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G.R. No.

90739 October 3, 1991


NATIONAL FEDERATION OF LABOR UNIONS (NAFLU), and FLORANTE
ONGBUECO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, and UNION AJINOMOTO. INC., respondents.
Bienvenida N. Carreon. for F. Ongbueco.
Felipe P. Fuentes, Jr. for private respondent.
SARMIENTO, J.:p
Florante Ongbueco was an OIC and First Production Staff Engineer 1 of the private respondent, Union
Ajinomoto, Inc. (Ajinomoto, for brevity). Sometime in September 1982, the Bureau of Energy (BEU,
for brevity), pursuant to B.P. 73, otherwise known as the Omnibus Energy Conservation Law, required
Ajinomoto to appoint an employee who would act as its
Energy Manager. 2 The duties and responsibilities of the Energy Manager were outlined, thus:
1. Design, plan, implement, monitor, and evaluate energy conservation programs and
activities of his establishment.
2. Organize an energy conservation committee or the like in establishment and to
head such committee.
3. Submit energy consumption reports and energy conservation programs to the
Bureau of Energy Utilization.
4. Cooperate with the Ministry of Energy in the conduct of energy utilization efficiency.
5. Train his employer's personnel on energy conservation as part of the company's
energy conservation education effort. 3
This order was followed by a letter 4 dated April 25, 1983 reminding Ajinomoto to submit its
Quarterly Energy Consumption Reports, as provided for by the said B.P. 73.
The task of preparing the required reports in conformance with BEU's April 25, 1983 letter was thus
assigned to Engr. Ongbueco from then on, plus he was given the additional assignment of preparing
all the reports required by the BEU.
In a succeeding correspondence, 5 the BEU requested Ajinomoto to submit the name and bio-data of
the employee it had designated as its Energy Manager. And, in compliance with this directive,
Ajinomoto, on December 8, 1983, appointed Engr. Ongbueco as Energy Manager. 6
Thereafter, by using the form attached to the letter, as advised, Ajinomoto furnished the BEU with
the name and bio-data of its newly appointed Energy Manager, Florante Ongbueco.
Ajinomoto deemed it unnecessary to provide Engr. Ongbueco with a salary increase since his
designation as Energy Manager supposedly did not entail additional responsibilities other than the
preparation of the required consumption reports which he had already been attending to even prior
to his appointment. 7 For nearly three years, Engr. Ongbueco performed his role as Energy Manager.
The arrangement remained undisturbed.
However, on July 7, 1986, Engr. Ongbueco filed a complaint 8 with the National Labor Relations
Commission (NLRC, for brevity) for underpayment of salary from December 1983, and on September
22, 1986, an amended complaint, 9 claiming that his promotion to the rank of Energy Manager,
entitled him to a corresponding salary increase.
On November 27, 1987, Labor Arbiter Donato Quinto, Jr. rendered judgment in favor of the petitioner,
Engr. Ongbueco. The dispositive portion of the decision reads:
WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered
declaring complainant to have been properly promoted with his appointment as
Energy Manager and consequently ordering respondent to properly adjust the salary of
herein complainant commensurate to the position he was appointed and promoted
[sic], in accordance with respondent [sic] pay scale level, but not lower than the rank
of Section Head.
SO ORDERED. 10
Private respondent Ajinomoto appealed to the NLRC, whose, Fourth Division affirmed, on May 6,
1988, the Labor Arbiter's decision. 11 Ajinomoto's subsequent motion for reconsideration was denied
by a resolution issued by the same Fourth Division on June 16, 1988. 12 Still not satisfied, Ajinomoto
filed a Second Motion for Reconsideration with a Prayer to Refer the Case to the Commission En
Banc. 13 During its pendency however, the Secretary of the Department of Labor and Employment
issued Administrative Order 36, pursuant to R.A. 6715, ordering th cessation of holding En Banc
sessions for the purpose of hearin and disposing cases, and authorizing the NLRC to discharge it
adjudicating functions through its respective Divisions.

The present case was then re-raffled and assigned to th Second Division of the NLRC which
entertained the motion. On September 29, 1989, the Second Division rendered a
decision 14 reversing and setting aside the decision and the resolution o the Fourth Division. The
Second Division disposed as follows:
WHEREFORE, the appealed decision is hereby Revised and Se Aside and a new one entered
dismissing the complaint for underpay ment for lack of merit. 15
Hence, this special civil action for certiorari.
The present action is basically anchored on the petitioner' supposition that his position as Energy
Manager is of a permanent nature considering the continuing policy of the State regarding energy
conservation, and constitutes a promotion in rank from a rank-and-file level to a managerial
position. 16 Consequently, he asks for what he presumes a corresponding salary increase. He
supports his demand by citing numerous energy conservation awards received by Ajinomoto, for
instance The Don Emilio Abello Award for three consecutive year supposedly all made possible
through his actual efforts, "God Given talent and ability." 17
The petitioner then invokes the oft-repeated pronouncement that doubts in the interpretation and
implementation of t labor laws should be resolved in favor of labor 18 in justifying h allegation that
even if B.P. 73 does not state a salary nor a increase in the salary of the employee to be appointed as
a energy manager, it would not have been the intention of the law-making authority to do injustice to
the employee concerned. 19 Thus, he claims that the ambiguity created by B.P. 73 should be
resolved in his favor.
Finally, he asserts that the labor arbiter is vested with the power to order an increase in his (the
petitioner's) salary by reason of his (the petitioner's) promotion to the rank of Energy Manager. To
support his contention, the petitioner quotes Article 217 * of the Labor Code:
Art. 217. Jurisdiction of Labor Arbiters and the Commission. (a) The Labor Arbiters shall have the
original and exclusive jurisdiction to hear and decide ..., the following cases ...:
xxx xxx xxx
3. All money claims of workers, including those based on nonpayment or
underpayment of wages, overtime compensation, separation pay and other benefits
provided by law or appropriate agreement, except claims for employees
compensation, social security, medicare and maternity benefits;
xxx xxx xxx
The respondents, on the other hand, have a common defense. They argue that there is no particular
labor law nor contract of employment upon which the petitioner may anchor his claim for a salary
increase. And although the duties and responsibilities of the Energy Manager have been outlined, the
petitioner was appointed as Energy Manager, not to design and implement an energy conservation
program for the company, as an effective scheme was already well in place even prior to the
enactment of B.P. 73, but merely to comply with the law requiring the appointment of an Energy
Manager. 20
The respondents also aver that the petitioner could not have been promoted to managerial level as
he was not vested with any powers and prerogatives of a managerial employee. 21 His appointment
as Energy Manager was simply a lateral movement rather than a scalar ascent.
At length, the respondents insist that the matter of salary increases is entirely a management
prerogative which should be addressed to the sound discretion of the employer, and is consequently
outside the jurisdiction of the labor arbiter. 22
The issue to be resolved in the instant case is simple whether or not the petitioner is entitled to a
salary increase upon his assumption of office as an Energy Manager.
We believe not.
It is a well-settled rule that labor laws do not authorize inter-ference with the employer's judgment in
the conduct of his business. The determination of the qualifications and fitness o workers for hiring
and firing, promotion or reassignment, are exclusive prerogatives of management. The Labor Code
and it implementing Rules do not vest in the Labor Arbiters nor in th different Divisions of the NLRC
(nor in the courts) managerial authority. The employer is free to determine, using his own discretion
and business judgment, all elements of employment "from hiring to firing," except in cases of
unlawful discrimination or those which may be provided for by law. There is none ithe instant case.
We agree with the respondents that the petitioner was no promoted, but he was merely given the
functional title of Energy Manager to comply with B.P. 73, as distinguished from hi official title of Staff
Engineer. There is no showing that he ha ceased from performing his duties as Staff Engineer. Of
primordial consideration is not the nomenclature or title given to th employee, but the nature of his

functions. There is no substantial proof that the petitioner was vested with any of the power and
prerogatives of a managerial employee, as defined by the Labor Code.
However, in gratia argumenti that indeed the petitioner w promoted in rank, it does not necessarily
follow that he entitled to a corresponding salary increase. The petitioner should have been aware of
this fact since he even cited the case of Millares vs. Subido 23 in his Memorandum, 24 in which this
Court, speaking through Acting Chief Justice J.B.L. Reyes, said:
Promotion, on the other hand, is the advancement from one position to another with
an increase in duties and responsibilities as authorized by law,
and usually accompanied by an increase in salary. (Emphasis supplied) 25
The word usually simply means that not all promotions may be accompanied by a corresponding
salary increase, notwithstanding the increase in duties and responsibilities of the employee.
Our pronouncement in Dosch vs. NLRC, 26 citing the Millares case, supra, is well-defined.
It has been held that promotion denotes a scalar ascent of an officer or an employee to
another position, higher either in rank or salary. (Emphasis supplied). 27
Again the phrase either in rank or salary plainly means that a promotion may denote an
advancement merely in rank without an equivalent increase in salary.
Undoubtedly, a subsequent increase in salary, granting that there indeed was a promotion, is nonsequitur.
Moreover, we have already specifically ruled that the matter of salary increases is a management
prerogative. InBatongbacal vs. Associated Bank, (1988), 28 we had this to say:
There is a semblance of discrimination in this aspect of the bank's organizational set-up but we are
not prepared to pre-empt the employer's prerogative to grant salary increases to its employees. 29
An employer's exercise of management prerogatives, with or without reason, does not, per se,
constitute unjust discrimination. Unless there is a showing of grave abuse of discretion, we can not
substitute our discretion and judgment for that which is clearly and exclusively management's
prerogatives. To do so would take away from the employer what rightly belongs to him.
On the issue of jurisdiction, we agree with the petitioner that the Labor Arbiter and the Commission
have jurisdiction over all money claims of workers, including underpayment of wages. Art. 217(a) (6)
of the Labor Code, as amended, can not be any clearer:
Art. 217. Jurisdiction of Labor Arbiter and the Commission. (a) Except as otherwise
provided under this Code, the Labor Arbiters shall have original and exclusive
jurisdiction to hear and decide ..., the following cases involving all workers, whether
agricultural or non-agricultural:
xxx xxx xxx
(6) Except claims for Employees Compensation, Social Security, Medicare and
Maternity benefits, all other claims, arising from employer-employee relations, ...
involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether
or not accompanied with a claim for reinstatement.
xxx xxx xxx
(Emphasis supplied)
Definitely, this is within the province of the labor arbiter, th total salary differential claimed by the
petitioner, being more than one million pesos (P1,762,031,00, excluding damages an attorney's
fees). 30 Our ruling in Servando's Inc. vs. Secretary of Labor 31 explicitly defines the Code:
... the exclusive jurisdiction to hear and decide employees' claim arising from
employer-employee relations, exceeding the aggregate amount of P5,000.00 for each
employee is vested in the Labor Arbiter (Article 21[a] [6]).
However, before the labor arbiter or the Commission can favorably act on these claims, the said
claims must be based on law or appropriate agreement. Otherwise, this would be a violation of the
free will of management to conduct its own business affairs, The labor arbiter, absent a showing of
grave abuse of discretion on the part of the employer, should have a ground where he can base his
findings. Evidently, there is no law nor agreement upon which the petitioner may justify his demand
for a salary increase. Neither has the employer committed a grave abuse of discretion.
The petitioner's contention that the ambiguity created by B.P. 73 in failing to provide for a salary
(or a salary increase, as the case may be) for the Energy Manager to be appointed should be
resolved in his favor is misplaced and must likewise fail. The law is very clear. The fact that B.P. 73
did not provide for a salary for the Energy Manager simply means that the law left that matter to the
discretion of the employer, consonant with existing jurisprudence. Otherwise, it would have been
very easy to insert a salary scale for the position of Energy Manager in the said law. Where the law is
clear, there is no need for interpretation nor construction, but merely application.

Besides, it would be stretching one's imagination too far if one considers B.P. 73 as a labor law
where doubts are resolved in favor of labor. B.P. 73 is a law concerning the promotion of energy
conservation. Its provision on the appointment of an Energy Manager is merely incidental and does
not change the nature of the law, from a law on energy conservation to a labor law.However, while
we continuously affirm our enduring sympathy for the welfare of the laborers, especially the lowsalaried but modest rank-and-file whose talents, efforts, patience, and dedication have often gone
unrewarded, we can not trample upon the rights of employers in their exercise of what clearly are
management prerogatives. The employees inherent right to control and manage his/her affairs
efficiently and effectively must, likewise, be respected.
WHEREFORE, the petition is DISMISSED there being no grave abuse of discretion committed by the
NLRC.
SO ORDERED.

G.R. No. 128845


June 1, 2000
INTERNATIONAL SCHOOL ALLIANCE OF EDUCATORS (ISAE), petitioner,
vs.
HON. LEONARDO A. QUISUMBING in his capacity as the Secretary of Labor and
Employment; HON. CRESENCIANO B. TRAJANO in his capacity as the Acting Secretary of
Labor and Employment; DR. BRIAN MACCAULEY in his capacity as the Superintendent of
International School-Manila; and INTERNATIONAL SCHOOL, INC., respondents.
KAPUNAN, J.:
Receiving salaries less than their counterparts hired abroad, the local-hires of private respondent
School, mostly Filipinos, cry discrimination. We agree. That the local-hires are paid more than their
colleagues in other schools is, of course, beside the point. The point is that employees should be
given equal pay for work of equal value. That is a principle long honored in this jurisdiction. That is a
principle that rests on fundamental notions of justice. That is the principle we uphold
today.1wphi1.nt
Private respondent International School, Inc. (the School, for short), pursuant to Presidential Decree
732, is a domestic educational institution established primarily for dependents of foreign diplomatic
personnel and other temporary residents.1 To enable the School to continue carrying out its
educational program and improve its standard of instruction, Section 2(c) of the same decree
authorizes the School to employ its own teaching and management personnel selected by it either
locally or abroad, from Philippine or other nationalities, such personnel being exempt from otherwise
applicable laws and regulations attending their employment, except laws that have been or will be
enacted for the protection of employees.
Accordingly, the School hires both foreign and local teachers as members of its faculty, classifying
the same into two: (1) foreign-hires and (2) local-hires. The School employs four tests to determine
whether a faculty member should be classified as a foreign-hire or a local hire:
a. What is one's domicile?
b. Where is one's home economy?
c. To which country does one owe economic allegiance?
d. Was the individual hired abroad specifically to work in the School and was the School
responsible for bringing that individual to the Philippines?2
Should the answer to any of these queries point to the Philippines, the faculty member is classified as
a local hire; otherwise, he or she is deemed a foreign-hire.
The School grants foreign-hires certain benefits not accorded local-hires.1avvphi1 These include
housing, transportation, shipping costs, taxes, and home leave travel allowance. Foreign-hires are
also paid a salary rate twenty-five percent (25%) more than local-hires. The School justifies the
difference on two "significant economic disadvantages" foreign-hires have to endure, namely: (a) the
"dislocation factor" and (b) limited tenure. The School explains:
A foreign-hire would necessarily have to uproot himself from his home country, leave his
family and friends, and take the risk of deviating from a promising career path all for the
purpose of pursuing his profession as an educator, but this time in a foreign land. The new
foreign hire is faced with economic realities: decent abode for oneself and/or for one's family,
effective means of transportation, allowance for the education of one's children, adequate

insurance against illness and death, and of course the primary benefit of a basic
salary/retirement compensation.
Because of a limited tenure, the foreign hire is confronted again with the same economic
reality after his term: that he will eventually and inevitably return to his home country where
he will have to confront the uncertainty of obtaining suitable employment after along period
in a foreign land.
The compensation scheme is simply the School's adaptive measure to remain competitive on
an international level in terms of attracting competent professionals in the field of
international education.3
When negotiations for a new collective bargaining agreement were held on June 1995, petitioner
International School Alliance of Educators, "a legitimate labor union and the collective bargaining
representative of all faculty members"4 of the School, contested the difference in salary rates
between foreign and local-hires. This issue, as well as the question of whether foreign-hires should be
included in the appropriate bargaining unit, eventually caused a deadlock between the parties.
On September 7, 1995, petitioner filed a notice of strike. The failure of the National Conciliation and
Mediation Board to bring the parties to a compromise prompted the Department of Labor and
Employment (DOLE) to assume jurisdiction over the dispute. On June 10, 1996, the DOLE Acting
Secretary, Crescenciano B. Trajano, issued an Order resolving the parity and representation issues in
favor of the School. Then DOLE Secretary Leonardo A. Quisumbing subsequently denied petitioner's
motion for reconsideration in an Order dated March 19, 1997. Petitioner now seeks relief in this
Court.
Petitioner claims that the point-of-hire classification employed by the School is discriminatory to
Filipinos and that the grant of higher salaries to foreign-hires constitutes racial discrimination.
The School disputes these claims and gives a breakdown of its faculty members, numbering 38 in all,
with nationalities other than Filipino, who have been hired locally and classified as local hires. 5 The
Acting Secretary of Labor found that these non-Filipino local-hires received the same benefits as the
Filipino local-hires.
The compensation package given to local-hires has been shown to apply to all, regardless of
race. Truth to tell, there are foreigners who have been hired locally and who are paid equally
as Filipino local hires.6
The Acting secretary upheld the point-of-hire classification for the distinction in salary rates:
The Principle "equal pay for equal work" does not find applications in the present case. The
international character of the School requires the hiring of foreign personnel to deal with
different nationalities and different cultures, among the student population.
We also take cognizance of the existence of a system of salaries and benefits accorded to
foreign hired personnel which system is universally recognized. We agree that certain
amenities have to be provided to these people in order to entice them to render their services
in the Philippines and in the process remain competitive in the international market.
Furthermore, we took note of the fact that foreign hires have limited contract of employment
unlike the local hires who enjoy security of tenure. To apply parity therefore, in wages and
other benefits would also require parity in other terms and conditions of employment which
include the employment which include the employment contract.
A perusal of the parties' 1992-1995 CBA points us to the conditions and provisions for salary
and professional compensation wherein the parties agree as follows:
All members of the bargaining unit shall be compensated only in accordance with
Appendix C hereof provided that the Superintendent of the School has the discretion to
recruit and hire expatriate teachers from abroad, under terms and conditions that are
consistent with accepted international practice.
Appendix C of said CBA further provides:
The new salary schedule is deemed at equity with the Overseas Recruited Staff (OSRS)
salary schedule. The 25% differential is reflective of the agreed value of system
displacement and contracted status of the OSRS as differentiated from the tenured
status of Locally Recruited Staff (LRS).
To our mind, these provisions demonstrate the parties' recognition of the difference in the
status of two types of employees, hence, the difference in their salaries.
The Union cannot also invoke the equal protection clause to justify its claim of parity. It is an
established principle of constitutional law that the guarantee of equal protection of the laws is
not violated by legislation or private covenants based on reasonable classification. A
classification is reasonable if it is based on substantial distinctions and apply to all members

of the same class. Verily, there is a substantial distinction between foreign hires and local
hires, the former enjoying only a limited tenure, having no amenities of their own in the
Philippines and have to be given a good compensation package in order to attract them to
join the teaching faculty of the School.7
We cannot agree.
That public policy abhors inequality and discrimination is beyond contention. Our Constitution and
laws reflect the policy against these evils. The Constitution 8 in the Article on Social Justice and
Human Rights exhorts Congress to "give highest priority to the enactment of measures that protect
and enhance the right of all people to human dignity, reduce social, economic, and political
inequalities." The very broad Article 19 of the Civil Code requires every person, "in the exercise of his
rights and in the performance of his duties, [to] act with justice, give everyone his due, and observe
honesty and good faith.
International law, which springs from general principles of law, 9 likewise proscribes discrimination.
General principles of law include principles of equity, 10 i.e., the general principles of fairness and
justice, based on the test of what is reasonable. 11 The Universal Declaration of Human Rights, 12 the
International Covenant on Economic, Social, and Cultural Rights, 13 the International Convention on
the Elimination of All Forms of Racial Discrimination, 14 the Convention against Discrimination in
Education, 15 the Convention (No. 111) Concerning Discrimination in Respect of Employment and
Occupation 16 all embody the general principle against discrimination, the very antithesis of
fairness and justice. The Philippines, through its Constitution, has incorporated this principle as part
of its national laws.
In the workplace, where the relations between capital and labor are often skewed in favor of capital,
inequality and discrimination by the employer are all the more reprehensible.
The Constitution 17 specifically provides that labor is entitled to "humane conditions of work." These
conditions are not restricted to the physical workplace the factory, the office or the field but
include as well the manner by which employers treat their employees.
The Constitution 18 also directs the State to promote "equality of employment opportunities for all."
Similarly, the Labor Code 19 provides that the State shall "ensure equal work opportunities regardless
of sex, race or creed." It would be an affront to both the spirit and letter of these provisions if the
State, in spite of its primordial obligation to promote and ensure equal employment opportunities,
closes its eyes to unequal and discriminatory terms and conditions of employment. 20
Discrimination, particularly in terms of wages, is frowned upon by the Labor Code. Article 135, for
example, prohibits and penalizes 21 the payment of lesser compensation to a female employee as
against a male employee for work of equal value. Article 248 declares it an unfair labor practice for
an employer to discriminate in regard to wages in order to encourage or discourage membership in
any labor organization.
Notably, the International Covenant on Economic, Social, and Cultural Rights, supra, in Article 7
thereof, provides:
The States Parties to the present Covenant recognize the right of everyone to the enjoyment
of just and favourable conditions of work, which ensure, in particular:
a. Remuneration which provides all workers, as a minimum, with:
(i) Fair wages and equal remuneration for work of equal value without
distinction of any kind, in particular women being guaranteed conditions of
work not inferior to those enjoyed by men, with equal pay for equal work;
xxx
xxx
xxx
The foregoing provisions impregnably institutionalize in this jurisdiction the long honored legal truism
of "equal pay for equal work." Persons who work with substantially equal qualifications, skill, effort
and responsibility, under similar conditions, should be paid similar salaries. 22 This rule applies to the
School, its "international character" notwithstanding.
The School contends that petitioner has not adduced evidence that local-hires perform work equal to
that of foreign-hires. 23 The Court finds this argument a little cavalier. If an employer accords
employees the same position and rank, the presumption is that these employees perform equal
work. This presumption is borne by logic and human experience. If the employer pays one employee
less than the rest, it is not for that employee to explain why he receives less or why the others
receive more. That would be adding insult to injury. The employer has discriminated against that
employee; it is for the employer to explain why the employee is treated unfairly.
The employer in this case has failed to discharge this burden. There is no evidence here that foreignhires perform 25% more efficiently or effectively than the local-hires. Both groups have similar
functions and responsibilities, which they perform under similar working conditions.

