agreement of
through conciliation.

In case where there is no collective bargaining agreement or recognized labor organization, the employer shall endeavor
to correct such distortions in consultation with their workers. Any dispute arising from wage distortions shall be resolved
through conciliation by the appropriate Regional Office of the Ministry of Labor and Employment or through arbitration
by the NLRC Arbitration Branch having jurisdiction over the work-place. (Underscoring supplied)

It is therefore opportune to re-state the general principles enunciated in that case, summarized in Metro Transit
Organization, Inc. vs. NLRC, et al.[10] as follows:

116
(a) The concept of wage distortion assumes an existing grouping or classification of employees which establishes
distinctions among such employees on some relevant or legitimate basis. This classification is reflected in a differing
wage rate for each of the existing classes of employees.

(b) Wage distortions have often been the result of government-decreed increases in minimum wages. There are,
however, other causes of wage distortions, like the merger of two (2) companies (with differing classification of
employees and different wage rates) where the surviving company absorbs all the employees of the dissolved
corporation. (In the present Metro case, as already noted, the wage distortion arose because the effectivity dates of
wage increases given to each of the two (2) classes of employees (rank-in-file and supervisory) had not been
synchronized in their respective CBAs.)

(c) Should a wage distortion exist, there is no legal requirement that, in the rectification of that distortion by re-
adjustment of the wage rates of the differing classes of employees, the gap which had previously or historically existed
be restored in precisely the same amount. In other words, correction of a wage distortion may be done by re-
establishing a substantial or significant gap (as distinguished from the historical gap) between the wage rates of the
differing classes of employees.

(d) The re-establishment of a significant difference in wage rates may be the result of resort to grievance procedures or
collective bargaining negotiations.

It was only on June 9, 1989, upon the enactment of R.A. No. 6727 (Wage Rationalization Act, amending, among others,
Article 124 of the Labor Code),[11] that the term wage distortion came to be explicitly defined as:

** a situation where an increase in prescribed wage rates results in the elimination or severe contraction of intentional
quantitative differences in wage or salary rates between and among employee groups in an establishment as to
effectively obliterate the distinctions embodied in such wage structure based on skills, length of service, or other logical
bases of differentiation.

The same provision lays down the procedure to be followed where wage distortion arises from the implementation of a
wage increase prescribed by law or ordered by a Regional Wage Board, viz.:

Where the application of any prescribed wage increase by virtue of a law or Wage order issued by any Regional Board
results in distortions of the wage structure within an establishment, the employer and the union shall negotiate to
correct the distortions. Any dispute arising from the wage distortions shall be resolved through the grievance procedure
under their collective bargaining agreement and, if it remains unresolved, through voluntary arbitration. Unless
otherwise agreed by the parties in writing, such dispute shall be decided by the voluntary arbitrator or panel of
voluntary arbitrators within ten (10) calendar days from the time said dispute was referred to voluntary arbitration.

In cases where there are no collective agreements or recognized labor unions, the employers and workers shall
endeavor to correct such distortions. Any dispute arising therefrom shall be settled through the National Conciliation
and Mediation Board and, if it remains unresolved after ten (10) calendar days of conciliation, shall be referred to the
appropriate branch of the National Labor Relations Commission (NLRC). It shall be mandatory for the NLRC to conduct
continuous hearings and decide the dispute within twenty (20) calendar days from the time said dispute is submitted for
compulsory arbitration.

The pendency of a dispute arising from a wage distortion shall not in any way delay the applicability of any increase in
prescribed wage rates pusurant to the provisions of law or Wage Order.

