LABOR STANDARDS - Midterms

Table of Contents

METROPOLITAN BANK and TRUST COMPANY, INC., Petitioner, vs. NATIONAL WAGES AND
PRODUCTIVITY COMMISSION and REGIONAL TRIPARTITE WAGES AND PRODUCTIVITY BOARD REGION II, Respondents............................................................2
PEDRO CHAVEZ, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, SUPREME PACKAGING,
INC. and ALVIN LEE, Plant Manager, respondents.........................6
SENTINEL SECURITY AGENCY, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION,
ADRIANO CABANO JR., VERONICO C. ZAMBO, HELCIAS ARROYO, RUSTICO ANDOY, and MAXIMO
ORTIZ, respondents.................................................................10
PETROLEUM SHIPPING LIMITED (formerly ESSO INTERNATIONAL SHIPPING (BAHAMAS) CO., LTD.) and
TRANS-GLOBAL MARITIME AGENCY, INC., Petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION
and FLORELLO W. TANCHICO, Respondents.............................11
NIA JEWELRY MANUFACTURING OF METAL ARTS, INC. (otherwise known as NIA MANUFACTURING
AND METAL ARTS, INC.) and ELISEA B. ABELLA, Petitioners, vs. MADELINE C. MONTECILLO and LIZA M.
TRINIDAD, Respondents..........................................................15
FIVE J TAXI and/or JUAN S. ARMAMENTO, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION,
DOMINGO MALDIGAN and GILBERTO SABSALON,respondents.. 21
JETHRO INTELLIGENCE & SECURITY CORPORATION and YAKULT PHILS., INC. Petitioners, vs. THE
HON. SECRETARY OF LABOR AND EMPLOYMENT, FREDERICK GARCIA, GIL CORDERO, LEONIELYN
UDALBE, MICHAEL BENOZA, EDWIN ABLITER, CELEDONIO SUBERE and MA. CORAZON
LANUZA,Respondents.............................................................23
ALEXANDER VINOYA, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, REGENT FOOD
CORPORATION AND/OR RICKY SEE (PRESIDENT), respondents.25
EMMANUEL BABAS, DANILO T. BANAG, ARTURO V. VILLARIN, SR., EDWIN JAVIER, SANDI BERMEO,
REX ALLESA, MAXIMO SORIANO, JR., ARSENIO ESTORQUE, and FELIXBERTO ANAJAO, Petitioners, vs.
LORENZO SHIPPING CORPORATION, Respondent...................29

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. NO. 144322

February 6, 2007

Page 1 of 33

METROPOLITAN BANK and TRUST COMPANY, INC., Petitioner,

vs.
NATIONAL WAGES AND PRODUCTIVITY COMMISSION and
REGIONAL TRIPARTITE WAGES AND PRODUCTIVITY BOARD REGION II, Respondents.
DECISION

questioned Wage Order; that even assuming that the RTWPB was
vested with the authority to prescribe an increase, it exceeded its
authority when it did so without any ceiling or qualification; that the
implementation of the Wage Order will cause the petitioner, and other
similarly situated employers, to incur huge financial losses and suffer
labor unrest.12

AUSTRIA-MARTINEZ, J.:

On March 24, 1997, the Office of the Solicitor General (OSG) filed a
Manifestation and Motion in lieu of Comment affirming the petitioner's
claim that the RTWPB acted beyond its authority in issuing the Wage
Order prescribing an across-the-board increase to all workers and
employees in Region II, effectively granting additional or other benefits
not contemplated by R.A. No. 6727.13

Before the Court is a Petition for Review on Certiorari under Rule 45 of

the Revised Rules of Court seeking the reversal of the Decision1 of the
Court of Appeals (CA) dated July 19, 2000 in CA-G.R. SP No. 42240
which denied the petition for certiorari and prohibition of Metropolitan
Bank and Trust Company, Inc. (petitioner).
The procedural antecedents and factual background of the case are as
follows:
On October 17, 1995, the Regional Tripartite Wages and Productivity
Board, Region II, Tuguegarao, Cagayan (RTWPB), by virtue of
Republic Act No. 6727 (R.A. No. 6727), otherwise known as the Wage
Rationalization Act,2issued Wage Order No. R02-03 (Wage Order), as
follows:
Section 1. Upon effectivity of this Wage Order, all employees/workers
in the private sector throughout Region II, regardless of the status of
employment are granted an across-the-board increase of P15.00
daily.3
The Wage Order was published in a newspaper of general circulation
on December 2, 19954 and took effect on January 1, 1996.5 Its
Implementing Rules6 were approved on February 14, 1996.7 Per
Section 13 of the Wage Order, any party aggrieved by the Wage Order
may file an appeal with the National Wages and Productivity
Commission (NWPC) through the RTWPB within 10 calendar days
from the publication of the Wage Order.
In a letter-inquiry to the NWPC dated May 7, 1996, the Bankers'
Council for Personnel Management (BCPM), on behalf of its memberbanks, requested for a ruling on the eligibility of establishments with
head offices outside Region II to seek exemption from the coverage of
the Wage Order since its member-banks are already paying more than
the prevailing minimum wage rate in the National Capital Region
(NCR), which is their principal place of business.8
In a letter-reply dated July 16, 1996, the NWPC stated that the
member-banks of BCPM are covered by the Wage Order and do not
fall under the exemptible categories listed under the Wage Order.9
In a letter-inquiry to the NWPC dated July 23, 1996, petitioner sought
for interpretation of the applicability of said Wage Order.10 The NWPC
referred petitioner's inquiry to the RTWPB.
In a letter-reply dated August 12, 1996, the RTWPB clarified that the
Wage Order covers all private establishments situated in Region II,
regardless of the voluntary adoption by said establishments of the
wage orders established in Metro Manila and irrespective of the
amounts already paid by the petitioner.11
On October 15, 1996, the petitioner filed a Petition for Certiorari and
Prohibition with the CA seeking nullification of the Wage Order on
grounds that the RTWPB acted without authority when it issued the

In view of the OSG's manifestation, the CA directed respondents

NWPC and RTWPB to file their comment.14
On September 22, 1997, respondents filed their Comment praying that
the petition should be dismissed outright for petitioner's procedural
lapses; that certiorari and prohibition are unavailing since petitioner
failed to avail of the remedy of appeal prescribed by the Wage Order;
that the Wage Order has long been in effect; and that the issuance of
the Wage Order was performed in the exercise of a purely
administrative function.15
On July 19, 2000, the CA rendered its Decision denying the petition.
The appellate court held that a writ of prohibition can no longer be
issued since implementation of the Wage Order had long become fait
accompli, the Wage Order having taken effect on January 1, 1996 and
its implementing rules approved on February 14, 1996; that a writ of
certiorari is improper since the Wage Order was issued in the exercise
of a purely administrative function, not judicial or quasi-judicial; that the
letter-query did not present justiciable controversies ripe for
consideration by the respondents in the exercise of their wage-fixing
function, since no appeal from the Wage Order was filed; that petitioner
never brought before the said bodies any formal and definite challenge
to the Wage Order and it cannot pass off the letter-queries as actual
applications for relief; that even if petitioner's procedural lapse is
disregarded, a regional wage order prescribing a wage increase
across-the-board applies to banks adopting a unified wage system and
a disparity in wages between employees holding similar positions in
different regions is not wage distortion.16
Hence, the present petition anchored on the following grounds:
4.1 THE COURT OF APPEALS ERRED IN REFUSING TO
DECLARE WAGE ORDER NO. R02-03 NULL AND VOID
AND OF NO LEGAL EFFECT.
4.1.1 THE BOARD, IN ISSUING WAGE ORDER
NO. R02-03, EXCEEDED THE AUTHORITY
DELEGATED TO IT BY CONGRESS.
4.1.2 WAGE ORDER NO. R02-03 IS AN
UNREASONABLE INTRUSION INTO THE
PROPERTY RIGHTS OF PETITIONER.
4.1.3 WAGE ORDER NO. R02-03 UNDERMINES
THE VERY ESSENCE OF COLLECTIVE
BARGAINING.

Page 2 of 33

4.1.4 WAGE ORDER NO. R02-03 FAILS TO TAKE

INTO ACCOUNT THE VERY RATIONALE FOR A
UNIFIED WAGE STRUCTURE.
4.2 PETITIONER'S RECOURSE TO A WRIT OF
CERTIORARI AND PROHIBITION WAS PROPER.17
Following the submission of the Comment18 and Reply19 thereto, the
Court gave due course to the petition and required both parties to
submit their respective memoranda.20 In compliance therewith,
petitioner and respondents submitted their respective memoranda.21
Petitioner poses two issues for resolution, to wit: (1) whether Wage
Order No. R02-03 is void and of no legal effect; and (2) whether
petitioner's recourse to a petition for certiorari and prohibition with the
CA was proper.
Anent the first issue, petitioner maintains that the RTWPB, in issuing
said Wage Order, exceeded the authority delegated to it under R.A.
No. 6727, which is limited to determining and fixing the minimum wage
rate within their respective territorial jurisdiction and with respect only
to employees who do not earn the prescribed minimum wage rate; that
the RTWPB is not authorized to grant a general across-the-board
wage increase for non-minimum wage earners; that Employers
Confederation of the Philippines v. National Wages and Productivity
Commission22(hereafter referred to as "ECOP") is not authority to rule
that respondents have been empowered to fix wages other than the
minimum wage since said case dealt with an across-the-board
increase with a salary ceiling, where the wage adjustment is applied to
employees receiving a certain denominated salary ceiling; that the
Wage Order is an unreasonable intrusion into its property rights; that
the Wage Order undermines the essence of collective bargaining; that
the Wage Order fails to take into account the rationale for a unified
wage structure.
As to the second issue, petitioner submits that ultra vires acts of
administrative agencies are correctible by way of a writ of certiorari and
prohibition; that even assuming that it did not observe the proper
remedial procedure in challenging the Wage Order, the remedy
of certiorari and prohibition remains available to it by way of an
exception, on grounds of justice and equity; that its failure to observe
procedural rules could not have validated the manner by which the
disputed Wage Order was issued.
Respondents counter that the present petition is fatally defective from
inception since no appeal from the Wage Order was filed by petitioner;
that the letter-query to the NWPC did not constitute the appeal
contemplated by law; that the validity of the Wage Order was never
raised before the respondents; that the implementation of the Wage
Order had long become fait accompli for prohibition to prosper.
Respondents insist that, even if petitioner's procedural lapses are
disregarded, the Wage Order was issued pursuant to the mandate of
R.A. No. 6727 and in accordance with the Court's pronouncements in
the ECOP case;23 that the Wage Order is not an intrusion on property
rights since it was issued after the required public hearings; that the
Wage Order does not undermine but in fact recognizes the right to
collective bargaining; that the Wage Order did not result in wage
distortion.
The Court shall first dispose of the procedural matter relating to the
propriety of petitioner's recourse to the CA before proceeding with the
substantive issue involving the validity of the Wage Order.

Certiorari as a special civil action is available only if the following

essential requisites concur: (1) it must be directed against a tribunal,
board, or officer exercising judicial or quasi-judicial functions; (2) the
tribunal, board, or officer must have acted without or in excess of
jurisdiction or with grave abuse of discretion amounting lack or excess
of jurisdiction; and (3) there is no appeal nor any plain, speedy, and
adequate remedy in the ordinary course of law.24
On the other hand, prohibition as a special civil action is available only
if the following essential requisites concur: (1) it must be directed
against a tribunal, corporation, board, officer, or person exercising
functions, judicial, quasi-judicial, or ministerial; (2) the tribunal,
corporation, board or person has acted without or in excess of its
jurisdiction, or with grave abuse of discretion amounting lack or excess
of jurisdiction; and (3) there is no appeal or any other plain, speedy,
and adequate remedy in the ordinary course of law.25
A respondent is said to be exercising judicial function where he has the
power to determine what the law is and what the legal rights of the
parties are, and then undertakes to determine these questions and
adjudicate upon the rights of the parties.26 Quasi-judicial function is a
term which applies to the action, discretion, etc., of public
administrative officers or bodies, who are required to investigate facts
or ascertain the existence of facts, hold hearings, and draw
conclusions from them as a basis for their official action and to
exercise discretion of a judicial nature.27 Ministerial function is one
which an officer or tribunal performs in the context of a given set of
facts, in a prescribed manner and without regard to the exercise of his
own judgment upon the propriety or impropriety of the act done.28
In the issuance of the assailed Wage Order, respondent RTWPB did
not act in any judicial, quasi-judicial capacity, or ministerial capacity. It
was in the nature of subordinate legislation, promulgated by it in the
exercise of delegated power under R.A. No. 6727. It was issued in the
exercise of quasi-legislative power. Quasi-legislative or rule-making
power is exercised by administrative agencies through the
promulgation of rules and regulations within the confines of the
granting statute and the doctrine of non-delegation of certain powers
flowing from the separation of the great branches of the government.29
Moreover, the rule on the special civil actions of certiorari and
prohibition equally mandate that these extra-ordinary remedies are
available only when "there is no appeal or any other plain, speedy, and
adequate remedy in the ordinary course of law." A remedy is
considered plain, speedy and adequate if it will promptly relieve the
petitioner from the injurious effects of the judgment or rule, order or
resolution of the lower court or agency.30
Section 13 of the assailed Wage Order explicitly provides that any
party aggrieved by the Wage Order may file an appeal with the NWPC
through the RTWPB within 10 days from the publication of the wage
order.31 The Wage Order was published in a newspaper of general
circulation on December 2, 1995.32
In this case, petitioner did not avail of the remedy provided by law. No
appeal to the NWPC was filed by the petitioner within 10 calendar days
from publication of the Wage Order on December 2, 1995. Petitioner
was silent until seven months later, when it filed a letter-inquiry on July
24, 1996 with the NWPC seeking a clarification on the application of
the Wage Order. Evidently, the letter-inquiry is not an appeal.
It must also be noted that the NWPC only referred petitioner's letterinquiry to the RTWPB. Petitioner did not appeal the letter-reply dated

Page 3 of 33

August 12, 1996 of the RTWPB to the NWPC. No direct action was
taken by the NWPC on the issuance or implementation of the Wage
Order. Petitioner failed to invoke the power of the NWPC to review
regional wage levels set by the RTWPB to determine if these are in
accordance with prescribed guidelines. Thus, not only was it improper
to implead the NWPC as party-respondent in the petition before the CA
and this Court, but also petitioner failed to avail of the primary
jurisdiction of the NWPC under Article 121 of the Labor Code, to wit:
ART. 121. Powers and Functions of the Commission. - The
Commission shall have the following powers and functions:
xxxx
(d) To review regional wage levels set by the Regional
Tripartite Wages and Productivity Boards to determine if
these are in accordance with prescribed guidelines and
national development plans;
xxxx
(f) To review plans and programs of the Regional Tripartite
Wages and Productivity Boards to determine whether these
are consistent with national development plans;
(g) To exercise technical and administrative supervision over
the Regional Tripartite Wages and Productivity Boards;

determined and passed upon to resolve petitioner's rights and

consequent obligations therein.
It is worthy to quote the Court's pronouncements in Tan v. Commission
on Elections,37 thus:
For this Honorable Court to yield to the respondents' urging that, as
there has been fait accompli, then this Honorable Court should
passively accept and accede to the prevailing situation is an
unacceptable suggestion. Dismissal of the instant petition, as
respondents so propose is a proposition fraught with mischief.
Respondents' submission will create a dangerous precedent. Should
this Honorable Court decline now to perform its duty of interpreting and
indicating what the law is and should be, this might tempt again those
who strut about in the corridors of power to recklessly and with ulterior
motives commit illegal acts, either brazenly or stealthily, confident that
this Honorable Court will abstain from entertaining future challenges to
their acts if they manage to bring about a fait accompli.38
Having disposed of this procedural issue, the Court now comes to the
substance of the petition.
R.A. No. 6727 declared it a policy of the State to rationalize the fixing
of minimum wages and to promote productivity-improvement and gainsharing measures to ensure a decent standard of living for the workers
and their families; to guarantee the rights of labor to its just share in the
fruits of production; to enhance employment generation in the
countryside through industrial dispersal; and to allow business and
industry reasonable returns on investment, expansion and growth.39

xxxx
(Emphasis supplied)
Under the doctrine of primary jurisdiction, courts cannot and will not
resolve a controversy involving a question which is within the
jurisdiction of an administrative tribunal, especially where the question
demands the exercise of sound administrative discretion requiring the
special knowledge, experience and services of the administrative
tribunal to determine technical and intricate matters of fact.33
Nevertheless, the Court will proceed to resolve the substantial issues
in the present petition pursuant to the well-accepted principle that
acceptance of a petition for certiorari or prohibition as well as the grant
of due course thereto is addressed to the sound discretion of the
court.34 It is a well-entrenched principle that rules of procedure are not
inflexible tools designed to hinder or delay, but to facilitate and promote
the administration of justice. Their strict and rigid application, which
would result in technicalities that tend to frustrate, rather than promote
substantial justice, must always be eschewed.35
As to respondents' submission that the implementation of the Wage
Order can no longer be restrained since it has become fait accompli,
the Wage Order having taken effect on January 1, 1996 and its
implementing rules approved on February 14, 1996, suffice it to state
that courts will decide a question otherwise moot if it is capable of
repetition yet evading review.36 Besides, a case becomes moot and
academic only when there is no more actual controversy between the
parties or no useful purpose can be served in passing upon the merits.
Such circumstances do not obtain in the present case. The
implementation of the Wage Order does not in any way render the
case moot and academic, since the issue of the validity of the wage
order subsists even after its implementation and which has to be

In line with its declared policy, R.A. No. 672740 created the
NWPC,41 vested with the power to prescribe rules and guidelines for
the determination of appropriate minimum wage and productivity
measures at the regional, provincial or industry levels;42 and authorized
the RTWPB to determine and fix the minimum wage rates applicable in
their respective regions, provinces, or industries therein and issue the
corresponding wage orders, subject to the guidelines issued by the
NWPC.43 Pursuant to its wage fixing authority, the RTWPB may issue
wage orders which set the daily minimum wage rates, 44 based on the
standards or criteria set by Article 12445 of the Labor Code.
In ECOP,46 the Court declared that there are two ways of fixing the
minimum wage: the "floor-wage" method and the "salary-ceiling"
method. The "floor-wage" method involves the fixing of a determinate
amount to be added to the prevailing statutory minimum wage rates.
On the other hand, in the "salary-ceiling" method, the wage adjustment
was to be applied to employees receiving a certain denominated salary
ceiling. In other words, workers already being paid more than the
existing minimum wage (up to a certain amount stated in the Wage
Order) are also to be given a wage increase.47
To illustrate: under the "floor wage method", it would have been
sufficient if the Wage Order simply set P15.00 as the amount to be
added to the prevailing statutory minimum wage rates, while in the
"salary-ceiling method", it would have been sufficient if the Wage Order
states a specific salary, such as P250.00, and only those earning
below it shall be entitled to the salary increase.
In the present case, the RTWPB did not determine or fix the minimum
wage rate by the "floor-wage method" or the "salary-ceiling method" in
issuing the Wage Order. The RTWPB did not set a wage level nor a
range to which a wage adjustment or increase shall be added. Instead,
it granted an across-the-board wage increase of P15.00 to all

Page 4 of 33

employees and workers of Region 2. In doing so, the RTWPB

exceeded its authority by extending the coverage of the Wage Order to
wage earners receiving more than the prevailing minimum wage rate,
without a denominated salary ceiling. As correctly pointed out by the
OSG, the Wage Order granted additional benefits not contemplated by
R.A. No. 6727.
In no uncertain terms must it be stressed that the function of
promulgating rules and regulations may be legitimately exercised only
for the purpose of carrying out the provisions of a law. The power of
administrative agencies is confined to implementing the law or putting
it into effect. Corollary to this guideline is that administrative regulation
cannot extend the law and amend a legislative enactment.48 It is
axiomatic that the clear letter of the law is controlling and cannot be
amended by a mere administrative rule issued for its
implementation.49 Indeed, administrative or executive acts, orders, and
regulations shall be valid only when they are not contrary to the laws or
the Constitution.50
Where the legislature has delegated to an executive or administrative
officers and boards authority to promulgate rules to carry out an
express legislative purpose, the rules of administrative officers and
boards, which have the effect of extending, or which conflict with the
authority-granting statute, do not represent a valid exercise of the rulemaking power but constitute an attempt by an administrative body to
legislate.51
It has been said that when the application of an administrative
issuance modifies existing laws or exceeds the intended scope, as in
this case, the issuance becomes void, not only for being ultra vires, but
also for being unreasonable.52
Thus, the Court finds that Section 1, Wage Order No. R02-03 is void
insofar as it grants a wage increase to employees earning more than
the minimum wage rate; and pursuant to the separability clause53 of
the Wage Order, Section 1 is declared valid with respect to employees
earning the prevailing minimum wage rate.1awphi1.net
Prior to the passage of the Wage Order, the daily minimum wage rates
in Region II was set at P104.00 for the Province of Isabela, P103.00 for
the Province of Cagayan, P101.00 for the Province of Nueva Vizcaya,
andP100.00 for the Provinces of Quirino and Batanes.54 Only
employees earning the above-stated minimum wage rates are entitled
to the P15.00 mandated increase under the Wage Order.
Although the concomitant effect of the nullity of the Wage Order to
those employees who have received the mandated increase was not
put in issue, this Court shall make a definite pronouncement thereon to
finally put this case to rest. As ruled by the Court in Latchme
Motoomull v. Dela Paz,55 "the Court will always strive to settle the
entire controversy in a single proceeding leaving no root or branch to
bear the seeds of future litigation."56
Applying by analogy, the Court's recent pronouncement in Philippine
Ports Authority v. Commission on Audit,57thus:
In regard to the refund of the disallowed benefits, this Court holds that
petitioners need not refund the benefits received by them based on our
rulings in Blaquera v. Alcala, De Jesus v. Commission on
Audit and Kapisanan ng mga Manggagawa sa Government Service
Insurance System (KMG) v. Commission on Audit.

