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FIRST DIVISION SOCIAL SECURITY COMMISSION, Petitioner, G.R. No.

167050

Present: CORONA, C.J., Chairperson VELASCO, JR., LEONARDO-DE CASTRO, PERALTA,* and PEREZ, JJ.

-versus-

RIZAL POULTRY and LIVESTOCK ASSOCIATION, INC., BSD AGRO INDUSTRIAL DEVELOPMENT CORPORATION and BENJAMIN SAN DIEGO, Respondents.

Promulgated: June 1, 2011

x ----------------------------------------------------------------------------------------x DECISION PEREZ, J.: This petition for certiorari challenges the Decision
[1]

dated 20 September 2004 and Resolution

[2]

dated 9 February

2005 of the Court of Appeals. The instant case stemmed from a petition filed by Alberto Angeles (Angeles) before the Social Security Commission (SSC) to compel respondents Rizal Poultry and Livestock Association, Inc. (Rizal Poultry) or BSD Agro Industrial Development Corporation (BSD Agro) to remit to the Social Security System (SSS) all contributions due for and in his behalf. Respondents countered with a Motion to Dismiss and the respondents. As a brief backgrounder, Angeles had earlier filed a complaint for illegal dismissal against BSD Agro and/or its owner, Benjamin San Diego (San Diego). The Labor Arbiter initially found that Angeles was an employee and that he was illegally dismissed. On appeal, however, the NLRC reversed the Labor Arbiters Decision and held that no employeremployee relationship existed between Angeles and respondents. The ruling was anchored on the finding that the duties performed by Angeles, such as carpentry, plumbing, painting and electrical works, were not independent and integral steps in the essential operations of the company, which is engaged in the poultry business. employer-employee relationship.
[5] [4] [3]

citing rulings of the National Labor Relations

Commission (NLRC) and Court of Appeals regarding the absence of employer-employee relationship between Angeles

Angeles elevated the case


[6]

to the Court of Appeals via petition for certiorari. The appellate court affirmed the NLRC ruling and upheld the absence of Angeles moved for reconsideration but it was denied by the Court of Appeals.
[7]

No

further appeal was undertaken, hence, an entry of judgment was made on 26 May 2001.

At any rate, the SSC did not take into consideration the decision of the NLRC. It denied respondents motion to dismiss in an Order dated 19 February 2002. The SSC ratiocinated, thus: Decisions of the NLRC and other tribunals on the issue of existence of employer-employee relationship between parties are not binding on the Commission. At most, such finding has only a

persuasive effect and does not constitute res judicata as a ground for dismissal of an action pending before Us. While it is true that the parties before the NLRC and in this case are the same, the issues and subject matter are entirely different. The labor case is for illegal dismissal with demand for backwages and other monetary claims, while the present action is for remittance of unpaid SS[S] contributions. In other words, although in both suits the respondents invoke lack of employer-employee relationship, the same does not proceed from identical causes of action as one is for violation of the Labor Code while the instant case is for violation of the SS[S] Law. Moreover, the respondents arguments raising the absence of employer-employee relationship as a defense already traverse the very issues of the case at bar, i.e., the petitioners fact of employment and entitlement to SS[S] coverage. Generally, factual matters should not weigh in resolving a motion to dismiss when it is based on the ground of failure to state a cause of action, but rather, merely the sufficiency or insufficienciy of the allegations in the complaint. x x x. In this respect, it must be observed that the petitioner very categorically set forth in his Petition, that he was employed by the respondent(s) [8] from 1985 to 1997. A subsequent motion for reconsideration filed by respondents was likewise denied on 11 June 2002. The SSC reiterated that the principle of res judicata does not apply in this case because of the absence of the indispensable element of identity of cause of action.
[9]

Unfazed, respondents sought recourse before the Court of Appeals by way of a petition for certiorari. The Court of Appeals reversed the rulings of the SSC and held that there is a common issue between the cases before the SSC and in the NLRC; and it is whether there existed an employer-employee relationship between Angeles and respondents. Thus, the case falls squarely under the principle of res judicata, particularly under the rule on conclusiveness of judgment, as enunciated in Smith Bell and Co. v. Court of Appeals. The Court of Appeals disposed, thus: WHEREFORE, the petition is GRANTED. The Order dated February 19, 2000 and the Resolution dated June 11, 2002 rendered by public respondent Social Security Commissoin in SSC Case No. 9-15225-01 are hereby REVERSED and SET ASIDE and the respondent commission is ordered [11] to DISMISS Social Security Commission Case No. 9-15225-01. After the denial of their motion for reconsideration in a Resolution instant petition. For our consideration are the issues raised by petitioner, to wit: WHETHER OR NOT THE DECISION OF THE NLRC AND THE COURT OF APPEALS, FINDING NO EMPLOYER-EMPLOYEE RELATIONSHIP, CONSTITUTES RES JUDICATA AS A RULE ON CONCLUSIVENESS OF JUDGMENT AS TO PRECLUDE THE RELITIGATION OF THE ISSUE OF EMPLOYER-EMPLOYEE RELATIONSHIP IN A SUBSEQUENT CASE FILED BEFORE THE PETITIONER. WHETHER OR NOT RESPONDENT COURT OF APPEALS MAY ORDER OUTRIGHT THE [13] DISMISSAL OF THE SSC CASE IN THE CERTIORARI PROCEEDINGS BEFORE IT.
[12] [10]

dated 9 February 2005, petitioner filed the

SSC maintains that the prior judgment rendered by the NLRC and Court of Appeals, that no employer-employee relationship existed between the parties, does not have the force of res judicata by prior judgment or as a rule on the conclusiveness of judgment. It contends that the labor dispute and the SSC claim do not proceed from the same cause of action in that the action before SSC is for non-remittance of SSS contributions while the NLRC case was for illegal

dismissal. The element of identity of parties is likewise unavailing in this case, according to SSC. Aside from SSS intervening, another employer, Rizal Poultry, was added as respondent in the case lodged before the SSC. There is no showing that BSD Agro and Rizal Poultry refer to the same juridical entity. Thus, the finding of absence of employeremployee relationship between BSD Agro and Angeles could not automatically extend to Rizal Poultry. Consequently, SSC assails the order of dismissal of the case lodged before it. SSC also claims that the evidence submitted in the SSC case is different from that adduced in the NLRC case. Rather than ordering the dismissal of the SSC case, the Court of Appeals should have allowed SSC to resolve the case on its merits by applying the Social Security Act of 1997. Respondents assert that the findings of the NLRC are conclusive upon the SSC under the principle of res judicata and in line with the ruling in Smith Bell v. Court of Appeals. Respondents argue that there is substantially an identity of parties in the NLRC and SSC cases because Angeles himself, in his Petition, treated Rizal Poultry, BSD Agro and San Diego as one and the same entity. Respondents oppose the view proffered by SSC that the evidence to prove the existence of employer-employee relationship obtaining before the NLRC and SSS are entirely different. Respondents opine that the definition of an employee always proceeds from the existence of an employer-employee relationship. In essence, the main issue to be resolved is whether res judicata applies so as to preclude the SSC from resolving anew the existence of employer-employee relationship, which issue was previously determined in the NLRC case. Res judicata embraces two concepts: (1) bar by prior judgment as enunciated in Rule 39, Section 47(b) of the Rules of Civil Procedure; and (2) conclusiveness of judgment in Rule 39, Section 47(c).
[14]

There is bar by prior judgment when, as between the first case where the judgment was rendered and the second case that is sought to be barred, there is identity of parties, subject matter, and causes of action. In this instance, the judgment in the first case constitutes an absolute bar to the second action.
[15]

But where there is identity of parties in the first and second cases, but no identity of causes of action, the first judgment is conclusive only as to those matters actually and directly controverted and determined and not as to matters merely involved therein. This is the concept of res judicata known as conclusiveness of judgment. Stated differently,any right, fact or matter in issue directly adjudicated or necessarily involved in the determination of an action before a competent court in which judgment is rendered on the merits is conclusively settled by the judgment therein and cannot again be litigated between the parties and their privies, whether or not the claim, demand, purpose, or subject matter of the two actions is the same.
[16]

Thus, if a particular point or question is in issue in the second action, and the judgment will depend on the determination of that particular point or question, a former judgment between the same parties or their privies will be final and conclusive in the second if that same point or question was in issue and adjudicated in the first suit. Identity of cause of action is not required but merely identity of issue.
[17]

The elements of res judicata are: (1) the judgment sought to bar the new action must be final; (2) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a judgment on the merits; and (4) there must be as between the first and second action, identity of parties, subject matter, and causes of action. Should identity of parties, subject matter, and causes of action be shown in the two cases, then res judicata in its aspect as a bar by prior judgment would apply. If as between the two cases, only identity of parties can be shown, but not identical causes of action, then res judicata as conclusiveness of judgment applies.
[18]

Verily, the principle of res judicata in the mode of conclusiveness of judgment applies in this case. The first element is present in this case. The NLRC ruling was affirmed by the Court of Appeals. It was a judicial affirmation through a decision duly promulgated and rendered final and executory when no appeal was undertaken within the reglementary period. The jurisdiction of the NLRC, which is a quasi-judicial body, was undisputed. Neither can the jurisdiction of the Court of Appeals over the NLRC decision be the subject of a dispute. The NLRC case was clearly decided on its merits; likewise on the merits was the affirmance of the NLRC by the Court of Appeals.

