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Republic of the Philippines "Breastfeeding has distinct advantages which benefit the infant and the mother,

CONGRESS OF THE PHILIPPINES including the hospital and the country that adopt its practice. It is the first preventive
Metro Manila health measure that can be given to the child at birth. It also enhances mother-infant
relationship. Furthermore, the practice of breastfeeding could save the country
Fourteenth Congress valuable foreign exchange that may otherwise be used for milk importation.
Third Regular Session
"Breastmilk is the best food since it contains essential nutrients completely suitable
for the infant's needs. It is also nature's first immunization, enabling the infant to fight
potential serious infection. It contains growth factors that enhance the maturation of
Begun and held in Metro Manila, on Monday, the twenty-seventh day of July, two an infant's organ systems.
thousand nine.
"Towards this end, the State shall promote and encourage breastfeeding and provide
REPUBLIC ACT No. 10028 the specific measures that would present opportunities for mothers to continue
expressing their milk and/or breastfeeding their infant or young child.
AN ACT EXPANDING THE PROMOTION OF BREASTFEEDING,
AMENDING FOR THE PURPOSE REPUBLIC ACT NO. 7600, OTHERWISE Section 3. Section 3 of Republic Act No. 7600 is hereby amended to read as follows:
KNOWN AS "AN ACT PROVIDING INCENTIVES TO ALL GOVERNMENT
AND PRIVATE HEALTH INSTITUTIONS WITH ROOMING-IN AND "Sec. 3. Definition of Terms. - For purposes of this Act, the following definitions are
BREASTFEEDING PRACTICES AND FOR OTHER PURPOSES" adopted:

Be it enacted by the Senate and House of Representatives of the Philippines in "a) Age of gestation - the length of time the fetus is inside the
Congress assembled: mother's womb.

Section 1. Short Title. - This Act shall be known as the "Expanded Breastfeeding "b) Bottlefeeding - the method of feeding an infant using a bottle
Promotion Act of 2009". with artificial nipples, the contents of which can be any type of
fluid.
Section 2. Section 2 of Republic Act No. 7600 is hereby amended to read as follows:
"c) Breastfeeding - the method of feeding an infant directly from
Sec. 2. Declaration of Policy. - The State adopts rooming-in as a national policy to the human breast.
encourage, protect and support the practice of breastfeeding. It shall create an
environment where basic physical, emotional, and psychological needs of mothers "d) Breastmilk - the human milk from a mother.
and infants are fulfilled through the practice of rooming-in and breastfeeding.
"e) Breastmilk substitute - any food being marketed or otherwise
"The State shall likewise protect working women by providing safe and healthful represented as partial or total replacement of breastmilk whether or
working conditions, taking into account their maternal functions, and such facilities not suitable for that purpose.
and opportunities that will enhance their welfare and enable them to realize their full
potential in the service of the nation. This is consistent with international treaties and "f) Donor milk - the human milk from a non-biological mother.
conventions to which the Philippines is a signatory such as the Convention on the
Elimination of Discrimination Against Women (CEDAW), which emphasizes
"g) Expressed breastmilk - the human milk which has been
provision of necessary supporting social services to enable parents to combine family extracted from the breast by hand or by breast pump. It can be fed
obligations with work responsibilities; the Beijing Platform for Action and Strategic to an infant using a dropper, a nasogastric tube, a cup and spoon, or
Objective, which promotes harmonization of work and family responsibilities for
a bottle.
women and men; and the Convention on the Rights of the Child, which recognizes a
child's inherent right to life and the State's obligations to ensure the child's survival
and development.
"h) Expressing milk - the act of extracting human milk from the "p) Lactation stations - private, clean, sanitary, and well-ventilated
breast by hand or by pump into a container. rooms or areas in the workplace or public places where nursing
mothers can wash up, breastfeed or express their milk comfortably
"i) Formula feeding - the feeding of a newborn with infant formula and store this afterward.
usually by bottle feeding. It is also called artificial feeding.
"q) Low birth weight infant - a newborn weighing less than two
"j) Health institutions - are hospitals, health infirmaries, health thousand five hundred (2,500) grams at birth.
centers, lying-in centers, or puericulture centers with obstetrical and
pediatric services. "r) Nursing employee - any female worker, regardless of
employment status, who is breastfeeding her infant and/or young
"k) Health personnel - are professionals and workers who manage child.
and/or administer the entire operations of health institutions and/or
who are involved in providing maternal and child health services. "s) Mother's milk - the breastmilk from the newborn's own mother.

"l) Health workers - all persons who are engaged in health and "t) Non-health facilities, establishment or institution - public places
health-related work, and all persons employed in all hospitals, and working places, as defined in subparagraphs (u) and (y),
sanitaria, health infirmaries, health centers, rural health units, respectively.
barangay health stations, clinics and other health-related
establishments, whether government or private, and shall include "u) Public place - enclosed or confined areas such as schools,
medical, allied health professional, administrative and support public transportation terminals, shopping malls, and the like.
personnel employed regardless of their employment status.
"v) Rooming-in - the practice of placing the newborn in the same
"m) Infant - a child within zero (0) to twelve (12) months of age. room as the mother right after delivery up to discharge to facilitate
mother-infant bonding and to initiate breastfeeding. The infant may
"n) Infant formula - the breastmilk substitute formulated either share the mother's bed or be placed in a crib beside the
industrially in accordance with applicable Codex Alimentarius mother.
standards, to satisfy the normal nutritional requirements of infants
up to six (6) months of age, and adopted to their physiological "w) Seriously ill mothers - are those who are: with severe
characteristics. infections; in shock, in severe cardiac or respiratory distress; or
dying; or those with other conditions that may be determined by the
"o) Lactation management - the general care of a mother-infant attending physician as serious.
nursing couple during the mother's prenatal, immediate postpartum
and postnatal periods. It deals with educating and providing "x) Wet-nursing - the feeding of a newborn from another mother's
knowledge and information to pregnant and lactating mothers on breast when his/her own mother cannot breastfeed.
the advantages of breastfeeding, the risks associated with
breastmilk substitutes and milk products not suitable as breastmilk
"y) Workplace - work premises, whether private enterprises or
substitutes such as, but not limited to, condensed milk and government agencies, including their subdivisions, instrumentalities
evaporated milk, the monitoring of breastfeeding mothers by health
and government-owned and -controlled corporations.
workers and breastfeeding peer counselors for service patients to
ensure compliance with the Department of Health, World Health
Organization (WHO) and the United Nations Children's Fund "z) Young child - a child from the age of twelve (12) months and
(UNICEF) on the implementation of breastfeeding policies, the one (1) day up to thirty-six (36) moths.
physiology of lactation, the establishment and maintenance of
lactation, the proper care of the breasts and nipples, and such other Section 4. Section 4 of Republic Act No. 7600 is hereby amended to read as follows:
matters that would contribute to successful breastfeeding.
Sec. 4. Applicability. - The provisions in this Chapter shall apply to all private In addition, all health and non-health facilities, establishments or institutions shall
enterprises as well as government agencies, including their subdivisions and take strict measures to prevent any direct or indirect form of promotion, marketing,
instrumentalities, and government-owned and -controlled corporations. and/or sales of infant formula and/or breastmilk substitutes within the lactation
stations, or in any event or circumstances which may be conducive to the same.
Upon application to, and determination by, the Secretary of the Department of Labor
and Employment for the private sector, and the Chairperson of the Civil Service Apart from the said minimum requirements, all health and non-health facilities,
Commission for the public sector, all health and non-health facilities, establishments establishments or institutions may provide other suitable facilities or services within
and institutions may be exempted for a renewable period of two (2) years from the lactation station, all of which, upon due substantiation, shall be considered eligible
Section 6 of this Act where the establishment of lactation stations is not feasible or for purposes of Section 14 of this Act.
necessary due to the peculiar circumstances of the workplace or public place taking
into consideration, among others, number of women employees, physical size of the Section 7. A new Section 12 is hereby added to read as follows:
establishment, and the average number of women who visit.
Sec. 12. Lactation Periods. - Nursing employees shall granted break intervals in
All health and non-health facilities, establishments or institutions which are exempted addition to the regular time-off for meals to breastfeed or express milk. These
in complying with the provisions of this Act but nevertheless opted to comply are intervals, which shall include the time it takes an employee to get to and from the
entitled to the benefits herein stated: Provided, That they give their employees the workplace lactation station, shall be counted as compensable hours worked. The
privilege of using the same. Department of Labor and Employment (DOLE) may adjust the same: Provided, That
such intervals shall not be less than a total of forty (40) minutes for every eight (8)-
Section 5. Section 10 of Republic Act No. 7600 is hereby amended to read as hour working period.
follows:
Section 8. Section 11, which shall be under the renumbered Chapter IV of Republic
Sec. 10. Provision of Facilities for Breastmilk Collection and Storage for Health Act No. 7600, is hereby amended to read as follows:
Institutions. - The health institution adopting rooming-in and breastfeeding shall
provide equipment, facilities, and supplies for breastmilk collection, storage and "CHAPTER IV"
utilization, the standards of which shall be defined by the Department of Health. "INFORMATION, EDUCATION AND RE-EDUCATION DRIVE"
Health institutions are likewise encouraged to set up milk banks for storage of
breastmilk donated by mothers and which have undergone pasteurization. The stored
"SEC. 13. Continuing Education, Re-education and Training of Health Workers and
breastmilk will primarily be given to children in the neonatal intensive care unit Health Institutions.- The Department of Health with the assistance of other
whose own mothers are seriously ill.
government agencies, professional and nongovernmental organizations shall conduct
continuing information, education, re-education, and training programs for
Section 6. A new Section 11, under a new Chapter, is added to read as follows: physicians, nurses, midwives, nutritionist-dietitians, community health workers and
traditional birth attendants (TBAs) and other health worker on current and updated
CHAPTER III lactation management.
Lactation Stations
Information materials shall be given to all health workers involved in maternal and
Sec. 11. Establishment of Lactation Stations. - It is hereby mandated that all health infant care health institutions."
and non-health facilities, establishments or institutions shall establish lactation
stations. The lactation stations shall be adequately provided with the necessary Section 9. Section 12 Information Dissemination and Educational Programs of
equipment and facilities, such as: lavatory for hand-washing, unless there is an easily- Pregnant Women and Women of Reproductive Age. - During the prenatal, perinatal
accessible lavatory nearby; refrigeration or appropriate cooling facilities for storing and postnatal consultations and/or confinements of the mothers or pregnant women in
expressed breastmilk; electrical outlets for breast pumps; a small table; comfortable a health institution and the health worker to immediately and continuously teach, train
seats; and other items, the standards of which shall be defined by the Department of and support the women on current and updated lactation management and infant care,
Health. The lactation station shall not be located in the toilet. through participatory strategies such as organization of mothers' clubs and
breastfeeding support groups and to distribute written information materials on such
matters free of charge.
"The Department of Health is hereby mandated to develop and provide breastfeeding "b) To guarantee the rightful place of breastfeeding in society as a
programs for working mothers whose employees are encouraged to avail of it as part time honored tradition and nurturing value as well as a national
of their human resource development programs. health policy that must be enforced;

"To equip women of reproductive age with accurate information on maternal nutrition "c) To provide information about the benefits and superiority of
and proper nourishment in preparation for successful and sustainable breastfeeding, breastfeeding and the high risks and costs of bottlefeeding;
the Department of Health is likewise mandated to produce and make available
relevant information and programs which should be disseminated to all city, "d) To generate awareness on, and full enforcement of, national and
municipal and barangay health centers. international laws, codes, policies and programs on the promotion
and protection of safe and adequate nutrition for infants and young
"Employers are also highly encouraged to develop breastfeeding or lactation support children by promoting and protecting breastfeeding and regulating
programs which main functions are to assess the needs of lactating employees with the marketing of certain foods and feeding bottles, teats and
adequate information regarding lactation management in the form of brochures, pacifiers; and
pamphlets and other educational materials."
"e) To instill recognition and support and ensure access to
Section 10. A new Section 15 is hereby added to read as follows: comprehensive, current and culturally appropriate lactation care and
services for all women, children and families, including support for
"SEC. 15. Integration of Breastfeeding Education in the Curricula. - To encourage breastfeeding mothers in the work force.
and promote breastfeeding, the Department of Education, the Commission on higher
Education. And the Technical Education, and the Technical Education and Skills "The Department of Health shall lead in the implementation of the comprehensive
Development Authority shall integrate in the relevant subjects in the elementary, high national public education and awareness program on breastfeeding through a
school and college levels, especially in the medical and education, the importance, collaborative interagency and multi-sectoral effort at all levels."
benefits, methods or techniques of breastfeeding, and change of societal attitudes
towards breastfeeding." Section 13. A new Section 18, which shall be under the renumbered Chapter V of
Republic Act No. 7600, is hereby added to read as follows:
Section 11. A new Section 16 is hereby added to read as follows:
CHAPTER V
"SEC. 16. Breastfeeding Awareness Month. - To raise awareness on the importance Miscellaneous Provisions
of and to further promote breastfeeding, the month of August in each and every year
throughout the Philippines shall be known as "Breastfeeding Awareness Month." "Sec. 18. Department of Health Certification. - Any health and non-health facility,
establishment or institution satisfying the requirements of Sections 6 and 7 herein
Section 12. A new Section 17. Is hereby added to read as follows: relative to a proper lactation station may apply with the local Department of Health
office for a 'working mother-baby friendly' certification. The Department of Health
"SEC. 17. Public Education and Awareness Program. - To ensure the meaningful shall promulgate guidelines to determine eligibility for such certification, which shall
observance of breastfeeding month as herein declared, a comprehensive national include an annual Department of Health inspection to confirm the continued
public education and awareness program shall be undertaken in order to achieve the compliance with its standards.
following objectives:
"The Department of Health shall maintain a list of 'mother-baby-friendly'
"a) To protect, promote and support breastfeeding in the Philippines establishments, which it shall make available to the public."
as the normal, natural and preferred method of feeding infants and
young children; Section 14. Section 13 of Republic Act No. 7600 is hereby renumbered and amended
to read as follows:
"Sec. 19. Incentives. - The expenses incurred by a private health and non-health "Heads, officials and employees of government health and non-health facilities,
facility, establishment or institution, in complying with the provisions of this Act, establishments and institutions who violate this Act shall further be subject to the
shall be deductible expenses for income tax purposes up to twice the actual amount following administrative penalties:
incurred: Provided, That the deduction shall apply for the taxable period when the
expenses were incurred: Provided, further, That all health and non-health facilities, "First offense - Reprimand;
establishments and institutions shall comply with the provisions of this Act within six
(6) months after its approval: Provided, finally, That such facilities, establishments or
"Second offense - Suspension for one (1) to thirty (30) days; and
institutions shall secure a "Working Mother-Baby-Friendly Certificate" from the
Department of Health to be filed with the Bureau of Internal Revenue, before they can
avail of the incentive. "Third offense - Dismissal.

"Government facilities, establishments or institutions shall receive an additional "This shall be without prejudice to other liabilities applicable under civil service law
appropriation equivalent to the savings they may derive as a result of complying with and rules."
the provisions of this Act. The additional appropriation shall be included in their
budget for the next fiscal year." Section 17. Funding. - Government agencies, including their subdivisions and
instrumentalities, shall use their respective budget for gender and development or
Section 15. A new Section 20 shall be added to read as follows: their budgets for repairs, maintenance and materials acquisition to comply with
Section 6 hereof.
"Sec. 20. Implementing Agency. - The Department of Health shall be principally
responsible for the implementation and enforcement of the provisions of this Act." Section 18. Rules and Regulations. - The Department of Health, as the lead agency,
in coordination with the Department of Labor and Employment, the Department of
Trade and Industry, the Department of Justice, the Department of Social Welfare and
Section 16. Section 14 of Republic Act No. 7600 is hereby renumbered and amended Development, the Department of Education, the Department of the Interior and Local
to read as follows: Government, the Civil Service Commission, the Commission on Higher Education,
the technical Education and Skills Development Authority and professional and
"Sec. 21. Sanctions. - Any private non-health facility, establishment and institution nongovernmental organizations concerned, shall issue within one hundred and twenty
which unjustifiably refuses or fails to comply with Sections 6 and 7 of this Act shall (120) days upon its effectivity the rules and regulations necessary to carry out the
be imposed a fine of not less than Fifty thousand pesos (Php50,000.00) but not more provisions of this Act.
than Two hundred thousand pesos (Php200,000.00) on the first offense.
Section 19. Separability Clause. - If any clause, sentence, paragraph or part of this
"On the second offense, a fine of not less than Two hundred thousand pesos Act shall be declared to be invalid, the remainder of this Act or any provision not
(Php200,000.00) but not more than Five hundred thousand pesos (Php500,000.00). affected thereby shall remain in force and effect.

"On the third offense, a fine of not less than Five hundred thousand pesos Section 20. Repealing Clause. - All laws, presidential decrees, executive orders, rules
(Php500,000.00) but not more than One million pesos (Php1,000,000.00) and the and regulations or parts thereof which are not consistent with this Act are hereby
cancellation or revocation of the business permits or licenses to operate. repealed, amended or modified accordingly.

"In all cases, the fine imposed should take into consideration, among others, number Section 21. Effectivity Clause. - This Act shall take effect fifteen (15) days after its
of women employees, physical size of the establishment, and the average number of publication in the Official Gazette or in at least two (2) newspapers of general
women who visit. circulation, whichever comes earlier.

"In addition, the Secretary of Health is hereby empowered to impose sanctions on Approved,
health institution for the violation of this Act and the rules issued thereunder. Such
sanctions may be in the form of reprimand or censure and in case of repeated willful (Sgd.) PROSPERO C. (Sgd.) JUAN PONCE ENRILE
violations, suspension of the permit to operate of the erring health President of the Senate
NOGRALES
institution.1avvphi1
Speaker of the House of
Representatives

This Act which is a consolidation of Senate Bill No. 1698 and House Bill No. 879,
4012 and 6076 was finally passed by the Senate and the House of Representatives on
December 16, 2009.

(Sgd.) MARILYN B. BARUA-YAP (Sgd.) EMMA LIRIO-REYES


Secretary General Secretary of Senate
House of Represenatives

Approved: March 16, 2010

(Sgd.) GLORIA MACAPAGAL-ARROYO


President of the Philippines
Republic of the Philippines the basis of the separation pay due to petitioners. Petitioners, who were in the sales
SUPREME COURT force of Zuellig received monthly salaries of at least P40,000. In addition, they
Manila received commissions for every sale they made.

FIRST DIVISION The collective Bargaining Agreement entered into between Zuellig and F.E. Zuellig
Employees Association, of which petitioners are members, contains the following
G.R. No. L-50999 March 23, 1990 provision (p. 71, Rollo):

JOSE SONGCO, ROMEO CIPRES, and AMANCIO MANUEL, petitioners, ARTICLE XIV — Retirement Gratuity
vs
NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION), Section l(a)-Any employee, who is separated from employment due
LABOR ARBITER FLAVIO AGUAS, and F.E. ZUELLIG (M), to old age, sickness, death or permanent lay-off not due to the fault
INC., respondents. of said employee shall receive from the company a retirement
gratuity in an amount equivalent to one (1) month's salary per year
Raul E. Espinosa for petitioners. of service. One month of salary as used in this paragraph shall be
deemed equivalent to the salary at date of retirement; years of
service shall be deemed equivalent to total service credits, a fraction
Lucas Emmanuel B. Canilao for petitioner A. Manuel.
of at least six months being considered one year, including
probationary employment. (Emphasis supplied)
Atienza, Tabora, Del Rosario & Castillo for private respondent.
On the other hand, Article 284 of the Labor Code then prevailing provides:
MEDIALDEA, J.:
Art. 284. Reduction of personnel. — The termination of
employment of any employee due to the installation of labor
This is a petition for certiorari seeking to modify the decision of the National Labor saving-devices, redundancy, retrenchment to prevent losses, and
Relations Commission in NLRC Case No. RB-IV-20840-78-T entitled, "Jose Songco other similar causes, shall entitle the employee affected thereby to
and Romeo Cipres, Complainants-Appellants, v. F.E. Zuellig (M), Inc., Respondent- separation pay. In case of termination due to the installation of
Appellee" and NLRC Case No. RN- IV-20855-78-T entitled, "Amancio Manuel, labor-saving devices or redundancy, the separation pay shall be
Complainant-Appellant, v. F.E. Zuellig (M), Inc., Respondent-Appellee," which equivalent to one (1) month pay or to at least one (1) month pay for
dismissed the appeal of petitioners herein and in effect affirmed the decision of the every year of service, whichever is higher. In case of retrenchment
Labor Arbiter ordering private respondent to pay petitioners separation pay equivalent to prevent losses and other similar causes, the separation pay shall
to their one month salary (exclusive of commissions, allowances, etc.) for every year be equivalent to one (1) month pay or at least one-half (1/2) month
of service. pay for every year of service, whichever is higher. A fraction of at
least six (6) months shall be considered one (1) whole year.
The antecedent facts are as follows: (Emphasis supplied)

Private respondent F.E. Zuellig (M), Inc., (hereinafter referred to as Zuellig) filed In addition, Sections 9(b) and 10, Rule 1, Book VI of the Rules Implementing the
with the Department of Labor (Regional Office No. 4) an application seeking Labor Code provide:
clearance to terminate the services of petitioners Jose Songco, Romeo Cipres, and
Amancio Manuel (hereinafter referred to as petitioners) allegedly on the ground of xxx
retrenchment due to financial losses. This application was seasonably opposed by
petitioners alleging that the company is not suffering from any losses. They alleged
further that they are being dismissed because of their membership in the union. At the Sec. 9(b). Where the termination of employment is due to
retrechment initiated by the employer to prevent losses or other
last hearing of the case, however, petitioners manifested that they are no longer
similar causes, or where the employee suffers from a disease and
contesting their dismissal. The parties then agreed that the sole issue to be resolved is
his continued employment is prohibited by law or is prejudicial to
his health or to the health of his co-employees, the employee shall Petitioners' position was that in arriving at the correct and legal amount of separation
be entitled to termination pay equivalent at least to his one month pay due them, whether under the Labor Code or the CBA, their basic salary, earned
salary, or to one-half month pay for every year of service, sales commissions and allowances should be added together. They cited Article 97(f)
whichever is higher, a fraction of at least six (6) months being of the Labor Code which includes commission as part on one's salary, to wit;
considered as one whole year.
(f) 'Wage' paid to any employee shall mean the remuneration or
xxx earnings, however designated, capable of being expressed in terms
of money, whether fixed or ascertained on a time, task, piece, or
Sec. 10. Basis of termination pay. — The computation of the commission basis, or other method of calculating the same, which is
termination pay of an employee as provided herein shall be based payable by an employer to an employee under a written or
on his latest salary rate, unless the same was reduced by the unwritten contract of employment for work done or to be done, or
employer to defeat the intention of the Code, in which case the for services rendered or to be rendered, and includes the fair and
basis of computation shall be the rate before its deduction. reasonable value, as determined by the Secretary of Labor, of
(Emphasis supplied) board, lodging, or other facilities customarily furnished by the
employer to the employee. 'Fair reasonable value' shall not include
any profit to the employer or to any person affiliated with the
On June 26,1978, the Labor Arbiter rendered a decision, the dispositive portion of
employer.
which reads (p. 78, Rollo):

Zuellig argues that if it were really the intention of the Labor Code as well as its
RESPONSIVE TO THE FOREGOING, respondent should be as it
implementing rules to include commission in the computation of separation pay, it
is hereby, ordered to pay the complainants separation pay
could have explicitly said so in clear and unequivocal terms. Furthermore, in the
equivalent to their one month salary (exclusive of commissions,
definition of the term "wage", "commission" is used only as one of the features or
allowances, etc.) for every year of service that they have worked
designations attached to the word remuneration or earnings.
with the company.

SO ORDERED. Insofar as the issue of whether or not allowances should be included in the monthly
salary of petitioners for the purpose of computation of their separation pay is
concerned, this has been settled in the case of Santos v. NLRC, et al., G.R. No. 76721,
The appeal by petitioners to the National Labor Relations Commission was dismissed September 21, 1987, 154 SCRA 166, where We ruled that "in the computation of
for lack of merit. backwages and separation pay, account must be taken not only of the basic salary of
petitioner but also of her transportation and emergency living allowances." This
Hence, the present petition. ruling was reiterated in Soriano v. NLRC, et al., G.R. No. 75510, October 27, 1987,
155 SCRA 124 and recently, in Planters Products, Inc. v. NLRC, et al., G.R. No.
On June 2, 1980, the Court, acting on the verified "Notice of Voluntary Abandonment 78524, January 20, 1989.
and Withdrawal of Petition dated April 7, 1980 filed by petitioner Romeo Cipres,
based on the ground that he wants "to abide by the decision appealed from" since he We shall concern ourselves now with the issue of whether or not earned sales
had "received, to his full and complete satisfaction, his separation pay," resolved to commission should be included in the monthly salary of petitioner for the purpose of
dismiss the petition as to him. computation of their separation pay.

The issue is whether or not earned sales commissions and allowances should be Article 97(f) by itself is explicit that commission is included in the definition of the
included in the monthly salary of petitioners for the purpose of computation of their term "wage". It has been repeatedly declared by the courts that where the law speaks
separation pay. in clear and categorical language, there is no room for interpretation or construction;
there is only room for application (Cebu Portland Cement Co. v. Municipality of
The petition is impressed with merit. Naga, G.R. Nos. 24116-17, August 22, 1968, 24 SCRA 708; Gonzaga v. Court of
Appeals, G.R.No. L-2 7455, June 28,1973, 51 SCRA 381). A plain and unambiguous
statute speaks for itself, and any attempt to make it clearer is vain labor and tends
only to obscurity. How ever, it may be argued that if We correlate Article 97(f) with From the aforequoted provisions of the law and the implementing
Article XIV of the Collective Bargaining Agreement, Article 284 of the Labor Code rules, it could be deduced that wage is used in its generic sense and
and Sections 9(b) and 10 of the Implementing Rules, there appears to be an obviously refers to the basic wage rate to be ascertained on a time,
ambiguity. In this regard, the Labor Arbiter rationalized his decision in this manner task, piece or commission basis or other method of calculating the
(pp. 74-76, Rollo): same. It does not, however, mean that commission, allowances or
analogous income necessarily forms part of the employee's salary
The definition of 'wage' provided in Article 96 (sic) of the Code can because to do so would lead to anomalies (sic), if not absurd,
be correctly be (sic) stated as a general definition. It is 'wage ' in its construction of the word "salary." For what will prevent the
generic sense. A careful perusal of the same does not show any employee from insisting that emergency living allowance, 13th
indication that commission is part of salary. We can say that month pay, overtime, and premium pay, and other fringe benefits
commission by itself may be considered a wage. This is not should be added to the computation of their separation pay. This
something novel for it cannot be gainsaid that certain types of situation, to our mind, is not the real intent of the Code and its rules.
employees like agents, field personnel and salesmen do not earn
any regular daily, weekly or monthly salaries, but rely mainly on We rule otherwise. The ambiguity between Article 97(f), which defines the term
commission earned. 'wage' and Article XIV of the Collective Bargaining Agreement, Article 284 of the
Labor Code and Sections 9(b) and 10 of the Implementing Rules, which mention the
Upon the other hand, the provisions of Section 10, Rule 1, Book VI terms "pay" and "salary", is more apparent than real. Broadly, the word "salary"
of the implementing rules in conjunction with Articles 273 and 274 means a recompense or consideration made to a person for his pains or industry in
(sic) of the Code specifically states that the basis of the termination another man's business. Whether it be derived from "salarium," or more fancifully
pay due to one who is sought to be legally separated from the from "sal," the pay of the Roman soldier, it carries with it the fundamental idea of
service is 'his latest salary rates. compensation for services rendered. Indeed, there is eminent authority for holding
that the words "wages" and "salary" are in essence synonymous (Words and Phrases,
Vol. 38 Permanent Edition, p. 44 citing Hopkins vs. Cromwell, 85 N.Y.S. 839,841,89
x x x.
App. Div. 481; 38 Am. Jur. 496). "Salary," the etymology of which is the Latin word
"salarium," is often used interchangeably with "wage", the etymology of which is the
Even Articles 273 and 274 (sic) invariably use 'monthly pay or Middle English word "wagen". Both words generally refer to one and the same
monthly salary'. meaning, that is, a reward or recompense for services performed. Likewise, "pay" is
the synonym of "wages" and "salary" (Black's Law Dictionary, 5th Ed.). Inasmuch as
The above terms found in those Articles and the particular Rules the words "wages", "pay" and "salary" have the same meaning, and commission is
were intentionally used to express the intent of the framers of the included in the definition of "wage", the logical conclusion, therefore, is, in the
law that for purposes of separation pay they mean to be specifically computation of the separation pay of petitioners, their salary base should include also
referring to salary only. their earned sales commissions.

.... Each particular benefit provided in the Code and other Decrees The aforequoted provisions are not the only consideration for deciding the petition in
on Labor has its own pecularities and nuances and should be favor of the petitioners.
interpreted in that light. Thus, for a specific provision, a specific
meaning is attached to simplify matters that may arise there from. We agree with the Solicitor General that granting, in gratia argumenti, that the
The general guidelines in (sic) the formation of specific rules for commissions were in the form of incentives or encouragement, so that the petitioners
particular purpose. Thus, that what should be controlling in matters would be inspired to put a little more industry on the jobs particularly assigned to
concerning termination pay should be the specific provisions of them, still these commissions are direct remuneration services rendered which
both Book VI of the Code and the Rules. At any rate, settled is the contributed to the increase of income of Zuellig . Commission is the recompense,
rule that in matters of conflict between the general provision of law compensation or reward of an agent, salesman, executor, trustees, receiver, factor,
and that of a particular- or specific provision, the latter should broker or bailee, when the same is calculated as a percentage on the amount of his
prevail. transactions or on the profit to the principal (Black's Law Dictionary, 5th Ed., citing
Weiner v. Swales, 217 Md. 123, 141 A.2d 749, 750). The nature of the work of a
On its part, the NLRC ruled (p. 110, Rollo): salesman and the reason for such type of remuneration for services rendered
demonstrate clearly that commission are part of petitioners' wage or salary. We take SO ORDERED.
judicial notice of the fact that some salesmen do not receive any basic salary but
depend on commissions and allowances or commissions alone, are part of petitioners' Narvasa (Chairman), Cruz, Gancayco and Griño-Aquino, JJ., concur.
wage or salary. We take judicial notice of the fact that some salesman do not received
any basic salary but depend on commissions and allowances or commissions alone,
although an employer-employee relationship exists. Bearing in mind the preceeding
dicussions, if we adopt the opposite view that commissions, do not form part of wage
or salary, then, in effect, We will be saying that this kind of salesmen do not receive
any salary and therefore, not entitled to separation pay in the event of discharge from
employment. Will this not be absurd? This narrow interpretation is not in accord with
the liberal spirit of our labor laws and considering the purpose of separation pay
which is, to alleviate the difficulties which confront a dismissed employee thrown the
the streets to face the harsh necessities of life.

Additionally, in Soriano v. NLRC, et al., supra, in resolving the issue of the salary
base that should be used in computing the separation pay, We held that:

The commissions also claimed by petitioner ('override commission'


plus 'net deposit incentive') are not properly includible in such base
figure since such commissions must be earned by actual market
transactions attributable to petitioner.

Applying this by analogy, since the commissions in the present case were earned by
actual market transactions attributable to petitioners, these should be included in their
separation pay. In the computation thereof, what should be taken into account is the
average commissions earned during their last year of employment.

The final consideration is, in carrying out and interpreting the Labor Code's
provisions and its implementing regulations, the workingman's welfare should be the
primordial and paramount consideration. This kind of interpretation gives meaning
and substance to the liberal and compassionate spirit of the law as provided for in
Article 4 of the Labor Code which states that "all doubts in the implementation and
interpretation of the provisions of the Labor Code including its implementing rules
and regulations shall be resolved in favor of labor" (Abella v. NLRC, G.R. No.
71812, July 30,1987,152 SCRA 140; Manila Electric Company v. NLRC, et al., G.R.
No. 78763, July 12,1989), and Article 1702 of the Civil Code which provides that "in
case of doubt, all labor legislation and all labor contracts shall be construed in favor
of the safety and decent living for the laborer.

ACCORDINGLY, the petition is hereby GRANTED. The decision of the respondent


National Labor Relations Commission is MODIFIED by including allowances and
commissions in the separation pay of petitioners Jose Songco and Amancio Manuel.
The case is remanded to the Labor Arbiter for the proper computation of said
separation pay.
SECOND DIVISION TY, LEOPOLDO T. SUPIL, JOSE A. DOHINOG, ANIANO T. REYES,
CARLITO G. UY, PLACIDO D. PADILLO, TERESITA C. ADRIANO,
CANDIDO S. ADRIANO, and AVELINO G.
VENERACION, petitioners, vs. NATIONAL LABOR RELATIONS
[G.R. No. 122827. March 29, 1999] COMMISSION, (FIFTH DIVISION), and PAPER INDUSTRIES
CORPORATION OF THE PHILIPPINES (PICOP), respondents.
LIDUVINO M. MILLARES, J. CAPISTRANO CORDITA, SHIRLEY P. UY,
DIONISIO J. REQUINA, GABRIEL A. DEJERO, NELSON T.
DECISION
GOMONIT, IMELDA IMPEYNADO SULPICIO B. SUMILE,
MA. CONSUELO AVIEL, SILVINO S. GUEVARRA, FIDEL BELLOSILLO, J.:
DUMANHOG, NELFA T. POLOTAN, LEMUEL C. RISMA, JUANITO
M. GONZALES, ROGELIO B. CABATUAN, EPIFANCIO E. Petitioners numbering one hundred sixteen (116) [1] occupied the positions of
GANANCIAL, DOMINADOR D. ATOK, CONRADO U. SERRANO, Technical Staff, Unit Manager, Section Manager, Department Manager, Division
ISIDRO J. BARNAJA, ROMEO VIRTUDAZO, AVELINO NABLE, Manager and Vice President in the mill site of respondent Paper Industries Corporation
EDGAR TAMPOS, ERNESTO ORIAS, DALMACIO LEGARAY, of the Philippines (PICOP) in Bislig, Surigao del Sur. In 1992 PICOP suffered a major
ROMEO R . BULA, ROBERTO G. GARCIA, RUDOLFO SUZON, financial setback allegedly brought about by the joint impact of restrictive government
JERRY S. DANO, AUGUST G. ESCUDERO, OSCAR B. CATBAGAN, regulations on logging and the economic crisis. To avert further losses, it undertook a
TEOFILO C. SISON, NARCISO BULASA, ALBERTO CORTEZ, retrenchment program and terminated the services of petitioners. Accordingly,
LILIA C. CABRERA, NESTOR A. ACASO, BIENVENIDO MOZO, petitioners received separation pay computed at the rate of one (1) month basic pay for
ISIDORO A. ALMENDAREZ, VICENTE M. PILONGO, ROBERTO N. every year of service. Believing however that the allowances they allegedly regularly
LUMPOT, PATRICIO BANDOLA, MANUEL S. ESPINA, ISIDRO K. received on a monthly basis during their employment should have been included in the
BALCITA, JR., EMMANUEL O. ABRAHAM, OLEGARIO A. EPIS, computation thereof they lodged a complaint for separation pay differentials.
NESTOR D. PEREGRINO, RAMON A. USANAGA, PRESTO The allowances in question pertained to the following -
BARTOLOME, BRADY EMPEYNADO, PORFERIO N. CONDADO,
AQUILLO V. CORDOVA, LEONARDO ESTOSI, PACIFICO B.
DACORINA, PABLITO B. LLUBIT, ANTONIO DOZA, LEONITO 1. Staff/Manager's Allowance -
LABADIA, EDGARDO BELLIZA, FEDENCIO P. GEBERTAS,
VIRGILIO D. GULBE, MANUEL A. LERIO, JR., ROGELIO B. Respondent PICOP provides free housing facilities to supervisory and managerial
OCAMIA, RODOLFO A. CASTILLO, EDMUNDO L PLAZA, employees assigned in Bislig. The privilege includes free water and electric
ROBERTO D. YAGONIA, JR., PETRONIO ESTELA, JR, consumption. Owing however to shortage of such facilities, it was constrained to
CRISOLOGO A. LOGRONIO, ERNESTO T. MORIO, ROGELIO M. grant Staff allowance instead to those who live in rented houses outside but near the
DAVID, BENJAMIN U. ARLIGUE, APOLONIO MUNDO, JR., NENE vicinity of the mill site. But the allowance ceases whenever a vacancy occurs in the
M. E NOSA, NILO B. BALAORO, GERONIMO S. CONVI, VICENTE company's housing facilities. The former grantee is then directed to fill the
R. TARAGOZA, YOLANDO A. SALAZAR, MANUEL A. NERI, vacancy. For Unit, Section and Department Managers, respondent PICOP gives an
ROGELIO C. TICAR, ROBERTO A. MACALAM, MIGUEL additional amount to meet the same kind of expenses called Manager's allowance.
MACARIOLA, WALTERIO DAPADAP, SILVERIO CUAMAG,
EUPARQUIO PLANOS, GILBERTO M. MIRA, REYNALDO 2. Transportation Allowance -
BACSARSA, DIOSDADO B. ABING, ARISTARCO V. SALON,
TOMAS N. CATACTE, RODOLFO MEMORIA, PAPENIANO To relieve respondent PICOP's motor pool in Bislig from a barrage of requests for
CURIAS, JOSE S. CANDIA, DESIDERIO C. NAVARRO, company vehicles and to stabilize company vehicle requirements it grants
EMMANUEL O. ABRAHAM, JOSELITO D. ARLAN, FRANCISCO S. transportation allowance to key officers and Managers assigned in the mill site who
SANCHEZ, MANSUETO B. LINGGO, ISIDRO BARNAJA, ROMEO S. use their own vehicles in the performance of their duties. It is a conditional grant such
CABRERA, LEODEGARIO CAINTIC, NESTOR G. BLANDO, that when the conditions no longer obtain, the privilege is discontinued. The
FLORENCIO B. DELIZO, MILAN M. ETES, GONZALO C. recipients of this kind of allowance are required to liquidate it by submitting a report
PADILLO, LEONARDO CAGAKIT, JOSEFINO E. DULGUIME, with a detailed enumeration of expenses incurred.
PEPITO G. ARREZA, AMADOR G. CAGALAWAN, GAUDENCIO C.
SARMIENTO, FLORENTINO J. BRACAMONTE, DOMINADOR H.
3. Bislig Allowance - does the term connote?" We correlate Art. 283 with Art. 97 of the same Code on
definition of terms. "Pay" is not defined therein but "wage." In Songco the Court
The Bislig Allowance is given to Division Managers and corporate officers assigned explained that both words (as well as salary) generally refer to one and the same
in Bislig on account of the hostile environment prevailing therein. But once the meaning, i.e., a reward or recompense for services performed. Specifically, "wage" is
recipient is transferred elsewhere outside Bislig, the allowance ceases. defined in letter (f) as the remuneration orearnings, 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
Applying Art.,97, par. (f), of the Labor Code which defines if wage," the Executive
Labor Arbiter opined that the subject allowances, being customarily furnished by an employer to an employee under a written or unwritten contract of employment for
respondent PICOP and regularly received by petitioners, formed part of the latter's 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,
wages. Resolving the controversy from another angle, on the strength of the ruling
or other facilities customarily furnished by the employer to the employee.
in Santos v. NLRC[2] and Soriano v. NLRC[3] that in the computation of separation pay
account should be taken not just of the basic salary but also of the regular allowances We invite attention to the above-underlined clause. Stated differently, when an
that the employee had been receiving, he concluded that the allowances should be employer customarily furnishes his employee board, lodging or other facilities, the fair
included in petitioners' base pay. Thus respondent PICOP was ordered on 28 April and reasonable value thereof, as determined by the Secretary of Labor and
1994 to pay petitioners Four Million Four Hundred Eighty-One Thousand Pesos Employment, is included in "wage." In order to ascertain whether the subject
(P4,481,000.00) representing separation pay differentials plus ten per cent (10%) allowances form part of petitioner's "wages," we divide the discussion on the following
thereof as attorney's fees.[4] - "customarily furnished;" "board, lodging or other facilities;" and, "fair and reasonable
value as determined by the Secretary of Labor."
The National Labor Relations Commission (NLRC) did not share the view of the
Executive Labor Arbiter. On 7 October 1994 it set aside the assailed decision by "Customary" is founded on long-established and constant practice[13] connoting
decreeing that the allowances did not form part of the salary base used in computing regularity.[14] The receipt of an allowance on a monthly basis does not ipso
separation pay.[5] facto characterize it as regular and forming part of salary[15] because the nature of the
grant is a factor worth considering. We agree with the observation of the Office of the
Its ruling was based on the finding that the cases relied upon by the Executive
Solicitor General- that the subject allowances were temporarily, not regularly, received
Labor Arbiter were inapplicable since they involved illegal dismissal where separation
by petitioners because -
pay was granted in lieu of reinstatement which was no longer feasible. Instead, what it
considered in point was Estate of the late Eugene J. Kneebone v. NLRC[6] where the
Court held that representation and transportation allowances were deemed not part of In the case of the housing allowance, once a vacancy occurs in the company-provided
salary and should therefore be excluded in the computation of separation housing accommodations, the employee concerned transfers to the company premises
benefits. Relating the present case with Art. 97, par. (f), of the Labor Code, the NLRC and his housing allowance is discontinued x x x x
likewise found that petitioners' allowances were contingency-based and thus not
included in their salaries.On 26 September 1995 reconsideration was denied. [7] On the other hand, the transportation allowance is in the form of advances for actual
transportation expenses subject to liquidation x x x given only to employees who have
In this petition for certiorari, petitioners submit that their allowances are included personal cars.
in the definition of "facilities" in Art. 97, par. (f), of the Labor Code, being necessary
and indispensable for their existence and subsistence.Furthermore they claim that their
availment of the monetary equivalent of those "facilities" on a monthly basis was The Bislig allowance is given to Division Managers and corporate officers assigned
characterized by permanency, regularity and customariness. And to fortify their in Bislig, Surigao[16]del Norte.Once the officer is transferred outside Bislig, the
arguments they insist on the applicability of Santos,[8] Soriano,[9] The Insular Life allowance stops.
Assurance Company,[10] Planters Products, Inc.[11] and Songco[12] which are all against We add that in the availment of the transportation allowance, respondent PICOP
the NLRC holding that the salary base in computing separation pay includes not just set another requirement that the personal cars be used by the employees in the
the basic salary but also the regular allowances. performance of their duties. When the conditions for availment ceased to exist, the
There is no showing of grave abuse of discretion on the part of the NLRC. In case allowance reached the cutoff point. The finding of the NLRC along the same line
of retrenchment to prevent losses, Art. 283 of the the Labor Code imposes on the likewise merits concurrence, i.e., petitioners' continuous enjoyment of the disputed
employer an obligation to grant to the affected employees separation pay equivalent allowances was based on contingencies the occurrence of which wrote finis to such
to one (1) month pay or at least one-half (1/2) month pay for every year of service, enjoyment.
whichever is higher. Since the law speaks of "pay," the question arises, "What exactly
Although it is quite easy to comprehend "board" and "lodging," it is not so with in Soriano, citing Santos, was general in its holding that the salary base properly used
"facilities." Thus Sec. 5, Rule VII, Book III, of the Rules Implementing the Labor in computing separation pay where reinstatement was no longer feasible should include
Code gives meaning to the term as including articles or services for the benefit of the not just the basic salary but also the regular allowances that the employee had been
employee or his family but excluding tools of the trade or articles or service primarily receiving. Insular merely reiterated the aforementioned rulings. The rationale is not
for the benefit of the employer or necessary to the conduct of the difficult to discern. It is the obligation of the employer to pay an illegally dismissed
employer's business. The Staff /Manager's allowance may fall under "lodging" but the employee the whole amount of his salaries plus all other benefits, bonuses and general
transportation and Bislig allowances are not embraced in "facilities" on the main increases to which he would have been normally entitled had he not been dismissed
consideration that they are granted as well as the Staff/Manager's allowance for and had not stopped working.[20] The same holds true in case of retrenched
respondent PICOP's benefit and convenience, i.e., to insure that petitioners render employees. And thus we applied Insular and Soriano in Planters in the computation of
quality performance. In determining whether a privilege is a facility, the criterion is not separation pay of retrenched employees. Songco likewise involved retrenchment and
so much its kind but its purpose.[17] That the assailed allowances were for the benefit was relied upon in Planters, Soriano and Santos in determining the proper amount of
and convenience of respondent company was supported by the circumstance that they separation pay. As culled from the foregoing jurisprudence, separation pay when
were not subjected to withholding tax. Revenue Audit Memo Order No. 1-87 awarded to an illegally dismissed employee in lieu of reinstatement or to a retrenched
pertinently provides - employee should be computed based not only on the basic salary but also on
the regular allowances that the employee had been receiving. But in view of the
3.2 x x x x transportation, representation or entertainment expenses shall not previous discussion that the disputed allowances were not regularly received by
constitute taxable compensation if: petitioners herein, there was no reason at all for petitioners to resort to the above cases.
Neither is Kneebone applicable, contrary to the finding of the NLRC, because of
(a) It is for necessary travelling and representation or entertainment expenses paid or the difference in factual circumstances. In Kneebone, the Court was tasked to resolve
incurred by the employee in the pursuit of the trade or business of the employer, and the issue whether the representation and transportation allowances formed part of salary
as to be considered in the computation of retirement benefits. The ruling was in the
(b) The employee is required to, and does, make an accounting/liquidation for such negative on the main ground that the retirement plan of the company expressly
expense in accordance with the specific requirements of substantiation for such excluded such allowances from salary.
category or expense.
WHEREFORE, the petition is DISMISSED. The resolution of public respondent
National Labor Relations Commission dated 7 October 1994 holding that the Staff
Board and lodging allowances furnished to an employee not in excess of the latter's /Manager's, transportation and Bislig allowances did not form part of the salary base
needs and given free of charge, constitute income to the latter except if such used in computing the separation pay of petitioners, as well as its resolution dated 26
allowances or benefits are furnished to the employee for the convenience of the September 1995 denying reconsideration, is AFFIRMED. No costs.
employer and as necessary incident to proper performance of his duties in which case
such benefits or allowances do not constitute taxable income. [18] SO ORDERED.
Puno, Mendoza, Quisumbing, and Buena, JJ., concur.
The Secretary of Labor and Employment under Sec. 6, Rule VII, Book III, of
the Rules Implementing the Labor Code may from time to time fix in appropriate
issuances the "fair and reasonable value of board, lodging and other facilities
customarily furnished by an employer to his employees." Petitioners' allowances do not
represent such fair and reasonable value as determined by the proper authority simply
because the Staff/Manager's allowance and transportation allowance were amounts
given by respondent company in lieu of actual provisions for housing and transportation
needs whereas the Bislig allowance was given in consideration of being assigned to the
hostile environment then prevailing in Bislig.
The inevitable conclusion is that, as reached by the NLRC, subject allowances did
not form part of petitioners' wages.
In Santos[19] the Court decreed that in the computation of separation pay awarded
in lieu of reinstatement, account must be taken not only of the basic salary but also of
transportation and emergency living allowances. Later, the Court
Republic of the Philippines again by Lagon as project employees for its PLDT Antipolo, Rizal project, which
SUPREME COURT ended sometime in (sic) the late September 1998. As a consequence, Zuñiga and
Manila Cañete’s employment was terminated. For this project, Zuñiga and Cañete received
only the wage of ₱145.00 daily. The minimum prescribed wage for Rizal at that time
SECOND DIVISION was ₱160.00.

G.R. No. 172161 March 2, 2011 Sometime in late November 1998, private respondents re-applied in the Racitelcom
project of Lagon in Bulacan. Zuñiga and Cañete were re-employed. Lopez was also
hired for the said specific project. For this, private respondents received the wage of
SLL INTERNATIONAL CABLES SPECIALIST and SONNY L.
₱145.00. Again, after the completion of their project in March 1999, private
LAGON, Petitioners,
respondents went home to Cebu City.
vs.
NATIONAL LABOR RELATIONS COMMISSION, 4th DIVISION, ROLDAN
LOPEZ, EDGARDO ZUÑIGA and DANILO CAÑETE, Respondents. On May 21, 1999, private respondents for the 4th time worked with Lagon’s project
in Camarin, Caloocan City with Furukawa Corporation as the general contractor.
Their contract would expire on February 28, 2000, the period of completion of the
DECISION
project. From May 21, 1997-December 1999, private respondents received the wage
of ₱145.00. At this time, the minimum prescribed rate for Manila was ₱198.00. In
MENDOZA, J.: January to February 28, the three received the wage of ₱165.00. The existing rate at
that time was ₱213.00.
Assailed in this petition for review on certiorari are the January 11, 2006
Decision1 and the March 31, 2006 Resolution2 of the Court of Appeals (CA), in CA- For reasons of delay on the delivery of imported materials from Furukawa
G.R. SP No. 00598 which affirmed with modification the March 31, 2004 Corporation, the Camarin project was not completed on the scheduled date of
Decision3 and December 15, 2004 Resolution4 of the National Labor Relations completion. Face[d] with economic problem[s], Lagon was constrained to cut down
Commission (NLRC). The NLRC Decision found the petitioners, SLL International the overtime work of its worker[s][,] including private respondents. Thus, when
Cables Specialist (SLL) and its manager, Sonny L. Lagon (petitioners), not liable for requested by private respondents on February 28, 2000 to work overtime, Lagon
the illegal dismissal of Roldan Lopez, Danilo Cañete and Edgardo Zuñiga (private refused and told private respondents that if they insist, they would have to go home at
respondents) but held them jointly and severally liable for payment of certain their own expense and that they would not be given anymore time nor allowed to stay
monetary claims to said respondents. in the quarters. This prompted private respondents to leave their work and went home
to Cebu. On March 3, 2000, private respondents filed a complaint for illegal
A chronicle of the factual antecedents has been succinctly summarized by the CA as dismissal, non-payment of wages, holiday pay, 13th month pay for 1997 and 1998
follows: and service incentive leave pay as well as damages and attorney’s fees.