The issue of whether or not a wage distortion exists as a consequence of the grant of a wage increase to certain
employees, is a question of fact;[12] and as a rule, factual findings in labor cases, where grounded on substantial

117
evidence, are not reviewed.[13] However, a disharmony such as exists here, between the factual findings of the Labor
Arbiter and those of the NLRC, opens the door to a review thereof by this Court.[14]

The Labor Arbiter ruled that a wage distortion existed, and that the only and logical way to correct ** (it) in the salary
structure of the employees of respondent Hotel is to apply the corresponding increase made by way of revising upward
the minimum wage or integration of the ECOLA into the basic wage as embodied in the various Presidential Decrees and
Wage Orders, across-the-board, so that employees whose salaries are above the minimum set by law who have already
been long in the service will not be discriminated against.[15]

On the other hand, respondent Commission declared in its decision[16] that there was no wage distortion arising from
the implementation of said Presidential Decrees and Wage Orders such as warranted across-the-board increases to all
employees:

On the issue of wage distortion, we have examined the various presidential decrees and wage orders referred to by the
complainant and in the Labor Arbiters decision and we found nothing therein that would justify the award of across-the-
board increases to all employees. The apparent intention of the law is only to upgrade the salaries or wages of the
employees receiving lower than the minimum daily wage set therein. For example, Section 1 of Wage Order No. 6
provides that effective November 1, 1984, the statutory minimum daily wage rates workers in the private sector shall be
increased by P2.00. Also, Section 1 of Presidential Decree 1389 provides that Presidential Decree 928 is hereby amended
by increasing all existing statutory minimum wages in the country by Three Pesos (P3.00) spread equally over a period of
three years, as follows: 1)One Peso (P1.00) starting July 1, 1978; 2)One Peso(P1.00) starting May 1, 1979; and One Peso
(P1.00) starting May 1, 1980. Thus, it is clear that the presidential decrees and wage orders merely provide for a floor
wage to be observed by the employers in the private sector.

It indeed appears that the clear mandate of those issuances was merely to increase the prevailing minimum wages of
particular employee groups. There were no across-the-board increases to all employees; increases were required only as
regards those specified therein.[17] It was therefore incorrect for the UNION to claim that all its members became
automatically entitled to across-the-board increases upon the effectivity of the Decrees and Wage Orders in question.
And even if there were wage distortions, which is not the case here, the appropriate remedy thereunder prescribed is
for the employer and the union to negotiate to correct them; or, if the dispute be not thereby resolved, to thresh out
the controversy through the grievance procedure in the collective bargaining agreement, or through conciliation or
arbitration.

A review of the records convinces this Court that respondent NLRC committed no grave abuse of discretion in holding
that no wage distortion was demonstrated by the UNION. It was, to be sure, incumbent on the UNION to prove by
substantial evidence its assertion of the existence of a wage distortion. This it failed to do. It presented no such evidence
to establish, as required by the law, what, if any, were the designed quantitative differences in wage or salary rates
between employee groups, and if there were any severe contractions or elimination of these quantitative differences.

The UNIONs effort to prove wage distortion consisted only of the presentation of an unverified list of thirteen (13)
employees denominated a Sample Comparison of Salary Rates Affected by Wage Distortion,[18] viz.:

SAMPLE COMPARISON OF SALARY RATES OF COMPLAINANTS

AFFECTED BY WAGE DISTORTION

F & B DEPT.

Name Position Date Hired Basic Rate

(12/30/85)
1. Pablo Trinidad -- Waiter -- 9/1/78 P1,300
2. Eduardo Vito -- Waiter -- 10/16/80 P1,375
118
3. Camilo Sanchez -- Busboy -- 8/1/83 P 954
4. Renato Solomon -- Busboy -- 7/19/84 P1,096
5. Buenconsejo Monico -- Busboy -- 4/15/85 P 968

HOUSEKEEPING DEPT.
1. Ruben A. Rillo -- Linen Uniform Att. -- 6/19/76 P 984
2. Hubert Malolot -- Linen Uniform Att. -- 1/16/80 P1,238
3. Aurella Kilat -- Linen Uniform Att. -- 5/2/79 P1,272
4. Rogelio Molaco -- Cloakroom Attn. -- 9/1/80 P 946
5. David Pineda -- Cloakroom Attn. -- 9/14/81 P1,194
6. Nemesio Matro -- Houseman Attn. -- 6/10/76 P1,142
7. Domgo Sabando -- Houseman Attn. -- 3/8/82 P1,194
8. Renato Guina -- Houseman Attn. -- 8/24/81 P1,194

SUBMITTED:
(SGD.) ATTY. R. E. ESPINOSA
9/17/87.