In Blaquera, the petitioners, who were officials and employees of

several government departments and agencies, were paid incentive
benefits pursuant to EO No. 292 and the Omnibus Rules Implementing
Book V of EO No. 292. On January 3, 1993, then President Fidel V.
Ramos issued Administrative Order (AO) No. 29 authorizing the grant
of productivity incentive benefits for the year 1992 in the maximum
amount of P1,000. Section 4 of AO No. 29 directed all departments,
offices and agencies which authorized payment of CY 1992
Productivity Incentive Bonus in excess of P1,000 to immediately cause
the refund of the excess. Respondent heads of the departments or
agencies of the government concerned caused the deduction from
petitioners' salaries or allowances of the amounts needed to cover the
overpayments. Petitioners therein filed a petition for certiorari and
prohibition before this Court to prevent respondents therein from
making further deductions from their salaries or allowances. The Court
ruled against the refund, thus:
Considering, however, that all the parties here acted in good faith,
we cannot countenance the refund of subject incentive benefits
for the year 1992, which amounts the petitioners have already
received. Indeed, no indicia of bad faith can be detected under the
attendant facts and circumstances. The officials and chiefs of
offices concerned disbursed such incentive benefits in the honest
belief that the amounts given were due to the recipients and the
latter accepted the same with gratitude, confident that they richly
deserve such benefits.
The said ruling in Blaquera was applied in De Jesus.
In De Jesus, COA disallowed the payment of allowances and bonuses
consisting of representation and transportation allowance, rice
allowance, productivity incentive bonus, anniversary bonus, year-end
bonus and cash gifts to members of the interim Board of Directors of
the Catbalogan Water District. This Court affirmed the disallowance
because petitioners therein were not entitled to other compensation
except for payment of per diemunder PD No. 198. However, the Court
ruled against the refund of the allowances and bonuses received by
petitioners, thus:
This ruling in Blaquera applies to the instant case. Petitioners here
received the additional allowances and bonuses in good faith
under the honest belief that LWUA Board Resolution No. 313
authorized such payment. At the time petitioners received the
additional allowances and bonuses, the Court had not yet
decided Baybay Water District. Petitioners had no knowledge that
such payment was without legal basis. Thus, being in good faith,
petitioners need not refund the allowances and bonuses they
received but disallowed by the COA.
Further, in KMG, this Court applied the ruling in Blaquera and De
Jesus in holding that the Social Insurance Group (SIG) personnel of
the Government Service Insurance System need not refund the hazard
pay received by them although said benefit was correctly disallowed by
COA. The Court ruled:
The Court however finds that the DOH and GSIS officials
concerned who granted hazard pay under R.A. No. 7305 to the
SIG personnel acted in good faith, in the honest belief that there
was legal basis for such grant. The SIG personnel in turn
accepted the hazard pay benefits likewise believing that they were
entitled to such benefit. At that time, neither the concerned DOH
and GSIS officials nor the SIG personnel knew that the grant of
hazard pay to the latter is not sanctioned by law. Thus, following

Page 5 of 33

the rulings of the Court in De Jesus v. Commission on Audit,

and Blaquera v. Alcala, the SIG personnel who previously
received hazard pay under R.A. No. 7305 need not refund such
benefits.
In the same vein, the rulings in Blaquera, De Jesus and KMG apply to
this case. Petitioners received the hazard duty pay and birthday cash
gift in good faith since the benefits were authorized by PPA Special
Order No. 407-97 issued pursuant to PPA Memorandum Circular No.
34-95 implementing DBM National Compensation Circular No. 76,
series of 1995, and PPA Memorandum Circular No. 22-97,
respectively. Petitioners at that time had no knowledge that the
payment of said benefits lacked legal basis. Being in good faith,
petitioners need not refund the benefits they received.58 (Emphasis
supplied)
employees, other than minimum wage earners, who received the wage
increase mandated by the Wage Order need not refund the wage
increase received by them since they received the wage increase in
good faith, in the honest belief that they are entitled to such wage
increase and without any knowledge that there was no legal basis for
the same.
Considering the foregoing, the Court need not delve on the other
arguments raised by the parties.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of
the Court of Appeals dated July 19, 2000 in CA-G.R. SP No. 42240
is MODIFIED. Section 1 of Wage Order No. R02-03 issued on October
17, 1995 by the Regional Tripartite Wages and Productivity Board for
Region II, Tuguegarao, Cagayan is declared VALID insofar as the
mandated increase applies to employees earning the prevailing
minimum wage rate at the time of the passage of the Wage Order
and VOID with respect to its application to employees receiving more
than the prevailing minimum wage rate at the time of the passage of
the Wage Order.
No costs.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 146530

January 17, 2005

PEDRO CHAVEZ, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, SUPREME
PACKAGING, INC. and ALVIN LEE, Plant Manager, respondents.
DECISION
CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari of the

Resolution1 dated December 15, 2000 of the Court of Appeals (CA)
reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485.
The assailed resolution reinstated the Decision dated July 10, 1998 of
the National Labor Relations Commission (NLRC), dismissing the
complaint for illegal dismissal filed by herein petitioner Pedro Chavez.
The said NLRC decision similarly reversed its earlier Decision dated
January 27, 1998 which, affirming that of the Labor Arbiter, ruled that
the petitioner had been illegally dismissed by respondents Supreme
Packaging, Inc. and Mr. Alvin Lee.
The case stemmed from the following facts:
The respondent company, Supreme Packaging, Inc., is in the business
of manufacturing cartons and other packaging materials for export and
distribution. It engaged the services of the petitioner, Pedro Chavez, as
truck driver on October 25, 1984. As such, the petitioner was tasked to
deliver the respondent companys products from its factory in
Mariveles, Bataan, to its various customers, mostly in Metro Manila.
The respondent company furnished the petitioner with a truck. Most of
the petitioners delivery trips were made at nighttime, commencing at
6:00 p.m. from Mariveles, and returning thereto in the afternoon two or
three days after. The deliveries were made in accordance with the
routing slips issued by respondent company indicating the order, time
and urgency of delivery. Initially, the petitioner was paid the sum
of P350.00 per trip. This was later adjusted to P480.00 per trip and, at
the time of his alleged dismissal, the petitioner was receiving P900.00
per trip.
Sometime in 1992, the petitioner expressed to respondent Alvin Lee,
respondent companys plant manager, his (the petitioners) desire to
avail himself of the benefits that the regular employees were receiving
such as overtime pay, nightshift differential pay, and 13th month pay,
among others. Although he promised to extend these benefits to the
petitioner, respondent Lee failed to actually do so.
On February 20, 1995, the petitioner filed a complaint for regularization
with the Regional Arbitration Branch No. III of the NLRC in San
Fernando, Pampanga. Before the case could be heard, respondent
company terminated the services of the petitioner. Consequently, on
May 25, 1995, the petitioner filed an amended complaint against the
respondents for illegal dismissal, unfair labor practice and nonpayment of overtime pay, nightshift differential pay, 13th month pay,
among others. The case was docketed as NLRC Case No. RAB-III-026181-95.
The respondents, for their part, denied the existence of an employeremployee relationship between the respondent company and the
petitioner. They averred that the petitioner was an independent
contractor as evidenced by the contract of service which he and the
respondent company entered into. The said contract provided as
follows:
That the Principal [referring to Supreme Packaging, Inc.], by these
presents, agrees to hire and the Contractor [referring to Pedro
Chavez], by nature of their specialized line or service jobs, accepts the
services to be rendered to the Principal, under the following terms and
covenants heretofore mentioned:
1. That the inland transport delivery/hauling activities to be
performed by the contractor to the principal, shall only cover
travel route from Mariveles to Metro Manila. Otherwise, any

Page 6 of 33

change to this travel route shall be subject to further

agreement by the parties concerned.
2. That the payment to be made by the Principal for any
hauling or delivery transport services fully rendered by the
Contractor shall be on a per trip basis depending on the size
or classification of the truck being used in the transport
service, to wit:
a) If the hauling or delivery service shall require a
truck of six wheeler, the payment on a per trip
basis from Mariveles to Metro Manila shall be
THREE HUNDRED PESOS (P300.00) and
EFFECTIVE December 15, 1984.
b) If the hauling or delivery service require a truck
of ten wheeler, the payment on a per trip basis,
following the same route mentioned, shall be
THREE HUNDRED FIFTY (P350.00) Pesos and
Effective December 15, 1984.
3. That for the amount involved, the Contractor will be to [sic]
provide for [sic] at least two (2) helpers;
4. The Contractor shall exercise direct control and shall be
responsible to the Principal for the cost of any damage to,
loss of any goods, cargoes, finished products or the like,
while the same are in transit, or due to reckless [sic] of its
men utilized for the purpose above mentioned;
5. That the Contractor shall have absolute control and
disciplinary power over its men working for him subject to
this agreement, and that the Contractor shall hold the
Principal free and harmless from any liability or claim that
may arise by virtue of the Contractors non-compliance to the
existing provisions of the Minimum Wage Law, the
Employees Compensation Act, the Social Security System
Act, or any other such law or decree that may hereafter be
enacted, it being clearly understood that any truck drivers,
helpers or men working with and for the Contractor, are not
employees who will be indemnified by the Principal for any
such claim, including damages incurred in connection
therewith;
6. This contract shall take effect immediately upon the
signing by the parties, subject to renewal on a year-to-year
basis.2
This contract of service was dated December 12, 1984. It was
subsequently renewed twice, on July 10, 1989 and September 28,
1992. Except for the rates to be paid to the petitioner, the terms of the
contracts were substantially the same. The relationship of the
respondent company and the petitioner was allegedly governed by this
contract of service.
The respondents insisted that the petitioner had the sole control over
the means and methods by which his work was accomplished. He paid
the wages of his helpers and exercised control over them. As such, the
petitioner was not entitled to regularization because he was not an
employee of the respondent company. The respondents, likewise,
maintained that they did not dismiss the petitioner. Rather, the
severance of his contractual relation with the respondent company was

due to his violation of the terms and conditions of their contract. The
petitioner allegedly failed to observe the minimum degree of diligence
in the proper maintenance of the truck he was using, thereby exposing
respondent company to unnecessary significant expenses of
overhauling the said truck.
After the parties had filed their respective pleadings, the Labor Arbiter
rendered the Decision dated February 3, 1997, finding the respondents
guilty of illegal dismissal. The Labor Arbiter declared that the petitioner
was a regular employee of the respondent company as he was
performing a service that was necessary and desirable to the latters
business. Moreover, it was noted that the petitioner had discharged his
duties as truck driver for the respondent company for a continuous and
uninterrupted period of more than ten years.
The contract of service invoked by the respondents was declared null
and void as it constituted a circumvention of the constitutional provision
affording full protection to labor and security of tenure. The Labor
Arbiter found that the petitioners dismissal was anchored on his
insistent demand to be regularized. Hence, for lack of a valid and just
cause therefor and for their failure to observe the due process
requirements, the respondents were found guilty of illegal dismissal.
The dispositive portion of the Labor Arbiters decision states:
WHEREFORE, in the light of the foregoing, judgment is hereby
rendered declaring respondent SUPREME PACKAGING, INC. and/or
MR. ALVIN LEE, Plant Manager, with business address at BEPZ,
Mariveles, Bataan guilty of illegal dismissal, ordering said respondent
to pay complainant his separation pay equivalent to one (1) month pay
per year of service based on the average monthly pay of P10,800.00 in
lieu of reinstatement as his reinstatement back to work will not do any
good between the parties as the employment relationship has already
become strained and full backwages from the time his compensation
was withheld on February 23, 1995 up to January 31, 1997 (cut-off
date) until compliance, otherwise, his backwages shall continue to run.
Also to pay complainant his 13th month pay, night shift differential pay
and service incentive leave pay hereunder computed as follows:
a) Backwages .. P248,400.00
b) Separation Pay .... P140,400.00
c) 13th month pay .P 10,800.00
d) Service Incentive Leave Pay .. 2,040.00
TOTAL P401,640.00
Respondent is also ordered to pay ten (10%) of the amount due the
complainant as attorneys fees.
SO ORDERED.3
The respondents seasonably interposed an appeal with the NLRC.
However, the appeal was dismissed by the NLRC in its Decision4 dated
January 27, 1998, as it affirmed in toto the decision of the Labor
Arbiter. In the said decision, the NLRC characterized the contract of
service between the respondent company and the petitioner as a
"scheme" that was resorted to by the respondents who, taking
advantage of the petitioners unfamiliarity with the English language
and/or legal niceties, wanted to evade the effects and implications of
his becoming a regularized employee.5

Page 7 of 33

The respondents sought reconsideration of the January 27, 1998

Decision of the NLRC. Acting thereon, the NLRC rendered another
Decision6 dated July 10, 1998, reversing its earlier decision and, this
time, holding that no employer-employee relationship existed between
the respondent company and the petitioner. In reconsidering its earlier
decision, the NLRC stated that the respondents did not exercise
control over the means and methods by which the petitioner
accomplished his delivery services. It upheld the validity of the contract
of service as it pointed out that said contract was silent as to the time
by which the petitioner was to make the deliveries and that the
petitioner could hire his own helpers whose wages would be paid from
his own account. These factors indicated that the petitioner was an
independent contractor, not an employee of the respondent company.
The NLRC ruled that the contract of service was not intended to
circumvent Article 280 of the Labor Code on the regularization of
employees. Said contract, including the fixed period of employment
contained therein, having been knowingly and voluntarily entered into
by the parties thereto was declared valid citing Brent School, Inc. v.
Zamora.7 The NLRC, thus, dismissed the petitioners complaint for
illegal dismissal.
The petitioner sought reconsideration of the July 10, 1998 Decision but
it was denied by the NLRC in its Resolution dated September 7, 1998.
He then filed with this Court a petition for certiorari, which was referred
to the CA following the ruling in St. Martin Funeral Home v. NLRC .8
The appellate court rendered the Decision dated April 28, 2000,
reversing the July 10, 1998 Decision of the NLRC and reinstating the
decision of the Labor Arbiter. In the said decision, the CA ruled that the
petitioner was a regular employee of the respondent company because
as its truck driver, he performed a service that was indispensable to the
latters business. Further, he had been the respondent companys truck
driver for ten continuous years. The CA also reasoned that the
petitioner could not be considered an independent contractor since he
had no substantial capital in the form of tools and machinery. In fact,
the truck that he drove belonged to the respondent company. The CA
also observed that the routing slips that the respondent company
issued to the petitioner showed that it exercised control over the latter.
The routing slips indicated the chronological order and priority of
delivery, the urgency of certain deliveries and the time when the goods
were to be delivered to the customers.
The CA, likewise, disbelieved the respondents claim that the petitioner
abandoned his job noting that he just filed a complaint for
regularization. This actuation of the petitioner negated the respondents
allegation that he abandoned his job. The CA held that the
respondents failed to discharge their burden to show that the
petitioners dismissal was for a valid and just cause. Accordingly, the
respondents were declared guilty of illegal dismissal and the decision
of the Labor Arbiter was reinstated.
In its April 28, 2000 Decision, the CA denounced the contract of service
between the respondent company and the petitioner in this wise:
In summation, we rule that with the proliferation of contracts seeking to
prevent workers from attaining the status of regular employment, it is
but necessary for the courts to scrutinize with extreme caution their
legality and justness. Where from the circumstances it is apparent that
a contract has been entered into to preclude acquisition of tenurial
security by the employee, they should be struck down and disregarded
as contrary to public policy and morals. In this case, the "contract of
service" is just another attempt to exploit the unwitting employee and

deprive him of the protection of the Labor Code by making it appear

that the stipulations of the parties were governed by the Civil Code as
in ordinary transactions.9
However, on motion for reconsideration by the respondents, the CA
made a complete turn around as it rendered the assailed Resolution
dated December 15, 2000 upholding the contract of service between
the petitioner and the respondent company. In reconsidering its
decision, the CA explained that the extent of control exercised by the
respondents over the petitioner was only with respect to the result but
not to the means and methods used by him. The CA cited the following
circumstances: (1) the respondents had no say on how the goods were
to be delivered to the customers; (2) the petitioner had the right to
employ workers who would be under his direct control; and (3) the
petitioner had no working time.
The fact that the petitioner had been with the respondent company for
more than ten years was, according to the CA, of no moment because
his status was determined not by the length of service but by the
contract of service. This contract, not being contrary to morals, good
customs, public order or public policy, should be given the force and
effect of law as between the respondent company and the petitioner.
Consequently, the CA reinstated the July 10, 1998 Decision of the
NLRC dismissing the petitioners complaint for illegal dismissal.
Hence, the recourse to this Court by the petitioner. He assails the
December 15, 2000 Resolution of the appellate court alleging that:
(A)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN
GIVING MORE CONSIDERATION TO THE "CONTRACT OF
SERVICE" ENTERED INTO BY PETITIONER AND PRIVATE
RESPONDENT THAN ARTICLE 280 OF THE LABOR CODE OF THE
PHILIPPINES WHICH CATEGORICALLY DEFINES A REGULAR
EMPLOYMENT NOTWITHSTANDING ANY WRITTEN AGREEMENT
TO THE CONTRARY AND REGARDLESS OF THE ORAL
AGREEMENT OF THE PARTIES;
(B)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN
REVERSING ITS OWN FINDINGS THAT PETITIONER IS A
REGULAR EMPLOYEE AND IN HOLDING THAT THERE EXISTED
NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN PRIVATE
RESPONDENT AND PETITIONER IN AS MUCH AS THE "CONTROL
TEST" WHICH IS CONSIDERED THE MOST ESSENTIAL
CRITERION IN DETERMINING THE EXISTENCE OF SAID
RELATIONSHIP IS NOT PRESENT.10
The threshold issue that needs to be resolved is whether there existed
an employer-employee relationship between the respondent company
and the petitioner. We rule in the affirmative.
The elements to determine the existence of an employment
relationship are: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the
employers power to control the employees conduct.11 The most
important element is the employers control of the employees conduct,
not only as to the result of the work to be done, but also as to the