Sometime in 1996, and January 1997, private respondents Roldan Lopez (Lopez for In their answers, petitioners admit employment of private respondents but claimed
brevity) and Danilo Cañete (Cañete for brevity), and Edgardo Zuñiga (Zuñiga for that the latter were only project employees[,] for their services were merely engaged
brevity) respectively, were hired by petitioner Lagon as apprentice or trainee for a specific project or undertaking and the same were covered by contracts duly
cable/lineman. The three were paid the full minimum wage and other benefits but signed by private respondents. Petitioners further alleged that the food allowance of
since they were only trainees, they did not report for work regularly but came in as ₱63.00 per day as well as private respondents allowance for lodging house,
substitutes to the regular workers or in undertakings that needed extra workers to transportation, electricity, water and snacks allowance should be added to their basic
expedite completion of work. After their training, Zuñiga, Cañete and Lopez were pay. With these, petitioners claimed that private respondents received higher wage
engaged as project employees by the petitioners in their Islacom project in Bohol. rate than that prescribed in Rizal and Manila.
Private respondents started on March 15, 1997 until December 1997. Upon the
completion of their project, their employment was also terminated. Private Lastly, petitioners alleged that since the workplaces of private respondents were all in
respondents received the amount of ₱145.00, the minimum prescribed daily wage for Manila, the complaint should be filed there. Thus, petitioners prayed for the dismissal
Region VII. In July 1997, the amount of ₱145 was increased to ₱150.00 by the of the complaint for lack of jurisdiction and utter lack of merit. (Citations omitted.)
Regional Wage Board (RWB) and in October of the same year, the latter was
increased to ₱155.00. Sometime in March 1998, Zuñiga and Cañete were engaged
On January 18, 2001, Labor Arbiter Reynoso Belarmino (LA) rendered his The CA also agreed with the NLRC that there was no illegal dismissal. The CA
decision5 declaring that his office had jurisdiction to hear and decide the complaint opined that it was the petitioners’ prerogative to grant or deny any request for
filed by private respondents. Referring to Rule IV, Sec. 1 (a) of the NLRC Rules of overtime work and that the private respondents’ act of leaving the workplace after
Procedure prevailing at that time,6 the LA ruled that it had jurisdiction because the their request was denied was an act of abandonment.
"workplace," as defined in the said rule, included the place where the employee was
supposed to report back after a temporary detail, assignment or travel, which in this In modifying the decision of the labor tribunal, however, the CA noted that
case was Cebu. respondent Roldan Lopez did not work in the Antipolo project and, thus, was not
entitled to wage differentials. Also, in computing the differentials for the period
As to the status of their employment, the LA opined that private respondents were January and February 2000, the CA disagreed in the award of differentials based on
regular employees because they were repeatedly hired by petitioners and they the minimum daily wage of ₱223.00, as the prevailing minimum daily wage then was
performed activities which were usual, necessary and desirable in the business or only ₱213.00. Petitioners sought reconsideration but the CA denied it in its March 31,
trade of the employer. 2006 Resolution.11

With regard to the underpayment of wages, the LA found that private respondents In this petition for review on certiorari,12 petitioners seek the reversal and setting
were underpaid. It ruled that the free board and lodging, electricity, water, and food aside of the CA decision anchored on this lone:
enjoyed by them could not be included in the computation of their wages because
these were given without their written consent. GROUND/ASSIGNMENT OF ERROR

The LA, however, found that petitioners were not liable for illegal dismissal. The LA THE PUBLIC RESPONDENT NLRC COMMITTED A SERIOUS ERROR IN LAW
viewed private respondents’ act of going home as an act of indifference when IN AWARDING WAGE DIFFERENTIALS TO THE PRIVATE COMPLAINANTS
petitioners decided to prohibit overtime work.7 ON THE BASES OF MERE TECHNICALITIES, THAT IS, FOR LACK OF
WRITTEN CONFORMITY x x x AND LACK OF NOTICE TO THE
In its March 31, 2004 Decision, the NLRC affirmed the findings of the LA. In DEPARTMENT OF LABOR AND EMPLOYMENT (DOLE)[,] AND THUS, THE
addition, the NLRC noted that not a single report of project completion was filed with COURT OF APPEALS GRAVELY ERRED IN AFFIRMING WITH
the nearest Public Employment Office as required MODIFICATION THE NLRC DECISION IN THE LIGHT OF THE RULING IN
by the Department of Labor and Employment (DOLE) Department Order No. 19, THE CASE OF JENNY M. AGABON and VIRGILIO AGABON vs, NLRC, ET
Series of 1993.8 The NLRC later denied9 the motion for AL., GR NO. 158963, NOVEMBER 17, 2004, 442 SCRA 573, [AND
reconsideration10 subsequently filed by petitioners. SUBSEQUENTLY IN THE CASE OF GLAXO WELLCOME PHILIPPINES, INC.
VS. NAGAKAKAISANG EMPLEYADO NG WELLCOME-DFA (NEW –DFA),
When the matter was elevated to the CA on a petition for certiorari, it affirmed the ET AL., GR NO. 149349, 11 MARCH 2005], WHICH FINDS APPLICATION IN
findings that the private respondents were regular employees. It considered the fact THE INSTANT CASE BY ANALOGY.13
that they performed functions which were the regular and usual business of
petitioners. According to the CA, they were clearly members of a work pool from Petitioners reiterated their position that the value of the facilities that the private
which petitioners drew their project employees. respondents enjoyed should be included in the computation of the "wages" received
by them. They argued that the rulings in Agabon v. NLRC14and Glaxo Wellcome
The CA also stated that the failure of petitioners to comply with the simple but Philippines, Inc. v. Nagkakaisang Empleyado Ng Wellcome-DFA15 should be applied
compulsory requirement to submit a report of termination to the nearest Public by analogy, in the sense that the lack of written acceptance of the employees of the
Employment Office every time private respondents’ employment was terminated was facilities enjoyed by them should not mean that the value of the facilities could not be
proof that the latter were not project employees but regular employees. included in the computation of the private respondents’ "wages."

The CA likewise found that the private respondents were underpaid. It ruled that the On November 29, 2006, the Court resolved to issue a Temporary Restraining
board and lodging, electricity, water, and food enjoyed by the private respondents Order (TRO) enjoining the public respondent from enforcing the NLRC and CA
could not be included in the computation of their wages because these were given decisions until further orders from the Court.
without their written consent. The CA added that the private respondents were
entitled to 13th month pay.
After a thorough review of the records, however, the Court finds no merit in the Moreover, before the value of facilities can be deducted from the employees’ wages,
petition. the following requisites must all be attendant: first, proof must be shown that such
facilities are customarily furnished by the trade; second, the provision of deductible
This petition generally involves factual issues, such as, whether or not there is facilities must be voluntarily accepted in writing by the employee; and finally,
evidence on record to support the findings of the LA, the NLRC and the CA that facilities must be charged at reasonable value.20 Mere availment is not sufficient to
private respondents were project or regular employees and that their salary allow deductions from employees’ wages.21
differentials had been paid. This calls for a re-examination of the evidence, which the
Court cannot entertain. Settled is the rule that factual findings of labor officials, who These requirements, however, have not been met in this case. SLL failed to present
are deemed to have acquired expertise in matters within their respective jurisdiction, any company policy or guideline showing that provisions for meals and lodging were
are generally accorded not only respect but even finality, and bind the Court when part of the employee’s salaries. It also failed to provide proof of the employees’
supported by substantial evidence. It is not the Court’s function to assess and evaluate written authorization, much less show how they arrived at their valuations. At any
the evidence rate, it is not even clear whether private respondents actually enjoyed said facilities.

all over again, particularly where the findings of both the Labor tribunals and the CA The Court, at this point, makes a distinction between "facilities" and "supplements." It
concur. 16 is of the view that the food and lodging, or the electricity and water allegedly
consumed by private respondents in this case were not facilities but supplements. In
22
As a general rule, on payment of wages, a party who alleges payment as a defense has the case of Atok-Big Wedge Assn. v. Atok-Big Wedge Co., the two terms were
the burden of proving it.17Specifically with respect to labor cases, the burden of distinguished from one another in this wise:
proving payment of monetary claims rests on the employer, the rationale being that
the pertinent personnel files, payrolls, records, remittances and other similar "Supplements," therefore, constitute extra remuneration or special privileges or
documents — which will show that overtime, differentials, service incentive leave benefits given to or received by the laborers over and above their ordinary earnings
and other claims of workers have been paid — are not in the possession of the worker or wages. "Facilities," on the other hand, are items of expense necessary for the
but in the custody and absolute control of the employer. 18 laborer's and his family's existence and subsistence so that by express provision of
law (Sec. 2[g]), they form part of the wage and when furnished by the employer are
In this case, petitioners, aside from bare allegations that private respondents received deductible therefrom, since if they are not so furnished, the laborer would spend and
wages higher than the prescribed minimum, failed to present any evidence, such as pay for them just the same.
payroll or payslips, to support their defense of payment. Thus, petitioners utterly
failed to discharge the onus probandi. In short, the benefit or privilege given to the employee which constitutes an extra
remuneration above and over his basic or ordinary earning or wage is supplement;
Private respondents, on the other hand, are entitled to be paid the minimum wage, and when said benefit or privilege is part of the laborers' basic wages, it is a facility.
whether they are regular or non-regular employees. The distinction lies not so much in the kind of benefit or item (food, lodging, bonus or
sick leave) given, but in the purpose for which it is given. 23 In the case at bench, the
items provided were given freely by SLL for the purpose of maintaining the
Section 3, Rule VII of the Rules to Implement the Labor Code 19 specifically
enumerates those who are not covered by the payment of minimum wage. Project efficiency and health of its workers while they were working at their respective
projects.1avvphi1
employees are not among them.

For said reason, the cases of Agabon and Glaxo are inapplicable in this case. At any
On whether the value of the facilities should be included in the computation of the
"wages" received by private respondents, Section 1 of DOLE Memorandum Circular rate, these were cases of dismissal with just and authorized causes. The present case
No. 2 provides that an employer may provide subsidized meals and snacks to his involves the matter of the failure of the petitioners to comply with the payment of the
prescribed minimum wage.
employees provided that the subsidy shall not be less that 30% of the fair and
reasonable value of such facilities. In such cases, the employer may deduct from the
wages of the employees not more than 70% of the value of the meals and snacks The Court sustains the deletion of the award of differentials with respect to
enjoyed by the latter, provided that such deduction is with the written authorization of respondent Roldan Lopez. As correctly pointed out by the CA, he did not work for the
the employees concerned. project in Antipolo.
WHEREFORE, the petition is DENIED. The temporary restraining order issued by
the Court on November 29, 2006 is deemed, as it is hereby ordered, DISSOLVED.

SO ORDERED.

JOSE CATRAL MENDOZA


Associate Justice
SECOND DIVISION d. Promotional Increase.
A promotional increase was asked by the petitioner for fifteen (15) of its members
who were given or assigned new job classifications. According to petitioner, the new
job classifications were in the nature of a promotion, necessitating the grant of an
[G.R. No. 155059. April 29, 2005]
increase in the salaries of the said 15 members.
AMERICAN WIRE AND CABLE DAILY RATED EMPLOYEES
On 21 June 2001, a Submission Agreement was filed by the parties before the
UNION, petitioner, vs. AMERICAN WIRE AND CABLE CO., INC. and
Office for Voluntary Arbitration. Assigned as Voluntary Arbitrator was Angel A.
THE COURT OF APPEALS, respondents.
Ancheta.

DECISION On 04 July 2001, the parties simultaneously filed their respective position papers
with the Office of the Voluntary Arbitrator, NCMB, and DOLE.
CHICO-NAZARIO, J.:
On 25 September 2001, a Decision[5] was rendered by Voluntary Arbitrator Angel
Before Us is a special civil action for certiorari, assailing the Decision[1] of the A. Ancheta in favor of the private respondent. The dispositive portion of the said
Special Eighth Division of the Court of Appeals dated 06 March 2002. Said Decision Decision is quoted hereunder:
upheld the Decision[2] and Order[3] of Voluntary Arbitrator Angel A. Ancheta of the
National Conciliation and Mediation Board (NCMB) dated 25 September 2001 and 05
WHEREFORE, with all the foregoing considerations, it is hereby declared that the
November 2001, respectively, which declared the private respondent herein not guilty
Company is not guilty of violating Article 100 of the Labor Code, as amended, or
of violating Article 100 of the Labor Code, as amended. Assailed likewise, is the
specifically for withdrawing the service award, Christmas party and 35% premium for
Resolution[4] of the Court of Appeals dated 12 July 2002, which denied the motion for
work rendered during Holy Week and Christmas season and for not granting any
reconsideration of the petitioner, for lack of merit.
promotional increase to the alleged fifteen (15) Daily-Rated Union Members in the
absence of a promotion. The Company however, is directed to grant the service award
to deserving employees in amounts and extent at its discretion, in consultation with
THE FACTS the Unions on grounds of equity and fairness.[6]
The facts of this case are quite simple and not in dispute. A motion for reconsideration was filed by both unions[7] where they alleged that
the Voluntary Arbitrator manifestly erred in finding that the company did not violate
American Wire and Cable Co., Inc., is a corporation engaged in the manufacture Article 100 of the Labor Code, as amended, when it unilaterally withdrew the subject
of wires and cables. There are two unions in this company, the American Wire and benefits, and when no promotional increase was granted to the affected employees.
Cable Monthly-Rated Employees Union (Monthly-Rated Union) and the American
Wire and Cable Daily-Rated Employees Union (Daily-Rated Union). On 05 November 2001, an Order[8] was issued by Voluntary Arbitrator Angel A.
Ancheta. Part of the Order is quoted hereunder:
On 16 February 2001, an original action was filed before the NCMB of the
Department of Labor and Employment (DOLE) by the two unions for voluntary
Considering that the issues raised in the instant case were meticulously evaluated and
arbitration. They alleged that the private respondent, without valid cause, suddenly and
length[i]ly discussed and explained based on the pleadings and documentary
unilaterally withdrew and denied certain benefits and entitlements which they have
evidenc[e] adduced by the contending parties, we find no cogent reason to change,
long enjoyed. These are the following:
modify, or disturb said decision.
a. Service Award;
WHEREFORE, let the instant MOTION[S] FOR RECONSIDERATION be, as they
are hereby, denied for lack of merit. Our decision dated 25 September 2001 is
b. 35% premium pay of an employees basic pay for the work rendered affirmed en toto.[9]
during Holy Monday, Holy Tuesday, Holy Wednesday, December
23, 26, 27, 28 and 29; An appeal under Rule 43 of the 1997 Rules on Civil Procedure was made by the
Daily-Rated Union before the Court of Appeals[10] and docketed as CA-G.R. SP No.
c. Christmas Party; and 68182. The petitioner averred that Voluntary Arbitrator Angel A. Ancheta erred in
finding that the company did not violate Article 100 of the Labor Code, as amended,
when the subject benefits were unilaterally withdrawn. Further, they assert, the II
Voluntary Arbitrator erred in adopting the companys unaudited Revenues and
Profitability Analysis for the years 1996-2000 in justifying the latters withdrawal of the THE COURT OF APPEALS ERRED WHEN IT JUST ACCEPTED HOOK, LINE
questioned benefits.[11] AND SINKER, THE RESPONDENT COMPANYS SELF SERVING AND
On 06 March 2002, a Decision in favor of herein respondent company was UNAUDITED REVENUES AND PROFITABILITY ANALYSIS FOR THE
promulgated by the Special Eighth Division of the Court of Appeals in CA-G.R. SP YEARS 1996-2000 WHICH THEY SUBMITTED TO FALSELY JUSTIFY THEIR
No. 68182. The decretal portion of the decision reads: UNLAWFUL ACT OF UNILATERALLY AND SUDDENLY WITHDRAWING
OR DENYING FROM THE PETITIONER THE SUBJECT
BENEFITS/ENTITLEMENTS.
WHEREFORE, premises considered, the present petition is hereby DENIED DUE
COURSE and accordingly DISMISSED, for lack of merit. The Decision of Voluntary III
Arbitrator Angel A. Ancheta dated September 25, 2001 and his Order dated
November 5, 2001 in VA Case No. AAA-10-6-4-2001 are hereby AFFIRMED and THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE YEARLY
UPHELD.[12] SERVICE AWARD IS NOT DEPENDENT ON PROFIT BUT ON SERVICE AND
A motion for reconsideration[13] was filed by the petitioner, contending that the THUS, CANNOT BE UNILATERALLY WITHDRAWN BY RESPONDENT
Court of Appeals misappreciated the facts of the case, and that it committed serious COMPANY.
error when it ruled that the unaudited financial statement bears no importance in the
instant case.
ISSUE
The Court of Appeals denied the motion in its Resolution dated 12 July
2002[14] because it did not present any new matter which had not been considered in Synthesized, the solitary issue that must be addressed by this Court is whether or
arriving at the decision. The dispositive portion of the Resolution states: not private respondent is guilty of violating Article 100 of the Labor Code, as amended,
when the benefits/entitlements given to the members of petitioner union were
WHEREFORE, the motion for reconsideration is hereby DENIED for lack of withdrawn.
[15]
merit.
Dissatisfied with the court a quos ruling, petitioner instituted the instant special
civil action for certiorari,[16] citing grave abuse of discretion amounting to lack of THE COURTS RULING
jurisdiction. Before we address the sole issue presented in the instant case, it is best to first
discuss a matter which was raised by the private respondent in its Comment. The private
respondent contends that this case should have been dismissed outright because of
ASSIGNMENT OF ERRORS petitioners error in the mode of appeal. According to it, the petitioner should have
elevated the instant case to this Court through a petition for review on certiorari under
The petitioner assigns as errors the following: Rule 45, and not through a special civil action for certiorari under Rule 65, of the 1997
I Rules on Civil Procedure.[17]
Assuming arguendo that the mode of appeal taken by the petitioner is improper,
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPANY DID there is no question that the Supreme Court has the discretion to dismiss it if it is
NOT VIOLATE ARTICLE 100 OF THE LABOR CODE, AS AMENDED, WHEN defective. However, sound policy dictates that it is far better to dispose the case on the
IT UNILATERALLY WITHDREW THE BENEFITS OF THE MEMBERS OF merits, rather than on technicality.[18]
PETITIONER UNION, TO WIT: 1) 35% PREMIUM PAY; 2) CHRISTMAS
PARTY AND ITS INCIDENTAL BENEFITS; AND 3) SERVICE AWARD, The Supreme Court may brush aside the procedural barrier and take cognizance
WHICH IN TRUTH AND IN FACT SAID BENEFITS/ENTITLEMENTS HAVE of the petition as it raises an issue of paramount importance. The Court shall resolve
BEEN GIVEN THEM SINCE TIME IMMEMORIAL, AS A MATTER OF LONG the solitary issue on the merits for future guidance of the bench and bar. [19]
ESTABLISHED COMPANY PRACTICE, WITH THE FURTHER FACT THAT With that out of the way, we shall now resolve whether or not the respondent
THE SAME NOT BEING DEPENDENT ON PROFITS. company is guilty of violating Article 100 of the Labor Code, as amended.
Article 100 of the Labor Code provides: In answer to all these, the respondent corporation avers that the grant of all subject
benefits has not ripened into practice that the employees concerned can claim a
ART. 100. PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF demandable right over them. The grant of these benefits was conditional based upon
BENEFITS. Nothing in this Book shall be construed to eliminate or in any way the financial performance of the company and that conditions/circumstances that
diminish supplements, or other employee benefits being enjoyed at the time of existed before have indeed substantially changed thereby justifying the discontinuance
promulgation of this Code. of said grants. The companys financial performance was affected by the recent political
turmoil and instability that led the entire nation to a bleeding economy. Hence, it only
The petitioner submits that the withdrawal of the private respondent of the 35% necessarily follows that the companys financial situation at present is already very
premium pay for selected days during the Holy Week and Christmas season, the much different from where it was three or four years ago. [26]
holding of the Christmas Party and its incidental benefits, and the giving of service
awards violated Article 100 of the Labor Code. The grant of these benefits was a On the subject of the unaudited financial statement presented by the private
customary practice that can no longer be unilaterally withdrawn by private respondent respondent, the latter contends that the cases cited by the petitioner indeed uniformly
without the tacit consent of the petitioner. The benefits in question were given by the ruled that financial statements audited by independent external auditors constitute the
respondent to the petitioner consistently, deliberately, and unconditionally since time normal method of proof of the profit and loss performance of a company. However,
immemorial. The benefits/entitlements were not given to petitioner due to an error in these cases do not require that the only legal method to ascertain profit and loss is
interpretation, or a construction of a difficult question of law, but simply, the grant has through an audited financial statement. The cases only provide that an audited financial
[27]
been a practice over a long period of time. As such, it cannot be withdrawn from the statement is the normal method.
petitioner at respondents whim and caprice, and without the consent of the former. The The respondent company likewise asseverates that the 15 members of petitioner
benefits given by the respondent cannot be considered as a bonus as they are not union were not actually promoted. There was only a realignment of positions. [28]
founded on profit. Even assuming that it can be treated as a bonus, the grant of the
same, by reason of its long and regular concession, may be regarded as part of regular From the foregoing contentions, it appears that for the Court to resolve the issue
compensation.[20] presented, it is critical that a determination must be first made on whether the
benefits/entitlements are in the nature of a bonus or not, and assuming they are so,
With respect to the fifteen (15) employees who are members of petitioner union whether they are demandable and enforceable obligations.
that were given new job classifications, it asserts that a promotional increase in their
salaries was in order. Salary adjustment is a must due to their promotion.[21] In the case of Producers Bank of the Philippines v. NLRC[29] we have
characterized what a bonus is, viz:
On respondent companys Revenues and Profitability Analysis for the years 1996-
2000, the petitioner insists that since the former was unaudited, it should not have
justified the companys sudden withdrawal of the benefits/entitlements. The normal A bonus is an amount granted and paid to an employee for his industry and loyalty
and/or legal method for establishing profit and loss of a company is through a financial which contributed to the success of the employers business and made possible the
statement audited by an independent auditor.[22] realization of profits. It is an act of generosity granted by an enlightened employer to
spur the employee to greater efforts for the success of the business and realization of
The petitioner cites our ruling in the case of Saballa v. NLRC,[23] where we held bigger profits. The granting of a bonus is a management prerogative, something given
that financial statements audited by independent auditors constitute the normal method in addition to what is ordinarily received by or strictly due the recipient. Thus, a
of proof of the profit and loss performance of the company. Our ruling in the case bonus is not a demandable and enforceable obligation, except when it is made part of
of Bogo-Medellin Sugarcane Planters Association, Inc., et al. v. NLRC, et al.[24] was the wage, salary or compensation of the employee.
likewise invoked. In this case, we held:
Based on the foregoing pronouncement, it is obvious that the benefits/entitlements
subjects of the instant case are all bonuses which were given by the private respondent
The Court has previously ruled that financial statements audited by independent out of its generosity and munificence. The additional 35% premium pay for work done
external auditors constitute the normal method of proof of the profit and loss during selected days of the Holy Week and Christmas season, the holding of Christmas
performance of a company. parties with raffle, and the cash incentives given together with the service awards are
On the matter of the withdrawal of the service award, the petitioner argues that it all in excess of what the law requires each employer to give its employees. Since they
is the employees length of service which is taken as a factor in the grant of this benefit, are above what is strictly due to the members of petitioner-union, the granting of the
and not whether the company acquired profit or not.[25] same was a management prerogative, which, whenever management sees necessary,
may be withdrawn, unless they have been made a part of the wage or salary or
compensation of the employees.
The consequential question therefore that needs to be settled is if the subject years and with the express reservation from respondent corporations owner that it
benefits/entitlements, which are bonuses, are demandable or not. Stated another way, cannot continue to rant the same in view of the companys current financial
can these bonuses be considered part of the wage or salary or compensation making situation.[38]
them enforceable obligations?
To hold that an employer should be forced to distribute bonuses which it granted
The Court does not believe so. out of kindness is to penalize him for his past generosity. [39]
For a bonus to be enforceable, it must have been promised by the employer and Having thus ruled that the additional 35% premium pay for work rendered during
expressly agreed upon by the parties,[30] or it must have had a fixed amount[31] and had selected days of the Holy Week and Christmas season, the holding of Christmas parties
been a long and regular practice on the part of the employer. [32] with its incidental benefits, and the grant of cash incentive together with the service
award are all bonuses which are neither demandable nor enforceable obligations of the
The benefits/entitlements in question were never subjects of any express private respondent, it is not necessary anymore to delve into the Revenues and
agreement between the parties. They were never incorporated in the Collective Profitability Analysis for the years 1996-2000 submitted by the private respondent.
Bargaining Agreement (CBA). As observed by the Voluntary Arbitrator, the records
reveal that these benefits/entitlements have not been subjects of any express agreement On the alleged promotion of 15 members of the petitioner union that should
between the union and the company, and have not yet been incorporated in the CBA. warrant an increase in their salaries, the factual finding of the Voluntary Arbitrator is
In fact, the petitioner has not denied having made proposals with the private respondent revealing, viz:
for the service award and the additional 35% premium pay to be made part of the
CBA.[33] Considering that the Union was unable to adduce proof that a promotion indeed
The Christmas parties and its incidental benefits, and the giving of cash incentive occur[ed] with respect to the 15 employees, the Daily Rated Unions claim for
together with the service award cannot be said to have fixed amounts. What is clear promotional increase [40]
likewise fall[s] there being no promotion established under the
from the records is that over the years, there had been a downtrend in the amount given records at hand.
as service award.[34] There was also a downtrend with respect to the holding of the WHEREFORE, in view of all the foregoing, the assailed Decision and
Christmas parties in the sense that its location changed from paid venues to one which Resolution of the Court of Appeals dated 06 March 2002 and 12 July 2002,
was free of charge,[35] evidently to cut costs. Also, the grant of these two respectively, which affirmed and upheld the decision of the Voluntary Arbitrator, are
aforementioned bonuses cannot be considered to have been the private respondents hereby AFFIRMED. No pronouncement as to costs.
long and regular practice. To be considered a regular practice, the giving of the bonus
should have been done over a long period of time, and must be shown to have been SO ORDERED.
consistent and deliberate.[36] The downtrend in the grant of these two bonuses over the Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
years demonstrates that there is nothing consistent about it. Further, as held by the Court
of Appeals:

Anent the Christmas party and raffle of prizes, We agree with the Voluntary
Arbitrator that the same was merely sponsored by the respondent corporation out of
generosity and that the same is dependent on the financial performance of the
company for a particular year[37]
The additional 35% premium pay for work rendered during selected days of the
Holy Week and Christmas season cannot be held to have ripened into a company
practice that the petitioner herein have a right to demand. Aside from the general
averment of the petitioner that this benefit had been granted by the private
respondent since time immemorial, there had been no evidence adduced that it had been
a regular practice. As propitiously observed by the Court of Appeals:

. . . [N]otwithstanding that the subject 35% premium pay was deliberately given and
the same was in excess of that provided by the law, the same however did not ripen
into a company practice on account of the fact that it was only granted for two (2)
Republic of the Philippines In this Petition for Review on Certiorari under Rule 45, petitioner TSPIC Corporation
SUPREME COURT (TSPIC) seeks to annul and set aside the October 22, 2003 Decision [5] and April 23,
Manila 2004 Resolution[6] of the Court of Appeals (CA) in CA-G.R. SP No. 68616, which
affirmed the September 13, 2001 Decision[7] of Accredited Voluntary Arbitrator
SECOND DIVISION Josephus B. Jimenez in National Conciliation and Mediation Board Case No. JBJ-
AVA-2001-07-57.

TSPIC CORPORATION, G.R. No. 163419 TSPIC is engaged in the business of designing, manufacturing, and marketing
Petitioner, integrated circuits to serve the communication, automotive, data processing, and
Present: aerospace industries. Respondent TSPIC Employees Union (FFW) (Union), on the
QUISUMBING, J., Chairperson, other hand, is the registered bargaining agent of the rank-and-file employees of TSPIC.
- versus - CARPIO, The respondents, Maria Fe Flores, Fe Capistrano, Amy Durias, Claire Evelyn Velez,
CARPIO MORALES, Janice Olaguir, Jerico Alipit, Glen Batula, Ser John Hernandez, Rachel Novillas, Nimfa
TINGA, and Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn
VELASCO, JR., JJ. Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba,
TSPIC EMPLOYEES UNION (FFW), Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita
representing MARIA FE FLORES, Yana, and Suzette Dulay, are all members of the Union.
FE CAPISTRANO, AMY DURIAS,[1]
CLAIRE EVELYN VELEZ, JANICE In 1999, TSPIC and the Union entered into a Collective Bargaining Agreement
OLAGUIR, JERICO ALIPIT, GLEN (CBA)[8] for the years 2000 to 2004. The CBA included a provision on yearly salary
BATULA, SER JOHN HERNANDEZ, increases starting January 2000 until January 2002. Section 1, Article X of the CBA
RACHEL NOVILLAS, NIMFA ANILAO, provides, as follows:
ROSE SUBARDIAGA, VALERIE
CARBON, OLIVIA EDROSO, MARICRIS Section 1. Salary/ Wage Increases.Employees covered by this
DONAIRE, ANALYN AZARCON, Agreement shall be granted salary/wage increases as follows:
ROSALIE RAMIREZ, JULIETA ROSETE,
JANICE NEBRE, NIA ANDRADE, a) Effective January 1, 2000, all employees on regular
CATHERINE YABA, DIOMEDISA status and within the bargaining unit on or before said
ERNI,[2] MARIO SALMORIN, LOIDA date shall be granted a salary increase equivalent to ten
COMULLO,[3] MARIE ANN DELOS percent (10%) of their basic monthly salary as of
SANTOS,[4] JUANITA YANA, and Promulgated: December 31, 1999.
SUZETTE DULAY, b) Effective January 1, 2001, all employees on regular
Respondents. February 13, 2008 status and within the bargaining unit on or before said
x-----------------------------------------------------------------------------------------x date shall be granted a salary increase equivalent to
twelve (12%) of their basic monthly salary as
DECISION of December 31, 2000.
c) Effective January 1, 2002, all employees on regular
VELASCO, JR., J.: status and within the bargaining unit on or before said
date shall be granted a salary increase equivalent to
eleven percent (11%) of their basic monthly salary as
The path towards industrial peace is a two-way street. Fundamental fairness and of December 31, 2001.
protection to labor should always govern dealings between labor and management.
Seemingly conflicting provisions should be harmonized to arrive at an interpretation The wage salary increase of the first year of this Agreement shall be
that is within the parameters of the law, compassionate to labor, yet, fair to over and above the wage/salary increase, including the wage
management. distortion adjustment, granted by the COMPANY on November 1,
1999as per Wage Order No. NCR-07.
The wage/salary increases for the years 2001 and 2002 shall be Then on October 6, 2000, the Regional Tripartite Wage and Productivity
deemed inclusive of the mandated minimum wage increases under Board, National Capital Region, issued Wage Order No. NCR-08[10] (WO No. 8) which
future Wage Orders, that may be issued after Wage Order No. NCR- raised the daily minimum wage from PhP 223.50 to PhP 250 effective November 1,
07, and shall be considered as correction of any wage distortion that 2000. Conformably, the wages of 17 probationary employees, namely: Nimfa Anilao,
may have been brought about by the said future Wage Orders. Thus Rose Subardiaga, Valerie Carbon, Olivia Edroso,Maricris Donaire, Analyn Azarcon,
the wage/salary increases in 2001 and 2002 shall be deemed as Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba,
compliance to future wage orders after Wage Order No. NCR-07. Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita
Yana, and Suzette Dulay (second group), were increased to PhP 250.00 effective
Consequently, on January 1, 2000, all the regular rank-and-file employees of November 1, 2000.
TSPIC received a 10% increase in their salary. Accordingly, the following nine (9)
respondents (first group) who were already regular employees received the said On various dates during the last quarter of 2000, the above named 17
increase in their salary: Maria Fe Flores, Fe Capistrano, Amy Durias, Claire Evelyn employees attained regular employment[11] and received 25% of 10% of their salaries
Velez, Janice Olaguir, Jerico Alipit, Glen Batula, Ser John Hernandez, and Rachel as granted under the provision on regularization increase under Article X, Sec. 2 of the
Novillas.[9] CBA.

The CBA also provided that employees who acquire regular employment In January 2001, TSPIC implemented the new wage rates as mandated by the
status within the year but after the effectivity of a particular salary increase shall receive CBA. As a result, the nine employees (first group), who were senior to the above-listed
a proportionate part of the increase upon attainment of their regular status. Sec. 2 of the recently regularized employees, received less wages.
CBA provides:
On January 19, 2001, a few weeks after the salary increase for the year 2001 became
SECTION 2. Regularization Increase.A covered daily paid effective, TSPICs Human Resources Department notified 24
employee who acquires regular status within the year subsequent to employees,[12] namely: Maria Fe Flores, Janice Olaguir, Rachel Novillas, Fe
the effectivity of a particular salary/wage increase mentioned in Capistrano, Jerico Alipit, Amy Durias, Glen Batula, Claire Evelyn Velez, Ser John
Section 1 above shall be granted a salary/wage increase in Hernandez, Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris
proportionate basis as follows: Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade,
Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, and Marie Ann
Regularization Period Equivalent Increase Delos Santos, that due to an error in the automated payroll system, they were overpaid
- 1st Quarter 100% and the overpayment would be deducted from their salaries in a staggered basis, starting
- 2nd Quarter 75% February 2001. TSPIC explained that the correction of the erroneous computation was
- 3rd Quarter 50% based on the crediting provision of Sec. 1, Art. X of the CBA.
- 4th Quarter 25% The Union, on the other hand, asserted that there was no error and the
deduction of the alleged overpayment from employees constituted diminution of pay.
Thus, a daily paid employee who becomes a regular employee The issue was brought to the grievance machinery, but TSPIC and the Union failed to
covered by this Agreement only on May 1, 2000, i.e., during the reach an agreement.
second quarter and subsequent to the January 1, 2000 wage increase
under this Agreement, will be entitled to a wage increase equivalent Consequently, TSPIC and the Union agreed to undergo voluntary arbitration
to seventy-five percent (75%) of ten percent (10%) of his basic pay. on the solitary issue of whether or not the acts of the management in making deductions
In the same manner, an employee who acquires regular status from the salaries of the affected employees constituted diminution of pay.
on December 1, 2000 will be entitled to a salary increase equivalent
to twenty-five percent (25%) of ten percent (10%) of his last basic On September 13, 2001, Arbitrator Jimenez rendered a Decision, holding that the
pay. unilateral deduction made by TSPIC violated Art. 100 [13] of the Labor Code.
The fallo reads:
On the other hand, any monthly-paid employee who acquires regular
status within the term of the Agreement shall be granted WHEREFORE, in the light of the law on the matter and on
regularization increase equivalent to 10% of his regular basic salary. the facts adduced in evidence, judgment is hereby rendered in favor
of the Union and the named individual employees and against the to WO No. 8 and the provisions of the CBA. According to the CA, TSPIC failed to
company, thereby ordering the [TSPIC] to pay as follows: convince the appellate court that the deduction was a result of a system error in the
automated payroll system. The CA explained that when WO No. 8 took effect
1) to the sixteen (16) newly regularized employees named on November 1, 2000, the concerned employees were still probationary employees who
above, the amount of P12,642.24 a month or a total of were receiving the minimum wage of PhP 223.50. The CA said that effective November
P113,780.16 for nine (9) months or P7,111.26 for each of 1, 2000, said employees should have received the minimum wage of PhP 250. The CA
them as well as an additional P12,642.24 (for all), or held that when respondents became regular employees on November 29, 2000, they
P790.14 (for each), for every month after 30 September should be allowed the salary increase granted them under the CBA at the rate of 25%
2001, until full payment, with legal interests for every of 10% of their basic salary for the year 2000; thereafter, the 12% increase for the year
month of delay; 2001 and the 10% increase for the year 2002 should also be made applicable to them. [15]
TSPIC filed a Motion for Reconsideration which was denied by the CA in its April 23,
2) to the nine (9) who were hired earlier than the sixteen (16); 2004Resolution.
also named above, their respective amount of entitlements,
according to the Unions correct computation, ranging from TSPIC filed the instant petition which raises this sole issue for our resolution: Does the
P110.22 per month (or P991.98 for nine months) to P450.58 TSPICs decision to deduct the alleged overpayment from the salaries of the affected
a month (or P4,055.22 for nine months), as well as members of the Unionconstitute diminution of benefits in violation of the Labor Code?
corresponding monthly entitlements after 30 September
2001, plus legal interests until full payment, TSPIC maintains that the formula proposed by the Union, adopted by the arbitrator and
affirmed by the CA, was flawed, inasmuch as it completely disregarded the crediting
3) to Suzette Dulay, the amount of P608.14 a month (or provision contained in the last paragraph of Sec. 1, Art. X of the CBA.
P5,473.26), as well as corresponding monthly entitlements
after 30 September 2001, plus legal interest until full
payment, We find TSPICs contention meritorious.

4) Attorneys fees equal to 10% of all the above monetary A Collective Bargaining Agreement is the law between the parties
awards.
It is familiar and fundamental doctrine in labor law that the CBA is the law
The claim for exemplary damages is denied for want of between the parties and they are obliged to comply with its provisions. [16] We said so
factual basis. in Honda Phils., Inc. v. Samahan ng Malayang Manggagawa sa Honda:

The parties are hereby directed to comply with their joint A collective bargaining agreement or CBA refers to the
voluntary commitment to abide by this Award and thus, submit to negotiated contract between a legitimate labor organization and the
this Office jointly, a written proof of voluntary compliance with this employer concerning wages, hours of work and all other terms and
DECISION within ten (10) days after the finality hereof. conditions of employment in a bargaining unit. As in all contracts,
the parties in a CBA may establish such stipulations, clauses, terms
SO ORDERED.[14] and conditions as they may deem convenient provided these are not
contrary to law, morals, good customs, public order or public policy.
Thus, where the CBA is clear and unambiguous, it becomes the law
TSPIC filed a Motion for Reconsideration which was denied in a Resolution between the parties and compliance therewith is mandated by the
dated November 21, 2001. express policy of the law. [17]

Aggrieved, TSPIC filed before the CA a petition for review under Rule 43 Moreover, if the terms of a contract, as in a CBA, are clear and leave no doubt
docketed as CA-G.R. SP No. 68616. The appellate court, through its October 22, 2003 upon the intention of the contracting parties, the literal meaning of their stipulations
Decision, dismissed the petition and affirmed in toto the decision of the voluntary shall control.[18]However, sometimes, as in this case, though the provisions of the CBA
arbitrator. The CA declared TSPICs computation allowing PhP 287 as daily wages to seem clear and unambiguous, the parties sometimes arrive at conflicting interpretations.
the newly regularized employees to be correct, noting that the computation conformed Here, TSPIC wants to credit the increase granted by WO No. 8 to the increase granted
under the CBA. According to TSPIC, it is specifically provided in the CBA that the Respondents should not be allowed to receive benefits from the CBA while avoiding
salary/wage increase for the year 2001 shall be deemed inclusive of the mandated the counterpart crediting provision. They have received their regularization increases
minimum wage increases under future wage orders that may be issued after Wage Order under Art. X, Sec. 2 of the CBA and the yearly increase for the year 2001. They should
No. 7. The Union, on the other hand, insists that the crediting provision of the CBA not then be allowed to avoid the crediting provision which is an accompanying
finds no application in the present case, since at the time WO No. 8 was issued, the condition.
probationary employees (second group) were not yet covered by the CBA, particularly
by its crediting provision. Respondents attained regular employment status before January 1, 2001. WO
As a general rule, in the interpretation of a contract, the intention of the parties No. 8, increasing the minimum wage, was issued after WO No. 7. Thus, respondents
is to be pursued.[19] Littera necat spiritus vivificat. An instrument must be interpreted rightfully received the 12% salary increase for the year 2001 granted in the CBA; and
according to the intention of the parties. It is the duty of the courts to place a practical consequently, TSPIC rightfully credited that 12% increase against the increase granted
and realistic construction upon it, giving due consideration to the context in which it is by WO No. 8.
negotiated and the purpose which it is intended to serve.[20] Absurd and illogical
interpretations should also be avoided. Considering that the parties have unequivocally
agreed to substitute the benefits granted under the CBA with those granted under wage Proper formula for computing the salaries for the year 2001
orders, the agreement must prevail and be given full effect.
Paragraph (b) of Sec. 1 of Art. X of the CBA provides for the general agreement that, Thus, the proper computation of the salaries of individual respondents is as
effective January 1, 2001, all employees on regular status and within the bargaining follows:
unit on or before said date shall be granted a salary increase equivalent to twelve (12%)
of their basic monthly salary as of December 31, 2000. The 12% salary increase is (1) With regard to the first group of respondents who attained regular
granted to all employees who (1) are regular employees and (2) are within the employment status before the effectivity of WO No. 8, the computation is as follows:
bargaining unit.
For respondents Jerico Alipit and Glen Batula:[23]
Second paragraph of (c) provides that the salary increase for the year 2000 shall not
include the increase in salary granted under WO No. 7 and the correction of the wage Wage rate before WO No. 8... PhP 234.67
distortion for November 1999. Increase due to WO No. 8
The last paragraph, on the other hand, states the specific condition that the wage/salary setting the minimum wage at PhP 250. 15.33
increases for the years 2001 and 2002 shall be deemed inclusive of the mandated Total Salary upon effectivity of WO No. 8. PhP 250.00
minimum wage increases under future wage orders, that may be issued after WO No.
7, and shall be considered as correction of the wage distortions that may be brought Increase for 2001 (12% of 2000 salary)........... PhP 30.00
about by the said future wage orders. Thus, the wage/salary increases in 2001 and 2002 Less the wage increase under WO No. 8. 15.33
shall be deemed as compliance to future wage orders after WO No. 7. Total difference between the wage increase
for 2001 and the increase granted under WO No. 8.. PhP 14.67
Paragraph (b) is a general provision which allows a salary increase to all those Wage rate by December 2000..... PhP 250.00
who are qualified. It, however, clashes with the last paragraph which specifically states Plus total difference between the wage increase for 2001
that the salary increases for the years 2001 and 2002 shall be deemed inclusive of wage and the increase granted under WO No. 8.. 14.67
increases subsequent to those granted under WO No. 7. It is a familiar rule in Total (Wage rate range beginning January 1, 2001) PhP 264.67
interpretation of contracts that conflicting provisions should be harmonized to give For respondents Ser John Hernandez and Rachel Novillas:[24]
effect to all.[21] Likewise, when general and specific provisions are inconsistent, the
specific provision shall be paramount to and govern the general provision. [22] Thus, it Wage rate range before WO No. 8.PhP 234.68
may be reasonably concluded that TSPIC granted the salary increases under the Increase due to WO No. 8
condition that any wage order that may be subsequently issued shall be credited against setting the minimum wage at PhP 250.. 15.32
the previously granted increase. The intention of the parties is clear: As long as an Total Salary upon effectivity of WO No. 8... PhP 250.00
employee is qualified to receive the 12% increase in salary, the employee shall be
granted the increase; and as long as an employee is granted the 12% increase, the Increase for 2001 (12% of 2000 salary) PhP 30.00
amount shall be credited against any wage order issued after WO No. 7. Less the wage increase under WO No. 8.. 15.32
Total difference between the wage increase
for 2001 and the increase granted under WO No. 8. PhP 14.68 Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba,
Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita
Wage rate by December 2000......... PhP 250.00 Yana, and Suzette Dulay, the proper computation of the salaries for the year 2001, in
Plus total difference between the wage increase for 2001 accordance with the CBA, is as follows:
and the increase granted under WO No. 8.. 14.68
Total (Wage rate range beginning January 1, 2001) .. PhP 264.68 Compute the increase in salary after the implementation of WO No. 8 by subtracting
the minimum wage before WO No. 8 from the minimum wage per the wage order to
For respondents Amy Durias, Claire Evelyn Velez, and Janice Olaguir:[25] arrive at the wage increase, thus:

Wage rate range before WO No. 8.. PhP 240.26 Minimum Wage per Wage Order.. PhP 250.00
Increase due to WO No. 8 Wage rate before Wage Order.. 223.50
setting the minimum wage at PhP 250 9.74 Wage Increase. PhP 26.50
Total Salary upon effectivity of WO No. 8. PhP 250.00
Upon attainment of regular employment status, the employees salaries were
Increase for 2001 (12% of 2000 salary). PhP 30.00 increased by 25% of 10% of their basic salaries, as provided for in Sec. 2, Art. X of the
Less the wage increase under WO No. 8 9.74 CBA, thus resulting in a further increase of PhP 6.25, for a total of PhP 256.25,
Total difference between the wage increase for 2001 computed as follows:
and the increase granted under WO No. 8.. PhP 20.26
Wage rate after WO No. 8. PhP 250.00
Wage rate by December 2000. PhP 250.00 Regularization increase (25 % of 10% of basic salary). 6.25
Plus total difference between the wage increase for 2001 Total (Salary for the end of year 2000).. PhP 256.25
and the increase granted under WO No. 8.. 20.26
Total (Wage rate range beginning January 1, 2001).. PhP 270.26 To compute for the increase in wage rates for the year 2001, get the increase
of 12% of the employees salaries as of December 31, 2000; then subtract from that
amount, the amount increased in salaries as granted under WO No. 8 in accordance
For respondents Ma. Fe Flores and Fe Capistrano:[26] with the crediting provision of the CBA, to arrive at the increase in salaries for the year
2001 of the recently regularized employees. Add the result to their salaries as
Wage rate range before WO No. 8 PhP 245.85 of December 31, 2000 to get the proper salary beginning January 1, 2001, thus:
Increase due to WO No. 8
setting the minimum wage at PhP 250.. 4.15 Increase for 2001 (12% of 2000 salary)... PhP 30.75
Total Salary upon effectivity of WO No. 8... PhP 250.00 Less the wage increase under WO No. 8. 26.50
Increase for 2001 (12% of 2000 salary). PhP 30.00 Difference between the wage increase
Less the wage increase under WO No. 8........... 4.15 for 2001 and the increase granted under WO No. 8.... PhP 4.25
Total difference between the wage increase for 2001
and the increase granted under WO No. 8. PhP 25.85 Wage rate after regularization increase... PhP 256.25
Plus total difference between the wage increase and
Wage rate by December 2000. PhP 250.00 the increase granted under WO No. 8. 4.25
Plus total difference between the wage increase for 2001 Total (Wage rate beginning January 1, 2001). PhP 260.50
and the increase granted under WO No. 8.. 25.85 With these computations, the crediting provision of the CBA is put in effect, and the
wage distortion between the first and second group of employees is cured. The first
Total (Wage rate range beginning January 1, 2001).. PhP 275.85 group of employees who attained regular employment status before the implementation
of WO No. 8 is entitled to receive, starting January 1, 2001, a daily wage rate within the
range of PhP 264.67 to PhP 275.85, depending on their wage rate before the
(2) With regard to the second group of employees, who attained regular implementation of WO No. 8. The second group that attained regular employment
employment status after the implementation of WO No. 8, namely: Nimfa Anilao, Rose status after the implementation of WO No. 8 is entitled to receive a daily wage rate of
Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn Azarcon, PhP 260.50 starting January 1, 2001.
As a last word, it should be reiterated that though it is the states responsibility
Diminution of benefits to afford protection to labor, this policy should not be used as an instrument to oppress
management and capital.[29] In resolving disputes between labor and capital, fairness
TSPIC also maintains that charging the overpayments made to the 16 and justice should always prevail. We ruled in Norkis Union v. Norkis Trading that in
respondents through staggered deductions from their salaries does not constitute the resolution of labor cases, we have always been guided by the State policy enshrined
diminution of benefits. in the Constitution: social justice and protection of the working class. Social justice
does not, however, mandate that every dispute should be automatically decided in
We agree with TSPIC. favor of labor. In any case, justice is to be granted to the deserving and dispensed in
the light of the established facts and the applicable law and doctrine. [30]
Diminution of benefits is the unilateral withdrawal by the employer of benefits
already enjoyed by the employees. There is diminution of benefits when it is shown WHEREFORE, premises considered, the September 13, 2001 Decision of the Labor
that: (1) the grant or benefit is founded on a policy or has ripened into a practice over a Arbitrator in National Conciliation and Mediation Board Case No. JBJ-AVA-2001-07-
long period; (2) the practice is consistent and deliberate; (3) the practice is not due to 57 and the October 22, 2003 CA Decision in CA-G.R. SP No. 68616 are
error in the construction or application of a doubtful or difficult question of law; and hereby AFFIRMED with MODIFICATION.TSPIC is hereby ORDERED to pay
(4) the diminution or discontinuance is done unilaterally by the employer. [27] respondents their salary increases in accordance with this Decision, as follows:

As correctly pointed out by TSPIC, the overpayment of its employees was a result of No. of No. of
an error. This error was immediately rectified by TSPIC upon its discovery. We have Name of Employee Daily Working Months in Total Salary
ruled before that an erroneously granted benefit may be withdrawn without violating Wage Days in a a Year for 2001
the prohibition against non-diminution of benefits. We ruled in Globe-Mackay Cable Rate Month
and Radio Corp. v. NLRC: Nimfa Anilao 260.5 26 12 81,276.00
Rose Subardiaga 260.5 26 12 81,276.00
Absent clear administrative guidelines, Petitioner Corporation Valerie Carbon 260.5 26 12 81,276.00
cannot be faulted for erroneous application of the law. Payment may
Olivia Edroso 260.5 26 12 81,276.00
be said to have been made by reason of a mistake in the construction
Maricris Donaire 260.5 26 12 81,276.00
or application of a doubtful or difficult question of law. (Article 2155,
in relation to Article 2154 of the Civil Code). Since it is a past error Analyn Azarcon 260.5 26 12 81,276.00
that is being corrected, no vested right may be said to have arisen nor Rosalie Ramirez 260.5 26 12 81,276.00
any diminution of benefit under Article 100 of the Labor Code may Julieta Rosete 260.5 26 12 81,276.00
be said to have resulted by virtue of the correction. [28] Janice Nebre 260.5 26 12 81,276.00
Nia Andrade 260.5 26 12 81,276.00
Catherine Yaba 260.5 26 12 81,276.00
Here, no vested right accrued to individual respondents when TSPIC corrected Diomedisa Erni 260.5 26 12 81,276.00
its error by crediting the salary increase for the year 2001 against the salary increase Mario Salmorin 260.5 26 12 81,276.00
granted under WO No. 8, all in accordance with the CBA. Loida Camullo 260.5 26 12 81,276.00
Marie Ann 260.5 26 12 81,276.00
Hence, any amount given to the employees in excess of what they were Delos Santos
entitled to, as computed above, may be legally deducted by TSPIC from the employees
Juanita Yana 260.5 26 12 81,276.00
salaries. It was also compassionate and fair that TSPIC deducted the overpayment in
installments over a period of 12 months starting from the date of the initial deduction Suzette Dulay 260.5 26 12 81,276.00
to lessen the burden on the overpaid employees. TSPIC, in turn, must refund to Jerico Alipit 264.67 26 12 82,577.04
individual respondents any amount deducted from their salaries which was in excess of Glen Batula 264.67 26 12 82,577.04
what TSPIC is legally allowed to deduct from the salaries based on the computations Ser John Hernandez 264.68 26 12 82,580.16
discussed in this Decision. Rachel Novillas 264.68 26 12 82,580.16
Amy Durias 270.26 26 12 84,321.12
Claire Evelyn Velez 270.26 26 12 84,321.12
Janice Olaguir 270.26 26 12 84,321.12
Maria Fe Flores 275.85 26 12 86,065.20
Fe Capistrano 275.85 26 12 86,065.20

The award for attorneys fees of ten percent (10%) of the total award
is MAINTAINED.