The UNIONs Internal Vice-President, Arnulfo Castro, deposed that the employees named in this list were the more or
less (13) persons found to have suffered wage distortion,[19] and the UNION pointed out that while these thirteen
employees occupied similar positions, they were receiving different rates of salary.

Respondent Commission however found that as explained by respondents, such disparity was due simply to the fact that
the employees mentioned had been hired on different dates and were thus receiving different salaries; or that an
employee was hired initially at a position level carrying a hiring rate than the others; or that an employee failed to meet
the cut-off date in the grant of yearly CBA increase; or that the union did not get the correct data on salaries. The
Commission accepted as more accurate the data presented by MANDARIN respecting the same employees, to wit:[20]

ANNEX2
F & B Dept.

NAME Position Date Hired Basic Rate

per Hotel Records as of 12/30/85
1. Pablo Trinidad Waiter 09/01/78 P1,302.00*
2. Eduardo Vito Waiter 10/16/80 1,375.00*
3. Camilo Sanchez Busboy 08/01/83 1,194.00
4. Renato Solomon Busboy 07/19/84 1,096.00
5. Buenconsejo Monico Busboy 14/15/85 968.00

Housekeeping Dept.
1. Ruben A. Rillo Linen Uniform Att. 06/19/76 1,417.00
2. Hubert Malolot Linen Uniform Att. 01/16/80 1.238.00
3. Aurella Kilat Linen Uniform Att. 05/02/79 1,272.00
4. Rogelio Molaco Cloakroom Attn. 09/01/80 1,272.00
5. David Pineda Cloakroom Attn. 09/14/81 1,213.00
6. Nemesio Matro Houseman Attn. 06/10/77 1,342.00
7. Domingo Sabando Houseman Attn. 03/08/82 1,194.00
8. Renato Guina Houseman Attn. 08/24/81 1,194.00

* Vito was hired at a higher position with a higher hiring rate than that given to Trinidad, i.e. Vito was hired at P366/mo.
While Trinidad at P301/mo. Prior to hiring, Vito already worked as a waiter at the Metropolitan Club.

The Court agrees that the claimed wage distortion was actually a result of the UNIONS failure to appreciate various
circumstances relating to the employment of the thirteen employees. For instance, while some of these employees
mentioned by UNION Vice-President Arnulfo Castro occupied the same or similar positions, they were hired by the Hotel
on different dates and at different salaries. As explained in part by MANDARIN:

With respect to the case of Pablo Trinidad and Eduardo Vito, while they were both occupying the position of waiter in
1987, with monthly salaries of P2,044.00 and P2,217.00, respectively, a comparative study of the records of these
employees shows one of them was initially hired at a higher position level which naturally carried a higher hiring rate.
Trinidad was originally hired in 1978 as a mere Houseman at the Banquet Department with a basic starting rate of
119
P301.00 a month. On the other hand, Vito was originally hired in 1980 already a Busboy at the Food and Beverage
Department with a starting salary of P366.00 a month. Before he was hired at the Mandarin Hotel, Vito had already
been working as Waiter at the Metropolitan Club. Rrecords also show that it was only after some time that Trinidad was
promoted to Busboy but still with the smaller Banquet Department. The headway in rate was carried by Vito although at
some point in their careers, these two employees achieved the same position as Waiter. Not long after, Vito was
promoted to Captain Waiter while Trinidad remained Waiter. There is therefore no reason to compare the remuneration
of these two employees as the circumstances attendant to their employment are different.[21]

Respondent Commission correctly concluded that these did not represent cases of wage distortion contemplated by the
law (Article 124, Labor Code, as amended), i.e., a situation where an increase in prescribed wage rates results in the
elimination or severe contraction of intentional quantitative differences in wage or salary rates between and among
employees groups in an establishment as to effectively obliterate the distinctions embodied in such wage structure
based on skills, length of service, or other logical basis of differentation.