Page 8 of 33

means and methods to accomplish it.12 All the four elements are
present in this case.
First. Undeniably, it was the respondents who engaged the services of
the petitioner without the intervention of a third party.
Second. Wages are defined as "remuneration or earnings, however
designated, capable of being expressed in terms of money, whether
fixed or ascertained on a time, task, piece or commission basis, or
other method of calculating the same, which is payable by an employer
to an employee under a written or unwritten contract of employment for
work done or to be done, or for service rendered or to be
rendered."13 That the petitioner was paid on a per trip basis is not
significant. This is merely a method of computing compensation and
not a basis for determining the existence or absence of employeremployee relationship. One may be paid on the basis of results or time
expended on the work, and may or may not acquire an employment
status, depending on whether the elements of an employer-employee
relationship are present or not.14 In this case, it cannot be gainsaid that
the petitioner received compensation from the respondent company for
the services that he rendered to the latter.
Moreover, under the Rules Implementing the Labor Code, every
employer is required to pay his employees by means of payroll. 15 The
payroll should show, among other things, the employees rate of pay,
deductions made, and the amount actually paid to the employee.
Interestingly, the respondents did not present the payroll to support
their claim that the petitioner was not their employee, raising
speculations whether this omission proves that its presentation would
be adverse to their case.16
Third. The respondents power to dismiss the petitioner was inherent in
the fact that they engaged the services of the petitioner as truck driver.
They exercised this power by terminating the petitioners services
albeit in the guise of "severance of contractual relation" due allegedly
to the latters breach of his contractual obligation.
Fourth. As earlier opined, of the four elements of the employeremployee relationship, the "control test" is the most important.
Compared to an employee, an independent contractor is one who
carries on a distinct and independent business and undertakes to
perform the job, work, or service on its own account and under its own
responsibility according to its own manner and method, free from the
control and direction of the principal in all matters connected with the
performance of the work except as to the results thereof.17 Hence,
while an independent contractor enjoys independence and freedom
from the control and supervision of his principal, an employee is
subject to the employers power to control the means and methods by
which the employees work is to be performed and accomplished.18
Although the respondents denied that they exercised control over the
manner and methods by which the petitioner accomplished his work, a
careful review of the records shows that the latter performed his work
as truck driver under the respondents supervision and control. Their
right of control was manifested by the following attendant
circumstances:
1. The truck driven by the petitioner belonged to respondent
company;
2. There was an express instruction from the respondents
that the truck shall be used exclusively to deliver respondent
companys goods; 19

3. Respondents directed the petitioner, after completion of

each delivery, to park the truck in either of two specific
places only, to wit: at its office in Metro Manila at 2320
Osmea Street, Makati City or at BEPZ, Mariveles,
Bataan;20 and
4. Respondents determined how, where and when the
petitioner would perform his task by issuing to him gate
passes and routing slips. 21
a. The routing slips indicated on the column
REMARKS, the chronological order and priority of
delivery such as 1st drop, 2nd drop, 3rd drop, etc.
This meant that the petitioner had to deliver the
same according to the order of priority indicated
therein.
b. The routing slips, likewise, showed whether the
goods were to be delivered urgently or not by the
word RUSH printed thereon.
c. The routing slips also indicated the exact time
as to when the goods were to be delivered to the
customers as, for example, the words "tomorrow
morning" was written on slip no. 2776.
These circumstances, to the Courts mind, prove that the respondents
exercised control over the means and methods by which the petitioner
accomplished his work as truck driver of the respondent company. On
the other hand, the Court is hard put to believe the respondents
allegation that the petitioner was an independent contractor engaged in
providing delivery or hauling services when he did not even own the
truck used for such services. Evidently, he did not possess substantial
capitalization or investment in the form of tools, machinery and work
premises. Moreover, the petitioner performed the delivery services
exclusively for the respondent company for a continuous and
uninterrupted period of ten years.
The contract of service to the contrary notwithstanding, the factual
circumstances earlier discussed indubitably establish the existence of
an employer-employee relationship between the respondent company
and the petitioner. It bears stressing that the existence of an employeremployee relationship cannot be negated by expressly repudiating it in
a contract and providing therein that the employee is an independent
contractor when, as in this case, the facts clearly show otherwise.
Indeed, the employment status of a person is defined and prescribed
by law and not by what the parties say it should be.22
Having established that there existed an employer-employee
relationship between the respondent company and the petitioner, the
Court shall now determine whether the respondents validly dismissed
the petitioner.
As a rule, the employer bears the burden to prove that the dismissal
was for a valid and just cause.23 In this case, the respondents failed to
prove any such cause for the petitioners dismissal. They insinuated
that the petitioner abandoned his job. To constitute abandonment,
these two factors must concur: (1) the failure to report for work or
absence without valid or justifiable reason; and (2) a clear intention to
sever employer-employee relationship.24Obviously, the petitioner did
not intend to sever his relationship with the respondent company for at
the time that he allegedly abandoned his job, the petitioner just filed a
complaint for regularization, which was forthwith amended to one for

Page 9 of 33

illegal dismissal. A charge of abandonment is totally inconsistent with

the immediate filing of a complaint for illegal dismissal, more so when it
includes a prayer for reinstatement.25
Neither can the respondents claim that the petitioner was guilty of
gross negligence in the proper maintenance of the truck constitute a
valid and just cause for his dismissal. Gross negligence implies a want
or absence of or failure to exercise slight care or diligence, or the entire
absence of care. It evinces a thoughtless disregard of consequences
without exerting any effort to avoid them.26 The negligence, to warrant
removal from service, should not merely be gross but
also habitual.27 The single and isolated act of the petitioners
negligence in the proper maintenance of the truck alleged by the
respondents does not amount to "gross and habitual neglect"
warranting his dismissal.
The Court agrees with the following findings and conclusion of the
Labor Arbiter:
As against the gratuitous allegation of the respondent that
complainant was not dismissed from the service but due to
complainants breach of their contractual relation, i.e., his violation of
the terms and conditions of the contract, we are very much inclined to
believe complainants story that his dismissal from the service was
anchored on his insistent demand that he be considered a regular
employee. Because complainant in his right senses will not just
abandon for that reason alone his work especially so that it is only his
job where he depends chiefly his existence and support for his family if
he was not aggrieved by the respondent when he was told that his
services as driver will be terminated on February 23, 1995.28
Thus, the lack of a valid and just cause in terminating the services of
the petitioner renders his dismissal illegal. Under Article 279 of the
Labor Code, an employee who is unjustly dismissed is entitled to
reinstatement, without loss of seniority rights and other privileges, and
to the payment of full backwages, inclusive of allowances, and other
benefits or their monetary equivalent, computed from the time his
compensation was withheld from him up to the time of his actual
reinstatement.29 However, as found by the Labor Arbiter, the
circumstances obtaining in this case do not warrant the petitioners
reinstatement. A more equitable disposition, as held by the Labor
Arbiter, would be an award of separation pay equivalent to one month
for every year of service from the time of his illegal dismissal up to the
finality of this judgment in addition to his full backwages, allowances
and other benefits.
WHEREFORE, the instant petition is GRANTED. The Resolution dated
December 15, 2000 of the Court of Appeals reversing its Decision
dated April 28, 2000 in CA-G.R. SP No. 52485 is REVERSED and SET
ASIDE. The Decision dated February 3, 1997 of the Labor Arbiter in
NLRC Case No. RAB-III-02-6181-5, finding the respondents guilty of
illegally terminating the employment of petitioner Pedro Chavez, is
REINSTATED.

FIRST DIVISION

G.R. No. 122468 November 16, 1998

SENTINEL SECURITY AGENCY, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, ADRIANO
CABANO JR., VERONICO C. ZAMBO, HELCIAS ARROYO,
RUSTICO ANDOY, and MAXIMO ORTIZ, respondents.
G.R. No. 122716 November 16, 1998
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, VERONICO
ZAMBO, HELCIAS ARROYO, ADRIANO CABANO, MAXIMO ORTIZ,
and RUSTICO ANDOY, respondents.
RESOLUTION

PANGANIBAN, J.:
Separately filed before us by Petitioners Sentinel Security Agency, Inc.
and Philippine American Life Insurance Company (hereafter referred to
as the Agency and the Client, respectively) are two Motions for
Reconsideration of this Court's September 3, 1998 Decision in GR
Nos. 122468 and 122716.
Petitioner Agency, in its Motion for Reconsideration, merely reiterates
the same basic issues and arguments already submitted to the Court,
which has sufficiently passed upon them in the assailed Decision.
Thus, they cannot warrant a modification, much less a reversal, of our
dispositions therein.
On the other hand, Petitioner Client requests a clarification of its own
liability. That the complainants' illegal dismissal was the sole
responsibility of the Agency was clearly stated by the Court in the
assailed Decision, which we quote hereunder:
. . . [T]here was no suspension of operation,
business or undertaking, bona fide or not, that
would have justified placing the complainants offdetail and making them wait for a period of six
months. . . . The only logical conclusion from the
foregoing discussion is that the Agency illegally
dismissed the complainants. Hence, as a
necessary consequence, the complainants are
entitled to . . . back wages. . . . . 1

SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ.,
concur.
Republic of the Philippines
SUPREME COURT
Manila

Relevant to this controversy is the recent pronouncement of the Court

in Rosewood v. National Labor Relations Commission: 2
. . . [A]n order to pay back wages and separation
pay is invested with a punitive character, such that
an indirect employer should not be made liable
without a finding that it had committed or
conspired in the illegal dismissal.

Page 10 of 33

In the present case, the Court held that the Client was not responsible
for the illegal dismissal of the complainants and, thus, not liable for the
payment of back wages and separation pay, viz.:
The Client did not, as it could not, illegally dismiss
the complainants. Thus, if should not be held liable
for separation pay and back wages. 3
In sum, while the exoneration of the Client from the payment of
separation pay and back wages was clearly stated in the body of our
Decision, such fact was not included in the dispositive portion. In this
sense, the Motion for Reconsideration has merit.
However, the Decision did not completely exonerate the Client which,
as an indirect employer, is solidarily liable with Petitioner Agency for
the complainants' unpaid service incentive leave, pursuant to Articles
106, 107 and 109 of the Code. As clarified by the Court in Rosewood:
. . . Under these cited provisions of the Labor
Code should the contractor fail to pay the wages
of its employees in accordance with law, the
indirect employer (the petitioner in this case), is
jointly and severally liable with the contractor, but
such responsibility should be understood to be
limited to the extent of the work performed under
the contract, in the same manner and extent that
he is liable to the employees directly employed by
him. This liability of petitioner covers the payment
of the workers' performance of any work, task, job
or project. So long as the work, task, job or project
has been performed for petitioner's benefit or on
its behalf, the liability accrues for such period even
if, later on, the employees are eventually
transferred or reassigned elsewhere.
The complainants' service incentive leave pay accrued to them during
the years 1991-1993; that is, before they were illegally dismissed by
the Agency on January 16, 1994, as clearly shown in the labor arbiter's
computation (see last page of Annex "A" to the Petition; rollo, p. 31).
WHEREFORE, the Motion for Reconsideration filed by the Agency is
hereby DENIED, as it (1) raises the same basic issues already
sufficiently passed upon in the Court's Decision and (2) fails to submit
any substantial argument to warrant reversal or modification thereof
insofar as its liabilities are concerned. The Motion for Reconsideration
filed by the Client is GRANTED IN PART. We hereby CLARIFY that for
complainants' back wages and separation pay, Philippine American
Life Insurance Company is ABSOLVED from liability; but for
complainants' service incentive leave pay, its solidary liability with the
Agency is REITERATED.
SO ORDERED.
Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 148130

June 16, 2006

PETROLEUM SHIPPING LIMITED (formerly ESSO

INTERNATIONAL SHIPPING (BAHAMAS) CO., LTD.) and TRANSGLOBAL MARITIME AGENCY, INC., Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and FLORELLO W.
TANCHICO, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 assailing the 25 January 2001
Decision2 and 7 May 2001 Resolution3 of the Court of Appeals in CAG.R. SP No. 54756.
The Antecedent Facts
On 6 March 1978, Esso International Shipping (Bahamas) Co., Ltd.,
("Esso") through Trans-Global Maritime Agency, Inc. ("Trans-Global")
hired Florello W. Tanchico ("Tanchico") as First Assistant Engineer. In
1981, Tanchico became Chief Engineer. On 13 October 1992, Tanchico
returned to the Philippines for a two-month vacation after completing
his eight-month deployment.
On 8 December 1992, Tanchico underwent the required standard
medical examination prior to boarding the vessel. The medical
examination revealed that Tanchico was suffering from "Ischemic Heart
Disease, Hypertensive Cardio-Muscular Disease and Diabetes
Mellitus." Tanchico took medications for two months and a subsequent
stress test showed a negative result. However, Esso no longer
deployed Tanchico. Instead, Esso offered to pay him benefits under the
Career Employment Incentive Plan. Tanchico accepted the offer.
On 26 April 1993, Tanchico filed a complaint against Esso, TransGlobal and Malayan Insurance Co., Inc. ("Malayan") before the
Philippine Overseas Employment Administration (POEA) for illegal
dismissal with claims for backwages, separation pay, disability and
medical benefits and 13th month pay. In view of the enactment of
Republic Act No. 8042 ("RA 8042")4 transferring to the National Labor
Relations Commission (NLRC) the jurisdiction over money claims of
overseas workers, the case was indorsed to the Arbitration Branch of
the National Capital Region. In a Decision5 dated 16 October 1996,
Labor Arbiter Jose G. De Vera ("Labor Arbiter De Vera") dismissed the
complaint for lack of merit. Tanchico appealed to the NLRC.
The Ruling of the NLRC
In its Resolution6 of 3 September 1998, the NLRC affirmed the
Decision of Labor Arbiter De Vera. Tanchico filed a motion for
reconsideration. In a Resolution7 promulgated on 29 March 1999, the
NLRC reconsidered its 3 September 1998 Resolution, as follows:
On the claim of illegal dismissal, the same is unavailing as complainant
had been declared as one with partial permanent disability. Thus, he
should be entitled to disability benefit of 18 days for every year of
credited service of fourteen (14) years less the amount he already
received under the Companys Disability Plan.
On the claim of 13th month pay, the respondent Agency not falling
under the enumerated exempted employers under P.D. 851 and in the
absence of any proof that respondent is already paying its employees

Page 11 of 33

a 13th month pay or more in a calendar year, perforce, respondent

agency should pay complainant his monthly pay computed at [sic] the
actual month [sic] worked, which is 8 months.

private respondent was entitled to 13th month pay although

it was not provided for in the contract of employment
between petitioners and private respondent; and

Since complainant was forced to litigate his case, he is hereby

awarded 10% of the total award as attorneys fees.

IV. The Court of Appeals decided a question of substance

not in accord with law when it awarded private respondent
attorneys fees despite the Labor Arbiters and the public
respondents, albeit initially, dismissal of the complaint. 13

SO ORDERED.8
Esso and Trans-Global moved for the reconsideration of the 29 March
1999 Resolution.9 In its 27 July 1999 Resolution,10 the NLRC denied
their motion.
Esso, now using the name Petroleum Shipping Limited ("Petroleum
Shipping"), and Trans-Global (collectively referred to as "petitioners")
filed a petition for certiorari before the Court of Appeals assailing the 29
March 1999 and 27 July 1999 Resolutions of the NLRC.

The Issues
The issues are as follows:
1. Whether Tanchico is a regular employee of petitioners;
and
2. Whether Tanchico is entitled to 13th month pay, disability
benefits and attorneys fees.

The Ruling of the Court of Appeals

The Ruling of This Court
In its Decision promulgated on 25 January 2001, the Court of Appeals
affirmed in toto the 29 March 1999 Resolution of the NLRC.
The Court of Appeals ruled that Tanchico was a regular employee of
Petroleum Shipping. The Court of Appeals held that petitioners are not
exempt from the coverage of Presidential Decree No. 851, as
amended ("PD 851")11which mandates the payment of 13th month pay
to all employees. The Court of Appeals further ruled that Tanchico is
entitled to disability benefits based on his 14 years of tenure with
petitioners. The Court of Appeals stated that the employer-employee
relationship subsisted even during the period of Tanchicos vacation.
The Court of Appeals noted that petitioners were aware of Tanchicos
medical history yet they still deployed him for 14 years. Finally, the
Court of Appeals sustained the award of attorneys fees.
Petitioners moved for the reconsideration of the Decision. In its 7 May
2001 Resolution, the Court of Appeals modified its Decision by
deducting Tanchicos vacation from his length of service. Thus:
WHEREFORE, our decision is hereby MODIFIED. The petitioners are
ordered to pay to the private respondent the following: (1) disability
wages equivalent to 18 days per year multiplied by 10 years less any
amount already received under the companys disability plan; prorated
13th month pay corresponding to eight (8) months of actual work; and
attorneys fee equivalent to 10% of the total award.

The petition is partly meritorious.

Seafarers are Contractual Employees
The issue on whether seafarers are regular employees is already a
settled matter.
In Ravago v. Esso Eastern Marine, Ltd.,14 the Court traced its ruling
in a number of cases that seafarers are contractual, not regular,
employees. Thus, in Brent School, Inc. v. Zamora,15 the Court cited
overseas employment contract as an example of contracts where the
concept of regular employment does not apply, whatever the nature of
the engagement and despite the provisions of Article 280 of the Labor
Code. In Coyoca v. NLRC,16 the Court held that the agency is liable for
payment of a seamans medical and disability benefits in the event that
the principal fails or refuses to pay the benefits or wages due the
seaman although the seaman may not be a regular employee of the
agency.
The Court squarely passed upon the issue in Millares v.
NLRC17 where one of the issues raised was whether seafarers are
regular or contractual employees whose employment are terminated
everytime their contracts of employment expire. The Court explained:

II. The Court of Appeals decided a question of substance not

in accord with law when it held that the private respondent
was entitled to greater disability benefit than he was [sic];

[I]t is clear that seafarers are considered contractual employees. They

can not be considered as regular employees under Article 280 of the
Labor Code. Their employment is governed by the contracts they sign
everytime they are rehired and their employment is terminated when
the contract expires. Their employment is contractually fixed for a
certain period of time. They fall under the exception of Article 280
whose employment has been fixed for a specific project or undertaking
the completion or termination of which has been determined at the time
of engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration
of the season. We need not depart from the rulings of the Court in the
two aforementioned cases which indeed constitute stare decisis
with respect to the employment status of seafarers.

III. The Court of Appeals decided a question of substance

not heretofore determined by this Court when it ruled that

Petitioners insist that they should be considered regular employees,

since they have rendered services which are usually necessary and

SO ORDERED.12
Petitioners went to this Court for relief on the following grounds:
I. The Court of Appeals decided a question of substance not
in accord with law, applicable decision of this Court and
International Maritime Law when it ruled that private
respondent, a seafarer, was a regular employee;

Page 12 of 33

desirable to the business of their employer, and that they have

rendered more than twenty (20) years of service. While this may be
true, the Brent case has, however, held that there are certain forms of
employment which also require the performance of usual and desirable
functions and which exceed one year but do not necessarily attain
regular employment status under Article 280. Overseas workers
including seafarers fall under this type of employment which are
governed by the mutual agreements of the parties.
In this jurisdiction and as clearly stated in the Coyoca case, Filipino
seamen are governed by the Rules and Regulations of the POEA. The
Standard Employment Contract governing the employment of All
Filipino Seamen on Board Ocean-Going Vessels of the POEA,
particularly in Part I, Sec. C specifically provides that the contract of
seamen shall be for a fixed period. And in no case should the contract
of seamen be longer than 12 months. It reads:

that petitioners are not exempt from the coverage of PD 851 which
requires all employers to pay their employees a 13th month pay.
We do not agree with the Court of Appeals. Again, Tanchico was a
contractual, not a regular, employee. Further, PD 851 does not apply to
seafarers. The WHEREAS clauses of PD 851 provides:
WHEREAS, it is necessary to further protect the level of real wages
from ravages of world-wide inflation;
WHEREAS, there has been no increase in the legal minimum wage
rates since 1970;
WHEREAS, the Christmas season is an opportune time for society to
show its concern for the plight of the working masses so they may
properly celebrate Christmas and New Year.