With respect to the fourth element of identity of parties, we hold that there is substantial compliance.

The parties in SSC and NLRC cases are not strictly identical. Rizal Poultry was impleaded as additional respondent in the SSC case. Jurisprudence however does not dictate absolute identity but only substantial identity.
[19]

There is substantial identity of parties when there is a community of interest between a party in the first case
[20]

and a party in the second case, even if the latter was not impleaded in the first case.

BSD Agro, Rizal Poultry and San Diego were litigating under one and the same entity both before the NLRC and the SSC. Although Rizal Poultry is not a party in the NLRC case, there are numerous indications that all the while, Rizal Poultry was also an employer of Angeles together with BSD Agro and San Diego. Angeles admitted before the NLRC that he was employed by BSD Agro and San Diego from 1985 until 1997. SSC including as employer Rizal Poultry as respondent.
[23] [22] [21]

He made a similar claim in his Petition before the

Angeles presented as evidence before the SSC his

Identification Card and a Job Order to prove his employment in Rizal Poultry. He clarified in his Opposition to the Motion to Dismiss filed before SSC that he failed to adduce these as evidence before the NLRC even if it would have proven

his employment with BSD Agro. Most significantly, the three respondents, BSD Agro, Rizal Poultry and San Diego, litigated as one entity before the SSC. They were represented by one counsel and they submitted their pleadings as such one entity. Certainly, and at the very least, a community of interest exists among them. We therefore rule that there is substantial if not actual identity of parties both in the NLRC and SSC cases.

As previously stated, an identity in the cause of action need not obtain in order to apply res judicata by conclusiveness of judgment. An identity of issues would suffice.

The remittance of SSS contributions is mandated by Section 22(a) of the Social Security Act of 1997, viz:

SEC. 22. Remittance of Contributions. - (a) The contributions imposed in the preceding Section shall be remitted to the SSS within the first ten (10) days of each calendar month following the month for which they are applicable or within such time as the Commission may prescribe. Every employer required to deduct and to remit such contributions shall be liable for their payment and if any contribution is not paid to the SSS as herein prescribed, he shall pay besides the contribution a penalty thereon of three percent (3%) per month from the date the contribution falls due until paid. x x x.

The mandatory coverage under the Social Security Act is premised on the existence of an employer-employee relationship.
[24]

This is evident from Section 9(a) which provides:

SEC. 9. Coverage. - (a) Coverage in the SSS shall be compulsory upon all employees not over sixty (60) years of age and their employers: Provided, That in the case of domestic helpers, their monthly income shall not be less than One thousand pesos (P1,000.00) a month x x x.

Section 8(d) of the same law defines an employee as any person who performs services for an employer in which either or both mental or physical efforts are used and who receives compensation for such services, where there is an employer-employee relationship. The illegal dismissal case before the NLRC involved an inquiry into the existence or non-existence of an employer-employee relationship. The very same inquiry is needed in the SSC case. And there was no indication therein that there is an essential conceptual difference between the definition of employee under the Labor Code and the Social Security Act. In the instant case, therefore, res judicata in the concept of conclusiveness of judgment applies. The judgment in the NLRC case pertaining to a finding of an absence of employer-employee relationship between Angeles and respondents is conclusive on the SSC case.
[25]

A case in point is Smith Bell and Co. v. Court of Appeals

which, contrary to SSC, is apt and proper

reference. Smith Bell availed of the services of private respondents to transport cargoes from the pier to the company's warehouse. Cases were filed against Smith Bell, one for illegal dismissal before the NLRC and the other one with the SSC, to direct Smith Bell to report all private respondents to the SSS for coverage. While the SSC case was pending before the Court of Appeals, Smith Bell presented the resolution of the Supreme Court in G.R. No. L-44620, which affirmed the NLRC, Secretary of Labor, and Court of Appeals finding that no employer-employee relationship existed between the parties, to constitute as bar to the SSC case. We granted the petition of Smith Bell and ordered the dismissal of the case. We held that the controversy is squarely covered by the principle of res judicata, particularly under the rule on conclusiveness of judgment. Therefore, the judgment in G.R. No. L-44620 bars the SSC case, as the relief sought in the latter case is inextricably related to the ruling in G.R. No. L-44620 to the effect that private respondents are not employees of Smith Bell.
[26]

The fairly recent case of Co v. People,

likewise applies to the present case. An information was filed against Co

by private respondent spouses who claim to be employees of the former for violation of the Social Security Act, specifically for non-remittance of SSS contributions. Earlier, respondent spouses had filed a labor case for illegal dismissal. The NLRC finally ruled that there was no employer-employee relationship between her and respondent spouses. Co then filed a motion to quash the information, arguing that the facts alleged in the Information did not constitute an offense because respondent spouses were not her employees. In support of her motion, she cited the NLRC

ruling. This Court applied Smith Bell and declared that the final and executory NLRC decision to the effect that respondent spouses were not the employees of petitioner is a ruling binding in the case for violation of the Social Security Act. The Court further stated that the doctrine of conclusiveness of judgment also applies in criminal cases.
[27]

Applying the rule on res judicata by conclusiveness of judgment in conjunction with the aforecited cases, the Court of Appeals aptly ruled, thus: In SSC Case No. 9-15225-01, private respondent Angeles is seeking to compel herein petitioners to remit to the Social Security System (SSS) all contributions due for and in his behalf, whereas in NLRC NCR CA 018066-99 (NLRC RAB-IV-5-9028-97 RI) private respondent prayed for the declaration of his dismissal illegal. In SSC No. 9-15225-01, private respondent, in seeking to enforce his alleged right to compulsory SSS coverage, alleged that he had been an employee of petitioners; whereas to support his position in the labor case that he was illegally dismissed by petitioners BSD Agro and/or Benjamin San Diego, he asserted that there was an employer-employee relationship existing between him and petitioners at the time of his dismissal in 1997. Simply stated, the issue common to both cases is whether there existed an employer-employee relationship between private respondent and petitioners at the time of the acts complaint of were committed both in SSC Case No. 9-15225-01 and NLRC NCR CA 01806699 (NLRC RAB-IV-5-9028-977-RI). The issue of employer-employee relationship was laid to rest in CA GR. SP. No. 55383, through this Courts Decision dated October 27, 2000 which has long attained finality. Our affirmation of the NLRC decision of May 18, 1999 was an adjudication on the merits of the case. Considering the foregoing circumstances, the instant case falls squarely under the umbrage of res judicata, particularly, under the rule on conclusiveness of judgment. Following this rule, as enunciated in Smith Bell and Co. and Carriaga, Jr. cases, We hold that the relief sought in SSC Case No. 9-15225-01 is inextricably related to Our ruling in CA GR SP No. 55383 to the effect that private [28] respondent was not an employee of petitioners.

The NLRC decision on the absence of employer-employee relationship being binding in the SSC case, we affirm the dismissal by Court of Appeals of the SSC case.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated 20 September 2004, as well as its Resolution dated 9 February 2005, is AFFIRMED.

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-98368 December 15, 1993 OPULENCIA ICE PLANT AND STORAGE AND/OR DR. MELCHOR OPULENCIA, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), LABOR ARBITER NUMERIANO VILLENA AND MANUEL P. ESITA, respondents.

Inocentes, De Leon, Leogardo, Atienza, Magnaye & Azucena (IDLAMA) Law Offices for petitioners. Noli J. De los Santos for private respondent.