Moreover, even assuming arguendo that there was really a wage distortion, it was wrong for the Labor Arbiter, after
first acknowledging that some of the money claims had prescribed under Article 291 of the Labor Code,[22] to
nevertheless order the computation of salary differentials retroactive to the effective dates of PDs 1389,1614,1713,
1751 and Wage Orders Nos. 2,3,4,5,and 6: in 1978, 1979, 1980, 1980, July 1983, November 1983, May 1984, June 1981
and November 1984, respectively. Clearly, five of these Decrees and Wage Orders took effect after the lapse of the
three-year prescriptive period for litigating claims for wage distortion differentials, the original complaint for wage
distortion having been filed on October 30, 1986 and the amended complaint for underpayment of wages, on March 25,
1987. Consequently, the applicable cut-off dates, for purposes of prescription, were October 30, 1983 and March 25,
1984, respectively.

Finally, the records show that the matter of wage distortion, actual or imputed under the various issuances up to Wage
Order No. 6, had been settled by the parties as early as July 30, 1985. On that day they executed a Compromise
Agreement with the assistance of the then Regional Director of the National Capital Region, Severo M. Pucan in which
they affirmed that with the implementation by MANDARIN of Wage Order Nos. 4 and 6 as well as P.D. 1634, the latter
was deemed for all legal and purposes to have fully satisfied all its legal and contractual obligations to its employees
under all presidential issuances on wages,[23]

The Compromise Agreement pertinently states:

1. That the respondent shall implement Wage Order No. 6 effective July 1, 1985, without prejudice to the outcome of
the application for exemption as distressed employer filed by said respodent with the National Wage Council as regards
benefits that might be due between November 1, 1985 and June 30, inclusive;

2. The the respondent shall also implement effective August 1, 1985 the integration of the P90.00 a month cost of living
allowance under P.D. 1634 into the basic wages of its employees as called for under Wage Order No. 4 in accordance
with the Guidelines contained in the Explanatory Bulletin issued by the Bureau of Working Conditions on August 8, 1985;

3. That as soon as the respondent shall have complied with the above terms of this Compromise Agreement, said
respondent shall be deemed for all legal intents and puposes to have fully satisfied all the legal and contractual
obligations to its employees under all presidential issuances on wages, including Wage Orders No. 4 and 6, and Article XI
of the collective bargaining agreement,

The Labor Code recognizes the conclusiveness of compromises as a means to settle and end labor disputes. Article 227
provides that (a)ny compromise settlement, including those involving labor standard laws, voluntary agreed upon by the
parties with the assistance of the Bureau or the regional office of the Department of Labor, shall be final and binding
upon the parties. The National Labor Relations Commission or any court shall not assume jurisdiction over issues
involved therein except in case of non-compliance thereof or if there is prima facie evidence that the settlement was

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obtained through fraud, misrepresentation or coercion. In Olaybar vs. NLRC,[24] this Court had occasion, in a labor
dispute, to apply the rule that compromises and settlements have the effect and conclusiveness of res judicata upon the
parties.

Thus, and again assuming arguendo the existence of a wage distortion, this was corrected under the fully implemented
Compromise Agreement;[25] and such correction having been explicitly acknowledge by the UNION, it is now estopped
from claiming that a distortion still subsists. In the same manner, when the UNION entered into a new collective
agreement with MANDARIN, providing for wage increases in 1987, it is deemed to have thereby settled any remaining
question of wage distortion, since the subject of wages and wage distortions were plainly and unavoidably an economic
issue and the proper subject of collective bargaining.[26]

Neither did respondent Commission gravely abuse its discretion in ruling against the UNION on the issue of
underpayment of wages.