Section C. Duration of Contract

The period of employment shall be for a fixed period but in no case to
exceed 12 months and shall be stated in the Crew Contract. Any
extension of the Contract period shall be subject to the mutual consent
of the parties.
Moreover, it is an accepted maritime industry practice that employment
of seafarers are for a fixed period only. Constrained by the nature of
their employment which is quite peculiar and unique in itself, it is for
the mutual interest of both the seafarer and the employer why the
employment status must be contractual only or for a certain period of
time. Seafarers spend most of their time at sea and understandably,
they can not stay for a long and an indefinite period of time at sea.
Limited access to shore society during the employment will have an
adverse impact on the seafarer. The national, cultural and lingual
diversity among the crew during the COE is a reality that necessitates
the limitation of its period.
Petitioners make much of the fact that they have been continually rehired or their contracts renewed before the contracts expired (which
has admittedly been going on for twenty (20) years). By such
circumstance they claim to have acquired regular status with all the
rights and benefits appurtenant to it.
Such contention is untenable. Undeniably, this circumstance of
continuous re-hiring was dictated by practical considerations that
experienced crew members are more preferred. Petitioners were only
given priority or preference because of their experience and
qualifications but this does not detract the fact that herein petitioners
are contractual employees. They can not be considered regular
employees. x x x18
The Court reiterated the Millares ruling in Gu-Miro v.
Adorable19 where it held that a radio officer on board a vessel cannot
be considered as a regular employee notwithstanding that the work he
performs is necessary and desirable in the business of the company.

PD 851 contemplates the situation of land-based workers, and not of

seafarers who generally earn more than domestic land-based workers.
Tanchicos employment is governed by his Contract of Enlistment
("Contract").20 The Contract has been approved by the POEA in
accordance with Title I, Book One of the Labor Code and the POEA
Rules Governing Employment.21 The coverage of the Contract includes
Compensation, Overtime, Sundays and Holidays, Vacations, Living
Allowance, Sickness, Injury and Death, Transportation and Travel
Expense, Subsistence and Living Quarters. It does not provide for the
payment of 13th month pay. The Contract of Employment,22 which is
the standard employment contract of the POEA, likewise does not
provide for the payment of 13th month pay.
In Coyoca v. NLRC which involves a claim for separation pay, this
Court held:
Furthermore, petitioners contract did not provide for separation
benefits. In this connection, it is important to note that neither does
POEA standard employment contract for Filipino seamen provide for
such benefits.
As a Filipino seaman, petitioner is governed by the Rules and
Regulations Governing Overseas Employment and the said Rules do
not provide for separation or termination pay. x x x23
Hence, in the absence of any provision in his Contract governing the
payment of 13th month pay, Tanchico is not entitled to the benefit.
On Disability Benefits
Petitioners allege that Tanchicos Contract ended on 13 October 1992
when he returned to Manila. They allege that the vacation period is not
part of the period of employment.
We cannot accept petitioners contention.

Thus, in the present case, the Court of Appeals erred in ruling that
Tanchico was a regular employee of Petroleum Shipping.

The duration of the Contract was for eight months. The Contract also
provides:

On 13th Month Pay

The Court of Appeals premised its grant of 13th month pay on its ruling
that Tanchico was a regular employee. The Court of Appeals also ruled

Article V
VACATIONS

Page 13 of 33

Vacation days shall be earned at the rate of seven and one-half days
(7.5) days for each thirty (30) days of continuous service, calculated
from date of departure from Manila and until date of return to Manila.
Vacation begins on the day following arrival in Manila.
Every effort will be made to grant earned vacations promptly after eight
(8) months of service; however, the COMPANY shall have the right to
advance or delay vacations to coincide with vessel repairs, for
operational reasons or due to personal requirements. SEAFARER shall
receive vacation compensation for each thirty (30) days of continuous
service in accordance with the rates listed in Addendum No. 1, Column
(12), to be paid in Manila. Amounts shall be pro-rated according to the
ranks/ratings and period of time in which the SEAFARER served. For
period of less than thirty (30) days service, vacations and
compensation shall be reduced proportionately.
Time off for illness, injury, vacation, leave of absence or stand-by shall
not be considered service under the provisions of this Article.
It is the COMPANYs intention that each SEAFARER enjoy his full
vacation period. Because of urgent fleet needs, however, it
occasionally may be necessary to recall a SEAFARER early from
vacation.24
Since Tanchico received compensation during his vacation, the
Contract did not terminate on the day he returned to Manila. The
Contract remained in force during Tanchicos vacation period.
However, the Court of Appeals erred when it ruled that Tanchico is
entitled to disability benefits of 18 days for every year of service. The
Court of Appeals ruled that Tanchicos employment was continuous
and that his tenure with petitioners was for 14 years. Again, the Court
of Appeals assumed that Tanchico was a regular employee. The Court
of Appeals failed to consider that Tanchicos employment terminated
with the end of each contract.
The Contract provides:
Article VIII
SICKNESS-INJURY/DEATH
A. The COMPANY shall provide, during the period of the
Contract, Insurance coverage for the SEAFARER against
loss of life, permanent disability, temporary disability, injury,
occupational illness, hospital and medical expense in such
amounts as the COMPANY shall determine but not lower
than what the COMPANY would have to pay under the
Philippine Overseas Employment Administrations
requirements or the vessels flag state requirements
(whichever is higher).
B. If SEAFARER is removed from a vessel for medical
treatment he shall be entitled to receive a disability benefit
equal to his monthly wage rate (or pro-rata thereof) from
date of disembarkation until date of rejoining his vessel,
assignment to another vessel or until date of repatriation to
Manila if still disabled. Medical, surgical, hospital, or clinical
treatment shall be recommended by a doctor approved by
the COMPANY and SEAFARER must follow all medical
advices. SEAFARER will not be entitled to disability benefit
payments for disability resulting from his own misconduct,
negligence, unlawful acts, altercations, vice, etc.

C. After disembarkation from a vessel, the SEAFARER is

entitled to one hundred percent (100%) of his wages until he
is declared fit or the degree of permanent disability has been
assessed by the COMPANYs physician for a maximum
period of 120 days commencing on date of such
disembarkation. Upon the expiration of such 120 days and if
the SEAFARER is still disabled, the SEAFARER shall be
paid his wages equivalent to 18 days for every year of
credited service.
In special instances and at the discretion of the COMPANY,
the maximum number of days of COMPANY benefits may be
extended beyond 120 days for a SEAFARER with over 80
months credited COMPANY service, or in such other case as
may be determined by the COMPANY.
Upon expiration of COMPANY benefits and if still disabled,
the following amounts shall be paid up to maximum of 365
days, inclusive of the period of the above benefits.
All Ranks ................................................ US $10 per day
D. If disability should occur while SEAFARER is on
vacation, he must, within 3 days from date thereof,
notify the COMPANYs Agent in the Philippines in order
that the latter shall be able to certify as to his condition.
Certification of disability required for payment of any
disability benefits must be approved by a doctor
appointed by the COMPANY and SEAFARER must be
disabled seven (7) days or more to be eligible to benefits
and sick leave status, COMPANY benefits shall be
limited to a maximum of 18 days.
Benefits under the COMPANY Disability Plan shall be made
only to the extent and in such amounts as are equal to the
differential between any payments which may be due
SEAFARER under COMPANYs obligation as set forth in the
1st paragraph of this Article VIII and 90 percent of
SEAFARERs last wage rate.
E. In case of death at sea or at a foreign port, the tradition of
the sea and requirements of the laws of such foreign port will
be observed. If practical, every effort will be made on the
part of the COMPANY to return the remains of a deceased
SEAFARER to Manila at COMPANY expense.
F. The SEAFARER acknowledges that even without signed
receipts, any wage payments made to him for a period
during which he is entitled to benefits under any law by
reason of death, temporary or permanent disability, shall be
deemed an advance payment of compensation benefits due
to him under such law, but only to the extent of benefits due
for the period of disability during which wages are paid.
Wages, as set forth in Addendum No. 1, Column (1), shall be the basis
for any calculation of benefits due SEAFARER under this Article
VIII.25 (Emphasis supplied)
Indications that Tanchico was suffering from ischemia were detected
on 8 December 1992 during Tanchicos vacation period. Thus,
petitioners paid him disability benefits for 18 days in accordance with
the Contract. Tanchico cannot claim that he only acquired the illness

Page 14 of 33

during his last deployment since the Medical Report26 he submitted to

the NLRC showed that he has been hypertensive since 1983 and
diabetic since 1987. In the absence of concrete proof that Tanchico
acquired his disability during
his last deployment and not during his vacation, he is only entitled to
disability benefits for 18 days.
Petitioners claim that they already paid Tanchico his disability benefits
for 18 days but he refused to sign the receipt.27 Tanchico alleged that
he was only paid under the Career Employment Incentive Plan.28 This
is a factual matter which this Court cannot resolve. This matter has to
be remanded to the Labor Arbiter for resolution.
WHEREFORE, we GRANT the petition.
We REVERSE and SET ASIDE the 25 January 2001 Decision and 7
May 2001 Resolution of the Court of Appeals in CA-G.R. SP No.
54756. We REINSTATE the 16 October 1996 Decision of Labor Arbiter
Jose G. De Vera dismissing the complaint for illegal dismissal and the
claims for backwages, separation pay and 13th month pay.
We REMAND the case to the Labor Arbiter to determine if Florello
Tanchico has been paid his disability benefits for 18 days in
accordance with his Contract of Enlistment. If no payment has been
made, the Labor Arbiter is DIRECTED to determine the amount
Tanchico is entitled.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 188169

November 28, 2011

NIA JEWELRY MANUFACTURING OF METAL ARTS, INC.

(otherwise known as NIA MANUFACTURING AND METAL ARTS,
INC.) and ELISEA B. ABELLA, Petitioners,
vs.
MADELINE C. MONTECILLO and LIZA M.
TRINIDAD, Respondents.
DECISION
REYES, J.:
The Case
Before us is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court assailing the January 9, 2009 Decision2 and the May
26, 2009 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No.
01755. The dispositive portion of the assailed Decision reads:
WHEREFORE, the Decision dated August 31, 2005
and Resolution dated October 28, 2005 of the National Labor Relations
Commission (NLRC), Fourth Division, Cebu City, in NLRC Case No. V-

000363-2005 are REVERSED and SET ASIDE, and a new one

rendered ordering Nia Jewelry Manufacturing:
(1) to reinstate petitioners to their respective positions as
goldsmiths without loss of seniority rights and other
privileges; and
(2) to pay petitioners their full backwages inclusive of
allowances and other benefits or their monetary equivalent
computed from the time their compensation was withheld up
to their actual reinstatement.
The case is REMANDED to the Labor Arbiter for
the RECOMPUTATION of the total monetary award due to petitioners
in accord with this decision. The Labor Arbiter is ORDERED to submit
his compliance within thirty (30) days from notice of this decision, with
copies furnished to the parties.4 (citations omitted)
The assailed Resolution denied the petitioners' Motion for
Reconsideration.5
The Factual Antecedents
Madeline Montecillo (Madeline) and Liza Trinidad (Liza), hereinafter
referred to collectively as the respondents, were first employed as
goldsmiths by the petitioner Nia Jewelry Manufacturing of Metal Arts,
Inc. (Nia Jewelry) in 1996 and 1994, respectively. Madeline's weekly
rate was P1,500.00 while Liza's was P2,500.00. Petitioner Elisea
Abella (Elisea) is Nia Jewelry's president and general manager.
There were incidents of theft involving goldsmiths in Nia Jewelry's
employ.
On August 13, 2004, Nia Jewelry imposed a policy for goldsmiths
requiring them to post cash bonds or deposits in varying amounts but
in no case exceeding 15% of the latter's salaries per week. The
deposits were intended to answer for any loss or damage which Nia
Jewelry may sustain by reason of the goldsmiths' fault or negligence in
handling the gold entrusted to them. The deposits shall be returned
upon completion of the goldsmiths' work and after an accounting of the
gold received.
Nia Jewelry alleged that the goldsmiths were given the option not to
post deposits, but to sign authorizations allowing the former to deduct
from the latter's salaries amounts not exceeding 15% of their take
home pay should it be found that they lost the gold entrusted to them.
The respondents claimed otherwise insisting that Nia Jewelry left the
goldsmiths with no option but to post the deposits. The respondents
alleged that they were constructively dismissed by Nia Jewelry as
their continued employments were made dependent on their readiness
to post the required deposits.
Nia Jewelry averred that on August 14, 2004, the respondents no
longer reported for work and signified their defiance against the new
policy which at that point had not even been implemented yet.
On September 7, 2004, the respondents filed against Nia Jewelry
complaints6 for illegal dismissal and for the award of separation pay.

Page 15 of 33

On September 20, 2004, the respondents filed their amended

complaints7 which excluded their earlier prayer for separation pay but
sought reinstatement and payment of backwages, attorney's fees and
13th month pay.
Labor Arbiter Jose Gutierrez (LA Gutierrez) dismissed the respondents'
complaints for lack of merit but ordered Nia Jewelry to pay Madeline
the sum of P3,750.00, and Liza, P6,250.00, representing their
proportionate entitlements to 13th month pay for the year 2004. LA
Gutierrez ratiocinated that:
Their [respondents] claim is self-serving. As evidence to (sic) their
claims that they were made to sign blank trust receipts, complainants
presented Annexes 'A'[,] 'B' and 'C'. Our examination, however, shows
that they are not blank trust receipts but rather they are filled up trust
receipts.
The undisputed facts show that complainants were piece workers of
the respondent who are engaged in the processing of gold into various
jewelry pieces. Because of the nature of its business, respondent was
plagued with too many incidents of theft from its piece workers. x x x
This deposit [not exceeding 15% of the salary for the week of the piece
worker] is released back upon completion of work and after accounting
of the gold received by him or her. There is an alternative, however, the
piece worker may opt not to give a deposit, instead sign an
authorization to allow the respondent to deduct from the salary an
amount not to exceed 15% of his take home pay, should it be found out
that he lost the gold [entrusted] to him or her due to his or her fault or
negligence. The complainants did not like to post a deposit, or sign an
authorization. They instead told their fellow goldsmiths that they will
bring the matter to the Labor Commission. Complainants did not
anymore report for work and did not anymore perform their tasks. The
fact of complainants not being dismissed from employment was duly
attested to by his co-workers who executed their Joint Affidavit under
oath, Annex '4'.
As further evidence to prove that they were dismissed, complainants
presented the minutes of [the] Sept. 7, 2004 conference.
We examined the statements therein, we find that there is no
admission on the part of the respondents that they terminate[d] the
complainants from employment. Respondents only inform[ed] the
complainants to put up the appropriate cash bond before they could be
allowed to return back to work which they previously refused to
perform, as a sign of their protest to the requirement to post cash bond
or to sign an authorization.
xxxx
x x x It is clearly shown that complainants were paid with their
13th month pay for the year 2001, 2002 and 2003. However, for the
year 2004, considering that complainants have worked until the month
of August, we rule to grant them the proportionate 13th month pay as
there is no showing that they were already paid. The other money
claims are denied for lack of merit. x x x.8
The respondents filed an appeal before the NLRC which affirmed LA
Gutierrez's dismissal of the amended complaints but deleted the award
of 13th month pay based on findings that the former had contracted
unpaid individual loans from Nia Jewelry. The NLRC found that:

x x x [I]t was complainants who refused to work with the respondents

when they were required to post cash bond or sign an authorization for
deduction for the gold material they received and to be manufactured
into various jewelries. x x x We find it logically sound for the latter [Nia
Jewelry] to innovate certain policy or rule to protect its own business.
To deprive them of such prerogative [management prerogative] will be
likened to 'killing the goose that lays the golden eggs.'
x x x [C]omplainants failed to prove their affirmative allegations in the
respective complaints that they were indeed dismissed. On the
contrary, respondents have convincingly shown that if (sic) were
complainants who voluntarily abandoned from (sic) their work by
refusing to abide with the newly adopted company policy of putting up
a cash bond or signing an authorization for deduction for the gold
materials entrusted to them in case of loss or pilferage.
x x x [B]oth complainants are still indebted with (sic) the respondents in
the amounts of P5,118.63 in the case of Madeline Montecillo
and P7,963.11 in the case of Liza Montecillo. Such being the case[,]
Madeline Montecillo has still on account payable of P1,368.63 while
Liza Montecillo is still indebted of P1,713.71. This principle of offsetting
of credit should be allowed to preclude unjust enrichment at the
expense of the respondents.9
The respondents filed a Petition for Certiorari10 before the CA ascribing
patent errors in the appreciation of facts and application of
jurisprudence on the part of the NLRC when it ruled that what occurred
was not a case of illegal dismissal but of abandonment of work.
On January 9, 2009, the CA rendered the now assailed
Decision11 reversing the findings of the LA and the NLRC. The CA
ruled:
According to [the] private respondents, they required a deposit or cash
bond from [the] petitioners in order to secure their interest against gold
thefts committed by some of their employees. If the employee fails to
make the required deposit, he will not be given gold to work on.
Further, [the] private respondents admitted during the conciliation
proceedings before Executive Labor Arbiter Violeta Ortiz-Bantug that
[the] petitioners would only be allowed back to work after they had
posted the proportionate cash bond.
The Labor Code of the Philippines provides:
ART. 113. Wage Deduction. No employer, in his own behalf or in
behalf of any person, shall make any deduction from the wages of his
employees, except:
(a) In cases where the worker is insured with his consent by
the employer, and the deduction is to recompense the
employer for the amount paid by him as premium on the
insurance;
(b) For union dues, in cases where the right of the worker or
his union to check-off has been recognized by the employer
or authorized in writing by the individual worker concerned;
and
(c) In cases where the employer is authorized by law or
regulations issued by the Secretary of Labor.