The School cannot invoke the need to entice foreign-hires to leave their domicile to rationalize the
distinction in salary rates without violating the principle of equal work for equal pay.
"Salary" is defined in Black's Law Dictionary (5th ed.) as "a reward or recompense for services
performed." Similarly, the Philippine Legal Encyclopedia states that "salary" is the "[c]onsideration
paid at regular intervals for the rendering of services." In Songco v. National Labor Relations
Commission, 24 we said that:
"salary" means a recompense or consideration made to a person for his pains or industry in
another man's business. Whether it be derived from "salarium," or more fancifully from "sal,"
the pay of the Roman soldier, it carries with it the fundamental idea of compensation for
services rendered. (Emphasis supplied.)
While we recognize the need of the School to attract foreign-hires, salaries should not be used as an
enticement to the prejudice of local-hires. The local-hires perform the same services as foreign-hires
and they ought to be paid the same salaries as the latter. For the same reason, the "dislocation
factor" and the foreign-hires' limited tenure also cannot serve as valid bases for the distinction in
salary rates. The dislocation factor and limited tenure affecting foreign-hires are adequately
compensated by certain benefits accorded them which are not enjoyed by local-hires, such as
housing, transportation, shipping costs, taxes and home leave travel allowances.
The Constitution enjoins the State to "protect the rights of workers and promote their welfare," 25 "to
afford labor full protection." 26 The State, therefore, has the right and duty to regulate the relations
between labor and capital. 27 These relations are not merely contractual but are so impressed with
public interest that labor contracts, collective bargaining agreements included, must yield to the
common good. 28 Should such contracts contain stipulations that are contrary to public policy, courts
will not hesitate to strike down these stipulations.
In this case, we find the point-of-hire classification employed by respondent School to justify the
distinction in the salary rates of foreign-hires and local hires to be an invalid classification. There is
no reasonable distinction between the services rendered by foreign-hires and local-hires. The
practice of the School of according higher salaries to foreign-hires contravenes public policy and,
certainly, does not deserve the sympathy of this Court.1avvphi1
We agree, however, that foreign-hires do not belong to the same bargaining unit as the local-hires.
A bargaining unit is "a group of employees of a given employer, comprised of all or less than all of
the entire body of employees, consistent with equity to the employer, indicate to be the best suited
to serve the reciprocal rights and duties of the parties under the collective bargaining provisions of
the law." 29 The factors in determining the appropriate collective bargaining unit are (1) the will of the
employees (Globe Doctrine); (2) affinity and unity of the employees' interest, such as substantial
similarity of work and duties, or similarity of compensation and working conditions (Substantial
Mutual Interests Rule); (3) prior collective bargaining history; and (4) similarity of employment status.
30
The basic test of an asserted bargaining unit's acceptability is whether or not it is fundamentally
the combination which will best assure to all employees the exercise of their collective bargaining
rights. 31
It does not appear that foreign-hires have indicated their intention to be grouped together with localhires for purposes of collective bargaining. The collective bargaining history in the School also shows
that these groups were always treated separately. Foreign-hires have limited tenure; local-hires enjoy
security of tenure. Although foreign-hires perform similar functions under the same working
conditions as the local-hires, foreign-hires are accorded certain benefits not granted to local-hires.
These benefits, such as housing, transportation, shipping costs, taxes, and home leave travel
allowance, are reasonably related to their status as foreign-hires, and justify the exclusion of the
former from the latter. To include foreign-hires in a bargaining unit with local-hires would not assure
either group the exercise of their respective collective bargaining rights.
WHEREFORE, the petition is GIVEN DUE COURSE. The petition is hereby GRANTED IN PART. The
Orders of the Secretary of Labor and Employment dated June 10, 1996 and March 19, 1997, are
hereby REVERSED and SET ASIDE insofar as they uphold the practice of respondent School of
according foreign-hires higher salaries than local-hires.
SO ORDERED.
Puno and Pardo, JJ., concur.
Davide, Jr., C.J., on official leave.
Ynares-Santiago, J., is on leave.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 161787

April 27, 2011

MASING AND SONS DEVELOPMENT CORPORATION and CRISPIN CHAN, Petitioners,


vs.
GREGORIO P. ROGELIO, Respondent.
DECISION

BERSAMIN, J.:
In any controversy between a laborer and his master, doubts reasonably arising from the evidence
are resolved in favor of the laborer.
We re-affirm this principle, as we uphold the decision of the Court of Appeals (CA) that reversed the
uniform finding that there existed no employment relationship between the petitioners, as
employers, and the respondent, as employee, made by the National Labor Relations Commission
(NLRC) and the Labor Arbiter (LA).
Petitioners Masing and Sons Development Corporation (MSDC) and Crispin Chan assail the October
24, 2003 decision,1 whereby the CA reversed the decision dated January 28, 2000 of the NLRC that
affirmed the decision of the LA (dismissing the claim of the respondent for retirement benefits on the
ground that he had not been employed by the petitioners but by another employer).
Antecedents
On May 19, 1997, respondent Gregorio P. Rogelio (Rogelio) brought against Chan a complaint for
retirement pay pursuant to Republic Act No. 7641,2 in relation to Article 287 of the Labor Code,
holiday and rest days premium pay, service incentive leave, 13th month pay, cost of living
allowances (COLA), underpayment of wages, and attorneys fees. On January 20, 1998, Rogelio
amended his complaint to include MSDC as a co-respondent. His version follows.
Rogelio was first employed in 1949 by Pan Phil. Copra Dealer, MSDCs predecessor, which engaged in
the buying and selling of copra in Ibajay, Aklan, with its main office being in Kalibo, Aklan. Masing
Chan owned and managed Pan Phil. Copra Dealer, and the Branch Manager in Ibajay was a certain So
Na. In 1965, Masing Chan changed the business name of Pan Phil. Copra Dealer to Yao Mun Tek, and
appointed Jose Conanan Yap Branch Manager in Ibajay. In the 1970s, the business name of Yao Mun
Tek was changed to Aklan Lumber and General Merchandise, and Leon Chan became the Branch
Manager in Ibajay. Finally, in 1984, Masing Chan adopted the business name of Masing and Sons
Development Corporation (MSDC), appointing Wynne or Wayne Lim (Lim) as the Branch Manager in
Ibajay. Crispin Chan replaced his father, Masing Chan, in 1990 as the manager of the entire business.
In all that time, Rogelio worked as a laborer in the Ibajay Branch, along with twelve other employees.
In January 1974, Rogelio was reported for Social Security System (SSS) coverage. After paying
contributions to the SSS for more than 10 years, he became entitled to receive retirement benefits
from the SSS. Thus, in 1991, he availed himself of the SSS retirement benefits, and in order to
facilitate the grant of such benefits, he entered into an internal arrangement with Chan and MSDC to
the effect that MSDC would issue a certification of his separation from employment notwithstanding
that he would continue working as a laborer in the Ibajay Branch.
The certification reads as follows:3
CRISPIN AMIGO CHAN COPRA DEALER
IBAJAY, AKLAN
August 10, 1991
CERTIFICATION OF SEPARATION FROM EMPLOYMENT
To whom it may concern:

This is to certify that my employee, GREGORIO P. ROGELIO bearing SSS ID No. 07-0495213-7 who
was first covered effective January, 1974 up to June 30, 1989 inclusive, is now officially separated
from my employ effective the 1st of July, 1989.
Please be guided accordingly.
(SGD.) CRISPIN AMIGO CHAN
Proprietor
SSS ID No. 07-0595800-4
On March 17, 1997, Rogelio was paid his last salary. Lim, then the Ibajay Branch Manager, informed
Rogelio that he was deemed retired as of that date. Chan confirmed to Rogelio that he had already
reached the compulsory retirement age when he went to the main office in Kalibo to verify his status.
Rogelio was then 67 years old.
Considering that Rogelio was supposedly receiving a daily salary of P70.00 until 1997, but did not
receive any 13th month pay, service incentive leave, premium pay for holidays and rest days and
COLA, and even any retirement benefit from MSDC upon his retirement in March 1997, he
commenced his claim for such pay and benefits.
In substantiation, Rogelio submitted the January 19, 1998 affidavits of his co-workers, namely:
Domingo Guevarra,4 Juanito Palomata,5 and Ambrosio Seeres,6 whereby they each declared under
oath that Rogelio had already been working at the Ibajay Branch by the time that MSDCs
predecessor had hired them in the 1950s to work in that branch; and that MSDC and Chan had
continuously employed them until their own retirements, that is, Guevarra in 1994, and Palomata and
Seeres in 1997. They thereby corroborated the history of MSDC and the names of the various
Branch Managers as narrated by Rogelio, and confirmed that like Rogelio, they did not receive any
retirement benefits from Chan and MSDC upon their retirement.
In their defense, MSDC and Chan denied having engaged in copra buying in Ibajay, insisting that they
did not ever register in such business in any government agency. They asserted that Lim had not
been their agent or employee, because he had been an independent copra buyer. They averred,
however, that Rogelio was their former employee, hired on January 3, 1977 and retired on June 30,
1989;7 and that Rogelio was thereafter employed by Lim starting from July 1, 1989 until the filing of
the complaint.
MSDC and Chan submitted the affidavit of Lim, whereby Lim stated that Rogelio was one of his
employees from 1989 until the termination of his services. 8 They also submitted SSS Form R-1A,
Lims SSS Report of Employee-Members (showing that Rogelio and Palomata were reported as Lims
employees);9 Lims application for registration as copra buyer;10 Chans affidavit;11 and the affidavit of
Guevarra12 and Seeres,13 whereby said affiants denied having executed or signed the January 19,
1998 affidavits submitted by Rogelio.
In his affidavit, Guevarra recanted the statement attributed to him that he had been employed by
Chan and MSDC, and declared that he had been an employee of Lim. Likewise, Guevarras daughter
executed an affidavit,14 averring that his father had been an employee of Lim and that his father had
not signed the affidavit dated January 19, 1998.
On April 5, 1999, the LA dismissed the complaint against Chan and MSDC, ruling thus:

From said evidence, it is our considered view that there exists no employer-employee relationship
between the parties effective July 1, 1989 up to the date of the filing of the instant complaint
complainant was an employee of Wynne O. Lim. Hence, his claim for retirement should have been
filed against the latter for he admitted that he was the employer of herein complainant in his sworn
statement dated June 9, 1998.
Complainants claim for retirement benefits against herein respondents under RA No. 7641 has been
barred by prescription considering the fact that it partakes of the nature of a money claim which
prescribed after the lapse of three years after its accrual.
The rest of the claims are also dismissed for the same accrued during complainants employment
with Wynne O. Lim.
WHEREFORE, PREMISES CONSIDERED, this case is hereby DISMISSED for lack of merit.
SO ORDERED.15
Rogelio appealed, but the NLRC affirmed the decision of the LA on January 28, 2000, observing that
there could be no double retirement in the private sector; that with the double retirement, Rogelio
would be thereby enriching himself at the expense of the Government; and that having retired in
1991, Rogelio could not avail himself of the benefits under Republic Act No. 7641 entitled An Act
Amending Article 287 of Presidential Decree No. 442, As Amended, Otherwise Known as The Labor
Code Of The Philippines, By Providing for Retirement Pay to Qualified Private Sector Employees in the
Absence Of Any Retirement Plan in the Establishment, which took effect only on January 7, 1993. 16
The NLRC denied Rogelios motion for reconsideration.
Ruling of the CA
Rogelio commenced a special civil action for certiorari in the CA, charging the NLRC with grave abuse
of discretion in denying to him the benefits under Republic Act No. 7641, and in rejecting his money
claims on the ground of prescription.
On October 24, 2003, the CA promulgated its decision,17 holding that Rogelio had substantially
established that he had been an employee of Chan and MSDC, and that the benefits under Republic
Act No. 7641 were apart from the retirement benefits that a qualified employee could claim under
the Social Security Law, conformably with the ruling in Oro Enterprises, Inc. v. NLRC (G.R. No.
110861, November 14, 1994, 238 SCRA 105).
The CA decreed:
WHEREFORE, premises considered, the Decision of the public respondent NLRC is hereby VACATED
and SET ASIDE. This case is remanded to the Labor Arbiter for the proper computation of the
retirement benefits of the petitioner based on Article 287 of the Labor Code, as amended, to be
pegged at the minimum wage prevailing in Ibajay, Aklan as of March 17, 1997, and attorneys fees
based on the same. Without costs.
SO ORDERED.
Chan and MSDCs motion for reconsideration was denied by the CA.

Issues
In this appeal, Chan and MSDC contend that the CA erred: (a) in taking cognizance of Rogelios
petition for certiorari despite the decision of the NLRC having become final and executory almost two
months before the petition was filed; (b) in concluding that Rogelio had remained their employee
from July 6, 1989 up to March 17, 1997; and (c) in awarding retirement benefits and attorneys fees
to Rogelio.
Ruling
The petition for review is barren of merit.
I
Certiorari was timely commenced in the CA
Anent the first error, the Court finds that the CA did not err in taking cognizance of the petition for
certiorari of Rogelio.
Based on the records, Rogelio received the NLRCs denial of his motion for reconsideration on January
16, 2003. He then had 60 days from January 16, 2003, or until March 17, 2003, within which to file
his petition for certiorari. It is without doubt, therefore, that his filing was timely considering that the
CA received his petition for certiorari at 2:44 oclock in the afternoon of March 17, 2003.
The petitioners insistence, that the issuance of the entry of judgment with respect to the NLRCs
decision precluded Rogelio from filing a petition for certiorari, was unwarranted. It ought to be
without debate that the finality of the NLRCs decision was of no consequence in the consideration of
whether or not he could bring a special civil action for certiorari within the period of 60 days for doing
so under Section 4, Rule 65, Rules of Court, simply because the question being thereby raised was
jurisdictional.
II
Respondent remained the petitioners
employee despite his supposed separation
Did Rogelio remain the employee of the petitioners from July 6, 1989 up to March 17, 1997?
The issue of whether or not an employer-employee relationship existed between the petitioners and
the respondent in that period was essentially a question of fact. 18 In dealing with such question,
substantial evidence that amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion19 is sufficient. Although no particular form of evidence is required to
prove the existence of the relationship, and any competent and relevant evidence to prove the
relationship may be admitted,20 a finding that the relationship exists must nonetheless rest on
substantial evidence.
Generally, the Court does not review errors that raise factual questions, primarily because the Court
is not a trier of facts. However, where, like now, there is a conflict between the factual findings of the
Labor Arbiter and the NLRC, on the one hand, and those of the CA, on the other hand, 21 it is proper, in
the exercise of our equity jurisdiction, to review and re-evaluate the factual issues and to look into
the records of the case and re-examine the questioned findings.

The CA delved on and resolved the issue of the existence of an employer-employee relationship
between the petitioners and the respondent thusly:
As to the factual issue, the petitioners evidence consists of his own statements and those of his
alleged co-worker from 1950 until 1997, Juanito Palomata, who unlike his former co-workers Domingo
Guevarra and Ambrosio Seeres, did not disown the "Sinumpaang Salaysay" he executed, in
corroboration of petitioners allegations; and the Certification dated August 10, 1991 stating that
petitioner was first placed under coverage of the SSS in January 1974 to June 30, 1989 and was
separated from service effective July 1, 1989, a certification executed by respondent Crispin Amigo
Chan which, petitioner maintains, was only intended for his application for retirement benefits with
the SSS.
Private respondents evidence, on the other hand, consisted of respondent Crispin Amigo Chans
counter statements as well as documentary evidence consisting of (1) Wayne Lims Affidavit which
petitioner acknowledged in his Reply dated July 11, 1998, par. 8, admitting to being the employer of
petitioner from July 1, 1989 until the filing of the complaint; (2) Certification dated October 22, 1991
showing petitioners employment with respondents to have been between January 3, 1977 until July
1, 1989; (3) Affidavits of Guevarra and Seeres disowning their signatures in the affidavits submitted
in evidence by the petitioner; (4) SSS report executed by Wayne Lim of his initial list of employees as
of July 1, 1989 which includes the petitioner. On appeal, the respondents further submitted
documentary evidence showing that Wayne Lim registered his business name on July 11, 1989 and
apparently went into business buying copra.
At this point, we should note the following factual discrepancies in the evidence on hand: First, the
respondents issued certificates stating the commencement of petitioners employment on different
dates, i.e. January 1974 and January 1977, although the earlier date referred only to the period when
petitioner was first placed under the coverage of the SSS, which need not necessarily refer to the
commencement of his employment. Secondly, while respondent Crispin Amigo Chan denied having
ever engaged in copra buying in Ibajay, the certificates he issued both dated in 1991 state otherwise,
for he declared himself as a "copra dealer" with address in Ibajay. Then there is the statement of the
petitioner that Wayne Lim was the respondents manager in their branch office in Ibajay since 1984,
a statement that respondents failed to disavow. Instead, respondents insisted on their non sequitur
argument that they had never engaged in copra buying activities in Ibajay, and that Wayne Lim was
in business all by himself in regard to such activity.
The denial on respondents part of their copra buying activities in Ibajay begs the obvious question:
What were petitioner and his witness Juanito Palomata then doing for respondents as laborers in
Ibajay prior to July 1, 1989? Indeed, what did petitioner do for the respondents as the latters laborer
prior to July 1, 1989, which was different from what he did after said date? The records showed that
he continued doing the same job, i.e. as laborer and trusted employee tasked with the responsibility
of getting money from the Kalibo office of respondents which was used to buy copra and pay the
employees salaries. He did not only continue doing the same thing but he apparently did the same
at or from the same place, i.e. the bodega in Ibajay, which his co-worker Palomata believed to belong
to the respondent Masing & Sons. Since respondents admitted to employing petitioner from 1977 to
1989, we have to conclude that, indeed, the bodega in Ibajay was owned by respondents at least
prior to July 1, 1989 since petitioner had consistently stated that he worked for the respondents
continuously in their branch office in Ibajay under different managers and nowhere else.
We believe that the respondents strongest evidence in regard to the alleged separation of petitioner
from service effective July 1, 1989 would be the affidavit of Wayne Lim, owning to being the
employer of petitioner since July 1, 1989 and the SSS report that he executed listing petitioner as one

of his employees since said date. But in light of the incontrovertible physical reality that petitioner
and his co-workers did go to work day in and day out for such a long period of time, doing the same
thing and in the same place, without apparent discontinuity, except on paper, these documents
cannot be taken at their face value. We note that Wayne Lim apparently inherited, at least on paper,
ten (10) employees of respondent Crispin Amigo Chan, including petitioner, all on the same day, i.e.
on July 1, 1989. We note, too, that while there exists an initial report of employees to the SSS by
Wayne Lim, no other document apart from his affidavit and business registration was offered by
respondents to bolster their contention, irrespective of the fact that Wayne Lim was not a party
respondent. What were the circumstances underlying such alleged mass transfer of employment?
Unfortunately, the evidence for the respondents does not provide us with ready answers. We could
conclude that respondents sold their business in Ibajay and assets to Wayne Lim on July 1, 1989;
however, as pointed out above, respondent Crispin Amigo Chan himself said that he was a "copra
dealer" from Ibajay in August and October of 1991. Whether or not he was registered as a copra
buyer is immaterial, given that he declared himself a "copra dealer" and had apparently engaged in
the activity of buying copra, as shown precisely by the employment of petitioner and Palomata. If
Wayne Lim, from being the respondents manager in Ibajay became an independent businessman
and took over the respondents business in Ibajay along with all their employees, why did not the
respondents simply state that fact for the record? More importantly, why did the petitioner and
Palomata continue believing that Wayne Lim was only the respondents manager? Given the long
employment of petitioner with the respondents, was it possible for him and his witness to make such
mistake? We do not think so. In case of doubt, the doubt is resolved in favor of labor, in favor of the
safety and decent living for the laborer as mandated by Article 1702 of the Civil Code. The reality of
the petitioners toil speaks louder than words. xxx 22
We agree with the CAs factual findings, because they were based on the evidence and records of the
case submitted before the LA. The CA essentially complied with the guidepost that the substantiality
of evidence depends on both its quantitative and its qualitative aspects. 23 Indeed, the records
substantially established that Chan and MSDC had employed Rogelio until 1997. In contrast, Chan
and MSDC failed to adduce credible substantiation of their averment that Rogelio had been Lims
employee from July 1989 until 1997. Credible proof that could outweigh the showing by Rogelio to
the contrary was demanded of Chan and MSDC to establish the veracity of their allegation, for their
mere allegation of Rogelios employment under Lim did not constitute evidence, 24 but they did not
submit such proof, sadly failing to discharge their burden of proving their own affirmative
allegation.25 In this regard, as we pointed out at the start, the doubts reasonably arising from the
evidence are resolved in favor of the laborer in any controversy between a laborer and his master.
III
Respondent entitled to retirement benefits
from the petitioners
Article 287 of the Labor Code, as amended by Republic Act No. 7641, provides:
Article 287. Retirement. Any employee may be retired upon reaching the retirement age
established in the collective bargaining agreement or other applicable employment contract.
In case of retirement, the employee shall be entitled to receive such retirement benefits as he may
have earned under existing laws and any collective bargaining agreement and other agreements;
Provided, however, That an employees retirement benefits under any collective bargaining and other
agreements shall not be less than those provided herein.