The UNIONs theory was that since the employees of MANDARIN are paid on a monthly basis under the Group III
category, the applicable increase in daily wage must be multiplied by 365 and then divided by 12 to determine the
equivalent monthly rate. MANDARINs position, on the other hand, was that it had consistently been using the multiplier
313, and not 365, for the purpose of deriving salary related benefits of its employees who are paid by the month,
excluding from 365, the 52 unpaid rest days in a year. This appears to have been the consistent practice of MANDARIN,
following the formula for daily paid employees under Group II category as prepared by the Bureau of Labor
Standards:[27]

AR x 313 days = EMR

____________
12
Where: 313 days = 303 actual working days a year
plus the paid 10 unworked regular
holidays.
Actual working days . 303
10 legal holidays 10
_____
Total No. of Days 313.

MANDARIN presented evidence of its practice regarding the use of the factor 313 in computing the monthly equivalent
of the minimum daily wages and other related benefits of its employees; i.e., Annexes 3 and 4 of its Supplemental
Appeal dated November 12, 1991. This was corroborated by the UNIONs Internal Vice President, Arnulfo Castro, who
admitted during cross-examination that in his research and study, he found that the divisor used in arriving at the daily
rate of the hotel employees was 313 days, which meant that the days-off or rest days are not paid.[28] The admission
confirms that the hotel employees pertain to Group II category under the Bureau of Labor Standards Guidelines for
computing the equivalent monthly minimum wage rates.[29] Thus, instead of multiplying the applicable minimum daily
wage by 365 and dividing the result by 12 to derive the applicable minimum monthly salary, the factor used is 313,
composed of 303 actual working days and the 10 unworked but paid regular holidays in a year.

In his explanatory Bulletin on the payment of Holiday Pay -- Ref. No. 85-08 dated 6 November 1985 -- then Secretary
Augusto Sanchez of the Department of Labor and Employment, expatiating on the implications of the Chartered Bank
case,[30] stated:

6. Monthly Paid Employees

Oftentime confusion arises from the different interpretations as to who is a monthly-paid employee. A monthly-paid
employee is one whose monthly salary includes payments for everyday of the month although he does not regularly
work on his rest days or Sundays and on regular and special holidays. Group III in the above illustration covers monthly
paid employees. Employees falling under Group I, II and IV are in reality daily paid employees but whose daily rate is

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translated into its monthly equivalent. The fact, therefore, that an employee is regularly paid a fixed monthly rate does
not necessarily mean that he is a monthly-paid employee as defined above. (Italics supplied)

As applied to the UNION, the monthly equivalent of the minimum wage under the various Presidential Decrees and
Wage Orders based on the above formula should be as follows:
PD/WO NO. Effectivity Minimum Daily Equivalent
Wage Rate Monthly Rate
PD 1389 01 July 1978 P 11.00 P 286.96
PD 1614 1 March 1979 13.00 339.00
PD 1813 18 Aug. 1980 14.00 365.17
WO # 2 06 July 1983 19.00 495.58
WO # 3 01 Nov. 1983 20.00 521.67
WO # 4 01 May 1984 32.00 834.67
WO # 5 01 Nov. 1984 35.00 912.92
WO # 6 01 Nov. 1984 37.00 965.08
On the other hand, the monthly pay of the Hotel employees and their hiring rate may be illustrated as follows:
PD/WO NO. Effectivity Equivalent Lowest Salary

Monthly Rate in the Hotel

PD 1389 01 July 1978 P 286.92 P 350.00
PD 1614 01 March 1979 339.08 411.00
PD 1813 18 Aug. 1980 365.17 562.00
WO # 2 06 July 1983 495.58 960.00
WO # 3 01 Nov. 1983 521.67 960.00
WO # 4 01 May 1984 834.67 960.00
WO # 5 16 May 1984 912.92 960.00
WO # 6 01 Nov. 1984 965.08 1,015.00.

A comparative analysis of the wages of the Hotels employees from 1978 to 1984 vis a vis the minimum wages fixed by
law for the same period reveals that at no time during the said period was there any underpayment of wages by the
respondent Hotel. On the contrary, the prevailing monthly salaries of the subject hotel employees appear to be and
above the minimum amounts required under the applicable Presidential Decrees and Wage Orders.