Page 16 of 33

Article 114. Deposits for loss or damage. No employer shall require

his worker to make deposits from which deductions shall be made for
the reimbursement of loss of or damage to tools, materials, or
equipment supplied by the employer, except when the employer is
engaged in such trades, occupations or business where the practice of
making deposits is a recognized one, or is necessary or desirable as
determined by the Secretary of Labor in appropriate rules and
regulations.
Applying these provisions to the case at bar, before [the] petitioners
may be required to deposit cash or agree to a salary deduction
proportionate to the value of gold delivered to them, the employer must
comply with the relevant conditions imposed by law. Hence, the latter
must prove that there is an existing law or regulation authorizing it to
impose such burden on its employees. And, in case of deposit, that it is
engaged in a trade, occupation or business where such requirement is
a recognized practice. Nia Jewelry obviously failed in this
respect.1wphi1 Surely, mere invocation of management prerogative
cannot exempt it from compliance with the strict requirements of law.
Accordingly, [w]e hold that Nia Jewelry's unilateral imposition of cash
deposit or salary deduction on [the] petitioners is illegal. For that
matter, when Ni[]a Jewelry refused to give assignment to [the]
petitioners or to admit them back to work because they failed to give
cash deposit or agree to a salary deduction, it was deemed to have
constructively dismissed [the] petitioners. Obviously, such deposit or
salary deduction was imposed as a condition for [the] petitioners'
continuing employment. Non-compliance indubitably meant termination
of [the] petitioners' employment. Suldao vs. Cimech System
Construction, Inc.12 enunciated:
Constructive dismissal or a constructive discharge has been defined as
quitting because continued employment is rendered impossible,
unreasonable or unlikely, as an offer involving a demotion in rank and a
diminution in pay.There is constructive dismissal when the continued
employment is rendered impossible so as to foreclose any choice on
the employee's part except to resign from such employment.
The fact that [the] petitioners lost no time in filing the complaint for
illegal dismissal lucidly negates [the] private respondents' claim that
the former had abandoned their work. A contrary notion would not only
be illogical but also absurd.13 Indeed, prompt filing of a case for illegal
dismissal, on one hand, is anathema to the concept of abandonment,
on the other.
Finally, under Article 279 of the Labor Code, an illegally dismissed
employee is entitled to reinstatement without loss of seniority rights
and other privileges; full backwages, inclusive of allowances; and other
benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual
reinstatement.14 x x x.
As for damages, it is a rule that moral damages may be recovered
where the dismissal of the employee was attended by bad faith or
fraud or constituted an act oppressive to labor, or was done in a
manner contrary to morals, good customs or public policy. x x x [w]e
find that private respondents did not act with oppression, bad faith or
fraud. They imposed a cash bond or deposit on herein petitioners in
the honest belief that it was the best way to protect their interest
against gold theft in the company. x x x.15 (some citations omitted)
The Issues
The following are to be resolved in the instant Petition for Review: 16

I.
WHETHER OR NOT THE COURT OF APPEALS GROSSLY
ERRED IN GIVING DUE COURSE TO THE PETITION
[under Rule 65 of the Rules of Court], IN EFFECT, FINDING
GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK
OR EXCESS OF JURISDICTION ON THE PART OF THE
NLRC, DESPITE THE FACT THAT THE SUBJECT
DECISION AND RESOLUTION THEREIN ARE IN
PERFECT ACCORD WITH THE EVIDENCE ON RECORD
AND APPLICABLE LAWS.
II.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY
ERRED IN FINDING THAT THERE WAS CONSTRUCTIVE
DISMISSAL IN THE PRESENT CASE AND ORDERING
RESPONDENTS' REINSTATEMENT AS WELL AS THE
PAYMENT OF THEIR BACKWAGES AND OTHER
MONETARY BENEFITS WITHOUT FACTUAL OR LEGAL
BASES.17
The petitioners now argue that the CA should have outrightly
dismissed the petition filed before it as the respondents had resorted to
an erroneous mode of appeal. The arguments raised in the petition
were the same ones already passed upon by the LA and the NLRC.
What the respondents sought was the CA's re-evaluation of the facts
and evidence. The petition was thus based on purported errors of
judgment which are beyond the province of a petition for certiorari.
The petitioners likewise insist that the respondents abandoned their
work without due notice and to the prejudice of the former. The
respondents' co-workers attested to the foregoing circumstance.18 The
respondents are goldsmiths whose skills are indispensable to a jewelry
manufacturing business, thus, it is not in accord with both logic and
experience for the petitioners to just fire them only to train new
workers. Moreover, in the complaints and amended complaints, the
respondents did not claim for reinstatement, hence, implying their
admission that they were not terminated.
Further, under Articles 114 and 11519 of the Labor Code, an employer
may require a worker to post a deposit even before a loss or damage
has occurred, provided that deductions from the deposit can be made
only upon proof that the worker is liable for the loss or damage. In case
no loss or damage is incurred, the deposit shall be returned to the
worker after the conduct of an accounting which was what happened in
the case at bar. This is a valid exercise of management prerogative the
scope of which includes the setting of policies relative to working
methods, procedures to be followed and working regulations.20
The petitioners stress that they did not transgress the respondents'
rights. The respondents, who expressed to their co-workers their lack
of fear to have their employment severed, are motivated by their greed
to extract money from the petitioners.
The petitioners conclude that the CA should have accorded respect to
the findings of the LA and the NLRC especially since they were not
arrived at arbitrarily or in disregard of the evidence on record.
In the respondents' Comment,21 they reiterate the arguments they had
presented in the proceedings below. The respondents emphasize that
when they pleaded for reinstatement during the conference with the

Page 17 of 33

petitioners on September 7, 2004, the latter openly admitted without

reservation that the former will only be allowed to return to work if they
will post the required cash bond.
Further, the respondents claim that there was no plausible reason for
them to abandon their employment considering the length of their
service and the fact that they were being paid rates above the
minimum wage. Citing Hantex Trading Co. Inc. v. Court of
Appeals,22 the respondents argue that no employee in his right mind
would recklessly abandon his job to join the ranks of the unemployed
and choose to unduly expose his family to hunger and untold hardship.
Besides, in Anflo Management & Investment Corp. v. Rodolfo
Bolanio,23 this Court had the occasion to state that the filing of a
complaint for illegal dismissal is inconsistent with a charge of
abandonment, for an employee who takes steps to protest his lay off
cannot by any logic be said to have abandoned his work.
The respondents also claim that the petitioners misrepresented to this
Court that the former did not pray for reinstatement as the dorsal
portions of the amended complaints indicate otherwise.
Moreover, the petitioners failed to prove their authority granted by
either the law, or regulations issued by the Secretary of Labor, allowing
them to require their workers to post deposits. The petitioners also
failed to establish that Nia Jewelry is engaged in a trade, occupation
or business where the practice of making deposits is a recognized one
or is considered as necessary or desirable by the Secretary of Labor.
Citing Sections 12,24 1325 and 14,26 Book III, Rule VIII of the Omnibus
Rules Implementing the Labor Code (Omnibus Rules), the
respondents posit that salary deductions made prior to the occurrence
of loss or damage are illegal and constitute as undue interferences in
the workers' disposal of their wages. Further, the workers must first be
given the opportunity to show cause why deductions should not be
made. If to be made, deductions should be fair, reasonable and should
not exceed the actual loss or damage. In the case at bar, the
respondents were required to post cash bonds even when there is no
proof yet of their fault or negligence.
In the petitioners' Reply,27 they averred that the day after Nia Jewelry
required from its employees the posting of deposits and even before
the policy was actually implemented, the respondents promptly
stopped reporting for work despite Elisea's attempt to get in touch with
them. The petitioners convened the employees to discuss the propriety
of imposing the new policy and to afford them ample opportunity to air
their concerns. The respondents' acts contravene Article 19 of the New
Civil Code (NCC) which requires every person to act with justice, give
everyone his due and observe honesty and good faith.
Further, it is clear in the Minutes of the Conciliation
Proceedings28 before the LA that the respondents were not willing to be
reinstated and preferred instead the payment of separation pay.
Hence, no prayer for reinstatement was indicated in the original
complaints filed by them. As an afterthought, however, they amended
their complaints to reflect that they were likewise seeking for
reinstatement.
The petitioners also point out that the doctrines in Hantex29 and Anflo
Management30 cited by the respondents find no application in the case
at bar. In Hantex, the employer presented mere cash vouchers to
prove abandonment by the employee. In the case before us, sufficient
evidence show that the respondents abandoned their work. In Anflo

Management, the employer expressly uttered words terminating the

employee who in turn filed a complaint the day right after the incident.
In the case now under our consideration, the respondents merely
made a bare claim of illegal dismissal. Rightly so in Abad v. Roselle
Cinema,31 it was ruled that an employer's claim of not having
terminated an employee, when supported by substantial evidence,
should not be outrightly overcome by the argument that an employee
would not have filed a complaint for illegal dismissal if he were not
really dismissed. The circumstances surrounding the separation from
employment should be taken into account.
Under Article 114 of the Labor Code, the Secretary of Labor is
conferred the authority to promulgate rules determining the
circumstances when the making of deposits is deemed recognized,
necessary or desirable. However, Section 14,32 Book III, Rule VIII of
the Omnibus Rules does not define those circumstances. What is
defined is the circumstances when deductions can be made. It can
thus be inferred that the intention is for the courts to determine on a
case to case basis what should be considered as recognized,
necessary or desirableespecially in the light of the existence of myriads
of businesses which are practically impossible to enumerate in modern
society. The petitioners hence argue that the validity of requiring cash
deposits should be scrutinized withdue consideration of
its reasonableness and necessity. Further, Article 1306 of the NCC
allows contracting parties to establish stipulations, clauses, terms and
conditions which they may deem convenient provided they do not
contravene the law, morals, good customs, public order or public
policy. In the case at bar, the policy adopted by the petitioners was
neither unreasonable nor oppressive. It was intended to benefit all the
contracting parties.
Lastly, while the respondents raise the issue of the illegality of
deductions, the petitioners stress that it is academic because no
deduction was actually made yet.
The Court's Ruling
The instant petition is partially meritorious.
The petitioners raise the procedural issue of whether or not the CA
validly gave due course to the petition forcertiorari filed before it under
Rule 65 of the Rules of Court. As the substantive issue of whether or
not the petitioners constructively dismissed the respondents is closelyintertwined with the procedural question raised, they will be resolved
jointly.
Yolanda Mercado, et al. v. AMA Computer College-Paraaque City,
Inc.33 is instructive as to the nature of a petition for review
on certiorari under Rule 45, and a petition for certiorari under Rule
65, viz:
x x x [R]ule 45 limits us to the review of questions of law raised against
the assailed CA decision. In ruling for legal correctness, we have to
view the CA decision in the same context that the petition for certiorari
it ruled upon was presented to it; we have to examine the CA decision
from the prism of whether it correctly determined the presence or
absence of grave abuse of discretion in the NLRC decision before it,
not on the basis of whether the NLRC decision on the merits of the
case was correct. In other words, we have to be keenly aware that the
CA undertook a Rule 65 review, not a review on appeal, of the NLRC
decision challenged before it. This is the approach that should be basic
in a Rule 45 review of a CA ruling in a labor case. In question form, the

Page 18 of 33

question to ask is: Did the CA correctly determine whether the NLRC
committed grave abuse of discretion in ruling on the case?34

evidence by the NLRC and the LA when they both ruled that
abandonment of work and not constructive dismissal occurred.

It is thus settled that this Court is bound by the CA's factual findings.
The rule, however, admits of exceptions, among which is when the
CA's findings are contrary to those of the trial court or administrative
body exercising quasi-judicial functions from which the action
originated.35 The case before us falls under the aforementioned
exception.

We agree with the petitioners that what the respondents sought was a
re-evaluation of evidence, which as a general rule cannot be properly
done in a petition for certiorari under Rule 65, save in cases where
substantial evidence to support the NLRC's findings are wanting.

The petitioners argue that the respondents resorted to an erroneous

mode of appeal as the issues raised in the petition lodged before the
CA essentially sought a re-evaluation of facts and evidence, hence,
based on purported errors of judgment which are outside the ambit of
actions which can be aptly filed under Rule 65.
We agree.
Again in Mercado,36 we ruled that:
x x x [I]n certiorari proceedings under Rule 65 of the Rules of Court,
the appellate court does not assess and weigh the sufficiency of
evidence upon which the Labor Arbiter and the NLRC based their
conclusion. The query in this proceeding is limited to the determination
of whether or not the NLRC acted without or in excess of its jurisdiction
or with grave abuse of discretion in rendering its decision. However, as
an exception, the appellate court may examine and measure the
factual findings of the NLRC if the same are not supported by
substantial evidence. x x x.37
In the case at bench, in the petition for certiorari under Rule 65 filed by
the respondents before the CA, the following issues were presented for
resolution:

In Honorable Ombudsman Simeon Marcelo v. Leopoldo

Bungubung,39 the Court defined substantial evidence and laid down
guidelines relative to the conduct of judicial review of decisions
rendered by administrative agencies in the exercise of their quasijudicial power, viz:
x x x Substantial evidence is more than a mere scintilla of evidence. It
means such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion, even if other minds equally
reasonable might conceivably opine otherwise. Second, in reviewing
administrative decisions of the executive branch of the government,
the findings of facts made therein are to be respected so long as they
are supported by substantial evidence. Hence, it is not for the
reviewing court to weigh the conflicting evidence, determine the
credibility of witnesses, or otherwise substitute its judgment for that of
the administrative agency with respect to the sufficiency of evidence.
Third, administrative decisions in matters within the executive
jurisdiction can only be set aside on proof of gross abuse of discretion,
fraud, or error of law. These principles negate the power of the
reviewing court to re-examine the sufficiency of the evidence in an
administrative case as if originally instituted therein, and do not
authorize the court to receive additional evidence that was not
submitted to the administrative agency concerned.40 (citations omitted)
We find the factual findings of the LA and the NLRC that the
respondents were not dismissed are supported by substantial
evidence.

I.
WHETHER OR NOT PUBLIC RESPONDENT [NLRC]
committed patent errors in the appreciation of facts and
application of pertinent jurisprudence amounting to grave
abuse of discretion or lack or in excess of jurisdiction WHEN
IT HELD THAT PRIVATE RESPONDENTS [herein
petitioners] ARE NOT GUILTY OF ILLEGAL DISMISSAL
BECAUSE IT WAS THE PETITIONERS [herein private
respondents] WHO ABANDONED THEIR JOB AND
REFUSED TO WORK WITH RESPONDENTS WHEN THEY
WERE REQUIRED TO PUT UP CASH BOND OR SIGN AN
AUTHORIZATION FOR DEDUCTION.
II.
WHETHER OR NOT PUBLIC RESPONDENT committed
patent errors in the appreciation of facts and application of
pertinent jurisprudence amounting to grave abuse of
discretion or lack or in excess of jurisdiction WHEN IT DID
NOT ORDER THE REINSTATEMENT OF HEREIN
PETITIONERS AND DELETED THE AWARD OF
13th MONTH PAY AND DENIED THE CLAIMS OF
ATTORNEY'S FEES, DAMAGES AND FULL
BACKWAGES.38
Essentially, the issues raised by the respondents for resolution by the
CA were anchored on an alleged misappreciation of facts and

In the Joint Affidavit41 executed by Generoso Fortunaba, Erdie Pilares

and Crisanto Ignacio, all goldsmiths under Nia Jewelry's employ, they
expressly stated that they have personal knowledge of the fact that the
respondents were not terminated from employment. Crisanto Ignacio
likewise expressed that after Elisea returned from the United States in
the first week of September of 2004, the latter even called to inquire
from him why the respondents were not reporting for work. We observe
that the respondents had neither ascribed any ill-motive on the part of
their fellow goldsmiths nor offered any explanation as to why the latter
made declarations adverse to their cause. Hence, the statements of
the respondents' fellow goldsmiths deserve credence. This is
especially true in the light of the respondents' failure to present any
notice of termination issued by the petitioners. It is settled that there
can be dismissal even in the absence of a termination
notice.42 However, in the case at bench, we find that the acts of the
petitioners towards the respondents do not at all amount to
constructive dismissal.
Constructive dismissal occurs when there is cessation of work because
continued employment is rendered impossible, unreasonable or
unlikely; when there is a demotion in rank or diminution in pay or both;
or when a clear discrimination, insensibility, or disdain by an employer
becomes unbearable to the employee.43
In the case now under our consideration, the petitioners did not
whimsically or arbitrarily impose the policy to post cash bonds or make
deductions from the workers' salaries. As attested to by the

Page 19 of 33

respondents' fellow goldsmiths in their Joint Affidavit, the workers were

convened and informed of the reason behind the implementation of the
new policy. Instead of airing their concerns, the respondents just
promptly stopped reporting for work.

engaged in such trades, occupations or business where the practice of

making deposits is a recognized one, or is necessary or desirable as
determined by the Secretary of Labor in appropriate rules or
regulations.

Although the propriety of requiring cash bonds seems doubtful for

reasons to be discussed hereunder, we find no grounds to hold that the
respondents were dismissed expressly or even constructively by the
petitioners. It was the respondents who merely stopped reporting for
work. While it is conceded that the new policy will impose an additional
burden on the part of the respondents, it was not intended to result in
their demotion. Neither is a diminution in pay intended because as long
as the workers observe due diligence in the performance of their tasks,
no loss or damage shall result from their handling of the gold entrusted
to them, hence, all the amounts due to the goldsmiths shall still be paid
in full. Further, the imposition of the new policy cannot be viewed as an
act tantamount to discrimination, insensibility or disdain against the
respondents. For one, the policy was intended to be implemented upon
all the goldsmiths in Nia Jewelry's employ and not solely upon the
respondents. Besides, as stressed by the petitioners, the new policy
was intended to merely curb the incidences of gold theft in the work
place. The new policy can hardly be said to be disdainful or insensible
to the workers as to render their continued employment unreasonable,
unlikely or impossible.

While employers should generally be given leeways in their exercise of

management prerogatives, we agree with the respondents and the CA
that in the case at bar, the petitioners had failed to prove that their
imposition of the new policy upon the goldsmiths under Nia Jewelry's
employ falls under the exceptions specified in Articles 113 and 114 of
the Labor Code.

On September 7, 2004, or more or less three weeks after the

imposition of the new policy, the respondents filed their complaints for
illegal dismissal which include their prayer for the payment of
separation pay. On September 20, 2004, they filed amended
complaints seeking for reinstatement instead.
The CA favored the respondents' argument that the latter could not
have abandoned their work as it can be presumed that they would not
have filed complaints for illegal dismissal had they not been really
terminated and had they not intended themselves to be reinstated. We
find that the presumption relied upon by the CA pales in comparison to
the substantial evidence offered by the petitioners that it was the
respondents who stopped reporting for work and were not dismissed at
all.
In sum, we agree with the petitioners that substantial evidence support
the LA's and the NLRC's findings that no dismissal occurred. Hence,
the CA should not have given due course to and granted the petition
for certiorariunder Rule 65 filed by the respondents before it.
In view of our disquisition above that the findings of the LA and the
NLRC that no constructive dismissal occurred are supported by
substantial evidence, the CA thus erred in giving due course to and
granting the petition filed before it. Hence, it is not even necessary
anymore to resolve the issue of whether or not the policy of posting
cash bonds or making deductions from the goldsmiths' salaries is
proper. However, considering that there are other goldsmiths in Nia
Jewelry's employ upon whom the policy challenged by the respondents
remain to be enforced, in the interest of justice and to put things to
rest, we shall resolve the issue.
Article 113 of the Labor Code is clear that there are only three
exceptions to the general rule that no deductions from the employees'
salaries can be made. The exception which finds application in the
instant petition is in cases where the employer is authorized by law or
regulations issued by the Secretary of Labor to effect the deductions.
On the other hand, Article 114 states that generally, deposits for loss or
damages are not allowed except in cases where the employer is

The petitioners point out that Section 14, Book III, Rule VIII of the
Omnibus Rules does not define the circumstances when the making of
deposits is deemed recognized, necessary or desirable. The
petitioners then argue that the intention of the law is for the courts to
determine on a case to case basis what should be regarded as
recognized, necessary or desirable and to test an employer's policy of
requiring deposits on the bases of its reasonableness and necessity.
We are not persuaded.
Articles 113 and 114 of the Labor Code are clear as to what are the
exceptions to the general prohibition against requiring deposits and
effecting deductions from the employees' salaries. Hence, a statutory
construction of the aforecited provisions is not called for. Even if
we were however called upon to interpret the provisions, our inclination
would still be to strictly construe the same against the employer
because evidently, the posting of cash bonds and the making of
deductions from the wages would inarguably impose an additional
burden upon the employees.
While the petitioners are not absolutely precluded from imposing the
new policy, they can only do so upon compliance with the requirements
of the law.44 In other words, the petitioners should first establish that
the making of deductions from the salaries is authorized by law, or
regulations issued by the Secretary of Labor. Further, the posting of
cash bonds should be proven as a recognized practice in the jewelry
manufacturing business, or alternatively, the petitioners should seek for
the determination by the Secretary of Labor through the issuance of
appropriate rules and regulations that the policy the former seeks to
implement is necessary or desirable in the conduct of business. The
petitioners failed in this respect. It bears stressing that without proofs
that requiring deposits and effecting deductions are recognized
practices, or without securing the Secretary of Labor's determination of
the necessity or desirability of the same, the imposition of new policies
relative to deductions and deposits can be made subject to abuse by
the employers. This is not what the law intends.
In view of the foregoing, we hold that no dismissal, constructive or
otherwise, occurred. The findings of the NLRC and the LA that it was
the respondents who stopped reporting for work are supported by
substantial evidence. Hence, the CA erred when it re-evaluated the
parties' respective evidence and granted the petition filed before it.
However, we agree with the CA that it is baseless for Nia Jewelry to
impose its new policy upon the goldsmiths under its employ without
first complying with the strict requirements of the law.
WHEREFORE, the instant petition is PARTIALLY GRANTED. The
assailed Decision and Resolution of the CA dated January 9, 2009 and
May 26, 2009, respectively, are REVERSED only in so far as they
declared that the respondents were constructively dismissed and
entitled to reinstatement and payment of backwages, allowances and

Page 20 of 33

benefits. However, the CA's ruling that the petitioners' imposition of its
new policy upon the respondents lacks legal basis, stands.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

Gold" Taxi Company. With respect to Sabsalon, while driving a taxicab

of petitioners on September 6, 1983, he was held up by his armed
passenger who took all his money and thereafter stabbed him. He was
hospitalized and after his discharge, he went to his home province to
recuperate.
In January, 1987, Sabsalon was re-admitted by petitioners as a taxi
driver under the same terms and conditions as when he was first
employed, but his working schedule was made on an "alternative
basis," that is, he drove only every other day. However, on several
occasions, he failed to report for work during his schedule.
On September 22, 1991, Sabsalon failed to remit his "boundary" of
P700.00 for the previous day. Also, he abandoned his taxicab in Makati
without fuel refill worth P300.00. Despite repeated requests of
petitioners for him to report for work, he adamantly refused. Afterwards
it was revealed that he was driving a taxi for "Bulaklak Company."