In the absence of a retirement plan or agreement providing for retirement benefits of employees in
the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond
sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at
least five (5) years in the said establishment, may retire and shall be entitled to retirement pay
equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six
(6) months being considered as one whole year.
Unless the parties provide for broader inclusions, the term one-half (1/2) month salary shall mean
fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more
than five (5) days of service incentive leaves.
Retail, service and agricultural establishments or operations employing not more than ten (10)
employees or workers are exempted from the coverage of this provision.
Violation of this provision is hereby declared unlawful and subject to the penal provisions provided
under Article 288 of this Code.
Was Rogelio entitled to the retirement benefits under Article 287 of the Labor Code, as amended by
Republic Act No. 7641?
The CA held so in its decision, to wit:
Having reached the conclusion that petitioner was an employee of the respondents from 1950 to
March 17, 1997, and considering his uncontroverted allegation that in the Ibajay branch office where
he was assigned, respondents employed no less than 12 workers at said later date, thus affording
private respondents no relief from the duty of providing retirement benefits to their employees, we
see no reason why petitioner should not be entitled to the retirement benefits as provided for under
Article 287 of the Labor Code, as amended. The beneficent provisions of said law, as applied in Oro
Enterprises Inc. v. NLRC, is apart from the retirement benefits that can be claimed by a qualified
employee under the social security law. Attorneys fees are also granted to the petitioner. But the
monetary benefits claimed by petitioner cannot be granted on the basis of the evidence at hand. 26
We concur with the CAs holding. The third paragraph of the aforequoted provision of the Labor Code
entitled Rogelio to retirement benefits as a necessary consequence of the finding that Rogelio was an
employee of MSDC and Chan. Indeed, there should be little, if any, doubt that the benefits under
Republic Act No. 7641, which was enacted as a labor protection measure and as a curative statute to
respond, in part at least, to the financial well-being of workers during their twilight years soon
following their life of labor, can be extended not only from the date of its enactment but retroactively
to the time the employment contracts started.27
WHEREFORE, the Court denies the petition for review on certiorari, and affirms the decision
promulgated on October 24, 2003 in CA-G.R. SP No.75983.
Costs of suit to be paid by the petitioners.
SO ORDERED.

G.R. No. L-80680 January 26, 1989


DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R. ERISPE, JOEL
MADRIAGA, ARTHUR M. ESPINO, AMARO BONA, FERDINAND CRUZ, FEDERICO A. BELITA,
ROBERTO P. ISLES, ELMER ARMADA, EDUARDO UDOG, PETER TIANSING, MIGUELITA
QUIAMBOA, NOMER MATAGA, VIOLY ESTEBAN and LYDIA ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON, NATIONAL
LABOR RELATIONS COMMISSION, and HON. EMERSON C. TUMANON, respondents.
V.E. Del Rosario & Associates for respondent CMC.
The Solicitor General for public respondent.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.
Mildred A. Ramos for respondent Lily Victoria A. Azarcon.
SARMIENTO, J.:
On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the National Labor
Relations Commission for reinstatement and payment of various benefits, including minimum wage,
overtime pay, holiday pay, thirteen-month pay, and emergency cost of living allowance pay, against
the respondent, the California Manufacturing Company. 1
On October 7, 1986, after the cases had been consolidated, the California Manufacturing Company
(California) filed a motion to dismiss as well as a position paper denying the existence of an
employer-employee relation between the petitioners and the company and, consequently, any
liability for payment of money claims. 2 On motion of the petitioners, Livi Manpower Services, Inc.
was impleaded as a party-respondent.
It appears that the petitioners were, prior to their stint with California, employees of Livi Manpower
Services, Inc. (Livi), which subsequently assigned them to work as "promotional merchandisers" 3 for
the former firm pursuant to a manpower supply agreement. Among other things, the agreement
provided that California "has no control or supervisions whatsoever over [Livi's] workers with respect

to how they accomplish their work or perform [Californias] obligation"; 4 the Livi "is an independent
contractor and nothing herein contained shall be construed as creating between [California] and
[Livi] . . . the relationship of principal[-]agent or employer[-]employee'; 5 that "it is hereby agreed
that it is the sole responsibility of [Livi] to comply with all existing as well as future laws, rules and
regulations pertinent to employment of labor" 6 and that "[California] is free and harmless from any
liability arising from such laws or from any accident that may befall workers and employees of [Livi]
while in the performance of their duties for [California]. 7
It was further expressly stipulated that the assignment of workers to California shall be on a
"seasonal and contractual basis"; that "[c]ost of living allowance and the 10 legal holidays will be
charged directly to [California] at cost "; and that "[p]ayroll for the preceeding [sic] week [shall] be
delivered by [Livi] at [California's] premises." 8
The petitioners were then made to sign employment contracts with durations of six months, upon the
expiration of which they signed new agreements with the same period, and so on. Unlike regular
California employees, who received not less than P2,823.00 a month in addition to a host of fringe
benefits and bonuses, they received P38.56 plus P15.00 in allowance daily.
The petitioners now allege that they had become regular California employees and demand, as a
consequence whereof, similar benefits. They likewise claim that pending further proceedings below,
they were notified by California that they would not be rehired. As a result, they filed an amended
complaint charging California with illegal dismissal.
California admits having refused to accept the petitioners back to work but deny liability therefor for
the reason that it is not, to begin with, the petitioners' employer and that the "retrenchment" had
been forced by business losses as well as expiration of contracts. 9 It appears that thereafter, Livi reabsorbed them into its labor pool on a "wait-in or standby" status. 10
Amid these factual antecedents, the Court finds the single most important issue to be: Whether the
petitioners are California's or Livi's employees.
The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the existence of any
employer-employee relation between the petitioners and California ostensibly in the light of the
manpower supply contract, supra, and consequently, against the latter's liability as and for the
money claims demanded. In the same breath, however, the labor arbiter absolved Livi from any
obligation because the "retrenchment" in question was allegedly "beyond its control ." 13 He assessed
against the firm, nevertheless, separation pay and attorney's fees.
We reverse.
The existence of an employer-employees relation is a question of law and being such, it cannot be
made the subject of agreement. Hence, the fact that the manpower supply agreement between Livi
and California had specifically designated the former as the petitioners' employer and had absolved
the latter from any liability as an employer, will not erase either party's obligations as an employer, if
an employer-employee relation otherwise exists between the workers and either firm. At any rate,
since the agreement was between Livi and California, they alone are bound by it, and the petitioners
cannot be made to suffer from its adverse consequences.
This Court has consistently ruled that the determination of whether or not there is an employeremployee relation depends upon four standards: (1) the manner of selection and engagement of the
putative employee; (2) the mode of payment of wages; (3) the presence or absence of a power of
dismissal; and (4) the presence or absence of a power to control the putative employee's
conduct. 14 Of the four, the right-of-control test has been held to be the decisive factor. 15
On the other hand, we have likewise held, based on Article 106 of the Labor Code, hereinbelow
reproduced:
ART. 106. Contractor or sub-contractor. Whenever an employee enters into a
contract with another person for the performance of the former's work, the employees
of the contractor and of the latter's sub-contractor, if any, shall be paid in accordance
with the provisions of this Code.
In the event that the contractor or sub-contractor fails to pay wages of his employees
in accordance with this Code, the employer shall be jointly and severally liable with his
contractor or sub-contractor to such employees to the extent of the work performed
under the contract, in the same manner and extent that he is liable to employees
directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the
contracting out of labor to protect the rights of workers established under this Code. In
so prohibiting or restricting, he may make appropriate distinctions between labor-only
contracting and job contracting as well as differentiations within these types of

contracting and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or circumvention of any
provisions of this Code.
There is 'labor-only' contracting where the person supplying workers to an employer
does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by
such person are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed by him.
that notwithstanding the absence of a direct employer-employee relationship between the employer
in whose favor work had been contracted out by a "labor-only" contractor, and the employees, the
former has the responsibility, together with the "labor-only" contractor, for any valid labor
claims, 16 by operation of law. The reason, so we held, is that the "labor-only" contractor is considered
"merely an agent of the employer," 17 and liability must be shouldered by either one or shared by
both. 18
There is no doubt that in the case at bar, Livi performs "manpower services", 19 meaning to say, it
contracts out labor in favor of clients. We hold that it is one notwithstanding its vehement claims to
the contrary, and notwithstanding the provision of the contract that it is "an independent
contractor." 20 The nature of one's business is not determined by self-serving appellations one
attaches thereto but by the tests provided by statute and prevailing case law. 21 The bare fact that
Livi maintains a separate line of business does not extinguish the equal fact that it has provided
California with workers to pursue the latter's own business. In this connection, we do not agree that
the petitioners had been made to perform activities 'which are not directly related to the general
business of manufacturing," 22 California's purported "principal operation activity. " 23 The petitioner's
had been charged with "merchandizing [sic] promotion or sale of the products of [California] in the
different sales outlets in Metro Manila including task and occational [sic] price tagging," 24 an activity
that is doubtless, an integral part of the manufacturing business. It is not, then, as if Livi had served
as its (California's) promotions or sales arm or agent, or otherwise, rendered a piece of work it
(California) could not have itself done; Livi, as a placement agency, had simply supplied it with the
manpower necessary to carry out its (California's) merchandising activities, using its (California's)
premises and equipment. 25
Neither Livi nor California can therefore escape liability, that is, assuming one exists.
The fact that the petitioners have allegedly admitted being Livi's "direct employees" 26 in their
complaints is nothing conclusive. For one thing, the fact that the petitioners were (are), will not
absolve California since liability has been imposed by legal operation. For another, and as we
indicated, the relations of parties must be judged from case to case and the decree of law, and not
by declarations of parties.
The fact that the petitioners have been hired on a "temporary or seasonal" basis merely is no
argument either. As we held in Philippine Bank of Communications v. NLRC, 27 a temporary or casual
employee, under Article 218 of the Labor Code, becomes regular after service of one year, unless he
has been contracted for a specific project. And we cannot say that merchandising is a specific project
for the obvious reason that it is an activity related to the day-to-day operations of California.
It would have been different, we believe, had Livi been discretely a promotions firm, and that
California had hired it to perform the latter's merchandising activities. For then, Livi would have been
truly the employer of its employees, and California, its client. The client, in that case, would have
been a mere patron, and not an employer. The employees would not in that event be unlike waiters,
who, although at the service of customers, are not the latter's employees, but of the restaurant. As
we pointed out in the Philippine Bank of Communicationscase:
xxx xxx xxx
... The undertaking given by CESI in favor of the bank was not the performance of a
specific job for instance, the carriage and delivery of documents and parcels to the
addresses thereof. There appear to be many companies today which perform this
discrete service, companies with their own personnel who pick up documents and
packages from the offices of a client or customer, and who deliver such materials
utilizing their own delivery vans or motorcycles to the addressees. In the present case,
the undertaking of CESI was to provide its client the bank with a certain number of
persons able to carry out the work of messengers. Such undertaking of CESI was
complied with when the requisite number of persons were assigned or seconded to the

petitioner bank. Orpiada utilized the premises and office equipment of the bank and
not those of CESI. Messengerial work the delivery of documents to designated persons
whether within or without the bank premises-is of course directly related to the day-today operations of the bank. Section 9(2) quoted above does not require for its
applicability that the petitioner must be engaged in the delivery of items as a distinct
and separate line of business.
Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a
recruitment and placement corporation placing bodies, as it were, in different client
companies for longer or shorter periods of time, ... 28
In the case at bar, Livi is admittedly an "independent contractor providing temporary services of
manpower to its client. " 29 When it thus provided California with manpower, it supplied California
with personnel, as if such personnel had been directly hired by California. Hence, Article 106 of the
Code applies.
The Court need not therefore consider whether it is Livi or California which exercises control over the
petitioner vis-a-vis the four barometers referred to earlier, since by fiction of law, either or both
shoulder responsibility.
It is not that by dismissing the terms and conditions of the manpower supply agreement, we have,
hence, considered it illegal. Under the Labor Code, genuine job contracts are permissible, provided
they are genuine job contracts. But, as we held in Philippine Bank of Communications, supra, when
such arrangements are resorted to "in anticipation of, and for the very purpose of making possible,
the secondment" 30 of the employees from the true employer, the Court will be justified in expressing
its concern. For then that would compromise the rights of the workers, especially their right to
security of tenure.
This brings us to the question: What is the liability of either Livi or California?
The records show that the petitioners bad been given an initial six-month contract, renewed for
another six months. Accordingly, under Article 281 of the Code, they had become regular employeesof-California-and had acquired a secure tenure. Hence, they cannot be separated without due process
of law.
California resists reinstatement on the ground, first, and as we Id, that the petitioners are not its
employees, and second, by reason of financial distress brought about by "unfavorable political and
economic atmosphere" 31"coupled by the February Revolution." 32 As to the first objection, we
reiterate that the petitioners are its employees and who, by virtue of the required one-year length-ofservice, have acquired a regular status. As to the second, we are not convinced that California has
shown enough evidence, other than its bare say so, that it had in fact suffered serious business
reverses as a result alone of the prevailing political and economic climate. We further find the
attribution to the February Revolution as a cause for its alleged losses to be gratuitous and without
basis in fact.
California should be warned that retrenchment of workers, unless clearly warranted, has serious
consequences not only on the State's initiatives to maintain a stable employment record for the
country, but more so, on the workingman himself, amid an environment that is desperately scarce in
jobs. And, the National Labor Relations Commission should have known better than to fall for such
unwarranted excuses and nebulous claims.
WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): SETTING ASIDE the
decision, dated March 20, 1987, and the resolution, dated August 19, 1987; (2) ORDERING the
respondent, the California Manufacturing Company, to REINSTATE the petitioners with full status and
rights of regular employees; and (3) ORDERING the respondent, the California Manufacturing
Company, and the respondents, Livi Manpower Service, Inc. and/or Lily-Victoria Azarcon, to PAY,
jointly and severally, unto the petitioners: (a) backwages and differential pays effective as and from
the time they had acquired a regular status under the second paragraph, of Section 281, of the Labor
Code, but not to exceed three (3) years, and (b) all such other and further benefits as may be
provided by existing collective bargaining agreement(s) or other relations, or by law, beginning such
time; and (4) ORDERING the private respondents to PAY unto the petitioners attorney's fees
equivalent to ten (10%) percent of all money claims hereby awarded, in addition to those money
claims. The private respondents are likewise ORDERED to PAY the costs of this suit.IT IS SO
ORDERED.

G.R. No. 151228

August 15, 2002

ROLANDO Y. TAN, petitioner,


vs.
LEOVIGILDO LAGRAMA and THE HONORABLE COURT OF APPEALS, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision, 1 dated May 31, 2001, and the resolution,2
dated November 27, 2001, of the Court of Appeals in C.A.-G.R. SP. No. 63160, annulling the
resolutions of the National Labor Relations Commission (NLRC) and reinstating the ruling of the Labor
Arbiter which found petitioner Rolando Tan guilty of illegally dismissing private respondent Leovigildo
Lagrama and ordering him to pay the latter the amount of P136,849.99 by way of separation pay,
backwages, and damages.
The following are the facts.
Petitioner Rolando Tan is the president of Supreme Theater Corporation and the general manager of
Crown and Empire Theaters in Butuan City. Private respondent Leovigildo Lagrama is a painter,
making ad billboards and murals for the motion pictures shown at the Empress, Supreme, and Crown
Theaters for more than 10 years, from September 1, 1988 to October 17, 1998.
On October 17, 1998, private respondent Lagrama was summoned by Tan and upbraided: "Nangihi
na naman ka sulod sa imong drawinganan." ("You again urinated inside your work area.") When
Lagrama asked what Tan was saying, Tan told him, "Ayaw daghang estorya. Dili ko gusto nga modrawing ka pa. Guikan karon, wala nay drawing. Gawas." ("Don't say anything further. I don't want
you to draw anymore. From now on, no more drawing. Get out.")
Lagrama denied the charge against him. He claimed that he was not the only one who entered the
drawing area and that, even if the charge was true, it was a minor infraction to warrant his dismissal.
However, everytime he spoke, Tan shouted "Gawas" ("Get out"), leaving him with no other choice but
to leave the premises.
Lagrama filed a complaint with the Sub-Regional Arbitration Branch No. X of the National Labor
Relations Commission (NLRC) in Butuan City. He alleged that he had been illegally dismissed and
sought reinvestigation and payment of 13th month pay, service incentive leave pay, salary
differential, and damages.
Petitioner Tan denied that Lagrama was his employee. He asserted that Lagrama was an independent
contractor who did his work according to his methods, while he (petitioner) was only interested in the
result thereof. He cited the admission of Lagrama during the conferences before the Labor Arbiter
that he was paid on a fixed piece-work basis, i.e., that he was paid for every painting turned out as
ad billboard or mural for the pictures shown in the three theaters, on the basis of a "no
mural/billboard drawn, no pay" policy. He submitted the affidavits of other cinema owners, an
amusement park owner, and those supervising the construction of a church to prove that the
services of Lagrama were contracted by them. He denied having dismissed Lagrama and alleged that
it was the latter who refused to paint for him after he was scolded for his habits.
As no amicable settlement had been reached, Labor Arbiter Rogelio P. Legaspi directed the parties to
file their position papers. On June 17, 1999, he rendered a decision, the dispositive portion of which
reads:
WHEREFORE, premises considered judgment is hereby ordered:
1. Declaring complainant's [Lagrama's] dismissal illegal and
2. Ordering respondents [Tan] to pay complainant the following:
A. Separation Pay
P 59,000.00
B. Backwages
(from 17 October 1998 to 17 June
1999)

47,200.00

C. 13th month pay (3 years)

17,700.00

D. Service Incentive Leave Pay (3


years)

2, 949.99

E. Damages

10,000.00

TOTAL
[P136,849.99]
Complainant's other claims are dismissed for lack of merit.3
Petitioner Rolando Tan appealed to the NLRC Fifth Division, Cagayan de Oro City, which, on June 30,
2000, rendered a decision4 finding Lagrama to be an independent contractor, and for this reason
reversing the decision of the Labor Arbiter.