SO ORDERED.
SECOND DIVISION Respondent Lepanto Ceramics Employees Association (respondent
Association) is a legitimate labor organization duly registered with the Department of
Labor and Employment. It is the sole and exclusive bargaining agent in the
LEPANTO CERAMICS, INC., G.R. No. 180866 establishment of petitioner.[6]
Petitioner,
In December 1998, petitioner gave a P3,000.00 bonus to its employees,
Present: members of the respondent Association.[7]

CARPIO, J., Subsequently, in September 1999, petitioner and respondent Association


- versus - Chairperson, entered into a Collective Bargaining Agreement (CBA) which provides for, among
BRION, others, the grant of a Christmas gift package/bonus to the members of the respondent
DEL CASTILLO, Association.[8] The Christmas bonus was one of the enumerated existing benefit,
ABAD, and practice of traditional rights which shall remain in full force and effect.
PEREZ, JJ.
The text reads:
LEPANTO CERAMICS Section 8. All other existing benefits, practice of
EMPLOYEES ASSOCIATION, Promulgated: traditional rights consisting of Christmas Gift package/bonus,
Respondent. reimbursement of transportation expenses in case of breakdown
March 2, 2010 of service vehicle and medical services and safety devices by
x---------------------------------------------------------- virtue of company policies by the UNION and employees shall
- -x remain in full force and effect.

Section 1. EFFECTIVITY
DECISION
This agreement shall become effective on September 1,
1999 and shall remain in full force and effect without change for
PEREZ, J.: a period of four (4) years or up to August 31, 2004 except as to
the representation aspect which shall be effective for a period of
five (5) years. It shall bind each and every employee in the
Before this Court is a Petition for Review on Certiorari under Rule 45[1] of bargaining unit including the present and future officers of
the 1997 Rules of Civil Procedure filed by petitioner Lepanto Ceramics, Inc. the Union.
(petitioner), assailing the: (1) Decision[2]of the Court of Appeals, dated 5 April 2006,
in CA-G.R. SP No. 78334 which affirmed in toto the decision of the Voluntary In the succeeding years, 1999, 2000 and 2001, the bonus was not in
Arbitrator[3] granting the members of the respondent association a Christmas Bonus in cash. Instead, petitioner gave each of the members of respondent Association Tile
the amount of Three Thousand Pesos (P3,000.00), or the balance of Two Thousand Redemption Certificates equivalent to P3,000.00.[9] The bonus for the year 2002 is the
Four Hundred Pesos (P2,400.00) for the year 2002, and the (2) Resolution[4] of the same root of the present dispute. Petitioner gave a year-end cash benefit of Six Hundred
court dated 13 December 2007 denying Petitioners Motion for Reconsideration. Pesos (P600.00) and offered a cash advance to interested employees equivalent to one
(1) month salary payable in one year.[10] The respondent Association objected to
The facts are: the P600.00 cash benefit and argued that this was in violation of the CBA it executed
with the petitioner.
Petitioner Lepanto Ceramics, Incorporated is a duly organized corporation
existing and operating by virtue of Philippine Laws. Its business is primarily to The parties failed to amicably settle the dispute. The respondent Association
manufacture, make, buy and sell, on wholesale basis, among others, tiles, marbles, filed a Notice of Strike with the National Conciliation Mediation Board, Regional
mosaics and other similar products.[5] Branch No. IV, alleging the violation of the CBA. The case was placed under
preventive mediation. The efforts to conciliate failed. The case was then referred to the
Voluntary Arbitrator for resolution where the Complaint was docketed as Case No.
LAG-PM-12-095-02. Petitioner sought reconsideration but the same was denied by the Voluntary
Arbitrator in an Order dated 27 June 2003, in this wise:
In support of its claim, respondent Association insisted that it has been the traditional
practice of the company to grant its members Christmas bonuses during the end of the The Motion for Reconsideration filed by the respondent in
calendar year, each in the amount of P3,000.00 as an expression of gratitude to the the above-entitled case which was received by the Undersigned on
employees for their participation in the companys continued existence in the June 26, 2003 is hereby denied pursuant to Section 7 Rule XIX on
market. The bonus was either in cash or in the form of company tiles. In 2002, in a Grievance Machinery and Voluntary Arbitration; Amending The
speech during the Christmas celebration, one of the companys top executives assured Implementing Rules of Book V of the Labor Code of the Philippines;
the employees of said bonus. However, the Human Resources Development Manager to wit:
informed them that the traditional bonus would not be given as the companys earnings
were intended for the payment of its bank loans. Respondent Association argued that Section 7. Finality of Award/Decision −
this was in violation of their CBA. The decision, order, resolution or award of the
voluntary arbitrator or panel of voluntary
The petitioner averred that the complaint for nonpayment of the 2002 arbitrators shall be final and executory after ten
Christmas bonus had no basis as the same was not a demandable and enforceable (10) calendar days from receipt of the copy of the
obligation. It argued that the giving of extra compensation was based on the companys award or decision by the parties and it shall not be
available resources for a given year and the workers are not entitled to a bonus if the subject of a motion for reconsideration.[13]
company does not make profits. Petitioner adverted to the fact that it was debt-ridden
having incurred net losses for the years 2001 and 2002 totaling to P1.5 billion; and
since 1999, when the CBA was signed, the companys accumulated losses amounted to Petitioner elevated the case to the Court of Appeals via a Petition
over P2.7 billion. Petitioner further argued that the grant of a one (1) month salary cash for Certiorari under Rule 65 of the Rules of Court docketed as CA-G.R. SP No.
advance was not meant to take the place of a bonus but was meant to show the 78334.[14] As adverted to earlier, the Court of Appeals affirmed in toto the decision of
companys sincere desire to help its employees despite its precarious financial the Voluntary Arbitrator. The appellate court also denied petitioners motion for
condition. Petitioner also averred that the CBA provision on a Christmas gift/bonus reconsideration.
refers to alternative benefits. Finally, petitioner emphasized that even if the CBA
contained an unconditional obligation to grant the bonus to the respondent Association, In affirming respondent Associations right to the Christmas bonus, the Court
the present difficult economic times had already legally released it therefrom pursuant of Appeals held:
to Article 1267 of the Civil Code.[11]
In the case at bar, it is indubitable that petitioner offered
The Voluntary Arbitrator rendered a Decision dated 2 June 2003, declaring private respondent a Christmas bonus/gift in 1998 or before the
that petitioner is bound to grant each of its workers a Christmas bonus of P3,000.00 for execution of the 1999 CBA which incorporated the said benefit as a
the reason that the bonus was given prior to the effectivity of the CBA between the traditional right of the employees. Hence, the grant of said bonus to
parties and that the financial losses of the company is not a sufficient reason to exempt private respondent can be deemed a practice as the same has not been
it from granting the same. It stressed that the CBA is a binding contract and constitutes given only in the 1999 CBA. Apparently, this is the reason why
the law between the parties. The Voluntary Arbitrator further expounded that since the petitioner specifically recognized the grant of a Christmas bonus/gift
employees had already been given P600.00 cash bonus, the same should be deducted as a practice or tradition as stated in the CBA. x x x.
from the claimed amount of P3,000.00, thus leaving a balance of P2,400.00. The
dispositive portion of the decision states, viz: xxxx

Wherefore, in view of the foregoing respondent LCI is Evidently, the argument of petitioner that the giving of a
hereby ordered to pay the members of the complainant union LCEA Christmas bonus is a management prerogative holds no water. There
their respective Christmas bonus in the amount of three thousand were no conditions specified in the CBA for the grant of said benefit
(P3,000.00) pesos for the year 2002 less the P600.00 already given contrary to the claim of petitioner that the same is justified only when
or a balance of P2,400.00.[12] there are profits earned by the company. As can be gleaned from the
CBA, the payment of Christmas bonus was not contingent upon the
realization of profits. It does not state that if the company derives no incorporation in the CBA, the Christmas bonus due to respondent Association has
profits, there are no bonuses to be given to the employees. In fine, become more than just an act of generosity on the part of the petitioner but a contractual
the payment thereof was not related to the profitability of business obligation it has undertaken.[22]
operations.
A CBA refers to a negotiated contract between a legitimate labor organization and the
Moreover, it is undisputed that petitioner, aside from giving employer, concerning wages, hours of work and all other terms and conditions of
the mandated 13th month pay, has further been giving its employees employment in a bargaining unit. As in all other contracts, the parties to a CBA may
an additional Christmas bonus at the end of the year since 1998 or establish such stipulations, clauses, terms and conditions as they may deem convenient,
before the effectivity of the CBA in September 1999. Clearly, the provided these are not contrary to law, morals, good customs, public order or public
grant of Christmas bonus from 1998 up to 2001, which brought about policy.[23]
the filing of the complaint for alleged non-payment of the 2002
Christmas bonus does not involve the exercise of management It is a familiar and fundamental doctrine in labor law that the CBA is the law
prerogative as the same was given continuously on or about between the parties and they are obliged to comply with its provisions.[24] This principle
Christmas time pursuant to the CBA. Consequently, the giving of stands strong and true in the case at bar.
said bonus can no longer be withdrawn by the petitioner as this would
amount to a diminution of the employees existing benefits. [15] A reading of the provision of the CBA reveals that the same provides for the
giving of a Christmas gift package/bonus without qualification. Terse and clear, the
said provision did not state that the Christmas package shall be made to depend on the
Not to be dissuaded, petitioner is now before this Court. The only issue before petitioners financial standing. The records are also bereft of any showing that the
us is whether or not the Court of Appeals erred in affirming the ruling of the voluntary petitioner made it clear during CBA negotiations that the bonus was dependent on any
arbitrator that the petitioner is obliged to give the members of the respondent condition. Indeed, if the petitioner and respondent Association intended that
Association a Christmas bonus in the amount of P3,000.00 in 2002.[16] the P3,000.00 bonus would be dependent on the company earnings, such intention
should have been expressed in the CBA.
We uphold the rulings of the voluntary arbitrator and of the Court of Appeals.
Findings of labor officials, who are deemed to have acquired expertise in matters within It is noteworthy that in petitioners 1998 and 1999 Financial Statements, it took
their respective jurisdictions, are generally accorded not only respect but even finality, note that the 1997 financial crisis in the Asian region adversely affected the Philippine
and bind us when supported by substantial evidence. This is the rule particularly where economy.[25]
the findings of both the arbitrator and the Court of Appeals coincide. [17]
From the foregoing, petitioner cannot insist on business losses as a basis for
As a general proposition, an arbitrator is confined to the interpretation and disregarding its undertaking. It is manifestly clear that petitioner was very much aware
application of the CBA. He does not sit to dispense his own brand of industrial justice: of the imminence and possibility of business losses owing to the 1997 financial
his award is legitimate only in so far as it draws its essence from the CBA.[18] That was crisis. In 1998, petitioner suffered a net loss of P14,347,548.00.[26] Yet it gave
done in this case. a P3,000.00 bonus to the members of the respondent Association. In 1999, when
By definition, a bonus is a gratuity or act of liberality of the giver. It is petitioners very own financial statement reflected that the positive developments in the
something given in addition to what is ordinarily received by or strictly due the economy have yet to favorably affect the operations of the company, [27] and reported a
recipient. A bonus is granted and paid to an employee for his industry and loyalty which loss of P346,025,733.00,[28] it entered into the CBA with the respondent Association
contributed to the success of the employers business and made possible the realization whereby it contracted to grant a Christmas gift package/bonus to the latter. Petitioner
of profits.[19] supposedly continued to incur losses in the years 2000[29] and 2001. Still and all, this
did not deter it from honoring the CBA provision on Christmas bonus as it continued
A bonus is also granted by an enlightened employer to spur the employee to to give P3,000.00 each to the members of the respondent Association in the years 1999,
greater efforts for the success of the business and realization of bigger profits. [20] 2000 and 2001.

Generally, a bonus is not a demandable and enforceable obligation. For a All given, business losses are a feeble ground for petitioner to repudiate its
bonus to be enforceable, it must have been promised by the employer and expressly obligation under the CBA. The rule is settled that any benefit and supplement being
agreed upon by the parties.[21] Given that the bonus in this case is integrated in the CBA, enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated
the same partakes the nature of a demandable obligation. Verily, by virtue of its by the employer. The principle of non-diminution of benefits is founded on the
constitutional mandate to protect the rights of workers and to promote their welfare and
to afford labor full protection.[30]
Hence, absent any proof that petitioners consent was vitiated by fraud, mistake
or duress, it is presumed that it entered into the CBA voluntarily and had full knowledge
of the contents thereof and was aware of its commitments under the contract.

The Court is fully aware that implementation to the letter of the subject CBA
provision may further deplete petitioners resources. Petitioners remedy though lies not
in the Courts invalidation of the provision but in the parties clarification of the same in
subsequent CBA negotiations. Article 253 of the Labor Code is relevant:
Art. 253. Duty to bargain collectively when there exists
a collective bargaining agreement. - When there is a collective
bargaining agreement, the duty to bargain collectively shall also
mean that neither party shall terminate nor modify such
agreement during its lifetime. However, either party can serve a
written notice to terminate or modify the agreement at least sixty
(60) days prior to its expiration date. It shall be the duty of both
parties to keep the status quo and to continue in full force and
effect the terms and conditions of the existing agreement during
the sixty (60)-day period and/or until a new agreement is reached
by the parties.

WHEREFORE, Premises considered, the petition is DENIED for lack of


merit. The Decision of the Court of Appeals dated 5 April 2006 and the Resolution of
the same court dated 13 December 2007 in CA-G.R. SP No. 78334 are AFFIRMED.

SO ORDERED.
Republic of the Philippines
Supreme Court The Facts
Manila
As synthesized by the NLRC, the facts of the case are as follows, viz:
THIRD DIVISION
Eastern Telecommunications Phils., Inc. (ETPI) is a
corporation engaged in the business of providing
EASTERN G.R. No. 185665 telecommunications facilities, particularly leasing international date
TELECOMMUNICATIONS lines or circuits, regular landlines, internet and data services,
PHILIPPINES, INC., employing approximately 400 employees.
Petitioner, Present:
Eastern Telecoms Employees Union (ETEU) is the certified
exclusive bargaining agent of the companys rank and file employees
with a strong following of 147 regular members. It has an existing
- versus - collecti[ve] bargaining agreement with the company to expire in the
VELASCO, JR., J., Chairperson, year 2004 with a Side Agreement signed on September 3, 2001.
BERSAMIN,*
In essence, the labor dispute was a spin-off of the companys
EASTERN TELECOMS ABAD, plan to defer payment of the 2003 14th, 15th and 16th month bonuses
EMPLOYEES UNION, sometime in April 2004. The companys main ground in postponing
Respondent. MENDOZA, and the payment of bonuses is due to allege continuing deterioration of
companys financial position which started in the year 2000.
PERLAS-BERNABE, JJ. However, ETPI while postponing payment of bonuses sometime in
April 2004, such payment would also be subject to availability of
funds.

Invoking the Side Agreement of the existing Collective


Bargaining Agreement for the period 2001-2004 between ETPI and
ETEU which stated as follows:
Promulgated:
4. Employment Related Bonuses. The
Company confirms that the 14th, 15th and
February 8, 2012 16th month bonuses (other than 13th month pay)
x ----------------------------------------------------------------------------------------x are granted.

DECISION The union strongly opposed the deferment in payment of the bonuses
by filing a preventive mediation complaint with the NCMB on July
MENDOZA, J.: 3, 2003, the purpose of which complaint is to determine the date
when the bonus should be paid.

Before the Court is a petition for review on certiorari seeking modification of the June In the conference held at the NCMB, ETPI reiterated its
25, 2008 Decision[1] of the Court of Appeals (CA) and its December 12, 2008 stand that payment of the bonuses would only be made in April 2004
Resolution,[2] in CA-G.R. SP No. 91974, annulling the April 28, 2005 Resolution[3] of to which date of payment, the union agreed. Thus, considering the
the National Labor Relations Commission (NLRC) in NLRC-NCR-CC-000273-04 agreement forged between the parties, the said agreement was
entitled In the Matter of the Labor Dispute in Eastern Telecommunications, reduced to a Memorandum of Agreement. The union requested that
Philippines, Inc. the President of the company should be made a signatory to the
agreement, however, the latter refused to sign. In addition to such a Collective Bargaining Agreements (CBA) which provided for the continuous grant of
refusal, the company made a sudden turnaround in its position by these bonuses in no uncertain terms. ETEU theorized that the grant of the subject
declaring that they will no longer pay the bonuses until the issue is bonuses is not only a company practice but also a contractual obligation of ETPI to the
resolved through compulsory arbitration. union members.

ETEU contended that the unjustified and malicious refusal of the company to
The companys change in position was contained in a letter pay the subject bonuses was a clear violation of the economic provision of the CBA
dated April 14, 2004written to the union by Mr. Sonny Javier, Vice- and constitutes unfair labor practice (ULP). According to ETEU, such refusal was
President for Human Resources and Administration, stating that the nothing but a ploy to spite the union for bringing the matter of delay in the payment of
deferred release of bonuses had been superseded and voided due to the subject bonuses to the National Conciliation and Mediation Board (NCMB). It
the unions filing of the issue to the NCMB on July 18, 2003. He prayed for the award of moral and exemplary damages as well as attorneys fees for the
declared that until the matter is resolved in a compulsory arbitration, unfair labor practice allegedly committed by the company.
the company cannot and will not pay any bonuses to any and all union
members. On the other hand, ETPI in its position paper,[6] questioned the authority of the
NLRC to take cognizance of the case contending that it had no jurisdiction over the
Thus, on April 26, 2004, ETEU filed a Notice of Strike on issue which merely involved the interpretation of the economic provision of the 2001-
the ground of unfair labor practice for failure of ETPI to pay the 2004 CBA Side Agreement. Nonetheless, it maintained that the complaint for
bonuses in gross violation of the economic provision of the existing nonpayment of 14th, 15th and 16th month bonuses for 2003 and 14th month bonus for
CBA. 2004 was bereft of any legal and factual basis. It averred that the subject bonuses were
not part of the legally demandable wage and the grant thereof to its employees was an
On May 19, 2004, the Secretary of Labor and Employment, act of pure gratuity and generosity on its part, involving the exercise of management
finding that the company is engaged in an industry considered vital prerogative and always dependent on the financial performance and realization of
to the economy and any work disruption thereat will adversely affect profits. It posited that it resorted to the discontinuance of payment of the bonuses due
not only its operation but also that of the other business relying on its to the unabated huge losses that the company had continuously experienced. It claimed
services, certified the labor dispute for compulsory arbitration that it had been suffering serious business losses since 2000 and to require the company
pursuant to Article 263 (q) of the Labor Code as amended. to pay the subject bonuses during its dire financial straits would in effect penalize it for
its past generosity. It alleged that the non-payment of the subject bonuses was neither
Acting on the certified labor dispute, a hearing was called flagrant nor malicious and, hence, would not amount to unfair labor practice.
on July 16, 2004 wherein the parties have submitted that the issues
for resolution are (1) unfair labor practice and (2) the grant of 14 th, Further, ETPI argued that the bonus provision in the 2001-2004 CBA Side
15th and 16th month bonuses for 2003, and 14th month bonus for Agreement was a mere affirmation that the distribution of bonuses was discretionary to
2004. Thereafter, they were directed to submit their respective the company, premised and conditioned on the success of the business and availability
position papers and evidence in support thereof after which of cash. It submitted that said bonus provision partook of the nature of a one-time grant
submission, they agreed to have the case considered submitted for which the employees may demand only during the year when the Side Agreement was
decision.[4] executed and was never intended to cover the entire term of the CBA. Finally, ETPI
emphasized that even if it had an unconditional obligation to grant bonuses to its
employees, the drastic decline in its financial condition had already legally released it
In its position paper,[5] the Eastern Telecoms Employees therefrom pursuant to Article 1267 of the Civil Code.
Union (ETEU) claimed that Eastern Telecommunications Philippines, Inc. (ETPI) had
consistently and voluntarily been giving out 14thmonth bonus during the month of On April 28, 2005, the NLRC issued its Resolution dismissing ETEUs
April, and 15th and 16th month bonuses every December of each year (subject complaint and held that ETPI could not be forced to pay the union members the 14 th,
bonuses) to its employees from 1975 to 2002, even when it did not realize any net 15th and 16th month bonuses for the year 2003 and the 14 th month bonus for the year
profits. ETEU posited that by reason of its long and regular concession, the payment of 2004 inasmuch as the payment of these additional benefits was basically a management
these monetary benefits had ripened into a company practice which could no longer be prerogative, being an act of generosity and munificence on the part of the company and
unilaterally withdrawn by ETPI. ETEU added that this long-standing company practice contingent upon the realization of profits. The NLRC pronounced that ETPI may not
had been expressly confirmed in the Side Agreements of the 1998-2001 and 2001-2004 be obliged to pay these extra compensations in view of the substantial decline in its
financial condition. Likewise, the NLRC found that ETPI was not guilty of the ULP
charge elaborating that no sufficient and substantial evidence was adduced to attribute I.
malice to the company for its refusal to pay the subject bonuses. The dispositive portion THE COURT OF APPEALS COMMITTED GRAVE ERROR
of the resolution reads: OF LAW WHEN IT ANNULLED AND SET ASIDE THE
RESOLUTIONS OF THE NLRC DISREGARDING THE
WHEREFORE, premises considered, the instant complaint WELL SETTLED RULE THAT A WRIT OF CERTIORARI
is hereby DISMISSED for lack of merit. (UNDER RULE 65) ISSUES ONLY FOR CORRECTION OF
SO ORDERED.[7] ERRORS OF JURISDICTION OR GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
Respondent ETEU moved for reconsideration but the motion was denied by JURISDICTION.
the NLRC in its Resolution dated August 31, 2005.
II.
Aggrieved, ETEU filed a petition for certiorari[8] before the CA ascribing
grave abuse of discretion on the NLRC for disregarding its evidence which allegedly THE COURT OF APPEALS COMMITTED GRAVE ERROR
would prove that the subject bonuses were part of the union members wages, salaries OF LAW WHEN IT DISREGARDED THE RULE THAT
or compensations. In addition, ETEU asserted that the NLRC committed grave abuse FINDINGS OF FACTS OF QUASI-JUDICIAL BODIES ARE
of discretion when it ruled that ETPI is not contractually bound to give said bonuses to ACCORDED FINALITY IF THEY ARE SUPPORTED BY
the union members. SUBSTANTIAL EVIDENCE CONSIDERING THAT THE
CONCLUSIONS OF THE NLRC WERE BASED ON
In its assailed June 25, 2008 Decision, the CA declared that the Side SUBSTANTIAL AND OVERWHELMING EVIDENCE AND
Agreements of the 1998 and 2001 CBA created a contractual obligation on ETPI to UNDISPUTED FACTS.
confer the subject bonuses to its employees without qualification or condition. It also
found that the grant of said bonuses has already ripened into a company practice and III.
their denial would amount to diminution of the employees benefits. It held that ETPI
could not seek refuge under Article 1267 of the Civil Code because this provision IT WAS A GRAVE ERROR OF LAW FOR THE COURT OF
would apply only when the difficulty in fulfilling the contractual obligation was APPEALS TO CONSIDER THAT THE BONUS GIVEN BY
manifestly beyond the contemplation of the parties, which was not the case therein. The EASTERN COMMUNICATIONS TO ITS EMPLOYEES IS
CA, however, sustained the NLRC finding that the allegation of ULP was devoid of NOT DEPENDENT ON THE REALIZATION OF PROFITS.
merit. The dispositive portion of the questioned decision reads:
IV.
WHEREFORE, premises considered, the instant petition is
GRANTED and the resolution of the National Labor Relations THE COURT OF APPEALS COMMITTED A GRAVE
Commission dated April 28, 2005 is hereby ANNULLED and SET ERROR OF LAW WHEN IT DISREGARDED THE
ASIDE. Respondent Eastern Telecommunications Philippines, Inc. UNDISPUTED FACT THAT EASTERN COMMUNICATIONS
is ordered to pay the members of petitioner their 14th, 15th and IS SUFFERING FROM TREMENDOUS FINANCIAL
16th month bonuses for the year 2003 and 14th month for the year LOSSES, AND ORDERED EASTERN COMMUNICATIONS
2004. The complaint for unfair labor practice against said respondent TO GRANT THE BONUSES REGARDLESS OF THE
is DISMISSED. FINANCIAL DISTRESS OF EASTERN
SO ORDERED.[9] COMMUNICATIONS.

V.

ISSUES THE COURT OF APPEALS COMMITTED A GRAVE


ERROR OF LAW WHEN IT ARRIVED AT THE
Dissatisfied, ETPI now comes to this Court via Rule 45, raising the following CONCLUSION THAT THE GRANT OF BONUS GIVEN BY
errors allegedly committed by the CA, to wit:
EASTERN COMMUNICATIONS TO ITS EMPLOYEES HAS court should have refrained from tackling issues of fact and, instead, limited itself on
RIPENED INTO A COMPANY PRACTICE.[10] issues of jurisdiction and grave abuse of jurisdiction amounting to lack or excess of it.

The Courts Ruling


A careful perusal of the voluminous pleadings filed by the parties leads the As a general rule, in petitions for review under Rule 45, the Court, not being
Court to conclude that this case revolves around the following core issues: a trier of facts, does not normally embark on a re-examination of the evidence presented
1. Whether or not petitioner ETPI is liable to pay 14th, 15th and by the contending parties during the trial of the case considering that the findings of
16th month bonuses for the year 2003 and 14th month bonus for the facts of the CA are conclusive and binding on the Court. The rule, however, admits of
year 2004 to the members of respondent union; and several exceptions, one of which is when the findings of the appellate court are contrary
to those of the trial court or the lower administrative body, as the case may
2. Whether or not the CA erred in not dismissing outright ETEUs be.[11] Considering the incongruent factual conclusions of the CA and the NLRC, this
petition for certiorari. Court finds Itself obliged to resolve it.

ETPI insists that it is under no legal compulsion to pay 14th, 15th and The pivotal question determinative of this controversy is whether the members
16 month bonuses for the year 2003 and 14 th month bonus for the year 2004
th
of ETEU are entitled to the payment of 14th, 15th and 16th month bonuses for the year
contending that they are not part of the demandable wage or salary and that their grant 2003 and 14th month bonus for year 2004.
is conditional based on successful business performance and the availability of
company profits from which to source the same. To thwart ETEUs monetary claims, it After an assiduous assessment of the record, the Court finds no merit in the
insists that the distribution of the subject bonuses falls well within the companys petition.
prerogative, being an act of pure gratuity and generosity on its part. Thus, it can
withhold the grant thereof especially since it is currently plagued with economic From a legal point of view, a bonus is a gratuity or act of liberality of the giver
difficulties and financial losses. It alleges that the companys fiscal situation greatly which the recipient has no right to demand as a matter of right.[12] The grant of a bonus
declined due to tremendous and extraordinary losses it sustained beginning the year is basically a management prerogative which cannot be forced upon the employer who
2000. It claims that it cannot be compelled to act liberally and confer upon its may not be obliged to assume the onerous burden of granting bonuses or other benefits
employees additional benefits over and above those mandated by law when it cannot aside from the employees basic salaries or wages.[13]
afford to do so. It posits that so long as the giving of bonuses will result in the financial
ruin of an already distressed company, the employer cannot be forced to grant the same. A bonus, however, becomes a demandable or enforceable obligation when it
is made part of the wage or salary or compensation of the employee. [14] Particularly
ETPI further avers that the act of giving the subject bonuses did not ripen into instructive is the ruling of the Court in Metro Transit Organization, Inc. v. National
a company practice arguing that it has always been a contingent one dependent on the Labor Relations Commission,[15] where it was written:
realization of profits and, hence, the workers are not entitled to bonuses if the company
does not make profits for a given year. It asseverates that the 1998 and 2001 CBA Side Whether or not a bonus forms part of wages depends upon
Agreements did not contractually afford ETEU a vested property right to a perennial the circumstances and conditions for its payment. If it is additional
payment of the bonuses. It opines that the bonus provision in the Side Agreement allows compensation which the employer promised and agreed to give
the giving of benefits only at the time of its execution. For this reason, it cannot be said without any conditions imposed for its payment, such as success of
that the grant has ripened into a company practice. In addition, it argues that even if business or greater production or output, then it is part of the wage.
such traditional company practice exists, the CA should have applied Article 1267 of But if it is paid only if profits are realized or if a certain level of
the Civil Code which releases the obligor from the performance of an obligation when productivity is achieved, it cannot be considered part of the wage.
it has become so difficult to fulfill the same. Where it is not payable to all but only to some employees and only
when their labor becomes more efficient or more productive, it is
It is the petitioners stance that the CA should have dismissed outright the only an inducement for efficiency, a prize therefore, not a part of the
respondent unions petition for certiorari alleging that no question of jurisdiction wage.
whatsoever was raised therein but, instead, what was being sought was a judicial re-
evaluation of the adequacy or inadequacy of the evidence on record. It claims that the
CA erred in disregarding the findings of the NLRC which were based on substantial The consequential question that needs to be settled, therefore, is whether the
and overwhelming evidence as well as on undisputed facts. ETPI added that the CA subject bonuses are demandable or not. Stated differently, can these bonuses be
considered part of the wage, salary or compensation making them enforceable grant the subject bonuses to ETEU in no uncertain terms. ETPI continued to sustain
obligations? losses for the succeeding years of 2001 and 2002 in the amounts of ₱348,783,013.00
and ₱315,474,444.00, respectively. Still and all, this did not deter it from honoring the
The Court believes so. bonus provision in the Side Agreement as it continued to give the subject bonuses to
each of the union members in 2001 and 2002 despite its alleged precarious financial
In the case at bench, it is indubitable that ETPI and ETEU agreed on the condition. Parenthetically, it must be emphasized that ETPI even agreed to the payment
inclusion of a provision for the grant of 14 th, 15th and 16th month bonuses in the 1998- of the 14th, 15th and 16th month bonuses for 2003 although it opted to defer the actual
2001 CBA Side Agreement,[16] as well as in the 2001-2004 CBA Side grant in April 2004. All given, business losses could not be cited as grounds for ETPI
Agreement,[17] which was signed on September 3, 2001. The provision, which was to repudiate its obligation under the 2001-2004 CBA Side Agreement.
similarly worded, states:
The Court finds no merit in ETPIs contention that the bonus provision
Employment-Related Bonuses confirms the grant of the subject bonuses only on a single instance because if this is so,
The Company confirms that the 14th, 15th and 16th month bonuses the parties should have included such limitation in the agreement. Nowhere in the Side
(other than the 13thmonth pay) are granted. Agreement does it say that the subject bonuses shall be conferred once during the year
the Side Agreement was signed. The Court quotes with approval the observation of the
A reading of the above provision reveals that the same provides for the giving CA in this regard:
of 14th, 15thand 16th month bonuses without qualification. The wording of the provision
does not allow any other interpretation. There were no conditions specified in the CBA ETPI argues that assuming the bonus provision in the Side
Side Agreements for the grant of the benefits contrary to the claim of ETPI that the Agreement of the 2001-2004 CBA entitles the union members to the
same is justified only when there are profits earned by the company. Terse and clear, subject bonuses, it is merely in the nature of a one-time grant and not
the said provision does not state that the subject bonuses shall be made to depend on intended to cover the entire term of the CBA. The contention is
the ETPIs financial standing or that their payment was contingent upon the realization untenable. The bonus provision in question is exactly the same as that
of profits. Neither does it state that if the company derives no profits, no bonuses are to contained in the Side Agreement of the 1998-2001 CBA and there is
be given to the employees. In fine, the payment of these bonuses was not related to the no denying that from 1998 to 2001, ETPI granted the subject bonuses
profitability of business operations. for each of those years. Thus, ETPI may not now claim that the bonus
provision in the Side Agreement of the 2001-2004 CBA is only a
The records are also bereft of any showing that the ETPI made it clear before one-time grant.[18]
or during the execution of the Side Agreements that the bonuses shall be subject to any
condition. Indeed, if ETPI and ETEU intended that the subject bonuses would be ETPI then argues that even if it is contractually bound to distribute the subject
dependent on the company earnings, such intention should have been expressly bonuses to ETEU members under the Side Agreements, its current financial difficulties
declared in the Side Agreements or the bonus provision should have been deleted should have released it from the obligatory force of said contract invoking Article 1267
altogether. In the absence of any proof that ETPIs consent was vitiated by fraud, of the Civil Code. Said provision declares:
mistake or duress, it is presumed that it entered into the Side Agreements voluntarily,
that it had full knowledge of the contents thereof and that it was aware of its Article 1267. When the service has become so difficult as
commitment under the contract. Verily, by virtue of its incorporation in the CBA Side to be manifestly beyond the contemplation of the parties, the obligor
Agreements, the grant of 14th, 15th and 16thmonth bonuses has become more than just may also be released therefrom, in whole or in part.
an act of generosity on the part of ETPI but a contractual obligation it has
undertaken. Moreover, the continuous conferment of bonuses by ETPI to the union
members from 1998 to 2002 by virtue of the Side Agreements evidently negates its
argument that the giving of the subject bonuses is a management prerogative. The Court is not persuaded.

From the foregoing, ETPI cannot insist on business losses as a basis for The parties to the contract must be presumed to have assumed the risks of
disregarding its undertaking. It is manifestly clear that although it incurred business unfavorable developments. It is, therefore, only in absolutely exceptional changes of
losses of ₱149,068,063.00 in the year 2000, it continued to distribute 14th, 15th and circumstances that equity demands assistance for the debtor.[19] In the case at bench,
16th month bonuses for said year. Notwithstanding such huge losses, ETPI entered into the Court determines that ETPIs claimed depressed financial state will not release it
the 2001-2004 CBA Side Agreement on September 3, 2001 whereby it contracted to from the binding effect of the 2001-2004 CBA Side Agreement.
any way diminish supplements, or other employee benefits being
ETPI appears to be well aware of its deteriorating financial condition when it enjoyed at the time of promulgation of this Code.
entered into the 2001-2004 CBA Side Agreement with ETEU and obliged itself to pay
bonuses to the members of ETEU. Considering that ETPI had been continuously The rule is settled that any benefit and supplement being enjoyed by the
suffering huge losses from 2000 to 2002, its business losses in the year 2003 were not employees cannot be reduced, diminished, discontinued or eliminated by the employer.
exactly unforeseen or unexpected. Consequently, it cannot be said that the difficulty in The principle of non-diminution of benefits is founded on the constitutional mandate
complying with its obligation under the Side Agreement was manifestly beyond the to protect the rights of workers and to promote their welfare and to afford labor full
contemplation of the parties. Besides, as held in Central Bank of the Philippines v. protection.[22]
Court of Appeals,[20] mere pecuniary inability to fulfill an engagement does not
discharge a contractual obligation. Contracts, once perfected, are binding between the Interestingly, ETPI never presented countervailing evidence to refute ETEUs
contracting parties. Obligations arising therefrom have the force of law and should be claim that the company has been continuously paying bonuses since 1975 up to 2002
complied with in good faith. ETPI cannot renege from the obligation it has freely regardless of its financial state. Its failure to controvert the allegation, when it had the
assumed when it signed the 2001-2004 CBA Side Agreement. opportunity and resources to do so, works in favor of ETEU. Time and again, it has
been held that should doubts exist between the evidence presented by the employer and
Granting arguendo that the CBA Side Agreement does not contractually bind the employee, the scales of justice must be tilted in favor of the latter.[23]
petitioner ETPI to give the subject bonuses, nevertheless, the Court finds that its act of
granting the same has become an established company practice such that it has virtually WHEREFORE, the petition is DENIED. The June 25, 2008 Decision of the
become part of the employees salary or wage. A bonus may be granted on equitable Court of Appeals and its December 12, 2008 Resolution are AFFIRMED.
consideration when the giving of such bonus has been the companys long and regular
practice. In Philippine Appliance Corporation v. Court of Appeals, [21] it was SO ORDERED.
pronounced:

To be considered a regular practice, however, the giving of


the bonus should have been done over a long period of time, and must
be shown to have been consistent and deliberate. The test or rationale
of this rule on long practice requires an indubitable showing that the
employer agreed to continue giving the benefits knowing fully well
that said employees are not covered by the law requiring payment
thereof.

The records show that ETPI, aside from complying with the regular 13th
month bonus, has been further giving its employees 14th month bonus every April as
well as 15th and 16th month bonuses every December of the year, without fail, from
1975 to 2002 or for 27 years whether it earned profits or not. The considerable length
of time ETPI has been giving the special grants to its employees indicates a unilateral
and voluntary act on its part to continue giving said benefitsknowing that such act was
not required by law. Accordingly, a company practice in favor of the employees has
been established and the payments made by ETPI pursuant thereto ripened into benefits
enjoyed by the employees.

The giving of the subject bonuses cannot be peremptorily withdrawn by ETPI


without violating Article 100 of the Labor Code:

Art. 100. Prohibition against elimination or diminution of


benefits. Nothing in this Book shall be construed to eliminate or in ‘
monthly income of P1,400.00. Sometime in July 1989, petitioner voluntarily increased
Republic of the Philippines respondents monthly salary to P3,000.00.[3]
Supreme Court
Manila In February 1993, DNL Security informed respondents that its service contract with
petitioner was terminated. This notwithstanding, DNL Security instructed respondents
SECOND DIVISION to continue reporting for work to petitioner. Respondents worked as instructed until
April 20, 1993, but without receiving their wages; after which, they were terminated
GOVERNMENT SERVICE INSURANCE G.R. No. 180045 from employment.[4]
SYSTEM,
Petitioner, Present: On June 15, 1995, respondents filed with the National Labor Relations Commission
- versus - (NLRC), Regional Arbitration Branch No. VIII, Tacloban City, a complaint against
CARPIO, J., DNL Security and petitioner for illegal dismissal, separation pay, salary differential,
Chairperson, 13th month pay, and payment of unpaid salary.
NATIONAL LABOR RELATIONS NACHURA,
COMMISSION (NLRC), DIONISIO PERALTA, On September 30, 1997, Labor Arbiter (LA) Benjamin S. Guimoc rendered a
BANLASAN, ALFREDO T. TAFALLA, ABAD, and decision[5] against DNL Security and petitioner, the dispositive portion of which reads:
TELESFORO D. RUBIA, ROGELIO A. MENDOZA, JJ.
ALVAREZ, DOMINADOR A. ESCOBAL, and
ROSAURO PANIS, Promulgated: WHEREFORE, judgment is hereby rendered in this manner[,] to wit:
Respondents.
1. Finding no illegal dismissal of complainants;
November 17, 2010
2. Ordering respondent DNL Security Agency only to
pay complainants the amount of P176,130.00
representing separation pay; the amount of P42,666.40
representing wages of complainants from February
1993 to April 20, 1993;

3. Ordering as joint and solidary liability by the


respondents DNL Security Agency and GSIS the
x------------------------------------------------------------------------------------x amount of P48,385.87 representing salary
differential[;] the amount of P55,564.92 as 13th month
DECISION pay; all in the aggregate sum of THREE HUNDRED
TWENTY-TWO THOUSAND SEVEN HUNDRED
NACHURA, J.: FORTY-SEVEN & 19/100 (P322,747.19) to be paid by
This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking both or either of the said respondent within ten (10)
to reverse and set aside the Decision[1] and the Resolution[2] of the Court of Appeals days from receipt of this decision and to be deposited
(CA) dated September 7, 2006 and September 27, 2007, respectively, in CA-G.R. SP with the cashier of this office for proper disposition.
No. 50450.
SO ORDERED.[6]
The facts of the case are as follows:
The LA found that respondents were not illegally terminated from employment because
Respondents Dionisio Banlasan, Alfredo T. Tafalla, Telesforo D. Rubia, Rogelio A. the employment of security guards is dependent on the service contract between the
Alvarez, Dominador A. Escobal, and Rosauro Panis were employed as security guards security agency and its client. However, considering that respondents had been out of
by DNL Security Agency (DNL Security). By virtue of the service contract entered into work for a long period, and consonant with the principle of social justice, the LA
by DNL Security and petitioner Government Service Insurance System on May 1, awarded respondents with separation pay equivalent to one (1) month salary for every
1978, respondents were assigned to petitioners Tacloban City office, each receiving a
year of service, to be paid by DNL Security. Because DNL Security instructed thereof made petitioner solidarily liable for said awards. Petitioner further questions the
respondents to continue working for petitioner from February 1993 to April 20, 1993, award of monetary benefits for lack of evidence to substantiate said claims. Lastly,
DNL Security was also made to pay respondents wages for the period. The LA further petitioner argues that the enforcement of the decision is impossible, considering that
granted respondents claim of salary differential, as they were paid wages below the petitioners charter unequivocally exempts it from execution. [12]
minimum wage, as well as 13th month pay. For these monetary awards, petitioner was
made solidarily liable with DNL Security, as the indirect employer of respondents. [7] We partly grant the petition.
The resolution of the petition before us involves the appreciation and determination of
DNL Security filed a motion for reconsideration, while petitioner appealed to the factual matters, mainly on the issue of whether petitioners appeal was seasonably filed
NLRC.[8] before the NLRC.
Timeliness of an appeal is a factual issue. It requires a review or evaluation of the
In a resolution[9] dated December 9, 1997, the NLRC treated DNL Securitys motion for evidence which would show when the appeal was actually mailed to and received by
reconsideration as an appeal, but dismissed the same, as it was not legally perfected. It the NLRC.[13] In this case, to prove that it mailed the notice of appeal and appeal
likewise dismissed petitioners appeal, having been filed beyond the reglementary memorandum on October 27, 1997, instead of October 28, 1997, as shown by the
period. stamped date on the envelope, petitioner presented Registry Receipt No. 34581 bearing
the earlier date.
Undaunted, petitioner filed a petition for certiorari under Rule 65 of the Rules of Court
before the CA. On September 7, 2006, the CA rendered the assailed Under Section 3, Rule 13 of the Rules of Court, where the filing of pleadings,
Decision[10] affirming the NLRC ruling.Petitioners motion for reconsideration was appearances, motions, notices, orders, judgments, and all other papers with the
denied by the CA on September 27, 2007. court/tribunal is made by registered mail, the date of mailing, as shown by the post
office stamp on the envelope or the registry receipt, shall be considered as the date of
Hence, the present petition raising the following errors: filing.[14]
The Court of Appeals committed a reversible error in finding
that the public respondent NLRC did not commit grave abuse of Thus, the date of filing is determinable from two sources: from the post office stamp
discretion amounting to lack or excess of jurisdiction in on the envelope or from the registry receipt, either of which may suffice to prove the
dismissing the appeal of the petitioner GSIS, considering that: timeliness of the filing of the pleadings. If the date stamped on one is earlier than the
other, the former may be accepted as the date of filing. This presupposes, however, that
1. The Court of Appeals disregarded the facts and the envelope or registry receipt and the dates appearing thereon are duly authenticated
circumstances evidencing the timeliness of the petitioner GSIS before the tribunal where they are presented.[15]
appeal before the NLRC and sacrificed substantial justice in the
altar of dubious technicalities; and In any case, even if the appeal was filed one day late, the same should have
been entertained by the NLRC. Indeed, the appeal must be perfected within the
2. The Court of Appeals misapplied the law and mistakenly statutory or reglementary period. This is not only mandatory, but also
affirmed the public respondent NLRCs decision that the jurisdictional. Failure to perfect the appeal on time renders the assailed decision final
petitioner GSIS is jointly and severally liable with DNL Security and executory and deprives the appellate court or body of the legal authority to alter
Agency for payment of the unsubstantiated amounts of Salary the final judgment, much less entertain the appeal. However, this Court has, time and
Differentials and the 13th Month Pay to the private respondent again, ruled that, in exceptional cases, a belated appeal may be given due course if
security guards.[11] greater injustice will be visited upon the party should the appeal be denied. The Court
has allowed this extraordinary measure even at the expense of sacrificing order and
efficiency if only to serve the greater principles of substantial justice and equity. [16]
Petitioner insists that its appeal before the NLRC was filed on time, having
been filed through registered mail on October 27, 1997, as evidenced by Registry Technicality should not be allowed to stand in the way of equitably and completely
Receipt No. 34581 countersigned by the postmaster. It adds that, even assuming that resolving the rights and obligations of the parties. We have consistently held that
the appeal was indeed filed one day late, the NLRC should not have strictly applied the technical rules are not binding in labor cases and are not to be applied strictly if the
Rules in order to effect substantial justice. Petitioner also claims that although the body result would be detrimental to the working man.[17]
of the LA decision made DNL Security solely liable for respondents wages from
February 1993 to April 20, 1993, and for their separation pay, the dispositive portion
The Court notes, however, that while the CA affirmed the dismissal by the xxxx
NLRC of petitioners appeal for being filed out of time, it nonetheless delved into the
merits of the case. This notwithstanding, we do not entirely agree with the appellate ART. 109. Solidary liability. The provisions of existing
courts conclusion affirming in toto the LA decision. laws to the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or
In this case, the LAs discussion of the issues appears to be in conflict with his subcontractor for any violation of any provision of this Code. For
final conclusion. This would have required a measure of clarification. But instead of purposes of determining the extent of their civil liability under this
looking into the errors allegedly committed by the LA, the NLRC dismissed the appeal Chapter, they shall be considered as direct employers.
on a mere technicality. The CA likewise failed to correct the apparent mistake in the
LA decision. Thus, we are constrained to review the merits of the case.
We need not discuss DNL Securitys responsibility as respondents direct This statutory scheme is designed to give the workers ample protection,
employer because DNL Securitys failure to interpose an appeal from the LA decision consonant with labor and social justice provisions of the 1987 Constitution. [18]
has resulted in the finality of the LA decision. The only issue that we should resolve is
the matter of petitioners liability as indirect employer.
This Courts pronouncement in Rosewood Processing, Inc. v. NLRC[19] is
The fact that there is no actual and direct employer-employee relationship noteworthy:
between petitioner and respondents does not absolve the former from liability for the
latters monetary claims. When petitioner contracted DNL Securitys services, petitioner The joint and several liability of the employer or principal
became an indirect employer of respondents, pursuant to Article 107 of the Labor Code, was enacted to ensure compliance with the provisions of the Code,
which reads: 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
ART. 107. Indirect employer. The provisions of the contractors employees. This liability facilitates, if not guarantees,
immediately preceding Article shall likewise apply to any person, payment of the workers compensation, thus, giving the workers
partnership, association or corporation which, not being an employer, ample protection as mandated by the 1987 Constitution. This is not
contracts with an independent contractor for the performance of any unduly burdensome to the employer. Should the indirect employer
work, task, job or project. 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.[20]
After DNL Security failed to pay respondents the correct wages and other
monetary benefits, petitioner, as principal, became jointly and severally liable, as
provided in Articles 106 and 109 of the Labor Code, which state: Petitioners liability covers the payment of respondents salary differential and
13th month pay during the time they worked for petitioner. In addition, petitioner is
ART. 106. Contractor or subcontractor. Whenever an solidarily liable with DNL Security for respondents unpaid wages from February 1993
employer enters into a contract with another person for the until April 20, 1993. While it is true that respondents continued working for petitioner
performance of the formers work, the employees of the contractor after the expiration of their contract, based on the instruction of DNL Security,
and of the latters subcontractor, if any, shall be paid in accordance petitioner did not object to such assignment and allowed respondents to render service.
with the provisions of this Code. Thus, petitioner impliedly approved the extension of respondents
services. Accordingly, petitioner is bound by the provisions of the Labor Code on
In the event that the contractor or subcontractor fails to pay indirect employment.Petitioner cannot be allowed to deny its obligation to respondents
the wages of his employees in accordance with this Code, the after it had benefited from their services. So long as the work, task, job, or project has
employer shall be jointly and severally liable with his contractor or been performed for petitioners benefit or on its behalf, the liability accrues for such
subcontractor to such employees to the extent of the work performed services.[21] The principal is made liable to its indirect employees because, after all, it
under the contract, in the same manner and extent that he is liable to can protect itself from irresponsible contractors by withholding payment of such sums
employees directly employed by him. x x x. that are due the employees and by paying the employees directly, or by requiring a bond
from the contractor or subcontractor for this purpose.[22]
Petitioners liability, however, cannot extend to the payment of separation pay. GSIS is allowed to assume a character similar to a private
An order to pay separation pay is invested with a punitive character, such that an corporation. Thus, it may sue and be sued, as also, explicitly granted
indirect employer should not be made liable without a finding that it had conspired in by its charter x x x.[27]
the illegal dismissal of the employees.[23]
To be sure, petitioners charter should not be used to evade its liabilities to its employees,
It should be understood, though, that the solidary liability of petitioner does even to its indirect employees, as mandated by the Labor Code.
not preclude the application of Article 1217 of the Civil Code on the right of
reimbursement from its co-debtor, viz.:[24] WHEREFORE, premises considered, the Court of Appeals Decision and
Resolution dated September 7, 2006 and September 27, 2007, respectively, in CA-G.R.
Art. 1217. Payment made by one of the solidary debtors SP No. 50450, are AFFIRMED with MODIFICATION. Petitioner Government
extinguishes the obligation. If two or more solidary debtors offer to Service Insurance System is declared solidarily liable with DNL Security
pay, the creditor may choose which offer to accept. to PAY respondents their wage differentials, thirteenth month pay, and unpaid wages
from February 1993 to April 20, 1993, but is EXONERATED from the payment of
He who made the payment may claim from his co-debtors respondents separation pay.
only the share which corresponds to each, with the interest for the
payment already made. If the payment is made before the debt is due, SO ORDERED.
no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his


insolvency, reimburse his share to the debtor paying the obligation,
such share shall be borne by all his co-debtors, in proportion to the
debt of each.