G.R. No. 111474 August 22, 1994

FIVE J TAXI and/or JUAN S. ARMAMENTO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, DOMINGO
MALDIGAN and GILBERTO SABSALON,respondents.
Edgardo G. Fernandez for petitioners.
R E SO L U T I O N

REGALADO, J.:
Petitioners Five J Taxi and/or Juan S. Armamento filed this special civil
action for certiorari to annul the decision 1of respondent National Labor
Relations Commission (NLRC) ordering petitioners to pay private
respondents Domingo Maldigan and Gilberto Sabsalon their
accumulated deposits and car wash payments, plus interest thereon at
the legal rate from the date of promulgation of judgment to the date of
actual payment, and 10% of the total amount as and for attorney's
fees.
We have given due course to this petition for, while to the cynical
the de minimis amounts involved should not impose upon the valuable
time of this Court, we find therein a need to clarify some issues the
resolution of which are important to small wage earners such as
taxicab drivers. As we have heretofore repeatedly demonstrated, this
Court does not exist only for the rich or the powerful, with their reputed
monumental cases of national impact. It is also the Court of the poor or
the underprivileged, with the actual quotidian problems that beset their
individual lives.
Private respondents Domingo Maldigan and Gilberto Sabsalon were
hired by the petitioners as taxi drivers 2 and, as such, they worked for 4
days weekly on a 24-hour shifting schedule. Aside from the daily
"boundary" of P700.00 for air-conditioned taxi or P450.00 for non-airconditioned taxi, they were also required to pay P20.00 for car
washing, and to further make a P15.00 deposit to answer for any
deficiency in their "boundary," for every actual working day.
In less than 4 months after Maldigan was hired as an extra driver by
the petitioners, he already failed to report for work for unknown
reasons. Later, petitioners learned that he was working for "Mine of

Sometime in 1989, Maldigan requested petitioners for the

reimbursement of his daily cash deposits for 2 years, but herein
petitioners told him that not a single centavo was left of his deposits as
these were not even enough to cover the amount spent for the repairs
of the taxi he was driving. This was allegedly the practice adopted by
petitioners to recoup the expenses incurred in the repair of their
taxicab units. When Maldigan insisted on the refund of his deposit,
petitioners terminated his services. Sabsalon, on his part, claimed that
his termination from employment was effected when he refused to pay
for the washing of his taxi seat covers.
On November 27, 1991, private respondents filed a complaint with the
Manila Arbitration Office of the National Labor Relations Commission
charging petitioners with illegal dismissal and illegal deductions. That
complaint was dismissed, the labor arbiter holding that it took private
respondents two years to file the same and such unreasonable delay
was not consistent with the natural reaction of a person who claimed to
be unjustly treated, hence the filing of the case could be interpreted as
a mere afterthought.
Respondent NLRC concurred in said findings, with the observation that
private respondents failed to controvert the evidence showing that
Maldigan was employed by "Mine of Gold" Taxi Company from
February 10, 1987 to December 10, 1990; that Sabsalon abandoned
his taxicab on September 1, 1990; and that they voluntarily left their
jobs for similar employment with other taxi operators. It, accordingly,
affirmed the ruling of the labor arbiter that private respondents'
services were not illegally terminated. It, however, modified the
decision of the labor arbiter by ordering petitioners to pay private
respondents the awards stated at the beginning of this resolution.
Petitioners' motion for reconsideration having been denied by the
NLRC, this petition is now before us imputing grave abuse of discretion
on the part of said public respondent.
This Court has repeatedly declared that the factual findings of quasijudicial agencies like the NLRC, which have acquired expertise
because their jurisdiction is confined to specific matters, are generally
accorded not only respect but, at times, finality if such findings are
supported by substantial evidence. 3 Where, however, such
conclusions are not supported by the evidence, they must be struck
down for being whimsical and capricious and, therefore, arrived at with
grave abuse of discretion. 4

Page 21 of 33

Respondent NLRC held that the P15.00 daily deposits made by

respondents to defray any shortage in their "boundary" is covered by
the general prohibition in Article 114 of the Labor Code against
requiring employees to make deposits, and that there is no showing
that the Secretary of Labor has recognized the same as a "practice" in
the taxi industry. Consequently, the deposits made were illegal and the
respondents must be refunded therefor.
Article 114 of the Labor Code provides as follows:
Art. 114. Deposits for loss or damage. No
employer shall require his worker to make
deposits from which deductions shall be made for
the reimbursement of loss of or damage to tools,
materials, or equipment supplied by the employer,
except when the employer is engaged in such
trades, occupations or business where the
practice of making deposits is a recognized one,
or is necessary or desirable as determined by the
Secretary of Labor in appropriate rules and
regulations.
It can be deduced therefrom that the said article provides the rule on
deposits for loss or damage to tools, materials or equipments supplied
by the employer. Clearly, the same does not apply to or permit deposits
to defray any deficiency which the taxi driver may incur in the
remittance of his "boundary." Also, when private respondents stopped
working for petitioners, the alleged purpose for which petitioners
required such unauthorized deposits no longer existed. In other case,
any balance due to private respondents after proper accounting must
be returned to them with legal interest.
However, the unrebutted evidence with regard to the claim of Sabsalon
is as follows:
YEAR DEPOSITS SHORTAGES VALES

P3,448.00. With respect to Maldigan's deposits, nothing was

mentioned questioning the same even in the present petition. We
accordingly agree with the recommendation of the Solicitor General
that since the evidence shows that he had not withdrawn the same, he
should be reimbursed the amount of his accumulated cash deposits. 5
On the matter of the car wash payments, the labor arbiter had this to
say in his decision: "Anent the issue of illegal deductions, there is no
dispute that as a matter of practice in the taxi industry, after a tour of
duty, it is incumbent upon the driver to restore the unit he has driven to
the same clean condition when he took it out, and as claimed by the
respondents (petitioners in the present case), complainant(s) (private
respondents herein) were made to shoulder the expenses for washing,
the amount doled out was paid directly to the person who washed the
unit, thus we find nothing illegal in this practice, much more (sic) to
consider the amount paid by the driver as illegal deduction in the
context of the law." 6 (Words in parentheses added.)
Consequently, private respondents are not entitled to the refund of the
P20.00 car wash payments they made. It will be noted that there was
nothing to prevent private respondents from cleaning the taxi units
themselves, if they wanted to save their P20.00. Also, as the Solicitor
General correctly noted, car washing after a tour of duty is a practice in
the taxi industry, and is, in fact, dictated by fair play.
On the last issue of attorney's fees or service fees for private
respondents' authorized representative, Article 222 of the Labor Code,
as amended by Section 3 of Presidential Decree No. 1691, states that
non-lawyers may appear before the NLRC or any labor arbiter only (1)
if they represent themselves, or (2) if they represent their organization
or the members thereof. While it may be true that Guillermo H. Pulia
was the authorized representative of private respondents, he was a
non-lawyer who did not fall in either of the foregoing categories.
Hence, by clear mandate of the law, he is not entitled to attorney's
fees.
Furthermore, the statutory rule that an attorney shall be entitled to
have and recover from his client a reasonable compensation for his
services 7 necessarily imports the existence of an attorney-client
relationship as a condition for the recovery of attorney's fees, and such
relationship cannot exist unless the client's representative is a lawyer. 8

1987 P 1,403.00 P 567.00 P 1,000.00

1988 720.00 760.00 200.00
1989 686.00 130.00 1,500.00

WHEREFORE, the questioned judgment of respondent National Labor

Relations Commission is hereby MODIFIED by deleting the awards for
reimbursement of car wash expenses and attorney's fees and directing
said public respondent to order and effect the computation and
payment by petitioners of the refund for private respondent Domingo
Maldigan's deposits, plus legal interest thereon from the date of finality
of this resolution up to the date of actual payment thereof.

1990 605.00 570.00

1991 165.00 2,300.00

P
3,579.00
P
4,327.00
P
2,700.00

SO ORDERED.
Narvasa, C.J., Padilla, Puno and Mendoza, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

The foregoing accounting shows that from 1987-1991, Sabsalon was

able to withdraw his deposits through valesor he incurred shortages,
such that he is even indebted to petitioners in the amount of

G.R. No. 172537

August 14, 2009

Page 22 of 33

JETHRO INTELLIGENCE & SECURITY CORPORATION and

YAKULT PHILS., INC. Petitioners,
vs.
THE HON. SECRETARY OF LABOR AND EMPLOYMENT,
FREDERICK GARCIA, GIL CORDERO, LEONIELYN UDALBE,
MICHAEL BENOZA, EDWIN ABLITER, CELEDONIO SUBERE and
MA. CORAZON LANUZA,Respondents.
DECISION

By Decision9 of January 24, 2006, the appellate court denied the

petition, it holding that contrary to petitioners contention, Garcias
affidavit has probative weight for under Art. 221 of the Labor Code, the
rules of evidence are not controlling, and pursuant to Rule V of the
National Labor Relations Commission (NLRC) Rules of Procedure,
labor tribunals may accept affidavits in lieu of direct testimony.
Petitioners motion for reconsideration having been denied by
Resolution10 dated April 28, 2006, they filed the present petition for
review on certiorari.

CARPIO MORALES, J.:

Petitioner Jethro Intelligence and Security Corporation (Jethro) is a
security service contractor with a security service contract agreement
with co-petitioner Yakult Phils., Inc. (Yakult). On the basis of a
complaint1 filed by respondent Frederick Garcia (Garcia), one of the
security guards deployed by Jethro, for underpayment of wages,
legal/special holiday pay, premium pay for rest day, 13th month pay,
and night shift differential, the Department of Labor and Employment
(DOLE)-Regional Office No. IV conducted an inspection at Yakults
premises in Calamba, Laguna in the course of which several labor
standards violations were noted, including keeping of payrolls and daily
time records in the main office, underpayment of wages, overtime pay
and other benefits, and non-registration with the DOLE as required
under Department Order No. 18-022.
Hearings on Garcias complaint and on the subsequent complaints of
his co-respondents Gil Cordero et al. were conducted during which
Jethro submitted copies of payrolls covering June 16 to 30, 2003,
February to May 16-31, 2004, June 16-30, 2003, and February 1-15,
2004. Jethro failed to submit daily time records of the claimants from
2002 to June 2004, however, despite the order for it to do so.
By Order3 of September 9, 2004, the DOLE Regional Director, noting
petitioners failure to rectify the violations noted during the abovestated inspection within the period given for the purpose, found them
jointly and severally liable to herein respondents for the aggregate
amount of EIGHT HUNDRED NINE THOUSAND TWO HUNDRED
TEN AND 16/100 PESOS (P809,210.16) representing their wage
differentials, regular holiday pay, special day premium pay, 13th month
pay, overtime pay, service incentive leave pay, night shift differential
premium and rest day premium. Petitioners were also ordered to
submit proof of payment to the claimants within ten calendar days,
failing which the entire award would be doubled, pursuant to Republic
Act No. 8188, and the corresponding writs of execution and
garnishment would be issued.
Jethro appealed4 to the Secretary of Labor and Employment (SOLE),
faulting the Regional Director for, among other things, basing the
computation of the judgment award on Garcias affidavit instead of on
the data reflected in the payrolls for 2001 to 2004.5
By Decision6 dated May 27, 2005, then SOLE Patricia A. Sto. Tomas
partially granted petitioner Jethros appeal by affirming with
modification the Regional Directors Order dated September 9, 2004 by
deleting the penalty of double indemnity and setting aside the writs of
execution and garnishment, without prejudice to the subsequent
issuance by the Regional Director of the writs necessary to implement
the said Decision.
Petitioners Motion for Reconsideration7 of the SOLE Decision having
been denied,8 they filed a petition for certiorari before the Court of
Appeals, insisting that the affidavit of Garcia should not have been
given evidentiary weight in computing the judgment award.

Petitioners attribute grave abuse of discretion on the part of the DOLE

Regional Director and the SOLE in this wise: (1) the SOLE has no
jurisdiction over the case because, following Article 129 of the Labor
Code, the aggregate money claim of each employee
exceeded P5,000.00; (2) petitioner Jethro, as the admitted employer of
respondents, could not be expected to keep payrolls and daily time
records in Yakults premises as its office is in Quezon City, hence, the
inspection conducted in Yakults plant had no basis; and (3) having
filed the required bond equivalent to the judgment award, and as the
Regional Directors Order of September 9, 2004 was not served on
their counsel of record, the writs of execution and garnishment
subsequently issued were not in order.
And petitioners maintain that Garcias affidavit should not have been
given weight, they not having been afforded the opportunity to crossexamine him.
The petition is bereft of merit.
The sole office of a writ of certiorari is the correction of errors of
jurisdiction including the commission of grave abuse of discretion
amounting to lack of jurisdiction. It does not include the correction of a
tribunals evaluation of the evidence and factual findings thereon,
especially since factual findings of administrative agencies are
generally held to be binding and final so long as they are supported by
substantial evidence in the record of the case.11
In dismissing petitioners petition for certiorari and thus affirming the
SOLE Decision, the appellate court did not err. The scope of the
visitorial powers of the SOLE and his/her duly authorized
representatives was clarified in Allied Investigation Bureau, Inc. v.
Secretary of Labor and Employment,12 viz:
While it is true that under Articles 129 and 217 of the Labor Code, the
Labor Arbiter has jurisdiction to hear and decide cases where the
aggregate money claims of each employee exceeds P5,000.00, said
provisions do not contemplate nor cover the visitorial and enforcement
powers of the Secretary of Labor or his duly authorized
representatives.
Rather, said powers are defined and set forth in Article 128 of the
Labor Code (as amended by R.A. No. 7730) thus:
Art. 128. Visitorial and enforcement power.
xxxx
(b) Notwithstanding the provisions of Articles 129 and 217 of this Code
to the contrary, and in cases where the relationship of employeremployee exists, the Secretary of Labor and Employment or his duly
authorized representatives shall have the power to issue compliance
orders to give effect to the labor standards provisions of this Code and

Page 23 of 33

other labor legislation based on the findings of labor employment and

enforcement officers or industrial safety engineers made in the course
of inspection. The Secretary or his duly authorized representatives
shall issue writs of execution to the appropriate authority for the
enforcement of their orders, except in cases where the employer
contests the finding of the labor employment and enforcement officer
and raises issues supported by documentary proofs which were not
considered in the course of inspection. [Emphasis, underscoring and
italics supplied]
xxxx
The aforequoted [Art. 128] explicitly excludes from its coverage Articles
129 and 217 of the Labor Code by the phrase "(N)otwithstanding the
provisions of Articles 129 and 217 of this Code to the contrary xxx"
thereby retaining and further strengthening the power of the Secretary
of Labor or his duly authorized representative to issue compliance
orders to give effect to the labor standards provisions of said Code and
other labor legislation based on the findings of labor employment and
enforcement officers or industrial safety engineers made in the course
of inspection.13 (Emphasis and underscoring supplied.)
In Ex-Bataan Veterans Security Agency, Inc. v. Laguesma case, the
Court went on to hold that
x x x if the labor standards case is covered by the exception clause in
Article 128(b) of the Labor Code, then the Regional Director will have
to endorse the case to the appropriate Arbitration Branch of the NLRC.
In order to divest the Regional Director or his representatives of
jurisdiction, the following elements must be present: (a) that the
employer contests the findings of the labor regulations officer and
raises issues therein; (b) that in order to resolve such issues, there is a
need to examine evidentiary matters; and (c) that such matters are not
verifiable in the normal course of inspection. The rules also provide
that the employer shall raise such objections during the hearing of the
case or at any time after receipt of the notice of inspection results.14
In the case at bar, the Secretary of Labor correctly assumed
jurisdiction over the case as it does not come under the exception
clause in Art. 128(b) of the Labor Code. While petitioner Jethro
appealed the inspection results and there is a need to examine
evidentiary matters to resolve the issues raised, the payrolls presented
by it were considered in the ordinary course of inspection. While the
employment records of the employees could not be expected to be
found in Yakults premises in Calamba, as Jethros offices are in
Quezon City, the records show that Jethro was given ample
opportunity to present its payrolls and other pertinent documents
during the hearings and to rectify the violations noted during the ocular
inspection. It, however, failed to do so, more particularly to submit
competent proof that it was giving its security guards the wages and
benefits mandated by law.
Jethros failure to keep payrolls and daily time records in Yakults
premises was not the only labor standard violation found to have been
committed by it; it likewise failed to register as a service contractor with
the DOLE, pursuant to Department Order No. 18-02 and, as earlier
stated, to pay the wages and benefits in accordance with the rates
prescribed by law.
Respecting petitioners objection to the weight given to Garcias
affidavit, it bears noting that said affidavit was not the only basis in
arriving at the judgment award. The payrolls for June 16-30, 2003 and
February 1-15, 2004 reveal that the overtime rates were below the

required rate.15 That Garcia was not cross-examined on his affidavit is

of no moment. For, as Mayon Hotel and Restaurant vs.
Adana16 instructs:
Article 221 of the Labor Code is clear: technical rules are not binding,
and the application of technical rules of procedure may be relaxed in
labor cases to serve the demand of substantial justice. The rule of
evidence prevailing in court of law or equity shall not be controlling in
labor cases and it is the spirit and intention of the Labor Code that the
Labor Arbiter shall use every and all reasonable means to ascertain
the facts in each case speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of due process.
Labor laws mandate the speedy administration of justice, with least
attention to technicalities but without sacrificing the fundamental
requisites of due process.17 (Emphasis and underscoring supplied)
It bears noting that while Jethro claims that it did not cross-examine
Garcia, the minutes of the July 5, 2004 hearing at which Jethros
counsel was present indicate that Garcias affidavit was
presented.18 Jethro had thus the opportunity to controvert the contents
of the affidavit, but it failed.
Respecting the fact that Jethros first counsel of record, Atty. Benjamin
Rabuco III, was not furnished a copy of the September 9, 2004 Order
of the Director, the SOLE noted in her assailed Decision that since Atty.
Thaddeus Venturanza formally entered his appearance as Jethros
new counsel on appeal and an appeal was indeed filed and duly
verified by Jethros owner/manager, for all practical purposes, the
failure to furnish Atty. Rabuco a copy of the said Order had been
rendered moot. For, on account of such lapse, the SOLE deleted the
double indemnity award and held that the writs issued in
implementation of the September 9, 2004 Order were null and void,
"without prejudice to the subsequent issuance by the Regional Director
of the writs necessary to implement" the SOLE Decision.1avvphi1
Thus, the DOLE-Regional Office subsequently issued the following
Orders: Order19 of July 31, 2006 holding in abeyance the release of the
amount equivalent to the judgment award out of Yakult accounts
pending the receipt of the supersedeas bond; and Order20 of February
27, 2007 ordering the immediate release of the garnished amount.
It bears emphasis that the SOLE, under Article 106 of the Labor Code,
as amended, exercises quasi-judicial power, at least to the extent
necessary to determine violations of labor standards provisions of the
Code and other labor legislation. He/she or the Regional Directors can
issue compliance orders and writs of execution for the enforcement
thereof. The significance of and binding effect of the compliance orders
of the DOLE Secretary is enunciated in Article 128 of the Labor Code,
as amended, viz:
ART. 128. Visitorial and enforcement power.
xxxx
(d) It shall be unlawful for any person or entity to obstruct, impede,
delay or otherwise render ineffective the orders of the Secretary of
Labor or his duly authorized representatives issued pursuant to the
authority granted under this article, and no inferior court or entity shall
issue temporary or permanent injunction or restraining order or
otherwise assume jurisdiction over any case involving the enforcement
orders issued in accordance with this article.