BELLOSILLO, J.: MANUEL P. ESITA was for twenty (20) years a compressor operator of Tiongson Ice Plant in San Pablo City. In 1980 he was hired as compressor operator-mechanic for the ice plants of petitioner Dr. Melchor Opulencia located in Tanauan, Batangas, and Calamba, Laguna. Initially assigned at the ice plant in Tanauan, Esita would work from seven o'clock in the morning to five o'clock in the afternoon receiving a daily wage of P35.00. In 1986, Esita was transferred to the ice plant in Calamba, which was then undergoing overhauling, taking the place of compressor operator Lorenzo Eseta, who was relieved because he was already old and weak. For less than a month, Esita helped in the construction-remodeling of Dr. Opulencia's house. On 6 February 1989, for demanding the correct amount of wages due him, Esita was dismissed from service. Consequently, he filed with Sub-Regional Arbitration Branch IV, San Pablo City, a complaint for illegal dismissal, underpayment, non-payment for overtime, legal holiday, premium for holiday and rest day, 13th month, separation/retirement pay and allowances against petitioners. Petitioners deny that Esita is an employee. They claim that Esita could not have been employed in 1980 because the Tanauan ice plant was not in operation due to low voltage of electricity and that Esita was merely a helper/peon of one of the contractors they had engaged to do major repairs and renovation of the Tanauan ice plant in 1986. Petitioners further allege that when they had the Calamba ice plant repaired and expanded, Esita likewise rendered services in a similar capacity, and thus admitting that he worked as a helper/peon in the repair or remodeling of Dr. Opulencia's residence in Tanauan. Opulencia likewise maintains that while he refused the insistent pleas of Esita for employment in the ice plants due to lack of vacancy, he nonetheless allowed him to stay in the premises of the ice plant for free and to collect fees for crushing or loading ice of the customers and dealers of the ice plant. Opulencia claims that in addition, Esita enjoyed free electricity and water, and was allowed to cultivate crops within the premises of the ice plant to augment his income. Petitioners however admit that "following the tradition of 'pakikisama' and as a token of gratitude of the part of the complainant (Esita), he helps in the cleaning of the ice plant premises and engine room whenever he is requested to do so, and this happens only (at) twice a month." On 8 December 1989, Labor Arbiter Nemeriano D. Villena rendered a decision finding the existence of an employeremployee relationship between petitioners and Esita and accordingly directed them to pay him P33,518.02 representing separation pay, underpayment of wages, allowances, 13th month, holiday, premium for holiday, and rest day pays. The claim for overtime pay was however dismissed for lack of basis, i.e., Esita failed to prove that overtime services were actually rendered. On 29 November 1990, the Third Division of the National Labor Relations Commission, in Case No. RAB-IV-2-2206-89, affirmed the decision of Labor Arbiter Villena but reduced the monetary award to P28,344.60 as it was not proven that Esita worked every day including rest days and on the days before the legal holidays. On 26 March 1991, petitioners' motion for reconsideration was denied. In this present recourse, petitioners seek reversal of the ruling of public respondents Labor Arbiter and NLRC, raising the following arguments: that public respondents have no jurisdiction over the instant case; that Esita's work in the repair and construction of Dr. Opulencia's residence could not have ripened into a regular employment; that petitioners' benevolence in allowing Esita to stay inside the company's premises free of charge for humanitarian reason deserves commendation rather than imposition of undue penalty; that Esita's name does not appear in the payrolls of the company which necessarily means that he was not an employee; and, that Esita's statements are inconsistent and deserving of disbelief. On 13 May 1991, petitioners' prayer for a temporary restraining order to prevent respondents from enforcing the assailed resolutions of NLRC was granted. The instant petition lacks merit, hence, must be dismissed.
1

Petitioners allege that there is no employer-employee relationship between them and Esita; consequently, public respondents have no jurisdiction over the case. Petitioners even go to the extent of asserting that "in case like the one at bar where employer-employee relationship has been questioned from the very start, Labor Arbiters and the NLRC have no jurisdiction and should not assume jurisdiction therein." While the Labor Arbiter and the NLRC may subsequently be found without jurisdiction over a case when it would later appear that no employer-employee relationship existed between the contending parties, such is not the situation in this case where the employer-employee relationship between the petitioners and Esita was clearly established. If the argument of petitioners were to be allowed, then unscrupulous employers could readily avoid the jurisdiction of the Labor Arbiters and NLRC, and may even elude compliance with labor laws only on the bare assertion that an employeremployee relationship does not exist. Petitioners further argue that "complainant miserably failed to present any documentary evidence to prove his employment. There was no time sheet, pay slip and/or payroll/cash voucher to speak of. Absence of these material documents are necessary fatal to complainant's cause." We do not agree. No particular form of evidence is required to prove the existence of an employer-employee relationship. Any competent and relevant evidence to prove the relationship may be admitted. For, if only documentary evidence would be required to show that relationship, no scheming employer would ever be brought before the bar of justice, as no employer would wish to come out with any trace of the illegality he has authored considering that it should take much 2 weightier proof to invalidate a written instrument. Thus, as in this case where the employer-employee relationship between petitioners and Esita was sufficiently proved by testimonial evidence, the absence of time sheet, time record or payroll has become inconsequential. The petitioners' reliance on Sevilla v. Court of Appeals is misplaced. In that case, we did not consider the inclusion of employer's name in the payroll as an independently crucial evidence to prove an employer-employee relation. Moreover, for a payroll to be utilized to disprove the employment of a person, it must contain a true and complete list of the employees. But, in this case, the testimonies of petitioners' witnesses admit that not all the names of the employees were reflected in the payroll. In their Consolidated Reply, petitioners assert that "employees who were absent were naturally not included in the weekly 4 payrolls." But this simply emphasizes the obvious. Petitioners' payrolls do not contain the complete list of the employees, so that the payroll slips cannot be an accurate basis in determining who are and are not their employees. In addition, as the Solicitor General observes: ". . . . the payroll slips submitted by petitioners do not cover the entire period of nine years during which private respondent claims to have been employed by them, but only the periods from November 2 to November 29, 1986 and April 26 to May 30, 1987 . . . . It should be noted that petitioners repeatedly failed or refused to submit all payroll slips covering the period during which private respondent claims to have been employed by them 5 despite repeated directives from the Labor Arbiter . . . ." In this regard, we can aptly apply the disputable presumption 6 that evidence willfully suppressed would be adverse if produced. Petitioners further contend that the claim of Esita that he worked from seven o'clock in the morning to five o'clock in the afternoon, which is presumed to be continuous, is hardly credible because otherwise he would not have had the time to 7 tend his crops. As against this positive assertion of Esita, it behooves petitioners to prove the contrary. It is not enough that they raise the issue of probability, nay, improbability, of the conclusions of public respondents based on the facts bared before them, for in case of doubt, the factual findings of the tribunal which had the opportunity to peruse the conflicting pieces of evidence should be sustained. The petitioners point out that even granting arguendo that Esita was indeed a mechanic, he could never be a regular employee because his presence would be required only when there was a need for repair. We cannot sustain this argument. This circumstance cannot affect the regular status of employment of Esita. An employee who is required to remain on call in the employer's premises or so close thereto that he cannot use the time effectively and gainfully for his 8 own purpose shall be considered as working while on call. In sum, the determination of regular and casual 9 employment is not affected by the fact that the employee's regular presence in the place of work is not required, the more significant consideration being that the work of the employee is usually necessary or desirable in the business of the employer. More importantly, Esita worked for 9 years and, under the Labor Code, "any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with 10 respect to that activity in which he is employed . . . ." The petitioners would give the impression that the repair of the ice plant and the renovation of the residence of Dr. Opulencia were voluntarily extended by Esita because "[r]espondent did it on their (sic) own." Unfortunately for petitioners,
3

we cannot permit these baseless assertions to prevail against the factual findings of public respondents which went through the sanitizing process of a public hearing. The same observation may be made of the alleged inconsistencies in Esita's testimonies. Moreover, on the claim that Esita's construction work could not ripen into a regular employment in the ice plant because the construction work was only temporary and unrelated to the ice-making business, needless to say, the one month spent by Esita in construction is insignificant compared to his nine-year service as compressor operator in determining the status of his employment as such, and considering further that it was Dr. Opulencia who requested Esita to work in the construction of his house. In allowing Esita to stay in the premises of the ice plant and permitting him to cultivate crops to augment his income, there is no doubt that petitioners should be commended; however, in view of the existence of an employer-employee relationship as found by public respondents, we cannot treat humanitarian reasons as justification for emasculating or taking away the rights and privileges of employees granted by law. Benevolence, it is said, does not operate as a license to circumvent labor laws. If petitioners were genuinely altruistic in extending to their employees privileges that are not even required by law, then there is no reason why they should not be required to give their employees what they are entitled to receive. Moreover, as found by public respondents, Esita was enjoying the same privileges granted to the other employees of petitioners, so that in thus treating Esita, he cannot be considered any less than a legitimate employee of petitioners. WHEREFORE, there being no grave abuse of discretion on the part of public respondents, the instant petition is DISMISSED. Accordingly, the restraining order we issued on 13 May 1991 is LIFTED. SO ORDERED. Cruz, Davide, Jr. and Quiason, JJ., concur. 9 Art. 280 of the Labor Code provides: "The provisions of written agreements to the contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee or where the work or services to be performed is seasonal in nature and the employment is for the duration of the season. "An employment shall be deemed to be casual if it is not covered by the preceding paragraph:Provided, That, any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists." 10 See second par. of footnote 9. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 91307 January 24, 1991 SINGER SEWING MACHINE COMPANY, petitioner vs. HON. FRANKLIN M. DRILON, MED-ARBITER FELIX B. CHAGUILE, JR., and SINGER MACHINE COLLECTORS UNION-BAGUIO (SIMACUB), respondents. Misa, Castro, Villanueva, Oposa, Narvasa & Pesigan for petitioner. Domogan, Lockey, Orate & Dao-ayan Law Office for private respondent.