Lastly, we do not agree with petitioner that the enforcement of the decision is
impossible because its charter unequivocally exempts it from execution. As held
in Government Service Insurance System v. Regional Trial Court of Pasig City,
Branch 71,[25] citing Rubia v. GSIS: [26]

The processual exemption of the GSIS funds and properties


under Section 39 of the GSIS Charter, in our view, should be read
consistently with its avowed principal purpose: to maintain actuarial
solvency of the GSIS in the protection of assets which are to be used
to finance the retirement, disability and life insurance benefits of its
members. Clearly, the exemption should be limited to the purposes
and objects covered. Any interpretation that would give it an
expansive construction to exempt all GSIS assets from legal
processes absolutely would be unwarranted.

Furthermore, the declared policy of the State in Section 39


of the GSIS Charter granting GSIS an exemption from tax, lien,
attachment, levy, execution, and other legal processes should be read
together with the grant of power to the GSIS to invest its excess funds
under Section 36 of the same Act. Under Section 36, the GSIS is
granted the ancillary power to invest in business and other ventures
for the benefit of the employees, by using its excess funds for
investment purposes. In the exercise of such function and power, the
Republic of the Philippines ROBERTO ROSALES, GERRY C.
Supreme Court GATPO, GERMAN N. GUEVARRA, Present:
Manila GILBERT Y. MIRANDA, RODOLFO C.
TOLEDO, ARNOLD D. LASTONA, CARPIO, J., Chairperson,
SECOND DIVISION PHILIP M. LOZA, MARIO N. BRION,
CULDAYON, ORLANDO P. JIMENEZ, DEL CASTILLO,
FRED P. JIMENEZ, RESTITUTO C. ABAD, and
JOEB M. ALIVIADO, ARTHUR G.R. No. 160506 PAMINTUAN, JR., ROLANDO J. DE PEREZ, JJ.
CORPUZ, ERIC ALIVIADO, ANDRES, ARTUZ BUSTENERA,
MONCHITO AMPELOQUIO, ROBERTO B. CRUZ, ROSEDY O.
ABRAHAM BASMAYOR, YORDAN, DENNIS DACASIN,
JONATHAN MATEO, LORENZO ALEJANDRINO ABATON, and
PLATON, JOSE FERNANDO ORLANDO S. BALANGUE,
GUTIERREZ, ESTANISLAO Petitioners,
BUENAVENTURA, LOPE SALONGA,
FRANZ DAVID, NESTOR IGNACIO, - versus -
JULIO REY, RUBEN MARQUEZ, JR.,
MAXIMINO PASCUAL, ERNESTO PROCTER & GAMBLE PHILS., INC., Promulgated:
CALANAO, ROLANDO and PROMM-GEM INC., March 9, 2010
ROMASANTA, RHUEL AGOO, Respondents.
BONIFACIO ORTEGA, ARSENIO x-------------------------------------------------------------------
SORIANO, JR., ARNEL ENDAYA, x
ROBERTO ENRIQUEZ, NESTOR
BAQUILA, EDGARDO QUIAMBAO,
SANTOS BACALSO, SAMSON BASCO, DECISION
ALADINO GREGORO, JR., EDWIN
GARCIA, ARMANDO VILLAR, EMIL DEL CASTILLO, J.:
TAWAT, MARIO P. LIONGSON,
CRESENTE J. GARCIA, FERNANDO Labor laws expressly prohibit labor-only contracting. To prevent its circumvention, the Labor
MACABENTE, MELECIO CASAPAO, Codeestablishes an employer-employee relationship between the employer and the employees
REYNALDO JACABAN, FERDINAND of the labor-only contractor.
SALVO, ALSTANDO MONTOS,
RAINER N. SALVADOR, RAMIL The instant petition for review assails the March 21, 2003 Decision[1] of the Court of Appeals
REYES, PEDRO G. ROY, LEONARDO (CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution[2] denying the motions for
P. TALLEDO, ENRIQUE F. TALLEDO, reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc.
WILLIE ORTIZ, ERNESTO SOYOSA, (P&G). The appellate court affirmed the July 27, 1998 Decision of the National Labor Relations
ROMEO VASQUEZ, JOEL BILLONES, Commission (NLRC), which in turn affirmed the November 29, 1996 Decision[3] of the Labor
ALLAN BALTAZAR, NOLI GABUYO, Arbiter. All these decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions
EMMANUEL E. LABAN, RAMIR E. Services (SAPS) to be legitimate independent contractors and the employers of the petitioners.
PIAT, RAUL DULAY, TADEO DURAN,
JOSEPH BANICO, ALBERT LEYNES, Factual Antecedents
ANTONIO DACUNA, RENATO DELA
CRUZ, ROMEO VIERNES, JR., ELAIS Petitioners worked as merchandisers of P&G from various dates, allegedly starting as
BASEO, WILFREDO TORRES, early as 1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically
MELCHOR CARDANO, MARIANO as follows:
NARANIAN, JOHN SUMERGIDO,
Name Date Employed Date Dismissed 46. Joel Billones 1987 March 11, 1993
1. Joeb M. Aliviado November, 1985 May 5, 1992 47. Allan Baltazar 1989 March 11, 1993
2. Arthur Corpuz 1988 March 11, 1993 48. Noli Gabuyo 1991 March 11, 1993
3. Eric Aliviado 1985 March 11, 1993 49. Emmanuel E. Laban 1987 May 5, 1992
4. Monchito Ampeloquio September, 1988 March 11, 1993 50. Ramir[o] E. [Pita] 1990 May 5, 1992
5. Abraham Basmayor[, Jr.] 1987 March 11, 1993 51. Raul Dulay 1988 May 5, 1992
6. Jonathan Mateo May, 1988 March 11, 1993 52. Tadeo Duran[o] 1988 May 5, 1992
7. Lorenzo Platon 1985 March 11, 1993 53. Joseph Banico 1988 March 11, 1993
8. Jose Fernando Gutierrez 1988 May 5, 1992 54. Albert Leynes 1990 May 5, 1992
9. Estanislao Buenaventura June, 1988 March 11, 1993 55. Antonio Dacu[m]a 1990 May 5, 1992
10. Lope Salonga 1982 March 11, 1993 56. Renato dela Cruz 1982
11. Franz David 1989 March 11, 1993 57. Romeo Viernes, Jr. 1986
12. Nestor Ignacio 1982 March 11, 1993 58. El[ia]s Bas[c]o 1989
13. Julio Rey 1989 May 5, 1992 59. Wilfredo Torres 1986 May 5, 1992
14. Ruben [Vasquez], Jr. 1985 May 5, 1992 60. Melchor Carda[]o 1991 May 5, 1992
15. Maximino Pascual 1990 May 5, 1992 61. [Marino] [Maranion] 1989 May 5, 1992
16. Ernesto Calanao[, Jr.] 1987 May 5, 1992 62. John Sumergido 1987 May 5, 1992
17. Rolando Romasanta 1983 March 11, 1993 63. Roberto Rosales May, 1987 May 5, 1992
18. [Roehl] Agoo 1988 March 11, 1993 64. Gerry [G]. Gatpo November, 1990 March 11, 1993
19. Bonifacio Ortega 1988 March 11, 1993 65. German N. Guevara May, 1990 March 11, 1993
20. Arsenio Soriano, Jr. 1985 March 11, 1993 66. Gilbert Y. Miranda June, 1991 March 11, 1993
21. Arnel Endaya 1983 March 11, 1993 67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993
22. Roberto Enriquez December, 1988 March 11, 1993 68. Arnold D. [Laspoa] June 1991 March 11, 1993
23. Nestor [Es]quila 1983 May 5, 1992 69. Philip M. Loza March 5, 1992 March 11, 1993
24. Ed[g]ardo Quiambao 1989 March 11, 1993 70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993
25. Santos Bacalso 1990 March 11, 1993 71. Orlando P. Jimenez November 6, 1992 March 11, 1993
26. Samson Basco 1984 March 11, 1993 72. Fred P. Jimenez September, 1991 March 11, 1993
27. Aladino Gregor[e], Jr. 1980 May 5, 1992 73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993
28. Edwin Garcia 1987 May 5, 1992 74. Rolando J. de Andres June, 1991 March 11, 1993
29. Armando Villar 1990 May 5, 1992 75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993
30. Emil Tawat 1988 March 11, 1993 76. Roberto B. Cruz May 4, 1990 March 11, 1993
31. Mario P. Liongson 1991 May 5, 1992 77. Rosedy O. Yordan June, 1991 May 5, 1992
32. Cresente J. Garcia 1984 March 11, 1993 78. Dennis Dacasin May. 1990 May 5, 1992
33. Fernando Macabent[a] 1990 May 5, 1992 79. Alejandrino Abaton 1988 May 5, 1992
34. Melecio Casapao 1987 March 11, 1993 80. Orlando S. Balangue March, 1989 March 11, 1993[4]
35. Reynaldo Jacaban 1990 May 5, 1992 They all individually signed employment contracts with either Promm-Gem or SAPS for periods
36. Ferdinand Salvo 1985 May 5, 1992 of more or less five months at a time.[5] They were assigned at different outlets, supermarkets and
37. Alstando Montos 1984 March 11, 1993 stores where they handled all the products of P&G. They received their wages from Promm-
38. Rainer N. Salvador 1984 May 5, 1992 Gem or SAPS.[6]
39. Ramil Reyes 1984 March 11, 1993 SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for
40. Pedro G. Roy 1987 reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.[7]
41. Leonardo [F]. Talledo 1985 March 11, 1993
42. Enrique [F]. Talledo 1988 March 11, 1993 P&G is principally engaged in the manufacture and production of different consumer and health
43. Willie Ortiz 1987 May 5, 1992 products, which it sells on a wholesale basis to various supermarkets and distributors.[8] To
44. Ernesto Soyosa 1988 May 5, 1992 enhance consumer awareness and acceptance of the products, P&G entered into contracts with
45. Romeo Vasquez 1985 March 11, 1993 Promm-Gem and SAPS for the promotion and merchandising of its products.[9]
In December 1991, petitioners filed a complaint[10] against P&G for regularization, Issues
service incentive leave pay and other benefits with damages. The complaint was later
amended[11] to include the matter of their subsequent dismissal. Petitioners now come before us raising the following issues:
I.
Ruling of the Labor Arbiter WHETHER X X X THE HONORABLE COURT OF APPEALS HAS
COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT
On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit FIND THE PUBLIC RESPONDENTS TO HAVE ACTED WITH
and ruled that there was no employer-employee relationship between petitioners and P&G. He GRAVEABUSE OF DISCRETION AMOUNTING TO LACK OF OR
found that the selection and engagement of the petitioners, the payment of their wages, the power IN EXCESS OF JURISDICTION IN RENDERING THE QUESTIONED
of dismissal and control with respect to the means and methods by which their work was JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS WERE
accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that ABLE TO PROVE AND ESTABLISH THAT RESPONDENT
Promm-Gem and SAPS were legitimate independent job contractors. The dispositive portion of PROCTER & GAMBLE PHILS., INC. IS THEIR EMPLOYER AND
his Decision reads: THAT THEY WERE ILLEGALLY DISMISSED BY THE FORMER.

WHEREFORE, premises considered, judgment is hereby rendered II.


Dismissing the above-entitled cases against respondent Procter & Gamble WHETHER X X X THE HONORABLE COURT OF APPEALS HAS
(Phils.), Inc. for lack of merit. COMMITTED [A] REVERSIBLE ERROR WHEN IT DID NOT
DECLARE THAT THE PUBLIC RESPONDENTS HAD ACTED WITH
SO ORDERED.[12] GRAVE ABUSE OF DISCRETION WHEN THE LATTER DID NOT
Ruling of the NLRC FIND THE PRIVATE RESPONDENTS LIABLE TO THE
PETITIONERS FOR PAYMENT OF ACTUAL, MORAL AND
Appealing to the NLRC, petitioners disputed the Labor Arbiters findings. On July 27, EXEMPLARY DAMAGES AS WELL AS LITIGATION COSTS AND
1998, the NLRC rendered a Decision[13] disposing as follows: ATTORNEYS FEES.[17]

WHEREFORE, premises considered, the appeal of complainants is hereby Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2)
DISMISSED and the decision appealed from AFFIRMED. whether petitioners were illegally dismissed; and (3) whether petitioners are entitled for payment
of actual, moral and exemplary damages as well as litigation costs and attorneys fees.
SO ORDERED.[14]
Petitioners filed a motion for reconsideration but the motion was denied in the November 19, Petitioners Arguments
1998Resolution.[15]
Petitioners insist that they are employees of P&G. They claim that they were recruited
Ruling of the Court of Appeals by the salesmen of P&G and were engaged to undertake merchandising chores for P&G long
before the existence of Promm-Gem and/or SAPS. They further claim that when the latter had
Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of its so-called re-alignment program, petitioners were instructed to fill up application forms and
discretion amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the report to the agencies which P&G created.[18]
NLRC. However, said petition was also denied by the CA which disposed as follows:
Petitioners further claim that P&G instigated their dismissal from work as can be
WHEREFORE, the decision of the National Labor Relations Commission gleaned from its letter[19] to SAPS dated February 24, 1993, informing the latter that their
dated July 27, 1998 is AFFIRMED with the MODIFICATION that Merchandising Services Contract will no longer be renewed.
respondent Procter & Gamble Phils., Inc. is ordered to pay service incentive Petitioners further assert that Promm-Gem and SAPS are labor-only contractors
leave pay to petitioners. providing services of manpower to their client. They claim that the contractors have neither
substantial capital nor tools and equipment to undertake independent labor
SO ORDERED.[16] contracting. Petitioners insist that since they had been engaged to perform activities which are
necessary or desirable in the usual business or trade of P&G, then they are its regular
Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this petition. employees.[20]
work, the employees of the contractor and of the latters subcontractor, if any,
Respondents Arguments shall be paid in accordance with the provisions of this Code.

On the other hand, P&G points out that the instant petition raises only questions of fact In the event that the contractor or subcontractor fails to pay the
and should thus be thrown out as the Court is not a trier of facts. It argues that findings of facts wages of his employees in accordance with this Code, the employer shall be
of the NLRC, particularly where the NLRC and the Labor Arbiter are in agreement, are deemed jointly and severally liable with his contractor or subcontractor to such
binding and conclusive on the Supreme Court. 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
P&G further argues that there is no employment relationship between it and him.
petitioners. It was Promm-Gem or SAPS that (1) selected petitioners and engaged their services;
(2) paid their salaries; (3) wielded the power of dismissal; and (4) had the power of control over The Secretary of Labor may, by appropriate regulations, restrict
their conduct of work. 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
P&G also contends that the Labor Code neither defines nor limits which services or appropriate distinctions between labor-only contracting and job contracting
activities may be validly outsourced. Thus, an employer can farm out any of its activities to an as well as differentiations within these types of contracting and determine
independent contractor, regardless of whether such activity is peripheral or core in nature. It who among the parties involved shall be considered the employer for
insists that the determination of whether to engage the services of a job contractor or to engage purposes of this Code, to prevent any violation or circumvention of any
in direct hiring is within the ambit of management prerogative. provision of this Code.

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived There is labor-only contracting where the person supplying
the filing of the Comment of Promm-Gem on the petition.[21] Also, although SAPS was workers to an employer does not have substantial capital or investment in the
impleaded as a party in the proceedings before the Labor Arbiter and the NLRC, it was no longer form of tools, equipment, machineries, work premises, among others, and
impleaded as a party in the proceedings before the CA.[22] Hence, our pronouncements with the workers recruited and placed by such person are performing activities
regard to SAPS are only for the purpose of determining the obligations of P&G, if any. 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
Our Ruling the employer who shall be responsible to the workers in the same manner
and extent as if the latter were directly employed by him. (Emphasis and
The petition has merit. underscoring supplied.)

As a rule, the Court refrains from reviewing factual assessments of lower courts and Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as
agencies exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court amended by Department Order No. 18-02,[24] distinguishes between legitimate and labor-only
is constrained to wade into factual matters when there is insufficient or insubstantial evidence on contracting:
record to support those factual findings; or when too much is concluded, inferred or deduced
from the bare or incomplete facts appearing on record.[23] In the present case, we find the need to xxxx
review the records to ascertain the facts.
Section 3. Trilateral Relationship in Contracting Arrangements.
Labor-only contracting and job contracting In legitimate contracting, there exists a trilateral relationship under which
there is a contract for a specific job, work or service between the principal
In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first and the contractor or subcontractor, and a contract of employment between
determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job the contractor or subcontractor and its workers. Hence, there are three parties
contractors. involved in these arrangements, the principal which decides to farm out a job
or service to a contractor or subcontractor, the contractor or subcontractor
The pertinent Labor Code provision on the matter states: which has the capacity to independently undertake the performance of the
job, work or service, and the contractual workers engaged by the contractor
ART. 106. Contractor or subcontractor. Whenever an employer or subcontractor to accomplish the job[,] work or service.
enters into a contract with another person for the performance of the formers
xxxx contractor or subcontractor are performing activities which are directly
related to the main business of the principal; or
Section 5. Prohibition against labor-only contracting. Labor-only
contracting is hereby declared prohibited. For this purpose, labor-only ii) The contractor does not exercise the right to control over the
contracting shall refer to an arrangement where the contractor or performance of the work of the contractual employee. (Underscoring
subcontractor merely recruits, supplies or places workers to perform a job, supplied)
work or service for a principal, and any of the following elements are present:
In the instant case, the financial statements[26] of Promm-Gem show that it
i) The contractor or subcontractor does not have substantial has authorized capital stock of P1 million and a paid-in capital, or capital available for operations,
capital or investment which relates to the job, work or service to be of P500,000.00 as of 1990.[27] It also has long term assets worth P432,895.28 and current assets
performed and the employees recruited, supplied or placed by such of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office
contractor or subcontractor are performing activities which are directly space with a floor area of 870 square meters.[28] It also had under its name three registered
related to the main business of the principal; or vehicles which were used for its promotional/merchandising business.[29] Promm-Gem also has
other clients[30] aside from P&G.[31]Under the circumstances, we find that Promm-Gem has
ii) [T]he contractor does not exercise the right to control over the substantial investment which relates to the work to be performed. These factors negate the
performance of the work of the contractual employee. existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02.

The foregoing provisions shall be without prejudice to the The records also show that Promm-Gem supplied its complainant-workers with the
application of Article 248 (c) of the Labor Code, as amended. relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their
work. Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem
Substantial capital or investment refers to capital stocks and subscribed already considered the complainants working under it as its regular, not merely contractual or
capitalization in the case of corporations, tools, equipment, implements, project, employees.[32] This circumstance negates the existence of element (ii) as stated in Section
machineries and work premises, actually and directly used by the contractor or 5 of DOLE Department Order No. 18-02, which speaks of contractual employees. This,
subcontractor in the performance or completion of the job, work or service furthermore, negates on the part of Promm-Gem bad faith and intent to circumvent labor laws
contracted out. which factors have often been tipping points that lead the Court to strike down the employment
practice or agreement concerned as contrary to public policy, morals, good customs or public
The right to control shall refer to the right reserved to the person for order.[33]
whom the services of the contractual workers are performed, to determine not
only the end to be achieved, but also the manner and means to be used in reaching Under the circumstances, Promm-Gem cannot be considered as a labor-only
that end. contractor. We find that it is a legitimate independent contractor.

x x x x (Underscoring supplied.) On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in
Clearly, the law and its implementing rules allow contracting arrangements for the capital of only P31,250.00. There is no other evidence presented to show how much its working
performance of specific jobs, works or services. Indeed, it is management prerogative to farm capital and assets are.Furthermore, there is no showing of substantial investment in tools,
out any of its activities, regardless of whether such activity is peripheral or core in equipment or other assets.
nature. However, in order for such outsourcing to be valid, it must be made to an independent
contractor because the current labor rules expressly prohibit labor-only contracting. In Vinoya v. National Labor Relations Commission,[34] the Court held that [w]ith the
current economic atmosphere in the country, the paid-in capitalization of PMCI amounting
To emphasize, there is labor-only contracting when the contractor or sub-contractor to P75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as
merely recruits, supplies or places workers to perform a job, work or service for a an independent contractor.[35]Applying the same rationale to the present case, it is clear that SAPS
principal[25] and any of the following elements are present: having a paid-in capital of only P31,250 - has no substantial capital. SAPS lack of substantial
capital is underlined by the records[36] which show that its payroll for its merchandisers alone for
i) The contractor or subcontractor does not have substantial capital one month would already total P44,561.00. It had 6-month contracts with P&G.[37] Yet SAPS
or investment which relates to the job, work or service to be failed to show that it could complete the 6-month contracts using its own capital and
performed and the employees recruited, supplied or placed by such investment. Its capital is not even sufficient for one months payroll. SAPS failed to show that its
paid-in capital of P31,250.00 is sufficient for the period required for it to generate its needed
revenue to sustain its operations independently. Substantial capital refers to capitalization used
in the performance or completion of the job, work or service contracted out. In the present case, xxxx
SAPS has failed to show substantial capital.
This informs you that effective May 5, 1992, your employment
Furthermore, the petitioners have been charged with the merchandising and promotion with our company, Promm-Gem, Inc. has been terminated. We find your
of the products of P&G, an activity that has already been considered by the Court as doubtlessly expressed admission, that you considered yourself as an employee of Procter
directly related to the manufacturing business,[38] which is the principal business of & Gamble Phils., Inc. and assailing the integrity of the Company as
P&G. Considering that SAPS has no substantial capital or investment and the workers it legitimate and independent promotion firm, is deemed as an act of disloyalty
recruited are performing activities which are directly related to the principal business of P&G, prejudicial to the interests of our Company: serious misconduct and breach
we find that the former is engaged in labor-only contracting. of trust reposed upon you as employee of our Company which [co]nstitute
Where labor-only contracting exists, the Labor Code itself establishes an employer- just cause for the termination of your employment.
employee relationship between the employer and the employees of the labor-only
contractor.[39] The statute establishes this relationship for a comprehensive purpose: to prevent a x x x x[45]
circumvention of labor laws. The contractor is considered merely an agent of the principal
employer and the latter is responsible to the employees of the labor-only contractor as if such Misconduct has been defined as improper or wrong conduct; the transgression of some
employees had been directly employed by the principal employer.[40] established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character
implying wrongful intent and not mere error of judgment. The misconduct to be serious must be
Consequently, the following petitioners, having been recruited and supplied of such grave and aggravated character and not merely trivial and unimportant.[46] To be a just
[41]
by SAPS -- which engaged in labor-only contracting -- are considered as the employees of cause for dismissal, such misconduct (a) must be serious; (b) must relate to the performance of
P&G: Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan the employees duties; and (c) must show that the employee has become unfit to continue working
Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, for the employer.[47]
Jr., Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya,
Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, In other words, in order to constitute serious misconduct which will warrant the dismissal of an
Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or
Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, conduct complained of has violated some established rules or policies. It is equally important and
Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, required that the act or conduct must have been performed with wrongful intent.[48] In the instant
Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, case, petitioners-employees of Promm-Gem may have committed an error of judgment in
Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, claiming to be employees of P&G, but it cannot be said that they were motivated by any wrongful
Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin. intent in doing so. As such, we find them guilty of only simple misconduct for assailing the
The following petitioners, having worked under, and been dismissed by Promm-Gem, integrity of Promm-Gem as a legitimate and independent promotion firm. A misconduct which
are considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, is not serious or grave, as that existing in the instant case, cannot be a valid basis for dismissing
Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. an employee.
Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino
Pascual, Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful
Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, breach of the trust reposed in the employee by his employer. Ordinary breach will not suffice. A
Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico, Melchor breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable
Cardano, Reynaldo Jacaban, and Joeb Aliviado.[42] excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or
inadvertently.[49]
Termination of services
Loss of trust and confidence, as a cause for termination of employment, is premised on
We now discuss the issue of whether petitioners were illegally dismissed. In cases of the fact that the employee concerned holds a position of responsibility or of trust and
regular employment, the employer shall not terminate the services of an employee except for a confidence. As such, he must be invested with confidence on delicate matters, such as custody,
just[43] or authorized[44] cause. handling or care and protection of the property and assets of the employer. And, in order to
constitute a just cause for dismissal, the act complained of must be work-related and must show
In the instant case, the termination letters given by Promm-Gem to its employees uniformly that the employee is unfit to continue to work for the employer.[50]In the instant case, the
specified the cause of dismissal as grave misconduct and breach of trust, as follows: petitioners-employees of Promm-Gem have not been shown to be occupying positions of
responsibility or of trust and confidence. Neither is there any evidence to show that they are unfit This is without prejudice to whatever obligations you may
to continue to work as merchandisers for Promm-Gem. have to the company under the abovementioned
contract.
All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem. Very truly yours,

While Promm-Gem had complied with the procedural aspect of due process in (Sgd.)
terminating the employment of petitioners-employees, i.e., giving two notices and in between EMMANUEL M. NON
such notices, an opportunity for the employees to answer and rebut the charges against them, it Sales Merchandising III
failed to comply with the substantive aspect of due process as the acts complained of neither
constitute serious misconduct nor breach of trust.Hence, the dismissal is illegal. 6. On March 12, 1993, we reported to our respective outlet
assignments. But, we were no longer allowed to work and we were refused
With regard to the petitioners placed with P&G by SAPS, they were given no written notice of entrance by the security guards posted. According to the security guards, all
dismissal.The records show that upon receipt by SAPS of P&Gs letter terminating their merchandisers of Procter and Gamble under S[APS] who filed a case in the
Merchandising Services Contact effective March 11, 1993, they in turn verbally informed the Dept. of Labor are already dismissed as per letter of Procter and Gamble
concerned petitioners not to report for work anymore. The concerned petitioners related their dated February 25, 1993. x x x[52]
dismissal as follows:
Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically,
xxxx unlike Promm-Gem which dismissed its employees for grave misconduct and breach of trust
due to disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that
5. On March 11, 1993, we were called to a meeting at SAPS office. We were SAPS does not carry on its own business because the termination of its contract with P&G
told by Mr. Saturnino A. Ponce that we should already stop working automatically meant for it also the termination of its employees services. It is obvious from its
immediately because that was the order of Procter and Gamble. According act that SAPS had no other clients and had no intention of seeking other clients in order to further
to him he could not do otherwise because Procter and Gamble was the one its merchandising business. From all indications SAPS, existed to cater solely to the need of P&G
paying us. To prove that Procter and Gamble was the one responsible in our for the supply of employees in the latters merchandising concerns only.Under the circumstances
dismissal, he showed to us the letter[51] dated February 24, 1993, x x x prevailing in the instant case, we cannot consider SAPS as an independentcontractor.

February 24, 1993 Going back to the matter of dismissal, it must be emphasized that the onus probandi to
prove the lawfulness of the dismissal rests with the employer.[53] In termination cases, the burden
Sales and Promotions Services of proof rests upon the employer to show that the dismissal is for just and valid cause.[54] In the
Armons Bldg., 142 Kamias Road, instant case, P&G failed to discharge the burden of proving the legality and validity of the
Quezon City dismissals of those petitioners who are considered its employees. Hence, the dismissals
Attention: Mr. Saturnino A. Ponce necessarily were not justified and are therefore illegal.
President & General Manager
Damages
Gentlemen:
We now go to the issue of whether petitioners are entitled to damages. Moral
Based on our discussions last 5 and 19 February 1993, this and exemplary damages are recoverable where the dismissal of an employee was attended by
formally informs you that we will not be renewing our bad faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to
Merchandising Services Contract with your agency. morals, good customs or public policy.[55]

Please immediately undertake efforts to ensure that your With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any
services to the Company will terminate effective close oppressive act on the part of the latter, we find no support for the award of damages.
of business hours of 11 March 1993.
As for P&G, the records show that it dismissed its employees through SAPS in a manner
oppressive to labor. The sudden and peremptory barring of the concerned petitioners from work,
and from admission to the work place, after just a one-day verbal notice, and for no valid cause
bellows oppression and utter disregard of the right to due process of the concerned
petitioners. Hence, an award of moral damages is called for.

Attorneys fees may likewise be awarded to the concerned petitioners who


were illegally dismissed in bad faith and were compelled to litigate or incur expenses to protect
their rights by reason of the oppressive acts[56] of P&G.

Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work
shall be entitled to reinstatement without loss of seniority rights and other privileges, inclusive of
allowances, and other benefits or their monetary equivalent from the time the compensation was
withheld up to the time of actual reinstatement.[57] Hence, all the petitioners, having been illegally
dismissed are entitled to reinstatement without loss of seniority rights and with full back wages
and other benefits from the time of their illegal dismissal up to the time of their actual
reinstatement.

WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court
of Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20,
2003 are REVERSED and SET ASIDE.Procter & Gamble Phils., Inc. and Promm-Gem, Inc.
are ORDERED to reinstate their respective employees immediately without loss of seniority
rights and with full backwages and other benefits from the time of their illegal dismissal up to
the time of their actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to
pay each of those petitioners considered as its employees, namely Arthur Corpuz, Eric Aliviado,
Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao
Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo,
Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao,
Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo
F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo,
German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoa, Philip M.
Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr.,
Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S.
Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela
Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, P25,000.00 as moral damages plus
ten percent of the total sum as and for attorneys fees.

Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from
receipt of this Decision, of petitioners backwages and other benefits; and ten percent of the total
sum as and for attorneys fees as stated above; and for immediate execution.

SO ORDERED.
Republic of the Philippines The complainants alleged that MGTI hired them on various dates as weavers, grinders, sanders and
Supreme Court finishers; sometime in August 1998, workers in the Finishing Department were told that they would
Manila be transferred to a contractor and they were given Visitor Identification Cards (IDs), while workers
in the Weaving Department were told to look for work elsewhere as the company had no work for
them; sometime in September 1998, workers in the Grinding Department were not allowed to enter
THIRD DIVISION the company premises, while workers in the Sanding Department were told that they could no
longer work since there was no work available; workers who were issued IDs were allowed to go
inside the premises; and they were dismissed without notice and just cause.
MANDAUE GALLEON TRADE, INC. G.R. No. 159668
and/or GAMALLOSONS TRADERS, INC., They further alleged that they are regular employees of MGTI because: (a) they performed their
Petitioners, Present: work inside the company premises in Cabangcalan, Mandaue City; (b) they were issued uniforms
by MGTI and were told to strictly follow company rules and regulations; (c) they were under the
YNARES-SANTIAGO, J., supervision of MGTI's foremen, quality control personnel and checkers; (d) MGTI supplied the
Chairperson, materials, designs, tools and equipment in the production of furniture; (e) MGTI conducts
- versus - AUSTRIA-MARTINEZ, orientations on how the work was to be done and the safe and efficient use of tools and equipment;
CHICO-NAZARIO, (f) MGTI issues memoranda regarding absences and waste of materials; and (g) MGTI exercises
NACHURA, and the power to discipline them.
REYES, JJ.
VICENTE ANDALES, RESTITUTA On the other hand, MGTI denied the existence of employer-employee relationship with
SOLITANA,* ELPIDIO SUELTO, Promulgated: complainants, claiming that they are workers of independent contractors whose services were
ET AL.,* engaged temporarily and seasonally when the demands for its products are high and could not be
Respondents.[1] March 7, 2008 met by its regular workforce; the independent contractors recruited and hired the complainants,
x---------------------------------------------------------x prepared the payroll and paid their wages, supervised and directed their work, and had authority to
dismiss them. It averred that due to the economic crisis and internal squabble in the company, the
volume of orders from foreign buyers dived; as a survival measure, management decided to
DECISION retrench its employees; and the substantial separation pay paid to retrenched employees caught the
jealous eyes of complainants who caused the filing of the complaint for illegal dismissal.

AUSTRIA-MARTINEZ, J.: On August 23, 1999, the LA rendered a Decision[6] holding that 183[7] complainants are regular
piece-rate employees of MGTI since they were made to perform functions which are necessary
to MGTI's rattan furniture manufacturing business; the independent contractors were not properly
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing identified; the absence of proof that the independent contractors have work premises of their own,
the Decision[2] dated May 21, 2003 and the Amended Decision[3] dated August 19, 2003 of the substantial capital or investment in the form of tools, equipment and machineries make them only
Court of Appeals (CA) in CA-G.R. SP No. 70214. labor contractors; and there was no dismissal but only a claim for separation pay. The LA ordered
petitioners to take back complainants and directed it to pay their 13th month pay in the total sum
of P545,386.43.
The facts:
Both parties appealed. On April 30, 2001, the National Labor Relations
Petitioners Mandaue Galleon Trade, Inc. (MGTI) and Gamallosons Traders, Inc.[4] (GTI) are Commission (NLRC) rendered a Decision[8] affirming the LA's finding of employer-employee
business entities engaged in rattan furniture manufacturing for export, with principal place of relationship.It held that labor-only contracting and not job-contracting was present since the alleged
business at Cabangcalan,Mandaue City. contractors did not have substantial capital in the form of equipment, machineries and work
premises. The NLRC, however, did not agree with the LA's finding that there was no dismissal. It
Respondent Vicente Andales[5] (Andales) filed a complaint with the Labor Arbiter (LA) against held that complainants were constructively dismissed when they were unilaterally transferred to a
both petitioners for illegal dismissal and non-payment of 13th month pay and service incentive leave contractor to evade payment of separation pay as a result of the retrenchment. Thus, it directed
pay. His other co-workers numbering 260 filed a similar complaint against petitioner MGTI only. MGTI to pay complainants separation pay of one month for every year of service based on the
prevailing minimum wage at the time of their dismissal, in addition to payment of 13th month pay.
Both parties filed separate motions for reconsideration[9] but the NLRC denied them in a I
Resolution[10]dated February 12, 2002.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED
On April 19, 2002, petitioners filed a Petition for Certiorari[11] with the CA. On May 21, 2003 the GRAVE AND REVERSIBLE ERROR IN CONSIDERING THE
CA rendered a Decision[12] dismissing the petition and affirming the findings of the NLRC. It held RESPONDENTS AS EMPLOYEES OF THE PETITIONERS ABSENT
that MGTI is liable to the respondents because the alleged contractors are not independent THE REQUISITES/ ELEMENTS IN THE JURISPRUDENCE AS
contractors but labor-only contractors; that respondents were constructively dismissed when they DETERMINATIVE FACTOR IN THE EXISTENCE OF EMPLOYER-
were unilaterally transferred to another contractor; and that the allegation of retrenchment was not EMPLOYEE RELATIONSHIP.[21]
proven.
Petitioners submit that respondents are employees of independent contractors who have
On June 12, 2003, petitioners filed a Motion for Reconsideration.[13] their own manpower, tools, equipment and capital; they did not have a hand in respondents'
recruitment and hiring, payment of wages, control and supervision, and dismissal; and respondents
On August 19, 2003, the CA rendered an Amended Decision[14] partially granting the did not have time cards or uniforms, nor were they subjected to petitioner's company policies.
motion, in this wise:
On the other hand, respondents, in their Comment and Memorandum, assail the CA's
After taking a second look at the petition and in consonance with Article 283 Amended Decision which reduced the separation pay from one month to one-half month, claiming
of the Labor Code, We are computing the separation pay of the 183 private there was no justification to support such order. Moreover, they contend that they were denied their
respondents at one-half month salary per year of service up to the promulgation day in court when the CA did not resolve their Motion for Reconsideration of the Amended
of this Amended Decision. Decision. They aver that since they were illegally dismissed, they are entitled to backwages and not
only separation pay.
WHEREFORE, petitioners' motion for reconsideration is PARTIALLY
GRANTED. This Court's decision dated May 21, 2003 is hereby The petition is bereft of merit.
amended. Petitioners are ordered to pay the 183 respondents their separation
pay computed at one-half month salary per year of service up to the Factual findings of quasi-judicial bodies like the NLRC, when adopted and confirmed
promulgation of this Amended Decision. by the CA and if supported by substantial evidence, are accorded respect and even finality by this
Court.[22] The existence of an employer-employee relationship is a factual matter that will not be
SO ORDERED.[15] delved into by this Court, since only questions of law may be raised in petitions for review.[23] The
Court has recognized several exceptions to this rule, such as: (1) when the findings are grounded
On September 16, 2003, petitioners filed with this Court a Motion for Extension of Time to file a entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
petition for review, which was granted by the Court,[16] and petitioners filed herein petition mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment
on October 23, 2003. is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in
making its findings, the CA went beyond the issues of the case, or its findings are contrary to the
Meanwhile, on September 24, 2003, respondents filed a Motion for Reconsideration with the CA admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial
assailing the reduction of the separation pay in the Amended Decision.[17] On December 9, 2003, court; (8) when the findings are conclusions without citation of specific evidence on which they are
the CA issued a Resolution[18] merely noting the Motion for Reconsideration filed by respondents based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs
on the ground that the case had already been referred to this Court by way of the present petition. are not disputed by the respondent; (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record; and (11) when the CA manifestly
Respondents then filed with this Court a Petition for Certiorari with Motion to Consolidate the overlooked certain relevant facts not disputed by the parties, which, if properly considered, would
Petition with the present petition, assailing the August 19, 2003 Amended Decision and December justify a different conclusion.[24] None of these exceptions, however, has been convincingly shown
9, 2003 CA Resolution. Respondents petition, docketed as G.R. No. 162227, was dismissed in a by petitioners to apply in the present case.
Resolution[19] dated April 14, 2004for failure to attach a clearly legible duplicate original or certified
true copy of the Amended Decision. On August 26, 2004, entry of judgment was made.[20] Article 106 of the Labor Code explains the relations which may arise between an
employer, a contractor and the contractors employees thus:
In the present petition, petitioners raise the sole issue: 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 merely recruits, supplies or places workers to perform a job, work or service
subcontractor, if any, shall be paid in accordance with the provisions of this for a principal, and anyof the following elements are [is] present:
Code. i) The contractor or subcontractor does not
have substantial capital or investment which relates to the
In the event that the contractor or subcontractor fails to pay the wages of his job, work or service to be performed and the employees
employees in accordance with this Code, the employer shall be jointly and recruited, supplied or placed by such contractor or
severally liable with his contractor or subcontractor to such employees to the subcontractor are performing activities which are directly
extent of the work performed under the contract, in the same manner and extent related to the main business of the principal; or
that he is liable to employees directly employed by him. ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.
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 The forgoing provisions shall be without prejudice to the application
Code. In so prohibiting or restricting, he may make appropriate distinctions of Article 248 (C) of the Labor Code, as amended.
between labor-only contracting and job contracting as well as differentiations
within these types of contracting and determine who among the parties Substantial capital or investment refers to capital stocks and subscribed
involved shall be considered the employer for purposes of this Code, to prevent capitalization in the case of corporations, tools, equipment, implements,
any violation or circumvention of any provision of this Code. machineries and work premises, actually and directly used by the contractor or
subcontractor in the performance or completion of the job, work or service
There is labor-only contracting where the person supplying workers to an contracted out.
employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers The right to control shall refer to the right reserved to the person for
recruited and placed by such persons are performing activities which directly whom the services of the contractual workers are performed, to determine not
related to the principal business of such employer. In such cases, the person or only the end to be achieved, but also the manner and means to be used in
intermediary shall be considered merely as an agent of the employer who shall reaching that end.
be responsible to the workers in the same manner and extent as if the latter
were directly employed by him. Section 7. Existence of an employer-employee relationship. The
contractor or subcontractor shall be considered the employer of the contractual
The first two paragraphs of Article 106 set the general rule that a principal is permitted employee for purposes of enforcing the provisions of the Labor Code and other
by law to engage the services of a contractor for the performance of a particular job, but the social legislation. The principal, however, shall be solidarily liable with the
principal, nevertheless, becomes solidarily liable with the contractor for the wages of the contractors contractor in the event of any violation of any provision of the Labor Code,
employees. The third paragraph of Article 106, however, empowers the Secretary of Labor to make including the failure to pay wages.
distinctions between permissible job contracting and labor-only contracting, which is a prohibited
act further defined under the last paragraph. A finding that a contractor is a labor-only contractor is The principal shall be deemed the employer of the contractual
equivalent to declaring that there is an employer-employee relationship between the principal and employee in any of the following cases, as declared by a competent authority:
the employees of the supposed contractor, and the labor-only contractor is considered as a mere
agent of the principal, the real employer.[25] a. where there is a labor-only contracting; or

Sections 5 and 7 of the Rules Implementing Articles 106 to 109 of the Labor Code, as b. where the contracting arrangement falls within the prohibitions
amended[26](Implementing Rules), reinforce the rules in determining the existence of employer- provided in Section 6 (Prohibitions) hereof.
employee relationship between employer, contractor or subcontractor, and the contractors or
subcontractors employee, to wit: Thus, based on Article 106 of the Labor Code and Sections 5 and 7 of the Implementing
Rules, labor-only contracting exists when the following criteria are present: (1) where the
Section 5. Prohibition against labor-only contracting. Labor-only contractor or subcontractor supplying workers to an employer does not have substantial capital or
contracting is hereby declared prohibited. For this purpose, labor-only investment in the form of tools, equipment, machineries, work premises, among other things; and
contracting shall refer to an arrangement where the contractor or subcontractor the workers recruited and placed by the contractor or subcontractor are performing activities which
are directly related to the principal business of such employer; or (2) where the contractor does not
exercise the right to control the performance of the work of the contractual employee. The only recognized exceptions to the general rule are the correction of
clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any
In the present case, petitioners claim that their contractors are independent contractors, party, void judgments, and whenever circumstances transpire after the finality of the
and, therefore, this case is one of permissible job contracting, is without basis. decision rendering its execution unjust and inequitable.[32] None of the exceptions are
present in the instant case.
First, respondents work as weavers, grinders, sanders and finishers is directly related
to MGTI'sprincipal business of rattan furniture manufacturing. Where the employees are tasked to The CA Amended Decision cannot be considered by the Court as a void
undertake activities usually desirable or necessary in the usual business of the employer, the judgment, as it was rendered by a tribunal with jurisdiction over the subject matter of
contractor is considered as a labor-only contractor and such employees are considered as regular the petition.[33] Neither can respondents complain that they were denied due process of law since
employees of the employer.[27] they had the opportunity to be heard when they assailed the reduction of separation pay in their
Petition for Certiorari, G.R. No. 162227, but bungled the same when they failed to comply with
Second, MGTI was unable to present any proof that its contractors had substantial capital. the basic procedural requirements in filing the petition. Respondents cannot be allowed to resurrect
There was no evidence pertaining to the contractors' capitalization; nor to their investment in tools, a cause lost thru negligence in properly pursuing their case.
equipment or implements actually used in the performance or completion of the job, work, or
service that they were contracted to render. The law casts the burden on the contractor to prove that WHEREFORE, the present petition is DENIED for lack of merit.
it has substantial capital, investment, tools, etc. Employees, on the other hand, need not prove that
the contractor does not have substantial capital, investment, and tools to engage in job- SO ORDERED.
contracting.[28]

Thus, the contractors are labor-only contractors since they do not have substantial capital
or investment which relates to the service performed and respondents performed activities which
were directly related to MGTI's main business. MGTI, the principal employer, is solidarily liable
with the labor-only contractors, for the rightful claims of the employees. Under this set-up, labor-
only contractors are deemed agents of the principal, MGTI, and the law makes the principal
responsible to the employees of the labor-only contractor as if the principal itself directly hired or
employed the employees. In prohibiting labor-only contracting and creating an employer-employee
relationship between the principal and the supposed contractors employees, the law intends to
prevent employers from circumventing labor laws intended to protect employees.

Hence, the Court sees no reason to disturb the findings of fact of the NLRC and the CA.

Respondents' contention that the CA erred in lowering the award of separation pay from
one month to one-half month for every year of service cannot prosper in the present
petition. Whether right or wrong, the decision of the CA on that matter had long become final
and executory with the dismissal of respondents' Petition for Certiorari, docketed as G.R. No.
162227, assailing the reduction of the award of separation pay.Entry of judgment was made therein
on August 26, 2004; hence, the reduction of the separation pay is now immutable, beyond the
jurisdiction of this Court to amend, modify or reverse.[29]

Nothing is more settled in the law than that a decision that has acquired finality
becomes immutable and unalterable and may no longer be modified in any respect even
if the modification is meant to correct erroneous conclusions of fact or law and whether
it will be made by the Court that rendered it or by the highest Court of the land. [30] The
doctrine is founded on considerations of public policy and sound practice that, at the
risk of occasional errors, judgments must become final at some definite point in time. [31]
Republic of the Philippines from their employment on February 28, 1998. They filed two complaints for illegal
Supreme Court dismissal against SNS and Swift before the National Labor Relations Commission
Manila (NLRC) Regional Arbitration Branch III, San Fernando, Pampanga, docketed as Case
Nos. 03-9131-98 and 07-9295-98. These cases were subsequently consolidated.