Page 24 of 33

And Sec. 5, Rule V (Execution) of the Rules on Disposition of Labor

Standards Cases in Regional Offices provides that the filing of a
petition for certiorari shall not stay the execution of the appealed order
or decision, unless the aggrieved party secures a temporary restraining
order (TRO) from the Court. In the case at bar, no TRO or injunction
was issued, hence, the issuance of the questioned writs of execution
and garnishment by the DOLE-Regional Director was in order.
WHEREFORE, the petition is DENIED and the Court of Appeals
Decision dated January 24, 2006 and Resolution dated April 28, 2006
are AFFIRMED.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 126586

February 2, 2000

ALEXANDER VINOYA, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, REGENT FOOD
CORPORATION AND/OR RICKY SEE (PRESIDENT), respondents.
KAPUNAN, J.:
This petition for certiorari under Rule 65 seeks to annul and set aside
the decision,1 promulgated on 21 June 1996, of the National Labor
Relations Commission ("NLRC") which reversed the decision2 of the,
Labor Arbiter, rendered on 15 June 1994, ordering Regent Food
Corporation ("RFC") to reinstate Alexander Vinoya to his former
position and pay him backwages.
Private respondent Regent Food Corporation is a domestic corporation
principally engaged in the manufacture and sale of various food
products. Private respondent Ricky See, on the other hand, is the
president of RFC and is being sued in that capacity.
Petitioner Alexander Vinoya, the complainant, worked with RFC as
sales representative until his services were terminated on 25
November 1991.
The parties presented conflicting versions of facts.
Petitioner Alexander Vinoya claims that he applied and was accepted
by RFC as sales representative on 26 May 1990. On the same date, a
company identification card3 was issued to him by RFC. Petitioner
alleges that he reported daily to the office of RFC, in Pasig City, to take
the latter's van for the delivery of its products. According to petitioner,
during his employ, he was assigned to various supermarkets and
grocery stores where he booked sales orders and collected payments
for RFC. For this task, he was required by RFC to put up a monthly
bond of P200.00 as security deposit to guarantee the performance of
his obligation as sales representative. Petitioner contends that he was
under the direct control and supervision of Mr. Dante So and Mr. Sadi

Lim, plant manager and senior salesman of RFC, respectively. He

avers that on 1 July 1991, he was transferred by RFC to Peninsula
Manpower Company, Inc. ("PMCI"), an agency which provides RFC
with additional contractual workers pursuant to a contract for the
supply of manpower services (hereinafter referred to as the "Contract
of Service").4 After his transfer to PMCI, petitioner was allegedly
reassigned to RFC as sales representative. Subsequently, on 25
November 1991, he was informed by Ms. Susan Chua, personnel
manager of RFC, that his services were terminated and he was asked
to surrender his ID card. Petitioner was told that his dismissal was due
to the expiration of the Contract of Service between RFC and PMCI.
Petitioner claims that he was dismissed from employment despite the
absence of any notice or investigation. Consequently, on 3 December
1991, petitioner filed a case against RFC before the Labor Arbiter for
illegal dismissal and non-payment of 13th month pay.5
Private respondent Regent Food Corporation, on the other hand,
maintains that no employer-employee relationship existed between
petitioner and itself. It insists that petitioner is actually an employee of
PMCI, allegedly an independent contractor, which had a Contract of
Service6 with RFC. To prove this fact, RFC presents an Employment
Contract7 signed by petitioner on 1 July 1991, wherein PMCI appears
as his employer. RFC denies that petitioner was ever employed by it
prior to 1 July 1991. It avers that petitioner was issued an ID card so
that its clients and customers would recognize him as a duly
authorized representative of RFC. With regard to the P200.00 pesos
monthly bond posted by petitioner, RFC asserts that it was required in
order to guarantee the turnover of his collection since he handled
funds of RFC. While RFC admits that it had control and supervision
over petitioner, it argues that such was exercised in coordination with
PMCI. Finally, RFC contends that the termination of its relationship with
petitioner was brought about by the expiration of the Contract of
Service between itself and PMCI and not because petitioner was
dismissed from employment.
On 3 December 1991, when petitioner filed a complaint for illegal
dismissal before the Labor Arbiter, PMCI was initially impleaded as one
of the respondents. However, petitioner thereafter withdrew his charge
against PMCI and pursued his claim solely against RFC.
Subsequently, RFC filed a third party complaint against PMCI. After
considering both versions of the parties, the Labor Arbiter rendered a
decision,8 dated 15 June 1994, in favor of petitioner. The Labor Arbiter
concluded that RFC was the true employer of petitioner for the
following reasons: (1) Petitioner was originally with RFC and was
merely transferred to PMCI to be deployed as an agency worker and
then subsequently reassigned to RFC as sales representative; (2) RFC
had direct control and supervision over petitioner; (3) RFC actually
paid for the wages of petitioner although coursed through PMCI; and,
(4) Petitioner was terminated per instruction of RFC. Thus, the Labor
Arbiter decreed, as follows:
ACCORDINGLY, premises considered respondent RFC is
hereby declared guilty of illegal dismissal and ordered to
immediately reinstate complainant to his former position
without loss of seniority rights and other benefits and pay
him backwages in the amount of P103,974.00.
The claim for 13th month pay is hereby DENIED for lack of
merit.
This case, insofar as respondent PMCI [is concerned] is
DISMISSED, for lack of merit.

Page 25 of 33

SO ORDERED.9
RFC appealed the adverse decision of the Labor Arbiter to the NLRC.
In a decision,10 dated 21 June 1996, the NLRC reversed the findings of
the Labor Arbiter. The NLRC opined that PMCI is an independent
contractor because it has substantial capital and, as such, is the true
employer of petitioner. The NLRC, thus, held PMCI liable for the
dismissal of petitioner. The dispositive portion of the NLRC decision
states:
WHEREFORE, premises considered, the appealed decision
is modified as follows:
1. Peninsula Manpower Company Inc. is declared as
employer of the complainant;
2. Peninsula is ordered to pay complainant his separation
pay of P3,354.00 and his proportionate 13th month pay for
1991 in the amount of P2,795.00 or the total amount of
P6,149.00.
SO ORDERED.11

(a) The contractor or subcontractor does not have

substantial capital or investment to actually perform the job,
work or service under its own account and responsibility;
(b) The employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which
are directly related to the main business of the principal.15
On the other hand, permissible job contracting or subcontracting refers
to an arrangement whereby a principal agrees to put out or farm out
with a contractor or subcontractor the performance or completion of a
specific job, work or service within a definite or predetermined period,
regardless of whether such job, work or service is to be performed or
completed within or outside the premises of the principal.16 A person is
considered engaged in legitimate job contracting or subcontracting if
the following conditions concur:
(a) The contractor or subcontractor carries on a distinct and
independent business and undertakes to perform the job,
work or service on its own account and under its own
responsibility according to its own manner and method, and
free from the control and direction of the principal in all
matters connected with the performance of the work except
as to the results thereof;

Separate motions for reconsideration of the NLRC decision were filed

by petitioner and PMCI. In a resolution,12dated 20 August 1996, the
NLRC denied both motions. However, it was only petitioner who
elevated the case before this Court.

(b) The contractor or subcontractor has substantial capital or

investment; and

In his petition for certiorari, petitioner submits that respondent NLRC

committed grave abuse of discretion in reversing the decision of the
Labor Arbiter, and asks for the reinstatement of the latter's decision.

(c) The agreement between the principal and contractor or

subcontractor assures the contractual employees entitlement
to all labor and occupational safety and health standards,
free exercise of the right to self-organization, security of
tenure, and social and welfare benefits.17

Principally, this petition presents the following issues:

1. Whether petitioner was an employee of RFC or PMCI.
2. Whether petitioner was lawfully dismissed.
The resolution of the first issue initially boils down to a determination of
the true status of PMCI, whether it is a labor-only contractor or an
independent contractor.
In the case at bar, RFC alleges that PMCI is an independent contractor
on the sole ground that the latter is a highly capitalized venture. To
buttress this allegation, RFC presents a copy of the Articles of
Incorporation and the Treasurer's Affidavit13 submitted by PMCI to the
Securities and Exchange Commission showing that it has an
authorized capital stock of One Million Pesos (P1,000,000.00), of
which Three Hundred Thousand Pesos (P300,000.00) is subscribed
and Seventy-Five Thousand Pesos (P75,000.00) is paid-in. According
to RFC, PMCI is a duly organized corporation engaged in the business
of creating and hiring a pool of temporary personnel and, thereafter,
assigning them to its clients from time to time for such duration as said
clients may require. RFC further contends that PMCI has a separate
office, permit and license and its own organization.
Labor-only contracting, a prohibited act, is an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers
to perform a job, work or service for a principal.14 In labor-only
contracting, the following elements are present:

Previously, in the case of Neri vs. NLRC,18 we held that in order to be

considered as a job contractor it is enough that a contractor has
substantial capital. In other words, once substantial capital established
it is no longer necessary for the contractor to show evidence that it has
investment in the form of tools, equipment, machineries, work
premises, among others. The rational for this is that Article 106 of the
Labor Code does not require that the contractor possess both
substantial capital and investment in the form of tools, equipment,
machineries, work premises, among others.19 The decision of the Court
in Neri, thus, states:
Respondent BCC need not prove that it made investments in
the form of tools, equipment, machineries, work premises,
among others, because it has established that it has
sufficient capitalization. The Labor Arbiter and the NLRC
both determined that BCC had a capital stock of P1 million
fully subscribed and paid for. BCC is therefore a highly
capitalized venture and cannot be deemed engaged in
"labor-only" contracting.20
However, in declaring that Building Care Corporation ("BCC") was an
independent contractor, the Court considered not only the fact that it
had substantial capitalization. The Court noted that BCC carried on an
independent business and undertook the performance of its contract
according to its own manner and method, free from the control and
supervision of its principal in all matters except as to the results
thereof.21 The Court likewise mentioned that the employees of BCC
were engaged to perform specific special services for its

Page 26 of 33

principal.22 Thus, the Court ruled that BCC was an independent

contractor.
The Court further clarified the import of the Neri decision in the
subsequent case of Philippine Fuji Xerox Corporation vs. NLRC.23 In
the said case, petitioner Fuji Xerox implored the Court to apply the Neri
doctrine to its alleged job-contractor, Skillpower, Inc., and declare the
same as an independent contractor. Fuji Xerox alleged that Skillpower,
Inc. was a highly capitalized venture registered with the Securities and
Exchange Commission, the Department of Labor and Employment,
and the Social Security System with assets exceeding P5,000,000.00
possessing at least 29 typewriters, office equipment and service
vehicles, and its own pool of employees with 25 clerks assigned to its
clients on a temporary basis.24 Despite the evidence presented by Fuji
Xerox the Court refused to apply the Neri case and explained:
Petitioners cite the case of Neri v. NLRC, in which it was
held that the Building Care Corporation (BCC) was an
independent contractor on the basis of finding that it had
substantial capital, although there was no evidence that it
had investments in the form of tools, equipment, machineries
and work premises. But the Court in that case considered
not only the capitalization of the BCC but also the fact that
BCC was providing specific special services (radio/telex
operator and janitor) to the employer; that in another case,
the Court had already found that BCC was an independent
contractor; that BCC retained control over the employees
and the employer was actually just concerned with the endresult; that BCC had the power to reassign the employees
and their deployment was not subject to the approval of the
employer; and that BCC was paid in lump sum for the
services it rendered. These features of that case make it
distinguishable from the present one.25
Not having shown the above circumstances present in Neri, the Court
declared Skillpower, Inc. to be engaged in labor-only contracting and
was considered as a mere agent of the employer.
From the two aforementioned decisions, it may be inferred that it is not
enough to show substantial capitalization or investment in the form of
tools, equipment, machineries and work premises, among others, to be
considered as an independent contractor. In fact, jurisprudential
holdings are to the effect that in determining the existence of an
independent contractor relationship, several factors might be
considered such as, but not necessarily confined to, whether the
contractor is carrying on an independent business; the nature and
extent of the work; the skill required; the term and duration of the
relationship; the right to assign the performance of specified pieces of
work; the control and supervision of the workers; the power of the
employer with respect to the hiring, firing and payment of the workers
of the contractor; the control of the premises; the duty to supply
premises, tools, appliances, materials and labor; and the mode,
manner and terms of payment.26
Given the above standards and the factual milieu of the case, the
Court has to agree with the conclusion of the Labor Arbiter that PMCI
is engaged in labor-only contracting.
First of all, PMCI does not have substantial capitalization or investment
in the form of tools, equipment, machineries, work premises, among
others, to qualify as an independent contractor. While it has an
authorized capital stock of P1,000,000.00, only P75,000.00 is actually
paid-in, which, to our mind, cannot be considered as substantial

capitalization. In the case of Neri, which was promulgated in 1993,

BCC had a capital stock of P1,000,000.00 which was fully subscribed
and paid-for. Moreover, when the Neri case was decided in 1993, the
rate of exchange between the dollar and the peso was only P27.30 to
$127 while presently it is at P40.390 to $1.28 The Court takes judicial
notice of the fact that in 1993, the economic situation in the country
was not as adverse as the present, as shown by the devaluation of our
peso. With the current economic atmosphere in the country, the paid-in
capitalization of PMCI amounting to P75,000,00 cannot be considered
as substantial capital and, as such, PMCI cannot qualify as an
independent contractor.
Second, PMCI did not carry on an independent business nor did it
undertake the performance of its contract according to its own manner
and method, free from the control and supervision of its principal, RFC.
The evidence at hand shows that the workers assigned by PMCI to
RFC were under the control and supervision of the latter. The Contract
of Service itself provides that RFC can require the workers assigned by
PMCI to render services even beyond the regular eight hour working
day when deemed necessary.29 Furthermore, RFC undertook to assist
PMCI in making sure that the daily time records of its alleged
employees faithfully reflect the actual working hours.30 With regard to
petitioner, RFC admitted that it exercised control and supervision over
him.31 These are telltale indications that PMCI was not left alone to
supervise and control its alleged employees. Consequently, it can be,
concluded that PMCI was not an independent contractor since it did
not carry a distinct business free from the control and supervision of
RFC.
Third, PMCI was not engaged to perform a specific and special job or
service, which is one of the strong indicators that an entity is an
independent contractor as explained by the Court in the cases
of Neri and Fuji. As stated in the Contract of Service, the sole
undertaking of PMCI was to provide RFC with a temporary workforce
able to carry out whatever service may be required by it.32 Such
venture was complied with by PMCI when the required personnel were
actually assigned to RFC. Apart from that, no other particular job, work
or service was required from PMCI. Obviously, with such an
arrangement, PMCI merely acted as a recruitment agency for RFC.
Since the undertaking of PMCI did not involve the performance of a
specific job, but rather the supply of manpower only, PMCI clearly
conducted itself as labor-only contractor.
Lastly, in labor-only contracting, the employees recruited, supplied or
placed by the contractor perform activities which are directly related to
the main business of its principal. In this case, the work of petitioner as
sales representative is directly related to the business of RFC. Being in
the business of food manufacturing and sales, it is necessary for RFC
to hire a sales representative like petitioner to take charge of booking
its sales orders and collecting payments for such. Thus, the work of
petitioner as sales representative in RFC can only be categorized as
clearly related to, and in the pursuit of the latter's business. Logically,
when petitioner was assigned by PMCI to RFC, PMCI acted merely as
a labor-only contractor.
Based on the foregoing, PMCI can only be classified as a labor-only
contractor and, as such, cannot be considered as the employer of
petitioner.
However, even granting that PMCI is an independent contractor, as
RFC adamantly suggests, still, a finding of the same will not save the
day for RFC. A perusal of the Contract of Service entered into between
RFC and PMCI reveals that petitioner is actually not included in the

Page 27 of 33

enumeration of the workers to be assigned to RFC. The following are

the workers enumerated in the contract:
1. Merchandiser
2. Promo Girl
3. Factory Worker
4. Driver33
Obviously, the above enumeration does not include the position of
petitioner as sales representative. This only shows that petitioner was
never intended to be a part of those to be contracted out. However,
RFC insists that despite the absence of his position in the
enumeration, petitioner is deemed included because this has been
agreed upon between itself and PMCI. Such contention deserves scant
consideration. Had it really been the intention of both parties to include
the position of petitioner they should have clearly indicated the same in
the contract. However, the contract is totally silent on this point which
can only mean that petitioner was never really intended to be covered
by it.
Even if we use the "four-fold test" to ascertain whether RFC is the true
employer of petitioner that same result would be achieved. In
determining the existence of employer-employee relationship the
following elements of the "four-fold test" are generally considered,
namely: (1) the selection and engagement of the employee or the
power to hire; (2) the payment of wages; (3) the power to dismiss; and
(4) the power to control the employee.34 Of these four, the "control test"
is the most important.35 A careful study of the evidence at hand shows
that RFC possesses the earmarks of being the employer of petitioner.
With regard to the first element, the power to hire, RFC denies any
involvement in the recruitment and selection of petitioner and asserts
that petitioner did not present any proof that he was actually hired and
employed by RFC.
It should be pointed out that no particular form of proof is required to
prove the existence of an employer-employee relationship.36 Any
competent and relevant evidence may show the relationship.37 If only
documentary evidence would be required to demonstrate that
relationship, no scheming employer would ever be brought before bar
of justice.38 In the case at bar, petitioner presented the identification
card issue to him on 26 May 1990 by RFC as proof that it was the
latter who engaged his services. To our mind, the ID card is enough
proof that petitioner was previously hired by RFC prior to his transfer
as agency worker to PMCI. It must be noted that the Employment
Contract between petitioner and PMCI was dated 1 July 1991. On the
other hand, the ID card issued by RFC to petitioner was dated 26 May
1990, or more than one year before the Employment Contract was
signed by petitioner in favor of PMCI. It makes one wonder why, if
petitioner was indeed recruited by PMCI as its own employee on 1 July
1991, how come he had already been issued an ID card by RFC a
year earlier? While the Employment Contract indicates the word
"renewal," presumably an attempt to show that petitioner had
previously signed a similar contract with PMCI, no evidence of a prior
contract entered into petitioner and PMCI was ever presented by RFC.
In fact, despite the demand made by the counsel of petitioner for
production of the contract which purportedly shows that prior to 1 July
1991 petitioner was already connected with PMCI, RFC never made a
move to furnish the counsel of petitioner a copy of the alleged original
Employment Contract. The only logical conclusion which may be

derived from such inaction is that there was no such contract end that
the only Employment Contract entered into between PMCI and
petitioner was the 1 July 1991 contract and no other. Since, as shown
by the ID card, petitioner was already with RFC on 26 May 1990, prior
to the time any Employment Contract was agreed upon between PMCI
and petitioner, it follows that it was RFC who actually hired and
engaged petitioner to be its employee.
With respect to the payment of wages, RFC disputes the argument of
petitioner that it paid his wages on the ground that petitioner did not
submit any evidence to prove that his salary was paid by it, or that he
was issued payslip by the company. On the contrary, RFC asserts that
the invoices39 presented by it, show that it was PMCI who paid
petitioner his wages through its regular monthly billings charged to
RFC.
The Court takes judicial notice of the practice of employers who, in
order to evade the liabilities under the Labor Code, do not issue
payslips directly to their employees.40 Under the current practice, a
third person, usually the purported contractor (service or manpower
placement agency), assumes the act of paying the wage.41 For this
reason, the lowly worker is unable to show proof that it was directly
paid by the true employer. Nevertheless, for the workers, it is enough
that they actually receive their pay, oblivious of the need for payslips,
unaware of its legal implications.42 Applying this principle to the case at
bar, even though the wages were coursed through PMCI, we note that
the funds actually came from the pockets of RFC. Thus, in the end,
RFC is still the one who paid the wages of petitioner albeit indirectly.
As to the third element, the power to dismiss, RFC avers that it was
PMCI who terminated the employment of petitioner. The facts on
record, however, disprove the allegation of RFC. First of all, the
Contract of Service gave RFC the right to terminate the workers
assigned to it by PMCI without the latter's approval. Quoted hereunder
is the portion of the contract stating the power of RFC to dismiss, to
wit:
7. The First party ("RFC") reserves the right to terminate the
services of any worker found to be unsatisfactory without the
prior approval of the second party ("PMCI").43
In furtherance of the above provision, RFC requested PMCI to
terminate petitioner from his employment with the company. In
response to the request of RFC, PMCI terminated petitioner from
service. As found by the Labor Arbiter, to which we agree, the
dismissal of petitioner was indeed made under the instruction of RFC
to PMCI.
The fourth and most important requirement in ascertaining the
presence of employer-employee relationship is the power of control.
The power of control refers to the authority of the employer to control
the employee not only with regard to the result of work to be done but
also to the means and methods by which the work is to be
accomplished.44 It should be borne in mind, that the "control test" calls
merely for the existence of the right to control the manner of doing the
work, and not necessarily to the actual exercise of the right.45 In the
case at bar, we need not belabor ourselves in discussing whether the
power of control exists. RFC already admitted that it exercised control
and supervision over petitioner.46 RFC, however, raises the defense
that the power of control was jointly exercised with PMCI. The Labor
Arbiter, on the other hand, found that petitioner was under the direct
control and supervision of the personnel of RFC and not PMCI. We are
inclined to believe the findings of the Labor Arbiter which is supported

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not only by the admission of RFC but also by the evidence on record.
Besides, to our mind, the admission of RFC that it exercised control
and supervision over petitioner, the same being a declaration against
interest, is sufficient enough to prove that the power of control truly
exists.
We, therefore, hold that an employer-employee relationship exists
between petitioner and RFC.
Having determined the real employer of petitioner, we now proceed to
ascertain the legality of his dismissal from employment.