Respondent Lagrama filed a motion for reconsideration, but it was denied for lack of merit by the
NLRC in a resolution of September 29, 2000. He then filed a petition for certiorari under Rule 65
before the Court of Appeals.
The Court of Appeals found that petitioner exercised control over Lagrama's work by dictating the
time when Lagrama should submit his billboards and murals and setting rules on the use of the work
area and rest room. Although it found that Lagrama did work for other cinema owners, the appeals
court held it to be a mere sideline insufficient to prove that he was not an employee of Tan. The
appeals court also found no evidence of any intention on the part of Lagrama to leave his job or
sever his employment relationship with Tan. Accordingly, on May 31, 2001, the Court of Appeals
rendered a decision, the dispositive portion of which reads:
IN THE LIGHT OF ALL THE FOREGOING, the Petition is hereby GRANTED. The Resolutions of the
Public Respondent issued on June 30, 2000 and September 29, 2000 are ANNULLED. The
Decision of the Honorable Labor Arbiter Rogelio P. Legaspi on June 17, 1999 is hereby
REINSTATED.
Petitioner moved for a reconsideration, but the Court of Appeals found no reason to reverse its
decision and so denied his motion for lack of merit.5 Hence, this petition for review on certiorari
based on the following assignments of errors:
I. With all due respect, the decision of respondent Court of Appeals in CA-G.R. SP NO. 63160 is
bereft of any finding that Public Respondent NLRC, 5th Division, had no jurisdiction or
exceeded it or otherwise gravely abused its discretion in its Resolution of 30 June 2000 in
NLRC CA-NO. M-004950-99.
II. With all due respect, respondent Court of Appeals, absent any positive finding on its part
that the Resolution of 30 June 2000 of the NLRC is not supported by substantial evidence, is
without authority to substitute its conclusion for that of said NLRC.
III. With all due respect, respondent Court of Appeals' discourse on "freelance artists and
painters" in the decision in question is misplaced or has no factual or legal basis in the record.
IV. With all due respect, respondent Court of Appeals' opening statement in its decision as to
"employment," "monthly salary of P1,475.00" and "work schedule from Monday to Saturday,
from 8:00 o'clock in the morning up to 5:00 o'clock in the afternoon" as "facts" is not
supported by the evidence on record.
V. With all due respect, the case of Lambo, et al., v. NLRC, et al., 317 SCRA 420 [G.R. No.
111042 October 26, 1999] relied upon by respondent Court of Appeals is not applicable to the
peculiar circumstances of this case.6
The issues raised boil down to whether or not an employer-employee relationship existed between
petitioner and private respondent, and whether petitioner is guilty of illegally dismissing private
respondent. We find the answers to these issues to be in the affirmative.
I.
In determining whether there is an employer-employee relationship, we have applied a "four-fold
test," to wit: (1) whether the alleged employer has the power of selection and engagement of
employees; (2) whether he has control of the employee with respect to the means and methods by
which work is to be accomplished; (3) whether he has the power to dismiss; and (4) whether the
employee was paid wages.7 These elements of the employer-employee relationship are present in
this case.
First. The existence in this case of the first element is undisputed. It was petitioner who engaged the
services of Lagrama without the intervention of a third party. It is the existence of the second
element, the power of control, that requires discussion here.
Of the four elements of the employer-employee 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.8 Hence, while an independent contractor enjoys independence and freedom from the
control and supervision of his principal, an employee is subject to the employer's power to control
the means and methods by which the employee's work is to be performed and accomplished.
In the case at bar, albeit petitioner Tan claims that private respondent Lagrama was an independent
contractor and never his employee, the evidence shows that the latter performed his work as painter
under the supervision and control of petitioner. Lagrama worked in a designated work area inside the
Crown Theater of petitioner, for the use of which petitioner prescribed rules. The rules included the
observance of cleanliness and hygiene and a prohibition against urinating in the work area and any

place other than the toilet or the rest rooms.9 Petitioner's control over Lagrama's work extended not
only to the use of the work area, but also to the result of Lagrama's work, and the manner and
means by which the work was to be accomplished.
Moreover, it would appear that petitioner not only provided the workplace, but supplied as well the
materials used for the paintings, because he admitted that he paid Lagrama only for the latter's
services.10
Private respondent Lagrama claimed that he worked daily, from 8 o'clock in the morning to 5 o'clock
in the afternoon. Petitioner disputed this allegation and maintained that he paid Lagrama P1,475.00
per week for the murals for the three theaters which the latter usually finished in 3 to 4 days in one
week.11 Even assuming this to be true, the fact that Lagrama worked for at least 3 to 4 days a week
proves regularity in his employment by petitioner.
Second. That petitioner had the right to hire and fire was admitted by him in his position paper
submitted to the NLRC, the pertinent portions of which stated:
Complainant did not know how to use the available comfort rooms or toilets in and about his
work premises. He was urinating right at the place where he was working when it was so easy
for him, as everybody else did and had he only wanted to, to go to the comfort rooms. But no,
the complainant had to make a virtual urinal out of his work place! The place then stunk to
high heavens, naturally, to the consternation of respondents and everyone who could smell
the malodor.
...
Given such circumstances, the respondents had every right, nay all the compelling reason, to
fire him from his painting job upon discovery and his admission of such acts. Nonetheless,
though thoroughly scolded, he was not fired. It was he who stopped to paint for respondents. 12
By stating that he had the right to fire Lagrama, petitioner in effect acknowledged Lagrama to be his
employee. For the right to hire and fire is another important element of the employer-employee
relationship.13 Indeed, the fact that, as petitioner himself said, he waited for Lagrama to report for
work but the latter simply stopped reporting for work reinforces the conviction that Lagrama was
indeed an employee of petitioner. For only an employee can nurture such an expectancy, the
frustration of which, unless satisfactorily explained, can bring about some disciplinary action on the
part of the employer.
Third. Payment of wages is one of the four factors to be considered in determining the existence of
employer-employee relation. 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
services rendered or to be rendered."14 That Lagrama worked for Tan on a fixed piece-work basis is of
no moment. Payment by result is a method of compensation and does not define the essence of the
relation.15 It is a method of computing compensation, not a basis for determining the existence or
absence of employer-employee 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. 16
The Rules Implementing the Labor Code require every employer to pay his employees by means of
payroll.17 The payroll should show among other things, the employee's rate of pay, deductions made,
and the amount actually paid to the employee. In the case at bar, petitioner did not present the
payroll to support his claim that Lagrama was not his employee, raising speculations whether his
failure to do so proves that its presentation would be adverse to his case. 18
The primary standard for determining regular employment is the reasonable connection between the
particular activity performed by the employee in relation to the usual trade or business of the
employer.19 In this case, there is such a connection between the job of Lagrama painting billboards
and murals and the business of petitioner. To let the people know what movie was to be shown in a
movie theater requires billboards. Petitioner in fact admits that the billboards are important to his
business.20
The fact that Lagrama was not reported as an employee to the SSS is not conclusive on the question
of whether he was an employee of petitioner.21 Otherwise, an employer would be rewarded for his
failure or even neglect to perform his obligation.22
Neither does the fact that Lagrama painted for other persons affect or alter his employment
relationship with petitioner. That he did so only during weekends has not been denied by petitioner.
On the other hand, Samuel Villalba, for whom Lagrama had rendered service, admitted in a sworn
statement that he was told by Lagrama that the latter worked for petitioner. 23

Lagrama had been employed by petitioner since 1988. Under the law, therefore, he is deemed a
regular employee and is thus entitled to security of tenure, as provided in Art. 279 of Labor Code:
ART. 279. Security of Tenure. In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this
Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges and to his full backwages, inclusive of
allowances, and to his other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual reinstatement.
This Court has held that if the employee has been performing the job for at least one year, even if
not continuously but intermittently, the repeated and continuing need for its performance is
sufficient evidence of the necessity, if not indispensability, of that activity to the business of his
employer. Hence, the employment is also considered regular, although with respect only to such
activity, and while such activity exists.24
It is claimed that Lagrama abandoned his work. There is no evidence to show this. Abandonment
requires two elements: (1) the failure to report for work or absence without valid or justifiable reason,
and (2) a clear intention to sever the employer-employee relationship, with the second element as
the more determinative factor and being manifested by some overt acts. 25 Mere absence is not
sufficient. What is more, the burden is on the employer to show a deliberate and unjustified refusal
on the part of the employee to resume his employment without any intention of returning. 26 In the
case at bar, the Court of Appeals correctly ruled:
Neither do we agree that Petitioner abandoned his job. In order for abandonment to be a just
and valid ground for dismissal, the employer must show, by clear proof, the intention of the
employee to abandon his job. . . .
In the present recourse, the Private Respondent has not established clear proof of the
intention of the Petitioner to abandon his job or to sever the employment relationship
between him and the Private Respondent. On the contrary, it was Private Respondent who
told Petitioner that he did not want the latter to draw for him and thereafter refused to give
him work to do or any mural or billboard to paint or draw on.
More, after the repeated refusal of the Private Respondent to give Petitioner murals or
billboards to work on, the Petitioner filed, with the Sub-Regional Arbitration Branch No. X of
the National Labor Relations Commission, a Complaint for "Illegal Dismissal and Money
Claims." Such act has, as the Supreme Court declared, negate any intention to sever
employment relationship. . . .27
II.
The second issue is whether private respondent Lagrama was illegally dismissed. To begin, the
employer has the burden of proving the lawfulness of his employee's dismissal. 28 The validity of the
charge must be clearly established in a manner consistent with due process. The Implementing Rules
of the Labor Code29 provide that no worker shall be dismissed except for a just or authorized cause
provided by law and after due process. This provision has two aspects: (1) the legality of the act of
dismissal, that is, dismissal under the grounds provided for under Article 282 of the Labor Code and
(2) the legality in the manner of dismissal. The illegality of the act of dismissal constitutes discharge
without just cause, while illegality in the manner of dismissal is dismissal without due process. 30
In this case, by his refusal to give Lagrama work to do and ordering Lagrama to get out of his sight as
the latter tried to explain his side, petitioner made it plain that Lagrama was dismissed. Urinating in
a work place other than the one designated for the purpose by the employer constitutes violation of
reasonable regulations intended to promote a healthy environment under Art. 282(1) of the Labor
Code for purposes of terminating employment, but the same must be shown by evidence. Here there
is no evidence that Lagrama did urinate in a place other than a rest room in the premises of his work.
Instead of ordering his reinstatement as provided in Art. 279 of the Labor Code, the Labor Arbiter
found that the relationship between the employer and the employee has been so strained that the
latter's reinstatement would no longer serve any purpose. The parties do not dispute this finding.
Hence, the grant of separation pay in lieu of reinstatement is appropriate. This is of course in
addition to the payment of backwages which, in accordance with the ruling in Bustamante v. NLRC,31
should be computed from the time of Lagrama's dismissal up to the time of the finality of this
decision, without any deduction or qualification.
The Bureau of Working Conditions32 classifies workers paid by results into two groups, namely; (1)
those whose time and performance is supervised by the employer, and (2) those whose time and
performance is unsupervised by the employer. The first involves an element of control and
supervision over the manner the work is to be performed, while the second does not. If a piece

worker is supervised, there is an employer-employee relationship, as in this case. However, such an


employee is not entitled to service incentive leave pay since, as pointed out in Makati Haberdashery
v. NLRC33 and Mark Roche International v. NLRC,34 he is paid a fixed amount for work done, regardless
of the time he spent in accomplishing such work.
WHEREFORE, based on the foregoing, the petition is DENIED for lack of showing that the Court of
Appeals committed any reversible error. The decision of the Court of Appeals, reversing the decision
of the National Labor Relations Commission and reinstating the decision of the Labor Arbiter, is
AFFIRMED with the MODIFICATION that the backwages and other benefits awarded to private
respondent Leovigildo Lagrama should be computed from the time of his dismissal up to the time of
the finality of this decision, without any deduction and qualification. However, the service incentive
leave pay awarded to him is DELETED.
SO ORDERED.

G.R. No. 129315

October 2, 2000

OSIAS I. CORPORAL, SR., PEDRO TOLENTINO, MANUEL CAPARAS, ELPIDIO LACAP,


SIMPLICIO PEDELOS, PATRICIA NAS, and TERESITA FLORES, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LAO ENTENG COMPANY, INC. and/or TRINIDAD
LAO ONG, respondents.
DECISION
QUISUMBING, J.:
This special civil action for certiorari seeks the review of the Resolution dated October 17, 1996 of
public respondent National Labor Relations Commission (First Division), 1 in NLRC NCR Case No. 00-0403163-95, and the Resolution dated March 5, 1997 denying the motion for reconsideration. The
aforecited October 17th Resolution affirmed the Decision dated September 28, 1996 of Labor Arbiter
Potenciano S. Caizares dismissing the petitioners' complaint for illegal dismissal and declaring that
petitioners are not regular employees of private respondent Lao Enteng Company, Inc..
The records of the case show that the five male petitioners, namely, Osias I. Corporal, Sr., Pedro
Tolentino, Manuel Caparas, Elpidio Lacap, and Simplicio Pedelos worked as barbers, while the two
female petitioners, Teresita Flores and Patricia Nas worked as manicurists in New Look Barber Shop
located at 651 P. Paterno Street, Quiapo, Manila owned by private respondent Lao Enteng Co. Inc..
Petitioner Nas alleged that she also worked as watcher and marketer of private respondent.

Petitioners claim that at the start of their employment with the New Look Barber Shop, it was a single
proprietorship owned and managed by Mr. Vicente Lao. In or about January 1982, the children of
Vicente Lao organized a corporation which was registered with the Securities and Exchange
Commission as Lao Enteng Co. Inc. with Trinidad Ong as President of the said corporation. Upon its
incorporation, the respondent company took over the assets, equipment, and properties of the New
Look Barber Shop and continued the business. All the petitioners were allowed to continue working
with the new company until April 15, 1995 when respondent Trinidad Ong informed them that the
building wherein the New Look Barber Shop was located had been sold and that their services were
no longer needed.2
On April 28, 1995, petitioners filed with the Arbitration Branch of the NLRC, a complaint for illegal
dismissal, illegal deduction, separation pay, non-payment of 13th month pay, and salary differentials.
Only petitioner Nas asked for payment of salary differentials as she alleged that she was paid a daily
wage of P25.00 throughout her period of employment. The petitioners also sought the refund of the
P1.00 that the respondent company collected from each of them daily as salary of the sweeper of the
barber shop.
Private respondent in its position paper averred that the petitioners were joint venture partners and
were receiving fifty percent commission of the amount charged to customers. Thus, there was no
employer-employee relationship between them and petitioners. And assuming arguendo, that there
was an employer-employee relationship, still petitioners are not entitled to separation pay because
the cessation of operations of the barber shop was due to serious business losses.
Respondent Trinidad Lao Ong, President of respondent Lao Enteng Co. Inc., specifically stated in her
affidavit dated September 06, 1995 that Lao Enteng Company, Inc. did not take over the
management of the New Look Barber Shop, that after the death Lao Enteng petitioner were verbally
informed time and again that the partnership may fold up anytime because nobody in the family had
the time to be at the barber shop to look after their interest; that New Look Barber Shop had always
been a joint venture partnership and the operation and management of the barber shop was left
entirely to petitioners; that her father's contribution to the joint venture included the place of
business, payment for utilities including electricity, water, etc. while petitioners as industrial
partners, supplied the labor; and that the barber shop was allowed to remain open up to April 1995
by the children because they wanted to give the partners a chance at making it work. Eventually,
they were forced to close the barber shop because they continued to lose money while petitioners
earned from it. Trinidad also added that private respondents had no control over petitioners who
were free to come and go as they wished. Admittedly too by petitioners they received fifty percent to
sixty percent of the gross paid by customers. Trinidad explained that some of the petitioners were
allowed to register with the Social Security System as employees of Lao Enteng Company, Inc. only
as an act of accommodation. All the SSS contributions were made by petitioners. Moreover, Osias
Corporal, Elpidio Lacap and Teresita Flores were not among those registered with the Social Security
System. Lastly, Trinidad avers that without any employee-employer relationship petitioners claim for
13th month pay and separation pay have no basis in fact and in law. 3
In a Decision dated September 28, 1995, Labor Arbiter Potenciano S. Caizares, Jr. ordered the
dismissal of the complaint on the basis of his findings that the complainants and the respondents
were engaged in a joint venture and that there existed no employer-employee relation between
them. The Labor Arbiter also found that the barber shop was closed due to serious business losses or
financial reverses and consequently declared that the law does not compel the establishment to pay
separation pay to whoever were its employees.4

On appeal, NLRC affirmed the said findings of the Labor Arbiter and dismissed the complaint for want
of merit, ratiocinating thus:
Indeed, complainants failed to show the existence of employer-employee relationship under the
fourway test established by the Supreme Court. It is a common practice in the Barber Shop industry
that barbers supply their own scissors and razors and they split their earnings with the owner of the
barber shop. The only capital of the owner is the place of work whereas the barbers provide the skill
and expertise in servicing customers. The only control exercised by the owner of the barber shop is
to ascertain the number of customers serviced by the barber in order to determine the sharing of
profits. The barbers maybe characterized as independent contractors because they are under the
control of the barber shop owner only with respect to the result of the work, but not with respect to
the details or manner of performance. The barbers are engaged in an independent calling requiring
special skills available to the public at large.5
Its motion for reconsideration denied in the Resolution6 dated March 5, 1997, petitioners filed the
instant petition assigning that the NLRC committed grave abuse of discretion in:
I. ARBITRARILY DISREGARDING SUBSTANTIAL EVIDENCE PROVING THAT PETITIONERS WERE
EMPLOYEES OF RESPONDENT COMPANY IN RULING THAT PETITIONERS WERE INDEPENDENT
CONTRACTORS.
II. NOT HOLDING THAT PETITIONERS WERE ILLEGALLY DISMISSED AND IN NOT AWARDING
THEIR MONEY CLAIMS.7
Petitioners principally argue that public respondent NLRC gravely erred in declaring that the
petitioners were independent contractors. They contend that they were employees of the respondent
company and cannot be considered as independent contractors because they did not carry on an
independent business. They did not cut hair, manicure, and do their work in their own manner and
method. They insist they were not free from the control and direction of private respondents in all
matters, and their services were engaged by the respondent company to attend to its customers in
its barber shop. Petitioners also stated that, individually or collectively, they do not have substantial
capital nor investments in tools, equipments, work premises and other materials necessary in the
conduct of the barber shop. What the barbers owned were merely combs, scissors, and razors, while
the manicurists owned only nail cutters, nail polishes, nippers and cuticle removers. By no standard
can these be considered "substantial capital" necessary to operate a barbers shop.
Finally, petitioners fault the NLRC for arbitrarily disregarding substantial evidence on record showing
that petitioners Pedro Tolentino, Manuel Caparas, Simplicio Pedelos, and Patricia Nas were registered
with the Social Security System as regular employees of the respondent company. The SSS
employment records in common show that the employer's ID No. of Vicente Lao/Barber and Pawn
Shop was 03-0606200-1 and that of the respondent company was 03-8740074-7. All the foregoing
entries in the SSS employment records were painstakingly detailed by the petitioners in their position
paper and in their memorandum appeal but were arbitrarily ignored first by the Labor Arbiter and
then by the respondent NLRC which did not even mention said employment records in its questioned
decision.
We found petition is impressed with merit.
In our view, this case is an exception to the general rule that findings of facts of the NLRC are to be
accorded respect and finality on appeal. We have long settled that this Court will not uphold
erroneous conclusions unsupported by substantial evidence.8 We must also stress that where the