After two unsuccessful conciliation hearings, the Labor Arbiter ordered the
parties to submit their position papers. Swift filed its position paper; SNS did not.[4] The
THIRD DIVISION complainants position papers were signed by Florencio P. Peralta who was not a lawyer
and who claimed to be the complainants representative, although he never showed any
proof of his authority to represent them.
SPIC N SPAN SERVICES CORPORATION, G.R. No. 174084
Petitioner, In their position papers, the complainants alleged that they were employees of
Present: Swift and SNS, and their services were terminated without cause and without due
process. The termination came on the day they received their notices; thus, they were
- versus - CARPIO MORALES, J., Chairperson,
denied the procedural due process requirements of notice and hearing prior to their
BRION, termination of employment.[5] Swift, in its position paper, moved to dismiss the
BERSAMIN, complaints on the ground that it entered into an independent labor contract with SNS
GLORIA PAJE, LOLITA GOMEZ, MIRIAM VILLARAMA, JR., and for the promotion of its products; it alleged that the complainants were the employees
CATACUTAN, ESTRELLA ZAPATA, GLORIA SERENO, JJ. of SNS, not of Swift.[6]
SUMANG, JULIET DINGAL, MYRA AMANTE,
and FE S. BERNANDO, Promulgated: The Labor Arbiter[7] found SNS to be the agent of Swift, and ordered SNS and
Respondents. August 25, 2010 Swift to jointly and severally pay Edelisa David P115,637.50 and Inocencio
x----------------------------------------------------------------------------------------x Fernandez P192,197.50, representing their retirement pay and service incentive leave
pay. He dismissed, without prejudice, the claims of the other complainants because
DECISION they failed to verify their position paper. He also denied all other claims for lack of
factual basis.[8]

BRION, J.: Both Swift and the complainants appealed to the NLRC. Swift filed a
memorandum of appeal, while the complainants filed a partial memorandum of
Before the Court is the petition for review on certiorari[1] filed by Spic N Span appeal.[9]
Services Corporation (SNS) to seek the reversal of the October 25, 2004 Decision[2] and
the August 2, 2006 Resolution[3] of the Court of Appeals (CA) in CA-G.R. SP No. The NLRC denied the complainants appeal for lack of merit. [10] It dismissed
83215, entitled "Gloria Paje, Lolita Gomez, Miriam Catacutan, Estrella Zapata, Gloria the complaint against Swift, and ordered SNS to pay Edelisa David a total
Sumang, Juliet Dingal, Myra Amante and Fe S. Bernardo v. National Labor Relations of P256,620.13, and Inocencio Fernandez a total of P280,912.63, representing
Commission, Spic N Span Service Corporation and Swift Foods, Inc. backwages, separation pay, and service incentive leave pay. It dismissed all other
BACKGROUND FACTS claims for lack of merit. Thereafter, Edelisa David and Inocencio Fernandez agreed to
a settlement, and their cases were thus closed.[11]
Swift Foods, Inc. (Swift) is a subsidiary of RFM Corporation that
manufactures and processes meat products and other food products. SNSs business is The complainants whose claims were dismissed, namely, Gloria Paje, Lolita
to supply manpower services to its clients for a fee. Swift and SNS have a contract to Gomez, Miriam Catacutan, Estrella Zapata, Gloria Sumang, Juliet Dingal, Myra
promote Swift products. Amante, and Fe S. Bernardo (respondents), moved for the reconsideration of the
NLRCs ruling. This time, they were represented by the Public Attorneys Office. The
Inocencio Fernandez, Edelisa F. David, Thelma Guardian, Juliet C. Dingal, Fe NLRC denied their motion.[12]
S. Bernardo, Lolita Gomez, Myra Amante, Miriam S. Catacutan, Gloria O. Sumang,
Gloria O. Paje, and Estrella Zapata (complainants) worked as Deli/Promo Girls of Swift The respondents then sought relief with the CA through a petition
products in various supermarkets in Tarlac and Pampanga. They were all dismissed for certiorari, based on the alleged grave abuse of discretion committed by the
NLRC. The CA found the petition meritorious, in its assailed decision of October 25, signature in a pleading, and harped on the respondents failure to sign their position
2004, and ruled that the respondents failure to sign the verification in their position paper. [14] This, to SNS, is fatal to the respondents case.
paper was a formal defect that was not fatal to their case. It concluded that SNS was
merely an agent of Swift; thus, the latter should not be exempt from liability. It ordered We do not agree with SNS.
the remand of the case to the Labor Arbiter for the computation of the respondents
backwages, separation pay, and service incentive leave pay. SNS and Swift filed their As we previously explained in Torres v. Specialized Packaging Development
motions for reconsideration which the CA denied. Corporation,[15]where only two of the 25 real parties-in-interest signed the verification,
the verification by the two could be sufficient assurance that the allegations in the
SNS is now before us on a petition for review on certiorari, and submits the petition were made in good faith, are true and correct, and are not speculative. The lack
following of a verification in a pleading is only a formal defect, not a jurisdictional defect, and is
not necessarily fatal to a case.[16] The primary reason for requiring a verification is
I. WHETHER OR NOT THE HONORABLE COURT OF simply to ensure that the allegations in the pleading are done in good faith, are true and
APPEALS COMMITTED SERIOUS ERROR WHEN IT RULED correct, and are not mere speculations.[17]
THAT THE NLRC COMMITTED GRAVE ABUSE OF
DISCRETION IN DISMISSING THE CLAIMS OF HEREIN The CA, in its assailed decision, cited Philippine Telegraph and Telephone
RESPONDENTS ON THE GROUND OF NON-SIGNING OF THE Corporation v. NLRC[18] to emphasize that in labor cases, the deciding authority should
POSITION PAPER. use every reasonable means to speedily and objectively ascertain the facts, without
regard to technicalities of law and procedure. Technical rules of evidence are not
II. WHETHER OR NOT THE HONORABLE COURT OF strictly binding in labor cases.[19]
APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT
ALTHOUGH THE RESPONDENTS WERE NOT REPRESENTED In the hierarchy observed in the dispensation of justice, rules of procedure can
BY A LAWYER BUT BY ONE WHO IS NOT A MEMBER OF be disregarded in order to serve the ends of justice. This was explained by Justice
THE BAR, SAID FACT IS SUFFICIENT JUSTIFICATION FOR Bernando P. Pardo, in Aguam v. Court of Appeals,[20] when he said
THE PETITIONERS FAILURE TO COMPLY WITH THE
REQUIREMENTS OF LAW. Litigations must be decided on their merits and not on technicality.
Every party litigant must be afforded the amplest opportunity for the
III. WHETHER OR NOT THE HONORABLE COURT OF proper and just determination of his cause, free from the unacceptable
APPEALS COMMITTED SERIOUS ERROR IN REMANDING plea of technicalities. Thus, dismissal of appeals purely on technical
THE CASE TO THE LABOR ARBITER FOR THE grounds is frowned upon where the policy of the court is to encourage
COMPUTATION OF THE MONEY CLAIMS OF THE hearings of appeals on their merits and the rules of procedure ought
RESPONDENTS, TO WIT: 1) BACKWAGES, 2) SEPARATION not to be applied in a very rigid, technical sense; rules of procedure
PAY, AND 3) SERVICE INCENTIVE LEAVE, DESPITE THE are used only to help secure, not override substantial justice. It is a
FACT THAT NOWHERE IN THE DECISIONS OF THE LABOR far better and more prudent course of action for the court to excuse a
ARBITER, THE NATIONAL LABOR RELATIONS technical lapse and afford the parties a review of the case on appeal
COMMISSION, AND COURT OF APPEALS IS IT STATED to attain the ends of justice rather than dispose of the case on
THAT HEREIN RESPONDENTS WERE ILLEGALLY technicality and cause a grave injustice to the parties, giving a false
DISMISSED.[13] impression of speedy disposal of cases while actually resulting in
more delay, if not a miscarriage of justice.[21]

THE COURTS RULING


We should remember, too, that certain labor rights assume preferred positions
We find the petition unmeritorious. in our legal hierarchy. Under the Constitution and the Labor Code, the State is bound
to protect labor and assure the rights of workers to security of tenure. [22] Article 4 of the
SNS submits that since respondents did not sign the verification in their Labor Code provides that all doubts in the implementation and interpretation of its
position paper, the CA erred when it ruled that the NLRC committed grave abuse of provisions (including its implementing rules and regulations) shall be resolved in favor
discretion in dismissing the respondents complaints. SNS stressed the importance of a of labor. The Constitution, on the other hand, characterizes labor as a primary social
economic force. The State is bound to protect the rights of workers and promote their
welfare,[23] and the workers are entitled to security of tenure, humane conditions of Nothing on record indicates the reason for the respondents termination from
work, and a living wage.[24] Under these fundamental guidelines, respondents right to employment,although the fact of termination was never disputed. Swift denied
security of tenure is a preferred constitutional right that technical infirmities in labor liability on the basis of its contract with SNS. The contract was not presented before
pleadings cannot defeat. the Labor Arbiter, although Swift averred that under the contract, SNS would supply
promo girls, merchandisers and other promotional personnel to handle all promotional
1. SNS submits that the CA committed a serious error in ruling that the aspects and merchandising strategy of Swift.[31] We can assume, for lack of proof to the
respondents representatives non-membership in the bar is sufficient justification for contrary, that the respondents termination from employment was illegal since neither
their failure to comply with the requirements of the law. SNS argues that this SNS nor Swift, as employers, presented any proof that their termination from
ruling excuses the employment of a non-lawyer and places the acts of the latter on the employment was legal. Upon proof of termination of employment, the employer has
same level as those of a member of the Bar.[25] Our Labor Code allows a non-lawyer to the burden of proof that the dismissal was valid; absent this proof, the termination from
represent a party before the Labor Arbiter and the Commission, [26] but provides employment is deemed illegal, as alleged by the dismissed employees.
limitations: Non-lawyers may appear before the Commission or any Labor Arbiter
only: (1) If they represent themselves; or (2) If they represent their organization or 3. In order that a labor relationship can be categorized as
members thereof.[27]Thus, SNS concludes that the respondents representative had no legitimate/permissible job contracting or as prohibited labor-only contracting, the
personality to appear before the Labor Arbiter or the NLRC, and his representation for totality of the facts and the surrounding circumstances of the relationship ought to be
the respondents should produce no legal effect. considered.[32] Every case is unique and has to be assessed on the basis of its facts and
of the features of the relationship in question. In permissible job contracting, the
Our approach to these arguments is simple as the problem boils down to a principal agrees to put out or farm out with a contractor or subcontractor the
balance between a technical rule and protected constitutional interests. The cited performance or completion of a specific job, work or service within a definite or
technical infirmity cannot defeat the respondents preferred right to security of tenure predetermined period, regardless of whether such job, work or service is to be
which has primacy over technical requirements. Thus, we affirm the CAs ruling on this performed or completed within or outside the premises of the principal. The test is
point, without prejudice to whatever action may be taken against the representative, if whether the independent contractor has contracted to do the work according to his own
he had indeed been engaged in the unauthorized practice of law. methods and without being subject to the principals control except only as to the results,
he has substantial capital, and he has assured the contractual employees entitlement to
2. SNS also claims serious error on the part of the CA in remanding the case all labor and occupational safety and health standards, free exercise of the right to self-
to the Labor Arbiter, for computation of the respondents backwages, separation pay organization, security of tenure, and social and welfare benefits.[33]
and service incentive leave pay despite the fact that nowhere in the decisions of the
Labor Arbiter, the NLRC, and CA was there any finding that respondents had been The CA found SNS to be Swifts agent, and explained its ruling as follows[34]
illegally dismissed.
To be legitimate, contracting or subcontracting must satisfy
We find this to be the first argument of its kind from SNS, and, in fact, is the the following requirements: 1) The contractor or subcontractor
first ever submission from SNS before it filed a motion for reconsideration with the carries on a distinct and independent business and undertakes to
CA. To recall, SNS did not file its position paper before the labor arbiter, nor did it file perform the job, work or service on its own account and under its
its appeal before the NLRC; only Swift and the complainants did.[28] It was only Swift, own responsibility, according to its own manners and methods, and
too, that filed its comment to the herein respondents petition for certiorari.[29] free from the control and direction of the principal in all matters
connected with the performance of the work except as to the results
The records do not show if SNS filed its memorandum before the CA, thereof; 2) the contractor or subcontractor has substantial capital or
although SNS filed a motion for reconsideration of the CA decision. It then claimed investment; and 3) the agreement between the principal and
that the CA erred in ruling that the NLRC committed grave abuse of discretion when it contractor or subcontractor assures the contractual employees
dismissed respondents claim; that a petition for certiorari under Rule 65 of the Rules entitlement to all labor and occupational safety and health standards,
of Court is not the proper remedy to correct the NLRCs alleged grave abuse of free exercise of right to self-organization, security of tenure, and
discretion; and that the respondents were bound by the mistakes of their non-lawyer social and welfare benefit (Vinoya v. NLRC, 324 SCRA 469).
representative.[30] Significantly, SNS did not raise the question of the CAs failure to
state that the respondents had been illegally dismissed. At this point, it is too late for The parties failed to attach a copy of the agreement entered
SNS to raise the issue. into between SNS and Swift.Neither did they attach a copy of the
financial statement of SNS. Thus, we are constrained to rule on the Fernandez, on the one hand and SNS, on the other. As held by the
issue involved on the basis of the findings of both the Labor Arbiter NLRC, their complaints are considered closed and terminated.
and the NLRC.
WHEREFORE, premises considered, the instant petition is
The Labor Arbiter, in finding that SNS was merely a labor- hereby GRANTED. The Resolutions of the NLRC dated January 11,
only contractor, cited the following reasons: First, the agreement 2002 and December 23, 2003 are SET ASIDE in so far as the
between SNS and Swift shows that the latter exercised control over dismissal of the petitioners case is concerned and in so far as Swift is
the promo girls and/or merchandisers through the services of found not liable for the payment of the petitioners money claims.
coordinators. Second, it cannot be said that SNS has substantial
capital. Third, the duties of the petitioners were directly related, The present case is hereby REMANDED to the Labor
necessary and vital to the day-to-day operations of Swift. Lastly, the Arbiter for the computation of the money claims of the petitioners,
uniform and identification cards used by the petitioners were subject to wit: 1) Backwages; 2) Separation Pay; and 3) Service Incentive
to the approval of Swift. Leave Pay.

The NLRC, on the other hand, in finding that SNS is an The settlement of the claims of David and Fernandez is not
independent contractor gave the following reasons: First, there is no affected by this decision.
evidence that Swift exercised the power of control over the
petitioners. Rather, it is SNS who exercised direct control and
supervision over the nature and performance of the works of herein We fully agree with this ruling. What we have before us, therefore, is a case
petitioners. Second, by law, Swift and SNS have distinct and separate of illegal dismissal perpetrated by a principal and its illegal contractor-agent. Thus, we
juridical personality from each other. affirm the ruling of the CA with the modification that the respondents are also entitled
to nominal damages, for violation of their due process rights to notice and hearing,
The decision of the NLRC is bereft of explanation as to the pursuant to our ruling in Agabon v. NLRC.[35] We peg this amount at P30,000.00 for
existence of circumstances that would make SNS an independent each of the respondents.
contractor as would exempt the principal from liabilities to the
employees. WHEREFORE, premises considered, we hereby AFFIRM the Court of
Appeals October 25, 2004 Decision and August 2, 2006 Resolution in CA-G.R. SP No.
Nowhere in the decision of both the Labor Arbiter and the 83215, with the modification that nominal damages in the amount of P30,000.00 should
NLRC shows that SNS had full control of the means and methods of additionally be paid to each of the respondents, for violation of their procedural due
the performance of their work. Moreover, as found by the Labor process rights. Costs against the petitioner.
Arbiter, there was no evidence that SNS has substantial capital or
investment. Lastly, there was no finding by the Labor Arbiter nor the SO ORDERED.
NLRC that the agreement between the principal (Swift) and
contractor (SNS) assures the contractual employees entitlement to all
labor and occupational safety and health standards, free exercise of
right to self-organization, security of tenure, and social and welfare
benefit.

In view of the foregoing, we conclude that the requisites


above-mentioned are not obtaining in the present case. Hence, SNS
is considered merely an agent of Swift which does not exempt the
latter from liability.

We note that the present decision does not affect the


settlement entered into between Edeliza David and Inocencio
Republic of the Philippines Labor Arbiter rationalized that the right of an employee to be paid benefits due him
SUPREME COURT from the properties of his employer is superior to the right of the latter's mortgage,
Manila citing this Court's resolution in PNB v. Delta Motor Workers Union.2

FIRST DIVISION On 16 November 1992 public respondent National Labor Relations Commission
affirmed the ruling of the Labor Arbiter.3

The issue now before us is whether public respondent committed grave abuse of
G.R. No. 108031 March 1, 1995 discretion in holding that Art. 110 of the Labor Code, as amended, which refers to
worker preference in case of bankruptcy or liquidation of an employer's business is
applicable to the present case notwithstanding the absence of any formal declaration
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs. of bankruptcy or judicial liquidation of TPWII.
NATIONAL LABOR RELATIONS COMMISSION and LEONOR A
ANG, respondents. Petitioner argues that the decision of public respondent runs counter to the consistent
rulings of this Court in a long line of cases emphasizing that the application of Art.
110 of the Labor Code is contingent upon the institution of bankruptcy or judicial
liquidation proceedings against the employer.
BELLOSILLO, J.:

Is declaration of bankruptcy or judicial liquidation required before the worker's We hold that public respondent gravely abused its discretion in affirming the decision
of the Labor Arbiter. Art. 110 should not be treated apart from other laws but applied
preference may be invoked under Art. 110 of the Labor Code?
in conjunction with the pertinent provisions of the Civil Code and the Insolvency Law
to the extent that piece-meal distribution of the assets of the debtor is avoided. Art.
On 21 March 1977 private respondent Leonor A. Ang started employment as 110, then prevailing, provides:
Executive Secretary with Tropical Philippines Wood Industries, Inc. (TPWII), a
corporation engaged in the manufacture and sale of veneer, plywood and sawdust
Art. 110. Worker preference in case of bankruptcy. — In the event
panel boards. In 1982 she was promoted to the position of Personnel Officer.
of bankruptcy or liquidation of an employer's business, his workers
shall enjoy first preference as regards wages due them for services
In September 1983 petitioner Development Bank of the Philippines, as mortgagee of rendered during the period prior to the bankruptcy or liquidation,
TPWII, foreclosed its plant facilities and equipment. Nevertheless TPWII continued any provision to the contrary notwithstanding. Unpaid wages shall
its business operations interrupted only by brief shutdowns for the purpose of be paid in full before other creditors may establish any claim to a
servicing its plant facilities and equipment. In January 1986 petitioner took share in the assets of the employer.
possession of the foreclosed properties. From then on the company ceased its
operations. As a consequence private respondent was on 15 April 1986 verbally
terminated from the service. Complementing Art. 110, Sec. 10, Rule VIII, Book III, of the Revised Rules and
Regulations Implementing the Labor Code provides:
On 14 December 1987 aggrieved by the termination of her employment, private
respondent filed with the Labor Arbiter a complaint for separation pay, 13th month Sec. 10. Payment of wages in case of bankruptcy. — Unpaid wages
pay, vacation and sick leave pay, salaries and allowances against TPWII, its General earned by the employees before the declaration of bankruptcy or
judicial liquidation of the employer's business shall be given first
Manager, and petitioner.
preference and shall be paid in full before other creditors may
establish any claim to a share in the assets of the employer.
After hearing the Labor Arbiter found TPWII primarily liable to private respondent
but only for her separation pay and vacation and sick leave pay because her claims for 4
unpaid wages and 13th month pay were later paid after the complaint was filed.1 The We interpreted this provision in Development Bank of the Philippines v. Santos to
mean that —
General Manager was absolved of any liability. But with respect to petitioner, it was
held subsidiarily liable in the event the company failed to satisfy the judgment. The
. . . a declaration of bankruptcy or a judicial liquidation must be thereafter the preferences determined. In the course of judicial
present before the worker's preference may be enforced. Thus, proceedings which have for their object the subjection of the
Article 110 of the Labor Code and its implementing rule cannot be property of the debtor to the payment of his debts or other lawful
invoked by the respondents in this case absent a formal declaration obligations. Thereby, an orderly determination of preference of
of bankruptcy or a liquidation order . . . . (Emphasis supplied). creditors' claims is assured (Philippine Savings Bank vs.
Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the
The rationale is that to hold Art. 110 to be applicable also to extrajudicial adjudication made will be binding on all parties-in-interest since
proceedings would be putting the worker in a better position than the State those proceedings are proceedings in rem; and the legal scheme of
which could only assert its own prior preference in case of a judicial classification, concurrence and preference of credits in the Civil
proceeding.5 Art. 110, which was amended by R.A. 6715 effective 21 March Code, the Insolvency Law, and the Labor Code is preserved in
1989, now reads: harmony.7

Art. 110. Worker preference in case of bankruptcy. — In the event In ruling, as we did, in Development Bank of the Philippines v. Santos, we took into
of bankruptcy or liquidation of an employer's business, his workers account the following pronouncements:
shall enjoy first preference as regards their unpaid wages and other
monetary claims, any provision of law to the contrary In the event of insolvency, a principal objective should be to effect
notwithstanding. Such unpaid wages and monetary claims shall be an equitable distribution of the insolvents property among his
paid in full before the claims of the Government and other creditors creditors. To accomplish this there must first be some proceeding
may be paid. where notice to all of the insolvent's creditors may be given and
where the claims of preferred creditors may be bindingly
Obviously, the amendment expanded the concept of "worker preference" to cover not adjudicated. (De Barreto v. Villanueva, No.
only unpaid wages but also other monetary claims to which even claims of the L-14938, December 29, 1962, 6 SCRA 928). The rationale
Government must be deemed subordinate. The Rules and Regulations Implementing therefore has been expressed in the recent case of DBP v. Secretary
R.A. 6715, approved 24 May 1989, also amended the corresponding implementing of Labor (G.R. No. 79351, 28 November 1989), which we quote:
rule, and now reads:
A preference of credit bestows upon the preferred
Sec. 10. Payment of wages and other monetary claims in case of creditor an advantage of having his credit
bankruptcy. — In case of bankruptcy or liquidation of the satisfied first ahead of other claims which may be
employer's business, the unpaid wages and other monetary claims established against the debtor. Logically, it
of the employees shall be given first preference and shall be paid in becomes material only when the properties and
full before the claims of government and other creditors may be assets of the debtors are insufficient to pay his
paid. debts in full; for if the debtor is amply able to pay
his various creditors in full, how can the necessity
exist to determine which of his creditors shall be
Although the terms "declaration" (of bankruptcy) or "judicial" (liquidation) have been
notably eliminated, still in Development Bank of the Philippines v. NLRC,6 this Court paid first or whether they shall be paid out of the
proceeds of the sale (of) the debtor's specific
did not alter its original position that the right to preference given to workers under
property. Indubitably, the preferential right of
Art. 110 cannot exist in any effective way prior to the time of its presentation in
credit attains significance only after the properties
distribution proceedings. In effect, we reiterated our previous interpretation
of the debtor have been inventoried and
in Development Bank of the Philippines v. Santos where we said:
liquidated, and the claims held by his various
creditors have been established (Kuenzle &
It (worker preference) will find application when, in proceedings Sheriff (Ltd.) v. Villanueva, 41 Phil. 611 [1916];
such as insolvency, such unpaid wages shall be paid in full before Barretto v. Villanueva, G.R. No. 14938, 29
the "claims of the Government and other creditors" may be paid. December 1962, 6 SCRA 928; Philippine Savings
But, for an orderly settlement of a debtor's assets, all creditors must Bank v. Lantin, G.R. No. 33929, 2 September
be convened, their claims ascertained and inventoried, and 1983, 124 SCRA 476).
In the present case, there is as yet no declaration of bankruptcy nor judicial Article 2241 (6) and Article 2242 (3), of the Civil Code and not
liquidation of TPWII. Hence, it would be premature to enforce the worker's attached to any specific property, is all ordinary preferred credit
preference. although its impact is to move it from second priority to first
priority in the order of preference established by Article 2244 of the
The additional ratiocination of public respondent that "under Article 110 of the Labor Civil Code.
Code complainant enjoys a preference of credit over the properties of TPWII being
held in possession by DBP," is a dismal misconception of the nature of preference of The present controversy could have been easily settled by public respondent had it
credit, a subject matter which we have already discussed in clear and simple terms referred to ample jurisprudence which already provides the solution. Stare decisions
and even distinguished from a lien in Development Bank of the Philippines et non quiet movere. Once a case is decided by this Court as the final arbiter of any
v. NLRC8 — justifiable controversy one way, then another case involving exactly the same point at
issue should be decided in the same manner. Public respondent had no choice on the
. . . A preference applies only to claims which do not attach to matter. It could not have ruled any other way. This Court having spoken in a string of
specific properties. A lien creates a charge on a particular property. cases against public respondent, its duty is simply to obey judicial precedents.9 Any
The right of first preference as regards unpaid wages recognized by further disregard, if not defiance, of our rulings will be considered a ground to hold
Article 110 does not constitute a lien on the property of the public respondent in contempt.
insolvent debtor in favor of workers. It is but a preference of credit
in their favor, a preference in application. It is a method adopted to WHEREFORE, the petition is GRANTED. The decision of public respondent
determine and specify the order in which credits should be paid in National Labor Relations Commission affirming the decision of the Labor Arbiter
the final distribution of the proceeds of the insolvent's assets. It is a insofar as it held petitioner Development Bank of the Philippines liable for the
right to a first preference in the discharge of the funds of the monetary claims of private respondent Leonor A. Ang is SET ASIDE. The temporary
judgment debtor . . . In the words of Republic v. Peralta, supra: restraining order we issued on 8 February 1993 10 enjoining the execution of the
Article 110 of the Labor Code does not purport to create a lien in decision of public respondent against petitioner is made PERMANENT.
favor of workers or employees for unpaid wages either upon all of
the properties or upon any particular property owned by their SO ORDERED.
employer. Claims for unpaid wages do not therefore fall at all
within the category of specially preferred claims established under
Padilla, Davide, Jr. Bellosillo, Quiason and Kapunan, JJ., concur.
Articles 2241 and 2242 of the Civil Code,except to the extent that
such claims for unpaid wages are already covered by Article 2241,
number 6: "claims for laborers: wages, on the goods manufactured
or the work done;" or by Article 2242, number 3, "claims of
laborers and other workers engaged in the construction
reconstruction or repair of buildings, canals and other works, upon
said buildings, canals and other works . . . . To the extent that
claims for unpaid wages fall outside the scope of Article 2241,
number 6, and 22421 number 3, they would come within the ambit
of the category of ordinary preferred credits under Article 2244.

The DBP anchors its claim on a mortgage credit. A mortgage


directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the
obligation for whose security it was constituted (Article 2176, Civil
Code). It creates a real right which is enforceable against the whole
world. It is a lien on an identified immovable property, which a
preference is not. A recorded mortgage credit is a special preferred
credit under Article 2242 (5) of the Civil Code on classification of
credits. The preference given by Article 1l0, when not falling within
THIRD DIVISION medical and laboratory tests and was advised to return on 27 September 2013 for re-
evaluation.
G.R. No. 230481, July 26, 2017
On 27 September 2013, Turallo underwent MRI of the cervical spine and left
shoulder and EMG-NCV on 30 September 2013.
HOEGH FLEET SERVICES PHILS., INC., AND/OR HOEGH FLEET
SERVICES AS, Petitioners, v.BERNARDO M. TURALLO, Respondent.
On 4 October 2013, after the said tests, the company-designated physician diagnosed
Turallo with "Acromioclavicular Joint Arthritis; Bicep Tear and Cuff Tear, Left
G.R. No. 230500 Shoulder; Cervical Spondylosis Secondary to C4-C5, C5-C6; Disc Protrusion; Rule
Out Ischemic Heart Disease" and recommended that he undergo the following
BERNARDO M. TURALLO, Petitioner, v. HOEGH FLEET SERVICES procedures: "Dobutamine Stress Echocardiogram Arthroscopic Surgery,
PHILS., INC., AND/OR HOEGH FLEET SERVICES AS, Respondents. Acromioclavicular Joint Debridgment, Subacrominal Decompression Cuff Repair
using Double Row 3-4 anchors, Biceps Tenodesis using 1-2 anchors".
RESOLUTION
In a "private and confidential" correspondence dated 23 December 2013 to Capt.
VELASCO, JR., J.: Desabille, head of the crew operations, the company-designated physician reported
that Turallo had undergone a C4-C5, C5-C6 Discectomy Fusion with PEEK Prevail
These are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules on 19 December 2013, and that the specialist opined that the estimated length of
of Court, which seek to reverse and set aside the Decision1 dated November 8, 2016 treatment after surgery is three (3) months of rehabilitation for strengthening and
of the Court of Appeals (CA) and its Resolution2 dated March 8, 2017 in CA-G.R. SP mobilization exercise. The letter further stated that based on Turallo's condition at that
No. 142979. There, Hoegh Fleet Services Phils., Inc. and/or Hoegh Fleet Services AS time, if the latter is entitled to disability, the closest interim assessments are Grade 8
(hereinafter referred to as Hoegh Fleet) was ordered to pay Turallo US$90,000.00, (shoulder)-ankylosis of one shoulder and Grade 10 (neck)-moderate stiffness or 2/3
US$3,084.54 and US$1,000.00 as disability compensation, sickness allowance and loss of motion in neck.
attorney's fees, respectively.3
In another correspondence of same date addressed to Capt. Desabille, the company-
The facts, as found by the CA, are as follows: designated physician noted Turallo's condition and stated the treatment and processes
On 9 November 2012, petitioners hired Turallo as a Messman on board vessel that the latter has undergone and further noted that Turallo was in stable condition, he
"Hoegh Tokyo" for nine (9) months. The employment contract was signed on 27 was advised to continue physical therapy on out-patient basis and was prescribed
December 2012, which was also covered by a Collective Bargaining Agreement seven (7) different take home medications.
between the Associated Marine Officers' and Seaman's Union of the Philippines and
Hoegh Fleet Services AS, represented by Hoegh Fleet Services Phils., Inc. On 10 January 2014, the company-designated physician certified that Turallo was
undergoing medical/surgical treatment from 25 September 2013 up to the said date.
Turallo was found "fit for sea duty" in the Pre-Employment Medical Examination
(PEME). Despite Turallo's continuous rehabilitation treatment, pain in his left shoulder
persisted, hence, he followed up his pending surgery therefor several times to no
On 2 January 2013, Turallo boarded the vessel. avail. This prompted Turallo to seek a second opinion.

Sometime in September 2013 while on board the vessel, Turallo felt pain on the upper On 13 May 2014, Turallo consulted with Dr. Manuel Fidel Magtira, a government
back of his body and chest pain, which was reported to his superiors on 23 September physician of the Vizcarra Diagnostic Center who, after x-ray of his left wrist and
2013, as evidenced by the "Incident/Accidents Personnel" signed by Turallo's shoulder joints, found him to be "partially and permanently disabled with separate
department head and the master of the vessel. On 24 September 2013, Turallo was impediments for the different affected parts of (his) body of Grade 8, Grade 10 and
referred to a doctor by the ship's captain. Said referral also mentioned that Turallo Grade 11, based on the POEA contract" but declared him as "permanently unfit in any
was discharged from the ship on 23 September 2013. capacity for further sea duties".

Upon arrival in Manila, Turallo was referred to the company-designated physician, On 23 May and 2 June 2014, grievance proceedings were held between the parties at
who in turn referred him to an orthopedic surgeon and cardiologist. He underwent the AMOSUP, where the petitioners offered the amount of Thirty Thousand Two
Hundred Thirty One US Dollars (US$30,231.00) corresponding to .a Grade 8
disability compensation based on the maximum amount of Ninety Thousand US The CA found no cogent reason to reverse the findings of the Panel. It explained that
Dollars (US$90,000.00). Turallo, however proposed the settlement amount of Sixty the employment of seafarers and its incidents, including claims for death benefits, are
Thousand US Dollars (US$60,000.00). The parties failed to reach an agreement. governed by the contracts they sign every time they are hired or rehired. Also, while
the seafarers and their employees are governed by their mutual agreements, the
Turallo then filed a Notice to Arbitrate with the National Conciliation and Mediation Philippine Overseas Employment Agency (POEA) rules and regulatioi1s require the
Board. At this point, petitioners increased their offer from Thirty Thousand Two POEA-Standard Employment Contract (SEC), which contains the standard terms and
Hundred Thirty One US Dollars (US$30,231.00) to Fifty Thousand US Dollars conditions of the seafarer's employment in ocean-going vessels, be integrated in every
(US$50,000.00) plus allowances for further medical treatments and expenses. Turallo, seafarer's contract. Entitlement, thus, to disability benefits by seamen is a matter
however still refused to accept such amount. governed not only by medical findings but by law and contract.

Despite efforts to arrive at an agreement, the parties failed to settle their differences, In saying that the Panel correctly considered Turallo as totally and permanently
hence, they were directed to submit their pleadings and evidence for the resolution of disabled, it referred to Section 32 of the POEA-SEC which states that a seafarer shall
the issues before the panel of arbitrators. be deemed totally and permanently disabled if the company-designated physician
fails to arrive at a definite assessment of the seafarer's fitness to work or permanent
On 27 May 2015, the Panel rendered its assailed Decision, disposing, disability within the period of 120 to 240 days. The CA was not persuaded with
thus:chanRoblesvirtualLawlibrary Hoegh Fleet's allegation that its company-designated physician actually issued a final
"WHEREFORE, judgment is hereby rendered ordering [petitioners], jointly and assessment, invoking the document signed by its orthopedic and spinal surgery
severally, to pay complainant the following amounts: specialist dated 29 January 2014 as Turallo is still undergoing surgery during this
period.
1. Disability compensation in the amount of US$90,000.00, to be paid in the
equivalent peso amount at the rate prevailing at the time of payment. Even assuming that the company-designated physician's disability rating was actually
given and considered definitive, the CA ruled that Turallo would still have a cause of
2. Sickness Allowance in the amount of US$3,084.54 to be paid in its peso equivalent action for total and permanent disability compensation as he remained incapacitated
as in number 1; and to perform his usual sea duties after the lapse of 120 or 240 days, such being the
period for the company-designated physician to issue a declaration of his fitness to
3. Attorney's fees equivalent to ten percent (10%) of the total monetary award. engage in sea duty.

Finally, legal interests shall be imposed on the monetary awards herein granted at the Finally, with regard to the award of attorney's fees, while the CA did not dispute
rate of 6% per annum from finality of this judgment until fully paid. Turallo's entitlement to the same, it ruled that reducing the amount from ten percent
(10%) of the total monetary award to just One Thousand US Dollars (US$1,000.00)
SO ORDERED." would be reasonable.The dispositive portion of the assailed Decision
In its 16 September 2015 Resolution, the Panel denied petitioners' motion for reads:chanRoblesvirtualLawlibrary
reconsideration, thus:chanRoblesvirtualLawlibrary WHEREFORE, premises considered, the assailed Decision dated 27 May 2015 and
"WHEREFORE, the Decision and Award dated 27 May 2015 stays. Resolution dated 16 September 2015 of the Panel of Voluntary Arbitrators composed
of AVA Orlalyn Suarez-Fetesio, AVA Generoso Mamaril and AVA Jaime
SO ORDERED."4 Montealegre in Case No. AC-949-RCMB-NCR-MVA-075-06-08-2014 are hereby
The Ruling of the CA AFFIRMED with MODIFICATION only as to the award of attorney's fees, herein
reduced to One Thousand Dollars (US$1,000.00).
In assailing the Panel of Arbitrator's decision, Hoegh Fleet argued that the Panel erred
in ruling that Turallo is entitled to total and permanent disability benefits, finding that SO ORDERED.5
he was not issued a final disability grade. It averred that the final assessment of Grade The Motion for Reconsideration was denied in a Resolution 6 dated March 8, 2017.
8 disability was given by the company-designated physician but was not attached to From the CA ruling, Hoegh Fleet and Turallo filed separate petitions for review
their Position Paper before the Panel, hence, it was not considered. It also questioned on certiorari, which were consolidated by the Court through its April 24, 2016
the award of attorney's fees for being unwarranted as there was no showing of an Resolution.7
unjustified act or evident bad faith on its part for denying Turallo's claim. The Issue
indeed the company-designated physician failed to issue a final assessment of
In G.R. No. 230481, Hoegh Fleet questioned Turallo's claim for total and permanent Turallo's disability grading as this Court is not a trier of facts. 12 Hence, under the
disability benefits. It raised that its company-designated physician issued a final contemplation of the law abovementioned, Turallo is considered as totally and
disability assessment of Grade 8 well within the 240-day period. Thus, Turallo's permanently disabled. The Panel, as affirmed by the CA, is correct in concluding that
compensation should only be confined to the amount corresponding to the Grade 8 the Grade 8 disability grading given, as reflected in the 23 December 2013
assessment, a partial disability.8 correspondence, cannot be considered as a final assessment as the said letter expressly
states that it was merely an "interim" assessment. In Fil-Star Maritime Corporation v.
Meanwhile in G.R. No. 230500, Turallo questioned the award of US$1,000.00 Rosete13 and Tamin v. Magsaysay Maritime Corporation,14 We concluded that the
attorney's fees for being wanting in any factual and legal justification. He furthered company-designated doctor's certification issued within the prescribed periods must
that the judgment of the Panel of Voluntary Arbitrators awarding him 10% of the total be a final and definite assessment of the seafarer's fitness to work or disability, not
monetary award should be reinstated as it is in accord with prevailing jurisprudence.9 merely interim, as in this case. Thus, the award of US$90,000, as the maximum
The Ruling of the Court disability compensation stipulated in their Collective Bargaining Agreement
(CBA)15 is warranted.
The petitions are unmeritorious.
Article 111 of the Labor Code fixes the limit on the amount of attorney's fees a
The POEA-SEC governs. Under Section 32 thereof, Turallo is entitled to a total party may recover
and permanent disability compensation
The Court agrees with the CA that attorney's fees should be reduced, not to
In Kestrel Shipping Co., Inc. v. Munar,10 the Court reads Section 32 of POEA-SEC in US$1,000.00, however, but to five percent (5%) of the total monetary award.
harmony with the Labor Code and explained, viz:chanRoblesvirtualLawlibrary
Indeed, under Section 32 of the POEA-SEC, only those injuries or disabilities that are Article 111 of the Labor Code indeed provides that the culpable party may be
classified as Grade 1 may be considered as total and permanent. However, if those assessed attorney's fees equivalent to 10 percent of the amount of wages recovered. It
injuries or disabilities with a disability grading from 2 to 14, hence, partial and also provides that it shall be unlawful for any person to demand or accept, in any
permanent, would incapacitate a seafarer from performing his usual sea duties for a judicial or administrative proceedings for the recovery of wages, attorney's fees which
period of more than 120 or 240 days, depending on the need for further medical exceed 10 percent of the amount of wages recovered. Section 8, Rule VIII, Book III
treatment, then he is, under legal contemplation, totally and permanently disabled. In of the Implementing Rules of the Labor Code sustains the same and states that
other words, an impediment should be characterized as partial and permanent not only attorney's fees shall not exceed 10 percent of the amount awarded.16 A closer reading
under the Schedule of Disabilities found in Section 32 of the POEA-SEC but should of these provisions, however, would lead us to the conclusion that the 10 percent only
be so under the relevant provisions of the Labor Code and the Amended Rules on serves as the maximum of the award that may be granted. 17 Relevantly, We have
Employee Compensation (AREC) implementing Title II, Book IV of the Labor Code. ruled in the case of Taganas v. National Labor Relations Commission 18that Article
That while the seafarer is partially injured or disabled, he is not precluded from 111 does not even prevent the NLRC from fixing an amount lower than the ten
earning doing the same work he had before his injury or disability or that he is percent ceiling prescribed by the article when the circumstances warrant it. With
accustomed or trained to do. Otherwise, if his illness or injury prevents him from that, the Court is not tied to award 10 percent attorney's fees to the winning party, as
engaging in gainful employment for more than 120 or 240 days, as the case may be, what Turallo wishes to imply.
he shall be deemed totally and permanently disabled.
Despite this, We deem it more reasonable to grant five percent (5%) of the total
Moreover, the company-designated physician is expected to arrive at a definite monetary award as attorney's fees to Turallo, instead of the US$1,000.00 awarded by
assessment of the seafarer's fitness to work or permanent disability within the the CA.
period of 120 or 240 days. That should he fail to do so and the seafarer's medical
condition remains unresolved, the seafarer shall be deemed totally and In PCL Shipping Philippines, Inc. v. National Labor Relations Commission,19 the
11
permanently disabled. (emphasis ours) Court discussed that there are two commonly accepted concepts of attorney's fees, the
It cannot be any clearer that the company-designated physician's failure to arrive at a so-called ordinary and extraordinary. In its ordinary concept, an attorney's fee is the
definite assessment of the seafarer's fitness to work or permanent disability within the reasonable compensation paid to a lawyer by his client for the legal services he has
prescribed periods would hold the seafarer's disability total and permanent. rendered to the latter. The basis of this compensation is the fact of his employment by
and his agreement with the client. In its extraordinary concept, attorney's fees are
The Court does not wish to disturb the factual findings of the Panel and the CA that deemed indemnity for damages ordered by the court to be paid by the losing party in
a litigation. The instances where these may be awarded are those enumerated in
Article 2208 of the Civil Code, specifically par. 7 thereof which pertains to actions
for recovery of wages, and is payable not to the lawyer but to the client, unless they
have agreed that the award shall pertain to the lawyer as additional compensation or
as part thereof. The extraordinary concept of attorney's fees is the one contemplated
in Article 111 of the Labor Code. This is awarded by the court to the successful party
to be paid by the losing party as indemnity for damages sustained by the former in
prosecuting, through counsel, his cause in court.20

Clearly, Turallo incurred legal expenses after he was forced to file an action to
recover his disability benefits. Considering that he was constrained to litigate with
counsel in all the stages of this proceeding, and keeping in mind the liberal and
compassionate spirit of the Labor Code, where the employees' welfare is the
paramount consideration,21 this Court considers five percent (5o/o) of the total
monetary award as more appropriate and commensurate under the circumstances of
this petition.

WHEREFORE, the instant petitions are hereby DENIED. The November 8, 2016
Decision and March 8, 2017 Resolution issued by the Court of Appeals are
hereby AFFIRMED WITH MODIFICATION that the attorney's fees to be
awarded to Turallo is increased to five (5) percent of the total monetary award to him.

SO ORDERED.

Peralta,*Bersamin, Jardeleza, and Reyes, Jr., JJ., concur.


SECOND DIVISION Petitioner SHS Perforated Materials, Inc. (SHS) is a start-up corporation
organized and existing under the laws of the Republic of the Philippines and registered
SHS PERFORATED MATERIALS, INC., WINFRIED HARTMANNSHENN, withG.R.the Philippine Economic Zone Authority. Petitioner Winfried
No. 185814
and HINRICH JOHANN SCHUMACHER, Hartmannshenn
Present: (Hartmannshenn), a German national, is its president, in which
Petitioners, capacity
VELASCO, JR.,*J., the administration and direction of the day-to-day business
he determines
**
- versus - affairs
NACHURA,
of SHS. Petitioner Hinrich Johann Schumacher (Schumacher), also a German
national,
ActingisChairperson,
the treasurer and one of the board directors. As such, he is authorized to pay
all LEONARDO-DE
bills, payrolls, and other just debts of SHS of whatever nature upon maturity.
CASTRO,is***also the Executive Vice-President of the European Chamber of
Schumacher
MANUEL F. DIAZ, Respondent. BRION, ****
Commerce of the
andPhilippines (ECCP) which is a separate entity from SHS. Both
entities
MENDOZA,
have an arrangement
JJ. where ECCP handles the payroll requirements of SHS to
simplify business operations and minimize operational expenses. Thus, the wages of
SHS employees are paid out by ECCP, through its Accounting Services Department
headed by Juliet Taguiang (Taguiang).
Promulgated:October 13,
2010 Manuel F. Diaz (respondent) was hired by petitioner SHS as Manager for
Business Development on probationary status from July 18, 2005 to January 18, 2006,
with a monthly salary of P100,000.00. Respondents duties, responsibilities, and work
hours were described in the Contract of Probationary Employment, [5] as reproduced
below:

NAME : Jose Manuel F. Diaz

TITLE/STATUS : Manager for Business Development

LOCATION : Lot C3-2A, Phase I, Camelray


Industrial Park II,
Calamba, Laguna

REPORTS TO : Direct to Mr. Winfried


Hartmannshenn
x ----------------------------------------------------------------------------------------x
Normal Working Hours : 8:00 a.m. to 5:00 p.m.
DECISION subject to requirements of the job

MENDOZA, J.: OVERTIME : ________________________

Petitioners, by way of this petition for review on certiorari under Rule 45, JOB DESCRIPTION AND RESPONSIBILITIES:
seek to annul and set aside the December 23, 2008 Decision[1] of the Court of
Appeals (CA) in CA-G.R. SP No. 100015, which reversed and set aside the December DAILY/GENERAL DUTIES:
29, 2006 Resolution[2] of the National Labor Relations Commission (NLRC). The
NLRC Resolution, in turn, reversed and set aside the June 15, 2006 Decision[3] of the (a) Represent the company in any event organized by
Labor Arbiter (LA).[4] PEZA;
(b) Perform sales/marketing functions;
THE FACTS
(c) Monitor/follow-up customers inquiry on EMPLOYERs the Philippines, he and the respondent held meetings. As to respondents work, there
services; was no close supervision by him.
(d) Monitor on-going job orders/projects;
(e) Submit requirements as needed in application/renewal During meetings with the respondent, Hartmannshenn expressed his
of necessary permits; dissatisfaction over respondents poor performance. Respondent allegedly failed to
(f) Liaise closely with the other commercial and technical make any concrete business proposal or implement any specific measure to improve
staff of the company; the productivity of the SHS office and plant or deliver sales except for a
(g) Accomplish PEZA documents/requirements for every meagre P2,500.00 for a sample product. In numerous electronic mail messages,
sales made; with legal assistance where necessary at respondent acknowledged his poor performance and offered to resign from the
EMPLOYERs expense; and company.
(h) Perform other related duties and responsibilities.
Respondent, however, denied sending such messages but admitted that he had
OTHER RESPONSIBILITIES: reported to the SHS office and plant only eight (8) times from July 18, 2005 to
November 30, 2005.
(a) abide by and perform to the best of his abilities all
functions, duties and responsibilities to be assigned by the On November 16, 2005, in preparation for his trip to the Philippines,
EMPLOYER in due course; Hartmannshenn tried to call respondent on his mobile phone, but the latter failed to
(b) comply with the orders and instructions given from time answer. On November 18, 2005, Hartmannshenn arrived in
to time by the EMPLOYER, INC. through its authorized the Philippines from Germany, and on November 22 and 24, 2005, notified respondent
representatives; of his arrival through electronic mail messages and advised him to get in touch with
(c) will not disclose any confidential information in respect him. Respondent claimed that he never received the messages.
of the affairs of the EMPLOYER to any unauthorized
person; On November 29, 2005, Hartmannshenn instructed Taguiang not to release
(d) perform any other administrative or non-administrative respondents salary. Later that afternoon, respondent called and inquired about his
duties, as assigned by any of the EMPLOYERs salary. Taguiang informed him that it was being withheld and that he had to
representative from time to time either through direct immediately communicate with Hartmannshenn. Again, respondent denied having
written order or by verbal assignment. The EMPLOYER received such directive.
may take into account EMPLOYEEs training and expertise
when assigning additional tasks. The next day, on November 30, 2005, respondent served on SHS a demand
letter and a resignation letter. The resignation letter reads:
AGREED:
This is to tender my irrevocable resignation from SHS
(sgd. Manuel Diaz). Perforated Materials, Inc, Philippines, effective immediately upon
receipt of my due and demandable salary for the period covering
November 16 to 30, 2005, which has yet been unpaid and is still
currently being withheld albeit illegally. This covers and amounts
to the sum of Php50,000.00 pesos net of all taxes. As my employment
In addition to the above-mentioned responsibilities, respondent was also contract clearly shows I receive a monthly salary of Php100,000.00
instructed by Hartmannshenn to report to the SHS office and plant at least two (2) days net of all taxes.
every work week to observe technical processes involved in the manufacturing of
perforated materials, and to learn about the products of the company, which respondent It is precisely because of illegal and unfair labor
was hired to market and sell. practices such as these that I offer my resignation with neither regret
nor remorse.[6]
During respondents employment, Hartmannshenn was often abroad and,
because of business exigencies, his instructions to respondent were either sent by In the evening of the same day, November 30, 2005, respondent met with
electronic mail or relayed through telephone or mobile phone. When he would be in Hartmannshenn in Alabang. The latter told him that he was extremely disappointed for
the following reasons: his poor work performance; his unauthorized leave and WHEREFORE, premises considered, judgment is hereby rendered
malingering from November 16 to November 30, 2005; and failure to immediately declaring complainant as having been illegally dismissed and further
meet Hartmannshenn upon his arrival from Germany. ordering his immediate reinstatement without loss of seniority rights
and benefits. It is also ordered that complainant be deemed as a
Petitioners averred that respondent was unable to give a proper explanation regular employee. Accordingly, respondents are hereby ordered to
for his behavior. Hartmannshenn then accepted respondents resignation and informed jointly and severally pay complainant the following
him that his salary would be released upon explanation of his failure to report to work,
and proof that he did, in fact, work for the period in question. He demanded that 1. P704,166.67 (P100,000.00 x 6.5 + (P100,000.00 x 6.5/12) as
respondent surrender all company property and information in his possession. backwages;
Respondent agreed to these exit conditions through electronic mail. Instead of 2. P50,000.00 as unpaid wages;
complying with the said conditions, however, respondent sent another electronic mail 3. P37,083.33 as unpaid 13th month pay
message to Hartmannshenn and Schumacher on December 1, 2005, appealing for the 4. P200,000.00 as moral and exemplary damages;
release of his salary. 5. P99,125.00 as attorneys fees.

Respondent, on the other hand, claimed that the meeting with Hartmannshenn SO ORDERED.[8]
took place in the evening of December 1, 2005, at which meeting the latter insulted him The LA found that respondent was constructively dismissed because the
and rudely demanded that he accept P25,000.00 instead of his accrued wage and stop withholding of his salary was contrary to Article 116 of the Labor Code as it was not
working for SHS, which demands he refused. Later that same night, he sent one of the exceptions for allowable wage deduction by the employer under Article 113
Hartmannshenn and Schumacher an electronic mail message appealing for the release of the Labor Code. He had no other alternative but to resign because he could not be
of his salary. Another demand letter for respondents accrued salary for November 16 expected to continue working for an employer who withheld wages without valid cause.
to November 30, 2005, 13th month pay, moral and exemplary damages, and attorneys The LA also held that respondents probationary employment was deemed regularized
fees was sent on December 2, 2005. because petitioners failed to conduct a prior evaluation of his performance and to give
notice two days prior to his termination as required by the Probationary Contract of
To settle the issue amicably, petitioners counsel advised respondents counsel Employment and Article 281 of the Labor Code. Petitioners contention that they lost
by telephone that a check had been prepared in the amount of P50,000.00, and was trust and confidence in respondent as a managerial employee was not given credence
ready for pick-up on December 5, 2005. On the same date, a copy of the formal reply for lack of notice to explain the supposed loss of trust and confidence and absence of
letter relating to the prepared payment was sent to the respondents counsel by facsimile an evaluation of respondents performance.
transmission. Despite being informed of this, respondent never picked up the check.
The LA believed that the respondent complied with the obligations in his
Respondent countered that his counsel received petitioners formal reply letter contract as evidenced by his electronic mail messages to petitioners. He ruled that
only on December 20, 2005, stating that his salary would be released subsequent to the petitioners are jointly and severally liable to respondent for backwages including
turn-over of all materials owned by the company in his possession. Respondent claimed 13th month pay as there was no showing in the salary vouchers presented that such was
that the only thing in his possession was a sample panels folder which he had already integrated in the salary; for moral and exemplary damages for having in bad faith
returned and which was duly received by Taguiang on November 30, 2005. harassed respondent into resigning; and for attorneys fees.

On December 9, 2005, respondent filed a Complaint[7] against the petitioners THE RULING OF THE NLRC
for illegal dismissal; non-payment of salaries/wages and 13th month pay with prayer for
reinstatement and full backwages; exemplary damages, and attorneys fees, costs of suit, On appeal, the NLRC reversed the decision of the LA in its December 29,
and legal interest. 2006 Resolution, the dispositive portion of which reads:

THE RULING OF THE LABOR ARBITER WHEREFORE, premises considered, the appeal is
hereby GRANTED.
On June 15, 2006, the LA rendered his decision, the dispositive portion of
which states: The Decision dated June 15, 2006 is hereby REVERSED
and SET ASIDE and a new one is hereby entered:
(1) dismissing the complaint for illegal dismissal SO ORDERED.[10]
for want of merit;
Contrary to the NLRC ruling, the CA held that withholding respondents salary
(2) dismissing the claims for 13th month pay, was not a valid exercise of management prerogative as there is no such thing as a
moral and exemplary damages and attorneys management prerogative to withhold wages temporarily. Petitioners averments of
fees for lack of factual and legal basis; and respondents failure to report to work were found to be unsubstantiated allegations not
corroborated by any other evidence, insufficient to justify said withholding and lacking
(3) ordering respondents to pay the complainants in probative value. The malicious withholding of respondents salary made it impossible
unpaid salary for the period or unacceptable for respondent to continue working, thus, compelling him to resign.
covering November 16-30, 2005 in the The respondents immediate filing of a complaint for illegal dismissal could only mean
amount of FIFTY THOUSAND PESOS (Php that his resignation was not voluntary. As a probationary employee entitled to security
50,000.00). of tenure, respondent was illegally dismissed. The CA ruled out actual reinstatement,
however, reasoning out that antagonism had caused a severe strain in their
SO ORDERED.[9] relationship. It was of the view that separation pay equivalent to at least one month pay
The NLRC explained that the withholding of respondents salary was a valid would be a more equitable disposition.
exercise of management prerogative. The act was deemed justified as it was reasonable
to demand an explanation for failure to report to work and to account for his work THE ISSUES
accomplishments. The NLRC held that the respondent voluntarily resigned as
evidenced by the language used in his resignation letter and demand letters. Given his Aggrieved, the petitioners come to this Court praying for the reversal and
professional and educational background, the letters showed respondents resolve to setting aside of the subject CA decision presenting the following
sever the employer-employee relationship, and his understanding of the import of his
words and their consequences. Consequently, respondent could not have been ISSUES
regularized having voluntarily resigned prior to the completion of the probationary
period. The NLRC further noted that respondents 13 th month pay was already I
integrated in his salary in accordance with his Probationary Contract of Employment
and, therefore, no additional amount should be due him. THE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR IN NOT AFFIRMING THE
On January 25, 2007, respondent filed a motion for reconsideration but the DECISION OF THE NLRC, WHICH WAS BASED ON
NLRC subsequently denied it for lack of merit in its May 23, 2007 Resolution. SUBSTANTIAL EVIDENCE.