G.R. No. 186091

December 15, 2010

EMMANUEL BABAS, DANILO T. BANAG, ARTURO V. VILLARIN,

SR., EDWIN JAVIER, SANDI BERMEO, REX ALLESA, MAXIMO
SORIANO, JR., ARSENIO ESTORQUE, and FELIXBERTO
ANAJAO, Petitioners,
vs.
LORENZO SHIPPING CORPORATION, Respondent.
DECISION
NACHURA, J.:

Since petitioner, due to his length of service, already attained the

status of a regular employee,47 he is entitled to the security of tenure
provided under the labor laws. Hence, he may only be validly
terminated from service upon compliance with the legal requisites for
dismissal. Under the Labor Code, the requirements for the lawful
dismissal of an employee are two-fold, the substantive and the
procedural aspects. Not only must the dismissal be for a valid or
authorized cause,48 the rudimentary requirements of due process
notice and hearing49 must, likewise, be observed before an
employee may be dismissed. Without the concurrence of the two, the
termination would, in the eyes of the law, be illegal.50
As the employer, RFC has the burden of proving that the dismissal of
petitioner was for a cause allowed under the law and that petitioner
was afforded procedural due process. Sad to say, RFC failed to
discharge this burden. Indeed, RFC never pointed to any valid or
authorized cause under the Labor Code which allowed it to terminate
the services of petitioner. Its lone allegation that the dismissal was due
to the expiration or completion of contract is not even one of the
grounds for termination allowed by law. Neither did RFC show that
petitioner was given ample opportunity to contest the legality of his
dismissal. In fact, no notice of such impending termination was ever
given him. Petitioner was, thus, surprised that he was already
terminated from employment without any inkling as to how and why it
came about. Petitioner was definitely denied due process. Having
failed to establish compliance with the requirements on termination of
employment under the Labor Code, the dismissal of petitioner is
tainted with illegality.

Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr.,

Edwin Javier, Sandi Bermeo, Rex Allesa, Maximo Soriano, Jr., Arsenio
Estorque, and Felixberto Anajao appeal by certiorari under Rule 45 of
the Rules of Court the October 10, 2008 Decision1 of the Court of
Appeals (CA) in CA-G.R. SP. No. 103804, and the January 21, 2009
Resolution,2 denying its reconsideration.
Respondent Lorenzo Shipping Corporation (LSC) is a duly organized
domestic corporation engaged in the shipping industry; it owns several
equipment necessary for its business. On September 29, 1997, LSC
entered into a General Equipment Maintenance Repair and
Management Services Agreement3 (Agreement) with Best Manpower
Services, Inc. (BMSI). Under the Agreement, BMSI undertook to
provide maintenance and repair services to LSCs container vans,
heavy equipment, trailer chassis, and generator sets. BMSI further
undertook to provide checkers to inspect all containers received for
loading to and/or unloading from its vessels.
Simultaneous with the execution of the Agreement, LSC leased its
equipment, tools, and tractors to BMSI.4 The period of lease was
coterminous with the Agreement.
BMSI then hired petitioners on various dates to work at LSC as
checkers, welders, utility men, clerks, forklift operators, motor pool and
machine shop workers, technicians, trailer drivers, and mechanics. Six
years later, or on May 1, 2003, LSC entered into another contract with
BMSI, this time, a service contract.5

An employee who has been illegally dismissed is entitled to

reinstatement to his former position without loss of seniority rights and
to payment of full backwages corresponding to the period from his
illegal dismissal up to actual reinstatement.51 Petitioner is entitled to no
less.

In September 2003, petitioners filed with the Labor Arbiter (LA) a

complaint for regularization against LSC and BMSI. On October 1,
2003, LSC terminated the Agreement, effective October 31, 2003.
Consequently, petitioners lost their employment.

WHEREFORE, the petition is GRANTED. The decision of the NLRC,

dated 21 June 1996, as well as its resolution, promulgated on 20
August 1996, are ANNULLED and SET ASIDE. The decision of the
Labor Arbiter, rendered on 15 June 1994, is hereby REINSTATED and
AFFIRMED.1wphi1.nt

BMSI asserted that it is an independent contractor. It averred that it

was willing to regularize petitioners; however, some of them lacked the
requisite qualifications for the job. BMSI was willing to reassign
petitioners who were willing to accept reassignment. BMSI denied
petitioners claim for underpayment of wages and non-payment of 13th
month pay and other benefits.

SO ORDERED.
Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

LSC, on the other hand, averred that petitioners were employees of

BMSI and were assigned to LSC by virtue of the Agreement. BMSI is
an independent job contractor with substantial capital or investment in
the form of tools, equipment, and machinery necessary in the conduct
of its business. The Agreement between LSC and BMSI constituted
legitimate job contracting. Thus, petitioners were employees of BMSI
and not of LSC.

SECOND DIVISION

Page 29 of 33

After due proceedings, the LA rendered a decision6 dismissing

petitioners complaint. The LA found that petitioners were employees of
BMSI. It was BMSI which hired petitioners, paid their wages, and
exercised control over them.
Petitioners appealed to the National Labor Relations Commission
(NLRC), arguing that BMSI was engaged in labor-only contracting.
They insisted that their employer was LSC.
On January 16, 2008, the NLRC promulgated its decision.7 Reversing
the LA, the NLRC held:
We find from the records of this case that respondent BMSI is not
engaged in legitimate job contracting.
First, respondent BMSI has no equipment, no office premises, no
capital and no investments as shown in the Agreement itself which
states:
xxxx
VI. RENTAL OF EQUIPMENT
[6.01.] That the CLIENT has several forklifts and truck tractor, and has
offered to the CONTRACTOR the use of the same by way of lease, the
monthly rental of which shall be deducted from the total monthly
billings of the CONTRACTOR for the services covered by this
Agreement.
6.02. That the CONTRACTOR has agreed to rent the CLIENTs
forklifts and truck tractor.
6.03. The parties herein have agreed to execute a Contract of Lease
for the forklifts and truck tractor that will be rented by the
CONTRACTOR. (p. 389, Records)
True enough, parties signed a Lease Contract (p. 392, Records)
wherein respondent BMSI leased several excess equipment of LSC to
enable it to discharge its obligation under the Agreement. So without
the equipment which respondent BMSI leased from respondent LSC,
the former would not be able to perform its commitments in the
Agreement.

they performed the same work that the regular workers of LSC
performed and they stood side by side with regular employees of
respondent LSC performing the same work. Necessarily, the control on
the manner and method of doing the work was exercised by
respondent LSC and not by respondent BMSI since the latter had no
business of its own to perform in respondent LSC.
Lastly, respondent BMSI has no other client but respondent LSC. If
respondent BMSI were a going concern, it would have other clients to
which to assign [petitioners] after its Agreement with LSC expired.
Since there is only one client, respondent LSC, it is easy to conclude
that respondent BMSI is a mere supplier of labor.
After concluding that respondent BMSI is engaged in prohibited laboronly contracting, respondent LSC became the employer of [petitioners]
pursuant to DO 18-02.
[Petitioners] therefore should be reinstated to their former positions or
equivalent positions in respondent LSC as regular employees with full
backwages and other benefits without loss of seniority rights from
October 31, 2003, when they lost their jobs, until actual reinstatement
(Vinoya v. NLRC, 324 SCRA 469). If reinstatement is not feasible,
[petitioners] then should be paid separation pay of one month pay for
every year of service or a fraction of six months to be considered as
one year, in addition to full backwages.
Concerning [petitioners] prayer to be paid wage differentials and
benefits under the CBA, We have no doubt that [petitioners] would be
entitled to them if they are covered by the said CBA. For this purpose,
[petitioners] should first enlist themselves as union members if they so
desire, or pay agency fee. Furthermore, only [petitioners] who signed
the appeal memorandum are covered by this Decision. As regards the
other complainants who did not sign the appeal, the Decision of the
Labor Arbiter dismissing this case became final and executory.8
The NLRC disposed thus:
WHEREFORE, the appeal of [petitioners] is GRANTED. The Decision
of the Labor Arbiter is hereby REVERSED, and a NEW ONE rendered
finding respondent Best Manpower Services, Inc. is engaged in
prohibited labor-only-contracting and finding respondent Lorenzo
Shipping Corp. as the employer of the following [petitioners]:
1. Emmanuel B. Babas

In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme Court
held:
x x x. The phrase "substantial capital and investment in the form of
tools, equipment, machineries, work premises, and other materials
which are necessary in the conduct of his business," in the
Implementing Rules clearly contemplates tools, equipment, etc., which
are directly related to the service it is being contracted to render. One
who does not have an independent business for undertaking the job
contracted for is just an agent of the employer. (underscoring ours)

2. Danilo Banag
3. Edwin L. Javier
4. Rex Allesa
5. Arturo Villarin, [Sr.]
6. Felixberto C. Anajao

Second, respondent BMSI has no independent business or activity or

job to perform in respondent LSC free from the control of respondent
LSC except as to the results thereof. In view of the absence of such
independent business or activity or job to be performed by respondent
BMSI in respondent LSC [petitioners] performed work that was
necessary and desirable to the main business of respondent LSC.
Respondents were not able to refute the allegations of [petitioners] that

7. Arsenio Estorque
8. Maximo N. Soriano, Jr.
9. Sandi G. Bermeo

Page 30 of 33

Consequently, respondent Lorenzo Shipping Corp. is ordered to

reinstate [petitioners] to their former positions as regular employees
and pay their wage differentials and benefits under the CBA.
If reinstatement is not feasible, both respondents Lorenzo Shipping
Corp. and Best Manpower Services are adjudged jointly and solidarily
to pay [petitioners] separation pay of one month for every year of
service, a fraction of six months to be considered as one year.
In addition, respondent LSC and BMSI are solidarily liable to pay
[petitioners] full backwages from October 31, 2003 until actual
reinstatement or, if reinstatement is not feasible, until finality of this
Decision.
Respondent LSC and respondent BMSI are likewise adjudged to be
solidarily liable for attorneys fees equivalent to ten (10%) of the total
monetary award.
xxxx
SO ORDERED.9
LSC went to the CA via certiorari. On October 10, 2008, the CA
rendered the now challenged Decision,10reversing the NLRC. In
holding that BMSI was an independent contractor, the CA relied on the
provisions of the Agreement, wherein BMSI warranted that it is an
independent contractor, with adequate capital, expertise, knowledge,
equipment, and personnel necessary for the services rendered to LSC.
According to the CA, the fact that BMSI entered into a contract of lease
with LSC did not ipso facto make BMSI a labor-only contractor; on the
contrary, it proved that BMSI had substantial capital. The CA was of the
view that the law only required substantial capital or investment. Since
BMSI had substantial capital, as shown by its ability to pay rents to
LSC, then it qualified as an independent contractor. It added that even
under the control test, BMSI would be the real employer of petitioners,
since it had assumed the entire charge and control of petitioners
services. The CA further held that BMSIs Certificate of Registration as
an independent contractor was sufficient proof that it was an
independent contractor. Hence, the CA absolved LSC from liability and
instead held BMSI as employer of petitioners.
The fallo of the CA Decision reads:
WHEREFORE, premises considered, the instant petition is GRANTED
and the assailed decision and resolution of public respondent NLRC
are REVERSED and SET ASIDE. Consequently, the decision of the
Labor Arbiter dated September 29, 2004 is REINSTATED.
SO ORDERED.11
Petitioners filed a motion for reconsideration, but the CA denied it on
January 21, 2009.12
Hence, this appeal by petitioners, positing that:
THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE
CLEAR EVIDENCE OF RECORD THAT RESPONDENT WAS
ENGAGED IN LABOR-ONLY CONTRACTING TO DEFEAT
PETITIONERS RIGHT TO SECURITY OF TENURE.13

Before resolving the petition, we note that only seven (7) of the nine
petitioners signed the Verification and Certification.14 Petitioners
Maximo Soriano, Jr. (Soriano) and Felixberto Anajao (Anajao) did not
sign the Verification and Certification, because they could no longer be
located by their co-petitioners.15
In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v.
National Labor Relations Commission,16citing Loquias v. Office of the
Ombudsman,17 we stated that the petition satisfies the formal
requirements only with regard to the petitioner who signed the petition,
but not his co-petitioner who did not sign nor authorize the other
petitioner to sign it on his behalf. Thus, the petition can be given due
course only as to the parties who signed it. The other petitioners who
did not sign the verification and certificate against forum shopping
cannot be recognized as petitioners and have no legal standing before
the Court. The petition should be dismissed outright with respect to the
non-conforming petitioners.
Thus, we dismiss the petition insofar as petitioners Soriano and Anajao
are concerned.
Petitioners vigorously insist that they were employees of LSC; and that
BMSI is not an independent contractor, but a labor-only contractor.
LSC, on the other hand, maintains that BMSI is an independent
contractor, with adequate capital and investment. LSC capitalizes on
the ratiocination made by the CA.
In declaring BMSI as an independent contractor, the CA, in the
challenged Decision, heavily relied on the provisions of the Agreement,
wherein BMSI declared that it was an independent contractor, with
substantial capital and investment.
De Los Santos v. NLRC18 instructed us that the character of the
business, i.e., whether as labor-only contractor or as job contractor,
should
be measured in terms of, and determined by, the criteria set by statute.
The parties cannot dictate by the mere expedience of a unilateral
declaration in a contract the character of their business.
In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas,
Jovito Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N.
Policarpio,19 this Court explained:
Despite the fact that the service contracts contain stipulations which
are earmarks of independent contractorship, they do not make it legally
so. The language of a contract is neither determinative nor conclusive
of the relationship between the parties. Petitioner SMC and AMPCO
cannot dictate, by a declaration in a contract, the character of
AMPCO's business, that is, whether as labor-only contractor, or job
contractor. AMPCO's character should be measured in terms of, and
determined by, the criteria set by statute.
Thus, in distinguishing between prohibited labor-only contracting and
permissible job contracting, the totality of the facts and the surrounding
circumstances of the case are to be considered.
Labor-only contracting, a prohibited act, is an arrangement where the
contractor or subcontractor merely recruits, supplies, or places workers
to perform a job, work, or service for a principal. In labor-only
contracting, the following elements are present: (a) the contractor or
subcontractor does not have substantial capital or investment to

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actually perform the job, work, or service under its own account and
responsibility; and (b) the employees recruited, supplied, or placed by
such contractor or subcontractor perform activities which are directly
related to the main business of the principal.20
On the other hand, permissible job contracting or subcontracting refers
to an arrangement whereby a principal agrees to put out or farm out
with the contractor or subcontractor the performance or completion of a
specific job, work, or service within a definite or predetermined period,
regardless of whether such job, work, or service is to be performed or
completed within or outside the premises of the principal. 21
A person is considered engaged in legitimate job contracting or
subcontracting if the following conditions concur:
(a) The contractor carries on a distinct and independent
business and undertakes the contract work on his account
under his own responsibility according to his own manner
and method, free from the control and direction of his
employer or principal in all matters connected with the
performance of his work except as to the results thereof;
(b) The contractor has substantial capital or investment; and
(c) The agreement between the principal and the contractor
or subcontractor assures the contractual employees'
entitlement to all labor and occupational safety and health
standards, free exercise of the right to self-organization,
security of tenure, and social welfare benefits.22
Given the above standards, we sustain the petitioners contention that
BMSI is engaged in labor-only contracting.
First, petitioners worked at LSCs premises, and nowhere else. Other
than the provisions of the Agreement, there was no showing that it was
BMSI which established petitioners working procedure and methods,
which supervised petitioners in their work, or which evaluated the
same. There was absolute lack of evidence that BMSI exercised
control over them or their work, except for the fact that petitioners were
hired by BMSI.
Second, LSC was unable to present proof that BMSI had substantial
capital. The record before us is bereft of any proof pertaining to the
contractors capitalization, nor to its investment in tools, equipment, or
implements actually used in the performance or completion of the job,
work, or service that it was contracted to render. What is clear was that
the equipment used by BMSI were owned by, and merely rented from,
LSC.
In Mandaue Galleon Trade, Inc. v. Andales,23 we held:
The law casts the burden on the contractor to prove that it has
substantial capital, investment, tools, etc.Employees, on the other
hand, need not prove that the contractor does not have substantial
capital, investment, and tools to engage in job-contracting.
Third, petitioners performed activities which were directly related to the
main business of LSC. The work of petitioners as checkers, welders,
utility men, drivers, and mechanics could only be characterized as part
of, or at least clearly related to, and in the pursuit of, LSCs business.
Logically, when petitioners were assigned by BMSI to LSC, BMSI
acted merely as a labor-only contractor.

Lastly, as found by the NLRC, BMSI had no other client except for
LSC, and neither BMSI nor LSC refuted this finding, thereby bolstering
the NLRC finding that BMSI is a labor-only contractor.
The CA erred in considering BMSIs Certificate of Registration as
sufficient proof that it is an independent contractor. In San Miguel
Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada,
Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,24 we
held that a Certificate of Registration issued by the Department of
Labor and Employment is not conclusive evidence of such status. The
fact of registration simply prevents the legal presumption of being a
mere labor-only contractor from arising.251avvphi1
Indubitably, BMSI can only be classified as a labor-only contractor. The
CA, therefore, erred when it ruled otherwise. Consequently, the
workers that BMSI supplied to LSC became regular employees of the
latter.26Having gained regular status, petitioners were entitled to
security of tenure and could only be dismissed for just or authorized
causes and after they had been accorded due process.
Petitioners lost their employment when LSC terminated its Agreement
with BMSI. However, the termination of LSCs Agreement with BMSI
cannot be considered a just or an authorized cause for petitioners
dismissal. In Almeda v. Asahi Glass Philippines. Inc. v. Asahi Glass
Philippines, Inc.,27 this Court declared:
The sole reason given for the dismissal of petitioners by SSASI was
the termination of its service contract with respondent. But since
SSASI was a labor-only contractor, and petitioners were to be deemed
the employees of respondent, then the said reason would not
constitute a just or authorized cause for petitioners dismissal. It would
then appear that petitioners were summarily dismissed based on the
aforecited reason, without compliance with the procedural due process
for notice and hearing.
Herein petitioners, having been unjustly dismissed from work, are
entitled to reinstatement without loss of seniority rights and other
privileges and to full back wages, inclusive of allowances, and to other
benefits or their monetary equivalents computed from the time
compensation was withheld up to the time of actual reinstatement.
Their earnings elsewhere during the periods of their illegal dismissal
shall not be deducted therefrom.
Accordingly, we hold that the NLRC committed no grave abuse of
discretion in its decision. Conversely, the CA committed a reversible
error when it set aside the NLRC ruling.
WHEREFORE, the petition is GRANTED. The Decision and the
Resolution of the Court of Appeals in CA-G.R. SP. No. 103804
are REVERSED and SET ASIDE. Petitioners Emmanuel Babas,
Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo,
Rex Allesa, and Arsenio Estorque are declared regular employees of
Lorenzo Shipping Corporation. Further, LSC is ordered to reinstate the
seven petitioners to their former position without loss of seniority rights
and other privileges, and to pay full backwages, inclusive of
allowances, and other benefits or their monetary equivalent, computed
from the time compensation was withheld up to the time of actual
reinstatement.
No pronouncement as to costs.
SO ORDERED.

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ANTONIO EDUARDO B. NACHURA

Associate Justice

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