findings of the NLRC contradict those of the labor arbiter, the Court, in the exercise of its equity
jurisdiction, may look into the records of the case and reexamine the questioned findings. 9
The issues raised by petitioners boil down to whether or not an employer-employee relationship
existed between petitioners and private respondent Lao Enteng Company, Inc. The Labor Arbiter has
concluded that the petitioners and respondent company were engaged in a joint venture. The NLRC
concluded that the petitioners were independent contractors.
The Labor Arbiter's findings that the parties were engaged in a joint venture is unsupported by any
documentary evidence. It should be noted that aside from the self-serving affidavit of Trinidad Lao
Ong, there were no other evidentiary documents, nor written partnership agreements presented. We
have ruled that even the sharing of proceeds for every job of petitioners in the barber shop does not
mean they were not employees of the respondent company.10
Petitioner aver that NLRC was wrong when it concluded that petitioners were independent
contractors simply because they supplied their own working implements, shared in the earnings of
the barber shop with the owner and chose the manner of performing their work. They stressed that
as far as the result of their work was concerned the barber shop owner controlled them.
An independent contractor is one who undertakes "job contracting", i.e., a person who (a) carries on
an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the
results thereof, and (b) has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of the
business.11
Juxtaposing this provision vis--vis the facts of this case, we are convinced that petitioners are not
"independent contractors". They did not carry on an independent business. Neither did they
undertake cutting hair and manicuring nails, on their own as their responsibility, and in their own
manner and method. The services of the petitioners were engaged by the respondent company to
attend to the needs of its customers in its barber shop. More importantly, the petitioners, individually
or collectively, did not have a substantial capital or investment in the form of tools, equipment, work
premises and other materials which are necessary in the conduct of the business of the respondent
company. What the petitioners owned were only combs, scissors, razors, nail cutters, nail polishes,
the nippers - nothing else. By no standard can these be considered substantial capital necessary to
operate a barber shop. From the records, it can be gleaned that petitioners were not given work
assignments in any place other than at the work premises of the New Look Barber Shop owned by
the respondent company. Also, petitioners were required to observe rules and regulations of the
respondent company pertaining, among other things, observance of daily attendance, job
performance, and regularity of job output. The nature of work performed by were clearly directly
related to private respondent's business of operating barber shops. Respondent company did not
dispute that it owned and operated three (3) barber shops. Hence, petitioners were not independent
contractors.
Did an employee-employer relationship exist between petitioners and private respondent? The
following elements must be present for an employer-employee relationship to exist: (1) the selection
and engagement of the workers; (2) power of dismissal; (3) the payment of wages by whatever
means; and (4) the power to control the worker's conduct, with the latter assuming primacy in the
overall consideration. Records of the case show that the late Vicente Lao engaged the services of the
petitioners to work as barbers and manicurists in the New Look Barber Shop, then a single

proprietorship owned by him; that in January 1982, his children organized a corporation which they
registered with the Securities and Exchange Commission as Lao Enteng Company, Inc.; that upon its
incorporation, it took over the assets, equipment, and properties of the New Look Barber Shop and
continued the business; that the respondent company retained the services of all the petitioners and
continuously paid their wages. Clearly, all three elements exist in petitioners' and private
respondent's working arrangements.
Private respondent claims it had no control over petitioners.1wphi1 The power to control refers to
the existence of the power and not necessarily to the actual exercise thereof, nor is it essential for
the employer to actually supervise the performance of duties of the employee. It is enough that the
employer has the right to wield that power.12 As to the "control test", the following facts indubitably
reveal that respondent company wielded control over the work performance of petitioners, in that:
(1) they worked in the barber shop owned and operated by the respondents; (2) they were required
to report daily and observe definite hours of work; (3) they were not free to accept other employment
elsewhere but devoted their full time working in the New Look Barber Shop for all the fifteen (15)
years they have worked until April 15, 1995; (4) that some have worked with respondents as early as
in the 1960's; (5) that petitioner Patricia Nas was instructed by the respondents to watch the other
six (6) petitioners in their daily task. Certainly, respondent company was clothed with the power to
dismiss any or all of them for just and valid cause. Petitioners were unarguably performing work
necessary and desirable in the business of the respondent company.
While it is no longer true that membership to SSS is predicated on the existence of an employeeemployer relationship since the policy is now to encourage even the self-employed dressmakers,
manicurists and jeepney drivers to become SSS members, we could not agree with private
respondents that petitioners were registered with the Social Security System as their employees only
as an accommodation. As we have earlier mentioned private respondent showed no proof to their
claim that petitioners were the ones who solely paid all SSS contributions. It is unlikely that
respondents would report certain persons as their workers, pay their SSS premium as well as their
wages if it were not true that they were indeed their employees. 13
Finally, we agree with the labor arbiter that there was sufficient evidence that the barber shop was
closed due to serious business losses and respondent company closed its barber shop because the
building where the barber shop was located was sold. An employer may adopt policies or changes or
adjustments in its operations to insure profit to itself or protect investment of its stockholders. In the
exercise of such management prerogative, the employer may merge or consolidate its business with
another, or sell or dispose all or substantially all of its assets and properties which may bring about
the dismissal or termination of its employees in the process.14
Prescinding from the above, we hold that the seven petitioners are employees of the private
respondent company; as such, they are to be accorded the benefits provided under the Labor Code,
specifically Article 283 which mandates the grant of separation pay in case of closure or cessation of
employer's business which is equivalent to one (1) month pay for every year of service. 15 Likewise,
they are entitled to the protection of minimum wage statutes. Hence, the separation pay due them
may be computed on the basis of the minimum wage prevailing at the time their services were
terminated by the respondent company. The same is true with respect to the 13th month pay. The
Revised Guidelines on the Implementation of the 13th Month Pay Law states that "all rank and file
employees are now entitled to a 13th month pay regardless of the amount of basic salary that they
receive in a month. Such employees are entitled to the benefit regardless of their designation or
employment status, and irrespective of the method by which their wages are paid, provided that they
have worked for at least one (1) month during a calendar year" and so all the seven (7) petitioners
who were not paid their 13th month pay must be paid accordingly.16

Anent the other claims of the petitioners, such as the P10,000.00 as penalty for non-compliance with
procedural process; P10,000.00 as moral damages; refund of P1.00 per day paid to the sweeper;
salary differentials for petitioner Nas; attorney's fees), we find them without basis.
IN VIEW WHEREOF, the petition is GRANTED. The public respondent's Decision dated October 17,
1996 and Resolution dated March 05, 1997 are SET ASIDE. Private respondents are hereby ordered to
pay, severally and jointly, the seven (7) petitioners their (1) 13th month pay and (2) separation pay
equivalent to one month pay for every year of service, to be computed at the then prevailing
minimum wage at the time of their actual termination which was April 15, 1995.
Costs against private respondents.
SO ORDERED.

G.R. No. 84484 November 15, 1989


INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.
Tirol & Tirol for petitioner.
Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.
NARVASA, J.:
On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and Melecio
T. Basiao entered into a contract 1 by which:
1. Basiao was "authorized to solicit within the Philippines applications for insurance
policies and annuities in accordance with the existing rules and regulations" of the
Company;
2. he would receive "compensation, in the form of commissions ... as provided in the
Schedule of Commissions" of the contract to "constitute a part of the consideration
of ... (said) agreement;" and
3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well as all its
circulars ... and those which may from time to time be promulgated by it, ..." were
made part of said contract.
The contract also contained, among others, provisions governing the relations of the parties, the
duties of the Agent, the acts prohibited to him, and the modes of termination of the agreement, viz.:
RELATION WITH THE COMPANY. The Agent shall be free to exercise his own judgment
as to time, place and means of soliciting insurance. Nothing herein contained shall
therefore be construed to create the relationship of employee and employer between
the Agent and the Company. However, the Agent shall observe and conform to all rules
and regulations which the Company may from time to time prescribe.
ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving, directly or
indirectly, rebates in any form, or from making any misrepresentation or over-selling,
and, in general, from doing or committing acts prohibited in the Agent's Manual and in
circulars of the Office of the Insurance Commissioner.
TERMINATION. The Company may terminate the contract at will, without any previous
notice to the Agent, for or on account of ... (explicitly specified causes). ...
Either party may terminate this contract by giving to the other notice in writing to that
effect. It shall become ipso facto cancelled if the Insurance Commissioner should
revoke a Certificate of Authority previously issued or should the Agent fail to renew his
existing Certificate of Authority upon its expiration. The Agent shall not have any right
to any commission on renewal of premiums that may be paid after the termination of
this agreement for any cause whatsoever, except when the termination is due to
disability or death in line of service. As to commission corresponding to any balance of
the first year's premiums remaining unpaid at the termination of this agreement, the
Agent shall be entitled to it if the balance of the first year premium is paid, less actual
cost of collection, unless the termination is due to a violation of this contract, involving
criminal liability or breach of trust.
ASSIGNMENT. No Assignment of the Agency herein created or of commissions or other
compensations shall be valid without the prior consent in writing of the Company. ...
Some four years later, in April 1972, the parties entered into another contract an Agency
Manager's Contract and to implement his end of it Basiao organized an agency or office to which
he gave the name M. Basiao and Associates, while concurrently fulfilling his commitments under the
first contract with the Company. 2
In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking a
reconsideration, Basiao sued the Company in a civil action and this, he was later to claim, prompted

the latter to terminate also his engagement under the first contract and to stop payment of his
commissions starting April 1, 1980. 3
Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and its
president. Without contesting the termination of the first contract, the complaint sought to recover
commissions allegedly unpaid thereunder, plus attorney's fees. The respondents disputed the
Ministry's jurisdiction over Basiao's claim, asserting that he was not the Company's employee, but an
independent contractor and that the Company had no obligation to him for unpaid commissions
under the terms and conditions of his contract. 5
The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting
agreement had established an employer-employee relationship between him and the Company, and
this conferred jurisdiction on the Ministry of Labor to adjudicate his claim. Said official's decision
directed payment of his unpaid commissions "... equivalent to the balance of the first year's premium
remaining unpaid, at the time of his termination, of all the insurance policies solicited by ... (him) in
favor of the respondent company ..." plus 10% attorney's fees. 6
This decision was, on appeal by the Company, affirmed by the National Labor Relations Commission.
7
Hence, the present petition for certiorari and prohibition.
The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the Company's
employee by virtue of the contract invoked by him, thereby placing his claim for unpaid commissions
within the original and exclusive jurisdiction of the Labor Arbiter under the provisions of Section 217
of the Labor Code, 8 or, contrarily, as the Company would have it, that under said contract Basiao's
status was that of an independent contractor whose claim was thus cognizable, not by the Labor
Arbiter in a labor case, but by the regular courts in an ordinary civil action.
The Company's thesis, that no employer-employee relation in the legal and generally accepted sense
existed between it and Basiao, is drawn from the terms of the contract they had entered into, which,
either expressly or by necessary implication, made Basiao the master of his own time and selling
methods, left to his judgment the time, place and means of soliciting insurance, set no
accomplishment quotas and compensated him on the basis of results obtained. He was not bound to
observe any schedule of working hours or report to any regular station; he could seek and work on
his prospects anywhere and at anytime he chose to, and was free to adopt the selling methods he
deemed most effective.
Without denying that the above were indeed the expressed implicit conditions of Basiao's contract
with the Company, the respondents contend that they do not constitute the decisive determinant of
the nature of his engagement, invoking precedents to the effect that the critical feature
distinguishing the status of an employee from that of an independent contractor is control, that is,
whether or not the party who engages the services of another has the power to control the latter's
conduct in rendering such services. Pursuing the argument, the respondents draw attention to the
provisions of Basiao's contract obliging him to "... observe and conform to all rules and regulations
which the Company may from time to time prescribe ...," as well as to the fact that the Company
prescribed the qualifications of applicants for insurance, processed their applications and determined
the amounts of insurance cover to be issued as indicative of the control, which made Basiao, in legal
contemplation, an employee of the Company. 9
It is true that the "control test" expressed in the following pronouncement of the Court in the 1956
case of Viana vs. Alejo Al-Lagadan 10
... In determining the existence of employer-employee relationship, the following
elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employees' conduct although the latter is the most important element
(35 Am. Jur. 445). ...
has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a
valid test of the character of a contract or agreement to render service. It should, however, be
obvious that not every form of control that the hiring party reserves to himself over the conduct of
the party hired in relation to the services rendered may be accorded the effect of establishing an
employer-employee relationship between them in the legal or technical sense of the term. A line
must be drawn somewhere, if the recognized distinction between an employee and an individual
contractor is not to vanish altogether. Realistically, it would be a rare contract of service that gives
untrammelled freedom to the party hired and eschews any intervention whatsoever in his
performance of the engagement.
Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed

in attaining it, and those that control or fix the methodology and bind or restrict the party hired to
the use of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it. The
distinction acquires particular relevance in the case of an enterprise affected with public interest, as
is the business of insurance, and is on that account subject to regulation by the State with respect,
not only to the relations between insurer and insured but also to the internal affairs of the insurance
company. 12 Rules and regulations governing the conduct of the business are provided for in the
Insurance Code and enforced by the Insurance Commissioner. It is, therefore, usual and expected for
an insurance company to promulgate a set of rules to guide its commission agents in selling its
policies that they may not run afoul of the law and what it requires or prohibits. Of such a character
are the rules which prescribe the qualifications of persons who may be insured, subject insurance
applications to processing and approval by the Company, and also reserve to the Company the
determination of the premiums to be paid and the schedules of payment. None of these really
invades the agent's contractual prerogative to adopt his own selling methods or to sell insurance at
his own time and convenience, hence cannot justifiably be said to establish an employer-employee
relationship between him and the company.
There is no dearth of authority holding persons similarly placed as respondent Basiao to be
independent contractors, instead of employees of the parties for whom they worked. In Mafinco
Trading Corporation vs. Ople, 13 the Court ruled that a person engaged to sell soft drinks for another,
using a truck supplied by the latter, but with the right to employ his own workers, sell according to
his own methods subject only to prearranged routes, observing no working hours fixed by the other
party and obliged to secure his own licenses and defray his own selling expenses, all in consideration
of a peddler's discount given by the other party for at least 250 cases of soft drinks sold daily, was
not an employee but an independent contractor.
In Investment Planning Corporation of the Philippines us. Social Security System 14 a case almost on
all fours with the present one, this Court held that there was no employer-employee relationship
between a commission agent and an investment company, but that the former was an independent
contractor where said agent and others similarly placed were: (a) paid compensation in the form of
commissions based on percentages of their sales, any balance of commissions earned being payable
to their legal representatives in the event of death or registration; (b) required to put up performance
bonds; (c) subject to a set of rules and regulations governing the performance of their duties under
the agreement with the company and termination of their services for certain causes; (d) not
required to report for work at any time, nor to devote their time exclusively to working for the
company nor to submit a record of their activities, and who, finally, shouldered their own selling and
transportation expenses.
More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller to buy
and sell rice and palay without compensation except a certain percentage of what he was able to buy
or sell, did work at his own pleasure without any supervision or control on the part of his principal
and relied on his own resources in the performance of his work, was a plain commission agent, an
independent contractor and not an employee.
The respondents limit themselves to pointing out that Basiao's contract with the Company bound him
to observe and conform to such rules and regulations as the latter might from time to time prescribe.
No showing has been made that any such rules or regulations were in fact promulgated, much less
that any rules existed or were issued which effectively controlled or restricted his choice of methods
or the methods themselves of selling insurance. Absent such showing, the Court will not
speculate that any exceptions or qualifications were imposed on the express provision of the contract
leaving Basiao "... free to exercise his own judgment as to the time, place and means of soliciting
insurance."
The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with the
Company for twenty-five years. Whatever this is meant to imply, the obvious reply would be that
what is germane here is Basiao's status under the contract of July 2, 1968, not the length of his
relationship with the Company.
The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of
the petitioner, but a commission agent, an independent contractor whose claim for unpaid
commissions should have been litigated in an ordinary civil action. The Labor Arbiter erred in taking
cognizance of, and adjudicating, said claim, being without jurisdiction to do so, as did the respondent
NLRC in affirming the Arbiter's decision. This conclusion renders it unnecessary and premature to
consider Basiao's claim for commissions on its merits.

WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside, and
that complaint of private respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is dismissed. No
pronouncement as to costs.
SO ORDERED.
Cruz, Gancayco, Grio-Aquino, and Medialdea, JJ., concur.

G.R. No. 138051

June 10, 2004

JOSE Y. SONZA, petitioner,


vs.
ABS-CBN BROADCASTING CORPORATION, respondent.
DECISION
CARPIO, J.:
The Case
Before this Court is a petition for review on certiorari1 assailing the 26 March 1999 Decision2 of the
Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza ("SONZA").
The Court of Appeals affirmed the findings of the National Labor Relations Commission ("NLRC"),
which affirmed the Labor Arbiters dismissal of the case for lack of jurisdiction.
The Facts
In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement
("Agreement") with the Mel and Jay Management and Development Corporation ("MJMDC"). ABS-CBN
was represented by its corporate officers while MJMDC was represented by SONZA, as President and

General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and Treasurer. Referred to in the
Agreement as "AGENT," MJMDC agreed to provide SONZAs services exclusively to ABS-CBN as talent
for radio and television. The Agreement listed the services SONZA would render to ABS-CBN, as
follows:
a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;
b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays. 3
ABS-CBN agreed to pay for SONZAs services a monthly talent fee of P310,000 for the first year and
P317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on the
10th and 25th days of the month.
On 1 April 1996, SONZA wrote a letter to ABS-CBNs President, Eugenio Lopez III, which reads:
Dear Mr. Lopez,
We would like to call your attention to the Agreement dated May 1994 entered into by your
goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA.
As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning his
programs and career. We consider these acts of the station violative of the Agreement and the
station as in breach thereof. In this connection, we hereby serve notice of rescission of said
Agreement at our instance effective as of date.
Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount
stipulated in paragraph 7 of the Agreement but reserves the right to seek recovery of the
other benefits under said Agreement.
Thank you for your attention.
Very truly yours,
(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4
On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and
Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN did not pay
his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel
allowance and amounts due under the Employees Stock Option Plan ("ESOP").
On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996.
Meanwhile, ABS-CBN continued to remit SONZAs monthly talent fees through his account at
PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account with the
same bank where ABS-CBN deposited SONZAs talent fees and other payments due him under the
Agreement.

In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to dismiss and directed
the parties to file their respective position papers. The Labor Arbiter ruled:
In this instant case, complainant for having invoked a claim that he was an employee of
respondent company until April 15, 1996 and that he was not paid certain claims, it is
sufficient enough as to confer jurisdiction over the instant case in this Office. And as to
whether or not such claim would entitle complainant to recover upon the causes of action
asserted is a matter to be resolved only after and as a result of a hearing. Thus, the
respondents plea of lack of employer-employee relationship may be pleaded only as a matter
of defense. It behooves upon it the duty to prove that there really is no employer-employee
relationship between it and the complainant.
The Labor Arbiter then considered the case submitted for resolution. The parties submitted their
position papers on 24 February 1997.
On 11 March 1997, SONZA filed a Reply to Respondents Position Paper with Motion to Expunge
Respondents Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBNs
witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the
prevailing practice in the television and broadcast industry is to treat talents like SONZA as
independent contractors.
The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of
jurisdiction.6 The pertinent parts of the decision read as follows:
xxx
While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of the
contract of a talent," it stands to reason that a "talent" as above-described cannot be
considered as an employee by reason of the peculiar circumstances surrounding the
engagement of his services.
It must be noted that complainant was engaged by respondent by reason of his
peculiar skills and talent as a TV host and a radio broadcaster. Unlike an ordinary
employee, he was free to perform the services he undertook to render in
accordance with his own style. The benefits conferred to complainant under the May 1994
Agreement are certainly very much higher than those generally given to employees. For one,
complainant Sonzas monthly talent fees amount to a staggering P317,000. Moreover, his
engagement as a talent was covered by a specific contract. Likewise, he was not bound to
render eight (8) hours of work per day as he worked only for such number of hours as may be
necessary.
The fact that per the May 1994 Agreement complainant was accorded some benefits normally
given to an employee is inconsequential. Whatever benefits complainant enjoyed arose
from specific agreement by the parties and not by reason of employer-employee
relationship. As correctly put by the respondent, "All these benefits are merely talent fees
and other contractual benefits and should not be deemed as salaries, wages and/or other
remuneration accorded to an employee, notwithstanding the nomenclature appended to
these benefits. Apropos to this is the rule that the term or nomenclature given to a stipulated
benefit is not controlling, but the intent of the parties to the Agreement conferring such
benefit."