THE RULING OF THE COURT OF APPEALS II

The CA reversed the NLRC resolutions in its December 23, 2008 Decision, THE COURT OF APPEALS COMMITTED SERIOUS AND
the dispositive portion of said decision reads: REVERSIBLE ERROR IN NOT AFFIRMING THE NLRCS
HOLDING THAT PETITIONERS WITHHOLDING OF
WHEREFORE, premises considered, the herein petition is RESPONDENTS SALARY FOR THE PAYROLL PERIOD
GRANTED and the 29 December 2006 Resolution of the NLRC in NOVEMBER 16-30, 2005 IN VIEW OF RESPONDENTS
NLRC CN RAB-IV-12-21758-05-L, and the 23 May 2007 FAILURE TO RENDER ACTUAL WORK FOR SAID
Resolution denying petitioners Motion for Reconsideration, are PAYROLL PERIOD WAS A VALID EXERCISE OF
REVERSED and SET ASIDE. Accordingly, a new judgment is MANAGEMENT PREROGATIVE.
hereby entered in that petitioner is hereby awarded separation pay
equivalent to at least one month pay, and his full backwages, other III
privileges and benefits, or their monetary equivalent during the
period of his dismissal up to his supposed actual reinstatement by the THE COURT OF APPEALS COMMITTED SERIOUS AND
Labor Arbiter on 15 June 2006. REVERSIBLE ERROR IN AFFIRMING THE LABOR
ARBITERS FINDING THAT RESPONDENT HAD BEEN temporarily withhold an employees salary/wages pending determination of whether or
CONSTRUCTIVELY DISMISSED. not such employee did indeed work.

We disagree with petitioners.


IV
Management prerogative refers to the right of an employer to regulate all
THE COURT OF APPEALS COMMITTED SERIOUS AND aspects of employment, such as the freedom to prescribe work assignments, working
REVERSIBLE ERROR IN AWARDING RESPONDENT methods, processes to be followed, regulation regarding transfer of employees,
SEPARATION PAY EQUIVALENT TO AT LEAST ONE supervision of their work, lay-off and discipline, and dismissal and recall of
MONTH PAY IN LIEU OF REINSTATEMENT, FULL work.[12] Although management prerogative refers to the right to regulate all aspects of
BACKWAGES, AND OTHER PRIVILEGES AND BENEFITS, employment, it cannot be understood to include the right to temporarily withhold
OR THEIR MONETARY EQUIVALENT IN VIEW OF THE salary/wages without the consent of the employee. To sanction such an interpretation
FACT THAT RESPONDENT VOLUNTARILY RESIGNED would be contrary to Article 116 of the Labor Code, which provides:
FROM PETITIONER SHS AND WAS NOT ILLEGALLY
DISMISSED. ART. 116. Withholding of wages and kickbacks prohibited. It shall
be unlawful for any person, directly or indirectly, to withhold any
V amount from the wages of a worker or induce him to give up any part
of his wages by force, stealth, intimidation, threat or by any other
THE COURT OF APPEALS COMMITTED SERIOUS AND means whatsoever without the workers consent.
REVERSIBLE ERROR IN NOT HOLDING THAT
INDIVIDUAL PETITIONERS HARTMANNSHENN AND
SCHUMACHER MAY NOT BE HELD SOLIDARILY AND Any withholding of an employees wages by an employer may only be allowed
PERSONALLY LIABLE WITH PETITIONER SHS FOR THE in the form of wage deductions under the circumstances provided in Article 113 of the
PAYMENT OF THE MONETARY AWARD TO Labor Code, as set forth below:
RESPONDENT.
ART. 113. Wage Deduction. No employer, in his own behalf or in
behalf of any person, shall make any deduction from the wages of his
The resolution of these issues is dependent on whether or not respondent was employees, except:
constructively dismissed by petitioners, which determination is, in turn, hinged on
finding out (i) whether or not the temporary withholding of respondents salary/wages (a) In cases where the worker is insured with his
by petitioners was a valid exercise of management prerogative; and (ii) whether or not consent by the employer, and the deduction is to
respondent voluntarily resigned. recompense the employer for the amount paid by
him as premium on the insurance;
THE COURTS RULING
(b) For union dues, in cases where the right of the
As a rule, the factual findings of the courts below are conclusive in a petition worker or his union to check-off has been
for review on certiorari where only errors of law should be reviewed. The case, recognized by the employer or authorized in
however, is an exception because the factual findings of the CA and the LA are writing by the individual worker concerned; and
contradictory to that of the NLRC. Thus, a review of the records is necessary to resolve
the factual issues involved and render substantial justice to the parties.[11] (c) In cases where the employer is authorized by law
or regulations issued by the Secretary of Labor.
Petitioners contend that withholding respondents salary from November 16 to As correctly pointed out by the LA, absent a showing that the withholding of
November 30, 2005, was justified because respondent was absent and did not show up complainants wages falls under the exceptions provided in Article 113, the withholding
for work during that period. He also failed to account for his whereabouts and work thereof is thus unlawful.[13]
accomplishments during said period. When there is an issue as to whether an employee
has, in fact, worked and is entitled to his salary, it is within management prerogative to
Petitioners argue that Article 116 of the Labor Code only applies if it is Court in light of Section 10, Rule VII, of the 2005 New Rules of Procedure of the
established that an employee is entitled to his salary/wages and, hence, does not apply NLRC, which provides in part that the rules of procedure and evidence prevailing in
in cases where there is an issue or uncertainty as to whether an employee has worked courts of law and equity shall not be controlling and the Commission shall use every
and is entitled to his salary/wages, in consonance with the principle of a fair days wage and all reasonable means to ascertain the facts in each case speedily and objectively,
for a fair days work. Petitioners contend that in this case there was precisely an issue without regard to technicalities of law or procedure, all in the interest of due process.
as to whether respondent was entitled to his salary because he failed to report to work While administrative tribunals exercising quasi-judicial functions are free from the
and to account for his whereabouts and work accomplishments during the period in rigidity of certain procedural requirements, they are bound by law and practice to
question. observe the fundamental and essential requirements of due process in justiciable cases
presented before them.[23] In this case, due process was afforded petitioners as
To substantiate their claim, petitioners presented hard copies of the electronic respondent filed with the NLRC a Motion to Set Case for Reception of Additional
mail messages[14] sent to respondent on November 22 and 24, 2005, directing the latter Evidence as regards the said letters, which petitioners had the opportunity to, and did,
to contact Hartmannshenn; the Affidavit[15] of Taguiang stating that she advised oppose.
respondent on or about November 29, 2005 to immediately communicate with Mr.
Hartmannshenn at the SHS office;Hartmannshenns Counter-Affidavit[16] stating that he Although it cannot be determined with certainty whether respondent worked
exerted earnest efforts to contact respondent through mobile phone; Schumachers for the entire period from November 16 to November 30, 2005, the consistent rule is
Counter-Affidavit[17] stating that respondent had not filed any request for official leave; that if doubt exists between the evidence presented by the employer and that by the
and respondents admission in his Position Paper[18] that he found it absurd to report to employee, the scales of justice must be tilted in favor of the latter[24] in line with the
the SHS plant when only security guards and machinists were present. policy mandated by Articles 2 and 3 of the Labor Code to afford protection to labor and
construe doubts in favor of labor. For petitioners failure to satisfy their burden of proof,
Respondent, on the other hand, presented reports[19] prepared by him and respondent is presumed to have worked during the period in question and is,
submitted to Hartmannshenn on November 18 and 25, 2005; a receipt [20] issued to him accordingly, entitled to his salary. Therefore, the withholding of respondents salary by
by Taguiang for a clients payment during the subject period; and eight notarized petitioners is contrary to Article 116 of the Labor Code and, thus, unlawful.
letters[21] of prospective clients vouching for meetings they had with the respondent
during the subject period. Petitioners contend that respondent could not have been constructively
dismissed because he voluntarily resigned as evidenced by his resignation letter. They
The Court finds petitioners evidence insufficient to prove that respondent did assert that respondent was not forced to draft the letter and his intention to resign is
not work from November 16 to November 30, 2005. As can be gleaned from clear from the contents and terms used, and that given respondents professional and
respondents Contract of Probationary Employment and the exchanges of electronic educational background, he was fully aware of the import and consequences of the said
mail messages[22] between Hartmannshenn and respondent, the latters duties as letter. They maintain that respondent resigned to save face and avoid disciplinary
manager for business development entailed cultivating business ties, connections, and measures due to his allegedly dismal work performance and failure to report to work.
clients in order to make sales. Such duties called for meetings with prospective clients
outside the office rather than reporting for work on a regular schedule. In other words, The Court, however, agrees with the LA and the CA that respondent was
the nature of respondents job did not allow close supervision and monitoring by forced to resign and was, thus, constructively dismissed. In Duldulao v. Court of
petitioners. Neither was there any prescribed daily monitoring procedure established Appeals, it was written:
by petitioners to ensure that respondent was doing his job. Therefore, granting that
respondent failed to answer Hartmannshenns mobile calls and to reply to two electronic There is constructive dismissal if an act of clear discrimination,
mail messages and given the fact that he admittedly failed to report to work at the SHS insensibility, or disdain by an employer becomes so unbearable on
plant twice each week during the subject period, such cannot be taken to signify that he the part of the employee that it would foreclose any choice by him
did not work from November 16 to November 30, 2005. except to forego his continued employment. It exists where there is
cessation of work because continued employment is rendered
Furthermore, the electronic mail reports sent to Hartmannshenn and the impossible, unreasonable or unlikely, as an offer involving a
receipt presented by respondent as evidence of his having worked during the subject demotion in rank and a diminution in pay. [25]
period were not controverted by petitioners. The eight notarized letters of prospective
clients vouching for meetings they had with respondent during the subject period may
also be given credence. Although respondent only presented such letters in support of
his Motion for Reconsideration filed with the NLRC, they may be considered by this
What made it impossible, unreasonable or unlikely for respondent to continue all workers to security of tenure. In using the expression all workers, the Constitution
working for SHS was the unlawful withholding of his salary. For said reason, he was puts no distinction between a probationary and a permanent or regular employee. This
forced to resign. It is of no moment that he served his resignation letter on November means that probationary employees cannot be dismissed except for cause or for failure
30, 2005, the last day of the payroll period and a non-working holiday, since his salary to qualify as regular employees.[28]
was already due him on November 29, 2005, being the last working day of said
period. In fact, he was then informed that the wages of all the other SHS employees This Court has held that probationary employees who are unjustly dismissed
were already released, and only his was being withheld. What is significant is that the during the probationary period are entitled to reinstatement and payment of full
respondent prepared and served his resignation letter right after he was informed that backwages and other benefits and privileges from the time they were dismissed up to
his salary was being withheld. It would be absurd to require respondent to tolerate the their actual reinstatement.[29] Respondent is, thus, entitled to reinstatement without loss
unlawful withholding of his salary for a longer period before his employment can be of seniority rights and other privileges as well as to full backwages, inclusive of
considered as so impossible, unreasonable or unlikely as to constitute constructive allowances, and other benefits or their monetary equivalent computed from the time his
dismissal. Even granting that the withholding of respondents salary on November 30, compensation was withheld up to the time of actual reinstatement. Respondent,
2005, would not constitute an unlawful act, the continued refusal to release his salary however, is not entitled to the additional amount for 13 th month pay, as it is clearly
after the payroll period was clearly unlawful. The petitioners claim that they prepared provided in respondents Probationary Contract of Employment that such is deemed
the check ready for pick-up cannot undo the unlawful withholding. included in his salary. Thus:

It is worthy to note that in his resignation letter, respondent cited EMPLOYEE will be paid a net salary of One Hundred Thousand
petitioners illegal and unfair labor practice[26] as his cause for resignation. As (Php100,000.00) Pesos per month payable every 15 th day and end of
correctly noted by the CA, respondent lost no time in submitting his resignation letter the month.
and eventually filing a complaint for illegal dismissal just a few days after his salary
was withheld. These circumstances are inconsistent with voluntary resignation and The compensation package defined in this paragraph shall represent
bolster the finding of constructive dismissal. all that is due and demandable under this Contract and includes all
benefits required by law such as the 13thmonth pay. No other
Petitioners cite the case of Solas v. Power & Telephone Supply Phils., benefits, bonus or allowance shall be due the employee. [30]
Inc.[27] to support their contention that the mere withholding of an employees salary (emphasis supplied)
does not by itself constitute constructive dismissal. Petitioners are mistaken in
anchoring their argument on said case, where the withholding of the salary was deemed Respondents reinstatement, however, is no longer feasible as antagonism has
lawful. In the above-cited case, the employees salary was withheld for a valid reason - caused a severe strain in their working relationship. Under the doctrine of strained
it was applied as partial payment of a debt due to the employer, for withholding taxes relations, the payment of separation pay is considered an acceptable alternative to
on his income and for his absence without leave. The partial payment of a debt due to reinstatement when the latter option is no longer desirable or viable. Payment liberates
the employer and the withholding of taxes on income were valid deductions under the employee from what could be a highly oppressive work environment, and at the
Article 113 paragraph (c) of the Labor Code. The deduction from an employees salary same time releases the employer from the obligation of keeping in its employ a worker
for a due and demandable debt to an employer was likewise sanctioned under Article it no longer trusts. Therefore, a more equitable disposition would be an award of
1706 of the Civil Code. As to the withholding for income tax purposes, it was separation pay equivalent to at least one month pay, in addition to his full backwages,
prescribed by the National Internal Revenue Code.Moreover, the employee therein was allowances and other benefits.[31]
indeed absent without leave.
With respect to the personal liability of Hartmannshenn and Schumacher, this
In this case, the withholding of respondents salary does not fall under any of Court has held that corporate directors and officers are only solidarily liable with the
the circumstances provided under Article 113. Neither was it established with certainty corporation for termination of employment of corporate employees if effected with
that respondent did not work from November 16 to November 30, 2005. Hence, the malice or in bad faith.[32] Bad faith does not connote bad judgment or negligence; it
Court agrees with the LA and the CA that the unlawful withholding of respondents imports dishonest purpose or some moral obliquity and conscious doing of wrong; it
salary amounts to constructive dismissal. means breach of unknown duty through some motive or interest or ill will; it partakes
of the nature of fraud.[33] To sustain such a finding, there should be evidence on record
Respondent was constructively dismissed and, therefore, illegally that an officer or director acted maliciously or in bad faith in terminating the
dismissed. Although respondent was a probationary employee, he was still entitled to employee.[34]
security of tenure. Section 3 (2) Article 13 of the Constitution guarantees the right of
Petitioners withheld respondents salary in the sincere belief that respondent
did not work for the period in question and was, therefore, not entitled to it. There was
no dishonest purpose or ill will involved as they believed there was a justifiable reason
to withhold his salary. Thus, although they unlawfully withheld respondents salary, it
cannot be concluded that such was made in bad faith.Accordingly, corporate officers,
Hartmannshenn and Schumacher, cannot be held personally liable for the corporate
obligations of SHS.

WHEREFORE, the assailed December 23, 2008 Decision of the Court of


Appeals in CA-G.R. SP No. 100015 is
hereby AFFIRMED with MODIFICATION. The additional amount for 13th month
pay is deleted. Petitioners Winfried Hartmannshenn and Hinrich Johann Schumacher
are not solidarily liable with petitioner SHS Perforated Materials, Inc.

SO ORDERED.
[was] missing including receipts, payrolls, credit card receipts and sales invoices. She
immediately reported the same to her immediate superior Jorge Rafols ("Jorge
FIRST DIVISION Rafols"). As such, they searched for the missing documents and cash. However, their
search remained futile.
G.R. No. 202086, June 21, 2017
On 26 January 2005, Jorge Rafols and Enriquez reported the incident to their Vice
President for Operations Henry Ting ("Henry Ting").
NORMAN PANALIGAN, IRENEO VILLAJIN, AND GABRIEL
PENILLA, Petitioners, v. PHYVITA ENTERPRISES As advised by Phyvita's Legal Officer Maria Joy Ting ("Joy Ting"), they reported the
CORPORATION, Respondent. alleged theft incident to the Parañaque City Police Station to conduct an investigation.
However, the Parañaque Police were not able to gather sufficient information that
DECISION would lead them as to who committed said theft. Being unsuccessful, the said police
investigation was merely entered into the police blotter.
LEONARDO-DE CASTRO, J.:
On 4 April 2005, while the police investigation was pending, [Petitioners] together
Before this Court is a petition for review on certiorari pursuant to Rule 45 of the with other employees, namely, Terio Arroyo ("Arroyo"), Nilo Mangco ("Mangco"),
1997 Rules of Civil Procedure seeking to reverse and set aside the Court of Appeals Bruce Maranquez ("Maranquez"), Michael Lachica ("Lachica"), Allan Grasparil
Decision1 dated November 24, 2011 and Resolution2 dated May 29, 2012 in CA-G.R. ("Grasparil"), Allan Rose ("Rose"), Angelo Bernales ("Bernales"), Roberto Reyes
SP No. 111653, entitled "Phyvita Enterprises Corporation v. National Labor ("Reyes"), Rommel Garcia ("Garcia"), Jay Ar Kasing ("Kasing"), Manuel Marquez
Relations Commission, Norman Panaligan, Ireneo Villajin, Gabriel Penilla." The ("Marquez") and Arnel Pullan ("Pullan") filed a complaint before the Department of
former issuance reversed and set aside the Decision3 dated June 9, 2009 as well as the Labor and Employment (DOLE) National Capital Region (NCR) against Star:fleet
Resolution4 dated September 25, 2009 of the National Labor Relations Commission docketed as NCR 00-0504-IS-002. Their complaint was based on the alleged
(NLRC) which essentially ruled that petitioners Norman Panaligan, Ireneo Villajin underpayment of wages, nonpayment of legal/special holiday, five (5)-day service
and Gabriel Penilla (PANALIGAN, et al.) were illegally dismissed from their incentive leave pay, night shift differential pay, no pay slip, signing of blank payroll,
employment by respondent Phyvita Enterprises Corporation (PHYVITA) and were withheld salary due to non-signing of blank payroll.
entitled to various monetary awards. The Court of Appeals, thus, reinstated the Labor
Arbiter's July 31, 2007 Decision5 which dismissed the complaint for illegal dismissal Acting on the said complaint, on 13 April 2005, an inspection was conducted by the
but held that petitioners were entitled to payment of salary differential. The May 29, DOLE-NCR through its Labor and Employment Officers Augusto Gwyne C. Lasay
2012 Court of Appeals Resolution, on the other hand, denied for lack of merit and Edgar B. Bumanglag.
PANALIGAN, et al.'s, motion for reconsideration.
In the interim, on 28 April 2005, individual Office Memoranda were issued by
We restate the salient facts as narrated in the assailed November 24, 2011 Court of Starfleet's Assistant Operations Manager Jerry Rafols ("Jerry Rafols") against
Appeals Decision here: [Petitioners] directing them to explain in writing why no disciplinary action shall be
Petitioner Phyvita Enterprises Corporation x x x [respondent herein] is a domestic imposed against them for alleged violation of Class D1.14 of Starfleet's rules and
corporation organized and existing under the [sic] Philippine laws engaged in the regulation[s], particularly any act of dishonesty, whether the company has incurred
business of health club massage parlor, spa and other related services under the name loss or not[,] more specifically their alleged involvement in a theft wherein important
and style of Starfleet Reflex Zone ("Starfleet"). documents and papers including cash were lost which happened last 25 January 2005
at [Phyvita]'s establishment. [Petitioners] were, likewise, placed on preventive
Private respondents [petitioners herein] Norman Panaligan ("Panaligan"), Ireneo suspension pending the investigation of the said alleged theft they committed. They
Villajin ("Villajin") and Gabriel Penilla ("Penilla") x x x were the employees of were even asked to report at Phyvita on the 3rd, 9thand 10th of May 2005, respectively.
Phyvita assigned as Roomboys at Starfleet. Panaligan was hired last 1 March 2002. Upon personal service of the said Office Memoranda, the said employees refused to
Villajin was hired last 22 October 2002 and Penilla was hired on 22 October 2002. receive the same.

Sometime [on] 25 January 2005, the Finance Assistant of Phyvita for Starfleet Girly Acting on the said Office Memoranda, only Panaligan submitted his hand written
Enriquez ("Enriquez") discovered that the amount of One Hundred Eighty Thousand explanation which merely stated "wala ako kinalaman sa ibinibintang [sakin]."
Pesos (Php180,000.00) representing their sales for 22 nd, 23rd and 24th of January 2005
Come the scheduled administrative hearing dates, [Petitioners] failed to attend the Php138.00 per day. Being underpaid of their basic salary, their 13 th month pay were
same. As such, Human Resource Department Manager of Phyvita Leonor Terible likewise underpaid. They were also not given their pro-rated 13th month pay after
issued Office Memoranda against the same employees recommending them to their illegal dismissal last 2005. They also claim that Starfleet requires their
participate in the administrative proceedings that Phyvita will conduct. employees to sign blank payroll sheets before their salaries are given to them. They
also assert that their termination was a mere retaliatory measure on the part of
Having failed to participate in the investigation proceedings conducted by Phyvita, Starfleet because they have filed a complaint before the DOLE and refused to
Memoranda dated 26 May 2005 were issued against [Petitioners] informing them that amicably settle the same. They claim that to unjustly accuse them of stealing would
they are terminated from their employment on the ground that they violated the be a violation of Article 118 of the Labor Code. Their dismissal was, likewise, in
company's rules and regulation[s] by stealing company documents and cash. They violation of the requirements provided by law and jurisprudence to validly terminate
were also informed that such termination is without prejudice to the filing of criminal them. The charge of theft against them was baseless. In fact, the said criminal
charges against them. complaint against them was dismissed by the City Prosecutor for the simple reason
that there was no direct, solid or concrete proof directing them to the commission of
On 17 June 2005, Arroyo, Mangco, Maranquez, Lachica and Grasparil agreed to theft. Starfleet also has no basis to terminate them on the ground of loss of trust and
settle their claims, in the complaint filed before the DOLE-NCR, by way of Quitclaim confidence since said ground for dismissal was without any basis or proof.
and Releases duly executed before Senior Labor and Employment Officer Marilou D.
Tumanguil. Starfleet, Jorge Rafols and [Joy] Ting, on the other hand, stated in their Position Paper
and Reply that [Petitioners] got involved in the theft of important office documents
On 28 June 2005, Phyvita, as represented by Enriquez, filed a criminal complaint for and other valuable items on 25 January 2005. They were given an opportunity to
theft against [Petitioners] including Marquez, Lorenzo, Devanadero and Rose before explain themselves through Memoranda but they refused to receive and acknowledge
the Office of the City Prosecutor of Parañaque. the same. They also did not appear during the administrative investigations. They
claim that [Petitioners'] dismissal were legal under Article 282 of the Labor Code
On 31 July 2005, by virtue of the aforesaid Quitclaim and Releases, the said since the commission of theft is a serious misconduct and an act which gives rise to
complaint before the DOLE-NCR, in so far as the [Petitioners], Rose, Bemales, fraud or willful breach by the employee of the trust reposed in him by his employer or
Reyes, Garcia, Kasing, Marquez and Pullan are concerned, was endorsed to the NCR duly authorized representative. Thus, it is a sufficient ground to justify their dismissal.
Arbitration Branch of the NLRC for proper proceedings. The dismissal of the criminal complaint against [Petitioners] is immaterial since they
were still validly dismissed based on breach of trust. They even alleged that the filing
On 30 September 2005, the criminal complaint was dismissed by 3 rd Assistant City of the instant labor complaint was a mere afterthought. In support of their claim that
Prosecutor Antonietta Pablo-Medina there being no sufficient evidence submitted by the employees were paid according to the mandated wage and benefits, they presented
the parties to warrant the finding of the crime of theft against aforesaid employees. copies of their payroll sheets. On the alleged double bookkeeping, Starfleet countered
the said allegation by stating that said blank payroll sheets does not prove anything
On 14 November 2006, [Petitioners] filed the complaint with the NLRC alleging, primarily because they were not signed by the manager nor the payroll officer and
inter alia, illegal dismissal and payment of separation pay. does not contain any data. These blank payroll sheets were even the subject of the
crime of theft which Starfleet filed against [Petitioners]. The fact that the blank
On 9 January 2007, they amended their complaint claiming for reinstatement and payroll sheets are in their possession establishes the fact that they unquestionably
payment of full backwages, instead of their previous claim for separation pay. The committed the crime of theft.6
case was docketed as NLRC NCR 00-11-09431-06. Labor Arbiter Jose G. De Vera declared in his Decision dated July 31, 2007 that
PANALIGAN, et al., were legally terminated from employment on the ground of loss
Conciliation failed, thus, the parties submitted their respective Position Papers and of trust and confidence. The dispositive portion of said judgment
Reply. reads:chanRoblesvirtualLawlibrary
WHEREFORE, all the foregoing premises being considered, judgment is hereby
In their Position Paper and Reply, the [Petitioners] argue that, as room boys of rendered ordering the respondents to pay the complainants the sum of P29,000.00
Starfleet, they were required to report for work from 10 am to 7 pm as morning shift, each, or the aggregate sum of P87,000.00 as salary differential.
6 pm to 3 am as evening shift and 8 pm to 5 am as closing shift. They were also
required to work six (6) days a week, including holidays, without any overtime pay, All other claims, including the charge of illegal dismissal are dismissed for lack of
holiday pay, premium pay for holiday and rest day and service incentive leave pay. merit.7
For their salary, they were only receiving a basic monthly salary of Php3,600.00 or
Upon appeal by PANALIGAN, et al., the aforementioned ruling was reversed and set
aside by the NLRC in its Decision dated June 9, 2009. The NLRC arrived at the WITH UTMOST DEFERENCE, THE COURT OF APPEALS COMMITTED AN
conclusion that PANALIGAN, et al., were illegally dismissed from employment, ERROR OF LAW IN HOLDING THAT RESPONDENT HAD SUBSTANTIALLY
thus, ordering the following:chanRoblesvirtualLawlibrary PROVEN THE LEGALITY OF PETITIONERS' DISMISSAL DUE TO LOSS OF
ACCORDINGLY, the appealed Decision is hereby REVERSED and SET ASIDE and TRUST AND CONFIDENCE DESPITE THE FACT THAT IT IS SIMULATED,
a new one is ENTERED declaring complainants to be illegally terminated whereby USED AS A SUBTERFUGE FOR ILLEGAL ACTION, ARBITRARILY
respondent-appellees Starfleet Reflex Zone/Jorge Rafols and [Joy] Ting liable to pay ASSERTED AND A MERE AFTERTHOUGHT.10
complainants their separation pay in the amount of Php69,524.00, Php69,524.00 and PANALIGAN, et al., argued that the assailed November 24, 2011 Decision of the
Php69,524.00 and; backwages in the amount of Php473,425.17, Php473,425.17 and Court of Appeals failed to state any factual, legal and equitable justification why the
Php473,425.17, respectively. Further, respondents are ordered to pay complainants NLRC's monetary awards for salary differential and unpaid salaries were also set
their salary differentials in the amount of Php48,251.84, Php48,251.84 and aside. They likewise asserted that theft, as the basis of their purported serious
Php48,251.84, respectively. And, the amount of Php6,000.00, Php6,000.00 and misconduct, was not established by evidence since, according to them, the ruling of
Php6,000.00, representing their respective unpaid salaries for the period of April 1- the Court of Appeals failed to state how the alleged theft was committed by them and
28, 2005.8 what evidence can be found on record to support such finding. Lastly, they
The NLRC subsequently denied PHYVITA's motion for reconsideration through a maintained that the alleged theft was utilized by PHYVITA as a subterfuge to justify
Resolution dated September 25, 2009. their dismissal without adequate cause. They characterized the criminal complaint
against them as a retaliatory action by PHYVITA for their refusal to settle and
Thus, PHYVITA elevated this case to the Court of Appeals. The appellate court withdraw the complaint they filed with the Department of Labor and Employment -
reversed the NLRC issuances and reinstated the July 31, 2007 Decision of the Labor National Capital Region Office (DOLE-NCR) for underpayment of wages and
Arbiter, to wit:chanRoblesvirtualLawlibrary nonpayment of other labor standard benefits.
WHEREFORE, the instant petition is hereby GRANTED. The assailed Decision
dated 09 June 2009 and Resolution 25 September 2009 issued by the National Labor On the other hand, PHYVITA claimed that the Court of Appeals correctly ruled that
Relations Commission are REVERSED and SET ASIDE. The Decision dated 31 July there were just causes to dismiss PANALIGAN, et al., from their employment;
2007 of Labor Arbiter Jose G. De Vera is hereby REINSTATED. 9 namely, serious misconduct and loss of trust and confidence. PHYVITA contended
A motion for reconsideration filed by PANALIGAN, et al., was denied for lack of that, despite the dismissal by the Office of the City Prosecutor of Parañaque of the
merit by the Court of Appeals in its Resolution dated May 29, 2012. criminal complaint for theft against PANALIGAN, et al., on the ground of lack of
probable cause, there was substantial evidence to support a valid dismissal from
Hence, PANALIGAN, et al., filed the present petition with this Court relying on the employment as ruled by the Court of Appeals. PHYVITA maintained that
following grounds in support of the same:chanRoblesvirtualLawlibrary PANALIGAN, et al.'s possession of stolen payroll slips is sufficient to justify the
I. termination of PANALIGAN, et al.

WITH ALL DUE RESPECT, THE COURT OF APPEALS COMMITTED AN After an assiduous evaluation of the parties' submissions, we find the petition
ERROR OF LAW IN REVERSING THE JUDGMENT AWARD FOR SALARY meritorious.
DIFFERENTIALS AND UNPAID SALARIES WHEN THE BASIS FOR THE
SAME WAS NOT EVEN DISCUSSED IN ITS DECISION. The fundamental question that needs to be resolved in this case is whether or not there
II. exists just and valid cause for the termination of PANALIGAN, et al.'s, employment
by PHYVITA. A review of the conflicting findings on this matter by the Labor
WITH UTMOST DEFERENCE, THE COURT OF APPEALS COMMITTED AN Arbiter and the Court of Appeals, on one hand, and the NLRC, on the other, yields
ERROR OF LAW IN HOLDING THAT RESPONDENT HAD SUBSTANTIALLY the conclusion that the allegations of serious misconduct and loss of trust and
PROVEN THE LEGALITY OF PETITIONERS' DISMISSAL DUE TO SERIOUS confidence against PANALIGAN, et al., cannot be upheld.
MISCONDUCT DESPITE THE LACK OF CONVINCING EVIDENCE SHOWING
THEIR INVOLVEMENT IN THE ALLEGED INCIDENT OF THEFT AND THE The applicable provision of law to this case is Article 297 of the Labor Code, as
LACK OF CONCRETE PROOF THAT THE PAYROLLS WERE PART OF THE amended, which states:chanRoblesvirtualLawlibrary
STOLEN ITEMS. ARTICLE 297. Termination by Employer. - An employer may terminate an
III. employment for any of the following causes:
(a) Serious misconduct or willful disobedience by the employee of the lawful orders employer's loss of confidence.14
of his employer or representative in connection with his work;
For an employer to validly dismiss an employee on the ground of loss of trust and
(b) Gross and habitual neglect by the employee of his duties; confidence under Article 282(c) of the Labor Code, the employer must observe the
following guidelines: 1) loss of confidence should not be simulated; 2) it should not
(c) Fraud or willful breach by the employee of the trust reposed in him by his be used as subterfuge for causes which are improper, illegal or unjustified; 3) it may
employer or duly authorized representative; not be arbitrarily asserted in the face of overwhelming evidence to the contrary; and
4) it must be genuine, not a mere afterthought to justify earlier action taken in bad
(d) Commission of a crime or offense by the employee against the person of his faith. More importantly, it must be based on a willful breach of trust and founded on
employer or any immediate member of his family or his duly authorized clearly established facts.15
representative; and
Thus, in order to dismiss an employee on the ground of loss of trust and confidence,
(e) Other causes analogous to the foregoing. (Emphases supplied.) the employee must be guilty of an actual and willful breach of duty duly supported by
In Maula v. Ximex Delivery Express, Inc.,11 this Court reiterated previous substantial evidence.16 Substantial evidence is that amount of evidence which a
pronouncements on the nature of serious misconduct as a just cause to terminate an reasonable mind might accept as adequate to support a conclusion. 17
employee according to the Labor Code. To quote:chanRoblesvirtualLawlibrary
Misconduct is improper or wrong conduct; it is the transgression of some established In termination cases, the burden of proof rests on the employer to show that the
and definite rule of action, a forbidden act, a dereliction of duty, willful in character, dismissal is for a just cause.18 In the case at bar, PHYVITA failed to adduce
and implies wrongful intent and not mere error in judgment. The misconduct, to be substantial evidence that would clearly demonstrate that PANALIGAN, et al., have
serious within the meaning of the Labor Code, must be of such a grave and committed serious misconduct or have performed actions that would warrant the loss
aggravated character and not merely trivial or unimportant. Thus, for misconduct or of trust and confidence reposed upon them by their employer. Contrary to the findings
improper behavior to be a just cause for dismissal, (a) it must be serious; (b) it must of the Court of Appeals and the Labor Arbiter, no substantial evidence supports the
relate to the performance of the employee's duties; and (c) it must show that the allegation of theft leveled by PHYVITA against PANALIGAN, et al. - the said
employee has become unfit to continue working for the employer. criminal act being the underlying reason for the dismissal of the latter from being
On the other hand, loss of trust and confidence, as a just cause for termination of employees of the former.
employment, is premised on the fact that an employee concerned holds a position
where greater trust is placed by management and from whom greater fidelity to duty The records of this case clearly indicate that no direct evidence was presented to link
is correspondingly expected. The betrayal of this trust is the essence of the offense for PANALIGAN, et al., to the theft that they allegedly committed. In fact, the
which an employee is penalized.12 Loss of trust and confidence to be a valid cause for questioned payroll sheets that PANALIGAN, et al., attached to the labor complaint
dismissal must be work related such as would show the employee concerned to be they filed before the DOLE-NCR are the only concrete proof that PHYVITA used to
unfit to continue working for the employer and it must be based on a willful breach of support its allegation. However, the said documents were not specifically enumerated
trust and founded on clearly established facts. Such breach is willful if it is done as among the stolen items in the police report19 of the alleged incident of theft, while
intentionally, knowingly, and purposely, without justifiable excuse as distinguished a previous incident report20merely stated that "several copies of payroll" were taken.
from an act done carelessly, thoughtlessly, heedlessly or inadvertently. The loss of PHYVITA first claimed that these payroll sheets allegedly stolen from Enriquez's
trust and confidence must spring from the voluntary or willful act of the employee, or safekeeping were the same ones in PANALIGAN, et al.'s, possession when its
by reason of some blameworthy act or omission on the part of the employee. 13 employee, Jesse Pangilinan (Pangilinan), executed an affidavit21 to that effect right
after attending a preliminary hearing of the labor case initiated by PANALIGAN, et
Willful breach of trust, as just cause for the termination of employment, is founded on al. Pangilinan's statement was supported by the joint affidavit22 made by Rommel
the fact that the employee concerned: (1) holds a position of trust and confidence, i.e., Garcia (Garcia) and Jay R Kasing (Kasing) who were also in PHYVITA's employ.
managerial personnel or those vested with powers and prerogatives to lay down
management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, The problem with Pangilinan's statement is that it is self-serving since it favors his
assign or discipline employees; or (2) is routinely charged with the care and custody employer which is involved in a labor dispute with PANALIGAN, et al., and it does
of the employer's money or property, i.e., cashiers, auditors, property custodians, or not show criminal liability since it only establishes PANALIGAN, et al.'s, possession
those who, in normal and routine exercise of their functions, regularly handle of the questioned payroll sheets but not the fact that they themselves stole the same.
significant amounts of money or property. In any of these situations, it is the
employee's breach of the trust that his or her position holds which results in the Furthermore, Pangilinan's statement is inconsistent with the other facts on record.
According to Pangilinan's affidavit, he only knew that the questioned payroll sheets as mandated by Rule 131, Section 3(j) of the Revised Rules on Evidence, to
were in the possession of PANALIGAN, et al., when they presented the same during wit:chanRoblesvirtualLawlibrary
the May 29, 2005 DOLE-NCR hearing.23 The aforementioned date is crucial to this SEC. 3. Disputable presumptions. - The following presumptions are satisfactory if
case because the month before, or on April 28, 2005, PANALIGAN, et al., were uncontradicted, but may be contradicted and overcome by other evidence:
preventively suspended from work by PHYVITA and given written notices to explain
in writing within twenty-four (24) hours why they should not face disciplinary xxxx
sanction for their alleged involvement in the January 25, 2005 incident of theft. 24 Due
to their non-appearance at the scheduled in-house investigation and conference, (j) That a person found in possession of a thing taken in the doing of a recent
PANALIGAN, et al., were then served individual notices dated May 26, 2005, that wrongful act is the taker and the doer of the whole act; otherwise, that things which a
they were terminated from PHYVITA's employ for their alleged participation in the person possesses, or exercises acts of ownership over, are owned by him[.]
theft.25Thereafter, sometime in June 2005, Garcia and Kasing purportedly came We have held that the application of the disputable presumption that a person found
forward and pointed to PANALIGAN, et al., as among the perpetrators of the alleged in possession of a thing taken in the doing of a recent wrongful act is the taker and
theft. Considering the said chronology of events, there was no clear ground for doer of the whole act is limited to cases where such possession is either unexplained
PHYVITA to preventively suspend and later terminate the services of or that the proffered explanation is rendered implausible in view of independent
PANALIGAN, et al., when the company's actions predated the bases for doing so - evidence inconsistent thereto.27 In the present case, petitioners' possession of the
the discovery of the questioned payroll sheets by Pangilinan allegedly on May 29, questioned payroll sheets was explained by the sworn affidavit of former PHYVITA
2005 as stated in his affidavit and the revelations of Garcia and Kasing allegedly employee Allan Grasparil (Grasparil) who freely admitted that he was the source of
made sometime in June 2005. Alternatively stated, respondent company had charged the documents which he allegedly received from Enriquez. Significantly, PHYVITA
and terminated PANALIGAN, et al., before it had even obtained its supposed "proof' proffered no counter-statement from Enriquez specifically refuting Grasparil's
of their misdeed. narrative.

To be sure, the joint affidavit of Garcia and Kasing deserves scant consideration The June 9, 2009 Decision of the NLRC made use of Grasparil's testimony to support
because it contains statements which are hearsay. They merely claimed that another its finding that no substantial evidence was shown to prove that PANALIGAN, et al.,
employee, Arnel Pullan, told them that PANALIGAN, et al., were part of the group were guilty of theft and that they were illegally dismissed from employment,
that stole the questioned payroll sheets from the Executive Office. Evidently, they did
explaining thus:chanRoblesvirtualLawlibrary
not have personal knowledge of the alleged theft. Furthermore, their claim was flatlyNotably, a former employee of respondent-appellees by the name of Mr. Allan
denied by PANALIGAN, et al. It is likewise interesting to note that Garcia and Grasparil explained that a co-employee, Ms. Girly Enriquez, approached him on
Kasing were former co-complainants of PANALIGAN, et al., in the labor case at January 25, 2005 and required him to sign a payroll sheet. Further, he was also
issue but later withdrew from pursuing it after entering into a compromise agreement directed to let his other co-workers to sign the same and to thereafter return it to her.
with PHYVITA along with six other complainants. Premises considered, their However, he failed to return the said document. That when they filed a complaint
statements cannot be fully relied upon because it is highly probable that the same may
before the DOLE he allegedly remembered the payroll sheet and they used it as
have been secured in exchange for some consideration. evidence (p. 120, record). Remarkably, this crucial statement of Mr. Grasparil was not
disputed by respondents-appellees. Hence, deemed admitted pursuant to Section 32,
Similarly, the complaint-affidavit26 of Girly Enriquez (PHYVITA's Finance Rule 130 of the Revised Rules on Evidence, to wit:chanRoblesvirtualLawlibrary
Assistant) and the affidavit of Jorge Rafols (PHYVITA's Operations Manager) rely An act or declaration made in the presence and within the hearing or observation of a
heavily on the assertions made by Pangilinan, Garcia and Kasing in order for said party who does or says nothing when the act or declaration is such as naturally to call
affiants to arrive at their conclusion that PANALIGAN, et al., were responsible for for action or comment if not true, and when proper and possible for him to do so, may
the incident of theft. They did not personally witness the commission of the alleged be given in evidence against him.28
theft by PANALIGAN, et al. In fact, none of PHYVITA's witnesses did as Pangilinan In Fernandez v. Newfield Staff Solutions, Inc.,29 we reiterated our previous ruling
merely provided doubtful circumstantial evidence and Garcia and Kasing put forward in Salas v. Power & Telephone Supply Phils., Inc. 30 that this manner of silence
corroborating testimony that is undoubtedly hearsay and not of their personal constitutes an admission that fortifies the truth of the employee's narration.
knowledge. Given these circumstances, these affidavits executed by PHYVITA's
officers cannot be given probative weight. It is worth noting that Grasparil was also one of the original complainants in the labor
case filed against PHYVITA by PANALIGAN, et al., but later withdrew from the
PHYVITA argues that, being in possession of stolen items, PANALIGAN, et al., are same after entering into a compromise agreement with PHYVITA not unlike Garcia
presumed to have stolen the same unless contradicted or overcome by other evidence and Kasing. Therefore, we have a situation wherein three similarly situated
individuals have divergent and conflicting claims over the important issue of who was substantial evidence to support a finding that PANALIGAN, et al., were indeed guilty
the source of the questioned payroll sheets with Grasparil openly admitting the same of a willful breach of their employer's trust. We are constrained to conclude that there
and Garcia and Kasing pointing to PANALIGAN, et al., based solely on hearsay is no just and valid cause to terminate the employment of PANALIGAN, et al., for
evidence. At the very least, this circumstance casts doubt upon the evidence so far loss of trust and confidence or even for serious misconduct.
presented by both parties. With this development, we are compelled to uphold the
case for PANALIGAN, et al., since it is settled doctrine that if doubts exist between Therefore, we uphold the NLRC in finding that PANALIGAN, et al., were illegally
the evidence presented by the employer and the employee, the scales of justice must dismissed from employment by PHYVITA and, thus, are entitled to separation pay, in
be tilted in favor of the latter.31 lieu of reinstatement, and full backwages. Given the obviously strained relations
between the parties and the length of time that PANALIGAN, et al., have been
Grasparil also stated in his affidavit that aside from monetary consideration, his separated from their employment in PHYVITA, we agree with the NLRC that the
compromise agreement with the company included a mutual desistance from the doctrine of strained relations must apply wherein the payment of separation pay is
cases they filed against each other. PHYVITA allegedly proceeded with the considered an acceptable alternative to reinstatement when the latter option is no
prosecution of the case against those who did not enter into a compromise with it. We longer desirable or viable.35
quote the relevant portion of Grasparil's affidavit here:chanRoblesvirtualLawlibrary
(3) Ukol po sa nasabing kaso sa nasabing ahensiya ng gobyerno [Department of Finally, we find no reason to disturb the NLRC's ruling regarding the award of salary
Labor], ako po ay napilitang makipagkasundo sa aming employer upang iurong ang differentials and unpaid salaries for April 2005 to PANALIGAN, et al. The Labor
aking reklamo laban sa kanila at sa pangakong hindi nila ako idadawit sa kasong Arbiter and the NLRC both found that PANALIGAN, et al.'s, wages were underpaid
isinampa nila sa mga trabahador na nagreklamo laban sa kanila; based on the documents on record; they only differed in the period or the number of
months. We agree with the NLRC that PHYVITA should be liable for
(4) Sa ganito pong sitwasyon ay binigyan nila ako ng halagang P15,000.00 bilang PANALIGAN, et al.'s, claims for underpaid salaries that had not yet prescribed at the
kabayaran sa aking separation pay at pag-uurong ng kasong [sic] sa DEPARTMENT time of the filing of the complaint. Moreover, it is settled even in labor cases that "one
OF LABOR; who pleads payment has the burden of proving it. Even where the plaintiff must
allege nonpayment, the general rule is that the burden rests on the defendant to prove
(5) Tinupad naman po nila ang kanilang pangako at hindi nila ako idinawit sa kaso na payment, rather than on the plaintiff to prove nonpayment."36 In another case, we
kanilang isinampa sa aking mga kasama sa trabaho, subalit itinuloy po nila ang kaso upheld the NLRC's ruling that the burden of proof rests on the employer to show that
laban sa aking mga kasamahang hindi nakipagkasundo o nakipag-ayos sa kanila[.]32 it has not committed any violation of labor standard laws, in particular the full
Taking into consideration the fact that the DOLE-NCR conducted an inspection of the payment of the legally mandated wages.37 If PHYVITA had truly paid
respondent's premises on April 13, 2005 as a result of the labor complaint filed by PANALIGAN, et al., their correct wages, it had every opportunity to produce all
PANALIGAN, et al., on April 4, 200533 and PANALIGAN, et al., were implicated in relevant payrolls and documents in the proceedings below instead of merely
the alleged January 25, 2005 theft incident only thereafter, a reasonable inference can submitting incomplete documents relating to February 2005 salaries, 13 th month pay
be made that PANALIGAN, et al.'s, termination of employment may have been and service incentive leave.
indeed a retaliatory measure designed to coerce them into withdrawing their
complaint for underpayment of wages and nonpayment of other labor standard WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011
benefits. Such an act is proscribed by Article 118 of the Labor Code which and the Resolution dated May 29, 2012 of the Court of Appeals in CA-G.R. SP No.
states:chanRoblesvirtualLawlibrary 111653 are hereby REVERSED and SET ASIDE. The Decision dated June 9, 2009
Art. 118. Retaliatory Measures - It shall be unlawful for an employer to refuse to and the Resolution dated September 25, 2009 of the National Labor Relations
pay or reduce the wages and benefits, discharge or in any manner discriminate against Commission in NLRC LAC Case No. 09-002564-07 and NLRC-NCR Case No. 00-
any employee who has filed any complaint or instituted any proceeding under this 11-09431-06 are hereby REINSTATED.
title or has testified or is about to testify in such proceedings.
There is no question that PANALIGAN, et al., occupied positions that are reposed SO ORDERED.
with trust and confidence. Jurisprudence states that the job of a roomboy or
chambermaid in a hotel is clearly of such a nature as to require a substantial amount Sereno, C.J., (Chairperson), Del Castillo, Jardeleza,* and Caguioa, JJ., concur.
34
of trust and confidence on the part of the employer. There is merit as well in
PHYVITA's assertion that the dismissal of its criminal complaint does not necessarily
exonerate PANALIGAN, et al., from a charge of loss of trust and confidence.
However, even with the lower burden of proof in labor cases, there is a dearth of
an organization of petitioners supervisors and foremen, joined in this case by its
federation, the National Labor Union (NLU).
On December 10, 1987, the President signed into law Republic Act (R.A.)
No. 6640[2]providing, among others, an increase in the statutory minimum wage and
FIRST DIVISION salary rates of employees and workers in the private sector. Section 2 provides:
SEC. 2. The statutory minimum wage rates of workers and
employees in the private sector, whether agricultural or non-
P.I. MANUFACTURING, INCORPORATED, G.R. No. 167217 agricultural, shall be increased by ten pesos (P10.00) per day, except
Petitioner, non-agricultural workers and employees outside Metro Manila who
shall receive an increase of eleven pesos (P11.00) per
Present: day: Provided, That those already receiving above the minimum
- versus - wage up to one hundred pesos
PUNO, C.J., Chairperson, (P100.00) shall receive an increase of ten pesos (P10.00)
SANDOVAL-GUTIERREZ, per day. Excepted from the provisions of this Act are domestic
P.I. MANUFACTURING SUPERVISORS CORONA, helpers and persons employed in the personal service of another.
AND FOREMAN ASSOCIATION and the AZCUNA, and Thereafter, on December 18, 1987, petitioner and respondent PIMASUFA
NATIONAL LABOR UNION, LEONARDO-DE CASTRO, JJ. entered into a new Collective Bargaining Agreement (1987 CBA) whereby the
Respondents. supervisors were granted an increase ofP625.00 per month and the foremen, P475.00
per month. The increases were made retroactive to May 12, 1987, or prior to the
Promulgated: passage of R.A. No. 6640, and every year thereafter until July 26, 1989. The pertinent
portions of the 1987 CBA read:
February 4, 2008 ARTICLE IV
x-----------------------------------------------------------------------------------------x SALARIES AND OVERTIME