WHEREFORE, the assailed Decision of respondent Commission promulgated on September 11, 1992 -- reversing the
judgment of the Labor Arbiter and dismissing the UNIONS complaint - - being based on substantial evidence and in
accord with applicable laws and jurisprudence, as well as said Commissions Resolution dated November 24, 1992 --
denying reconsideration -- are hereby AFFIRMED in toto.

SO ORDERED.

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G.R. No. 179652 March 6, 2012
PEOPLE'S BROADCASTING SERVICE (BOMBO RADYO PHILS., INC.), Petitioner, vs.THE SECRETARY OF THE DEPARTMENT
OF LABOR AND EMPLOYMENT, THE REGIONAL DIRECTOR, DOLE REGION VII, and JANDELEON JUEZAN, Respondents.

VELASCO, JR., J.:

In a Petition for Certiorari under Rule 65, petitioner People’s Broadcasting Service, Inc. (Bombo Radyo Phils., Inc.)
questioned the Decision and Resolution of the Court of Appeals (CA) dated October 26, 2006 and June 26, 2007,
respectively, in C.A. G.R. CEB-SP No. 00855.

Private respondent Jandeleon Juezan filed a complaint against petitioner with the Department of Labor and Employment
(DOLE) Regional Office No. VII, Cebu City, for illegal deduction, nonpayment of service incentive leave, 13th month pay,
premium pay for holiday and rest day and illegal diminution of benefits, delayed payment of wages and noncoverage of
SSS, PAG-IBIG and Philhealth.1 After the conduct of summary investigations, and after the parties submitted their
position papers, the DOLE Regional Director found that private respondent was an employee of petitioner, and was
entitled to his money claims.2 Petitioner sought reconsideration of the Director’s Order, but failed. The Acting DOLE
Secretary dismissed petitioner’s appeal on the ground that petitioner submitted a Deed of Assignment of Bank Deposit
instead of posting a cash or surety bond. When the matter was brought before the CA, where petitioner claimed that it
had been denied due process, it was held that petitioner was accorded due process as it had been given the opportunity
to be heard, and that the DOLE Secretary had jurisdiction over the matter, as the jurisdictional limitation imposed by
Article 129 of the Labor Code on the power of the DOLE Secretary under Art. 128(b) of the Code had been repealed by
Republic Act No. (RA) 7730.3

In the Decision of this Court, the CA Decision was reversed and set aside, and the complaint against petitioner was
dismissed. The dispositive portion of the Decision reads as follows:

WHEREFORE, the petition is GRANTED. The Decision dated 26 October 2006 and the Resolution dated 26 June 2007 of
the Court of Appeals in C.A. G.R. CEB-SP No. 00855 are REVERSED and SET ASIDE. The Order of the then Acting Secretary
of the Department of Labor and Employment dated 27 January 2005 denying petitioner’s appeal, and the Orders of the
Director, DOLE Regional Office No. VII, dated 24 May 2004 and 27 February 2004, respectively, are ANNULLED. The
complaint against petitioner is DISMISSED.4

The Court found that there was no employer-employee relationship between petitioner and private respondent. It was
held that while the DOLE may make a determination of the existence of an employer-employee relationship, this
function could not be co-extensive with the visitorial and enforcement power provided in Art. 128(b) of the Labor Code,
as amended by RA 7730. The National Labor Relations Commission (NLRC) was held to be the primary agency in
determining the existence of an employer-employee relationship. This was the interpretation of the Court of the clause
"in cases where the relationship of employer-employee still exists" in Art. 128(b).5

From this Decision, the Public Attorney’s Office (PAO) filed a Motion for Clarification of Decision (with Leave of Court).
The PAO sought to clarify as to when the visitorial and enforcement power of the DOLE be not considered as co-
extensive with the power to determine the existence of an employer-employee relationship.6 In its Comment,7 the
DOLE sought clarification as well, as to the extent of its visitorial and enforcement power under the Labor Code, as
amended.