GUTIERREZ, JR., J.:p This is a petition for certiorari assailing the order of Med-Arbiter Designate Felix B. Chaguile, Jr., the resolution of then Labor Secretary Franklin M. Drilon affirming said order on appeal and the order denying the motion for reconsideration in the case entitled "In Re: Petition for Direct Certification as the Sole and Exclusive Collective Bargaining Agent of Collectors of Singer Sewing Machine Company-Singer Machine Collectors Union-Baguio (SIMACUB)" docketed as OSMA-A-7-119-89 (IRD Case No. 02-89 MED). On February 15, 1989, the respondent union filed a petition for direct certification as the sole and exclusive bargaining agent of all collectors of the Singer Sewing Machine Company, Baguio City branch (hereinafter referred to as "the Company"). The Company opposed the petition mainly on the ground that the union members are actually not employees but are independent contractors as evidenced by the collection agency agreement which they signed. The respondent Med-Arbiter, finding that there exists an employer-employee relationship between the union members and the Company, granted the petition for certification election. On appeal, Secretary of Labor Franklin M. Drilon affirmed it. The motion for reconsideration of the Secretary's resolution was denied. Hence, this petition in which the Company alleges that public respondents acted in excess of jurisdiction and/or committed grave abuse of discretion in that: a) the Department of Labor and Employment (DOLE) has no jurisdiction over the case since the existence of employeremployee relationship is at issue; b) the right of petitioner to due process was denied when the evidence of the union members' being commission agents was disregarded by the Labor Secretary; c) the public respondents patently erred in finding that there exists an employer-employee relationship; d) the public respondents whimsically disregarded the well-settled rule that commission agents are not employees but are independent contractors. The respondents, on the other hand, insist that the provisions of the Collection Agency Agreement belie the Company's position that the union members are independent contractors. To prove that union members are employees, it is asserted that they "perform the most desirable and necessary activities for the continuous and effective operations of the business of the petitioner Company" (citing Article 280 of the Labor Code). They add that the termination of the agreement by the petitioner pending the resolution of the case before the DOLE "only shows the weakness of petitioner's stand" and was "for the purpose of frustrating the constitutionally mandated rights of the members of private respondent union to selforganization and collective organization." They also contend that under Section 8, Rule 8, Book No. III of the Omnibus Rules Implementing the Labor Code, which defines job-contracting, they cannot legally qualify as independent contractors who must be free from control of the alleged employer, who carry independent businesses and who have substantial capital or investment in the form of equipment, tools, and the like necessary in the conduct of the business. The present case mainly calls for the application of the control test, which if not satisfied, would lead us to conclude that no employer-employee relationship exists. Hence, if the union members are not employees, no right to organize for purposes of bargaining, nor to be certified as such bargaining agent can ever be recognized. The following elements are generally considered in the determination of the employer-employee relationship; "(1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct although the latter is the most important element" (Mafinco Trading Corporation v. Ople, 70 SCRA 139 [1976]; Development Bank of the Philippines v. National Labor Relations Commission, 175 SCRA 537 [1989]; Rosario Brothers, Inc. v. Ople, 131 SCRA 72 [1984]; Broadway Motors Inc. v. NLRC, 156 SCRA 522 [1987]; Brotherhood Labor Unity Movement in the Philippines v. Zamora, 147 SCRA 49 [1986]). The Collection Agency Agreement defines the relationship between the Company and each of the union members who signed a contract. The petitioner relies on the following stipulations in the agreements: (a) a collector is designated as a collecting agent" who is to be considered at all times as an independent contractor and not employee of the Company; (b) collection of all payments on installment accounts are to be made monthly or oftener; (c) an agent is paid his compensation for service in the form of a commission of 6% of all collections made and turned over plus a bonus on said collections; (d) an agent is required to post a cash bond of three thousand pesos (P3,000.00) to assure the faithful

performance and observance of the terms and conditions under the agreement; (e) he is subject to all the terms and conditions in the agreement; (f) the agreement is effective for one year from the date of its execution and renewable on a yearly basis; and (g) his services shall be terminated in case of failure to satisfy the minimum monthly collection performance required, failure to post a cash bond, or cancellation of the agreement at the instance of either party unless the agent has a pending obligation or indebtedness in favor of the Company. Meanwhile, the respondents rely on other features to strengthen their position that the collectors are employees. They quote paragraph 2 which states that an agent shall utilize only receipt forms authorized and issued by the Company. They also note paragraph 3 which states that an agent has to submit and deliver at least once a week or as often as required a report of all collections made using report forms furnished by the Company. Paragraph 4 on the monthly collection quota required by the Company is deemed by respondents as a control measure over the means by which an agent is to perform his services. The nature of the relationship between a company and its collecting agents depends on the circumstances of each particular relationship. Not all collecting agents are employees and neither are all collecting agents independent contractors. The collectors could fall under either category depending on the facts of each case. The Agreement confirms the status of the collecting agent in this case as an independent contractor not only because he is explicitly described as such but also because the provisions permit him to perform collection services for the company without being subject to the control of the latter except only as to the result of his work. After a careful analysis of the contents of the agreement, we rule in favor of the petitioner. The requirement that collection agents utilize only receipt forms and report forms issued by the Company and that reports shall be submitted at least once a week is not necessarily an indication of control over the means by which the job of collection is to be performed. The agreement itself specifically explains that receipt forms shall be used for the purpose of avoiding a co-mingling of personal funds of the agent with the money collected on behalf of the Company. Likewise, the use of standard report forms as well as the regular time within which to submit a report of collection are intended to facilitate order in office procedures. Even if the report requirements are to be called control measures, any control is only with respect to the end result of the collection since the requirements regulate the things to be done after the performance of the collection job or the rendition of the service. The monthly collection quota is a normal requirement found in similar contractual agreements and is so stipulated to encourage a collecting agent to report at least the minimum amount of proceeds. In fact, paragraph 5, section b gives a bonus, aside from the regular commission every time the quota is reached. As a requirement for the fulfillment of the contract, it is subject to agreement by both parties. Hence, if the other contracting party does not accede to it, he can choose not to sign it. From the records, it is clear that the Company and each collecting agent intended that the former take control only over the amount of collection, which is a result of the job performed. The respondents' contention that the union members are employees of the Company is based on selected provisions of the Agreement but ignores the following circumstances which respondents never refuted either in the trial proceedings before the labor officials nor in its pleadings filed before this Court. 1. The collection agents are not required to observe office hours or report to Singer's office everyday except, naturally and necessarily, for the purpose of remitting their collections. 2. The collection agents do not have to devote their time exclusively for SINGER. There is no prohibition on the part of the collection agents from working elsewhere. Nor are these agents required to account for their time and submit a record of their activity. 3. The manner and method of effecting collections are left solely to the discretion of the collection agents without any interference on the part of Singer. 4. The collection agents shoulder their transportation expenses incurred in the collections of the accounts assigned to them. 5. The collection agents are paid strictly on commission basis. The amounts paid to them are based solely on the amounts of collection each of them make. They do not receive any commission if they do not effect any collection even if they put a lot of effort in collecting. They are paid commission on the basis of actual collections.