DECISION Section 1. The COMPANY shall grant to all regular


supervisors and foremen within the coverage of the unit represented
SANDOVAL-GUTIERREZ, J.: by the ASSOCIATION, wage or salary increases in the amount set
forth as follows:
The Court has always promoted the policy of encouraging employers to grant A. For FOREMEN
wage and allowance increases to their Effective May 12, 1987, an increase of P475,00 per month
employees higher than the minimum rates of increases prescribed by statute or to all qualified regular foremen who are in the service of the
administrative regulation. Consistent with this, the Court also adopts the policy that COMPANY as of said date and who are still in its employ on the
requires recognition and validation of wage increases given by employers signing of this Agreement, subject to the conditions set forth in sub-
either unilaterally or as a result of collective paragraph (d) hereunder;
bargaining negotiations in an effort to correct wage distortions.[1] a) Effective July 26, 1988, an increase
of P475.00 per month/employee to all covered foremen;
Before us is a motion for reconsideration of our Resolution dated April 18, b) Effective July 26, 1989, an increase
2005 denying the present petition for review of P475.00 per month/per employee to all covered foremen;
on certiorari for failure of the petitioner to show that a reversible c) The salary increases from May 12,
error has been committed by the Court of Appeals in its (a) Decision 1987 to November 30, 1987 shall be excluding and without
dated July 21, 2004 and (b)Resolution dated February 18, 2005. increment on fringe benefits and/or premium and shall solely be on
The facts are: basic salary.
Petitioner P.I. Manufacturing, Incorporated is a domestic corporation B. For SUPERVISORS
engaged in the manufacture and sale of household appliances. On the other hand, a) Effective May 12, 1987, an increase
respondent P.I. Manufacturing Supervisors and Foremen Association (PIMASUFA) is of P625.00 per month/employee to all qualified regular supervisors
who are in the service of the COMPANY as of said date and who are
still in its employ on the signing of the Agreement, subject to the
conditions set forth in subparagraph (d) hereunder; On appeal by petitioner, the NLRC, in its Resolution dated January 8, 1991,
b) Effective July 26, 1988, an increase affirmed the Labor Arbiters judgment.
of P625.00 per month/employee to all covered supervisors; Undaunted, petitioner filed a petition for certiorari with this Court. However,
c) Effective July 26, 1989, an increase we referred the petition to the Court of Appeals pursuant to our ruling in St.
of P625.00 per month/employee to all covered supervisors; Martin Funeral Homes v. NLRC.[5] It was docketed therein as CA-G.R. SP No. 54379.
d) The salary increase from May 12, On July 21, 2004, the appellate court rendered its Decision affirming the
1987 to November 30, 1987 shall be excluding and without Decision of the NLRC with modification by raising the 13.5% wage increase
increment on fringe benefits and/or premiums and shall solely be on to 18.5%. We quote the pertinent portions of the Court of Appeals Decision, thus:
basic salary. Anent the fourth issue, petitioner asseverates that the wage
distortion issue is already barred by Sec. 2 Article IV of the Contract
On January 26, 1989, respondents PIMASUFA and NLU filed a complaint denominated as The Company and Supervisors and Foremen
with the Arbitration Branch of the National Labor Relations Commission (NLRC), Contract dated December 18, 1987 declaring that it absolves, quit
docketed as NLRC-NCR Case No. 00-01-00584, charging petitioner with violation of claims and releases the COMPANY for any monetary claim they
R.A. No. 6640.[3] Respondents attached to their complaint a numerical illustration of have, if any there might be or there might have been previous to
wage distortion resulting from the implementation of R.A. No. 6640. the signing of this agreement. Petitioner interprets this as absolving
On March 19, 1990, the Labor Arbiter rendered his Decision in favor of it from any wage distortion brought about by the implementation of
respondents.Petitioner was ordered to give the members of respondent PIMASUFA the new minimum wage law. Since the contract was signed
wage increases equivalent to 13.5% of their basic pay they were receiving prior on December 17, 1987, or after the effectivity of Republic Act No.
to December 14, 1987. The Labor Arbiter held: 6640, petitioner claims that private respondent is deemed to have
As regards the issue of wage distortion brought about by the waived any benefit it may have under the new law.
implementation of R.A. 6640 We are not persuaded.
It is correctly pointed out by the union that employees Contrary to petitioners stance, the increase resulting from
cannot waive future benefits, much less those mandated by law. That any wage distortion caused by the implementation of Republic Act
is against public policy as it would render meaningless the law. Thus, 6640 is not waivable. As held in the case of Pure Foods Corporation
the waiver in the CBA does not bar the union from claiming vs. National Labor Relations Commission, et al.:
adjustments in pay as a result of distortion of wages brought about Generally, quitclaims by laborers are
by the implementation of R.A. 6640. frowned upon as contrary to public policy and are
Just how much are the supervisors and foremen entitled to held to be ineffective to bar recovery for the full
correct such distortion is now the question. Pursuant to the said law, measure of the workers rights. The reason for the
those who on December 14, 1987 were receiving less than P100.00 rule is that the employer and the employee do not
are all entitled to an automatic across- the-board increase of P10.00 stand on the same footing.
a day. The percentage in increase given those who received
benefits under R.A. 6640 should be the same percentage given to Moreover, Section 8 of the Rules Implementing RA 6640 states:
the supervisors and foremen. No wage increase shall be credited as
The statutory minimum pay then was P54.00 a day. With compliance with the increase prescribed herein
the addition of P10.00 a day, the said minimum pay raised to P64.00 unless expressly provided under valid individual
a day. The increase of P10.00 a day is P13.5% of the minimum wage written/collective agreements; and provided
prior to December 14, 1987. The same percentage of the pay of further that such wage increase was granted in
members of petitioner prior to December 14, 1987 should be given anticipation of the legislated wage increase under
them. the act. But such increases shall not include
Finally, the claim of respondent that the filing of the present anniversary wage increases provided in collective
case, insofar as the provision of R.A. 6640 is concerned, is premature bargaining agreements.
does not deserve much consideration considering that as of Likewise, Article 1419 of the Civil Code mandates that:
December 1988, complainant submitted in grievance the When the law sets, or authorizes the
aforementioned issue but the same was not settled.[4] setting of a minimum wage for laborers, and a
contract is agreed upon by which a laborer accepts RATE RATE AFTER P109.01 P118.80 P128.08
a lower wage, he shall be entitled to recover the BEFORE INCREASEOF OVER- OVER- OVER-
NAME OF INCREASE RA- PASSED PASSED PASSED
deficiency. SUPERVISOR (S) OF 6640 P10.00 P108.80 P118.08 P123.76
AND RA- RATE AFTER RATE AFTER RATE AFTER
Thus, notwithstanding the stipulation provided under Section 2 of the FOREMAN (F) 6640 P10.00 ADJUSTMENT ADJUSTMENT ADJUSTMENT
Company and Supervisors and Foremen Contract, we find the P10.00 P10.00 P10.00

members of private respondent union entitled to the increase of their 1. ALCANTARA, V(S) P 99.01 P 109.01
basic pay due to wage distortion by reason of the implementation of 2. MORALES, A(F) 94.93 104.93
3. SALVO, R (F) 96.45 106.45
RA 6640. Note: No. 1 to 3 with increase of RA-6640
On the last issue, the increase of 13.5% in the supervisors and 4.BUENCUCHILLO, C 102.38 102.38 P 112.38
(S)
foremens basic salary must further be increased to 18.5% in order to 5. MENDOZA, D(F) 107.14 107.14 117.14
correct the wage distortion brought about by the implementation of 6. DEL PRADO, M(S) 108.80 108.80 118.80
7. PALENSO, A (F) 109.71 109.71 P 119.71
RA 6640. It must be recalled that the statutory minimum pay before 8. OJERIO, E (S) 111.71 111.71 121.71
RA 6640 was P54.00 a day. The increase of P10.00 a day under RA 9. REYES, J (S) 114.98 114.98 124.98
6640 on the prior minimum pay of P54.00 is 18.5% and not 10. PALOMIQUE, S(F) 116.79 116.79 126.79
11. PAGLINAWAN, A 116.98 116.98 126.98
13.5%.Thus, petitioner should be made to pay the amount equivalent (S)
12. CAMITO, M (S) 117.04 117.04 127.04
to 18.5% of the basic pay of the members or private respondent union 13. TUMBOCON, P(S) 117.44 117.44 127.44
in compliance with the provisions of Section 3 of RA 6640. 14. SISON JR., B (S) 118.08 118.08 128.08
15. BORJA, R (S) 119.80 119.80 P 129.80
16. GINON, D (S) 123.76 123.76 133.76
Petitioner filed a motion for reconsideration but it was denied by the 17. GINON, T (S) 151.49 151.49
appellate court in its Resolution dated February 18, 2005. 18. ANDRES, M (S) 255.72 255.72
Note: No. 4 to 18 no increase in R.A. No. 6640
Hence, the present recourse, petitioner alleging that the Court of
Appeals erred: In a Minute Resolution dated April 18, 2005, we denied the petition for
1) In awarding wage increase to respondent supervisors and petitioners failure to show that the Court of Appeals committed a reversible error.
foremen to cure an alleged wage distortion that resulted from Hence, this motion for reconsideration.
the implementation of R.A. No. 6640. We grant the motion.
2) In disregarding the wage increases granted under the 1987 In the ultimate, the issue here is whether the implementation of R.A. No.
CBA correcting whatever wage distortion that may have been 6640 resulted in a wage distortion and whether such distortion was cured or remedied
created by R.A. No. 6640. by the 1987 CBA.
3) In awarding wage increase equivalent to 18.5% of the basic R.A. No. 6727, otherwise known as the Wage Rationalization Act, explicitly
pay of the members of respondent PIMASUFA in violation of defines wage distortion as:
the clear provision of R.A. No. 6640 excluding from its x x x a situation where an increase in prescribed wage rates
coverage employees receiving wages higher than P100.00. results in the elimination or severe contraction of intentional
4) In increasing the NLRCs award of wage increase from quantitative differences in wage or salary rates between and among
13.5% to 18.5%, which increase is very much higher than employee groups in an establishment as to effectively obliterate the
the P10.00 daily increase mandated by R.A. No. 6640. distinctions embodied in such wage structure based on skills, length
of service, or other logical bases of differentiation.
Petitioner contends that the findings of the NLRC and the Court of Appeals as
to the existence of a wage distortion are not supported by evidence; that Section 2 of
R.A. No. 6640 does not provide for an increase in the wages of employees Otherwise stated, wage distortion means the disappearance or virtual
receiving more than P100.00; and that the 1987 CBA has obliterated any possible disappearance of pay differentials between lower and higher positions in an enterprise
wage distortion because the increase granted to the members of respondent because of compliance with a wage order.[6]
PIMASUFA in the amount of P625.00 and P475.00 per month substantially widened In this case, the Court of Appeals correctly ruled that a wage distortion
the gap between the foremen and supervisors and as against the rank and file occurred due to the implementation of R.A. No. 6640. The numerical illustration
employees. submitted by respondents[7] shows such distortion, thus:
Respondents PIMASUFA and NLU, despite notice, failed to file their II WAGE DISTORTION REGARDING RA-6640 (P10.00 per
respective comments. day increase effective December 31, 1987)
a legal basis for ignoring it. The NLRC En Banc was in serious
Illustration of Wage Distortion and corresponding wage error when it disregarded the differential of P3.60 which had been
adjustments as provided in RA-6640 restored by 1 July 1985 upon the ground that such
differential represent[ed] negotiated wage increase[s] which should
not be considered covered and in compliance with the Wage
Orders. x x x
Notably, the implementation of R.A. No. 6640 resulted in the increase
of P10.00 in the wage rates of Alcantara, supervisor, and Morales and Salvo, both
foremen. They are petitioners lowest paid supervisor and foremen. As a In Capitol Wireless, Inc. v. Bate,[9] we also held:
consequence, the increased wage rates of foremen Morales and Salvo exceeded that
of supervisor Buencuchillo. Also, the increased wage rate of supervisor x x x The wage orders did not grant across-the-board increases to all
Alcantara exceeded those of supervisors Buencuchillo and Del employees in the National Capital Region but limited such increases
Prado. Consequently, the P9.79 gap or difference between the wage rate of supervisor only to those already receiving wage rates not more than P125.00 per
Del Prado and that of supervisor Alcantara was eliminated. Instead, the latter day under Wage Order Nos. NCR-01 and NCR-01-A and P142.00
gained a P.21 lead over Del Prado. Like a dominoeffect, these gaps or differences per day under Wage Order No. NCR-02. Since the wage orders
between and among the wage rates of all the above employees have been substantially specified who among the employees are entitled to the statutory wage
altered and reduced. It is therefore undeniable that the increase in the increases, then the increases applied only to those mentioned
wage rates by virtue of R.A. No. 6640 resulted in wage distortion or the therein. The provisions of the CBA should be read in harmony
elimination of the intentional quantitative differences in the wage rates of the above with the wage orders, whose benefits should be given only to
employees. those employees covered thereby.
However, while we find the presence of wage distortions, we are convinced
that the same werecured or remedied when respondent PIMASUFA entered into the
1987 CBA with petitioner after the effectivity of R.A. No. 6640. The 1987 CBA It has not escaped our attention that requiring petitioner to pay all the members of
increased the monthly salaries of the supervisors by P625.00 and respondent PIMASUFA a wage increase of 18.5%, over and above the negotiated
the foremen, by P475.00, effective May 12, 1987. These increases re- wage increases provided under the 1987 CBA, is highly
established and broadened the gap, not unfair and oppressive to the former. Obviously, it was not the intention of R.A. No.
only between the supervisors and the foremen, but also between them and the rank- 6640 to grant an across-the-board increase in pay to all the employees of
and-file employees. Significantly, the 1987 CBA wage increases almost doubled that petitioner. Section 2 of R.A. No. 6640 mandates only the following increases in the
of the P10.00 increase under R.A. No. private sector: (1) P10.00 per day for the employees in the private sector, whether
6640. The P625.00/month means P24.03 increase per day for the agricultural or non-agricultural, who are receiving the statutory minimum wage
supervisors, while the P475.00/month means P18.26 increase per day for the rates; (2) P11.00 per day for non-agricultural workers and employees outside Metro
foremen. These increases were to be observed every year, starting May 12, Manila; and (3) P10.00 per day for those already receiving the minimum wage up
1987 until July 26, 1989. Clearly, the gap between the wage rates of the supervisors to P100.00. To be sure, only those receiving wages P100.00 and below are entitled to
and those of the foremen was inevitably re-established. It continued to broaden through the P10.00 wage increase. The apparent intention of the law is only to
the years. upgrade the salaries or wages of the employees specified therein.[10] As the
Interestingly, such gap as re-established by virtue of the CBA is more than a numerical illustration shows, almost all of the members of respondent PIMASUFA
substantial compliance with R.A. No. 6640. We hold that the Court of Appeals erred have been receiving wage rates above P100.00 and, therefore, not entitled to the P10.00
in not taking into account the provisions of the CBA viz-a-viz the wage increase under increase. Only three (3) of them are receiving wage rates below P100.00, thus, entitled
the said law. In National Federation of Labor v. NLRC,[8] we held: to such increase. Now, to direct petitioner to grant an across-the-board increase to all
We believe and so hold that the re-establishment of a of them, regardless of the amount of wages they are already receiving, would be harsh
significant gap or differential between regular employees and casual and unfair to the former. As we ruled in Metropolitan Bank and Trust Company
employees by operation of the CBA was more than substantial Employees Union ALU-TUCP v. NLRC:[11]
compliance with the requirements of the several Wage Orders (and x x x To compel employers simply to add on legislative
of Article 124 of the Labor Code). That this re-establishment of a increases in salaries or allowances without regard to what is
significant differential was the result of collective bargaining already being paid, would be to penalize employers who grant
negotiations, rather than of a special grievance procedure, is not their workers more than the statutory prescribed minimum rates
of increases. Clearly, this would be counter-productive so far as
securing the interests of labor is concerned.
Corollarily, the Court of Appeals erred in citing Pure Foods Corporation v. National
Labor Relations Commission[12] as basis in disregarding the provisions of the 1987
CBA. The case involves, not wage distortion, but illegal dismissal of employees from
the service. The Release and Quitclaim executed therein by the Pure Foods employees
were intended to preclude them from questioning the termination of their services, not
their entitlement to wage increase on account of a wage distortion.
At this juncture, it must be stressed that a CBA constitutes the law between the
parties when freelyand voluntarily entered into.[13] Here, it has not been shown that
respondent PIMASUFA was coerced or forced by petitioner to sign the 1987
CBA. All of its thirteen (13) officers signed the CBA with the assistance of respondent
NLU. They signed it fully aware of the passage of R.A. No. 6640. The duty to bargain
requires that the parties deal with each other with open and fair minds. A sincere
endeavor to overcome obstacles and difficulties that may arise, so that employer-
employee relations may be stabilized and industrial strife eliminated, must be
apparent.[14] Respondentscannot invoke the beneficial provisions of the 1987 CBA
but disregard the concessions it voluntary extended to petitioner. The goal of
collective bargaining is the making of agreements that will stabilize business conditions
and fix fair standards of working conditions.[15] Definitely,respondents posture
contravenes this goal.
In fine, it must be emphasized that in the resolution of labor cases, this Court has always
been guided by the State policy enshrined in the Constitution that the rights of workers
and the promotion of their welfare shall be protected. However, consistent with such
policy, the Court cannot favor one party, be it labor or management, in arriving
at a just solution to a controversy if the party concerned has no valid support to
its claim, like respondents here.
WHEREFORE, we GRANT petitioners motion for reconsideration
and REINSTATE the petition we likewise GRANT. The assailed Decision of the
Court of Appeals in CA-G.R. SP No. 54379 is REVERSED.
SO ORDERED.
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
THIRD DIVISION 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.

[G.R. No. 140689. February 17, 2004] Petitioners motion for reconsideration of the dismissal of the case was, by
Resolution of July 28, 1995, denied.
BANKARD EMPLOYEES UNION-WORKERS ALLIANCE TRADE
UNIONS, petitioner, vs. NATIONAL LABOR RELATIONS Petitioner thereupon filed a petition for certiorari before this Court, docketed as
COMMISSION and BANKARD, INC., respondents. 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.
DECISION
Hence, the present petition which faults the appellate court as follows:
CARPIO MORALES, J.:
(1) It misapprehended the basic issues when it concluded that under
The present Petition for Review on Certiorari under Rule 45 of the Rules of Court
Bankards new wage structure, the old salary gaps between the different
raises the issue of whether the unilateral adoption by an employer of an upgraded salary
classification or level of employees were still reflected by the adjusted
scale that increased the hiring rates of new employees without increasing the salary
salary rates[2]; and
rates of old employees resulted in wage distortion within the contemplation of Article
124 of the Labor Code. (2) It erred in concluding that wage distortion does not appear to exist, which
conclusion is manifestly contrary to law and jurisprudence.[3]
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 Upon the enactment of R.A. No. 6727 (WAGE RATIONALIZATION ACT,
a New Salary Scale, made retroactive to April 1, 1993, for the purpose of making its amending, among others, Article 124 of the Labor Code) on June 9, 1989, the term
hiring rate competitive in the industrys labor market. The New Salary Scale increased wage distortion was explicitly defined as:
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, ... a situation where an increase in prescribed wage rates results in the elimination or
the salaries of employees who fell below the new minimum rates were also adjusted to severe contraction of intentional quantitative differences in wage or salary rates
reach such rates under their levels. 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 Thus the employees of private respondent have been historically classified into
other logical bases of differentiation.[4] 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
Prubankers Association v. Prudential Bank and Trust Company [5] laid down the levels mentioned in the new salary scale which private respondent adopted retroactive
four elements of wage distortion, to wit: (1.) An existing hierarchy of positions with [to] April 1, 1993. Petitioner cannot make a contrary classification of private
corresponding salary rates; (2) A significant change in the salary rate of a lower pay respondents employees without encroaching upon recognized management
class without a concomitant increase in the salary rate of a higher one; (3) The prerogative of formulating a wage structure, in this case, one based on
elimination of the distinction between the two levels; and (4) The existence of the level.[7] (Emphasis and underscoring supplied)
distortion in the same region of the country.
The issue of whether wage distortion exists being a question of fact that is within
Normally, a company has a wage structure or method of determining the wages the jurisdiction of quasi-judicial tribunals,[8] and it being a basic rule that findings of
of its employees. In a problem dealing with wage distortion, the basic assumption is facts of quasi-judicial agencies, like the NLRC, are generally accorded not only respect
that there exists a grouping or classification of employees that establishes distinctions but at times even finality if they are supported by substantial evidence, as are the
among them on some relevant or legitimate bases.[6] findings in the case at bar, they must be respected. For these agencies have acquired
[9]
Involved in the classification of employees are various factors such as the degrees expertise, their jurisdiction being confined to specific matters.
of responsibility, the skills and knowledge required, the complexity of the job, or other It is thus clear that there is no hierarchy of positions between the newly hired and
logical basis of differentiation. The differing wage rate for each of the existing classes regular employees of Bankard, hence, the first element of wage distortion provided
of employees reflects this classification. in Prubankers is wanting.
Petitioner maintains that for purposes of wage distortion, the classification is not While seniority may be a factor in determining the wages of employees, it cannot
one based on levels or ranks but on two groups of employees, the newly hired and the be made the sole basis in cases where the nature of their work differs.
old, in each and every level, and not between and among the different levels or ranks
in the salary structure. Moreover, for purposes of determining the existence of wage distortion,
employees cannot create their own independent classification and use it as a basis to
Public respondent National Labor Relations Commission (NLRC) refutes demand an across-the-board increase in salary.
petitioners position, however. It, through the Office of the Solicitor General, essays in
its Comment of April 12, 2000 as follows: 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
To determine the existence of wage distortion, the historical classification of the judgment and discretion.
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 [W]hether or not a new additional scheme of classification of employees for
or difference. 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
xxx management judgment 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
The classification preferred by petitioner is belied by the wage structure of private
underscoring supplied)
respondent as shown in the new salary scale it adopted on May 28, 1993, retroactive
to April 1, 1993, which provides, thus: As did the Court of Appeals, this Court finds that the third element provided
Hiring Minimum Maximum
in Prubankers is also wanting. For, as the appellate court explained:
Level From To From To From To
I 3,100 4,100 3,200 4,200 7,200 In trying to prove wage distortion, petitioner union presented a list of five (5)
9,250
II 3,200 4,100 3,300 4,200 7,500 employees
9,500 allegedly affected by the said increase:
III 3,300 4,200 3,400 4,300 8,000 Pay of Old/
10,000 Pay of Newly Difference
IV 3,500 4,400 3,600 4,500 8,500 10,500 Regular Employees Hired Employees
V 3,700 4,700 3,800 4,800 9,000 A. Prior to
11,000 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 the grievance procedure under their collective bargaining agreement and, if it remains
(Nazario Abello) unresolved, through voluntary arbitration.
Level III P4,850.00 P3,300 P1,550.00
(Arthur Chavez) x x x (Italics and emphasis supplied)
Level IV P5,339.00 P3,500 P1,839.00
Melissa Cordero) Article 124 is entitled Standards/Criteria for Minimum Wage Fixing. It is
Level V P7,090.69 P3,700 P3,390.69 found in CHAPTER V on WAGE STUDIES, WAGE AGREEMENTS AND
(Ma. Lourdes Dee) WAGE DETERMINATION which principally deals with the fixing of minimum
B. Effective April 1, 1993 wage. Article 124 should thus be construed and correlated in relation to minimum wage
Level I P4,518.75 P4,100 P418.75 fixing, the intention of the law being that in the event of an increase in minimum wage,
Sammy Guce) the distinctions embodied in the wage structure based on skills, length of service, or
Level II P6,242.00 P4,100 P2,142.00 other logical bases of differentiation will be preserved.
(Nazario Abello) If the compulsory mandate under Article 124 to correct wage distortion is applied
Level III P4,850.00 P4,200 P650.00 to voluntary and unilateral increases by the employer in fixing hiring rates which is
(Arthur Chavez) inherently a business judgment prerogative, then the hands of the employer would be
Level IV P5,330.00 P4,400 P939.00 completely tied even in cases where an increase in wages of a particular group is
(Melissa Cordero) justified due to a re-evaluation of the high productivity of a particular group, or as in
Level V P7,090.69 P4,700 P2,390.69 the present case, the need to increase the competitiveness of Bankards hiring rate. An
(Ma. Lourdes Dee) 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-
Even assuming that there is a decrease in the wage gap between the pay of the old the-board increase.
employees and the newly hired employees, to Our mind said gap is not significant as
Petitioner cites Metro Transit Organization, Inc. v. NLRC[13] to support its claim
to obliterate or result in severe contraction of the intentional quantitative
that the obligation to rectify wage distortion is not confined to wage distortion resulting
differences in the salary rates between the employee group. As already stated, the
from government decreed law or wage order.
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 Reliance on Metro Transit is however misplaced, as the obligation therein to
underscoring supplied) 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
Apart from the findings of fact of the NLRC and the Court of Appeals that some
were paid a statutorily mandated salary increase, supervisory employees were, as a
of the elements of wage distortion are absent, petitioner cannot legally obligate Bankard
matter of practice, also paid the same amount plus an added premium. Thus this Court
to correct the alleged wage distortion as the increase in the wages and salaries of the
held in said case:
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 We conclude that the supervisory employees, who then (i.e., on April 17, 1989) had,
cover all kinds of wage adjustments, then the language of the law should have been unlike the rank-and-file employees, no CBA governing the terms and conditions of
broad, not restrictive as it is currently phrased: 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
Article 124. Standards/Criteria for Minimum Wage Fixing. employees, by giving the supervisory employees a corresponding salary increase plus
a premium. . . .[14] (Emphasis supplied)
xxx 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
Where the application of any prescribed wage increase by virtue of a law or Wage differential between the wage rates of rank-and-file and those of supervisory employees
Order issued by any Regional Board results in distortions of the wage structure was due to the granting to the former of wage increase which was, however, denied to
within an establishment, the employer and the union shall negotiate to correct the the latter group of employees.
distortions. Any dispute arising from the wage distortions shall be resolved through
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 toestablish 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.
Vitug, (Chairman), Sandoval-Gutierrez, and Corona, JJ., concur.
NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court, assailing the Decision[1] dated May 28, 2009, and the Resolution[2] dated July
28, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 106657.

The factual antecedents of the case are as follows:

Petitioner is a domestic corporation engaged in the business of sugar manufacturing,


while respondent is a legitimate labor organization which serves as the exclusive
bargaining representative of petitioners rank-and-file employees. The controversy
stems from the interpretation of the term basic pay, essential in the computation of the
13th-month pay.

The facts of this case are not in dispute. In compliance with Presidential Decree (P.D.)
No. 851, petitioner granted its employees the mandatory thirteenth (13 th) - month pay
since 1975. The formula used by petitioner in computing the 13th-month pay was: Total
Republic of the Philippines Basic Annual Salary divided by twelve (12). Included in petitioners computation of the
Supreme Court Total Basic Annual Salary were the following: basic monthly salary; first eight (8)
Manila hours overtime pay on Sunday and legal/special holiday; night premium pay; and
vacation and sick leaves for each year. Throughout the years, petitioner used this
SECOND DIVISION computation until 2006.[3]
On November 6, 2004, respondent staged a strike. During the pendency of the strike,
CENTRAL AZUCARERA G.R. No. 188949 petitioner declared a temporary cessation of operations. In December 2005, all the
DE TARLAC, striking union members were allowed to return to work. Subsequently, petitioner
Petitioner, Present: declared another temporary cessation of operations for the months of April and May
2006. The suspension of operation was lifted on June 2006, but the rank-and-file
CARPIO, J., employees were allowed to report for work on a fifteen (15) day-per-month rotation
Chairperson, basis that lasted until September 2006. In December 2006, petitioner gave the
- versus - NACHURA, employees their 13th-month pay based on the employees total earnings during the year
PERALTA, divided by 12.[4]
ABAD, and Respondent objected to this computation. It averred that petitioner did not adhere to the
MENDOZA, JJ. usual computation of the 13th-month pay. It claimed that the divisor should have been
eight (8) instead of 12, because the employees worked for only 8 months in 2006. It
CENTRAL AZUCARERA Promulgated: likewise asserted that petitioner did not observe the company practice of giving its
DE TARLAC LABOR UNION-NLU, employees the guaranteed amount equivalent to their one month pay, in instances where
Respondent. July 26, 2010 the computed 13th-month pay was less than their basic monthly pay.[5]

x------------------------------------------------------------------------------------x Petitioner and respondent tried to thresh out their differences in accordance with the
grievance procedure as provided in their collective bargaining agreement. During the
grievance meeting, the representative of petitioner explained that the change in the
computation of the 13th-month pay was intended to rectify an error in the computation,
DECISION particularly the concept of basic pay which should have included only the basic monthly
pay of the employees.[6]
SO ORDERED.[15]
For failure of the parties to arrive at a settlement, respondent applied for preventive
mediation before the National Conciliation and Mediation Board. However, despite Aggrieved, petitioner filed the instant petition, alleging that the CA committed a
four (4) conciliatory meetings, the parties still failed to settle the dispute. On March 29, reversible error in affirming the Decision of the NLRC, and praying that the Decision
2007, respondent filed a complaint against petitioner for money claims based on the of the Labor Arbiter be reinstated.
alleged diminution of benefits/erroneous computation of 13 th-month pay before the
Regional Arbitration Branch of the National Labor Relations Commission (NLRC). [7] The petition is denied for lack of merit.

The 13th-month pay mandated by Presidential Decree (P.D.) No. 851 represents an
[8]
On October 31, 2007, the Labor Arbiter rendered a Decision dismissing the complaint additional income based on wage but not part of the wage. It is equivalent to one-
and declaring that the petitioner had the right to rectify the error in the computation of twelfth (1/12) of the total basic salary earned by an employee within a calendar year.
the 13th-month pay of its employees.[9] The fallo of the Decision reads: All rank-and-file employees, regardless of their designation or employment status and
irrespective of the method by which their wages are paid, are entitled to this benefit,
WHEREFORE, premises considered, the complaint filed by the provided that they have worked for at least one month during the calendar year. If the
complainants against the respondents should be DISMISSED employee worked for only a portion of the year, the 13th-month pay is computed pro
with prejudice for utter lack of merit. rata.[16]

SO ORDERED.[10] Petitioner argues that there was an error in the computation of the 13 th-month pay of its
employees as a result of its mistake in implementing P.D. No. 851, an error that was
discovered by the management only when respondent raised a question concerning the
Respondents filed an appeal. On August 14, 2008, the NLRC rendered a computation of the employees
Decision[11] reversing the Labor Arbiter. The dispositive portion of the Decision reads: 13th-month pay for 2006. Admittedly, it was an error that was repeatedly committed for
almost thirty (30) years. Petitioner insists that the length of time during which an
WHEREFORE, the decision appealed is reversed and set aside and employer has performed a certain act beneficial to the employees, does not prove that
respondent-appellee Central Azucarera de Tarlac is hereby ordered such an act was not done in error. It maintains that for the claim of mistake to be
to adhere to its established practice of granting 13 th[-] month pay on negated, there must be a clear showing that the employer had freely, voluntarily, and
the basis of gross annual basic which includes basic pay, premium continuously performed the act, knowing that he is under no obligation to do
pay for work in rest days and special holidays, night shift differential so. Petitioner asserts that such voluntariness was absent in this case. [17]
and paid vacation and sick leaves for each year.
The Rules and Regulations Implementing P.D. No. 851, promulgated on December 22,
Additionally, respondent-appellee is ordered to observe the 1975, defines 13th-month pay and basic salary as follows:
th
guaranteed one[-]month pay by way of 13 month pay.
Sec. 2. Definition of certain terms. - As used in this issuance:
SO ORDERED. [12]
(a) "Thirteenth-month pay" shall mean one twelfth
(1/12) of the basic salary of an employee within a calendar year;
Petitioner filed a motion for reconsideration. However, the same was denied in a
Resolution dated November 27, 2008. Petitioner then filed a petition (b) "Basic salary" shall include all remunerations or earnings paid by
for certiorari under Rule 65 of the Rules of Court before the CA.[13] an employer to an employee for services rendered but may not
On May 28, 2009, the CA rendered a Decision[14] dismissing the petition, and affirming include cost-of-living allowances granted pursuant to Presidential
the decision and resolution of the NLRC, viz.: Decree No. 525 or Letter of Instructions No. 174, profit-sharing
payments, and all allowances and monetary benefits which are not
WHEREFORE, the foregoing considered, the petition is considered or integrated as part of the regular or basic salary of the
hereby DISMISSED and the assailed August 14, 2008 Decision and employee at the time of the promulgation of the Decree on December
November 27, 2008 Resolution of the NLRC, are 16, 1975.
hereby AFFIRMED. No costs.
On January 16, 1976, the Supplementary Rules and Regulations Implementing P.D. consideration. No doubtful or difficult question of law is involved in this case. The
No. 851 was issued. The Supplementary Rules clarifies that overtime pay, earnings, guidelines set by the law are not difficult to decipher. The voluntariness of the grant of
and other remuneration that are not part of the basic salary shall not be included in the the benefit was manifested by the number of years the employer had paid the benefit to
computation of the 13th-month pay. its employees. Petitioner only changed the formula in the computation of the 13 th-
month pay after almost 30 years and only after the dispute between the management
and employees erupted. This act of petitioner in changing the formula at this time
On November 16, 1987, the Revised Guidelines on the Implementation of the 13 th- cannot be sanctioned, as it indicates a badge of bad faith.
Month Pay Law was issued. Significantly, under this Revised Guidelines, it was
specifically stated that the minimum 13th-month pay required by law shall not be less Furthermore, petitioner cannot use the argument that it is suffering from financial losses
than one-twelfth (1/12) of the total basic salary earned by an employee within a to claim exemption from the coverage of the law on 13th-month pay, or to spare it from
calendar year. its erroneous unilateral computation of the 13th-month pay of its employees. Under
Furthermore, the term basic salary of an employee for the purpose of computing the Section 7 of the Rules and Regulations Implementing P.D. No. 851, distressed
13th-month pay was interpreted to include all remuneration or earnings paid by the employers shall qualify for exemption from the requirement of the Decree only upon
employer for services rendered, but does not include allowances and monetary benefits prior authorization by the Secretary of Labor.[20] In this case, no such prior
which are not integrated as part of the regular or basic salary, such as the cash authorization has been obtained by petitioner; thus, it is not entitled to claim such
equivalent of unused vacation and sick leave credits, overtime, premium, night exemption.
differential and holiday pay, and cost-of-living allowances. However, these salary- WHEREFORE, the Decision dated May 28, 2009 and the Resolution dated July 28,
related benefits should be included as part of the basic salary in the computation of the 2009 of the Court of Appeals in CA-G.R. SP No. 106657 are hereby AFFIRMED.
13th-month pay if, by individual or collective agreement, company practice or policy, Costs against petitioner.
the same are treated as part of the basic salary of the employees.
SO ORDERED.
Based on the foregoing, it is clear that there could have no erroneous interpretation or
application of what is included in the term basic salary for purposes of computing the
13th-month pay of employees. From the inception of P.D. No. 851 on December 16,
1975, clear-cut administrative guidelines have been issued to insure uniformity in the
interpretation, application, and enforcement of the provisions of P.D. No. 851 and
its implementing regulations.

As correctly ruled by the CA, the practice of petitioner in giving 13 th-month pay based
on the employees gross annual earnings which included the basic monthly salary,
premium pay for work on rest days and special holidays, night shift differential pay and
holiday pay continued for almost thirty (30) years and has ripened into a company
policy or practice which cannot be unilaterally withdrawn.

Article 100 of the Labor Code, otherwise known as the Non-Diminution Rule,
mandates that benefits given to employees cannot be taken back or reduced unilaterally
by the employer because the benefit has become part of the employment contract,
written or unwritten. [18] The rule against diminution of benefits applies if it is shown
that the grant of the benefit is based on an express policy or has ripened into a practice
over a long period of time and that the practice is consistent and deliberate.
Nevertheless, the rule will not apply if the practice is due to error in the construction or
application of a doubtful or difficult question of law. But even in cases of error, it
should be shown that the correction is done soon after discovery of the error. [19]

The argument of petitioner that the grant of the benefit was not voluntary and was due
to error in the interpretation of what is included in the basic salary deserves scant
RESOLUTION

VELASCO, JR., J.:

In a Petition for Certiorari under Rule 65, petitioner Peoples 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
Republic of the Philippines conduct of summary investigations, and after the parties submitted their position
SUPREME COURT papers, the DOLE Regional Director found that private respondent was an employee of
Manila petitioner, and was entitled to his money claims.[2] Petitioner sought reconsideration of
the Directors Order, but failed. The Acting DOLE Secretary dismissed petitioners
EN BANC 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
PEOPLES BROADCASTING SERVICE G.R. No. 179652 was accorded due process as it had been given the opportunity to be heard, and that the
(BOMBO RADYO PHILS., INC.), DOLE Secretary had jurisdiction over the matter, as the jurisdictional limitation
Petitioner, Present: 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]
CORONA, C.J.,
CARPIO, In the Decision of this Court, the CA Decision was reversed and set aside, and the
- versus - VELASCO, JR., complaint against petitioner was dismissed. The dispositive portion of the Decision
LEONARDO-DE CASTRO,
reads as follows:
BRION,
PERALTA, WHEREFORE, the petition is GRANTED. The Decision
THE SECRETARY OF THE BERSAMIN, dated 26 October 2006 and the Resolution dated 26 June 2007 of the
DEPARTMENT OF LABOR AND DEL CASTILLO,* Court of Appeals in C.A. G.R. CEB-SP No. 00855
EMPLOYMENT, THE REGIONAL ABAD, are REVERSED and SET ASIDE. The Order of the then Acting
DIRECTOR, DOLE REGION VII, and VILLARAMA, JR., Secretary of the Department of Labor and Employment dated 27
JANDELEON JUEZAN, PEREZ, January 2005 denying petitioners appeal, and the Orders of the
Respondents. MENDOZA, Director, DOLE Regional Office No. VII, dated 24 May 2004 and 27
SERENO, February 2004, respectively, are ANNULLED. The complaint
REYES, and against petitioner is DISMISSED.[4]
PERLAS-BERNABE, JJ. 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
Promulgated: determination of the existence of an employer-employee relationship, this function
March 6, 2012 could not be co-extensive with the visitorial and enforcement power provided in Art.
x-----------------------------------------------------------------------------------------x 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 visitorial and enforcement power of the DOLE. But even in conceding the power of the
of an employer-employee relationship. This was the interpretation of the Court of the DOLE to determine the existence of an employer-employee relationship, the Court held
clause in cases where the relationship of employer-employee still exists in Art. that the determination of the existence of an employer-employee relationship is still
128(b).[5] primarily within the power of the NLRC, that any finding by the DOLE is merely
preliminary.
From this Decision, the Public Attorneys Office (PAO) filed a Motion for This conclusion must be revisited.
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 No limitation in the law was placed upon the power of the DOLE to determine
with the power to determine the existence of an employer-employee relationship.[6] In the existence of an employer-employee relationship. No procedure was laid down
its Comment,[7] the DOLE sought clarification as well, as to the extent of its visitorial where the DOLE would only make a preliminary finding, that the power was primarily
and enforcement power under the Labor Code, as amended. held by the NLRC. The law did not say that the DOLE would first seek the NLRCs
determination of the existence of an employer-employee relationship, or that should the
The Court treated the Motion for Clarification as a second motion for existence of the employer-employee relationship be disputed, the DOLE would refer
reconsideration, granting said motion and reinstating the petition. [8] It is apparent that the matter to the NLRC. The DOLE must have the power to determine whether or not
there is a need to delineate the jurisdiction of the DOLE Secretary vis--vis that of the an employer-employee relationship exists, and from there to decide whether or not to
NLRC. issue compliance orders in accordance with Art. 128(b) of the Labor Code, as amended
by RA 7730.
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 The DOLE, in determining the existence of an employer-employee
wages and other monetary claims and benefits was qualified by the proviso that the relationship, has a ready set of guidelines to follow, the same guide the courts
complaint not include a claim for reinstatement, or that the aggregate money claims not themselves use. The elements to determine the existence of an employment relationship
exceed PhP 5,000. RA 7730, or an Act Further Strengthening the Visitorial and are: (1) the selection and engagement of the employee; (2) the payment of wages; (3)
Enforcement Powers of the Secretary of Labor, did away with the PhP 5,000 limitation, the power of dismissal; (4) the employers power to control the employees
allowing the DOLE Secretary to exercise its visitorial and enforcement power for conduct.[9] The use of this test is not solely limited to the NLRC. The DOLE Secretary,
claims beyond PhP 5,000. The only qualification to this expanded power of the DOLE or his or her representatives, can utilize the same test, even in the course of inspection,
was only that there still be an existing employer-employee relationship. making use of the same evidence that would have been presented before the NLRC.

It is conceded that if there is no employer-employee relationship, whether it The determination of the existence of an employer-employee relationship by
has been terminated or it has not existed from the start, the DOLE has no the DOLE must be respected. The expanded visitorial and enforcement power of the
jurisdiction. Under Art. 128(b) of the Labor Code, as amended by RA 7730, the first DOLE granted by RA 7730 would be rendered nugatory if the alleged employer could,
sentence reads, Notwithstanding the provisions of Articles 129 and 217 of this Code to by the simple expedient of disputing the employer-employee relationship, force the
the contrary, and in cases where the relationship of employer-employee still exists, the referral of the matter to the NLRC. The Court issued the declaration that at least a prima
Secretary of Labor and Employment or his duly authorized representatives shall have facie showing of the absence of an employer-employee relationship be made to oust
the power to issue compliance orders to give effect to the labor standards provisions of the DOLE of jurisdiction. But it is precisely the DOLE that will be faced with that
this Code and other labor legislation based on the findings of labor employment and evidence, and it is the DOLE that will weigh it, to see if the same does successfully
enforcement officers or industrial safety engineers made in the course of inspection. It refute the existence of an employer-employee relationship.
is clear and beyond debate that an employer-employee relationship must exist for the If the DOLE makes a finding that there is an existing employer-employee
exercise of the visitorial and enforcement power of the DOLE. The question now arises, relationship, it takes cognizance of the matter, to the exclusion of the NLRC. The
may the DOLE make a determination of whether or not an employer-employee DOLE would have no jurisdiction only if the employer-employee relationship has
relationship exists, and if so, to what extent? already been terminated, or it appears, upon review, that no employer-employee
relationship existed in the first place.
The first portion of the question must be answered in the affirmative.
The Court, in limiting the power of the DOLE, gave the rationale that such
The prior decision of this Court in the present case accepts such answer, but limitation would eliminate the prospect of competing conclusions between the DOLE
places a limitation upon the power of the DOLE, that is, the determination of the and the NLRC. The prospect of competing conclusions could just as well have been
existence of an employer-employee relationship cannot be co-extensive with the
eliminated by according respect to the DOLE findings, to the exclusion of the NLRC, the NLRC, and there is still an existing employer-employee relationship, the
and this We believe is the more prudent course of action to take. 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.
This is not to say that the determination by the DOLE is beyond question or
review. Suffice it to say, there are judicial remedies such as a petition for certiorari In the present case, the finding of the DOLE Regional Director that there was
under Rule 65 that may be availed of, should a party wish to dispute the findings of the an employer-employee relationship has been subjected to review by this Court, with
DOLE. the finding being that there was no employer-employee relationship between petitioner
and private respondent, based on the evidence presented. Private respondent presented
It must also be remembered that the power of the DOLE to determine the self-serving allegations as well as self-defeating evidence.[10] The findings of the
existence of an employer-employee relationship need not necessarily result in an Regional Director were not based on substantial evidence, and private respondent failed
affirmative finding. The DOLE may well make the determination that no employer- to prove the existence of an employer-employee relationship. The DOLE had no
employee relationship exists, thus divesting itself of jurisdiction over the case. It must jurisdiction over the case, as there was no employer-employee relationship
not be precluded from being able to reach its own conclusions, not by the parties, and present. Thus, the dismissal of the complaint against petitioner is proper.
certainly not by this Court.
WHEREFORE, the Decision of this Court in G.R. No. 179652 is
Under Art. 128(b) of the Labor Code, as amended by RA 7730, the DOLE is hereby AFFIRMED, with the MODIFICATION that in the exercise of the DOLEs
fully empowered to make a determination as to the existence of an employer-employee visitorial and enforcement power, the Labor Secretary or the latters authorized
relationship in the exercise of its visitorial and enforcement power, subject to judicial representative shall have the power to determine the existence of an employer-
review, not review by the NLRC. employee relationship, to the exclusion of the NLRC.

There is a view that despite Art. 128(b) of the Labor Code, as amended by RA SO ORDERED.
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
ANIOLINA OCSEN, RONITO LASQUETO,
LORETO LASQUETO, BELCESAN
LASQUETO, FELIZARDO DELOS REYES,
AURELIO DELOS REYES, ORLANDO PADOL,
PRECY CABAHOG, EMILIO CABAHOG,
EDEN MALUNES, CARMELO
ESMERALDA, DOLORES FLORES,
RENATO FLORES, ELADIO
ALCANTARA, INOCENCIO BERNAIZ,
and RONILO LASQUETO,
Private Respondents. Promulgated:
February 11, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

THIRD DIVISION
DECISION

MRS. ALBERTA YANSON/ G.R. No. 159026


HACIENDA VALENTIN-BALABAG, AUSTRIA-MARTINEZ, J.:
Petitioner,
Present: Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the October 30, 2002 Decision[1] of the Court of Appeals (CA) which affirmed
YNARES-SANTIAGO, J., the September 21, 2001 Order[2] of the Secretary of the Department of Labor and
Chairperson, Employment (public respondent), and the May 22, 2003 CA Resolution[3] which
- versus - AUSTRIA-MARTINEZ, denied the motion for reconsideration.
CORONA,*
NACHURA, and The facts are of record.
REYES, JJ.
THE HON. SECRETARY, DEPARTMENT On March 27, 1998, Mardy Cabigo and 40 other workers (private respondents) filed
OF LABOR AND EMPLOYMENT with the Department of Labor and Employment-Bacolod District Office (DOLE
(LEGAL SERVICE-MANILA), Bacolod) a request for payroll inspection[4] of Hacienda Valentin Balabag owned by
Public Respondent, Alberta Yanson (petitioner). DOLE Bacolod conducted an inspection of petitioners
establishment on May 27, 1998, and issued a Notice of Inspection Report, finding
MARDY CABIGO, MARIANO CABIGO, petitioner liable for the following violations of labor standard laws:
JORGE CABIGO, RAMONA CABIGO, 1. Underpayment of salaries and wages (workers being
RODOLFO VALDEZ, DEONELA VALDEZ, paid a daily rate of Ninety Pesos [P90.00] since 1997 and
LYDIA TALIBONG,** GERMAN TALIBONG,*** Seventy Five Pesos [P75.00] prior to such year);
EFREN MALUNES, DELMA ENRIQUEZ, 2. Non-payment of 13th month pay for two (2) years;
REGIE ENRIQUEZ, LUCIA GERVACIO, 3. Non-payment of Social Amelioration Bonus (SAB) for
ROGELIO GERVACIO, EDWIN ESPARAS, two (2) years;
CONRADO ESPARAS, BERNALDA 4. Non-payment of employers 1/3 carabao share.[5]
ALCANTARA, RONALDO ALCANTARA, and directing her to correct the same, thus:
RENALDO SENADRE,**** ANGELO SENADRE,*****
JOSE ANTARAN, MORITA ANTARAN, You are required to affect [sic] restitution and/or correction of the
JOHNNY ANTARAN, JOEMARIE ANTARAN, foregoing at the company or plant level within ten (10) calendar days
SENADOR TALIDONG, JONELSON TALIDONG, from notice hereof.
Return this Writ to this Office within sixty (60) days from receipt
Any question of the above findings should be submitted to this Office hereof together with your statement in writing of the proceeding that
within five (5) working days from notice hereof otherwise order of you shall have conducted by virtue hereof.[12]
compliance shall be issued. On February 17, 1999, petitioner filed with DOLE Bacolod a Double Verified Special
Appearance to Oppose Writ of Execution For Being a Blatant and Dangerous Violation
This notice shall be posted conspicuously in the premises of the of Due Process,[13]claiming that she did not receive any form of communication, or
workplace, removal of which shall subject the establishment to a fine participate in any proceeding relative to the subject matter of the writ of
and/ or contempt proceedings. execution. Petitioner also impugned the validity of the August 12, 1998 Compliance
Order subject of the writ of execution on the ground of lack of employment relationship
When there is a certified union, a copy of the notice shall be furnished between her and private respondents. DOLE Bacolod denied said motion in an
said union.[6] Order[14] dated March 11, 1999.

In addition, DOLE Bacolod scheduled a summary investigation and issued, by Petitioner filed with public respondent a Verified Appeal[15] and Supplement to the
registered mail, notices of hearing[7] as well as a subpoena duces tecum[8] to the Verified Appeal,[16] posting therewith an appeal bond of P1,000.00 in money order and
parties. Petitioner did not appear in any of the scheduled hearings, or present any attaching thereto a Motion to be Allowed to Post Minimal Bond with Motion for
pleading or document.[9] Reduction of Bond.[17] Public respondent dismissed her appeal in an
Order[18] dated September 21, 2001.
In a Compliance Order[10] dated August 12, 1998, DOLE Bacolod directed petitioner
to pay, within five (5) days, P9,084.00 to each of the 41 respondents or a total Petitioner filed a Petition for Certiorari[19] which was denied due course and dismissed
of P372,444.00, and to submit proof of payment thereof. It also required petitioner to by the CA in its assailed October 30, 2002 Decision. Petitioners motion for
correct existing violations of occupational safety and health standards. [11] reconsideration was also denied.