The Court treated the Motion for Clarification as a second motion for reconsideration, granting said motion and
reinstating the petition.8 It is apparent that there is a need to delineate the jurisdiction of the DOLE Secretary vis-à-vis
that of the NLRC.

Under Art. 129 of the Labor Code, the power of the DOLE and its duly authorized hearing officers to hear and decide any
matter involving the recovery of wages and other monetary claims and benefits was qualified by the proviso that the
complaint not include a claim for reinstatement, or that the aggregate money claims not exceed PhP 5,000. RA 7730, or

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an Act Further Strengthening the Visitorial and Enforcement Powers of the Secretary of Labor, did away with the PhP
5,000 limitation, allowing the DOLE Secretary to exercise its visitorial and enforcement power for claims beyond PhP
5,000. The only qualification to this expanded power of the DOLE was only that there still be an existing employer-
employee relationship.

It is conceded that if there is no employer-employee relationship, whether it has been terminated or it has not existed
from the start, the DOLE has no jurisdiction. Under Art. 128(b) of the Labor Code, as amended by RA 7730, the first
sentence reads, "Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in cases where
the relationship of employer-employee still exists, the Secretary of Labor and Employment or his duly authorized
representatives shall have the power to issue compliance orders to give effect to the labor standards provisions of this
Code and other labor legislation based on the findings of labor employment and enforcement officers or industrial
safety engineers made in the course of inspection." It is clear and beyond debate that an employer-employee
relationship must exist for the exercise of the visitorial and enforcement power of the DOLE. The question now arises,
may the DOLE make a determination of whether or not an employer-employee relationship exists, and if so, to what
extent?

The first portion of the question must be answered in the affirmative.

The prior decision of this Court in the present case accepts such answer, but places a limitation upon the power of the
DOLE, that is, the determination of the existence of an employer-employee relationship cannot be co-extensive with the
visitorial and enforcement power of the DOLE. But even in conceding the power of the DOLE to determine the existence
of an employer-employee relationship, the Court held that the determination of the existence of an employer-employee
relationship is still primarily within the power of the NLRC, that any finding by the DOLE is merely preliminary.

This conclusion must be revisited.

No limitation in the law was placed upon the power of the DOLE to determine the existence of an employer-employee
relationship. No procedure was laid down where the DOLE would only make a preliminary finding, that the power was
primarily held by the NLRC. The law did not say that the DOLE would first seek the NLRC’s determination of the existence
of an employer-employee relationship, or that should the existence of the employer-employee relationship be disputed,
the DOLE would refer the matter to the NLRC. The DOLE must have the power to determine whether or not an
employer-employee relationship exists, and from there to decide whether or not to issue compliance orders in
accordance with Art. 128(b) of the Labor Code, as amended by RA 7730.

The DOLE, in determining the existence of an employer-employee relationship, has a ready set of guidelines to follow,
the same guide the courts themselves use. The elements to determine the existence of an employment relationship are:
(1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; (4) the
employer’s power to control the employee’s conduct.9 The use of this test is not solely limited to the NLRC. The DOLE
Secretary, or his or her representatives, can utilize the same test, even in the course of inspection, making use of the
same evidence that would have been presented before the NLRC.

The determination of the existence of an employer-employee relationship by the DOLE must be respected. The
expanded visitorial and enforcement power of the DOLE granted by RA 7730 would be rendered nugatory if the alleged
employer could, by the simple expedient of disputing the employer-employee relationship, force the referral of the
matter to the NLRC. The Court issued the declaration that at least a prima facie showing of the absence of an employer-
employee relationship be made to oust the DOLE of jurisdiction. But it is precisely the DOLE that will be faced with that
evidence, and it is the DOLE that will weigh it, to see if the same does successfully refute the existence of an employer-
employee relationship.

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If the DOLE makes a finding that there is an existing employer-employee relationship, it takes cognizance of the matter,
to the exclusion of the NLRC. The DOLE would have no jurisdiction only if the employer-employee relationship has
already been terminated, or it appears, upon review, that no employer-employee relationship existed in the first place.