The fact that complainant was made subject to respondents Rules and
Regulations, likewise, does not detract from the absence of employer-employee
relationship. As held by the Supreme Court, "The line should be drawn between rules that
merely serve as guidelines towards the achievement of the mutually desired result without
dictating the means or methods to be employed in attaining it, and those that control or fix
the methodology and bind or restrict the party hired to the use of such means. The first,
which aim only to promote the result, create no employer-employee relationship unlike the
second, which address both the result and the means to achieve it." (Insular Life Assurance
Co., Ltd. vs. NLRC, et al., G.R. No. 84484, November 15, 1989).
x x x (Emphasis supplied)7
SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming the
Labor Arbiters decision. SONZA filed a motion for reconsideration, which the NLRC denied in its
Resolution dated 3 July 1998.
On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals
assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals rendered a
Decision dismissing the case.8
Hence, this petition.
The Rulings of the NLRC and Court of Appeals
The Court of Appeals affirmed the NLRCs finding that no employer-employee relationship existed
between SONZA and ABS-CBN. Adopting the NLRCs decision, the appellate court quoted the
following findings of the NLRC:
x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract merely
as an agent of complainant Sonza, the principal. By all indication and as the law puts it, the
act of the agent is the act of the principal itself. This fact is made particularly true in this case,
as admittedly MJMDC is a management company devoted exclusively to managing the
careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco. (Opposition to
Motion to Dismiss)
Clearly, the relations of principal and agent only accrues between complainant Sonza and
MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of the May
1994 Agreement which specifically referred to MJMDC as the AGENT. As a matter of fact,
when complainant herein unilaterally rescinded said May 1994 Agreement, it was MJMDC
which issued the notice of rescission in behalf of Mr. Sonza, who himself signed the same in
his capacity as President.
Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that historically,
the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is only in the May 1994
Agreement, which is the latest Agreement executed between ABS-CBN and Mr. Sonza, that
MJMDC figured in the said Agreement as the agent of Mr. Sonza.
We find it erroneous to assert that MJMDC is a mere labor-only contractor of ABS-CBN such
that there exist[s] employer-employee relationship between the latter and Mr. Sonza. On the
contrary, We find it indubitable, that MJMDC is an agent, not of ABS-CBN, but of the

talent/contractor Mr. Sonza, as expressly admitted by the latter and MJMDC in the May 1994
Agreement.
It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to
the regular courts, the same being in the nature of an action for alleged breach of contractual
obligation on the part of respondent-appellee. As squarely apparent from complainantappellants Position Paper, his claims for compensation for services, 13th month pay, signing
bonus and travel allowance against respondent-appellee are not based on the Labor Code but
rather on the provisions of the May 1994 Agreement, while his claims for proceeds under
Stock Purchase Agreement are based on the latter. A portion of the Position Paper of
complainant-appellant bears perusal:
Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually
bound itself to pay complainant a signing bonus consisting of shares of stockswith
FIVE HUNDRED THOUSAND PESOS (P500,000.00).
Similarly, complainant is also entitled to be paid 13th month pay based on an amount
not lower than the amount he was receiving prior to effectivity of (the) Agreement.
Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a
commutable travel benefit amounting to at least One Hundred Fifty Thousand Pesos
(P150,000.00) per year.
Thus, it is precisely because of complainant-appellants own recognition of the fact that his
contractual relations with ABS-CBN are founded on the New Civil Code, rather than the Labor
Code, that instead of merely resigning from ABS-CBN, complainant-appellant served upon the
latter a notice of rescission of Agreement with the station, per his letter dated April 1, 1996,
which asserted that instead of referring to unpaid employee benefits, he is waiving and
renouncing recovery of the remaining amount stipulated in paragraph 7 of the Agreement but
reserves the right to such recovery of the other benefits under said Agreement. (Annex 3 of
the respondent ABS-CBNs Motion to Dismiss dated July 10, 1996).
Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or
the Stock Purchase Agreement by respondent-appellee that complainant-appellant filed his
complaint. Complainant-appellants claims being anchored on the alleged breach of contract
on the part of respondent-appellee, the same can be resolved by reference to civil law and not
to labor law. Consequently, they are within the realm of civil law and, thus, lie with the regular
courts. As held in the case of Dai-Chi Electronics Manufacturing vs. Villarama, 238 SCRA 267,
21 November 1994, an action for breach of contractual obligation is intrinsically a
civil dispute.9 (Emphasis supplied)
The Court of Appeals ruled that the existence of an employer-employee relationship between SONZA
and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve. 10 A special
civil action for certiorari extends only to issues of want or excess of jurisdiction of the NLRC. 11 Such
action cannot cover an inquiry into the correctness of the evaluation of the evidence which served as
basis of the NLRCs conclusion.12 The Court of Appeals added that it could not re-examine the parties
evidence and substitute the factual findings of the NLRC with its own. 13
The Issue
In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRCS DECISION AND REFUSING
TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEEN SONZA AND ABSCBN, DESPITE THE WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO
SUPPORT SUCH A FINDING.14
The Courts Ruling
We affirm the assailed decision.
No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming the
NLRC ruling which upheld the Labor Arbiters dismissal of the case for lack of jurisdiction.
The present controversy is one of first impression. Although Philippine labor laws and jurisprudence
define clearly the elements of an employer-employee relationship, this is the first time that the Court
will resolve the nature of the relationship between a television and radio station and one of its
"talents." There is no case law stating that a radio and television program host is an employee of the
broadcast station.
The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a known
television and radio personality, and ABS-CBN, one of the biggest television and radio networks in
the country.
SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee of
ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because
SONZA was an independent contractor.
Employee or Independent Contractor?
The existence of an employer-employee relationship is a question of fact. Appellate courts accord the
factual findings of the Labor Arbiter and the NLRC not only respect but also finality when supported
by substantial evidence.15 Substantial evidence means such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion.16 A party cannot prove the absence of substantial
evidence by simply pointing out that there is contrary evidence on record, direct or circumstantial.
The Court does not substitute its own judgment for that of the tribunal in determining where the
weight of evidence lies or what evidence is credible. 17
SONZA maintains that all essential elements of an employer-employee relationship are present in this
case. Case law has consistently held that the elements of an employer-employee relationship are: (a)
the selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employers power to control the employee on the means and methods by
which the work is accomplished.18 The last element, the so-called "control test", is the most
important element.19
A. Selection and Engagement of Employee
ABS-CBN engaged SONZAs services to co-host its television and radio programs because of SONZAs
peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by respondent
in specifically selecting and hiring complainant over other broadcasters of possibly similar experience
and qualification as complainant belies respondents claim of independent contractorship."

Independent contractors often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of
his unique skills, talent and celebrity status not possessed by ordinary employees, is a
circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did
not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into the
Agreement with SONZA but would have hired him through its personnel department just like any
other employee.
In any event, the method of selecting and engaging SONZA does not conclusively determine his
status. We must consider all the circumstances of the relationship, with the control test being the
most important element.
B. Payment of Wages
ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC. SONZA
asserts that this mode of fee payment shows that he was an employee of ABS-CBN. SONZA also
points out that ABS-CBN granted him benefits and privileges "which he would not have enjoyed if he
were truly the subject of a valid job contract."
All the talent fees and benefits paid to SONZA were the result of negotiations that led to the
Agreement. If SONZA were ABS-CBNs employee, there would be no need for the parties to stipulate
on benefits such as "SSS, Medicare, x x x and 13th month pay"20 which the law automatically
incorporates into every employer-employee contract.21 Whatever benefits SONZA enjoyed arose from
contract and not because of an employer-employee relationship.22
SONZAs talent fees, amounting to P317,000 monthly in the second and third year, are so huge and
out of the ordinary that they indicate more an independent contractual relationship rather than an
employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely
because of SONZAs unique skills, talent and celebrity status not possessed by ordinary employees.
Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such
huge talent fees for his services. The power to bargain talent fees way above the salary scales of
ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual
relationship.
The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of SONZA
as an independent contractor. The parties expressly agreed on such mode of payment. Under the
Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over any talent fee
accruing under the Agreement.
C. Power of Dismissal
For violation of any provision of the Agreement, either party may terminate their relationship. SONZA
failed to show that ABS-CBN could terminate his services on grounds other than breach of contract,
such as retrenchment to prevent losses as provided under labor laws. 23
During the life of the Agreement, ABS-CBN agreed to pay SONZAs talent fees as long as "AGENT and
Jay Sonza shall faithfully and completely perform each condition of this Agreement." 24 Even if it
suffered severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained
obligated to pay SONZAs talent fees during the life of the Agreement. This circumstance indicates an
independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him his
talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying
SONZAs talent fees during the remaining life of the Agreement even if ABS-CBN cancelled SONZAs
programs through no fault of SONZA.25
SONZA assails the Labor Arbiters interpretation of his rescission of the Agreement as an admission
that he is not an employee of ABS-CBN. The Labor Arbiter stated that "if it were true that
complainant was really an employee, he would merely resign, instead." SONZA did actually resign
from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZAs letter clearly
bears this out.26 However, the manner by which SONZA terminated his relationship with ABS-CBN is
immaterial. Whether SONZA rescinded the Agreement or resigned from work does not determine his
status as employee or independent contractor.
D. Power of Control
Since there is no local precedent on whether a radio and television program host is an employee or
an independent contractor, we refer to foreign case law in analyzing the present case. The United
States Court of Appeals, First Circuit, recently held in Alberty-Vlez v. Corporacin De Puerto
Rico Para La Difusin Pblica ("WIPR")27 that a television program host is an independent
contractor. We quote the following findings of the U.S. court:
Several factors favor classifying Alberty as an independent contractor. First, a television
actress is a skilled position requiring talent and training not available on-the-job. x
x x In this regard, Alberty possesses a masters degree in public communications and
journalism; is trained in dance, singing, and modeling; taught with the drama department at
the University of Puerto Rico; and acted in several theater and television productions prior to
her affiliation with "Desde Mi Pueblo." Second, Alberty provided the "tools and
instrumentalities" necessary for her to perform. Specifically, she provided, or obtained
sponsors to provide, the costumes, jewelry, and other image-related supplies and services
necessary for her appearance. Alberty disputes that this factor favors independent contractor
status because WIPR provided the "equipment necessary to tape the show." Albertys
argument is misplaced. The equipment necessary for Alberty to conduct her job as host of
"Desde Mi Pueblo" related to her appearance on the show. Others provided equipment for
filming and producing the show, but these were not the primary tools that Alberty used to
perform her particular function. If we accepted this argument, independent contractors could
never work on collaborative projects because other individuals often provide the equipment
required for different aspects of the collaboration. x x x
Third, WIPR could not assign Alberty work in addition to filming "Desde Mi Pueblo."
Albertys contracts with WIPR specifically provided that WIPR hired her "professional services
as Hostess for the Program Desde Mi Pueblo." There is no evidence that WIPR assigned
Alberty tasks in addition to work related to these tapings. x x x28 (Emphasis supplied)
Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor. The control test is the most important test our courts apply in
distinguishing an employee from an independent contractor.29 This test is based on the extent of
control the hirer exercises over a worker. The greater the supervision and control the hirer exercises,
the more likely the worker is deemed an employee. The converse holds true as well the less control
the hirer exercises, the more likely the worker is considered an independent contractor. 30
First, SONZA contends that ABS-CBN exercised control over the means and methods of his work.

SONZAs argument is misplaced. ABS-CBN engaged SONZAs services specifically to co-host the "Mel
& Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his work, SONZA only
needed his skills and talent. How SONZA delivered his lines, appeared on television, and sounded on
radio were outside ABS-CBNs control. SONZA did not have to render eight hours of work per day. The
Agreement required SONZA to attend only rehearsals and tapings of the shows, as well as pre- and
post-production staff meetings.31 ABS-CBN could not dictate the contents of SONZAs script. However,
the Agreement prohibited SONZA from criticizing in his shows ABS-CBN or its interests. 32 The clear
implication is that SONZA had a free hand on what to say or discuss in his shows provided he did not
attack ABS-CBN or its interests.
We find that ABS-CBN was not involved in the actual performance that produced the finished product
of SONZAs work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN merely
reserved the right to modify the program format and airtime schedule "for more effective
programming."34 ABS-CBNs sole concern was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of
SONZAs work.
SONZA claims that ABS-CBNs power not to broadcast his shows proves ABS-CBNs power over the
means and methods of the performance of his work. Although ABS-CBN did have the option not to
broadcast SONZAs show, ABS-CBN was still obligated to pay SONZAs talent fees... Thus, even if
ABS-CBN was completely dissatisfied with the means and methods of SONZAs performance of his
work, or even with the quality or product of his work, ABS-CBN could not dismiss or even discipline
SONZA. All that ABS-CBN could do is not to broadcast SONZAs show but ABS-CBN must still pay his
talent fees in full.35
Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened as it was by the obligation to
continue paying in full SONZAs talent fees, did not amount to control over the means and methods
of the performance of SONZAs work. ABS-CBN could not terminate or discipline SONZA even if the
means and methods of performance of his work - how he delivered his lines and appeared on
television - did not meet ABS-CBNs approval. This proves that ABS-CBNs control was limited only to
the result of SONZAs work, whether to broadcast the final product or not. In either case, ABS-CBN
must still pay SONZAs talent fees in full until the expiry of the Agreement.
In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that
vaudeville performers were independent contractors although the management reserved the right to
delete objectionable features in their shows. Since the management did not have control over the
manner of performance of the skills of the artists, it could only control the result of the work by
deleting objectionable features.37
SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment
and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broadcast the
"Mel & Jay" programs. However, the equipment, crew and airtime are not the "tools and
instrumentalities" SONZA needed to perform his job. What SONZA principally needed were his talent
or skills and the costumes necessary for his appearance.38 Even though ABS-CBN provided SONZA
with the place of work and the necessary equipment, SONZA was still an independent contractor
since ABS-CBN did not supervise and control his work. ABS-CBNs sole concern was for SONZA to
display his talent during the airing of the programs. 39
A radio broadcast specialist who works under minimal supervision is an independent contractor. 40
SONZAs work as television and radio program host required special skills and talent, which SONZA

admittedly possesses. The records do not show that ABS-CBN exercised any supervision and control
over how SONZA utilized his skills and talent in his shows.
Second, SONZA urges us to rule that he was ABS-CBNs employee because ABS-CBN subjected him to
its rules and standards of performance. SONZA claims that this indicates ABS-CBNs control "not only
[over] his manner of work but also the quality of his work."
The Agreement stipulates that SONZA shall abide with the rules and standards of performance
"covering talents"41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules
and standards of performance prescribed for employees of ABS-CBN. The code of conduct imposed
on SONZA under the Agreement refers to the "Television and Radio Code of the Kapisanan ng mga
Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code of
Ethics."42 The KBP code applies to broadcasters, not to employees of radio and television stations.
Broadcasters are not necessarily employees of radio and television stations. Clearly, the rules and
standards of performance referred to in the Agreement are those applicable to talents and not to
employees of ABS-CBN.
In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an
employee of the former.43 In this case, SONZA failed to show that these rules controlled his
performance. We find that these general rules are merely guidelines towards the achievement of
the mutually desired result, which are top-rating television and radio programs that comply with
standards of the industry. We have ruled that:
Further, not every form of control that a party reserves to himself over the conduct of the other party
in relation to the services being rendered may be accorded the effect of establishing an employeremployee relationship. The facts of this case fall squarely with the case of Insular Life Assurance Co.,
Ltd. vs. NLRC. In said case, we held that:
Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create
no employer-employee relationship unlike the second, which address both the result and the
means used to achieve it.44
The Vaughan case also held that one could still be an independent contractor although the hirer
reserved certain supervision to insure the attainment of the desired result. The hirer, however, must
not deprive the one hired from performing his services according to his own initiative. 45
Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form of
control which ABS-CBN exercised over him.
This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an employee
of ABS-CBN. Even an independent contractor can validly provide his services exclusively to the hiring
party. In the broadcast industry, exclusivity is not necessarily the same as control.
The hiring of exclusive talents is a widespread and accepted practice in the entertainment industry. 46
This practice is not designed to control the means and methods of work of the talent, but simply to
protect the investment of the broadcast station. The broadcast station normally spends substantial
amounts of money, time and effort "in building up its talents as well as the programs they appear in
and thus expects that said talents remain exclusive with the station for a commensurate period of

time."47 Normally, a much higher fee is paid to talents who agree to work exclusively for a particular
radio or television station. In short, the huge talent fees partially compensates for exclusivity, as in
the present case.
MJMDC as Agent of SONZA
SONZA protests the Labor Arbiters finding that he is a talent of MJMDC, which contracted out his
services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an employee of
ABS-CBN. SONZA insists that MJMDC is a "labor-only" contractor and ABS-CBN is his employer.
In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the
employee who is ostensibly under the employ of the "labor-only" contractor; and (3) the principal
who is deemed the real employer. Under this scheme, the "labor-only" contractor is the agent
of the principal. The law makes the principal responsible to the employees of the "labor-only
contractor" as if the principal itself directly hired or employed the employees. 48 These circumstances
are not present in this case.
There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-CBN.
MJMDC merely acted as SONZAs agent. The Agreement expressly states that MJMDC acted as the
"AGENT" of SONZA. The records do not show that MJMDC acted as ABS-CBNs agent. MJMDC, which
stands for Mel and Jay Management and Development Corporation, is a corporation organized and
owned by SONZA and TIANGCO. The President and General Manager of MJMDC is SONZA himself. It is
absurd to hold that MJMDC, which is owned, controlled, headed and managed by SONZA, acted as
agent of ABS-CBN in entering into the Agreement with SONZA, who himself is represented by MJMDC.
That would make MJMDC the agent of both ABS-CBN and SONZA.
As SONZA admits, MJMDC is a management company devoted exclusively to managing the careers
of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other business, not
even job contracting. MJMDC does not have any other function apart from acting as agent of SONZA
or TIANGCO to promote their careers in the broadcast and television industry. 49
Policy Instruction No. 40
SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8 January
1979 finally settled the status of workers in the broadcast industry. Under this policy, the types of
employees in the broadcast industry are the station and program employees.
Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of
law. There is no legal presumption that Policy Instruction No. 40 determines SONZAs status. A mere
executive issuance cannot exclude independent contractors from the class of service providers to the
broadcast industry. The classification of workers in the broadcast industry into only two groups under
Policy Instruction No. 40 is not binding on this Court, especially when the classification has no basis
either in law or in fact.
Affidavits of ABS-CBNs Witnesses
SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando Cruz
without giving his counsel the

opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to


attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of
these witnesses as misleading and irrelevant.
While SONZA failed to cross-examine ABS-CBNs witnesses, he was never prevented from denying or
refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether to conduct a
formal (trial-type) hearing after the submission of the position papers of the parties, thus:
Section 3. Submission of Position Papers/Memorandum
xxx
These verified position papers shall cover only those claims and causes of action raised in the
complaint excluding those that may have been amicably settled, and shall be accompanied
by all supporting documents including the affidavits of their respective witnesses which shall
take the place of the latters direct testimony. x x x
Section 4. Determination of Necessity of Hearing. Immediately after the submission of the
parties of their position papers/memorandum, the Labor Arbiter shall motu propio determine
whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and
for the purpose of making such determination, ask clarificatory questions to further elicit facts
or information, including but not limited to the subpoena of relevant documentary evidence, if
any from any party or witness.50
The Labor Arbiter can decide a case based solely on the position papers and the supporting
documents without a formal trial.51 The holding of a formal hearing or trial is something that the
parties cannot demand as a matter of right.52 If the Labor Arbiter is confident that he can rely on the
documents before him, he cannot be faulted for not conducting a formal trial, unless under the
particular circumstances of the case, the documents alone are insufficient. The proceedings before a
Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the
technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings
before a Labor Arbiter.
Talents as Independent Contractors
ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries
to treat talents like SONZA as independent contractors. SONZA argues that if such practice exists, it
is void for violating the right of labor to security of tenure.
The right of labor to security of tenure as guaranteed in the Constitution53 arises only if there is an
employer-employee relationship under labor laws. Not every performance of services for a fee
creates an employer-employee relationship. To hold that every person who renders services to
another for a fee is an employee - to give meaning to the security of tenure clause - will lead to
absurd results.
Individuals with special skills, expertise or talent enjoy the freedom to offer their services as
independent contractors. The right to life and livelihood guarantees this freedom to contract as
independent contractors. The right of labor to security of tenure cannot operate to deprive an
individual, possessed with special skills, expertise and talent, of his right to contract as an
independent contractor. An individual like an artist or talent has a right to render his services without
any one controlling the means and methods by which he performs his art or craft. This Court will not

interpret the right of labor to security of tenure to compel artists and talents to render their services
only as employees. If radio and television program hosts can render their services only as
employees, the station owners and managers can dictate to the radio and television hosts what they
say in their shows. This is not conducive to freedom of the press.
Different Tax Treatment of Talents and Broadcasters
The National Internal Revenue Code ("NIRC")54 in relation to Republic Act No. 7716,55 as amended by
Republic Act No. 8241,56 treats talents, television and radio broadcasters differently. Under the NIRC,
these professionals are subject to the 10% value-added tax ("VAT") on services they render.
Exempted from the VAT are those under an employer-employee relationship. 57 This different tax
treatment accorded to talents and broadcasters bolters our conclusion that they are independent
contractors, provided all the basic elements of a contractual relationship are present as in this case.
Nature of SONZAs Claims
SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service
incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock Option
Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZAs claims
are all based on the May 1994 Agreement and stock option plan, and not on the Labor
Code. Clearly, the present case does not call for an application of the Labor Code provisions but an
interpretation and implementation of the May 1994 Agreement. In effect, SONZAs cause of action is
for breach of contract which is intrinsically a civil dispute cognizable by the regular courts. 58
WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26 March
1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. 91307 January 24, 1991


SINGER SEWING MACHINE COMPANY, petitioner
vs.
HON. FRANKLIN M. DRILON, MED-ARBITER FELIX B. CHAGUILE, JR., and SINGER MACHINE
COLLECTORS UNION-BAGUIO (SIMACUB), respondents.
Misa, Castro, Villanueva, Oposa, Narvasa & Pesigan for petitioner.
Domogan, Lockey, Orate & Dao-ayan Law Office for private respondent.