6. The commissions earned by the collection agents are directly deducted by them from the amount of collections they are able to effect. The net amount is what is then remitted to Singer." (Rollo, pp. 7-8) If indeed the union members are controlled as to the manner by which they are supposed to perform their collections, they should have explicitly said so in detail by specifically denying each of the facts asserted by the petitioner. As there seems to be no objections on the part of the respondents, the Court finds that they miserably failed to defend their position. A thorough examination of the facts of the case leads us to the conclusion that the existence of an employer-employee relationship between the Company and the collection agents cannot be sustained. The plain language of the agreement reveals that the designation as collection agent does not create an employment relationship and that the applicant is to be considered at all times as an independent contractor. This is consistent with the first rule of interpretation that the literal meaning of the stipulations in the contract controls (Article 1370, Civil Code; La Suerte Cigar and Cigarette Factory v. Director of Bureau of Labor, Relations, 123 SCRA 679 [1983]). No such words as "to hire and employ" are present. Moreover, the agreement did not fix an amount for wages nor the required working hours. Compensation is earned only on the basis of the tangible results produced, i.e., total collections made (Sarra v. Agarrado, 166 SCRA 625 [1988]). In Investment Planning Corp. of the Philippines v. Social Security System, 21 SCRA 924 [1967] which involved commission agents, this Court had the occasion to rule, thus: We are convinced from the facts that the work of petitioner's agents or registered representatives more nearly approximates that of an independent contractor than that of an employee. The latter is paid for the labor he performs, that is, for the acts of which such labor consists the former is paid for the result thereof .... xxx xxx xxx Even if an agent of petitioner should devote all of his time and effort trying to sell its investment plans he would not necessarily be entitled to compensation therefor. His right to compensation depends upon and is measured by the tangible results he produces." Moreover, the collection agent does his work "more or less at his own pleasure" without a regular daily time frame imposed on him (Investment Planning Corporation of the Philippines v. Social Security System, supra; See alsoSocial Security System v. Court of Appeals, 30 SCRA 210 [1969]). The grounds specified in the contract for termination of the relationship do not support the view that control exists "for the causes of termination thus specified have no relation to the means and methods of work that are ordinarily required of or imposed upon employees." (Investment Planning Corp. of the Phil. v. Social Security System, supra) The last and most important element of the control test is not satisfied by the terms and conditions of the contracts. There is nothing in the agreement which implies control by the Company not only over the end to be achieved but also over the means and methods in achieving the end (LVN Pictures, Inc. v. Philippine Musicians Guild, 1 SCRA 132 [1961]). The Court finds the contention of the respondents that the union members are employees under Article 280 of the Labor Code to have no basis. The definition that regular employees are those who perform activities which are desirable and necessary for the business of the employer is not determinative in this case. Any agreement may provide that one party shall render services for and in behalf of another for a consideration (no matter how necessary for the latter's business) even without being hired as an employee. This is precisely true in the case of an independent contractorship as well as in an agency agreement. The Court agrees with the petitioner's argument that Article 280 is not the yardstick for determining the existence of an employment relationship because it merely distinguishes between two kinds of employees, i.e., regular employees and casual employees, for purposes of determining the right of an employee to certain benefits, to join or form a union, or to security of tenure. Article 280 does not apply where the existence of an employment relationship is in dispute. Even Section 8, Rule 8, Book III of the Omnibus Rules Implementing the Labor Code does not apply to this case. Respondents assert that the said provision on job contracting requires that for one to be considered an independent contractor, he must have "substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business." There is no showing that a collection agent needs tools and machineries. Moreover, the provision must be viewed in relation to Article 106 of the Labor Code which provides:

Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. xxx xxx xxx There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him." (p. 20) It can readily be seen that Section 8, Rule 8, Book Ill and Article 106 are relevant in determining whether the employer is solidarily liable to the employees of an alleged contractor and/or sub-contractor for unpaid wages in case it is proven that there is a job-contracting situation. The assumption of jurisdiction by the DOLE over the case is justified as the case was brought on appeal by the petitioner itself which prayed for the reversal of the Order of the Med-Arbiter on the ground that the union members are not its employees. Hence, the petitioner submitted itself as well as the issue of existence of an employment relationship to the jurisdiction of the DOLE which was faced with a dispute on an application for certification election. The Court finds that since private respondents are not employees of the Company, they are not entitled to the constitutional right to join or form a labor organization for purposes of collective bargaining. Accordingly, there is no constitutional and legal basis for their "union" to be granted their petition for direct certification. This Court made this pronouncement in La Suerte Cigar and Cigarette Factory v. Director of Bureau of Labor Relations, supra: . . . The question of whether employer-employee relationship exists is a primordial consideration before extending labor benefits under the workmen's compensation, social security, medicare, termination pay and labor relations law. It is important in the determination of who shall be included in a proposed bargaining unit because, it is the sine qua non, the fundamental and essential condition that a bargaining unit be composed of employees. Failure to establish this juridical relationship between the union members and the employer affects the legality of the union itself. It means the ineligibility of the union members to present a petition for certification election as well as to vote therein . . . . (At p. 689) WHEREFORE, the Order dated June 14,1989 of Med-Arbiter Designate Felix B. Chaguile, Jr., the Resolution and Order of Secretary Franklin M. Drilon dated November 2, 1989 and December 14, 1989, respectively are hereby REVERSED and SET ASIDE. The petition for certification election is ordered dismissed and the temporary restraining order issued by the Court on December 21, 1989 is made permanent. SO ORDERED. Fernan, C.J., Feliciano and Bidin, JJ., concur. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. Nos. 92777-78 March 13, 1991

ISAGANI ECAL, CRISOLOGO ECAL, NELSON BUENAOBRA, NARDING BANDOGELIO, WILMER ECHAGUE, ROGELIO CASTILLO, ALFREDO FERNANDO, OLIGARIO BIGATA, ROBERTO FERRER AND HONESTO TANAEL, Represented by ISAGANI ECAL, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), JIMMY MATCHUKA AND HI-LINE TIMBER, INC., respondents. Armando A. San Antonio for petitioners. Chicote Abad & Macaisip Law Offices for private respondents.

GANCAYCO, J.:p Is there an employer-employee relationship between petitioners and private respondent Hi-Line Timber, Inc. or merely an employer-independent contractor relationship between said private respondent and petitioner Isagani Ecal with the other petitioners being mere contract workers of Ecal? In the case of the latter, is Ecal engaged in "job" contracting or "laboronly" contracting? What then is the extent of the liability of private respondent? These are the questions raised in this petition. This case traces its origin from two consolidated complaints for illegal dismissal and money claims filed by petitioners Isagani Ecal, Crisologo Ecal, Nelson Buenaobra, Narding Bandogelio, Wilmer Echague, Rogelio Castillo, Alfredo Fernando, Oligario Bigata, Roberto Ferrer and Honesto Tanael against private respondents Hi-Line Timber, Inc. (hereinafter referred to as Hi-Line) and Jimmy Matchuka, the company foreman, with the Department of Labor and Employment docketed as NLRC case No. RAB-03-09-0107-87 and No. RAB III-09-0116-87. In their complaints/position papers, petitioners alleged, among others, that they have been employed by Hi-Line as follows: Isagani Ecal, from February, 1986; Crisologo Ecal, Buenaobra, Bandogelio, Fernando, Bigata, Ferrer and Tanael, from March 3, 1986; and Castillo and Echague, from May 1, 1986; that except for Isagani Ecal, they were all receiving a salary of P 35.00 a day; that they were required to report for work 7 days a week including rest days, legal holidays, except Christmas and Good Friday from 7:00 A.M. to 7:00 P.M.; that they were not given living allowance, overtime pay, premium pay for rest days and legal holidays, 13th month pay and service incentive leave pay; and, that on June 6, 1987, they were not allowed to work and instead were informed that their services were no longer needed. Private respondents, on the other hand, denied the existence of an employer-employee relationship between the company and the petitioners claiming that the latter are under the employ of an independent contractor, petitioner Isagani Ecal, an employee of the company until his resignation on February 4, 1987. After submission of the supplemental position papers and other evidence by the parties, the labor arbiter rendered his decision dated June 10, 1988 finding no employer-employee relationship between the parties. Thus, he dismissed the two 1 cases for lack of merit. On appeal, public respondent National Labor Relations Commission (NLRC) affirmed the aforesaid decision of the labor 2 arbiter in a resolution dated October 2, 1989. The motion for reconsideration of petitioners was denied in a resolution dated March 12, 1990.
3

In this petition for certiorari, petitioners primarily question the finding of the public respondent NLRC that no employeremployee relationship existed between them and Hi-Line Timber, Inc. They contend that petitioner Isagani Ecal is not an independent contractor but a mere employee of Hi-Line Line. In response, the Solicitor General points out that the issue of whether or not an employer-employee relationship exists between the parties is a question of fact and the findings of the labor arbiter and the NLRC on this issue are conclusive 4 upon this Court if they are supported by substantial evidence as in this case. The NLRC ruled