The Court, in limiting the power of the DOLE, gave the rationale that such limitation would eliminate the prospect of
competing conclusions between the DOLE and the NLRC. The prospect of competing conclusions could just as well have
been eliminated by according respect to the DOLE findings, to the exclusion of the NLRC, and this We believe is the more
prudent course of action to take.

This is not to say that the determination by the DOLE is beyond question or review.1avvphi1 Suffice it to say, there are
judicial remedies such as a petition for certiorari under Rule 65 that may be availed of, should a party wish to dispute
the findings of the DOLE.

It must also be remembered that the power of the DOLE to determine the existence of an employer-employee
relationship need not necessarily result in an affirmative finding. The DOLE may well make the determination that no
employer-employee relationship exists, thus divesting itself of jurisdiction over the case. It must not be precluded from
being able to reach its own conclusions, not by the parties, and certainly not by this Court.

Under Art. 128(b) of the Labor Code, as amended by RA 7730, the DOLE is fully empowered to make a determination as
to the existence of an employer-employee relationship in the exercise of its visitorial and enforcement power, subject to
judicial review, not review by the NLRC.

There is a view that despite Art. 128(b) of the Labor Code, as amended by RA 7730, there is still a threshold amount set
by Arts. 129 and 217 of the Labor Code when money claims are involved, i.e., that if it is for PhP 5,000 and below, the
jurisdiction is with the regional director of the DOLE, under Art. 129, and if the amount involved exceeds PhP 5,000, the
jurisdiction is with the labor arbiter, under Art. 217. The view states that despite the wording of Art. 128(b), this would
only apply in the course of regular inspections undertaken by the DOLE, as differentiated from cases under Arts. 129 and
217, which originate from complaints. There are several cases, however, where the Court has ruled that Art. 128(b) has
been amended to expand the powers of the DOLE Secretary and his duly authorized representatives by RA 7730. In
these cases, the Court resolved that the DOLE had the jurisdiction, despite the amount of the money claims involved.
Furthermore, in these cases, the inspection held by the DOLE regional director was prompted specifically by a complaint.
Therefore, the initiation of a case through a complaint does not divest the DOLE Secretary or his duly authorized
representative of jurisdiction under Art. 128(b).

To recapitulate, if a complaint is brought before the DOLE to give effect to the labor standards provisions of the Labor
Code or other labor legislation, and there is a finding by the DOLE that there is an existing employer-employee
relationship, the DOLE exercises jurisdiction to the exclusion of the NLRC. If the DOLE finds that there is no employer-
employee relationship, the jurisdiction is properly with the NLRC. If a complaint is filed with the DOLE, and it is
accompanied by a claim for reinstatement, the jurisdiction is properly with the Labor Arbiter, under Art. 217(3) of the
Labor Code, which provides that the Labor Arbiter has original and exclusive jurisdiction over those cases involving
wages, rates of pay, hours of work, and other terms and conditions of employment, if accompanied by a claim for
reinstatement. If a complaint is filed with the NLRC, and there is still an existing employer-employee relationship, the
jurisdiction is properly with the DOLE. The findings of the DOLE, however, may still be questioned through a petition for
certiorari under Rule 65 of the Rules of Court.

In the present case, the finding of the DOLE Regional Director that there was an employer-employee relationship has
been subjected to review by this Court, with the finding being that there was no employer-employee relationship
between petitioner and private respondent, based on the evidence presented. Private respondent presented self-
serving allegations as well as self-defeating evidence.10 The findings of the Regional Director were not based on
substantial evidence, and private respondent failed to prove the existence of an employer-employee relationship. The

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DOLE had no jurisdiction over the case, as there was no employer-employee relationship present. Thus, the dismissal of
the complaint against petitioner is proper.

WHEREFORE, the Decision of this Court in G.R. No. 179652 is hereby AFFIRMED, with the MODIFICATION that in the
exercise of the DOLE’s visitorial and enforcement power, the Labor Secretary or the latter’s authorized representative
shall have the power to determine the existence of an employer-employee relationship, to the exclusion of the NLRC.

SO ORDERED.

126