GUTIERREZ, JR., J.:p


This is a petition for certiorari assailing the order of Med-Arbiter Designate Felix B. Chaguile, Jr., the
resolution of then Labor Secretary Franklin M. Drilon affirming said order on appeal and the order
denying the motion for reconsideration in the case entitled "In Re: Petition for Direct Certification as
the Sole and Exclusive Collective Bargaining Agent of Collectors of Singer Sewing Machine CompanySinger Machine Collectors Union-Baguio (SIMACUB)" docketed as OS-MA-A-7-119-89 (IRD Case No.
02-89 MED).
On February 15, 1989, the respondent union filed a petition for direct certification as the sole and
exclusive bargaining agent of all collectors of the Singer Sewing Machine Company, Baguio City
branch (hereinafter referred to as "the Company").
The Company opposed the petition mainly on the ground that the union members are actually not
employees but are independent contractors as evidenced by the collection agency agreement which
they signed.
The respondent Med-Arbiter, finding that there exists an employer-employee relationship between
the union members and the Company, granted the petition for certification election. On appeal,
Secretary of Labor Franklin M. Drilon affirmed it. The motion for reconsideration of the Secretary's

resolution was denied. Hence, this petition in which the Company alleges that public respondents
acted in excess of jurisdiction and/or committed grave abuse of discretion in that:
a) the Department of Labor and Employment (DOLE) has no jurisdiction over the case since the
existence of employer-employee relationship is at issue;
b) the right of petitioner to due process was denied when the evidence of the union members' being
commission agents was disregarded by the Labor Secretary;
c) the public respondents patently erred in finding that there exists an employer-employee
relationship;
d) the public respondents whimsically disregarded the well-settled rule that commission agents are
not employees but are independent contractors.
The respondents, on the other hand, insist that the provisions of the Collection Agency Agreement
belie the Company's position that the union members are independent contractors. To prove that
union members are employees, it is asserted that they "perform the most desirable and necessary
activities for the continuous and effective operations of the business of the petitioner Company"
(citing Article 280 of the Labor Code). They add that the termination of the agreement by the
petitioner pending the resolution of the case before the DOLE "only shows the weakness of
petitioner's stand" and was "for the purpose of frustrating the constitutionally mandated rights of the
members of private respondent union to self-organization and collective organization." They also
contend that under Section 8, Rule 8, Book No. III of the Omnibus Rules Implementing the Labor
Code, which defines job-contracting, they cannot legally qualify as independent contractors who
must be free from control of the alleged employer, who carry independent businesses and who have
substantial capital or investment in the form of equipment, tools, and the like necessary in the
conduct of the business.
The present case mainly calls for the application of the control test, which if not satisfied, would lead
us to conclude that no employer-employee relationship exists. Hence, if the union members are not
employees, no right to organize for purposes of bargaining, nor to be certified as such bargaining
agent can ever be recognized. The following elements are generally considered in the determination
of the employer-employee relationship; "(1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct
although the latter is the most important element" (Mafinco Trading Corporation v. Ople, 70 SCRA
139 [1976]; Development Bank of the Philippines v. National Labor Relations Commission, 175 SCRA
537 [1989]; Rosario Brothers, Inc. v. Ople, 131 SCRA 72 [1984]; Broadway Motors Inc. v. NLRC, 156
SCRA 522 [1987]; Brotherhood Labor Unity Movement in the Philippines v. Zamora, 147 SCRA 49
[1986]).
The Collection Agency Agreement defines the relationship between the Company and each of the
union members who signed a contract. The petitioner relies on the following stipulations in the
agreements: (a) a collector is designated as a collecting agent" who is to be considered at all times
as an independent contractor and not employee of the Company; (b) collection of all payments on
installment accounts are to be made monthly or oftener; (c) an agent is paid his compensation for
service in the form of a commission of 6% of all collections made and turned over plus a bonus on
said collections; (d) an agent is required to post a cash bond of three thousand pesos (P3,000.00) to
assure the faithful performance and observance of the terms and conditions under the agreement;
(e) he is subject to all the terms and conditions in the agreement; (f) the agreement is effective for
one year from the date of its execution and renewable on a yearly basis; and (g) his services shall be

terminated in case of failure to satisfy the minimum monthly collection performance required, failure
to post a cash bond, or cancellation of the agreement at the instance of either party unless the agent
has a pending obligation or indebtedness in favor of the Company.
Meanwhile, the respondents rely on other features to strengthen their position that the collectors are
employees. They quote paragraph 2 which states that an agent shall utilize only receipt forms
authorized and issued by the Company. They also note paragraph 3 which states that an agent has to
submit and deliver at least once a week or as often as required a report of all collections made using
report forms furnished by the Company. Paragraph 4 on the monthly collection quota required by the
Company is deemed by respondents as a control measure over the means by which an agent is to
perform his services.
The nature of the relationship between a company and its collecting agents depends on the
circumstances of each particular relationship. Not all collecting agents are employees and neither are
all collecting agents independent contractors. The collectors could fall under either category
depending on the facts of each case.
The Agreement confirms the status of the collecting agent in this case as an independent contractor
not only because he is explicitly described as such but also because the provisions permit him to
perform collection services for the company without being subject to the control of the latter except
only as to the result of his work. After a careful analysis of the contents of the agreement, we rule in
favor of the petitioner.
The requirement that collection agents utilize only receipt forms and report forms issued by the
Company and that reports shall be submitted at least once a week is not necessarily an indication of
control over the means by which the job of collection is to be performed. The agreement itself
specifically explains that receipt forms shall be used for the purpose of avoiding a co-mingling of
personal funds of the agent with the money collected on behalf of the Company. Likewise, the use of
standard report forms as well as the regular time within which to submit a report of collection are
intended to facilitate order in office procedures. Even if the report requirements are to be called
control measures, any control is only with respect to the end result of the collection since the
requirements regulate the things to be done after the performance of the collection job or the
rendition of the service.
The monthly collection quota is a normal requirement found in similar contractual agreements and is
so stipulated to encourage a collecting agent to report at least the minimum amount of proceeds. In
fact, paragraph 5, section b gives a bonus, aside from the regular commission every time the quota
is reached. As a requirement for the fulfillment of the contract, it is subject to agreement by both
parties. Hence, if the other contracting party does not accede to it, he can choose not to sign it. From
the records, it is clear that the Company and each collecting agent intended that the former take
control only over the amount of collection, which is a result of the job performed.
The respondents' contention that the union members are employees of the Company is based on
selected provisions of the Agreement but ignores the following circumstances which respondents
never refuted either in the trial proceedings before the labor officials nor in its pleadings filed before
this Court.
1. The collection agents are not required to observe office hours or report to Singer's
office everyday except, naturally and necessarily, for the purpose of remitting their
collections.

2. The collection agents do not have to devote their time exclusively for SINGER. There
is no prohibition on the part of the collection agents from working elsewhere. Nor are
these agents required to account for their time and submit a record of their activity.
3. The manner and method of effecting collections are left solely to the discretion of
the collection agents without any interference on the part of Singer.
4. The collection agents shoulder their transportation expenses incurred in the
collections of the accounts assigned to them.
5. The collection agents are paid strictly on commission basis. The amounts paid to
them are based solely on the amounts of collection each of them make. They do not
receive any commission if they do not effect any collection even if they put a lot of
effort in collecting. They are paid commission on the basis of actual collections.
6. The commissions earned by the collection agents are directly deducted by them
from the amount of collections they are able to effect. The net amount is what is then
remitted to Singer." (Rollo, pp. 7-8)
If indeed the union members are controlled as to the manner by which they are supposed to perform
their collections, they should have explicitly said so in detail by specifically denying each of the facts
asserted by the petitioner. As there seems to be no objections on the part of the respondents, the
Court finds that they miserably failed to defend their position.
A thorough examination of the facts of the case leads us to the conclusion that the existence of an
employer-employee relationship between the Company and the collection agents cannot be
sustained.
The plain language of the agreement reveals that the designation as collection agent does not create
an employment relationship and that the applicant is to be considered at all times as an independent
contractor. This is consistent with the first rule of interpretation that the literal meaning of the
stipulations in the contract controls (Article 1370, Civil Code; La Suerte Cigar and Cigarette Factory v.
Director of Bureau of Labor, Relations, 123 SCRA 679 [1983]). No such words as "to hire and employ"
are present. Moreover, the agreement did not fix an amount for wages nor the required working
hours. Compensation is earned only on the basis of the tangible results produced, i.e., total
collections made (Sarra v. Agarrado, 166 SCRA 625 [1988]). In Investment Planning Corp. of the
Philippines v. Social Security System, 21 SCRA 924 [1967] which involved commission agents, this
Court had the occasion to rule, thus:
We are convinced from the facts that the work of petitioner's agents or registered
representatives more nearly approximates that of an independent contractor than that
of an employee. The latter is paid for the labor he performs, that is, for the acts of
which such labor consists the former is paid for the result thereof . . . .
xxx xxx xxx
Even if an agent of petitioner should devote all of his time and effort trying to sell its
investment plans he would not necessarily be entitled to compensation therefor. His
right to compensation depends upon and is measured by the tangible results he
produces."

Moreover, the collection agent does his work "more or less at his own pleasure" without a regular
daily time frame imposed on him (Investment Planning Corporation of the Philippines v. Social
Security System, supra; See also Social Security System v. Court of Appeals, 30 SCRA 210 [1969]).
The grounds specified in the contract for termination of the relationship do not support the view that
control exists "for the causes of termination thus specified have no relation to the means and
methods of work that are ordinarily required of or imposed upon employees." (Investment Planning
Corp. of the Phil. v. Social Security System, supra)
The last and most important element of the control test is not satisfied by the terms and conditions
of the contracts. There is nothing in the agreement which implies control by the Company not only
over the end to be achieved but also over the means and methods in achieving the end (LVN
Pictures, Inc. v. Philippine Musicians Guild, 1 SCRA 132 [1961]).
The Court finds the contention of the respondents that the union members are employees under
Article 280 of the Labor Code to have no basis. The definition that regular employees are those who
perform activities which are desirable and necessary for the business of the employer is not
determinative in this case. Any agreement may provide that one party shall render services for and
in behalf of another for a consideration (no matter how necessary for the latter's business) even
without being hired as an employee. This is precisely true in the case of an independent
contractorship as well as in an agency agreement. The Court agrees with the petitioner's argument
that Article 280 is not the yardstick for determining the existence of an employment relationship
because it merely distinguishes between two kinds of employees, i.e., regular employees and casual
employees, for purposes of determining the right of an employee to certain benefits, to join or form a
union, or to security of tenure. Article 280 does not apply where the existence of an employment
relationship is in dispute.
Even Section 8, Rule 8, Book III of the Omnibus Rules Implementing the Labor Code does not apply to
this case. Respondents assert that the said provision on job contracting requires that for one to be
considered an independent contractor, he must have "substantial capital or investment in the form of
tools, equipment, machineries, work premises, and other materials which are necessary in the
conduct of his business." There is no showing that a collection agent needs tools and machineries.
Moreover, the provision must be viewed in relation to Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract
with another person for the performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be paid in accordance with the
provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and severally
liable with his contractor or subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him.
xxx xxx xxx
There is "labor-only" contracting where the person supplying workers to an employer
does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by
such persons are performing activities which are directly related to the principal

business of such employer. In such cases, the person or intermediary shall be


considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed by
him." (p. 20)
It can readily be seen that Section 8, Rule 8, Book Ill and Article 106 are relevant in determining
whether the employer is solidarily liable to the employees of an alleged contractor and/or subcontractor for unpaid wages in case it is proven that there is a job-contracting situation.
The assumption of jurisdiction by the DOLE over the case is justified as the case was brought on
appeal by the petitioner itself which prayed for the reversal of the Order of the Med-Arbiter on the
ground that the union members are not its employees. Hence, the petitioner submitted itself as well
as the issue of existence of an employment relationship to the jurisdiction of the DOLE which was
faced with a dispute on an application for certification election.
The Court finds that since private respondents are not employees of the Company, they are not
entitled to the constitutional right to join or form a labor organization for purposes of collective
bargaining. Accordingly, there is no constitutional and legal basis for their "union" to be granted their
petition for direct certification. This Court made this pronouncement in La Suerte Cigar and Cigarette
Factory v. Director of Bureau of Labor Relations, supra:
. . . The question of whether employer-employee relationship exists is a primordial
consideration before extending labor benefits under the workmen's compensation,
social security, medicare, termination pay and labor relations law. It is important in the
determination of who shall be included in a proposed bargaining unit because, it is the
sine qua non, the fundamental and essential condition that a bargaining unit be
composed of employees. Failure to establish this juridical relationship between the
union members and the employer affects the legality of the union itself. It means the
ineligibility of the union members to present a petition for certification election as well
as to vote therein . . . . (At p. 689)
WHEREFORE, the Order dated June 14,1989 of Med-Arbiter Designate Felix B. Chaguile, Jr., the
Resolution and Order of Secretary Franklin M. Drilon dated November 2, 1989 and December 14,
1989, respectively are hereby REVERSED and SET ASIDE. The petition for certification election is
ordered dismissed and the temporary restraining order issued by the Court on December 21, 1989 is
made permanent.
SO ORDERED.

G.R. No. 159121

February 3, 2005

PAMPLONA PLANTATION COMPANY, INC. and/or JOSE LUIS BONDOC, petitioners,


vs.
RODEL TINGHIL, MARYGLENN SABIHON, ESTANISLAO BOBON, CARLITO TINGHIL,
BONIFACIO TINGHIL, NOLI TINGHIL, EDGAR TINGHIL, ERNESTO ESTOMANTE, SALLY TOROY,
BENIGNO TINGHIL JR., ROSE ANN NAPAO, DIOSDADO TINGHIL, ALBERTO TINGHIL, ANALIE
TINGHIL, and ANTONIO ESTOMANTE, respondents.
DECISION
PANGANIBAN, J.:
To protect the rights of labor, two corporations with identical directors, management, office and
payroll should be treated as one entity only. A suit by the employees against one corporation should
be deemed as a suit against the other. Also, the rights and claims of workers should not be
prejudiced by the acts of the employer that tend to confuse them about its corporate identity. The
corporate fiction must yield to truth and justice.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to annul the January
31, 2003 Decision2 and the June 17, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR SP No.
62813. The assailed Decision disposed as follows:
"WHEREFORE, in view of the foregoing, the petition is GRANTED. The assailed decision of public
respondent NLRC dated 19 July 2000 [is] REVERSED and SET ASIDE and a new one entered
DIRECTING private respondents to reinstate petitioners, except Rufino Bacubac, Felix Torres and
Antonio Canolas, to their former positions without loss of seniority rights plus payment of full

backwages. However, if reinstatement is no longer feasible, a one-month salary for every year of
service shall be paid the petitioners as ordered by the Labor Arbiter in his decision dated 31 August
1998 plus payment of full backwages computed from date of illegal dismissal to the finality of this
decision."4
The Decision5 of the National Labor Relations Commission (NLRC),6 reversed by the CA, disposed as
follows:
"WHEREFORE, premises considered, the decision appealed from is hereby REVERSED, and another
one entered DISMISSING the complaint."7
The June 17, 2003 Resolution denied petitioners Motion for Reconsideration.
The Facts
The CA summarized the antecedents as follows:
"Sometime in 1993, [Petitioner] Pamplona Plantations Company, Inc. (company for brevity) was
organized for the purpose of taking over the operations of the coconut and sugar plantation of
Hacienda Pamplona located in Pamplona, Negros Oriental. It appears that Hacienda Pamplona was
formerly owned by a certain Mr. Bower who had in his employ several agricultural workers.
"When the company took over the operation of Hacienda Pamplona in 1993, it did not absorb all the
workers of Hacienda Pamplona. Some, however, were hired by the company during harvest season
as coconut hookers or sakador, coconut filers, coconut haulers, coconut scoopers or lugiteros, and
charcoal makers.
"Sometime in 1995, Pamplona Plantation Leisure Corporation was established for the purpose of
engaging in the business of operating tourist resorts, hotels, and inns, with complementary facilities,
such as restaurants, bars, boutiques, service shops, entertainment, golf courses, tennis courts, and
other land and aquatic sports and leisure facilities.
"On 15 December 1996, the Pamplona Plantation Labor Independent Union (PAPLIU) conducted an
organizational meeting wherein several [respondents] who are either union members or officers
participated in said meeting.
"Upon learning that some of the [respondents] attended the said meeting, [Petitioner] Jose Luis
Bondoc, manager of the company, did not allow [respondents] to work anymore in the plantation.
"Thereafter, on various dates, [respondents] filed their respective complaints with the NLRC, SubRegional Arbitration Branch No. VII, Dumaguete City against [petitioners] for unfair labor practice,
illegal dismissal, underpayment, overtime pay, premium pay for rest day and holidays, service
incentive leave pay, damages, attorneys fees and 13th month pay.
"On 09 October 1997, [respondent] Carlito Tinghil amended his complaint to implead Pamplona
Plantation Leisure Corporation x x x.
"On 31 August 1998, Labor Arbiter Jose G. Gutierrez rendered a decision finding [respondents],
except Rufino Bacubac, Antonio Caolas and Felix Torres who were complainants in another case, to
be entitled to separation pay.

xxxxxxxxx
"[Petitioners] appealed the Labor Arbiters decision to [the] NLRC. In the assailed decision dated 19
July 2000, the NLRCs Fourth Division reversed the Labor Arbiter, ruling that [respondents], except
Carlito Tinghil, failed to implead Pamplona Plantation Leisure Corporation, an indispensable party and
that there exist no employer-employee relation between the parties.
xxxxxxxxx
"[Respondents] filed a motion for reconsideration which was denied by [the] NLRC in a Resolution
dated 06 December 2000."8
Respondents elevated the case to the CA via a Petition for Certiorari under Rule 65 of the Rules of
Court.
Ruling of the Court of Appeals
Guided by the fourfold test for determining the existence of an employer-employee relationship, the
CA held that respondents were employees of petitioner-company. Finding there was a "power to hire,"
the appellate court considered the admission of petitioners in their Comment that they had hired
respondents as coconut filers, coconut scoopers, charcoal makers, or as pieceworkers. The fact that
respondents were paid by piecework did not mean that they were not employees of the company.
Further, the CA ruled that petitioners necessarily exercised control over the work they performed,
since the latter were working within the premises of the plantation. According to the CA, the mere
existence -- not necessarily the actual exercise -- of the right to control the manner of doing work
sufficed to meet the fourth element of an employer-employee relation.
The appellate court also held that respondents were regular employees, because the tasks they
performed were necessary and indispensable to the operation of the company. Since there was no
compliance with the twin requirements of a valid and/or authorized cause and of procedural due
process, their dismissal was illegal.
Hence, this Petition.9
Issues
In their Memorandum, petitioners submit the following issues for our consideration:
"1. Whether or not the finding of the Court of Appeals that herein respondents are employees of
Petitioner Pamplona Plantation Company, Inc. is contrary to the admissions of the respondents
themselves.
"2. Whether or not the Court of Appeals has decided in a way not in accord with law and
jurisprudence, and with grave abuse of discretion, in not dismissing the respondents complaint for
failure to implead Pamplona Plantation Leisure Corp., which is an indispensable party to this case.
"3. Whether or not the Court of Appeals has decided in a way not in accord with law and
jurisprudence, and with grave abuse of discretion in ordering reinstatement or payment of separation
pay and backwages to the respondents, considering the lack of employer-employee relationship
between petitioner and respondents."10