We have carefully examined and evaluated the basis of the decision of the Labor Arbiter and to Our mind his factual findings are indeed supported by substantial evidence. Thus, we cite a few of the clear and convincing evidence and record which compelled the Labor Arbiter to disregard the claim of the complainants that there was (an) employer-employee relationship between the contending parties. Firstly, the affidavit of respondents' personnel officer, Elizabeth Natividad, dated 22 April 1988, clearly attesting to the fact that complainants, except Isagani Ecal, who worked at their plant at Bocaue, Bulacan, from 24 April 1986 up to 4 February 1987 and who tendered his resignation on the latter date, were not at all employees of respondents; secondly, the payrolls of the respondents do not indicate that said complainants were employees of the respondents; thirdly, the Sinumpaang Salaysay of Jose Mendoza, the Secretary-Treasurer of the Hi-Line Workers Union-Confederation of Free Laborers (CFL), a registered labor Union under Reg. Cert. No. (FED-425)-6756-11, issued March, 1987, to the effect that none of the complainants, except Isagani Ecal, were listed as members of the union and/or employees of respondents; and lastly, two (2) Sinumpaang Salaysay dated 22 April 1988 executed by respondents' company guard Honorio T. Battung and Foreman Clemente S. Sales, respectively, attesting that it was only Isagani Ecal who worked with respondents but resigned on 4 February 1987 to work as (an) 5 independent contractor. Petitioners claim that the NLRC based its decision solely on the evidence aforestated and completely ignored the evidence they presented thus denying them due process. The Court carefully examined the records of the case and finds that the NLRC limited itself to a superficial evaluation of the relationship of the parties based mainly on the aforestated documents with emphasis on the company payrolls without regard to the particular circumstances of the case. The finding of the NLRC that Isagani Ecal is no longer an employee of Hi-Line line is amply supported by the evidence on record. His resignation letter dated February 4, 1987 stating "ako po ay magreresign na sa aking trabaho bilang "laborer" 6 sapagka't nakita ko na mas malaki ang kikitain kung mangongontrata na lamang " speaks for itself. This was unsuccessfully rebutted by petitioners. To determine whether there exists an employer-employee relationship, the four-way test should be applied, namely: (1) selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to 7 control the employee's conductthe last being the most important element. Neither the NLRC nor the labor arbiter utilized these guides in their disposition of the complaint. The records show that Hi-Line does not choose the workers but merely accepts whoever may be selected by petitioner Isagani Ecal. Petitioners are not included in the payroll. Instead a lump sum of P1,400.00 is given to Isagani Ecal or his representative Solomon de los Santos, every four days, to cover their wages for the period which the petitioners divide among themselves. Private respondents allege that Isagani Ecal customarily removes some of his laborers at the Hi-Line sawmill and assigns them to other sawmills; however, there was no evidence adduced to show that indeed Ecal regularly or even once transferred some of his workers to other sawmills. Petitioners worked at the company compound at Wakas, Bocaue, Bulacan, at least eight hours a day, for seven days a week so that it would be impossible for them to find time to work in some other sawmill. On June 6, 1987, the company unilaterally terminated the services of petitioners without notice allegedly on the ground that its contract with Isagani Ecal has already expired. As to the matter of control, it would seem that petitioners were mostly left on their own to devise the most expeditious way of segregating lumber materials as to sizes and of loading and unloading the same in the chamber for drying. However, their task is performed within the work premises of Hi-Line, specifically at its Kiln Drying Section, so it cannot be said that no amount of control and supervision is exerted upon them by the company through their foremen, private respondent Matchuka and Clemente S. Sales. Moreover, the very nature of the task performed by petitioners requires very limited supervision as there are only so many ways of segregating lumber according to their sizes and of loading and unloading them in the dryer so that all that the company has to do is to check on the results of their work. The foregoing observation suggests that there is a certain relationship existing between the parties although a clear-cut characterization of such relationship whether it is an employer-employee relationship or an employer-independent contractor relationship is unavailing. Hence, a closer scrutiny of said relationship is in order. Petitioners urge that even assuming arguendo that Isagani Ecal is an independent contractor, he should be considered only a labor supplier who is deemed an agent of the company so that petitioners should enjoy the status of being its employees; therefore, Hi-Line should be held liable for illegally dismissing petitioners and for the non-payment of benefits due them. Private respondents, however, maintain that Isagani Ecal is an independent contractor or a job contractor.

The Solicitor General adopts the theory that Ecal is an independent contractor. However, he faults the labor arbiter for his failure to determine the benefits due petitioners, an issue raised by the latter, on the ground that Hi-Line, being an indirect employer, is jointly and severally liable with Isagani Ecal to the extent of the work performed by the employees as if they were directly employed by it. He, therefore, seeks the remand of the case to the labor arbiter for determination of the unpaid benefits of petitioners. The pertinent provisions of the Labor Code, as amended, are: Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code. There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed. Art. 107. Indirect Employer. The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. Under the provisions of Article 106, paragraphs 1 and 2, an employer who enters into a contract with a contractor for the performance of work for the employer does not thereby establish an employer-employee relationship between himself and the employees of the contractor. The law itself, however, creates such a relationship when a contractor fails to pay the wages of his employees in accordance with the Labor Code, and only for this limited purpose, i.e. to ensure that the latter 8 will be paid the wages due them. On the other hand, the legal effect of a finding that a contractor is merely a "labor only" contractor was explained 9 in Philippine Bank of Communications vs. National Labor Relations Commission, et al., . . . The "labor-only" contractor i.e., "the person or intermediary" is considered "merely as an agent of the employer." The employer is made by the statute responsible to the employees of the "labor only" contractor as if such employee had been directly employed by the employer. Thus, where "labor-only" contracting exists in a given case, the statute itself implies or establishes an employer-employee relationship between the employer (the owner of the project) and the employees of the "labor-only" contractor, this time for a comprehensive purpose: "employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code." The law in effect holds both the employer and the 'labor-only' contractor responsible to the latter's employees for the more effective safeguarding of the employees' rights under the Labor Code. Sections 8 and 9, Rule VIII, Book III of the Omnibus Rules implementing the Labor Code set forth the distinctions between "job" contracting and "labor-only" contracting Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are met:

(1) The contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof, and (2) The contractor has substantial capital or investment in the form of tools, equipments, machineries, work premises, and other materials which are necessary in the conduct of his business. Sec. 9. Labor-only contracting (a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-only contracting where such person: (1) Does not have substantial capital or investment in the form of tools, equipments, machineries, work premises and other materials; and (2) The workers recruited and placed by such person are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed. (b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. xxx xxx xxx Applying the foregoing provisions, the Court finds petitioner Isagani Ecal to be a "labor-only" contractor, a mere supplier of manpower to Hi-Line. Isagani Ecal was only poor laborer at the time of his resignation on February 4, 1987 who cannot even afford to have his daughter treated for malnutrition. He resigned and became a supplier of laborers for Hi-Line, because he saw an opportunity for him to earn more than what he was earning while still in the payroll of the company. At the same time, he continued working for the company as a laborer at the kiln drying section. He definitely does not have sufficient capital to invest in tools and machineries. Private respondents, however, claim that the business contracted by Ecal did not require the use of tools, equipment and machineries and the contracted task had to be executed in the premises of Hi-Line. Precisely, the job assigned to petitioners has to be executed within the work premises of Hi-Line where they use the machineries and equipment of the company for the drying of lumber materials. Even the company's personnel officer Elizabeth Natividad admitted that Ecal resigned in order to supply manpower to the company on a task 10 basis. By the very allegations of private respondents, it is quite clear that Isagani Ecal only supplies manpower to HiLine within the context of "labor-only" contracting as defined by law. There is also no question that the task performed by petitioners is directly related to the business of Hi-Line. Petitioners were assigned to sort out the lumber materials whether wet or fresh kiln as to sizes and to carry them from the stockpile to the dryer where they are loaded for drying after which they are unloaded. The work of petitioners is an integral part of the operation of the sawmill of Hi-Line without which production and company sales will suffer. A finding that Isagani Ecal is a "labor-only" contractor is equivalent to a finding that an employer-employee relationship exists between the company and Ecal including the latter's "contract workers" herein petitioners, the relationship being 11 such as provided by the law itself. Indeed, the law prohibits "labor-only" contracting and creates an employer- employee relationship for the protection of the laborers. The Court had in fact observed that businessmen, with the aid of lawyers, have tried to avoid the bringing about of an employer-employee relationship in some of their enterprises because that juridical relation spawns obligations 12 connected with workmen's compensation, social security, medicare, minimum wage, termination pay and unionism. This unscrupulous practice is quite evident in the case at bar. It is company policy that once an employee is assigned to the kiln drying section, he is no longer included in the payroll and is then paid on a task basis, even if he had long been employed with the company. Since the employee will no longer be included in the payroll, it becomes easy for the company to deny the regular employment of such a worker and is able to avoid whatever obligations it may have under an employer-employee relationship. Moreover, Hi-Line limits the period of undertaking to only four days presumably to make termination of the services of petitioners easier and to prevent them from attaining regular status. The company had no doubt taken advantage of these laborers in order to escape liability for benefits and privileges accruing to one holding a regular employment. Without a law prohibiting "labor-only" contracting to protect the rights of labor, these poor workers will always be at the mercy of the employer.