Hence, petitioners present recourse on the following grounds:


Thereafter, DOLE Bacolod issued on December 17, 1998 a Writ of Execution of
its August 12, 1998Compliance Order, viz.: I. The Honorable Court of Appeals and the Honorable Secretary of
Labor, with all due respect, deprived the herein petitioner-appellant
NOW, THEREFORE, you are hereby commanded to proceed to the of her constitutional right not to be deprived of property without due
premises of HAD. VALENTIN/BALABAG, MS. ALBERTA process of law, and of free access to courts and quasi-judicial bodies
YANSON located at Brgy. Graneda or at Burgos St., Bacolod City by reason of poverty;
and require the respondent to comply with the Order and pay the
amount of THREE HUNDRED SEVENTY-TWO THOUSAND II. The Honorable Labor Secretary in his assailed Decision, with all
FOUR HUNDRED FORTY-FOUR (P372,444.00). due respect, for some rather mysterious reason or the other, dismissed
the appeal with utter disregard of the fact that her Regional Director,
You are to collect the above-stated amount from the respondent and whose orders were appealed to her were never received by the
deposit the same to the Cashier of this Office for appropriate Petitioner.
disposition to herein workers and/;or the supervision of the Office of
the Regional Director. Otherwise, you are to execute this Writ by Said orders assessing payments against the petitioner were issued
attaching the goods and chattel of the respondent not exempt from without notice received by petitioner, and enforced without giving
execution or in case of insufficiency thereof, against the real or the petitioner a chance to controvert the atrocious figures, and two
immovable property. years after the petitioners farm had ceased its operations;

You are further ordered to collect the Execution and/or Sheriff Fee III. The Honorable Labor Secretary denied the petitioner of her right
in the amount of TWO THOUSAND ONE HUNDRED TWENTY- to seasonably raise the issue of lack of jurisdiction and the right [to]
SEVEN (P2,127.00) PESOS. appeal;
IV. There are very serious errors of fact and law in the assailed respondents request for the reduction of the required bond cannot be
decision of the Honorable Labor Secretary, with all due respect; or allowed for lack of legal basis. Hence, for lack of the required bond,
that the assailed decision, with all due respect, is patently and the respondents appeal was never duly perfected and must
blatantly contrary to law and jurisprudence.[20] therefore be dismissed.[23] (Emphasis ours)
Citing Allied Investigation Bureau, Inc. v. Secretary of Labor and Employment,[24] the
The petition lacks merit. CA held that public respondent did not commit grave abuse of discretion in holding
that petitioner failed to perfect her appeal due to the insufficiency of her bond.[25]
The appeal which petitioner filed with public respondent ultimately questioned the Petitioner contends that the CA and public respondent denied her the right to appeal
August 12, 1998 Compliance Order in which DOLE Bacolod, in the exercise of its when they rejected her P1,000.00-appeal bond. She insists that her appeal bond cannot
visitorial and enforcement power, awarded private respondents P9,084.00 each in labor be based on the monetary award of P372,444.00 granted by DOLE Bacolod in its
standard benefits or the aggregate sum of P377,444.00.[21] For its perfection, the appeal August 14, 1998 Order which, having been rendered without prior notice to her, was a
was therefore subject to the requirements prescribed under Article 128 of the Labor patent nullity and completely without effect.[26] She argues that her appeal bond should
Code, as amended by Republic Act No. 7730,[22] viz.: instead be based on her capacity to pay; otherwise, her right to free access to the courts
Art. 128. Visitorial and Enforcement Power. - x x x (b) as guaranteed under Article III, Section 2 of the Constitution would be set to naught
Notwithstanding the provisions of Articles 129 and 217 of this Code merely because of her diminished financial capacity.
to the contrary, and in cases where the relationship of employer-
employee still exists, the Secretary of Labor and Employment or his Our sympathy for petitioner cannot override our fidelity to the law.
duly authorized representatives shall have the power to issue
compliance orders to give effect to the labor standards provisions of In Guico, Jr. v. Hon. Quisumbing,[27] we held that the posting of the proper amount of
this Code and other labor legislation based on the findings of labor the appeal bond under Article 128 (b) is mandatory for the perfection of an appeal from
employment and enforcement officers or industrial safety engineers a monetary award in labor standard cases:
made in the course of inspection. The Secretary or his duly
authorized representatives shall issue writs of execution to the The next issue is whether petitioner was able to perfect his
appropriate authority for the enforcement of their orders, except in appeal to the Secretary of Labor and Employment. Article 128 (b) of
cases where the employer contests the findings of the labor the Labor Code clearly provides that the appeal bond must be "in the
employment and enforcement officer and raises issues supported by amount equivalent to the monetary award in the order appealed
documentary proofs which were not considered in the course of from." The records show that petitioner failed to post the required
inspection. amount of the appeal bond. His appeal was therefore not
perfected.[28]
An order issued by the duly authorized representative of the
Secretary of Labor and Employment under this article may be Just like the petitioner in the present case, the employer in Guico v. Secretary of
appealed to the latter. In case said order involves a monetary award, Labor had also sought a reduction of the appeal bond due to financial losses arising
an appeal by the employer may be perfected only upon the posting from the shutdown of his business; yet, we did not temper the strict requirement of
of a cash or surety bond issued by a reputable bonding company duly Article 128 (b) for him. The rationale behind the stringency of such requirement is that
accredited by the Secretary of Labor and Employment in the amount the employer-appellant may choose between a cash bond and a surety bond. Hence,
equivalent to the monetary award in the order appealed limitations in his liquidity should pose no obstacle to his perfecting an appeal by posting
from. (Emphasis ours) a mere surety bond.
When petitioner filed her Verified Appeal and Supplement to the Verified Appeal, she
posted a mere P1,000.00-appeal bond and attached a Motion to be Allowed to Post Moreover, Article 128(b) deliberately employed the word only in reference to
Minimal Bond with Motion for Reduction of Bond. Public respondent rejected said the requirements for perfection of an appeal in labor standards cases. Only commands
appeal for insufficiency of the appeal bond, viz.: a restrictive application,[29] giving no room for modification of said requirements.

We note and stress that there is no analogous application in the Office Petitioner pointed out, however, that Article 223[30] of the Labor Code
of the Secretary of the practice in the NLRC of reducing the appeal prescribes similar requirements for perfection of appeals to the National Labor
bond; the law applicable to the Office of the Secretary of Labor and Relations Commission (NLRC); yet, the same has been applied with moderation in that
Employment does not allow this practice. In other words, the a reduction of the appeal bond may be allowed. [31] That is correct; but then, it should
be borne in mind that reduction of bond in the NLRC is expressly authorized under the enforce the order. In the enforcement of the writ, the assistance of the
Rules implementing Article 223, viz.:[32] law enforcement authorities may be sought.
RULE VI. APPEALS
(b) A writ of execution may be recalled subsequent to its issuance, if
Section 6. Bond. In case the decision of the Labor Arbiter, it is shown that an appeal has been perfected in accordance with this
the Regional Director or his duly authorized Hearing Officer rule. (Emphasis ours)
involves a monetary award, an appeal by the employer shall be Under the foregoing Implementing Rules, it is plain that public respondent has no
perfected only upon the posting of a cash or surety bond, which shall authority to accept an appeal under a reduced bond.
be in effect until final disposition of the case, issued by a reputable
bonding company duly accredited by the Commission or the Further applying the Implementing Rules, there is one other reason for holding that
Supreme Court in an amount equivalent to the monetary award, petitioner failed to perfect her appeal. It is of record that she received the August 12,
exclusive of damages and attorneys fees. 1998 Compliance Order issued by DOLE-Bacolod, as indicated in the registry return
card marked Annex I.[33] Petitioner does not question this, except to point out that the
The employer, his counsel, as well as the bonding company, registry return card does not indicate the date she received the order. That is of no
shall submit a joint declaration under oath attesting that the surety consequence, for the fact remains that petitioner was put on actual notice not only of
bond posted is genuine. the existence of the August 12, 1998 Compliance Order but also of the summary
investigation of her establishment. It behooves her to file a timely appeal to public
The Commission may, in justifiable cases and upon respondent[34] or object to the conduct of the investigation. [35] Petitioner did neither,
Motion of the Appellant, reduce the amount of the bond. The filing opting instead to sit idle and wait until the following year to question the investigation
of the motion to reduce bond shall not stop the running of the and resultant order, in the guise of opposing the writ of execution through a motion
period to perfect appeal. (Emphasis supplied.) dubbed Double Verified Special Appearance to Oppose 'Writ of Execution' For Being
a Blatant and Dangerous Violation of Due Process.[36] Such appeal already went beyond
No similar authority is given the DOLE Secretary in Department Order No. 18-02 the ten-day period allowed under Section 8(b) of Rule X-B of the Implementing Rules.
(Implementing Rules), Series of 2002, amending Department Order No. 7-A, Series of
1995, implementing Article 128(b), thus: In fine, the CA was correct in holding that public respondent did not commit
Rule X-A grave abuse of discretion in rejecting the appeal of petitioner due to the insufficiency
of her appeal bond.
Section 8. Appeal. - (a) The Order of the Regional Director shall be
final and executory unless appealed to the Secretary within ten (10) Even if we delve into its substance, her appeal would still not prosper. Petitioner
calendar days from receipt thereof. questions the August 12, 1998 Compliance Order on the grounds that she was never
notified of the proceedings leading to its issuance, and that as early as 1997, her
(b) The appeal shall be filed with the Regional Office where the case employment relationship with the private respondents had already been severed.
originated together with the memorandum of the appealing party.
The appellee may file his answer within ten (10) calendar days from We dwell only on questions of law, not purely questions of fact, in petitions
receipt of the appellants memorandum. for review on certiorari under Rule 45 of the Rules of Court. The first issue which
petitioner raised, that is, whether she was properly served the notices of hearing issued
Section 9. Cash or surety bond; when required. - In case the by DOLE-Bacolod, is purely factual.[37] The determination made by DOLE-Bacolod on
order involves a monetary award, an appeal by the employer this matter binds us, especially as it was not reversed by public respondent and the
may be perfected only upon the posting of a cash or surety bond CA. We therefore cannot supplant its factual finding with our own, [38] moreso that
issued by a duly accredited bonding company. The bond should petitioners bare denial cannot outweigh the probative value of the registry return cards
be in the amount equivalent to the monetary award indicated in attached to the record which indicate that said notices were received by petitioner. [39]
the order.
Anent the second issue, the records do not sustain petitioners claim. In a
Section 10. Writ of execution. - (a) If no appeal is perfected within Collective Bargaining Agreement dated January 29, 1998,[40] petitioner acknowledged
the reglementary period, the Regional Director shall, motu propio or under oath that she is the employer of private respondents Mardy Cabigo, et al., who
upon motion of any interested party, issue a writ of execution to
are members of the union known as Commercial and Agro-Industrial Labor This is a petition for review on certiorari of the decision[1] of the Court of Appeals
Organization. (CA) dated September 16, 2003 and the resolution[2] denying the motion for
reconsideration thereof in CA-G.R. SP No. 67587.
WHEREFORE, the petition is DENIED for lack of merit.
Petitioners Nestor J. Balladares, Roldan L. Guanizo, Arnulfo E. Merto, Geronimo G.
No costs. Gobuyan, Edgardo O. Avila, and Eduard F. Ramos, Jr.

SO ORDERED.
were employed by respondent Peak Ventures Corporation/El Tigre Security and
Investigation Agency (Peak Ventures) as security guards and were assigned at the
premises of respondent Yangco Market Owners and Administrators Association
(YMOAA). They filed a complaint for underpayment of wages against their employer,
Peak Ventures, with the Department of Labor and Employment (DOLE).

Acting on the complaint, DOLE conducted an inspection of Peak Ventures


on March 4, 1999, and the following violations were noted:

THIRD DIVISION - underpayment of the minimum wage and other


auxiliary benefits;
NESTOR J. BALLADARES, G.R. No. 161794
ROLDAN L. GUANIZO, - pertinent employment records (payrolls, daily time
ARNULFO E. MERTO, records, contract of employment) were not available at the
GERONIMO G. GOBUYAN, Present: time of inspection.[3]
EDGARDO O. AVILA, and
EDUARD F. RAMOS, JR., YNARES-SANTIAGO, J.,
Petitioners, Chairperson, A Notice of Inspection Result was issued to and received by the Human Resource
CHICO-NAZARIO, Department Manager, Ms. Cristina Q. Villacrusis. Peak Ventures was instructed to
- versus - VELASCO, JR., effect restitution and/or to file its objections within five (5) working days from
NACHURA, and receipt thereof.
PEAK VENTURES CORPORATION/ PERALTA, JJ.
EL TIGRE SECURITY AND Respondent failed to correct the violations or contest the findings as
INVESTIGATION AGENCY and required; hence, the parties were summoned for hearing. During the scheduled
YANGCO MARKET OWNERS Promulgated: hearing on March 26, 1999, both complainants and Peak Ventures moved to
ASSOCIATION/LAO TI SIOK BEE, implead its client, YMOAA, represented by its President, Ms. Lao Ti Siok Bee, as
Respondents. June 16, 2009 party respondent. YMOAA opposed on the ground that it was not the employer of
petitioners. On May 25, 1999, Peak Ventures filed a Third-Party Complaint and/or
x------------------------------------------------------------------------------------x Position Paper with leave of court, alleging that Peak Ventures was entitled to
indemnity or subrogation from YMOAA in respect to the monetary claims of
petitioners, because the cause of the underpayment of wages, if any, arose from the
DECISION failure of the YMOAA to pay the security agency the correct amount due petitioners
as prescribed by various Wage Orders.[4]
NACHURA, J.:
In the Order dated July 21, 1999, Regional Director Maximo Baguyot Lim
rendered judgment in favor of petitioners and ruled that the contractor was jointly
and severally liable with the principal, pursuant to the law and jurisprudence on the
matter.[5] He further stated that:
exceeded P5,000.00, and the power to adjudicate such claims belonged to the Labor
In view of the respondents failure to controvert the Arbiter, pursuant to Servandos, Inc. v. Secretary of Labor.[10] The appellate court
complainants contentions and repeated denial to give access to its ratiocinated that this exclusive jurisdiction of the Labor Arbiters was confirmed by
employment records despite demands by the labor inspector and Article 129 of the Labor Code, which excludes from the jurisdiction of the Regional
hearing officer, it is deemed to have waived its constitutional right to Directors or any hearing officer of the DOLE the power to hear and decide claims of
due process, therefore, this is an implied admission of the violations employees arising from employer-employee relations exceeding the amount
discovered, hence, we have no other recourse but to rule in favor of of P5,000.00 for each employee.The dispositive portion of the decision, thus, reads as
the complainants and compute the salary differentials due them based follows:
on their affidavits x x x.

xxxx WHEREFORE, petition is GRANTED. The Order of public


respondent Secretary of Labor and Employment dated December 7,
WHEREFORE, premises considered, respondents PEAK 2000 and the Resolution dated September 11, 2001 are SET
VENTURES CORP./EL TIGRE SECURITY AND ASIDEand declared null and void. The case is REFERRED to the
INVESTIGATION AGENCY AND/OR YANGCO MARKET appropriate Labor Arbiter for proper determination. [11]
OWNERS AND ADMINISTRATORS ASSOCIATION/MS. LAO
TI SIOK BEE are hereby jointly and severally ordered to pay
complainants NESTOR BALLADARES AND TEN (10) OTHER Petitioners now come to this Court assigning the following errors:
SIMILARLY SITUATED EMPLOYEES the sum opposite their
names or a total amount of ONE MILLION ONE HUNDRED SIX The Court of Appeals, Third Division erred in applying Article 129
THOUSAND TWO HUNDRED NINETY EIGHT PESOS AND of the Labor Code instead of Article 128.
07/100 (P1,106,298.07) corresponding to their claims within ten (10)
calendar days from receipt hereof, otherwise, WRIT OF The Court of Appeals, Third Division erred in applying
EXECUTION shall be issued unless an Appeal shall have been filed the Servandos, Inc. versus Secretary of Labor, which had long been
within the reglementary period together with a Cash or Surety Bond abandoned.[12]
equivalent to the monetary award.[6]

Only Peak Ventures filed its comment. Several resolutions of the Court sent to
Respondent Peak Ventures filed a Motion for Reconsideration which was respondent YMOAA were returned unserved, despite earnest efforts to obtain its
denied for lack of merit. current address. Meanwhile, the Court received a letter in the vernacular, dated May
16, 2006, from petitioner Nestor Balladares, for and on behalf of petitioners.
Therein, petitioners expressed their apprehension over the sale by Lao Siok Bee of
Respondent appealed the Order to the Office of the Secretary of Labor Section 9 of Yangco Market to her nephew, Kay Ken Wah, which may be
positing that the Regional Director committed serious errors in awarding the amount detrimental to their cause, with a request for justice in this case. The letter was noted
of P1,106,298.00 to petitioners, which it alleged to be quite excessive. by the Court in the Resolution dated June 28, 2006. [13]

On December 7, 2000, respondents appeal was dismissed.[7] A subsequent In its comment, Peak Ventures averred that the CA did not err in applying
motion for reconsideration was, likewise, denied by the Secretary of Labor in a Article 129 and Article 217 of the Labor Code, because the instant case arose from
Resolution dated September 11, 2001.[8] a complaint for recovery of wages, simple money claims and other benefits, and the
claims exceeded P5,000.00. It argued that the inspection conducted by the DOLE
Undaunted, respondent Peak Ventures elevated the case to the CA, using the visitorial and enforcement powers of the Secretary of Labor and
alleging that public respondent Secretary of DOLE acted without, or in excess of, Employment did not, in any way, convert the case to one falling under Article 128,
jurisdiction or with grave abuse of discretion.[9] otherwise, there would be no need for Article 129. [14] It reiterated that Article
129[15] and Article 217[16] provide that it is the Labor Arbiter which has jurisdiction
The CA granted the petition, ruling that the Regional Director had no over claims arising from employer-employee relations, including those of persons
jurisdiction to hear and decide the case, because the claims of each of the petitioners in domestic or household service involving an amount exceeding P5,000.00.
We uphold the jurisdiction of the DOLE Regional Director.
This Court has held in a plethora of cases[19] that reliance on
It should be noted that petitioners complaint involved underpayment of the Servando ruling is no longer tenable in view of the enactment of R.A. No. 7730,
wages and other benefits. In order to verify the allegations in the complaint, DOLE amending Article 128 (b) of the Labor Code. The Secretary of Labor or his duly
conducted an inspection, which yielded proof of violations of labor standards. By authorized representatives is now empowered to hear and decide, in a summary
the nature of the complaint and from the result of the inspection, the authority of proceeding, any matter involving the recovery of any amount of wages and other
the DOLE, under Article 128, came into play regardless of the monetary value of monetary claims arising out of employer-employee relations at the time of the
the claims involved.[17] The extent of this authority and the powers flowing inspection, even if the amount of the money claim exceeds P5,000.00. In Ex-Bataan
therefrom are defined and set forth in Article 128 of the Labor Code, as amended Veterans Security Agency, Inc. v. Laguesma,[20] the Court elucidated:
by R.A. No. 7730,[18] the pertinent portions of which read as follows:
In Allied Investigation Bureau, Inc. v. Sec. of Labor, we
ART. 128. Visitorial and enforcement power. (a) The Secretary of ruled that:
Labor or his duly authorized representatives, including labor While it is true that under Articles 129 and 217 of
regulation officers, shall have access to employers records and the Labor Code, the Labor Arbiter has jurisdiction
premises at any time of the day or night whenever work is being to hear and decide cases where the aggregate
undertaken therein, and the right to copy therefrom, to question any money claims of each employee
employee and investigate any fact, condition or matter which may be exceeds P5,000.00, said provisions of law do not
necessary to determine violations or which may aid in the contemplate nor cover the visitorial and
enforcement of this Code and of any labor law, wage order or rules enforcement powers of the Secretary of Labor or
and regulations issued pursuant thereto. his duly authorized representatives. Rather, said
powers are defined and set forth in Article 128 of
(b) Notwithstanding the provisions of Articles 129 and 217 of this the Labor Code (as amended by R.A. No. 7730) x
Code to the contrary, and in cases where the relationship of xx
employer-employee still exists, the Secretary of Labor and
Employment or his duly authorized representatives shall have the The aforequoted provision explicitly excludes
power to issue compliance orders to give effect to the labor standards from its coverage Articles 129 and 217 of the
provisions of this Code and other labor legislation based on the Labor Code by the phrase (N)otwithstanding the
findings of labor employment and enforcement officers or industrial provisions of Articles 129 and 217 of this Code to
safety engineers made in the course of inspection.The Secretary or the contrary x x x thereby retaining and further
his duly authorized representatives shall issue writs of execution to strengthening the power of the Secretary of Labor
the appropriate authority for the enforcement of their orders, except or his duly authorized representatives to issue
in cases where the employer contests the finding of the labor compliance orders to give effect to the labor
employment and enforcement officer and raises issues supported by standards provisions of said Code and other labor
documentary proofs which were not considered in the course of legislation based on the findings of labor
inspection. employment and enforcement officer or industrial
safety engineer made in the course of inspection.
An order issued by the duly authorized representative of the
Secretary of Labor and Employment under this article may be This was further affirmed in our ruling in Cirineo Bowling Plaza,
appealed to the latter. In case said order involves a monetary award, Inc. v. Sensing, where we sustained the jurisdiction of the DOLE
an appeal by the employer may be perfected only upon the posting of Regional Director and held that :the visitorial and enforcement
a cash or surety bond issued by a reputable bonding company duly powers of the DOLE Regional director to order and enforce
accredited by the Secretary of Labor and Employment in the amount compliance with labor standard laws can be exercised even
equivalent to the monetary award in the order appealed from. where the individual claim exceeds P5,000.

xxxx However, if the labor standards case is covered by the exception


clause in Article 128 (b) of the Labor Code, then the Regional
Director will have to endorse the case to the appropriate Arbitration Director, respondent submitted its own computation of the salary adjustment
Branch of the NLRC. In order to divest the Regional Director or his due petitioners in the amount of P533,220.33 as wage differentials, deducting
representatives of jurisdiction, the following elements must be further the amount of P39,371.52, which was already allegedly received by
present: (a) that the employer contests the findings of the labor petitioners, as shown in petitioners sample pay slips and earning cards. [23] This
regulations officer and raises issues thereon; (b) that in order to contention, however, was unacceptable, as the Secretary of Labor ruled:
resolve such issues, there is a need to examine evidentiary matters;
and (c) that such matters are not verifiable in the normal course of The arguments of the respondents that the award of the
inspection. The rules also provide that the employer shall raise such Regional Director is excessive considering that it has only a total
objections during the hearing of the case or at any time after receipt amount of P533,220.00 as they have computed, does not warrant
of the notice of inspection results. consideration.

In this case, the Regional Director validly assumed jurisdiction over As correctly pointed out by the Regional Director, the
the money claims of private respondents even if the claims alleged salary adjustment of the complainants for the years 1996,
exceeded P5,000 because such jurisdiction was exercised in 1997, 1998 and 1999 failed to show from what source and on what
accordance with Article 128(b) of the Labor Code and the case does basis have respondent arrived at the said computations. Likewise,
not fall under the exception clause. the documents presented is not sufficient to re-compute the award.

The Court notes that EBVSAI did not contest the findings of the labor With regard to the salary differentials paid to eight guards
regulations officer during the hearing or after receipt of the notice of for the period covering June 30, 1997 as evidenced by the payment,
inspection results. It was only in its supplemental motion for but unfortunately nowhere in their annexes can we find a clear
reconsideration before the Regional Director that EBVSAI indication of such payment. However, complainants admitted having
questioned the findings of the labor regulations officer and presented received such salary differentials from respondents, but the same was
documentary evidence to controvert the claims of private intended as wage adjustments under Wage Order No. 1, No. NCR-
respondent.But even if this was the case, the Regional Director and 03. Their claims in this instant case are backpay for Wage Order
the Secretary of Labor still looked into and considered EBVSAIs Nos. NCR-04, NCR-5 and NCR-6.Hence, the amount of P39,371.52
documentary evidence and found that such did not warrant the cannot be deducted from the computed monetary award
reversal of the Regional Directors order. The Secretary of Labor also of P1,106,298.00.
doubted the veracity and authenticity of EBVSAIs documentary
evidence. Moreover, the pieces of evidence presented by EBVSAI We find no cogent reason to deviate from the foregoing.[24]
were verifiable in the normal course of inspection because all the
employment records of the employees should be kept and maintained
in or about the premises of the workplace, which in this case is in It bears stressing that this petition clearly involves a labor standards case,
Ambuklao Plant, the establishment where the private respondents and it is in keeping with the law that the worker need not litigate to get what legally
were regularly assigned.[21] belongs to him, for the whole enforcement machinery of the DOLE exists to insure
its expeditious delivery to him free of charge. [25] We, therefore, sustain the
jurisdiction of the DOLE Regional Director in this case.
Accordingly, we find no sufficient reason to warrant the certification of
the instant case to the Labor Arbiter and divest the Regional Director of
jurisdiction. Respondent did not contest the findings of the labor regulations WHEREFORE, the petition is GRANTED. The Decision of the Court of
officer. Even during the hearing, respondent never denied that petitioners were not Appeals dated September 16, 2003 is REVERSED and SET ASIDE. The decision
paid correct wages and benefits. This was, in fact, even admitted by respondent in of the Secretary of Labor is REINSTATED.
its petition filed before the CA.[22] In its defense, respondent tried to pass the buck
to YMOAA, which failed to pay the correct wages pursuant to the wage SO ORDERED.
orders. Considering that the liability of the principal and the contractor is joint and
solidary, respondent thereby prayed for a re-computation of the awards it claimed
to be quite excessive. In the motion for reconsideration filed before the Regional
On February 9 and 14, 1995, the Office of Regional Director Young conducted
inspection visits at petitioners establishment. Senior Labor Enforcement Officer
Eduvigis A. Acero issued a Notice of Inspection Results, the pertinent portion of which
reads:

FINDINGS AS A RESULT OF INSPECTION CONDUCTED:

- Non-implementation under W.O. # NCR-03 from Dec. 16, 1993 to Dec. 15, 1994 to
security guards assigned at Novelty Phils., Inc. However, their prime client has been
granted an exemption by the Wage Board under W.O. # NCR-03 with Case No.
NCRO-W.O. # 3-E (9) dated June 7, 1994. Please see attached xerox copy.

- Non-remittance of SSS Premiums

- Excessive deduction or Bayanihan System (P20.00) every pay day instead of P5.00
FIRST DIVISION only.

INSTRUCTIONS TO EMPLOYER:

[G.R. No. 122006. November 24, 1999] You are required to effect restitution and/or correction of the foregoing at the
company or plant level within five (5) calendar days hereof.
ALLIED INVESTIGATION BUREAU, INC., petitioner, vs. HON. SECRETARY
OF LABOR & EMPLOYMENT, acting through Undersecretary
Any question on the above findings should be submitted to this office within five
CRESENCIANO B. TRAJANO, respondents.
(5) working days from notice hereof, otherwise order of compliance shall be issued.

DECISION x x x.[4]

KAPUNAN, J.: Said report was explained to and received by petitioners Human Resources
Director, Eufracio G. Quiambao III on February 14, 1995.[5]
For consideration of this Court is a petition for certiorari under Rule 65 of the
Rules of Court with prayer for the issuance of a temporary restraining order/writ of Thereafter, in order to facilitate amicable settlement between the parties, a series
preliminary injunction seeking to nullify and set aside 1) the Order, dated May 9, 1995, of conferences and hearings were scheduled by the Office of the Regional
of Regional Director Romeo A. Young in Case No. NCROO-9501-RI-042-SPL; and 2) Director. However, despite due notice, petitioner failed to appear in any of said
the Order, dated September 19, 1995 of the Secretary of Labor and Employment hearings.
through Undersecretary Cresenciano B. Trajano.
On May 9, 1995, respondent Regional Director issued an Order, the dispositive
Petitioner Allied Investigation Bureau, Inc. is a security agency. On January 11, portion of which reads:
1994, it entered into a security contract with Novelty Philippines, Inc. (NPI, for brevity)
whereby it obligated itself to provide security services to the latter. [1] WHEREFORE, premises considered and considering further that the above computed
wage differentials form part of the legal remunerations of the complainants,
On January 17, 1995, private respondents Melvin T. Pelayo and Samuel Sucanel,
respondent ALLIED INVESTIGATION BUREAU, INC., is hereby ordered to pay to
two of the security guards assigned by petitioner to NPI, filed a complaint with the
the ninety-two employees the total amount of EIGHT HUNDRED SEVEN
Office of respondent Regional Director Romeo A. Young charging petitioner with non-
THOUSAND FIVE HUNDRED SEVENTY PESOS AND THIRTY-SIX
compliance with Wage Order No. NCR-03,[2] which increased the minimum daily pay
CENTAVOS (P807.570.36) to be distributed to the individual employees in
of workers by P17.00, or from P118.00 to P135.00 effective December 16, 1993; and
accordance with the schedule mentioned above, within ten (10) days from receipt
further, by P10.00, or fromP135.00 to P145.00 daily beginning April 1, 1994. Private
[3] hereof. Otherwise, Writ of execution shall issue to enforce this Order.
respondents, likewise, sought the recovery of wage differentials.
The issue on the non-remittance of SSS premiums is hereby indorsed to the Social Petitioners arguments are untenable.
Security System, the same being within its jurisdiction to properly pass upon.
While it is true that under Articles 129[14] and 217[15] of the Labor Code, the Labor
Arbiter has jurisdiction to hear and decide cases where the aggregate money claims of
SO ORDERED.[6] each employee exceeds P5,000.00, said provisions of law do not contemplate nor cover
Petitioner appealed the above Order to respondent Secretary of Labor and the visitorial and enforcement powers of the Secretary of Labor or his duly authorized
Employment, without however, posting a cash or surety bond equivalent to the representatives.
monetary award in the said Order appealed from.[7] Rather, said powers are defined and set forth in Article 128 of the Labor Code (as
On September 19, 1995, the Secretary of Labor, thru Undersecretary Cresenciano amended by R.A. No. 7730) thus:
B. Trajano issued an Order [8]dismissing petitioners appeal for failure to perfect said
appeal. Art. 128. Visitorial and enforcement power. -
Hence, the instant petition for certiorari with prayer for the issuance of a
temporary restraining order/writ of preliminary injunction wherein petitioner raises the (a) The Secretary of Labor or his duly authorized representatives, including labor
following issues: regulation officers, shall have access to employers records and premises at any time
of the day or night whenever work is being undertaken therein, and the right to copy
therefrom, to question any employee and investigate any fact, condition or matter
a. Whether or not respondent Regional Director acted without jurisdiction in which may be necessary to determine violations or which may aid in the enforcement
adjudicating the private respondents money claims where the aggregate money claim of this Code and of any labor law, wage order or rules and regulations issued pursuant
of each of them exceeds P5,000.00. thereto.

b. Whether or not respondent Secretary of Labor & Employment, acting through (b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the
Undersecretary Cresenciano B. Trajano, acted with grave abuse of discretion in contrary, and in cases where the relationship of employer-employee exists, the
dismissing herein petitioners appeal attacking the jurisdiction of respondent Regional Secretary of Labor and Employment or his duly authorized representatives shall have
Director in adjudicating subject money claims of private respondents.[9] the power to issue compliance orders to give effect to the labor standards provisions
Petitioner argues that the power to adjudicate money claims belongs to the Labor of this Code and other labor legislation based on the findings of labor employment
Arbiter who has exclusive jurisdiction over employees claims where the aggregate and enforcement officers or industrial safety engineers made in the course of
amount of the claims of each employee exceeds P5,000.00.[10] inspection. The Secretary or his duly authorized representatives shall issue writs of
execution to the appropriate authority for the enforcement of their orders, except in
Petitioners cites Articles 129 and 217 of the Labor Code of the Philippines which cases where the employer contests the findings of the labor employment and
provide, respectively, that the power of the Regional Director to adjudicate employees enforcement officer and raises issues supported by documentary proofs which were
money claims is subject to the condition that the aggregate money claims of each not considered in the course of inspection.
employee does not exceed P5,000.00;[11] and, that the Labor Arbiter has jurisdiction
over all other claims arising from employer-employee relations, including those of An order issued by the duly authorized representatives of the Secretary of Labor and
persons in domestic or household service, involving an amount exceeding five thousand Employment under this article may be appealed to the latter. In case said order
pesos (P5,000.00), whether or not accompanied with a claim for reinstatement. involves a monetary award, an appeal by the employer may be perfected only upon
Petitioner further contends that since the Order appealed from is void and without the posting of a cash or surety bond issued by a reputable bonding company duly
legal effect, said Order never assumed finality and, therefore, it was improper for the accredited by the Secretary of Labor and Employment in the amount equivalent to the
respondent Secretary of Labor to outrightly dismiss the appeal on the ground that monetary award in the order appealed from. (Underscoring supplied)
petitioner failed to post a cash/surety bond.[12] xxx
Petitioner alleges that respondent Secretary of Labor acted with grave abuse of The aforequoted provision explicitly excludes from its coverage Articles 129 and
discretion in evading its duty to entertain the appeal on a technical ground. [13] 217 of the Labor Code by the phrase (N)otwithstanding the provisions of Articles 129
Finally, petitioner prays for the issuance of a temporary restraining order or a writ and 217 of this Code to the contrary x x x thereby retaining and further strengthening
of preliminary injunction as the enforcement of the alleged void orders would cause the power of the Secretary of Labor or his duly authorized representatives to issue
them great prejudice if not irreparable damage. compliance orders to give effect to the labor standards provisions of said Code and
other labor legislation based on the findings of labor employment and enforcement The instant case therefore falls squarely within the coverage of the aforecited
officers or industrial safety engineers made in the course of inspection. amendment as the assailed order was issued to enforce compliance with the
provisions of the Code with respect to the payment of proper wages. Hence,
In the case at bar, the Office of respondent Regional Director conducted petitioners claim of lack of jurisdiction on the part of public respondent is bereft of
inspection visits at petitioners establishment on February 9 and 14, 1995 in accordance merit.
with the above-mentioned provision of law. In the course of said inspection, several
violations of the labor standard provisions of the Labor Code were discovered and
reported by Senior Labor Enforcement Officer Eduvigis A. Acero in his Notice of ACCORDINGLY, the petition is hereby DISMISSED.
Inspection Results. It was on the bases of the aforesaid findings (which petitioner did Anent the issue of whether or not the respondent Secretary of Labor acted with
not contest), that respondent Regional Director issued the assailed Order for petitioner grave abuse of discretion in dismissing petitioners appeal on the ground that petitioner
to pay private respondents the respective wage differentials due them. failed to post the required cash or surety bond, we rule in the negative.
Clearly, as the duly authorized representative of respondent Secretary of Labor, Article 128 of the Labor Code likewise explicitly provides that in case an order
and in the lawful exercise of the Secretarys visitorial and enforcement powers under issued by the duly authorized representative of the Secretary of Labor and Employment
Article 128 of the Labor Code, respondent Regional Director had jurisdiction to issue involves a monetary award, an appeal by the employer may be perfected only upon
his impugned Order. posting of a cash or surety bond in an amount equivalent to the monetary award in the
In a recent case,[16] the Supreme Court ruled in this wise: order appealed from.
As correctly noted by the Office of the Solicitor General, since the Order appealed
Assailed in this special civil action for certiorari is the Order dated August 1, 1995 from involves a monetary award, an appeal by petitioner may be perfected only upon
issued by public respondent Regional Director Romeo A. Young of the Department of posting of a cash or surety bond issued by a reputable bonding company duly accredited
Labor and Employment (DOLE) in Case NO. NCROO-9503-IS-035, ordering by respondent Secretary of Labor in the amount equivalent to the monetary award in
petitioner Lord and Lady Salon to pay private respondent Ateldo Barroga the sum of the Order appealed from.[17]
P14,099.05 representing his underpaid wages and premium pay for work on
holidays. This suit is an offshoot of the complaint for payment of salary differentials It is undisputed that petitioner herein did not post a cash or surety bond when it
filed by private respondent against petitioner on March 20, 1995. Upon investigation filed its appeal with the Office of respondent Secretary of Labor. Consequently,
conducted by public respondents office, petitioner was found to have committed the petitioner failed to perfect its appeal on time and the Order of respondent Regional
following violations: (1) underpayment of wages, (2) non-implementation of Director became final and executory.
premium pay for worked legal holidays, and (3) non-availability of records at the time Thus, the Secretary of Labor and Employment thru Undersecretary Cresenciano
of inspection. Consequent to the parties failure to reach an amicable settlement, B. Trajano correctly dismissed petitioners appeal.
public respondent issued the assailed resolution. Petitioner asserts that public
respondent exceeded his jurisdiction in taking cognizance of the complaint and WHEREFORE, in view of the foregoing, the instant petition is hereby DENIED
ordering the payment of P14,099.05 to private respondent because the award of the for lack of merit.
latter amount goes over the jurisdictional amount of P5,000.00 for cases filed before
SO ORDERED.
the Regional Director, thus, is properly cognizable by the Labor Arbiter instead.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.
We dismiss the petition. Pursuant to Section 1 of Republic Act 7730 [Approved on
June 2, 1994] which amended Article 128 (b) of the Labor Code, the Secretary of
Labor and Employment or his duly authorized representative, in the exercise of their
visitorial and enforcement powers, are now authorized 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, sans any restriction with respect to
the jurisdictional amount of P5,000.00 provided under Article 129 and Article 217 of
the Code.
Section 9. In the case of contracts for construction projects and for security,
janitorial and similar services, the prescribed amount set forth herein for covered
workers shall be borne by the principals or the clients of the construction/service
contractors and the contract shall be deemed amended accordingly. In the event,
however, that the principal or client failed to pay the prescribed increase, the
construction/service contractors shall be jointly and severally liable with the
principal or client. (Emphasis and underscoring supplied.)
As his May 16, 1994 letter to the SSS remained unheeded, petitioner sent another
letter,[3] dated June 7, 1994, reiterating the request, which was followed by still another
letter,[4] dated June 8, 1994.
On June 24, 1994, petitioner pulled out his agencys services from the premises of
the SSS and another security agency, Jaguar, took over. [5]
On June 29, 1994, petitioner filed a complaint[6] with the DOLE-NCR against the
THIRD DIVISION SSS seeking the implementation of Wage Order No. NCR-03.
In its position paper,[7] the SSS prayed for the dismissal of the complaint on the
ground that petitioner is not the real party in interest and has no legal capacity to file
[G.R. No. 122791. February 19, 2003] the same. In any event, it argued that if it had any obligation, it was to the security
guards.
PLACIDO O. URBANES, JR., doing business under the name & style of
CATALINA SECURITY AGENCY, petitioner, vs. THE HONORABLE On the other hand, petitioner in his position paper,[8] citing Eagle Security Agency,
SECRETARY OF LABOR AND EMPLOYMENT and SOCIAL Inc. v. NLRC,[9]contended that the security guards assigned to the SSS do not have any
SECURITY SYSTEM, respondents. legal basis to file a complaint against it for lack of contractual privity.
Finding for petitioner, the Regional Director of the DOLE-NCR issued an
DECISION Order[10] of September 16, 1994, the dispositive portion of which reads,
quoted verbatim:
CARPIO-MORALES, J.:
Before this Court is a Petition for Certiorari under Rule 65 of the Revised Rules WHEREFORE, premises considered, the respondent Social Security System (SSS) is
of Court assailing the June 22, 1995 Order of the Department of Labor and Employment hereby Ordered to pay Complainant the total sum of ONE MILLION SIX
(DOLE) Secretary which set aside the September 16, 1994 Order of the Regional HUNDRED THOUSAND EIGHT HUNDRED FIFTY EIGHT AND 46/100 (P
Director, National Capital Region (NCR). 1,600,858.46) representing the wage differentials under Wage Order No. NCR-03 of
the ONE HUNDRED SIXTY EIGHT (168) Security Guards of Catalina Security
The antecedent facts of the case are as follows:
Agency covering the period from December 16, 1993 to June 24, 1994, inclusive
Petitioner Placido O. Urbanes, Jr., doing business under the name and style of within ten (10) days from receipt hereof, otherwise a writ of execution shall be issued
Catalina Security Agency, entered into an agreement[1] to provide security services to to enforce this Order.
respondent Social Security System (SSS).
The claims for the payment of interest and Attorneys fees are hereby ordered
During the effectivity of the agreement, petitioner, by letter of May 16, dismissed for want of jurisdiction.
[2]
1994, requested the SSS for the upward adjustment of their contract rate in view of
Wage Order No. NCR-03 which was issued by the Regional Tripartite Wages and
Productivity Board-NCR pursuant to Republic Act 6727 otherwise known as the Wage SO ORDERED.
Rationalization Act, the pertinent provision of which wage order reads: The SSS moved to reconsider the September 16, 1994 Order of the Regional
Director, praying that the computation be revised.[11]
By Order[12] of December 9, 1994, the Regional Director modified his September 2. . . . DISREGARDED THE PROVISION ON APPEALS FROM THE DECISIONS
16, 1994 Order by reducing the amount payable by the SSS to petitioner. The OR RESOLUTIONS OF THE REGIONAL DIRECTOR, DOLE, UNDER ARTICLE
dispositive portion of the Regional Directors Order of December 9, 1994 reads: 129 OF THE LABOR CODE, AS AMENDED BY REPUBLIC ACT NO. 6715;

WHEREFORE, premises considered, the Order of this Office dated September 16, 3. . . . TOTALLY OVERLOOKED THE LAW AND PREVAILING
1994 is hereby modified. Respondent Social Security System is hereby ordered to pay JURISPRUDENCE WHEN IT ACTED ON THE APPEAL OF RESPONDENT
complainant the amount of ONE MILLION TWO HUNDRED THIRTY SEVEN SSS.[17]
THOUSAND SEVEN HUNDRED FORTY PESOS (P 1,237,740.00) representing the
wage differentials under Wage Order No. NCR-03 of the one hundred sixty-eight Petitioner asserts that the Secretary of Labor does not have jurisdiction to review
(168) security guards of Catalina Security Agency covering the period from appeals from decisions of the Regional Directors in complaints filed under Article 129
December 16, 1993 to June 20, 1994, inclusive, within ten (10) days from receipt of of the Labor Code[18] which provides:
this Order, otherwise, execution shall issue.
ART. 129. RECOVERY OF WAGES, SIMPLE MONEY CLAIMS AND OTHER
The SSS appealed[13] to the Secretary of Labor upon the following assigned errors, BENEFITS. Upon complaint of any interested party, the regional director of the
quoted verbatim: Department of Labor and Employment or any duly authorized hearing officers of the
Department is empowered, through summary proceeding and after due notice, to hear
A. THE REGIONAL DIRECTOR HAS NO JURISDICTION OF THE CASE AT and decide any matter involving the recovery of wages and other monetary claims and
BAR. benefits, including legal interest, owing to an employee or person employed in
domestic or household service or househelper under this Code, arising from
B. THE HONORABLE REGIONAL DIRECTOR ERRED IN FINDING THAT employer-employee relations: Provided, That such complaint does not include a claim
COMPLAINANT IS THE REAL PARTY IN INTEREST AND HAS LEGAL for reinstatement; Provided, further, That the aggregate money claim of each
CAPACITY TO FILE THE CASE. employee or househelper does not exceed Five Thousand pesos (P5,000.00). The
regional director or hearing officer shall decide or resolve the complaint within thirty
(30) calendar days from the date of the filing of the same. Any sum thus recovered on
C. THE HONORABLE REGIONAL DIRECTOR ERRED IN ADOPTING
COMPLAINANTS COMPUTATION FOR WAGE ADJUSTMENT UNDER behalf of any employee or househelper pursuant to this Article shall be held in a
[14] special deposit account by, and shall be paid on order of, the Secretary of Labor and
WAGE ORDER NO. NCR-03 AS BASIS OF RESPONDENTS LIABILITY.
Employment or the regional director directly to the employee or househelper
The Secretary of Labor, by Order[15] of June 22, 1995, set aside the order of the concerned. Any such sum not paid to the employee or househelper, because he cannot
Regional Director and remanded the records of the case for recomputation of the wage be located after diligent and reasonable effort to locate him within a period of three
differentials using P 5,281.00 as the basis of the wage adjustment. And the Secretary (3) years, shall be held as a special fund of the Department of Labor and Employment
held petitioners security agency JOINTLY AND SEVERALLY liable for wage to be used exclusively for the amelioration and benefit of workers.
differentials, the amount of which should be paid DIRECTLY to the security guards
concerned. Any decision or resolution of the regional director or officer pursuant to this
provision may be appealed on the same grounds provided in Article 223 of this
Petitioners Motion for Reconsideration of the DOLE Secretarys Order of June 22,
Code, within five (5) calendar days from receipt of a copy of said decision or
1995 having been denied by Order[16] of October 10, 1995, the present petition was
resolution, to the National Labor Relations Commission which shall resolve the
filed, petitioner contending that the DOLESecretary committed grave abuse of
appeal within ten (10) calendar days from submission of the last pleading required or
discretion when he:
allowed under its rules.
1. . . . TOTALLY IGNORED THE PROVISION OF ARTICLE 129 OF THE
x x x (Emphasis supplied).
LABOR CODE FOR PERFECTING AN APPEAL FROM THE DECISION OF THE
REGIONAL DIRECTOR UNDER ARTICLE 129 INVOKED BY RESPONDENT Petitioner thus contends that as the appeal of SSS was filed with the wrong forum,
SSS; it should have been dismissed.[19]
The SSS, on the other hand, contends that Article 128, not Article 129, is
applicable to the case. Article 128 provides:
ART. 128. VISITORIAL AND ENFORCEMENT POWERS In the case at bar, even if petitioner filed the complaint on his and also on behalf
of the security guards,[22] the relief sought has to do with the enforcement of the contract
xxx between him and the SSS which was deemed amended by virtue of Wage Order No.
NCR-03. The controversy subject of the case at bar is thus a civil dispute, the proper
forum for the resolution of which is the civil courts.
(b) Notwithstanding the provisions of Article 129 and 217 of this Code to the
contrary, and in cases where the relationship of employer-employee still But even assuming arguendo that petitioners complaint were filed with the proper
exists, the Secretary of Labor and Employment or his duly authorized forum, for lack of cause of action it must be dismissed.
representatives shall have the power to issue compliance orders to give
effect to labor legislation based on the findings of labor employment and Articles 106, 107 and 109 of the Labor Code provide:
enforcement officers or industrial safety engineers made in the course of
inspection. ART. 106. CONTRACTOR OR SUBCONTRACTOR. Whenever an employer enters
into contract with another person for the performance of the formers work, the
xxx employees of the contractor and of the latters subcontractor, if any, shall be paid in
accordance with the provisions of this Code.
An order issued by the duly authorized representative of the Secretary of Labor
and Employment under this article may be appealed to the latter. In the event that the contractor or subcontractor fails to pay the wage of his
employees in accordance with this Code, the employer shall be jointly and
x x x (Emphasis supplied). 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
Neither the petitioners contention nor the SSSs is impressed with merit. Lapanday that he is liable to employees directly employed by him.
Agricultural Development Corporation v. Court of Appeals[20] instructs so. In that case,
the security agency filed a complaint before the Regional Trial Court (RTC) against the xxx (Emphasis and underscoring supplied)
principal or client Lapanday for the upward adjustment of the contract rate in
accordance with Wage Order Nos. 5 and 6. Lapanday argued that it is the National ART. 107 INDIRECT EMPLOYER. The provisions of the immediately preceding
Labor Relations Commission, not the civil courts, which has jurisdiction to resolve the Article shall likewise apply to any person, partnership, association or corporation
issue in the case, it involving the enforcement of wage adjustment and other benefits which, not being an employer, contracts with an independent contractor for the
due the agencys security guards as mandated by several wage orders. Holding that the performance of any work, task, job or project.
RTC has jurisdiction over the controversy, this Court ruled:
ART. 109. SOLIDARY LIABILTY. The provisions of existing laws to the contrary
We agree with the respondent that the RTC has jurisdiction over the subject matter of notwithstanding, every employer or indirect employer shall be held responsible with
the present case. It is well settled in law and jurisprudence that where no his contractor or subcontractor for any violation of any provision of this Code. For
employer-employee relationship exists between the parties and no issue is purposes of determining the extent of their civil liability under this Chapter, they shall
involved which may be resolved by reference to the Labor Code, other labor be considered as direct employers.(Emphasis supplied.)
statutes or any collective bargaining agreement, it is the Regional Trial Court
that has jurisdiction. In its complaint, private respondent is not seeking any In the case of Eagle Security Agency, Inc. v. NLRC, [23] this Court held:
relief under the Labor Code but seeks payment of a sum of money and damages
on account of petitioner's alleged breach of its obligation under their Guard The Wage Orders are explicit that payment of the increases are "to be borne"
Service Contract. The action is within the realm of civil law hence jurisdiction by the principal or client. "To be borne", however, does not mean that the principal,
over the case belongs to the regular courts. While the resolution of the issue PTSI in this case, would directly pay the security guards the wage and allowance
involves the application of labor laws, reference to the labor code was only for increases because there is no privity of contract between them. The security guards'
the determination of the solidary liability of the petitioner to the respondent contractual relationship is with their immediate employer, EAGLE. As an employer,
where no employer-employee relation exists.[21] 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.
x x x (Emphasis and underscoring supplied). 52824, March 16, 1988, 158 SCRA 665].
On the other hand, there existed a contractual agreement between PTSI and EAGLE In fine, the liability of the SSS to reimburse petitioner arises only if and when
wherein the former availed of the security services provided by the latter. In return, petitioner pays his employee-security guards the increases mandated by Wage Order
the security agency collects from its client payment for its security services. This No. NCR-03.
payment covers the wages for the security guards and also expenses for their
supervision and training, the guards' bonds, firearms with ammunitions, uniforms and The records do not show that petitioner has paid the mandated increases to the
other equipments, accessories, tools, materials and supplies necessary for the security guards. The security guards in fact have filed a complaint [26] with the NLRC
maintenance of a security force. against petitioner relative to, among other things, underpayment of wages.
WHEREFORE, the present petition is hereby DISMISSED, and petitioners
Premises considered, the security guards' immediate recourse for the payment of complaint before the Regional Director is dismissed for lack of jurisdiction and cause
the increases is with their direct employer, EAGLE. However, in order for the of action.
security agency to comply with the new wage and allowance rates it has to pay the
security guards, the Wage Orders made specific provision to amend existing contracts SO ORDERED.
for security services by allowing the adjustment of the consideration paid by the Puno, (Chairman), Panganiban, Sandoval-Gutierrez and Corona, JJ., concur.
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 payment of the increases mandated. In the end, therefore, ultimate
liability for the payment of the increases rests with the principal.

In view of the foregoing, the security guards should claim the amount of the
increases from EAGLE. Under the Labor Code, in case the agency fails to pay
them the amounts claimed, PTSI should be held solidarily liable with
EAGLE [Articles 106, 107 and 109]. Should EAGLE pay, it can claim an
adjustment from PTSI for an increase in consideration to cover the increases
payable to the security guards.

x x x (Emphasis and underscoring supplied).


Passing on the foregoing disquisition in Eagle, this Court, in Lapanday,[24] held:

It is clear also from the foregoing that it is only when [the] contractor pays the
increases mandated that it can claim an adjustment from the principal to cover the
increases payable to the security guards. The conclusion that the right of the
contractor (as principal debtor) to recover from the principal (as solidary co-
debtor) arises only if he has paid the amounts for which both of them are jointly
and severally liable is in line with Article 1217 of the Civil Code which provides:

Art. 1217. Payment made by one the solidary debtors extinguishes the obligation. If
two or more solidary debtors offer to pay, the creditor may choose which offer to
accept.

He who made payment make claim from his co-debtors only the share which
corresponds to each, with interest for the payment already made. If the payment is
made before the debt is due, no interest for the intervening period may be demanded.
x x x[25] (Emphasis and underscoring supplied).

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