The main issue raised is whether the case should be dismissed for the non-joinder of the Pamplona
Plantation Leisure Corporation. The other issues will be taken up in the discussion of the main
question.
The Courts Ruling
The Petition lacks merit.
Preliminary Issue:
Factual Matters
Section 1 of Rule 45 of the Rules of Court states that only questions of law are entertained in appeals
by certiorari to the Supreme Court. However, jurisprudence has recognized several exceptions in
which factual issues may be resolved by this Court: 11 (1) the legal conclusions made by the lower
tribunal are speculative;12 (2) its inferences are manifestly mistaken,13 absurd, or impossible; (3) the
lower court committed grave abuse of discretion; (4) the judgment is based on a misapprehension of
facts;14 (5) the findings of fact of the lower tribunals are conflicting; 15 (6) the CA went beyond the
issues; (7) the CAs findings are contrary to the admissions of the parties; 16 (8) the CA manifestly
overlooked facts not disputed which, if considered, would justify a different conclusion; (9) the
findings of fact are conclusions without citation of the specific evidence on which they are based; and
(10) when the findings of fact of the CA are premised on the absence of evidence but such findings
are contradicted by the evidence on record.17
The very same reason that constrained the appellate court to review the factual findings of the NLRC
impels this Court to take its own look at the facts. Normally, the Supreme Court is not a trier of
facts.18 However, since the findings of the CA and the NLRC on this point were conflicting, we waded
through the records to find out if there was basis for the formers reversal of the NLRCs Decision. We
shall discuss our factual findings together with our review of the main issue.
Main Issue:
Piercing the Corporate Veil
Petitioners contend that the CA should have dismissed the case for the failure of respondents (except
Carlito Tinghil) to implead the Pamplona Plantation Leisure Corporation, an indispensable party, for
being the true and real employer. Allegedly, respondents admitted in their Affidavits dated February
3, 1998,19 that they had been employed by the leisure corporation and/or engaged to perform
activities that pertained to its business.
Further, as the NLRC allegedly noted in their individual Complaints, respondents specifically averred
that they had worked in the "golf course" and performed related jobs in the "recreational facilities" of
the leisure corporation. Hence, petitioners claim that, as a sugar and coconut plantation company
separate and distinct from the Pamplona Plantation Leisure Corporation, the petitioner-company is
not the real party in interest.
We are not persuaded.
An examination of the facts reveals that, for both the coconut plantation and the golf course, there is
only one management which the laborers deal with regarding their work. 20 A portion of the plantation
(also called Hacienda Pamplona) had actually been converted into a golf course and other

recreational facilities. The weekly payrolls issued by petitioner-company bore the name "Pamplona
Plantation Co., Inc."21 It is also a fact that respondents all received their pay from the same person,
Petitioner Bondoc -- the managing director of the company. Since the workers were working for a firm
known as Pamplona Plantation Co., Inc., the reason they sued their employer through that name was
natural and understandable.
True, the Petitioner Pamplona Plantation Co., Inc., and the Pamplona Plantation Leisure Corporation
appear to be separate corporate entities. But it is settled that this fiction of law cannot be invoked to
further an end subversive of justice.22
The principle requiring the piercing of the corporate veil mandates courts to see through the
protective shroud that distinguishes one corporation from a seemingly separate one. 23 The corporate
mask may be removed and the corporate veil pierced when a corporation is the mere alter ego of
another.24 Where badges of fraud exist, where public convenience is defeated, where a wrong is
sought to be justified thereby, or where a separate corporate identity is used to evade financial
obligations to employees or to third parties,25 the notion of separate legal entity should be set aside26
and the factual truth upheld. When that happens, the corporate character is not necessarily
abrogated.27 It continues for other legitimate objectives. However, it may be pierced in any of the
instances cited in order to promote substantial justice.
In the present case, the corporations have basically the same incorporators and directors and are
headed by the same official. Both use only one office and one payroll and are under one
management. In their individual Affidavits, respondents allege that they worked under the
supervision and control of Petitioner Bondoc -- the common managing director of both the petitionercompany and the leisure corporation. Some of the laborers of the plantation also work in the golf
course.28 Thus, the attempt to make the two corporations appear as two separate entities, insofar as
the workers are concerned, should be viewed as a devious but obvious means to defeat the ends of
the law. Such a ploy should not be permitted to cloud the truth and perpetrate an injustice.
We note that this defense of separate corporate identity was not raised during the proceedings
before the labor arbiter. The main argument therein raised by petitioners was their alleged lack of
employer-employee relationship with, and power of control over, the means and methods of work of
respondents because of the seasonal nature of the latters work.29
Neither was the issue of non-joinder of indispensable parties raised in petitioners appeal before the
NLRC.30 Nevertheless, in its Decision31 dated July 19, 2000, the Commission concluded that the
plantation company and the leisure corporation were two separate and distinct corporations, and
that the latter was an indispensable party that should have been impleaded. We quote below
pertinent portions of that Decision:
"Respondent posits that it is engaged in operating and maintaining sugar and coconut plantation.
The positions of complainants could only be determined through their individual complaints. Yet all
complainants alleged in their affidavits x x x that they were working at the golf course. Worthy to
note that only Carlito Tinghil amended his complaint to include Pamplona Leisure Corporation, which
respondents maintain is a separate corporation established in 1995. Thus, xxx Pamplona Plantation
Co., Inc. and Pamplona Leisure Corporation are two separate and distinct corporations. Except for
Carlito Tinghil the complainants have the wrong party respondent. Pamplona Leisure Corporation is
an indispensable party without which there could be no final determination of the case." 32

Indeed, it was only after this NLRC Decision was issued that the petitioners harped on the separate
personality of the Pamplona Plantation Co., Inc., vis--vis the Pamplona Plantation Leisure
Corporation.
As cited above, the NLRC dismissed the Complaints because of the alleged admission of respondents
in their Affidavits that they had been working at the golf course. However, it failed to appreciate the
rest of their averments. Just because they worked at the golf course did not necessarily mean that
they were not employed to do other tasks, especially since the golf course was merely a portion of
the coconut plantation. Even petitioners admitted that respondents had been hired as coconut filers,
coconut scoopers or charcoal makers.33 Consequently, NLRCs conclusion derived from the Affidavits
of respondents stating that they were employees of the Pamplona Plantation Leisure Corporation
alone was the result of an improper selective appreciation of the entire evidence.
Furthermore, we note that, contrary to the NLRCs findings, some respondents indicated that their
employer was the Pamplona Plantation Leisure Corporation, while others said that it was the
Pamplona Plantation Co., Inc. But in all these Affidavits, both the leisure corporation and petitionercompany were identified or described as entities engaged in the development and operation of sugar
and coconut plantations, as well as recreational facilities such as a golf course. These allegations
reveal that petitioner successfully confused the workers as to who their true and real employer was.
All things considered, their faulty belief that the plantation company and the leisure corporation were
one and the same can be attributed solely to petitioners. It would certainly be unjust to prejudice the
claims of the workers because of the misleading actions of their employer.
Non-Joinder of Parties
Granting for the sake of argument that the Pamplona Plantation Leisure Corporation is an
indispensable party that should be impleaded, NLRCs outright dismissal of the Complaints was still
erroneous.
The non-joinder of indispensable parties is not a ground for the dismissal of an action. 34 At any stage
of a judicial proceeding and/or at such times as are just, parties may be added on the motion of a
party or on the initiative of the tribunal concerned.35 If the plaintiff refuses to implead an
indispensable party despite the order of the court, that court may dismiss the complaint for the
plaintiffs failure to comply with the order. The remedy is to implead the non-party claimed to be
indispensable.36 In this case, the NLRC did not require respondents to implead the Pamplona
Plantation Leisure Corporation as respondent; instead, the Commission summarily dismissed the
Complaints.
In any event, there is no need to implead the leisure corporation because, insofar as respondents are
concerned, the leisure corporation and petitioner-company are one and the same entity. Salvador v.
Court of Appeals37 has held that this Court has "full powers, apart from that power and authority
which is inherent, to amend the processes, pleadings, proceedings and decisions by substituting as
party-plaintiff the real party-in-interest."
In Alonso v. Villamor,38 we had the occasion to state thus:
"There is nothing sacred about processes or pleadings, their forms or contents. Their sole purpose is
to facilitate the application of justice to the rival claims of contending parties. They were created, not
to hinder and delay, but to facilitate and promote, the administration of justice. They do not
constitute the thing itself, which courts are always striving to secure to litigants. They are designed
as the means best adapted to obtain that thing. In other words, they are a means to an end. When

they lose the character of the one and become the other, the administration of justice is at fault and
courts are correspondingly remiss in the performance of their obvious duty."
The controlling principle in the interpretation of procedural rules is liberality, so that they may
promote their object and assist the parties in obtaining just, speedy and inexpensive determination
of every action and proceeding.39 When the rules are applied to labor cases, this liberal interpretation
must be upheld with even greater vigor. 40 Without in any way depriving the employer of its legal
rights, the thrust of statutes and rules governing labor cases has been to benefit workers and avoid
subjecting them to great delays and hardships. This intent holds especially in this case, in which the
plaintiffs are poor laborers.
Employer-Employee Relationship
Petitioners insist that respondents are not their employees, because the former exercised no control
over the latters work hours and method of performing tasks. Thus, petitioners contend that under
the "control test," the workers were independent contractors.
We disagree. As shown by the evidence on record, petitioners hired respondents, who performed
tasks assigned by their respective officers-in-charge, who in turn were all under the direct
supervision and control of Petitioner Bondoc. These allegations are contained in the workers
Affidavits, which were never disputed by petitioners. Also uncontroverted are the payrolls bearing the
name of the plantation company and signed by Petitioner Bondoc. Some of these payrolls include the
time records of the employees. These documents prove that petitioner-company exercised control
and supervision over them.
To operate against the employer, the power of control need not have been actually exercised. Proof
of the existence of such power is enough.41 Certainly, petitioners wielded that power to hire or
dismiss, as well as to check on the progress and the quality of work of the laborers.
Jurisprudence provides other equally important considerations 42 that support the conclusion that
respondents were not independent contractors. First, they cannot be said to have carried on an
independent business or occupation.43 They are not engaged in the business of filing, scooping and
hauling coconuts and/or operating and maintaining a plantation and a golf course. Second, they do
not have substantial capital or investment in the form of tools, equipment, machinery, work
premises, and other implements needed to perform the job, work or service under their own account
or responsibility.44 Third, they have been working exclusively for petitioners for several years. Fourth,
there is no dispute that petitioners are in the business of growing coconut trees for commercial
purposes. There is no question, either, that a portion of the plantation was converted into a golf
course and other recreational facilities. Clearly, respondents performed usual, regular and necessary
services for petitioners business.
WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED. Costs against the
petitioners.
SO ORDERED.
Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia, JJ., concur.

G.R. No. 110358 November 9, 1994


QUINTIN ROBLEDO, MARIO SINLAO, LEONARDO SAAVEDRA, VICENTE SECAPURI, DANIEL
AUSTRIA, ET AL., petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, BACANI SECURITY AND ALLIED SERVICES
CO., INC., AND BACANI SECURITY AND PROTECTIVE AGENCY AND/OR ALICIA
BACANI, respondents.
Benjamin C. Pineda for petitioners.
Villanueva, Ebora & Caa for private respondents.
MENDOZA, J.:
This is a petition for review of the decision of the First Division 1 of the National Labor Relations
Commission, setting aside the decision of the Labor Arbiter which held private respondents jointly
and severally liable to the petitioners for overtime and legal holiday pay.
The facts of this case are as follows:
Petitioners were former employees of Bacani Security and Protective Agency (BSPA, for brevity). They
were employed as security guards at different times during the period 1969 to December 1989 when
BSPA ceased to operate.
BSPA was a single proprietorship owned, managed and operated by the late Felipe Bacani. It was
registered with the Bureau of Trade and Industry as a business name in 1957. Upon its expiration, the
registration was renewed on July 1, 1987 for a term of five (5) years ending 1992.
On December 31, 1989, Felipe Bacani retired the business name and BSPA ceased to operate
effective on that day. At that time, respondent Alicia Bacani, daughter of Felipe Bacani, was BSPA's
Executive Directress.
On January 15, 1990 Felipe Bacani died. An intestate proceeding was instituted for the settlement of
his estate before the Regional Trial Court, National Capital Region, Branch 155, Pasig, Metro Manila.
Earlier, on October 26, 1989, respondent Bacani Security and Allied Services Co., Inc. (BASEC, for
brevity) had been organized and registered as a corporation with the Securities and Exchange
Commission. The following were the incorporators with their respective shareholdings:
ALICIA BACANI 25,250 shares
LYDIA BACANI 25,250 shares
AMADO P. ELEDA 25,250 shares
VICTORIA B. AURIGUE 25,250 shares
FELIPE BACANI 20,000 shares
The primary purpose of the corporation was to "engage in the business of providing security" to
persons and entities. This was the same line of business that BSPA was engaged in. Most of the
petitioners, after losing their jobs in BSPA, were employed in BASEC.
On July 5, 1990, some of the petitioners filed a complaint with
the Department of Labor and Employment, National Capital Region, for underpayment of wages and
nonpayment of overtime pay, legal holiday pay, separation pay and/or retirement/resignation
benefits, and for the return of their cash bond which they posted with BSPA. Made respondents were
BSPA and BASEC. Petitioners were subsequently joined by the rest of the petitioners herein who filed
supplementary complaints.
On March 1, 1992, the Labor Arbiter rendered a decision upholding the right of the petitioners. The
dispositive portion of his decision reads:
CONFORMABLY WITH THE FOREGOING, the judgment is hereby rendered finding complainants
entitled to their money claims as herein above computed and to be paid by all the respondents
herein in solidum except BSPA which has already been retired from business.
Respondents are further ordered to pay attorney's fees equivalent to five (5) percent of the awarded
money claims.
All other claims are hereby dismissed for lack of merit.
SO ORDERED.

On appeal the National Labor Relations Commission reversed. In a decision dated March 30, 1993,
the NLRC's First Division declared the Labor Arbiter without jurisdiction and instead suggested that
petitioners file their claims with the Regional Trial Court, Branch 155, Pasig, Metro Manila, where an
intestate proceeding for the settlement of Bacani's estate was pending. Petitioners moved for a
reconsideration but their motion was denied for lack of merit. Hence this petition for review.
No appeal lies to review decisions of the NLRC. Nonetheless the petition in this case was treated as a
special civil action of certiorari to determine whether the NLRC did not commit a grave abuse of its
discretion in reversing the Labor Arbiter's decision.
The issues in this case are two fold: first, whether Bacani Security and Allied Services Co. Inc.
(BASEC) and Alicia Bacani can be held liable for claims of petitioners against Bacani Security and
Protective Agency (BSPA) and,second, if the claims were the personal liability of the late Felipe
Bacani, as owner of BSPA, whether the Labor Arbiter had jurisdiction to decide the claims.
Petitioners contend that public respondent erred in setting aside the Labor Arbiter's judgment on the
ground that BASEC is the same entity as BSPA the latter being owned and controlled by one and the
same family, namely the Bacani family. For this reason they urge that the corporate fiction should be
disregarded and BASEC should be held liable for the obligations of the defunct BSPA.
We find the petition to be without merit.
As correctly found by the NLRC, BASEC is an entity separate and distinct from that of BSPA. BSPA is a
single proprietorship owned and operated by Felipe Bacani. Hence its debts and obligations were the
personal obligations of its owner. Petitioners' claim which are based on these debts and personal
obligations, did not survive the death of Felipe Bacani on January 15, 1990 and should have been
filed instead in the intestate proceedings involving his estate.
Indeed, the rule is settled that unless expressly assumed labor contracts are not enforceable against
the transferee of an enterprise. The reason for this is that labor contracts are in
personam. 2 Consequently, it has been held that claims for backwages earned from the former
employer cannot be filed against the new owners of an enterprise. 3Nor is the new operator of a
business liable for claims for retirement pay of employees. 4
Petitioners claim, however, that BSPA was intentionally retired in order to allow expansion of its
business and even perhaps an increase in its capitalization for credit purpose. According to them, the
Bacani family merely continued the operation of BSPA by creating BASEC in order to avoid the
obligations of the former. Petitioners anchor their claim on the fact that Felipe Bacani, after having
ceased to operate BSPA, became an incorporator of BASEC together with his wife and daughter.
Petitioners urge piercing the veil of corporate entity in order to hold BASEC liable for BSPA's
obligations.
The doctrine of piercing the veil of corporate entity is used whenever a court finds that the corporate
fiction is being used to defeat public convenience, justify wrong, protect fraud, or defend crime, or to
confuse legitimate issues, or that a corporation is the mere alter ego or business conduit of a person
or where the corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation. 5 It is apparent,
therefore, that the doctrine has no application to this case where the purpose is not to hold the
individual stockholders liable for the obligations of the corporation but, on the contrary, to hold the
corporation liable for the obligations of a stockholder or stockholders. Piercing the veil of corporate
entity means looking through the corporate form to the individual stockholders composing it. Here
there is no reason to pierce the veil of corporate entity because there is no question that petitioners'
claims, assuming them to be valid, are the personal liability of the late Felipe Bacani. It is immaterial
that he was also a stockholder of BASEC.
Indeed, the doctrine is stood on its head when what is sought is to make a corporation liable for the
obligations of a stockholder. But there are several reasons why BASEC is not liable for the personal
obligations of Felipe Bacani. For one, BASEC came into existence before BSPA was retired as a
business concern. BASEC was incorporated on October 26, 1989 and its license to operate was
released on May 28, 1990, while BSPA ceased to operate on December 31, 1989. Before, BSPA was
retired, BASEC was already existing. It is, therefore, not true that BASEC is a mere continuity of BSPA.
Second, Felipe Bacani was only one of the five (5) incorporators of BASEC. He owned the least
number of shares in BASEC, which included among its incorporators persons who are not members of
his family. That his wife Lydia and daughter Alicia were also incorporators of the same company is not
sufficient to warrant the conclusion that they hold their shares in his behalf.
Third, there is no evidence to show that the assets of BSPA were transferred to BASEC. If BASEC was
a mere continuation of BSPA, all or at least a substantial part of the latter's assets should have found
their way to BASEC.

Neither can respondent Alicia Bacani be held liable for BSPA's obligations. Although she was
Executive Directress of BSPA, she was merely an employee of the BSPA, which was a single
proprietorship.
Now, the claims of petitioners are actually money claims against the estate of Felipe Bacani. They
must be filed against his estate in accordance with Sec. 5 of Rule 86 which provides in part:
Sec. 5. Claims which must be filed under the notice. If not filed, barred; exceptions. All claims for
money against the decedent, arising from contract, express or implied, whether the same be due,
not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the
decedent, and judgment for money against the decedent, must be filed within the time limited in the
notice; otherwise they are barred forever, except that they may be set forth as counterclaims in any
action that the executor or administrator may bring against the claimants . . .
The rationale for the rule is that upon the death of the defendant, a testate or intestate proceeding
shall be instituted in the proper court wherein all his creditors must appear and file their claims which
shall be paid proportionately out of the property left by the deceased. The objective is to avoid
duplicity of procedure. Hence the ordinary actions must be taken out from the ordinary
courts. 6 Under Art. 110 of the Labor Code, money claims of laborers enjoy preference over claims of
other creditors in case of bankruptcy or liquidation of the employer's business.
WHEREFORE, the petition for certiorari is DISMISSED.
SO ORDERED.

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