Since petitioners perform tasks which are usually necessary or desirable in the main business of Hi-Line, they should be 13 deemed regular employees of the latter and as such are entitled to all the benefits and rights appurtenant to regular employment. Being regular employees, they should have been afforded due process prior to their dismissal. Instead they were unceremoniously dismissed on June 6, 1987 when they were not allowed to enter the company's premises by the security guards. The argument of private respondents that the contract of Ecal with the company expired cannot be sustained. Petitioners may only be dismissed for an authorized or just cause and after due process. At this juncture, We note that petitioners and private respondents allege conflicting dates of employment of the former. Petitioners claim that as early as March or May, 1986, they have already been working with Hi-Line Line, while private respondents contend that it was only in April, 1987 that they had been engaged by the company. This Court is not a trier of facts and there is not enough basis in the records to enable Us to come up with definite dates of employment. However, whatever be the date of their employment, petitioners will still be considered employees of the company. If petitioners had started their employment in 1986, they would have rendered more than 1 year of service at the time of their dismissal and, therefore, should be considered regular employees. Even if they have been engaged only in April of 1987, they will still be deemed regular employees for as earlier indicated, Isagani Ecal is a "labor-only" contractor and petitioners perform activities directly related to the principal business of Hi-Line Line. Petitioners, having been illegally dismissed on June 6, 1987, are entitled to backwages equivalent to three years without qualifications and deductions in line with prevailing jurisprudence. WHEREFORE, the decision of public respondent NLRC is hereby REVERSED and SET ASIDE. Private respondent HiLine Timber, Inc. is hereby ordered to reinstate petitioners to their former positions with backwages equivalent to three (3) years without deductions and qualifications. The records of the case are remanded to the labor arbiter for determination of the unpaid benefits due petitioners. No costs. SO ORDERED. Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
14

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 117495 May 29, 1997 NELLY ACTA MARTINEZ, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, DOMINADOR CORRO, PASTOR CORRO, CELESTINO CORRO, LUIS CORRO, EREBERTO CORRO, JAIME CRUZ, WENCESLAO, DELVO, GREGORIO DELVO, HERMEJIAS COLIBAO, JOSE OGANA and ALONSO ALBAO, respondents.

BELLOSILLO, J.: RAUL MARTINEZ was operator of two (2) taxicab units under the business name PAMA TX and two (2) additional units under the name P. J. TIGER TX. Private respondents Dominador Corro, Pastor Corro, Celestino Corro, Luis Corro, Ereberto Corro, Jaime Cruz, Wenceslao Delve, Gregorio Delvo, Hermejias Colibao, Jose Ogana and Alonso Albao worked for him as drivers. On 18 March 1992 Raul Martinez died leaving behind his mother, petitioner Nelly Acta Martinez, as his sole heir.

On 14 July 1992 private respondents lodged a complaint against Raul Martinez and petitioner Nelly Acta Martinez before 1 the Labor Arbiter for violation of P. D. 851 and illegal dismissal. They alleged that they have been regular drivers of Raul Martinez since 20 October 1989 earning no less than P400.00 per day driving twenty-four (24) hours every other day. For the duration of employment, not once did they receive a 13th month pay. After the death of Raul Martinez, petitioner took over the management and operation of the business. On or about 22 June 1992 she informed them that because of difficulty in maintaining the business, she was selling the units together with the corresponding franchises. However, petitioner did not proceed with her plan; instead, she assigned the units to other drivers. Petitioner traversed the claim for 13th month pay by contending that it was personal and therefore did not survive the death of her son. Besides, private respondents were not entitled thereto as Sec. 3, par. (e), of the Rules and Regulations Implementing P. D. 851 is explicit that employers of those who are paid on purely boundary basis are not covered therein. The relationship between her son and private respondents was not that of employer-employee but of lessor-lessee. The operation of the business ceased upon the death of her son and that she did not continue the business because she did not know how to run it. On 30 August 1993 the Labor Arbiter dismissed the complaint on the following grounds: (a) private respondents' claims being personal were extinguished upon the death of Raul Martinez; (b) petitioner was a mere housewife who did not possess the required competence to manage the business; and, (c) private respondents were not entitled to 13th month pay because the existence of employer-employee relationship was doubtful on account of the boundary system adopted 2 by the parties. However, respondent National Labor Relations Commission viewed the case differently. According to NLRC, (a) private respondents were regular drivers because payment of wages, which is one of the essential requisites for the existence of employment relation, may either be fixed, on commission, boundary, piece-rate or task basis; (b) the management of the business passed on to petitioner who even replaced private respondents with a new set of drivers; and, (c) the claims of private respondents survived the death of Raul Martinez considering that the business did not cease operation outright but continued presumably, in the absence of proof of sale, up to the moment. As regards the claim for 13th month pay, NLRC upheld the stand of petitioner based on the express provision of P. D. 851 as reiterated in the revised guidelines on the implementation thereof. On 28 January 1994 respondent NLRC thus set aside the appealed decision, and as alternative to reinstatement, ordered petitioner to grant respondents separation pay equivalent to one (1) month salary for every year 3 of service a fraction of six (6) months being considered as one (1) whole year. On 30 September 1994 the motion for 4 reconsideration was denied. Hence, this recourse of petitioner. On 11 October 1995 the Court issued a temporary restraining order enjoining the execution of the assailed decision of respondent NLRC. Petitioner imputes grave abuse of discretion on respondent NLRC in reversing the decision of the Labor Arbiter. Petitioner argues that respondent NLRC acted as a probate court when it assumed jurisdiction over the estate of a deceased person, pronounced her legally entitled to succeed the deceased and ordered her to pay the money claim of private respondents. Moreover, petitioner argues that the claims of private respondents were personal to her son and thus were abated by his death. Petitioner's arguments are well-taken. The claim for 13th month pay pertains to the personal obligation of Raul Martinez which did not survive his death. The rule is settled that unless expressly assumed, labor contracts are not enforceable against the transferee of an enterprise. In the present case, petitioner does not only disavow that she continued the operation of the business of her son but also disputes the existence of labor contracts between her son and private 5 respondents. The reason for the rule is that labor contracts are in personam, and that claims for backwages earned from 6 the former employer cannot be filed against the new owners of an enterprise. Nor is the new operator of a business 7 liable for claims for retirement pay of employees. Thus the claim of private respondents should have been filed instead in the intestate proceedings involving the estate of Raul Martinez in accordance with Sec. 5, Rule 86, of the Rules of Court which provides in part Sec. 5. Claims which must be filed under the notice. If not filed, barred; exceptions. All claims for money against the decedent, arising from contract, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever, except that they may be set forth as counterclaims in any action that the executor or administrator may bring against the claimants . . .

Under this rule, upon the death of the defendant, a testate or intestate proceeding shall be instituted in the proper court wherein all his creditors must appear and file their claims which shall be paid proportionately out of the property left by the deceased. The objective is to avoid duplicity of procedures. Hence, the ordinary actions must be taken out from the ordinary courts. Conformably with Art. 110 of the Labor Code, money claims of laborers 8 enjoy preference over claims of other creditors in case of bankruptcy or liquidation of the employer's business. Petitioner also insists on the absence of employer-employee relationship between her son and private respondents because there is no evidence that her son paid a single centavo by way of wages to private respondents; rather, they were governed by the boundary system. Neither is there such relationship between her and private respondents because she did not continue the operation of the business which ceased upon the death of her son. As early as 3 March 1956, in National Labor Union v. Dinglasan, this Court ruled that the relationship between jeepney owners/operators on one hand and jeepney drivers on the other under the boundary system is that of employer-employee and not of lessor-lessee. Therein we explained that in the lease of chattels the lessor loses complete control over the chattel leased although the lessee cannot be reckless in the use thereof, otherwise he would be responsible for the damages to the lessor. In the case of jeepney owners/operators and jeepney drivers, the former exercise supervision and control over the latter. The fact that the drivers do not receive fixed wages but get only that in excess of the so-called "boundary" they pay to the owner/operator is not sufficient to withdraw the relationship between them from that of employer and employee. The doctrine is applicable by analogy to the present case. Thus, private respondents were employees of Raul Martinez because they had been engaged to perform activities which were usually necessary or 10 desirable in the usual business or trade of the employer. The records show that private respondents had been 11 employed since 20 October 1989 except for Ogana, the Delvos, Albao and Colibao who were employed on later dates. Hence, these questions arise: Do private respondents, being then employees of Raul Martinez, necessarily continue to be employees of the petitioner as the new operator of the business? In the affirmative, were they illegally dismissed? The factual findings of quasi-judicial agencies such as respondent NLRC, which have acquired expertise in the matters entrusted to their jurisdiction, are accorded by this Court not only respect but also finality if they are supported by substantial evidence, or that amount of relevant evidence which a reasonable mind might accept as adequate to justify a 12 conclusion. As respondent NLRC found The facts of the case will readily show that before respondent taxi owner Raul Martinez died, he became bedridden and the management of his taxi business passed on to his mother who was his only surviving heir. It will also be noted that despite the information given by the mother that she will sell the business and extend separation benefits to complainants, no such thing occurred. Instead, she replaced 13 complainants with a new set of drivers (See Complainants' Position paper, p. 25, Record). The above findings, however, were culled from mere allegations in private respondents' position paper. But mere 14 allegation is not evidence. It is a basic rule in evidence that each party must prove his affirmative 15 16 allegation. In Opulencia Ice Plant and Storage v. NLRC we ruled that no particular form of evidence is required to prove the existence of an employer-employee relationship. Any competent and relevant evidence to prove the relationship may be admitted. In that case, the relationship was sufficiently proved by testimonial evidence. In the present case, however, private respondents simply assumed the continuance of an employeremployee relationship between them and petitioner, when she took over the operation of the business after the death of her son Raul Martinez, without any supporting evidence. Consequently, we cannot sustain for lack of basis the factual finding of respondent NLRC on the existence of employer-employee relationship between petitioner and private respondents. Clearly, such finding emanates from grave abuse of discretion. With this conclusion, consideration of the issue on illegal dismissal becomes futile and irrelevant. WHEREFORE, the petition is GRANTED. The Decision of respondent National Labor Relations Commission dated 28 January 1994 ordering petitioner Nelly Acta Martinez to grant respondents separation pay as well as its Order of 30 September 1994 denying reconsideration is SET ASIDE. The Decision of the Labor Arbiter dated 30 August 1993 dismissing the complaint is REINSTATED. The temporary restraining order issued on 11 October 1995 is made PERMANENT. SO ORDERED. Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
9

Padilla, J., is on leave.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-37034 January 30, 1976 JACQUELINE INDUSTRIES DUNHILL BAGS INDUSTRIES, POL YAP, CANDIDO DYONCO and HENRY YAP,petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and GAUDENCIA DE QUIROZ, respondents. FERNANDO, J.: In view of an adverse decision promulgated on August 29, 1975, dismissing the suit for certiorari and prohibition and thus in effect sustaining the money claim of private respondent Gaudencia de Quiroz, petitioners, on October 13, 1975, filed a motion f-or reconsideration or for new trial. They alleged three ground: the first reiterated- the due process argument to the effect that there was no hearing, the second denied the existence of employer-employee relationship in view of, an alleged dismissal of private respondent from which she did not seek appeal, and the third sought the opportunity for a hearing wherein they could show that the claim was barred by prescription or by laches. Respondents were required to comment. There was a three-page comment, the prayer of which was to deny such motion for reconsideration or for new trial filed by counsel for private respondent on December 15, 1975. Respondent National Labor Relations Commission, after seeking and after having been granted two motions for extension of time to file comment, submitted an extended and well-reasoned comment on January 5, 1976, meeting each and every point raised by petitioners. 1 It is primarily on the basis thereof that the motion for reconsideration or for new trial is denied. Our decision of August 29, 1975 stands. There is no basis for its modification, much less a reversal. Nor would a new trial serve a useful purpose. 1. The objection that there was a denial of due process in view of the absence of a hearing was refuted in the comment of Solicitor General Mendoza. Thus: "(a) Upon the filing of private respondent's complaint, the same was referred to a Mediator/Fact-Finder, Atty. Luna C. Piezas, who after conducting preliminary fact-finding hearings on January 31, 1973 and on February 6, 1973 ..., submitted his Fact-Finding Report ... dated February 7, 1973 to respondent Commission pursuant to Section 9, NLRC Rules and Regulations implementing Presidential Decree No. 21. (b) On February 16 and 22, 1973, hearings at mediation level were conducted by said Mediator/Fact-Finder ... who thereafter, but upon prior receipt by him of the respective memoranda of the parties, submitted to the respondent Commission his mediation report ... and his additional mediation report that on the basis thereof recommending, as well as his preliminary Fact-Finding Report, the case be resolved by the respondent Commission. (c) In all the foregoing hearings with prior notice to the parties, evidence, both testimonial and documentary, were adduced not only by the private respondent but by petitioners as well. of any of said hearings were held ex-parte, it was due to the fault of petitioners [or] their counsel for their unexplained non-appearance. ... (d) On the basis of the Mediation Report ... and the Additional Mediation Report respondent Commission rendered its decision adopting by reference the findings of facts and the laws in which it is based as reflected in the aforesaid Mediation Reports. The forgetting record of proceedings before the respondent Commission clearly show that petitioners were accorded every opportunity to be heard and to present their evidence at mediation level, contrary to their claim that no hearings were conducted at mediation level. It may be pointed out that proceedings at all levels before the respondent Commission shall be non-litigious and summary in nature, as provided in Section 28 of respondent Commission's Rules and Regulations issued pursuant to Section 9 of Presidential Decree No. 21, and it is a well-settled rule that in proceedings of this nature (Administrative) the technical rules governing judicial controversies need not be strictly observed ... 2 2. Such comment characterized as deserving of scant consideration, the second ground raised by petitioners in their motion for reconsideration was based on the specious contention that the employer-employee relationship had ceased to exist since there was no attempt on the part of private respondent to be reinstated after an unlawful

dismissal. In the language of the comment: "The employer-employee relation between petitioners and private respondent never ceased to exist. The records show that private respondent went on sick leave to undergo medical treatment for urinary infection, and upon her return to duty, she was dismissed by respondents on the pretext 'that she was no longer need d by the company.' ... Private respondent's dismissal by petitioners being illegal, she is deemed not to have been separated from the service of her employers (petitioner herein). As aptly quoted by respondent Commission in its decision, to wit: 'The employer cannot rightfully dismiss the employee who is sick Even if he complies with the requirement as to the service of the required Notice and payment of the corresponding separation pay, because sickness is not willful or voluntary on the part of the employee' .... The issue on this case is not purely one of money claim. It involves employer-employee relationship. Private respondent's claims are made under the Minimum Wage Law, the Overtime Pay Law, matters which involve employer-employee relationship within the original and exclusive jurisdiction of respondent Commission, pursuant to Par. 1, Sec. 2, of Presidential Decree No. 21, which reads: 'Sec. 2. The Commission shall have original and exclusive jurisdiction over the following: 1) AU matters involving employer-employee relation including all disputes and grievances which may otherwise lead to strikes and lockouts under Republic Act No. 875;' ...' The foregoing jurisdiction granted to respondent Commission is all embracing insofar as matters involving employer-employee relations are concerned, and considering that said jurisdiction is original and exclusive, by n implication it withdrew the limited jurisdiction theretofore exercised over said matters by the Court of Industrial Relations under Republic Act No. 875, except for those pending cases over which said court had already acquired jurisdiction. 3 3. As to the lack of any jurisdiction for raising the defense of prescription or laches, the comment stated the following- 'The claim of prescription cannot be raised for the first time on appeal, and much less in a motion for reconsideration like in the instant case. Petitioners admit that private respondent's claim is one for money. Private respondent's causes of action in her complaint against petitioners are: 1. Violation of the Minimum Wage Law: 2. Violation of the Eight-Hour r Law; 3. Violation of the Termination Pay Law; 4. Failure to keep any rolls reflecting the number of hours of work and the corresponding salaries of employees thereof, Relief Sought: 1. Payment of wage differentials due to underpayment; 2. Payment of overtime pay due to services rendered in excess of eight hours; 3. Payment of separation pay due to illegal dismissal; and 4. Commission order enjoining respondents to keep regular payroll .... In their answer, respondents denied private respondent's claim and set up the affirmative defends that 1. Private respondent's cause of action being a money claim, respondent Commission has no jurisdiction over the same; 2. That they (petitioners) do not fall within the coverage of the Minimum Wage Law, they being NACIDA registered industries, and private respondent is a piece worker .... Petitioners, in denying private respondent's causes of action, never raised the question of prescription. This being so, defenses and objections not pleaded either in a motion to dismiss, 6r in the Answer are deemed waived .... Petitioners having failed to plead in their answer the defense of prescription, the same cannot now be raised for the first time." 4 4. It does clearly appear therefore that the motion for reconsideration or for new trial is devoid of merit. As noted at the outset, it cannot be granted. The decision, as rendered by this Court, has not been shown to be lacking support in law. WHEREFORE, the motion for reconsideration as well as for new trial is denied. The decision of August 29, 1975 should, be implemented forthwith. No costs. Antonio, Aquino, Concepcion, Jr. and Martin, JJ., concur. Barredo J., took no part. Footnotes 1 The comment of respondent National Labor Relations Commission was signed by Solicitor General Estelito P. Mend Assistant Solicitor General Reynato S. Puno and Solicitor Salvador C. Jacob. 2 Comment of respondent National Labor Relations Commission, par. I. 3 Ibid, par. II. 4 Ibid, par. III.

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